Commercial International Bank (CIB) Egypt
Annual Report 2017

Plain-text annual report

Your Bank At Your Convenience Annual Report 2017 cibeg.com A BANK TO TRUST TABle of CONTeNTS Milestones CIB: An Introduction Our History What We Do A Snapshot of our Business Key Facts Key Financial Highlights Strategy CIB’s Stock Chairman’s Note Board of Directors’ Report 2017 In Review Institutional Banking Consumer Banking Business Banking Digital Banking and GTS COO Area Financial Control Group Big Data Human Resources Risk Group Compliance Internal Audit Marketing and Corporate Communications CIB Affiliates Sustainability Corporate Governance Management Committee Sustainability Department Community Development CIB Foundation 2017 Corporate Social Responsibility Financial Statements Separate Financial Statements Consolidated Financial Statements 04 10 12 13 14 15 16 18 20 24 28 46 48 54 60 62 70 74 76 79 83 91 93 94 98 102 104 116 120 124 126 134 136 138 194 Timeline of Milestones Timeline of Milestones 1975 1977 1983 • First joint venture bank in Egypt was Chase National Bank • Becomes the first Egyptian bank to introduce an Institutional Banking Risk Rating Model • 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) 1989 • CIB was selected by BSP to become its agent in Egypt • CIB remains the only bank that offers this service to airline passengers 1991 • First Egyptian commercial bank to arrange debt swap transactions • CIB becomes first bank to launch smart card centre in Egypt 1993 • CIB wins Euromoney’s ‘Best Bank in Egypt’ award for six consecutive years until 1998 • 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 million in proceeds, using no under- writers but relying instead on the Bank’s own marketing and placement capabilities for share sales 1994 1996 1997 1998 • First bank in Egypt to connect with the international SWIFT network • First Egyptian bank to have a GDR program on the London Stock Exchange • First Egyptian bank to link to SWIFT via CITA • CIB concludes first and largest Euro-syndicated loan (USD 200 million) • Becomes first private sector bank with investment rating (after Luxor incident) (‘BBB -‘ by Fitch IBCA) • 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 & De- posit Company (MCSD) • First Egyptian bank to form Board of Directors Audit Committee • First Internal Audit Department to be independent • One of the first Egyptian banks to establish a Custody Department • One of the first Egyptian banks to establish a brokerage arm (CIBC) 2000 • First two Certified Bank Auditors (CBA) 4 Annual Report 2017 Annual Report 2017 5 Timeline of Milestones eGP BN 7.5 net profit 2001 • 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 through ATM 2008 • First bank to use Value at Risk (VaR) for trading and banking book for internal risk management requirements, despite there being no regula- tory requirements 2004 2005 2006 • Heya becomes the first credit card on the market to acknowledge women’s financial independence • Only bank in Egypt to be awarded JP Morgan Quality Recognition Award starting 2005 up until 2012 • CIB launches Osoul, its first money market fund in LCY • First bank in Egypt to launch a page on Bloomberg for local debt securities • CIB was the first to adopt a pricing policy according to the client risk rat- ing as a step forward to abide by Basel II requirements • CIB was the first bank in Egypt to execute EGP 200 million repo transac- tion in local market • First and largest Egyptian bank to provide securitisation trustee services 2007 • Only Bank in Egypt chosen by UNIFEM and World Bank to participate in the Gender Equity Model (GEM) • CIB becomes first regional bank to introduce unique concierge and Mas- terCard emergency services 2009 • Only Egyptian bank recognised as ‘Best Bank in Egypt’ by four publica- tions: Euromoney, Global Finance, EMEA Finance, and The Banker in the same year • First Egyptian bank to establish a GTS department • Only bank in Egypt able to retain one of the top two positions in the pri- mary and secondary markets for Treasury Bills and Treasury Bonds • CIB is the first and only local bank in Egypt to begin enforcing Business Continuity Standards • CIB Foundation becomes the first in Egypt to have its annual budget insti- tutionalised as part of its founding institution’s bylaws, as CIB sharehold- ers unanimously agreed to dedicate 1% of Bank’s net annual profit to the Foundation • CIB-TCM becomes the pioneer of trading in almost 114 new and uncon- ventional currencies • CIB becomes the first Egyptian bank to officially establish a Sustainable Development Department 2010 2011 2012 6 Annual Report 2017 Annual Report 2017 7 Timeline of Milestones • First Egyptian bank to receive JP Morgan Elite STP Award • First Egyptian bank to upgrade its ADR to be traded on OTCQX platform • 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 and road map, endorsed and monitored by the BoD • Becomes the first to use RAROC • CIB breaks the record for the highest number of blood donors in a cor- porate office in a single-day campaign in Egypt through the Triple Effect initiative inaugurated by the CIB Foundation • CIB becomes the first bank in Egypt to introduce an interactive multi- media platform that offers customers the option of interacting with Call Centre agents over video calls • First Egyptian bank to sign agreement with Misr for Central Clearing, Depository, & Registry (MCDR) to issue debit cards for investors to collect cash dividends • CIB launches first co-brand credit card, Mileseverywhere, with national carrier EgyptAir • Introduces the first interactive social media platform in the Egyptian banking industry, available 24/7 to handle all customer queries • CIB becomes the first bank in Egypt to sponsor the establishment of in- tensive care units in Sohag through the Foundation, donating EGP 6 mil- lion to outfit the paediatric department at Sohag University Hospital with cutting-edge equipment • The first block trading transaction on the EGX takes place when Actis sells its 6.5% stake in CIB to Fairfax • 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 recognise conduct risk and estab- lish a framework for it, despite the lack of regulatory requirements 2013 2014 2015 • CIB launches its Mobile Banking application, which includes various banking services, and offers clients numerous features to conveniently manage their accounts • CIB becomes the first Egyptian bank recognised as an active member in the globally renowned United Nations Environmental Program - Financial Initiative • CIB wins the Socially Responsible Bank of the Year 2016 award from Afri- can Banker • Recognised for the first time for several awards, including - Best Bank in Egypt Supporting Women Owned and Women Run Busi- nesses by the American Chamber of Commerce in Egypt - Two awards in Achievement in Liquidity Risk and Operational Risk for Middle East & Africa by Asian Banker for 2016 - Best Retail Risk Management Initiative for 2016 Asian Banker for 2016 - Most Active Issuing Bank in Egypt in 2015 by The European Bank for Reconstruction and Development - Middle East Most Effective Recovery 2016 by BCI • Euromoney names CIB the “World’s Best Bank in the Emerging Markets,” making it the first bank in the Middle East and Africa to win this presti- gious award • CIB is the first Egyptian bank to win the “Best Bank in the Middle East” award by Euromoney • CIB is ranked first in the Sustainability Index of the Egyptian Stock Ex- change ‘S&P/EGX ESG’ for the fourth year in a row since 2014. The EGX launched the sustainability index in cooperation with Standard and Poor’s (S&P) and the Egyptian Institute of Directors (EloD) in March 2010. • CIB becomes the only Egyptian bank in the Financial Times Stock Exchange (FTSE) for the second consecutive year under the FTSE4Good Index 2016 2017 8 Annual Report 2017 Annual Report 2017 9 InTroduCTIon InTroduCTIon our History What We do In March 2014, Actis undertook a partial realisa- tion 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, making the latter the sole strategic shareholder in CIB. Fairfax is represented on the board with a non-executive member. Commercial International Bank (CIB) was founded in 1975 as Chase National Bank, a joint venture between Chase Manhattan Bank and the National Bank of Egypt (NBE). In 1987, Chase divested its ownership stake as part of a shift in its international strategy. NBE acquired the stake, adopting the new name Commercial International Bank (CIB). Over time, NBE decreased its participation in CIB, eventually dropping to 19% in 2006, when a consor- tium led by Ripplewood Holdings acquired NBE’s remaining stake. In July 2009, Actis, a Pan-African private equity firm specialising in emerging mar- kets, acquired 50% of the Ripplewood Consortium’s stake. In December 2009, Actis became the single largest shareholder in CIB with a 9.09% stake after Ripplewood sold its remaining share of 4.7% on the open market. The emergence of Actis as the predom- inant shareholder marked a successful transition in the Bank’s strategic partnership. At CIB, we strive to maintain sustainable growth by consistently creating value for all our stakehold- ers. With its dynamic business model and superior technology integrated into its products and ser- vices, CIB continues to provides its clients with innovative financial solutions that satisfy all of their financial needs and facilitate their lives. This allows us to maintain our market leadership and allows us to offer our staff an engaging work envi- ronment while simultaneously generating value for all our shareholders. CIB is Egypt’s leading private sector bank, offering a comprehensive and wide range of financial prod- ucts and services to its clients, who include enter- prises and institutions of all sizes, high-net-worth (HNW) individuals, and retail customers. CIB operates in every segment of the banking sec- tor including corporate, commercial, retail wealth management and SME, all delivered through client-centric teams. The Bank also has two affiliates, namely Falcon Group and CI Capital Holding, with an ownership of 32.5% and 10%, respectively. Falcon Group offers security services, cash in transit, property man- agement, general and technical services, and CI Capital Holding offers asset management, invest- ment banking, brokerage and research services, and financial leasing after it acquired CIB’s stake in CORPLEASE in December 2015. 12 Annual Report 2017 Annual Report 2017 13 InTroduCTIon A Snapshot of our Businesses Key Facts Corporate Banking and Global Customer Relations Group Widely recognised as the preeminent corporate bank in Egypt, CIB aspires to become one of the best banks in the region, serving industry-leading corporate cli- ents, as well as medium-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 syndicat- ed loan teams facilitate market access for large bor- rowers, providing them with world-class services at execution times that far exceed the market average. Treasury and Capital Market Services CIB delivers world-class services in the areas of cash and liquidity management, capital markets, foreign exchange and derivatives. Digital Banking and Global Transactional Services Digital Banking & GTS manages all corporate and consumer online channels from the business side. The vision of the department is to make CIB part of our customers’ daily activities through an out- standing, simple, trusted, enjoyable and advisory digital financial experience that meets customers’ needs anytime, anywhere on any device. Direct Investment As a local player that adheres to widely acclaimed international standards, CIB actively participates in select direct investment opportunities in Egypt and across the region. Consumer Banking The Consumer Banking Division continues to grow and develop within the institution, dedicating ef- forts to improve customer satisfaction through delivering a consistently positive customer experi- ence every time. We offer a wide array 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 actively support this growing market in the coming years within a very competitive, dealer- driven environment. • Deposit Accounts: We offer a wide range of ac- counts that serve all our clients’ deposits and savings needs. These include tailored accounts for minors, youth and senior citizens, as well as certificates of deposit and care accounts. This is in addition to our standard range of current, savings and time-deposit accounts. • Residential Property Finance: Provides loans to finance home purchases, residential con- struction, and refurbishment and finishing. • Credit and Debit Cards: We offer a broad range of credit, debit, and prepaid cards. • Wealth Management: We provide a wide array of investment products and services to the larg- est number of affluent clients in Egypt. • CIB Plus: This division caters to the needs of medium-net-worth individuals, helping them pave the way to becoming Wealth Segment clients, using simplified products, fast-track services, and personalised service offerings through our network of Plus Bankers. • Insurance: CIB’s insurance business provides life and general insurance programs that gener- ate non-interest revenues in the form of fees for the Consumer Banking Division. Business Banking The Business Banking segment serves small and medium-sized enterprises (SMEs), as well as large enterprises with client revenue ranging between EGP 1 million to over EGP 200 million. Authorised capital of EGP 20 billion Completion of LED lighting system bank-wide, with reduction in consumption by 1,840,229 KWs Issued and paid-in capital of EGP 11,618,011 thousand 294,839 Internet Banking users Our 6,551 employees serve some 1,142,550 active customers More than 11 million website visits1 Over 500 of Egypt’s largest corporations bank with CIB Reduced paper consumption by 4.8% or more than 1 million sheets of paper #1 Bank in terms of 2 : ProFITABILITY achieving eGP 7.52 billion in net income rEVEnuE nET WorTH among all egyptian private sector banks with eGP 14.88 billion in total revenues eGP 28.4 billion in net worth, the highest among all egyptian private-sector banks ToTAL ASSETS ToTAL dEPoSITS eGP 295 billion in total assets, the highest among all egyptian private-sector banks eGP 251 billion in total deposits with 7.80% market share, the largest deposit market share3 among all private-sector banks MArKET CAPITALISATIon eGP 94.8 billion, the largest in the egyptian banking sector 4 1- CIB’s official website: www.cibeg.com | 2- Figures on a consolidated basis | 3- As of September 2017 | 4- As of December 2017 14 Annual Report 2017 Annual Report 2017 15 InTroduCTIon Key financial Highlights fY 17 Consolidated fY 16 Consolidated fY 15 Consolidated fY 14 Consolidated fY 13 Consolidated fY 12 Consolidated fY 17 fY 16 fY 15 fY 14 fY 13 fY 12 fY 11 fY 10 fY 09 fY 08 fY 17 Consolidated fY 16 Consolidated fY 15 Consolidated fY 14 Consolidated fY 13 Consolidated fY 12 Consolidated fY 17 fY 16 fY 15 fY 14 fY 13 fY 12 fY 11 fY 10 fY 09 fY 08 5.76 4.56 3.58 3.55 2.67 2.42 2.43 3.00 2.63 4.89 Common Share Information Per Share financial Measures 1.00 0.50 0.75 1.20 1.00 1.25 1.00 1.00 1.50 1.00 Cost : Income 20.75% 21.36% 19.61% 22.84% 23.54% 30.64% 20.34% 21.26% 19.69% 22.91% 22.89% 28.01% 35.26% 33.11% 32.31% 29.89% 24.43 18.44 14.39 16.31 13.46 18.94 15.03 14.59 23.75 19.25 Return on Average Common Equity (ROAE)**** Net Interest Margin (NII/average interest earning assets) 32.45% 34.24% 33.46% 31.31% 29.45% 25.49% 32.71% 34.03% 32.80% 30.25% 24.77% 24.18% 22.23% 30.46% 31.18% 34.98% 4.97% 5.47% 5.74% 5.41% 5.36% 4.74% 3.71% 3.62% 3.81% 3.54% 88.8 73.6 47.4 51.3 45.4 39.8 47.4 79.49 59.7 93.4 Return on Average Assets (ROAA) 2.69% 2.71% 2.95% 2.94% 2.93% 2.51% 2.72% 2.70% 2.90% 2.87% 2.54% 2.47% 2.20% 3.11% 2.97% 3.10% 71.1 30.8 28.9 32.6 27.4 21.1 18.5 33.75 29.5 27.87 Regular Workforce Headcount 6,551 6,714 6,332 5,697 5,490 5,181 6,551 6,422 5,983 5,403 5,193 4,867 4,517 4,360 4,162 3,809 77.4 76.4 38.1 49.2 32.6 34.6 18.7 47.4 54.68 37.2 1161.8 1153.9 1147.1 908.2 900.2 597.2 593.5 590.1 292.5 292.5 89,865 88,155 43,692 44,673 29,330 20,646 11,098 27,973 15,994 10,881 Balance Sheet and off Balance Sheet Information (eGP millions) Cash Resources and Securities (Non. Governmental) 63,684 77,523 34,808 19,328 16,413 16,140 63,673 73,035 34,097 19,430 16,646 16,764 19,821 16,854 16,125 14,473 13.4 16.8 10.6 13.9 12.2 14.3 7.7 15.8 20.8 7.6 1.29% 0.65% 1.97% 2.44% 3.07% 3.62% 5.35% 2.11% 2.74% 2.69% Assets Deposits 294,782 267,544 179,500 143,813 113,752 93,957 294,771 263,852 179,193 143,647 113,752 94,405 85,628 75,093 64,063 57,128 250,723 231,741 155,234 121,975 96,846 78,729 250,767 231,965 155,370 122,245 96,940 78,835 71,574 63,480 54,843 48,938 15.4% 9.7% 18.5% 29.9% 34.4% 33.9% 33.9% 27.6% 24.6% 18.1% Common Shareholders Equity 28,439 21,374 16,535 14,754 11,960 10,765 28,384 21,276 16,512 14,816 12,115 11,311 8,921 8,609 6,946 5,631 3.17 4.14 2.65 3.02 2.42 1.83 1.24 3.25 2.30 1.93 Average Assets 281,163 223,522 161,657 128,783 103,854 89,731 279,312 221,523 161,420 128,700 104,079 90,017 80,361 69,578 60,595 52,396 Net Loans and Acceptances 88,428 85,384 56,836 48,804 41,866 41,877 88,428 86,152 57,211 49,398 41,970 41,877 41,065 35,175 27,443 26,330 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 Capitalisation (EGP millions) Value Measures Price to Earnings Multiple (P/E) Dividend Yield (based on closing share price) Dividend Payout Ratio Market Value to Book Value Ratio financial Results (eGP millions) Net Operating Income*** 14,884 11,315 10,189 7,741 6,700 5,344 15,186 11,370 10,165 7,717 6,206 5,108 3,837 3,727 3,173 3,200 Provision for Credit Losses - Specific Provision for Credit Losses - General Total Provisions 1,742 893 1,682 589 916 610 1,742 893 1,682 589 916 610 321 1,742 893 1,682 589 916 610 1,742 893 1,682 589 916 610 321 6 6 9 9 346 49 395 Average Interest Earning Assets 257,931 203,053 146,033 117,031 94,749 80,063 258,315 203,625 145,835 117,133 94,605 79,834 70,549 61,624 53,431 44,602 Average Common Shareholders Equity Balance Sheet Quality Measures 24,907 18,955 15,645 13,357 11,362 9,738 24,830 18,894 15,664 13,465 11,713 10,116 8,765 7,777 6,288 4,856 Equity to Risk-Weighted Assets**** 15.60% 13.34% 15.76% 15.77% 15.28% 14.88% 15.56% 13.28% 15.74% 15.84% 15.50% 15.69% 14.49% 15.85% 15.34% 13.93% Risk-Weighted Assets (EGP billions) 169 150 96 84 70 65 169 150 96 84 70 65 55 49 41 37 Non Interest Expense 3,113 2,433 2,025 1,705 1,608 1,653 3,113 2,433 2,028 1,705 1,450 1,445 1,337 1,188 1,041 950 Tier 1 Capital Ratio***** 16.20% 12.90% 15.01% 15.70% 15.23% 14.33% 16.20% 12.90% 15.01% 15.70% 15.23% 14.33% 14.15% 15.66% 15.28% 13.74% Net Profits 7,516 6,009 4,729 3,741 3,006 2,226 7,550 5,951 4,641 3,648 2,615 2,203 1,749 2,141 1,784 1,615 Adjusted Capital Adequacy Ratio***** 19.30% 13.97% 16.06% 16.77% 16.32% 15.71% 19.30% 13.97% 16.06% 16.77% 16.32% 15.71% 15.40% 16.92% 16.53% 14.99% * Based on net profit available for distribution (after deducting staff profit share and board bonus) and unadjusted to stock dividends) ** Unadjusted to stock dividends *** 2016, 2015 and 2014 exclude CI Capital profit (discontinued operations) **** Total equity after profit appropriation ***** After profit appropriation, from 2012 to 2017 as per Basel II regulations 16 Annual Report 2017 Annual Report 2017 17 InTroduCTIon Strategy Striving for Excellence is Our Strategy As we adapt to ever-changing market dynamics, CIB has persistently delivered strong performance throughout the years while maintaining a holistic and forward-looking approach. Our strategy and strength lies in our continuous ability to create value for our clients, shareholders and society. Our employees are the mechanism by which the organisation thrives, and we are committed to uncovering and developing the true potential of our human capital while providing opportunities for growth, innovation and enrichment to continue building a high-performance culture. people, strong core values, performance and commit- ment 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 innovative product offerings, superior customer ser- vice, staff development strategies and commitment to sustainability, we will realise our ambitions and help shape the future of banking in Egypt for years to come. Our clients remain at the heart of our organisation. With data analytics continuing to broaden our view of customers’ behaviors and lifestyles, CIB has ex- erted significant effort toward customer centricity in terms of product design and service models. Multiple digital initiatives will pave the way to improved cost efficiency to support financial inclusion and further enhance the customer experience and the satisfac- tion of our retail, SME, and large corporate clients. Our strategy goes hand-in-hand with the wellbeing of society and the environment in which we oper- ate. As the Bank seeks to create value for share- holders and customers, we also work to embed socially and environmentally responsible business practices in our operations. Our Vision To uphold CIB’s distinct reputation as a leading and trusted financial institution in Egypt, respected for its 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 professional ethics in all aspects of our business • Be honest and open at all times • Stand up for one’s convictions and accept re- sponsibility 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 An Outstanding Track Record 34.62% 34.98% 31.18% 30.46% 30.25% 32.76% 24.18% 32.71% 24.18% 24.77% 22.23% 28.81% 26.24% Return on Average Equity (ROAE)* Return on Average Assets (ROAA)* 2.09% 2.37% 2.90% 3.10% 2.97% 3.11% 2.20% 2.47% 2.54% 2.87% 2.90% 2.70% 2.72% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Both after profit appropriation on a standalone basis Client Focus Teamwork • 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 products 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 • We collaborate, listen and share information openly within the CIB family to enhance every staff member’s knowledge base and skill set • 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 Innovation Respect for the Individual • CIB has been a pioneer of the financial services industry since its inception as the first joint venture bank in Egypt 40 years ago, and we believe innovation is a core competitive advan- tage and promote it accordingly • We seek to lead Egypt’s financial services indus- try to the future, with innovation being key to serving the millions of Egyptians who remain unbanked or underserved Hard Work • Our work is governed by discipline and per- severance 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 current goals and anticipate and plan future goals and objectives • 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 to questions and concerns • We firmly believe each individual should have the space to make suggestions and offer con- structive 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, ac- tions and dress code is part and parcel of our culture at CIB 18 Annual Report 2017 Annual Report 2017 19 InTroduCTIon CIB’s Stock Having first offered its shares to the public in 1995, CIB has since become the biggest constituent on the Egyptian Stock Exchange (EGX) and is viewed as the gateway to Egypt. Investors and analysts often view CIB’s stock as a proxy for the Egyptian market, with the Bank acting as a mirror for the local banking sector. The economy’s growth pros- pects are generally depicted in the credit outlook, while retail banking is seen as portraying the longer-term story of financial inclusion. CIB was the first Egyptian bank to offer its shares on international markets with a Global Depository Re- ceipt (GDR) program on the London Stock Exchange (LSE) in 1996. In 2001, CIB was again a first, being the first Egyptian bank to register its shares on New York Stock Exchange (NYSE) in the form of Ameri- can Depository Receipts (ADR) Level 1 program. In 2012, the Bank began trading on OTCQX Interna- tional Premier, a segment of the OTCQX marketplace reserved for world-leading non-US companies listed on a qualified international exchange and providing their home country disclosure to US investors. In 2017, in relation to the listing and admission of the official list and trading on the LSE, CIB increased the number of its allowed GDRs to be issued by an additional 1,000,000,000 GDRs to 1,680,000,000 from 680,000,000. By the end of 2017, CIB’s DR outstanding position was 387,213,140, representing 33.3% of issued shares. CIB has the highest weight (around 34%) in the EGX 30 index. With a free float ratio of 93% (the highest free float on the EGX 30), CIB is one of Egypt’s most liquid stocks and the most valuable financial institu- tion with a market capitalisation of EGP 89.9 billion as of end-December 2017. More to the point, CIB’s market capitalisation surpassed EGP 100 billion in July 2017, which is the highest ever in EGX history and the first time a listed company reaches this mark. As of December 2017, CIB’s institutional shareholder structure was broken-down by region as follows: 5.66% 4.32% 5.85% 11.76% 14.52% 57.88% North America Africa GCC UK & Ireland Continental europe Rest of the World CIB works diligently to increase value for its stake- holders. One way to do so is through the Bank’s active Investor Relations team, which maintains a proactive investor relations program to keep share- holders abreast of developments that could have had an impact on its performance. The Investor Relations team and senior management invest sig- nificant time in one-on-one meetings, road shows, investor conferences, conference calls, and consis- tent stream of disclosures while simultaneously ensuring analysts have the information they need to maintain balanced coverage of the Bank’s shares. During 2017, the Investor Relations team along with senior management took part in 12 local and inter- national investor conferences held in the UK, US, Af- rica and the Gulf, in addition to seven international roadshows and two business trips. In addition to several in-house meetings, the team conducted a total of 275 meetings throughout the year over one-on-one as well as group meetings and met with 459 local and international investment funds and research analysts. CIB hosted several conference calls throughout the year, bringing its senior man- agement together with the investor community in 2017. It also conducted presentations on its operat- ing plan that described its future projections. Regular updates and releases along with the pre- sentations were posted on the Investor Relations website for the convenience of the Bank’s investors from around the world, giving them easy access to all the information they need to make informed investment decisions. As a result of the team’s conscious efforts to boost cor- porate access, in a 2017 study conducted by the Middle East Investor Relations Association (MEIRA) in part- nership with Extel, CIB’s CEO received the “Best IR by CEO in the Middle East”, and a member of the IR team received a nod as the “Best Investor Relations Profes- sional – Egypt”. This is the fourth year running in which CIB has received at least one award from MEIRA. Symbols and Codes egyptian Stock exchange (eGX) SYMBOL: COMI london Stock exchange (lSe) SYMBOL: CBKD oTCQX Int’l Premier (level 1 ADR program) SYMBOL: CIBEY 20 Annual Report 2017 Annual Report 2017 21 InTroduCTIon / CIB’s Stock Equity Analysts’ Ratings CIB is widely covered by leading research houses both locally and internationally. In 2017, eight institutions regularly issued research reports on CIB. As of the end of 2017, 56% analysts held Buy, 31% analysts held Hold and 13% analysts held Sell recommendations on CIB. CIB has become the biggest constituent on the egyptian Stock exchange (eGX) and is viewed as the gateway to egypt. Stock Performance in 2017 CIB Index EGX30 Index Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Key Indicators 93% Free Float 1:1 GDR Convertibility 34% Highest Weight on EGX 30 EGP 10 Par Value EGP BN 89.9 Largest Market Cap EGP 5.76 Earnings per Share 22 Annual Report 2017 Annual Report 2017 23 InTroduCTIon A Note from our Chairman Our ability to adapt and commitment to innovation have driven us throughout the past seven years. Dear Shareholders, If our nation has honed just one skill since 2011, it is our capacity to innovate — to adapt to changing circumstances brought about by a sharp reimagining of what our economic future could look like. Born of revolution, the Sisi administration’s deep economic reform program has involved everything from a radical (and sorely needed) shift in for- eign exchange policy to the phase-out of a subsidy regime that has for decades disproportionately benefitted the wealthy. Today, two things are clear: First, that bold policy decisions, the natu- ral diversity of our economy, and a hard-working business community have seen Egypt emerge as the premier investment destination in the Middle East and Africa. Our competitive advantages rest on the clar- ity of our nation’s pro-business policy and regulatory frameworks, our newfound global export competitiveness, and the sheer size of a 100-million-strong (and growing) consumer market. Second, we will not make good on our potential unless we redouble our commitment to innovation. In our nation’s banking industry, this means continuing to embrace technology across all segments — from back office to front office, from nano-credit to the largest syndicated facilities we extend our corporate clients. Technology will help us bank the unbanked. It will help us create products that make a meaningful difference in the lives of our clients. And it will help us develop sustainable profit streams that accrue to the benefits of our shareholders. A year ago, on this same page, I noted that one of the defining questions for our industry was how we could harness technology to drive financial inclusion and sharply raise a banking penetration rate in a market that remains exceptionally under- banked, regardless of the metric or methodology underpinning the study. In doing so, it is imperative that we move away from backward-looking models and focus on pre- diction by harnessing the power of data analytics. The quality and power of the data banks possess is on par with that held by mobile operators, and it is already changing how we make credit decisions, formulate new products and reach the unbanked. That question has since become high on the minds of policymakers in both government and at our industry’s regulator. In the 12 months since our last annual report, Egypt has created a National Payments Council headed by the Presi- dent of the Republic. Egypt hosted in Sharm El Sheikh the premier global conference on finan- cial inclusion, attended by central bank gover- nors, government officials and senior industry players. Regulations passed by the Central Bank of Egypt in 2018 are set to pave the way for mobile payments in the retail space. The upside potential of this sea of change is why the transformative power of technology has been one of the fundamental building blocks of both our short- and long-term strategies for the past three years as we build the bank of the future. Later this quarter, we will harness the power of data analytics to roll out our first nano-credit product in partnership with a major technology- enabled service provider. Our own mobile wallet is in the pipeline and will allow mobile-to-mobile payments using the domestic clearinghouse. In partnership with the Federation of Egyptian Banks and the regulator, we are moving toward a day when clients will be able to open new ac- counts with little-to-no physical paper. Pilot programs will also allow us to marshal data analytics to do better at everything from client re- tention and satisfaction to marketing and corporate credit decisions. In the last case, we will be taking everything we know about our clients — from inven- tory to receivables, salaries, overdrafts and cash management — and developing predictive models 24 Annual Report 2017 Annual Report 2017 25 InTroduCTIon / Chairman’s Note eGP MN 89.9 market capitalisation as of year-end that will allow us not just to make more informed up-front credit decisions, but to also reach out to clients in the earliest phase of a potential challenge to discuss how we can work together to ensure they are ultimately successful. “Credit is follow-up,” the saying goes. Our mis- sion is to make it about preventive medicine, not postmortems. It is about taking the drudgery out of followup by allowing artificial intelligence en- gines to do what they do best (discern patterns in large data sets and bring them to the attention of human beings) and to allow our credit officers to do not just what they do best, but what they enjoy most: working directly to help clients be success- ful in growing their businesses. In parallel, it is also increasingly obvious that driv- ing financial inclusion will demand a similarly deep commitment to innovation. Will the next successful banking app allow a millennial to order a streaming video? Order a pizza? Order a taxi cab? In an age in which banks are increasingly outside the circle of innovation — when governments can raise funds for a bond issuance by directly tapping subscribers on their mobile phones, as Kenya did last year with its M-Akiba bond — innovation has never been more critical to our industry. That’s why we are very excited to be launching a USD 10 million captive venture capital fund that will look specifically at opportunities in FinTech and related verticals. posted stellar results even as we and our clients grappled with the impact of record inflation, ex- ceptional interest rates, the float of the Egyptian pound and the phase-out of subsidies. Looking ahead, we are cautiously optimistic that 2018 — the second half in particular — will see Egypt’s economy gain momentum. An eventual correction in interest rates will help spur foreign direct investment, improving appetite for greenfields at the same time as it prompts existing businesses to resume borrowing. That cycle, when it begins, will kickstart a long chain of commercial activities that will ultimately benefit CIB as the nation’s leading private-sector bank. Our ability to adapt and commitment to innovation have driven us throughout the past seven years, but the story is more nuanced than that: We would not have preserved — even extended — our market lead- ership if our competitive metabolism wasn’t high. That competitive metabolism is deeply rooted in our organisation, from our strategy to the targets we set and the people who manage the execution phase. I have every confidence that technology will help our outstanding 6,551 staff members raise their com- petitive metabolism and embrace technology as a means of creating new value not just for this institu- tion, but for our valued customers, in the year ahead. It is against this backdrop that I am very pleased to be closing the books on 2017, a year in which we Hisham Ezz Al-Arab Chairman and Managing Director 26 Annual Report 2017 InTroduCTIon Board of directors’ report eGP 5.76 earnings per share In a challenging year marked by high inflation, a tightened monetary policy and a general eco- nomic slowdown, CIB delivered record results and solidified its position as a leader of the Egyp- tian banking industry, posting consolidated net income of EGP 7.52 billion (up 25.07%y-o-y) and revenues of EGP 14.88 billion (a 31.54% rise over the previous year). Anchored in an approach that prioritises sus- tainable, disciplined growth, CIB navigated the turbulent environment of 2017 by calling on its three-pronged strategy of dynamic balance sheet management, investing in technology, and talent enhancement. These pillars allowed CIB to deliv- er on its commitment to create additional value for stakeholders while building a sustainable business model to deliver and maintain growth going forward. The Monetary Policy Committee hiked interest rates by a total of 700 basis points following the currency float in November 2016 in a program that continued to deliver rate hikes into the summer of 2017. The overnight deposit and lending rates were raised to 18.75% and 19.75%, respectively, in July with the CBE’s main operation rate recording 19.25%. As a result, company borrowing slowed drastically at the same time as domestic demand fell, due to inflation. Despite these pressures, consumption remained the primary driver of GDP growth in Egypt, even with a modest rise in investment and net exports, record- ing EGP 3,363 billion for FY2016-17. Egypt’s current account deficit reflected significant improvement as the year progressed, narrowing 65.7% to USD 1.6 bil- lion in 1Q2017-18 from USD 4.8 billion a year earlier, with a surplus of USD 5.1 billion in the balance of payments during the same period. The Macro Outlook 2017 was characterised by high interest rates as the state targeted control of substantial inflation. As a largely import-reliant economy, inflation recorded historically high levels throughout the year. Head- line inflation soared to 30.82% in October, before falling to 26.00% in November on the base effect and then improving slightly 1% m-o-m from 1.1% in October. Annual core inflation fell to 25.54% in November, down from 30.53% in October. Foreign currency (FCY) stability encouraged the CBE to lift restrictions imposed on USD deposits and withdrawals for importers of non-essential goods as remittances improved by nearly 40% to USD 6 billion in 1Q2017-18, and tourism receipts rose to USD 2.7 billion. Reserves stabilised at USD 37.02 billion as at 31 December 2017 — the highest level recorded since 2011. Meanwhile, the Egyptian pound inched down 1% against the US dollar at the end of December to EGP 17.73 versus previously stable levels of EGP 17.60. The year also saw Egypt receive USD 4 billion of the IMF’s USD 12 billion extended fund facility over two tranch- es. In December 2017, the IMF approved disbursal of a third tranche worth USD 2.03 billion expected in June or July 2018. The banking sector remained the backbone of the economy in 2017. The year witnessed steady im- provement in asset quality, with aggregate non- performing loans (NPLs) as a percentage of gross loans recording 5.5% in June 2017, down from 10.5% in FY2011 and 6% in FY2016. System-wide NPLs were almost fully covered by provisions at 99% as of June. Banks were also well-capitalised with a reported system-wide CAR of 14.5% in June 2017, comfortably above the regulatory require- ment of 12.25%. Toward the end of the year, the CBE increased banks’ required reserve ratios to its previous level of 14%, up from the 10% level in place since 2012. The Egyptian Exchange (EGX) performed well in 2017, gaining 22% to close December at 15,019 points. Approximately 46 listed companies in- creased their capital by an aggregate EGP 9.7 bil- lion, up 86% compared to last year. Six IPOs took place in 2017, raising a total of EGP 4 billion and representing an increase of 65% over 2016. In total, the offerings were 31x oversubscribed. CIB expects the momentum of 2017 to continue into 2018 with the exception of minor variances in interest rates and inflation. While the consensus is that interest rates will begin to decline, the pace and sharpness of the anticipated rate cuts remain in question. Inflation is expected to ease, albeit on a non-linear trajectory, due to the increase likely to accompany energy price hikes projected for the summer. To reduce the cost of funding and the bud- get gap, further boost foreign currency reserves, and maintain a healthy mix between local and external debt, Egypt will tap international debt markets, through USD- and EUR-denominated bond offer- ings during the first quarter of 2018. The government’s proactive reform momentum is expected to continue, signalling Egypt is ready to create a welcoming environment for private sector investment. The Zohr field, the largest natural gas field in the Mediterranean, has started production and is projected to lessen Egypt’s import demand for natural gas and consequently reduce the import bill. The discovery enables the Ministry of Petroleum to transform Egypt into a regional energy trade hub. CIB remains cautiously optimistic about the future and believes the investment community will keep a close eye on macroeconomic indicators as well as the path and pace of structural reform. 28 Annual Report 2017 Annual Report 2017 29 InTroduCTIon / BoD Report Against this backdrop, CIB was able to solidify its leading position in the market assisted by it three- pronged strategy of: Dynamic Balance Sheet Management The Bank’s solid performance during the year hinged first on its long-term, preemptive approach to balance-sheet management. In the year ending 31 December 2017, our local currency (LCY) liquidity ratio remained well above the CBE’s 20% require- ment, recording 74.4% as of December 2017, while the FCY ratio stood at 55.5%, above the threshold of 25%. CIB’s net stable funding ratio (NSFR) reached 232.4% for local currency and 152.3% for FCY, while our liquidity coverage ratio (LCR) was 626.6% for lo- cal currency and 377.1% for FCY, comfortably above the requirement of 100% Basel III. Given the high interest rate environment that pre- vailed last year, the Bank managed its asset mix and reengineered its balance sheet to mitigate the impact on earnings and lower capital base volatility, particularly key given that decreased purchasing power hindered borrowing. CIB also lowered its bal- ance sheet duration to minimise the impact of inter- est rate movements on its capital adequacy levels. The Bank continued to reshape its funding mix toward current account and savings account (CASA) deposits, which accounted for 52% of total customer deposits as of 31 December 2017. Deposit growth will remain focused on attracting low-cost, sticky, short-term lo- cal currency deposit and payroll accounts given their direct impact on lowering the overall cost of funds. CIB attracted 4% of all new deposits in the banking system during the year, and will continue with its strategy of maintaining a sustainable liability base supported by stable and cost-effective customer deposits. The Bank maintained a healthy gross loan- to-deposits ratio (LDR) of 40.84% in 2017. CIB continued in 2017 to maintain asset qual- ity through a proven risk-management strategy, advanced systems and the booking of prudent provi- sions. For 2017, the Bank took provisions of EGP 1.7 billion as a buffer against unpredictable market con- ditions, bringing its loan-loss provision balance to EGP 11.0 billion. The year saw the Bank record an NPL ratio of 6.95% and a solid coverage ratio of 154.42%. Management and the Board continue to pursue all available alternatives to ensure a sustainable, comfortable capital base that is less vulnerable to external factors. CIB took on subordinated loans in November 2017 from the European Bank for Reconstruction and Development (EBRD) and International Finance Corporation (IFC) totalling USD 200 million. This funding will serve as a hedge against volatility in currency movements over the next ten years and support future growth plans. The loans further increased the capital adequacy ratio from 16.95% (prior to the sub-debt, which is comfortably above Basel guidelines) to 19.10% (considering the total effect of both loans), ending 2017 with CAR of 19.30%. CIB was able to deliver steady consistent return on average equity (ROAE) above 30%, ending 2017 with an ROAE of 32.5% (after profit appropriation based on the suggested profit appropriation schedule). The Bank also has one of the lowest cost-to-income ratios in the Egyptian banking system at 20.8% as of December 2017, guided by management’s effort to keep the cost-to-income ratio within the 30%-35% range stipulated by the Board. Investing in Technology In line with the Bank’s customer-centric culture, CIB invested heavily throughout the year in tech- nological advancements to improve the customer experience and streamline operations. 30 Annual Report 2017 InTroduCTIon / BoD Report 20.75% cost-to-income ratio Over the course of 2017, CIB focused on scaling up its infrastructure base to keep pace with ever-changing industry dynamics through projects that automated operations and processes. A key component of this strategy was the Bank’s ongoing focus on the impor- tance of data analytics and the role it plays in both long-term growth and short-term decision-making. Today, CIB has the necessary systems to process, interpret, organise and structure facts and figures into useful information that helps management and the Board make better informed decisions. In 2017, the Bank’s Big Data team embarked on the following projects: • Customer analytics: The team proposed a fully customised behavioural segmentation that makes use of customer data to provide targeted products and services. • Next Best Action (NBA) Model: This aimed to develop product offerings based on estimated appeal to customers according to their portfolio. journey simulator: Using data analytics, the team simulated a customer’s teller transaction journey to optimise processes. • Customer • Call centre optimisation: To provide efficient services to customers, the team used operations research to streamline the Call Centre experience. • Anomaly Detection Model: In cooperation with the Compliance Department, the team de- veloped a model to identify risk and fraud with an accuracy level of over 90%. It has cut down manual fraud detection time by at least 50%. • Distributed Ledger Technology (also known as Blockchain): CIB collaborated extensively with EMC2 on a research paper centred on Block- chain to adapt to the market’s new realities. It helped identify possible uses such as operation- al simplification, regulatory efficiency improve- ment, and liquidity and capital enhancement. • R3: The Bank joined this global alliance of over 80 institutions committed to delivering the next generation of financial infrastructure. Mem- bers collaborate on research, experimentation, design and engineering to help advance state- of-the-art, enterprise-scale ledger solutions to meet banking requirements for security, reli- ability, performance, scalability and audit. Talent Enhancement CIB strongly believes that employees are the Bank’s most important asset. The Bank accordingly makes every effort to provide its staff with the tools neces- sary to enable them to reach their full potential. In 2017, a total of 6,567 employees (98% of staff) at- tended 679 training courses covering a wide range of both technical and soft skills. Staff also benefited from leadership training pro- grams and modules including the Frankfurt School Leadership Track, which hosted two rounds of its Transformational Leadership for 145 delegates. A three-month MADP program took place allowing junior hires to receive training sessions covering vari- ous bank areas. Additionally, 50 key staff members at the managerial level attended the CIB Lead Program. 2017 Financial Position CIB reported another exceptional set of results, with consolidated net income up 25.07% y-o-y at EGP 7.52 billion for FY2017. Standalone net income reached EGP 7.55 billion, 26.88% over 2016. Standalone revenues grew 33.56% over the previous year to EGP 15.19 billion. The Bank recorded net interest income of EGP 12.50 bil- lion, an increase of 24.82% y-o-y. Non-interest income recorded EGP 2.38 billion for the full year. Net fees and commissions income stood at EGP 2.05 billion. All financial indicators emphasised the Bank’s strong financial performance in 2017. CIB maintained its ef- ficiency during the year, with cost-to-income ratio at 20.75% compared to 21.36% in 2016. The Bank’s ROAE recorded 32.45% on a consolidated basis (post-appro- priation), down from 34.24% in 2016, driven mainly by the increase in the minimum regulatory capital requirements. Consolidated ROAA recorded 2.69% for 2017 vs. 2.71% in 2016. The Bank recorded a net interest margin of 4.97% as of year-end 2017 down from 5.47% a year earlier, mainly on the devaluation impact. The Bank’s loan portfolio stood at EGP 102.4 billion at year’s end, growing 5.06% or EGP 4.93 billion y-o-y. 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 7.15% in September 2017. CIB aggressively pursued deposit growth in 2017, adding EGP 18.98 billion to its base, which grew to EGP 250.7 billion, an increase of 8.19% over 2016. CIB’s share of the deposits market reached 7.80% in September 2017. The Bank ended the year with a buoyant balance sheet and capital base, which is reflected in its comfortable capital adequacy level of 19.30%, well exceeding CBE stipulated ratios and enhancing the Bank’s ability to face uncertain economic circum- stances, should any arise. CIB continued achieving strong growth in net interest income, fees and commissions and the balance sheet. Relative to its peer group, CIB main- tained its leading position in terms of profitability and balance sheet size. Overall, CIB’s strong finan- cial performance in 2017 exceeded P&L targets. Appropriation of Income The Board of Directors proposed the distribution of a dividend per share of EGP 1. In addition, CIB is increas- ing its legal reserve by EGP 377 million to EGP 1,710 million and its general reserve by EGP 3,617 million to EGP 12,617 million, thus reinforcing the Bank’s solid financial position, as evidenced by a capital adequacy ratio of 19.30%.The proposed dividend distribution comes in line with the Bank’s strategy of maintaining a healthy capital structure to address more stringent regulations, mitigate associated risks as well as facili- tate and support the Bank’s future growth plans. 2017 Operational Highlights Institutional Banking Institutional Banking (IB) continues to be the pri- mary contributor to CIB’s bottom line, generating almost 75% of the Bank’s profits. IB’s net income before tax increased 102% over the year to EGP 7.2 billion in 2017, mainly on higher net interest income, foreign exchange gains, strong trade services and controlled expense growth. The group’s performance in a challenging year was characterised by its unwavering commitment to exceeding its corporate clients’ expectations, while ex- ecuting a prudent growth strategy. The group explored new, potentially lucrative segments at the same time as preserving a superior-quality loan portfolio aided by the Bank’s disciplined and proactive risk framework. The Treasury Group — another top profit centre for the Bank — offered a wide range of products across geographies, capabilities and distribu- tion channels. Among its responsibilities are FX, money market and fixed income trading activities, primary and secondary government debt trading, management of interest rate gaps and hedging, pricing of local and foreign currency deposits, and pricing of preferential deposits. The Assets and Liability Management team effec- tively forecasted the market, maintaining liquid- ity ratios well above regulatory requirements, thereby increasing profitability and expanding net interest margins (NIMs). 