Commercial International Bank (CIB) Egypt
Annual Report 2015

Plain-text annual report

YEARS 2015 is a very special year for CIB as it marks the 40th anniversary of the Bank’s founding. The pages of this year’s annual report will walk you through the myriad milestones we have crossed throughout four decades of banking excellence. When moving ahead into the future, it is important to look back at the history, successes, and achievements that have brought us to the place we stand today, to gain a clearer perspective not only on what we have become, but on how we managed to get there. YEARS Thank You Over the years and in every annual report, our senior management team and Board of Directors (BoD) express their gratitude to CIB employees for their commitment, hard work, and innovation. We truly believe that our employees are the backbone of our success as an institution, and we thank each and every member of our team for their continuous dedication. As we commemorate 40 years of banking excellence, we would like to take this opportunity to extend our profound appreciation to the employees who have been a part of our establishment for more than 30 years, those who have not only lived through the Bank’s transformation but have been an active and intrinsic part of it, passing their knowledge down to generations. To them, we say THANK YOU. You have, without a doubt, been part and parcel of CIB’s successes through your determination, tireless efforts, and loyalty. In 2012, CIB held a celebration for more than 160 employees who had spent more than 25 years at the Bank in a celebration titled “25 Years of Excellence.” ABD EL HAMID ALY ABD EL HAMID ABIR AHMED KANDIL ABLA ADEL KHAIRY ABUL NAGA IBRAHIM HANY HELMY ISKANDAR KALDAS HASSAN ABBAS HASSAN HASSAN KHALIL HASSAN MAHMOUD IBRAHIM ADEL ABDEL HAMID MOHAMED MOSTAFA SHAABAN HASSAN SOLIMAN OSMAN SOLIMAN AHMED IBRAHIM SAAFAN ALY SAMY ABOU HUSSEIN AMAL IBRAHIM NOUR EL DIN AMANY YOUSSEF KHOLOUSY AMR ALY SAID AMR MOHAMED EL TAHER MOSTAFA ANWAR SHAHIN AYMAN MOSTAFA MAAMOUN EL REIDY AZIMA EL SAYED GABR DAWOOD SOLIMAN DAHAB DINA ABDEL SALAM EL HAMOULY FAHMY A. FATTAH IBRAHIM GAMAL HASSAN AHMED ABOU NAAMA GEORGE FAWZY BEKHIT GIHAN MOHAMED HUSSEIN EL SAYYAD HALA MOHAMED ABDEL HAMID HALA MOHAMED EL ERAKY IBRAHIM ABD EL MOHSEN IHAB NEGM EL DIN SOLIMAN IMAN EL DAWOODY SHAHBOU IMAN M. ABD RABO IMAN MOKHTAR MAHMOUD ATTEYA IMAN OMAR EL MASRY IMAN SAFWAT EL SHEIKH INAS MOHAMED HOSNY ABBAS KARAM FAHMY RAWASH KHALED ABDEL WAHAB DAOUD KHALED MOHAMED ALY NEGM MAGDA MAKRAM MAGDY ABDEL MONEIM MOHAMED FATTOUH MAHA SAID EL SHAHED MAHMOUD AHMED EL HODEIBY MAHMOUD AHMED IBRAHIM EL KHOULY MAHMOUD HANAFY AHMED MAHMOUD SHEHATA MAHMOUD MAMDOUH REFAAT IBRAHIM ATOUT MANAL ALI ABDEL KADER EL BASSEL MANAL FAYEK FRANCIS MIRANDA MICHAIL INDRAWIS MOHAMED ABD EL AZIZ MOHAMED EL TOUKHY MOHAMED AHMED EZZ EL DIN A.HAMID MOHAMED EL KILANY HAGAG MOHAMED FATHI YOUSSEF MOHAMED HISHAM SOBHY MOHAMED RAGHEB A.BARY SHAMS MONA ABD EL MALEK BEDROUS MONA MOHAMED ABOU YOUSSEF MONA MOHAMED KAMAL ABDEL KHALEK MOSTAFA AHMED METWALY HASSAN NABIL NAYER NASHED NADIA MOSTAFA HOSNY NAWAL ABDEL ALEEM SAYED AHMED NEVIEN IBRAHIM M. EL DESSOUKY NIHAL RADY ABOU EL EZZ OMAIMA MOHAMED SOLIMAN OMAYMA EID RAFIK MOHAMED ABDEL KHALIK MADKOUR RANDA MOHAMED ATEF AHMED AFIFI RAWYA MOHAMED ASAAD EL SOHAGI SAHAR MOHAMED IMAM SAMIA EZZ EL ARAB ABDEL NASSER SHAABAN KADRI AHMED IBRAHIM SHAFIK HUSSEIN M. DAWOUD SHERIF ALY EL ADAWY SHERIF MOHAMED ABDEL WAKIL GABER SHERIF OMAR ISMAIL SHERINE MOHAMED HAMED WAFAA MOHAMED AHMED YEHIA MOSTAFA KAMEL We would like to extend our appreciation and gratitude to the Chairmen, Board Members. and Board Secretaries who served the Bank throughout its history. They have undoubtedly played a fundamental role in shaping the strategy and direction that have led CIB to where it is today. Mr. Ali Dabbous was Chase National Bank’s first Chairman, serving from 1975 to 1982. Mr. Mahmoud Abdallah served from 1983 to 1985. Mr. Ahmed Ismail was CIB’s first Chairman, serving from 1986 until 1988. Mr. Mahmoud Abdel Aziz occupied the position from 1989 to 2002. Mr. Hisham Ezz Al-Arab assumed his role as Chairman mid-2002 and continues to serve the Bank to this day. Ali Dabbous Mohamed Fakhry AlAssy Youssef Allouba Griffen Brant G. H. Newburt Hamed Moustafa El Ghamaz* John K. Sharlton William W. Flanz Abdel Ghani Gameh Roger L. Crevier Dalal El Kashef* Kamal Zaky Abou El Eid Ahmed Soliman Hazzah Peter J. Nice Donald Boudreau Ali N. Chahine Mahmoud H. Abdallah James E. Lewis Trichard H. Buckley Hughlyn F. Fierce Abdel Karim M. Abdel Hamid Dr. Mohamed A. Abdella Ahmed Ismail A. Ismail Mahmoud Mansour Helal Ahmed Wagdy Ibrahim Kazem Hassan Barakat Abd El Salam Abd El Hakam Khalil Mahmoud Abdel Aziz Mohamed Ahmed Kamal Shawky Adel Mostafa El Haddad Sayed Mostafa Kamar Adel Abdel Chafi El Labban Ahmed Mahmoud A. Rouchdy Afaf Ismail Maged Mohamed Samy El Halawany Ahmed Diaa El Din Fahd Rashid El Ibrahimy Samir Ibrahim Fawzy Dr. Abdel Khalek Allam Abbas Samaha Fadel Ibrahim Taman Dr. Rokia Riad* Dr. William Mikhael Fathi Ismail Wali Couns. Mahmoud Fahmy Mohamed Abdel Monem Roushdy Nasser El Kady Mohamed Ashmawy Sahar El Sallab Dr. Nadia Makram Ebeid Hisham Ezz Al-Arab Mohamed Hany Seif El Nasr Timothy Collins Lucio Noto Robert Willumstad Maha S. El Shahed* Essam El Wakil Walid Shash Maysa Abou Bakr* Frank G. Wisner Dr. Medhat Hassanein Paul Fletcher Hisham Ramez Abdel Hafez Jawaid Mirza Dr. Sherif Kamel Yasser Hashem Mark Richards Bijan Khorsowshahi * Secretary to the Board YEARS PIONEERING ACHIEvEMENtS • First joint venture bank in Egypt was Chase National Bank • Becomes first private sector bank to create a dedicated division providing 24/7 banking services to shipping clients, with primary focus on business in the Suez Canal • After 12 years in a joint venture, on 15 June Chase Manhattan divested its stake in the Bank, based on a decision to reduce its minority holdings worldwide. • The Bank’s name was effectively changed to Commercial International Bank (CIB) • First Egyptian commercial • CIB wins Euromoney’s ‘Best Bank bank to arrange debt swap transactions in Egypt’ award for six consecutive years until 1998 • CIB becomes first bank to launch smart card center in Egypt • First bank in Egypt to connect with the international SWIFT network • First Egyptian bank to have a GDR program on London Stock Exchange • CIB becomes first private sector bank with investment rating (after Luxor incident) (‘BBB -‘ by S&P) • First bank to link its database to that of Misr Clearing, Settlement & Deposit Company (MCSD) • First Egyptian bank to form Board of Directors Audit Committee 1975 1977 1983 1987 1989 1991 1993 1994 1996 1997 1998 • Becomes the first Egyptian bank to introduce an Institutional Banking Risk Rating Model • Head office moved to the Nile Tower building in Giza • First Egyptian bank to establish a GTS department • Only bank in Egypt able to retain one of the top two positions in the primary & secondary markets for Treasury Bills & Treasury Bonds • CIB is the first and only local bank in Egypt to begin enforcing Business Continuity Standards • CIB was selected by BSP to become its agent in Egypt • CIB remains the only bank that offers this service to airline passengers • CIB becomes first regional bank to introduce unique concierge & MasterCard emergency services • Bank concludes Egypt’s largest IPO for a domestic bank on 12 September, with oversubscription rate of 150%, selling 1.5 million shares in a span of 10 days and generating EGP 390 mn in proceeds, using no underwriters but relying instead on the bank’s own marketing and placement capabilities for share sales • First Egyptian bank to link to SWIFT via CITA • First Internal Audit department to be • CIB concludes first & largest Euro- syndicated loan (USD 200 mn) • Becomes first private sector bank with investment rating (after Luxor incident) (‘BBB -‘ by Fitch IBCA) independent • One of the first Egyptian banks to establish a custody department • One of the first Egyptian banks that established a brokerage arm (CIBC) • First bank to use Value at Risk (VaR) for trading & banking book for internal risk management requirements, despite there being no regulatory requirements • CIB was the first to adopt a pricing policy according to the client risk rating as a step forward to abide by Basel II requirements • Only bank in Egypt to be • Heya becomes the first awarded JP Morgan Quality Recognition Award starting 2005 up until 2012 credit card on the market to acknowledge women’s financial independence • First two Certified Bank Auditors (CBA) 2010 2009 2008 2007 2006 2005 2004 2001 2000 • CIB Foundation becomes the first in Egypt to have its annual budget institutionalized as part of its founding institution’s by-laws, as CIB shareholders unanimously agreed to dedicate 1% of Bank’s net annual profit to the Foundation • Only Egyptian bank recognized as ‘Best Bank in Egypt’ by four publications: Euromoney, Global Finance, EMEA Finance, & The Banker in the same year • CIB-TCM becomes the pioneer of trading in almost 114 new & unconventional currencies • First Egyptian bank to receive JP Morgan Elite STP Award • First Egyptian bank to upgrade its ADR to be traded on OTCQX platform US • Only Bank in Egypt chosen by UNIFEM & World Bank to participate in the Gender Equity Model (GEM) • CIB was the first bank in Egypt to execute EGP 200 mn R’epo transaction in local market • First & largest Egyptian bank to provide securitization trustee services • CIB launches Osoul, its first money market fund in LCY • First bank in Egypt to launch a page on Bloomberg for local debt securities • First Egyptian bank to register its shares on New York Stock Exchange in the form of American Depository Receipts (ADR) Level 1 program • CIB becomes first bank to introduce FX cash services for five currencies on ATM • CIB breaks the record for the highest number of blood donors in a corporate office in a single-day campaign in Egypt through the Triple Effect initiative inaugurated by the CIB Foundation • First Egyptian bank to sign agreement with Misr for Central Clearing, Depository, and Registry (MCDR) to issue debit cards for investors to collect cash dividends • CIB launches first co-brand credit card, Mileseverywhere, with national carrier EgyptAir • CIB becomes the first bank in Egypt to sponsor the establishment of intensive care units in Sohag through the Foundation, donating EGP 6 mn to outfit the pediatric department at Sohag University Hospital with cutting-edge equipment 2014 2015 • First Egyptian bank to successfully pass external quality assurance on Internal Audit function • CIB launches roadside assistance services for the first time in Egypt • CIB generates highest FX income among private- sector banks in Egypt (in the past 10 years) • CIB becomes the first bank in Egypt to recognize conduct risk & establish a framework for it, despite the lack of regulatory requirements 2011 2012 2013 2013 2014 • CIB becomes the first Egyptian bank to officially establish a Sus- tainable Development Department • First Egyptian bank to sign an agreement with Bolero International LTD joining the Bolero Multi- Bank service for Guarantees • CIB is the first bank in Egypt to establish ERM framework & road map, endorsed & monitored by the BoD • Becomes the first to use RAROC • CIB becomes the first bank in Egypt to introduce an interactive multimedia platform that offers customers the option of interacting with call center agents over video calls • Introduces the first interactive social media platform in the Egyptian banking industry, available 24/7 to handle all customer queries • The first block trading transaction on the EGX takes place when Actis sells its 6.5% stake in CIB to Fairfax Contents CIB: AN INTRODUCTION Our History in Numbers Our History What We Do A Snapshot Of Our Business Outperforming is Our Strategy Key Facts Key Financial Highlights Chairman’s Note Board of Directors’ Report STRATEGIC SUBSIDIARIES CI Capital Holding Egypt Factors Commercial International Life Insurance Company (CIL) CORPLEASE Falcon Group 2015 IN REVIEW Institutional Banking Global Customer Relations Consumer and Business Banking COO Area Finance Group Human Resources Risk Group Compliance Internal Audit SUSTAINABILITY Corporate Governance Executive Management Navigating New Waters 02 04 06 06 06 08 09 10 12 14 72 74 76 78 79 80 24 26 38 40 52 57 58 60 70 71 82 84 90 92 COMMUNITY DEVELOPMENT CIB Foundation Corporate Social Responsibility 96 98 104 FINANCIAL STATEMENTS Separate Financial Statements Consolidated Financial Statements 108 110 162 CIB: AN INtRODuCtION CIB has maintained its leading position in the market by offering clients a broad range of world-class financial services in the Corporate Banking, Consumer and Business Banking, and Investment Banking divisions. Our deep and unparalleled knowledge of the local market coupled with our drive to remain up-to- speed with the latest in global product innovations has driven us to expand our range of services over time, constantly rolling-out new offerings that meet our clients’ changing demands and better serve their needs. On the left, Chase National Bank’s office in the Garden City district of Cairo, where the Bank commenced its operations on 14 September 1975; on the right, CIB’s Building in Smart Village in 2015. 2 ANNUAL REPORT 2015 ANNUAL REPORT 2015 3 CIB: An Introduction YEARS OF BANKING ExCELLENCE our History in numbers Over the years, CIB has grown to become more than just Egypt’s largest private sector bank, but one of the country’s leading financial institutions, thanks to the flexible and buoyant operating model it has adopted to meet the ever-evolving needs of the different types of clients it caters to. 10.2 EGP 2015 bn 22.69% CAGR 3.5 EGP mn 1976 REVENUES NET INCOME AFTER TAX 4.7 EGP bn 2015 22.12% CAGR 1.9 EGP mn 1976 187 2015 2 1976 5,983 236 1976 2015 EMPLOYEES BRANCHES EQUITY BEFORE NET PROFIT 11.8 EGP 2015 bn 24.23% CAGR 2.5 EGP mn 1976 ISSUED AND PAID-IN CAPITAL 11.5 EGP 2015 bn 24.13% CAGR 2.5 EGP mn 1976 179.5 EGP 2015 bn EGP mn 78.9 1976 21.92% CAGR ASSETS 56.8 EGP bn 2015 23.73% CAGR 14.1EGP mn 1976 NET LOANS 1.8 EGP bn 2015 18.56% CAGR 5.6 EGP mn 1981 INCOME TAX 81.7 EGP 2015 bn GROSS SOVEREIGN PORTFOLIO 1.15 EGP bn 1992 20.36% CAGR NET INCOME BEFORE TAX EGP bn6.5 2015 23.11% CAGR 1.9 EGP mn 1976 155.2 EGP 2015 bn EGP mn 58.2 1976 22.42% CAGR DEPOSITS DIVIDENDS PAID 860 EGP 2015 mn 17.77% CAGR 20 EGP mn 1992 43.7 EGP 2015 bn 27.91% CAGR EGP mn1.8 1993 MARkET CAP Figures are calculated on a standalone basis until 2005 Figures are calculated on a consolidated basis starting 2006 4 ANNUAL REPORT 2015 ANNUAL REPORT 2015 5 CIB: An Introduction YEARS OF BANKING ExCELLENCE Cib: An introduCtion Our History Commercial International Bank (CIB) was founded in 1975 as Chase National Bank, a joint venture between Chase Manhat- tan Bank (49%) and the National Bank of Egypt (NBE) (51%), becoming the first joint venture in the country’s history. In 1987, a shift in its international strategy caused Chase to di- vest its ownership stake, which NBE then acquired, adopting the new name Commercial International Bank. Over time, NBE decreased its participation in CIB, eventually dropping to 19% in 2006, when a consortium led by Ripplewood Holdings acquired NBE’s remaining stake. In July 2009, Actis, a Pan-African private equity firm specializing in emerging mar- kets, acquired 50% of the Ripplewood Consortium’s stake. Five months later, in December 2009, Actis became the single larg- est shareholder in CIB with a 9.09% stake after Ripplewood sold its remaining share of 4.7% on the open market. The emergence of Actis as the predominant shareholder marked a successful transition in the Bank’s strategic partnership. In March 2014, Actis undertook a partial realization of its investment in CIB by selling 2.6% of its stake on the open market but maintaining its seat on the board. In May 2014, the private equity firm sold its remaining 6.5% stake to several of Fairfax Financial Holdings’ wholly-owned subsidiaries, mak- ing the latter the sole strategic shareholder in CIB. Fairfax is represented on the board with a non-executive member. What We Do CIB is Egypt’s leading private sector bank, offering a broad range of financial products and services to its clients, in- cluding enterprises, institutions of all sizes, high-net-worth (HNW) individuals, and retail customers. In addition to traditional asset and liability products, CIB of- fers wealth management, securitization, direct investment, and treasury services, all delivered through client-centric teams. The Bank also owns a number of subsidiaries, including CI Capital (which offers asset management, investment bank- ing, brokerage and research services, and recently financial leasing after it acquired CIB’s stake in CORPLEASE in De- cember 2015), Falcon Group, and Egypt Factors. At CIB, we strive to provide our clients with superior fi- nancial solutions that satisfy all of their financial needs. This allows us to maintain our leading position in the market, offer an engaging work environment for our staff, and generate outstanding value for shareholders. A Snapshot of Our Business Corporate Banking Widely recognized as the preeminent corporate bank in Egypt, CIB aspires to become one of the region’s top banks, serving industry-leading corporate clients as well as medi- um-sized businesses. Debt Capital Markets CIB’s global product knowledge, local expertise, and capital resources make the Bank an industry leader in project finance, syndicated loans, and structured finance in Egypt. CIB’s project finance and syndicated loans teams facilitate market access for large borrowers, providing them with world-class services at execution times that far exceed the market average. Global Transactional Services Global transactional Services (GtS) is a key group within CIB, overseeing cash management, trade finance, and global securities services. Treasury and Capital Markets Services CIB delivers world-class services in the areas of cash and liquidity management, capital markets, foreign exchange, and derivatives. Direct Investment As a local player that adheres to widely-acclaimed interna- tional standards, CIB actively participates in select direct investment opportunities in Egypt and across the region. Consumer Banking The Consumer Banking division continues to assert itself as a growing and developing business segment within the insti- tution, dedicating exceptional efforts to improve customer satisfaction levels, by ensuring the delivery of a consistently positive customer experience every time. We offer a wide ar- ray of consumer banking products that include: • Personal Loans: These focus primarily on the em- ployees of our corporate banking clients, offering them secured overdrafts and trade products. • Auto-Loans: The division is well-positioned to ac- tively support this growing market in the coming years within a very competitive, dealer-driven environment. 6 ANNUAL REPORT 2015 • Deposit Accounts: We offer a wide range of ac- counts that serve all of our clients’ deposits and savings needs. these include tailored accounts for minors, youth, and senior citizens, as well as certifi- cates of deposit and care accounts. this is in addi- tion to our standard range of current, savings, and time-deposit accounts. • Residential Property Finance: Provides loans to finance home purchases, residential construction, refurbishment, and finishing. • Credit and Debit Cards: We offer a broad range of credit, debit, and prepaid cards. • Wealth Management: CIB offers a wide array of in- vestment products and services to the largest number of affluent clients in Egypt. • CIB Plus: Launched in June 2014, CIB Plus caters to the needs of medium-net-worth individuals, helping them pave their way through to becoming Wealth Segment clients, using simplified products, fast-track services, and personalized service offerings through our net- work of Plus Bankers. • Insurance: CIB’s insurance business provides life and general insurance programs that generate non- interest revenues in the form of fees for the Consumer Banking division. Business Banking The Business Banking segment is responsible for SMEs in CIB’s portfolio, managing over 6,000 retail companies and offering them various products and services that best suit their needs and interests. Investment Banking Services Through CI Capital, CIB offers existing and prospective clients a full suite of investment banking products and ser- vices, including investment banking, advisory and execu- tion, asset management, brokerage, and equity research. CI Capital offers both deep and broad market knowledge and expertise, and the firm is consistently ranked among the region’s leading brokerage houses that serve local and international clients in Egypt. #1 Bank in terms of: PROFITABILITY, achieving EGP 4.7 billion in net income REVENUE, with EGP 10.2 billion in total revenues, higher than any other Egyptian private-sector bank NET WORTH among all Egyptian private-sector banks, standing at EGP 16.5 billion MARKET CAPITALIZATION in the Egyptian banking sector at EGP 43.7 billion DEPOSITS MARKET SHARE among all Egyptian private-sector banks with an 8.40% share* *As of October 2015 (latest figures available). ANNUAL REPORT 2015 7 CIB: An Introduction YEARS OF BANKING ExCELLENCE outperforming is our strAtegy An Outstanding Track Record Return on Average Equity (RoAE)* Return on Average Assets (RoAA)* * Both after profit appropriation on a standalone basis Through the innumerable changes that both Egypt and CIB have lived through in the last 40 years, we have remained committed to a strategy that always prioritizes our clients. In implementing that strategy, CIB has focused on delivering sustainable profitability and creating value for clients, share- holders, and the community at large. Our simple and rewarding strategy revolves around outperforming in all aspects of our business. In that quest for excellence, CIB handpicks its staff members, continu- ously upgrading and enhancing their skillset through com- prehensive training programs, as we believe they are an important component of our success formula. Because we offer our employees a host of career prospects and develop- ment opportunities, we attract and retain some of Egypt’s strongest banking professionals. This in turn translates into CIB’s remarkable ability to expand the scope of our high-quality products and unrivalled banking services to better suit the constantly evolving needs of our client base. Building a strong brand image that reinforces CIB’s standing as A Bank to Trust has never been a one-man job, as this responsibility extends to each and every one of our employees. 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, responsible, and sustainable growth. Our Mission to create outstanding stakeholder value by providing best-in-class financial solutions to the individuals and enterprises that drive Egypt’s economy. Through our in- novative product offerings, superior customer service, staff development strategies, and commitment to sustainability, we will realize our ambitions and help shape the future of banking in Egypt for years to come. Our Objective to grow and help others grow. Our Values A number of core values outline the way in which CIB employees work together to deliver effective results for our customers and community. Integrity • Exemplify the highest standards of personal and pro- fessional ethics in all aspects of our business • Be honest and open at all times • Stand up for one’s convictions and accept responsibility for one’s own mistakes • Comply fully with the laws, rules, and practices that govern CIB’s business in Egypt and abroad • Say what we do and do what we say Client Focus • Our clients are at the heart of our activities and their satisfaction is our ultimate objective • Our success is dependent upon our ability to provide prod- ucts and services that help our clients achieve their goals • We partner with our clients and work together as a single team with success as our primary objective Innovation • CIB has been a pioneer of the financial services indus- try since its inception as the first joint venture bank in Egypt 40 years ago, and we believe innovation is a core competitive advantage and promote it accordingly • We aim to lead Egypt’s financial services industry to the future, with innovation being a key factor in serv- ing the millions of Egyptians who remain unbanked or underserved Hard Work • Our work is governed by discipline and perseverance in order to achieve outstanding results for both our clients and stakeholders • Our commitment to our clients is guided by our drive for excellence • We work with our clients to accomplish their present goals and anticipate and plan future goals and objectives Teamwork • We collaborate, listen, and share information openly within the CIB family to enhance every staff member’s knowledge base and skillset • Each member of our staff is an ambassador of CIB’s corporate brand and image • We value and respect each other’s cultural backgrounds and unique perspectives Respect to the Individual • We respect all individuals, whether employees, clients, shareholders, or community members • We treat each other with dignity and respect and take the time to respond well to questions and concerns Key Facts Our 5,983 employees serve some 710,195 active customers EGP 180 billion in total assets 17,342 internet banking subscribers More than 7 million website visits Over 500 of Egypt’s largest corpora- tions bank with CIB The installation of LED lighting at 38 branches in Cairo, along with the Giza Head Office and two build- ings in Smart village has reduced energy consumption by 31% The installation of water restrictors bank-wide has reduced water consumption by 30% Decreased paper consumption by 26% Planting rooftop gardens and green walls that decrease CO2 emissions • We firmly believe each individual should have the space to make suggestions and offer constructive criticism • CIB is a meritocracy, where all employees are privy to equal development opportunities based only on merit and accomplishments Decorum • CIB places employee–client and business etiquette in the highest regard and maintains strict policies for governing decorum • The observance of good behavior, speech, actions, and dress code is part and parcel of our culture at CIB 8 ANNUAL REPORT 2015 ANNUAL REPORT 2015 9 CIB: An Introduction YEARS OF BANKING ExCELLENCE Key finAnCiAl HigHligHts FY 15 Consolidated FY 14 Consolidated FY 13 Consolidated FY 12 Consolidated FY 11 Consolidated FY 15 FY 14 FY 13 FY 12 FY 11 FY 10 FY 09 FY 08 FY 07 FY 06 FY 05 CIB premises in the early 1990s, with the iconic green wall-to-wall carpets and Chase Manhattan Bank’s orange telephone. 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 mil- lions) 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*** Impairment charge for credit losses 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 Balance Sheet and Off Balance Sheet Information (EGP millions) Off Balance Cash Resources and Securities (Non. Governmental) Net Loans and Acceptances Assets Due to Customers Common Shareholders Equity Average Assets Average Interest Earning Assets Average Common Shareholders Equity Balance Sheet Quality Measures 3.55 1.20 3.58 3.00 2.77 1.00 1.00 0.75 14.39 16.31 13.46 18.94 15.03 14.59 23.75 19.25 20.93 15.59 19.44 3.64 1.00 2.67 1.00 2.42 1.25 2.43 1.00 2.63 1.50 4.89 1.00 3.73 1.00 51.3 32.6 49.2 47.4 28.9 38.1 1,147 908.2 900.2 597.2 593.5 590.1 292.5 292.5 59.7 63.5 95 29.5 27.87 53.61 42.11 39.91 37.2 91.77 57.87 58.68 130 47.4 79.49 18.5 33.75 18.7 45.4 27.4 32.6 39.8 21.1 34.6 47.4 54.68 93.4 195 195 79 43,692 44,673 29,330 20,646 11,098 27,973 15,994 10,881 17,895 11,285 7,628 10.6 13.9 12.2 14.3 7.7 15.8 20.8 7.6 24.6 15.9 21.2 1.97% 2.44% 3.07% 3.62% 5.35% 2.11% 2.74% 2.69% 1.09% 1.73% 1.70% 18.54% 29.9% 34.4% 33.9% 33.9% 27.6% 24.6% 18.1% 15.8% 27.5% 21.3% 3.02 3.25 3.71 3.02 1.93 2.65 2.42 1.83 1.24 2.30 4.38 10,222 7,741 6,700 5,344 3,934 10,194 7,717 6,206 5,108 3,837 3,727 3,173 3,200 2,288 1,741 1,450 1,682 2,057 4,729 589 1,705 3,741 916 1,608 3,006 610 1,653 2,226 321 1,682 589 916 610 321 6 9 395 250 193 364 1,557 2,057 1,705 1,450 1,445 1,337 1,188 1,041 950 636 1,615 4,641 3,648 2,615 2,203 1,749 2,141 1,784 1,615 1,233 668 802 474 610 20.40% 22.84% 23.54% 30.64% 40.04% 20.45% 22.91% 22.89% 28.01% 35.26% 33.11% 32.31% 29.89% 27.12% 37.96% 29.29% 33.43% 31.31% 29.45% 25.49% 20.86% 32.76% 30.25% 24.77% 24.18% 22.23% 30.46% 31.18% 34.98% 34.62% 28.81% 26.24% 2.95% 6,332 2.94% 5,697 2.93% 5,490 2.51% 5,181 2.03% 2.90% 2.87% 2.54% 2.47% 2.20% 3.11% 2.97% 3.10% 2.90% 2.37% 2.09% 4,867 5,983 5,403 5,193 4,867 4,517 4,360 4,162 3,809 3,132 2,477 2,301 5.59% 5.41% 5.36% 4.74% 3.71% 3.62% 3.81% 3.54% 3.12% 3.06% 3.50% 34,808 19,328 16,413 56,836 179,500 155,234 16,535 161,657 146,033 48,804 143,813 121,975 14,754 128,783 117,031 41,866 113,752 96,846 11,960 103,854 94,749 16,140 41,877 93,957 78,729 10,765 89,731 80,063 18,990 34,097 19,430 16,646 16,764 19,821 16,854 16,125 14,473 21,573 13,061 10,537 41,065 57,211 49,398 41,970 41,877 41,065 35,175 27,443 26,330 20,479 17,465 14,039 85,506 179,193 143,647 113,752 94,405 85,628 75,093 64,063 57,128 47,664 37,422 30,390 71,468 155,370 122,245 96,940 78,835 71,574 63,480 54,843 48,938 39,515 31,600 24,870 8,712 16,512 14,816 12,115 11,311 2,527 80,480 161,420 128,700 104,079 90,017 80,361 69,578 60,595 52,396 42,543 33,906 29,183 70,913 145,835 117,133 94,605 79,834 70,549 61,624 53,431 44,602 36,603 29,277 25,619 3,040 8,609 8,921 6,946 5,631 4,081 15,645 13,357 11,362 9,738 8,640 15,664 13,465 11,713 10,116 8,765 7,777 6,288 4,856 3,560 2,784 2,325 Equity to Risk-Weighted Assets*** 15.73% 15.77% 15.28% 14.88% 14.11% 15.70% 15.84% 15.50% 15.69% 14.49% 15.85% 15.34% 13.93% 13.60% 11.69% 11.49% Risk-Weighted Assets (EGP billions) 96 84 70 65 55 96 84 70 65 55 49 41 37 30 26 22 Tier 1 Capital Ratio***** Adjusted Capital Adequacy Ratio***** 15.18% 15.70% 15.23% 14.33% 12.53% 15.18% 15.70% 15.23% 14.33% 12.53% 15.66% 15.28% 13.74% 10.17% 9.59% 9.78% 16.23% 16.77% 16.32% 15.71% 15.40% 16.23% 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 *** 2015 and 2014 excluded CI capital profit (discontinued operations) **** Total Equity after profit appropriation ***** 2014, 2013 and 2012 as per Basel II regulations after profit appropriation 10 ANNUAL REPORT 2015 ANNUAL REPORT 2015 11 CIB: An Introduction YEARS OF BANKING ExCELLENCE CHAirmAn’s note It would be shortsighted to merely look forward to the start of a “new year” as we close the books on 2015. Like our peers in the industry, we go into 2016 with questions and plans: Ques- tions regarding the outlook for Egypt’s monetary and foreign exchange policy and plans to capture the opportunities the new year will surely bring. But to merely focus on our knitting and prepare for 2016 is the worst service we could do to our shareholders: Whether we real- ize it or not, waves of change and transformation — or “disrup- tion,” to borrow the term now so popular globally — are coming for our industry here in Egypt. Looking back on the past decade, industry after industry has begun the new year with limited planning horizons, believing their business secure and their regulatory framework clear, only to find themselves lagging behind more nimble players that combined creativity, audacity, and technology. The software industry was content selling shrink-wrapped diskettes at retail points of presence. today, a new breed of companies is selling software as a service, downloaded from the cloud. Media sold their product on dead trees and pressed plastic — today, it is painfully searching for a new, sustainable business model. Coal was king until oil came along. Now oil is teetering and renewable energy — once the plaything of wealthy nations and wealthier people — is on the rise. In the wake of the COP 21 accord in Paris and the plunging cost of renewable tech, renewable energy isn’t just the future, it could be among the salvations of what we know as civilization today. We are on the cusp of a similar transformation in the bank- ing industry. It is, to borrow from John Foster Dulles, time for nothing less than an “agonizing reappraisal” of what the future of banking looks like. Having consolidated from more than 60 institutions to 40 today, the question for us here in Egypt is not whether we will see further consolidation, nor should we dwell whether new — traditional — entrants are licensed. Instead, we must accept that while the regulators and established forces of any industry can defend it for a time, change will take place, and the fences will come down. The rise of digital-only financial institutions and shadow bank- ing in the North America, Europe, and Asia point the way, as does the popularity of mobile money in East Africa and elsewhere on our continent. Already, we see seeds of change sprouting in Egypt: Real estate developers are serving as substitutes for mortgage finance. The Egyptian Financial Supervisory Authority is actively leading change that has seen the emergence of striking new com- petition in the lease financing and non-banking financial services sector. EFSA has also broken new ground by allowing consumers to subscribe to some insurance products digitally. With external competition growing, we as an industry must accept that this change cannot be ring-fenced. The banking industry a decade from now will bear little resemblance to its current form. Financial services will be evermore crucial, but they will not be delivered solely through brick and mortar points of presence. Clients will not merely be checking balances online; they will have access to the full bank experience, with all prod- ucts and services delivered digitally. Indeed, the “technology of tomorrow” about which we’re now speaking as an industry is already out of date — developers are working on innovations with commercial implications that we cannot imagine. Moreover, our competitors will increasingly be global: We do not want to wake up and find we have been dis- rupted by global players selling into our market and find we have a financial services sector, but no banking industry. Across all borders, the industry must do two things: It must embrace technology, and it must become truly, fundamentally customer-centric. As an industry, we are living now through the last days in which customers may be treated as a captive audience that should feel grateful to choose from our set menu. The reality is simple: What was science fiction a decade ago is fact today. Against this backdrop, CIB is innovating. As we do so, we are calling on the institutional depth that has allowed us over the past 40 years to remain the nation’s leading private-sector bank. We will measure going forward not just our cost-to-income ratio, but our investment in technology and innovation. Data analytics will drive decision-making not just at the institutional level, but in real time at the level of each and every transaction into which we enter, from micropayments to the largest of syndicates facilities. With this in mind, we have engaged our first Chief Data Officer. Recognizing that change will be driven in part by actors outside our system, we are opening a venture capital lab that will ensure we have access to the latest technologies and to the best thinkers on the trends that will help redefine our industry. Financial services will be evermore crucial, but they will not be delivered solely through brick and mortar points of presence. responsibility in a single department reporting directly to senior management to expedite the process of innovation. technology is an aid to decision-making. It is an originator of new products we have not yet conceived. And it is a delivery channel for CIB of no less importance than our branch and credit officers. As we do this, we are mindful that we have, in many ways, “been here before.” The coming three to five years will be 2003-05 writ large. At that time, all banks were fundamen- tally focused on corporations, but we saw a remarkable opportunity to begin growing our consumer offering — and invested accordingly. The market players who looked askance at our investment at the time awoke later to find that we had a substantial first-mover advantage in retail banking, one that many are still fighting to narrow. I am delighted with our institution’s performance in the 12 months to 31 December 2015, and the report of our Board of Directors on pages 14-23 will recap that for you. As we set forth on this journey of transformation, we will cheer every milestone year-after-year in our annual report, just as we have for the past 40 years. But we will not dwell on recent accomplishments when the future stakes are so much greater. In parallel, we are breaking responsibility for digital product offerings out of individual silos across the bank and centralizing Hisham Ezz Al-Arab Chairman and Managing Director 12 ANNUAL REPORT 2015 ANNUAL REPORT 2015 13 CIB: An Introduction YEARS OF BANKING ExCELLENCE boArd of direCtors’ report For Year-ended 31 December, 2015 Inauguration of Chase National Bank’s head office in the Nile Tower building in 1983. From the right, NBE Chairman Mr. Abdelmoneim Rouchdy, Chase National Bank’s General Administration Manager Mr. Fathy Sherif, Economy Minister Mr. Moustafa Al Saied, Chase Manhattan Bank Chairman Mr. David Rockefeller, Chase National Bank Chairman Mr. Ali Dabbous, CBE Deputy Governor Mr. Ali Negm, and CBE Governor Mr. Mohamed Shalaby. Foreword Several important events made us proud in 2015 as we marked 40 years of success since our establishment as the first joint-venture bank in Egypt under the open-door policy inaugurated in 1975. Since Chase Manhattan Bank divested its stake in 1987, we have been the home-grown leader of the private-sector banking industry. today, our 40-year institutional banking memory is one of the crown jewels of the nation’s economy. We are honored to have been stewards of this institution in 2015 as we added to a four-decade-long track record as an engine of national and private-sector growth. Our review of these activities is below in our Board of Directors’ report for the year-ending 31 December 2015. Macroeconomic Overview: 2015 The last few years in Egypt have been challenging on the eco- nomic and political fronts, to say the least. In this respect, we welcomed the election in 2015 of a parliament as the final step in the transitional agenda. On the economic front, Egypt attracted global attention twice in 2015; first with the successful Egyptian Economic Develop- ment Conference (EEDC) in March, which took place in the city of Sharm El Sheikh. The Egyptian government used the confer- ence, which was attended by world leaders, representatives of regional and multinational conglomerates, and numerous local and international investors, as an opportunity to renew investor confidence in the Egyptian market. The government announced a bundle of crucial economic reforms, including the new investment law, which delivered new regulations and tools governing dispute resolution between parties in contracts in accordance with international best practices. The conference, moreover, saw the announcement of numerous significant investment opportunities across all major sectors and industries. More than 60% of the Memo- randums of understanding (Mou) signed during the confer- ence have already progressed into 19 contracts worth a total of uSD 58.8 billion. Petrochemicals and energy and power led the way with four contracts each totaling uSD 21 billion and uSD 9.5 billion, respectively. With the inauguration of the New Suez Canal in August, Egypt won global attention once more as it concluded a megaproject in under one year. Notably, the project was fully funded by do- mestic resources in a record eight days. The New Suez Canal underscored Egypt’s vision and determination to build a bet- ter future and aimed to strengthen the country’s positioning on the global trade map. The rewards of the new Suez Canal will not be exclusive to Egypt with respect to revenue growth and the flow of foreign currency, but will extend to the whole world through the Canal’s contributions to global maritime trade; truly it is Egypt’s gift to the world. The government of Egypt also worked throughout 2015 to restore the country’s competitive advantage and ability to attract investment. The strategy seeks to expand the participa- tion of the private sector in vital sectors, especially traditional and renewable energy. The government is expected to follow a similar trajectory with healthcare and education over the com- ing years, thus limiting the role of the state to that of regulator. In line with that strategy, Egypt slashed the corporate tax rate to 22.5% from 30% and expanded its jurisdiction to include eco- nomic zones that had formerly been subject to only 10%. State policy is to strike a balance between attractiveness to investors, on the one hand, and ensuring the government has adequate re- sources on the other. The government’s ongoing encouragement of financial inclusion should also be viewed in that light. From a start in 2014, Egypt continued to gradually reduce its energy subsidy bill through a comprehensive restructur- ing of the subsidy system. The move reaffirms the country’s commitment to restoring economic stability and simultane- ously ensuring there is social justice by targeting the subsi- dies to those who most need them. Although economic challenges still exist, GDP grew 4.2% in FY2014/15 compared to 2.2% in FY2013/14. The deficit in the state budget — a matter of great concern for the government — declined to 11.5% of GDP in FY2014/15 from 12.2% in FY2013/14. In June, Egypt signaled its accessibility to global financial markets by issuing uSD 1.5 billion in 10-year bonds, the first issuance of its kind since 2010. The issuance was well received and was 3x oversubscribed. Foreign direct investment improved over the course of the year, growing 55% over FY2013/14 to uSD 6.4 billion at the end of FY2014/15 compared to the uSD 4.1 billion it recorded a year before. Meanwhile, foreign currency reserves slightly improved year-on-year to record uSD 16.42 billion by end- November 2015 compared to uSD 15.88 billion in November 2014, which is still an alarming level. Last year saw fluctuation in the value of the Egyptian Pound against the uS Dollar, which opened 2015 trading at EGP 7.14. The Egyptian Pound then fell to EGP 7.93 to the dollar in Octo- ber in a devaluation aimed at boosting exports and attracting further investment. In the wake of a change of management, the Central Bank of Egypt (CBE) surprised the market a month later by appreciating the EGP to 7.73 for a YoY percentage change of -8.26%. The CBE moreover tightened import regulations and gave priority to imports of essential goods, only in a bid by the CBE to support local manufacturing and better preserve for- eign currency reserves that began retreating in June 2015. In an attempt to help banks meet ever-increasing demand for foreign currency, the CBE injected around uSD 1 bil- lion into the Inter-Bank market to cover a portion (25%) of the outstanding refinancing loan balances that had been previously booked to clients, which helped banks ease the pressure. The CBE stated in December that it had repaid foreign investors a total of uSD 546 million in stocks and securities, clearing all pending backlogs that had built up amid the shortage of uSD. The CBE added in its statement that its repatriation mechanism was still active and that it would provide currency to foreigners investing in govern- ment securities and stocks. In a nod to the stock market’s importance to the economy, the government decided in 2015 to stay the implementation of a 10% tax on capital gains for two years. The decision was very much welcomed by the investment community. tourism, which was a major revenue driver for Egypt pre- 2011, remains a key concern. The sector had been showing real signs of recovery in 2014 and well into 2015, but has slowed down towards the end of the year with the number of tourists arriving to Egypt declining significantly by 37% in November compared to the same month of 2014. The Stock Market in 2015 Major challenges faced by the global economy, topped by a sharp drop in world oil prices, negatively impacted the per- formance of various global indices, Egypt’s among them. The benchmark EGX30 declined 22% YoY in 2015. 14 ANNUAL REPORT 2015 ANNUAL REPORT 2015 15 CIB: An Introduction YEARS OF BANKING ExCELLENCE A Review of the Banking Sector in 2015 One of CBE’s main areas of focus in the last few years, specifi- cally in 2015, was further raising banking awareness. Financial inclusion topped the Central Bank’s list of priorities as it started paying government employees using electronic cards, a stepping-stone in the journey towards a cashless society. Addi- tionally, the bank launched an initiative that seeks to introduce mortgages to the market, especially to lower-income segments, and partnered with other stakeholders to address the gaps in the field of microfinance. Moreover, growing interest in the Egyptian market was met with increased foreign ownership of banks, resulting in new business and investment opportunities. These banking reforms rendered the sector’s survival unscathed during the global financial crisis and allowed it to weather the storm that came in the wake of the Arab Spring. Deposits have been growing steadily over the years thanks to rising awareness of the importance of banks; loans have similarly been increasing. System-wide loans and deposits grew by 22% and 21%, respectively, over FY2014/15, and banks still enjoy comfortable levels of liquidity, as made evident by the banking system’s 41% loans-to-deposit ratio. The banking sector recorded low credit losses, with the ratio of non-per- forming-loans to total loans standing at a record-low of 7.6% in June 2015, down from 9.1% a year before. Macroeconomic Outlook: 2016 Despite the ongoing political and economic tensions in our region, our country still has growth and investment opportu- nities to offer and we are confident that the route of ongoing economic reforms will facilitate seizing these opportunities. That comes in accordance with the government’s continuous efforts to initiate megaprojects in different industries, includ- ing one that is currently turning the Suez Canal axis into a full-fledged economic zone and a hub for global trade. This project would be accompanied by sizeable investments in infrastructure projects in the Canal area, creating new eco- nomic opportunities and helping curb unemployment. Another forward-looking project aims to increase agricultur- al production through the reclamation of 1.5 million feddans in the western desert and secure the creation of job opportunities within agriculture and it supporting sectors. In the medium-term, Egypt’s persistent energy crisis is ex- pected to come to an end with the discovery of the Zohr natural gas field, which is believed to be the largest-ever discovered in the Mediterranean area. Once it comes on stream, the field is expected to make Egypt self-sufficient for decades, allowing it to meet its increasing domestic demand. The government aims to reinforce Egypt’s image as a global digital hub by capitalizing on its unique geographic location and ever-expanding wealth of young human capital. Efforts are being made to encourage the private sector to enhance the Information and Communication technology (ICt) seg- ment. Moreover, the government is working on expanding infrastructure projects and taking structural measures to develop the regulatory and institutional frameworks that would accelerate the private sector’s contribution to the development of the ICt sector and consequently increase its contribution to GDP. Focus on Commercial Banking Activities Throughout its 40-year history, CIB has always had a vision of becoming Egypt’s largest financial institution by providing a suite of full banking and non-banking services to clients of varying needs. That vision has shaped every step and decision we have taken. Our growth strategy is to achieve sustainable and profit- able growth based on customer centricity, operational ef- ficiency, and organizational development. Our main objective is the healthy management of our portfolio while maintaining sound capital, profitability, and asset quality. In that respect, CIB’s Board has decided to gear all the Bank’s efforts towards commercial banking activities, as the potential growth opportunities that exist in the Egyptian banking sector require CIB’s full attention if we are to not only maintain but enhance our leading position. to deliver on this strategy, the Bank has started to gradually off-load its non-core investments. Acquisition of Citibank’s retail portfolio In accordance with the Bank’s strategy of expanding its commercial activities, CIB found such an opportunity in the consumer-banking sector when Citibank announced earlier this year that it would be selling its Egyptian retail portfolio. In November, the Bank acquired around uSD 135 million in assets, uSD 190 million in deposits, 100,000 customer accounts, 822 full-time consumer banking and contract employees, eight branches, and Citibank’s AtM network of 21 machines. This transaction added around 72,000 credit card accounts to CIB’s existing base of 270,000, catapulting the Bank among Egypt’s market leaders in the credit card business. Sale of CIL In line with the Bank’s strategy of divesting non-core holdings, CIB has sold its 45% stake in Commercial International Life Insurance Company (CIL) to AXA, a leading global insurance player that also bought the uK’s Legal and General 55% stake in CIL. The transaction was concluded in November. Stemming from our unwavering commitment to our clients, and in order to continue offering insurance products with excellent value-for-money, CIB signed a 10-year partnership agreement with AXA that grants the Bank exclusive distribu- tion rights for AXA in Egypt. CI Capital Holding acquires CIB’s stake in CORPLEASE Also as an outgrowth of this strategy, the Bank has sold its stake in CORPLEASE to CI Capital in December, thus adding finan- cial leasing activities to the company’s product menu. Potential Sale of CI Capital Holding In the same context, CIB received in December 2015 a non- binding offer from Orascom telecom Media and technology Holding (OtMt) to potentially acquire CI Capital Holding. The BoD agreed to begin a due diligence process that was finalized in February 2016. Following that, CIB received and accepted a binding offer from OtMt that amounted to EGP 924 mil- lion. Both parties will proceed with the necessary processes to complete the transaction once they come to an agreement regarding final terms and conditions. 2015 Financial position and highlights CIB reported another exceptional set of results on its 40th an- niversary, with an increase of 26.39% YoY in consolidated net income, which came in at EGP 4.73 billion for the full year 2015. Standalone net income reached EGP 4.64 billion, 27.23% over 2014. Standalone revenues grew by 32.10% over the previous year to reach EGP 10.19 billion. The Bank recorded net interest income of EGP 8.12 billion, an increase of 29.31% YoY. Non-interest income recorded its highest annual growth rate in five years, standing at EGP 2.11 billion for the full year. Net fees and commission income showed an increase of 10% YoY at EGP 1.63 billion. All financial indicators emphasized the Bank’s strong financial performance in 2015. CIB maintained its efficiency in 2015, with cost-to-income ratio declining to 20.40% com- pared to 22.84% in 2014, which was the lowest-cost-to- income ratio recorded in the last ten years. The Bank contin- ued on its upward trend in RoAE, which recorded 33.43% on a consolidated basis (post-appropriation), up from 31.31% in 2014. Consolidated RoAA grew from 2.94% in 2014 to reach 2.95% in 2015. Net interest margin continued its growth to end the year at 5.59%, increasing by 18bps. The Bank’s loan portfolio stood at EGP 62.6 billion at year’s end, growing by 18% YoY, which represented an increase in the loan portfolio of EGP 9.45 billion during 2015. This increase comes in accordance with the Bank’s strategic objectives in maintaining asset quality and enhancing profitability. The Bank’s market share of total loans amounted to 8.05% in October 2015. CIB aggressively pursued deposit growth in 2015, adding EGP 33.3 billion to its base, which grew to EGP 155.2 billion, an increase of 27% over 2014. The Bank had the highest growth rate in deposits among its peers. CIB’s share of the deposits market had grown 56bp during 2015 to reach 8.40% in October 2015. The Bank ended the year with a buoyant balance sheet and capital base, which is reflected in its comfortable capital ade- quacy level of 12.72%1 , exceeding CBE stipulated liquidity ratios and enhancing the bank’s ability to face uncertain economic circumstances, should any unfold. CIB continued achieving strong growth in Net Interest Income, fees and commissions, and the balance sheet. Rela- tive to its peer group, CIB had the highest deposit growth YoY and maintained the lowest cost-to-income ratio. Overall, CIB’s strong financial performance in 2015 exceeded P&L targets. Best-in-Sector Asset Quality through Effective Risk Management The Bank’s management succeeded in preserving asset quality despite the challenges faced by both the Egyptian and interna- tional economies, which affected different economic sectors. 1CAR based on Basel II as modified by CBE before profit appropriation This was achievable due to the conservative risk management approach the Bank follows and the clear vision management has in assessing diverse risk types that may arise in different sec- tors, as well as the necessary precautions that minimizes those risks through a focus on strengthening financial performance and the balance sheet. The NPL-to-gross-loans ratio declined to record 3.98% in 2015 from 4.71% the year before. Given international turmoil and its impact on a number of domestic economic sectors (tourism in particular), CIB’s management took loan loss provisions amounting to EGP 1.68 billion for the full year to better defend the Bank’s loan portfolio. Deposit Growth CIB’s loan-to-deposit ratio declined to a record 40.31% for 2015 versus 43.55% a year earlier due to the Bank’s success in gathering more deposits. The Bank attracted 11% of all new deposits in the sector as of October, where excess liquidity was utilized in sovereign paper. Most of this growth came in the form of local currency demand deposits with a low cost funding source and through soliciting payroll accounts for our corporate clients. This segment has grown by 32.56% YoY and constituted c.44.% of total deposits. Upward Trajectory in Equity Returns The Bank was not only able to maintain high returns on equity over the past several years, but also sustain an upward trend. This was once again made evident by the RoAE ratio, which reached 33.43% up from 31.31% (after appropriation and based on the suggested profit appropriation schedule). Expenses Rationalization and Efficiency Ratio Personnel and administrative expenses increased by 21% in 2015, as we continued investing in the long-term growth and sustainability of the Bank. However, we will continue to be watchful of our expenses, keeping cost-income around the 30% benchmark set by the BoD. Appropriation of Income The Board of Directors proposed increasing its legal reserve by EGP 232.0 million to EGP 1,035.3 million, and its general reserve by EGP 2,944 million to EGP 4,462 million. The Board also pro- posed distributing a dividend of EGP 0.75 per share in 2015. This proposal aims to reinforce the Bank’s solid financial position, which remains strong with a capital adequacy ratio of 12.72% and an adjusted CAR of 16.23% (including profits attributable to shareholders). The above suggestions come in light of international regulations for bank capital requirements that are becoming more stringent. The CBE is, simultaneously, becoming more responsive to Basel Committee recommendations, making it crucial to keep a close eye on the Bank’s capital adequacy for the coming three years. The outlook for interest and exchange rates may also have an impact on capital needs. Hence, the prudent decision to start building a capital cushion would en- able CIB to meet these expected requirements and avoid any potential additional capital needs that may arise in the com- 16 ANNUAL REPORT 2015 ANNUAL REPORT 2015 17 CIB: An Introduction YEARS OF BANKING ExCELLENCE ing years. For this reason, CIB’s Board proposed to distribute EGP 0.75 dividend per share this year in order to maintain a sustainable stream of dividends in the future. 