32 Annual Report 2017 Annual Report 2017 33 InTroduCTIon / BoD Report Consumer and Business Banking In 2017, Consumer and Business Banking focused on developing customer-centric products as it worked to expand its customer base. The Bank enhanced customer convenience by bolstering its technologi- cal infrastructure to offer clients faster and easier access to products and services online and through other digital channels. This approach led to an accelerated growth in ATMs, with 135 installed during 2017 for a total of 819 across Egypt. Consumer Banking also leveraged the Bank’s investment in data analytics, automating key customer processes and aligning products to CIB’s key value segments, all in pursuit of continued sustainable growth. In tandem, CIB continued to expand its branch network to reach customers who still prefer traditional channels, opening eight new branches in 2017 for a total of 196. On the new product front in 2017, Consumer Bank- ing launched a Wedding Finance Loan, which offers flexible financing schemes as well as discounted of- fers from wedding-related merchants. On the liability side, Consumer and Business Bank- ing deposits reached EGP 198 billion in December 2017, an impressive 15% y-o-y increase with the focus during 2017 being the household segment and short-term products. In line with Egypt’s push to support Small and Medium Enterprises (SMEs) CIB’s Business Banking division worked to design innovative solutions that best suit clients of all sizes and from a variety of industries. CIB believes this sector has enormous growth prospects if handled in the right fashion. The division developed attractive products for targeted segments that ranged from highly standardised small-ticket loans with rapid disbursement to fully customised offerings for large clients. The team also sought to develop a closer relationship with its SME clients by enhancing the capabilities of its sales team through in-house training sessions. These and other efforts directly contributed to the strong financial performance of Business Bank- ing in 2017, with deposits growing 10% to EGP 59 bil- lion by year-end, representing 24% of CIB’s deposits. Operations and Information Technology CIB again delivered in 2017 on its commitment to invest in state-of-the-art technology, seamless pro- cessing capability, profound infrastructure security, and proper business continuity management cover- ing cyber and information security. During 2017, the COO Area continued to ensure the Bank was responsive to dynamic market changes, focusing on milestones under CIB’s Security Strat- egy to enhance the security environment. The Op- erations Group implemented several automation and process reengineering initiatives, upgrading process speed and quality and reducing turnaround time. In tandem, the Bank is undergoing a gradual shift toward digitalisation, which will relieve the burden on branches and the Call Centre. A specialised branch model serving corporate customers was also adopted this year, with three branches currently operating and additional loca- tions in progress. Other migration initiatives intro- duced included accepting tuition fees over ATMs to offload the branch network and several enhance- ments applied to the IVR call tree to offload Call Centre agents. CIB also began to allow customers to activate their cards through text message, which has reduced the Call Centre workload by approxi- mately 40%. Also last year, CIB launched its Mobile Banking App to facilitate engagement, providing customers with access to their accounts 24/7. The Bank’s solid commitment to sustainability was reflected this past year in its paperless branch 34 Annual Report 2017 InTroduCTIon / BoD Report initiative, which launched as a pilot program in select branches. The group automated custody statements and improved the customer experi- ence by providing one automated statement for all custody products. CIB was the first bank in Egypt to implement Zero Data Loss Recovery capabilities for many core data- bases as part of the Continuous Data Protection Ini- tiative. The Group continues to examine the Bank’s capabilities by running live drills of its services and systems from alternate sites so as not to impact cus- tomers in the event of a disruptive situation. The COO Area also focused on human development during 2017 by increasing staff knowledge through tailored technical and soft skill training programs locally and overseas. A new recognition program was launched in 2017 — the CIB Star Award — an award to recognise excellence in delivering ‘Cus- tomer Experience Excellence.’ The award specifi- cally acknowledges staff who exemplify a customer- centric approach in their work and demonstrate a passion to exceed customers’ expectations. CIB also prides itself on having become the first bank in Egypt to acquire the GPRS Green Certificate, which was awarded to the Smart Village 3 Building. The Bank is expanding its footprint in Smart Village through a fourth building (currently in the fit-out phase) and establishing/operating a state-of-the-art printing centre in the business district. Security and Business Continuity Management As information proves increasingly valuable, so rises the importance of protecting it, particularly with respect to banks, which possess a high volume of sensitive information on their stakeholders. In 2017, CIB established a Security Operations Cen- tre (SOC) — the first of its kind in-house SOC in the Egyptian financial sector. According to an assess- ment by an international consultant, the Bank’s SOC achieved a much higher maturity level than planned in comparison to other financial institutions in the MENA region. It contributed significantly to the Bank’s capability to detect and respond to security- related incidents, improve auditing and logging capabilities for critical applications, and manage brand protection and phishing attempts. The Bank also began the implementation of a Swift Security Program (CSP) to fulfil mandatory com- pliance requirements to ensure that international standards are met. CIB has completed the automation of its Business Con- tinuity Planning lifecycle by putting in place a new plat- form improving the efficiency of managing disruptions. CIB’s efforts on this front were recognised by the business continuity industry, with the Bank being shortlisted for the 12th time for the Global Award in Business Continuity from the UK-based CIR magazine. Offloading Stake in Subsidiaries As part of CIB’s strategy to consolidate its activi- ties into its core banking services, CIB progressive- ly divested the majority of its stake in CI Capital Holding (CI Capital). In a transaction valued at EGP 710 million, CIB transferred 74.75% of its shares in the company to non-related Egyptian and Gulf investors in March 2017. Another partial sale of 9.99% took place in early July, generating proceeds of EGP 101 million. Later that month, CIB transferred another 3.45% in a transaction worth EGP 45 million. The Bank now retains a minority stake of 10% in CI Capital. International Expansion In its strategic efforts to expand its business and operations through commercial banking activities, CIB is exploring opportunities in Sub-Saharan Af- rica given the fundamental similarities the region shares with Egypt. In 2017, management received Board approval on the proposed expansion, and has been mandated to study potential options. The continent is home to a number of successful ventures that target financial inclusion, which is where banking opportunities lie. Africa is also at- tractive at this stage due to the strengthening in interregional trade between and within regional blocs, such as the Common Market for Eastern and Southern Africa (COMESA), East African Commu- nity (EAC), Southern African Development Com- munity (SADC) and the Economic Community of West African States (ECOWAS). Awards and Recognition The Bank’s solid financial performance and mul- tiple accomplishments continued to earn recog- nition from reputable regional and international organisations. In 2017, CIB became the first bank in the MENA region to be named the World’s Best Bank in Emerging Markets by Euromoney. Other awards earned during the year include: • Best Trade Finance Provider in Egypt by Global Finance • Best Treasury & Cash Management Providers in Egypt by Global Finance • Best Foreign Exchange Provider in Egypt by Global Finance • Best Bank in Egypt 2017 by Global Finance • Best Bank in Egypt by Euromoney • Best Securities Services Providers in Egypt by Global Finance • Best Cash Management Services in North Af- rica by EMEA Finance • Best FX Services in North Africa by EMEA Finance • Best Local Bank in Egypt by EMEA Finance • Most Innovative Bank – Pan Africa by EMEA Finance • Achievement in Enterprise Risk Management in the Middle East and Africa • Achievement in Liquidity Risk Management in the Middle East and Africa 2018 Business Outlook CIB plans to pursue its business strategy focused on asset quality and profitability, both of which remain top priorities for management as the Bank remains committed to prudent, sustainable and profitable growth that creates value for shareholders. As part of this strategy, the Bank will utilise de- tailed and accurate information of its customers provided by the Big Data team to make more in- formed decisions that meet their needs. IT systems will also continue to play a crucial role for CIB in the coming period a to help boost cus- tomer satisfaction as it continues to position itself as one of the most convenience-centric banks. With regard to the operating environment, the Bank expects loan demand in 2018 to remain bi- ased toward short-term working capital facilities in local currency until purchasing power returns to pre-floatation levels. As purchasing power strengthens, companies will call on their utilisa- tion capacities as they explore opportunities for capital expenditure to address renewed demand. Regardless of the operating environment, as always, CIB will remain committed to its clients and con- tinue to support their growth strategies. Concrete Commitment to Sustainability CIB has long understood the importance of build- ing a sustainable organisation that creates last- ing value for — and imprints a profound, positive impact on — the environment, community, share- holders and stakeholders. 36 Annual Report 2017 Annual Report 2017 37 InTroduCTIon / BoD Report CIB’s sustainability journey is closely aligned with the 2030 Global Sustainable Development agenda, its 17 Sustainable Development Goals (SDGs), and the 169 targets. It is also in line with Egypt’s 2030 Sustainable Development Agenda, aspiring to ad- vance a sustainable and climate-resilient future. The main aspects of CIB’s focus on sustainable banking lie in the following areas: Being Ecologically Responsible During 2017, the Bank completed its LED lighting program Bank-wide, reducing consumption by more than 1.8 million KWs in 87 branches. The Bank also reduced its paper consumption by 4.8% through modified applications of double-sided printing/copying, among others. Moreover, CIB implemented the Paper Waste for Cash program to sell paper waste to recycling startups, with proceeds of more than EGP 200,000 credited to a sustainability account starting February 2017. The Bank also enlisted Egyptian entrepreneurs to develop a tailored carpooling application for mo- bile devices called Raye7 CIB, which encouraged staff members to carpool. Being Socially Responsible The Bank is committed to CSR through its dedica- tion to various cultural, sport, and (in particular) art initiatives. During 2017, CIB took part in the fol- lowing activities: • CIB acquired student art pieces displayed at the exhibitions of faculties of Fine Arts at Alexan- dria University and South Valley University. • The Bank sponsored the Annual Egyptian Youth Salon for the seventh consecutive year in col- laboration with the Fine Arts Division at the Ministry of Culture. • CIB contributed to the renovation of Aisha Fah- my Palace as part of the Ministry of Culture’s Fine Arts Department project to reinstate the palace as a complex for art and culture. • The Bank sponsored Egyptian artists at the 57th edition of La Biennale Venezia, one of the world’s most prestigious arts and culture institutes, which organises an annual exhibi- tion of the same name. • CIB was one of the main sponsors of the Night of Art at the Egyptian Museum, the inaugural event of the Eternal Light ‘Something Old, Something New’ show — the first in a series of art shows that combines Egypt’s varied heritage sites with contemporary Egyptian art. • The Bank was the main sponsor of Egypt’s ‘100% Egyptian Cotton’ exhibition featuring the country’s best emerging designers in the International Fashion Showcase (IFS) 2017 as part of London Fashion Week. The Bank’s CSR agenda in 2017 included the follow- ing activities: • The Bank organised six trips to KidZania in 2017 for more than 150 underprivileged children and those with special needs and health conditions. • The Bank maintained its sponsorship of the annual ceremony held by the ADVANCE Society for Persons with Autism and Other Disabilities and sponsored 2017 World Autism Awareness Day in Egypt. • CIB sponsored the screening of two movies at Zawya with live audio description for more than 150 visually impaired children. • CIB began diversifying its contribution to El Sawy Culture Wheel activities by launching free semi- nars to help participants create a CV and prepare for interviews. It also continued its sponsorship of special screenings of documentary films, cultural nights, concerts and art exhibitions. • For the second year, CIB was the main partner and financial sponsor of Beena, a protocol signed between the Bank and the Ministry of Social Solidarity to encourage active youth par- ticipation in the community and monitor the development of social care services. • CIB maintained its sponsorship of the Egyptian Squash Federation for the sixth year running. In 2017, the Bank reached out to less fortunate children through a second phase of the Squash for Everyone initiative in partnership with the Egyptian Squash National Teams Director and Technical Advisor Amr Shabana. • CIB sponsored the ‘Your Space’ project, launched by Egyptian adventurer Omar Samra, that encourages school and university students to explore space sciences. • The Bank agreed to sponsor an incubator project with a total cost of EGP 140 million, in addition to allocating EGP 10 million targeted to fighting hepatitis C during 2018. Advocating for the Social and Environmental Role of Financial Institutions Following the implementation of the Social and Envi- ronmental Credit Policy Guide, it became important to join international platforms advocating a social and environmental role for financial institutions. CIB is currently the only Egyptian bank to partner with the United Nations Environment/Financial Institutions (UNE/FI) and endorse their FI State- ment on Energy Efficiency. The UNE is considered the global voice and conscience of the environ- ment, placing CIB at the centre of the world stage through this collaboration. For the second consecutive year, CIB was the only bank in the MENA region to participate in the as- sessment exercise of the Dow Jones Sustainability Index 2017. The Bank’s score in 2017 corresponded with 2016, with CIB ranking in the 40th percentile among financial institutions. For the second time in a row, CIB was recognised as a constituent in the FTSE4Good Sustainabil- ity Index sponsored by the Financial Times. For the fourth successive year, CIB was ranked first in the EGX Sustainability Index. 2017 also saw the bank publicly issue its internation- ally acclaimed Annual Sustainability Report, which covers all the Bank’s sustainability initiatives. It fol- lows the GRI G4 guidelines and was released on the Bank’s website and social media channels. Commitment to Corporate Governance Best Practices, Ethics and Corporate Values Being an essential factor to achieving and maintain- ing public trust, effective corporate governance prac- tices rates high on CIB’s priority list. The Bank has had long-standing commitment to promoting sound corporate governance practices across the organisa- tion and has consistently enhanced its corporate gov- ernance frameworks. Accordingly, CIB conforms to relevant regulatory requirements and duly considers international best practices in corporate governance. Our corporate governance policies are key to managing the Bank effectively and achieving its strategic goals for sustainable banking. This strategy is founded on: • Responsibility and meritocracy, which is the centre of delegation of authority; • Accountability in the relationships between management and the Board and between the Board and all stakeholders; • Effective disclosure and transparency initia- tives that allow stakeholders to assess the Bank’s financial performance and position; and • Fairness in the treatment of all stakeholders. CIB’s overall corporate governance framework is aligned with the interests of shareholders and 38 Annual Report 2017 Annual Report 2017 39 InTroduCTIon / BoD Report managers. It also allows for the effective monitoring and management of the business through the dis- semination of information and transparent report- ing. The Bank’s governance framework is directed by internal policies and regulations that cover a wide range of business and fiduciary aspects includ- ing risk management, compliance, audit, remunera- tion, evaluation, succession planning, ethics and conduct, budgeting and capital management. Clear and segregated reporting lines in different areas of the Bank, along with a continuous chain of supervision and communication channels for the Board’s guidance and strategy, are vital components of the Bank’s governance structure to highlight any potential conflict of interest. The Board approves the Bank’s strategic goals, as well as oversees the man- agement of the Bank, while the day-to-day operations are the responsibility of Senior Management. In line with CBE directives on corporate governance as well as international best practices, CIB’s Board appointed Mr. Hussein Abaza as the Bank’s CEO and Executive Board Member to manage the Bank’s busi- ness lines and day-to-day operations. This allows the Chairman and Managing Director, Mr. Hisham Ezz Al-Arab, to focus on the strategic direction of the Bank. The Managing Director is responsible for ensuring adequate and effective governance through managing the independent control functions: risk, compliance, audit and legal. The Managing Director, CEO along with the management team bring decades of experi- ence and thought leadership that guide CIB’s direction and execution of the strategies set by the Board. The Board has specialised committees, both ex- ecutive and non-executive, tasked with assisting the Board in decision-making. The committees consti- tute key elements of the governance framework and are governed by well-defined charters. The Board’s non-executive committees are: • Audit • Corporate Governance and Nomination • Risk • Compensation • Operations and IT Executive committees are: • Management • High Lending and Investment • Affiliates In March 2017, the General Assembly appointed CIB’s Board of Directors for its 2017-2019 term, with the following executive members: Mr. Amin Hisham Ezz Al Arab (Chairman and Managing Director), Mr. Hussein Abaza (CEO and Board member), and the non-executive members: Mr. Jawaid Ahmed Mirza, Dr. Sherif Hussein Kamel, Mr. Yasser Zaki Hashem, Mr. Mark William Rich- ards, and Mr. Bijan Khosrowshahi. In December 2017, CIB’s Board of Directors wel- comed two non-executive members, HE Dr. Amani Abou-Zeid and Mrs. Magda Habib, who adds to the Board’s existing skillset. This expands CIB’s Board to nine directors, seven of whom are non-executives, with one representing Fairfax’s interest in CIB. Five of the non-executive members are independent, conforming to the international best practices of corporate governance. The Board will advise the General Assembly with the effected changes at its upcoming meeting. CIB’s Board met six times in 2017, during which, with the assistance of its committees, it effectively fulfilled its main responsibility of exerting the req- uisite oversight over the Bank. The Board ensured that CIB’s activities are run in a manner that meets the highest ethical and fiduciary standards. Long- term value for shareholders is enhanced through: • Approving the Bank’s business and risk strategy as well as major policy decisions; • Assuring the long-term interests of sharehold- ers are advanced responsibly as well as guar- anteeing the disclosure of reliable and timely information to shareholders; • Evaluating, compensating and ensuring that there is proper succession for key manage- ment roles; and • Developing and monitoring the Bank’s internal audit and risk management policies and strategies. The Board of Directors continued to enhance the comprehensiveness of the Bank’s corporate gover- nance framework, especially in the areas of risk and compliance. The Board sets the risk policies and the risk appetite and constantly monitors the Bank’s risk profile against said appetite through the Risk Group. The Board took concrete steps in its Enterprise Risk Management (ERM) frame- work, which is characterised by its uniqueness among local and regional peers. ERM adopts an integrated and forward-looking risk approach combined with dynamic risk culture, robust data governance and an adaptable technology platform while being aligned with both business and risk strate- gies and governed by a robust Risk Appetite Frame- work. ERM uses risk oversight, control and governance to efficiently utilise existing risk management capabili- ties and help improve the operating environment and reduce operational surprises and thus mitigate risks. With the objective of continuously improving com- pliance measures as a key element of the Bank’s control framework, several channels for staff issues, code of conduct and petitions have been introduced and announced to employees. The Staff Issues Committee was initiated in 2011 as a communication channel for employees to express 24.43eGP book value as of fY2017 their queries, complaints and any work-related issues to an unbiased body. The committee’s role extends from dealing and solving staff complaints to setting recommendations to enhance the work environment and processes as well as ensuring an engaging work- place. In 2017, 16 cases were presented to the Staff Issues Committee. These cases included performance disagreements, violation to the code of conduct, work- ing environment issues, misuse of authority and termi- nation of contracts. The issues raised to the committee have been thoroughly investigated and analysed where fair, sound decisions have been taken, and all cases have since been resolved. CIB Foundation Since its establishment in 2010, the CIB Foundation has strived to ease the burden on families in need of affordable healthcare services. The CIB Foundation is committed to enhancing the quality of services in its partnership with institutions to provide the best possible care for the country’s younger citizens. During 2017, the Foundation’s activities and initia- tives included the following: • Over the course of 2017, the CIB Foundation donated over EGP 20.6 million to cover the second and third tranches of the Gozour Foun- dation for Development’s project to fund 264 40 Annual Report 2017 Annual Report 2017 41 InTroduCTIon / BoD Report eGP BN 12.50 net interest income eye exam caravans, providing 158,400 disad- vantaged students enrolled at public schools in poor rural and urban areas with free eye care services. The CIB Foundation allocated EGP 50.5 million over three years to fund caravans in Sohag, Qena, Luxor and Aswan through the 6/6 Eye Exam Caravan Program. • In April 2016, the CIB Foundation’s Board of Trustees approved an EGP 1.5 million partnership with the Sawiris Foundation and Star Care Foun- dation to implement comprehensive community development projects in Sohag, Assiut and Qena. In 2017, the CIB Foundation donated over EGP 1.3 million to cover training for the medical staff and outfitting the community health centres. • In June 2017, the CIB Foundation’s Board of Trustees agreed to purchase equipment and supplies for the Children’s Hospital - Ain Shams University Hospital for a total of EGP 3.53 mil- lion over one year. In 2017, the CIB Foundation donated over EGP 2.9 million to cover the first instalment for the project. • In October 2017, the CIB Foundation fulfilled its commitment to outfit the Neonatal Intensive Care Unit and the Paediatric Intensive Care Unit at Raei Misr Hospital for a total of EGP 6.96 million over one year. • In June 2017, the CIB Foundation’s Board of Trustees approved supporting the fourth phase of the Rotary Club of Kasr El Nil’s Children’s Right to Sight program. The cost is EGP 2 mil- lion over one year to fund around 500 critical eye surgeries for underprivileged children. In 2017, the CIB Foundation donated around EGP 1.8 million to cover 543 surgeries. • The CIB Foundation provided the Children’s Cancer Hospital 57357 with another PET CT scanner in July 2017 similar to the one do- nated in 2016. At a cost of EGP 26.9 million, the highly specialised equipment will allow doctors to identify cancerous cells and plan for removal during operations. The Founda- tion also donated EGP 3.5 million in January 2017 to fund patient care in both the Cairo and Tanta branches of the hospital. • In 2017, the CIB Foundation donated over EGP 6.2 million to cover the outfitting costs of two re- search labs in Magdi Yacoub Heart Foundation’s Aswan Heart Center as part of its three-year commitment to cover a total cost EGP 15 million. • In July 2016, the CIB Foundation allocated EGP 4.5 million to the Magdi Yacoub Heart Foundation to cover the cost of 50 paediatric open-heart surgeries. In March 2017, the CIB Foundation donated EGP 2.25 million, covering the second and final tranche of the project. • The year saw the CIB Foundation donating EGP 6 million for the final instalments of the Yahiya Arafa Children’s Charity Foundation’s project to build a paediatric catheter lab at the Ain Shams University Hospital. In January, the CIB Foun- dation fulfilled its commitment to support the annual operating costs of five paediatric units at the Ain Shams University Hospital through the Yahiya Arafa Children’s Charity Foundation at a cost of EGP 2 million. • In March 2017, the CIB Foundation allocated EGP 1.75 million for 50 paediatric open-heart surgeries at El Kasr El Aini Hospital to de- crease the number of children on the open- heart surgery waiting list. • The CIB Foundation fulfilled its commitment to cover the tuition expenses of its 50 CIB Founda- tion Fellows for a five-year academic course of study at Zewail University of Science and Tech- nology. Over 2017, the CIB Foundation disbursed the third year (2015/2016) and the fifth year (2017/2018) tuition fees, totalling EGP 10 million. • In June 2015, the CIB Foundation committed EGP 2 million to the MOVE Foundation for 4.97% net interest margin of 400 children infected with hepatitis C virus under the management of the National Hepatol- ogy & Tropical Medicine Research Institute at a cost of EGP 4.1 million over one year. • The CIB Foundation dedicated over EGP 5.5 million to fund the Egyptian Liver Care Soci- ety’s Children Without Virus C through ‘C-Free Child’ program, which is the only program of its kind in Egypt, screening and treating children with hepatitis C for free. • In May 2017, the CIB Foundation hosted 15 blood donation campaigns across its corporate offices. Over 438 bags of blood were collected in 2017, potentially saving the lives of more than 1,314 people. The Foundation was honoured at the World Blood Donation Day celebration at the League of Arab States for its efforts in or- ganising campaigns. Children with cerebral palsy to renovate their premises, allowing them to expand their op- erations. In 2017, the CIB Foundation donated over EGP 163,000 to cover the complete reno- vation of the premises, as well as the purchas- ing of essential equipment. • In September 2015, the CIB Foundation’s Board of Trustees approved funding the annual op- erating costs of the CIB Foundation-funded Maxillo-Facial Centre at Cairo University’s Faculty of Dentistry with a total amount of EGP 45,100. In July 2017, the CIB Foundation donated over EGP 22,500 to cover the final instalment of the operating costs. • In September 2016, the CIB Foundation’s Board of Trustees approved funding the purchase of an outfitted mobile dental caravan for the Faculty of Oral and Dental Medicine at Cairo University under management of Rotary Club of Zamalek. The total cost is EGP 640,000, and the caravan will be used by the Faculty to perform necessary dental treatment to school students in remote areas of the Cairo and Giza governorates free of charge. In September 2017, the CIB Foundation donated EGP 480,000 to cover the final instalment for the project. • CIB Foundation’s Board of Trustees approved in March 2017 to support Cochlear Implants Sur- geries for 100 children with hearing disabilities. The Foundation allocated EGP 2.9 million and donated over EGP 167,000 in November 2017 to cover the first instalment of the project. • In February 2017, the CIB Foundation sup- ported the annual operating costs for the previ- ously funded Intensive Care Unit (ICU) at Abou El Rish El Mounira Children’s Hospital through Friends of Abu El Rish Children’s Hospitals Or- ganisation at a cost of EGP 2 million. • In November 2017, the CIB Foundation’s Board of Trustees approved funding the treatment 42 Annual Report 2017 Annual Report 2017 43 InTroduCTIon / BoD Report 2017 Performance Measures Results 2017 Performance Measures Results FINANCIAL • Maximise shareholders’ equity and deliver above-peer-average total shareholder return • Grow earnings per share (EPS) • Deliver above-peer-average return on risk- weighted assets • Focus on capital, to cushion the Bank against any unforeseen external shocks • ROAE of 32.5% (after profit appropriation) • 27% EPS growth • Total tier capital recorded 19.3% of risk-weighted assets EMPLOYEE • Improve employee engagement score y-o-y • Enhance the employee experience by: 1. Listening to employees 2. Providing a healthy, safe and flexible work environment 3. Providing competitive pay, benefits and performance-based compensation 4. Investing in training and development • CIB had an average of 6,475 employees in 2017 with an average an- nual income of EGP 172,500 per employee • CIB implements an Employee Stock Ownership Plan (ESOP) as part of its compensation strategy aimed at attracting, motivat- ing, retraining and rewarding outstanding employees, managers and Executive Board Members. The ESOP allows designated em- ployees to own CIB stocks at its face value via “Promise to Sell” agreements. CIB allocates 1% of its issued and paid in capital to ESOP. During 2017, CIB allocated a total of 7,935,100 stocks to a total of 3,871 employees. Since the inception of the program in 2006, and its renewal in 2015, the Bank has allocated 75,460,093 shares to its employees (taking into consideration capital in- creases throughout said period). BUSINESS OPERATIONS • Grow revenue faster than expenses • Identify market gaps and attain first-mover advantage by laying the groundwork ahead of peers to allow the Bank to benefit from rising opportunities • Cost-to-income ratio of 20.8% • Consumer banking net income rose 57% y-o-y to reach EGP 3.3 billion and gathered fresh EGP 27.8 billion and USD 258 million in deposits, aided by the launch of tailored new products for the household segment • Institutional banking net income before tax rose 102% over last year to reach EGP 7.2 billion, mainly on higher net interest income, foreign exchange gains, strong trade services perfor- mance and controlled expense growth COMMUNITY • Donate 1.5% of the Bank’s net annual profit through the CIB Foundation • Make positive contributions by: 1. Supporting employees’ community involve- ment and fund-raising efforts 2. Supporting advances in its areas of focus, which include education, arts, culture, health and protecting and preserving the environment • Please refer to the CSR section for more details on CIB’s social involvement and community development initiatives CUSTOMER 1. Improve customer experience 2. Invest in core businesses to enhance customer experience • Much effort was exerted to improve cyber security stand- ing, with a clear strategy and comprehensive plan to improve security capability and continuously provide a safe banking environment for customers SAFEGUARDING THE INTERESTS OF SHAREHOLDERS • CIB maintains a proactive investor relations pro- gram to keep shareholders abreast of developments that could have had an impact on the Bank’s perfor- mance. The IR team and Senior Management invest significant time in one-on-one meetings, road shows, investor conferences, conference calls and a proac- tive stream of disclosures while simultaneously ensuring analysts had the information they needed to maintain balanced coverage of the Bank’s shares. • As a result of the IR team’s conscious efforts in asserting corpo- rate access, in a 2017 Middle East Investor Relations Association (MEIRA), survey carried out by Extel, CIB received Best IR by CEO in the Middle East, and an IRO member of the team also received a nod as the “Best Investor Relations Professional – Egypt.” This is the fourth year running in which CIB has re- ceived at least one award from MEIRA. 44 Annual Report 2017 Annual Report 2017 45 2017 In rEVIEW 2017 In rEVIEW Institutional Banking Corporate and Global Customer Relations Groups Recognised across the Egyptian market for its strong credit culture, CIB’s financing and underwriting arm, provides best-in-class financial structures and advisory services to its clients. Our foremost goal is promoting the nation’s eco- nomic development. We are committed to closely monitoring the performance of projects and eco- nomic entities that CIB finances to ensure their ongoing viability. Throughout 2017, we financed several government mega projects in the fields of power, construction, tele- coms, and infrastructure. We also focused on building strategic alliances with select government entities/ authorities, including but not limited to the Suez Canal Industrial Zone and New Capital City, which represent a potential market for CIB products and services. In tandem with financing mega projects, we are re- alising the pivotal role of medium-sized companies in the Egyptian economy. As such, we developed adequate financial structures and services address- ing this business segment with the ultimate goal of bringing this lucrative sector to financial inclusion. The group’s mission is to constantly innovate and lead the market while maximising shareholder wealth. 2017 Accomplishments Despite the challenging operating environment witnessed during 2017 — reflected in the floatation Egyptian pound, consecutive increases in interest rates, energy subsidy cuts, and inflationary pres- sures — we were able to grow the LCY loan portfolio by 29% as of December 2017 from the figure seen in December 2016 through various deals, including: • Participating in two syndications to finance the upgrade of Egypt’s National Electricity Grid, adding 14.4 GW. • Participating in a syndicated facility granted to the Egyptian Petroleum Corporation to settle dues to international concession holders (IOCs). • Supporting the upgrade to telecom infrastruc- ture and securing all financing vehicles serving the transition to 4G technology. Forward Strategy Corporate and Global Customer Relations Groups will continue their prudent, selective growth strate- gies through pursuing two routes: Focusing on Quality Loan Portfolio The groups will set their sights on the government’s areas of focus to uncover lucrative business oppor- tunities associated with public spending in the fol- lowing areas: ports, transportation, telecoms, and power. In this respect, CIB is also poised to capture opportunities that might arise in the renewables sector through supporting green energy and the Feed-in Tariff Program, which targets installed ca- pacity of 1,800 MW from solar energy. Additionally, 2017’s challenging economic land- scape forced some investors to postpone their investment plans until interest rates stabilise. As such, both groups expect that CAPEX financing will eventually return to previous levels. Exploring New Segments and Product Development • Agency role for international lenders financing Feed-in-Tariff projects • Merchant tie-up • Supply chain finance program • Marketing eco-friendly loans • Focus on exporters’ finance • Further promoting digitisation Financial Institutions Group The Financial Institutions Group (FIG) plays an integral role in the Institutional Banking Division as it manages CIB’s relationships with other global institutions and serves as an entry point and point of first contact for credit institutions through the collaboration of three specialised teams: Corre- spondent Banking, Non-Banking Financial Institu- tions, and Development Finance. 2017 Accomplishments 2017 was a good year for contingent business, which is the FIG’s main income driver. The high LG balances led to a 75% growth in LG fee income and represented the largest contributor to the growth in gross operating income, which was 55.4% higher than 2016. FIG relied mainly on deposits to maintain net inter- est income, with a deposit level of EGP 4.1 billion by the end of 2017 — a figure that grew 14% compared to EGP 3.4 billion last year. Forward Strategy FIG will continue to focus on growing its contingent business through: • Concluding the agreement with the Industrial & Commercial bank of China (ICBC), the larg- est bank in the world in terms of total assets, to open CIB’s first RMB Nostro Account. This is set to accommodate CIB clients’ import business (ILC, IDC) denominated in RMB to reduce pres- sure on USD and EUR and introduce further products to the RMB umbrella at a later stage. • Further strengthening and activating commu- nication channels with exporters/associations, targeting African markets, to get a better idea of trade trends and provide better banking solu- tions to cater to their needs. In parallel, more 48 Annual Report 2017 Annual Report 2017 49 2017 In rEVIEW / Institutional Banking 55.4% growth in aggregate contingent business efforts will be funnelled into strengthening relationships with select banks in Kenya — the trade hub for the COMESA region — to better facilitate trade with East Africa. • Continuing to aggressively attract LGs re- lated to new projects launched in 2018, focus- ing on Europe and Asia, by updating CIB’s correspondents with all the projects taking place in Egypt as well as providing a list of all potential bidders. Following the 2017 growth in both NBFI and Devel- opment Finance, FIG expects to: • Increase the facilities extended to existing clients operating in leasing, car finance, and microfinance industries. • Market medium-term facilities to mortgage fi- nance companies together with digital solutions. • Participate in newly issued securitisation trans- actions related to credit worthy clients. • Continue to market CIB’s unique “Agency” and “Participating Bank” services/solutions to in- crease share of wallet through the inclusion of the Ministry of Agriculture. • Design a FCY product under the Agriculture Development Program (ADP) to enhance re- turns on deposited FCY grants and reduce the pressure on LCY. • Grow the wholesale microfinance loans portfolio under the NBFI in line with the CBE’s decision to include microfinance funding into the 20% threshold under the SME’s funding initiative. • Continue marketing mobile cash manage- ment solution to MFIs. • Enlist CIB as a participating bank under the Envi- ronmental Pollution Abatement Project (EPAP III) by signing an agreement with the agent bank NBE. • Further support the growth of the microfinance portfolio while maintaining a low/moderate risk in collaboration with global government. entities and financial institutions. 10% fX market share • Expand and diversify CIB alliances/partner- ships with the Microfinance Merchants Co- operation through the help of the NBFI and Digital Banking Teams. Treasury Group CIB’s Treasury Group is one of the Bank’s top profit centres, providing a wide range of products and services. Treasury Group interacts with almost all CIB clients, ranging from large corporate clients, Business Banking, Retail, Wealth, and CIB Strategic Relations clients. Treasury Group also interacts with financial institutions, including funds, insur- ance companies, brokerage companies, and others. Treasury Group is segregated into three divisions: 1. The Foreign Exchange Division, which man- aged to overcome the FX market challenges through channelling a sufficient FCY base. This covered all outstanding backlog of pending trade finance operations, delayed dues and divi- dend payments for multinational corporations and foreign aviation companies, and paid off all outstanding demand loan backlog. 2. The Money Market & Fixed Income Division, which is responsible for money market, trad- ing activities, primary and secondary govern- ment debt trading. 50 Annual Report 2017 2017 In rEVIEW / Institutional Banking eGP BN 51.5 syndicated, medium-term loans for public sector companies and quasi sovereigns 29% y-o-y increase in lCY loan portfolio 3. The Asset & Liability Division, which is respon- sible for managing liquidity, interest rate gaps (with associated hedging), and pricing local and foreign currency deposits. 2017 Accomplishments During 2017, CIB maintained a 10% FX market share of foreign currency sales by customers and is looking forward to moving into the cash exportation market to enhance the cash market share. CIB managed to build a strong position in the fixed income portfolio and sovereign debt, benefiting from the interest rate hikes that occurred in 2017. The Assets and Liability Management Team did a good job forecasting the market, maintaining liquidity ratios in 2017 well above the regulatory requirements. Forward Strategy As the private sector business picks up in 2018, the Bank will have an increased appetite in both depos- its and loans to cater to customer needs. We will continue our efforts to increase our turnover in 2018 with a focus on profitability, raising FX local market share and interbank contribution. Debt Capital Markets The Debt Capital Markets Division (DCM) has an unprecedented track record and unparalleled ex- perience in underwriting, structuring, and arrang- ing large-ticket syndicated loans, project finance, bonds, and securitisation transactions as well as a dedicated agency and security agency desk. DCM assists its clients in raising medium- and large-ticket project financing, PPP financing, and syndicated loans while: • Acting as lead arranger, book runner, and finan- cial advisor; • Preparing financial models and term sheets while assessing feasibility studies with a view to advis- ing on bankable structure for the transaction; • Debt underwriting; • Leading due diligence process and acting as Technical Bank and/or Documentation Bank to ensure legal, contractual, and technical risks are properly mitigated; and • Acting as Agent and Security Agent through one of the only dedicated units in the banking sector. 2017 Accomplishments In terms of project finance and syndications, DCM in coordination with other banks arranged a total of EGP 51.5 billion syndicated, medium-term loans for public sector companies and quasi-sovereigns in the power and oil and gas sectors. For private sector borrowers, DCM honed in on selective deals in the real estate, cement, oil and gas, telecoms, steel, refineries, renewables, and petrochemicals sectors. We have played a prominent role in the FIT and BOO financings in the solar and wind sectors, providing working capital facilities as well as acting as Onshore Security Agent and Ac- count Bank for a significant number of projects, underpinning CIB as a preferred local partner for the international financial institutions financing those projects. DCM also focused on refinancing, restructuring, and reengineering balance sheets for private sector borrowers in light of unexpected currency and interest rate movements that took place and continued to play a prominent market role in advising and arranging securitisation issu- ances in cooperation with several partner banks. Forward Strategy In terms of project finance and syndications, DCM will continue to focus on expanding into the alter- native energy, utilities, and infrastructure sectors (railways, ports, new economic zones etc.) in light of the government’s plans to develop these sectors as well a financing investors expected to set up business in the Suez Canal Economic Zone. DCM also plans to introduce new structures in the market, such as the revolving structure. Direct Investment Group The Direct Investment Group (DIG) acts as CIB’s investment arm with respect to the Bank’s engage- ment in direct equity transactions. DIG’s main task revolves around the proper allocation of investment funds into specific industries where CIB’s return on investment would be optimally maximised. 2017 Accomplishments DIG widened the scope of the deal-sourcing process to include screening the market for small and medium size (SME) enterprises as well as big-ticket transac- tions. During 2017, the team screened a large number of new SMEs that operate in the financial services, food and beverage, and renewable energy sectors. In line with the national financial inclusion initiative, CIB is finalising a new model for agent banking, tar- geting financial inclusion in areas out of banks’ reach. DIG is also finalising the Bank’s engagement model in the venture capital space, with a primary focus on financial technology. On the divestiture side, DIG has managed the sale of CIB’s 90% equity stake in CI Capi- tal Holding in a series of transactions ending July 2017. Forward Strategy For 2018, DIG is planning to leverage on economic recovery by expanding its portfolio. DIG will focus its efforts on marketing and deal origination, lever- aging its vast network and the Bank’s proprietary deal access to achieve its longer expansion strategy. Strategic Relations Group CIB’s Strategic Relations Group (SRG)’s main objec- tive is to bridge the gap between mainstream com- mercial banking and the non-commercial needs of its client base, which consists of over 180 of the most reputable and renowned international and local do- nor agencies, NGOs, as well as diplomatic missions. To meet the unique needs of our clients and serve to facilitate their business operations as well as their banking requirements, we provide a set of innova- tive, tailor-made products and services such as: • Special discount schemes on bank charges • Tailored digital solutions (tuition fee collection, visa fee collection, deposit monitoring and re- porting, fund management and pension savings plans, BSP Airline Clearing System) • Mobile tellers upon request – Implant Unit/ Branch at customers’ premises • Special scheme for staff loans 2017 Accomplishments • Fully managed the FCY needs of our airline cus- tomers post the devaluation. • Grew our special clients’ portfolio to include two more embassy strategic accounts. • Won a deal to manage the Arab Academy for Science and Technology’s end-of-service and pension scheme. • Making online payments available through Pay Fort for the American University in Cairo (AUC), along with automating their deposits. • In collaboration with the Embassy of Germany under the auspices of the Ministry of Foreign Affairs, we sponsored the first-of-its-kind Em- bassies Football Tournament as part of CIB’s CSR agenda, aiming to break down barriers between nations through promoting sports as a universal language of peace. Forward Strategy • Continue to foster and nurture existing rela- tionships while focusing on new educational establishments of high calibre that are set to open in the New Capital. 52 Annual Report 2017 Annual Report 2017 53 2017 In rEVIEW Consumer Banking The Consumer Banking strategy focuses on moving toward a customer-centric organisation and uniquely positioning CIB in terms of its customer experience, arming it with a brand equity that competitors will find hard to replicate. We plan to do this by: • Leveraging our investments in data analyt- ics, automating key customer processes and aligning products to our key value segments (Wealth and Plus). • Offering richer alternative channels through further investments in new features to offload transactions that can be migrated from our branches and in turn generate value by offering customers products online. • Strengthening our customer proposition to further grow our customer base in our target segments within the Egyptian banking market and grow market share of key products. Key Goals Egypt’s economic growth is expected to continue to accelerate in the near term with improved investor confidence. This coupled with an underpenetrated banking market provides an encouraging growth scenario for CIB in the consumer sector. To support this, we will deliver: • A value-based market segmentation position to take advantage of the key segments and target market and retain and deepen relationships. • Significantly upgrade the customer experience 106 EGP BN in CIB Wealth deposits for 2017 by aligning investments in technology (digital, CRM, operations, straight through processing [STP]) with a clear roadmap and plan to mea- sure our Net Promoters Score (NPS)/customer satisfaction at each key customer touch point. • Refinement in our products to create clear dif- ferentiation to our target market segments and price them accordingly and in our approach to the wider Egyptian banking market. • Alignment of our marketing to segments by using behavioural segmentation and CRM to target more accurately and therefore improve return on spend and deepen relationships. Wealth Segment We plan to continue to retain, attract, and grow our customer base and create advocacy for our Wealth 12% increase in CIB Plus assets 31% increase in CIB Wealth assets brand. Since launching the Wealth segment, the strategy has been to satisfy the growing needs of our customers through a unique set of products and services. At the centre of the Wealth offering are Wealth Relationship Managers who are responsible for maintaining a relationship based on trust. 2017 Financial Highlights • Total deposits reached EGP 106 billion, up 22% y-o-y • Total asset portfolio hit EGP 1.8 billion, up 31% y-o-y Key 2017 Highlights We established a new learning and development program for our Relationship Managers, exposing them to a specialised development and training module. Wealth Relationship Managers are entitled to sit the International Introduction to Securities and Investment exam offered by Chartered Institute of Securities and Investment (CISI). Today, 19 have attained this accreditation. One of the main pillars of our 2017 strategy was to deliver digital solutions aligned with the needs and expectations of our customers. The plan not only addresses customers’ digitally evolving behaviour, but also reflects positively on the overall user expe- rience, delivering convenience and reliability that matches our customers’ lifestyle. In 2017, we pursued several brand-building initia- tives, sponsorships, and events that increased brand engagement such as the Amr Diab concert held in Marassi in August. We also extended a platinum sponsorship in a charitable event that funnelled all proceeds to the Ahl Masr Non-profit Hospital — the first hospital specialised in treating burn patients both in Egypt and the wider MENA region. CIB Plus In 2017, we continued to offer an improved customer experience through a range of initiatives such as direct communication with all Plus customers with their designated Plus Bankers, holding reward and loyalty events, widening the limits of Internet Bank- ing for all Plus customers, and increasing withdraw- al and purchase limits on Titanium debit cards. We also strive to strengthen relationships with cus- tomers, increase our understanding and awareness of how the decisions we make affect them, and of- fer suitable financial solutions. To support this, we have increased the number of Plus bankers in our branches by 20% compared to last year. 2017 Financial Highlights • Total asset portfolio climbed by 12% y-o-y • Total revenue grew 41% y-o-y 54 Annual Report 2017 Annual Report 2017 55 2017 In rEVIEW / Consumer Banking 41% increase in CIB Plus revenue 42% increase in Personal Banking revenue Personal Banking Segment We are in the process of updating the entire Personal Banking Segment to realise its full potential. The new strategic direction will provide a solid launchpad for the segment in 2018. Having said this, 2017 was a great year for the Personal Banking segment, with our customer base growing 23% in 2017 and total deposits increasing 21%. ssets and CASA also showed strong growth of 126% and 135% respectively. NTB customers grew 27% and the number of digital bank- ing users increased 30%. Revenue grew 41% while expenses per customer decreased 6%. Digital migra- tion efforts are paying off, with 7% more transactions being offloaded from the branch network. In 2018, the segment’s priorities will be to fully move toward behavioural segmentation to better respond to cus- tomer needs, create a new Personal Banking brand identity, and focus on expense optimisation. and lifecycle management. This will translate to providing our clients with need-based propositions. Cards Business Credit Cards grew 20% to close ENR at EGP 2.9 bil- lion despite key market challenges after the CBE’s interest rate hikes and regulations. Strong growth recorded in 2017 can be hinged on: • 18% increase in acquisitions • 5% increase in portfolio size • 20% increase in ENR There was also improved performance across all portfolio KPIs: • Drop in annualised attrition rate to 8.28% com- pared to 12.04% in 2016 • 34% increase in spend • Significant increase in 2017 balance build-up sales • Instalment balance build-up sales increased 2017 Financial Highlights 14% in 2017 • Total deposits increased a significant 15% y-o-y • Total asset portfolio climbed 18% y-o-y • Total revenue grew 42% y-o-y Consumer Assets (Household) The Consumer Asset Portfolio has exhibited significant growth of EGP 3.5 billion in 2017 despite the many chal- lenges posed due to changing market dynamics includ- ing interest rates and regulatory changes. CIB’s market share grew to 7.68% in September 2017, which is the highest market share across all private banks. The port- folio recorded EGP 18.43 billion as of December 2017. The Consumer Assets Division recorded a total rev- enue of EGP 910 million as of December 2017, con- tributing 13% to total Consumer Banking revenue. Our key objective is to sustain this level of growth in 2018 and to outpace the market through a more segment-driven strategy that drives our product propositions, acquisitions, service models, portfolio, This increased portfolio was primarily driven by: • A focus on premium cards acquisition (Platinum and Titanium): These carry a higher return (1.85%) than older Gold and Classic cards (1.16%). This has been achieved through incentivising these more profitable cards and reducing the entry criteria for customers to obtain access. • Portfolio management and balance build up: Equal Payment Plan (EPP) 2017 enrollments at EGP 697 million versus 2016 volumes of EGP 546 million. • Seasonal spend campaigns: Spend and win campaigns, Ramadan campaigns (dining), and Ramadan campaign (supermarket). Overall campaigns increased spend from EGP 8.99 mil- lion in 2016 to EGP 12.06 million in 2017. The spend increase was generated from 29 spend campaigns across 2017 versus 26 in 2016. • Activation campaigns: NTB Early Month on Book (EMOB) program and dormant campaigns. These have been significantly enhanced to drive activation performance resulting in an increase of 6% versus a 2016 ac- tivation rate of 3 MOB. The increase was due to the launch of 10 activation campaigns versus 6 campaigns in 2016. • Proactive attrition management: Credit cards’ annualised attrition decreased from 12.05% in 2016 to 8.28% versus a budget of 11.5%, primar- ily through 16 reactive retention tools (e.g.: EPP, bonus points, replacements, cash back etc.) and proactive retention programs across 16 cus- tomer card segments. • Product launches: Heya re-launch. • Sales contests and incentives: Launch of a successful sales contest for direct and telesales from April to June and a revision/revamp of the incentive scheme. Personal Instalment Loans Product (PIL) The Consumer Loans Portfolio exhibited significant growth of EGP 3.1 billion in 2017 despite market challenges such as changing market dynamics, cur- rency devaluation, and CBE interest rate hikes. The portfolio hit EGP 13.1 billion as of December 2017 while the Personal Loans Business recorded a total revenue of EGP 610 billion as of December 2017, con- tributing 10% to total Consumer Banking revenue. Our key objective is to sustain this level of growth in 2018 and to outpace the market through a more segment-driven strategy that drives our product propositions, acquisitions and service models, and portfolio quality. Key Initiatives CIB launched the Payment Holiday campaign, which was designed to give more competitive- ness to the unsecured loans offering and increase acquisition. The promotion allowed customers to apply for the CIB Personal Loan in November 2017 3.5 EGP BN Consumer Asset Portfolio and postpone instalments for the first two pay- ments at no extra fees. The Overdraft Proposition improved payment conve- nience through the availability of secured and unse- cured programs to best meet the needs of our customers. Acquisitions PIL acquisitions grew 33% in 2017 mainly driven by the following: • Significant policy changes such as tenor exten- sion, new income computation methodology, payment holidays, and new payroll programs. • Continuous training of our sales force. • Enhancing the application turnaround time and customer experience. Portfolio The portfolio grew 33% in 2017. The key drivers were: • New initiatives and acquisition campaigns such as payment holidays, etc. • Proactive interest rate management in a vola- tile interest rate environment. • Better attrition management through exit bar- rier simulations. Mortgage Product The Mortgage Business gained momentum in 2017 56 Annual Report 2017 Annual Report 2017 57 2017 In rEVIEW / Consumer Banking and is positioned as one of the key balance sheet growth drivers of 2018. CIB is supporting the CBE ini- tiative for mortgage loans to lower-income individu- als, which has reflected in the tremendous growth in sales acquisitions in 2017. Low Income Mortgage Loans hit EGP 164 million in 2017 compared to EGP 29 million in 2016. The portfolio grew to EGP 200 mil- lion in 2017 from EGP 39 million in 2016. The increase in acquisitions was mainly driven by: • Strong ties with the Mortgage Finance Fund: CIB is considered one of the key banks financ- ing low-income mortgages. Over the past year, the Mortgage Team succeeded in establishing a solid relationship with the Mortgage Finance Fund triggered by a significant improvement in operational process and turnaround time. • Operational Process: CIB underwent process enhancements in collaboration with all stake- holders to reduce turnaround times. • The Sales and Acquisition Model: The Bank set up dedicated sales and coordination teams. Liabilities The success of CIB Consumer Banking is demon- strated by the healthy growth in customer deposits, which reached EGP 198 billion in total deposits by December 2017, an impressive 15% y-o-y increase of EGP 26 billion compared to year-end 2016. CIB’s deposit market share reached 7.8% as of Sep- tember 2017, maintaining CIB’s leading position among private sector banks in the country. The growth is a great achievement in a highly competi- tive market of 39 banks. Throughout 2017, Consumer Banking’s strategy has focused on the household segment, which was clearly reflected in the household market share reaching 7.46% as of September 2017. In addition, the Bank focused on short-term products as one of the key pillars for 2017, which was reflected in the CASA mix versus term products (medium and long term) to 49.4% from 43.7% in December 2016. We also developed ways to mitigate the volatility in interest rates in 2017. A key pillar of our success has been our quick and effective response to the interest rate market and competitive pricing. The approach has always been to ‘right-price’ the products with multiple pricing tools e.g. selective pricing for TDs, tiered pricing for savings accounts, and restrictive pricing for FCY deposits. Insurance Business The CIB Insurance Business provides life and general insurance programs that generate non-interest rev- enues in the form of fees for CIB Consumer Banking. CIB is now considered the largest distributor of indi- vidual life insurance policies in Egypt. Key 2017 Highlights In 2017, AXA introduced a health insurance product, exclusively through CIB Distribution Channels, for the first time in the Egyptian market. This allowed CIB to be the first bank to market such a significant product to its customers. The launch capitalised on AXA’s vast medical network in Egypt, which includes more than 2,400 medical providers to suit all client segments and caters to the increased demand for adequate health solutions in the Egyptian market. Furthermore, inter- national health solutions were introduced with global coverage that caters to a wide range of customer needs. Strategic Goals • Increase revenue contribution to Consumer Banking. • Increase market penetration by expanding CIB’s customer base. • Leading the market by introducing a wide range of products from the best insurance providers. 2017 Achievements: Life and Health Insurance • Life Insurance fee income increased by 16% in 2017 compared to 2016. • The Life Insurance Business hit EGP 482 million in 2017 compared to EGP 427 million in 2016, leading to a significant growth of 13%. • CIB was the first bank in Egypt to provide indi- vidual international health solutions that cover a wide array of global services. • Realising the full launch of local health solu- tions starting 2017. 2017 Achievements: General Insurance and Bundled Products • Credit Shield fee income increased 46% in 2017 compared to 2016. • Family Protection Plan fee income increased 22% in 2017 compared to 2016. • CIB finalised a referral model for Business Banking’s unsecured customers, replacing the existing Master Policy. Going forward, CIB will develop different bundled insurance services with consumer products and segments. 58 Annual Report 2017 2017 In rEVIEW Business Banking Business Banking serves over 40,000 small, medium and large enterprises through a dedicated segment management for each size and a network of over a hundred highly trained Relationship Managers and Client Advisors across the country. We offer a broad range of integrated financial so- lutions, including cash management, secured and unsecured lending, trade finance and e-solutions to help our clients grow and manage their busi- nesses efficiently. 2017 Accomplishments Business Banking continued to report strong financial performance in 2017, with deposits growing 10% to EGP 59 billion (24% of CIB), before tax figure of EGP 1.6 billion, up 60% y-o-y on a top line of EGP 2.2 billion. In 2017, Business Banking focused on developing at- tractive products for our target segments, from highly standardised small-ticket loans with rapid disburse- ment to fully customised offerings for large clients. On the people development front, Business Banking implemented an individualised training programme to upgrade our sales team’s capabilities. Relationship Managers received in-house training sessions tai- lored to their developmental needs, and more senior members of the team underwent comprehensive training that led to certification by the US-based As- sociation of Accredited Small Business Consultants. These programmes will promote a closer and more value-added relationship with our clients. Ongoing Forward Strategy In 2018, Business Banking will focus further on op- timising the customer journey and touch points for each segment, including the expansion of dedicated corporate branches and operational hubs, improv- ing digital channels, and decreasing service times to provide greater service quality. Strategic Alliances In our ongoing efforts to increase our value proposi- tion to clients, Business Banking has expanded its offering to include non-banking products and ser- vices provided through carefully selected partners on an arm’s-length basis. Initial services offered include: accounting and auditing, governmental relationships and legal consultancy, marketing and advertising, human resources and training, IT, ERP, CRM, and website development. These services are offered on highly attractive terms to CIB clients. Super Business Account Bundle Business Banking continued to grow its innovative “Super Business” account bundle targeting smaller companies with a convenient and comprehensive bundle of services including: • Digital banking • Debit/credit cards • Point-of-sale solutions • No minimum balances • Fee discounts Credit Products Business Banking continued developing its range of financing options for SME clients. Existing clients with sufficient account activity benefited from our pre- approved credit offering with rapid disbursement. Mer- chants taking advantage of our payment acceptance services similarly qualified for flexible credit facilities with rapid turnaround times. Larger clients are offered flexible multi-purpose lines tailored to their lines of business through a simplified process featuring unified risk acceptance criteria and limit-setting parameters. Payment Acceptance CIB maintained its dominant position in Egypt’s payment acceptance sector, through 12,000 point- of-sale (POS) terminals throughout Egypt. Business Banking’s Payment Acceptance team is also focusing on the growing e-commerce applica- tions to capture exciting new business opportuni- ties, adding 150 new merchants in the year. 2017 saw the introduction of new mobile POS machines that allow the targeting of smaller mer- chants and on-the-road transactions, substantially increasing our addressable market. The Payment Acceptance team will continue ex- panding the categories and geographies it serves in 2018, driven by extensive data analysis and research to target the areas of greatest opportunity. Business Banking Profitability (eGP mn) 2014 2015 2016 2017 2,243 1,556 1,192 907 1,605 1,016 863 770 638 539 329 138 Total Revenues Total Expenses Gross Profits 60 Annual Report 2017 Annual Report 2017 61 2017 In rEVIEW Digital Banking and GTS 60% increase in online transactions 29% migration rate to online banking In today’s world, digitisation gives banks the op- portunity to take customer satisfaction to the next level while offering the possibility for much higher automation and related cost efficiencies. We believe digitisation takes banks from be- ing product providers to offering a continuous contextualised service, helping customers better understand financial and commercial affairs and make better decisions. The Digital Banking and GTS team has focused on developing solid practices to maximise value through a wide variety of digital assets built during the last couple of years. This comes hand in hand with focusing on how to measure value from the Bank’s perspective and how to grow the Bank’s bottom line. In 2017, we focused on delivering digital value from our diversified digital portfolio by taking a deep dive into understanding existing digital channels compared to those of the market, uncovering how our customers interact with our digital products and services, and optimising customer journeys in various ways to deliver a superior customer ex- perience. More than 55 million transactions were processed through our consumer and corporate digital channels, generating more than EGP 800 million in direct revenues and cost synergy as of December 2017. CIB has also been investing heavily over the years in its infrastructure, security, and digital platforms, developing all its touch points to serve the evolving needs, intents, and expectations of customers. The Bank has been exerting extensive efforts to meet the varying needs of its customers through tailoring customised solutions to both consumer and corpo- rate customers by bundling traditionally consumer- serving and corporate-serving solutions together to address unique customer needs. Our over arching forward-moving strategy will as- sume the strategic posture that will allow CIB Digi- tal Banking to improve the way it currently runs, enhance its readiness to make choices, and allow it to conduct experiments and develop new business models that open doors in a resource-constrained environment. This will be realised through focusing on three key channels: 1) CIB’s core digital business by maximising profitable growth from existing products, customers, and channels, 2) digital busi- ness optimisation through the utilisation of existing assets and capabilities and extending them beyond their intended use cases, and 3) developing new as- sets and capabilities to create new market opportu- nities and address new or unmet customer needs to uncover novel revenue streams and alternate busi- nesses to traditional banking. ATM Network CIB continues to sustain its competitive advantage in the Egyptian market by running the largest ATM network among private banks, with a network of 819 ATMs providing various types of functions in- cluding cash withdrawal and deposit, credit card settlement, bill payment, mobile top-up, mobile wallet cash-in/out, and cheque deposit services. Maximising the utilisation and return from our ATM assets was a key focus area during 2017, where we managed to increase the average number of transactions across our ATMs by 20% by relocating low utilisation ATMs to higher footfall locations in conjunction with matching customer needs with ATMs’ wide range of value-added services. Additionally, CIB is mobilising and changing the physical context of ATMs by bundling them with other retail and corporate digital solutions to support businesses in managing their cash. The most notable use of this in 2017 was a partnership with one of the largest hypermarket chains in the region. CIB created an ecosystem revolving around customers’ cash-han- dling processes by deploying cash recycling ATMs that enabled cashiers to make large cash deposits with same-day value (or at most the next working day) through its on-site ATMs, which were equipped with the ability to dispense the deposited cash to custom- ers. This provided customers with a simpler experi- ence and uncovered a major operational cost-saving opportunity. CIB also benefited from a reduction in the cost of handling cash and leveraged excess cash to use in recycling ATMs and acquire a larger share of customer receivables, hence migrating cash deposits from our branches to our off site ATMs. 2017 Achievements • The ATM network continues to serve branch migration efforts, most notably achieving a 96% migration rate in card payment transactions ver- sus branches and a 463% increase in corporate de- posit card transactions. ATMs contribute to cost savings by offloading transactions from branches. • Achieved a 36% increase in ATM network cash capacity after upgrading our ATM cash capac- ity and reduced cash replenishments by 9% af- ter upgrading our Recycler ATMs and widening our ATMs’ abilities to serve customers. • Launched Talking ATMs, a first for Egypt, roll- ing out text-to-speech-capable software across 96 eligible ATMs in our network to deliver a voice-guided experience to our visually im- paired customers. • Launched the ability to pay tuition fees over ATMs, another first in Egypt, allowing univer- sity and school tuition fees to be paid across CIB ATMs in line with the strategy of migrat- ing transactions away from CIB branches and extending the availability of the service beyond branch working hours and locations. 62 Annual Report 2017 Annual Report 2017 63 2017 In rEVIEW / Digital Banking and GTS • Increased limits for both unique and daily cash withdrawal transactions at ATMs across all served segments, with 25,000 unique custom- ers being migrated from branches to ATMs as of December 2017. Forward Strategy Going forward, we will continue our efforts to drive customer migration from branches and enhance the customer experience through adding new functionalities at competitive prices, maximising utilisation and profitability from our ATM net- work. We also plan to focus on various in-branch digital tactics to help further optimise average waiting and service times. Online Banking CIB launched its Mobile Banking App in 2017, with a significant adoption rate of almost half our Inter- net Banking users. Mobile Banking users show an activity rate of 91% versus 53% for Internet Banking, further reinforcing our “Mobile First” shift in strat- egy. Overall, we have seen an increase of 59% y-o-y in the number of online transactions, contributing to a significant cost saving from offloading both branches and the Call Centre. 2017 Achievements • CIB gave its existing Internet Banking user in- terface a face lift to create a more user-friendly experience that is graphically rich. • Launched e-statement services over Internet Banking, which represents direct savings arising from the logistics related to printing statements. It will also enhance channel penetration and cus- tomer activity over our online banking channels. • Increased online banking transfer limits, which resulted in a 23% boost in online trans- fers as of December 2017. Forward Strategy CIB Online Banking is a cornerstone of migrating non-cash transactions from branches and inqui- ries and requests from our Call Centre. In 2018, we plan to continue increasing online banking pen- etration and activity rates, optimising customer journeys, as well as introducing new value-added services to support efforts to digitise our custom- ers’ banking needs. Phone Banking and Call Centre The CIB Call Centre handles an average of 3.6 mil- lion calls annually, serving both CIB and non-CIB customers. The Call Centre remains a crucial chan- nel that allows consumer banking clients to speak to a live agent to inquire about the Bank’s products and services and submit complaints. During 2017, we focused on offloading calls to self-service phone banking, which is a cost-effective way to serve our calling customers effectively. Today, our Phone Banking service helps customers inquire about their account, card balances, and latest transactions, manage money transfers, pay bills, and activate cards from anywhere at any time. 2017 Achievements • Achieved a migration rate of 70% as of Decem- ber 2017 compared to 53% in 2016 as a result of migrating inquiries for account and card bal- ance and movements to self-service functions. • Conducted various customer journey enhance- ments over Phone Banking IVR, including improving the fund transfer customer journey and introducing an option for customers wait- ing on the Call Centre queue to be redirected to self-service Phone Banking, which resulted in an increase in the number of monthly regis- trations to Phone Banking to 10,000 from 6,000 registrations in 2016. Forward Strategy We plan to continue to offload Call Centre requests by migrating even more eligible calls to the Phone Bank- ing self-service channel, aiming to reach a 73% migra- tion ratio to optimise the Call Centre’s operational cost and boost agents’ productivity. By the end of 2018, we plan to build a case for an additional customer touch point — live chat — with agents and a roadmap to adopt artificial intelligence through the introduction of a CIB chatbot to handle non-financial banking in- quiries seamlessly and without the need for a live agent. CIB Smart Wallet CIB Smart Wallet continues to offer an innovative payment experience serving both the banked and un- banked segments by providing a convenient, secure, and cost-effective way to make purchases through their mobile devices. Customers can easily pay bills, recharge their mobile credit, send money to any other CIB Smart Wallet holder, cash-in/cash-out from CIB’s ATM network, and deposit/withdraw money from their CIB Smart Wallet from different agents. In light of the digital boom and the proliferation of social media and community-sharing platforms, we focused in 2017 on bundling multiple digital capabilities to address pain points in our customers’ value chain. By evaluat- ing how we can play a role in enhancing our corporate customers’ ability to serve their own clients in a cheaper and more efficient manner, we formulated customer- tailored solutions that repositioned our existing digital capabilities and uncovered new revenue opportunities. 2017 Achievements • Increased Smart Wallet cash in balance in addition to increasing the daily and monthly transaction limits. • Achieved a 184% increase as of December 2017 in Smart Wallet transactions compared to 2016. +294 k Internet Banking users 107.5k Mobile Banking users +251k Smart Wallet users 64 Annual Report 2017 Annual Report 2017 65 2017 In rEVIEW / Digital Banking and GTS 173% y-o-y increase in Smart Wallet transactions 70% migration of inquiries from Call Centre to IVR • Ran multiple marketing activities and campaigns leveraging strategic partnerships to increase finan- cial inclusion and wallet activity rates including: - Partnership with e-commerce platforms: Discounts/benefits for anyone who makes purchases on the e-commerce platforms using CIB’s Smart Wallet online card. - Online Card Fee Waiver: Virtual Card Number (VCN) transactions increased by 32% during the promotion. - Ramadan Donation Fee Waiver and Aware- ness Campaign: Donations through Smart Wal- let increased 463% compared to Ramadan 2016. - CBE Awareness Campaign: Conducted through radio, social media posts, in-branch posters and flyers, press releases, SMS, and intranet. - Cash-back Campaign: 10% cash-back on all bills paid via Smart Wallet, a campaign that was completed in March 2017. - Free Beverage Promotion: Conducted an in- ternal promotion for all Giza HQ CIB employ- ees, offering a free beverage to anyone making a purchase using Smart Wallet to promote m-wallet payments (P2M). - Social Media Awareness Campaign: Using digital quotes for several use cases. - Community Sharing Platform Partner- ship: CIB announced the first partnership of its kind with a community sharing platform by offering CIB bundled digital capabilities through CIB Smart Wallet to receive incen- tives and salary disbursements seamlessly for around 10% of total wallet users. - Awareness Sessions: Conducted awareness and education sessions for the microfinance segment. Forward Strategy • Throughout 2018, CIB will be working on sev- eral different fronts, tackling on-boarding and improving the user experience and customer journey pain points by increasing granularity in segmentation for both the banked and unbanked segments. In addition to upgrading our user in- terface and technology platform, we will also be adopting a multi-vendor strategy to maximise value from our existing assets to ensure we do not overlook any type of customer. The distri- bution network will also be a main focus area, where we will further leverage our strategic part- nership and grow our agent network to register new wallets and expand our reach. CIB Business Online and Corporate Services In 2017, CIB revamped its online corporate portals and brought to market a best-in-class Business Online corporate portal offering its customers a single portal to manage their cash management and trade service needs. CIB Business Online offers its corporate customers a single sign on and one-stop-shop suite of tailored cash management products and services that im- prove the management of incoming and outgoing payments, streamline reconciliation and informa- tion management, and enhance working capital efficiency. The suite of services also includes several innovative payment and payable products, collec- tion and receivable products, and standard and tailored information reporting delivered through a variety of channels. As for trade services, for the first time in Egypt CIB launched a Supply Chain Finance (SCF) module to further enhance its trade service of- ferings and enable clients to effectively manage risk and optimise their cash flow. SCF solutions support domestic trading transac- tions, serving buyers and suppliers on the same electronic platform, accessible from CIB’s website. CIB can serve buyers and suppliers via the elec- tronic online portal, enabling collaboration around invoice submission to release early payments. Under SCF, CIB will discount supplier invoices, presented by the supplier online upon being approved and acknowledged by the buyer (a CIB client). This will extend needed financing by discounting presented invoices (purchasing invoices at a discounted rate) and releasing early payments to suppliers before receiving a full payment from the buyer at maturity. 2017 Achievements • Increased transaction volume compared to 2016, with EGP 58.4 billion in transactions com- pleted over CIB Cash Online and Automated Clearing House (ACH) direct credit portals as of December 2017. • CIB Trade Online reached 1,204 registered cus- tomers over its trade portal. • Our Corporate Payment Service (CPS), which enables CIB clients to complete federal pay- ments such as taxes, customs, and social insur- ance online 24/7, hit 278 customers. • CIB ranked first among all Egyptian banks in e-finance government payments online. • CIB currently has the largest market share among Egyptian banks for both ACH Receivable and ACH Payable: - Outgoing payments increased from 43,000 in - January 2017 to 93,000 in December 2017. Internal payment increased from 33,000 in January 2017 to 67,000 in December 2017. • Created a feature for corporate users to be able to upload and validate checks online to reduce call-back procedures. • In addition to the reports available at the Corporate Download Portal, new inquiries were added for post-dated checks, outgoing checks, money market, and loans. • Cash Management’s total registered clients reached 7,385 as of December 2017 due to our 24/7 accessibility at convenient sites. • CIB ranked first in terms of volume in EG-ACH Direct Credit Outgoing. • CIB ranked first in terms of volume in Direct Debit Outgoing. • Named Best Treasury, Cash Management & Trade Service Providers in 2017 by Global Finance. Forward Strategy In 2018 and beyond, we plan to continue our focus on customer migration from branches to the Business Online portal to allow customers to transact more conveniently 24/7 without the need to visit a branch. We want to offer customers digital solutions that provide seamless and extensive benefits to their busi- nesses and support them in achieving their growth trajectories. CIB Business Online seeks to become a convenient, secure, and cost-effective platform for trade and supply chain finance, cash, treasury, and lending services. Innovation and FinTech Activities 2017 CIB FinTech Engagement was initiated to cater to Fin- Tech startup needs, offering them better opportunities for survival. In 2017, we established an echo-model of support, built strategic alliances that serve CIB’s fi- nancial inclusion objectives, and formulated a pipeline of FinTechs that we can grow and take to market. In line with our continuous efforts and commitment to empower our staff to innovate and digitise our products and services to deliver a more dynamic, engaging customer experience, we have launched CIB Digital Studio. Our studio will act as an innova- tion hub to focus on fostering an entrepreneurship culture that will challenge employees to innovate and accelerate our digital proposition. This will de- velop the services provided across electronic chan- nels to individuals and enterprises that allow a more dynamic and engaging customer experience. Startup Acceleration Activities In addition to launching the third cycle of the AUC V-lab for five promising startups this year, 2017 saw 66 Annual Report 2017 Annual Report 2017 67 2017 In rEVIEW / Digital Banking and GTS CIB conduct the first hackathon in Egypt in col- laboration with Angel Hacks. The activity sought to create financial inclusion in the Egyptian market, with themes covered including financial literacy, micro lending, micro saving, and micro insurance. The selected startups became part of the third AUC V-lab cycle, with the event improving the relevance and quality of admitted startups notably. After having worked extensively with FinTechs, CIB came to the conclusion that to create an impact on the FinTech landscape in Egypt and to uncover tangible value, it needs to operate beyond funding and accel- eration activities. Therefore, the Bank took steps to es- tablish a FinTech ecosystem, which will allow FinTech startups to develop new products quickly by providing access to technology, helping to navigate the complex compliance and regulation landscape, and making it easier to penetrate the Egyptian market. The ecosys- tem will enable a framework within which CIB can establish strategic alliances with key partners across different industries, creating new business opportuni- ties enabled by new digital business models. As part of our efforts to back programs that build entrepreneurship efforts at universities, we co- designed a program with a well-known tech hub to build financial literacy and entrepreneurial capac- ity among students at the universities of Ain Shams, Cairo, Suez Canal and El Minya. The program will also work with schools to achieve the same purpose. Forward Strategy During 2018, all innovation and FinTech activities will adopt a practical approach to value creation, with all activities set to result in a final product or service that can be commercialised. We will leverage our corporate relationships and network of allies to generate revenues in the short term, which will go hand in hand with our capacity-building activities to ensure innovation activities are sustainable. 3.6 MN Call Centre calls In-House Acceleration Program Unlike a typical accelerator, our vision for an in-house accelerator program sees us inviting startups to sit one-on-one to develop new solutions that could revo- lutionise the sector, enabling us to operate faster, safer, and at a lower cost. The one-year program presents a unique opportunity for talented, ambitious startups to be truly supported by CIB’s resources. In addition to providing industry knowledge, the winning startup will be incorporated as part of a CIB business line, and the Bank will commercialise the solutions on terms negotiated as part of the initial contract with the busi- ness. CIB plans to join forces with an international accelerator management firm to manage the 2018 CIB Accelerator as a step toward transitioning to the management of our own in-house accelerator in 2019. Partnering with Mature Startups Because we believe startups have a huge potential to significantly enhance efficiencies, reduce costs, and expand reach faster than established compa- nies, we plan to partner with startups that have been in business for one to five years and challenge them to respond to issues specified by the Bank and partner with us on a revenue-sharing basis. This is set to create value for CIB and its wide base of cor- porate customers. The challenges will be held semi- annually and will create a pipeline of startups for our in-house accelerator. Partnerships will not be limited to FinTech startups, but will include those offering innovative solutions across industries. Co-Creation Program We plan to sign co-creation agreements with key technology providers to jointly develop and com- mercialise financial/tech solutions targeting the un- derserved segment or that solve corporate customer problems. Solutions built will be commercialised to our corporate/business banking database on a revenue-sharing basis between CIB and the tech- nology providers. This endeavour is set to serve all other innovation initiatives without utilising any of the limited in-house IT resources. Global Securities Services Global Securities Services (GSS) continued to main- tain its leadership in the Egyptian market in 2017, with a total market share of 20%. The year also saw the divi- sion increase the value of total assets under custody to EGP 334 billion compared to EGP 310 billion in 2016. 2017 Achievements • Launched sub-account services for international securities through opening segregated sub-ac- counts for brokerage companies under CIB’s main account held at international clearing depositories. • Renewed the CIB GDR agreement with deposi- tory bank Bank of New York Mellon (BNYM) for another five years. • Named the best sub-custodian bank in Egypt by Global Finance Magazine for the quality of services rendered. • Grew our securities portfolio by EGP 3 billion. • Assigned BNYM as sub-custodian for three new GDR programs (Amer Group, Porto Group, and Madinet Nasr for Housing & Development). • Acquired three new transactions with a total value of EGP 2.3 billion, maintaining our posi- tion as the leading trustee agent in the market +460k IVR users with 15 out of 17 securitisation SPVs for a total value of EGP 10.5 billion. • Maintained our leading position as the local sub-custodian for all Egyptian GDR pro- grams, handling 16 current programs with a portfolio of EGP 35 billion. Forward Strategy In 2018, GSS will enhance the sub-accounts services through providing financing services to brokerage companies to settle international securities (GDRs) and increase the volume of trading. Digital Governance The Digital Governance division was created as a dedicated entity to manage collaboration between the Digital Banking and GTS teams, bank gover- nance support functions, and the CBE with the fol- lowing main ongoing objectives: • Coordinating and planning for Management Committee deliverables and reporting, such as memos, SLAs, department strategies, etc. • Leading partnerships to provide new products to simulate financial inclusion, such as providing mobile wallet services to microfinance entities. 68 Annual Report 2017 Annual Report 2017 69 2017 In rEVIEW Coo Area CIB embraces advancement, putting in place a long-term vision that is set to be achieved through ongoing technological progression, enhancing in- frastructure, and optimising operational efficiency. This year, the COO Area continued the journey it began over two years ago to transform the Bank into one that is responsive to dynamic market changes by exploiting the power of technology and security as enablers for achieving our business roadmap and position customer experience enhancement as the pinnacle of fulfilling our business strategy. During 2017, we took steps to fulfil that strategy by diligently delivering and monitoring various business projects and initiatives, with special focus given to implementing the Security Strategy milestones and enhancing environment security. This was particular- ly important to cater to our Transformation Program and digitisation concept and to provide a more secure environment for our customers to bank safely. The Operations Group implemented several auto- mation and process reengineering initiatives to increase operational efficiency and reduce process- ing turnaround time to contribute to enhancing customer experience and staff productivity. This included the upgrade/change of the existing back- end workflow system to reduce operational com- plexities and enhance efficiency. In other areas, continuous focus was given to enhancing service standards with significant improvement noted for Call Centre Service Levels efficiency through a new Customer Relationship Management (CRM) sys- tem that significantly increased the capability of the Call Centre at managing customers’ inquiries and requests in an efficient manner. We aligned our customer centric focus with the Bank’s digitisation strategy with the aim at tak- ing customer satisfaction to the next level through developing products, services, and initiatives that contribute to delivering an exceptional customer experience. In keeping with this, the Bank invested heavily in improving its IT infrastructure, systems, and service stability and scaling up its infrastruc- ture base to keep pace with changing industry dynamics. This is set to support CIB’s agenda by de- livering a significant number of strategic programs, including an enhanced online banking platform for retail customers, new corporate online banking channels, CRM, and others. Our Corporate Customers can also now enjoy a completely new online banking platform with several newly added features, better performance, and new user interface. The new platform aims at increasing our Corporate and Business Banking customers’ wallet share. Our human capital development continued to be an area of focus. In 2017 we concentrated on our resource augmentation plan by hiring the required calibres, and increasing staff knowledge through a wide spectrum of technical and soft skill training programs provided locally and overseas. This was coupled with numerous initiatives for staff develop- ment, recognition, and supporting innovation such as the roll out of an internal Think Tank initiative that allowed staff from across all Bank functions to contribute ideas on how to enhance the customer experience and increase operational efficiency. A new recognition program was launched this year — CIB Star Award — which is a Customer Experience Excellence motivational award that gives CIB staff the chance to become leaders in incorporating a customer-centric approach in every aspect of a customer journey and demonstrating a passion to exceed customers’ expectations. CIB continued with its branch expansion strategy to increase its reach to customers across the country, delivering eight new branches this year and bring- ing the total number of CIB branches to 196. Our digital approach led to an accelerated growth in ATMs this year, with an additional 135 ATMs added since the beginning of 2017 for a total of 819 ATMs across Egypt. The COO Area continues to support and enable the delivery of the Bank’s aggressive business strategy, targeting the exponential growth of our customer base. We have built a strong and robust support structure to deliver our Transformation Program and incorporating data analytics and customer behaviour insights in our decision-making process. We continue to work on improving our operational efficiency in parallel with the gradual shift toward digitisation. Information Technology Over the past couple of years, IT has become the major catalyst for CIB to implement and fulfil its business strategy at all levels in the organisation. As part of the Transformation Program, we took a detailed look at our core banking platform to assess its readiness to cater to our future business requirements and sustain our competitive edge. Our objective is to progress to the latest core banking application version to leverage more of the systems’ features and its effective main- tenance and efficiency to cater for new product solu- tions and our customer segmentation strategy. Data analytics will accelerate and maximise the ability to effectively create, integrate, and manage data for the organisation. Insights from Big Data can enable the Bank to make better decisions, which has already began to bear fruit in collaboration with IT. Focus was given to reinventing consumer-banking engagement and facilitating the proximity and diversity of services for the existing consumer internet-banking model. Extensive technical up- grades and a face lift was conducted to enhance our Internet Banking services, empowering the Bank with web technologies and key features along with interactive elements. At the start of the year, we launched our Mobile Banking application to pro- vide customers with access to their accounts 24/7 and facilitate greater interaction and engagement between the Bank and customers. One of the main objectives we initiated for this year was laying the foundation for clear digital guidelines that can be used to develop and extend a unified user experience/interface across different digital touch points such as the website, Mobile Banking, and Internet Banking. A comprehensive program for upgrading our digital platforms is being under- taken over the next two years. CIB was the first bank to implement Zero Data Loss Recovery capabilities for a number of our core da- tabases as part of the Continuous Data Protection initiative. We continue to examine our capabilities 70 Annual Report 2017 Annual Report 2017 71 2017 In rEVIEW / COO Area ATM Progression 555 588 641 748 819 2013 2014 2015 2016 2017 through running live drills of our services and sys- tems from alternate sites in a seamless manner with no impact on our customers, emphasising CIB’s commitment to provide continuous services to its customers and manage any disruptive situations. 2017 was a very rewarding year for IT. We acquired the certification for Capability Maturity Model Inte- gration (CMMI L2) designed to address IT Develop- ment and Project Management and ensure IT can achieve and comply with industry best practices. CIB received Hewlett Packard Enterprise’s (HPE) Shining Star Award at their global forum in Dublin for the successful implementation of HPE’s monitor- ing tool. CIB was also awarded the Best Data Protec- tion Strategy award during the Dell-EMC Customer Experience Day Event, becoming the first bank to receive the honour regarding its 2016 strategy of Continuous Data Protection. Operations, Channels, and Customer Experience Operations, channels, and customer experience are the three most important inter-related pillars targeting the enhancement of customer loyalty and satisfaction. In late 2016, proactive Key Service In- dicators were set up to measure services from the customer perspective. We took efforts to improve the customer journey across all consumer digital channels to support our digital strategy and in- crease our customer migration to digital channels while optimising the customer journey and reduc- ing the cost to serve. Significant improvement was noted across all Key Service Indicators, and to en- sure continued focus on customer satisfaction, Net Promoter Score surveys are conducted across all segments and service channels. A new complaint management module was launched on the CRM ap- plication, which has reduced complaint-handling time and enhanced our customers’ satisfaction. Customer centricity was taken to the next level for Corporate and Business Banking customers this year with the launch of a new Corporate Branch model specialised in exclusively serving Corporate Customers. Five branches are currently operating and additional branches are a work in progress. The new model aims to provide a unique experience for our Corporate Customers, serving them more ef- ficiently and enhancing waiting time by breaking off from retail branches. To make more space for our front-liners, a number of initiatives were undertaken (either process reen- gineering or digitisation) to decrease service areas at branches from 35% to 20% and expand the space available to serve clients. A large share of this year’s initiatives were aimed at providing customers with new services, such as the launch of contactless cards and POS tap-and- go technology for merchant terminals and adding a new service to send a monthly SMS to inform all cardholders of their basic account information. A new ATM monitoring tool was successfully rolled out to maximise availability and enhance the cus- tomer experience. More migration initiatives to digital channels were introduced, such as accept- ing tuition fees over ATMs to offload the branch network, and several enhancements were applied to the IVR call tree to facilitate IVR self-service and offload Call Centre agents. We also began sending an activation SMS for credit cards to al- low customers to activate their cards by sending a text message to a pre-defined number, which has offloaded the Call Centre by around 40% and increased customer satisfaction. We kicked off the Operations Group Automation Roadmap to map our straight-through processing initiatives and their impact on transaction turn- around time, customer handling, and optimisation of existing headcount. Sustainability and social commitment is a value traced throughout the Bank even down to day-to- day operations. Our paperless branch initiative was launched as a pilot in some branches during the year to support the Bank’s digitisation strategy and en- hance transaction efficiency and turnaround time. Furthermore, we successfully automated custody statements and advises and improved the customer experience by providing one automated statement for all custody products. in the technology, governance, people, processes, and reporting domains. It contributed significantly to the Bank’s capability to detect and respond to security- related incidents, improve auditing and logging ca- pabilities for top critical applications, and manage brand protection and phishing attempts. Significant efforts were exerted on the compliance side this year. In August, CIB attained its first Pay- ment Cards Industry – Data Security Standards (PCI-DSS) certification after the exertion of vast efforts to ensure the Bank’s compliance with one of the most sophisticated security standards for card- holders’ data, hence providing a significantly more secure banking environment for our customers. In compliance with CBE regulations for mobile pay- ments, concrete steps were taken toward fulfilling the compliance requirements due in November 2017. Additionally, we began implementing a Swift Secu- rity Program (CSP) to meet mandatory compliance requirements that ensure we apply swift regulations in accordance with international standards. These efforts anchor the Bank’s commitment to remain up to date with all regulatory, compliance, and best practice requirements and guidelines. On the Business Continuity Management front, the Bank completed the automation of its Business Continuity Planning lifecycle by implementing a new automated platform aimed at improving the ef- ficiency of managing the plans, efforts, tests, and the management of any disruptions that could impact the Bank’s operations. CIB’s efforts on this front are continuously recognised by the business continuity industry, with the Bank being shortlisted for the 12th time for the Global Award in Business Continu- ity from the UK-based CIR magazine. Branch Progression 153 161 187 192 196 2013 2014 2015 2016 2017 On the premises and real estate front, CIB became the first bank in Egypt to acquire the GPRS Green Certificate, which was awarded to the Smart Village 3 Building. CIB is expanding its footprint in Smart Village through a fourth building that is currently in the fit-out phase, and we also established and commenced operating a state-of-the-art printing centre in the business district. The Bank continues to uphold the tenets of Corporate Social Responsi- bility (CSR) by contributing, along with officials in Hurghada, in the development of the Hurghada CIB Square next to CIB’s main branch through designing and implementing the landscape area in addition to installing CIB branding. Security & Business Continuity The evolution of security risks has necessitated that CIB develop its security structure and its functions to build and enforce stringent security governance policies. It has also made it necessary to continually develop our security functions ma- turity levels and cover all governance, risk, compli- ance, and operations/administration aspects. CIB was able to embark on its security transformation journey with assurance due to the emphasis placed on building advanced measures and solutions that protect the Bank’s customers, data, and market position. We started by defining the security strat- egy with two main directions: Managing Security Risks and Enhancing Cyber Security Posture. In 2017 CIB established the Security Operations Cen- tre (SOC) — the first of its kind in-house SOC in the Egyptian financial sector — which has proven its im- portance after the global hike in sophisticated cyber- attacks. SOC made significant strides during the year and according to an assessment conducted by an international consultant, it achieved a much higher maturity level than planned in comparison to other financial institutions in the Middle East and Africa 72 Annual Report 2017 Annual Report 2017 73 2017 In rEVIEW financial Control Group During 2017, the Financial Control Group continued to broaden its scope and functions, adding to CIB’s overall efficiency and market-leading performance, achieving remarkable success in four key milestones. Established in 2016, the Capital Management Unit played a key role during 2017, striving to continuously maintain the optimal capital mix between Tier I and Tier II capital on one hand, and between local currency and foreign currency on the other. It also sought to achieve the lowest possible cost while hedging against foreign currency fluctuations all the while proposing the appropriate cash and share dividend mix and ac- commodating for foreseen macroeconomic and regu- latory developments. The unit has further delivered strong performance in monitoring the Bank’s capital performance and in determining the optimum capital buffer above regulatory requirements in a way that manages the trade-off between solvency and profit- ability. The latter was particularly important in light of stringent regulatory requirements officially enforced by the CBE at the outset of 2017, namely the Internal Capital Adequacy Assessment Process (ICAAP), the Capital Conservation Buffer, and the Systemically Important Banks (SIB) buffer. Over and above, the unit worked under the umbrella of the Bank’s Enterprise Risk Management (ERM) Division to move from the Regulatory to the Economic Capital Model. 