2015 Activities Building on our legacy as Egypt’s leading private-sector bank, CIB continued with its mandate to excel and further cement its foothold in the country. The past year witnessed many successes across the full range of our businesses, highlighted below: Institutional Banking The IB Group grew from strength to strength this year, reinforc- ing CIB’s image as the bank of choice. The Group’s one-of-a-kind experience was positively reflected in the confidence of both the private and public sectors, which drove the IB Group’s year-on-year performance by 16% despite the challenges facing the Egyptian economy. The IB Group con- tinued to be the highest contributor to the Bank’s bottom line, contributing c. 69% of CIB’s profits, as it recorded EGP 4.42 billion in net income before tax in 2015 with higher foreign exchange gains and a robust performance on trade services fees. These strong results reiterate the strength of the Group in weathering all challenges thanks to its successful and conservative strategy. Notably, a core element of that strategy was safeguarding asset quality in light of a proactive risk framework. Consumer and Business Banking Over the past years, CIB has been preparing to capture a significant share of the Consumer Banking arena. Serious steps in that direction had a direct impact on achieving the sector’s short- and medium-term objectives. Among the ini- tiatives taken in this regard was a focus on building a more interactive relationship with customers, which was reflected in growing sales and maintaining our customer base in addi- tion to attracting new customers. This was achieved through the fine-tuning of the sector’s product and service offerings and launching a set of new products and innovative offers, in addition to improving satisfaction rates. The Consumer Banking business moreover aims to implement the Bank’s strategy in the gradual transformation from a primarily cor- porate-focused bank serving some of the largest corporates to Egypt’s largest private-sector financial institution, with a strong retail services arm for individuals and SMEs alike. The dynamics of the Egyptian market encouraged this transformation strategy. With a population of over 90 mil- lion, Egypt is the most populous country in the Middle East with a very low penetration rate. CIB has been positioning itself to tap into the potential of this underserved segment of the population with low-banking exposure. Accordingly, the division has been encouraging a wide-base of individuals to tap into the banking sector and benefit from different bank- ing and financial services through the continuous develop- ment of its product and service offerings. In that vein, we continued adding to our extensive branch network, opening a total of 21 new branches in 2015 alone. Additionally, we have renovated eight branches acquired during the Citibank retail portfolio transaction, bringing the Bank’s total branch network up to 187 branches by year-end 2015. In its efforts to cater to a wider segment of the popula- tion, our Business Banking division (under the Consumer Banking umbrella) has worked hard to widen its client base by responding to small and mid-cap companies’ changing financial needs with appropriate products and services. The division has successfully reached its target customers who have serious projects through effective marketing strategies. As a result, Business Banking showed a remarkable growth of 38% in net profits vs. 2014, which totaled EGP 491.7 million. Operations and Information Technology The Bank implemented several projects within the Operations and It Group during 2015, where the Group focused on plans to increase workforce productivity and operational efficiency with the ultimate goal of enhancing customer experience in mind. As such, several automation and process re-engineering initiatives were implemented in 2015, including the automation of custody operations, and increasing rates of our straight- through-processing (StP). A number of key projects were also launched in 2015 as part of the bank’s transformation strategy, including a Customer Relationship Management system (CRM). The integration of Citibank’s acquired retail portfolio was another important project for the Group this year. The Opera- tions and It Group implemented a six-month transition plan to ensure a smooth handover, with the conclusion of the process expected by the end of April 2016. In the digital arena, where CIB is currently looking to expand its activities, the Bank launched several new ini- tiatives, including a pilot program for CIB Smart Wallet, a product that offers a unique financial solution for the issue of financial inclusion. Moreover, our countrywide network of 662 AtMs was upgraded with additional features, such as accepting checks. The Interactive voice Response System (IvR) was also completely revamped to improve customer experience. In 2015, our call center handled more than three million self-service queries and agent-managed calls with inquiries, requests, and complaints. The same goals also saw CIB ramp-up its social media presence, creating a LinkedIn platform and launching a Facebook page (late 2014). Business Continuity CIB has been a pace-setter in the field of business continu- ity and still has further investments to make in improving its recovery capabilities to ensure its ability to swiftly overcome any unforeseen disruptive events that might af- fect business continuity within different sectors. The goal is to safeguard the quality of services we offer our clients, whatever the circumstances might be. In appreciation of our implementation of international best practices and standards, the uS-based Disaster Recovery Institute International (DRII) awarded CIB staff the title “Business Continuity team of the Year” in 2015. The DRII is one of the world’s most reputable business continuity, disaster recovery, and crisis-management institutions. Big Data… Big opportunity Given the banking industry’s increased customer focus, Board Members were determined to increase the organization’s power of predictability to support CIB’ movement towards a more customer-centric approach. CIB began its road towards “big data” in 2015, becoming one of the pioneers of this concept. Our strategy involves working on four fronts: data enrichment, customer analyt- ics and insights, data governance, and cultural building. Furthermore, the availability and democratization of data will develop and speed-up the decision-making process, improving CIB’s responsiveness and agility. CIB has already made headway in implementing the strategy, with the organizational structure now in place and the necessary resources already deployed or in the process. Current and projected gaps in enterprise data’s warehouse infrastructure have been addressed and awareness about data analytics is being disseminated across the organization. Awards and Recognition We are proud of the international awards and accolades we continue to receive in recognition of our leadership posi- tion in the banking sector. Global acknowledgement not only reflects our profound understanding of the Egyptian market and its dynamics, but also our ability to serve our clients. CIB received a total of 21 international awards in 2015, among them: • Eight awards from Global Finance: Best Bank in Egypt 2015, Best trade Finance Provider in Egypt, Best Sub- Custodian Bank 2015, Best Information Security Initia- tives, Innovators in Foreign Exchange, Best Corporate/ Institutional Internet Bank in Egypt, Best Foreign Ex- change Providers in Egypt, and Best Consumer Digital Bank In Egypt; • Three awards from Banker Africa: Most Socially Respon- sible Bank in North Africa, Best Commercial Bank Egypt, and Best Corporate Bank North Africa; • two awards from EMEA Finance: Best FX Services in North Africa, and Best Bank in Egypt (EMEA Finance African Banking); • two awards from Asian Banker: Achievement in Enter- prise Risk Management of the Year, and Strongest bank by balance sheet in Egypt for 2015; • two awards from JP Morgan: Elite Quality Recognition Award - Mt 103 (90%), and Elite Quality Recognition Award - Mt 202 (98%); • Best Bank in Egypt - Excellence Award by Euromoney; • Bank of the Year Egypt – The Banker; • trade Finance Deal of the Year - African Banker. Our Success Formula Our impressive financial performance and accomplish- ments across the different lines of business, as well as the international recognition we received are the result of con- tinuous efforts and hard teamwork. It all begins with our staff… We believe that the success of any institution is dependent on the quality of its workforce. With this conviction, the Bank has continuously enhanced its work environment, not only to attract the best talent in the industry, but to upgrade their skills as well. Recruitment and Selection to best serve CIB’s aggressive growth strategy, the Human Resources (HR) department continuously reviews its hir- ing criteria and devises new methods of assessing candi- dates to ensure that only the qualified caliber, who enjoy relevant expertise are employed. The I-Recruitment system was launched in 2015 to assist with scanning Cvs and has in turn reduced turnaround time. Learning and Development CIB nurtures its employees’ talent by investing heavily in train- ing and development programs. This year, the department introduced new learning techniques, which included: • Off-Site Events that targeted both senior and junior staff members. These events aim to increase employee loyalty and strengthen team spirit; • Open Seminars worked on enhancing our staff’s existing capabilities and expanding their knowledgebase; • team Building Activities were designed to boost energy and morale levels, and enhance the effectiveness of team- work initiatives via interactive and challenging exercises; • Simulation Programs aimed to introduce new learning approaches and experiences; • Organization Development. Organization Development In line with HR’s strategy to develop talent, the Organiza- tion Development (OD) department created the talent Management team, tasking it with development and man- agement programs that enhance and upscale employees’ skills. The OD launched two talent Management programs in 2015, the “Middle Management Career Counseling’”and “Middle Management Development” programs, both of which target middle management and aim to accelerate employees’ technical development by identifying career- growth opportunities. In 2015, the “voice of Employees” initiative continued and a number of focus groups were held throughout the year. The sessions were followed by comprehensive analysis reports, recommendations, and action plans to address identified challenges. Compensation and Benefits The department participated in a number of salary surveys to ensure that CIB’s compensation strategy remains com- petitive for existing employees, and to allow the Bank to attract the highest caliber professionals in the market and warrant effective employee retention. 18 ANNUAL REPORT 2015 ANNUAL REPORT 2015 19 CIB: An Introduction YEARS OF BANKING ExCELLENCE It all revolves around our clients… Being the leading private sector bank in Egypt means that a great responsibility falls on our shoulders. Whether cor- porations or individuals, we are committed to catering to the vast and varying financial needs of our clients in consistently high quality. In doing so, and to maintain the trust of our clients and maximize their satisfaction, we build our products and services around their wants and needs with the deep level of expertise and knowledge we possess. CIB prides itself on being the bank of choice for over 500 of Egypt’s prime corporations and is determined to extend the same leadership to the retail and mid-cap segments. As discussed earlier, our staff members are exception- ally experienced and have a profound understanding of the Egyptian market, which allows them to carry the Bank’s mandate and vision of providing superb banking services to our clients. Business Outlook 2016 CIB has well-positioned itself within the Egyptian banking sec- tor and is geared towards expanding its operations in the retail market and lending to SMEs, and reaping the fruits of growth opportunities both sectors still have to offer. In a step that signals the government’s focus on the SMEs market and taking it to the next level, the CBE introduced a unified definition of the size of the companies that fall under this huge segment. Additionally, the CBE issued several circulars that aim at motivating banks to lend to these companies. The support to the SME sector, which is believed to be the future growth driver of the Egyptian economy, would result in more GDP diversification, and is aligned with the government’s increased attention to the financial inclusion agenda. Synergy Realization Alongside its conventional banking services, CIB offers a full suite of investment banking services through its association with CI Capital Holding and its subsidiaries. CI Capital generated consolidated revenues of EGP 330 million in 2015 and brokerage revenues stood at EGP 199 million. Brokerage was ranked first on the Egyptian Ex- change after it grew its market share of foreign participation this year to record 50.2% and its local market share to stand at 20% of total trading in 2015. On the awards front, CI Capital was recognized as the “Best Investment Bank in Egypt” by Global Finance in 2015 and 2014. Sustainability in CIB CIB has an unwavering confidence that sustainability is the key path to success. As such, we have been working towards striking a balance between our objective to increase our profitability and our duty toward preserving our environ- ment. Our firm and forward-thinking belief in sustainability expands to all areas of our business through environmental sustainability, corporate social responsibility, community development, our Foundation, and our corporate governance model — each a success story in its own right. Environmental Sustainability As an institution, CIB has excelled in the area of environ- mental sustainability over the years. In late 2012, we became the first Egyptian bank to establish a department of Sustain- able Development, which supports CIB’s efforts in environ- mental preservation, and aims to implement the Bank’s environmental sustainability strategy that’s approved by the Sustainability Advisory Board. Main pillars of Sustainable Development: People as the Catalyst for Stimulating the Sustainability Culture • the “Know Egypt” initiative aims to sponsor book publications that promote Egyptian culture, pre- senting to customers, shareholders, and investors. Among these publications were the “Old Cairo” and “Suez Canal” books; • The e-library initiative aims at encouraging employees to read business articles and via mobile applications; • Good and Healthy Business Environment; • CIB is the first Egyptian bank to acquire the Egyp- tian Green Pyramids Rating System Certificate (GPRS). the GPRS is the Egyptian counterpart of the internationally recognized Leadership in Energy and Environmental Design (LEED) framework. this is a mark of distinction that signifies a building as be- ing constructed and operated with a green mindset; in other words, the structure is resource efficient and environmentally friendly. CIB implemented the “green building” initiative on the bank branch in Road 90 New Cairo; • The Bank replaced its regular lighting system with LED bulbs in order to save energy and installed water flow restrictors to limit water consumption. Impact of CIB’s Sustainability Initiatives on the Community • The Bank promotes the sustainability initiatives it adopts through displayed messages in branches in order to help raise awareness among customers in particular and citi- zens in general with regards to the best utilization of our national resources • The Bank’s participation in the restoration of the Giza Zoo will have a significant impact on society at large and el- evate the sense of social and environmental responsibility towards initiatives that help preserve our nation’s heritage Sustainability Ambassadors CIB became the first Egyptian bank to create a community of Sustainability Ambassadors within its nationwide net- work in 2013. There are more than 70+ active volunteers from different locations and hiring categories that are helping anchor sustainability initiatives among their colleagues and across their businesses. The ambassadors meet regularly and introduce innovative and applicable initiatives. Corporate Social Responsibility CIB continues to achieve significant milestones in its Corporate Social Responsibility (CSR) efforts and 2015 was no exception. During the year, the CSR division implemented more initiatives that had a profound impact on the lives of people in our com- munity. These efforts remain high on our list of priorities. Community Development CIB is well positioned to provide assistance to the community in which we live and operate in. 2015 saw relentless efforts made to enhance CSR activities. What encourages us the most, is seeing our efforts reflect positively on people’s lives. We present here- under some of the activities we conducted during the past year: Beena Initiative: CIB and the Ministry of Social Solidarity signed the “Beena” protocol in June to encourage the active participation of youth in society and to support and monitor the development of social care services. Partnering in this initiative indicates the Bank’s firm commitment to supporting community development. Beena is known for employing young volunteers to create an effective mechanism for developing and monitoring the quality of services provided to different social care centers, such as orphanages, elderly homes, and special-needs houses, a segment of society that is in dire need of adequate care and higher-quality services. Autism: Children with autism and other disabilities have always been given the highest priority on CIB’s CSR agenda. In 2015, CIB continued to sponsor the annual ceremony held by the ADvANCE Society for Persons with Autism and Other Disabilities, which showcased rhythmic musical compositions performed by students. The concert serves as a platform from which awareness can be raised about the creative and expres- sive skills of children with disabilities, supporting their integra- tion into mainstream society. Partnering with Omar Samra: CIB supported Egyptian entrepreneur Omar Samra in breaking the record to become the first Egyptian to win the “Explorer’s Grand Slam” challenge, an accomplishment realized by only 40 people in history. In May, Samra raised the Egyptian flag and CIB’s flag on the north- ernmost point on the surface of the Earth, in recognition of the Bank’s supportive role. CIB’s partnership with Samra, which began in late 2014, reflects the Bank’s leading role in developing the outstanding talents of ambitious youth, believing that they are the core of the country’s development and the driving force of Egypt’s economy and prosperity. In that regard, and being one of the most influential people and role models for youth, CIB organized several seminars with Samra and CIB employees to hear about and draw inspiration from his unique experience. Sponsoring the Egyptian Squash Federation: As sports symbolize an integral part of its responsibility and commitment toward Egyptian youth, CIB continues to sponsor the national squash federation. The Bank offers support and encouragement to young and talented athletes who represent the country in re- gional and international arenas. Last year, CIB was a key spon- sor of the national junior team in the Women’s World Junior Squash Championship, held in the Netherlands. The team won the title after beating the uS national team in the final. Kidzania: Through its sponsorship of Kidzania since 2013, CIB has continued to strengthen its brand loyalty and exposure, with the mini CIB branch in the premises and the branded materials distributed around the venue. In 2015, CIB organized several free trips for children with special needs to experience and enjoy Kidzania, under the supervi- sion of the CIB Foundation. Orchestra Alnour Wal Amal: CIB, being a devotee of differ- ent types of distinctive talents across Egypt, proudly sponsored the art show “Days and Nights of the Heart tree.” The perfor- mance, which was held at the Cairo Opera House, featured the Alnour Wal Amal Orchestra, a group of blind Egyptian women. This novel sponsorship aims to support gifted women who are challenged by their disabilities. These women have become a true inspiration to the entire Egyptian community and an exceptional icon in the international musical scene. School Cultural Trips to Cairo Opera House: CIB organized a number of trips for public school students to the Cairo Opera House, in the context of its initiative to de- velop young students’ aesthetic senses through fine arts and music. Students were introduced to the high arts of classical music by attending a performance of vivaldi’s renowned “Four Seasons,” a set of four violin concertos that describe each of the seasons of the year. Supporting Students of Fine Arts Faculties: The Bank continued to intensify its efforts to encourage Egypt’s unique and talented youth who are in need of motivation and support. During 2015, the Bank expanded its reach to target university students in Minya, Luxor, and Alexandria. This year, CIB sponsored the annual art exhibit held for senior students and fresh graduates at South valley univer- sity’s Faculty of Fine Arts in Luxor. The Bank acquired the best art pieces in the collection, adding them to our private Art Collection in an attempt to incentivize the talented youth of upper Egypt. Art Salons: For the fifth consecutive year, CIB supported a new generation of young, aspiring artists through its spon- sorship of the annual Egyptian Youth Salon. CIB collabo- rated with the Fine Arts division at the Egyptian Ministry of Culture to support trending artists under the age of 35. In an effort to support artists from various age brackets and provide equal opportunities to all, the Bank chose to sponsor the upper Egypt Salon, which was held in Luxor in April 2015, in collaboration with South valley university’s Faculty of Fine Arts. This year’s dynamic agenda of art-centric sponsorships and activities allowed CIB to acquire nearly 200 distinct pieces of art, enriching the Bank’s Art Collection, while also providing incentive to and acknowledgement of genuine local talent. La Biennale di Venezia: CIB supported and sponsored three Egyptian artists, Ahmed El-Shaer, Haitham Nawar, and Khaled Hafez, at last year’s edition of La Biennale venezia, 20 ANNUAL REPORT 2015 ANNUAL REPORT 2015 21 CIB: An Introduction YEARS OF BANKING ExCELLENCE EGP 11 million and is of paramount importance to both surgeons and patients as it will allow doctors to perform on-the-spot MRI procedures inside the operating room, thus identifying cancer cells accurately and swiftly and minimizing the number of invasive surgical procedures to which pediatric patients are subjected. Throughout 2015 and in partnership with Gozour Foun- dation for Development, the CIB Foundation funded 42 eye exam caravans in public elementary schools in several gov- ernorates across Egypt, which included Qena, Sohag, Beni Suef, Minya, Aswan, Matrouh, and many others. Through the “6/6 Eye Exam Caravan” program, the Foundation provided 21,500 students with free eye exams and necessary care and consultation by the end of the project. Moreover, the Foundation has supported three of the public university hospitals in Sohag, Aswan, and Mansoura, with projects totaling EGP 13 million. The Foundation has equipped three pediatric intensive care units at the Sohag university hospital, a notable activity throughout due to the fact that there were no previous existing ICu facilities within the governorate. Said facilities will accept patients from dif- ferent age groups and will extend its services to neighboring towns and villages. A similar ward has been established in Aswan university hospital, along with a pediatric unit. Moreover, the Foundation has equipped Mansoura univer- sity hospital with Gastroenterology and Liver unit. The Foundation also supported the Department of Radiology at the National Cancer Institute with a pediatric Computed tomographic (Ct) scan machine, the first established unit to accept and treat children. In addition, the Foundation has covered the costs of 50 pediatric open-heart surgeries at the Magdi Yacoub Heart Foundation Center. The Foundation also continues to bear the maintenance costs of all the projects it carried out since its inception in order to ensure the continuity and sustainability of the desired health services quality. Corporate Governance Commitment to sound Corporate Governance practices continue to define our bank. Over the years, we have built on this commitment and continuously refined it to adopt both domestic and global best practices. CIB is a firm believer that our success as a bank is, to a great extent, attributed to our strict adherence to good governance, which empowers us to create long-term sustainable value for all our stakeholders. In doing so, several internal policies, risk controls, and manuals have been put in place to ensure that all business aspects are not only covered, but well-governed. This broad array includes risk management, compliance, audit, remuneration, evalua- tion, succession planning, code of conduct, and budgeting. The Board carries on with its mandate to continuously improve the overall corporate governance framework by regularly reviewing and supervising the Bank’s practices. CIB’s board is comprised of eight members, seven of which are non-executives – of whom one represents the interest of Fairfax in the Bank – leaving only one executive on the Board. Each member of CIB’s Board brings a wealth of exper- tise and knowledge, and collectively they possess a deep and far-reaching understanding of the industry, allowing them to decisively set the Bank’s strategic objectives and draw the direction of achieving those goals. The Board’s specialized committees, both non-executive and executive, assist members with the responsibilities and tasks they have to tackle as a decision-making body. The Board’s non-executive committees include the Audit Committee, the Corporate Governance and Compensation Committee, the Risk Committee, the Operations and It Committee, and the Sustainability Advisory Board; while executive committees include the Management Commit- tee, the High Lending and Investment Committee, and the Affiliate Committee. The board met nine times during 2015. The following sum- marizes the Board’s main responsibilities: • Setting the Bank’s overall strategy and overseeing its execution; • Establishing internal control mechanisms, and meet- ing periodically with senior management and man- agement and the Bank’s internal audit to review and discuss the applied policies; • Ongoing periodic assessment of the efficiency and effec- tiveness of Corporate Governance policies and practices; • Setting the Bank’s risk appetite and regularly monitor- ing performance indicators against approved, defined appetite; • Approving the strategy of It Group and review it periodi- cally, especially with regards to the confidentiality of the Bank’s information; • Setting compensation and benefits strategies in accor- dance with the level of risk the Bank faces; • Ensuring that shareholders’ interests are being catered to; • Ensuring that succession plans are being implemented and that a well-trained second generation is ready to take the lead when needed. More to the point, the Bank always facilitates the CBE’s regular audit taskforce’s visits, making all necessary docu- ments available to assist the auditing process. The structure of CIB’s Internal Audit department allows the team to closely follow-up with Bank management to take any necessary cor- rective measures related to the CBE’s auditing remarks. Adhering to sound corporate governance principles, CIB’s management continuously encourages employees to report any incidents that might harm the Bank’s interests. In this regard, several confidential communication channels have been introduced. The Chief Compliance Officer (CCO) cooperates with respective supervisory departments in in- vestigating reported cases and taking the necessary actions. Pertaining to staff issues, code of conduct, and petitions, the Staff Issues Committee, which is an unbiased body, is responsible for investigating, analyzing, and discussing with complainers and their respective managers. In 2015, On the right and left: Signing of protocol between Chase Manhattan Bank and the National Bank of Egypt in Aswan, Upper Egypt, 1975 Committee members received 51 cases from staff across the different business areas. These included six misconduct cases and 45 incidents involving allegations of unfair treat- ment related to delays in promotions, challenges in manag- ing staff performance (evaluation disagreements), working environments, misuse of authority, and contract renewal issues. The cases were investigated, analyzed, and discussed by the committee members with complainants and their respective managers. All cases have since been resolved. Investor Relations The primary task of the Investor Relations (IR) team is to communicate information about the Bank’s activities, per- formance, and strategies with CIB stakeholders. The IR team adheres to the highest standards of governance and to all the disclosure requirements stipulated by the stock exchanges that trade in CIB stocks. The team helps both potential and existing investors understand CIB and its story by respond- ing to all their queries in an accurate and timely manner. The team also assists analysts doing research on the Bank, to ensure their information is accurate and protect the bank from unbalanced or non-factual coverage. Moreover, the IR department maintains an open commu- nication channel between shareholders and management, relaying queries and remarks about areas of focus, con- cern, and interest from investors and analysts to our man- agement team. This is conducted through an integrated Investor Relations program which comprises substantial one-on-one meetings, road shows, investor conferences, and IR-mediated conference calls. The IR function has been in operation for more than 15 years, and its scope and responsibilities have both evolved over the years until it has become a full-fledged department. In recognition of its efforts, CIB’s IR team has received numer- ous awards from the international community identifying it as one of the best IR teams in the region. one of the world’s most prestigious arts and culture insti- tutes that also organizes an annual exhibition of the same name. Established in 1895, the Biennale now hosts more than 370,000 visitors at its art exhibition. International Museum Day: CIB was the first Egyptian bank to ever sponsor International Museum Day in Egypt, underscoring the Bank’s robust strategy and placing it at the head of all other organizations devoted to nurturing talented youth and promoting fine art activities. During the celebration – which was organized by the Egyptian Na- tional Committee of the International Council of Museums (ICOM Egypt), in association with the Ministry of Antiq- uities – the best projects and talents were honored under the auspices of CIB. Special awards were granted to young and distinguished teams in recognition of their outstand- ing contributions and efforts to the different disciplines related to the field of museums. CIB Foundation 2015 was another strong year for the CIB Foundation. The orga- nization reaffirmed its position as a leading supporter of quality health services for children by growing and expanding across the country and especially in upper Egypt. In acknowledgment of the sustainable impact it instills in the community, the CIB Foundation was recognized for its work in the CSR field from Banker Africa, winning the award for “Most Socially Responsi- ble Bank in North Africa” in September 2015. Moreover, the CIB Foundation was shortlisted for the African Banker’s “Socially Responsible Bank of the Year” award. Among the numerous projects that the CIB Founda- tion supports, cooperation with the Children’s Cancer Hospital 57357 stands out. the CIB Foundation has provided the hospital with a first-of-its-kind intraopera- tive MRI machine in the Middle East. the machine cost 22 ANNUAL REPORT 2015 ANNUAL REPORT 2015 23 2015 IN REvIEW 2015 was no stranger to the challenges that carried through from the turbulent post-revolution years and the difficulties presented by global economic conditions. However, it served as yet another opportunity for CIB to demonstrate its ability to remain ahead of the game with an effective risk-management strategy and the management team’s commitment to transparency. The Bank’s logo evolution over the years: On the left, Chase National Bank’s logo from 1975-1987; on the right, CIB’s logo from 2012 to date. 24 ANNUAL REPORT 2015 ANNUAL REPORT 2015 25 2015 in Review YEARS OF BANKING ExCELLENCE institutionAl bAnKing Corporate Banking Group in 1992; CIB’s CBG is famed for its deep and longstanding client relationships. Corporate Banking Group (CBG) Recognized across the Egyptian market for its strong credit culture, the Corporate Banking Group is CIB’s financing arm, providing world-class financial structures and supe- rior advisory services to its clients. The Group caters to the financing needs of large companies and has broadened its scope to serve medium-sized companies as well, recogniz- ing the importance of the latter’s role in the economy. The Corporate Banking Group’s foremost goal is closely aligned to advancing the nation’s economic development. It is com- mitted to closely monitoring the performance of projects and economic entities that CIB finances to ensure their viability. The Group believes that economic viability on the micro level is cer- tain to contribute to — and promote — macroeconomic welfare. The Group’s mission is to enhance its position as the top cor- porate bank in the Egyptian market while maximizing value for shareholders, employees, and the community at large. Competitive Advantages • A strong corporate business model • Highly experienced staff supported by continuous training to keep up with the latest industry develop- ments and technical know-how • Strong customer base with a healthy and diversified portfolio that is well positioned in primary growth industries, including but not limited to: oil and gas, power, petrochemicals, infrastructure, construction, food, tourism, shipping, ports, and real estate • Ability to provide a wide and innovative array of financial schemes 2015 Accomplishments • The Corporate Banking Group remains a driving force of growth, and during the fiscal year 2015 the Group financed major strategic projects that had a positive economic impact and resulted in corporate loan portfolio growth exceeding 15% in 2015. These included the following: - Key projects in the field of construction of new port facilities - Structuring short-term facilities to concession hold- ers to finance profit oil - Expanding our loan portfolio with successful multi- national companies operating in Egypt - Financing major acquisition deals within the healthcare sector - Deals within the infrastructure and building mate- rials sectors exceeding the EGP 1 billion mark - Participating in six syndications for EGP 23 billion to finance new energy generation capacities of 19,772 MW in Egypt - Financing the Suez Canal Authority’s dredging of the new canal by participating in a syndicated uSD 1 billion facility • Enhanced CIB’s share of wallet in the letters of credit and letters of guarantee with our profitable corporate clients to reach 17% and 20%, respectively; • Issuing guarantees for multinational/local market leaders to support increasing power-generation capaci- ties under the electricity emergency plan conducted by the Egyptian government for an amount of EuR 100 million and uSD 70 million; • Maintaining an 80% market share of shipping activities related to Suez Canal payments by facilitating financial solutions for the shipping sector, including shipping agencies, shipping service providers, container termi- nals, and ship owners; • Improving utilization rates of working capital facilities beyond the 70% level; • Accommodating 43% of the total letters of guarantee issued under the signed Mous with the Egyptian gov- ernment for the planned 2000 MW solar farms under the Feed-In tariff Program; • Further cross-selling of cash management and retail products — in collaboration with the Global transaction Services (GtS) and Consumer Banking teams — to our eligible corporate customers to enhance CIB’s fee income; • Concluding the first mortgage-finance protocol with the Consumer Banking team; • Rolling out the Hyperion Financial Modeling Solution; • Developing the “Suppliers Finance Scheme,” starting with customers in the food sector as a pilot phase. 26 ANNUAL REPORT 2015 ANNUAL REPORT 2015 27 2015 in Review YEARS OF BANKING ExCELLENCE Main hall leading into management offices at Chase National Bank’s Alexandria branch in the 1970s. Dedicated relationship officers at CIB’s Correspondent Banking Division manage clients in various world regions. CBD accounts for almost 91% of FIG business, most of which is in the form of contingent trade finance exposure. Cash Products team specialized in structuring products and services that meet the unique needs of banks and clients as mentioned hereunder: • Without recourse financing or discounting of trade instruments (forfeiting) • Letters of credit refinancing • Risk participations • Bilateral loans and funding arrangements • Nostro and vostro accounts management • Commercial and interbank payments and cash letter collection services 2015 Achievements • Grew outstanding contingent trade finance portfolio by 14%, mainly on the back of successfully attracting letters of guarantee for mega and infrastructure proj- ects in Egypt; • Expanded CIB’s correspondent banking relationships in Asia and Africa; • Approached Eastern Europe as a new market and estab- lished relationships in Poland and the Czech Republic; • Signed trade-facilitation agreements with multilateral financial institutions to support Egyptian trade trans- actions and to expand our coverage of Africa to better cater to the trade finance needs of Egyptian exporters; • Signed a unique Mou with one of our key correspon- dent relationship banks in China, outlining strategic cooperation under the “One Belt One Road” (OBOR). OBOR is a development strategy and framework pro- posed by China that focuses on connectivity and coop- eration among countries primarily in Eurasia, which consists of two main components: the land-based “Silk Road Economic Belt” and the oceangoing “Maritime Silk Road”. CIB is one of only three banks selected as a key partner representing North Africa. This initiative is expected to reflect positively on trade Finance and Debt-Capital Market businesses; • Innovated a new trade-related funding structure granting CIB access to flexible short-term foreign currency sources. 2016 Forward Strategy the Corporate Banking Group aims to achieve the follow- ing in 2016: • Continue to selectively expand our loan portfolio to achieve high-quality asset and revenue growth in addi- tion to expanding our funding base; • Place special emphasis on financing medium-sized companies and multinationals while simultaneously enhancing our existing clients’ share of wallet; • Increase customer loyalty and expand CIB’s market share in all sectors through the cross selling of our GtS products; • Continue the introduction of non-conventional financial solutions to our distinguished corporate clients such as the development of the invoice- discounting product; • Further streamline the Business Enhancement unit’s operational processes to ensure the extension of higher-quality services and a quicker turnaround time to our corporate clients, thus enhancing our customer experience at CIB; • Prepare for the implementation of phase I of the Elec- tronic CAM Project; • Introduction of the newly established product “E- Commerce” as a platform that enables online payments of utility bills for our prime clients; • Further enhancing our Net Promoter Score (NPS) be- yond the 40 level and the overall customer satisfaction rating above 7.9. Financial Institutions Group (FIG) FIG is part of the Institutional Banking area, covering global relationships with credit institutions and serving as the entry point and first contact for credit institutions with CIB. FIG manages CIB’s business with local and foreign bank- ing and non-banking financial institutions through three specialized divisions: 1) Correspondent Banking; 2) Non- Banking Financial Institutions; and 3) Finance Programs and Donor Funds. Correspondent Banking Division (CBD) CBD lies at the core of FIG, acting as the focal point of contact for local and international banks working with CIB. CBD accounts for almost 91% of FIG business, most of which is in the form of contingent trade finance exposure. The division is highly active in supporting and coordinating the relationship with various correspondent banks and provides an array of products and services including trade finance, direct lending, international payments, and tailored/structured solutions. A number of factors underpin the division’s core competencies: • Experienced regional relationship officers • Specialized product managers • A diverse network of almost 200 global correspon- dent banks • Strong ties with multilateral financial institutions • Access to prime corporate and business banking clients • Proven track-record in delivering tailored credit and trade finance services Geographical coverage The division manages its correspondent credit relationships through dedicated and experienced relationship officers who are structured regionally as follows: • Americas & Europe team • Asia Pacific team • MENA, Africa, and Russia team Product Management Complementing the activities of the division is a trade and • Position CIB as the bank of choice for correspondent banks in handling trade finance business in Egypt; 2016 Strategy 28 ANNUAL REPORT 2015 ANNUAL REPORT 2015 29 2015 in Review YEARS OF BANKING ExCELLENCE • Capitalize on our service quality and efficient pro- cessing to further develop trade finance business (contingent and direct); • Further diversify correspondent network geographi- cally by focusing on relationships with Asia; • Continue to apply a “relationship management model” to capture more value from our client and correspon- dent relationships over time; • Innovate revenue-generating trade and cash products; • Maintain our focus on supporting the Egyptian economy. Non-Banking Financial Institutions Division (NBFI) NBFI is a credit-lending division under the Financial In- stitutions Group. It provides credit facilities and liability products and services to all types of non-banking financial institutions. targeted clients include companies engaged in leasing, insurance, securities brokerage, auto finance, factoring, and credit insurance, along with investment firms and non-governmental organizations (NGOs). 2015 Achievements • Grew total portfolio by c. 20% • Attracted new-to-bank accounts and grew credit facili- ties extended to existing clients • Participated in landmark syndication and securitiza- tion transactions • Grew LC contingent business by c. 5 times to accom- modate leasing importation businesses • Established new limits for existing companies and identified new NGO accounts to accommodate micro- finance business • Continued to maintain moderate levels of portfolio risk and managed an effective collection of loan portfolio payments 2016 Strategy • Grow loan portfolio and increase the share of wallet for existing prime credit customers in leasing and car finance industries • Approach new clients in mortgage finance, leasing, and microfinance • Focus on bond investments related to securitization transactions • Develop contingent business and liabilities products suitable for selective NBFI clients • Grow loan and investment portfolio with quality play- ers in the leasing, mortgage, and brokerage (clearing and settlements accounts) sectors in terms of volume and number of accounts • Aggressive marketing and cross-selling of CIB liability products and international agencies that positively affect our community and environment. In collaboration with the Ministry of Agricul- ture and Land Reclamation, FP&IDF has encouraged private sector involvement in the agribusiness, while the division is also engaged in various environmental and pollution-abatement projects that aim to assist companies in making their operations eco-friendlier. FP&IDF also manages CIB’s direct microfinance portfolio through a microfinance services company and has recently extended its focus to include wholesale microfinance. The division’s main functions include: Agency Function CIB acts as APEX (Agent Bank) for several funds, grants, and credit lines, providing an array of tailored operational services including structuring and providing pre-loan as- sessment 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 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 con- sultancy services targeting development programs. 2015 Achievements • FP&IDF maintained CIB’s position as the leading agent bank in the market • Grew agency deposit portfolio to c. EGP 1 billion • Successfully renewed the agency of one of the biggest agri- cultural programs under management for five years • tripled the KFW program’s grant utilization to finance natural gas and waste water treatment projects • Grew the microfinance and wholesale microfinance loans portfolio under a Social Fund for Development (SFD) contract • Expanded and further diversified CIB funding for vari- ous programs and economic sectors as exemplified by agreements concluded with PROPARCO, the Agence Française de Development’s (AFD) private-sector fund- ing arm, to finance energy efficiency projects • Conducted successful cross-selling of CIB’s various re- tail products, including credit cards, consumer loans, and other consumer and corporate bank products Finance Programs and International Donor Funds (FP&IDF) FP&IDF is uniquely specialized in managing sustainable devel- opment funds and credit lines provided by governmental entities 2016 Strategy • Sustain CIB leadership in agency and participating bank functions by growing the portfolio of funds un- der management Throughout its history, CIB has always made sure its facilities use state-of-the-art mechanisms and devices in order to offer clients the best and most innovative products and services. 30 ANNUAL REPORT 2015 ANNUAL REPORT 2015 31 2015 in Review YEARS OF BANKING ExCELLENCE • Grow the agency portfolio’s deposit base • Grow development funds entrusted to and managed by CIB • Strengthen ties and relationships with SFD and other government entities • Attract donor funds and programs related to renew- able energy • Grow microfinance portfolio • Further enhance CIB capacity for microfinance lending by entering into new agreements with guar- anteed institutions Debt Capital Markets Division (DCM) The Debt Capital Markets (DCM) division has an unparal- leled track record, with experience in underwriting, struc- turing, and arranging large-scale project finance facilities, syndicated loans, bond issues, and securitization transac- tions, all of which are supported by a dedicated agency desk. The division achieves its objectives by leveraging CIB’s sub- stantive underwriting capabilities and established relation- ships with international financial institutions and export credit agencies, as well as its placement capabilities in the local market with banks, insurance companies, the money market, and fixed income funds. Furthermore, the division provides large-scale borrowers with better market access and greater ease and speed of execution. 2015 Achievements • Both the Egyptian government’s spending stimulus and its focus on infrastructure development have been important drivers of growth for DCM’s fee income and deal size dur- ing 2015. The division’s closed deal size stood at EGP 35.9 billion in 2015, up from EGP 31 billion in 2014, growing by 16% over 2014. DCM has capitalized on opportunities in infrastructure (PPP) finance, refinery overhauling, logistics, petrochemicals, transportation, and utilities, successfully being awarded mandates for deals worth EGP 18 billion during 2015, with closing expected in 2015/16. DCM has played key roles as Initial Mandated Lead Ar- ranger (IMLA), Agent, Security Agent, and Book-runner in all mandated transactions; • The DCM division aggressively pitched for deals in the market, accumulating a substantial deal pipeline whose aggregate worth totals EGP 45 billion; • DCM continued being a capital market leader by playing a unique role in the local market through the structuring and placement of complex securitization structures. In 2015, the division structured the first real estate devel- oper bond issuance in the local market, tapping into new sectors. The DCM division was also mandated to struc- ture and place four local securitization deals with an ag- gregate issue size of EGP 2 billion, of which one is being issued by the first microfinance originator in Egypt; • CIB was recognized yet again for its debt-arrangement roles, winning two notable awards for the pre-export finance structured deal PEL vI where CIB acted as Man- dated Lead Arranger: “Best Energy Deal trade and Export Finance Media tXF” and trade Finance Deal of the Year “African Bank Award Committee of IC Publication.” 2016 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 substantial infrastructure and power investments (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 clients’ needs for diversified funding sources through innovation in asset-backed securities. Global Transaction Services Group (GTS) CIB’s GtS Group is a leading provider of cash management, trade finance, and securities services, catering to a broad range 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 businesses. Our digital strategy maps out the framework to leverage new technologies that focus on significantly enhancing customer satisfaction and building customer loyalty, in ad- dition to deepening their share of wallet. This strategy will continue to grow and evolve in tandem with global trends and based on the needs and aspirations of our clients. With internet usage on the rise, alternatives to traditional branch banking have attracted increasing attention. Banks started to use the Internet not only as an in- novative payment method and to increase customer con- venience but also as a way to reduce costs and enhance profits. Fierce competition between banks, both in retail and wholesale, has forced banks to find new and profit- able areas in which to expand. GTS 2015-19 strategy • In alignment with the 2015-19 GtS strategy, two major initiatives were successfully executed in 2015, which will pave the way for the adoption of a more relation- ship-focused culture across different lines of business. 1. Product Bundling and Relationship Pricing: Clients keep and expand banking relationships based on the services they want and the best price available to them, so relationship pricing and prod- uct bundling has become even more important. At GtS, we think beyond the “one-size-fits-all” strategy when catering to corporate and business banking customers’ increasing demand. Working closely with the Corporate team, we cre- ated 48 sub-industry bundles of GtS solutions to Our digital strategy maps out the framework to leverage new technologies that focus on significantly enhancing customer satisfaction and building customer loyalty, in addition to deepening their share of wallet. match each industry’s specific needs, complemented by preferential pricing to promote online migration. 2. Preferential pricing: Preferential pricing is offered to clients who opt for GtS product bundles, and for select cash and trade manage- ment transactions, in order to encourage migration of banking transactions from branches to online channels. - • Acquiring state-of-the-art portals and backend systems - technology sophistication is a key criterion in as- sessing the quality of banking relationships among corporate clients of all sizes. Therefore, we continue to invest in upgrading and expanding our portals and backend system. The upgrades serve planned expansions into new product suites and innovative transactional banking services. In 2015, we signed a major deal with one of the top players in the banking software industry to upgrade our trade Finance backend platform, which merged our Cash and trade Finance management portals into a single sign-on portal. This supports the launch of Supply Chain Finance product range planned for 2016-17, which offers a new trade concept for the Business Banking/SME sector. The upgrade will also enhance customer experience through improved system performance and upgraded functionalities. Key 2015 accomplishments across GTS product lines As Egypt’s leading commercial bank, our digitization efforts are clearly reflected in our GTS accomplishments for 2015 across various product segments. Cash Management Services CIB provides both standardized and tailored cash management products and solutions that improve the management of incoming and outgoing payments, as well as streamlining reconciliation and information manage- ment, and enhancing working capital efficiency. the offering includes a number of innovative payments and payable products, collection and receivables products, and standard and tailored information reporting deliv- ered through a variety of channels. 2015 Accomplishments • Signing an agreement with Standard Chartered Bank that effectively made CIB the correspondent bank in Egypt, executing any and all customer transactions inside the country; • Enhancing core systems to provide customers with more transparency in transactions details; • Enhancing the SWIFt services provided to corporate clients in accordance to new standards; • Achieving first place in domestic payments in both ACH direct credit and direct debit, compared to third place last year; • Launching the Shipping Operations Hub for online transactions in order to automate the payment workflow of the Suez Canal Authority’s transactions. the new Hub positively impacts clients with the fol- lowing benefits: - Customer satisfaction, as clients are able to process their online payments on weekends Improved turnaround time for transactions - - Penetration rate in the shipping sector increasing by 20% - A 20% increase in the shipping clients’ online - transactions Increasing the number of clients served through the Port Said Shipping Hub; • Automating around 140,000 transactions for government pensions, executed through the Automated Clearinghouse (ACH), off-loading the manual intervention from branches. Global Securities Services (GSS) Despite the stock markets’ volatile performance in 2015, we successfully maintained our leadership position in the mar- ket in terms of market share, value of assets under custody, and the sub-custody of the GDR program and securitization trustee services. Moreover, with the implementation of a new custody system and the minimization of manual work, which has in turn reduced both risk and turnaround time, we can now offer custody services to our most sophisticated clients and comply with all their requirements, such as StP and swift reporting, with minimal manual interaction. 2015 Accomplishments • Launching the new custody system, which has auto- mated 70-80% of custody operations, reduced transac- tion processing turnaround time by almost 20%, and enhanced both business and customer reporting; • Maximizing revenues as custody revenues increased by 33% YtD in Q3 2015 compared to same period in 2014; 32 ANNUAL REPORT 2015 ANNUAL REPORT 2015 33 2015 in Review YEARS OF BANKING ExCELLENCE • The GDR desk – recently established to provide conver- sion services to clients –executed more than 30% of the volume of conversion transactions in 2015; • Maintaining our leading position in the capital market as the sole provider of securitization trustee services by obtaining three new portfolios with a combined value of EGP 1.2 billion. Out of 11 securitization transaction in the market, 10 of 11 securitization transactions in the market were under CIB’s custody; • Maintaining our leading position as the sole local sub- custodian for the GDR program for the depository bank “BNY Mellon.” CIB was appointed the sub-custodian for GDRs of the newly listed packaged and snack food manufacturer “EDItA,” bringing the total GDR listings under CIB’s custody to 14 out of a total of 15 Egyptian companies to have issued GDRs this year. Trade Services CIB trade Services offer both the tools and expertise that allow our diverse base of clients to realize their business goals. CIB’s trade solutions (CIB trade Online and Bolero system) are designed to enable clients to effectively man- age risk and optimize cash flows. In pursuit of higher customer-satisfaction levels, CIB achieved a 52% YoY increase in the number of transactions performed via trade online, bringing the percentage of transactions performed via 53 trade hubs and the online channel to 100% of total Bank transactions. Process optimization, which is ongoing, remains a major goal, and in 2015 CIB performed a series of significant adjust- ments to the Export ODC execution process, decreasing turnaround time to only a few hours. CIB also implemented a speed cycle for ODCs, and now updates clients with notification emails that include a courier tracking number, which has sig- nificantly improved customer experience as it provides clients with a transparent outlook onto every stage of ODC processing. Corporate Payment Service (CPS) CPS is a dedicated service that enables CIB clients to pay their taxes and custom fees online. This segment grew from 10 clients in Q1 2015 to 147 clients as of Q3 2015 and holds a 33.4 % market share, allowing CIB to achieve a number-one market rating. Forward Strategy Digitization beyond branch network Digitization efforts across Institutional Banking support is one of our major areas of focus in 2016-17, as enhancing the efficiency of supporting functions will not only result in improved customer experiences, but will also achieve major cost savings. Launching an IvR service to complement our on-line banking service to corporate clients will transform the way we handle customer enquiries and will provide us with insightful reports on how our clients run their day-to-day activities, which will allow us to create additional products and services tailored specifically to their needs. Migrating clients to online banking channels strategy A “strong arm” tactic will be used to drive high levels of migration to lower cost self-service channels, which entails restricting certain services to specific channels only, such as limiting reports to online channels only as one example. the preferential pricing policy and the tie- up between concessions granted and transactions over the online channels launched during 2015 will contribute to the success of our strategy to redirect our clients to- wards online channels. GTS Awards • Best trade Finance Provider in Egypt – Global Finance • Best Corporate/Institutional Internet Bank – Global Finance • Best Sub Custodian Bank 2015 – Finance Bank in Egypt Awards • trade Finance Deal of the Year – Finance Bank in Egypt Awards • Best Information Security Initiatives – Global Finance Asset & Liability Management (ALM) A key part of the treasury Group, the Asset and Liability Man- agement Department is responsible for managing the Bank’s liquidity and interest-rate risk within external and internal parameters, while complying with the Central Bank of Egypt’s (CBE) regulatory ratios and guidelines. The department is also responsible for managing the Bank’s Nostro accounts, overseeing its proprietary book, and setting loan and deposit prices. ALM’s main objectives are liquidity management, maximizing profitability, and product development. 