2017 also witnessed the launch and proximate finalisation of the IFRS 9 system implementation, which is expected to be up and running by end of the first quarter of 2018, thereby successfully meeting the effective date set by the International Accounting Standards Board (IASB). This ensures continuous compliance with international regula- tions, as required for CIB’s GDR program on the London Stock Exchange. On the basis of the cur- rent expectations for national interpretation of IFRS 9, which has not yet been issued, the Bank is expected to be prepared to make the necessary changes based on the CBE’s unique interpretations of the standards. Further adding to the progress, the first set of IFRS 9 compliant proxy financial statements were produced during the last quarter of 2017, allowing for a better understanding of the potential effects of the new standard on the Bank’s profitability and capital levels. Starting in 2016, the Financial Control Group took the lead in introducing the Value-at-Stake model to assess the feasibility of new and recently conducted projects, given the Bank’s considerable capital expen- diture, thereby coping with the continuous advance- ment in Information Technology, while rationalising investment spending and ensuring the best utilisa- tion of the Bank’s resources. By the first quarter of 2017, the VAS concept was fully implemented for all strategic projects with clear and defined guidelines, being monitored on a quarterly basis to include the updated performance of the projects in the post- implementation phase. Finally, and in line with CIB’s commitment to maintain the trust of its shareholders, the Taxation Department played a remarkable role in obtaining clearance from the Egyptian Tax Authorities re- garding all tax obligations, giving CIB shareholders unique transparency and certainty concerning the largest tax liabilities faced by Egyptian companies. 74 Annual Report 2017 The Bank’s solid performance during the year hinged first on its long-term, preemptive approach to balance-sheet management. 2017 In rEVIEW Big data 90% accuracy rate of CIB’s Anomaly Detection Model 2017 was yet another challenging year for the Ana- lytics & Data Management team as it attempted to overcome several hurdles to deliver tangible results. Our focus this year was divided into three axes: innovation, consumer analytics, and all while con- tinuing the infrastructure build-up started last year. Consumer Analytics Consumer analytics and focusing on customer behav- iour has been one of our goals for this year, and likely years to come. We aimed to transform CIB into a more customer-centric organisation through numerous projects. To start, we completely revamped the existing balance-based customer segmentation represented in the Wealth, Plus, High Net Worth, and Core segments, and a fully customised, i.e. data-driven, behavioural segmentation was proposed that puts the customer at the heart of the organisation and, hence, decision making. This puts more emphasis on lifestyle and consumption behaviour and will help business and product owners create more targeted promotions and propositions and improve the customer experience. The Data Team also worked on establishing an ex- haustive understanding of the existing base by seg- ment, including overseas customers. The insights covered all aspects of CIB product consumption, in- cluding their adoption behaviour, preferred product combinations, and associated profitability. It was further extended to assess customer activity levels and to identify existing opportunities and threats. To achieve a 360 view of our customers, several key data science models were developed to provide a thorough understanding of a customer’s typical journey with the Bank. A churn, i.e. affinity, pro- pensity model was developed to unify the defini- tion of a potential churner across CIB and identify (score) customers who are more likely to churn in the short term unless targeted with the right (tai- lored) retention offering. The model findings were coupled with an assessment of the potential losses associated with the phenomenon of churn during the previous years. Customers identified by the model as high risk of churn can be retained and, accordingly, result in higher customer retention rates. Based on a simulation done by this model, there is a potential net profit increase of c.EGP 29 million, resulting from the retention of 33,000 cus- tomers per annum (based on 2016 figures). We also created five Customer Indices to standardise reporting on customer performance. The main aim was to provide the Consumer Banking Team with KPIs that represent customer performance during any given period of time and thus enable stake- holders to monitor and track how their behaviour evolves with new marketing propositions or pricing decisions. The team developed a segmentation of credit card users by their top merchant category code (MCC) to help create targeted marketing campaigns, hence realising higher spends and consequently profitability and boost customer loyalty. The team also worked on a post-assessment of Equal Payment Plan propositions to provide informed recommenda- tions for enhancing our offerings. Customer Indices are expected to have a non-financial impact on the business, but introduced KPIs will allow Consumer Banking to track and monitor how customer behav- iour evolves over time with marketing campaigns and strategic decisions. We also joined forces with the Compliance Depart- ment to develop an Anomaly Detection Model with an accuracy level of over 90% in identifying risk and fraud. It is worth mentioning that the worldwide standard for similar models at other banks is an average 70-75% ac- curacy rate. The model is expected to identify irregular behaviour of retail customers who use their accounts for business purposes and should help the Compli- ance Department take necessary corrective actions to ensure CIB continues to abide by CBE regulations at minimum incurred costs. Moreover, it highlights potential opportunities among retail customers who need business services and support. The model is cut- ting down manual fraud detection time by at least 50%. This year also saw us employ Operations Research in a project focused on call-centre optimisation and performance improvement. The project assessed the current workflow to identify opportunities for improvement and used statistical forecasting tech- niques to help anticipate busy periods. This will help optimise resource allocation and make it easier to provide the necessary workforce when needed to provide fast and effective customer service. We also used analytics to develop a simulator of a customer’s journey within branches that focuses mainly on teller transactions. The main objective was to reengineer and optimise the process and workflow within branches, which will eventually enhance the overall customer experience. It provides “what-if” and scenario analysis capabilities to minimise the cost of trial and error, which was previously the stan- dard practice. The team is also currently working on a Facility Location model, which should help optimise the location, and hence costs, of any Bank facility established in the future, be it an ATM or a branch. As for our Product Recommendation Engine, the team found this year that including risk appetite in deter- mining the next bundle offered to customers was not significant and that replacing it with a purchase pat- tern would be of better value. As such, a Next Best Ac- tion (NBA) model was developed to help promote the next product offering based on its estimated appeal to customers according to their existing product portfolio instead of focusing on achieving pre-set targets regard- less of customer preference. The model is expected to increase product acquisition by at least 10%. The team was also responsible for formulating the business case for the Household Strategy, which was built in a customer-centric manner and included 76 Annual Report 2017 Annual Report 2017 77 2017 In rEVIEW / Big Data Human resources all the expected IT and human capital investments and their impact on financials. This business case helped quantify the segment, product, and channel financial targets as well as the impact of process en- gineering and IT investments on cost optimisation. Innovation We focused our data innovation efforts this year not just on CIB customers, be they individuals or corpo- rates, but on all data customers inside and outside CIB. Whether you’re CIB staff, a consumer, or a peer, we worked on innovations that can change the finan- cial landscape and cement CIB’s leadership position. The centre of our innovation projects this year was the talk of the financial sector — Distributed Ledger Technology (DLT) or Blockchain. This technological advancement could pose a serious threat to the indus- try, which is why we’re working on being a step ahead by working extensively with EMC2 on a research paper to better adapt the new technology for the regulatory and macro landscapes in Egypt. Through this endeav- our, we identified the possible uses as: • Operational simplification: Eliminates man- ual efforts required to perform reconciliation and resolve disputes. • Regulatory efficiency improvement: Enables real-time monitoring of financial activity be- tween regulators and regulated entities. • Counterparty risk reduction: Eliminates the need to trust counterparties to fulfil obligations as agreements are codified and executed in a shared, immutable environment. • Clearing and settlement time reduction: Inter- mediates third parties that support transaction verification/validation and accelerates settlement. • Liquidity and capital improvement: Reduces locked-in capital and provides transparency sourcing liquidity for assets. • Fraud minimisation: Enables asset provenance and full transaction history to be established within a single source of truth. CIB joined R3, an alliance of over 80 institutions com- mitted to delivering the next generation of financial infrastructure. Members will collaborate on re- search, experimentation, design, and engineering to help advance state-of-the-art enterprise scale ledger solutions to meet banking requirements for security, reliability, performance, scalability, and audit. Incubation: Fast track ideas by developing proof of concepts and market propositions quickly to gradu- ate to accelerator or stop. Research/Professional services: Drive delivery with dedicated Corda business and technical experts. Acceleration: Accelerate proof of concepts into production. Community: Collaborate with industry experts and contemporaries within other R3 member organisations. Starting 2018, we plan to capitalise on the analytics work already conducted in 2017 in keeping with our belief that data is the future. As such, we plan to con- tinue harnessing the power of data to keep CIB at the forefront of the Egyptian financial sector and to fulfil our duty toward our customers and shareholders. At CIB, we believe our people are the most important assets in making the Bank’s strategy a reality. Our Human Resources (HR) strategy focuses on five main pillars to support the Bank’s expansion, customer segmentation, digital transformation, and aim to provide a superior customer experience. These pil- lars are: Talent Acquisition and Employee Retention, Talent Management and People Development, Com- munication, Reward, and Automation. The aim of our HR strategy is to help drive the required changes in leadership, talent management, perfor- mance management, reward and recognition, personal development, staff communication, and organisation- al structures that are needed to ensure CIB achieves its strategic goals and that our employees are satisfied. Talent Acquisition and Employee Retention Our hiring strategy in 2017 directly aligned with the Bank’s overall strategy of identifying critical missing roles and formulating tactics to fill those roles at the soonest possible opportunity. We focused on hiring for strategic growth areas and worked on the development of a young workforce through the MADP program, hir- ing a total of 532 new people during the year. Last but not least, a 40-event tour was launched across different universities and venues in Egypt to promote the CIB Employer Value Proposition and its competitive advantage. This initiative maintains CIB’s firm commitment toward the development of Egyptian youth across different fields and preparing young people for the labour market, which creates a new generation of qualified candidates who will drive the country’s development and growth. In 2018, HR will continue to attract, identify, develop, and retain top talents across all areas though focus- ing on delivering a clear and sustainable recruitment strategy that encourages and enables the develop- ment of internal talent. This is in addition to the identification of external talent, the use of appropri- ate tools and methods for recruitment, and setting the GoTo Recruitment Strategy for an outstanding candidate experience through benchmarking all the recruitment stages from screening until on-boarding against top-notch international standards. CIB will continue to promote career progression and people development for its talents as we work toward building a strong internal talent pool while keeping headcount growth at a minimum. As such, employee retention is one the Bank’s key long-term successes, with CIB prioritising retain- ing their top talent and looking for effective ways to keep their best employees content. CIB’s over- all T/O ratio was 6.4% as of December 2017. The year also saw the standard CIB entrance exam replaced with a new assessment tool dubbed the Ability Test, which assesses new hires’ numerical reasoning, vocabulary, and critical thinking. Talent Management and People Development In 2017, a comprehensive suite of leadership train- ing programs and modules were resumed. CIB in- troduced innovative ways to effectively up-skill and empower CIB managers with the best professional learning experience by building on the IMD track (International Institute for Management Develop- ment) that was introduced in 2016. 78 Annual Report 2017 Annual Report 2017 79 2017 In rEVIEW / Human Resources 532 new hires 50 members of the lead Program CIB’s HR strategy focuses on Talent Acquisition and employee Retention, Talent Management and People Development, Communication, Reward, and Automation to support the Bank’s growth. Moreover, the Frankfurt School Leadership Track was resumed, with two rounds of Transformational Leadership taking place for 145 delegates over two modules. Currently, ongoing agreements are taking place with Frankfurt School to capitalise on the on- going journey for those who successfully attended Module I and Module II to pave the way for 2018. HR continued to enhance its talent management programs, introducing a newly revamped MADP program in February 2017. The three-month program now allows all MADP trainees (junior hires) to re- ceive training sessions about various bank areas and product knowledge. Furthermore, middle manage- ment programs MMDP and MMCC were revamped and consolidated into a single middle-management program (the CIB Lead Program). Executive man- agement identified and assigned 50 key talents at the management level to the program, all of whom underwent an online 360 ELP assessment conducted by Korn Ferry Hay Group. Key talents have a series of customised training modules to attend (seven core and three optional) throughout 2017/2018. Given the Bank’s focus on delivering the best cus- tomer experience, the Learning & Development Department (L&D) continued addressing service quality through designed programs such as the Icare program. The program focuses on branches, up-skilling branch managers, front liners, and back office staff on how to handle a variety of customers while delivering the best service quality. In cooperation with the Marketing & Corporate Communication Department, L&D organised the Customer Service for Special Needs Program to coach CIBians on how to professionally engage with customers and colleagues with special needs. Moreover, we launched the Service Award Rec- ognition Program (Star Award) to recognise the Bank’s best performing staff in an effort to increase service levels, empower middle management, and enhance employee morale. In 2018, CIB will continue to develop and support the growth of transformational leadership manage- ment through continuing to innovate the Leader- ship Development track, which was developed and kicked off in 2016, with the help of IMD, Frankfurt School, and other reputable specialised vendors in this domain. Its aim is to utilise CIB’s leadership capacity in alignment with the Bank’s strategy and to build core CIB leadership competencies. Additionally, L&D plans to build on the Talent Management Programs initiated in 2017, aiming to provide young talent with comprehensive exposure to different business areas, creating a solid pool of young talents and potential successors. Furthermore, finalising the Competency Frame- work will be one of 2018’s key priorities. The funda- mental basis of the competency-based approach is to understand the key competencies within any role, including the settings that cause some individuals to perform better than others. This takes place through 1) understanding what skills high perform- ers possess and the behaviours they demonstrate that are different to lesser performing individuals doing similar work, 2) defining the critical per- formance differentiators to act as a development template, and 3) developing and managing employ- ees in line with the high-performance template. Additionally, performance management system automation will be finalised and integrated with the competency framework. These two vital projects will help CIB build a performance-driven culture by creating objective tools for measuring talents and hence creating a solid pool of successors. A plan was also laid out to utilise rotation programs and embed CIB internal trainers into the Bank’s framework to deliver a 2018 training guide and engage with employees who are enthusiastic about their work. This is set to be a positive step in enhanc- ing CIB’s reputation and brand equity. CIB will continue to develop a high-performing culture where staff performance is supported, rewarded, enhanced, and managed effectively through establishing clear career paths and oppor- tunities for career progression. Communication In continuation of the Bank’s efforts to foster a high-performing culture and ensure alignment across divisions, 15 town halls were led by the head of HR to improve communication and increase performance-related dialogue. Moreover, 34 focus groups were conducted across the Bank to develop action plans linked to the results of the 2016 Em- ployee Effectiveness Survey (EES). HR will continue building the needed communi- cation tools to enhance the level of engagement within the organisation and increase awareness. Accordingly, 2017 saw us launch the HR Mobile Application, integrated with the HR Oracle mod- ule, offering Oracle self-service functions. Finally, the fourth EES, which was postponed from 2017, will be launched in 2018. EES aims to assess the level of employees’ effectiveness in line with implementing action plans set for 2016/2017. Reward In light of the Banks’ objective to improve its Re- ward Management system, CIB focused in 2017 on benchmarking the Bank’s compensation and ben- efits offerings across other local and regional banks by participating in annual salary surveys with Korn Ferry Hay Group. Furthermore, CIB developed a flexible reward framework that is able to differentiate between front-liners, technical, support, and back-office roles to step away from the “one-size-fits-all” approach. This allows us to place jobholders at different levels based on their job contribution to the organisation, while taking into consideration talent scarcity in a highly competitive market. One of CIB focus areas this year was preparing a Job Evaluation program and revamping our grading and salary structure, both of which resulted in high levels of satisfaction after the application of a new profit-sharing calculation methodology. We aligned CIB staff members’ compensation with market movements to ensure our external competitiveness is well positioned in the market, enabling us to at- tract, retain, and allocate the best calibres. 80 Annual Report 2017 Annual Report 2017 81 2017 In rEVIEW / Human Resources 15 town halls held 34 focus groups held EES employee effectiveness Survey assesses employee performance to align with the Bank’s action plan Our “Total Reward Approach” is highly valued by staff and facilitates organisational objectives through delivering a total Reward Strategy, which supports the achievement of organisational aims while positioning us as an employer of choice. As such, we aim to implement a new employee stock ownership plan allocation mechanism directly linked to profit share and improve HR benefits and medical services across all business areas in collaboration with the Social Insurance Services Community and Social Insurance Fund. We also plan to offer our employees more special offers at universities, schools, and clubs and provide better offers for car servicing. Automation Ongoing automation initiatives continued in 2017, seeing us introduce new technologies that auto- mated numerous activities through introducing the Oracle Learning Management (OLM) system. OLM enabled all CIBians to view L&D’s in-house program catalogue subject to their eligibility criteria and allowed us to launch online courses integrated with the Oracle system. Going forward, we plan to continue to build on au- tomation initiatives to adopt better, more integrated, and innovative solutions with functional capabilities to enhance the Bank’s productivity and efficiency. Risk Group The Risk Group (RG) provides independent risk oversight and supports the enterprise risk manage- ment (ERM) framework across the organisation. The group proactively helps recognise potential adverse events and establishes appropriate risk responses, which in turn reduces costs and losses associated with unexpected business disruptions. It works to identify, measure, monitor, control, and manage risk exposure against limits and tolerance levels and proactively reports to senior manage- ment and the Board of Directors (BoD). The area is managed by the Chief Risk Officer (CRO), whose responsibilities include the day-to-day monitoring of the following key areas: credit, investment, mar- ket, operational, conduct, liquidity, interest rate, security, reputational, regulatory, legal, social & environmental, and other non-financial risks, as well as the establishment of a holistic and inte- grated risk management framework. Overview 2017 was yet another year of uncertain economic circumstances, but CIB’s prudent risk manage- ment framework supported the containment of losses. Despite the challenges, the Risk Group con- tinued to align and collaborate with businesses on product development and risk strategies to drive growth without compromising portfolio quality, which was controlled within the risk appetite pa- rameters and continued to be on sound footing. ERM adopts an integrated and forward-looking risk approach with dynamic risk culture, robust data governance, and an adaptable technology platform 82 Annual Report 2017 Annual Report 2017 83 2017 In rEVIEW / Risk Group Risk Management Framework Financial risks Board of Directors, Risk, Audit, Operations & Technology Risk Committees P A A C I & g n i t s e T s s e r t S Risks Measurements Governance Policies Wholesale Credit Risk Consumer Credit Risk Business Banking Credit Risk Liquidity Risk Interest Rate Risk • Sensitivity Model/ Default Ratio/ Coverage Ratio and Provisioning Monitoring • High Lending and Invest- ments Committee • Institutional Banking Credit Committees • Credit Policy Loss Rates & Provisioning Monitoring • • Leading, Coincidental, & Lagged • Indicators Behavioural, Segmentation, Vintage & Past Dues Analysis • Consumer Risk Committee • Consumer Credit Policy • Business Banking Risk Committees Business Banking Credit Policy • Liquidity Gaps • • Net Stable Funding Liquidity Coverage Ratio • • • Economic Value of Equity Earnings at Risk Interest Rate Gaps • Asset & Liability Committee Treasury Policy Market Risk • Value at Risk Investment Risk • • • Internal Rate of Return Discounted Cash Flow Models Market Multiples • High Lending and Investment Committee Direct Investment Policy non-Financial risks Operational Risk • Conduct Risk • Vendor Risk • IT Risk • Loss Data Base • Risk and Control Self- Assessment • Key Risk Indicators • Heat Map • Global Database Control Testing • Security Risk • Cyber Risk • Information Risk • Risk/Threat Assessment and Monitoring Social & Environ- mental Credit Risk • Portfolio Concentration in High Social & Environmental Risk Firms (Category A) • Percent of Loans in S&Es Sectors Exclusions List • Breaches of Social & Environmental Covenants Reputational Risk • Employee Survey • Sentimental Report • Operational & Reputational Risks Committee • • • Operational Risk Policy Conduct Risk Policy Vendor Manage- ment Policy • Security Risk Committee • Security Policies • Institutional Banking Credit Committees • Social & Envi- ronmental Credit Risks Policy • Operational & Reputational ment Plan • Crisis Manage- Risks Committee • Crisis Communi- cation Plan e r u t l u C & e t i t e p p A k s r i Management first line of Defence Second line of Defence Third line of Defence Business Line Management Independent Risk Compliance & Legal Independent Audit Review & Challenge Identify and manage the risks inherent in the activities Set frameworks and rules, monitor and report on execution, manage- ment and control Provide an independent assess- ment for the entire process Manage Control Evaluate Governance Overview CIB’s risk governance structure utilises the lines-of- defense model, with a robust committee structure and a comprehensive set of policies and operating guidelines that are approved by the BoD. The BoD, directly or in conjunction with BoD 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 mem- bers of all credit, consumer, business banking, secu- rity, asset and liability management, and operation- al and reputational risk committees, are responsible for the 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 members of the Bank’s senior management team. Its primary mandate is to manage the asset side of the balance sheet, keeping a close eye on asset allocation, quality and development, while ensuring compliance with the Bank’s credit poli- cies and the CBE’s directives and guidelines. The HLIC reviews and approves the Bank’s credit facilities and equity investments, and 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 optimising the allocation of assets and liabilities, given expectations of the poten- tial impact of future interest rate fluctuations, liquidity constraints, and foreign exchange exposures. ALCO monitors the Bank’s liquid- ity 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 monitoring all matters related to the quality and growth of the consumer portfolio. CRC decisions are guided first and foremost by the Bank’s cur- rent risk appetite, in addition to prevailing mar- ket trends, all the while ensuring compliance with the principles stipulated by the Consumer Credit Policy Guide, as approved by the BoD. • The Security Committee’s main objective is to provide guidance and advice to help maintain and improve all matters related to security, in- cluding information confidentiality, integrity and availability, as well as physical and cyber security, Bank asset protection, and workplace security. • Operational & Reputational Risk Committee’s (ORRC) main objective is to oversee Operational and Reputational Risks Management functions and processes independently and concur on ap- propriate frameworks to enhance Risk Culture. 84 Annual Report 2017 Annual Report 2017 85 2017 In rEVIEW / Risk Group The Risk Group continued to align and collaborate with businesses on product development and risk strategies to drive growth without compromising portfolio quality. Enterprise Risk Management (ERM) CIB’s ERM Framework is unique among local and regional peers and is a key pillar for the Bank. Starting up in 2014, ERM adopts an integrated and forward-looking risk approach, combined with dynamic risk culture, robust data gover- nance, and an adaptable technology platform while being aligned with both business and risk strategies and governed by a robust Risk Appetite Framework. ERM uses risk oversight, control, and governance to efficiently utilise existing risk management capabilities and to help improve the operating environment and reduce operational surprises and thus mitigate risks. Risk Appetite CIB embeds ERM into strategy-setting, budgeting, and performance management, providing management with information needed and adopting alternative strategies. The Bank aligns business objectives with risk appetite and risk tolerance, quantifying this with earn- ings volatility, capital adequacy, and stable funding as the primary Key Risk Indicators (KRIs) that cascade into risk tolerances by risk category and risk limits. Culture CIB’s risk culture encourages effective communication among employees to facilitate the alignment with busi- ness and risk strategies. It also promotes an understand- ing of prevailing risks throughout the organisation, spreading risk culture and internal controls awareness. Integrity and reputation are embedded in the Bank’s culture, being key requirements to operate successfully. Risk Group plays an important role in spreading risk culture by expanding awareness sessions across the entire organisation, including branch staff, and holding tailored programs for different groups. Identify, Measure, Manage, Monitor, and Report (IMMMR) CIB uses the IMMMR approach to ensure appropriate risk identification of material risk that may impact strategy and goals. Adequate risk assessment through a comprehensive set of measures and techniques prompt risk response through developing strategic tactics and contingency plans to mitigate possible threats, in addition to sufficient controls via a compre- hensive set of policies and procedures. Stress Testing Stress testing is an important tool used by the Bank, for both internal and external reporting, utilising local and international best practices. The main purpose of stress testing is to assess CIB’s resilience to unfavourable shocks, and its main tar- get is to formulate forward-looking strategies that mitigate the effects of these unfavourable shocks on the Bank’s financial position. Its role is to also ensure there is ample capital for continuity should unfavourable conditions arise. Limits and Policies CIB has a comprehensive set of risk management policies, limits, processes, and procedures, which are regularly updated to align with the Bank’s strat- egy, Risk Management Framework, market dynam- ics, and CBE regulations. CIB’s policies, processes, and procedures are communicated throughout the organisation and are used as a tool of control over the Bank’s risk level and tolerance. Institutional Banking (IB) Credit Risk CIB continued to pursue its prudent growth mo- mentum in alignment with the IB credit portfolio quality. This risk-adjusted growth is a result of the consistent commitment to the credit risk process outlined via a comprehensive set of policies and op- erating guidelines adopted by Bank staff under the supervision of the BoD. The following are the key tools used in credit risk identification and assessment: • Internal Credit Rating Assessment Model: This is used to evaluate corporate portfolio customers’ risk ratings through several phases, starting with covering all regulatory guide- lines, consolidating historical information, and translating all aspects into qualitative and quantitative measures. • Credit Risk Analysis: Senior management has adopted a more risk forward-looking strategy in the credit approval process to align risk with business objectives. The holistic analysis plays a strategic role in focusing on industry norms both domestically and internationally. Financial Institution (FI) and Country Risk The FI and Country Risk Team was formed to ac- tively collaborate with international counterpar- ties and develop a broad network of correspon- dent relationships coupled with an efficient and prudent approval process. Social and Environmental Credit Risk Management CIB has a long-standing commitment to sustain- able development that is deeply rooted in its operations, policies, and procedures. As part of the Bank’s proactive contribution to community development, the Social and Environmental Credit Risk Department was established in 2014 to focus on assessing the Bank’s indirect impact on both society and the environment. United Nations Environment Programme (UNEP) CIB is the first and only financial institution in the Middle East to have joined the UNEP-Finance Initia- tive (FI). The Bank collaborated with the UNEP-FI team and members to address the role of financial institutions in achieving a worldwide sustainable finance approach. CRO is responsible for the identification, assessment, and reporting of all types of risks across the Bank’s business lines Consumer and Business Banking Credit Risk Consumer and Business Banking Risk is managed via a robust framework in which businesses operate, while ensuring portfolio quality is aligned within the Bank’s risk appetite. The Consumer and Busi- ness Banking Risk Management structure ensures that risks are identified and accurately measured, controlled, and proactively managed throughout all levels within the organisation through Credit Risk Assessment and Measurement models to safeguard the Bank’s financial strength and grow its market position, while ensuring compliance with the Bank’s business strategy and regulatory principles. The Consumer Credit Cycle is presented in five main stages: Strategic Analytics, Product Plan- ning, Credit Underwriting, Collections & Recover- ies, and Account Maintenance, with assignment of different roles and responsibilities to manage the Consumer Risk structure. On the Business Banking front, the Bank has fo- cused on a revamped strategy aimed at growing 86 Annual Report 2017 Annual Report 2017 87 2017 In rEVIEW / Risk Group and diversifying the portfolio and portfolio quality through increased emphasis on small ticket sizes to diversify risk and build loss-absorption capacity. Consumer and Business Banking products’ portfolio quality has been sustained, ensuring advanced portfolio management techniques by monitoring all current and historical programs’ performances. This complements the identifica- tion of potential growth segments and the detec- tion of early warning signals. Liquidity and Funding Risk The main measures and monitoring tools used to assess the Bank’s liquidity risk include regulatory and internal ratios, gaps, Basel III ratios, asset and liability gapping mismatch, stress testing, and funding base concentration. Being proactive by looking ahead and in response to the current na- tional and international market conditions, CIB pursued a successful strategy for sourcing liquidity as a backup for any stressed scenarios for deposit runoffs, to support any potential growth in loans, and comfortably cover any sudden shocks. In 2017, the Basel III Liquidity Coverage Ratio (LCR) and Net Stable Funding (NSF) remained strong and in compliance with regulations. Interest Rate Risk The Bank uses a variety of measurement techniques on the basis of earnings and economic value perspec- tives to measure and control the potential impact of interest rate risk on the Bank’s financial position to obtain a complete picture of exposure, including Gap Analysis, Economic Value of Equity (EVE), and Earnings-at-Risk (EaR). CIB promptly responded to the challenging interest rate environment and assumed a more conservative and risk-averse bal- ance sheet growth. The Bank tactically managed its asset mix and reengineered its balance sheet in a manner that mitigated the potential negative impact on earnings and lowered the volatility of the capital base. In addition, CIB has a robust interest rate stress testing framework that encompasses an evaluation of the impact of extreme market changes on the earnings and economic value based on a dif- ferent set of variables and assumptions. Market Risk CIB has a solid Market Risk Management (MRM) framework that measures and assesses market risk in the trading book. MRM sets key limits, which is part of the Treasury Policy Guide (TPG), to monitor and control market risk by considering both the Bank’s risk appetite as well as the pro- jected business plan. These include position, stop-loss, and Value at Risk (VaR) limits. CIB was proactive and assumed further FX devaluation using multiple scenarios to forecast and measure the potential risk that might negatively impact the Bank’s earnings and capital. The Bank has clear procedures to monitor and control exposure to FX risk within the internally approved overnight, intraday, and stop-loss limits set in the TPG. Operational Risk CIB maintains a comprehensive Operational Risk framework, with policies and processes designed to provide a controlled environment and to moni- tor the first line of defense in identifying and as- sessing risks and controls. The Bank monitors corrective action plan implementation to mitigate risks in systems, human factors, policies, internal processes, and external events using CBE guide- lines and best practices. Other Non-Financial Risks In 2017, the Bank enhanced focus on the following non-financial risks: • IT Risks: Action plans are monitored and a framework is under implementation based on best practices. • Vendor Risk: An enhanced framework has been set to ensure all vendors are evaluated, monitored, and assessed to meet the criteria of qualified suppliers. • Reputational Risk: The Bank has success- fully defined ownership of Reputation Risk as an independent section, and a framework is under development. • Conduct Risk: CIB was the first Egyptian bank to establish a Conduct Risk Framework in compliance with the Financial Conduct Authority (FCA), UK. • Fraud Risk: A dedicated Fraud Team was re- located under Operational Risk Management to determine possible vulnerabilities that may lead to fraud events and to ensure preventive measures are in place. Internal Control Management (ICM) ICM joined the Risk Group in 2017 to enforce a pro- active identification and monitoring of controls to increase independence & reliability and better man- age the overall risk and control framework. ICM is considered one of the main pillars of control, and it ensures a full range of coverage by conducting vari- ous reviews across the entire branch network and 88 Annual Report 2017 2017 In rEVIEW / Risk Group 11 types of risks assessed under the Risk Management framework Compliance different departments, in addition to special inves- tigations and assignments. This allows it to assess risk and compliance of the applied policies & pro- ceedures and to ensure that the overall performance is consistent with the pre-determined standards, plans and objectives. In addition, ICM provides the concerned stakeholders and Senior Management with a comprehensive understanding on the effec- tiveness of controls for any corrective action. • Developed new statistical models and enhanced approaches for detection of early warning sig- nals and provisioning modules. 2018 Ongoing Forward Strategy • The ERM Framework strategy that will con- tinue to enhance the Bank’s risk models for Credit, Operational, Market, Interest Rate, and Liquidity Risks. • Continue to enrich the framework for Non- 2017 Accomplishments Financial Risks. • The Risk Group won the Middle East and Africa awards for the Enterprise Risk Management and the Liquidity Risk Management from the Asian Banker Singapore. • Enhanced Risk Culture via focused training programs. • Finalise the implementation of the IFRS9 project. • Upgrade risk policies and procedures to align with the business strategy. • Build a scalable risk infrastructure to attain customer experience excellence and a value- based strategy. • Reengineered Risk Assessment and associated • Expand the scope and coverage of the Internal process for IB and Consumer Credit risk. Control Management. • Introduce an advanced and dynamic Consumer Risk Collection & Recovery mechanism. • Developed Industry Rating model (IRAM) for Corporate. Consumer Risk predictive analytics were developed to enhance risk identification and lending credentials. • Developed a Non-Bank FI & Micro Finance Risk Assessment Model. • Commenced the Non-Financial Risks Frame- work (Reputational and Vendor Risks). • Revamped the Real Estate Low Income Scheme with the objective of increasing the penetration rate to the unbanked population. The Compliance Group at CIB is an independent unit that supports the Bank to pursue its growth strategies and indicates its reliability. The group provides intrinsic benefits beyond avoiding fines and penalties that includes constructive commu- nication, improved overall business practices, and better understanding of the regulatory environ- ment and its application in practice. The group also works to ensure CIB adheres to compliance standards to safeguard the Bank against a full spectrum of compliance risks. The Compliance Group has five divisions under its umbrella: The Policies and Procedures Division ensures that all controls, laws, and regulations are embedded in the applied policies and procedures, which are periodi- cally reviewed to ensure they are up to date. The divi- sion is also responsible for reviewing and approving marketing materials, contracts, and customer forms. The Corporate Governance and Code of Conduct Division commits to follow international best practices and market standards by ensuring that a sound Corporate Governance model is in place. The CIB Corporate Governance Guidelines provide the framework for the effective governance of the Bank to enhance long-term values of shareholders, employees, other stakeholders, and the community. The Anti-Money Laundering and Terrorism Fi- nancing (AML) Division monitors transactions and customer account activity and screens trans- actions against negative lists and those related to sanctioned countries to avoid the Bank’s involve- ment and shield it against money laundering and terrorism-financing crimes. The Foreign Account Tax Compliance Act (FATCA) Division ensures the right implementation of FATCA regulations within CIB and provides a yearly report to the US Internal Revenue Services (IRS). The CBE Relations Division serves the entire Bank to ensure all banking operations comply with CBE instructions and guidelines. 2017 Accomplishments In keeping with the preventive measures taken in 2016, the Policies & Procedures Division took on new initiatives in 2017 to ensure the adherence to regulations and policies, while achieving qual- ity service and customer satisfaction. The division’s main accomplishment this year was highlighting detected issues to the concerned business heads and supporting them in taking corrective actions to comply with set procedures and regulations. The division participated jointly with the CBE Relations Division in tailoring new trade finance products to cope with the new demands of CIB customers. 90 Annual Report 2017 Annual Report 2017 91 2017 In rEVIEW / Compliance Internal Audit CIB’s Internal Audit Group is determined to so- lidify its position within the Bank and the market to meet its clients’ expectations while simultane- ously complying with international standards (IIA Professional Practice Framework). The CIB Board Audit Committee is the backbone of Internal Audit Group, supporting and safeguarding the independence of the third line of defence to over- seeing Operation & Risk Management activities, ac- cording to a risk-based audit methodology. The Internal Audit Group provides independent and objective assurance to its stakeholders, in addition to consulting activities designed to add value and improve the organisation’s operations. It supports senior management in accomplish- ing CIB’s strategic objectives by assessing the adequacy and effectiveness of the internal control system. Concurrently, it evaluates and improves the effectiveness of Enterprise Risk Management and governance processes. Internal Audit staff are meticulously selected, have diversified professional experience that covers all banking functions, and are backed by numerous professional certifications (e.g. CIA, CBA, CPA, CISA, and MBA). Internal Audit staff are continuously in- volved in internal and external training programs and regularly attend international conferences to increase their proficiency and update their knowl- edge of international trends and methodologies, such as Enterprise Risk Management (ERM), IFRS, Basel, etc. Internal Audit staff also attend commit- tees and meetings sponsored by senior management to ensure they are kept up to date with manage- ment’s strategies and objectives. Triggered by our belief that Internal Audit acts as a trusted advisor to the organisation, a new divi- sion was established in 2017 to provide consultan- cy activities. The division is mainly responsible for studying challenges and providing consulting services to management upon request, based on a preapproved scope. It also conducts special inves- tigations, if required. This year, our Follow-Up Division succeeded in increasing its annual issues closure rate, while our Quality Assurance Division continued to regularly obtain surveys from audited entities on the effective- ness and added value of the Internal Audit teams dur- ing the year. The division also conducts regular qual- ity assurance reports after each Audit Engagement to ensure we comply with international standards. Empowered by our BoD Audit Committee and in line with the latest international trends, a complete synergy between Internal Audit Group and our strong Data Analytics Division has been created, which will increase the efficiency of the Internal Au- dit function and provide a continuous monitoring mechanism to detect early warning signs. The Corporate Governance and Code of Conduct Divi- sion in 2017 succeeded in avoiding potential conflict of interest by reviewing a considerable number of depart- ments’ restructuring versus respective job descrip- tions. Moreover, the division continued with its efforts to handle staff issues while encouraging a culture of whistle blowing in good faith. In 2017, the division made sure no trading of CIB’s stock, either by employees or by insiders, took place during blackout periods to promote transparency and integrity to shareholders. In coordination with the Egyptian Money Launder- ing Combating Unit (EMLCU), the AML Division managed in 2017 to adopt a new reporting system to receive suspicious reports and additional in- formation by using GoAML software (a product of UNODC’s Information Technology Service). Back in 2016, the AML Division handled the logistics involved in converting to a fully automated moni- toring system using SAS software — the industry’s leading analytics software and solutions provider. In 2017, the system was partially implemented and is expected to be fully implemented in 2018. In keeping with the AML Division’s ethos of con- sistently enhancing performance and applying the highest international standards and best practices, the AML team attended international seminars to keep up to date on AML trends locally and globally. In doing so, a total of eight AML officers are now internationally certified by the ACAMS, with more expected to be certified in the future, making the team one of the highest qualified in the country. In 2017, the FATCA Division successfully uploaded the yearly report to the IRS as a Single Foreign Financial Institution (FFI) and another report as Sponsoring Entity for CIB Mutual Funds. After the sale of CIB’s stake in its subsidiaries, the FATCA Division updated CIB’s status at the IRS as a Single Financial Institution instead of Lead Institution, and for that a new Global Intermediary Identifica- tion Number (GIIN) for CIB was obtained. Moreover, the division is completing preparations for the implementation of the Common Reporting Stan- dard (CRS) to be ready for reporting once Egyptian authorities announce the target date. Due to market conditions and ongoing changes dur- ing 2017, the CBE Relations Division resumed working closely with all CIB stakeholders to maintain a smooth workflow and to ensure compliance with the regula- tor’s directives. The division had to respond to a sub- stantial volume of daily inquiries and follow special CBE approvals for exceptional cases. In another milestone for the CBE Relations Division in 2017, the team began to conduct training courses to enhance awareness of CBE regulations for all staff. Strategy Going Forward Going forward, the Compliance Group will con- tinue to assist the Bank in achieving its financial, operational, and strategic goals while maintaining compliance with all associated laws and regulations through identifying institutional risks, performing reviews, investigations, and analysis. Moreover, the Compliance Group will continue to act as the safeguarding shield against a full spectrum of compliance risk while upholding compliance issues through effective education and training programs, and fostering the values of knowledge, honesty, in- tegrity, respect, and professionalism. 