2015 Performance In 2015, ALM successfully managed the Bank’s unutilized liquidity, and contributed to increasing CIB’s LCY Net Interest Margin (NIM) in the first nine months of 2015 compared to the same period a year prior, while preserving the FCY NIM at the same level, despite CIB’s uSD and EuR tD rates having increased since February and March 2015, respectively. ALM continues to meet all regulatory ratios, as well as all internal and external controls. 2016 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 supporting the Bank’s ability to comfortably cater to client needs while maximizing shareholder value. Treasury & Capital Markets (TCM) CIB’s treasury & Capital Markets Group (tCM) is the Bank’s primary pricing arm for all its foreign exchange (FX) and interest rate products. The tCM is a primary profit center for CIB, offering a wide range of products to various types of businesses which we have diversified across regions, capa- bilities, and distribution channels. market offers. the team has been one of the most influen- tial players in the local debt market. 2015 Accomplishments and Achievements: With the start of 2015, tCM management focused on specializa- tion development, and high customer focus within the depart- ment, which was established via the restructuring of FX desks into the distinct customer segments present within the bank such as the Corporate Banking Group, Global Customer Rela- tions (GCR), Business Banking, Strategic Relation Group, and so forth. Each trader is responsible for following up on and execut- ing deals with their respective assigned officer and/or clients, leading to an elevated performance. This further facilitated the operational aspect of the department by furnishing readymade offers for the available FX structured products to send to clients. These tasks/functions include: • Closing and negotiating FX deals with clients • Generating volume and profitability reports from the treasury system for desk function and clients • Executing foreign and local inter-bank transactions • Attending client meetings • Preparing foreign exchange market reports • Executing branch and relation officers’ FX deals • Preparing customer offers and meeting packages • Preparing customer and relationship officer presenta- tions, customer follow-up, and on-call market updates • Fundamental and technical analysis • Receiving deposits, treasury bills, and IRS (interest rate swaps) pricing requests to enhance flow into fixed in- come, money market, and asset and liability departments • Pricing FX derivatives based on customer FX and Cor- porate Sales Desk payment cash flows Throughout 2015, CIB’s tCM Group maintained its leading global presence in the FX market, winning for the first time the Innovators in Foreign Exchange Award from Global Fi- nance, as well as Best Foreign Exchange Providers in Egypt from Global Finance, and Best Foreign Exchange Services in North Africa from EMEA Finance. On the fixed income side, the desk was also ranked according to the Ministry of Fi- nance’s monthly index as one of the top-performing banks on the primary market for treasury bills and government bonds, as well as on the secondary market for government bonds. Ongoing Forward-Looking Strategy Capturing the highest market share in both foreign currency purchases vs. the EGP and fixed income securities trading. Direct Investment Group (DIG) the Direct Investment Group (DIG) is CIB’s investment arm, introducing equity finance as an additional service to existing and potential clients. DIG’s main focus is to identify, evaluate, acquire, monitor, administer, and exit minority equity investments in privately-owned compa- nies that possess commercial value for CIB. CIB’s Treasurey and Capital Markets Group in the 1990s. One of the primary arms of CIB’s Institutional Banking division, TCM has grown over the years to offer a diversified range of services and products to various types of businesses and clients. Among its responsibilities are FX, Money Market and Fixed Income trading activities, primary and secondary government debt trading, management of interest rate gaps with its respec- tive hedging, pricing of local and foreign currency deposits, and pricing of preferential deposits. Foreign exchange products are used by our customers for hedging purposes. Also, our prod- ucts are used through third counterparty trading, where CIB allows its clients to purchase almost any non-tradable currency that they require, including, for example, the Brazilian riyal, Singaporean dollar, Thai baht, Chinese yuan, Korean won, and South African rand. The currency is simultaneously transferred to its country of origin to make payments abroad. Other hedging products offered are direct forwards and simple/plain vanilla options, in addition to a wide array of option structures such as premium embedded options, participating forwards, zero-cost cylinders, boosted call/ put spread, boosted kick in options, structured EuR/ EGP, target Redemption (tARF) structures, cash export and import, Interest Rate Swaps (IRS), and interest rate caps/floors. the Fixed Income and Money Markets Desk (Primary Dealers team) provide clients with transpar- ent advice on their investments in tying time Deposits, Sovereign Fixed Income Bonds, local treasury Bills, and Government Bonds — on both primary and secondary markets — with very competitive prices on secondary 34 ANNUAL REPORT 2015 ANNUAL REPORT 2015 35 2015 in Review YEARS OF BANKING ExCELLENCE 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, creating a “win-win” situation for all stakeholders. This commitment is supported by our unique value proposition and team of specialized experts. Highlights and Accomplishments Exits DIG successfully executed the sale of CIB’s stake in one of Egypt’s leading confectionary companies, yielding a remarkable cash- on-cash multiple and also generated a lucrative IRR for CIB. DIG successfully signed the agreements pertaining to the sale of CIB’s standing 45% stake in Commercial International Life (CIL) to AXA, one of the leading global insurance play- ers with a strong presence in 59 countries. The transaction is regarded as a flagship deal in the Egyptian insurance indus- try and has yielded significant returns for CIB. In parallel, CIB entered into a bank assurance partnership with AXA, whereby AXA will benefit from a 10-year exclusive distribu- tion agreement with CIB in Egypt. The said alliance further cements CIB’s commitment to its clients to continue offering them excellent value-for-money insurance products. DIG is also in the advanced stage of negotiations to offload CIB’s equity stakes in two other affiliated companies. New Bookings CIB successfully added two new investments in the tourism sector to its direct investment portfolio. The new invest- ments were made with a defined IRR and a targeted holding period of five years with a secured exit plan. Portfolio Management In terms of portfolio management, DIG maintained its role in supporting portfolio companies in light of the existing market challenges. Active participation in portfolio companies’ board of directors’ along with maintaining an open dialog with co- investors are the main pillars of DIG’s success in managing and improving the performance of its investments. The Pipeline In line with the current portfolio build-up strategy, DIG has further expanded its marketing activities by creating a dedicated marketing and deal sourcing team. As a result, its deal pipeline has witnessed tremendous enhancement in terms of both quantity and quality. Accordingly, DIG has assessed the viability of multiple investment oppor- tunities in a wide range of sectors, including education, renewable energy, healthcare, and food. Over the years, SRG’s mandate expanded to include International Regulatory Agencies, the likes of IATA and ICAO, which provided reason to cater to the airline industry. Strategy Going Forward DIG is embarking on a portfolio expansion strategy aimed at doubling Assets under Management (AuM) by 2020. Ac- cordingly, DIG will focus its efforts on selectively adding lucrative investments with strong fundamentals, growth potential, and a high value proposition for CIB. Strategic Relations Group (SRG) The Strategic Relations Group (SRG), as a function, was created with the sole purpose of focusing on and catering to the unique needs of the Bank’s top non-commercial organizations of sovereign origins and affiliations. CIB, realizing the strategic importance of attracting such enti- ties, embarked on building a team whose mandate is to bridge the gap between mainstream commercial banking and the fulfilment of these clients’ operational require- ments. This unique function has, in essence, allowed CIB to contribute to Egypt’s development by off-loading these agencies’ administrative duties, allowing them to focus on their primary activities. Meanwhile, CIB stood to gain from the deposit-gathering nature of its portfolio of strategic customers. SRG now boasts a portfolio of almost 70 strategic customers, whose deposits contribute considerably to CIB’s stable and clean funding base. SRG works together with these clients to design special tailor-made products and services that are unique to each entity, to better meet their particular business needs. SRG’s portfolio would typically fall into the category of Global Donor, Aid and Development Agencies alongside their underlying Sovereign Diplomatic Missions. Over the years, SRG’s mandate expanded to include Interna- tional Regulatory Agencies, the likes of IAtA and ICAO, which provided reason to cater to the airline industry. In more recent years, SRG has sought to service tier-one educational constituencies, aiming to play a role in the moulding of the financial culture and creating brand loyalty of future leaders, by providing a unique customer experience for both parents and students. The Group’s core responsibility is directed toward build- ing on its existing relationships and maintaining customer loyalty by fostering trust-worthy partnerships. In its 40 years of business, CIB has built strong and sustainable relationships that have allowed it to swiftly and competently cater to the market’s ever-changing needs. 36 ANNUAL REPORT 2015 ANNUAL REPORT 2015 37 2015 in Review YEARS OF BANKING ExCELLENCE globAl Customer relAtions Over the past few decades, cross-border business has expe- rienced unparalleled growth, thanks to advancements in the fields of communication and information technology, the privatization and deregulation taking place in emerging economies, and the appearance of the global consumer. As the era of globalization continues to manifest itself through the emergence of global companies, Global Customer Relation- ship Management has become of increasing significance. In December 2009, and stemming from that rising im- portance, CIB established the Global Customer Relations Department (GCR), with a team of credit certified calibers with strong interpersonal and marketing skills. the GCR model has proved to be an effective method of expediting business outcomes through superior cus- tomer support and service. Although relatively new to Egypt, the model has been successfully adopted globally in the past 25 years. The GCR’s vision is for CIB to become a one-stop-shop financial solutions provider rather than a product provider. With this vision in mind, our mission in the GCR is to maxi- mize customer satisfaction and revenue generation, through maximizing customer value across the global customer portfolio within the Bank. 2015 Major Achievements: • Emaar Misr IPO The GCR team successfully closed the initial public offering (IPO) deal with Emaar Misr, acting as the ex- clusive receiving Bank. The deal entailed the launch of an additional 600 million shares in the form of a capi- tal increase. The total subscribed amount credited to Emaar’s account at CIB stood at EGP 4.6 billion, which included EGP 35.9 million in over-subscription mul- tiples for its public offering, representing 85% of the placement, while final allocation recorded 2.78%. CIB succeeded in acting as Emaar’s sole custodian bank for the money market securities. • Vodafone Cash Signed letter of intent with vodafone for a Mobile- Wallet partnership called “vodafone Cash.” That comes as part of CIB’s efforts to offer products that encourage financial inclusion, positioning the Bank as a true digi- tal front runner in an cash-intensive economy. • Misr Cement Qena Transaction CI Capital signed a contract with Misr Cement Qena to act as financial advisor in raising debt of EGP 915 mil- lion, within an upside option, to EGP 2.1 billion for the acquisition finance/refinance of debt for ASEC Minya Cement Company and ASEC Ready Mix. CIB finalized a syndicated loan for the acquisition transaction with two leading banks in the Egyptian market. • Portfolio - - Increase in loans portfolio by 24% to record EGP 24.7 billion at the end of 2015, up from EGP 19.9 billion in 2014 Increase in deposits portfolio by 19% to reach EGP 12.5 billion in 2015, up from EGP 10.4 billion in 2014 Forward-looking Strategy for 2016: • Maximize CIB’s profitability through three major channels: - Exploring new business opportunities via market screening for newly found customers - - Growing the retail banking business, by marketing retail products and services to new and existing clients. Increasing Share of Wallet (SoW) with new selected accounts according to GCR-approved criteria • Strategic collaboration with the CI family, with a spe- cific focus on CI Capital, and also with the GtS team, to offer well-rounded solutions and services to clients • Focus on FDIs, especially from the Gulf region • Exert more effort in the recovery of problematic/under- performing accounts in order to safeguard the quality of CIB’s asset portfolio • Award focus to mega projects, especially in the sectors of energy (conventional/renewable), EEA, transporta- tion, logistics, and ports, in line with the government’s announced directives and expansion policies Chase National Bank’s 1982 Annual Report; inside page explains the Bank’s emblem and logo. 38 ANNUAL REPORT 2015 ANNUAL REPORT 2015 39 2015 in Review YEARS OF BANKING ExCELLENCE Consumer And business bAnKing Cards Portfolio Overview Issuing In 2015, the total credit card portfolio grew by 17% to reach 273,000 cards and Ending Net Receivables (ENR) increased by 30% to around EGP 1.3 billion, while sales increased by 44%, generating a total annual volume of EGP 5.2 billion. Acquiring On the Acquiring level, CIB continues to lead the market, processing 34% of total market activity in 2015, which rep- resents 13 million transactions worth EGP 10 billion in total, growing by 25% YoY. CIB rolled out a pilot Mobile Point of Sales (PoS) program in 2015 that allows customers to use phones as PoS machines with select merchants. This will help expand CIB’s reach into new industries and merchants by using an unconventional low-cost solution. E-commerce is one of the fastest-growing segments in the payment industry. In this way, CIB has initi- ated electronic trade in collaboration with merchants for an easier and more personalized way to trade online. Strategic Objective The main objective of the CIB Card Business is to lead the transformation of the Egyptian market from a cash-based to a non-cash-based system by working on increasing card acceptance and making CIB cards the nation’s preferred payment vehicle, offering a full product suite of credit, debit, prepaid, and PoS services. We will become the market leader in card issuing by building and sustaining a loyal customer base while maintaining strong market leadership on the acquiring level. Achievements 2015 saw CIB revamp its suite of card products with segment- based offerings, and launch two programs to enrich value proposition. Both are considered key pillars of the Bank’s growth plan for its Card Business. This year’s achievements are outlined as follows: 1. CIB Cards Products Suite Revamp Retail Customers The new product plan aims to transform the credit card product suite into differentiated product offerings based on segment needs and lifestyles. The product-alignment strat- egy is built on clear differentiation between the different product types and having extreme product offerings on the lower end, presented in the White card, and on the higher end, presented in the Platinum card. The purpose of the extreme product offering is to serve as an anchor product highlighting the attractiveness of the products in the middle of the spectrum (Gold and titanium). A World card will also be launched to complement the offering of the new high-net- worth segment and will be an invitation-only card. CIB cards will be properly differentiated and new attrac- tive designs will be launched. Corporate and SME The Corporate credit card was launched to serve our corporate base, Strategic Relations Group (SRG) companies and our busi- ness banking customers. These cards will serve as a very conve- nient way for both corporations and employees to manage and calculate business-related expenses and digitize their payments. 2. Value Proposition Enrichment The launch of the CIB BONUS program was designed to guarantee high impact in terms of spending and overall customer experience, with the focus being on the value of earn- and-burn options. CIB has entered into agreements with some of the strongest vendors in Egypt, including hypermarkets, and electronics and fashion stores, to name but a few. Our loyalty base of vendors and merchants will increase with the launch of merchant-funded campaigns to boost spending. Life Cycle Management campaigns that leverage the BO- NuS program have also been rolled out. The purpose of the campaigns is to drive customer behavior into more profit- able spending patterns by targeting various segments such as early month on card bookings and dormant accounts. • Installment Payment Plans (IPP) have shown great success since their official launch. Five programs were consecutively introduced to cater to the different needs of CIB credit card holders. The different IPP programs are: 1. Single Transaction Enrollment for any cash or retail transaction as per customer requests. 2. Full/Partial Balance Conversion targets pay downs and non-revolving segments. 3. Balance Buy Out enables customers to pay their credit card balances in other banks and pay back their CIB credit cards in installments. 4. Cash On Phone allows customers to get cash from their credit cards through their bank accounts and to pay back the cash amount in convenient installments. 5. Zero Interest Installments with key merchants across different shopping categories, including home appliances, mobiles phones, and furniture. In its effort to meet customer expectations, CIB chooses merchants based on the nature of their products and customers’ tendencies to pay for their purchases in installments. The enrollment of the transaction takes place using a semi- automated installment process via CIB PoS. We aim to fully automate the process in 2016. • Contactless Feature is currently being explored, in which CIB will be the first mover in the Egyptian market to introduce this feature on all CIB cards and PoS ma- chines, guaranteeing the creation of more opportunities for card usage and expansion to new industries and mer- chants by using an unconventional low-cost solution. Moving from AUM based segmentation to a matrix of lifestyle and AUMs Current Credit card product suite Segment based product offering Shopping & Entertainment BONuS points travel Miles Women lifestyle High Net worth Wealth Plus Mass D E I R A L A S D E Y O L P M E F L E S H t u O Y G N I K N A B N E M O W transform credit card product suite into a differentiated product offerings based on segments needs and lifestyle. 40 ANNUAL REPORT 2015 ANNUAL REPORT 2015 41 2015 in Review YEARS OF BANKING ExCELLENCE 3.8 mn Call Center agent-handled calls as of the end of 2015 Insurance Business CIB Insurance Business provides life and general insurance 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 and savings packages. These programs were in- troduced to address a wide variety of consumer needs in Egypt through the Commercial Insurance Life Company. The department began offering general insurance in 2011, capi- talizing on its strong links to leading insurance providers in Egypt. Target Segment Due to the nature of insurance products, periodic premiums are paid to cover unforeseeable losses. Our business targets different client segments based on consumer income, health conditions, and needs-based analyses. A number of new life insurance programs were introduced in 2014/2015 with upgraded benefits to better satisfy cus- tomer needs. Strategic Goals • Increase revenue contribution to Consumer Banking to 10% by 2017. • Increase market penetration by expanding CIB’s cus- tomer base. • Lead the market by introducing a wide range of prod- ucts from the best insurance providers. • Introduce new variety of products such as medical. 2015 Achievements: Life Insurance • Achieved a net growth in fee income of 7% (EGP 65 million in 2015 compared to EGP 61 million in 2014). • Continued to provide a wide array of insurance plans to meet the needs of all consumers. 2015 Achievements: General Insurance & Bundled Products • Increased Credit Shield fee income by 16%, EGP 16.8 mil- lion in 2015 compared to EGP 14.2 million in 2014; • Increased Family Protection Plan fee income by 41%, EGP 3.9 million in 2015 compared to EGP 2.7 million in 2014; • Developed existing insurance group policies related to assets portfolios by increasing the sum insured and age to assure optimum coverage at the best rates with a smooth process; • Improved Bank Risk Management by reviewing the Bank’s insurance policies related to financed assets and enhancing the reviewing processes for easy handling ; • Developed a fleet insurance package by providing our cus- tomers with competitive insurance pricing, which gave us the lead on the fleet product in the banking sector. Going forward, CIB will develop different bundled insur- ance services with consumer products and segments. Liabilities The success of CIB Consumer Banking is demonstrated by the exceptional growth in customer deposits, which reached EGP 107 billion in December 2015, an impressive 22% increase of EGP 19 billion over year-end 2014. In December 2015, CIB’s total liabilities reached EGP 154 billion, a rise of EGP 32 billion or 26% over year-end 2014. CIB’s deposit market share reached 8.4% as of October 2015, maintaining CIB’s leading position among all private-sector banks. This growth is an outstanding achievement in a highly competitive market of 40 banks, and has helped CIB increase its footprint of overall deposits in the Egyptian banking system. Consumer Banking’s strategy has focused on the house- hold segment, which was clearly reflected in the household market share increase of 50 basis points to reach 7.29% as of October 2015. As a market leader, CIB also launched new tailored products for the household segment to enhance the Bank’s competitive advantage. These products are Smart Saving accounts, FCY Save & Safe, and a bundle of term products to minimize at- tritions by offering the customer a discounted secured over draft (SOD) from day one against their newly booked term products. This bundled product is positioned as a new service for customers to cover any liquidity need as it will help in retaining their liabilities and increase penetration. Consumer Loans CIB Consumer Loans boasts a product suite of various propo- sitions reaching out to all segments of the market through our well-established channels. The product proposition currently contains a wide variety of payroll-backed lending offers that include collateralized lending as well as lending against sources of funds and surrogate associations. This extends to all segments of the market–salaried, self-employed business, and professionals. The product also has specialized product offerings that cater to existing CIB relationships and segments such as Wealth, Plus, and Payroll. CIB Personal Loans furthered its aggressive growth in portfolios with a 37% growth in 2015 to end the year at EGP 6.5 billion against EGP 4.7 billion in 2014. This growth was achieved on the back of an acquisition reshaping exercise that increased payroll acquisition mix as well as better portfolio management that curtailed the attritional chal- lenge on the portfolio. The Personal Loans product was also improved by the launch of new programs to facilitate the high-yield acquisitions and the revamping of payroll eligi- bilities and exposures to make the payroll lending product more competitive. The portfolio build up was also complemented with an increase in single customer profitability by applying a multiple product sales model and by increasing unsecured loans’ average ticket size by 10% to reach EGP 58,000 against EGP 52,600 in 2014. Personal Loans revenues re- corded a growth rate of 43%, achieving EGP 347 million in 2015 versus EGP 244 million in 2014. The Personal Loans product is expected to continue in such an aggressive growth pattern in 2016 through a range of initiatives that are planned for the year ahead: • The Product Suite will be enhanced through segment- specific propositions that cater specifically to the profile of segments and their needs-based assessments. Product variants are in the pipeline for private clients, the female banking segment, and youth segments. • A holistic payroll loans proposition will be introduced in a bundle with other products to increase payroll penetra- tion and consequently, the payroll mix as well. The Payroll Lending proposition will be improved through enhanced eligibilities and exposures, bundled propositions, bonus reward points, and differentiated service standards. • New programs and campaigns will be rolled out to facilitate new customers’ acquisitions within the higher-yield/non-payroll segment. These initiatives will revolve around end-use propositions and building strategic alliances that target customers’ needs. • An upward shift in marketing campaigns will be seen, from generic product recall campaigns to innovative acquisition upsell campaigns that directly facilitate growth and channel efficiency. This product strategy is complemented with a shift in the acquisition strategy that is characterized by: • Setting up a dedicated Payroll Channel to maximize the payroll opportunity in its entirety – reflected in an increased number of payroll accounts as well as prod- uct penetration. • Increasing mix in payroll lending that will create a more loyal clientelle base. • Diversified acquisition mix across high-yield programs that cater to specific segment needs and customer ease. • Enhanced sales productivity and efficiency through the launch of CRM and Approval In Principle (AIP) campaigns. The Auto Loans Business launched new programs to keep the product proposition attractive within a very com- petitive and dealer-driven market. This was done through summer promotion offers with fee discounts to enhance acquisition volumes and build dealer penetration. Efforts also included two rounds of higher Loan to value (Ltv) promotion to create market disruptions that are favorable to CIB acquisitions, in addition to specially designed Auto Loan propositions for the salaried segment. On the dealer side, product proposition was kept attrac- tive through business focused on effective dealer manage- ment that reduced dealer concentration and widened cov- erage, revising incentive structure to encourage a better mix of dealer sourcing, and by introducing additional KPIs of untapped dealer penetration to widen the network and expand coverage to new geographies such as Suez. During 2015, we managed to increase dealer penetration to reach 57 dealers compared to 33 last year, and also revamped our dealer incentive structure resulting in savings of c. EGP 1.8 million annually in expenses. Operational efficiency was bolstered by improving turnaround time through revised application workflow and cut-offs. The unsecured auto loans portfolio showed a growth of 23%. Additionally, gross contribution witnessed a tremen- dous increase to record EGP 31million compared to EGP 2.3 million last year. Wealth Segment Launched in December 2009, the Wealth Segment has since grown YoY to reach a total deposit portfolio of EGP 50 billion, representing 70% of CIB’s individual accounts and 47% of CIB consumer banking, while maintaining a five-year CAGR of 23%. This was made possible through a customer-centric ap- proach and by preserving our core brand values: personal- ized solutions, priority services, trust, and recognition. Financial Highlights • Deposits recorded EGP 50 billion in 2015, up from EGP 41 billion, a 22% increase YoY, while maintaining a five- year CAGR of 23%. • Assets recorded EGP 5.55 billion in 2015, up from EGP 4.34 billion, a 28% rise YoY, while maintaining a five- year CAGR of 18%. Key Highlights CIB Wealth formed an alliance with one of the premier travel agencies in Egypt, tapping into our customers’ lifestyle by selecting premier destinations and offering special travel packages tailored to suit their needs. Our alliance has since grown to include lifestyle and luxury, including special discounts on luxury products and concierge services. We launched our Wealth Portfolio Application (WPA), a web-based software developed fully in-house which has become essential to the efficiency and productivity of our Wealth Sales force. WPA is a multi-function sales tool tracker that has given Branch Heads and Area Managers access to monitor their subordinates’ daily performance. For wealth managers, it combines reports and analysis tools to offer a full view of each portfolio under management, enabling them 42 ANNUAL REPORT 2015 ANNUAL REPORT 2015 43 2015 in Review YEARS OF BANKING ExCELLENCE to manage large client portfolios easily, while also offering a personal touch to clients through birthday notifications, CD maturity dates, large withdrawals, and to follow up with different departments on tasks including but not limited to pending loan applications or reasons for rejected credit cards. Launching Wealth/Payroll Segment: In line with CIB’s strategy, CIB Wealth and Payroll segments introduced their first synergy that will increase efficiency of both segments as it increases product penetration and share of wallet per customer. On the Human Capital front, Revamp Wealth Academy was granted ICWIM Certification (International Certifi- cate in Wealth and Investment Management) for our top performers, awarded by The Chartered Institute for Securi- ties and Investments. Aligning with CI Capital (CIBC research & CIAM) enabled us to provide our WRMs with the latest and most important news, including daily macro outlooks for Egypt and the MENA region, as well as capital market expectations. Looking Ahead Wealth Centers: CIB will be launching seven state-of-the- art Wealth Centers in the next year that will be the first of their kind on the market. We are working towards having all our Wealth Managers ICWIM certified and moving on to IISI certification for our top-performers. CIB will also launch the Private Banking Segment to attract high-net-worth-individuals who require a customer-centric approach, a dedicated product structure, and an exceptional standard of service. to this effect, a pilot phase was conducted to gauge market acceptability, with focus groups and customer surveys to better understand market needs and position CIB as a private-banking market leader. The pilot segment has now grown to include 1,500 customers with total AuMs of around EGP 18 billion and average AuM-per-customer of EGP 12 million. Payroll The Payroll Segment succeeded in achieving a total of 129,000 payroll relationships as of October 2015 (84,000 payroll accounts and 45,000 payroll prepaid cards). In 2015, the segment contributed with 28,000 cards (49% of the bank’s total achievement) and EGP 369 million in loans (33% of total consumer bank unsecured lending). The total payroll segment portfolio now encompasses 343,000 clients (240,000 accounts and 103,000 cards). With liabilities totaling EGP 4.5 billion, a cards total of 68,000 and personal loans worth EGP 1 billion, the Payroll Segment has grown exponentially since launching in 2011, reaching a monthly run rate of 12,000 new clients in 2015. In the next three years and as part of financial inclusion, the segment is aiming to exceed 2 million payroll clients. The Payroll Segment is working on new concepts, includ- ing new product bundles with special insurance benefits that will match customers’ needs and position CIB with a unique offering in the market. In 2016, we will form a new “Payroll Personal Bankers team” that is responsible for overseeing employee accounts and product cross selling to accelerate payroll deal takeovers, and maximize various product cross selling and maintain long-term relation- ships with payroll companies. Furthermore, there will be system enhancements to automatically process all payroll files. CIB Plus CIB Plus is continuing its accomplishments by offering simpli- fied products, fast-track services, and personalized facilities that meet the needs of medium net worth individuals. High fo- cus has been given to the training and development of the Plus Bankers to equip them with the needed skills to fulfill custom- ers’ financial goals. We have also focused more on our clients by offering tailored privileges and travel packages that meet this segment’s desires, while also expanding into more locations, geographically covering dense Plus-Segmented populations. In 2015, the Plus Segment witnessed continued growth by achieving incremental net sales figures leading to: • total deposits portfolio growth of 61% YoY as of Decem- ber 2015 • total assets portfolio growth of 68% YoY as of December 2015 In 2016, the Plus Segment will continue enhancing its offer- ings and products to ensure they cater to customer needs. Business Banking The Business Banking segment has provided both financial and non-financial solutions to its SME customer base since its formation and official launch in 2011. We provide financ- ing, cash management, digital solutions, and advisory ser- vices that principally target small and mid-sized companies across a wide variety of industries in Egypt. All business products and services have industry-based propositions and focus on specific sectors, products, and markets with portfolios diversified by client and geography and that cover important business locations throughout the country. Our principal products and services offering include: Products and Services unsecured lending facilities Supply chain financing Income proof industry based lending programs Internet banking & alterna- tive channels solutions Cash management services Corporate cards Liability products and programs Fund raising accounts We source business mainly through direct marketing efforts to borrowers, manufacturers, vendors, and distributors for both existing bases and new acquisitions. This is done by understanding what is deemed most important to our clients’ companies and businesses, allowing us to deliver exactly what they need at every point of their financial business cycles. Some of our efforts in that regard include: • Simple, easy to understand products: We have pruned our products and services to a simpler set that serves and addresses each company’s needs based on their size, industry, and business nature rang- ing from basic banking to expert guidance. • More ways to bank: Companies can get bank-related information and make transactions when and where it is most convenient for them – online, through their mobile phones, through our AtMs, or our wide network of branches. • Specialized expertise: Nearly 80 Relationship Managers specialized in serving SMEs operate throughout our branches and work as a single team to proactively offer products and services to our clients, providing them with more personalized expertise in running their businesses and acquiring banking products. By building across-the-board relationships with our compa- nies, we’re becoming SMEs’ go-to bank of choice. This is why our relationship approach ensures that our companies have access to the right solutions for all their financial needs, including business banking, cash management, payroll, wealth management for the companies’ owners, and advi- sory services that power business growth and fully utilize their business potential – without having to worry about the banking aspect of the relationship. Business Banking accomplishments & achievements in 2015: In 2015, we advanced our client-focused strategy, creating value for our shareholders and delivering strong financial performances. Building on our reputable foundation and corporate image, we have a strong, diverse and loyal client base of over 6,500 SMEs. Looking ahead, we will deepen our client relationships and continue to acquire more companies seeking optimum banking solutions for SMEs. Summaries from 2015 financial performance: • Deposits balance sheet showed a growth of 131% with a EGP 5.3 billion increase in balances. • Assets balance sheet showed a growth of 169% with a EGP 683 million increase in balances. • Net Profit after taxes showed a remarkable 139% growth vs. 2014, with a EGP 137.3 million increase. Business Banking Ongoing Strategy: • The accelerating pace of change is an everyday reality that frames how we conduct business. We have built this into our strategic planning, allowing us to take action in the face of any obstacle or barrier while acknowledging We source business mainly through direct marketing efforts to borrowers, manufacturers, vendors, and distributors for both existing bases and new acquisitions. Net Profit Performance EGP M’ 491.6 346.3 240.6 157.1 81.8 2011 2012 2013 2014 2015 Deposits ENR Growth EGP B’ 22.9 17.5 11.4 7.6 5.3 2011 2012 2013 2014 2015 Assets ENR Growth EGP B’ 1.7 1.0 0.5 0.6 0.3 2011 2012 2013 2014 2015 44 ANNUAL REPORT 2015 ANNUAL REPORT 2015 45 2015 in Review YEARS OF BANKING ExCELLENCE that the future regarding SMEs in Egypt will be difficult to reliably predict given all the economic barriers and challenges that we currently face in the market; • The customer remains at the core of the strategic priori- ties that guide our segment, with our focus continually being on how to support and empower SMEs’ business in Egypt by offering them financing solutions that enable better cash management and growth opportunities; • We continue to focus on the long term trajectory rather than short-term tactics, gradually evolving along with our clients to find innovative solutions to serve them; • As the SME market continues to change rapidly, we trust that empowering our customers is the way forward. This is done by offering digitized solutions and platforms for improved banking experiences at lower costs, as well as automated processes and ease of service acquisition. Our focus in 2015 on digital platforms for cash and trade services allowed us to offload almost 25% of the bank’s migrated trade business volumes from our branch network to our online banking platform. This impacted our cost-to- income ratio, allowing us to cut expenses and increase our bottom line revenues significantly. Furthermore, improving our clients’ services will ulti- mately help us deliver our strategy. However, this can only happen with a strong risk management approach that creates financial sustainability for both our cli- ents and the Bank in an increasingly challenging environment. Our approach ensures that our risks are carefully managed, ad- equately assessed, and monitored so that corrective actions can be taken in a timely manner if necessary, mitigating all impacts. We will continue to place our confidence on the SME busi- ness for the coming period, believing that these enterprises represent the future of Egypt’s economy and GDP. Indeed, SMEs present many benefits – employment opportunities, em- powering local enterprises vs. foreign companies, and boosting the economy, as almost 80% of Egypt’s GDP relies on SMEs. Digital Banking CIB Digital services continue to be a part of our customers’ daily activities as we offer a simple, trusted, enjoyable, and advisory digital financial experience that is in line with their needs. Below is list of CIB’s current bank channels’ digital capabilities: ATM: Diversified offering that positions CIB as a global reference case • Access: All bank card types can access AtMs with a dual-language option, Arabic and English • Card-Based, Full Account Management Func- tions for Banked Individuals: Cash withdrawal, cash deposit, credit card settlement, transfers, balance inquiry, mini statement, PIN management, bill pay- ment, and mobile recharge • Card-Based Banked Companies: Small cash depos- its into accounts CIB ATM in the 1990s. Over the years, CIB’s ATM network grew to become the largest in the private- sector with 662 machines across the country. In its efforts to further its reach, CIB became the first bank in Egypt to introduce Mobile ATMs in early 2005. CIB increased the number of vehicles in 2007 and to this day still offers this service to clients. Our Strategic Priorities SMEs in Egypt on our strong corporate image 1 Become the bank of choice for 2 Expand strategically by leveraging 3 Offer easy access to finance for 4 Introduce self-served banking 5 Ensure that our strength in risk our clients to help them have a better cash cycle management underpins everything we do for our customers business model through e-solutions • Cardless-Based Banked/Unbanked Individuals: Cash deposits into accounts, credit card settlement, domestic remittance via turbo Cash service that al- lows CIB or non-CIB customers to transfer funds. Even unbanked customers can transfer money in a secure and fast manner. This service will support the strategic di- rection of CIB toward financial inclusion and unbanked customers, which in turn will reroute portions of the capital being circulated in the parallel economy back into the banking system. • Market Share: CIB has 662 AtMs (including 21 ac- quired from Citibank), making CIB the largest private sector bank in terms of network and the second-largest bank in terms of bill payment volume and value. • Migration: In terms of transaction migration, CIB hit a global benchmark with more than 98% of eligible cash withdrawal transactions and 82% of eligible small cash deposits migrating to the AtM network. Internet Banking: Solid growth of new-to-service enrollment • Access: Provide bilingual access using CIB debit cards. • Segments: Special treatment for Individual Mass, Plus, Wealth, Business Banking, and Mass Companies. • Inquiry Services: Deposit accounts and credit card online balance, recent transactions and historical statements, as well as balance inquiries for term de- posits, consumer loans, and mutual funds. CIB also has 8K Small cash deposit migration rate >98% Cash withdrawals migration rate for eligible transactions 662ATMs Largest private-sector network 46 ANNUAL REPORT 2015 ANNUAL REPORT 2015 47 2015 in Review YEARS OF BANKING ExCELLENCE the unique feature of accessing special nature related accounts: Joint, Power of Attorney, Minor, etc. • Transaction Services: Our transaction services in- clude to-own accounts, third-party transactions to other CIB accounts or any other bank inside/outside Egypt, credit card settlement, charity contributions, checkbook requests, managing supplementary credit cards, stop- ping a credit card, or disputing a certain transaction. • Performance: We presently have 173,342 users, ac- counting for 25.4% of the bank’s client-base due to the branch network’s outstanding activation and customer on-boarding efforts. This has resulted in a 39% annual increase of the number of registered users from 2014. This year also witnessed a jump in online banking transactions, reaching 675,000 total transactions, a 45% increase from 2014. Interactive Voice Response (IVR): A transformational journey toward a consolidated customer interaction hub In 2015, two phases of the IvR revamp were successfully deployed to transfer calls from agent to self-service menus, offering the following services in a lower cost: • Access: In addition to access with debit cards, customers can now access IvR via their credit cards, caller ID, and PINs. • Inquiry: Flash balance for deposit accounts and credit cards, tDs, CDs, consumer loans, and mutual funds. • Transactions: Covers transactions between own ac- counts, credit card settlement, charity contribution, checkbook requests, debit/credit cards self-activation, and PIN set up. • Let’s hear your voice: Our new “Post Call Survey” ser- vice enables customers to evaluate their phone calls with CIB Call Center and any other service in general. • Segmentation: Automatic routing based on Caller-ID. • Performance (IVR): After an upgrade in February 2015, the number of new registered users increased from an average of 650 to 4,000 per month. This con- tributed in increasing the transfer of eligible agent calls from 27% in 2014 to 58% in 2015. Call center: In 2015, the Call Center launched a platform upgrade that introduced new features and enhanced agent utilization, service levels, and customer experience through the following: • Supporting the video conference service as a new method of customer interaction. • Automating the workforce management, improving efficiency. • Outbound automated dialer for predefined lists, which directs the call to the agent once the call is answered. In terms of performance, the Call Center supported 3.8 mil- lion agent-handled calls as of the end of 2015, scoring a 95% service level with a 74% efficiency rate. The call center has also maintained a six month benchmark of a 95.5% satisfac- tion rate as per external mystery shopping results. 173K Internet banking users 25.4% Of the bank’s total population 675K Financial transactions 58% Eligible calls migrated to IVR 4K Registered users per month after February upgrade Additionally, the Call Center has shifted toward becoming a revenue-generation channel by proactively promoting sales, achieving 2,500 Credit Shield Sales and EGP 17 million Equal Payment Plan (EPP) during 2015. Smart Wallet (soft launch) availing simple accessible banking to everyone This year witnessed the soft launch of the CIB Smart Wallet, a transformational financial solution that lays a solid foun- dation for financial inclusion. Launching the new service of Smart Wallet confirms the leadership of CIB in providing digital and innovative solutions. The initial phase involved a staff pilot and a limited rollout for the youth segment, targeting closed communities like the American university in Cairo (AuC) and the German university in Cairo (GuC), reaching 8,095 registered customers by the end of 2015. This phased pilot approach was implemented to gather more insight about customer usability in order to enhance customer experience in preparation for the grand launch in 2016. CIB also signed an agreement with Fawry, the largest agent banking-service provider in Egypt, to provide cash in/ out, and registration for CIB Smart Wallet. This will have a positive impact on the cost of acquisition and the opera- tional cost for serving the wallet customers. AUC Registered Users GUC Registered Users 1,250 1,622 Total 2,872 Social Media: Outstanding acquisition pace of social customer relationship leading to worldwide ranking • Building a Community: We have reached more than 330,000 fans on Facebook since launching in April 2014. • Building an Online Social Media Center: 19 highly capable social media agents are in place who respond to any inbound message with an average response time of three minutes for more than 97% of the interactions (recognized as highly responsive by Facebook). • Protecting the Brand: We’ve created a strong digital brand presence and effectively managed the Bank’s reputation (recognized by Social Banker as the number-one most engaging financial brand in Egypt, February 2015). • Voice of the customer (VOC): We continually aim to improve customer experience by listening and re- sponding to inquiries, issues, and suggestions. • Loyalty: Improve loyalty and retention by creating an emotional bond and sense of belonging within the CIB community. • Leads: Creating a new channel for sales and promo- tional activities. • Recognitions: Social Banker reports stated that CIB’s official Facebook page was number one for banks in Egypt and number three for banks worldwide in April 2015, in terms of fan-page growth. Digital Leads: Launched in December 2014, Digital Leads are captured from various sources such as search engines, digital ads, and social media, all to direct prospects to the cibeg.com public portal. During 2015, over 10,000 digital leads were captured for 10 different products. Marketing & Communication The growth in Consumer Banking portfolios is related to launching successful marketing activities/campaigns that adopt a more personalized targeting approach involving greater customer engagement. Hence, CIB’s marketing and communications’ objective through 2015 was to support the 8K Registered mobile wallet customers 95% Service level 75% Service level efficiency 2.3K Credit Card Shield sales >300K Facebook fans since April 2014 10K Captured digital leads 4mins Average response time for more than 97% of interactions 48 ANNUAL REPORT 2015 ANNUAL REPORT 2015 49 2015 in Review YEARS OF BANKING ExCELLENCE business by paying attention to the latest trends in market research, acquiring targeted segments, and focusing on digi- tal marketing, as well as raising awareness about non-cash based transactions. Keeping up with key market research trends is hugely valuable in guiding future marketing activities. This is im- plemented by measuring customers’ interests and behavior through both qualitative and quantitative research. the changing market findings are being monitored by a reputable research agency with quarterly market scans. these efforts also extend to the youth segment with syndicated research and focus groups that help guide the business in developing a strategy for this segment. Furthermore, a number of post-product-launch focus groups were conducted on liabilities products in support of creating a range of offerings that appeal to a wider base of customers. It is vital for the strategy’s main focus to shift from product-centric to customer-centric, in terms of appealing to the target group’s age, demographics, and interests. This will lead to sustainable growth by catering to the varied needs of different segments through innovative products and exceptional customer service. Marketing & Communications activities this year included: • Our strategic alliance with Vodafone provided a B2B portal to serve the SME segment, where we also took part in a four-day event where branding materials were distributed and card referrals were gathered. • The business banking event Ramadan Sohour was organized so that clients and Business Banking RMs could network and enjoy a late-night meal during the Ramadan holiday. • In the wealth segment, a Wealth, Lifestyle & Privi- leges campaign was launched, offering tailored travel packages to preferred destinations. • As part of efforts to transform Egypt into a non-cash- based market, CIB participated in the National Debit Campaign for the second year in a row to raise awareness of the issue and increase debit-card usage. This was supported through the development of a variety of tailored cards such as travel Choice Pre-Paid cards, Corporate Cards, and MCDR Prepaid Cards to match different payment purposes. Also, plastic credit card designs were revamped and new benefits/features were added. For example, an EPP installment plan, roadside assistance, a bonus loyalty program, special promotions through Blue Sky and tickets Marche, as well as exclusive Smart Shopper discounts for different vendors throughout the year. • Asset marketing activities in 2015 resulted in boosted product sales numbers, even during weak seasons. The personal loan campaigns AtL and BtL were launched in the first quarter, aiming to increase product aware- ness and sales numbers. Furthermore, an auto loan promotion launched in June that offered a 50% waiver on administrative fees. As for mortgages, special deals were promoted that offered discounted rates in the large housing compounds of Sheikh Zayed in Sixth of October City. • Consumer marketing is becoming increasingly digital, which means CIB has kept busy as part of its efforts to become “The Best Digital Bank in Egypt.” Activities this year included: Smart Wallet activation booths at the American university in Cairo (AuC) and the German university in Cairo (GuC) Internet banking concierge activation at over 16 branches by utilizing the CRRs in branches to direct clients to digital channels. SEM or “Search Engine Marketing’” campaign that posi- tively impacted CIB website traffic. Animated videos The evolution of the marketing visual content requires integrating number of creative videos to be displayed on social media channels and branches LCDs communicating products features in a simple creative way as a replacement to the standard text communication. On the left, Chase National Bank’s savings account passbook; on the right: Customer Service office in the 1990s. 50 ANNUAL REPORT 2015 ANNUAL REPORT 2015 51 2015 in Review YEARS OF BANKING ExCELLENCE Coo AreA Moving toward digital transformation while simultaneously adopting a dual-growth strategy, the Bank continued to expand its branch network to reach 187 by the end of 2015. COO Area’s Focus for 2015 In 2015, the COO area’s focus was on ensuring that the right infrastructure was in place to cater to our business expan- sion plans and to bring the Bank to the next level in terms of its technology and infrastructure capabilities. A particu- lar challenge in that respect was the Citibank Consumer Business acquisition, where CIB successfully acquired Citibank Egypt’s Consumer Banking Business, including individual accounts, cards, and loans portfolios, requiring the implementation of a six-month transition plan for the Operations and technology Groups. A great deal of effort is being exerted to ensure a smooth transitional process by the end of May 2016. Internally, as the backbone of the Bank, COO Area worked hard to achieve its plans of increasing operational efficiency and productivity to improve services rendered to customers through a more efficient workforce that supports the Bank’s business plans and aspirations; this included various auto- mation and process re-engineering initiatives. These plans were supported with the launching of a number of key proj- ects and automation initiatives, including Custody Opera- tions Automation, and increasing the rates of our Straight- Through-Processing (StP), to name but a few. A number of pivotal strategic projects also kicked-off this year as part of the Bank’s transformation strategy, including Customer Relationship Management and an infrastructure revamp, among others whose aim is to boost the Bank’s capabilities in the coming two to three years. Operations, Channels & Customer Experience Moving toward digital transformation while simultane- ously adopting a dual-growth strategy, the Bank continued to expand its branch network to reach 187 by the end of 2015. Those include the Citibank branches acquired as part of the deal. In parallel, the Bank launched a number of digital initiatives, including the pilot program CIB Smart Wallet as well as a digital payments system. Addition- ally, extra features such as check acceptance and other value-adding services were introduced to our nationwide network of 662 AtMs. A completely revamped Interactive voice Response (IvR) System was also launched with the aim of improving customer experience of our touch points. Our call center supported more than 3 million self-service and agent-handled calls during 2015, addressing custom- ers’ inquiries, requests, and complaints, while also acting as a revenue-generating entity through the cross-selling of the Bank’s products to our customers. CIB further increased its social media presence by creating its LinkedIn profile in addition to a Facebook page that was launched in late 2014. Those provide a more enhanced way of communication with our customers on social media, which re- mains the most reachable and powerful platform in-hand, and also to ensure that customer requests, inquiries or complaints are addressed in a prompt manner through a dedicated team of social media management professionals on board. Our Operations team supported the launch of a number of new services introduced to our customers this year, including equal payment plans and loyalty programs for our credit card customers as part of our effort to increase customer loyalty by providing smoother payment facilities for credit card settlement. This year also saw CIB launch its chip-based debit cards, aiming to provide our customers with more secure payment methods, in line with the Bank’s efforts to protect customers’ interest and welfare. Further focus also went this year toward understanding our customers’ needs through structured customer satisfac- tion surveys conducted across all segments. This helps pro- vide superior services and benchmark our service offerings to align with regional standards for customer satisfaction. Business Continuity Management & Information Security Continually acknowledged as a pioneer in implementing international standards and best practices, CIB continued to set a unique best-practice model to be followed in the Egyptian financial sector in the Business Continuity Indus- try. Our team was crowned as the award winner for “Busi- ness Continuity team of the Year – 2015” from the uS-based Disaster Recovery Institute International (DRII), one of the most reputable business continuity, disaster recovery, and crisis-management institutions worldwide. The Bank was also a seven-time finalist/runner-up for various business continuity management awards both regionally and glob- ally. The Bank continues to invest in further improving its business continuity and recovery capabilities to ensure it provides sustainable services to our customers. Security was also a major area of focus for the Bank this year. Much efforts and many investments were directed toward im- proving our security-management process across the board, including physical security measures as well as information and cyber security, aiming to create a safer operational and business environment that supports the organization and customers’ benefits and well-being. Several projects and initiatives were undertaken in this direction, in addition to complying with the CBE’s regulations for internet banking that were mandated across the entire banking sector. Real Estate & Corporate Services CIB expanded its reach by opening an additional 21 branch- es and completely renovating three others in 2015, bringing the network to 187 branches in total, including the acquired Citibank branches. A new “Wealth Center” concept was in- troduced this year to serve the high-net-worth segment and provide a unique customer experience. The Bank also had an aggressive head-office growth agenda, with an additional building acquired in Smart vil- lage, which expanded and enriched CIB’s footprint in this area. These additions are alongside the 3,000 sqm acquired from the Citibank head office in New Cairo’s Fifth Settle- ment and an increase in office space in our Heliopolis head office. These expansions are intended to accommodate the Bank’s growth and also the new Citibank staff who joined CIB as part of the acquisition deal, with all efforts equating to a better working environment for our employees. Environmental Sustainability also undertook many initiatives in 2015 that were of strategic importance for the Bank. The Bank’s branch on teseen Street (Road 90) in New Cairo attained the “Egyptian Green Pyramids Certificate” (GPRS) – Golden Rating, a local Sustainability certificate granted for existing buildings by the “Housing and Building National Research Center.” CIB is the first bank to obtain such a certificate, which further fosters its contributions to sustainable development. An initiative to replace all lighting with LED lighting at all Bank premises was also launched as part of CIB’s continuous contribution toward energy saving and environmental sustainability. The Bank also ensured it integrated sustainability and energy-saving standards within its day-to-day operations. Information Technology It embarked on its aggressive transformational journey this year by initiating a number of major strategic projects that were focused on customer centricity, technical agility, and infrastructure resilience, as well as several initiatives that aim to enhance the Bank’s technology capabilities. The It department’s leadership was boosted with well-experienced professionals to support our technology maturity plans in the next few years and move further toward acting as a busi- ness enabler to achieve the CIB’s strategic goals. technology played a major role in 2015; the conclusion of the migration plan and other related activities of the Ci- tibank acquisition involved very detailed and complex plan- ning for over six months, which were followed by a period of execution that will continue until successful migration is complete by the end of May 2016. We continue to invest in our people within the It organi- zation, believing that our employees are the key pillars for our success, with comprehensive technical and leadership training plans tailored to cover their development needs moving forward. Brand, Corporate Communications, and Sustainability Department Brand & Corporate Communications As the primary channel promoting CIB’s brand image, on both internal and external fronts, as well as the carrier of the communications and sustainability responsibilities of the 52 ANNUAL REPORT 2015 ANNUAL REPORT 2015 53 2015 in Review YEARS OF BANKING ExCELLENCE whole organization, the Brand and Corporate Communica- tions Department focused on capitalizing on the successes of last year. By utilizing its many channels and tools, the department further solidified and expanded CIB’s brand awareness, image, loyalty, positioning, and exposure. The year 2015 witnessed a number of notable accomplish- ments, particularly CIB’s outstanding contribution to and organization of major events of significant economic and po- litical weight. CIB was an integral partner of success in three of the most important events of 2015: The Egypt Economic Development Conference (EEDC) in Sharm El-Sheikh in May, the inauguration of the New Suez Canal in August and the Egyptian gala dinner held in New York in October in support of Egypt’s candidacy to the non-permanent seat of the Secu- rity Council. The Bank played a leadership role at each event: CIB was a platinum sponsor and main lunch host at the EEDC, a gold sponsor with branded giveaways at the inauguration ceremony of the New Suez Canal and the exclusive sponsor and organizer of the gala dinner “Evening in Egypt”, which was held at the Metropolitan Museum of Art and attended by over 500 dignitaries, diplomats, and high-profile guests. Augmenting this widespread brand exposure, CIB main- tained its distinctive branding across Cairo International Airport, ensuring the Bank’s exclusive signage is in focal po- sitions such as being the first and only bank with branding inside and outside Cairo International Airport’s tubes. This branding supports our strategy of attracting foreign inves- tors to Egypt while creating top-of-mind awareness to all potential clients. The significance and value of this branding was demonstrated during the EEDC, as CIB secured main positions across Sharm El-Sheikh Airport, the gate of en- trance and departure for all of the high-profile guests. With regards to communications channels, on the external level, the department launched CIB’s Commitment Campaign across tv, outdoors, print media, and digital platforms. The success of this campaign was evidenced by performance figures that trumped the estimated/targeted ones. Engaging activities were also conducted internally among staff mem- bers to better promote the campaign, such as “Be the Script Writer” and after-working hours entertaining activations inside and outside CIB premises and branches. External communications in 2015 witnessed remarkable achievements across different fronts: press releases, press ads, the CIB Portal, and various social media platforms. The focus on each element further cemented CIB’s position and lever- aged its competitive edge in the market. Remarkably, the CIB portal experienced considerable growth of traffic, with visits up by 33%, existing users by 45%, and new users by 44%. With regards to social media, the team bolstered brand presence across social media channels, taking into consid- eration the impact of such channels as they actively reflect the real-time pulse of the audience. New CIB pages on Insta- gram and LinkedIn were also launched. An important component of this year’s external com- munications strategy was to boost CIB’s brand equity and exposure in the foreign sphere, through targeted media External communications in 2015 witnessed remarkable achievements across different fronts: press releases, press ads, the CIB Portal, and various social media platforms. The focus on each element further cemented CIB’s position and leveraged its competitive edge in the market. exposure, PR strategy, and high-profile international events. In this regard, the following was conducted during 2015: • Brand Campaigns: CIB promoted a special campaign that focused on profiling CIB in specific, and Egypt in general, which generated positive impact and contrib- uted to the creation of favorable and transparent per- ception about the investment environment in Egypt. • Foreign Media and PR Strategy: This year’s foreign media exposure and PR strategy brought back positive returns for the CIB brand, as the penetration and reach of our brand across leading media platforms expanded. Building and maintaining close relationships with lead- ing media experts, editors-in-chief, and senior editors resulted in a series of interviews and positive placements on CIB and Egypt in the world’s leading and most repu- table media organizations, including: Bloomberg tv, Wall Street Journal, The Banker, Forbes, The New York times, Reuters, The Economist, uSA today, The Finan- cial times, and Euromoney. All were conducted with the aim of profiling CIB’s Chairman, expanding our brand exposure and promoting Egypt. Special articles with the Chairman’s byline on the Egyptian economy and the New Suez Canal inauguration along with a range of op-eds were published in renowned international media platforms, the most prominent of which was The Hill, a leading uS political website that is read by White House executives and many lawmakers. CIB’s PR strategy was a fundamental catalyst in promot- ing the successful acquisition of Citibank’s retail and card business in Egypt. A widespread PR plan was imple- mented to capitalize on this vital agreement and ensure the proper exposure in terms of foreign media. the news was featured in more than 30 prominent portals, includ- ing but not limited to: the Wall Street Journal, Reuters, Bloomberg, the Guardian, Yahoo, telegraph, Gulf News, uS News, and many more. Newspaper headlines about CIB’s IPO on 12 September, 1993 – the largest local bank IPO in Egypt. 54 ANNUAL REPORT 2015 ANNUAL REPORT 2015 55 2015 in Review YEARS OF BANKING ExCELLENCE finAnCe group The Finance Group had another successful year in 2015, as it continued to drive performance while focusing on the maximization of long-term shareholder value. Finance drove the expanded use of Risk Adjusted Re- turn on Capital (RAROC) as a standardized performance- measuring tool throughout the organization to realize greater levels of efficiency in capital allocation. In 2015, the use of RAROC was extended to all corporate clients and retail banking products. Finance continued upgrading its It capital, with the imple- mentation of an advanced enterprise performance manage- ment system that provides more timely and comprehensive reporting capabilities. The bank launched the “Big Data” ini- tiative in Q4 2015, which will revolutionize the way the bank gathers, processes, and disseminates information, aiming to transform our business to a true data-driven model. the Bank’s Regulatory Reporting team worked closely with the CBE to implement Basel III liquidity ratios: Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ra- tio (LCR), as well as leverage ratios. By exceeding these more stringent ratios, CIB underlined the exceptional strength of its balance sheet. CIB’s first check book, 1987, after the Bank’s name had been effectively changed on June 15 of the same year, following Chase Manhattan’s exit. Equally important, the department focused diligently on boosting internal communications, as the core channel con- necting all CIBians bank wide, through different channels, such as the Intranet and newsletter. The main goal of the in- tensified internal communications is to harden the sense of ownership and loyalty among staff and ensure that everyone is conscious of the Bank’s latest news and achievements. Aligning with the brand strategy and plan, CIB continues to select sponsorships that sustain the Bank’s commitment to society in general and Egyptian youth specifically. This year, the Bank further diversified its types of sponsorships and sealed new ones: • “Al-Nour Wal Amal” orchestra, which consists of blind female musicians • International Museum Day in Egypt • Flyboard (non-traditional sport) • upper Egypt Youth Salon • Egyptian artists at the Biennale di venezia and Flor- ence Biennale These sponsorships are in addition to the ongoing ones relating to themes of lifestyle, CSR, art, culture, and sports, such as: • El-Sawy Culture Wheel • KidZania • IMAX Cinema • Zawya, an art-house cinema in Downtown Cairo • Euromoney • tedX • The Egyptian Squash Federation • Youth Salon • American Chamber of Commerce in Egypt (AmCham) Each sponsorship has had a positive and impressive impact on CIB’s brand, but topping the headlines this year was the Bank’s sponsorship of Omar Samra, who became the first Egyptian and the youngest Arab to complete the Explorer’s Grand Slam, which involves climbing the Seven Summit – the world’s highest mountain peaks on all seven continent – as well as skiing to both the Geographic South and North Pole. In addition to sponsoring and backing talented Egyp- tian youth, CIB also supports its talented staff members, offering them an equal opportunity to develop their skills through various initiatives, including the Photography Internal Competition that was held in 2015 for the second consecutive year, in addition to the “Be the Script Writer” contest, which has revealed the hidden writing creativity of many CIBians. Capitalizing on last year’s achievements with regards to branches, the Brand and Corporate Communications Department supported the expansion of CIB’s network of branches by maintaining the unified and standardized look and feel across the network and implementing new guidelines. A total of 21 new locations were inaugurated and added to the network, in addition to the eight acquired branches from Citibank, increasing CIB’s coverage scope in the country. Looking ahead to 2016, CIB will continue to solidify its leading brand position in the market and expand its brand awareness, loyalty, and exposure, both regionally and inter- nationally. The Bank plans to benefit from its current brand campaign and launch new ones, capitalize on international promotion, diversify the scope of sponsorship themes to amplify CIB’s firm commitment and support to society, and strengthen its communications channels by adopting and implementing the latest innovative techniques. CIB Awards CIB’s superior performance and depth of premium service and products were recognized by many reputable orga- nizations that granted the Bank different notable awards covering a variety of banking fields, on both regional and international levels. CIB received a total of 21 international awards, two of which were extended to the Bank for the first time ever, including: • Best Business Continuity team - DRI International: The DRII is one of the world’s leading certification bodies in Business Continuity and disaster recovery planning. For the first time ever, the DRII granted its “team of the Year” award to an Egyptian bank in recognition of CIB’s level of excellence in business continuity management. • Best Consumer Digital Bank in Egypt - Global Finance: This award was granted to CIB for the first time in rec- ognition of the Bank’s digital platforms in terms of look and feel features, in connection with the re-launch of CIB’s website last year. The list of 2015 awards also includes: • Best trade Finance Provider in Egypt - Global Finance • Best Foreign Exchange Providers in Egypt - Global Finance • Best Bank in Egypt 2015 - Global Finance • Best Sub-Custodian Bank 2015 - Global Finance • trade Finance Deal of the Year - African Banker • Best Bank in Egypt - Excellence Award - Euromoney • Best Corporate/Institutional Internet Bank in Egypt - Global Finance • Best Information Security Initiatives - Global Finance • Best FX Services in North Africa - EMEA Finance • Innovators in Foreign Exchange - Global Finance • Best Bank in Egypt - EMEA Finance African Banking • Achievement in Enterprise Risk Management of the Year - Asian Banker • Strongest bank by balance sheet in Egypt for 2015 - Asian Banker • Best Commercial Bank in Egypt - Banker Africa • Best Corporate Bank in North Africa - Banker Africa • Most Socially Responsible Bank in North Africa - Banker Africa • Bank of the Year Egypt - The Banker • Elite Quality Recognition Award by JP Morgan - Mt 103 (90%) • Elite Quality Recognition Award by JP Morgan - Mt 202 (98%) 56 ANNUAL REPORT 2015 ANNUAL REPORT 2015 57 2015 in Review YEARS OF BANKING ExCELLENCE HumAn resourCes The Bank’s renowned credit course began in the 1970s and was based on Chase Manhattan Bank’s Credit Development program. CIB continues to finetune and upgrade course modules, as they play a significant role in developing the Bank’s future leaders. Organization Development In line with the HR strategy to develop potential talents, the Organization Development (OD) department created the talent Management team, assigning it the responsibilities of competency modeling, development and management programs, and employee assessment. The OD launched two talent Management programs in 2015 targeting middle man- agement, namely the Middle Management Career Counsel- ing and Middle Management Development programs. Both initiatives aim to accelerate potential employees’ business and technical development by identifying career-growth opportunities within the organization. using standardized leadership styles as a measure, the OD also launched an assessment of middle-management leader- ship styles to identify gaps, which are utilized by managers and impact team performance and department climate. In continuation of the voice of Employees initiative, a number of focus groups were held in 2015, with a special focus on criti- cal departments, followed by comprehensive analysis, recom- mendations, and action plans to address identified challenges. Compensation & Benefits The Compensation and Benefits department participated in a number of salary surveys to capture comprehensive industry insights to support the creation of a compensation strat- egy for existing employees to ensure that CIB’s compensation schemes remain competitive, in order to effectively retain and attract the best calibers in the market. Learning & Development This year, the Learning and Development (L&D) department was strategically engaged with all business areas, offering a comprehensive suite of learning and training programs and modules. L&D developed innovative ways to further assist in the upskilling and empowerment of CIB’s teams with the best professional learning experience. The Job Families Approach was successfully carried forward in 2015 to include a new accreditation program, “Private Client Advisor” (PCA), in addition to having a well- designed training matrix for key technical bank areas. various training methods and techniques have been applied at all levels, including: • Off-site Events (for senior- and junior-level employ- ees): Aimed to increase loyalty and engagement of employees in addition to strengthening team spirit • Open Seminars: Focused on adding new knowledge and enhancing employees’ existing capabilities • Departments’ Team Building Activities: Designed to boost energy, morale levels, and enhance team effec- tiveness through interactive and challenging activities • Simulation Programs: Aimed to add new learning approaches and experiences • Blue Collar Program “We are All CIB”: Introduced to motivate blue-collar employees, create a “pro-worker” atmosphere within CIB, and boost the overall morale and the sense of belonging In line with CIB’s Corporate Social Responsibility (CSR) strategy, L&D adopted the following initiatives in 2015: • Summer Internship Program that saw students from public and private universities train at CIB branches and departments for a duration of six weeks, widening their banking exposure and perspectives • CIB Scholarship for Ain Shams university students • Open Seminars for Cairo university and German university in Cairo (GuC) students The L&D also developed various innovative learning tools including Webex training, E-learning, Leadership Insights, E-library, mobile applications, and educational videos. Recruitment In line with the organization’s customer centricity, the Re- cruitment and Selection department managed to align hir- ing criteria and processes in order to ensure the attraction of top calibers in the market who are capable of supporting CIB’s aggressive growth strategy: • In 2015, new methods of assessing candidates were in- troduced: full assessment centers, psychometric tests, and customer-contact-style questionnaires • Launched the I-Recruitment system, which assisted in the scanning of Cvs, reducing turn-around time, and providing several search tools on a variety of dimensions • The Recruitment and Selection team has been engaged with top international and local executive search firms to support the Bank in attracting the markets’ best talents The Recruitment and Selection department adopted various screening techniques, including: • The Unified CIB Interview Panel: Designed to provide a consistent profiling assessment in terms of behavior and personal attributes that match job requirements • The Thomas Online Assessment tool: used to assess the behavioral patterns and competencies of each can- didate as opposed to where they fit best and how they react in a certain work environment or culture • On-Campus Events and University Alliances re- main one of the most vital sourcing tools for CIB in re- cruiting fresh graduates. In 2015, the Recruitment and Selection department attended over 13 employment fairs and career events where more than 1,862 qualified candidates applied to work with CIB • There was also an upgrade in all sourcing channels, online channels, and social media – as well as updates in headhunter lists CIB CREDIT ANALyST COuRSE CIB’s Credit Analyst Course is one of the oldest and best in Egypt, providing high-potential candidates with the theoretical and practical knowledge they need to make sound decisions based on clear and correct situational analyses in various industries and product circles. Graduates are allocated to dif- ferent departments within the Bank. Originally based on Chase Manhattan Bank’s Credit Development program, the course was restructured in 2011 to include a practical ap- plication phase that begins upon the satisfactory completion of 15 technical modules that cover ac- counting, cash flow mechanics, industry analysis, financial analysis, lending rationales, projections and modeling, advanced accounting, and valua- tions, among others. The two phases of the course take place over the span of one year and play a key role in developing CIB’s future leadership. Most of CIB’s senior managers participated in this pro- gram, which has – throughout its history – seen around 700 analysts graduate with success. 58 ANNUAL REPORT 2015 ANNUAL REPORT 2015 59 2015 in Review YEARS OF BANKING ExCELLENCE risK group The Risk Group (RG) provides independent risk oversight and supports the enterprise risk management (ERM) framework across the organization. RG proactively assists in recognizing potential adverse events and establishes appropriate risk re- sponses essential for the building of competitive advantage, which reduces costs and losses associated 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. The Group is managed by a Chief Risk Officer (CRO), whose responsibilities entail the day-to-day monitoring of the following key areas: credit, investment, market, operational, liquidity, interest rate, and social and environmental risks (referred to as Principal Risks), as well as the establishment of a holistic risk management coverage system by ensuring the following: • Oversight of the enterprise risk management framework • Implementing and adhering to consistent risk manage- ment standards • Disseminating risk management culture awareness throughout the organization Overview 2015 was yet another year of uncertain economic and geopolitical circumstances that saw CIB’s prudent risk management framework aid in the containment of losses. The Bank continues to maintain its solid reputation as a market leader, serving clients efficiently and delivering strong results. Our robust framework provides assessments of Principal Risks. CIB operates through a comprehensive risk management framework that successfully provides organization-wide oversight that is in-line with our business 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 Credit Information Market Risk Consumer Credit Policy, Application Fraud & Quality Assurance Collection, Application Fraud & Strategic Analysis Non-Performing Exposure Management & Provisioning Investment Exposure Management Operational Risk Business Banking Risk Enterprise Risk strategy, ensuring the identification, measurement, and control of material risks at all levels. All elements of the framework are integrated to achieve an appropriate bal- ance between risk and return. Objectives • Implement an enterprise risk management framework with the elements of risk strategy/risk appetite, process, infrastructure, and risk culture • Maintain focus on Principle Risks • Align our risk profile with the Bank’s risk strategy and support the Bank’s strategic initiatives, awarding special focus to balance sheet optimization • Provide independent risk analysis via measurement and monitoring processes that are closely aligned with the business and support groups • Work on raising efficiency to reduce expected losses, while maintaining adequate impairments coverage • Initiate the process of embedding social and environmental risks as integral components of our risk review by develop- ing Social Environment policies, processes, and procedures • Support business growth while encouraging approval/ delegation authorities to enhance turn-around time Risk Management Framework Enterprise Risk Management (ERM) CIB’s formalized ERM Framework operates with the objective of maintaining a holistic and forward-looking approach to Risk Management, coupled with a strong Risk Culture, a dynamic Risk Appetite process, and a robust IMMMR (Identification, Measuring, Managing, Monitoring, Reporting) initiative for Credit, Market, Operational, Liquidity, and other Principal Risks. ERM will establish the oversight, control, and discipline that can drive continuous improvements of CIB’s risk manage- ment capabilities in a changing operating environment. Governance CIB’s risk governance structure utilizes the Lines of Defense model, with a robust committee structure and a compre- hensive set of policies and operating guidelines that are approved by the Board of Directors. The BoD, directly or in conjunction with Board Committees, provides oversight of approval processes, risk levels, as well as key performance and risk indicators. The CRO and other risk officers, who are key members of all credit, consumer, business banking, security, asset and liability management, and operational risk committees are responsible for identification, assessment, and reporting of all types of risks across all business lines. • The High Lending and Investment Committee (HLIC) ) is an Executive Committee composed of mem- bers of the Bank’s senior management team. Its primary mandate is to manage the assets side of the balance sheet, keeping a close eye on asset allocation, qual- ity, and development, while ensuring compliance with the Bank’s credit policies and the CBE’s directives and guidelines. The HLIC reviews and approves the Bank’s credit facilities and equity investments, although there are other Credit Committees responsible for approv- ing different exposures that carry lower limits, shorter tenors, and better Risk Ratings than those reviewed/ approved by the HLIC. • The Asset & Liability Committee (ALCO) ) is charged with optimizing the allocation of assets and liabilities, given expectations of the potential impact of future interest rate fluctuations, liquidity constraints, and foreign exchange exposures. ALCO monitors the Bank’s liquidity and market risks, economic developments, market fluctuations, and risk profile to ensure ongoing activities are compatible with the risk/reward guidelines approved by the BoD. • The Consumer Risk Committee’s (CRC) overall responsibility entails managing, approving, and moni- toring all matters related to the quality and growth of the consumer portfolio. CRC decisions are guided first and foremost by the Bank’s current risk appetite, in addition to prevailing market trends, all the while en- suring compliance with the principles stipulated by the Consumer Credit Policy Guide, as approved by the BoD. 60 ANNUAL REPORT 2015 ANNUAL REPORT 2015 61 2015 in Review YEARS OF BANKING ExCELLENCE • The Senior Business Banking Committee’s (SBBC) overall responsibility is managing, approv- ing, and monitoring all things related to the quality and growth of the Business Banking Portfolio and ap- proval processes. SBBC decisions are guided first and foremost by the Bank’s current risk appetite, as well as prevailing market trends, while ensuring compli- ance with guidelines stipulated by the CBE and Busi- ness Banking Credit Policy Guide, as approved by the Board of Directors. • The Security Committee’s main objective is to provide guidance and advice that help maintain and improve all matters related to security, including information confidentiality, integrity, and availability, as well as physical security, Bank asset protection, and work place security among others. • The Operational Risk Committee’s (ORC) main objective is to oversee, approve, and monitor all affairs pertaining to the Bank’s compliance with the opera- tional risk framework and regulatory requirements. Principles CIB’s take on risk is directed by the following principles: • Business activities are conducted within established risk categories that are further cascaded down to limits • Decision-making is based on a clear understanding of the given risk, which comes alongside robust analysis,and continuous maintenance of a defined risk appetite • Proactively considering changing economic conditions in a holistic and forward-looking manner • Recognizing social and environmental risks that may have a great impact on business performance Summary of Risk Framework Risk Culture Risk Governance Risk Principles Risk Appetite Limits and Policies Risk Monitoring Credit Market Operational Liquidity Social & Environmental Investment Interest Rates Stress Testing Risk Appetite CIB aligns Business Objectives with risk appetite and risk tolerance, quantifying that by capital adequacy, stable funding, and earnings volatility, as primary key risk indi- cators (KRIs) cascaded into risk tolerances by risk category and limits. Risk appetite is the maximum level of risk that the Bank is prepared to accept in order to accomplish its business objectives and is annually reviewed and approved by the Board of Directors. CIB’s risk appetite statement is defined in both qualitative and quantitative terms and is inte- grated into our strategic planning processes for each line of business. Our framework for risk appetite is guided by the following principles: • Strong capital adequacy • Sound management of liquidity and funding risks • Stability of earnings Integrating social and environmental risks into the main framework of our risk appetite assessment and review pro- cess will commence by mid-2016. Limits and Policies A robust system of risk limits and policies is fundamental to effective risk management and is guided by the risk appetite framework. CIB has a comprehensive set of risk management policies, processes, and procedures that are regularly updated and aligned with CBE regulations, the Bank’s strategy framework and also market dynamic requirements. CIB policies and procedures are communi- cated throughout the organization and are used as a tool of control over the Bank’s risks level and tolerance. Monitoring Enterprise-level risk monitoring, transparency, and report- ing are crucial components of CIB’s risk framework and operating culture, ensuring that the BoD, committees, and senior management are effectively executing their respon- sibilities. CIB has developed practices that are designed to monitor risk and ensure control measures are exercised. Lines of Defense Model 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 & Chal- lenge Identify and manage the risks inherent in activities, products, processes, and systems. Set frameworks and rules; monitor and report on execution, management, and control. Provide an independent assessment of the entire process. Manage Control Evaluate Culture CIB’s risk culture encourages effective communication among employees to facilitate alignment of business and risk strategies and promote an understanding of the pre- vailing risks throughout the organization. Integrity and reputation are embedded in CIB’s culture, being key re- quirements for successful operation. CIB continues to add learning opportunities and expand risk training across its departments in order to raise risk and internal control awareness, and ensure the Bank’s employees are well- equipped to make decisions in an ethical, professional, coordinated, and consistent manner. Stress Testing Stress testing is performed on a regular basis to assess the impact of a severe economic downturn on our risk Risk Organization under the Risk Group, risks are monitored by Credit and Investment Exposure Management, Credit and Investment Administration and Credit Information, Consumer and Business Banking Risk, and the Risk Management Groups. These groups actively examine and review exposure to en- sure the diversification of the Bank’s portfolio in terms of capital adequacy, customer base, geography, industry, tenor, currency, products, countries, risk rating, segments, etc. Credit & Investment Exposure Management (CIEM) CIEM’s primary objective is to evaluate Institutional Bank- ing’s lending and investment portfolio, and use qualitative and quantitative analysis to maintain a quality portfolio, enhance the Bank’s seniority, establish adequate protec- tion and control, and develop a solid provisioning process that ensures adequate portfolio coverage. Chief Risk Officer (CRO) CIEM Objectives Operational Risk Committee (ORC) Consumer Risk Committee (CRC) Asset & Liability Committee (ALC) High Lending & Investment Committee (HLIC) profile and financial position. the Bank’s methodologies undergo regular scrutiny in order to assess the impact of different scenarios. CIB is working toward having an integrated stress-testing approach as a key component of the ERM framework. • Work closely with different departments and support groups across the organization to adequately monitor port- folios and operations and provide accurate 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 shareholders’ value, as well as social responsibility and sustainable business growth • Improve overall institutional banking credit risk management CIEM Principles • Credit risk management is part of our daily business 62 ANNUAL REPORT 2015 ANNUAL REPORT 2015 63 2015 in Review YEARS OF BANKING ExCELLENCE activities and strategic planning, awarding CIB an outstanding competitive advantage • Decision making is based on a clear understanding of the given risk, accompanied by prudent analysis to be ap- proved within the applied risk management framework • Authorities are delegated in accordance with the over- all Bank strategy and risk appetite • Products and portfolios are structured, priced, ap- proved, monitored, and managed in compliance with in- ternal policies and external regulations and guidelines • Business activities are conducted within established risk categories that are further cascaded down to lim- its, whether on obligor limitations, industry, country, counter-party limits, etc • Periodic monitoring of outstanding exposure to ensure the quality of assets Main Measures and Monitoring Tools • Internal Credit Rating Assessment Model: CIEM developed a comprehensive internal rating tool for all corporate borrowers based on 60 quantitative and qualitative measures in order to ensure risk rating alignment across the board and adherence to interna- tional best practices. • Risk Adjusted Return on Capital (RAROC): vari- ous RAROC tools are used to complement credit assess- ments and quantitative analysis. • Past Due Obligations: CIEM regularly measures expo- sures in terms of settling dues. Exposures are continu- ously monitored in order to detect problematic accounts and obligations are 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; tests involve setting several scenario assumptions for the relevant macro-economic and market variables to assess impact on borrowers. • CIB is tailoring a sustainability framework to meet the long-term objective of ensuring that social and environ- mental risks are consistently reflected in Bank policies, processes, practices, and consciousness for durable growth and success, underpinning CIB’s social and environmental risk management model, and providing directions for op- erational activities to achieve the Bank’s ambitions. 2013 2014 2015 Gross Loans (EGP Million) 45,549 53,718 62,947 NPL (%) 3.96% 4.66% 3.98% General Ratio (Direct Exposure only) 3.72% 3.42% 5.11% Coverage Ratio 158.82% 138.16% 188.36% Charge-offs to Date (EGP Million) Recoveries to Date (EGP Million) Recoveries to Date/ Charge-offs to Date 2,155 2,182 2,747 454 464 473 21.07% 21.26% 17.21% 2015 was a distinctive year due to macro and industry- specific conditions, that included but were not limited to the appreciation and scarcity of foreign currency, coupled with shortages in energy and lower oil prices, which affected the performance of the Egyptian market. The high quality of CIB’s portfolio allowed the Bank to maneuver its way safely through this difficult period. The Bank’s performance is reflected in a default ratio of 3.98% as of December 2015 compared to 4.66% in December 2014, coupled with a Coverage Ratio of 188.36% in December 2015 compared to 138.16% in December 2014. Credit & Investment Administration/Credit Information The Credit and Investment Administration function ensures administrative control over institutional and investment ex- posures as well as compliance with both credit policy guide- lines and CBE directives. The Credit and Investment Admin- istration is the backbone of the Institutional Banking Group, as it maintains a quality control system that ensures CIB’s seniority, protection, and control. The year 2015 witnessed the expansion of the department’s role, where it became the central authority responsible for setting the credit limit of Institutional Banking on the system, in addition to becoming the custodian of documentation. This has enhanced the ef- ficiency of the Bank’s customer service quality, and improved our reporting, which facilitates effective decision making. Consumer and Business Banking Risk Consumer and Business Banking Risk is a centralized, independent department operating under the Risk Group, managing risk for all Consumer and Business Banking Asset Products and applying a diversified set of Risk methodologies and mitigation tools and strategies. The division’s responsi- bilities include identifying, assessing, and monitoring risks as well as establishing standards for managing them. The organizational structure is designed to facilitate the credit cycle and support the growth of the Consumer and Business Banking portfolios. Consumer Banking The Consumer Banking portfolio consists of a broad range of asset products, which include Personal Loans, Credit Cards, Auto Loans, Real Estate Finance Loans, and Over- drafts. Lending programs and decisions are guided through individual product programs that assess each product separately and incorporate detailed eligibility criteria, del- Enterprise Risk Management Award Ceremony, 2015. egation authorities, and approved peak exposures that are aligned with current risk appetite. management of each of the Credit Cycle stages, including initial information, analytics, decision making, and credit actions. The Consumer Credit Policy Guide (CCPG) sets lending boundaries and establishes robust boundaries to oversee ongoing policy management. It provides guidelines that aim to ensure prudent risk management and maintain high- quality loan portfolios, while keeping in mind the risk and reward equation. It also regulates the delegated approval authorities for new product launches, tests, and promotions, as well as transactional approvals. The consumer cycle comprises five main elements, and the consumer risk structure and framework mirrors these stages, each of which is managed entirely by a specialized functional department: • Product Planning, undertaken by the Credit Policy Department • Centralized Credit underwriting, undertaken by the Credit Assessment Department • Account Maintenance Activities partially handled by the Credit Assessment and Fulfillment unit • Handling delinquent customers through the Collections and Recoveries Department • The Strategic Analytics Department provides support for management in all stages, including information and analytics for decision making and credit actions At the heart of the Credit Cycle is the Strategic Analytics De- partment playing a critical role in providing support for the Business Banking The Business Banking Risk department has success- fully partnered with the Business team to achieve portfolio growth while maintaining its solid quality. This is achieved through regular reviews, dynamic parameter changes to keep abreast of the market, and close monitoring and managing of high-risk segments. Continuous amendments are applied based on findings from portfolio reviews, including in-depth analysis, to ensure consistency in the performance of the Bank’s portfolio. The Business Banking Risk department along with the Business team have been focused on identifying new segments and sub-segments as well as implementing a simple product program approach that addresses the needs of those segments, leveraging the “Factory Approach.” This approach involves implement- ing a near straight-through processing mechanism that varies based on a set of standardized criteria, in addition to support packages and documentation that allow for a standardized evaluation and shorter turnaround time. Portfolio Quality Consumer and Business Banking portfolio quality has been sustained, ensuring advanced portfolio management tech- niques by monitoring all current and historical programs’ performance. This helps in the identification of potential 64 ANNUAL REPORT 2015 ANNUAL REPORT 2015 65 2015 in Review YEARS OF BANKING ExCELLENCE The Chase National Bank staff newsletter in 1980. Produced on a typewriter, the newsletter communicated news about bank activities, branch announcements, and new joiners. It also included a section titled “Interview with One of Us,” in addition to crossword puzzles, trivia, and jokes. growth segments and the detection of early warning signs. The 2015 Consumer and Business Banking asset portfolio stands at EGP 12.5 billion, with an outstanding portfolio quality reflected in the loss rate of 0.5% in 2015. Despite the aggressive growth of the unsecured lending strat- egy adopted by the Bank, KRIs and Loss Rates were maintained within Risk Appetite and Benchmarks. Loss Rates stood at 1.4% for 2015, while Non-Performing Loans (NPL) rates stood at 1.3%. Our Strategy Going Forward The strategy for Consumer and Business Banking Risk is aligned with the Business Strategy that targets aggressive asset growth and increase of unsecured businesses, while emphasizing Portfolio Quality, Risk-Based Pricing, and more effective use of RAROC going forward. The adopted strategic key risk initiatives are as follows: • Portfolio Quality continues to be the primary objective, in addition to ensuring sustainable growth through pre- dictive analytics and customer life-cycle management; • Focus on scalable risk infrastructure to further enhance efficiency and maintain a world-class customer experience • Collection infrastructure, efficiency, and continuous risk profiling through improved reach and enhanced collection strategies; • Effective management of significant increase in acqui- sitions expected over the next five years by transition- ing from criteria-based (product program approach) to scorecard-driven decisions, automated sophisticated decision engines, and loan origination systems which should improve productivity; • Emphasizing people’s development and empowerment, delegation, and accountability to address the Bank’s future leadership needs; • Automating the unsecured lending mechanism to ac- celerate end-to-end processes. Risk Management Department The Risk Management Department (RMD) identifies, mea- sures, monitors, and controls asset and liability manage- ment (ALM) as well as market and operational risks via Bank policies, ensuring that regulatory and risk analytics requirements are adequately managed, and their status regularly reported to management and members of the BoD. In addition, a new ERM function was established in 2015. Enterprise Risk Management ERM is dedicated to leading the bank’s overall enterprise risk management framework and monitoring infrastructure initiatives, with the objective of having a holistic, integrated, and forward looking view of risks, following best practices which was endorsed by the Board of Directors via the ERM road map. The initial foundation for the ERM road map is strong data governance and continuous enhancement of quantitative and qualitative framework of Principal Risks. Liquidity Risk arises from the Bank’s inability to meet financial obligations and regulatory liquidity requirements. CIB has a comprehensive Liquidity Policy and Contingency Funding Plan to manage liquidity risk, which factors in the Bank’s risk profile, risk appetite, as well as market and mac- roeconomic conditions. The main measures and monitoring tools used to assess the Bank’s Liquidity Risk include regulatory and internal liquidity ratios, liquidity gaps, Basel III liquidity ratios, and funding base concentration. CIB managed to maintain a strong liquidity ratio in 2015, as compared to the guidelines of both the CBE and Basel III (Liquidity Coverage and Net Stable Funding ratios). The CBE’s liquidity ratios for both LCY & FCY were 67.25% and 41.49% respectively for the year, maintaining the Bank’s strong position, even during volatile times. CIB has a robust Contingency Funding Plan (CFP) that supports di- verse funding sources of liquid assets, maintaining an ad- equate liquidity buffer with minimal reliance on wholesale funding. 2015 saw an exceptional percentage of customer deposits to total funding base (a major component of CIB’s Risk Appetite Statement) of 98.9%. Throughout the year, stress-testing scenarios (specific and systemic) showed that no immediate action was required in the CFP, which was further fortified by the existence of sufficient high- quality liquid assets (HQLA). 2015 Q1 Q2 Q3 Q4 Percentage of Deposit Base to total Funding Base 98.3% 98.5% 98.5% 98.9% Interest Rate risk is the potential loss resulting from the Bank’s exposure to adverse movements in interest rates. Interest rate risk primarily arises from re-pricing maturity structures. In 2015, CIB used an effective risk management process that maintained interest rate risk within prudent levels that ensured the Bank remains on safe and stable ground. Additionally, CIB proactively positioned the balance sheet in a way that allows it to benefit from a volatile interest rate environment. The Bank uses complementary technical approaches to measure and control interest rate risk includ- ing Interest Rate Gaps, Duration, Duration of Equity (CBE parameters), and Earnings-at-Risk (EaR). The Bank also has a comprehensive interest rate risk mea- surement framework that assesses the impact of interest rate changes in manners that are consistent with the scope of activities, evaluating interest rate risk from both the earn- ings and economic value perspectives. Market risk is the risk of losses that may arise from adverse movements of market prices of trading positions, including interest rates, foreign exchange, and equity as well as the changes in the correlations and volatility levels between those risk factors. Market Risk Management (MRM) sets key limits to monitor and control market risk by considering both the Bank’s risk appetite as well as the projected business plan. 66 ANNUAL REPORT 2015 ANNUAL REPORT 2015 67 2015 in Review YEARS OF BANKING ExCELLENCE • Became the first local bank to commence a Conduct Risk Framework • Grew unsecured Consumer Lending by EGP 1.3 bil- lion (37%), driven by significant High Yield Parameter changes and new programs launched to support un- secured Business growth while maintaining rigorous controls on portfolio quality • Improved Consumer Banking bottom line through conducting comprehensive process reengineering workshops collaborating with the product develop- ment teams, resulting in significant improvements in asset products’ approval rates • Revamped the Business Banking Credit Policy Guide to cope with market changes and facilitate targeted growth in accordance with risk appetite • Established social and environmental risks as an integral part of the risk review by initiating SEMS frameworks and processes • Implemented a comprehensive internal rating tool for all corporate borrowers, in-line with international best practices, to ensure risk-rating alignment across the organization • Centralized Institutional Banking limits setting and documentation controls CIB’s Mohandessin Branch in the 1990s. Inaugurated in the 1980s, this branch is among the five oldest CIB offices in Cairo and is still operational to date. Deposit Base Concentration - December 2015 Current Account ...................................... 28.0% time Deposits ........................................... 27.7% Certificates of Deposits ............................24.1% Saving Accounts ....................................... 16.6% Others ........................................................... 3.6% These limits include position, stop-loss, and value at Risk (vaR) limits. When limits are exceeded, MRM is responsible for identifying and escalating those cases instantly. The Bank primarily uses the vaR technique to quantify the market risk. vaR is a probabilistic measure of the po- tential loss under normal market conditions, 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 to calculate vaR, using a 95% confidence level and a one-day holding period. vaR is calculated for the Bank’s total trading book expo- sures as well as for each risk class, e.g. interest rate, equity, and foreign exchange. Trading VaR for 2015 Figures in EGP million 95% 1-day Minimum Maximum Average trading Book vaR 11.3 41.7 24.4 95% 1-day Q1 Q2 Q3 Q4 trading Book vaR 22.7 41.7 24.7 14.2 Regular back-testing of daily profit and loss against the esti- mated vaR is performed to validate the accuracy and integrity of the Bank’s vaR model. In addition, the Bank estimates the Stressed value at Risk (SvaR) on a daily basis. SvaR measures the potential loss under stressed market conditions. Stress- testing combined with vaR provides a more comprehensive view of market risk. SvaR is calculated using the maximum volatility levels witnessed during the observation period and is estimated by using a 95% confidence level with a one-day holding period. Regular stress-testing is also carried out using a combination of historical and hypothetical scenarios to moni- tor the Bank’s vulnerability to extreme and unexpected shocks. Operational Risk refers to potential losses that could result from inadequate or failed internal processes, people or systems, or due to external events. CIB maintains a com- prehensive operational risk framework, which are policies and processes designed to provide a well-controlled envi- ronment. The framework uses the following approaches to measure and control operational risk: • Loss Events Database: Which includes the Bank’s operational risk events • Risk and Control Self-Assessment (RCSA): Is the identification of operational risks and controls effective- ness of each unit and its related assessments using op- erational risk management (ORM) validation processes, risks categories, control assessments, and the implemen- tation of action plans and processes and their related tracking and testing mechanisms. The outcome of the RCSA exercise is the risk heat map, which represents the residual risk assessment that evaluates the adequacy and effectiveness of the aforementioned controls; • KRIs: Monitoring indicators and their results, and assisting the concerned parties with the issues and gaps identified; • Procedures and Products Revision and Approval: Applies to the Bank’s standard operating procedures, products, internal processes, and new business initiatives; • Operational Risk Awareness Program: Regular training courses arranged to ensure the existence of a strong and aware risk culture; • Operational Risk Champions Program: Staff re- sponsible for identifying and monitoring operational risks in their respective departments. 2015 Accomplishments • CIB won the “Achievement in Enterprise Risk Manage- ment” award in 2015 during the Asian Banker Risk Man- agement Awards Program for the Middle East and Africa • In terms of Risk Culture, 2015 saw us improve aware- ness via presentations for approximately 700 staff members, as well as online training programs for the entire organization, all held by the Risk Group • Enhanced the monitoring of Basel III Ratios, remaining ahead of regulatory requirements • Strengthened risk identification and stress-testing scenarios and improved models • Built scalable risk infrastructure for enhancing ef- ficiency and customer experience by initiating vari- ous process reengineering initiatives and improving turn-around time 68 ANNUAL REPORT 2015 ANNUAL REPORT 2015 69 2015 in Review YEARS OF BANKING ExCELLENCE CompliAnCe internAl Audit The Compliance department continues to support CIB’s business and operations in a fashion that enables the Bank to expand and grow. The primary goal of the department and its divisions is to ensure that the Bank adheres to set rules and regulations while reducing the risk of imposed fines. The Compliance department has five divisions under its scope: Policies and Procedures, Corporate Governance and Code of Conduct, Anti-Money Laundering and terrorism Financing (AML), the Foreign Account tax Compliance Act (FAtCA), and Central Bank Relationship. The latter saw a re- cent re-structuring that had it included under the umbrella of the Compliance department. The Policies and Procedures division ensures that all controls, laws, and regulations are embedded in the applied policies and procedures, which are periodically reviewed to ensure that they are up to date. In 2015, the division undertook several new preventative initiatives, such as the review of the user requirement docu- ments (uRD), which is considered the base for developing It in-house applications to ensure their compliance to set policies, laws, and regulations. The Corporate Governance and Code of Conduct division continued its crucial role in ensuring proper segregation of duties for all positions across the bank by reviewing updated job descriptions versus organization charts to ensure no conflicts of interest exist. Several e-learning training meth- ods were developed in coordination with the L&D team to ensure complete staff awareness of the corporate code of conduct and prevailing compliance policies. The Anti-Money Laundering and terrorism Financing (AML) division is directly involved in monitoring transac- tions and customer account behavior as well as screening transactions against negative lists and those related to sanc- tioned countries to avoid the Bank’s involvement and guard it against money laundering and terrorism-financing crimes. In 2015, the division launched an in-house-developed, semi-automated AML system for transaction monitoring and screening. to enhance the AML team, awareness of new interna- tional AML trends was achieved through attending inter- national seminars and conferences in order to apply global standards and best practices. The division launched an e-learning training module for all bank staff in order to raise full awareness about regulations and procedures. The AML division developed an operation risk assessment to evaluate the exposure of operational risk in AML. The FAtCA (Foreign Account tax Compliance Act) team suc- cessfully submitted its first report to the united States’ IRS (In- ternal Revenue Service) in due time and is currently preparing for the next reporting cycle, planned for the end of March 2016, to cope with additional IRS tax requirements. The integration and consolidation of Citibank’s retail customer portfolio should also be submitted to the IRS with the next CIB report. As mentioned earlier, a re-structuring of the Compliance department took place during 2015 to include the Central Bank Relationship division, which was established in the beginning of 2010 to be the focal point of communication between the CBE and CIB’s various departments, ensuring effective and timely communication, approvals, and clarifi- cations. Moreover, in 2015 the Conduct Risk Policy was developed in order to pursue customer interest and protection. The conduct risk culture framework will embed customer- focused staff behavior and adopt international practices of the treating Customers Fairly principle (tCF). Special focus was given to digital products during the year. The main goal was to support business growth through a healthy and tightly-managed monitoring mechanism. All divisions were involved in the acquisition process of Citibank’s retail portfolio. The Compliance group played a key role in reviewing all processes and policies to ensure a seamless blending process. Moreover, the Compliance group conducted several training courses for Citibank staff in order to acquaint our new colleagues with CIB’s culture and code of conduct. More specifically, the group still offers on-the-job-training to staff members who joined the Compliance department. By the end of 2015, the Group had worked with all relevant departments in the preparation process of the full CIB- Citibank systems integration, which should be final by the first half of 2016. The Internal Audit Group’s role is to objectively assess the adequacy and effectiveness of governance, risk manage- ment, and internal controls. 