92 Annual Report 2017 Annual Report 2017 93 2017 In rEVIEW Marketing and Corporate Communication Over the years, CIB has been well positioned as the largest private bank in the market, strengthening its brand exposure and leadership on both the local and international spheres and being a local Egyp- tian bank with a global view. More importantly, the Bank succeeded in affixing its reputation to rigid core values that revolve around loyalty, trust, and social commitment. These values not only enhance and expand our brand equity, business growth, and positioning, but at the epitome of it all support and contribute to the financial sector’s growth and lead community development change across Egypt. CIB kick-started 2017 with significant international recognition, having its brand value ranked the first in Egypt by The Banker’s — one of the world’s most renowned international organisations — in its list of Top 500 Banking Brands. CIB’s brand value also saw a notable growth rate of 43% to USD 449 million from USD 313 million in 2016. CIB was also ranked sixth in Africa and 269th globally, climbing 57 places since 2016. Another outstanding achievement for the Bank was being named by Euromoney as the World’s Best Bank in Emerging Markets for the first time in the Egyp- tian, Middle Eastern, and African banking sector. The award represents a distinguished acknowledgment of CIB’s role in the banking sector attained by a sound strategic vision, goals, and defined plans conducted over the past few years to transform the Bank into a leading full-fledged financial institution and reaffirm its position as the most profitable private sector bank in Egypt, backed by a dedicated staff. Though both the economic and political conditions were challeng- ing this year, the Bank also underwent an aggressive technological upgrade plan, adopting new business propositions and promoting innovation. As further recognition of the Bank’s best-in-class banking services and excellence in introducing an innovative, unique banking experience, CIB received the Best Bank in the Middle East award by Euromoney. The award confirms CIB’s robust foun- dation and consistent development with a base built on balance-sheet management, customer-driven core banking strategy, and consistent operational efficiency. These factors allowed the Bank to outper- form on both a regional and global level. Awards received this year are international testi- monies for CIB’s leading position, outstanding per- formance, and effective strategies to meet interna- tional banking standards and compete with other organisations globally. Such a strong positioning in the market attracts investors and communicates a healthy recovery process for the Egyptian economy. A full list of the prestigious international awards that CIB achieved in 2017: • Best Trade Finance Provider in Egypt by Global Finance • Best Treasury & Cash Management Providers in Egypt by Global Finance • Best Foreign Exchange Provider in Egypt by Global Finance • Best Bank in Egypt 2017 by Global Finance • Best Bank in Egypt by Euromoney • Best Securities Services Providers in Egypt by Global Finance • Best Cash Management Services in North Af- rica by EMEA Finance 6th place ranking in Africa • Best FX Services in North Africa by EMEA Finance • Best Local Bank in Egypt by EMEA Finance • Most Innovative Bank–Pan Africa by EMEA Finance • Achievement in Enterprise Risk Management in the Middle East and Africa • Achievement in Liquidity Risk Management in the Middle East and Africa The Corporate Communication team worked exten- sively on campaigns to shed light on the Bank’s ac- complishments by promoting it across the world’s most prominent foreign media channels. Such efforts included securing interviews for the Bank’s senior management with leading media outlets such as Bloomberg, The Economist, Reuters, Global Finance, Global Markets, Banker Africa, Euro- money, EMEA Finance, and The Financial Times. It also promoted the chairman’s participation in two significant international events: 1) the Yahoo Finance! All Markets Summit in New York, where the chairman was the only participant from the Middle East, with his session hitting 1.3 million viewers online, and 2) the Global Financial Forum organised by Dubai International Financial Centre (DIFC). Foreign media campaigns also featured the Bank’s achievements on digital media platforms with the placement of digital banners to maximise audience reach, paint Egypt’s image in a positive light, and market the Bank’s brand globally, mak- ing Egypt more attractive to investors. Similarly, the Bank was constantly present on local and regional media channels, including coverage of the Bank’s achievements, products launches, news, interviews, and special editorials across both print and online high-traffic media platforms. The PR and media campaigns were held with respected publica- tions such as Al-Arabiya, Bloomberg Middle East, Forbes Middle East, and MSNBC. To further enhance the Bank’s online arena, the Marketing and Corporate Communications team aligned with the Bank’s strategy to develop its e- channels and turn them into mobile-friendly por- tals, using an intuitive and responsive design that adapts to tablets and smartphones. Since the Bank’s internal communication channels are on equal footing with brand equity, the corporate intranet was mirrored onto a mobile app to provide a more convenient platform for CIB employees. As for brand positioning, the Bank ensured strategic and exclusive brand exposure in the tubes of Cairo In- ternational Airport, in addition to its special brand- ing across the airports of Burg Al-Arab, Hurghada, and Sharm El-Sheikh. Events and sponsorships were also piloted to help maintain CIB’s brand identity as a positive key player in Egyptian society. The Bank has continued to strengthen its ongoing commitment to maintain a positive impact on soci- ety through its diverse Corporate Social Responsi- bility (CSR) activities focused on recognising Egyp- tian art, culture, social care, sports and lifestyle. 2017 also saw the Bank embark on a new type of sponsorship with high-level international events that promoted Egypt and CIB such as the Bicente- nary Celebration of Abu Simbel Temple’s Discovery, held in Le Petit Palais in Paris under the auspices of the Ministry of Foreign Affairs and the Egyptian 94 Annual Report 2017 Annual Report 2017 95 2017 In rEVIEW / Marketing and Corporate Communication USD MN 449 in brand value 43% increase in brand value Embassy in France. The event recognised a UNESCO campaign to help save Nubia’s historical monu- ments and was attended by more than 600 public figures. Such exposure aligned with the Bank’s goal of reviving Egypt’s historical and cultural legacy and efforts to boost tourism. In line with the Bank’s efforts to support Egyptian youth, CIB was the exclusive banking sponsor of the ‘100% Egyptian Cotton’ fashion installation in the International Fashion Showcase (IFS) 2017 in Lon- don, which featured Egypt’s best emerging design- ers. The Bank was also one of the main sponsors of the World Youth Forum in Sharm El-Sheikh, which represented a platform to bring together promising youth of diverse backgrounds to send a message of peace and harmony to the entire world. Similarly, CIB sponsored the Africa 2017 Forum, held under the patronage of the Egyptian President in Sharm El-Sheikh, to support a platform for heads of state, government, the private sector, and business leaders in Africa and beyond to identify critical issues and engage in fruitful resolutions. Strengthening CIB’s leadership has always been Marketing and Corporate Communications’ guid- ing principle when selecting sponsorships and activities that reflect the Bank’s ongoing commit- ment to maintaining a positive impact on society. As such, CIB made active contributions to diverse sponsorships and events, which included: CSR • Sawy Culture Wheel • KidZania • Autism • Beena Initiative • Zawya • Squash for Everyone Quality, Lifestyle, and Sports • IMAX, Americana Plaza and Point 90 cinema complex • Egyptian Squash Federation • El-Gouna E-Bikes • Inter-Embassy Football Tournament Art and Culture • 100% Egyptian Cotton • Night with Art at the Egyptian Museum • La Biennale di Venezia • Youth Salon • Upper Egypt Salon • Aisha Fahmy Palace Renovation Business • Money and Finance Conference • ICT • American Chamber of Commerce in Egypt • Curing Tourism Conference • Unifying Religions Conference • Money and Finance Throughout all our events, the Creative and Produc- tion team served as a supportive arm by creating educational videos and rebranding designs to help communicate messages and align with the Bank’s identity in a more creative and innovative manner. On the marketing communication front, the team worked this year on launching regular campaigns for new products focused on branding, and hence creating a bond between the brand and the custom- er. We relaunched in early January the Heya credit card with an extravagant event at the Nile Ritz Carl- ton Hotel attended by high-end Heya customers as well as prominent figures. Multiple campaigns, promotions, and partnership launches in various specialties were also initiated to enhance the Bank’s customer experience offering. These ranged from campaigns empowering women such as the Top 50 Women event, to promotions including CIB- Egyptair Mileseverywhere, the Instalment Payment Plan campaign, and Bonus Loyalty program. Wealth Customers were invited to two CIB spon- sored events that align with the lifestyle of the segment, including the Ahl Masr Ramadan Event featuring prominent classical composer Omar Khairat and mega-star Amr Diab’s summer con- cert in Marassi. Many offers and promotions were customised to Wealth customers, including but not limited to, complimentary loyalty points on Bonus program and free five-star hotel vouchers. The Bank also took significant strides in launch- ing digital campaigns to align with the Bank’s overarching digitisation strategy to embody in- novation and transformation. Building on product proximity to customers, we launched in 2017 the Mobile Banking campaign in addition to the ATM Tuition Fee campaign, which allows universities to accept tuitions through our ATM network. More- over, we revamped the CIB website to make it more user friendly and launched upgraded features and capabilities. Not only did this boost traffic to the website significantly, but it greatly increased our brand equity. The Bank also employed a variety of online advertising tools, up to date with industry trends, ranging from search engine marketing to display ads, to social media sales leads generations that provided a wealth of data and sales leads for a spectrum of products allowing the Bank to reach a wider audience with minimal cost. Other campaigns launched this year were ones to increase limits on Internet Banking transfers, the CBE campaign, Smart Wallet campaign, and the visually impaired inclusion campaign. Addition- ally, the Bank focused on launching personal loan initiatives such as the Self-Employed campaign, which sought to help self-employed customers achieve their dreams by offering them loans with a tenor of up to eight years and a loan amount of up to EGP 500,000. 96 Annual Report 2017 Annual Report 2017 97 CIB AFFILIATES CIB AFFILIATES CIB Affiliates Falcon Group Established in 2006 as a joint venture between CIB, the CIB Employees Fund, Al-Ahly for Marketing, and other private entities, Falcon Group management’s strategy is centred on service excellence. The compa- ny provides a plethora of services including, but not limited to: security services, money transfer, techni- cal systems and security products, public services and project management, and tourism and concierge services to a variety of industries such as the indus- trial, commercial, tourism, and public sectors. The group provides state-of-the-art, holistic solu- tions tailored to every client’s specific requirements. Falcon Group’s key strength lies in its single-point-of- contact solutions that ensure it provides consistent services at the highest quality, lowest risk, and with great flexibility at a reasonable cost. Falcon for Security Services Falcon for Security Services has been the main secu- rity service provider for several top-tier government and non-government organisations, such as the Unit- ed Nations, and a number of embassies in Egypt. With a portfolio of over 630 clients, the company provides services such as property protection, event security, corporate security and training, personal protection, as well as safety and industrial training to some of the biggest companies in Egypt. The company values clients as business partners, dedicated to providing them with the highest quality of service and treating their goals and objectives as its own. 200% in 2017, with the year seeing the company or- ganise events such as the Egypt Can Conference, Auto Mac Formula, African Champion’s League matches, and China Trade Fair. • The company achieved a market share of 60% this year and aspires to maintain its market leadership by growing both organically and through acquisitions. Forward-looking Strategy As part of the group’s goal of providing top-notch solutions, Falcon companies plan to use managed service providers for its activities. The group also expects to target prominent institutions and clients such as Amer Group and Eni Company for Petroleum Services to add to its roster of clients while simulta- neously expanding its product and service offering to ensure clients remain fully satisfied and confident in them as their number one choice in terms of effi- ciency and customer service. In 2018, the group plans to expand its market presence by 25%. Falcon for Public Services and Project Management Falcon for Public Services and Project Management operates all facility systems to the comfort and sat- isfaction of facility occupants. The company offers general cleaning, landscaping, façade cleaning, and marble polishing at the highest quality, efficiency, and cost effectiveness. Falcon for Public Services and Proj- ect Management holds a market share of 20%, serving a large client base out of 300 different locations in 2017. 2017 Achievements 2017 Achievements • Falcon for Security Services achieved its 2017 goal of working with numerous prominent institutions and added new segments of clients through secur- ing several projects such as the new conference hall, Porto Sokhna, and El Zamalek Sporting Club. • Increased income in 2017 to 45%. • Increased the percentage of securing public events • Through considerable efforts to build solid relation- ships and gain the trust and confidence of public and private institutions, the company succeeded in signing on several new clients such as a new confer- ence hall, Toshiba El Araby Group, and Cequens. • The company has also been able to renew important contracts such as with the Port Said Security Directorate, the Embassy of the Sultanate of Oman, the Embassy of the State of Kuwait, and Mall of Arabia. Forward-looking Strategy The company’s strategy is based in its firm belief that their performance is measured by their cli- ents’ success. Over the next year, the company plans to sign sizeable several contracts with gov- ernment agencies as they continue to carefully select, train, and supervise their professionals and staff to ensure they meet client needs and provide exceptional levels of performance. Falcon for Cash in Transit Services Falcon’s Cash in Transit division works with reputable banks and companies in Egypt, providing CIT servic- es, ATM replenishment, maintenance, vaulting, cash management, and valuables transportation through a highly qualified team. In 2017, the company increased its market share to 38% through the acquisition of new award contracts and expanding its client portfolio. 2017 Achievements • Falcon signed new contracts to increase its mar- ket presence, achieving growth of 15% in 2017. • The company served 1,160 ATMs in 2017 com- pared to 1,100 in 2016. • Falcon signed a partnership agreement with one of the largest companies in the world that will al- low it to provide more services and offer expanded benefits to its clients. • The company increased cash volumes to 40% in 2017. • Falcon increased gross revenues to 40% in 2017 • The company added nine armoured vehicles to its fleet. Forward-looking Strategy The company plans to grow the segment’s market share through providing new services for retail, hav- ing already integrated new solutions to collect cash from shopping centres. Falcon for Cash in Transit will also use the latest technology to develop ATM services and in its managed cash offerings as part of its strategy to streamline its operations. The com- pany is also investing considerable resources to train its team members to consistently provide the highest level of service to clients. Falcon Tech Falcon Security Systems designs, implements, and maintains all integrated electronic systems in the field of technical security for facilities and individuals. Falcon Tech succeeded in expanding its market share to 60% by signing several new contracts in 2017 to provide security systems to airports, com- mercial malls, and universities. 2017 Achievements The company signed several new clients, including: • The Ministry of Armed Forces • General Intelligence • Suez for Petroleum Production • El Ahly Club • Civil Protection • 20 new CIB branches • Cairo International Airport Falcon for PR and Communications (Tawasul) Falcon for PR and Communications (Tawasul) spe- cialises in communication services and consultancy as well as event and conference management. It also offers media services. CI Capital As part of CIB’s strategy to gradually offload its auxiliary activities to funnel its efforts directly into its core bank- ing services, CIB took steps to divest part of its stake in CI Capital Holding (CI Capital). In a transaction valued at EGP 710 million, CIB transferred 74.75% of its shares in the company to non-related Egyptian and Gulf inves- tors in March 2017. Another partial sale of the Bank’s 9.99% shares took place in early July, amounting to EGP 101 million. Later that month, CIB transferred another 3.45% in a transaction worth EGP 45 million. The Bank now retains a minority stake of 10% in CI Capital. 100 Annual Report 2017 Annual Report 2017 101 SuSTAInABILITY SuSTAInABILITY Corporate Governance 32.45% RoAe 8 standing committees are tasked with assisting the BoD in decision-making Effective corporate governance remains central to the culture and business practices of CIB as the Bank seeks to continually upgrade and adopt best practices in the areas of governance, transparency, ethics, management and oversight of risk, audit and compliance. The Bank has an overarching objective to become the best financial institution in Egypt and has committed to numerous concrete principles and corporate values to achieve this objective. Such values are embedded across the Bank through a corporate governance framework that is relevant and propor- tionate to the scope and size of CIB’s businesses. Striving for the best interests of our shareholders guides everything we do, and we have established a sound reporting system that ensures the dissemina- tion of material information in a timely, transparent and accurate manner. The Bank continues to uphold its mandate of creating value for its shareholders, something we are firmly committed to in the pres- ent 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 distinguished group of non- executive, independent directors, who believe man- dated laws and rules that govern business activities can never be substituted for ethical behaviour 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, Compli- ance, and Internal Audit) and effectively utilises the work carried out by those functions to ensure the Bank adheres to international best practices of corporate governance. Board of Directors CIB prides itself on its strong, renowned BoD that provides the Bank with the necessary leadership and experience to manage its business with integ- rity, efficiency and, most importantly, excellence. The Board primarily focuses on long-term financial returns and the best interest of all stakeholders, whether they are customers, shareholders, employees or members of the communities in which the Bank op- erates. The Board’s role is to set the Bank’s long-term strategy and provide proper oversight. It establishes the appropriate tone at the top, oversees manage- ment and long-term performance, reviews financial planning and audit process, ensures risk oversight and compliance, sets compensation and performance goals and manages director nomination, evaluation and succession planning. It oversees our economic, social and environmental sustainability, perform- ing its duties with entrepreneurial leadership, sound strategies and risk management oversight to ensure risks are assessed and properly managed. To maintain balance and independence, the Board went through several reforms this year to further en- hance its structure and general representation levels and increase female participation to keep up with corporate governance best practices both on the lo- cal as well as the international arenas. Furthermore, in line with CBE directives on corporate governance as well as international best practices that have seen many companies worldwide increasingly separating the roles of chairman and chief executive officer, and in view of the Bank’s future growth plan, CIB’s BoD appointed Mr. Hussein Abaza as the Bank’s CEO and Executive Board Member to be responsible for man- aging and directing the Bank’s business lines and ensuring smooth day-to-day running of the Bank and execution of strategy approved by the Board, thus creating more space for the chairman to focus on the strategic direction of the Bank. By the end of 2017, CIB’s BoD comprised nine mem- bers with a diverse knowledge base and a balanced skill set that gives the Bank a distinct competitive edge. The directors meet at least six times per year to discuss matters that are important to sharehold- ers. Over the course of 2017, CIB’s BoD met six times. Being the single largest shareholder in CIB, Fairfax Financial Holding Ltd, through its wholly owned subsidiaries, currently holds 6.65% of CIB’s local shares on the back of its transaction with Actis in May 2014 and has one representative on the BoD. 104 Annual Report 2017 Annual Report 2017 105 SuSTAInABILITY / Corporate Governance Mr. Hisham Ezz Al-Arab Chairman and Managing Director Mr. Hisham Ezz Al-Arab has been chairman and managing director of CIB since 2002. He leads today a team of more than 6,500 professionals who have transformed the institution from a wholesale lender into Egypt’s largest private-sector bank, leading the sector on key metrics including revenue, prof- itability, net worth and market share of deposits. CIB serves more than 1 million customers, from individual customers to small- and medium-sized businesses and leading corporations, among them Egypt’s 500 largest companies. The Bank’s market capitalisation has grown from EGP 1 billion at the beginning of Mr. Ezz Al-Arab’s term to EGP 90 billion, making its stock — a blue chip compo- nent of the Egyptian Exchange — the global investment community’s preferred proxy for Egypt and a bench- mark for the banking industry in emerging markets. Core to the Bank’s success is its unique culture, which balances an entrepreneurial spirit that prizes innova- tion with a commitment to global best practices in both corporate governance and risk management. That culture, nurtured over more than 15 years, is the Bank’s natural competitive advantage and led directly to the establishment of the first-of-its kind employee stock ownership program (ESOP) in 2006, thus align- ing the interest of employees to that of shareholders. In 2010, Mr. Ezz Al-Arab brought to life the CIB Founda- tion, which is a leading Egyptian voice for universal ac- cess to quality healthcare extended to underprivileged children. CIB was named Euromoney’s Best Bank in the Middle East and Best Bank in Global Emerging Markets for 2017 and was named African Banker’s 2016 Socially Responsible Bank of the Year. Mr. Ezz Al-Arab was recognised in 2016 by Euromoney for his “Outstanding Contribution to Financial Services in the Middle East” and was EMEA Finance’s “Best CEO in Egypt and Africa” at the magazine’s 2014 Banking Awards. Under his leadership, CIB was named the “World’s Best Bank in the Emerging Markets” by Euro- money at the Global Awards for Excellence ceremony held in July 2017, thus becoming the first bank in Egypt, Africa and the Middle East to ever win this award. Mr. Ezz Al-Arab leads the Federation of Egyptian Banks as Chairman, is a member of the Institute of International Finance’s Emerging Markets Ad- visory Council and serves as a director of Master- Card Middle East’s Regional Advisory Board. He is also the Chairman of Board of Trustees of the CIB Foundation. Mr. Ezz Al-Arab is Non-executive Director of Ripplewood Advisors MENA Holdings, a Non-executive Director of Fairfax Africa Board and a Non-executive Director of Atlas Mara. Mr. Ezz Al-Arab joined CIB from Deutsche Bank and previously served with both JP Morgan and Merrill Lynch in postings that took him to Bah- rain, New York and Cairo. He holds a BA in Com- merce from Cairo University. Mr. Hussein Abaza Chief Executive Officer and Board Member Mr. Jawaid Mirza Independent, Non-Executive Board Member Mr. Hussein Abaza is a careered banker with more than 30 years of experience in the financial services industry — including both commercial banking and investment banking — and is well-known in the global financial community. From October 2011 until his appointment as CEO and BoD member in March 2017, he was CEO for Institutional Banking at CIB. He has previously served as the Bank’s Chief Risk Officer and Chief Operating Officer and began his journey with CIB in 1985, when the Bank was known as Chase National Bank of Egypt. Mr. Jawaid Mirza is the founder and president of Fo- calone Consulting Company Incorporation in Ontario, Toronto, Canada. A strong proponent and practitioner of international corporate governance and well versed in multi-country compliance, Mr. Mirza brings over 35 years of diversified experience and a solid track record in all facets of financial, technology, risk and operation management. In mid-May 2013, he joined CIB’s BoD and assumed the responsibilities of Managing Direc- tor, overseeing the daily work of the following areas: Consumer Banking, COO, Finance Group and IT. Outside CIB, Mr. Abaza worked as Head of Re- search at EFG Hermes Asset Management from March 1995 to October 1999. Mr. Abaza graduated with a BA in Business Admin- istration from The American University in Cairo in 1984 and has completed professional training in Belgium, Switzerland, London and New York. Mr. Mirza is widely recognised for realigning and returning to excellence and profitability flounder- ing business units and building collaboration across multiple jurisdictions for business and cultural change. He has extensive experience as a Director, taking a firm and resolute approach to leading board committees while allowing free and open discussion and keeping a tight rein on proceedings. Mr. Mirza has a demonstrated ability to lead a business through challenges, removing barriers to drive success and sharpening its competitive edge in all economies and cultures. Having spearheaded numerous mergers and acquisitions, working alongside experts through due diligence to final negotiation, contractual conclusion and blending of multicultural resources, he has proven to be an adaptive leader, intuitive of international business protocol and cultural diversity, with the ability to manage teams crossing multiple geographies. Over the years, Mr. Mirza has worked with global institutions like Citicorp and ABN AMRO Bank. He started his career in Citibank as a Financial 106 Annual Report 2017 Annual Report 2017 107 SuSTAInABILITY / Corporate Governance Dr. Sherif Kamel Independent, Non-Executive Board Member Mr. Yasser Hashem Non-Executive Board Member Controller in Pakistan before serving in a variety of senior regional positions in ABN AMRO in Central Eastern Europe, Europe, Central Asia, the Middle East and Africa. He later moved to Hong Kong as Corporate Executive Vice President and CFO responsible for the Asian region and Austra- lia/New Zealand. He has led successful due dili- gences for acquiring banks in Hungary, Taiwan, Thailand, Germany, France and Pakistan. Mr. Mirza was a member of the Top Executive Group of ABN AMRO bank, member of ABN AMRO Group Finance Board as well as Group COO Board, and served on the board with ABN AMRO Pakistan Ltd. He took business manage- ment courses from reputable institutions includ- ing Queens Business School, Wharton Business School. He currently serves on the Board of Direc- tors of Eurobank Greece (Athens) as an Indepen- dent Board Member and Chair of the Board Risk Committee. He also served on the Board of Direc- tors of Prime Bank, ABN AMRO Pakistan Ltd. post the acquisition and integration of Prime Bank. He also served on the boards of non-profit organisa- tions, namely Artistri Sud (Montreal), Humewood House (Toronto). He is a member of the Institute of Corporate Directors, Canada. Mr. Mirza has been a CIB Non-executive Board Member since January 2014 and chairs the Audit Committee. He is also a member of the Risk, Opera- tions & Technology, Compensation and Corporate Governance and Nomination Committees and a member of the Sustainability Advisory Board. Dr. Sherif Kamel is professor of management and found- ing dean of the school of business at the American University in Cairo. He also served the university as vice president for information management and as associate dean for executive education. Before joining AUC, he was director of the Regional IT Institute and prior to that he was training manager of the Cabinet of Egypt Informa- tion and Decision Support Center. He is an Eisenhower Fellow and the Center for Global Enterprise Fellow. He is a member of the AACSB International Middle East Advisory Council; Egypt-US Business Council and a board member of Education for Employment Egypt. Previously, he was a board member of the Egyptian American Enterprise Fund, executive vice president of the American Chamber of Commerce and member in the World Bank Knowledge Advisory Commission. He was a founding member of the Internet Society of Egypt. He was invited as panelist/speaker in a variety of policy, development and leadership conferences and expert meetings including Asia-Middle East Dialogue, AACSB International, World Summit on the Information Society, Center for Strategic and International Studies, Atlantic Council, German Marshall Fund, Middle East Institute, the International Monetary Fund and the World Bank. Kamel holds a PhD in information systems from London School of Economics and Political Science, an MBA, a BA in business administration and an MA in Islamic Art and Architecture from the American University in Cairo. His research and teaching interests include management of information technology, information technology trans- fer to developing nations, organizational transforma- tion, electronic business, decision support systems and entrepreneurship. His work is published in information systems and management journals and books. Dr. Kamel is CIB Non-executive Board Member since May 2013 and chairs the Operations & Technology Com- mittee and a member of the Audit, Compensation, Cor- porate Governance & Nomination Committees. 108 Annual Report 2017 Striving for the best interests of our shareholders guides everything we do, and we have established a sound reporting system that ensures the dissemination of material information in a timely, transparent and accurate manner. Combining a wide range of extensive legal knowl- edge with honed networking and interpersonal skills, Mr. Hashem protects and furthers the inter- est of over 100 local and international clients. He received his LL.B. from Cairo University in 1989. Mr. Hashem has been a CIB Non-executive Board Member since May 2013 and chairs the Corporate Gov- ernance and Nomination Committee. He is a member of the Audit and Compensation Committees. Mr. Yasser Hashem has been the Managing Partner of Zaki Hashem & Partners since 1996 and Partner from 1989 to 1996. He was admitted by the Egyp- tian Court of Cassation in 2007 and is a member of the Egyptian Society of International Law and the Licensing Executive Society. His expertise in cor- porate M&A and capital markets extended to the privatisation of public sector entities, the inception of the private provision of telecom services in Egypt, and the promulgation of its laws, which have placed him as a value veteran of Egyptian legal practice. With a focus on corporate law, Mr. Hashem played a major role in the privatisation of public sector entities in Egypt through supporting hundreds of restructurings, capital market transactions, incorporations of foreign and domestic compa- nies and advising foreign and local investors on the most efficient vehicles and structures for their investments in Egypt. Mr. Hashem’s legal skills were also extended to the telecommunication sector in Egypt throughout his contribution to the drafting and negotiation of all major telecom licenses, including public payphones, mobile cellular networks, private data networks, satellite and marine fiber optic cabling, etc. His expertise in the telecom field led to his ap- pointment by Ministerial Decree as Member of the New Telecommunication Act Drafting Committee. He was responsible for most IPOs that took place in Egypt in the last decade and has reliably represent- ed acquirers in all major tender offers and M&A transactions in Egypt. Furthermore, he has led the largest four major multibillion USD M&A transac- tions in Egypt after the January 2011 Revolution. SuSTAInABILITY / Corporate Governance Mr. Mark Richards Independent, Non-Executive Board Member Mr. Bijan Khosrowshahi Non-Executive Board Member Mr. Mark Richards is Chief Executive of IPGL (Hold- ings) Limited, a major corporate holding Company based in the UK. He is Chairman of Exotix Hold- ings Limited, a frontier markets brokerage and investment bank and Director of Singapore Life, a rapidly growing digital life insurance group oper- ating across south-east Asia. At Oxford University he is also an advisor to Oxford Sciences innovation, the venture capital unit. Mr. Richards brings considerable experience in emerging market banking and investment. He was Partner and Global Head of Financial Services at Actis, one of the world’s leading and most ethical emerging market private equity groups. During 11 years at Actis, Mr. Richards was responsible for building many successful companies in Africa, Asia and Latin America. He previously spent 18 years at Barclays in senior roles including CFO of the International Offshore Bank, Director of Group Strategy and Head of Group Corporate Development. With his 30 years of global experience in Banking and Financial Services, Mr. Richards serves as Non-Executive Director for a number of compa- nies. At CIB, he chairs the Risk Committee and supports strategy development. He has a first class degree from Oxford University in modern history and economics. Mr. Richards completed the Accelerated Develop- ment Program from London Business School, and Group Level Strategy from Ashridge Management College. He also attended the Leading Professional Services Firms Program at Harvard Business School. Appointed in October 2014 representing the interest of Fairfax Financial Holdings Ltd., Mr. Bijan Khos- rowshahi was nominated by Fairfax to continue serve the company’s interest in CIB for the Board Term 2017-2019. He joined Fairfax Financial Holdings in June 2009 and is currently based in London, UK. Fairfax is a financial services holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment manage- ment. Fairfax is listed on the Toronto Stock Exchange. Mr. Khosrowshahi also represents Fairfax’s interests as a board member in Gulf Insurance Group and Gulf Insurance & Reinsurance Company in Kuwait, Bah- rain Kuwait Insurance Company, Arab Misr Insurance Group S.A.E. in Egypt, Arab Orient Insurance Company in Jordan, Gulf Sigorta in Turkey, Alliance Insurance Company in the UAE as well as Jordan Kuwait Bank in London and BRIT Limited in the United Kingdom. Prior to joining Fairfax, Mr. Khosrowshahi was the Pres- ident and CEO of Fuji Fire & Marine Insurance Company Limited in Japan. He is the only non-Japanese individual to have been the president of a publicly traded Japanese insurance company. In 2002, Fuji Fire & Marine began a major reform of the company after investment by its ma- jor shareholders American International Group (AIG) and ORIX Corporation. Mr. Khosrowshahi was elected president in June 2004 and successfully implemented a turnaround strategy to return Fuji to profitability and growth through taking strategically leading positions within the insurance industry in Japan. From 2001 to 2004, he was the President of AIG’s General Insurance operations based in Seoul, South Korea where a major restructuring plan resulted in significant revenue and profitability increases through specific product and channel strategies. From 1997 until 2001, Mr. Khosrowshahi was the Vice Chairman and Managing Director of AIG Sig- orta based in Istanbul, Turkey and was involved in negotiating strategic alliances and joint ventures with Turkish conglomerates and working with government regulators to improve support for new product introductions for the emerging Turkish insurance market. Prior to this position, he was Regional Vice President of AIG’s domestic property and casualty operations for the Mid-Atlantic region based in Philadelphia. Mr. Khosrowshahi also held various underwriting and management positions with in- creasing responsibilities at AIG’s headquarters in New York since joining AIG in 1986. Mr. Khosrowshahi obtained an MBA in 1986 fol- lowing an undergraduate degree in Mechanical Engineering in 1983 from Drexel University. He participated in the Executive Development Pro- gram at the Wharton School of the University of Pennsylvania in 2003 and is a regular lecturer at universities and insurance institutes. Mr. Khosrowshahi has served on the Board of the Foreign Affairs Council and the Insurance Society of Philadelphia. He has also been a council mem- ber of USO in South Korea, the Chairman of the Insurance Committee on the American Chamber of Commerce in South Korea and a member of the Turkish Businessmen’s Association. He is also a member of the UK Chartered Insurance Institute. Mr. Khosrowshahi has been a CIB Non-executive Board Member since October 2014. He chairs the Com- pensation Committee and is a member of the Risk and Corporate Governance & Nomination Committees. HE Dr. Amani Abou-Zeid Independent, Non-Executive Board Member HE Dr. Amani Abou-Zeid is a senior international devel- opment expert with extensive knowledge of Africa at the strategic and operational levels. For more than 30 years, she has served in leadership roles at top-tier internation- al organisations such as the African Development Bank (AfDB), UNDP and USAID, with a focus on infrastructure and energy programmes. She was elected in January 2017 as African Union Commissioner in charge of regional and continental strategies, policies and partnerships in the sectors of infrastructure, energy, ICT, and tourism. Over her career, she has amassed a rare mix of experi- ence from across Africa, France, the UK and Canada and worked across constituencies with a wide variety of stakeholders. She has managed an operational port- folio of USD 10 billion and implemented national and continental multi-sectoral development programmes, including the world’s largest solar power plant (Nour). An Egyptian national, Dr. Abou-Zeid has a multi- disciplinary academic training: B.Sc. in Telecommu- nications Engineering from Cairo University); an MBA in Project Management from the French University for African Development (Université Senghor); a Masters of Public Administration from Harvard University; and a Ph.D. in Social and Economic Development from The University of Manchester, UK. She also has a degree in Arts from Université Sorbonne-Paris IV. Dr. Abou-Zeid has received numerous international awards and recognitions for her leadership and excellence including the Wissam Alaouite de l’Ordre Officier honour from HM King Mohamed VI of Morocco, “Personalité d’avenir” from the government of France and was se- lected as one of The 50 Most Influential Women in Africa. In 2017, Dr. Abou-Zeid was also named Commissioner to the Global Leaders Broadband Commission for Sus- tainable Development and received the “Outstanding Alumni Award” from the University of Manchester, UK. 110 Annual Report 2017 Annual Report 2017 111 SuSTAInABILITY / Corporate Governance Mrs. Magda Habib Independent, Non-Executive Board Member Mrs. Magda Habib is the Co-Founder and Chief Ex- ecutive Officer of Dawi Clinics, a chain of primary care clinics established in Egypt in 2016. Mrs. Habib has vast experience in the technical information technology and electronic payments fields as well as smart banking solutions. She has 25 years of exper- tise in various managerial arenas including strategic brand management, consumer and retail marketing, corporate communications and investor relations. Previously, she was the Co-Founder, Board Member and Chief Commercial, Marketing & Strategy Officer at Fawry Banking and Payment Technology Services. As a co-founder and a key member in the executive team, Mrs. Habib helped establish Fawry as the leading electronics pay- ment platform in Egypt with more than 50,000 payment points nationwide. Mrs. Habib’s journey with Fawry culminated with a successful exit to a consortium of private equity funds in 2015. Prior to Fawry, Mrs. Habib spent nine years as a member of Raya Holding’s executive team where she played a key role in the merger and develop- ment of Raya Group, as well as being responsible for the creation and development of the Raya brand to become a leading technology player in Egypt. Mrs. Habib obtained an MBA from INSEAD, France. She holds a B.Sc. with Honours in Computer Sci- ence from The American University in Cairo. 9 members make up CIB’s renowned BoD, providing the Bank with the leadership and experience to manage its business with integrity, efficiency, and excellence Board of Directors’ Committees CIB’s BoD has eight standing committees that as- sist in fulfilling its responsibilities. Accordingly, the BoD is provided with all necessary resources to enable members to carry out their duties in an effective manner. Each committee operates under a written charter that sets out its responsibilities and composition requirements and the commit- tees report to the BoD on a regular basis. Separate committees may be set up by the BoD to consider specific issues when the need arises. 