2015 is considered to be momentous in terms of our achievements. We became the first Internal Audit group in Egypt to comply with IIA standards and the IPPF (Interna- tional Professional Practice Framework), according to the External Quality Assurance results announced by Ernst & Young. In addition to the above, and due to a gradual shift toward the Enterprise Risk Audit (ERA) model, Internal Audit – ef- fectively as a business partner – acts as the Bank’s third line of defense, fully collaborating with all other pillars of Risk Management, Business Lines, and Compliance. The structure of Internal Audit allows the department to follow up on all unresolved issues that are reported by audit- ing teams during several audit engagements, by constantly monitoring necessary actions and accurately keeping track of milestones. These tasks are implemented by professional auditing teams that are assigned follow-up functions. Meanwhile, a separate Quality Assurance team is man- dated to review and check the working documents before audit reports are issued, in order to ensure that process is in complete compliance with IIA standards The Internal Audit team, as a business partner, consumes about 15% of available man-hours/working days, offering consultancy services that reflect mutual trust and confidence between busi- ness owners, management, and the Internal Audit group. Our achievements are supported and enhanced by the BoD and BoD Audit Committee. This encourages the Audit team to seek certifications and engage in continuous training while also exchanging expertise with other multinational financial institutions through annual IIA conferences. CIB’s young internal auditors are privy to the opportunity of applying for certificates such as the CISA, CIA, CBA, and CPA, in addition to applying to universities to pursue MBA degrees. Tellers area at Chase National Bank’s Alexandria branch in Sultan Hussain in the 1980s. One of CIB’s five oldest branches that are still operational today, inaugurated in 1978. Its 18 employees had to shuttle back and forth between Alexandria and Cairo for training at the Birgas and Zamalek offices. 70 ANNUAL REPORT 2015 ANNUAL REPORT 2015 71 StRAtEGIC SuBSIDIARIES CIB owns a number of strategic subsidiaries that allow it to offer a full range of financial services, including investment banking, asset management, brokerage, research, and factoring, as well as security services. On the left, Chase National Bank’s Mohandessin branch in the early 1980s; on the right, CIB’s cargo airport branch in 2015. 72 ANNUAL REPORT 2015 ANNUAL REPORT 2015 73 Strategic Subsidiaries YEARS OF BANKING ExCELLENCE Ci CApitAl Holding CI Capital Holding (“CI Capital” or the “Group”) is a leading Egyptian investment banking, securities, and investment management firm. The Group is a wholly-owned subsidiary of CIB, Egypt’s largest private-sector commercial bank. Through its headquarters in Cairo and offices in New York and Dubai, CI Capital offers a wide range of financial services to a diver- sified client base that includes individual, high-net-worth (HNW) and institutional investors, and corporate clients. The Group offers its services across six business lines: Securities Brokerage, Equity Research, Asset Management, Investment Banking Advisory, Leasing, and Private Equity. The Group’s Investment Banking arm is the number-one- ranked advisor in Egypt, having successfully closed c. EGP 103 billion in transactions since inception, with more than EGP 69 billion having been executed since the beginning of 2013. The company advises on mergers and acquisitions, private and pub- lic equity and debt capital raising, and financial restructurings. The Securities Brokerage arm is a market-leading brokerage house in Egypt, ranked number one on the Egyptian Exchange, with a market share of 20% of total trading as at end-2015. The firm’s share among institutional investors is even higher at 35.6%. CI Capital’s brokerage platform is complemented by an industry-leading research platform covering more than 75 companies across 11 sectors in seven markets, with a top-tier analyst team – ranked sixth in MENA Research by the 2015 Extel Survey, second in the MENA region, and first in Egypt. The Asset Management division manages fixed income, money market, and equity products, with AuM in excess of EGP 9.9 billion. The division managed to position itself as an A-class asset manager across its different types of funds and portfolios. The division manages 10 diverse funds and provides portfolio management services to a wide client base, while also offering discretionary services to HNW individuals and institutional investors. Clients are pro- vided with comprehensive personalized services tailored to their investment and reporting requirements. The As- set Management team has always been at the forefront of innovation, launching Egypt’s first one-year, open-ended capital-protected fund, and first-ever sharia-compliant money market fund. In December 2015, CI Capital acquired CIB’s stake in Cor- please, one of the leading financial leasing companies in Egypt. The collaboration between both companies bears a lot of potential and is expected to create operational and financial synergies that would enhance cross-selling oppor- tunities and expedite future expansions. CI Capital was recognized as the “Best Investment Bank in Egypt” by Global Finance in 2014 and 2015; by EMEA Fi- nance in 2012, 2013, and 2014; and by International Finance Magazine in 2014. 2015 Review Securities Brokerage • CI Capital’s brokerage arm staffs more than 200 employees, with an average 10 years of experience in MENA capital markets. In order to better compartmen- talize tasks and protect the interest of each segment, CI Capital’s Securities Brokerage arm is comprised of two companies: Dynamic Securities, which caters to lo- cal retail investors, and CIBC, which caters to foreign, local, and GCC-based institutions as well as HNW individuals across Egypt and the GCC; • The synergies from its Research, Sales, and trading teams allowed CIBC to continue to grow its overall market share and ranking on the EGX. A market share of 19.3% in 2015 placed the company in first place among competitive peers. The division also grew its market share of foreign participation exponentially this year with 2015’s market share standing at 50.2%, up from 35% in 2014 and 17.6% in 2012. For the second consecutive year, CIBC was ranked the most preferred broker for foreign institutional investors; • CI Capital Research is Egypt’s leading research house, most recently, ranked sixth among regional firms, as per EMEA Extel’s 2015 Institutional Investor vote, and came in first among local firms covering the MENA Region. The division has active coverage of 44 Egyptian companies across eight sectors, in addition to 31 regional companies across seven MENA markets: uAE, Saudi Arabia, Qatar, Oman, Kuwait, Jordan, and Morocco. Out of a team of 20, five analysts that cover telecoms, industrials, chemicals, consumer, and construction are ranked among the top 25 in the region according to EMEA Extel 2015; • The firm successfully received approval from the uAE Securities and Commodities Authority during H1 2015 and is currently in the process of establishing on-the- ground presence in Dubai to branch-out its regional platform and grow its GCC client base further; • A uAE-based office will also enable CI Capital to di- rectly trade on the uAE equities market, complimented by a strong and growing MENA research product; • In January 2015, former Egyptian prime minister Ibrahim Mahlab inaugurated CI Capital’s investor conference in Cairo, which is the largest event of its kind. The conference successfully continued onto London and New York, where CI Capital has a FINRA-and SEC-regulated broker-dealer relationship. The event created a platform for over 80 lo- cal, regional, and foreign portfolio managers (with assets under management exceeding uSD 3.5 trillion on a cumu- lative basis) to meet with senior management executives from 35 publicly listed Egyptian corporations; • CI Capital also hosted the Second Annual Egypt Equities Conference in Cape town in August 2015, after receiving ex- cellent feedback from both investors and corporates alike; • Finally, and as an extension to its track record of success- ful flagship conferences, CI Capital Brokerage hosted its Fourth Annual Egypt Investor Conference in January 2016 in both Cairo and New York. The conference hosted 38 of Egypt’s publicly listed companies, creating a plat- form for one-on-one meetings between company execu- tives and close to 100 foreign, local, and GCC investment institutions, as well as HNW individuals managing c. uSD 5 trillion of GEM and frontier equities. Asset Management • The only asset manager who consistently ranks among the top quartile asset managers in all asset classes in the Egyptian capital market, outperforming both respective benchmarks and average returns of its market peers; • Osoul Money Market Fund was the best-performing money market fund in the Egyptian market in 2015; • Blom Money Market Fund was ranked first among all money market funds for five years running (2010-2014) and second year-to-date 2015; • CIB Fixed Income Fund (Thabat) was ranked first among all fixed income funds for three years running (2013-15 YtD); • Istethmar Equity Fund was ranked among Egypt’s top quartile performers for two- and three-year returns by EIMA; • Finalized the launch of CIB Balanced Fund in April 2015, an open-ended fund with a total size of EGP 104 million upon launch; • Launched Arope Money Market Fund in January 2015, an open-ended fund with a total size of EGP 114 million upon launch; • CIAM was awarded 2015’s “Best Asset Manager in Egypt” by Global Investor for the sixth consecutive year, and was awarded four of eight awards it was nominated for from MENA Funds Managers. The awards were given for: Thabat (three years of best performance), Al Thabet (best performance), Osoul (best performance), and Arope (launching fund). Investment Banking • CI Capital Investment Banking acted as global co- ordinator and bookrunner on Orascom Hotels and Development’s EGP 506 million public offering on the Egyptian Exchange. OHD is Egypt’s leading developer of resort destinations, with a total land bank of 46 mil- lion sqm and c. 12,000 hotel rooms. The deal was the first public-market transaction of the year; • CI Capital Investment Banking acted as joint book- runner on the dual listing and EGP 1.41 billion public offering of Orascom Construction Limited (OCL). OCL is the first company to be dually listed on both Nasdaq Dubai and the Egyptian Exchange. The offering was well subscribed (>5x, excluding Sawiris family stake), having generated strong interest from international institutions and HNW investors; • Acted as exclusive financial advisor in the sale of a 49.9% stake in Egyswiss Group to Dubai-based private equity firm vis Mundi. EgySwiss Group is the market leader in high-quality processed meat, fish, and poultry in Egypt; • CI Capital Investment Banking acted as the exclusive financial advisor and bookrunner to ASEC Cement on the placement of a EGP 686 million stake in Misr Cement Qena, a leading cement player in Egypt. The transaction was placed to a group of local and interna- tional institutional investors; • The firm acted as financial advisor to Amer Group on its c. EGP 5.1 billion demerger, which successfully split the company into two independent listed entities: Amer Group and Porto Group. The transaction marks one of the first public market demergers in Egypt. • Acted as the exclusive financial advisor to Legal and General (uK) and CIB on the EGP 763 million sale of a 100% stake in CIL to worldwide insurance leader AXA. CIL is one of the leading life and savings insurance companies in Egypt, with a market share of 15%. The deal was awarded “M&A Deal of the Month” by Finance Monthly Magazine in October 2015; • CI Capital Investment Banking acted as the exclusive financial advisor to Qalaa Holdings on its EGP 1 billion sale of ASEC Minya Cement and ASEC Ready Mix to Misr Cement Qena; • Acted as the exclusive financial advisor on CIB’s acqui- sition of Citibank’s retail operations in Egypt. Among the main attractions of the deal was Citi’s high-quality portfolio and highly skilled staff. cicapital.com.eg 74 ANNUAL REPORT 2015 ANNUAL REPORT 2015 75 Strategic Subsidiaries YEARS OF BANKING ExCELLENCE egypt fACtors Profile Egypt Factors (EGF) is a joint venture between CIB and the Malta-based FIMBank PLC. Each entity owns 40% of the joint venture, with the International Finance Corporation (IFC) – a member of the World Bank Group – holding the remaining 20%. EGF is the first non-banking financial institution in Egypt to purely specialize in factoring, and is the first registered com- pany 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- ceivable management services that consist of the following: • Administration & Commercial Collection EGF undertakes all debtors’ bookkeeping and collection measures, as well as monitors and follows up on all outstanding invoices. With the company’s coverage extending to over 85 countries around the world, including Egypt, EGF is able to bridge differences in culture, language, market habits, and legal environ- ments through a comprehensive network of more than 400 correspondents worldwide. • Funding EGF advances up to 90% of all covered receivables. This converts sales on credit terms into cash sales. As cash flows improve, client flexibility increases. • Debt Protection EGF guarantees 100% payment up to the limit estab- lished for each buyer, and settles covered undisputed receivables if not paid after a defined period from the due date. Buyers are under periodic evaluation to make sure that upcoming risks are recognized on time. Target Market The company targets producers/manufacturers, traders, and service providers who conduct transactions based on short- term deferred payments. EGF also offers services to domestic buyers from local or foreign sources, who benefit from an in- creased 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 ratios. Factoring is also considered highly beneficial to mid-cap com- panies and large corporations in terms of liquidity and growth. 2015 Accomplishments Despite the turbulence that has rocked both the region in general and Egypt’s economy over the past five years, along with the global economic unease, Egypt Factors has success- fully maintained its market position. According to Factors Chain International (FCI) statistics, EGF has, for the seventh consecutive year, achieved the high- est volume of international trade handled through the FCI network among all Egyptian factoring companies and, for the first time since its inception, was ranked first in the MENA region and Africa, up from third in the preceding year. Ongoing forward strategy Egypt Factors has ambitious growth plans and aims to boost its growth pace while focusing on providing value- added services to its clients. In the long term, Egypt Fac- tors aims to become the leading commercial finance hub in the MENA region. This will be achieved by: • Becoming a company that makes a difference with high-quality human capital along with fast and effi- cient business processes; • Offering exceptional service quality that adheres to international standards; • Providing services tailored to the needs of customers via innovative products and customized corporate solutions; • Ensuring that our strategies are based on profitable growth, high service quality, employee satisfaction, as well as market-driven data, and that customer needs are effectively met, monitored, and improved; • Stimulating the development of the transactions based on product for purchase of receivables; • Pursuing new opportunities in export financing. CIB’s Sultan Hussain branch in the early 1990s. The building’s beautiful exterior was matched with an equally impressive high-ceiling interior that housed crystal chandeliers, hand-woven carpets, and paintings by famous Egyptian artists. 76 ANNUAL REPORT 2015 ANNUAL REPORT 2015 77 Strategic Subsidiaries YEARS OF BANKING ExCELLENCE CommerCiAl internAtionAl life insurAnCe CompAny (Cil) CorporAte leAsing CompAny (egypt) sAe – CorpleAse Forward Strategy Going forward, CIB and Legal & General jointly announced in July 2015 the sale of CIL to AXA. This decision was in line with CIB’s organizational strategy in growing and moving forward toward open architecture through introducing world-class, need-based financial solutions with a wide range of customer benefits. The transaction was concluded in November, and CIB has entered into a 10-year partnership deal with AXA to continue providing life and savings insurance services to the bank’s customers, where AXA will benefit from a long- term exclusive distribution agreement with CIB in Egypt. cileg.com || Hotline: 16245 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 introducing unit-linked products to the Egyptian market and remains one of the leaders in this segment today. Leveraging on the combined strength of its two re- spected shareholders, uK’s Legal & General and Egypt’s Commercial International Bank (CIB), CIL delivers a successful bank assurance sales model. The company has risen to become one of the largest players in the Egyptian life insurance industry, winning the North Africa Insurer in the MENA Insurance Awards, Most Socially Responsible Company in Egypt by International Finance Magazine, and Best Life Insurance Company in Egypt by the same entity as well as Global Banking and Finance Review in 2015. 2015 Performance Despite challenging conditions in the Egyptian market, CIL continued to successfully meet its annual targets thanks to positive enhancements in efficiency, productivity, and qual- ity measures applied by CIL. Currently, CIL provides insurance benefits for almost 100,000 individual clients and over 375,000 employees. CIL Insurance benefits vary from savings and protection packages catering to different life events, to more complex pension and life insurance benefits for employee’s in coor- dination with their respective employers. In addition to the above, CIL launched the first savings- based micro-insurance product in Egypt, “Geneh 3ala Geneh,” distributed through two leading NGOs in Egypt. In only 18 months, over 8,000 members purchased insurance from this scheme. CORPLEASE is the leading financial leasing company in Egypt, having been successfully operating in the domestic market since 2004. The company provides leasing products and services tailored to meet corporate capital expenditure needs for a wide variety of assets, which include commercial real estate, equipment financing, plant and machinery financ- ing, transportation assets, systems & It, office equipment, and fleet management. CORPLEASE has a strong nationwide presence through its offices in Cairo, Alexandria, and Suez. Furthermore, the company established CORPLEASE Emir- ates, its fully-owned regional subsidiary in the GCC, located at Dubai International Financial Center (DIFC). CORPLEASE Emirates offers lease-finance services in both local and for- eign currency to the uAE business community. CORPLEASE has leased over EGP 8 billion’s worth of assets and is the first leasing company to perform securitization transactions in Egypt. Four securitizations have been issued, and the company has been awarded “Best Securitization Deal in EMEA” more than once. Since its inception, CORPLEASE has adopted conservative credit underwriting and risk management principles that have resulted in a well-diversified and high-quality portfolio that continues to react well to changes in the business envi- ronment. CORPLEASE has a strong credit and risk culture that has allowed it to maintain a solid portfolio, with minimal delinquent accounts. In 2015, CORPLEASE 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-diversification mea- sures. Despite the challenging economic environment, CORPLEASE’s financial performance during 2015 was strong, seeing the company increasing its lease booking volumes by 45% compared to 2014. The company continues to enjoy a strong financial position with favorable coverage, liquidity, capitalization, and funding ratios, making it well-positioned for future growth. During 2015, CORPLEASE signed a line of credit with PROPARCO, a subsidiary of the French Development Agency. According to an official joint statement from both companies, the deal will help diversify PROPARCO’s leasing portfolio, as well as aid in restoring investors’ confidence in Egypt and improve its economic environment. CORPLEASE seeks to boost economic development while also maintaining its progressive growth rate, by providing lease financing to SMEs and large enterprises in the most efficient manner to consistently deliver world-class financial products and services that meet the needs of its diversified regional client base across the board. Building upon its track record in the financial services sector, CORPLEASE will con- tinue to innovate and extend its market leadership across all its lines of business. The company’s systems and procedures are designed to place its clients at the heart of its business. Through investment in its human resources, CORPLEASE professionally and efficiently implements the best practices and solutions in the leasing market. In December 2015, CI Capital Holding acquired CIB’s stake in CORPLEASE. The collaboration between CI Capital and CORPLEASE bears much potential for both entities. 78 ANNUAL REPORT 2015 ANNUAL REPORT 2015 79 Strategic Subsidiaries YEARS OF BANKING ExCELLENCE fAlCon group Flyer announcing the inauguration of and services offered at Chase National Bank’s fifth branch in Mohandessin in the 1980s. Falcon Group is an Egyptian joint venture between CIB, the CIB Employees Fund, Al-Ahly for Marketing, and other private entities. CIB owns 40% of the Group, while other shareholders own the remainder. Falcon Group offers a full suite of Security Services, such as private security, premises protection, Cash-in-transit (CIt), Electronic Security System Solutions, General and Facility Man- agement Services, and touristic and Governmental Concierge Services. The Group has been the main security service provider for a number of top-tier governmental and non-governmental organizations, such as the united Nations and a number of em- bassies in Egypt. Falcon Group operates in over 1,500 locations across Egypt, covering all segments of the market. Its branch networks in the country are controlled by a Central Operations Room that works 24 hours a day, seven days a week. In addition to being ISO 9001 and 9002 certified, the Group also received the “Knight Award” from the ISO association in the uAE in 2013. Achievements and Accomplishments in 2015: Over the last five years, and thanks to a number of high-pro- file jobs and many near-impossible missions, Falcon became a market leader in security services provision and Cash-in- transit field. The Group’s work was critical in strengthening Falcon tech’s market position, which has now successfully become the sole agency of choice for key players in the Secu- rity and Electronic Solutions field worldwide, such as CEIA, Indigovision, Fine, tiso, Gate Keeper, Gilardoni, Roboscan, Modi, and Forteza. In 2015, Falcon’s consolidated revenues climbed to EGP 294 million, showing a growth rate of 25% over 2014. As of December 2015, the Group had realized an average increase on assets of more than 45%. The year saw Falcon’s security services being called on for many important events, including the Egyptian Economic Development Conference (EEDC) in Sharm El-Sheikh, the Economic Conference in Marsa Matrouh, and the ICAO Conference. Falcon tech also successfully won a number of important tenders in 2015 from the Ministry of Interior, the National Security office, Al-Ahly Football Club, and the Civil Protection Authority. In Cash-in-transit, Falcon grew its market share in 2015 by inking two new contracts with the National Bank of Egypt and the Banque du Caire. Additionally, Falcon increased the size of its armored vehicles fleet to 128 from 113, with transferred cash for 2015 standing at EGP 200 billion. In the Security Services domain, Falcon played a pivotal and successful role in the protection of Egyptian universi- ties for the second year in a row, while the Close Protection sector realized EGP 12 million in total revenues for the year. Falcon for Public Services and Project Management now holds a market share of 17%, servicing its wide client base out of 282 different locations across Egypt. New clients this year include Mall of Arabia and Lulu Hyper Market. Forward-Looking Strategy: Plans are still underway for Falcon to launch a Certified Security training Academy that can reinforce our security base in Egypt and develop a market culture that follows the Ministry of Interior’s guidelines and rules. Falcon for Cash-in-transit will implement new operation cycles over the coming three years that aim to reduce both risks and costs, in addition to increasing the efficiency of services offered. To read more about Falcon Group, its projects, and how to hire us, please visit www.falcongroupinternational.org Hotline: 19561 To meet with one of our representatives, please visit our corporate office. Address: Building 417, Road 90, Fifth Settlement (Next to Future University) Cairo, Egypt 80 ANNUAL REPORT 2015 ANNUAL REPORT 2015 81 SuStAINABILItY Sustainable growth and development have, for long, been part and parcel of CIB’s philosophy and overall strategy. The Bank’s commitment to the core values and concrete principles of corporate governance, community development, and environ- mental protection is what distinguishes CIB from its peers and highlights its position as a pioneer of the Egyptian banking industry. On the left, CIB’s award for its anti-drug campaign in the early 1990s; on the right, CIB’s GPRS certificate, in recognition of the Bank’s efforts to establish eco-friendly buildings. CIB was the first Egyptian bank to ever receive the GPRS certificate. 82 ANNUAL REPORT 2015 ANNUAL REPORT 2015 83 Sustainability YEARS OF BANKING ExCELLENCE CorporAte governAnCe We at CIB strongly believe that the concrete principles of corporate governance are a crucial factor not only in gain- ing investors’ valued trust, but also in sustaining it. Based on this belief, our Bank has, for years now, consistently followed numerous codes and values derived from the core of corpo- rate governance. In fact, CIB laid out the foundations of good governance many years ago, and those have come to form the framework around which our five-year plan revolves. 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 the dissemination of material information in a timely, transparent, and accurate manner. The Bank continues to uphold its mandate of creat- ing value for its shareholders, something we are firmly com- mitted to in the present and in the future. We take pride in our strong corporate governance structures, which include an experienced team of senior management professionals, competent board committees, as well as a distin- guished group of non-executive directors, who believe that the mandated laws and rules that govern business activities can never substitute ethical behavior and voluntary compliance. CIB’s highly qualified Board of Directors (BoD) is supported by internal and external auditors, as well as other internal control functions (Risk, Compliance, and Internal Audit), and effectively utilizes the work carried out by those functions to ensure the Bank’s adherence to international best practices of corporate governance. CIB also changes auditors every five years to ensure objectivity and exposure to new practices. The Board of Directors A successful BoD is one that ensures that the organization is run effectively by the correct people today, and that tomor- row’s generation is competent enough and ready to take the lead. CIB is privileged to have its renowned BoD, the Bank’s ultimate decision-making body. We consider our Board one of our key assets and a vital point of strength, and the Board realizes that the responsibility of addressing any stake- holder’s concern bears benefits to the whole organization. The Board primarily focuses on long-term financial returns and the best interest of all stakeholders, whether they are customers, shareholders, or employees, or members of the communities in which the Bank operates. The Board’s role is to set the Bank’s values, strategy, and key policies, as well as pursue and maintain its long-term success. CIB’s Board has successfully performed its duties with entrepreneurial lead- ership, sound strategies, and risk management oversight to ensure that risks are assessed and properly managed. CIB’s Board is composed of eight members, with a diverse knowledgebase 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 2015, CIB’s BoD met nine times. Being the single largest shareholder in CIB, Fairfax Financial Holding Ltd, through its wholly-owned number of subsidiaries currently holds 6.7% of CIB’s local shares on the back of its transaction with Actis in May 2014 and has one representative on the Board. Mr. Hisham Ezz Al-Arab Chairman and Managing Director Mr. Hisham Ezz Al-Arab has led 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 practices in corporate governance, risk management, and building a modern banking culture. With these efforts, CIB’s stock is now viewed by the international investment community as a proxy stock for Egypt and the benchmark for its banking industry. More to the point, Mr. Ezz Al-Arab received the EMEA Fi- nance African Banking Award “Best CEO in Egypt and Africa Region” for the year 2014 in recognition of the distinguished success of CIB in the banking sector under his leadership. Mr. Ezz Al-Arab is the Chairman of the Board of trustees of the CIB Foundation. He has also been a Director at Mas- terCard Middle East and Africa’s Regional Advisory Board since June 2007, in addition to being a principal member of the American Chamber of Commerce. For his distinguished work, he was elected as a member of the Board of trustees for 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 Finance Emerging Markets Advisory Council – EMAC. Prior to joining CIB, Mr. Ezz Al-Arab led a reputable bank- ing career as Managing Director of international investment banks in London (Deutsche Bank, JP Morgan and Merrill Lynch), Bahrain, New York, and Cairo. ment, operation efficiency, M&A, due diligence, and It services and operations. Mr. Mirza was 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 at ABN AMRO Pakistan Ltd. He has attended various business management courses at reputable institutions including the Queens Business School and the Wharton Business School. Mr. Jawaid Mirza Non-Executive Board Member Mr. Jawaid Mirza has solid record of accomplishments in all facets of financial, technology, and risk and operations management. Before joining CIB’s Board as a non-executive member in May 2013, Mr. Mirza had a long successful jour- ney 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 experi- ence, 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 abili- ties in directing operations and staff, managing financial performance, and streamlining system across the board to deliver cost savings, enhance efficiency, and improve bottom-line profitability. His core competencies extend to strategic business planning, performance management, operation risk management, offshore and shared services, audit, compliance and central controls, change manage- Dr. Nadia Makram Ebeid Non-Executive Board Member Dr. Nadia Makram Ebeid is the Executive Director of the Centre for Environment and Development for the Arab Region and Europe (CEDARE), an international diplomatic position that she has held since January 2004. She joined CIB’s Board of Directors in March 2005, and also acts as a member of the CIB Foundation’s Board of trustees. For a period of five years beginning in 1997, Dr. Ebeid served as Egypt’s first Minister of Environment, becom- ing the first woman to assume this position in the Arab world. One of her most notable achievements was declar- ing the River Nile free from polluted industrial wastewater discharge. Proudly, Dr. Ebeid is the Chairperson of CIB’s Sustainability Advisory Board as well as the Governance and Compensation Committee. Early in her career, Dr. Ebeid held several manage- rial 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 the recipient of numerous awards and distinctions from local and international NGOs, and lead- ing institutions and associations. 84 ANNUAL REPORT 2015 ANNUAL REPORT 2015 85 Sustainability YEARS OF BANKING ExCELLENCE 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 at the management department of the American university in Cairo’s School of Business, Economics, and Communication. He joined CIB’s Board of Directors in 2009 and also acts as the Chairperson of the Board Audit Committee. Dr. Hassanein is a senior policy analyst with years of experience in institutional building, macro-policy analysis, financial economics, corporate finance, and international financial management. He has previously served as advisor to government, high-level advisory bodies, and the donor community. During his term as Minister of Finance, he de- veloped and instituted the second generation of fiscal public policy reforms for the government of Egypt. Dr. Hassanein has also served as Chairman and board member of public holding companies, private corporations, and many reputable banks in Egypt, last of which was HSBC Egypt (2004-09) where he chaired its Audit Committee. Dr. Hassanein obtained his B.A. in Economics from Cairo university (with Honors), an MBA from New York university (with Distinction), and a PhD from Wharton School of Busi- ness, university of Pennsylvania in the united States. Mr. Yasser Hashem Non-Executive Board Member Mr. Hashem began his career as a Partner at Zaki Hashem and Partners after his graduation from Cairo university’s Faculty of Law in 1989. He joined CIB’s Board of Directors in 2013. In 1996, he became a Managing Partner at Zaki Hashem and Partners, responsible for managing the firm’s day-to-day business. He represented major clients and international law firms. Mr. Hashem is specialized in the corporate field, capi- tal markets, mergers and acquisitions, and telecom laws. Mr. Hashem has participated in a number of restructurings and incorporations of foreign and domestic companies, in addi- tion to providing advisory services to many local and foreign investors on Egyptian business practises. Mr. Hashem handled all IPOs that took place during the past nine years in Egypt, as well as represented acquirers in major M&A transactions and tender offers. Moreover, he has participated in drafting and negotiating all major telecom licenses (public payphones, mobiles, private data networks, marine cables, satellite, etc...) since the inception of private provision of telecom services in Egypt. Mr. Hashem was admitted to the Egyptian Bar Association in 1989, as well as the Supreme Court of Egypt in 2007. He is also a member of the Egyptian Society of International Law and the Licensing Executive Society (LES), and an Honorary Counsel to the British Ambassador in Egypt. Dr. Sherif H Kamel Non-Executive Board Member Dr. Sherif Kamel is the vice President for Information Management, and was a former and founding dean of the American univerity in Cairo’s (AuC) School of Business (2009-2014). He joined CIB’s 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’s Information and Decision Support Center (1989-1992). His experience focuses on investing in human capital, and building and managing executive development institutions addressing It, management, governance, entrepreneurial, and leadership issues. Dr. Kamel is the Executive vice-President of the American 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), and an MBA (1990) and MA in Islamic Art and Architecture (2013) from the AuC. His research and teaching interests include It proliferation in developing nations, It management, electronic business, and decision 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 Fac- ulty Service Award (2014), the uNDP National Human Re- source Development Award (2014), the School of Business Leadership Award (2013), the AuC President’s Catalyst of Change Award for Citizenship and Service (2013), and the AuC School of Business, Economics, and Communication Excellence in Research 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’s 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 re- sponsibility 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 Bar- clays in various positions as Director of Group Corporate Development and Group Strategy, Chief Financial Officer, and Head of Strategy, Planning, and Corporate Development. Moreover, Mr. Richards is a member of World Economic Forum’s 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 Khosrowshahi Non-Executive Board Member Mr. Bijan Khosrowshahi joined Fairfax Financial Holdings Ltd. in June 2009. He joined CIB’s Board of Directors in October 2014. Fairfax is a financial services holding com- pany that, 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 Insur- ance 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 the Japan-based Fuji Fire and Marine Insur- ance Company Limited. Between 2001 and 2004, he was the President of AIG’s General Insurance operations based in Seoul, Korea. From 1997 to 2001, he was the vice Chairman and Managing Director of the Istanbul-based AIG Sigorta. He has held various underwriting and management posi- tions 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 Development Program at the university of Pennsylvania’s Wharton School of Business in 2003, and is a regular lecturer at universities and insurance institutes. He has served on the boards of the Foreign Affairs Council and the Insurance Society of Philadelphia. He has also been a council member of uSO in Korea, the Chair- man of the insurance committee of the American Cham- ber of Commerce in Korea, and a member of the turkish Businessmen’s Association. CIB was the first Egyptian bank to plant rooftop gardens above its buildings. The rooftops house various plants and organic edible herbs that are cared for and consumed by staff members. The Bank has so far planted two rooftops, with plans for the third already underway. 86 ANNUAL REPORT 2015 ANNUAL REPORT 2015 87 Sustainability YEARS OF BANKING ExCELLENCE The Board of Directors’ Committees CIB’s Board of Directors has eight standing committees that assist the Board in fulfilling its responsibilities. Accordingly, 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. Non-Executive Committees: Committee Members Key Responsibilities Audit Committee Supervising the quality and integ- rity of CIB’s financial reporting. Chair: Dr. Medhat Hassanein Members: Dr. Sherif Kamel Mr. Yasser Hashem The Governance and Compensation Committee Responsible for CIB’s corporate governance as well as the Board’s performance evaluation, compen- sation, and succession planning. Chair: Dr. Nadia Makram Ebeid Members: All other Non-Executive Board Members The Risk Committee Supervising risk management at CIB. Chair: Mr. Mark Richards Members: Mr. Jawaid Mirza Mr. Bijan Khosrowshahi 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 stan- dards of transparency and strict adherence to internal policies and procedures. In performing its critical functions, the Committee is cognizant of the important role CIB plays in the Egyptian finan- cial sector as a leader in all of the aforementioned areas. The Audit Committee met four times in 2015. 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 responsible for establishing corporate gov- ernance standards, providing assessment of Board effectiveness, and determining the compensation of Board members. The Committee also determines the appropriate compensation levels for the Bank’s senior executives and ensures that compensation is consistent with the Bank’s objectives, perfor- mance, and strategy and control environment. The GCC met four times in 2015. The primary mission of the Risk Committee is to assist the Board in fulfilling its oversight risk responsibilities 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 Bank’s risk strategy and associated limits to the Board. The Risk Com- mittee met four times in 2015. The Operations and IT Committee Assisting 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 This Committee is appointed by the Board of Di- rectors and assists Board members in their over- sight of Bank operations and technology strategy, significant investments to support that strategy, and operations and technology risk. The Commit- tee met five times in 2015. The Sustainability Advisory Board Concentrating on long-term value drivers that advance the twin objec- tives of the Bank’s sustained success, as well as the well-being and better- ment 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 moni- tor all sustainability strategies, initiatives, and projects. It concentrates on long-term value driv- ers that advance the twin objective of the Bank’s sustained success in addition to the well-being and betterment of society as a whole. The commit- tee has met twice over the course of 2015. Executive Committees: Committee Members Key Responsibilities The Management Committee Responsible for execution of the Bank’s strategy. Chair: Mr. Hisham Ezz Al-Arab Members: CIB Senior Management This Executive Committee is responsible for executing the Bank’s strategy as approved by the Board. It manages the Bank’s day-to-day func- tions to ensure alignment with strategy, effective controls, risk assessment, and efficient use of Bank resources. The committee adheres to high ethical standards and ensures compliance with regulatory and internal CIB policies. The commit- tee also provides the Board with regular updates on the Bank’s financial and business activities, as well as any key issues. The Management Commit- tee met 13 times in 2015. The High Lending and Investment Committee Responsible for asset allocation, quality, and development. Chair: Mr. Hisham Ezz Al-Arab Members: Senior CIB Management This Executive Committee is responsible for managing the assets side of the balance sheet and keeping an eye over asset allocation, quality, and development. As per its mandate, the High Lend- ing and Investment Committee convened weekly throughout 2015 and met 47 times. The Affiliates Committee Responsible managing CIB affiliates. for steering and Chair: Mr. Hisham Ezz Al-Arab Members: CIB Senior Management The Affiliates Committee reports to the Board of Directors and is responsible for steering and managing CIB’s affiliates. It also acts as a think- tank for setting and initiation of all strategic goals related to the Bank’s affiliates. The Affiliates Com- mittee met six times during 2015. 88 ANNUAL REPORT 2015 ANNUAL REPORT 2015 89 Sustainability YEARS OF BANKING ExCELLENCE exeCutive mAnAgement Mr. Hisham Ezz Al-Arab Chairman and Managing Director Mr. Hisham Ezz Al-Arab has led 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 practices in corporate governance, risk management, and building a modern banking culture. With these efforts, CIB’s stock is now viewed by the international investment community as a proxy stock for Egypt and the benchmark for its banking industry. More to the point, Mr. Ezz Al-Arab received the EMEA Fi- nance African Banking Award “Best CEO in Egypt and Africa Region” for the year 2014 in recognition of the distinguished success of CIB in the banking sector under his leadership. Mr. Ezz Al-Arab is the Chairman of the Board of trustees of the CIB Foundation. He has also been a Director at Mas- terCard Middle East and Africa’s Regional Advisory Board since June 2007, in addition to being a principal member of the American Chamber of Commerce. For his distinguished work, he was elected as a member of the Board of trustees for 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 Finance Emerging Markets Advisory Council – EMAC. Prior to joining CIB, Mr. Ezz Al-Arab led a reputable bank- ing career as Managing Director of international investment 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 that, he was CIB’s Chief Operating Officer, Chairman of CIAM, and a member of the High Lending and Investment Committee, the Management Committee and the Affiliates Committee, in addition to be- ing on the board of CI Capital Holdings. Mr. Abaza’s history with CIB extends beyond these posi- tions; between 2001 and 2010 he was the General Manager and Chief Risk Officer whose duties covered a range of responsibilities that included Credit, Market, and Op- erational Risk, as well as Investor Relations. Prior to his time at CIB, Mr. Abaza had occupied the position of Head of Research at EFG Hermes’ Asset Management between March 1995 and October 1999. He had started out his career at Chase National Bank of Egypt, the forerunner to CIB. He holds a B.A. in Business Administration from the American university in Cairo. Mr. Mohamed El Toukhy Chief Executive Officer, Consumer Banking Mr. Mohamed El toukhy launched his career with CIB’s trade Finance Department in 1979. Since then he has as- sumed various positions in Operations, Branch Manage- ment, and Corporate Banking. In July 2006 he was promoted to General Manager of Consumer Banking and has since led the CIB Branch Network and Retail Banking areas to unprecedented success. During his tenure, the number of CIB branches in- creased to 187 and are distributed across all key gover- norates in Egypt. Moreover, all of the Bank’s Asset and Liabilities businesses are on solid growth trajectories, with CIB holding leadership positions in credit cards, auto loans, personal loans, current and saving accounts, time deposits, and certificates of deposit and investment insurance products. In terms of profitability, the Consumer Bank has increased its share of the Bank’s net income from only 10% in 2006 to 29% in December 2015. Mr. Mohamed Abdel Aziz El toukhy is leading the trans- formation of the organization into a modern Consumer Banking franchise. under Mr. toukhy’s leadership, CIB’s branch network and Retail Banking department increased its Consumer Banking balance sheet to EGP 107.2 billion in customer deposits for December 2015. CIB’s Executive Management Team. From left to right: Mr. Hussein Abaza, Mr. Hisham Ezz Al-Arab, Mr. Mohamed El Toukhy, and Mr. Mohamed Sultan. Mr. Mohamed Sultan Chief Operating Officer Mr. Mohamed Sultan the Chief Operating Officer assumed his role in February 2015. He joined CIB as Head of Con- sumer Operations in 2008, and within six months Mr. Sultan was appointed Head of the Operations Group. In September 2014, Mr. Sultan was appointed Head of Opera- tions & It, prior to assuming his role as COO. under his leadership and management, significant de- velopments within the Operations Group took place, which resulted in major expansions within the Operations Area. This was achieved by merging several areas under Opera- tions, including, Corporate Services Alternative Channels, and Projects and Premises. In his continuous efforts to enhance the Bank’s internal and external customer experience in alignment with CIB’s overall objectives and strategic goals, multiple depart- ments were established under CIB operations including treasury Middle Office, Operations Control Management, Retail Operations, and Customer Care unit. Following Mr. Sultan’s insightful vision, the Business Con- tinuity and Information Security Management Department – headed by the Chief Security Officer – as well as the Sus- tainability Department were established, positioning CIB as the pioneer and leader in these fields among other financial institutions in the market. Prior to joining CIB, Mr. Sultan held the positions of vice President of Branches Operations and Control Man- agement at Mashreq Bank and Country Operations Head at National Bank of Oman. Sultan has attended several leadership programs in top Business schools and is also an alumnus of INSEAD. 90 ANNUAL REPORT 2015 ANNUAL REPORT 2015 91 Sustainability YEARS OF BANKING ExCELLENCE nAvigAting new wAters CIB was the first Egyptian bank to establish a Sustainable Development Department (SD) in late 2012. More recently, the department was incoporated in the Brand and Corpo- rate Communications Division. The SD continues to enthusiastically advance the concept of sustainability through awareness raising and other activi- ties undertaken by committed CIBians, as they proudly like to call themselves. Over the years, CIB has proved itself a leader in several sectors such as profitability, asset quality, and people – to name but a few. One of the many things that differenetiates the Bank from its peers is its consistency in delivering deserving results in all of its operations and businesses. Our stakeholders have grown accustomed to this, and we have always taken measures to en- sure we not only never let them down, but always exceed their expectations, especially as sustainability evolved over the years to become anchored in the Bank. CIB’s high level of performance, accountability, reputation, and sustainability is what makes it “A Bank to trust,” as people have faith in its ability to deliver continuously and consistently. As the world around us evolves, we are not only keeping up with the changing tides, but tackling them head on. Accordingly, CIB has pledged to help enhance and protect its environment, economy, and society. The Bank strives to protect air and water quality, reduce waste, optimize operating costs, create markets for ‘green’ products and services, improve occupant production, advance economic performance, and heighten aesthetic quality – all as part of its endeavors to elevate quality of life. Sustainable Development Revolves around Five Foundational Pillars: REDUCING ECOLOGICAL FOOTPRINT Energy Efficiency • CIB was the first Egyptian bank to partner with the Ministry of Electricity to manage its energy consump- tion. It was also the first financial institution in Egypt THE TIBA BuILDING • CIB’s seven-floor tiba building in Dokki, Giza, which serves over 300+ permanent staff mem- bers and 100+ daily visitors, saved 30% of its energy consumption after installing an LED lighting system. Daily electricity consump- tion based on meter readings was recorded during implementation, and readings showed a drop from 3,467 KWh to 2,414 KWh post- implementation; • October readings also showed a 30% drop in energy consumption from 84,516 KWh to 59,145 KWh, a difference of 25,371 KWh after 3,328 LED bulbs were installed; • The difference between the observed savings of 30% and calculated savings of 18.5% are due to reduced use of the central air conditioning system after the installation of the lower-heat LED lighting in place of traditional lighting; • The estimated monthly CO2 savings based on a grid emission factor of 0.54 tons of CO2 / MWh: 25,371 KWh* 0.54 / 1,000 = 13.7 tons of CO2. Electricity Consumption 3500 3000 2500 2000 1500 1000 500 D E L e r o f e B n o i t a t n e m e l p m I D E L r e t f A n o i t a t n e m e l p m I to bid for and begin using LED bulbs. The EGP 15.8 million bid for 83,000 LED bulbs was accepted in 2014. By installing LED bulbs in Cairo branches/HOs, we cut our energy consumption by c. 31%; • Installed solar water heaters in Sv1, Sv2, tiba HOs, and branches of Rabwa, Sixth of October, Shams, Sa- dat, Dahab, Hadaba, Sun Rise, and Makady; • Installed Solar tie Grids in Sv1, Sv2, and Road 90 premises, which reduce energy consumption and de- crease our load on governmental channels; • Installed bank-wide water restrictors, reducing water consumption by 30%. Green Buildings • CIB is the first Egyptian bank to ever acquire the Egyptian Green Pyramids Rating System Certificate (GPRS). We collaborated with the Housing and Build- ing National Research Centre (HBRC), and the Minis- try of Housing, utilities, and urban Development to establish a green building-rating-system for Egypt. The rating guidelines set a framework for owners and operators to identify and implement practical and measurable green building design, construction, and maintenance solutions. The GPRS is the Egyptian ver- sion of the internationally recognized Leadership in Energy and Environmental Design (LEED) framework. This is a mark of distinction that signifies a building was constructed and is operated with a green mind- set; in other words, the structure is resource efficient and environmentally friendly. CIB’s Road 90 Branch in New Cairo was awarded the GPRS, Golden grade, fol- lowing inspection by a technical committee of experts from the Ministry of Energy, HBRC and Ministry of Housing, utilities, and urban Development; • CIB was the first Egyptian bank to implement the idea of rooftop gardens above its buildings. Since 2013, the bank has planted two rooftops and is in the process of finalizing the third. these rooftops house organic edible herbs such as thyme and mint. the products are consumed by CIBians, who also take part in their maintenance; Green wall at CIB’s Road 90 branch in New Cairo. 92 ANNUAL REPORT 2015 ANNUAL REPORT 2015 93 CIB: A Model of What Can Be CIB: A Model of What Can Be Sustainability YEARS OF BANKING ExCELLENCE • CIB was the first Egyptian bank to plant 20 internal and external green walls around its branches and head offices (natural green leafy plants to reduce the impact of carbon emissions). Paper Consumption Although banking does require the use of much paper, CIB has succeeded in: • Reducing 26% of paper consumption through the use of double-sided printing at our Cairo branches; • Refraining from the use of printed copies of documents in senior committee meetings, relying instead on tab- lets and other devices; • Ceasing printing of monthly ledgers at branches, which has saved a monthly 23,000 sheets of paper; • Selling large amounts of shredded paper to recy- cling outlets, which is not only a source of income but also encourages awareness of this issue among staff members. SOCIAL AND ENVIRONMENTAL MANAGEMENT SYSTEM Social and environmental concerns have become more prominent in today’s global economy and as part of CIB’s continuous efforts to strike a balance between profitabil- ity and said concerns, the Bank formalized a Social and Environmental Risk Credit Policy Guide in 2015. The Credit Policy Guide provides a framework that integrates social and environmental credit risk man- agement into CIB’s business processes, providing the standard for Social and Environmental due diligence to support responsible risk decision-making. The Social and Environmental Risks Credit Policy Guide, has the following broad objectives: • Manage Social and Environmental (S&E) risks in the overall project cycle • Set an example for socially and environmentally sound practices • Strive to conserve natural resources, protect the environment, and take the standards of living into consideration • Inspire and encourage socially aware and environmentally friendly practices among all Bank stakeholders, including partners and co- investors • Improve financed project development, implemen- tation, monitoring, and project conclusion As the Social and Environmental Risks Credit Policy guide is concluded, its workflow and implementation will be transferred to the Risk Group with the inauguration of the Social and Environmental Credit Risk Department. COMMUNICATION AND REPORTING • Internally published the first Sustainability Report in 2014, in accordance with Global Reporting Ini- tiative’s (GRI) guidelines • Developing the second Sustainability Report for 2015 and in the process of acquiring GRI accreditation • Maintaining constant communication with CIB- ians on global sustainability news through the intranet and monthly CIB newsletter COMMUNITY ENGAGEMENT Waste Management Purchased and distributed 840 trash sorting bins across the bank to be used by staff members to sort their waste and keep their working environment clean and green. Sustainability Ambassadors In 2013, CIB became the first Egyptian bank to launch a Sustainability Ambassadors initiative within its na- tionwide network. there are 70+ active volunteers from different business lines and hiring categories who are eagerly moving forward to spread and anchor sustain- ability issues among the Bank’s 5,500+ CIBians. the ambassadors meet regularly and introduce practi- cal but innovative concepts. Paper and energy champi- ons are rewarded on a quarterly basis for successfully decreasing paper or energy consumption in their work zones and acting as role models. SuSTAINABILITy AMBASSADORS On 13 December 2015, CIB held its quarterly meeting with sustainability ambassadors. the meeting was in the form of a lively workshop moderated by experts in the fields of energy, waste management, community engagement, and communication. A number of the bank’s senior management staff also attended the 10- hour event, in which the moderators presented their views in interactive discussion panels with the Ambassadors. Reviving Giza Zoo CIB was the first bank in Egypt to lead the national mega project of restoring and reviving the Giza Zoo. A good number of CIBians, including senior executives contrib- uted to this worthy national initiative. Built in 1891, the 80-acre Giza Zoo is a treasure and a place of many shared childhood memories. Regrettably, the infrastructure and general conditions were so run down that the facility had lost its WAZA accreditation and thousands of people had stopped visiting. CIB’s Giza headquarters have directly faced the zoo’s grounds since 1982, and the bank is firmly committed to corporate sustainability as a core principle of its business strategy and code of ethics. Developing the zoo will have a healthy ripple effect that will extend to families, friends, and society at large. For the restoration, CIB partnered with ENACtuS to involve the youth community. 