112 Annual Report 2017 SuSTAInABILITY / Corporate Governance Non-Executive Committees Executive Committees Committee Members Key Responsibilities Committee Members Key Responsibilities Audit Committee Supervising the quality and integrity of CIB’s financial reporting Chair: Mr. Jawaid Mirza Members: Dr. Sherif Kamel, Mr. Yasser Hashem Established to offer effective oversight of the integrity of the Bank’s financial reporting process, the effectiveness of the Bank’s internal control system and its compliance with all statutory requirements. The committee is also responsible for overseeing and reviewing the performance of the Bank’s internal audit and compliance functions, as well as the work of the Bank’s external auditors to ensure the in- dependence and objectivity of each and the quality of the audit and compliance processes. The committee met four times in 2017. Corporate Governance and Nomination Committee Responsible for CIB’s corporate governance as well as the Board’s Nomination process and succession planning Chair: Mr. Yasser Hashem Members: All other Non- Executive Board Members Established to advise the Board on the general oversight of gover- nance matters to ensure the promotion of a sound governance cul- ture within the Board and the Bank. This entails a periodic review of the Bank’s corporate governance structure and recommending changes, when and if necessary, to the BoD. The committee also sits as the Nomination Committee with the primary objective of setting criteria for selecting new directors and assisting the BoD in identifying individuals qualified to become BoD members and recommending director nominees to shareholders. Also, the committee provides advice and assistance to the BoD, when nec- essary, with respect to a potential successor to the Bank’s Chief Executive Officer. The committee met four times in 2017. Compensation Committee Responsible for compensa- tion of the BoD and the Bank’s executive officers Chair: Mr. Bijan Khosrowshahi Members: All other Non- Executive Board Members Established to provide guidance to the BoD with regard to the appropriate compensation for the board directors as well as Bank’s executive officers and ensure that compensation is consistent with the Bank’s objectives, strategy and control envi- ronment. The committee is to ensure that clear policies for the Bank’s salaries and compensation schemes are in place and that they are deemed effective to attract and retain the best calibres. The committee met four times in 2017. Risk Committee Supervising risk management Chair: Mr. Mark Richards Members: Mr. Jawaid Mirza, Mr. Bijan Khosrowshahi, Dr. Amani Abou-Zeid Operations and IT Committee Assisting the BoD in oversee- ing Bank operations and technology strategy and operations and technology risk Chair: Dr. Sherif Kamel Members: Mr. Jawaid Mirza, Mrs. Magda Habib Established to provide oversight of risk exposure management functions and to assess management compliance to the set risk strategies and policies approved by the BoD through periodic re- ports submitted by the Risk Management Group. The committee makes recommendations to the BoD with regard to risk manage- ment strategies and policies (including those related to capital adequacy, liquidity management, various types of risks: credit, market, operation, compliance, reputation and any other risks the Bank might be exposed to). The committee met four times in 2017. Established to provide oversight of: (a) Bank operations, its tech- nology strategy, and significant investments in support of this strategy and (b) operations and technology risk management. The committee met five times in 2017. Management Committee Responsible executing the Bank’s strategy Chair: Mr. Hussein Abaza Members: CIB Senior Management This committee is responsible for formulating fundamental policies and strategic goals, assess the Bank’s performance and its competitive position, and ensuring proper management of the Bank’s human and financial resources to maximise return of equity and preserve shareholders’ value. The committee met 17 times in 2017. High Lending and Investment Committee Responsible for asset alloca- tion, quality and development Chair: Mr. Hussein Abaza Members: CIB Senior Management This committee is responsible for managing the Assets side of the Balance Sheet and its provisioning and taking decisions with regards to the assets allocation within the authorities delegated to the committee as stipulated in the Bank’s Credit and Invest- ment Policies. The committee convened weekly throughout 2017 and met 57 times. Affiliates Committee Responsible for steering and managing CIB affiliates Chair: Mr. Hussein Abaza Members: CIB Senior Management The committee is responsible for steering and managing the Bank’s affiliates and acting as a think-tank for setting and initiating all strategic goals related to the Bank’s affiliates. The committee met five times during 2017 External Auditor The General Meeting of Shareholders appoints the external auditor. The Audit Committee recom- mends the auditor to the BoD, to be proposed for (re) appointment by the General Meeting of Sharehold- ers. In addition, the Audit Committee evaluates the performance of the external auditor. CIB changes auditors every five years to ensure objectivity and the exposure to new practices. Shareholders’ Rights Our General Assembly is the platform where shareholders exercise their voting rights. The Bank’s Annual General Meeting of Sharehold- ers is held in March each year, no later than six months after the end of the company’s financial year. Additional Extraordinary General Share- holders meetings may be convened at any time by the BoD. Shareholders’ consent is required for key decisions such as: • Adoption of the financial statements • Declaration of dividends • Significant changes to the Bank’s corporate governance • Remuneration policy • Remuneration of Non-Executive Directors • Discharge from liability of the BoD • Appointment of the external auditor • Appointment, suspension or dismissal of the members of the BoD • Issuance of shares or rights to shares, restriction or exclusion of preemptive rights of sharehold- ers and repurchase or cancellation of shares • Amendments to the Articles of Association 114 Annual Report 2017 Annual Report 2017 115 SuSTAInABILITY Management Committee Mr. Hisham Ezz Al-Arab Chairman and Managing Director Mr. Hisham Ezz Al-Arab has been chairman and managing director of CIB since 2002. He leads today a team of more than 6,500 professionals who have transformed the institution from a wholesale lender into Egypt’s largest private-sector bank, leading the sector on key metrics including revenue, prof- itability, net worth and market share of deposits. CIB serves more than 1 million customers, from individual customers to small- and medium-sized businesses and leading corporations, among them Egypt’s 500 largest companies. The Bank’s market capitalisation has grown from EGP 1 billion at the beginning of Mr. Ezz Al-Arab’s term to EGP 90 billion, making its stock — a blue chip compo- nent of the Egyptian Exchange — the global investment community’s preferred proxy for Egypt and a bench- mark for the banking industry in emerging markets. Core to the Bank’s success is its unique culture, which balances an entrepreneurial spirit that prizes innova- tion with a commitment to global best practices in both corporate governance and risk management. That culture, nurtured over more than 15 years, is the Bank’s natural competitive advantage and led directly to the establishment of the first-of-its kind employee stock ownership program (ESOP) in 2006, thus align- ing the interest of employees to that of shareholders. In 2010, Mr. Ezz Al-Arab brought to life the CIB Founda- tion, which is a leading Egyptian voice for universal ac- cess to quality healthcare extended to underprivileged children. CIB was named Euromoney’s Best Bank in the Middle East and Best Bank in Global Emerging Markets for 2017 and was named African Banker’s 2016 Socially Responsible Bank of the Year. Mr. Ezz Al-Arab was recognised in 2016 by Euromoney for his “Outstanding Contribution to Financial Services in the Middle East” and was EMEA Finance’s “Best CEO in Egypt and Africa” at the magazine’s 2014 Banking Awards. Under his leadership, CIB was named the “World’s Best Bank in the Emerging Markets” by Euro- money at the Global Awards for Excellence ceremony held in July 2017, thus becoming the first bank in Egypt, Africa and the Middle East to ever win this award. Mr. Ezz Al-Arab leads the Federation of Egyptian Banks as Chairman, is a member of the Institute of International Finance’s Emerging Markets Ad- visory Council and serves as a director of Master- Card Middle East’s Regional Advisory Board. He is also the Chairman of Board of Trustees of the CIB Foundation. Mr. Ezz Al-Arab is Non-executive Di- rector of Ripplewood Advisors MENA Holdings, a Non-executive Director of Fairfax Africa Board and a Non-executive Director of Atlas Mara. Mr. Ezz Al-Arab joined CIB from Deutsche Bank and previously served with both JP Morgan and Merrill Lynch in postings that took him to Bahrain, New York and Cairo. He holds a BA in Commerce from Cairo University. Mr. Hussein Abaza Chief Executive Officer Mr. Hussein Abaza is a careered banker with more than 30 years of experience in the financial services industry — including both commercial banking and investment banking — and is well-known in the global financial community. From October 2011 until his appointment as CEO and Board Member in March 2017, he was CEO for Institutional Banking at CIB. He has previously served as the Bank’s Chief Risk Officer and Chief Operating Officer and began his journey with CIB in 1985, when CIB was known as Chase National Bank of Egypt. major expansions within the Operations Area through the establishment of new divisions serving the expan- sion of the business or merging several operations divisions, including Corporate Services, Alternative Channels and Real Estate and Facility Management. Outside of CIB, Mr. Abaza worked as Head of Re- search at EFG Hermes Asset Management from March 1995 until October 1999. Mr. Abaza graduated with a BA in Business Admin- istration from The American University in Cairo in 1984, and has completed professional training in Belgium, Switzerland, London, and New York. Mr. Mohamed Sultan Chief Operating Officer Mr. Mohamed Sultan is CIB’s Chief Operating Officer, a role he assumed in February 2015. He joined CIB as Head of Consumer Operations in 2008, and within six months was appointed Head of the Operations Group. In September 2014, Mr. Sultan was appointed Head of Operations & IT before assuming his role as COO. Under his leadership and management, the Opera- tions Group was significantly developed, resulting in In his continuous efforts to enhance the Bank’s internal and external customer experience in alignment with CIB’s overall objectives and stra- tegic goals, multiple departments 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 Continuity and Information Security Management De- partment — headed by the Chief Security Officer — as well as the Sustainability Department were established, positioning CIB as the pioneer and leader in these fields among other financial institutions in the market. In 2015-2016, Mr. Sultan lead a major transformation strategy in the IT Division, which added significant value to existing technology and enhanced infrastruc- ture. The aim was a more solid foundation that pro- vides superior services to customers and allowing the 116 Annual Report 2017 Annual Report 2017 117 CIB’s mission is to create outstanding stakeholder value by providing best-in-class financial solutions to the individuals and enterprises that drive egypt’s economy. SuSTAInABILITY / Management Committee business to grow smoothly as the Bank moves forward. Mr. Sultan has also leads the Bank’s strategic Transfor- mational programs, including digital banking, with an aim of maintaining CIB’s role as market leader. Management, IT, Reputation and Social & Environmen- tal Risks. Ms. Essam is championing the Bank’s Enter- prise Risk Management framework, with emphasis on Infrastructure, Process, Environment, and Risk Culture. Prior to joining CIB, Mr. Sultan held the positions of Vice President of Branches Operations and Control Management at Mashreq Bank and Country Opera- tions Head at National Bank of Oman. He has attended several leadership programs in top business schools and is also an alumnus of INSEAD Business School. Mr. Ahmed Issa Chief Executive Officer, Retail Banking Mr. Ahmed Issa has been leading Retail Banking divi- sions at CIB since 2015 and is a member of the Bank’s management committee, ALCO, and other group level management committees. His key responsibilities in- clude the formulation and execution of the business strategies across Consumer Banking, Business Banking and the Bank’s distribution networks. Prior to this, he was CIB’s Group CFO, Head of Strategic Planning in addi- tion to a successful career as a Corporate and Investment Banker at CIB and CI Capital. Mr. Issa was also Chairman of the Board at CORPLEASE and Falcon Group. Mr. Issa chairs the Banking and Finance Committee at the American Chamber of Commerce in Egypt, chairs the Board Audit Committee at Civil Aviation Finance Holding Company, and sits on the board of Egypt’s Internal Trade Development Authority. Mr. Issa earned his MBA at UNC-Chapel Hill’s Ke- nan-Flagler Business School in 2003 and re-joined CIB in the same year. As a Fulbright scholar, Mr. Issa attended the Program on Investment Appraisal and Management at Harvard University in 1997 and subsequently interned at Merrill Lynch in NY, US. Mr. Issa attended more than 25 executive and leadership development programs including the industry-leading CIB Credit Course in 1994. Ms. Pakinam Essam Chief Risk Officer Ms. Pakinam Essam serves as CIB’s Chief Risk Officer (CRO), having been appointed in January 2011. Since then, she began the Risk Transformation Process, and the CIB Risk Group evolved into a forward-looking, holistic organisation with an integrated view of risks, covering all key areas including Institutional Banking, Consumer, Business Banking, Market, Operational, Li- quidity and Interest Rate Risks. The coverage expanded to focus on emerging non-financial risks, such as Conduct, Cyber Security, Information Security, Vendor Under her leadership, CIB has been recognised for six prestigious risk awards by Asian Banker Singa- pore for Middle East & Africa in the following cat- egories: Enterprise Risk Management, Retail Risk, Liquidity Risk and Operational Risk. Ms. Essam is a key member of the Bank’s executive committees and an active member of the Bank’s Sustainability Steering Committee and the Board of Trustees of the CIB Foundation. Ms. Essam joined CIB after graduating from the Faculty of Economics and Political Science, Cairo University, and has over 25 years of experience in banking and risk management. Mr. Amr El Ganainy Chief Executive Officer, Institutional Banking Mr. Amr El Ganainy joined CIB in 2004 as General Manager, Financial Institutions Group. In January 2010, he assumed his role as President of the Global Customer Relations Department, before assuming his current role as CEO IB in June 2017. Mr. El Ganainy is the Chairman of International Securities & Services Co. (Falcon Group), a Board Member of CI Capital Holding Co., Board Member of Telecom Egypt Co., Board Member of Misr for Central Clearing, Depositary and Registry Co., Board Mem- ber of The Egyptian Holding Co. for Airports and Air Navigation, General Assembly Member of Egyptair Holding Co., Honorary Chairman of Interarab Cam- bist Association (ICA), Honorary Chairman of Egyp- tian Dealers Association (ACI Egypt) and a member of the American Chamber of Commerce in Egypt. Mr. El Ganainy was the Chairman of CI Asset Man- agement Co., Chairman of Commercial International Brokerage Co., Board Member of TE Data, Executive Board Member of ACI International (The Financial Market Association), Board Member of Royal & Sun Alliance Insurance Co. and the Chairman of Capital Securities Brokerage Co. Prior to joining CIB, Mr. El Ganainy worked at the United Bank of Egypt as General Manager, Trea- surer and Head of Correspondent Banking, Chief Dealer of Export Development Bank and started his career as a Dealer at Suez Canal Bank. 118 Annual Report 2017 SuSTAInABILITY Sustainability development department 1.8 MN KW saved in 2017 CIB launched its Sustainability Initiative in March 2013, rooted in a long-term holistic vi- sion of the future that strikes a sound balance between the strategic goal of increasing profit- ability as well as serving broader socioeconomic, environmental, and governance interests. This approach is presently widely accepted as a core principle of responsible global business ethics and excellence. That being so, CIB continues to systematically advance a Bank-wide culture and mind-set of sustainability through the integra- tion of environmental and social considerations in its policies, core business, and day-to-day operations, within a gradual, steady, responsible, and inclusive approach. CIB has gained some very promising ground during this worthwhile journey while remaining aware that there is still more that needs to be covered. CIB’s promising sustainability journey is closely aligned with the 2030 Global Sustainable Devel- opment agenda, its 17 Sustainable Development Goals (SDGs), and the 169 targets. It is also in line with Egypt’s 2030 Sustainable Development Agenda, aspiring to advance a sustainable and climate-resilient future. Ecologically Responsible CIB, being a responsible and caring partner in the Egyptian community, took the lead in various sustainability initiatives in 2017. The year wit- nessed the completion of the LED lighting system Bank wide, and the results were outstanding in terms of consumption levels, with the Bank man- aging to reduce KWs by 1,840,229. Despite being a large financial institution that depends on paper in its business operations, CIB succeeded in reducing its paper consumption by 4.8% i.e. 1,197,309 sheets of paper. The current paper cutback is a result of the modified applica- tions of double-sided printing/copying, upgraded Total KWs Consumed in 87 CIB Branches 20,303,366 18,463,137 software applications of Oracle, P2P, archiving, data saving, E-Business Suite, and the digitalisa- tion of operations. We also implemented the Paper Waste for Cash pro- gram at all major CIB premises. The initiative sees paper waste sold to paper recycling startups, and pro- ceeds are credited to a sustainability account. Since February 2017, a net of EGP 206,500 has been collected. Recognising the negative impact of electronic waste (e- waste) on health and the environment, together with the profitable opportunities in this field, CIB partnered with the Ministry of Environment to implement a rewarding e-waste management program in coopera- tion with companies certified by the ministry. CIB is contributing to capacity-building in this field and is taking this initiative mainstream. The Bank encouraged its staff members to use a tai- lored carpooling application named Raye7 CIB dur- ing the year. The mobile application was downloaded by most staff members and used by hundreds to share their morning and evening commutes. Alongside the CIB Paper Consumption 24,848,200 23,750,891 2016 2017 2016 2017 120 Annual Report 2017 Annual Report 2017 121 SuSTAInABILITY / Sustainability Development Department initiative’s several benefits, it has a positive impact on the community and the environment and encourages young Egyptian entrepreneurs. Sound governance is an integral part of CIB’s fabric. To this end, carbon audit on all the Bank’s premises is being conducted to measure CIB’s impact on Egypt’s environment and people. A detailed report, which will cover climate change and other issues is due by 2020 for inclusion in international reporting journals. In May 2017, CIB succeeded in acquiring the second Green Pyramids Certificate for its Third Smart Village Building. The certificate is based on Egyptian efforts through a consortium of the Ministries of Housing and Urban Development, Energy, and Environment. Socially Responsible Building on the impressive social development en- deavours of the CIB Foundation, the Sustainability Development Department enhanced collaboration with individuals with special needs to train CIB customer service staff on ways to best communicate and cater to these individuals. To date, 200 customer service team members have learned this particular human task. CIB also managed to develop 97 ATM machines for the visually impaired in Greater Cairo and other governorates. Partnership/Reporting The Bank is also developing a Sustainable Finance Product to mobilise credit facilities focusing on energy efficiency over two phases. The first phase tackles lighting efficiency and appliances and the second tackles industrial energy efficiency. The pro- posed fund limit for the pilot phase is USD 3 million. CIB is also in discussions with the UNDP and Egyp- tian Ministry of Electricity to provide technical as- sistance in the form of technical feasibility studies, technical capacity building, as well as monitoring and evaluating performance of initiatives by cli- ents. The endeavour is rooted in a case study con- ducted with CIB in 2016. The Bank updated the S&E Credit Risk Procedures Manual to incorporate more coherent steps for relevant departments to follow. Procedures will be circulated to relevant departments upon comple- tion, with a target date of December 2017. 97 ATMs equipped to serve the visually impaired For the second consecutive year, CIB was the only bank in the MENA region to participate in the as- sessment exercise of the Dow Jones Sustainability Index 2017. Our score in 2017 corresponded with that of 2016, with CIB ranking in the 40th percentile among financial institutions. For the second time in a row, CIB was recognised as a constituent in the FTSE4Good Sustainability In- dex sponsored by the Financial Times. Meanwhile, for the fourth successive year, CIB was ranked first in the EGX Sustainability Index. 2017 also saw the Bank publicly issue its internation- ally acclaimed Annual Sustainability Report, which covers all the Bank’s sustainability initiatives. It fol- lows the GRI G4 guidelines and was released on the Bank’s website and social media channels. Sustainability Advisory Board Concentrating on long-term value drivers that ad- vance the twin objectives of the sustained success of the Bank as well as the wellbeing and betterment of society as a whole, the activities of the Sustain- ability Development Department are monitored by the Sustainability Advisory Board Committee. The committee was established to oversee and approve all sustainability strategies, initiatives and projects and proposals through a phased, steady and in- clusive approach. The committee is chaired by Dr. Nadia Makram Ebeid, CIB’s former Non-Executive Board member, and a veteran in the field of envi- ronmental preservation and human empowerment with notable achievements throughout her career in environmental policy and advocacy. 122 Annual Report 2017 COMMUNITy dEVELoPMEnT CoMMunITY dEVELoPMEnT CIB Foundation 2017 1.5% of profit allocated to the CIB foundation CIB has been involved in a number of initiatives over the past decade to enhance the quality of health and nutrition services in Egyptian society, with special attention paid to underprivileged chil- dren, as a part of its corporate social responsibility activities. Seeing the positive impact these initia- tives has had on the lives of children in Egypt, the Bank took active measures to turn away from ad hoc philanthropy and move toward more effective, sustainable initiatives, through the establishment of the CIB Foundation. The CIB Foundation was established in 2010 as a non- profit organisation dedicated to the enhancement of health and nutrition services extended to under- privileged children, particularly those with limited access to quality health care 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 strive to improve access to health care and promote positive, life-changing community initiatives. The Foundation’s role goes beyond being merely a do- nor institution, but also extends to monitoring and fol- lowing up on funded initiatives to ensure resources are being maximised and best results are being achieved. Over the past years, the CIB Foundation was recog- nised for its work in the arena of corporate social responsibility from EMEA Finance 2014 Pan-Africa Award for Corporate Social Responsibility in 2014, Banker Africa in 2015, winning the award for “Most Socially Responsible Bank in North Africa”, and African Banker in June 2016 winning the award for “Socially Responsible Bank of the Year”. Mission and Vision At the CIB Foundation, we seek to ease the burden on families in need of affordable healthcare services. To do so, the CIB Foundation is committed to enhanc- ing the quality of services in our partner institutions to provide the best possible care for our youngest citizens. A productive community requires a healthy citizenry, and the CIB Foundation strives to ensure that Egyptian children are receiving the care they deserve to lead the healthiest lives possible. Through extensive processes, we work with public health partners that have the widest community reach, targeting those most in need. We work hand- in-hand with these providers to ensure that the maximum value of our support is reached and that our donations provide positive, sustainable results. Budget and Financing Through the generous support of CIB shareholders, 1.5% of CIB’s annual net profit was allocated to the CIB Foundation in 2017. It is with this funding that the CIB Foundation supports initiatives that allow Egypt’s children to embark on healthy new beginnings. One hundred percent of the Foundation’s budget, as well as all donations made to the Foundation’s dedicated account, are channelled toward the imple- mentation of child development projects. Through the coordinated efforts of the Foundation’s Board of Trustees, staff, and CIB volunteers, the Foundation ensures its resources are spent efficiently to reach the greatest number of beneficiaries. 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 Moustafa Hosny Secretary General The Foundation’s partnerships and initiatives dur- ing 2017 included: Gozour Foundation for Development: Eye Exam Caravans In July 2016, the CIB Foundation reaffirmed its long- standing partnership with the Gozour Foundation for Development to fund 264 eye exam caravans to provide 158,400 disadvantaged students enrolled at public schools in poor rural and urban areas in Egypt with free eye care services through the Go- zour Foundation. The caravans will be implemented in Upper Egypt governorates. The CIB Foundation allocated EGP 50.5 million over three years to fund caravans in the governorates of Sohag, Qena, Luxor, and Aswan through the 6/6 Eye Exam Caravan Program. Through a partner- ship with Magrabi Foundation and Dar El Oyoun, the caravans are designed to provide public school students with free ophthalmic exams, eyeglass, eye medication if necessary as well as referrals to private hospitals for complex cases. Each caravan included 25-30 doctors, nurses, and coordinators and was fully equipped with advanced equipment, a fully stocked pharmacy, and an eyeglass shop. Each one-day caravan targeted 600 children. Over the course of 2017, the CIB Foundation donated over EGP 20.6 million to cover the second and third tranche of the project. 126 Annual Report 2017 Annual Report 2017 127 CoMMunITY dEVELoPMEnT / CIB Foundation eGP MN 50.5 allocated to the Gozour foundation for Development for eye exam caravans CIB staff members also participated in bag-packing events where thousands of school bags were packed with soap, towels, and educational material. They also participated in the eye exam caravans and pro- vided children with eyeglasses and eye medication. Moreover, they lead awareness sessions on healthy eye practices for the student beneficiaries of the pro- gram. These events provided valuable opportunities for CIB staff to learn about the Foundation’s activi- ties and give back to the community. Sawiris Foundation and Star Care for Helping Children: Together for Change Project As part of the CIB Foundation’s commitment to supporting the health sector, in April 2016, the CIB Foundation’s Board of Trustees approved a new EGP 1.5 million partnership between the Sawiris Foundation and Star Care Foundation to implement comprehensive community development projects in Sohag, Assiut, and Qena, under the management of the Association of Businesswomen in Assiut. The project includes the renovation and upgrade of community health centres, the training of doctors and nurses, organising health awareness cam- paigns for locals, raising the skills of teachers in community schools, distributing in-kind support to students as well as offering regular sports, soft skills and recreational activities. The project also offers economic empowerment opportunities. Over the course of 2017, the CIB Foundation donated over EGP 1.3 million to cover training for the medical staff and outfitting the community health centres. New Children’s Hospital - Ain Shams University Hospital In line with its long-term partnership with Ain Shams University Hospital, the CIB Foundation’s Board of Trustees agreed in June 2017 to fund the purchase of the necessary equipment and supplies for the Inpatient Unit located on the fifth floor of the new Chil- dren’s Hospital - Ain Shams University Hospital for a total of EGP 3.53 million over one year. The hospital is expected to serve around 1,290 patients per month, with roughly 15,500 children set to benefit from the service of the new hospital annually. Over the course of 2017, the CIB Foundation donated over EGP 2.9 mil- lion to cover the first two instalments for the project. Raei Masr Hospital in Minya In December 2016, the CIB Foundation’s Board of Trustees agreed to fund the outfitting of the Neona- tal Intensive Care Unit and the Paediatric Intensive Care Unit at Raei Misr Hospital in the Minya gover- norate for a total of EGP 6.96 million over one year. The hospital is located on the main Cairo-Assiut Agricultural Road and is expected to serve a vast number of patients from Upper Egypt including As- siut, Beni Sueif, and El Minya. The CIB Foundation fulfilled its commitment to the project in October 2017. Rotary Club of Kasr El Nil: Children’s Right to Sight Program In June 2017, the CIB Foundation’s Board of Trustees approved supporting the fourth phase of the Children’s Right to Sight program at a cost of EGP 2 million over one year under the management of Rotary Club - Kasr El Nile to fund around 500 critical eye surgeries to underprivileged children. The CRTS program is dedi- cated to eradicating blindness by supporting children and infants requiring critical eye surgeries. Over the course of 2017, the CIB Foundation donated around EGP 1.8 million to cover 543 surgeries. Children’s Cancer Hospital 57357: PET CT Scanner and Annual Donation In line with its long-term partnership with the Chil- dren’s Cancer Hospital 57357, the CIB Foundation provided the hospital with another PET CT scanner 128 Annual Report 2017 CoMMunITY dEVELoPMEnT / CIB Foundation eGP MN 1.5 partnership between the Sawiris foundation and Star Care foundation similar to the one donated by CIB Foundation in 2016 at a cost of EGP 26.9 million. Having two PET- CT units will increase the efficiency and extend ser- vices provided to more patients on the waiting list as the highly specialised equipment will allow doctors to identify cancerous cells and plan for removal during operations. The CIB Foundation fulfilled its commitment to the project in July 2017. As another demonstration of the Foundation’s commitment to the hospital, EGP 3.5 million was donated in Janu- ary 2017 to fund patient care in both the Cairo and Tanta branches of the hospital. Magdi Yacoub Heart Foundation Research Labs In April 2015, the CIB Foundation’s Board of Trust- ees approved 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. The centre hopes these research labs will deepen the understanding of various heart diseases and shed light on possible therapeutic strategies. The program serves as an excellent platform from which young Egyptian scientists and researchers can con- tribute to the advancement of world-class research without having to leave the country. Over the course of 2017, the CIB Foundation donated over EGP 6.2 million to cover the outfitting costs of the research labs. 50 Open-Heart Surgeries In July 2016, the CIB Foundation allocated EGP 4.5 million to the Magdi Yacoub Heart Foundation to cover the costs associated with 50 paediatric open-heart surgeries. Through its ongoing dona- tions, the CIB Foundation supports the Magdi Ya- coub Foundation’s efforts to drastically minimise the number of children on the open-heart surgery waiting list. In March 2017, the CIB Foundation donated EGP 2.25 million, covering the second and final tranche of the project. Yahiya Arafa Children’s Charity Foundation: Pediatric Catheter Lab and Annual Operating Costs 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 paedi- atric catheter lab at the Ain Shams University Hos- pital, under the supervision and management of the Yahiya Arafa Foundation. The roughly EGP 8 million project will enable the hospital to have a Catheter Lab dedicated for only children, conduct 100 proce- dures a month, and reduce the waiting list by 90%. Over the course of 2017, the CIB Foundation donated EGP 6 million to cover the project’s final instalments. Additionally, in January 2017, the CIB Foundation fulfilled its commitment to support the annual operating costs of five paediatric units at the Ain Shams University Hospital through the Yahiya Arafa Children’s Charity Foundation at a cost of EGP 2 million. Rotary Club of Giza Metropolitan – 50 Open Heart Surgeries In March 2017, the CIB Foundation allocated EGP 1.75 million to cover the costs associated with 50 paediatric open-heart surgeries at El Kasr El Eini Hospital under the management of Rotary Club of Giza Metropolitan to drastically minimise the number of children on the open-heart surgery wait- ing list and change the future of 50 underprivileged children who are suffering from congenital heart diseases. In December 2017, the CIB Foundation donated over EGP 333,000 to cover 11 surgeries. Zewail University of Science and Technology: CIB Foundation Fellowship for Science and Technology In line with its commitment to quality education, the CIB Foundation fulfilled its commitment to cover the tuition expenses of its 50 CIB Founda- tion Fellows for a five-year academic course of study at Zewail University of Science and Tech- nology. The fellowship supported 50 public school graduates pursuing degrees in advanced sciences or engineering. Over the course of 2017, the CIB Foundation disbursed the third year (2015/2016) and the fifth year (2017-2018) tuition fees, total- ling EGP 10 million. MOVE Foundation for Children with Cerebral Palsy: Premises Renovation In June 2015, the CIB Foundation committed EGP 2 million to the MOVE Foundation for Children with cerebral palsy to renovate their premises, allowing them to expand their operations. The MOVE Foun- dation was established in 2004 with a mission to positively impact the lives of the estimated 250,000 children living with the disability. The organisation aims at mainstreaming those children into the pub- lic-school system to allow them to become healthy, productive members of society. Over the course of 2017, the CIB Foundation do- nated over EGP 163,000 to cover the complete renovation of the premises, as well as the purchas- ing of essential equipment. Rotary Club of Zamalek Maxillo-Facial Center in the Cairo University Faculty of Dentistry Annual Operating Costs In September 2015, the CIB Foundation’s Board of Trustees approved funding the annual operating costs of the CIB Foundation-funded Maxillo-Facial Center at Cairo University’s Faculty of Dentistry with a total amount of EGP 45,100. The centre was inaugurated in April 2014 and is one of the sole pro- viders of highly specialised treatment for oral and nasal cavity deformities, congenital deformities in newborns, and facial deformities caused by cancer. In July 2017, the CIB Foundation donated over EGP 22,500 to cover the final instalment of the operating costs. Mobile Dental Caravan for the Faculty of Oral & Dental Medicine - Cairo University In September 2016, the CIB Foundation’s Board of Trustees approved funding the purchase of an out- fitted mobile dental caravan for the Faculty of Oral & Dental Medicine at Cairo University under the management of Rotary Club of Zamalek at a total cost of EGP 640,000. In September 2017, the CIB Foundation donated EGP 480,000 to cover the final instalment for the project. The dental caravan will be used by the Faculty of Oral & Dental Medicine to perform necessary den- tal treatment (free of charge) to school students in remote areas of the Cairo and Giza governorates. Mersal Foundation - Cochlear Implant Surgeries The CIB Foundation’s Board of Trustees approved EGP 2.9 million in March 2017 to support cochlear implant surgeries for 100 children with hearing disabilities where certain cells are damaged in a part of the inner ear causing deafness and, as a consequence, impacts their speaking. It is a two- part surgery that involves an internal and external procedure followed by a speech therapy program. The CIB Foundation donated over EGP 167,000 in No- vember 2017 to cover the first instalment of the project. 130 Annual Report 2017 Annual Report 2017 131 CoMMunITY dEVELoPMEnT / CIB Foundation Friends of Abu El Rish Children’s Hospitals Organisation: Annual Operating Costs In line with its commitment to sustainability and on- going quality service provision, the CIB Foundation fulfilled its commitment in February 2017 to support the annual operating costs for the previously funded Intensive Care Unit (ICU) at Abou El Reesh El Mounira Children’s Hospital through Friends of Abu El Rish Chil- dren’s Hospitals Organisation at a cost of EGP 2 million. National Hepatology & Tropical Medicine Research Institute In November 2017, the CIB Foundation’s Board of Trustees approved funding the treatment of 400 children infected with hepatitis C under the man- agement of the National Hepatology & Tropical Medicine Research Institute (NHTMRI) at a cost of EGP 4.1 million over one year. NHTMRI was established in 1932 as an institute for medical research on endemic diseases in Egypt, be- ginning with what was the most endemic disease at the time, schistosomiasis. NHTMRI is now the first centre for hepatitis C treatment and a referral centre for difficult cases from other centres. Egyptian Liver Care Society The CIB Foundation dedicated over EGP 5.5 million to fund the Egyptian Liver Care Society’s Children Without Virus C (C-Free Child) program. The Egyp- tian Liver Care Society was established in 2008 with specific goals of caring for hepatitis patients, rais- ing 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 centres in Egypt. The C-Free Child program is the only pro- gram of its kind in Egypt, screening and treating children with hepatitis C for free. Blood Donation Campaigns: The Triple Effect Over the course of 2017, the CIB Foundation hosted 15 blood donation campaigns across its corporate offices. The campaign aims to encourage CIB staff and customers to positively and effectively partici- pate in an activity that can save the lives of thou- sands of patients across the country. Some 438 bags of blood were collected in 2017, potentially saving the lives of more than 1,314 people. The Foundation was honoured at the World Blood Donation Day celebration at the League of Arab States for its ef- forts in organising campaigns. KidZania Cairo Through CIB’s long-term corporate sponsorship of KidZania Cairo, the CIB Foundation allocated 50 tickets to KidZania each quarter to underprivi- leged children. Throughout 2017, the CIB Founda- tion organised multiple visits to the edutainment city through its partner organisations, where children were provided the opportunity to experi- ence adult professions on a child-friendly scale. By performing sector-specific jobs, children spend the Kidzos (the official currency of KidZania) that 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 pa- tients. Through these events, children from mar- ginalised groups of society were given the chance to experience activities that would have previously been unavailable to them. Squash for Everyone In 2017, the CIB Foundation organised multiple sports days for 11 children from the Egyptian Red Crescent, during which they practiced squash. The events signalled the launch of the second phase of “Squash for Everyone” initiative sponsored by CIB in partnership with Egyptian Squash professional Amr Shabana, with the aim of offering an equal opportunity to underprivileged children to explore and develop their athletic capabilities. Children’s Cancer Hospital 57357 - Ramadan Decoration Day Spreading happiness is one way we can give back to the community. In May 2017, the Foundation organised a decoration day at Children’s Cancer Hospital 57357 where volunteers from CIB had the opportunity to bring the Ramadan spirit to the lives of childhood cancer patients and their families. 6/6 Family Bag Packing Event The CIB Foundation hosted a bag-packing event in CIB’s Smart Village office in February 2017 where CIB colleagues were invited to bring their families to participate in the packing of roughly 5,000 health and hygiene school bags for the students targeted through the 6/6 Eye Exam Caravan program. The events were highly successful, with great turnout and roughly all participants asking for more events where they could bring their children. 132 Annual Report 2017 CoMMunITY dEVELoPMEnT Corporate Social responsibility Over the past year, CIB heavily focused on boosting its firm commitment to community development by leading initiatives in diverse Corporate Social Responsibility (CSR) projects and by funding ideas and events immersed in art, culture, and sports. Supporting art remains the core of the Bank’s CSR agenda. CIB works hard to uncover hidden art tal- ents across Egypt to shed light on their distinctive artwork. The Bank’s support of artistic endeavours through sponsorships and activities have contrib- uted greatly to preserving Egyptian art and culture, while enriching the Bank’s private Art Collection. Supporting Students of Fine Arts Faculties: As part of its efforts to encourage Egyptian artistic talent, CIB acquired distinctive students’ art pieces displayed at the exhibitions of Faculties of Fine Arts at Alexandria University and South Valley University. This annual contribution seeks to incentivise students to further develop and maintain their talent. Art Salons: CIB sponsored the Annual Egyptian Youth Salon for the seventh consecutive year in col- laboration with the Fine Arts Division at the Min- istry of Culture. The sponsorship targeted trending artists under the age of 35. Aisha Fahmy Palace: CIB proudly contributed to the renovations of Aisha Fahmy Palace after hav- ing its doors shut for over a decade. The restoration project revived the glorious former days of this an- tique house, currently managed by the Ministry of Culture’s Fine Arts Department, which is looking to reinstate the palace as a prestigious complex for art and culture. La Biennale di Venezia: CIB supported and spon- sored Egyptian artists at the 57th edition of La Bi- ennale Venezia, one of the world’s most prestigious arts and culture institutes, which organises an annual exhibition of the same name. Established in 1895, the Biennale now hosts more than 500,000 visitors at its art exhibition. Night of Art at the Egyptian Museum: CIB was one of the key sponsors of the Night of Art at the Egyptian Museum, the inauguration event of the Eternal Light: Something Old, Something New show — the first in a se- ries of art shows that combines Egypt’s varied heritage sites with contemporary Egyptian art. The event dis- played 16 artworks by Egypt’s leading modern artists, where the contrast of the past and present talents shone through in a vivid showcase of extraordinary work. The 100% Egyptian Cotton: CIB has been extend- ing its support to young and talented Egyptian designers who have succeeded in infiltrating the global fashion industry and integrating authentic Egyptian designs into their lines. As such, CIB was the main sponsor of Egypt’s ‘100% Egyptian Cotton’ exhibition featuring the country’s best emerging de- signers in the International Fashion Showcase (IFS) 2017. Egypt was the only Arab country represented at IFS, and ‘100% Egyptian Cotton’ was the most- visited exhibit at the event with over 10,000 visitors. Maintaining a sustainable, profound impact on the lives of people in our community, the Bank has been conducting several activities and projects support- ing community development. KidZania: Through an ongoing partnership that began in 2013, the Bank successfully organised six trips to KidZania in 2017 for more than 150 under- privileged children and those with special needs and health conditions. Under the auspices of the CIB Foundation, the trips offered children a fun and en- tertaining setting in which to learn to perform dif- ferent banking operations such as issuing cheques and debit cards and depositing and withdrawing money using KidZania’s official currency, Kidzos. Autism: CIB has consistently dedicated a significant portion of its activities to children, and specifically children with autism and other disabilities. The aid is targeted both at supporting their integration into society and to raise awareness around autism and other disorders on the spectrum. The Bank not only maintained its sponsorship of the annual ceremony held by the ADVANCE Society for Persons with Au- tism and Other Disabilities, but also sponsored 2017 World Autism Awareness Day in Egypt. As a form of support, our Smart Village headquarters and a few branches were lit in blue in solidarity with those who live with autism and related disorders. Zawya: Through our partnership with Zawya, an art-house cinema founded by Misr International Films, the Bank sponsored the screening of two movies with live audio description for more than 150 visually impaired children. Sponsoring the Egyptian Squash Federation: In line with the Bank’s belief that sports are a key factor in shaping the health and minds of Egyp- tian youth, CIB maintained its sponsorship of the Egyptian Squash Federation for the sixth year run- ning. In 2017, the Bank expanded its contribution by reaching out to less fortunate children through the launch of the second phase of the Squash for Everyone initiative in partnership with the Egyp- tian Squash National Teams Director and Techni- cal Advisor Amr Shabana. The Bank continued to support the Federation through sponsoring the Egyptian national squash team in the World Team Championship, where they won first place for four consecutive times. The Bank is proud to be a key supporter of the team and the federation; the play- ers have been able to maintain Egypt’s winning stance and strengthen its position as top player internationally for a strike of years. El Sawy Culture Wheel: Capitalising on a years-long partnership, in 2017 CIB began diversifying its contri- bution to El Sawy Culture Wheel, which span art, cul- ture, music, and social awareness. In 2017, CIB spring boarded off 2016’s successful awareness campaign entitled “Financial Planning for a Safer Future” and launched similar free seminars under a different theme of creating a CV and preparing for interviews. CIB also continued its sponsorship of special screenings of documentary films, cultural nights, concerts, and art exhibitions organised by El Sawy Culture Wheel. Beena Initiative: For the second year, CIB was the main partner and financial sponsor of Beena, a protocol signed between the Bank and the Ministry of Social Solidarity to encourage active youth par- ticipation in the community and monitor the devel- opment of social care services. This initiative was successful in attracting thousands of volunteers around Egypt, who assisted in orphanages, elderly homes, and special-needs houses. Collaborating with Omar Samra: As part of an innovative initiative for developing the scientific talents of Egyptian youth, CIB sponsored the “Your Space” project, launched by famed Egyptian adven- turer Omar Samra. The project aims to encourage school and university students to explore space sci- ences, enrich their knowledge, and develop their sci- entific competencies. It also grants Egyptian youth the opportunity to broaden their horizons and inspire them to discover the field of space sciences so as to consider it as a career choice. The project of- fers incentive to educational institutions to develop engineering, sciences, technology, and mathematics curriculums that lay the foundations for the future development of top-notch calibres. 134 Annual Report 2017 Annual Report 2017 135 FINANCIAL STATEMEnTS Financial StatementS: Separate 138 Annual Report 2017 Annual Report 2017 139 Financial StatementS: Separate Commercial International Bank (Egypt) S.A.E Separate balance sheet as at December 31,2017 Commercial International Bank (Egypt) S.A.E Separate income statement for the year ended December 31,2017 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 associates and subsidiaries Non current assets held for sale Other assets 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 the year Total liabilities and equity The accompanying notes are an integral part of these financial statements . Notes Dec. 31, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 15 16 17 18 19 20 21 22 22 23 42 24 41 32 25 26 27 21 29 28 30 31 34 14,663,289 45,319,766 54,478,202 7,295,197 1,313 88,427,103 40,001 30,474,781 45,167,722 54,068 - 6,886,807 368,923 179,630 1,414,519 294,771,321 1,877,918 250,767,370 196,984 2,778,973 5,476,531 3,674,736 1,615,159 266,387,671 11,618,011 8,725,966 489,334 20,833,311 7,550,339 28,383,650 294,771,321 10,522,040 58,011,034 39,177,184 2,445,134 159,651 85,991,914 269,269 5,447,291 53,924,936 10,500 428,011 5,446,025 499,131 181,308 1,338,629 263,852,057 3,008,996 231,965,312 331,091 2,017,034 3,579,330 160,243 1,514,057 242,576,063 11,538,660 3,443,319 343,460 15,325,439 5,950,555 21,275,994 263,852,057 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 impairment 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 41 12 13 32 & 13 14 Dec. 31, 2017 EGP Thousands 28,671,170 (16,167,155) 12,504,015 Dec. 31, 2016 EGP Thousands 19,144,218 (9,126,512) 10,017,706 2,676,944 (624,278) 2,052,666 34,514 1,292,215 496,045 (3,112,508) (1,063,468) - (130,208) (1,742,281) 10,330,990 (2,778,973) (1,678) 7,550,339 1,965,529 (417,573) 1,547,956 34,236 1,315,182 32,121 (2,432,652) (1,237,187) (209,842) (130,208) (892,874) 8,044,438 (2,017,034) (76,849) 5,950,555 5.76 5.67 4.54 4.47 Hisham Ezz Al-Arab Chairman and Managing Director 140 Annual Report 2017 Annual Report 2017 141 Hisham Ezz Al-Arab Chairman and Managing Director Financial StatementS: Separate Commercial International Bank (Egypt) S.A.E Separate cash flow for the year ended December 31,2017 Commercial International Bank (Egypt) S.A.E Separate cash flow for the year ended December 31,2017 (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, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 3,514,493 (1,350,204) 79,351 2,243,640 (12,309,863) 61,518,700 49,208,837 14,663,289 45,319,766 54,478,202 (8,878,986) (1,719,586) (54,653,848) 49,208,837 28,915 (1,463,450) 68,057 (1,366,478) 38,935,643 22,583,057 61,518,700 10,522,040 58,011,034 39,177,184 (5,438,235) (2,565,895) (38,187,428) 61,518,700 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 impairment 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 (losses) from selling associates Shares based payments Impairment (Released) charges of non current assets held for sale 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 Non current assets held for sale Due to banks Due to customers Income tax obligations paid Other liabilities Net cash provided from operating activities Cash flow from investing activities Proceeds from redemption of subsidiary and associates Payment (proceeds) for purchases and sell of 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 from selling non current assets held for sale Net cash used in investing activities Dec. 31, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 10,330,990 8,044,438 351,005 1,742,281 212,622 (248,072) 100,078 - 130,208 (83,079) (25,463) (97,897) 11,840 (607) 99,047 - 290,884 (340,504) 12,473,333 (2,594,442) (16,466,420) (4,601,991) 95,161 (4,019,132) (1,121,981) 428,011 (1,131,078) 18,802,058 (2,017,034) 1,897,201 1,743,686 750 (44,318) (745,089) 13,354,468 (4,597,254) (25,868,230) 973,963 628,521 (16,297,189) 285,381 892,874 150,847 (269,283) (2,219,961) 209,842 130,208 82,428 (3,696) (78,405) 583,550 (1,682) (35,193) 32,793 187,000 (131,799) 7,859,342 264,072 (16,057,258) 3,672,526 (2,918) (29,833,291) (599,879) - 1,408,227 76,595,390 (1,949,694) 957,061 42,313,578 - 176,161 (560,631) 4,094 (1,243,669) (3,334,122) 2,946,710 - (2,011,457) 142 Annual Report 2017 Annual Report 2017 143 Financial StatementS: Separate , 3 1 6 1 1 5 6 1 , - 9 1 2 2 2 , - 7 5 0 8 6 , , ) 0 5 4 3 6 4 1 ( , , 5 5 5 0 5 9 5 , l a t o T s d n a s u o Th P G E - - - - 8 4 1 8 4 2 , 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 - ) 8 8 6 1 9 ( , 0 0 0 7 8 1 , 0 0 0 7 8 1 , - , 4 9 9 5 7 2 1 2 , 0 6 4 3 4 3 , , 5 5 5 0 5 9 5 , - , 8 1 7 0 4 6 4 , , ) 2 6 7 6 7 1 3 ( , - ) 6 0 5 ( , 5 5 5 0 5 9 5 , , ) 0 5 4 3 6 4 1 ( , - - - - - - - - - t fi o r p t e N r a e y e h t r o f S R F I k s i r 9 e v r e s e r - - - - - - 6 0 5 9 1 0 3 , 3 1 5 2 , g n i k n a B e v r e s e r s k s i r . . S F A r o F s t n e m t s e v n i n o i t a u l a v e r , ) 3 6 4 2 0 2 2 ( , - - - - - - 9 1 2 2 2 , , ) 4 4 2 0 8 1 2 ( , l a i c e p S e v r e s e r - 4 6 5 4 1 2 0 3 , - - - - - 8 7 7 0 3 , e v r e s e R 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 6 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t r o f . 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 r e n e G e v r e s e r e v r e s e r l a g e L p u d i a p l a t i p a c d n a d e u s s I - , 5 2 5 8 1 5 1 , , 8 7 8 5 3 0 3 , - - - - - , 3 0 4 4 5 5 4 , - - - - - 5 5 3 3 0 8 , - 8 0 0 2 3 2 , , 3 6 3 5 3 0 1 , , 3 0 6 0 7 4 1 1 , - - - - - - 7 5 0 8 6 , , 0 6 6 8 3 5 1 1 , . E A S . 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 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 6 1 0 2 , 1 3 . c e D ) 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 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 7 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t r o f 4 8 8 0 9 2 , 4 8 8 0 9 2 , - , 0 5 6 3 8 3 8 2 , 4 3 3 9 8 4 , , 0 9 7 8 3 1 6 , , 9 4 5 1 1 4 1 , , 4 9 9 5 7 2 1 2 , - 1 5 3 9 7 , - - 6 8 2 7 3 5 , , 9 3 3 0 5 5 7 , , ) 4 0 2 0 5 3 1 ( , l a t o T s d n a s u o Th P G E - - - - - n a l p 0 6 4 3 4 3 , 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 - ) 0 1 0 5 4 1 ( , r a e y e h t r o f t fi o r p t e N S R F I k s i r 9 e v r e s e r g n i k n a B e v r e s e r s k s i r e v r e s e R . . S F A r o F s t n e m t s e v n i n o i t a u 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 e v r e s e r l a g e L p u d i a p l a t i p a c d n a d e u s s I , 5 5 5 0 5 9 5 , - , ) 6 3 7 9 9 5 4 ( , , ) 4 0 2 0 5 3 1 ( , - ) 5 1 6 ( , 9 3 3 0 5 5 7 , , ) 9 4 5 1 1 4 1 ( , , 9 4 5 1 1 4 1 , - - - - - 9 1 0 3 , - - 5 1 6 4 3 6 3 , , ) 4 4 2 0 8 1 2 ( , - - - - - - - 6 8 2 7 3 5 , , ) 8 5 9 2 4 6 1 ( , - - - - - - - 2 8 6 1 , 8 7 7 0 3 , 0 6 4 2 3 , , 3 0 4 4 5 5 4 , , 3 6 3 5 3 0 1 , , 0 6 6 8 3 5 1 1 , - , 0 2 6 5 4 4 4 , - - - - - - , 3 2 0 0 0 0 9 , - - - - - - - 4 4 4 7 9 2 , - - - - - - - 1 5 3 9 7 , , 7 0 8 2 3 3 1 , , 1 1 0 8 1 6 1 1 , 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 k s i r k n a b o t ) m o r f ( d e r r e f s n a r T e v r e s e r k s i r 9 S R F I e v r e s e r p i h s r e n w o k c o t s s e e y o l p m e f o t s o C ) P O S E ( n a l p r a e y e h t f o d n e e h t t a e c n a l a B 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 i n n i g e B e s a e r c n i l a t i p a C 7 1 0 2 , 1 3 . c e D 144 Annual Report 2017 Annual Report 2017 145 Financial StatementS: Separate Notes to the separate financial statements for the year ended December 31, 2017 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 174 branches, and 22 units employing 6551 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 Egyptian stock exchange. 2. Summary of accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2.1. Basis of preparation The separate financial statements have been prepared in accordance with Egyptian financial reporting standards issued in 2006 and its amendments and in accordance with the Central Bank of Egypt regulations approved by the Board of Di- rectors on December 16, 2008. The cost method is applied to account for investments in subsidiaries and associates, whereby, investments are recorded based on the acquisition cost including any goodwill, deducting any impairment losses, and dividends are recorded in the income statement in the adoption of the distribution of these profits and evidence of the Bank right to collect them. 2.3. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns different from those of segments operating in other economic environments. 2.4. Foreign currency translation 2.4.1. Functional and presentation currency The financial statements are presented in Egyptian pound, which is the Bank’s functional and presentation currency. 2.4.2. Transactions and balances in foreign currencies The Bank maintains its accounting records in Egyptian pound. Transactions in foreign currencies during the period are translated into the Egyptian pound using the prevailing exchange rates on the date of the transaction. 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. Monetary assets and liabilities denominated in foreign currencies are retranslated at the end of reporting period at the prevailing exchange rates. Foreign exchange gains and losses resulting from settlement and translation of such transac- tions and balances are recognized in the income statement and reported under the following line items: The 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 year ended on December 31, 2017 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. • 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. 146 Annual Report 2017 Annual Report 2017 147 Financial StatementS: Separate 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 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. 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 subse- quently 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. 2.5.4. Available for sale financial investments Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. 2.6. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a legally enforceable right to offset the recognized amounts and there is an intention to be settled on a net basis. The following are applied in respect to all financial assets: Debt securities and equity shares intended to be held on a continuing basis, other than those designated at fair value, are classified as available-for-sale or held-to-maturity. Financial investments are recognized on trade date, when the group enters into contractual arrangements with counterparties to purchase securities. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value, and transaction costs are expensed in the income statement. 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. 148 Annual Report 2017 Annual Report 2017 149 Financial StatementS: Separate 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. 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. Fair value hedge 2.7.1. 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 desig- nated at fair value are recognized in ‘interest income’ and ‘interest expense’ in the income statement using the ef- fective 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 2.12.1Financial 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. 150 Annual Report 2017 Annual Report 2017 151 Financial StatementS: Separate 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. 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. The objective evidence of impairment loss for a group of financial assets is observable data indicating that there is a mea- surable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, for instance an increase in the default rates for a particular banking product. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the income statement, the impairment loss is reversed through the income statement to the extent of previously recognized impairment charge from equity to income statement. The Bank estimates the period between a losses occurring and its identification for each specific portfolio. In general, the periods used vary between three months to twelve months. The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individu- ally significant, and individually or collectively for financial assets that are not individually significant and in this field the following are considered: • If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment according to historical default ratios. • If the Bank determines that an objective evidence of financial asset impairment exist that is individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of 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. 2.13. 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 Vehicles Computers and core systems Fixtures and fittings 20 years. 3 years, or over the period of the lease if less 3/5 years. 5 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. 152 Annual Report 2017 Annual Report 2017 153 Financial StatementS: Separate The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Assets are tested for impair- ment with reference to the lowest level of cash generating unit(s). A previously recognized impairment loss relating to a fixed asset may be reversed in part or in full when a change in circumstances leads to a change in the estimates used to determine the fixed asset’s recoverable amount. The carrying amount of the fixed asset will only be increased up to the amount that the original impairment not been recognized. 2.15.1. Goodwill Goodwill is capitalized and represents the excess of acquisition cost over the fair value of the Bank’s share in the ac- quired entity’s net identifiable assets on the date of acquisition. For the purpose of calculating goodwill, the fair values of acquired assets, liabilities and contingent liabilities are determined by reference to market values or by discounting expected future cash flows. Goodwill is included in the cost of investments in associates and subsidiaries in the Bank’s separate financial statements. Goodwill is tested for impairment, impairment loss is charged to the income statement. Goodwill is allocated to the cash generating units for the purpose of impairment testing. The cash generating units rep- resented in the Bank main segments. 2.15.2. Other intangible assets Is the intangible assets other than goodwill and computer programs (trademarks, licenses, contracts for benefits, the benefits of contracting with clients). Other intangible assets that are acquired by the Bank are recognized at cost less accumulated amortization and impair- ment losses. Amortization is charged to the income statement on a straight-line basis over the estimated useful lives of the intangible asset with definite life. Intangible assets with indefinite life are not amortized and tested for impairment. 2.16. Leases The accounting treatment for the finance lease is complied with law 95/1995, if the contract entitles the lessee to purchase the asset at a specified date and predefined value, or the current value of the total lease payments representing at least 90% of the value of the asset. The other leases contracts are considered operating leases contracts. 2.16.1. Being lessee Finance lease contract recognizes the lease cost, including the cost of maintenance of the leased assets in the income statement for the period in which they occurred. If the Bank decides to exercise the right to purchase the leased asset the leased assets are capitalized and included in ‘property, plant and equipment’ and depreciated over the useful life of the expected remaining life of the asset in the same manner as similar assets. 2.18. Other provisions Provisions for restructuring costs and legal claims are recognized when the Bank has present legal or constructive obliga- tions as a result of past events; where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. In case of similar obligations, the related cash outflow should be determined in order to settle these obligations as a group. The provision is recognized even in case of minor probability that cash outflow will occur for an item of these obligations. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating 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 on the balance sheet date. An appropriate pretax discount rate that reflects the time value of money is used to calculate the present value of such provisions. For obligations due within less than twelve months from the bal- ance sheet date, provisions are calculated based on undiscounted expected cash outflows unless the time value of money has a significant impact on the amount of provision, then it is measured at the present value. 2.19. Share based payments The Bank applies an equity-settled, share-based compensation plan. The fair value of equity instruments recognized as an expense over the vesting period using appropriate valuation models, taking into account the terms and conditions upon which the equity instruments were granted. The vesting period is the period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied. Vesting conditions include service conditions, per- formance conditions and market performance conditions are taken into account when estimating the fair value of equity instruments on the date of grant. On each balance sheet date the number of options that are expected to be exercised are estimated. Recognizes estimate changes, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. 2.20. Income tax Income tax on the profit and loss for the period and deferred tax are recognized in the income statement except for income tax relating to items of equity that are recognized directly in equity. Operating lease payments leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘general and administrative expenses’. Income tax is recognized based on net taxable profit using the tax rates applicable on the date of the balance sheet in ad- dition to tax adjustments for previous years. 2.16.2. Being lessor For finance lease, assets are recorded in the property, plant and equipment in the balance sheet and amortized over the expected useful life of this asset in the same manner as similar assets. Lease income is recognized on the basis of rate of re- turn on the lease in addition to an amount corresponding to the cost of depreciation for the period. The difference between the recognized rental income and the total finance lease clients’ accounts is transferred to the in the income statement until the expiration of the lease to be reconciled with a net book value of the leased asset. Maintenance and insurance expenses are charged to the income statement when incurred to the extent that they are not charged to the tenant. In case there is objective evidence that the Bank will not be able to collect the of financial lease obligations, the finance lease payments are reduced to the recoverable amount. For assets leased under operating lease it appears in the balance sheet under property, plant and equipment, and depreci- ated over the expected useful life of the asset in the same way as similar assets, and the lease income recorded less any discounts given to the lessee on a straight-line method over the contract period. 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. 2.17. 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. 2.22. 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. 154 Annual Report 2017 Annual Report 2017 155 Financial StatementS: Separate 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. Determining whether (and when) an asset stops being recovered principally through use and becomes recoverable prin- cipally through sale. For an asset (or disposal group) to be classified as held for sale: 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 presented 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. When presenting discontinued operations in the income statement, the comparative figures should be adjusted as if the operations had been discontinued in the comparative period. 3. Financial risk management The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, accep- tance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and rewards and minimize potential adverse effects on the Bank’s financial performance. The most important types of financial risks are credit risk, market risk, liquidity risk and other operating risks. Also market risk includes exchange rate risk, rate of return risk and other prices risks. The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is carried out by risk department under policies approved by the Board of Directors. Bank treasury identifies, evaluates and hedges financial risks in close co-operation with the Bank’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments. In addition, credit risk management is responsible for the independent review of risk management and the control environment. 3.1. Credit risk The Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in loans and advances, debt securities and other bills. There is also credit risk in off-balance sheet finan- cial arrangements such as loan commitments. The credit risk management and control are centralized in a credit risk management team in bank treasury and reported to the Board of Directors and head of each business unit regularly. 3.1.1. Credit risk measurement 3.1.1.1. Loans and advances to banks and customers In measuring credit risk of loans and facilities to banks and customers at a counterparty level, the Bank reflects three components (i) the ‘probability of default’ by the client or counterparty on its contractual obligations (ii) current expo- sures to the counterparty and its likely future development, from which the Bank derive the ‘exposure at default’; and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’). These credit risk measurements, which reflect expected loss (the ‘expected loss model’) are required by the Basel committee on banking regulations and the supervisory practices (the Basel committee), and are embedded in the Bank’s daily operational man- agement. The operational measurements can be contrasted with impairment allowances required under EAS 26, which are based on losses that have been incurred on the balance sheet date (the ‘incurred loss model’) rather than expected losses (note 3.1). The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various 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. 156 Annual Report 2017 Annual Report 2017 157 Financial StatementS: Separate 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. 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 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: December 31, 2017 December 31, 2016 Bank’s rating 1-Performing loans 2-Regular watching 3-Watch list 4-Non-Performing loans Loans and advances (%) 69.53 15.53 7.99 6.95 Impairment provision (%) 11.61 21.51 23.70 43.18 Loans and advances (%) 68.52 18.29 6.49 6.70 Impairment provision (%) 13.78 19.53 16.81 49.88 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. 158 Annual Report 2017 Annual Report 2017 159 Financial StatementS: Separate Below is a statement of institutional worthiness according to internal ratings, compared to CBE ratings and rates of provi- sions needed for assets impairment related to credit risk: CBE Rating Categorization Provision% Internal rating Categorization 1 2 3 4 5 6 7 8 9 10 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% Performing loans 1 Performing loans 1 Performing loans 1 Performing loans 1 Performing loans 1 Regular watching 2 3 Watch list 4 Non performing loans 4 Non performing loans 4 Non performing loans 3.1.5. Maximum exposure to credit risk before collateral held In balance sheet items exposed to credit risk Treasury bills and other governmental notes Trading financial assets: - Debt instruments Gross loans and advances to banks Less:Impairment provision Gross loans and advances to customers Individual: - Overdraft - Credit cards - Personal loans - Mortgages - Other loans Corporate: - Overdraft - Direct loans - Syndicated loans - Other loans Unamortized bills discount Impairment provision Unearned interest Derivative financial instruments Financial investments: -Debt instruments - Investments in associates and subsidiaries 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, 2017 Dec. 31, 2016 EGP Thousands EGP Thousands 54,653,848 39,216,387 6,728,843 1,383 (70) 1,933,420 161,451 (1,800) 1,780,416 2,899,930 13,910,837 416,616 - 12,450,826 44,200,770 26,627,825 112,802 (12,476) (10,994,446) (2,965,997) 40,001 1,901,875 2,423,125 10,745,352 306,930 20,838 13,220,464 44,503,511 24,840,803 110,382 (5,533) (9,818,007) (2,257,826) 269,269 74,767,989 54,068 224,673,165 58,601,911 10,500 186,183,052 3,605,001 1,017,690 1,700,516 69,514,413 75,837,620 2,832,705 650,607 2,382,849 65,575,370 71,441,531 The above table represents the Bank's Maximum exposure to credit risk on December 31, 2017, before taking into account 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, 39.38% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represent 36.27%. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk resulting from both the bank's loans and advances portfolio and debt instruments based on the following: • 85.06% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 93.05% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 7,120,106 thousand. • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on December 31, 2017. • 96.80% of the investments in debt Instruments are Egyptian sovereign instruments. 160 Annual Report 2017 Annual Report 2017 161 Financial StatementS: Separate 3.1.6. Loans and advances Loans and advances are summarized as follows: Neither past due nor impaired Past due but not impaired Individually impaired Gross Less: Impairment provision Unamortized bills discount Unearned interest Net Dec.31, 2017 EGP Thousands Dec.31, 2016 EGP Thousands Loans and advances to customers 89,395,036 5,884,880 7,120,106 102,400,022 Loans and advances to banks 1,383 - - 1,383 Loans and advances to customers 86,354,393 5,133,220 6,585,667 98,073,280 Loans and advances to banks 161,451 - - 161,451 10,994,446 12,476 2,965,997 88,427,103 70 - - 1,313 9,818,007 5,533 2,257,826 85,991,914 1,800 - - 159,651 Impairment provision losses for loans and advances reached EGP 10,994,516 thousand. During the year, the Bank’s total loans and advances increased by 4.24%. 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 k n a b - 3 1 3 1 , - - 3 1 3 1 , o t s e c n a v d a d n a s n a o l l a t o T s d n a s u o Th P G E - - - 1 5 6 9 5 1 , s k n a b 1 5 6 9 5 1 , s d n a s u o Th P G E o t s e c n a v d a d n a s n a o l l a t o T l a t o T d n a s n a o l s r e m o t s u c o t s e c n a v d a s n a o l r e h t O s n a o l d e t a c i d n y S 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 : s e d a r G e t a r o p r o C l a u d i v i d n I 7 1 0 2 , 1 3 . c e D : ) n o s i 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 7 2 6 1 9 9 6 , , 0 3 2 9 3 5 3 1 , , 6 8 7 6 7 5 5 , , 3 8 2 3 7 3 2 , , 6 7 5 5 0 4 1 9 , - - 5 6 6 4 9 , 0 9 1 5 1 , 5 5 8 9 0 1 , , 4 4 4 8 4 8 2 , , 1 5 2 9 1 6 9 , , 1 6 9 5 7 4 0 2 , , 7 6 1 0 8 5 2 2 , , 3 8 3 1 4 1 1 , , 3 1 5 8 1 9 3 , 1 1 8 0 5 2 , 9 4 1 5 7 9 , , 9 9 5 6 1 7 4 2 , , 0 8 0 3 9 0 7 3 , , 6 3 3 8 2 8 8 , 0 9 2 0 0 8 , 7 5 2 3 6 4 , 6 1 8 1 5 6 , , 9 9 6 3 4 7 0 1 , - - 1 3 9 5 0 4 , 9 8 1 1 , 0 2 1 7 0 4 , , 0 4 7 1 0 1 3 1 , , 2 3 2 1 8 7 2 , , 5 4 2 8 4 6 1 , 3 7 1 3 2 1 , 0 2 1 8 1 , 8 0 8 0 4 4 , 4 1 1 6 5 , 7 3 5 2 2 , 0 8 3 4 1 , 8 6 7 6 7 , 6 7 9 2 1 , 0 3 1 9 3 , , 1 4 8 3 8 6 3 1 , , 3 6 2 4 7 8 2 , , 9 1 1 7 7 7 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 l a t o T l a t o T d n a s n a o l s r e m o t s u c o t s e c n a v d a s n a o l r e h t O s n a o l d e t a c i d n y S 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 : s e d a r G e t a r o p r o C l a u d i v i d n I 6 1 0 2 , 1 3 . c e D , 4 1 5 5 9 7 5 6 , , 2 9 0 2 2 7 4 , , 5 2 5 9 4 0 6 1 , , 2 4 1 8 8 6 1 , , 3 7 2 5 5 2 8 8 , - - 8 9 5 7 , 0 4 3 0 0 1 , 8 3 9 7 0 1 , , 7 0 1 4 2 4 8 1 , , 2 8 8 2 9 6 2 2 , , 0 7 6 7 4 0 0 1 , , 0 4 6 0 7 4 4 , , 7 8 8 5 1 2 0 1 , - , 5 9 1 1 5 2 4 , 3 8 1 0 7 1 , 0 2 3 1 0 9 , , 0 3 9 4 6 0 3 2 , , 4 8 2 1 6 0 8 3 , , 9 1 6 0 0 0 1 , 3 9 7 2 5 3 , 2 7 3 7 7 4 , , 4 5 4 8 7 8 1 1 , - - , 3 7 4 6 9 2 7 5 6 2 , 0 3 1 9 9 2 , , 3 8 2 7 3 1 0 1 , , 8 5 4 2 1 3 2 , , 1 0 3 4 8 7 1 , 3 1 3 5 8 , 2 5 9 7 2 2 , 1 1 2 4 0 1 , 6 9 6 1 5 , 2 0 2 9 1 , 3 1 7 4 1 , 3 3 1 5 7 , 9 8 5 3 1 , 6 8 6 7 1 , , 9 5 7 4 5 5 0 1 , , 9 6 0 8 9 3 2 , , 9 0 7 0 9 8 1 , s n a o i l g n m r o f r e p - n o N 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 162 Annual Report 2017 Annual Report 2017 163 Financial StatementS: Separate d n a s u o Th P G E e t a r o p r o C l a t o T , 2 8 9 2 8 0 4 , 9 1 2 9 8 , 1 5 2 5 4 5 , , 2 5 4 7 1 7 4 , l a t o T , 7 7 6 6 6 9 2 , 5 1 6 9 2 1 , 4 0 1 6 1 8 , - - 2 2 0 5 5 , 0 3 6 2 9 3 , , 6 9 3 2 1 9 3 , 8 7 8 3 4 , , 2 1 0 0 7 9 2 , s n a o l 8 7 8 3 4 , d e t a c i d n y S , 0 6 3 2 2 5 2 , 3 9 5 4 7 , 9 3 4 0 0 4 , 4 7 4 3 2 4 , 6 0 5 8 9 8 , , 9 6 6 9 2 0 1 , 8 6 1 6 4 , 7 8 9 4 4 1 , , 4 2 8 0 2 2 1 , 6 6 1 2 1 5 7 8 3 8 e t a r o p r o C - - s n a o l 1 7 0 3 , 1 7 0 3 , d e t a c i d n y S , 1 8 1 4 3 6 3 , 8 8 6 8 5 , 0 4 4 7 1 1 , , 9 0 3 0 1 8 3 , 1 3 5 0 3 , 0 3 7 5 4 4 , 1 1 8 7 2 4 , 2 7 0 4 0 9 , 7 3 0 0 6 9 , 4 4 7 6 5 1 , 7 4 6 0 5 , , 8 2 4 7 6 1 1 , 0 8 5 9 9 1 9 6 8 4 8 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 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 . , , d n a s u o h t 6 0 1 0 2 1 7 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 n a o l 5 5 1 3 3 , 7 4 5 9 1 , 0 2 5 0 1 , 2 2 2 3 6 , l a n o s r e P l a u d i v i d n I s n a o l 2 3 7 4 2 , 9 7 6 4 1 , 2 8 3 9 , 3 9 7 8 4 , l a n o s r e P l a u d i v i d n I 7 2 9 9 5 , 0 2 0 7 2 , 9 0 7 5 9 3 , 6 5 6 2 8 4 , 1 7 0 7 7 , 8 3 0 3 1 , 3 9 5 0 3 5 , 2 0 7 0 2 6 , s d r a c t i d e r C s t f a r d r e v O 2 5 9 4 5 , 4 6 9 2 2 , 6 6 0 2 2 4 , 2 8 9 9 9 4 , 0 9 2 5 7 , 1 0 8 3 1 , 0 2 1 2 8 5 , 1 1 2 1 7 6 , 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 7 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 6 1 0 2 , 1 3 . c e D s w o fl h s a c n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w d e s s e s s a y l l a u d i v i d n i s e c n a v d a d n a s n a o L s n a o l d e r i a p m i y l l i a u d v d n i I Loans and advances restructured Restructuring activities include rescheduling arrangements, applying obligatory management programs, modifying and deferral of payments. The application of restructuring policies are based on indicators or criteria of credit performance of the borrower that is based on the personal judgment of the management, which indicate that payment will most likely continue. Restructuring is commonly applied to term loans, specially customer loans. Renegotiated loans totaled at the end of the period: Loans and advances to customer Corporate - Direct loans Total Dec.31, 2017 Dec.31, 2016 8,577,197 8,577,197 7,771,415 7,771,415 3.1.7. Debt instruments, treasury bills and other governmental notes The table below presents an analysis of debt instruments, treasury bills and other governmental notes by rating agency designation at end of financial year, based on Standard & Poor’s ratings or their equivalent: Dec.31, 2017 AAA AA- to AA+ A- to A+ Lower than A- Unrated Total Treasury bills and other gov. notes - - - - 54,478,202 54,478,202 Trading financial debt instruments - - - 1,721,360 5,007,483 6,728,843 Non-trading financial debt instruments - 431,011 1,724,358 4,457,964 68,154,656 74,767,989 EGP Thousands Total - 431,011 1,724,358 6,179,324 127,640,341 135,975,034 , 6 0 1 0 2 1 7 , , 1 8 7 7 5 2 1 , , 5 5 8 5 4 4 3 , , 0 4 4 6 2 7 1 , - 0 6 9 3 , e t a r o p r o C l a t o T s n a o l d e t a c i d n y S s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M l a t o T d n a s u o Th P G E s n a o l d e t a c i d n y S e t a r o p r o C s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M , 7 6 6 5 8 5 6 , , 9 8 6 9 1 3 1 , , 4 5 4 9 6 5 3 , , 5 7 3 8 6 3 1 , 8 3 8 0 2 , 9 7 4 7 , s n a o l l a n o s r e P 1 1 2 1 2 6 , l a u d i v i d n I s n a o l l a n o s r e P , 2 0 3 8 4 2 l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O 7 1 0 2 , 1 3 . c e D 7 6 0 4 2 , 2 9 7 0 4 , 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 6 1 0 2 , 1 3 . c e D 0 8 1 5 2 , 0 5 3 6 2 , 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 . 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 164 Annual Report 2017 Annual Report 2017 165 Financial StatementS: Separate 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 year. The Bank has allocated exposures to regions based on the country of domicile of its counterparties. Dec.31, 2017 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 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 and subsidiaries Total Cairo 54,653,848 Alex, Delta and Sinai - 6,728,843 1,383 (70) 956,756 2,329,790 8,632,679 342,764 10,228,588 29,818,885 23,487,639 87,088 (12,476) (10,994,446) (2,362,942) 40,001 74,767,989 54,068 198,760,387 - - - 621,743 488,529 4,437,647 66,414 1,731,524 11,262,255 2,831,056 25,714 - - (495,481) - - - 20,969,401 EGP Thousands Upper Egypt Total - - - - 201,917 81,611 840,511 7,438 490,714 3,119,630 309,130 - - - (107,574) - - - 4,943,377 54,653,848 6,728,843 1,383 (70) 1,780,416 2,899,930 13,910,837 416,616 12,450,826 44,200,770 26,627,825 112,802 (12,476) (10,994,446) (2,965,997) 40,001 74,767,989 54,068 224,673,165 ' . s e i t i v i t c a s r e m o t s u c s 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 . P G E s d n a s u o Th l a t o T l a u d i v i d n I s e i t i v i t c a r e h t O r o t c e s t n e m n r e v o G e d a r t l i a t e r d n a e l a s e l o h W e t a t s e l a e R g n i r u t c a f u n a M l a i c n a n i F s n o i t u t i t s n i , 8 4 8 3 5 6 4 5 , ) 0 7 ( 3 8 3 1 , , 3 4 8 8 2 7 6 , - - - - , 6 1 4 0 8 7 1 , , 0 3 9 9 9 8 2 , , 7 3 8 0 1 9 3 1 , , 6 1 4 0 8 7 1 , , 0 3 9 9 9 8 2 , , 7 3 8 0 1 9 3 1 , 6 1 6 6 1 4 , 6 1 6 6 1 4 , , 6 2 8 0 5 4 2 1 , , 0 7 7 0 0 2 4 4 , , 5 2 8 7 2 6 6 2 , 2 0 8 2 1 1 , ) 6 7 4 2 1 ( , , ) 6 4 4 4 9 9 0 1 ( , , ) 7 9 9 5 6 9 2 ( , 1 0 0 0 4 , 8 6 0 4 5 , , 9 8 9 7 6 7 4 7 , , 5 6 1 3 7 6 4 2 2 , - - - - - - - - - ) 6 5 4 5 6 2 ( , , 3 4 3 2 4 7 8 1 , - - - - - - - - , 8 0 9 7 5 2 4 , , 8 4 8 3 5 6 4 5 , , 3 4 8 8 2 7 6 , - - - - - - 8 4 2 6 1 6 , , 7 2 1 8 1 8 8 1 , , 1 5 1 7 4 0 3 , , 1 9 3 0 6 5 1 , - 0 0 6 1 , , ) 1 4 7 0 6 3 6 ( , , ) 1 7 2 0 2 0 2 ( , - - - , 4 1 0 7 5 2 6 1 , , 9 7 5 3 3 6 2 1 , - - - - ) 7 5 8 8 3 ( , , 0 2 6 2 1 6 2 7 , - , 2 3 4 3 5 2 0 5 1 , - - - - - - - - - - - 5 0 6 1 2 5 , 4 3 9 4 7 5 , ) 7 7 0 2 2 ( , ) 8 5 5 2 5 1 ( , - - - 4 0 9 1 2 9 , - - - - - - - - - - - - - - 1 4 4 7 1 8 , , 7 6 8 3 4 5 1 6 1 4 8 7 , ) 6 0 6 1 2 ( , , 3 6 8 3 2 1 2 , - - - - - - - - - , 6 0 7 5 4 8 5 , - - ) 0 7 ( 3 8 3 1 , - - - - 8 1 9 1 9 3 , - 2 0 2 1 1 1 , , 0 0 1 9 4 1 0 2 , , 3 9 8 6 3 5 1 1 , , ) 6 2 5 9 1 1 4 ( , - - - ) 0 6 6 2 2 9 ( , , 5 1 7 0 0 6 2 3 , - 1 0 8 2 1 1 , ) 6 7 4 2 1 ( , ) 2 0 7 5 3 ( , ) 9 8 9 ( 1 0 0 0 4 , , 1 9 5 7 6 0 1 , , 9 6 3 5 5 1 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 - 7 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 t n e m t s e v n i l a i c n a n i F s t n e m u r t s n i t b e D - s n a o l l a n o s r e P - s d r a c t i d e r C - : l a u d i v i d n I s t f a r d r e v O - s 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 - 8 6 0 4 5 , s e i r a i d i s b u s d n a s e t a i c o s s a n i s t n e m t s e v n I - , 4 9 8 3 7 7 3 , l a t o T 166 Annual Report 2017 Annual Report 2017 167 Financial StatementS: Separate 3.2. Market risk Market risk represnts as fluctuations in fair value, future cash flow, foreign exchange rates and commodity prices, interest rates, credit spreads and equity prices, and it may reduce the Bank’s income or the value of its portfolios. The bank assigns the market risk management department to measure, monitor and control the market risk. In addition, regular reports are submitted to the Asset and Liability "Management Committee (ALCO), Board Risk Committee and the heads of each business unit." The bank separates exposures to market risk into trading or non-trading portfolios. 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 and 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 a 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 assesses 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 VaR Lim- its, for the trading book, which have been approved by the board, and are monitored and reported on a daily basis to the Senior Management. In addition, monthly limits compliance is reported to the ALCO. The Bank has developed the internal model to calculate VaR, however, it 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 Stadardized 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, the bank computes on a daily basis trading Stressed VaR, combined with the trading 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 Dec. 31, 2017 EGP Thousands Dec. 31, 2016 Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Portfolio managed by others risk Investment fund Total VaR Medium 13,647 588,938 553,426 35,512 7,280 370 591,508 High Low Medium High Low 82,695 815,249 739,977 75,272 10,454 692 826,941 275 363,366 351,674 11,692 4,854 215 364,408 31,561 365,258 340,853 24,405 4,775 392 381,247 300,218 1,028,396 973,882 54,514 10,341 643 1,193,075 276 112,744 102,443 10,301 2,682 264 113,480 Trading portfolio VaR by risk type Dec. 31, 2017 Dec. 31, 2016 EGP Thousands Medium High Low Medium High Low Foreign exchange risk Interest rate risk - For trading purposes Funds managed by others risk Investment fund Total VaR 13,647 35,512 35,512 7,280 370 46,039 82,695 75,272 75,272 10,454 692 113,250 275 11,692 11,692 4,854 215 13,804 31,561 24,405 24,405 4,775 392 51,651 300,218 54,514 54,514 10,341 643 335,888 276 10,301 10,301 2,682 264 11,285 Non trading portfolio VaR by risk type Dec. 31, 2017 Dec. 31, 2016 EGP Thousands Medium High Low Medium High Low Interest rate risk - For non trading purposes Total VaR 553,426 553,426 739,977 739,977 351,674 351,674 340,853 340,853 973,882 973,882 102,443 102,443 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 exchange rate risk and financial instruments at carrying amounts, categorized by currency. Equivalent EGP Thousands Dec. 31, 2017 EGP USD EUR GBP Other Total 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 and subsid- iaries 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 10,910,051 2,419,832 849,425 71,041 412,940 14,663,289 4,465,131 31,854,175 7,996,060 875,492 128,908 45,319,766 45,189,229 12,145,247 1,382,300 - 5,573,837 - 53,565,401 39,714 1,721,360 1,383 46,899,704 287 - - 1,893,051 - - - 41,866 - 24,667,305 45,167,722 5,807,476 - 54,068 - - - - - - - - - - - - - - - 58,716,776 7,295,197 1,383 102,400,022 40,001 30,474,781 45,167,722 54,068 189,632,458 100,849,464 12,120,836 988,399 541,848 304,133,005 534,701 152,712,537 55,547 129,196 153,431,981 1,212,410 85,817,271 141,437 3,545,540 45,974 10,952,101 - - 90,716,658 10,998,075 26,079 935,525 - - 961,604 58,754 349,936 - - 408,690 1,877,918 250,767,370 196,984 3,674,736 256,517,008 36,200,477 10,132,806 1,122,761 26,795 133,158 47,615,997 168 Annual Report 2017 Annual Report 2017 169 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, mea- sured by the remaining contractual maturities and the maturities assumption for non contractual products are based on there behavior studies. Dec. 31, 2017 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, 2016 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 1,877,918 31,348,143 36,393 - 21,728,194 6,743 - - 71,335,328 109,570,301 3,429 82,631 - 1,877,918 16,785,404 250,767,370 3,674,736 3,545,540 33,262,454 21,734,937 71,417,959 109,573,730 20,330,944 256,320,024 57,644,515 33,970,656 79,938,643 96,174,026 36,636,599 304,364,439 Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP Thousands 3,008,996 30,451,687 49,862 - 24,495,657 11,298 - - 55,763,261 108,564,259 14,469 84,614 - 12,690,448 - 3,008,996 231,965,312 160,243 33,510,545 24,506,955 55,847,875 108,578,728 12,690,448 235,134,551 63,513,318 35,561,586 67,012,053 81,180,812 23,129,786 270,397,555 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. 36,393 82,631 113,608,924 27,814,445 31,392,977 3,552,283 3,429 50,953,986 - 710,069 3,674,736 44,199,316 268,679,717 - 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. Financial StatementS: Separate 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 the 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. Up to 1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non-Interest Bearing Total - - - 32,633,606 12,038,721 647,439 3,395,960 6,823,666 48,497,150 - - - - - - 14,663,289 14,663,289 - 45,319,766 - 58,716,776 99,586 1,383 - - 904 3,807,571 2,920,368 466,768 7,295,197 - - - - 1,383 65,216,595 11,787,421 14,459,839 8,594,614 2,341,553 - 102,400,022 967,641 494,350 7,628,334 3,112,098 - 287 12,202,710 1,602,509 32,499 - 2,955,001 195,543 9,089,021 15,888,478 25,263,827 12,119,880 7,827,374 668,371 30,474,781 - 45,167,722 - - - - - 54,068 54,068 103,949,779 34,099,159 80,518,230 56,666,588 25,209,175 15,852,783 316,295,714 1,137,760 106,568,106 - 18,578,123 - 31,298,719 - 50,294,632 - 710,069 740,158 1,877,918 43,317,721 250,767,370 5,866,665 5,684,039 11,627 655,925 - 141,437 12,359,693 Dec. 31, 2017 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 in- struments (including IRS notional amount) Financial investments - Available for sale - Held to maturity Investments in associates and subsidiaries Total financial assets Financial liabilities Due to banks Due to customers Derivatives financial in- struments (including IRS notional amount) Long term loans Total financial liabilities Total interest re-pricing gap (9,659,145) 6,284,714 49,125,253 5,712,602 24,499,106 (28,346,533) 47,615,997 * After adding Reverse repos and deducting Repos. 3.3. Liquidity risk Liquidity risk occurs when the Bank does not have sufficient financial resources to meet its obligations arising from its financial liabilities as they fall due or to replace funds when they are withdrawn. Consequently, the bank may fail to meet obligations to repay depositors and fulfill lending commiments. 3.3.1. Liquidity risk management process The Bank’s liquidity management process, carried by the assets and Liabilities Management Department and monitored independently by the Risk Management Department, and includes Projecting cash flows by major currency under various stress scenarios and considering the level of liquid assets necessary in relation thereto: • Maintaining 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 CBE regulations. • Managing the concentration and profile of debt maturities. • Monitoring and reporting takes the form of cash flow measurement and projections for the next day, week and month respectively, as these are key periods for liquidity management. 170 Annual Report 2017 Annual Report 2017 171 Financial StatementS: Separate 3.3.4. Derivative cash flows Derivatives settled on a net basis The Bank’s derivatives that will be settled on a net basis include: Foreign exchange derivatives: exchange traded options and over-the-counter (OTC) ,exchange traded forwards cur- rency options. Interest rate derivatives: interest rate swaps, forward rate agreements, OTC and exchange traded interest rate options, other interest rate contracts and exchange traded futures . Loans and advances to banks Loans and advances to banks are represented in loans that do not consider 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 dis- counted 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. 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: Financial Investments Investment securities include only interest-bearing assets, held to maturity assets, and available for sale assets that are measured at fair value. Dec. 31, 2017 Liabilities Derivatives financial instruments - Foreign exchange derivatives - Interest rate derivatives Total Off balance sheet items Dec. 31, 2017 Up to 1 month One to three months Three months to one year One year to five years Total EGP Thousands 28,136 100 28,236 15,784 165 15,949 11,627 38,577 50,204 - 102,595 102,595 55,547 141,437 196,984 Up to 1 year 1-5 years Over 5 years Total Letters of credit, guarantees and other commitments Total 47,214,887 47,214,887 18,219,180 18,219,180 6,798,552 6,798,552 72,232,619 72,232,619 Credit facilities commitments Total Up to 1 year 1,295,563 1,295,563 1-5 years 5,728,813 5,728,813 Total 7,024,376 7,024,376 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. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this infor- mation 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: • Complying with the legally imposed capital requirements in Egypt. • Protecting the Bank’s ability to continue as a going concern and enabling the generation of yield forshareholders 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. Book value Fair value The required data is submitted to the Central Bank of Egypt on a monthly basis. Dec.31, 2017 Dec.31, 2016 Dec.31, 2017 Dec.31, 2016 Central Bank of Egypt requires the following: Financial assets Due from banks Gross loans and advances to banks Gross loans and advances to customers Financial investments Held to Maturity Total financial assets Financial liabilities Due to banks Due to customers Long term loans Total financial liabilities 45,319,766 1,383 102,400,022 58,011,034 161,451 98,073,280 44,782,984 1,383 96,397,613 56,270,958 161,451 99,578,137 45,167,722 192,888,893 53,924,936 210,170,701 45,595,034 186,777,014 51,541,583 207,552,129 1,877,918 250,767,370 3,674,736 256,320,024 3,008,996 231,965,312 160,243 235,134,551 1,813,466 245,616,661 3,674,736 251,104,863 2,924,416 234,065,309 160,243 237,149,968 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. • Maintaining EGP 500 million as a minimum requirement for the issued and paid-in capital. • Maintaining a minimum level of capital adequacy ratio of 11.25%, calculated as the ratio between total value of the capital elements, and the risk-weighted assets and contingent liabilities of the Bank (credit risk, market risk and opertional risk). While taking into consideration the conservation buffer. Tier one: Tier one comprises 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, interim profits and deducting previously recog- nized goodwill and any retained losses Tier two: Tier two represents the gone concern capital which is compposed of general risk provision according to the impairment provision guidelines issued by the Central Bank of Egypt 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 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. 172 Annual Report 2017 Annual Report 2017 173 Financial StatementS: Separate 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. 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 and 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 ob- servable data indicating the availability of 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 indicate that there has been an adverse change in the payment status of borrowers in the Bank, or national or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by +/-5%. Impairment of available for-sale equity investments 4.2. The Bank determines that available-for-sale equity investments are impaired when there has been a significant or pro- longed decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impair- ment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. 4.3. Fair value of derivatives The fair value of financial instruments that are not quoted in active markets are determined by using valuation tech- niques. these valuation techniques (as models) are validated and periodically reviewed by qualified personnel indepen- dent 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. For practicality purposes, 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 as held to maturity. This requires significant judgment, in which the bank evaluates its intention and ability to hold such invest- ments to maturity. If the bank fails to keep these investments to maturity other than for the specific circumstances – 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. Assets risk weight scale ranging from zero to 100% is 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 adjustments 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 summarize the compositions of teir 1, teir 2 , the capital adequacy ratio and leverage ratio . 1. The capital adequacy ratio Dec.31, 2017 Dec.31, 2016 EGP Thousands EGP Thousands 11,618,011 - 10,543,783 89,873 (2,450,136) 7,515,555 27,317,086 Restated** 11,538,660 (22,981) 10,542,939 90,025 (2,793,404) - 19,355,239 Tier 1 capital Share capital (net of the treasury shares) Goodwill Reserves Retained Earnings (Losses) Total deductions from tier 1 capital common equity Net profit for the period Total qualifying tier 1 capital Tier 2 capital 45% of special reserve 45% of foreign currencies translation differences Subordinated Loans Impairment provision for loans and regular contingent liabilities Total qualifying tier 2 capital Total capital 1+2 Risk weighted assets and contingent liabilities 128,698,992 Total credit risk 6,701,579 Total market risk 14,696,762 Total operational risk 150,097,333 Total *Capital adequacy ratio (%) 13.97% *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. **After 2016 profit distribution. 49 - 3,545,540 1,679,656 5,225,245 32,542,331 49 3,865 - 1,606,644 1,610,558 20,965,797 141,154,879 9,241,563 18,222,831 168,619,273 19.30% 2. Leverage ratio Total qualifying tier 1 capital On-balance sheet items & derivatives Off-balance sheet items Total exposures *Percentage Dec.31, 2017 Dec.31, 2016 EGP Thousands EGP Thousands 27,317,086 300,593,997 44,965,272 345,559,269 7.91% Restated** 19,355,239 271,962,373 41,080,543 313,042,916 6.18% *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 14 July 2015. **After 2016 profit distribution. For December 2017 NSFR ratio record 195.33% (LCY 232.44% and FCY 152.27%), and LCR ratio record 1018.68% (LCY 626.59% and FCY 377.14%). For December 2016 NSFR ratio record 183.3% (LCY 234.4% and FCY 140.0%), and LCR ratio record 1116.8% (LCY 1769.8% and FCY 434.8%) . 174 Annual Report 2017 Annual Report 2017 175 Financial StatementS: Separate 5. Segment analysis 5.1. By business segment The Bank is divided into four main business segments on a worldwide basis: 6. Net interest income • 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 – Including other banking business, such as Assets Management. Transactions between the business segments are on normal commercial terms and conditions. Dec.31, 2017 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets Corporate banking SME's Investment banking Retail banking Asset Liability Mangement EGP Thousands Total 5,691,435 2,342,539 2,955,690 4,841,757 639,646 16,471,067 (3,550,176) (696,877) (105,293) (1,780,505) (7,226) (6,140,077) 2,141,259 (576,762) 1,564,497 82,138,508 1,645,662 (442,854) 1,202,808 2,352,091 2,850,397 (767,053) 2,083,344 137,645,556 3,061,252 (823,795) 2,237,457 18,444,909 632,420 (170,187) 462,233 54,190,257 10,330,990 (2,780,651) 7,550,339 294,771,321 Dec.31, 2016 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets Corporate banking SME's Investment banking Retail banking Asset Liability Mangement Total 5,118,246 1,558,634 2,277,759 3,017,976 201,808 12,174,423 (2,327,301) (475,389) (53,393) (1,268,235) (5,667) (4,129,985) 2,790,945 (726,472) 2,064,473 104,231,922 1,083,245 (281,954) 801,291 3,826,756 2,224,366 (578,971) 1,645,395 101,472,259 1,749,741 (455,433) 1,294,308 15,011,250 196,141 (51,053) 145,088 39,309,870 8,044,438 (2,093,883) 5,950,555 263,852,057 5.2. By geographical segment Dec. 31, 2017 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2016 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets EGP Thousands Cairo 13,479,965 Alex, Delta & Sinai 2,499,912 Upper Egypt Total 491,190 16,471,067 (5,306,193) (670,176) (163,708) (6,140,077) 8,173,772 (2,200,134) 5,973,638 265,654,804 1,829,736 (492,390) 1,337,346 22,598,945 327,482 (88,127) 239,355 6,517,572 10,330,990 (2,780,651) 7,550,339 294,771,321 Cairo 10,883,293 Alex, Delta & Sinai 1,104,147 Upper Egypt Total 186,983 12,174,423 (3,464,852) (499,518) (165,615) (4,129,985) 7,418,441 (1,930,944) 5,487,497 237,224,923 604,629 (157,377) 447,252 21,740,165 21,368 (5,562) 15,806 4,886,969 8,044,438 (2,093,883) 5,950,555 263,852,057 Interest and similar income - Banks - Clients Total Treasury bills and bonds Financial investments in held to maturity and available for sale debt instruments Total Interest and similar expense - Banks - Clients Total Financial instruments purchased with a commitment to re-sale (Repos) Other loans Total Net interest income 7. Net fee and commission income Fee and commission income Fee and commissions related to credit Custody fee Other fee Total Fee and commission expense Other fee paid Total Net income from fee and commission 8. Dividend income Trading securities Available for sale securities Total 9. Net trading income Profit (Loss) from foreign exchange 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 Total Dec.31, 2017 EGP Thousands Dec.31, 2016 EGP Thousands 3,532,278 10,921,054 14,453,332 14,039,447 178,391 28,671,170 (463,409) (15,686,959) (16,150,368) (2,037) (14,750) (16,167,155) 12,504,015 2,568,172 6,656,743 9,224,915 9,794,089 125,214 19,144,218 (111,249) (9,010,782) (9,122,031) (153) (4,328) (9,126,512) 10,017,706 Dec.31, 2017 EGP Thousands Dec.31, 2016 EGP Thousands 1,362,658 117,268 1,197,018 2,676,944 (624,278) (624,278) 2,052,666 965,388 69,967 930,174 1,965,529 (417,573) (417,573) 1,547,956 Dec.31, 2017 EGP Thousands 11,475 23,039 34,514 Dec.31, 2016 EGP Thousands 5,045 29,191 34,236 Dec.31, 2017 EGP Thousands 764,732 (17,118) (23,732) (21,230) 589,563 1,292,215 Dec.31, 2016 EGP Thousands 603,565 12,947 (15,055) 38,472 675,253 1,315,182 176 Annual Report 2017 Annual Report 2017 177 Financial StatementS: Separate 10. Administrative expenses 15. Cash and balances with central bank 1.Staff costs Wages and salaries Social insurance Other benefits 2.Other administrative expenses Total 11. Other operating (expenses) income Profits (losses) from non-trading assets and liabilities revaluation Profits from selling property, plant and equipment Release (charges) of other provisions Other income/expenses Total 12. Impairment charge for credit losses Loans and advances to customers Total 13. Adjustments to calculate the effective tax rate Profit before tax 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 14. Earning per share Net profit for the year, available for distribution Board member's bonus Staff profit sharing Profits shareholders' Stake Weighted 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 Dec.31, 2017 EGP Thousands Dec.31, 2016 EGP Thousands (1,620,326) (65,033) (51,682) (1,375,467) (3,112,508) (1,188,799) (50,542) (44,146) (1,149,165) (2,432,652) Dec.31, 2017 EGP Thousands (61,065) 607 (114,725) (888,285) (1,063,468) Dec.31, 2016 EGP Thousands (682,556) 1,682 (72,442) (483,871) (1,237,187) Dec.31, 2017 EGP Thousands (1,742,281) (1,742,281) Dec.31, 2016 EGP Thousands (892,874) (892,874) Dec.31, 2017 EGP Thousands 10,330,990 22.50% 2,324,473 Dec.31, 2016 EGP Thousands 8,044,438 22.50% 1,809,999 376,975 (173,358) 256,358 (6,797) 3,000 2,780,651 26.92% 939,873 (113,627) (588,519) 43,144 3,013 2,093,883 26.03% Dec.31, 2017 EGP Thousands 7,549,043 (113,236) (754,904) 6,680,903 1,159,156 5.76 Dec.31, 2016 EGP Thousands 5,948,258 (89,224) (594,826) 5,264,208 1,159,156 4.54 1,177,722 5.67 1,176,718 4.47 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 17. Treasury bills and other governmental notes 91 Days maturity 182 Days maturity 364 Days maturity Unearned interest Total 1 Repos - treasury bills Total 2 Net 18. Trading financial assets Debt instruments - Governmental bonds Total Equity instruments - Mutual funds Total - Portfolio managed by others Total Dec.31, 2017 EGP Thousands 5,784,303 Dec.31, 2016 EGP Thousands 5,083,805 8,878,986 14,663,289 14,663,289 5,438,235 10,522,040 10,522,040 Dec.31, 2017 EGP Thousands 2,679,189 42,640,577 45,319,766 15,863,399 3,894,775 25,561,592 45,319,766 - 45,319,766 45,319,766 45,319,766 Dec.31, 2016 EGP Thousands 4,090,352 53,920,682 58,011,034 37,447,892 204,309 20,358,833 58,011,034 33 58,011,001 58,011,034 58,011,034 Dec.31, 2017 EGP Thousands - 1,289,425 57,602,997 (4,238,574) 54,653,848 (175,646) (175,646) 54,478,202 Dec.31, 2016 EGP Thousands 1,051,375 4,350,975 36,010,730 (2,196,693) 39,216,387 (39,203) (39,203) 39,177,184 Dec. 31, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 6,728,843 6,728,843 1,933,420 1,933,420 99,587 99,587 466,767 7,295,197 180,157 180,157 331,557 2,445,134 178 Annual Report 2017 Annual Report 2017 179 Financial StatementS: Separate 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 20. Loans and advances to customers, net 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, 2017 EGP Thousands 1,383 (70) 1,313 1,313 - 1,313 Dec. 31, 2016 EGP Thousands 161,451 (1,800) 159,651 110,053 49,598 159,651 Dec. 31, 2017 EGP Thousands (1,800) 1,697 33 (70) Dec. 31, 2016 EGP Thousands (9,899) 20,368 (12,269) (1,800) Dec. 31, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 1,780,416 2,899,930 13,910,837 416,616 - 19,007,799 12,450,826 44,200,770 26,627,825 112,802 83,392,223 102,400,022 (12,476) (10,994,446) (2,965,997) 88,427,103 38,960,491 49,466,612 88,427,103 1,901,875 2,423,125 10,745,352 306,930 20,838 15,398,120 13,220,464 44,503,511 24,840,803 110,382 82,675,160 98,073,280 (5,533) (9,818,007) (2,257,826) 85,991,914 36,671,277 49,320,637 85,991,914 Analysis for impairment provision of loans and advances to customers Individual Dec. 31, 2017 Overdraft Credit cards Beginning balance Released (charged) released during the year Write off during the year Recoveries during the year Ending balance (11,166) (5,556) 13,425 - (3,297) (25,056) (15,328) 36,477 (21,760) (25,667) Personal loans (190,592) (37,906) 1,561 (59) (226,996) Real estate loans (7,801) (3,743) 2,080 (32) (9,496) Other loans Total (20,838) (255,453) 20,838 (41,695) - - - 53,543 (21,851) (265,456) Dec. 31, 2017 Beginning balance Released (charged) released during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans (1,342,010) (387,038) - - 21,921 (1,707,127) (6,442,227) (1,125,372) 382,185 (23,054) 100,778 (7,107,690) Corporate Syndicated loans (1,775,873) (189,364) - - 54,011 (1,911,226) Other loans Total (2,444) (509) - - 6 (2,947) (9,562,554) (1,702,283) 382,185 (23,054) 176,716 (10,728,990) Dec. 31, 2016 Beginning balance Released (charged) released during the year Write off during the year Recoveries during the year Ending balance Overdraft Credit cards (11,835) (26,985) Individual Personal loans (135,339) Real estate loans (10,192) 669 (20,366) (55,022) - - (11,166) 37,099 (14,804) (25,056) 6 (237) (190,592) 2,391 - - (7,801) Other loans Total (20,881) (205,232) 43 (72,285) - - (20,838) 37,105 (15,041) (255,453) Dec. 31, 2016 Beginning balance Released (charged) released during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans (589,620) (132,021) - - (620,369) (1,342,010) (2,888,702) (1,206,476) 71,767 (33,221) (2,385,595) (6,442,227) Corporate Syndicated loans (1,024,226) 498,657 - - (1,250,304) (1,775,873) Other loans Total (1,327) (1,117) - - - (2,444) (4,503,875) (840,957) 71,767 (33,221) (4,256,268) (9,562,554) 21. Derivative financial instruments 21.1. Derivatives The Bank uses the following financial derivatives for non hedging purposes. Forward contracts represent commitments to buy foreign and local currencies including unexecuted spot transactions. Future contracts for foreign currencies and/or interest rates represent contractual commitments to receive or pay net on the basis of changes in foreign exchange rates or interest rates, and/or to buy/sell foreign currencies or financial instru- ments in a future date with a fixed contractual price under active financial market. Credit risk is considered low, and future interest rate contract represents future exchange rate contracts negotiated for case by case, These contracts require 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. 