33 universities were involved in a competition and given the opportunity to present their business plans, out of which the top-three plans were selected and awarded by CIB. Leading consultant offices reviewed the business plans prepared by the winners and a master design and plan will be prepared in early 2016 for subsequent imple- mentation. Completion of the project is expected by 2018. CIBIAN’S INTELLECTUAL VITALITY AND INNOVATION CIB is continuously encouraging fresh minds to bring new sustainability ideas to the table. The email address green.link@cibeg.com is where all CIBians share their recommendations, ideas, and views for a more sustain- able work environment. The Giza Zoo Revival project allowed students from 33 universities to present their business plans, of which the top three were selected by the Bank. CIB’s green walls help reduce harmful carbon dioxide emissions. 94 ANNUAL REPORT 2015 ANNUAL REPORT 2015 95 CIB: A Model of What Can Be CIB: A Model of What Can Be COMMuNItY DEvELOPMENt The CIB Foundation was established in 2010 as a non-profit organization dedicated to the enhancement of health and nutrition services extended to underprivileged children in Egypt. The Foundation’s work highlights CIB’s efforts to give back to its community and aid in its development. On the left, CIB and the Shahr El Kheir initiative distribute food cartons in poor and densely populated governorates such as Asyut, Luxor, and Aswan during Ramadan; on the right, Student beneficiaries of CIB’s 6/6 Eye Exam Caravan waiting in line. So far, 41,000 students have benefited from this program. 96 ANNUAL REPORT 2015 ANNUAL REPORT 2015 97 Community Development YEARS OF BANKING ExCELLENCE Cib foundAtion This year was a solid one for the CIB Foundation, as it saw the organization advance on its trajectory of growth and expan- sion. Committed to meeting the healthcare needs of the Egyp- tian community, the CIB Foundation reaffirmed its position as a leading supporter and provider of quality health services across the country. The Foundation was established in 2010 as a non-profit organization dedicated to the enhancement of health and nutrition services extended to underprivileged children in Egypt. 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 Member Dr. Nadia Makram Ebeid Member Mr. Hossam Abou Moussa Member Ms. Pakinam Essam El-Din Mahmoud Member Ms. Nadia Mostafa Hosny Secretary General Following the annual shareholders’ General Assembly meet- ing in early 2015, the CIB Foundation was allocated over EGP 54 million, representing 1.5% of CIB’s annual net profit. With this funding, the organization continued to expand its op- erations geographically, creating new beginnings for Egypt’s youngest citizens across the country. In late September 2015, the CIB Foundation was recognized for its work in the arena of corporate social responsibility from Banker Africa, winning the award for “Most Socially Respon- sible Bank in North Africa.” The title is customarily granted to the African bank that demonstrates the greatest socially responsible practices through its policies and projects. Banks are evaluated based on their sustainable impact on the com- munities in which they operate, and whether or not they go beyond the philanthropic use of funds to dedicate their over- all knowledge, resources, and reputation to improve lives. In 2015, the CIB Foundation was also shortlisted for the African Banker’s “Socially Responsible Bank of the Year” award. The Foundation’s partnerships and initiatives during 2015 included: Gozour Foundation for Development: Eye Exam Caravans In January 2015, the CIB Foundation reaffirmed its long- standing partnership with the Gozour Foundation for Devel- opment to fund 18 eye exam caravans in public elementary schools across Egypt between February and April 2015. This represented the fifth phase of the project. The Gozour Foun- dation for Development is the non-governmental arm of the Center for Development Services (CDS). The CIB Foundation allocated EGP 1.5 million in two tranches to fund caravans in the governorates of Cairo, Giza, Is- mailia, Beni Suef, Minya, Sohag, and Qena through the “6/6 Eye Exam Caravan Program.” Through a partnership with Alnoor Magrabi Foundation, the caravans are designed to provide public-school students with free eye exams, eyeglass frames and lenses, eye medication, as well as in-depth eye-exams and referrals to private hospitals for complex cases. Each caravan included 15-20 doctors, nurses, and coordinators, and is fully equipped with advanced equipment, a fully stocked pharmacy, and an eyeglass shop. Each one-day caravan had a target of 500 children. A total of 9,000 children received free eye exams and necessary care and consultation by the end of the project. During 2015, CIB’s 6/6 Eye Exam Caravan Program targeted 21,000 primary school students across Egypt and distributed hygiene bags to reinforce health awareness messages delivered through the campaign. 98 ANNUAL REPORT 2015 ANNUAL REPORT 2015 99 Community Development YEARS OF BANKING ExCELLENCE EGP 10 mn Donated to Abu El Rish Children’s Hospitals to build emergency ward and reception area In mid-2015, the partnership with the Gozour Foundation was renewed, with EGP 3.96 million allocated for the sixth phase of the project. Throughout the fiscal year 2015/16, the CIB Foundation will implement 36 one-day caravans, providing free eye exams and care to 18,000 students in 11 governorates across Egypt. CIB staff members and their families also participated in bag- packing events, where thousands of school bags were packed with soap, towels, and educational material for the student beneficiaries of the program. These events provided valuable opportunities for children of CIB’s staff members to learn about the Foundation’s activities and give back to the community. Children’s Cancer Hospital 57357: Intraoperative MRI and Annual Donation In line with its long-term partnership with the Children’s Cancer Hospital 57357, the CIB Foundation provided the hospital with an intraoperative MRI machine at a cost of over EGP 10 million. This machine will allow doctors to perform on-the-spot MRI’s inside the operating room, precisely identifying cancer cells and minimizing the number of invasive surgical procedures pediatric patients are subjected to. The hospital estimates that with this piece of equipment, the first of its kind in the Middle East, they should be able to increase their treatment rate from 65% to 85-90%, which should also drive patient turnover rate up. Additionally, the hospital expects its cure rate to increase from 60% to 75-80%. As another demonstration of the Foundation’s commit- ment to the Children’s Cancer Hospital, EGP 3.5 million were donated in February 2015 to fund patient care and contrib- ute to the construction costs of the hospital’s expansion. Rotary Club of Kasr El Nil: 1,000 Eye Surgeries In 2015, the CIB Foundation, in collaboration with the Rotary Club of Kasr El Nil, donated EGP 1.5 million to support the Children’s Right to Sight (CRtS) program. The CRtS program is dedicated to eradicating blindness and supporting children and infants requiring critical eye surgeries. The CIB Founda- tion donated EGP 1.038 million to cover the costs associated with the 606 surgeries completed in 2015. Sohag University Hospital: Outfitting of Three Pediatric Intensive Care Units In April 2015, the CIB Foundation fulfilled its c. EGP 6 million commitment to equip three pediatric intensive care units at the Sohag university Hospital. The importance of the project cannot be overlooked, as there were no previous existing ICu facilities within the governorate. The units were inaugurated on 4 May 2015. Aswan University Hospital: Renovation and Outfitting of Pediatric Units In April 2015, the CIB Foundation fulfilled its EGP 6 million commitment to renovate and outfit several units in the pe- diatrics department of the Aswan university Hospital. Due to the lack of medical services and resources in the area, the hospital had been referring approximately 70% of its patients to other governorates, such as Asyut, the closest governorate, approximately 70 km away, and Cairo. The hospital’s reno- vated units were inaugurated on 9 July 2015. ADVANCE Society for Persons with Autism & Other Disabilities: Finishing Works in the Society’s New Premises In March 2015, the CIB Foundation fulfilled its EGP 1.5 mil- lion commitment to the ADvANCE Society for Persons with Autism and Other Disabilities in order to complete finishing works in Building II of their new premises in New Cairo. The ADvANCE Society is a non-profit organization that was founded in 1999 by a group of parents of persons with autism and other developmental disabilities with the aim of allowing those individuals to reach their utmost potential. Building II – where workshops, specialized therapies, trainings, and administration work are conducted – required a number of amenities, including water, sewage, fire and irrigation net- works, concrete works, and landscaping. Friends of Abu El Rish Children’s Hospitals Organization: Emergency Ward and Reception Area In March 2015, the CIB Foundation fulfilled its EGP 10 mil- lion commitment to the Friends of Abu El Rish Children’s Hospitals Organization to renovate and upgrade the Abu El Rish El Mounira Children’s Hospital’s Emergency Ward and Reception Area. The renovation and upgrade of the emergency ward was critical, allowing the hospital to provide top-quality services and care to incoming patients. The renovation included re- structuring the facility to streamline movement and opera- tions, providing services such as lab work, X-rays, and blood transfusions efficiently and at higher speeds. Additionally, the work included establishing reporting mechanisms to facilitate accurate diagnoses, fully-equipping the unit to handle high-risk cases, and establishing previously unavail- able intensive care areas in the ward. The emergency ward and reception area were inaugurated on 18 March 2015. Now fully functional, the ward is able to provide emergency services for roughly 90,000 children a year. CIB Sustainability Ambassador decorates outpatient clinics at Cancer Children’s Hospital 57357. Ambassadors particpated in a number of volunteer events with the CIB Foundation during 2015. In 2015, the CIB Foundation organized 16 successful blood donation campaigns in five governorates, and collected over 600 bags of blood, potentially saving the lives of over 1,800 individuals. Additionally, the CIB Foundation renewed its ongoing partnership with the Organization to support the oper- ating costs of the El Mounira Hospital’s intensive care unit (ICu). In October 2015, the CIB Foundation donated EGP 2 million to the Organization to support the CIB Foundation-funded ICu. Egyptian Liver Care Society: Children Without Virus C Program In early 2014, the CIB Foundation dedicated over EGP 6 million to fund the Egyptian Liver Care Society’s Children Without virus C’s “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 patient- care skills, providing financial support to Hepatitis patients (including liver transplants), and increasing the number and quality of Hepatitis-treatment centers in Egypt. The C-Free Child program is the only program of its kind in Egypt, screen- ing and treating children with Hepatitis C for free. Over the course of 24 months, beginning in September 2014, the Egyptian Liver Care Society, in partnership with the Na- tional Committee for Combatting viral Hepatitis, will screen 2,000 children and treat 600 identified with Hepatitis C. The project will also train a cadre of doctors and nurses, and raise general awareness on the disease among families and caregiv- ers of children with the virus. The second installment of the project, EGP 2.51 million, was donated in March 2015. Mansoura University Children’s Hospital: Endoscopy Equipment for the Gastroenterology and Liver Unit In April 2015, the CIB Foundation fulfilled its EGP 1.05 mil- lion commitment to the Gastroenterology and Liver unit at Mansoura university’s Children’s Hospital, specifically for the purpose of providing three state-of-the-art pieces of endoscopy equipment. Mansoura university Children’s Hospital is a 25-year old teaching hospital, and a major referral center for pediatric patients in Egypt and the surrounding region. With the Foun- dation’s donation, the unit was able to purchase a high-tech light source to make endoscopy procedures less invasive for pediatric patients, as well as two additional pediatric endo- scopes. This equipment has allowed the unit to double the number of endoscopy procedures it is able to perform. Egyptian Red Crescent: Community Health Center Renovation The CIB Foundation donated EGP 900,000 to the Egyptian Red Crescent to renovate pediatric outpatient clinics and operat- ing rooms in the Al Nahda area’s community health center. The Red Crescent-managed health center houses seven clin- 100 ANNUAL REPORT 2015 ANNUAL REPORT 2015 101 Community Development YEARS OF BANKING ExCELLENCE ics, including pediatrics, a lab, dentistry, ear nose and throat (ENt), ophthalmology, internal medicine, and gynecology. The renovations will help provide quality medical services to roughly 24,000 children that visit the clinic each year. The health center is expected to open in early 2016. MOVE Foundation for Children with Cerebral Palsy: Premises Renovation In 2014, the CIB Foundation committed EGP 2 million to the MOvE Foundation for Children with Cerebral Palsy in order to renovate their premises, allowing them to expand their opera- tions. The MOvE Foundation was established in 2004 with a mission to positively impact the lives of the estimated 250,000 children living with the disability. The organization aims to bring those children into the mainstream public schooling system in order to allow them to become healthy, productive members of society. While Cerebral Palsy cannot be cured, it can be managed successfully through early intervention. In June 2015, the CIB Foundation fulfilled its first commit- ment to the MOvE Foundation by donating EGP 1.3 million for the purchase of their current premises. The CIB Foundation is currently in the process of funding the second and third stages of the project, which should see the complete renovation of the premises, as well as the purchasing of essential equipment. Magdi Yacoub Heart Foundation: Research Labs and 50 Open-Heart Surgeries In April 2015, the CIB Foundation’s Board of trustees ap- proved the complete financing of two research labs in the Magdi Yacoub Heart Foundation’s Aswan Heart Center. The EGP 15 million project will be funded over three years, with EGP 8 million donated the in the first year (2015). The Centre hopes that these research labs will deepen existing knowledge of various heart diseases and shed light on possible therapeutic strategies. Research provides opportunities for audit, development of critical faculties, enhances patient care, stimulates discovery, and enhances international visibility of the Centre. In addition, training Egyptian doctors and scientists in research methodologies as well as the execution of research and publishing in inter- national journals with high impact factors are essential for the development of science in the region. The program serves as an excellent platform from which young Egyptian scien- tists and researchers can contribute to the advancement of world-class research without having to leave the country. Additionally, in July 2015, the CIB Foundation allocated EGP 3.815 million to the Magdi Yacoub Heart Foundation to cover the costs associated with 50 pediatric open-heart surgeries. Through its ongoing donations, the CIB Foundation supports the Magdi Yacoub Foundation’s efforts to drastically minimize the number of children on the open-heart surgery waiting list. African Leadership Academy: Full Tuition Support for Two Egyptian Students In August 2015, the CIB Foundation fulfilled its first install- ment in a pledge to support two young Egyptian students completing their high school degrees at the African Leader- ship Academy (ALA) in South Africa. The ALA seeks to develop the next generation of African leaders through the promotion of leadership and entrepreneurship skills, and in-depth Af- rican studies. The goal of the ALA curriculum is to provide young leaders with the knowledge and inspiration they need to become agents of positive change in the African continent. Once the students complete their university degrees, both will return to Egypt as contributing leaders in society. Yahiya Arafa Children’s Charity Foundation: Pediatric Catheter Lab The Yahiya Arafa Children’s Charity Foundation is a long- standing partner of the CIB Foundation. In September 2015, the CIB Foundation’s Board of trustees approved the complete funding of a pediatric catheter lab at the Ain Shams university Hospital, under the supervision and management of the Yahiya Arafa Foundation. The roughly EGP 8 million project will see the creation of a dedicated pediatric unit, allowing the Hos- pital to separate adult and pediatric patients, conduct 100 procedures per month, and reduce the waiting list by 90%. National Cancer Institute: Computed Tomographic (CT) Scanner In September 2015, the CIB Foundation’s Board of trustees approved the purchase of a pediatric Computed tomographic (Ct) scan machine for the Department of Radiology at the National Cancer Institute at a cost of EGP 3.15 million. The National Cancer Institute is the largest hospital serving cancer patients in Egypt. It was established at Cairo university in 1969 and currently receives around 140 children with can- cer on a daily basis, of whom around six to eight patients are usually newly diagnosed. The Department of Radiology cur- rently receives some 30 patients daily, in addition to the 10-15 emergency cases that are turned away due to long waiting lists. The dedicated piece of equipment will allow the department to increase the number of urgent cases it can take in each day, decrease mortality and morbidity rates as early diagnosis rates climb, and eliminate the pediatric unit’s waiting list. Baladi Foundation – Ophthalmic Clinic in Aswan In September 2015, the CIB Foundation’s Board of trustees also approved an EGP 710,000 project to establish the first fully-equipped diagnosis and referral center for cases of glau- coma among children in upper Egypt. Through the project, the CIB Foundation will support the Baladi Foundation in the early detection of the disease in 500 children, treat and perform follow-up operations for this group ,and conduct 50 surgeries for congenital glaucoma cases. Additionally, the Baladi Foundation will conduct two events per year to train 25 specialized doctors. Rotary Club of Zamalek: Maxillo-Facial Center in the Pediatric Prosthodontics Department at Cairo University’s Faculty of Dentistry In September 2015, the CIB Foundation’s Board of trustees approved c. EGP 50,000 in annual operating costs for the Students examined by the 6/6 Eye Exam Caravans using coloring books created specifically for them by Foundation’s partner the Gozour Foundation for Development. The books deliver specific hygiene- focused messages to promote awareness. CIB Foundation-funded Maxillo-Facial Center at Cairo university’s Faculty of Dentistry. The Center was inaugu- rated in April 2014, and is one of the sole providers of highly specialized treatments for oral and nasal cavity deformities, congenital deformities in newborn babies, and facial defor- mities caused by cancer. Egyptian Clothing Bank: Warm Egypt National Campaign In its fourth 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 initiative of the Clothing Bank’s national campaign “One Million Blankets” includes the production of warm cotton jumpers for both sexes in all sizes for the needy. This allows ECB to provide support for families inside their homes through the blanket campaign and outside their homes with warm clothes. Additionally, the program seeks to reinvigorate many small and medium-sized factories with new produc- tion lines, helping to increase both production levels and economic activity. The donation was used to provide heavy jumpers to 50,000 children in seven governorates, including Sohag, Aswan, Asyut, Red Sea, Wadi El Gedid, and Luxor. Blood Donation Campaigns: The Triple Effect Over the course of 2015, the CIB Foundation hosted 16 blood donation campaigns across its corporate offices. The cam- paign, in its third year at CIB now, aims to encourage bank staff and customers to positively and effectively participate in an activity that can save the lives of thousands of patients across the country. Initially, five campaigns were launched in Cairo, and under the leadership of bank staff, the program was expanded for the first time to include six additional campaigns in Damietta, Red Sea, and Suez. In total, over 600 bags of blood were collected in 2015, potentially saving the lives of over 1,800 people. KidZania Cairo through CIB’s long-term corporate sponsorship of Kid- Zania Cairo, the CIB Foundation allocated 50 tickets each quarter to underprivileged children. throughout 2015, the CIB Foundation organized multiple visits to the edutain- ment city through its partner organizations, where children were provided the opportunity 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 Foundation awarded this opportunity to underprivileged children, children with physical and mental disabilities, orphans, and cancer patients. through these events, children from marginalized groups of society were given the chance to experience activities that would have previously been unavailable to them. 102 ANNUAL REPORT 2015 ANNUAL REPORT 2015 103 Community Development YEARS OF BANKING ExCELLENCE CorporAte soCiAl responsibility CIB continues to achieve significant milestones in its Cor- porate Social Responsibility (CSR) efforts and 2015 was no exception. During the year, the CSR division implemented more initiatives that had a profound impact on the lives of people in our community. these efforts remain high on our list of priorities. Community Development Over the last 12 months, CIB maintained its steadfast com- mitment to community development through a diverse series of CSR projects. School Cultural Trips to Cairo Opera House: CIB organized a number of trips for public school students to the Cairo Opera House, in the context of its initiative to develop young students’ aesthetic senses through fine arts and music. Students were introduced to the high arts of classical music by attending a performance of vivaldi’s renowned “Four Seasons,” a set of four violin concertos that describe each of the seasons of the year. Kidzania: Through its sponsorship of Kidzania since 2013, CIB has continued to strengthen its brand loyalty and exposure, with the mini CIB branch in the premises and the branded materials distributed around the venue. In 2015, CIB organized several free trips for children with special needs to experience and enjoy Kidzania, under the supervision of the CIB Foundation. Autism: Children with autism and other disabilities have always been given the highest priority on CIB’s CSR agenda. In 2015, CIB continued to sponsor the annual ceremony held by the ADvANCE Society for Persons with Autism and Other Disabilities, which showcased rhythmic musical compositions Public school trips to the Cairo Opera House, sponsored by CIB, where students attended Vivaldi’s renonwned “Four Seasons” concerto. performed by students. The concert serves as a platform from which awareness can be raised about the creative and expressive skills of children with disabilities, supporting their integration into mainstream society. El Sawy Culture Wheel: In addition to sponsoring special screenings of documentary films, cultural nights, concerts, and art exhibitions, CIB also introduced a number of new programs this year. In cooperation with El Sawy Culture Wheel, the CIB Foundation, MOvE Foundation for Children with Cerebral Palsy and the Lujain Association, the Bank launched the “Dif- ferent Abilities” initiative to help children with special needs explore their artistic skills and talents. under this initiative, the Bank sponsored the “Language of Colors,” an art exhibition for “Persons with Intellectual Disabilities” that witnessed the participation of artists from 10 NGOs in Greater Cairo. “Financial Planning for Individuals” Seminar at El Sawy Culture Wheel, Cairo. Another noteworthy initiative in 2015 was the “Financial Planning for Safer Future” campaign, which consisted of free seminars aiming to raise awareness about the role and importance of banks in societies and to individuals, in addi- tion to supporting a drive for financial inclusion. Beena Initiative: CIB and the Ministry of Social Solidarity signed the “Beena” protocol in June to encourage the active participation of youth in society, and to support and monitor the development of social care services. Partnering in this initiative indicates the Bank’s firm commitment to support- ing community development. Beena is known for employ- ing young volunteers to create an effective mechanism for developing and monitoring the quality of services provided to different social care centers, such as orphanages, elderly homes, and special-needs houses, a segment of society that is in dire need of adequate care and higher-quality services. Zawya: Through CIB’s partnership with Zawya, an art- house cinema founded by Misr International Films (MIF) and located in Downtown Cairo, the Bank sponsored two screenings of the Egyptian director Youssef Chahine’s clas- sical epic Al Nasser Saladdin, with audio descriptions for the blind and visually impaired. The screenings were the first of their kind in Egypt. The initiative was initially derived from the Bank’s ultimate and long-term goal to integrate this spe- cific spectrum of citizens into the Egyptian society, securing their simple right to lead a normal life. Orchestra Alnour Wal Amal: CIB, being a devotee of different types of distinctive talents across Egypt, proudly sponsored the art show “Days and Nights of the Heart tree.” The performance, which was held at the Cairo Opera House, featured the Alnour Wal Amal Orchestra, a group of blind Egyptian women. This novel sponsorship aims to support gifted women who are challenged by their disabili- ties. These women have become a true inspiration to the whole Egyptian community and an exceptional icon in the international musical scene. 104 ANNUAL REPORT 2015 ANNUAL REPORT 2015 105 Community Development YEARS OF BANKING ExCELLENCE “The Language of Colors” was a CIB-organized art exhibition for persons with intellectual disabilities at El Sawy Culture Wheel. Omar Samra holding CIB’s flag at the southernmost point on the surface of the earth as part of the “Explorers Grand Slam” challenge. International Museum Day: CIB was the first Egyptian bank to ever sponsor the International Museum Day in Egypt, underscoring the Bank’s robust strategy and placing it at the head of all other organizations devoted to nurturing talented youth and promoting fine art activities. During the celebration – which was organized by the Egyptian National Committee of the International Council of Museums (ICOM Egypt), in asso- ciation with the Ministry of Antiquities – the best projects and talents were honored under the auspices of CIB. Special awards were granted to young and distinguished teams in recognition of their outstanding contributions and efforts to the different disciplines related to the field of museums. Sponsoring Art: Art occupies a fairly large portion of CIB’s CSR framework and agenda. We work to ensure the diversifi- cation of our channels in order to reach out to distinctive art talents across Egypt and into as many categories as possible. • Supporting Students of Fine Arts Faculties: The Bank continued to intensify its efforts to expose Egypt’s unique and talented youth who are in need of encour- agement and support. During 2015, the Bank expanded its reach to target university students in Minya, Luxor, and Alexandria. This year, CIB sponsored the annual art exhibit held for senior students and fresh graduates at South valley university’s Faculty of Fine Arts in Luxor. The Bank acquired the best art pieces in the collection, adding them to our private art collection in an attempt to incentivize the talented youth of upper Egypt. • Art Exhibitions: CIB played a leading role in the art exhibitions held in the governorates of Luxor and Minya in upper Egypt, acquiring the finest art pieces displayed at both. These exhibitions witnessed con- siderable participation from artists in upper Egypt. Moreover, CIB extended its art support to more new ex- hibitions, including the Marasem Siwa and Small Art- works. The first aimed to illustrate the unique culture and nature beauty of the Siwa Oasis; special trips were organized for participating artists to get inspired by the oasis’ magnificent scenes and create the artworks that were displayed later on in the Hanager Arts Center at the Cairo Opera House. The other exhibition, “Small Artworks” was sponsored by CIB and organized by the Easel and Camera contemporary art gallery, during which the Bank granted awards to talented artists, who were selected by a specialized committee, and acquired the winning pieces to add to the Bank’s art collection. • La Biennale di Venezia: CIB supported and sponsored three Egyptian artists, Ahmed El-Shaer, Haitham Nawar and Khaled Hafez, at last year’s edition of La Biennale venezia, one of the world’s most prestigious arts and cul- ture institutes that also organizes an annual exhibition of the same name. Established in 1895, the Biennale now hosts more than 370,000 visitors at its art exhibition. • Florence Biennale: CIB also sponsored the Egyptian artist Weaam El-Masry at the Florence Biennale, a well- known platform for free, independent, innovative, and stimulating contemporary art worldwide. Over the years, the Florence Biennale has showcased some 6,000 artists from over 100 countries. today, it is one of the most im- portant contemporary art events held worldwide. • Art Salons: For the fifth consecutive year, CIB sup- ported a new generation of young, aspiring artists through its sponsorship of the annual Egyptian Youth Salon. CIB collaborated with the Fine Arts division at the Egyptian Ministry of Culture to support trending artists under the age of 35. In an effort to support artists from various age brackets and provide equal opportunities to all, the Bank chose to sponsor the upper Egypt Salon, which was held in Luxor in April 2015, in collaboration with South valley university’s Faculty of Fine Arts. This year’s dynamic agenda of art-centric sponsorships and activities allowed CIB to acquire nearly 200 distinct pieces of art, enriching the Bank’s art collection, while also providing incentive to and acknowledgement of genuine local talent. Partnering with Omar Samra: CIB supported Egyptian entrepreneur Omar Samra in breaking the record to become the first Egyptian to win the “Explorer’s Grand Slam” chal- lenge, an accomplishment realized by only 40 people in his- tory. In May, Samra raised the Egyptian flag and CIB’s flag on the northernmost point on the surface of the Earth, in recog- nition of the Bank’s supportive role. CIB’s partnership with Samra, which began in late 2014, reflects the Bank’s leading role in developing the outstanding talents of ambitious youth, believing that thy are the core of the country’s development and the driving force of Egypt’s economy and prosperity. Sponsoring the Egyptian Squash Federation: As sports symbolize an integral part of its responsibility and commit- ment toward Egyptian youth, CIB has sponsored the Squash Federation for several years now. The Bank offers support and encouragement to young and talented athletes who represent the country in regional and international arenas. This year, CIB was a key sponsor of the national junior team in the Women’s World Junior Squash Championship, held in the Netherlands. The team won the title after beating the uS national team in the final. 106 ANNUAL REPORT 2015 ANNUAL REPORT 2015 107 finAnCiAl stAtements 1976 1978 1983 2004 2005 2008 1984 1985 1986 2009 2010 2011 1987 1988 1993 2012 2013 2014 108 ANNUAL REPORT 2015 ANNUAL REPORT 2015 109 financial statements: separate years of excellence 110 annual report 2015 annual report 2015 111 financial statements: separate years of excellence commercial International Bank (egypt) s.a.e Separate balance sheet as at December 31, 2015 commercial International Bank (egypt) s.a.e Separate income statement for the year ended December 31, 2015 Notes Dec. 31, 2015 EGP Thousands Dec. 31, 2014 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, net Loans and advances to customers, net Derivative financial instruments Financial investments - Available for sale - Held to maturity Investments in subsidiary and associates Non-current assets held for sale Investment properties Other assets Goodwill Intangible assets Deferred tax assets (Liabilities) Property, plant and equipment Total assets Liabilities and equity Liabilities Due to banks Due to customers Derivative financial instruments Current tax liabilities Other liabilities Long term loans Other provisions Total liabilities Equity Issued and paid up capital Reserves Reserve for employee stock ownership plan (ESOP) Total equity Net profit for the year Total equity and net profit for year Total liabilities and equity The accompanying notes are an integral part of these financial statements . 15 16 17 18 19 20 21 22 22 23 43 24 25 42 42 33 26 27 28 21 30 29 31 32 35 9,848,954 21,002,305 22,130,170 5,848,377 38,443 57,172,705 80,995 46,289,075 9,261,220 12,600 503,066 - 4,799,937 209,842 629,340 258,157 1,107,905 179,193,091 1,600,769 155,369,922 145,735 1,949,694 2,622,269 131,328 861,761 162,681,478 11,470,603 152,144 248,148 11,870,895 4,640,718 16,511,613 179,193,091 7,502,256 9,279,896 30,539,402 3,727,571 118,091 49,279,817 52,188 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 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 Profits (Losses) on financial investments Administrative expenses Other operating (expenses) income Goodwill amortization Intangible assets amortization Impairment charge for credit losses Profit before income tax Income tax expense Deferred tax assets (Liabilities) Net profit for the year Earning per share Basic Diluted Notes 6 7 8 9 22 10 11 42 42 12 13 33&13 14 Dec. 31, 2015 EGP Thousands 14,765,337 (6,650,008) 8,115,329 Dec. 31, 2014 EGP Thousands 11,549,834 (5,274,133) 6,275,701 1,932,054 (299,696) 1,632,358 35,062 710,398 270,998 (2,028,404) (570,000) (7,236) (21,701) (1,682,439) 6,454,365 (1,949,694) 136,047 4,640,718 3.58 3.53 1,669,224 (181,498) 1,487,726 28,514 717,001 (29,335) (1,704,500) (762,529) - - (588,794) 5,423,784 (1,814,609) 38,355 3,647,530 2.81 2.78 Hisham Ezz Al-Arab Chairman and Managing Director 112 annual report 2015 annual report 2015 113 financial statements: separate years of excellence commercial International Bank (egypt) s.a.e Separate cash flow for the year ended December 31, 2015 commercial International Bank (egypt) s.a.e Separate cash flow for the year ended December 31, 2015 (Cont.) Cash flow from financing activities Increase (decrease) in long term loans Dividend paid Capital increase Net cash 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 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 with maturities more than three months Treasury bills with maturity more than three months Total cash and cash equivalent Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands (111,550) (1,563,646) 94,748 (1,580,448) (2,188,829) 14,811,360 12,622,531 9,848,954 21,002,305 22,130,170 (8,268,202) (15,478,335) (16,612,361) 12,622,531 110,725 (1,253,338) 79,299 (1,063,314) 2,949,318 11,862,042 14,811,360 7,502,256 9,279,896 30,539,402 (5,392,596) (5,007,412) (22,110,186) 14,811,360 Cash flow from operating activities Profit before income tax Adjustments to reconcile net profit to net cash provided by operating activities Fixed assets 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 Goodwill amortization Intangible assets amortization Financial investments impairment charge Utilization of other provisions Other provisions no longer used Exchange differences of other provisions Profits from selling property, plant and equipment Profits from selling financial investments Profits from selling associates 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 Goodwill Intangible assets Due to banks Due to customers Income tax obligations paid Other liabilities Net cash provided from operating activities Cash flow from investing activities Payment for purchase of subsidiary and associates Proceeds from selling subsidiary and associates Payment for purchases of property, plant, equipment and branches construc- tions Proceeds from redemption of held to maturity financial investments Payment for purchases of held to maturity financial investments Payment for purchases of available for sale financial investments Proceeds from selling available for sale financial investments Proceeds (payments) from real estate investments Net cash used in investing activities Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 6,454,365 5,423,784 223,510 1,682,439 135,866 353,590 (96,638) 7,236 21,701 140,751 (5,286) (505) 13,330 (564) (163,270) (285,431) 133,395 - 8,614,489 (13,346,529) 5,497,825 (2,474,396) (20,247) (9,495,679) (1,042,543) (217,078) (651,041) 469,384 33,124,989 (1,814,609) 80,304 18,724,869 - 334,451 (360,587) 3,919,074 (4,019,548) (25,392,460) 5,301,726 884,094 (19,333,250) 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 (2,130,064) (4,897,448) (1,476,755) 73,193 (8,016,328) (845,028) - - (242,025) 25,304,663 (1,179,709) 1,095,918 14,270,782 (17,888) - (240,265) - (4,973,572) (9,080,132) 4,937,801 (884,094) (10,258,150) 114 annual report 2015 annual report 2015 115 financial statements: separate years of excellence 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 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 p u d i a p l a t i p a c d n a d e u s s I - 9 9 2 9 7 , , 5 4 0 5 1 1 2 1 , , ) 8 3 3 3 5 2 1 ( , , 0 3 5 7 4 6 3 , 1 3 2 7 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 5 8 6 1 7 2 , 1 9 9 1 , ) 8 6 4 0 2 7 ( , 7 6 3 7 2 , 2 4 2 6 0 4 , 5 6 3 0 9 4 , , 5 3 4 2 0 0 9 , - , ) 4 1 5 3 6 4 1 ( , , ) 8 3 3 3 5 2 1 ( , , 0 3 5 7 4 6 3 , - - , 0 3 5 7 4 6 3 , - - - - - - - - - - - 1 3 2 7 2 1 , - - - - - 1 4 7 1 9 9 1 , ) 7 3 2 3 9 5 ( , 8 0 1 8 2 , - - - - - , 6 0 4 4 4 4 1 , , 8 4 6 0 5 8 1 , - - - - - 9 1 7 0 3 1 , 4 8 0 1 2 6 , - - - - - 9 9 2 9 7 , , 4 3 7 1 8 0 9 , i n a l p p h s r e n w o k c o t s l s e e y o p m e f o t s o C S F A n o ) s s o l ( / n i a g d e s i l a e r n u t e N r a e y e h t f o d n e e h t t a e c n a l a B ) P O S E ( s e v r e s e r o t d e r r e f s n a r T r a e y e h t r o f t fi o r p t e N d i a p d n e d i v i D e c n a l a b g n n n i g e B i e s a e r c n i l a t i p a C 4 1 0 2 , 1 3 . c e D 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 i a c r e m m o c 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 i a c r e m m o c 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 , 4 2 6 5 1 8 4 1 , - - 8 4 7 4 9 , , ) 6 4 6 3 6 5 1 ( , 5 9 3 3 3 1 , , 8 1 7 0 4 6 4 , , ) 6 2 2 9 0 6 1 ( , , 3 1 6 1 1 5 6 1 , - - - - - 6 6 7 7 7 1 , ) 3 1 0 3 6 ( , 5 9 3 3 3 1 , 8 4 1 8 4 2 , , 0 3 5 7 4 6 3 , - ) 2 2 5 ( , ) 2 6 3 3 8 0 2 ( , - - , 8 1 7 0 4 6 4 , , 8 1 7 0 4 6 4 , , ) 6 4 6 3 6 5 1 ( , 2 2 5 1 9 9 1 , s k s i r e v r e s e r g n i k n a B - - - - - - 3 1 5 2 , 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 l a r e n e G e v r e s e r ) 7 3 2 3 9 5 ( , 8 0 1 8 2 , - - - - - , ) 6 2 2 9 0 6 1 ( , - , ) 3 6 4 2 0 2 2 ( , - - - - - - 6 0 1 2 , 4 1 2 0 3 , - , 8 4 6 0 5 8 1 , , ) 1 2 1 4 9 2 2 ( , , 8 9 9 1 6 9 1 , - - - - , 5 2 5 8 1 5 1 , l a g e L e v r e s e r 4 8 0 1 2 6 , - - 1 7 2 2 8 1 , - - - - 5 5 3 3 0 8 , p u d i a p l a t i p a c d n a d e u s s I , 4 3 7 1 8 0 9 , 5 1 0 2 , 1 3 r e b m e c e D e c n a l a b g n n n i g e B i 5 1 0 2 , 1 3 . c e D - e v r e s e r k s i r k n a b o t ) m o r f ( d e r r e f s n a r T , 9 6 8 8 8 3 2 , - - - - - , 3 0 6 0 7 4 1 1 , i n a l p p h s r e n w o k c o t s l s e e y o p m e f o t s o C S F A n o ) s s o l ( / n i a g d e s i l a e r n u t e N r a e y e h t f o d n e e h t t a e c n a l a B ) P O S E ( s e v r e s e r o t d e r r e f s n a r T e s a e r c n i l a t i p a C 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 116 annual report 2015 annual report 2015 117 financial statements: separate years of excellence Notes to the separate financial statements for the year ended on December 31, 2015 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 159 branches, and 28 units employing 5983 employees on the statement of financial position 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. 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. 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. 2.4.2. 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. 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, 2015 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. 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. 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. 118 annual report 2015 annual report 2015 119 financial statements: separate years of excellence Financial instruments, other than those held for trading, are classified as financial assets designated at fair value through profit and loss if they meet one or more of the criteria set out below: • When the designation eliminates or significantly reduces measurement and recognition inconsistencies that would arise from measuring financial assets or financial liabilities, on different bases. Under this criterion, an accounting mismatch would arise if the debt securities issued were accounted for at amortized cost, because the related derivatives are mea- sured at fair value with changes in the fair value recognized in the income statement. The main classes of financial instru- ments designated by the Bank are loans and advances and long-term debt issues. • Applies to groups of financial assets, financial liabilities or combinations thereof that are managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information about the groups of financial instruments is reported to management on that basis. • Relates to financial instruments containing one or more embedded derivatives that significantly modify the cash flows resulting from those financial instruments, including certain debt issues and debt securities held. Any financial derivative initially recognized at fair value can't be reclassified during the holding period. Re-classification is not allowed for any financial instrument initially recognized at fair value through profit and loss. 2.5.2. Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: • Those that the Bank intends to sell immediately or in the short term, which is classified as held for trading, or those that the Bank upon initial recognition designates as at fair value through profit and loss. • Those that the Bank upon initial recognition designates and available for sale; or • Those for which the holder may not recover substantially all of its initial investment, other than credit deterioration. 2.5.3. Held to maturity financial investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturi- ties that the Bank's management has the positive intention and ability to hold till maturity. If the Bank has to sell other than an insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale unless in necessary cases subject to regulatory approval. 2.5.4. Available for sale financial investments Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The following are applied in respect to all financial assets: Debt securities and equity shares intended to be held on a continuing basis, other than those designated at fair value, are classified as available-for-sale or held-to-maturity. Financial investments are recognized on trade date, when the group enters into contractual arrangements with counterparties to purchase securities. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Bank transfers substantially all risks and rewards of the ownership. Financial liabilities are derecognized when they are extinguished, that is, when the obligation is discharged, cancelled or expired. Available-for-sale, held–for-trading and financial assets designated at fair value through profit and loss are subsequently measured at fair value. Loans, receivables and held-to-maturity investments are subsequently measured at amortized cost. Gains and losses arising from changes in the fair value of the ‘financial assets designated at fair value through profit or loss’ are recognized in the income statement in ‘net income from financial instruments designated at fair value’. Gains and losses arising from changes in the fair value of available for sale investments are recognized directly in equity, until the financial assets are either sold or become impaired. When available-for-sale financial assets are sold, the cumulative gain or loss previously recognized in equity is recognized in profit or loss. Interest income is recognized on available for sale debt securities using the effective interest method, calculated over the asset’s expected life. Premiums and discounts arising on the purchase are included in the calculation of effective interest rates. Dividends are recognized in the income statement when the right to receive payment has been established. The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset, or no current demand prices available, the Bank measures fair value using valuation models. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation models commonly used by market participants. If the Bank has not been able to estimate the fair value of equity instru- ments classified 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. 2.6. offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a legally enforceable right to offset the recognized amounts and there is an intention to be settled on a net basis. Agreements of repos & reverse repos are shown by the net in the financial statement in treasury bills and other govern- mental notes. 2.7. Derivative financial instruments and hedge accounting Derivatives are recognized initially, and subsequently, at fair value. Fair values of exchange traded derivatives are ob- tained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques, including discounted cash flow models and option pricing models. Derivatives are classified as assets when their fair value is positive and as liabilities when their fair value is negative. Embedded derivatives in other financial instruments, such as conversion option in a convertible bond, are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, provided that the host contract is not classified as at fair value through profit and loss. These embedded derivatives are measured at fair value with changes in fair value recognized in income statement unless the Bank chooses to designate the hybrid contract as at fair value through net trading income through profit and loss. 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. 120 annual report 2015 annual report 2015 121 financial statements: separate years of excellence 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. 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. 122 annual report 2015 annual report 2015 123 financial statements: separate years of excellence 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. 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. 2.15.1. 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. 124 annual report 2015 annual report 2015 125 financial statements: separate years of excellence 2.16.1. Being lessee Finance lease contract recognizes the lease cost, including the cost of maintenance of the leased assets in the income statement for the period in which they occurred. If the Bank decides to exercise the right to purchase the leased asset the leased assets are capitalized and included in ‘property, plant and equipment’ and depreciated over the useful life of the expected remaining life of the asset in the same manner as similar assets. Operating lease payments leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘general and administrative expenses’. 2.16.2. Being lessor For finance lease, assets are recorded in the property, plant and equipment in the balance sheet and amortized over the expected useful life of this asset in the same manner as similar assets. Lease income is recognized on the basis of rate of re- turn on the lease in addition to an amount corresponding to the cost of depreciation for the period. The difference between the recognized rental income and the total finance lease clients' accounts is transferred to the in the income statement until the expiration of the lease to be reconciled with a net book value of the leased asset. Maintenance and insurance expenses are charged to the income statement when incurred to the extent that they are not charged to the tenant. In case there is objective evidence that the Bank will not be able to collect the of financial lease obligations, the finance lease payments are reduced to the recoverable amount. For assets leased under operating lease it appears in the balance sheet under property, plant and equipment, and depre- ciated over the expected useful life of the asset in the same way as similar assets, and the lease income recorded less any discounts given to the lessee on a straight-line method over the contract period. 2.17. cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. 2.18. other provisions Provisions for restructuring costs and legal claims are recognized when the Bank has present legal or constructive obliga- tions as a result of past events; where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. 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 necessary. 2.24. non-current assets held for sale A non-current asset (or disposal group) to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. 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. Determining whether (and when) an asset stops being recovered principally through use and becomes recoverable prin- cipally through sale. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating income (expenses). For an asset (or disposal group) to be classified as held for sale: 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 ex- pense over the vesting period using appropriate valuation models, taking into account the terms and conditions upon which the equity instruments were granted. The vesting period is the period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied. Vesting conditions include service conditions, performance conditions and market performance conditions are taken into account when estimating the fair value of equity instruments on the date of grant. On each balance sheet date the number of options that are expected to be exercised are estimated. Recognizes esti- mate changes, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. (a) It must be available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such assets (or disposal groups); (b) Its sale must be highly probable; The standard requires that non-current assets (and, in a 'disposal group', related liabilities and current assets,) meeting its criteria to be classified as held for sale be: (a) Measured at the lower of carrying amount and fair value less costs to sell, with depreciation on them ceasing; and (b) Presented separately on the face of the statement of financial position with the results of discontinued operations pre- sented separately in the income statement. 2.25. Discontinued operation Discontinued operation as 'a component of an entity that either has been disposed of, or is classified as held for sale, and (a) Represents a separate major line of business or geographical area of operations, (b) Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or (c) Is a subsidiary acquired exclusively with a view to resale. 126 annual report 2015 annual report 2015 127 financial statements: separate years of excellence 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. 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 Board provides written principles for overall risk management, as well as written policies covering specific areas, such as for- eign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments. In addition, credit risk management is responsible for the independent review of risk management and the control environment. 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. 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 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 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. 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. 3.1.2.3. 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 128 annual report 2015 annual report 2015 129 financial statements: separate years of excellence 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. Impairment and provisioning policies 3.1.3. The internal rating system described in Note 3.1.1 focus on the credit-quality mapping from the lending and investment activities perspective. Conversely, for only financial reporting purposes impairment losses are recognized for that has been incurred on the balance sheet date when there is an objective evidence of impairment. Due to the different method- ologies applied, the amount of incurred impairment losses in balance sheet are usually lower than the amount determined from the expected loss model that is used for internal operational management and CBE regulation purposes. The impairment provision reported in balance sheet at the end of the period is derived from each of the four internal credit risk ratings. However, the majority of the impairment provision is usually driven by the last two rating degrees. The 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, 2015 December 31, 2014 Loans and advances (%) Impairment provision (%) Loans and advances (%) Impairment provision (%) 82.27 9.32 4.43 3.98 30.70 12.97 21.78 34.55 86.69 6.70 1.95 4.66 33.91 11.24 5.53 49.32 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. Provision% Internal rating 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: Categorization CBE Rating Low risk 1 Average risk 2 Satisfactory risk 3 Reasonable risk 4 Acceptable risk 5 Marginally acceptable risk 6 Watch list 7 Substandard 8 Doubtful 9 Bad debts 10 Categorization Performing loans Performing loans Performing loans Performing loans Performing loans Regular watching Watch list Non performing loans Non performing loans Non performing loans 0% 1% 1% 2% 2% 3% 5% 20% 50% 100% 1 1 1 1 1 2 3 4 4 4 3.1.5. Maximum exposure to credit risk before collateral held In balance sheet items exposed to credit risk Treasury bills and other governmental notes Trading financial assets: - Debt instruments Gross loans and advances to banks Less:Impairment provision Gross loans and advances to customers Individual: - Overdraft - Credit cards - Personal loans - Mortgages - Other loans Corporate: - Overdraft - Direct loans - Syndicated loans - Other loans Unamortized bills discount Impairment provision Unearned interest Derivative financial instruments Financial investments: -Debt instruments - Investments in subsidiary and associates Total Off balance sheet items exposed to credit risk Financial guarantees Customers acceptances Letters of credit (import and export) Letter of guarantee Total Dec. 31, 2015 EGP Thousands 22,130,170 Dec. 31, 2014 EGP Thousands 30,461,627 5,504,524 48,342 (9,899) 1,583,233 2,001,159 8,073,622 298,817 20,881 8,936,219 27,811,737 14,088,786 84,402 (14,375) (4,709,107) (1,002,669) 80,995 54,818,500 12,600 139,757,937 2,741,310 504,774 862,279 29,640,729 33,749,092 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 27,763,267 130 annual report 2015 annual report 2015 131 financial statements: separate years of excellence The above table represents the Bank Maximum exposure to credit risk on December 31, 2015, 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 40.99% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 43.16%. 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: • 91.59% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 96.02% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP thousands 2,505,293. • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on December 31, 2015. • 97.09% of the investments in debt Instruments are Egyptian sovereign instruments. 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, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands Loans and advances to customers 56,649,081 3,765,257 2,484,518 62,898,856 4,709,107 14,375 1,002,669 57,172,705 Loans and advances to banks 27,567 - 20,775 48,342 9,899 - - 38,443 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 Impairment provision losses for loans and advances reached EGP 4,719,006 thousand. During the year the Bank’s total loans and advances increased by 17.18% . 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. 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 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 - 5 5 3 1 , 1 8 8 5 2 , 7 0 2 1 1 , 3 4 4 8 3 , - - 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 s d n a s u o Th P G E , 6 2 8 9 0 3 0 5 , , 5 6 1 4 5 2 5 , , 5 8 9 1 6 7 1 , 3 7 7 3 6 8 , , 9 4 7 9 8 1 8 5 , 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 , 8 2 5 3 9 2 5 4 , , 9 6 4 8 0 2 3 , 6 1 8 6 5 8 , 4 2 6 5 8 7 , , 7 3 4 4 4 1 0 5 , - - - r e h t O s n a o l 5 7 0 3 8 , 5 7 0 3 8 , - - 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 , 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 e g a g t r o M l a u d i v i d n I s n a o l l a n o s r e P s d r a c t i d e r C s t f a r d r e v O 5 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 , 7 1 5 7 5 2 1 1 , , 6 2 7 4 1 0 0 2 , , 5 3 8 0 2 7 1 , 7 9 9 1 2 , 1 1 2 4 6 , , 0 6 5 4 6 0 3 1 , , 2 8 7 1 0 0 3 , , 0 1 6 7 4 4 1 , 7 1 9 8 5 4 , , 5 3 0 3 2 9 4 2 , , 3 6 6 2 6 6 7 , 2 0 1 3 4 2 , 7 3 9 0 0 2 , 7 9 8 9 3 2 , , 9 9 5 6 4 3 8 , - - 6 6 2 6 8 2 , 9 5 3 2 , 5 2 6 8 8 2 , , 8 7 5 5 8 5 7 , , 3 6 9 7 0 9 1 , , 8 3 0 2 1 5 1 , 5 8 9 5 6 , 2 5 0 5 7 , 8 6 6 1 1 2 , 2 4 5 9 3 , 5 9 7 6 1 , 4 7 8 9 , 6 3 2 7 3 , 1 6 6 8 , 3 6 4 3 1 , , 3 8 2 8 3 9 7 , , 4 7 1 4 7 9 1 , , 8 9 3 1 7 5 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 e g a g t r o M l a u d i v i d n I s n a o l l a n o s r e P s d r a c t i d e r C s t f a r d r e v O , 2 3 5 0 7 0 1 1 , 4 2 9 9 7 4 , 3 5 6 6 7 3 , 5 3 8 3 7 , , 4 4 9 0 0 0 2 1 , , 2 8 3 2 7 2 2 , , 7 7 2 9 9 6 9 1 , 6 0 5 0 9 3 , 2 9 7 3 7 4 , , 7 5 9 5 3 8 2 2 , , 8 9 7 7 6 1 6 , 7 9 1 3 1 3 , 7 4 8 7 4 , 3 2 1 2 7 1 , , 5 6 9 0 0 7 6 , - - 2 6 3 5 1 3 , 2 8 4 1 , 4 4 8 6 1 3 , , 6 8 2 8 8 4 5 , 8 6 8 7 7 , 1 4 4 1 3 , 6 0 3 0 5 , , 1 0 9 7 4 6 5 , 7 0 3 5 , 0 8 9 2 , 8 2 1 7 1 , 5 6 1 7 7 9 , , 0 8 5 2 0 0 1 , , 5 9 0 1 8 3 1 , 4 0 4 0 3 , 2 6 0 5 , 6 0 1 1 1 , , 7 6 6 7 2 4 1 , s n a o i l g n m r o f r e p - n o N s n a o i l g n m r o f r e P i g n h c t a w r a l u g e R t s i l h c t a W 4 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 132 annual report 2015 annual report 2015 133 financial statements: separate years of excellence l a t o T s d n a s u o Th P G E , 1 1 9 8 1 3 2 , 9 6 0 5 9 , 9 9 1 6 5 2 , , 9 7 1 0 7 6 2 , 2 4 1 6 5 , 5 5 7 0 9 1 , , 8 2 1 5 4 5 1 , l a t o T s d n a s u o Th P G E , 5 2 0 2 9 7 1 , - - s n a o l 0 0 3 4 , 0 0 3 4 , d e t a c i d n y S - - 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 8 6 7 0 4 , 5 2 9 2 1 1 , 1 0 3 4 5 , 4 7 2 3 4 1 , , 6 4 9 9 8 2 1 , , 5 6 6 4 2 0 1 , 3 8 7 4 2 9 , 6 7 8 0 2 1 , 9 1 4 9 4 , , 9 3 6 3 4 4 1 , , 0 4 2 2 2 2 1 , , 8 7 0 5 9 0 1 , 1 9 4 2 4 1 1 4 4 7 6 e t a r o p r o C s n a o l t c e r i D t f a r d r e v O l a t o T s e g a g t r o M e t a r o p r o C 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 l a n o s r e P 1 8 8 7 0 1 , 8 0 6 0 4 , 3 2 8 9 1 , 2 1 3 8 6 1 , l a u d i v i d n I 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 5 6 7 2 4 , 0 2 8 0 2 , 2 1 8 9 1 3 , 7 9 3 3 8 3 , 5 3 7 8 , 1 6 3 7 3 , 9 9 5 6 9 4 , , 5 9 6 2 4 5 s d r a c t i d e r C s t f a r d r e v O 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 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 5 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 4 1 0 2 , 1 3 . c e D . t n e m r i a p m i f o e c n e d i v e e v i t c e j b o n a s i e r e h t s s e l n u , d e r i a p m i d e r e d i s n o c t o n e r a e u d t s a p s y a d 0 9 n a h t s s e l s e c n a v d a d n a s n a o L : d e r i a p m i t o n t u b e u d t s a p s e c n a v d a d n a s n a o L : s w o l l o f s a e r a , k n a B e h t y b d l e h l a r e t a l l o c d e t a l e r f o e u l a v r i a f e h t h t i w g n o l a , t c u d o r p y b s e c n a v d a d n a s n a o l d e r i a p m i y l l a u d i v i d n i f o t n u o m a s s o r g e h t f o n w o d k a e r b e Th . d n a s u o h t 3 9 2 , 5 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 , 3 9 2 5 0 5 2 , l a t o T s d n a s u o Th P G E l a t o T s d n a s u o Th P G E , 0 0 7 1 0 5 2 , s n a o l 1 3 5 0 9 5 , d e t a c i d n y S s n a o l 8 7 1 4 8 2 , d e t a c i d n y S , 5 7 6 8 1 1 1 , 5 6 5 7 6 5 , 1 8 8 0 2 , 6 5 4 9 , e t a r o p r o C s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M e t a r o p r o C s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M , 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 l a n o s r e P 0 5 4 7 5 1 , l a u d i v i d n I 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 d r a c t i d e r C s t f a r d r e v O 5 1 0 2 , 1 3 . c e D 1 8 5 1 2 , 4 5 1 9 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 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 Loans and advances restructured Restructuring activities include reschaduling 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, 2015 Dec. 31, 2014 3,126,928 3,126,928 3,243,393 3,243,393 3.1.7. Debt instruments, treasury bills and other governmental notes The table below presents an analysis of debt instruments, treasury bills and other governmental notes by rating agency designation at end of financial period, based on Standard & Poor’s ratings or their equivalent: Dec. 31, 2015 AAA AA- to AA+ A- to A+ Lower than A- Unrated Total Treasury bills and other gov. notes - - - - 22,130,170 22,130,170 Trading financial debt instruments - - - - 5,504,524 5,504,524 Non-trading financial debt instruments 168,408 467,645 937,758 1,087,336 52,157,353 54,818,500 EGP Thousands Total 168,408 467,645 937,758 1,087,336 79,792,047 82,453,194 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, 2015 Treasury bills and other governmental notes Trading financial assets: - Debt instruments Gross loans and advances to banks Less:Impairment provision Gross loans and advances to customers Individual: - Overdrafts - Credit cards - Personal loans - Mortgages - Other loans Corporate: - Overdrafts - Direct loans - Syndicated loans - Other loans Unamortized bills discount Impairment provision Unearned interest Derivative financial instruments Financial investments: -Debt instruments - Investments in associates Total Cairo 22,130,170 Alex, Delta and Sinai - 5,504,524 48,342 (9,899) 950,784 1,670,160 5,383,836 245,773 - 7,413,533 19,675,531 12,150,627 72,402 (14,375) (4,709,107) (796,670) 80,995 - - - 474,132 279,704 2,218,448 46,719 20,881 1,310,932 6,864,143 1,634,739 12,000 - - (176,141) - EGP Thousands Upper Egypt Total - - - - 158,317 51,295 471,338 6,325 - 211,754 1,272,063 303,420 - - - (29,858) - 22,130,170 5,504,524 48,342 (9,899) 1,583,233 2,001,159 8,073,622 298,817 20,881 8,936,219 27,811,737 14,088,786 84,402 (14,375) (4,709,107) (1,002,669) 80,995 54,818,500 12,600 124,627,726 - - 12,685,557 - - 2,444,654 54,818,500 12,600 139,757,937 134 annual report 2015 annual report 2015 135 financial statements: separate years of excellence 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 l a i c n a n i F s n o i t u t i t s n i , 0 7 1 0 3 1 2 2 , 2 4 3 8 4 , ) 9 9 8 9 ( , , 4 2 5 4 0 5 5 , - - - - , 3 3 2 3 8 5 1 , , 9 5 1 1 0 0 2 , , 2 2 6 3 7 0 8 , , 3 3 2 3 8 5 1 , , 9 5 1 1 0 0 2 , , 2 2 6 3 7 0 8 , 1 8 8 0 2 , 7 1 8 8 9 2 , 1 8 8 0 2 , 7 1 8 8 9 2 , , 9 1 2 6 3 9 8 , , 7 3 7 1 1 8 7 2 , 2 0 4 4 8 , ) 5 7 3 4 1 ( , , 6 8 7 8 8 0 4 1 , , ) 7 0 1 9 0 7 4 ( , 5 9 9 0 8 , , ) 9 6 6 2 0 0 1 ( , 0 0 6 2 1 , , 0 0 5 8 1 8 4 5 , , 7 3 9 7 5 7 9 3 1 , - - - - - - - - ) 1 9 7 3 1 ( , ) 2 3 2 5 0 2 ( , , 9 8 6 8 5 7 1 1 , - - - - - - - - - , 6 6 4 8 7 0 3 , , 0 7 1 0 3 1 2 2 , - - - - - - - 5 7 2 6 6 9 , , 4 2 5 4 0 5 5 , , 4 1 0 8 7 0 0 1 , , 9 0 4 3 2 7 2 , - 0 5 5 8 , , 1 5 4 1 8 0 1 , , ) 4 0 8 8 3 0 2 ( , - - - , ) 5 4 0 5 9 4 ( , 2 3 6 2 1 7 1 1 , , 5 3 9 3 2 7 5 , - - - - ) 8 2 9 7 3 ( , , 9 8 6 4 4 2 3 5 , - , 4 7 0 5 5 2 0 9 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 9 1 5 5 9 , 1 6 8 0 9 4 , ) 4 6 9 4 ( , ) 9 0 5 3 2 ( , - - - - - - 8 7 2 6 2 7 , 3 9 7 1 9 1 , 5 0 6 0 6 4 , ) 7 9 0 2 1 ( , , 9 7 5 7 1 4 1 , , 9 7 5 6 6 3 1 , , 1 5 2 3 0 2 3 , , 3 3 5 5 4 4 3 1 , , 0 2 0 2 0 8 6 , - 1 2 3 6 6 , , ) 1 0 3 4 7 3 2 ( , - - - ) 2 5 6 1 8 4 ( , , 2 7 1 1 6 6 0 2 , - - 2 4 3 8 4 , ) 9 9 8 9 ( , - - - - - 8 5 7 6 , 7 2 1 2 8 8 , 1 3 5 9 , 5 7 7 0 2 , ) 5 7 3 4 1 ( , ) 6 3 2 7 1 ( , ) 7 1 2 7 ( , 5 9 9 0 8 , , 1 1 8 3 7 5 1 , 0 0 6 2 1 , , 2 1 2 6 8 5 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 - 5 1 0 2 , 1 3 . c e D 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 e t a i c o s s a n i s t n e m t s e v n I - : s t n e m t s e v n i l a i c n a n i F s t n e m u r t s n i t b e D - 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 n a o l d e t a c i d n y S - s n a o l r e h t O - 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 infinancial markets and to give more comprehensive picture of risk. The results of the stress tests are reviewed by the ALCO on a monthly basis and the board risk committee on a quarterly basis. 3.2.2. Value at risk (VaR) Summary Total VaR by risk type Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Equities risk Portfolio managed by others risk Investment fund Total VaR EGP Thousands Medium 248 157,097 134,436 22,661 - 5,072 361 156,811 Dec. 31, 2015 High 1,894 258,851 217,625 41,227 - 7,426 492 257,954 Low 5 96,690 88,109 8,581 - 2,689 287 96,562 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 63,618 136 annual report 2015 annual report 2015 137 . 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 s r o t c e s y r t s u d n I . 2 . 8 . . 1 3 financial statements: separate years of excellence Trading portfolio VaR by risk type Foreign exchange risk Interest rate risk - For trading purposes Equities risk Funds managed by others risk Investment fund Total VaR Medium 248 Dec. 31, 2015 High 1,894 Low 5 Medium 42 Dec. 31, 2014 High 351 22,661 - 5,072 361 23,462 41,227 - 7,426 492 41,655 8,581 - 2,689 287 11,345 11,405 84 4,132 357 12,451 18,080 141 6,817 549 18,815 Non trading portfolio VaR by risk type Interest rate risk - For non trading purposes Total VaR Medium 134,436 134,436 Dec. 31, 2015 High Low Medium Dec. 31, 2014 High 217,625 217,625 88,109 88,109 70,306 70,306 107,791 107,791 Low 3 7,288 - 1,108 223 8,790 Low 56,307 56,307 The aggregate of the trading and non-trading VaR results does not constitute the Bank’s VaR due to correlations and con- sequent diversification effects between risk types and portfolio types. 3.2.3. Foreign exchange risk The Bank’s financial position and cash flows are exposed to fluctuations in foreign currency exchange rates. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are 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. EGP USD EUR Equivalent EGP Thousands Total Other GBP 9,349,647 356,876 76,434 30,879 35,118 9,848,954 8,508,366 9,679,891 2,355,831 330,860 127,357 21,002,305 18,041,899 4,369,826 589,428 5,692,538 - 155,839 48,342 - - - - - - - - 23,001,153 5,848,377 48,342 Interest rate risk 3.2.4. 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, 2015 Up to 1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non-Interest Bearing Total Financial assets Cash and balances with cen- tral bank Due from banks Treasury bills and other gov- ernmental notes* Trading financial assets Gross loans and advances to banks Gross loans and advances to customers Derivatives financial instru- ments (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 instru- ments (including IRS notional amount) Long term loans Total financial liabilities - - - 16,368,055 4,150,629 130,424 1,432,274 4,163,254 17,405,625 - - - - - - 9,848,954 9,848,954 353,197 21,002,305 - 23,001,153 157,338 2,252 - 838 101,151 3,478,339 1,925,032 186,517 5,848,377 - 45,252 - 39,918,293 7,659,403 9,164,763 5,205,019 951,378 - - 48,342 62,898,856 383,992 37,006 1,120,238 6,584,035 208,712 12,924 8,346,907 896,975 - - 318,479 - - 59,159,179 16,329,609 3,372,459 5,228 - 10,632,983 237,871 - 31,299,888 54,775,207 13,955,976 30,444,441 9,018,121 - 623,738 - 12,600 46,289,075 9,261,220 12,600 11,037,930 186,557,789 1,391,139 63,193,619 73,899 16,302,639 76,604 15,545,522 - 32,586,811 - 1,356,003 59,127 1,600,769 26,385,328 155,369,922 3,277,069 4,786,309 13,496 286,013 - 48,760 8,411,647 46,925 3,649 67,908,752 21,166,496 46,372 34,382 15,681,994 32,907,206 - 1,356,003 131,328 26,493,215 165,513,666 - 36,576,310 24,854,523 1,272,045 114,885 81,093 62,898,856 Total interest re-pricing gap (8,749,573) (4,836,887) 15,617,894 21,868,001 12,599,973 (15,455,285) 21,044,123 68,023 12,925 47 - - 80,995 * After adding Reverse repos and deducting Repos. 44,343,759 9,261,220 12,600 131,854,362 1,945,316 - - 41,423,538 - - - 4,293,785 - - - 476,624 - - - 243,568 46,289,075 9,261,220 12,600 178,291,877 303,105 113,626,284 96,928 131,328 114,157,645 1,241,688 36,285,344 48,760 - 37,575,792 42,426 4,813,066 47 - 4,855,539 11,651 461,909 - - 473,560 1,899 183,319 - - 185,218 1,600,769 155,369,922 145,735 131,328 157,247,754 17,696,717 3,847,746 (561,754) 3,064 58,350 21,044,123 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 regulations. • Managing the concentration and profile of debt maturities. • Monitoring and reporting takes the form of cash flow measurement and projections for the next day, week and month re- spectively, as these are key periods for liquidity management. The starting point for those assets projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets. Bank’s Risk Management Department also monitors unmatched medium-term annual report 2015 139 Dec. 31, 2015 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 138 annual report 2015 financial statements: separate years of excellence 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. 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: 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, 2015 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) 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 1,450,264 21,653,305 46,925 73,900 18,636,129 3,649 76,605 42,695,183 46,372 - 69,919,823 34,382 - 2,465,482 - 1,600,769 155,369,922 131,328 23,150,494 18,713,678 42,818,160 69,954,205 2,465,482 157,102,019 29,723,449 15,309,386 32,853,492 78,479,205 22,348,416 178,713,948 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 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 cur- rency options. Interest rate derivatives: interest rate swaps, forward rate agreements, OTC and exchange traded interest rate options, other interest rate contracts and exchange traded futures . Dec. 31, 2015 Liabilities Derivatives financial instruments - Foreign exchange derivatives - Interest rate derivatives Total Off balance sheet items Dec. 31, 2015 Letters of credit, guarantees and other commitments Total Dec. 31, 2015 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 74,061 - 74,061 12,272 - 12,272 10,641 - 10,641 - 47,094 47,094 - 1,667 1,667 96,974 48,761 145,735 Up to 1 year 20,632,761 20,632,761 Up to 1 year 21,976,059 21,976,059 1-5 years 7,382,522 7,382,522 1-5 years 2,004,904 2,004,904 Over 5 years 2,992,499 2,992,499 Over 5 years 256,445 256,445 EGP Thousands Total 31,007,782 31,007,782 EGP Thousands Total 24,237,408 24,237,408 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, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014 21,002,305 48,342 9,279,896 132,673 21,002,305 48,342 9,279,896 132,673 11,977,712 50,921,144 9,261,220 93,210,723 1,600,769 155,369,922 131,328 157,102,019 8,523,485 45,062,709 9,160,746 72,159,509 1,131,385 122,244,933 242,878 123,619,196 11,977,712 50,921,144 9,261,220 93,210,723 1,600,769 155,369,922 131,328 157,102,019 8,523,485 45,062,709 9,160,746 72,159,509 1,131,385 122,244,933 242,878 123,619,196 Due from banks The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and similar maturity date. Loans and advances to banks Loans and advances to banks represented in loans do not considering bank placing. The expected fair value of the loans and advances represents the discounted value of future cash flows expected to be collected. Cash flows are discounted using the current market rate to determine fair value. 140 annual report 2015 annual report 2015 141 financial statements: separate years of excellence Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Financial Investments Investment securities include only interest-bearing assets held to maturity assets classified as available for sale are mea- sured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Due to other banks and customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar maturity date. 3.5 capital management For capital management purposes, the Bank’s capital includes total equity as reported in the balance sheet plus some other elements that are managed as capital. The Bank manages its capital to ensure that the following objectives are achieved: • Compliance with the legally imposed capital requirements in Egypt. • Protecting the Bank’s ability to continue as a going concern and enabling it to generate yield for shareholders and other parties dealing with the bank. • Maintaining a strong capital base to enhance growth of the Bank’s operations. Capital adequacy and the use of regulatory capital are monitored on a daily basis by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the banking supervision unit in the Central Bank of Egypt. The required data is submitted to the Central Bank of Egypt on a quarterly basis. Central Bank of Egypt requires the following: • Maintaining EGP 500 million as a minimum requirement for the issued and paid-in capital. • Maintaining a minimum level of capital adequacy ratio of 10%, calculated as the ratio between total value of the capital elements, and the risk-weighted assets and contingent liabilities of the Bank. Tier one: Tier one, comprised of paid-in capital (after deducting the book value of treasury shares), retained earnings and reserves resulting from the distribution of profits except the banking risk reserve and deducting previously recognized goodwill and any retained losses Tier two: Represents the gone concern capital which comprised of general risk provision according to the impairment provision guidelines issued by the Central Bank of Egypt for to the maximum of 1.25% risk weighted assets and contingent 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. Assets risk weight scale ranging from zero to 100% based on the counterparty risk to reflect the related credit risk scheme, taking into considration the cash collatrals. Similar criteria are used for off balance sheet items after adjusting it to reflect the nature of contingency and the potential loss of those amounts. The Bank has complied with all local capital adequacy requirements for the current year. The tables below summarizes the compositions of teir 1, teir 2 , the capital adequacy ratio and leverage ratio. 1. The capital adequacy ratio Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands Restated** 9,081,734 - 4,740,169 (61,234) (625,080) 13,135,589 11,470,603 (209,842) 2,446,048 (64,566) (2,440,566) 11,201,677 Tier 1 capital Share capital (net of the treasury shares) Goodwill 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 (%) *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. **After 2014 profit distribution. After the approval of appropriation account for the year 2015, The capital adequacy ratio will reach 16.23% 70,426,788 3,179,692 10,064,534 83,671,014 16.77% 79,632,761 4,030,778 12,354,714 96,018,253 12.72% 997,201 1,011,210 12,212,887 879,836 895,648 14,031,237 13,960 15,763 49 49 2. Leverage ratio Total qualifying tier 1 capital On-balance sheet items & derivatives Off-balance sheet items Total exposures *Percentage Dec. 31, 2015 EGP Thousands 11,201,677 182,420,706 23,484,346 205,905,052 5.44% *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 14 July 2015. 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% 142 annual report 2015 annual report 2015 143 financial statements: separate years of excellence Impairment of available for-sale equity investments 4.2. The Bank determines that available-for-sale equity investments are impaired when there has been a significant or pro- longed decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impair- ment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. 4.3. fair value of derivatives The fair value of financial instruments that are not quoted in active markets are determined by using valuation tech- niques. Where valuation techniques (as models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent prac- tical, models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments. 4.4. Held-to-Maturity investments The non-derivative financial assets with fixed or determinable payments and fixed maturity are being classified held to maturity. This requires significant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circum- stances – for example, selling an insignificant amount close to maturity it will be required to reclassify the entire category as available for sale. The investments would therefore be measured at fair value not amortized cost. 5. Segment analysis 5.1. By business segment The Bank is divided into main business segments on a worldwide basis: • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products • Investment banking – incorporating financial instruments Trading, structured financing, Corporate leasing,and merger and acquisitions advice. • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages; • Others –Include other banking business, such as Assets Management. • Transactions between the business segments are on normal commercial terms and conditions. Dec. 31, 2015 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2014 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets Corporate banking 7,122,388 (2,765,212) 4,357,176 (1,224,346) 3,132,830 165,571,366 Corporate banking 5,338,428 (1,425,955) 3,912,473 (1,281,309) 2,631,164 130,622,076 SME’s 1,153,088 (553,913) 599,175 (168,366) 430,809 1,124,475 SME’s 922,342 (401,102) 521,240 (170,703) 350,537 1,043,034 Investment banking 206,000 (19,855) 186,145 (52,306) 133,839 632,464 Investment banking 3,017 (15,917) (12,900) 4,225 (8,675) 997,115 EGP Thousands Retail banking 2,473,014 (1,161,145) 1,311,869 (368,629) 943,240 11,864,786 Retail banking 1,967,225 (964,254) 1,002,971 (328,467) 674,504 10,984,700 Total 10,954,490 (4,500,125) 6,454,365 (1,813,647) 4,640,718 179,193,091 Total 8,231,012 (2,807,228) 5,423,784 (1,776,254) 3,647,530 143,646,925 5.2. By geographical segment Dec. 31, 2015 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2014 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Cairo 9,343,597 (3,877,962) 5,465,635 (1,535,819) 3,929,816 161,706,218 Cairo 6,941,749 (2,236,547) 4,705,202 (1,540,923) 3,164,279 131,734,761 Alex, Delta & Sinai 1,167,385 (420,704) 746,681 (209,814) 536,867 13,712,913 Alex, Delta & Sinai 1,027,532 (468,508) 559,024 (183,077) 375,947 10,839,735 EGP Thousands Upper Egypt Total 443,508 (201,459) 242,049 (68,014) 174,035 3,773,960 10,954,490 (4,500,125) 6,454,365 (1,813,647) 4,640,718 179,193,091 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 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 Total Interest and similar expense - Banks - Clients Financial instruments purchased with a commitment to re-sale (Repos) Other Total Net interest income 7. Net fee and commission income Fee and commission income Fee and commissions related to credit Custody fee Other fee Total Fee and commission expense Other fee paid Total Net income from fee and commission Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 366,302 5,147,557 5,513,859 9,154,619 2,338 94,521 216,234 4,361,909 4,578,143 6,855,935 6,456 109,300 14,765,337 11,549,834 (79,801) (6,561,613) (6,641,414) (7,762) (832) (6,650,008) 8,115,329 (77,885) (5,194,167) (5,272,052) - (2,081) (5,274,133) 6,275,701 Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 1,041,382 73,268 817,404 1,932,054 (299,696) (299,696) 1,632,358 970,138 58,404 640,682 1,669,224 (181,498) (181,498) 1,487,726 144 annual report 2015 annual report 2015 145 financial statements: separate years of excellence 8. Dividend income Trading securities Available for sale securities Subsidiaries and associates Total 9. Net trading income Profit (losses) from foreign exchange Profit (losses) from revaluations of trading assets and liabilities in foreign currencies Profit (Loss) from forward foreign exchange deals revaluation Profit (Loss) from interest rate swaps revaluation Profit (Loss) from currency swap deals revaluation Trading debt instruments Trading equity instruments Total 10. Administrative expenses 1. Staff costs - Wages and salaries - Social insurance - Other benefits 2. Other administrative expenses Total 11. Other operating (expenses) income Profits from non-trading assets and liabilities revaluation Profits from selling property, plant and equipment Charges of other provisions Others operating expenses Total 12. Impairment charge for credit losses Loans and advances to customers Total Dec. 31, 2015 EGP Thousands 4,060 31,002 - 35,062 Dec. 31, 2014 EGP Thousands - 27,502 1,012 28,514 Dec. 31, 2015 EGP Thousands 214,574 Dec. 31, 2014 EGP Thousands 258,844 96 2,928 (9,240) 7,752 494,288 - 710,398 1,569 (6,266) (1,282) (38,002) 501,421 717 717,001 Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands (993,761) (54,836) (37,328) (942,479) (2,028,404) (834,488) (44,716) (36,243) (789,053) (1,704,500) Dec. 31, 2015 EGP Thousands 42,062 564 (135,361) (477,265) (570,000) Dec. 31, 2014 EGP Thousands 3,396 2,106 (278,058) (489,973) (762,529) Dec. 31, 2015 EGP Thousands (1,682,439) (1,682,439) Dec. 31, 2014 EGP Thousands (588,794) (588,794) 13. Adjustments to calculate the effective tax rate Profit after settlement * Tax rate Income tax based on accounting profit Add / (Deduct) Non-deductible expenses Tax exemptions Effect of provisions Depreciation 10% Withholding tax Income tax / Deferred tax Effective tax rate * As per the law no. 96 of 2015 tax rate became 22.5%. 14. Earning per share Net profit for the year available for distribution Board member’s bonus Staff profit sharing Profits shareholders’ Stake Average number of shares Basic earning per share By issuance of ESOP earning per share will be: Average 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 Dec. 31, 2015 EGP Thousands 6,454,365 22.50% 1,452,232 Dec. 31, 2014 EGP Thousands 5,423,784 25% - 30% 1,627,085 278,391 (99,540) 186,533 (6,536) 2,567 1,813,647 28.10% 39,860 (51,448) 165,555 (4,798) - 1,776,254 32.75% Dec. 31, 2015 EGP Thousands 4,639,648 (69,595) (463,965) 4,106,088 1,147,060 3.58 1,162,617 3.53 Dec. 31, 2014 EGP Thousands 3,644,902 (54,674) (364,490) 3,225,738 1,147,060 2.81 1,162,311 2.78 Dec. 31, 2015 EGP Thousands 1,580,752 Dec. 31, 2014 EGP Thousands 2,109,660 8,268,202 9,848,954 9,848,954 5,392,596 7,502,256 7,502,256 Dec. 31, 2015 EGP Thousands 1,386,078 19,616,227 21,002,305 14,121,507 3,263,306 3,617,492 21,002,305 353,197 20,649,108 21,002,305 21,002,305 21,002,305 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 9,279,896 146 annual report 2015 annual report 2015 147 financial statements: separate years of excellence 17. Treasury bills and other governmental notes 20. Loans and advances to customers, net 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 - Mutual funds Total - Portfolio managed by others Total 19. Loans and advances to banks, net 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 Release during the year Exchange revaluation difference Ending balance Dec. 31, 2015 EGP Thousands 5,595,527 7,513,324 9,892,302 (870,983) 22,130,170 - - 22,130,170 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, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 5,504,524 5,504,524 157,336 157,336 186,517 5,848,377 3,335,297 3,335,297 150,806 150,806 241,468 3,727,571 Dec. 31, 2015 EGP Thousands 48,342 Dec. 31, 2014 EGP Thousands 132,673 (9,899) 38,443 3,090 35,353 38,443 (14,582) 118,091 93,035 25,056 118,091 Dec. 31, 2015 EGP Thousands (14,582) 4,902 (219) (9,899) Dec. 31, 2014 EGP Thousands (21,411) 6,915 (86) (14,582) Individual - Overdraft - Credit cards - Personal loans - Real estate loans - 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, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 1,583,233 2,001,159 8,073,622 298,817 20,881 11,977,712 8,936,219 27,811,737 14,088,786 84,402 50,921,144 62,898,856 (14,375) (4,709,107) (1,002,669) 57,172,705 25,011,678 32,161,027 57,172,705 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 analysis for impairment provision of loans and advances to customers Individual Dec. 31, 2015 Overdraft Credit cards Beginning balance (Charged) released during the year Write off during the year Recoveries during the year Ending balance (10,550) (1,281) - (4) (11,835) (7,434) (28,331) 14,120 (5,340) (26,985) Personal loans (81,153) (59,317) 5,148 (17) (135,339) Real estate loans (8,422) (1,770) - - (10,192) Other loans Total (20,934) 53 - - (20,881) (128,493) (90,646) 19,268 (5,361) (205,232) Dec. 31, 2015 Beginning balance (Charged) released during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans (491,763) (79,462) - - (18,395) (589,620) (2,172,426) (1,201,442) 545,777 (3,399) (57,212) (2,888,702) Corporate Syndicated loans (644,225) (349,313) - - (30,688) (1,024,226) Other loans Total (4,850) 3,523 - - - (1,327) (3,313,264) (1,626,694) 545,777 (3,399) (106,295) (4,503,875) 148 annual report 2015 annual report 2015 149 financial statements: separate years of excellence 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) 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 Total assets (liabilities) for trading derivatives (1+2) 21.1.2. Fair value hedge Interest rate derivatives - Governmental debt instruments hedg- ing - Customers deposits hedging Total 3 Total financial derivatives (1+2+3) Notional amount 972,438 3,448,349 26,830 14,687 Notional amount 286,014 7,965,211 Dec. 31, 2015 Dec. 31, 2014 EGP Thousands Assets Liabilities Notional amount 1,761,253 3,928,336 319,390 25,683 71,244 47 96,974 278,504 - - Assets Liabilities 2,364 19,857 3,887 26,108 1,575 1,575 14,209 47,594 3,713 65,516 434 434 16,766 51,258 47 68,071 395 395 68,466 96,974 27,683 65,950 Dec. 31, 2015 Dec. 31, 2014 Assets Liabilities Notional amount Assets Liabilities EGP Thousands - 26,296 621,189 - 63,402 12,529 12,529 80,995 22,465 48,761 145,735 4,276,937 24,505 24,505 52,188 7,823 71,225 137,175 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 26,296 thousand at December 31, 2015 against EGP 63,402 thousand at the December 31, 2014, Resulting in net gains form hedging instruments at December 31, 2015 EGP 37,106 thousand against net losses EGP 5,926 thousand at the December 31, 2014. Losses arises from the hedged items at December 31, 2015 reached EGP 48,941 thousand against losses arises EGP 232 thousand at December 31, 2014. 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 9,936 thousand at the end of December 31, 2015 against EGP 16,682 thousand at December 31, 2014, Resulting in net losses form hedging instruments atDecember 31, 2015 EGP 26,618 thousand against net losses EGP 21,380 thousand at December 31, 2014. Gains arises from the hedged items at December 31, 2015 reached EGP 27,540 thousand against gains EGP 45,094 thousand at December 31 , 2014. 150 annual report 2015 annual report 2015 151 financial statements: separate years of excellence 55,550,295 36,849,156 Dec. 31, 2014 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 as of Dec. 31, 2014 Beginning balance Addition Deduction (selling - redemptions) Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Impairment (charges) release Ending Balance as of Dec. 31, 2015 Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 45,589,793 28,496 670,786 46,289,075 9,228,707 32,513 9,261,220 27,249,861 87,770 350,779 27,688,410 9,133,233 27,513 9,160,746 53,957,991 1,592,304 55,550,295 53,244,689 1,573,811 54,818,500 Available for sale financial investments 23,363,501 9,080,132 (4,854,894) Held to maturity financial investments 4,187,174 4,973,572 - 38,176 121,246 (59,751) 27,688,410 27,688,410 25,392,460 (5,138,456) 96,638 (1,572,274) (177,703) 46,289,075 - - - 9,160,746 9,160,746 4,019,548 (3,919,074) - - - 9,261,220 35,603,511 1,245,645 36,849,156 35,211,927 1,171,168 36,383,095 Total EGP Thousands 27,550,675 14,053,704 (4,854,894) 38,176 121,246 (59,751) 36,849,156 36,849,156 29,412,008 (9,057,530) 96,638 (1,572,274) (177,703) 55,550,295 22.1. profits (losses) on financial investments Profit (Loss) from selling available for sale financial instruments Impairment release (charges) of available for sale equity instruments Profit (Loss)from selling investments in associates Impairment release (charges) of subsidiaries and associates Total Dec. 31, 2015 EGP Thousands 163,270 (177,703) 285,431 - 270,998 Dec. 31, 2014 EGP Thousands 82,907 (59,762) - (52,480) (29,335) 23. Investments in subsidiary and associates Dec. 31, 2015 Associates - Haykala for investment - Egypt Factors - International Co. for Security and Services (Falcon) Total Company’s country Company’s assets Company’s liabilities (without equity) Company’s revenues Company’s net profit Investment book value Stake % EGP Thousands Egypt Egypt Egypt 5,010 313,515 193,470 511,995 211 272,665 109,644 272 20,827 257,943 382,520 279,042 41 (15,672) 36,190 20,559 600 - 12,000 12,600 40 49 40 Subsidiaries - CI Capital Holding Associates - Commercial International Life Insurance - Corplease - Haykala for Investment - Egypt Factors - International Co. for Security and Services (Falcon) Total Company’s country Company’s assets Company’s liabilities (without equity) Company’s revenues Company’s net profit Investment book value Stake % EGP Thousands Egypt 1,438,265 1,031,208 289,183 89,855 428,011 99.98 Egypt 2,861,447 2,762,148 267,286 Egypt Egypt Egypt Egypt 2,374,952 4,742 401,466 141,818 2,148,954 236 345,515 413,070 276 33,711 102,994 148,811 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 24. Investment properties 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 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 Total Dec. 31, 2015 EGP Thousands - - - - Dec. 31, 2014 EGP Thousands 2,642 65,950 815,502 884,094 Dec. 31, 2015 EGP Thousands 2,903,149 123,436 157,202 1,547,660 52,569 15,921 4,799,937 Dec. 31, 2014 EGP Thousands 1,871,618 102,250 145,170 1,590,106 27,351 8,867 3,745,362 152 annual report 2015 annual report 2015 153 financial statements: separate years of excellence 26. Property, plant and equipment 29. Long term loans Beginning gross assets (1) Additions during the year Ending gross assets (2) Accumulated depreciation at beginning of the year (3) Current period depreciation Accumulated depreciation at end of the year (4) Ending net assets (2-4) Beginning net assets (1-3) Depreciation rates Dec. 31, 2015 Land Premises IT Vehicles 64,709 - 64,709 714,152 108,494 822,646 1,059,732 132,782 1,192,514 65,479 4,682 70,161 Fitting -out 442,793 40,424 483,217 Machines and equipment 358,994 56,801 415,795 Furniture and furnishing 125,705 5,936 131,641 Total EGP Thousands 2,831,564 349,119 3,180,683 - - - 237,385 795,498 38,961 370,597 293,995 112,832 1,849,268 36,383 102,086 3,289 43,251 33,702 4,799 223,510 273,768 897,584 42,250 413,848 327,697 117,631 2,072,778 64,709 64,709 548,878 476,767 %5 294,930 264,234 %33.3 27,911 26,518 %20 69,369 72,196 %33.3 88,098 64,999 %20 14,010 12,873 %20 1,107,905 982,296 Net fixed assets value on the balance sheet date includes EGP 57,328 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, 2015 EGP Thousands 224,002 1,376,767 1,600,769 816,844 271,845 512,080 1,600,769 59,127 1,541,642 1,600,769 224,002 1,376,767 1,600,769 Dec. 31, 2015 EGP Thousands 43,418,352 42,996,421 37,518,922 25,790,179 5,646,048 155,369,922 82,320,757 73,049,165 155,369,922 26,385,328 128,984,594 155,369,922 115,250,582 40,119,340 155,369,922 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 Interest rate % Maturity date Maturing through next year EGP Thousands Balance on Dec. 31, 2015 EGP Thousands Balance on Dec. 31, 2014 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 3,889 3,889 - 3-5 years 550 550 1,690 3-5 years 12,000 28,000 105,075 04/01/2020 28,472 98,889 136,113 44,911 131,328 242,878 30. Other liabilities Accrued interest payable Accrued expenses Accounts payable Other credit balances Total 31. Other provisions Dec. 31, 2015 Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent * Provision for other claim Total 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, 2015 EGP Thousands 763,040 586,640 1,078,821 193,768 2,622,269 Dec. 31, 2014 EGP Thousands 636,876 458,842 1,160,511 285,736 2,541,965 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts 6,910 40,247 31,000 620,546 19,653 718,356 - 1,686 - 125,764 8,416 135,866 - 53 - 12,863 414 13,330 - (157) - - (5,129) (5,286) - (505) - - - (505) 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) Ending balance EGP Thousands 6,910 41,324 31,000 759,173 23,354 861,761 Ending balance EGP Thousands 6,910 40,247 31,000 620,546 19,653 718,356 * Provision for other claim formed on December 31, 2015 amounted to EGP 8,416 thousand to face the potential risk of banking operations against amount EGP 3,682 thousand on December 31, 2014 . 154 annual report 2015 annual report 2015 155 • Increase issued and Paid in Capital by amount EGP 37,712 thousand on April 9, 2012 in according to Board of Directors Details of the outstanding tranches are as follows: financial statements: separate 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 11,470,603 thousand to be divided on 1,147,060 thousand shares with EGP 10 par value for each share and registered in the commercial register dated 19th November 2015 • Increase issued and Paid in Capital by amount EGP 2,294,121 thousand on December 10, 2015 according to Ordinary Gen- eral Assembly Meeting decision on March 12 ,2015 by distribution of a one share for every four outstanding shares by capitalizing on the General Reserve. • Increase issued and Paid in Capital by amount EGP 94,748 thousand On April 5,2015 to reach EGP 9,176,482 thousand ac- cording to Board of Directors decision on November 11, 2014 by issuance of sixth tranch for E.S.O.P program. • 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 fifth 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 Extraordinary General Assembly Meeting decision on July 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 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. 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 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. • 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 of this divi- dend, 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 assets (Liabilities) Deferred tax assets and liabilities are attributable to the following: Fixed assets (depreciation) Other provisions (excluded loan loss, contingent liabilities and income tax provisions) Intangible Assets & Good will Other investments impairment Reserve for employee stock ownership plan (ESOP) Interest rate swaps revaluation Trading investment revaluation Forward foreign exchange deals revaluation Total Assets (Liabilities) Dec. 31, 2015 EGP Thousands (22,367) Assets (Liabilities) Dec. 31, 2014 EGP Thousands (26,145) 14,553 3,255 123,243 60,870 335 78,927 (659) 258,157 17,970 - 82,888 47,397 - - - 122,110 156 annual report 2015 years of excellence 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 Dec. 31, 2015 No. of shares in thousand 21,872 8,653 (677) (9,475) 20,373 Maturity date 2016 2017 2018 Total EGP Exercise price 10.00 10.00 10.00 EGP Fair value * 13.47 18.27 31.67 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: 9th tranche 10 39.35 3 13.40% 2.00% 31% 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. * The equity instruments fair value and number of shares for the seventh,eighth and ninth trenches have been adjusted to reflect the dilution effect of the Stock dividend that took place in 2015. 35. Reserves 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) to bank risk reserve Ending balance Dec. 31, 2015 EGP Thousands 803,355 1,518,525 30,214 (2,202,463) 2,513 152,144 Dec. 31, 2014 EGP Thousands 621,084 1,850,648 28,108 (593,237) 1,991 1,908,594 Dec. 31, 2015 EGP Thousands 1,991 522 2,513 Dec. 31, 2014 EGP Thousands 1,991 - 1,991 annual report 2015 157 Dec. 31, 2014 No. of shares in thousand 23,918 7,038 (1,154) (7,930) 21,872 No. of shares in thousand 6,806 8,139 5,428 20,373 8th tranche 10 26.06 3 12.40% 3.07% 35% financial statements: separate years of excellence 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 losses from A.F.S investment revaluation 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 with maturities more than three months Treasury bills with maturities more than three months Total Dec. 31, 2015 EGP Thousands 621,084 182,271 803,355 Dec. 31, 2014 EGP Thousands 490,365 130,719 621,084 Dec. 31, 2015 EGP Thousands (593,237) (1,609,226) (2,202,463) Dec. 31, 2014 EGP Thousands (720,468) 127,231 (593,237) Dec. 31, 2015 EGP Thousands 9,848,954 21,002,305 22,130,170 (8,268,202) (15,478,335) (16,612,361) 12,622,531 Dec. 31, 2014 EGP Thousands 7,502,256 9,279,896 30,539,402 (5,392,596) (5,007,412) (22,110,186) 14,811,360 37. Contingent liabilities and commitments 37.1. legal claims There are a number of existing cases filed against the bank on December 31,2015 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 15,460 thousand as follows: Available for sale financial investments Investments value 77,301 Paid 61,841 Remaining 15,460 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 50,013 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, 2015 EGP Thousands 29,640,729 862,279 504,774 31,007,782 Dec. 31, 2014 EGP Thousands 23,262,617 1,289,834 757,509 25,309,960 Dec. 31, 2015 EGP Thousands 24,237,408 Dec. 31, 2014 EGP Thousands 18,061,344 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 18,902,970 with redeemed value EGP 4,793,982 thousands. • The market value per certificate reached EGP 253.61 on December 31, 2015. • The Bank portion got 601,064 certificates with redeemed value EGP 152,436 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 1,109,595 with redeemed value EGP83,841 thousands. • The market value per certificate reached EGP 75.56 on December 31, 2015. • The Bank portion got 194,744 certificates with redeemed value EGP 14,715 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 670,405 with redeemed value EGP 29,994 thousands. • The market value per certificate reached EGP 44.74 on December 31, 2015. • The Bank portion got 71,943 certificates with redeemed value EGP 3,219 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 164,560 with redeemed value EGP 24,646 thousands. • The market value per certificate reached EGP 149.77 on December 31, 2015. • The Bank portion got 50,000 certificates with redeemed value EGP 7,489 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 1,997,530 with redeemed value EGP 320,604 thousands. • The market value per certificate reached EGP 160.50 on December 31, 2015. • The Bank portion got 52,404 certificates with redeemed value EGP 8,411 thousands. takamol fund • CIB bank established an accumulated return mutual fund under license no.431 issued from financial supervisory author- ity on February 18, 2015. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 501,219 with redeemed value EGP 44,779 thousands. • The market value per certificate reached EGP 89.34 on December 31, 2015. • The Bank portion got 59,809 certificates with redeemed value EGP 5,343 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 784,014 286,691 286,741 158 annual report 2015 annual report 2015 159 financial statements: separate years of excellence 39.2. other transactions with related parties International Co. for Security & Services Corplease Co. Commercial International Brokerage Co. Dynamics Company Egypt Factors CI Assets Management Commercial International Capital Holding Co. Haykala for Investment 40. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro 41. Tax status Income EGP Thousands 439 30,933 8,782 11 12,947 416 53,681 660 Dec. 31, 2015 EGP Thousands 166,732 (191,276) (660) 356 32 (8,018) Expenses EGP Thousands 83,668 343 6,745 647 135 7 562 281 Dec. 31, 2014 EGP Thousands (141,124) 63,391 (279) 20 (442) 2,348 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 2012. Corporate income tax annual return is submitted. 42. Goodwill and Intangible assets: CIB acquired Citibank - Egypt’s retail banking portfolio and card business on 29/10/2015. The acquired portfolio balances as of 31/12/2015 are: Loans and advances to customers Due to customers Due to the acquisition process Goodwill and Intangible assets have been arisen with the following balances : 42.1. Goodwill: Book value at acquisition Amortization Net book value 42.2. Intangible assets: Book value at acquisition Amortization Net book value Dec. 31, 2015 EGP Thousands 1,078,684 1,380,765 217,078 (7,236) 209,842 651,041 (21,701) 629,340 According to Central Bank of Egypt regulation issued on Dec 16, 2008, an amortization of 20% annualy has been applied on goodwill and intangible assets starting from acquisition date. 43. Non-current assets held for sale Subsidiaries - CI Capital Holding Dec. 31, 2015 EGP Thousands Investment book value 428,011 salary tax The Bank’s salary tax has been examined, paid and settled from the beginning of the activity until the end of 2012. CIB Board of Directors initially agreed to carry out acts of the due diligence examination for CI Capital Holding during the meeting held in to determine the company’s fair value for the purpose of selling the bank’s full stake. 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’s stamp duty tax is under re-examination for the period from 1/8/2006 till 30/9/2015 accoding to the protocol between the Federation of Egyptian banks and the tax authority. Associates - Corplease 75,055 CI Capital Holding acquired 100% from Commercial International Bank’s stake in Corporate Leasing Company Egypt (Cor- please) associate-, which represents 43% of Corplease shares.According to the agreement with Commercial International Bank, transfer of risk and rewards of ownership of Corplease, shares will take place after CI Capital Holding Board of Directors meeting held to approve the financialstatements of CI Capital Holding for the year ended 31 December 2015 . 160 annual report 2015 annual report 2015 161 financial statements: consolidated years of excellence 162 annual report 2015 annual report 2015 163 financial statements: consolidated years of excellence commercial International Bank (egypt) s.a.e Consolidated balance sheet as at December 31, 2015 commercial International Bank (egypt) s.a.e Consolidated income statement for the year ended on December 31, 2015 Notes Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands Notes Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 15 16 17 18 19 20 43 21 22 22 23 24 25 42 42 33 26 27 28 43 21 30 29 31 32 32 Assets Cash and balances with central bank Due from banks Treasury bills and other governmental notes Trading financial assets Loans and advances to banks, net Loans and advances to customers, net Non-current assets held for sale Derivative financial instruments Financial investments - Available for sale - Held to maturity Investments in associates Brokerage clients - debit balances Investment properties Other assets Goodwill Intangible assets Deferred tax assets (Liabilities) Property, plant and equipment Total assets Liabilities and equity Liabilities Due to banks Due to customers Non-current liabilities held for sale Brokerage clients - credit balances Reconciliation accounts - credit balances Derivative financial instruments Current tax liabilities Other liabilities Long term loans Other provisions Total liabilities Equity Issued and paid up capital Reserves Reserve for employee stock ownership plan (ESOP) Retained losses Total equity Net profit for the year Total equity and net profit for year Minority interest Total minority interest , equity and net profit for year Total liabilities, equity, minority interest and net profit for year The accompanying notes are an integral part of these financial statements. 9,848,954 21,002,305 22,130,170 5,848,377 38,443 56,797,576 1,066,270 80,995 46,289,075 9,261,220 159,983 - - 4,789,291 209,842 629,340 258,157 1,090,181 179,500,179 1,600,769 155,234,416 371,622 - - 145,735 1,949,694 2,622,269 131,328 861,761 162,917,594 11,470,603 151,993 248,148 (64,566) 11,806,178 4,728,976 16,535,154 47,431 16,582,585 179,500,179 7,502,256 9,521,999 30,548,890 3,762,718 118,091 48,685,630 - 52,188 27,702,122 9,160,746 181,661 771,612 884,094 3,814,075 - - 121,737 985,504 143,813,323 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 1,908,443 177,766 (155,160) 11,012,783 3,741,456 14,754,239 49,194 14,803,433 143,813,323 Hisham Ezz Al-Arab Chairman and Managing Director Continued Operations 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 Profits (Losses) on financial investments Administrative expenses Other operating (expenses) income Goodwill amortization Intangible assets amortization Impairment charge for credit losses Bank’s share in the profits of associates Profit before income tax Income tax expense Deferred tax assets (Liabilities) Net profit from continued operations Discontinued Operations Net profit from discontinued operations Net profit for the year Minority interest Bank shareholders Earning per share Basic Diluted 6 7 8 9 22 10 11 42 42 12 13 33 & 13 43 14 14,765,337 (6,650,008) 8,115,329 1,932,054 (299,696) 1,632,358 35,062 710,398 270,998 (2,028,404) (570,000) (7,236) (21,701) (1,682,439) 27,829 6,482,194 (1,949,694) 136,047 4,668,547 61,115 4,729,662 686 4,728,976 3.58 3.53 11,549,834 (5,274,133) 6,275,701 1,669,224 (181,498) 1,487,726 27,501 717,001 (29,335) (1,704,500) (762,529) - - (588,794) 24,510 5,447,281 (1,814,609) 38,355 3,671,027 72,218 3,743,245 1,789 3,741,456 2.81 2.78 Hisham Ezz Al-Arab Chairman and Managing Director 164 annual report 2015 annual report 2015 165 financial statements: consolidated years of excellence commercial International Bank (egypt) s.a.e Consolidated cash flow for the year ended on December 31, 2015 Cash flow from operating activities Profit before income tax from continued operations Profit before income tax from Discontinued Operations 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 Goodwill amortization Intangible assets amortization Financial investments impairment charge (release) Utilization of other provisions Other provisions no longer used Exchange differences of other provisions Profits from selling property, plant and equipment Profits from selling financial investments Profits from selling associates 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 Goodwill Intangible Assets Due to banks Due to customers Income tax obligations paid Other liabilities Net cash provided from operating activities Cash flow from investing activities Payment for purchase of subsidiary and associates Proceeds from selling subsidiary and associates Payment for purchases of property, plant, equipment and branches constructions Proceeds from redemption of held to maturity financial investments Payment for purchases of held to maturity financial investments Payment for purchases of available for sale financial investments Proceeds from selling available for sale financial investments Proceeds (payments) from real estate investments Net cash used in investing activities Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands commercial International Bank (egypt) s.a.e Consolidated cash flow for the year ended on December 31, 2015 (Cont.) Cash flow from financing activities Increase (decrease) in long term loans Dividend paid Capital increase Net cash 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 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 with maturities more than three months Treasury bills with maturity more than three months Total cash and cash equivalent (111,550) (1,563,646) 94,748 (1,580,448) (2,440,371) 15,062,902 12,622,531 9,848,954 21,002,305 22,130,170 (8,268,202) (15,478,335) (16,612,361) 12,622,531 110,725 (1,253,338) 79,299 (1,063,314) 3,071,229 11,991,673 15,062,902 7,502,256 9,521,999 30,548,890 (5,392,596) (5,007,462) (22,110,185) 15,062,902 6,482,194 71,161 188,256 1,682,439 135,866 353,590 (96,638) 7,236 21,701 140,751 (17,242) (505) 13,330 (564) (163,270) (285,431) 133,395 (27,829) 8,638,440 (13,346,479) 5,497,825 (2,439,249) (20,247) (9,714,737) (1,273,556) (217,078) (651,041) 469,384 33,259,457 (1,814,609) 15,319 18,403,429 - 334,451 (304,401) 3,919,074 (4,019,548) (25,392,460) 5,315,438 884,094 (19,263,352) 5,447,281 89,057 218,322 588,794 286,724 (4,957) (38,176) - - 65,748 (6,798) (456) (3,857) (2,106) (83,131) - 99,857 27,969 6,684,271 (2,138,848) (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 14,383,686 (16,877) - (243,387) - (4,963,569) (9,079,241) 4,938,025 (884,094) (10,249,143) 166 annual report 2015 annual report 2015 167 financial statements: consolidated years of excellence - - 9 9 2 9 7 , , 7 2 1 7 0 0 2 1 , , ) 8 3 3 3 5 2 1 ( , , 5 4 2 3 4 7 3 , - 3 4 2 7 2 1 , 7 5 8 9 9 , , 3 3 4 3 0 8 4 1 , - - - - 4 1 4 7 4 , - - ) 9 ( 9 8 7 1 , 4 9 1 9 4 , 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 , 3 3 4 3 0 8 4 1 , - - - 8 4 7 4 9 , , ) 7 2 4 9 6 5 1 ( , , 2 6 6 9 2 7 4 , - , ) 6 2 2 9 0 6 1 ( , 5 9 3 3 3 1 , , 5 8 5 2 8 5 6 1 , - - - - 4 9 1 9 4 , - - 6 8 6 ) 1 8 0 1 ( , ) 8 6 3 1 ( , 1 3 4 7 4 , 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 y t i u q E s r e d l o h e r a h S - - , ) 8 3 3 3 5 2 1 ( , , 6 5 4 1 4 7 3 , 9 3 4 2 7 2 1 , 7 5 8 9 9 , , 9 3 2 4 5 7 4 1 , ) 2 5 3 2 1 1 ( , - - - - - 7 5 8 9 9 , 6 6 7 7 7 1 , , 3 1 7 9 5 9 1 1 , 9 9 2 9 7 , - - ) 2 6 3 1 9 3 ( , , ) 4 1 5 3 6 4 1 ( , , ) 8 3 3 3 5 2 1 ( , - - - , 6 5 4 1 4 7 3 , - - - - - - - - - - - - - - - 3 4 2 7 2 1 , - - - - - - - - 9 - - 2 6 3 1 9 3 , - - - - - - - 1 4 7 - - - , 6 0 4 4 4 4 1 , , 6 5 4 1 4 7 3 , 1 9 9 1 , ) 6 3 2 3 9 5 ( , 8 0 1 8 2 , ) 0 6 1 5 5 1 ( , , 6 9 4 0 5 8 1 , - - - - - - - 9 1 7 0 3 1 , 4 8 0 1 2 6 , - - - - - - - 9 9 2 9 7 , , 4 3 7 1 8 0 9 , n a l p 1 6 2 0 9 1 , e e y o l p m e r o f e v r e s e R k c o t s 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 . 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 p u d i a p l a t i p a c d n a d e u s s I , 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 , i s g n 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 n n i g e B i e s a e r c n i l a t i p a C r a e y e h t f o t fi o r p t e N d i a p d n e d i v i D ) s e s s o l ( e g a t n e c r e p p h s i r e n w o n i e g n a h C S F A n o ) s s o l ( / n i a g d e s i l a e r n u t e N - r e n w o k c o t s l s e e y o p m e f o t s o C ) P O S E ( n a l p p h s 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 4 1 0 2 , 1 3 . c e D d e d n e r a e y e h t r o f y t i u q e l ’ s r e d o h e r a h s n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o C . e a s . ) t p y g e ( k n a B l a n o i t a n r e t n I l i a c r e m m o c 4 1 0 2 , 1 3 r e b m e c e D n o s r e d l o h e r a h S k c o t s l a t o T e e y o l p m e r o f e v r e s e R y t i u q E , 9 3 2 4 5 7 4 1 , - - - 8 4 7 4 9 , , ) 6 4 3 8 6 5 1 ( , , 6 7 9 8 2 7 4 , 8 6 3 1 , , ) 6 2 2 9 0 6 1 ( , - - - - - n a l p 6 6 7 7 7 1 , p i h s r e n w o - - ) 3 1 0 3 6 ( , 5 9 3 3 3 1 , 5 9 3 3 3 1 , , 4 5 1 5 3 5 6 1 , 8 4 1 8 4 2 , 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 . 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 p u d i a p l a t i p a c d n a d e u s s I 5 1 0 2 , 1 3 . c e D 5 1 0 2 , 1 3 r e b m e c e D n o , 6 5 4 1 4 7 3 , 1 9 9 1 , ) 6 3 2 3 9 5 ( , 8 0 1 8 2 , ) 0 6 1 5 5 1 ( , , 6 9 4 0 5 8 1 , ) 2 2 5 ( 2 2 5 - , ) 2 6 3 3 8 0 2 ( , ) 6 2 9 3 9 ( , , ) 6 4 6 3 6 5 1 ( , , 6 7 9 8 2 7 4 , - - - , 6 7 9 8 2 7 4 , - - - - - - - - 3 1 5 2 , - - - - - - - , ) 6 2 2 9 0 6 1 ( , - , ) 2 6 4 2 0 2 2 ( , - - 6 0 1 2 , - - - - , 8 9 9 1 6 9 1 , , ) 1 2 1 4 9 2 2 ( , - - - - - - - - 6 2 9 3 9 , ) 0 0 7 4 ( , - 8 6 3 1 , - - - - - - 4 1 2 0 3 , ) 6 6 5 4 6 ( , , 3 7 3 8 1 5 1 , - - - - - - 4 8 0 1 2 6 , - - 1 7 2 2 8 1 , 5 5 3 3 0 8 , , 4 3 7 1 8 0 9 , - , 9 6 8 8 8 3 2 , - - - - - - - , 3 0 6 0 7 4 1 1 , k s i r k n a b o t ) m o r f ( d e r r e f s n a r T e c n a l a b g n n n i g e B i e s a e r c n i l a t i p a C e v r e s e r s e s s o l 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 r a e y e h t f o t fi o r p t e N d i a p d n e d i v i D e g a t n e c r e p p h s i r e n w o n i e g n a h C S F A n o ) s s o l ( / n i a g d e s i l a e r n u t e N - r e n w o k c o t s l s e e y o p m e f o t s o C ) P O S E ( n a l p p h s 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 d e d n e r a e y e h t r o f y t i u q e l ’ s r e d o h e r a h s n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o C . e a s . ) t p y g e ( k n a B l a n o i t a n r e t n I l i a c r e m m o c 168 annual report 2015 annual report 2015 169 financial statements: consolidated years of excellence Notes to the consolidated financial statements for the year ended on December 31, 2015 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 159 branches, and 28 units employing 5983 employees on the statement of financial position 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, 2015 the Bank directly owns 54,988,500 shares representing 99.98% of CI Capital Holding Company’s capital and on December 31, 2015 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 1,979,290 478,577 3,981,578 3,393,500 Ownership% 98.96 95.72 99.54 99.96 Indirect Share% 98.94 95.70 99.52 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. 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. 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. 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: 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. • 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. 170 annual report 2015 annual report 2015 171 financial statements: consolidated years of excellence 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. 172 annual report 2015 annual report 2015 173 financial statements: consolidated years of excellence 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 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). 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. • 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. 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. 174 annual report 2015 annual report 2015 175 financial statements: consolidated years of excellence The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: • Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales) • Violation of the conditions of the loan agreement such as non-payment. • Initiation of Bankruptcy proceedings. • Deterioration of the borrower’s competitive position. • The Bank for reasons of economic or legal financial difficulties of the borrower by granting concessions may not agree with the Bank granted in normal circumstances. • Deterioration in the value of collateral or deterioration of the creditworthiness of the borrower. 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. 176 annual report 2015 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 de- preciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or as a separate asset, as appropriate, only when it is 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. annual report 2015 177 financial statements: consolidated years of excellence 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. Operating lease payments leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘general and administrative expenses’. 2.16.2. Being lessor For finance lease, assets are recorded in the property, plant and equipment in the balance sheet and amortized over the expected useful life of this asset in the same manner as similar assets. Lease income is recognized on the basis of rate of re- turn on the lease in addition to an amount corresponding to the cost of depreciation for the period. The difference between the recognized rental income and the total finance lease clients' accounts is transferred to the in the income statement until the expiration of the lease to be reconciled with a net book value of the leased asset. Maintenance and insurance expenses are charged to the income statement when incurred to the extent that they are not charged to the tenant. In case there is objective evidence that the Bank will not be able to collect the of financial lease obligations, the finance lease payments are reduced to the recoverable amount. For assets leased under operating lease it appears in the balance sheet under property, plant and equipment, and depre- ciated over the expected useful life of the asset in the same way as similar assets, and the lease income recorded less any discounts given to the lessee on a straight-line method over the contract period. 2.17. cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and non-restricted balances with Central Bank, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. 2.18. other provisions Provisions for restructuring costs and legal claims are recognized when the Bank has present legal or constructive obliga- tions as a result of past events; where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. In case of similar obligations, the related cash outflow should be determined in order to settle these obligations as a group. The provision is recognized even in case of minor probability that cash outflow will occur for an item of these obligations. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating 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. Income tax is recognized based on net taxable profit using the tax rates applicable at the date of the balance sheet in ad- dition to tax adjustments for previous years. Deferred taxes arising from temporary time differences between the book value of assets and liabilities are recognized in accordance with the principles of accounting and value according to the foundations of the tax, this is determining the value of deferred tax on the expected manner to realize or settle the values of assets and liabilities, using tax rates appli- cable at the date of the balance sheet. Deferred tax assets of the Bank recognized when there is likely to be possible to achieve profits subject to tax in the future to be possible through to use that asset, and is reducing the value of deferred tax assets with part of that will come from tax benefit expected during the following years, that in the case of expected high benefit tax, deferred tax assets will in- crease within the limits of the above reduced. 2.21. Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost also any difference between proceeds net of transaction costs and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. 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. 178 annual report 2015 annual report 2015 179 financial statements: consolidated years of excellence 3. Financial risk management The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and rewards and minimize potential adverse effects on the Bank’s financial performance. The most important types of fi- nancial risks are credit risk, market risk, liquidity risk and other operating risks. Also market risk includes exchange rate risk, rate of return risk and other prices risks. The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and con- trols, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is carried out by risk department under policies approved by the Board of Directors. Bank treasury identifies, evaluates and hedges financial risks in close co-operation with the Bank’s operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as for- eign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments. In addition, credit risk management is responsible for the independent review of risk management and the control environment. 3.1. credit risk The Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in loans and advances, debt securities and other bills. There is also credit risk in off-balance sheet finan- cial arrangements such as loan commitments. The credit risk management and control are centralized in a credit risk management team in Bank treasury and reported to the Board of Directors and head of each business unit regularly. 3.1.1. Credit risk measurement 3.1.1.1. Loans and advances to banks and customers In measuring credit risk of loans and facilities to banks and customers at a counterparty level, the Bank reflects three components: • 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. 180 annual report 2015 annual report 2015 181 financial statements: consolidated years of excellence 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 provi- sions needed for assets impairment related to credit risk: CBE Rating 1 2 3 4 5 6 7 8 9 10 Categorization Provision% Internal rating Categorization Low risk Average risk Satisfactory risk Reasonable risk Acceptable risk Marginally acceptable risk Watch list Substandard Doubtful Bad debts 0% 1% 1% 2% 2% 3% 5% 20% 50% 100% 1 1 1 1 1 2 3 4 4 4 Performing loans Performing loans Performing loans Performing loans Performing loans Regular watching Watch list Non performing loans Non performing loans Non performing loans 3.1.2.3. 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. Impairment and provisioning policies 3.1.3. The internal rating system described in Note 3.1.1 focus on the credit-quality mapping from the lending and investment activities perspective. Conversely, for only financial reporting purposes impairment losses are recognized for that has been incurred 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, 2015 December 31, 2014 Loans and advances (%) 82.27 9.32 4.43 3.98 Impairment provision (%) 30.70 12.97 21.78 34.55 Loans and advances (%) 86.55 6.77 1.97 4.71 Impairment provision (%) 33.91 11.24 5.53 49.32 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 182 annual report 2015 annual report 2015 183 financial statements: consolidated years of excellence Dec. 31, 2015 EGP Thousands 22,130,170 Dec. 31, 2014 EGP Thousands 30,471,115 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, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands Loans and advances to customers 56,273,952 3,765,257 2,484,518 62,523,727 4,709,107 14,375 1,002,669 56,797,576 Loans and advances to banks 27,567 - 20,775 48,342 9,899 - - 38,443 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 Impairment provision losses for loans and advances reached EGP 4,719,006 thousand. During the year the Bank’s total loans and advances increased by 17.78% . In order to minimize the propable exposure to credit risk, the Bank focuses more on the business with large enterprises,banks or retail customers with good credit rating or sufficient collateral. 3.1.5. Maximum exposure to credit risk before collateral held In balance sheet items exposed to credit risk Treasury bills and other governmental notes Trading financial assets: - Debt instruments Gross loans and advances to banks Less:Impairment provision Gross loans and advances to customers Individual: - Overdraft - Credit cards - Personal loans - Mortgages - Other loans Corporate: - Overdraft - Direct loans - Syndicated loans - Other loans Unamortized bills discount Impairment provision Unearned interest Derivative financial instruments Financial investments: -Debt instruments -Investments in associates Total Off balance sheet items exposed to credit risk Financial guarantees Customers acceptances Letters of credit (import and export) Letter of guarantee Total 5,504,524 48,342 (9,899) 1,583,233 2,001,159 8,073,622 298,817 20,881 8,561,090 27,811,737 14,088,786 84,402 (14,375) (4,709,107) (1,002,669) 80,995 54,818,500 159,983 139,530,191 2,741,310 504,774 862,279 29,640,729 33,749,092 3,335,297 132,673 (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 36,383,095 181,661 119,227,077 2,453,307 757,509 1,289,834 23,262,617 27,763,267 The above table represents the Bank Maximum exposure to credit risk on Decmber 31, 2015, 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 40.73% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 43.23%. 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: • 91.54% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 96.02% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP thousands 2,505,293 • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on Decmber 31, 2015. • 97.09% of the investments in debt Instruments are Egyptian sovereign instruments. 184 annual report 2015 annual report 2015 185 financial statements: consolidated years of excellence s k n a b 5 5 3 1 , 1 8 8 5 2 , - 7 0 2 1 1 , 3 4 4 8 3 , 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 , 7 9 6 4 3 9 9 4 , , 5 6 1 4 5 2 5 , , 5 8 9 1 6 7 1 , 3 7 7 3 6 8 , , 0 2 6 4 1 8 7 5 , 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 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 - - - r e h t O s n a o l 5 7 0 3 8 , 5 7 0 3 8 , - - 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 , - - 0 3 3 1 1 , 1 9 0 8 1 1 , 1 6 7 6 0 1 , s k n a b o t s e c n a v d a l a t o T 9 6 0 5 9 , 9 9 1 6 5 2 , , 1 1 9 8 1 3 2 , , 9 7 1 0 7 6 2 , s r e m o t s u c o t s e c n a v d a , 1 4 3 9 9 6 4 4 , , 9 6 4 8 0 2 3 , 6 1 8 6 5 8 , 4 2 6 5 8 7 , , 0 5 2 0 5 5 9 4 , e t a r o p r o C e t a r o p r o C l a u d i v i d n I 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 e g a g t r o M s n a o l l a n o s r e P s d r a c t i d e r C s t f a r d r e v O 5 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 , 7 1 5 7 5 2 1 1 , , 6 2 7 4 1 0 0 2 , , 4 3 5 7 8 2 7 , , 5 3 8 0 2 7 1 , , 2 8 7 1 0 0 3 , 7 9 9 1 2 , 1 1 2 4 6 , , 0 6 5 4 6 0 3 1 , , 0 1 6 7 4 4 1 , 7 1 9 8 5 4 , , 5 3 0 3 2 9 4 2 , 2 0 1 3 4 2 , 7 3 9 0 0 2 , 7 9 8 9 3 2 , , 0 7 4 1 7 9 7 , - - 6 6 2 6 8 2 , 9 5 3 2 , 5 2 6 8 8 2 , , 3 8 2 8 3 9 7 , , 4 7 1 4 7 9 1 , , 8 9 3 1 7 5 1 , , 8 7 5 5 8 5 7 , , 3 6 9 7 0 9 1 , , 8 3 0 2 1 5 1 , s n a o i l g n m r o f r e P 5 8 9 5 6 , 2 5 0 5 7 , 8 6 6 1 1 2 , 2 4 5 9 3 , 5 9 7 6 1 , 4 7 8 9 , 6 3 2 7 3 , 1 6 6 8 , 3 6 4 3 1 , s n a o i l g n m r o f r e p - n o N i g n h c t a w r a l u g e R t s i l h c t a W e t a r o p r o C l a u d i v i d n I 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 e g a g t r o M s n a o l l a n o s r e P s d r a c t i d e r C s t f a r d r e v O , 2 3 5 0 7 0 1 1 , , 7 7 2 9 9 6 9 1 , 4 2 9 9 7 4 , 3 5 6 6 7 3 , 5 3 8 3 7 , , 4 4 9 0 0 0 2 1 , , 2 8 3 2 7 2 2 , 6 0 5 0 9 3 , 2 9 7 3 7 4 , , 7 5 9 5 3 8 2 2 , , 1 1 6 3 7 5 5 , 7 9 1 3 1 3 , 7 4 8 7 4 , 3 2 1 2 7 1 , , 8 7 7 6 0 1 6 , - - 2 6 3 5 1 3 , 2 8 4 1 , 4 4 8 6 1 3 , , 6 8 2 8 8 4 5 , 8 6 8 7 7 , 1 4 4 1 3 , 6 0 3 0 5 , , 1 0 9 7 4 6 5 , 7 0 3 5 , 0 8 9 2 , 8 2 1 7 1 , 5 6 1 7 7 9 , , 0 8 5 2 0 0 1 , , 5 9 0 1 8 3 1 , 4 0 4 0 3 , 2 6 0 5 , 6 0 1 1 1 , , 7 6 6 7 2 4 1 , s n a o i l g n m r o f r e p - n o N i g n h c t a w r a l u g e R t s i l h c t a W l a t o T s n a o i l g n m r o f r e P 4 1 0 2 , 1 3 . c e D : s e d a r G l a t o T 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 , 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 0 0 3 4 , 0 0 3 4 , d e t a c i d n y S , 6 4 9 9 8 2 1 , , 5 6 6 4 2 0 1 , 8 6 7 0 4 , 5 2 9 2 1 1 , 1 0 3 4 5 , 4 7 2 3 4 1 , , 9 3 6 3 4 4 1 , , 0 4 2 2 2 2 1 , 3 8 7 4 2 9 , 6 7 8 0 2 1 , 9 1 4 9 4 , , 8 7 0 5 9 0 1 , 1 9 4 2 4 1 1 4 4 7 6 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 l a n o s r e P 1 8 8 7 0 1 , 8 0 6 0 4 , 3 2 8 9 1 , 2 1 3 8 6 1 , l a u d i v i d n I 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 5 6 7 2 4 , 0 2 8 0 2 , 2 1 8 9 1 3 , 7 9 3 3 8 3 , 5 3 7 8 , 1 6 3 7 3 , 9 9 5 6 9 4 , 5 9 6 2 4 5 , s d r a c t i d e r C s t f a r d r e v O 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 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 5 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 4 1 0 2 , 1 3 . c e D e t a r o p r o C e t a r o p r o C l a t o T , 3 9 2 5 0 5 2 , s n a o l 1 3 5 0 9 5 , d e t a c i d n y S , 5 7 6 8 1 1 1 , 5 6 5 7 6 5 , 1 8 8 0 2 , 6 5 4 9 , s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M l a t o T , 0 0 7 1 0 5 2 , 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 n a o l l a n o s r e P 0 5 4 7 5 1 , l a u d i v i d n I 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 d r a c t i d e r C s t f a r d r e v O 5 1 0 2 , 1 3 . c e D 1 8 5 1 2 , 4 5 1 9 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 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 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 3 9 2 , 5 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 . 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 186 annual report 2015 annual report 2015 187 financial statements: consolidated years of excellence Loans and advances restructured Restructuring activities include reschaduling 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, 2015 Dec. 31, 2014 3,126,928 3,126,928 3,243,393 3,243,393 3.1.7. Debt instruments, treasury bills and other governmental notes The table below presents an analysis of debt instruments, treasury bills and other governmental notes by rating agency designation at end of financial period, based on Standard & Poor’s ratings or their equivalent: Dec. 31, 2015 AAA AA- to AA+ A- to A+ Lower than A- Unrated Total Treasury bills and other gov. notes - - - - 22,130,170 22,130,170 Trading financial debt instruments - - - - 5,504,524 5,504,524 Non-trading financial debt instruments 168,408 467,645 937,758 1,087,336 52,157,353 54,818,500 EGP Thousands Total 168,408 467,645 937,758 1,087,336 79,792,047 82,453,194 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, 2015 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 188 annual report 2015 Cairo Alex, Delta and Sinai Upper Egypt Total 22,130,170 5,504,524 48,342 (9,899) 950,784 1,670,160 5,383,836 245,773 - 7,038,404 19,675,531 12,150,627 72,402 (14,375) (4,709,107) (796,670) 80,995 - - - - 474,132 279,704 2,218,448 46,719 20,881 1,310,932 6,864,143 1,634,739 12,000 - - (176,141) - - - - - 158,317 51,295 471,338 6,325 - 211,754 1,272,063 303,420 - - - (29,858) - 22,130,170 5,504,524 48,342 (9,899) 1,583,233 2,001,159 8,073,622 298,817 20,881 8,561,090 27,811,737 14,088,786 84,402 (14,375) (4,709,107) (1,002,669) 80,995 54,818,500 159,983 124,399,980 - - 12,685,557 - - 2,444,654 54,818,500 159,983 139,530,191 s r o t c e s y r t s u d n I . 2 . 8 . 1 . 3 . s e i t i v i t c a s r e m o t s u c k n a B e h t y b d e z i r o g e t a c e u l a v k o o b r i e h t t a e r u s o p x e t i d e r c n i a m ’ s p u o r G e h t s i s y l a n a e l b a t g n w o i l l o f e Th P G E l a t o T s d n a s u o Th 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 l a i c n a n i F s n o i t u t i t s n i , 0 7 1 0 3 1 2 2 , 2 4 3 8 4 , ) 9 9 8 9 ( , , 4 2 5 4 0 5 5 , - - - - , 3 3 2 3 8 5 1 , , 9 5 1 1 0 0 2 , , 2 2 6 3 7 0 8 , , 3 3 2 3 8 5 1 , , 9 5 1 1 0 0 2 , , 2 2 6 3 7 0 8 , 1 8 8 0 2 , 7 1 8 8 9 2 , 1 8 8 0 2 , 7 1 8 8 9 2 , , 0 9 0 1 6 5 8 , , 7 3 7 1 1 8 7 2 , , 6 8 7 8 8 0 4 1 , 2 0 4 4 8 , ) 5 7 3 4 1 ( , , ) 7 0 1 9 0 7 4 ( , , ) 9 6 6 2 0 0 1 ( , 5 9 9 0 8 , , 0 0 5 8 1 8 4 5 , 3 8 9 9 5 1 , , 1 9 1 0 3 5 9 3 1 , - - - - - - - - ) 1 9 7 3 1 ( , ) 2 3 2 5 0 2 ( , , 9 8 6 8 5 7 1 1 , - - - - - - - - - , 6 6 4 8 7 0 3 , - 0 5 5 8 , , 1 5 4 1 8 0 1 , , 4 1 0 8 7 0 0 1 , , ) 4 0 8 8 3 0 2 ( , - - - , ) 5 4 0 5 9 4 ( , 2 3 6 2 1 7 1 1 , , 0 7 1 0 3 1 2 2 , - - - - - - - 5 7 2 6 6 9 , , 4 2 5 4 0 5 5 , , 9 0 4 3 2 7 2 , , 5 3 9 3 2 7 5 , - - - - ) 8 2 9 7 3 ( , , 9 8 6 4 4 2 3 5 , - , 4 7 0 5 5 2 0 9 , - - - - - - - - - - - - - - - - - - - - - - - - 1 9 1 5 5 9 , 1 6 8 0 9 4 , ) 4 6 9 4 ( , ) 9 0 5 3 2 ( , - - - - - - 8 7 2 6 2 7 , 3 9 7 1 9 1 , 5 0 6 0 6 4 , ) 7 9 0 2 1 ( , , 9 7 5 7 1 4 1 , , 9 7 5 6 6 3 1 , - - - - - - - - - , 2 2 1 8 2 8 2 , - 1 2 3 6 6 , , 0 2 0 2 0 8 6 , , 3 3 5 5 4 4 3 1 , , ) 1 0 3 4 7 3 2 ( , - - - ) 2 5 6 1 8 4 ( , , 3 4 0 6 8 2 0 2 , - - 2 4 3 8 4 , ) 9 9 8 9 ( , - - - - - 8 5 7 6 , 7 2 1 2 8 8 , 1 3 5 9 , 5 7 7 0 2 , ) 5 7 3 4 1 ( , ) 6 3 2 7 1 ( , ) 7 1 2 7 ( , 5 9 9 0 8 , , 1 1 8 3 7 5 1 , 3 8 9 9 5 1 , , 5 9 5 3 3 7 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 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 5 1 0 2 , 1 3 . c e D 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 e t a i c o s s a n i s t n e m t s e v n I - : s t n e m t s e v n i l a i c n a n i F s t n e m u r t s n i t b e D - 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 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 2015 189 financial statements: consolidated years of excellence 3.2. Market risk Market risk represnted as fluctuations in fair value or future cash flow, including foreign exchange rates and commodity prices, interest rates, credit spreads and equity prices will reduce the Bank’s income or the value of its portfolios. the Bank separates exposures to market risk into trading or non-trading portfolios. Market risks are measured, monitored and controlled by the market risk management department. In addition, regular reports are submitted to the Asset and Liability Management Committee (ALCO), Board Risk Committee and the heads of each business unit. Trading portfolios include positions arising from market-making, position taking and others designated as marked-to- market. Non-trading portfolios include positions that primarily arise from the interest rate management of the group’s retail and commercial banking assets and liabilities, financial investments designated as available for sale and held-to- maturity. 3.2.1. Market risk measurement techniques As part of the management of market risk, the Bank undertakes various hedging strategies. the Bank also enters into interest rate swaps to match the interest rate risk associated with the fixed-rate long-term debt instrument and loans to which the fair value option has been applied . 3.2.1.1. Value at Risk The Bank applies a “Value at Risk” methodology (VaR) to its trading and non-trading portfolios, to estimate the market risk of positions held and the maximum losses expected under normal market conditions, based upon a number of as- sumptions for various changes in market conditions. VaR is a statistically based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the ‘maximum’ amount the Bank might lose , but only to a certain level of confidence (95%). There is therefore a specified statistical probability (5%) that actual loss could be greater than the VaR estimate. The VaR model assumes a certain ‘holding period’ until positions can be closed (1 Day). The Bank is assessing the historical movements in the 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 EGP Thousands Medium 248 157,097 134,436 22,661 - 5,072 361 156,811 Dec. 31, 2015 High 1,894 258,851 217,625 41,227 - 7,426 492 257,954 Low 5 96,690 88,109 8,581 - 2,689 287 96,562 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 Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Equities risk Portfolio managed by others risk Investment fund Total VaR 190 annual report 2015 Trading portfolio VaR by risk type Foreign exchange risk Interest rate risk - For trading purposes Equities risk Funds managed by others risk Investment fund Total VaR Medium 248 Dec. 31, 2015 High 1,894 Low 5 Medium 42 Dec. 31, 2014 High 351 22,661 - 5,072 361 23,462 41,227 - 7,426 492 41,655 8,581 - 2,689 287 11,345 11,405 84 4,132 357 12,451 18,080 141 6,817 549 18,815 Non trading portfolio VaR by risk type Interest rate risk - For non trading purposes Total VaR Medium 134,436 134,436 Dec. 31, 2015 High Low Medium Dec. 31, 2014 High 217,625 217,625 88,109 88,109 70,306 70,306 107,791 107,791 Low 3 7,288 - 1,108 223 8,790 Low 56,307 56,307 The aggregate of the trading and non-trading VaR results does not constitute the Bank’s VaR due to correlations and con- sequent diversification effects between risk types and portfolio types. 3.2.3. Foreign exchange risk The Bank’s financial position and cash flows are exposed to fluctuations in foreign currency exchange rates. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are 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, 2015 Financial assets Cash and balances with central bank Due from banks Treasury bills and other governmen- tal notes Trading financial assets Gross loans and advances to banks Gross loans and advances to custom- ers 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 9,349,647 8,508,366 356,876 9,679,891 76,434 2,355,831 30,879 330,860 35,118 127,357 18,041,899 4,369,826 589,428 5,692,538 - 155,839 48,342 - - - - - - - - 9,848,954 21,002,305 23,001,153 5,848,377 48,342 36,201,181 24,854,523 1,272,045 114,885 81,093 62,523,727 68,023 12,925 47 - - 80,995 44,343,759 9,261,220 159,983 131,626,616 1,945,316 - - 41,423,538 - - - 4,293,785 - - - 476,624 - - - 243,568 46,289,075 9,261,220 159,983 178,064,131 303,105 113,490,778 96,928 131,328 114,022,139 1,241,688 36,285,344 48,760 - 37,575,792 42,426 4,813,066 47 - 4,855,539 11,651 461,909 - - 473,560 1,899 183,319 - - 185,218 1,600,769 155,234,416 145,735 131,328 157,112,248 17,604,477 3,847,746 (561,754) 3,064 58,350 20,951,883 annual report 2015 191 financial statements: consolidated years of excellence Interest rate risk 3.2.4. 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, 2015 Up to1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non- Interest Bearing Total Financial assets Cash and balances with central bank Due from banks Treasury bills and other governmental notes* Trading financial assets Gross loans and advances to banks Gross loans and advances to customers Derivatives financial instruments (including IRS notional amount) Financial investments - Available for sale - Held to maturity Investments in associates Total financial assets Financial liabilities Due to banks Due to customers Derivatives financial instruments (including IRS notional amount) Long term loans Total financial liabilities Total interest re-pricing gap - - - 16,368,055 4,150,629 130,424 1,432,274 4,163,254 17,405,625 - - - - - - 9,848,954 9,848,954 353,197 21,002,305 - 23,001,153 157,338 2,252 - 838 101,151 3,478,339 1,925,032 186,517 5,848,377 - 45,252 - - 48,342 39,543,164 7,659,403 9,164,763 5,205,019 951,378 - 62,523,727 383,992 37,006 1,120,238 6,584,035 208,712 12,924 8,346,907 896,975 - - 10,632,983 237,871 - 58,784,050 16,329,609 31,299,888 54,775,207 13,955,976 30,444,441 9,018,121 - 3,372,459 5,228 - 318,479 - - 623,738 46,289,075 9,261,220 159,983 11,185,313 186,330,043 - 159,983 1,391,139 63,058,113 73,899 16,302,639 76,604 15,545,522 - 32,586,811 - 1,356,003 59,127 1,600,769 26,385,328 155,234,416 3,277,069 4,786,309 13,496 286,013 - 48,760 8,411,647 46,925 34,382 67,773,246 21,166,496 15,681,994 32,907,206 46,372 3,649 - 1,356,003 131,328 26,493,215 165,378,160 - (8,989,196) (4,836,887) 15,617,894 21,868,001 12,599,973 (15,307,902) 20,951,883 * After adding Reverse repos and deducting Repos. 3.3. liquidity risk Liquidity risk is the risk that the Bank does not have sufficient financial resources to meet its obligations arises from its financial liabilities as they fall due or to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill lending commitments. 3.3.1. Liquidity risk management process the Bank’s liquidity management process, is carried by the assets and Liabilities Management Department and monitored independently by the Risk Management Department, which includes: Projecting cash flows by major currency under various stress scenarios and considering the level of liquid assets necessary in relation thereto: • The Bank maintains an active presence in global money markets to enable this to happen. • Maintaining a diverse range of funding sources with back-up facilities. • Monitoring balance sheet liquidity and advances to core funding ratios against internal and Central Bank of Egypt 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, 2015 Financial liabilities Due to banks Due to customers Long term loans Total liabilities (contractual and non contractual maturity dates) Total financial assets (contractual and non contractual maturity dates) Dec. 31, 2014 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) Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP Thousands 1,450,264 21,517,799 46,925 73,900 18,636,129 3,649 76,605 42,695,183 46,372 - 69,919,823 34,382 - 1,600,769 2,465,482 155,234,416 131,328 - 23,014,988 18,713,678 42,818,160 69,954,205 2,465,482 156,966,513 29,723,449 15,309,386 32,853,492 78,479,205 22,348,416 178,713,948 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 19,043,624 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 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. 192 annual report 2015 annual report 2015 193 financial statements: consolidated years of excellence 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, 2015 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 EGP Thousands 74,061 - 74,061 12,272 - 12,272 10,641 - 10,641 - 47,094 47,094 - 1,667 1,667 96,974 48,761 145,735 Off balance sheet items Dec. 31, 2015 Letters of credit, guarantees and other commitments Total Loans commitments (Customers limit authorized not utilized) Total Up to 1 year 20,632,761 20,632,761 1-5 years Over 5 years 7,382,522 7,382,522 Total 2,992,499 31,007,782 2,992,499 31,007,782 Up to 1 year 21,976,059 21,976,059 1-5 years Over 5 years 2,004,904 2,004,904 Total 256,445 24,237,408 256,445 24,237,408 3.4. fair value of financial assets and liabilities 3.4.1. Financial instruments not measured at fair value The table below summarizes the book value and fair value of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value. Financial assets Due from banks Gross loans and advances to banks Gross loans and advances to customers - Individual - Corporate Financial investments Held to Maturity Total financial assets Financial liabilities Due to banks Due to customers Long term loans Total financial liabilities Book value Fair value Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014 21,002,305 48,342 11,977,712 50,546,015 9,521,999 132,673 8,523,485 44,468,522 21,002,305 48,342 11,977,712 50,546,015 9,521,999 132,673 8,523,485 44,468,522 9,261,220 92,835,594 9,160,746 71,807,425 9,261,220 92,835,594 9,160,746 71,807,425 1,600,769 155,234,416 131,328 156,966,513 1,131,385 121,974,959 242,878 123,349,222 1,600,769 155,234,416 131,328 156,966,513 1,131,385 121,974,959 242,878 123,349,222 Due from banks The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and similar maturity date. Loans and advances to banks Loans and advances to banks represented in loans do not considering bank placing. The expected fair value of the loans and advances represents the discounted value of future cash flows expected to be collected. Cash flows are discounted using the current market rate to determine fair value. Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Financial Investments Investment securities include only interest-bearing assets held to maturity assets classified as available for sale are mea- sured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Due to other banks and customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar maturity date. 3.5. capital management For capital management purposes, the Bank’s capital includes total equity as reported in the balance sheet plus some other elements that are managed as capital. The Bank manages its capital to ensure that the following objectives are achieved: • Compliance with the legally imposed capital requirements in Egypt. • Protecting the Bank’s ability to continue as a going concern and enabling it to generate yield for shareholders and 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 tier1. Assets risk weight scale ranging from zero to 100% based on the counterparty risk to reflect the related credit risk scheme, taking into considration the cash collatrals. Similar criteria are used for off balance sheet items after adjusting it to reflect the nature of contingency and the potential loss of those amounts. The Bank has complied with all local capital adequacy requirements for the current year. 194 annual report 2015 annual report 2015 195 financial statements: consolidated years of excellence The tables below summarizes the compositions of teir 1, teir 2 , the capital adequacy ratio and leverage ratio . According to Basel II : 1- The capital adequacy ratio Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands Restated** 9,081,734 - 4,740,169 (61,234) (625,080) 13,135,589 11,470,603 (209,842) 2,446,048 (64,566) (2,440,566) 11,201,677 Tier 1 capital Share capital (net of the treasury shares) Goodwill 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 (%) *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. **After 2014 profit distribution. After the approval of appropriation account for the year 2015, The capital adequacy ratio will reach 16.23% 79,632,761 4,030,778 12,354,714 96,018,253 12.72% 70,426,788 3,179,692 10,064,534 83,671,014 16.77% 997,201 1,011,210 12,212,887 879,836 895,648 14,031,237 15,763 13,960 49 49 2- Leverage ratio Total qualifying tier 1 capital On-balance sheet items & derivatives Off-balance sheet items Total exposures *Percentage Dec. 31, 2015 EGP Thousands 11,201,677 182,420,706 23,484,346 205,905,052 5.44% *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 14 July 2015. 4. Critical accounting estimates and judgments The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including ex- pectations of future events that are believed to be reasonable under the circumstances and available information. Impairment losses on loans and advances 4.1. The Bank reviews its loan portfolios to assess impairment on monthly basis a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable 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 tech- niques. Where valuation techniques (as models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent prac- tical, models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments. 4.4. Held-to-Maturity investments The non-derivative financial assets with fixed or determinable payments and fixed maturity are being classified held to maturity. This requires significant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circum- stances – for example, selling an insignificant amount close to maturity it will be required to reclassify the entire category as available for sale. The investments would therefore be measured at fair value not amortized cost. 5. Segment analysis 5.1. By business segment The Bank is divided into main business segments on a worldwide basis: • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products • Investment banking – incorporating financial instruments Trading, structured financing, Corporate leasing,and merger and acquisitions advice. • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages; • Others –Include other banking business, such as Assets Management. • Transactions between the business segments are on normal commercial terms and conditions. Dec. 31, 2015 Revenue according to business segment Expenses according to business seg- ment Profit before tax Tax Profit for the year Total assets Dec. 31, 2014 Revenue according to business segment Expenses according to business seg- ment Profit before tax Tax Profit for the year Total assets Corporate banking 7,122,388 (2,765,212) 4,357,176 (1,222,420) 3,134,756 165,878,454 Corporate banking 5,341,245 SME’s 1,153,088 (553,913) 599,175 (168,366) 430,809 1,124,475 Investment banking 304,304 EGP Thousands Retail banking 2,473,014 Total 11,052,794 (19,855) (1,161,145) (4,500,125) 284,449 (64,278) 220,171 632,464 1,311,869 (368,629) 943,240 11,864,786 6,552,669 (1,823,693) 4,728,976 179,500,179 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) 2,623,127 130,788,474 521,240 (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) 3,741,456 143,813,323 196 annual report 2015 annual report 2015 197 financial statements: consolidated years of excellence 5.2. By geographical segment Dec. 31, 2015 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2014 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Cairo 9,441,901 (3,877,962) 5,563,939 (1,545,865) 4,018,074 162,013,306 Cairo 7,052,514 (2,236,547) 4,815,967 (1,557,762) 3,258,205 131,901,159 Alex, Delta & Sinai 1,167,385 (420,704) 746,681 (209,814) 536,867 13,712,913 Alex, Delta & Sinai 1,027,532 (468,508) 559,024 (183,077) 375,947 10,839,735 EGP Thousands Upper Egypt Total 443,508 (201,459) 242,049 (68,014) 174,035 3,773,960 11,052,794 (4,500,125) 6,552,669 (1,823,693) 4,728,976 179,500,179 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) 3,741,456 143,813,323 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 Total Interest and similar expense - Banks - Clients Financial instruments purchased with a commitment to re-sale (Repos) Other Total Net interest income 7. Net fee and commission income Fee and commission income Fee and commissions related to credit Custody fee Other fee Total Fee and commission expense Other fee paid Total Net income from fee and commission Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 366,302 5,147,557 5,513,859 9,154,619 2,338 94,521 216,234 4,361,909 4,578,143 6,855,935 6,456 109,300 14,765,337 11,549,834 (79,801) (6,561,613) (6,641,414) (7,762) (832) (6,650,008) 8,115,329 (77,885) (5,194,167) (5,272,052) - (2,081) (5,274,133) 6,275,701 Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 1,041,382 73,268 817,404 1,932,054 (299,696) (299,696) 1,632,358 970,138 58,404 640,682 1,669,224 (181,498) (181,498) 1,487,726 8. Dividend income Trading securities 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 10. Administrative expenses 1. Staff costs - Wages and salaries - Social insurance - Other benefits 2. Other administrative expenses Total 11. Other operating (expenses) income Profits from non-trading assets and liabilities revaluation Profits from selling property, plant and equipment Charges of other provisions Others operating expenses Total 12. Impairment charge for credit losses Loans and advances to customers Total Dec. 31, 2015 EGP Thousands 4,060 31,002 35,062 Dec. 31, 2014 EGP Thousands - 27,501 27,501 Dec. 31, 2015 EGP Thousands 214,574 Dec. 31, 2014 EGP Thousands 258,844 96 2,928 (9,240) 7,752 494,288 - 710,398 1,569 (6,266) (1,282) (38,002) 501,421 717 717,001 Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands (993,761) (54,836) (37,328) (942,479) (2,028,404) (834,488) (44,716) (36,243) (789,053) (1,704,500) Dec. 31, 2015 EGP Thousands 42,062 564 (135,361) (477,265) (570,000) Dec. 31, 2014 EGP Thousands 3,396 2,106 (278,058) (489,973) (762,529) Dec. 31, 2015 EGP Thousands (1,682,439) (1,682,439) Dec. 31, 2014 EGP Thousands (588,794) (588,794) 198 annual report 2015 annual report 2015 199 financial statements: consolidated years of excellence 13. Adjustments to calculate the effective tax rate 17. Treasury bills and other governmental notes Profit after settlement * Tax rate Income tax based on accounting profit Add / (Deduct) Non-deductible expenses Tax exemptions Effect of provisions Depreciation 10% Withholding tax Income tax / Deferred tax Effective tax rate * As per the law no. 96 of 2015 tax rate became 22.5%. 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. 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 Dec. 31, 2015 EGP Thousands 6,553,355 22.50% 1,474,506 Dec. 31, 2014 EGP Thousands 5,536,338 30%-25% 1,660,851 268,903 (103,447) 186,107 (7,259) 4,883 1,823,693 27.83% 27,023 (55,634) 166,302 (5,449) - 1,793,093 32.39% Dec. 31, 2015 EGP Thousands 4,639,648 (69,595) (463,965) 4,106,088 1,147,060 3.58 1,162,617 3.53 Dec. 31, 2014 EGP Thousands 3,644,902 (54,674) (364,490) 3,225,738 1,147,060 2.81 1,162,311 2.78 Dec. 31, 2015 EGP Thousands 1,580,752 Dec. 31, 2014 EGP Thousands 2,109,660 8,268,202 9,848,954 9,848,954 5,392,596 7,502,256 7,502,256 Dec. 31, 2015 EGP Thousands 1,386,078 19,616,227 21,002,305 14,121,507 3,263,306 3,617,492 21,002,305 353,197 20,649,108 21,002,305 21,002,305 21,002,305 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 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 - Mutual funds Total - Portfolio managed by others Total 19. Loans and advances to banks, net 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 Release during the year Exchange revaluation difference Ending balance Dec. 31, 2015 EGP Thousands 5,595,527 7,513,324 9,892,302 (870,983) 22,130,170 - - 22,130,170 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, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 5,504,524 5,504,524 157,336 157,336 186,517 5,848,377 3,335,297 3,335,297 167,048 167,048 260,373 3,762,718 Dec. 31, 2015 EGP Thousands 48,342 Dec. 31, 2014 EGP Thousands 132,673 (9,899) 38,443 3,090 35,353 38,443 (14,582) 118,091 93,035 25,056 118,091 Dec. 31, 2015 EGP Thousands (14,582) 4,902 (219) (9,899) Dec. 31, 2014 EGP Thousands (21,411) 6,915 (86) (14,582) 200 annual report 2015 annual report 2015 201 financial statements: consolidated years of excellence 20. Loans and advances to customers, net Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands Individual - Overdraft - Credit cards - Personal loans - Real estate loans - 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 1,583,233 2,001,159 8,073,622 298,817 20,881 11,977,712 8,561,090 27,811,737 14,088,786 84,402 50,546,015 62,523,727 (14,375) (4,709,107) (1,002,669) 56,797,576 25,011,678 31,785,898 56,797,576 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 analysis for impairment provision of loans and advances to customers Individual Dec. 31, 2015 Overdraft Credit cards Beginning balance (Charged) released during the year Write off during the year Recoveries during the year Ending balance (10,550) (1,281) - (4) (11,835) (7,434) (28,331) 14,120 (5,340) (26,985) Personal loans (81,153) (59,317) 5,148 (17) (135,339) Real estate loans (8,422) (1,770) - - (10,192) Other loans Total (20,934) 53 - - (20,881) (128,493) (90,646) 19,268 (5,361) (205,232) Dec. 31, 2015 Beginning balance (Charged) released during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans (491,763) (79,462) - - (18,395) (589,620) (2,172,426) (1,201,442) 545,777 (3,399) (57,212) (2,888,702) Corporate Syndicated loans (644,225) (349,313) - - (30,688) (1,024,226) Other loans Total (4,850) 3,523 - - - (1,327) (3,313,264) (1,626,694) 545,777 (3,399) (106,295) (4,503,875) 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) 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. 202 annual report 2015 annual report 2015 203 financial statements: consolidated years of excellence 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 Total assets (liabilities) for trading derivatives (1+2) 21.1.2 Fair value hedge Interest rate derivatives - Governmental debt instruments hedging - Customers deposits hedging Total 3 Total financial derivatives (1+2+3) Notional amount 972,438 3,448,349 26,830 14,687 Notional amount 286,014 7,965,211 Dec. 31, 2015 Dec. 31, 2014 Assets Liabilities 16,766 51,258 47 68,071 395 395 25,683 71,244 47 96,974 - - Notional amount 1,761,253 3,928,336 319,390 278,504 Assets Liabilities 2,364 19,857 3,887 26,108 1,575 1,575 14,209 47,594 3,713 65,516 434 434 68,466 96,974 27,683 65,950 Dec. 31, 2015 Dec. 31, 2014 Assets Liabilities Notional amount Assets Liabilities - 26,296 621,189 - 63,402 12,529 12,529 80,995 22,465 48,761 145,735 4,276,937 24,505 24,505 52,188 7,823 71,225 137,175 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 26,296 thousand at December 31, 2015 against EGP 63,402 thousand at the December 31, 2014, Resulting in net gains form hedging instruments at December 31, 2015 EGP 37,106 thousand against net losses EGP 5,926 thousand at the De- cember 31, 2014. Losses arises from the hedged items at December 31, 2015 reached EGP 48,941 thousand against losses arises EGP 232 thousand at December 31, 2014. 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 9,936 thousand at the end of December 31, 2015 against EGP 16,682 thousand at December 31, 2014, Resulting in net losses form hedging instruments at December 31, 2015 EGP 26,618 thousand against net losses EGP 21,380 thousand at December 31, 2014. Gains arises from the hedged items at December 31, 2015 reached EGP 27,540 thousand against gains EGP 45,094 thousand at December 31, 2014. 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 as of Dec. 31, 2014 Beginning balance Addition Deduction (selling - redemptions) Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Impairment (charges) release Ending Balance as of Dec. 31, 2015 Dec. 31, 2015 EGP Thousands Dec. 31, 2014 EGP Thousands 45,589,793 28,496 670,786 46,289,075 9,228,707 32,513 9,261,220 27,249,861 87,770 364,491 27,702,122 9,133,233 27,513 9,160,746 55,550,295 36,862,868 53,957,991 1,592,304 55,550,295 53,244,689 1,573,811 54,818,500 Available for sale financial investments 23,378,104 9,079,241 (4,854,894) Held to maturity financial investments 4,197,177 4,963,569 - 38,176 121,246 (59,751) 27,702,122 27,702,122 25,392,460 (5,152,168) 96,638 (1,572,274) (177,703) 46,289,075 - - - 9,160,746 9,160,746 4,019,548 (3,919,074) - - - 9,261,220 35,617,223 1,245,645 36,862,868 35,211,927 1,171,168 36,383,095 Total EGP Thousands 27,575,281 14,042,810 (4,854,894) 38,176 121,246 (59,751) 36,862,868 36,862,868 29,412,008 (9,071,242) 96,638 (1,572,274) (177,703) 55,550,295 22.1. profits (losses) on financial investments Profit (Loss) from selling available for sale financial instruments Impairment release (charges) of available for sale equity instruments Profit (Loss)from selling investments in associates Impairment release (charges) of subsidiaries and associates Total Dec. 31, 2015 EGP Thousands 163,270 (177,703) 285,431 - 270,998 Dec. 31, 2014 EGP Thousands 82,907 (59,762) - (52,480) (29,335) 204 annual report 2015 annual report 2015 205 financial statements: consolidated years of excellence 23. Investments in associates 26. Property, plant and equipment Dec. 31, 2015 Company’s country Company’s assets EGP Thousands Company’s revenues Company’s net profit Investment book value Stake % Company’s liabilities (without equity) Associates - Corplease - Haykala for investment - Egypt Factors - International Co. for Security and Services (Falcon) Total Egypt Egypt Egypt Egypt 2,623,964 5,010 313,515 2,356,465 211 272,665 421,621 272 20,827 24,752 41 (15,672) 124,149 1,202 - 193,470 109,644 257,943 36,190 34,632 43 40 49 40 3,135,959 2,738,985 700,663 45,311 159,983 Beginning gross assets (1) Additions during the year Ending gross assets (2) Accumulated depreciation at beginning of the year (3) Current period depreciation Accumulated depreciation at end of the year (4) Ending net assets (2-4) Beginning net assets (1-3) Depreciation rates Land Premises IT Vehicles Fitting -out Machines and equipment Dec. 31, 2015 64,709 - 69,278 442,793 40,424 64,709 804,922 1,192,514 70,161 483,217 709,943 1,085,729 106,785 94,979 883 365,933 49,862 415,795 Furniture and furnishing Total EGP Thousands 131,641 2,870,026 292,933 131,641 3,162,959 - - - 243,851 812,493 41,109 370,597 298,841 117,631 1,884,522 29,917 85,091 1,141 43,251 28,856 - 188,256 - 273,768 897,584 42,250 413,848 327,697 117,631 2,072,778 64,709 531,154 64,709 466,092 %5 294,930 27,911 69,369 273,236 28,169 72,196 %20 %33.3 %33.3 88,098 67,092 %20 14,010 1,090,181 14,010 985,504 %20 Company’s revenues Company’s net profit Investment book value Stake % EGP Thousands Net fixed assets value on the balance sheet date includes EGP 57,328 thousand non registered assets while their registrations procedures are in process. Dec. 31, 2014 Company’s country Company’s assets Company’s liabilities (without equity) Associates - Commercial Internation- al Life Insurance - Corplease - Haykala for Investment - Egypt Factors - International Co. for Security and Services (Falcon) Total 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 Egypt 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 24. Investment properties 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 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, 2015 EGP Thousands - - - - Dec. 31, 2014 EGP Thousands 2,642 65,950 815,502 884,094 Dec. 31, 2015 EGP Thousands 2,892,503 123,436 157,202 1,547,660 52,569 15,921 4,789,291 Dec. 31, 2014 EGP Thousands 1,870,423 109,115 145,170 1,653,149 27,351 8,867 3,814,075 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, 2015 EGP Thousands 224,002 1,376,767 1,600,769 816,844 271,845 512,080 1,600,769 59,127 1,541,642 1,600,769 224,002 1,376,767 1,600,769 Dec. 31, 2015 EGP Thousands 43,282,846 42,996,421 37,518,922 25,790,179 5,646,048 155,234,416 82,185,251 73,049,165 155,234,416 26,385,328 128,849,088 155,234,416 115,115,076 40,119,340 155,234,416 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 33,674,868 121,974,959 206 annual report 2015 annual report 2015 207 financial statements: consolidated years of excellence 29. Long term loans 32. Equity Interest rate % Maturity date Maturing through next year EGP Thousands Balance on Dec. 31, 2015 EGP Thousands Balance on Dec. 31, 2014 EGP Thousands Financial Investment & Sector Coopera- tion (FISC) Environmental Compliance Project (ECO) Agricultural Research and Development Fund (ARDF) Social Fund for Development (SFD) 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 3-5 years 4 January 2020 Total 3,889 550 3,889 550 - 1,690 12,000 28,000 105,075 28,472 44,911 98,889 131,328 136,113 242,878 Dec. 31, 2015 EGP Thousands 763,040 586,640 1,078,821 193,768 2,622,269 Dec. 31, 2014 EGP Thousands 629,260 515,716 1,171,126 293,350 2,609,452 30. Other liabilities Accrued interest payable Accrued expenses Accounts payable Other credit balances Total 31. Other provisions Dec. 31, 2015 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent * Provision for other claim Total 22,145 40,435 31,000 620,547 16,185 730,312 - 1,686 - 125,764 8,416 135,866 - 53 - 12,863 414 13,330 - (12,113) - - (5,129) (17,242) - (505) - - - (505) Dec. 31, 2014 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent Provision for other claim Total 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) Ending balance EGP Thousands 22,145 29,556 31,000 759,174 19,886 861,761 Ending balance EGP Thousands 22,145 40,435 31,000 620,547 16,185 730,312 * Total Provision for other claim formed on December 31, 2015 amounted to EGP 8,416 thousand to face the potential risk of banking operations against amount EGP 3,682 thousand on December 31, 2014 . 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 11,470,603 thousand to be divided on 1,147,060 thousand shares with EGP 10 par value for each share and registered in the commercial register dated 19th November 2015 • Increase issued and Paid in Capital by amount EGP 2,294,121 thousand on December 10, 2015 according to Ordinary Gen- eral Assembly Meeting decision on March 12 ,2015 by distribution of a one share for every four outstanding shares by capitalizing on the General Reserve. • Increase issued and Paid in Capital by amount EGP 94,748 thousand On April 5,2015 to reach EGP 9,176,482 thousand ac- cording to Board of Directors decision on November 11, 2014 by issuance of sixth tranch for E.S.O.P program. • 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 fifth 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 Extraordinary General Assembly Meeting decision on July 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 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 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 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. • 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 of this divi- dend, 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 assets (Liabilities) Deferred tax assets and liabilities are attributable to the following: Fixed assets (depreciation) Other provisions (excluded loan loss, contingent liabilities and income tax provisions) Intangible Assets & Good will Other investments impairment Reserve for employee stock ownership plan (ESOP) Interest rate swaps revaluation Trading investment revaluation Forward foreign exchange deals revaluation Total Assets (Liabilities) Dec. 31, 2015 EGP Thousands (22,367) Assets (Liabilities) Dec. 31, 2014 EGP Thousands (28,456) 14,553 3,255 123,243 60,870 335 78,927 (659) 258,157 17,970 - 82,888 49,335 - - - 121,737 208 annual report 2015 annual report 2015 209 financial statements: consolidated years of excellence 34. Share-based payments According to the extraordinary general assembly meeting on June 26, 2006, The Bank launched new Employees Share Ownership 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 2016 2017 2018 Total Dec. 31, 2015 No. of shares in thousand 21,872 11,370 (3,394) (9,475) 20,373 EGP Exercise price 10.00 10.00 10.00 EGP Fair value * 13.47 18.27 31.67 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: 9th tranche 10 39.35 3 13.4% 2.00% 31% Exercise price Current share price Expected life (years) Risk free rate % Dividend yield% Volatility% Dec. 31, 2014 No. of shares in thousand 23,918 7,038 (1,154) (7,930) 21,872 No. of shares in thousand 6,806 8,139 5,428 20,373 8th tranche 10 26.06 3 12% 3.07% 35% Volatility is calculated based on the daily standard deviation of returns for the last three years. * The equity instruments fair value and number of shares for the seventh,eighth and ninth trenches have been adjusted to reflect the dilution effect of the Stock dividend that took place in 2015. 35. Reserves 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) to bank risk reserve Ending balance 210 annual report 2015 Dec. 31, 2015 EGP Thousands 803,355 1,518,373 (64,566) 30,214 (2,202,462) 2,513 87,427 Dec. 31, 2014 EGP Thousands 621,084 1,850,496 (155,160) 28,108 (593,236) 1,991 1,753,283 Dec. 31, 2015 EGP Thousands 1,991 522 2,513 Dec. 31, 2014 EGP Thousands 1,991 - 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 losses from A.F.S investment revaluation Ending balance 35.4. retained losses Beginning balance Dividend previous year Change in owner ship percentage Transferred to retained 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 with maturities more than three months Treasury bills with maturities more than three months Total Dec. 31, 2015 EGP Thousands 621,084 182,271 803,355 Dec. 31, 2014 EGP Thousands 490,365 130,719 621,084 Dec. 31, 2015 EGP Thousands (593,236) (1,609,226) (2,202,462) Dec. 31, 2014 EGP Thousands (720,479) 127,243 (593,236) Dec. 31, 2015 EGP Thousands (155,160) (4,700) 1,368 93,926 (64,566) Dec. 31, 2015 EGP Thousands 9,848,954 21,002,305 22,130,170 (8,268,202) (15,478,335) (16,612,361) 12,622,531 Dec. 31, 2014 EGP Thousands (546,531) - 9 391,362 (155,160) Dec. 31, 2014 EGP Thousands 7,502,256 9,521,999 30,548,890 (5,392,596) (5,007,462) (22,110,185) 15,062,902 37. Contingent liabilities and commitments 37.1. legal claims There are a number of existing cases filed against the bank on December 31,2015 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 15,460 thousand as follows: Available for sale financial investments Investments value 77,301 Paid 61,841 Remaining 15,460 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 50,013 thousand. annual report 2015 211 financial statements: consolidated years of excellence 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) 38. Mutual funds osoul fund Dec. 31, 2015 EGP Thousands 29,640,729 862,279 504,774 31,007,782 Dec. 31, 2014 EGP Thousands 23,262,617 1,289,834 757,509 25,309,960 Dec. 31, 2015 EGP Thousands 24,237,408 Dec. 31, 2014 EGP Thousands 18,061,344 • 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 18,902,970 with redeemed value EGP 4,793,982 thousands. • The market value per certificate reached EGP 253.61 on December 31, 2015. • The Bank portion got 601,064 certificates with redeemed value EGP 152,436 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 1,109,595 with redeemed value EGP83,841 thousands. • The market value per certificate reached EGP 75.56 on December 31, 2015. • The Bank portion got 194,744 certificates with redeemed value EGP 14,715 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 670,405 with redeemed value EGP 29,994 thousands. • The market value per certificate reached EGP 44.74 on December 31, 2015. • The Bank portion got 71,943 certificates with redeemed value EGP 3,219 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 164,560 with redeemed value EGP 24,646 thousands. • The market value per certificate reached EGP 149.77 on December 31, 2015. • The Bank portion got 50,000 certificates with redeemed value EGP 7,489 thousands. thabat fund 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 39.2. other transactions with related parties International Co. for Security & Services Corplease Co. Commercial International Brokerage Co. Dynamics Company Egypt Factors CI Assets Management Commercial International Capital Holding Co. Haykala for Investment 40. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro 41. Tax status EGP Thousands 784,014 286,691 286,741 Expenses EGP Thousands 83,668 343 6,745 647 135 7 562 281 Dec. 31, 2014 EGP Thousands (141,124) 63,391 (279) 20 (442) 2,348 Income EGP Thousands 439 30,933 8,782 11 12,947 416 53,681 660 Dec. 31, 2015 EGP Thousands 166,732 (191,276) (660) 356 32 (8,018) 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 2012. Corporate income tax annual return is submitted. salary tax The Bank’s salary tax has been examined, paid and settled from the beginning of the activity until the end of 2012. • CIB bank established an accumulated return mutual fund under license no.613 issued from financial supervisory author- The Bank’s salary tax under examination for the year 2013. ity on September 13, 2011. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 1,997,530 with redeemed value EGP 320,604 thousands. • The market value per certificate reached EGP 160.50 on December 31, 2015. • The Bank portion got 52,404 certificates with redeemed value EGP 8,411 thousands. takamol fund • CIB bank established an accumulated return mutual fund under license no.431 issued from financial supervisory author- ity on February 18, 2015. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 501,219 with redeemed value EGP 44,779 thousands. • The market value per certificate reached EGP 89.34 on December 31, 2015. • The Bank portion got 59,809 certificates with redeemed value EGP 5,343 thousands. 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’s stamp duty tax is under re-examination for the period from 1/8/2006 till 30/9/2015 accoding to the protocol between the Federation of Egyptian banks and the tax authority. 212 annual report 2015 annual report 2015 213 financial statements: consolidated years of excellence net profit from discontinued operations Interest and similar income Interest and similar expense Fee and commission income Fee and commission expense Dividend income Net trading income Administrative expenses Other operating (expenses) income Net Profit Before Tax Income tax expense Deferred tax Net profit of the year Dec. 31, 2015 EGP Thousands 7,692 (59,443) 301,859 (1,393) 2,555 (6,627) (181,634) 8,152 71,161 (13,653) 3,607 61,115 Dec. 31, 2014 EGP Thousands 15,162 (35,827) 261,111 (2,026) 4,768 1,473 (176,935) 21,331 89,057 (16,664) (175) 72,218 cI capital Holding CIB Board of Directors initially agreed to carry out acts of the due diligence examination for CI Capital Holding during the meeting held in to determine the company's fair value for the purpose of selling the bank's full stake. 42. Goodwill and Intangible assets: CIB acquired Citibank - Egypt’s retail banking portfolio and card business on 29/10/2015. The acquired portfolio balances as of 31/12/2015 are: Loans and advances to customers Due to customers Due to the acquisition process Goodwill and Intangible assets have been arisen with the following balances : 42.1. Goodwill Book value at acquisition Amortization Net book value 42.2. Intangible assets: Book value at acquisition Amortization Net book value Dec. 31, 2015 EGP Thousands 1,078,684 1,380,765 217,078 (7,236) 209,842 651,041 (21,701) 629,340 According to Central Bank of Egypt regulation issued on Dec 16, 2008, an amortization of 20% annualy has been applied on goodwill and intangible assets starting from acquisition date. 43. Non-current assets held for sale Due from banks Treasury bills and other governmental notes Trading financial assets Brokerage clients - debit balances Financial investments available for sale Reconciliation accounts- debit balances Other assets Deferred tax assets Property, plant and equipment Total 43. Non-current liabilities held for sale Brokerage clients - credit balances Other liabilities Current tax liabilities Other provisions Total Minority interest Net Dec. 31, 2015 EGP Thousands 246,791 2,085 33,655 657,560 16,123 978 86,525 3,234 19,319 1,066,270 Dec. 31, 2015 EGP Thousands 223,840 124,628 13,653 9,501 371,622 4,066 375,688 690,582 214 annual report 2015 annual report 2015 215 this page has intentionally been left blank. commercial International Bank s.a.e nile tower Building 21/23 charles De Gaulle street Giza, cairo, p.o. Box 2430 tel: (+202) 3747 2000 fax: (+202) 3570 3632 www.cibeg.com 

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