180 Annual Report 2017 Annual Report 2017 181 Financial StatementS: Separate Foreign exchange and/or interest rate swap represents commitments to exchange cash flows, resulting from these con- tracts are exchange of currencies or interest (fixed rate versus variable rate for example) or both (meaning foreign ex- change and interest rate contracts). hedging instruments at December 31, 2017 EGP 19,633 thousand against losses EGP 19,333 thousand at the December 31, 2016. Losses arose from the hedged items at December 31, 2017 reached EGP 44,924 thousand against losses of EGP 30,579 thousand at December 31, 2016. Contractual amounts are not exchanged except for some foreign exchange contracts. Credit risk is represented in the expected cost of foreign exchange contracts that takes place if other parties default to fulfill their liabilities. This risk is monitored continuously through comparisons of fair value and contractual amount, and in order 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 represent contractual agreements for the buyer (issuer) to the seller (holders) as a right not an obligation whether to buy (buy option) or sell (sell option) at a certain day or within certain year for a predeterminedamount 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 is exposed to credit risk for purchased op- tions contracts only and in the line of its book cost which represent its fair value. The contractual value for some derivatives options is considered a base to analyze the realized financial instruments on the balance sheet, but it doesn’t provide an indicator for the projected cash flows of the fair value for current instruments, and those amounts don’t reflects credit risk or interest rate risk. Derivatives in the Bank's benefit that are classified as (assets) are conversely considered (liabilities) as a result of the changes in foreign exchange prices or interest rates related to these derivatives. Contractual / expected total amounts of financial derivatives can fluctuate from time to time as well as the range through which the financial derivatives can be in benefit for 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 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 instru- ments hedging - Customers deposits hedging Total 3 Total financial derivatives (1+2+3) Notional amount 6,820,350 1,640,985 - Notional amount 655,925 11,506,784 Dec.31, 2017 Dec.31, 2016 Assets Liabilities Notional amount Assets Liabilities 36,597 3,117 39,714 - - 49,687 2,174,176 182,508 178,479 5,860 55,547 2,662,940 79,890 262,398 61,404 239,883 - - 34,706 144 144 - - 39,714 55,547 262,542 239,883 Dec.31, 2017 Dec.31, 2016 Assets Liabilities Notional amount Assets Liabilities - 287 287 25,996 675,861 115,441 141,437 16,382,128 - 6,727 6,727 45,629 45,579 91,208 40,001 196,984 269,269 331,091 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 25,996 thousand at December 31, 2017 against EGP 45,629 thousand at the December 31, 2016, Resulting in gains form The Bank uses interest rate swap contracts to cover part of the risk of potential increase in fair value of its fixed rate cus- tomer deposits in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 115,154 thousand at the end of December 31, 2017 against EGP 38,852 thousand at December 31, 2016, resulting in losses from hedging instruments at December 31, 2017 of EGP 76,302 thousand against losses of EGP 28,916 thousand at December 31, 2016. Gains arose from the hedged items at December 31, 2017 reached EGP 81,488 thousand against gains EGP 56,314 thousand at December 31 , 2016. 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 Dec. 31, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 29,632,780 83,346 758,655 30,474,781 4,709,487 97,631 640,173 5,447,291 45,135,209 32,513 45,167,722 53,892,423 32,513 53,924,936 75,642,503 59,372,227 73,721,199 1,921,304 75,642,503 72,612,620 2,155,369 74,767,989 57,097,553 2,274,674 59,372,227 56,090,139 2,511,772 58,601,911 Beginning balance Addition Deduction Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Available for sale impairment charges Ending Balance as of Dec.31, 2016 Beginning balance Addition Deduction Exchange revaluation differences for for- eign financial assets Profit (losses) from fair value difference Released (Impairment) charges of avail- able for sale Ending Balance as of Dec.31, 2017 Available for sale financial investments 46,289,075 3,334,122 (46,335,658) 2,219,961 42,132 (102,341) 5,447,291 5,447,291 25,868,230 (1,361,027) (100,078) 512,016 108,349 Held to maturity financial investments 9,261,220 44,667,810 (4,094) - - - 53,924,936 53,924,936 4,597,254 (13,354,468) - - - Total EGP Thousands 55,550,295 48,001,932 (46,339,752) 2,219,961 42,132 (102,341) 59,372,227 59,372,227 30,465,484 (14,715,495) (100,078) 512,016 108,349 30,474,781 45,167,722 75,642,503 182 Annual Report 2017 Annual Report 2017 183 Financial StatementS: Separate 22.1. Profits (Losses) on financial investments 25. Property, plant and equipment Profit (Loss) from selling available for sale financial instruments Released (Impairment) charges of available for sale equity instruments Profit (Loss) from selling investments in associates Released (Impairment) charges of non current assets held for sale Total Dec. 31, 2017 EGP Thousands (99,047) 254,588 - 340,504 496,045 Dec. 31, 2016 EGP Thousands 35,193 (102,078) (32,793) 131,799 32,121 23. Investments in associates and subsidiaries Dec. 31, 2017 Company’s country Company’s assets EGP Thousands Company’s revenues Company’s net profit Investment book value Stake % Company’s liabilities (without equity) Dec. 31, 2017 Land Premises IT Vehicles Fitting -out Machines and equipment 64,709 - 64,709 936,982 1,395,638 250,549 59,647 996,629 1,646,187 87,660 1,703 89,363 607,773 50,570 658,343 459,572 57,191 516,763 EGP Thousands Furniture and furnishing 144,454 7,235 151,689 Total 3,696,788 426,895 4,123,683 - - 315,192 1,029,244 47,904 468,368 372,522 124,929 2,358,159 44,507 176,155 5,184 70,311 47,595 7,253 351,005 - 359,699 1,205,399 53,088 538,679 420,117 132,182 2,709,164 64,709 64,709 636,930 621,790 %5 440,788 366,394 %33.3 36,275 39,756 %20 119,664 139,405 %33.3 96,646 87,050 %20 19,507 19,525 %20 1,414,519 1,338,629 Beginning gross assets (1) Additions during the year Ending gross assets (2) Accumulated depreciation at beginning of the year (3) Current year depreciation Accumulated depreciation at end of the year (4) Ending net assets (2-4) Beginning net assets (1-3) Depreciation rates Subsidiaries - CVenture Capital Associates - International Co. for Secu- rity and Services (Falcon) Total Egypt - - - - 44,318 99.99 Net fixed assets value on the balance sheet date includes EGP 353,462 thousand non registered assets while their registra- tions procedures are in process. Egypt 512,388 367,470 505,461 52,695 9,750 32.5 512,388 367,470 505,461 52,695 54,068 26. Due to banks Dec. 31, 2016 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 - International Co. for Security and Services (Falcon) Total 24. Other assets Egypt 300,739 208,188 301,390 12,478 10,500 35 300,739 208,188 301,390 12,478 10,500 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, 2017 EGP Thousands 3,870,654 230,296 522,211 2,193,590 45,083 24,973 6,886,807 Dec. 31, 2016 EGP Thousands 3,330,223 144,422 203,410 1,691,603 56,599 19,768 5,446,025 Current accounts Deposits Total Central banks Local banks Foreign banks Total Non-interest bearing balances Fixed interest bearing balances Total Current balances 27. 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, 2017 EGP Thousands 1,067,374 810,544 1,877,918 128,527 714,294 1,035,097 1,877,918 740,158 1,137,760 1,877,918 1,877,918 Dec. 31, 2016 EGP Thousands 271,470 2,737,526 3,008,996 163,420 2,636,009 209,567 3,008,996 545,463 2,463,533 3,008,996 3,008,996 Dec. 31, 2017 EGP Thousands 72,487,190 49,952,470 70,486,930 53,075,098 4,765,682 250,767,370 107,798,000 142,969,370 250,767,370 43,317,721 207,449,649 250,767,370 178,830,593 71,936,777 250,767,370 Dec. 31, 2016 EGP Thousands 60,293,401 57,478,218 69,215,320 38,519,158 6,459,215 231,965,312 110,382,138 121,583,174 231,965,312 37,066,683 194,898,629 231,965,312 159,717,409 72,247,903 231,965,312 184 Annual Report 2017 Annual Report 2017 185 Financial StatementS: Separate 28. Long term loans 31 . Equity Interest rate % Maturity date Maturing through next year EGP Thousands Balance on Dec. 31, 2017 EGP Thousands Balance on Dec. 31, 2016 EGP Thousands Financial Investment & Sector Cooperation (FISC) Agricultural Research and Develop- ment Fund (ARDF) Social Fund for Development (SFD) European Bank for Reconstruction and Development (EBRD) subordi- nated Loan International Finance Corporation (IFC) subordinated Loan Balance 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 months libor + 6.2% 3 months libor + 6.2% 3-5 years - - 2,778 3-5 years 83,886 87,314 88,800 04-Jan-20 41,882 41,882 68,665 10 years 10 years - - 1,772,770 1,772,770 - - 125,768 3,674,736 160,243 The variable interest rate on the subordinated loan is determined in advance every 3 months and the subordinated loans are not repaid before their due dates. 29. Other liabilities Accrued interest payable Accrued expenses Accounts payable Other credit balances Total 30. Other provisions Dec. 31, 2017 Provision for income tax claims Provision for legal claims Provision for contingent *Provision for other claim Total Dec. 31, 2016 Dec. 31, 2017 EGP Thousands 1,516,471 507,543 3,277,350 175,167 5,476,531 Dec. 31, 2016 EGP Thousands 1,455,029 645,979 1,329,189 149,133 3,579,330 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP Thousands 6,910 46,035 1,434,703 26,409 1,514,057 - 549 118,370 93,703 212,622 - (57) 12,627 (730) 11,840 - - 6,910 (725) - (24,738) (25,463) (29) (95,398) (2,470) (97,897) 45,773 1,470,302 92,174 1,615,159 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP Thousands 6,910 Provision for income tax claims 41,324 Provision for legal claims 31,000 Provision for Stamp Duty 759,173 Provision for contingent 23,354 Provision for other claim Total 861,761 * To face the potential risk of banking operations. - - 9,630 - 132,845 8,372 150,847 1,456 - 579,997 2,097 583,550 - (924) - - (2,772) (3,696) - 6,910 (5,451) (31,000) (37,312) (4,642) (78,405) 46,035 - 1,434,703 26,409 1,514,057 31.1. 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 11,618,011 thousand to be divided on 1,161,801 thousand shares with EGP 10 par value for each share"and registered in the commercial register dated 17th May 2017. • Increase issued and Paid in Capital by amount EGP 79,351 thousand on May 24,2017 to reach EGP 11,618,011 thousand ac- cording to Board of Directors decision on November 9, 2016 by issuance of eighth tranche for E.S.O.P program. • Increase issued and Paid in Capital by amount EGP 68,057 thousand on April 19,2016 to reach EGP 11,538,660 thousand according to Board of Directors decision on November 10, 2015 by issuance of seventh tranche for E.S.O.P program. • Increase issued and Paid in Capital by amount EGP 2,294,121 thousand on December 10, 2015 to reach 11,470,603 accord- ing to Ordinary General Assembly Meeting decision on March 12 ,2015 by distribution of a one share for every four out- standing 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 tranche 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 tranche 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 tranche 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 tranche 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 tranche 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. 31.2. Reserves According to The Bank status 5% of net profit is used to increase the legal reseve to reaches 50% of The Bank's issued and paid in capital.Central Bank of Egypt concurrence for usage of special reserve is required. 186 Annual Report 2017 Annual Report 2017 187 Financial StatementS: Separate 32. 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 Balance Assets (Liabilities) Dec. 31, 2017 EGP Thousands (31,409) 31,038 36,712 56,698 110,100 5,340 (37,478) 8,629 179,630 Assets (Liabilities) Dec. 31, 2016 EGP Thousands (28,741) 16,300 17,090 86,845 79,981 3,722 18,338 (12,227) 181,308 33. 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 instru- ments is measured using the 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 2018 2019 2020 Total Dec. 31, 2017 No. of shares in thousand 22,351 7,601 (737) (7,935) 21,280 Dec. 31, 2016 No. of shares in thousand 20,373 9,262 (478) (6,806) 22,351 EGP Exercise price 10.00 10.00 10.00 EGP Fair value * 31.67 28.43 65.55 No. of shares in thousand 5,077 8,791 7,412 21,280 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: Exercise price Current share price Expected life (years) Risk free rate % Dividend yield% Volatility% 11th tranche 10 73.08 3 16.77% 0.68% 30% 10th tranche 10 38.09 3 12.40% 2.50% 31% Volatility is calculated based on the daily standard deviation of returns for the last three years. 34. Reserves Legal reserve General reserve Special reserve Reserve for A.F.S investments revaluation difference Banking risks reserve Total Dec. 31, 2017 EGP Thousands 1,332,807 9,000,023 32,460 (1,642,958) 3,634 8,725,966 Dec. 31, 2016 EGP Thousands 1,035,363 4,554,403 30,778 (2,180,244) 3,019 3,443,319 On 28 January 2018, Central Bank of Egypt issued instructions indicating the following: Creating IFRS 9 risk reserve (1% of the total weighted credit risk) deducted from 2017 net profit after tax, to be used after 34.1. Banking risks reserve Beginning balance Transferred to bank risk reserve Ending balance 34.2. Legal reserve Beginning balance Transferred from previous year profits Ending balance 34.3. Reserve for A.F.S investments revaluation difference Beginning balance Unrealized gain (loss) from A.F.S investment revaluation Ending balance 35 . 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, 2017 EGP Thousands 3,019 615 3,634 Dec. 31, 2016 EGP Thousands 2,513 506 3,019 Dec. 31, 2017 EGP Thousands 1,035,363 297,444 1,332,807 Dec. 31, 2016 EGP Thousands 803,355 232,008 1,035,363 Dec. 31, 2017 EGP Thousands (2,180,244) 537,286 (1,642,958) Dec. 31, 2016 EGP Thousands (2,202,463) 22,219 (2,180,244) Dec. 31, 2017 EGP Thousands 14,663,289 45,319,766 54,478,202 (8,878,986) (1,719,586) (54,653,848) 49,208,837 Dec. 31, 2016 EGP Thousands 10,522,040 58,011,034 39,177,184 (5,438,235) (2,565,895) (38,187,428) 61,518,700 188 Annual Report 2017 Annual Report 2017 189 Financial StatementS: Separate 36 . Contingent liabilities and commitments 36.1. Legal claims There is a number of existing cases filed against the bank on December 31,2017 without provision as the bank doesn't expect to incur losses from it. 36.2.Capital commitments 36.2.1. Financial investments The capital commitments for the financial investments reached on the date of financial position EGP 166,798 thousand as follows: Available for sale financial investments Investments value 368,650 Paid Remaining 201,853 166,798 36.2.2. Fixed assets and branches constructions The value of commitments for the purchase of fixed assets, contracts, and branches constructions that have not been implemented till the date of financial statement amounted to EGP 196,284 thousand. 36.3. Letters of credit, guarantees and other commitments Letters of guarantee Letters of credit (import and export) Customers acceptances Total 36.4. Credit facilities commitments Credit facilities commitments 37. Mutual funds Osoul fund Dec. 31, 2017 EGP Thousands 69,514,413 1,700,516 1,017,690 72,232,619 Dec. 31, 2016 EGP Thousands 65,575,370 2,382,849 650,607 68,608,826 Dec. 31, 2017 EGP Thousands 7,024,376 Dec. 31, 2016 EGP Thousands 7,245,061 • CIB established an accumulated return mutual fund under license no.331 issued from capital market authority on Febru- ary 22, 2005. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 4,500,204 with redeemed value of EGP 1,408,654 thousands. • The market value per certificate reached EGP 313.02 on December 31, 2017. • The Bank portion got 295,425 certificates with redeemed value of EGP 92,474 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 518,708 with redeemed value of EGP 96,366 thousands. • The market value per certificate reached EGP 185.78 on December 31, 2017. • The Bank portion got 128,000 certificates with redeemed value of EGP 23,780 thousands. Aman fund ( CIB and Faisal Islamic Bank Mutual Fund) • CIB and Faisal Islamic Bank established an accumulated return mutual fund under license no.365 issued from capital market authority on July 30, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 334,711 with redeemed value of EGP 33,752 thousands. • The market value per certificate reached EGP 100.84 on December 31, 2017. • The Bank portion got 39,000 certificates with redeemed value of EGP 3,933 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 96,452 with redeemed value of EGP 18,281 thousands. • The market value per certificate reached EGP 189.53 on December 31, 2017. • The Bank portion got 50,000 certificates with redeemed value of EGP 9,477 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 94,470 with redeemed value of EGP 18,237 thousands. • The market value per certificate reached EGP 193.05 on December 31, 2017. • The Bank portion got 50,000 certificates with redeemed value of EGP 9,653 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 139,586 with redeemed value of EGP 23,241 thousands. • The market value per certificate reached EGP 166.50 on December 31, 2017. • The Bank portion got 50,000 certificates with redeemed value of EGP 8,325 thousands. 38. Transactions with related parties All banking transactions with related parties are conducted in accordance with the normal banking practices and regula- tions applied to all other customers without any discrimination. 38.1. Loans, advances, deposits and contingent liabilities Loans and advances Deposits Contingent liabilities 38.2. Other transactions with related parties International Co. for Security & Services EGP Thousands 5,936 64,779 1,372 Income EGP Thousands 185 Expenses EGP Thousands 228,429 190 Annual Report 2017 Annual Report 2017 191 Financial StatementS: Separate 39. Main currencies positions 42. Non current assets held for sale - CI Capital Holding CIB remained a minority stake of 10.00% of CI Capital Holding. Dec. 31, 2017 EGP Thousands Investment book value - Dec. 31, 2016 EGP Thousands Investment book value 428,011 Minority stake has been transferred to available for sale due to the bank's intention for maintaining the ownership per- centage of such investment. Important Events On 28 January 2018, the Central Bank of Egypt issued instructions on the following: IFRS 9 will be applied starting from 1st of January 2019. The bank will issue audited financial statements under the current CBE regulations as at 31 March 2018, in addition to issuing a drafted financial statements in compliance with the new instructions recieved from CBE regarding IFRS 9. "IFRS 9 risk reserve has been created (1% of the total weighted credit risk) of 2017 net profit after tax, to be used after ob- taining the CBE's consent. Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro 40. Tax status Corporate income tax Dec. 31, 2017 EGP Thousands 182,639 (313,246) (1,566) (523) 637 46,768 Dec. 31, 2016 EGP Thousands 1,371,677 (1,360,474) 266 851 25 4,440 • The Bank's corporate income tax position has been examined, paid and settled with the tax authority since the operations start up until the end of year 2014. • The Bank's corporate income tax has been examined and paid for the period 2015 - 2016. • Corporate income tax annual report is submitted. Salary tax • The Bank's salary tax has been examined, paid and settled since the operations start up until the end of 2015. Stamp duty tax • The Bank's stamp duty tax has been examined and paid since the operations start up until 31/7/2006. Any disputes are currently under discussion at the tax appeal committee and the court for adjudication. • The Bank's stamp duty tax is being re-examined for the period from 1/8/2006 till 31/12/2016 according to the protocol between the Federation of Egyptian banks and the tax authority. 41. Intangible assets: Book value Amortization Net book value Dec. 31, 2017 EGP Thousands 651,041 (282,118) 368,923 Dec. 31, 2016 EGP Thousands 651,041 (151,910) 499,131 According to CBE's regulation issued on Dec 16, 2008, an annual amortization of 20% has been applied on intangible as- sets starting from acquisition date. 192 Annual Report 2017 Annual Report 2017 193 Financial StatementS: conSolidated 194 Annual Report 2017 Annual Report 2017 195 Financial StatementS: conSolidated Commercial International Bank (Egypt) S.A.E Consolidated balance sheet as at December 31, 2017 Commercial International Bank (Egypt) S.A.E Consolidated income statement for the year ended December 31, 2017 Notes Dec. 31, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands Notes Dec. 31, 2017 EGP Thousands Dec. 31, 2016 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 Non current assets held for sale Derivative financial instruments Financial investments - Available for sale - Held to maturity Investments in associates Other assets 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 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 earnings (losses) Total equity Net profit for the year Total equity and net profit for the year Minority interest Total minority interest , equity and net profit for the year Total liabilities, equity, minority interest and net profit for the year The accompanying notes are an integral part of these financial statements. 15 16 17 18 19 20 42 21 22 22 23 24 41 32 25 26 27 42 21 29 28 30 31 34 14,663,289 45,319,766 54,478,202 7,295,197 1,313 88,427,103 - 40,001 30,474,781 45,167,722 65,039 6,886,607 368,923 179,630 1,414,519 294,782,092 1,877,918 250,723,052 - 196,984 2,778,973 5,476,531 3,674,736 1,615,159 266,343,353 11,618,011 8,725,966 489,334 89,873 20,923,184 7,515,555 28,438,739 - 28,438,739 10,522,040 58,011,034 39,177,184 2,445,134 159,651 85,224,148 4,890,438 269,269 5,447,291 53,924,936 36,723 5,434,563 499,131 181,308 1,320,905 267,543,755 3,008,996 231,740,795 3,684,676 331,091 2,017,034 3,579,330 160,243 1,514,057 246,036,222 11,538,660 3,451,756 343,460 31,462 15,365,338 6,009,118 21,374,456 133,077 21,507,533 294,782,092 267,543,755 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 impairment 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 " Profit (loss) of disposal from discontinued operations Net profit for the year Minority interest Bank shareholders Earning per share Basic Diluted 6 7 8 9 22 10 11 41 12 13 32 & 13 43 14 28,671,170 (16,167,155) 12,504,015 19,144,218 (9,126,512) 10,017,706 2,676,944 (624,278) 2,052,666 34,514 1,292,215 165,111 (3,112,508) (1,063,468) - (130,208) (1,742,281) 29,066 10,029,122 (2,778,973) (1,678) 7,248,471 122,234 168,900 7,539,605 24,050 7,515,555 1,965,529 (417,573) 1,547,956 34,236 1,315,182 (25,533) (2,432,652) (1,237,187) (209,842) (130,208) (892,874) 2,989 7,989,773 (2,017,034) (76,849) 5,895,890 127,376 - 6,023,266 14,148 6,009,118 5.76 5.67 4.54 4.47 Hisham Ezz Al-Arab Chairman and Managing Director 196 Annual Report 2017 Annual Report 2017 197 Commercial International Bank (Egypt) S.A.E Consolidated cash flow for the year ended on December 31, 2017 (Cont.) Proceeds from selling non current assets held for sale Net cash used in investing activities 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, 2017 EGP Thousands 628,521 (16,297,189) Dec. 31, 2016 EGP Thousands (2,989) (2,026,482) 3,524,063 (1,350,204) 79,351 2,253,210 (12,309,863) 61,518,700 49,208,837 14,663,289 45,319,766 54,478,202 (8,878,986) (1,719,586) (54,653,848) 49,208,837 28,915 (1,463,450) 68,057 (1,366,478) 38,935,643 22,583,057 61,518,700 10,522,040 58,011,034 39,177,184 (5,438,235) (2,565,895) (38,187,428) 61,518,700 Financial StatementS: conSolidated Commercial International Bank (Egypt) S.A.E Consolidated cash flow for the year ended on December 31, 2017 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 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 impairment 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 investments in associates Impairment (Released) charges of associates Shares based payments Bank's share in the profits of associates Associates financial investments revaluation differences 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 Non current assets held for sale Due to banks Due to customers Income tax obligations paid Other liabilities Net cash provided from operating activities Cash flow from investing activities Proceeds from redemption of subsidiary and associates Payment (proceeds) for purchases and sell of 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 Dec. 31, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 10,029,122 - 351,005 1,742,281 212,622 (248,072) 100,078 - 130,208 (83,079) (25,463) (97,897) 11,840 (607) 99,047 - (9,570) 290,884 (38,636) - 12,463,763 (2,594,442) (16,466,420) (4,601,991) 95,161 (4,019,132) (1,121,981) 428,011 (1,131,078) 18,802,058 (2,017,034) 1,897,201 1,734,116 750 (44,318) (745,089) 13,354,468 (4,597,254) (25,868,230) 973,963 7,989,773 158,041 285,381 892,874 150,847 (269,283) (2,219,961) 209,842 130,208 82,428 (3,696) (78,405) 583,550 (1,682) (35,193) 90,447 (131,799) 187,000 - 2,989 8,023,361 264,072 (16,057,258) 3,672,526 (2,918) (29,440,654) (4,450,111) - 1,408,227 76,506,379 (1,949,694) 4,354,673 42,328,603 (12,036) 176,161 (560,631) 4,094 (1,243,669) (3,334,122) 2,946,710 198 Annual Report 2017 Annual Report 2017 199 Financial StatementS: conSolidated l a t o T s d n a s u o Th P G E 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 - - 7 5 0 8 6 , , 5 8 5 2 8 5 6 1 , , ) 0 4 7 8 6 4 1 ( , , 6 6 2 3 2 0 6 , - 8 5 5 4 8 , 9 1 2 2 2 , 8 8 5 8 , 0 0 0 7 8 1 , , 3 3 5 7 0 5 1 2 , - - - 1 3 4 7 4 , ) 4 9 3 1 ( , 8 4 1 4 1 , - - 7 5 0 8 6 , , 4 5 1 5 3 5 6 1 , , ) 6 4 3 7 6 4 1 ( , , 8 1 1 9 0 0 6 , 2 9 8 2 7 , 6 6 6 1 1 , - - - - 7 7 0 3 3 1 , - 9 1 2 2 2 , 0 0 0 7 8 1 , - - - - - - - - - - n g i e r o f s e i c n e r r u c n o i t a l s n a r t s e c n e r e ff i d n a l p 8 4 1 8 4 2 , k c o t s e e y o l p m e p i h s r e n w o - ) 8 8 6 1 9 ( , - - - - - - 0 0 0 7 8 1 , 8 8 5 8 , 8 8 5 8 - , 6 5 4 4 7 3 1 2 , 8 8 5 8 , 0 6 4 3 4 3 , - , 6 7 9 8 2 7 4 , , ) 2 6 7 6 7 1 3 ( , ) 8 5 2 8 8 ( , , ) 0 5 4 3 6 4 1 ( , , 8 1 1 9 0 0 6 , - - - - ) 6 0 5 ( , 8 1 1 9 0 0 6 , - - - - - - - - - - - - - - - - - - - 3 1 5 2 , - - 6 0 5 9 1 0 3 , - - - - - - - - - 9 1 2 2 2 , , ) 2 6 4 2 0 2 2 ( , - - - - - - - - , , ) 3 4 2 0 8 1 2 ( 8 7 7 0 3 , - - - - - 8 5 2 8 8 , ) 6 9 8 3 ( , 6 6 6 1 1 , 2 6 4 1 3 , - - - - - - - - , 1 5 2 4 5 5 4 , - 4 6 5 - - 4 1 2 0 3 , ) 6 6 5 4 6 ( , , 3 7 3 8 1 5 1 , - , 8 7 8 5 3 0 3 , - - - - - - - - - 5 5 3 3 0 8 , 8 0 0 2 3 2 , - - - - - - - - - 7 5 0 8 6 , , 3 0 6 0 7 4 1 1 , , , 3 6 3 5 3 0 1 0 6 6 8 3 5 1 1 , , - 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 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 ( s g n i 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 6 1 0 2 , 1 3 . c e D ) s s o l ( / n i a g d e s i l a e r n u t e N S F A n o k n a b o t ) m o r f ( d e r r e f s n a r T e v r e s e r k s i r - n e r r u c n g i e r o f e v i t a l u m u C i s e c n e r e ff d n o i t a l s n a r t s e i c e h t f o d n e e h t t a e c n a l a B 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 r e n w o i r a e y e g a t n e c i - r e p p h s r e n w o n i e g n a h 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 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 e v i t a l u m u C r o f e v r e s e R e v r e s e R 6 1 0 2 , 1 3 r e b m e c e D t fi o r p t e N r a e y e h t r o f S R F I k s i r 9 s k s i r g n i k n a B e v r e s e r 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 l a t o T s d n a s u o Th P G E 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 t fi o r p t e N r a e y e h t r o f S R F I k s i r 9 e v r e s e r s k s i r e v r e s e r g n i k n a B , 2 3 5 7 0 5 1 2 , - 1 5 3 9 7 , , ) 4 0 2 0 5 3 1 ( , , 5 0 6 9 3 5 7 , ) 8 8 5 8 ( , ) 7 2 1 7 5 1 ( , 6 8 2 7 3 5 , - - 4 8 8 0 9 2 , , 9 3 7 8 3 4 8 2 , - - - - 0 5 0 4 2 , 7 7 0 3 3 1 , , 5 5 4 4 7 3 1 2 , - 1 5 3 9 7 , , ) 4 0 2 0 5 3 1 ( , , 5 5 5 5 1 5 7 , - - - - ) 8 8 5 8 ( , ) 8 8 5 8 ( , ) 7 2 1 7 5 1 ( , - - - - - - 6 8 2 7 3 5 , - - 4 8 8 0 9 2 , , 9 3 7 8 3 4 8 2 , - - - - - - - - - - - - - ) 0 1 0 5 4 1 ( , , 8 1 1 9 0 0 6 , , ) 9 9 2 8 5 6 4 ( , , ) 4 0 2 0 5 3 1 ( , - - - ) 5 1 6 ( , 5 5 5 5 1 5 7 , - - - - - - - - - 4 8 8 0 9 2 , - - 4 3 3 9 8 4 , , 6 0 0 4 0 1 6 , , 9 4 5 1 1 4 1 , , , ) 9 4 5 1 1 4 1 ( 9 4 5 1 1 4 1 , , - - - - - - - 9 1 0 3 , - - 5 1 6 4 3 6 3 , e v i t a l u m u C r o f e v r e s e R n g i e r o f s e i c n e r r u c n o i t a l s n a r t s e c n e r e ff i d n a l p k c o t s e e y o l p m e p i h s r e n w o 8 8 5 8 , 0 6 4 3 4 3 , - - e v r e s e R . . S F A r o F - - - - - - - - - 6 8 2 7 3 5 , . ff i d s t n e m t s e v n i n o i t a u l a v e r , ) 4 4 2 0 8 1 2 ( , , ) 8 5 9 2 4 6 1 ( , 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 7 1 0 2 , 1 3 . c e D 7 1 0 2 , 1 3 r e b m e c e D - - - - - - - - - - - - ) 2 5 1 ( 2 5 1 - - - - - - - - - - - - - 8 7 7 0 3 , 2 6 4 1 3 , , 1 5 2 4 5 5 4 , 2 8 6 1 , 3 6 5 8 5 , , 0 2 6 5 4 4 4 , - - - - - - - - - 4 4 4 7 9 2 , - - - - - - - - - 1 5 3 9 7 , , 3 6 3 5 3 0 1 , , 0 6 6 8 3 5 1 1 , 0 6 4 2 3 , 3 7 8 9 8 , , 3 2 0 0 0 0 9 , , 7 0 8 2 3 3 1 , , 1 1 0 8 1 6 1 1 , 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 y r a i d i s b u s f o l a s o p s i D d i a p d n e d i v i D e c n a l a b g n i n n i g e B e s a e r c n i l a t i p a C - r e p p i h s r e n w o n i e g n a h C e g a t n e c ) s s o l ( / n i a g d e s i l a e r n u t e N S F A n o k n a b o t ) m o r f ( d e r r e f s n a r T k c o t s s e e y o l p m e f o t s o C ) P O S E ( n a l p p i h s r e n w o e h t f o d n e e h t t a e c n a l a B e v r e s e r k s i r 9 S R F I e v r e s e r k s i r r a e y d e d n e r a e y e h t r o f y t i u q e l ' s r e d o h e r a h s n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o C . E A S . ) t p y g E ( k n a B l a n o i t a n r e t n I l i a c r e m m o C 200 Annual Report 2017 Annual Report 2017 201 Financial StatementS: conSolidated Notes to the consolidated financial statements for the year ended December 31, 2017 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 174 branches, and 22 units employing 6551 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 Egyptian stock exchange. 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. 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. 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. As of December 31, 2017 the Bank directly owns 4,114,568 shares representing 10% of CI Capital Holding Company’s capital and on December 31, 2017 CI Capital Holding Co. Directly owns the following shares in its subsidiaries: Company name No. of shares Ownership% Indirect Share% • CIBC Co. • CI Assets Management • CI Investment Banking Co. • Dynamic Brokerage Co. • Corplease 1,979,290 478,577 2,481,578 3,393,500 1,262,237 98.96 95.72 99.27 99.97 72.96 98.94 95.70 99.25 99.95 72.94 The bank owns investments in a subsidiary “C-Ventures”, in which the bank’s share is 99.99%. The company is still under establishment and has not yet started its operations and has not been registered in the commercial register. 2. Summary of accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2.1. Basis of preparation The consolidated financial statements have been prepared in accordance with Egyptian financial reporting standards issued in 2006 and its amendments and in accordance with the instructions of the Central Bank of Egypt approved by the Board of Directors on December 16, 2008 consistent with the principles referred to. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of trading, financial assets and liabilities held at fair value through profit or loss, available for sale and all derivatives contracts. 2.1.1. Basis of consolidation The method of full consolidation is the basis of the preparation of the consolidated financial statement of the Bank, given that the Bank’s acquisition proportion is 99.98 % (full control) in CI Capital Holding until 20 March 2017. 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 equity method is applied to account for investments associates, whereby, investments are recorded based on the equity method including any goodwill, deducting any impairment losses, and dividends are recorded in the income state- ment in the adoption of the distribution of these profits and evidence of the Bank right to collect them. 2.3. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns different from those of segments operating in other economic environments. 2.4. Foreign currency translation 2.4.1. Functional and presentation currency The financial statements are presented in Egyptian pound, which is the Bank’s functional and presentation currency. 2.4.2. Transactions and balances in foreign currencies The Bank maintains its accounting records in Egyptian pound. Transactions in foreign currencies during the period are translated into the Egyptian pound using the prevailing exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the end of reporting period at the prevailing exchange rates. Foreign exchange gains and losses resulting from settlement and translation of such transac- tions and balances are recognized in the income statement and reported under the following line items: • Net trading income from held-for-trading assets and liabilities. • Other operating revenues (expenses) from the remaining assets and liabilities. 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: 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. • 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. 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’. 202 Annual Report 2017 Annual Report 2017 203 Financial StatementS: conSolidated 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. 2.5.4. Available for sale financial investments Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. 2.5. 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: 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. • Financial assets held for trading. • Financial assets designated at fair value through profit and loss at inception. Available-for-sale, held–for-trading and financial assets designated at fair value through profit and loss are subsequently mea- sured at fair value. Loans and receivables and held-to-maturity investments are subsequently measured at amortized cost. 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. 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. 204 Annual Report 2017 Annual Report 2017 205 Financial StatementS: conSolidated 2.6. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a legally enforceable right to offset the recognized amounts and there is an intention to be settled on a net basis. 2.7. Derivative financial instruments and hedge accounting Derivatives are recognized initially, and subsequently, at fair value. Fair values of exchange traded derivatives are ob- tained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques, including discounted cash flow models and option pricing models. Derivatives are classified as assets when their fair value is positive and as liabilities when their fair value is negative. Embedded derivatives in other financial instruments, such as conversion option in a convertible bond, are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, provided that the host contract is not classified as at fair value through profit and loss. These embedded derivatives are measured at fair value with changes in fair value recognized in income statement unless the Bank chooses to designate the hybrid contact as at fair value through net trading income in profit or loss. The timing of recognition in profit and loss, of any gains or losses arising from changes in the fair value of derivatives, depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. The Bank designates certain derivatives as: • Hedging instruments of the risks associated with fair value changes of recognized assets or liabilities or firm commit- ments (fair value hedge). • Hedging of risks relating to future cash flows attributable to a recognized asset or liability or a highly probable forecast transaction (cash flow hedge). • Hedge accounting is used for derivatives designated in a hedging relationship when the following criteria are met. At the inception of the hedging relationship, the Bank documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, At the inception of the hedge, and on ongoing basis, the Bank documents whether the hedging instrument is expected to be highly effective in offsetting changes in fair values of the hedged item attributable to the hedged risk. Fair value hedge 2.7.1. Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in profit or loss immediately together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The effective portion of changes in the fair value of the interest rate swaps and the changes in the fair value of the hedged item attributable to the hedged risk are recognized in the ‘net interest income’ line item of the income state- ment. Any ineffectiveness is recognized in profit or loss in ‘net trading income’. When the hedging instrument is no longer qualified for hedge accounting, the adjustment to the carrying amount of a hedged item, measured at amortized cost, arising from the hedged risk is amortized to profit or loss from that date using the effective interest method. 2.7.2. Derivatives that do not qualify for hedge accounting All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognized immediately in the income statement. These gains and losses are reported in ‘net trading income’, except where deriva- tives are managed in conjunction with financial instruments designated at fair value , in which case gains and losses are reported in ‘net income from financial instruments designated at fair value’. Interest income and expense 2.8. Interest income and expense for all financial instruments except for those classified as held-for-trading or designated at fair value are recognized in ‘interest income’ and ‘interest expense’ in the income statement using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that ex- actly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that represents an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once loans or debts are classified as nonperforming or impaired, the revenue of interest income will not be recognized and will be recorded off balance sheet, and are recognized as income subsequently based on a cash basis according to the following: • When all arrears are collected for consumer loans, personnel mortgages and micro-finance loans. • When calculated interest for corporate are capitalized according to the rescheduling agreement conditions until paying 25% from rescheduled payments for a minimum performing period of one year, if the customer continues to perform, the calculated interest will be recognized in interest income (interest on the performing rescheduling agreement balance) without the marginalized before the rescheduling agreement which will be recognized in interest income after the settle- ment of the outstanding loan balance. 2.9. Fee and commission income Fees charged for servicing a loan or facility that is measured at amortized cost, are recognized as revenue as the service is provided. Fees and commissions on non-performing or impaired loans or receivables cease to be recognized as income and are rather recorded off balance sheet. These are recognized as revenue, on a cash basis, only when interest income on those loans is recognized in profit and loss, at that time, fees and commissions that represent an integral part of the effective interest rate of a financial asset, are treated as an adjustment to the effective interest rate of that financial asset. Commitment fees and related direct costs for loans and advances where draw down is probable are deferred and recog- nized as an adjustment to the effective interest on the loan once drawn. Commitment fees in relation to facilities where draw down is not probable are recognized at the maturity of the term of the commitment. Fees are recognized on the debt instruments that are measured at fair value through profit and loss on initial recognition and syndicated loan fees received by the Bank are recognized when the syndication has been completed and the Bank does not hold any portion of it or holds a part at the same effective interest rate used for the other participants portions. Commission and fee arising from negotiating, or participating in the negotiation of a transaction for a third party such as the arrangement of the acquisition of shares or other securities or the purchase or sale of properties are recognized upon completion of the underlying transaction in the income statement . Other management advisory and service fees are recognized based on the applicable service contracts, usually on accrual basis. Financial planning fees related to investment funds are recognized steadily over the period in which the service is provided. The same principle is applied for wealth management; financial planning and custody services that are provided on the long term are recognized on the accrual basis also. Operating revenues in the holding company are: • Commission income is resulting from purchasing and selling securities to a customer account upon receiving the transac- tion confirmation from the Stock Exchange. • Mutual funds and investment portfolios management which is calculated as a percentage of the net value of assets under management according to the terms and conditions of agreement. These amounts are credited to the assets management company’s revenue pool on a monthly accrual basis. 2.10. Dividend income Dividends are recognized in the income statement when the right to collect is established. 206 Annual Report 2017 Annual Report 2017 207 Financial StatementS: conSolidated 2.11. Sale and repurchase agreements Securities may be lent or sold subject to a commitment to repurchase (Repos) are reclassified in the financial statements and deducted from treasury bills balance. Securities borrowed or purchased subject to a commitment to resell them (Re- verse Repos) are reclassified in the financial statements and added to treasury bills balance. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.\ 2.12. Impairment of financial assets 2.12.1. Financial assets carried at amortised cost The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of finan- cial assets is impaired. A financial asset or a group of financial assets is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event/s’) and that loss event/s has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: • Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales) • Violation of the conditions of the loan agreement such as non-payment. • Initiation of Bankruptcy proceedings. • Deterioration of the borrower’s competitive position. • 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 con- tractual terms of the assets being evaluated. For the purposes of evaluation of impairment for a group of a financial assets according to historical default ratios future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other indicative factors of changes in the probability of losses in the Bank and their magnitude. The methodol- ogy and assumptions used for estimating future cash flows are reviewed regularly by the Bank. 2.12.2. Available for sale investments The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of 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. 12.14. Property, plant and equipment Land and buildings comprise mainly branches and offices. All property, plant and equipment are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisi- tion of the items. Subsequent costs are included in the asset’s carrying amount or as a separate asset, as appropriate, only when it is prob- able that future economic benefits will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to other operating expenses during the financial period in which they are incurred. Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their residual values over estimated useful lives, as follows: Buildings Leasehold improvements Furniture and safes Typewriters, calculators and air-conditions Vehicles Computers and core systems Fixtures and fittings 20 years. 3 years, or over the period of the lease if less 3/5 years. 5 years 5 years 3/10 years 3 years 208 Annual Report 2017 Annual Report 2017 209 Financial StatementS: conSolidated The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Depreciable as- sets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be re- covered. An asset’s carrying amount is written down immediately to its recoverable value if the asset’s carrying amount exceeds its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. Gains and losses on disposals are determined by comparing the selling proceeds with the asset carrying amount and charged to other operating expenses in the income statement. 2.15. Impairment of non-financial assets Assets that have an indefinite useful life are not amortized -except goodwill- and are tested annually for impairment. As- sets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Assets are tested for impair- ment with reference to the lowest level of cash generating unit/s. A previously recognized impairment loss relating to a fixed asset may be reversed in part or in full when a change in circumstances leads to a change in the estimates used to determine the fixed asset’s recoverable amount. The carrying amount of the fixed asset will only be increased up to the amount that it would have been had the original impairment not been recognized. 2.15.1. Goodwill Goodwill is capitalized and represents the excess of acquisition cost over the fair value of the Bank’s share in the 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’. 2.16.3. 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. 210 Annual Report 2017 Annual Report 2017 211 Financial StatementS: conSolidated 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. The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. 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. 2.24. Noncurrent 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. Determining whether (and when) an asset stops being recovered principally through use and becomes recoverable prin- cipally through sale. For an asset (or disposal group) to be classified as held for sale: Risk management is carried out by risk department under policies approved by the Board of Directors. Bank treasury identifies, evaluates and hedges financial risks in close co-operation with the Bank’s operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial 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 a. It must be available for immediate sale in its present condition, subject only to terms that are usual and customary default. 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 presented 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. When presenting discontinued operations in the income statement, the comparative figures should be adjusted as if the operations had been discontinued in the comparative period. 3. Financial risk management The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, accep- tance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and rewards and minimize potential adverse effects on the Bank’s financial performance. The most important types of financial risks are credit risk, market risk, liquidity risk and other operating risks. Also market risk includes exchange rate risk, rate of return risk and other prices risks. • 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. 212 Annual Report 2017 Annual Report 2017 213 Financial StatementS: conSolidated 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. 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: December 31, 2017 December 31, 2016 Bank’s rating 1-Performing loans 2-Regular watching 3-Watch list 4-Non-Performing Loans Loans and advances (%) 69.53 15.53 7.99 6.95 Impairment provision (%) 11.61 21.51 23.70 43.18 Loans and advances (%) 68.27 18.43 6.54 6.76 Impairment provision (%) 13.78 19.53 16.81 49.88 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. 214 Annual Report 2017 Annual Report 2017 215 Financial StatementS: conSolidated 3.1.4. Pattern of measuring the general banking risk In addition to the four categories of the Bank’s internal credit ratings indicated in note 3.1.1, management classifies loans and advances based on more detailed subgroups in accordance with the CBE regulations. Assets exposed to credit risk in these categories are classified according to detailed rules and terms depending heavily on information relevant to the customer, his activity, financial position and his repayment track record. The Bank calculates required provisions for impairment of assets exposed to credit risk, including commitments relating to credit on the basis of rates determined by CBE. In case, the provision required for impairment losses as per CBE credit worthiness rules exceeds the required provisions by the application used in balance sheet preparation in accordance with EAS. That excess shall be debited to retained earnings and carried to the general banking risk reserve in the equity section. Such reserve is always adjusted, on a regular basis, by any increase or decrease so, that reserve shall always be equivalent to the amount of increase between the two provisions. Such reserve is not available for distribution. Below is a statement of institutional worthiness according to internal ratings compared with CBE ratings and rates of provisions needed for assets impairment related to credit risk: CBE Rating Categorization Provision% Internal rating Categorization 1 2 3 4 5 6 7 8 9 10 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% Performing loans 1 Performing loans 1 Performing loans 1 Performing loans 1 Performing loans 1 Regular watching 2 3 Watch list 4 Non performing loans 4 Non performing loans 4 Non performing loans 3.1.5. Maximum exposure to credit risk before collateral held In balance sheet items exposed to credit risk Treasury bills and other governmental notes Trading financial assets: - Debt instruments Gross loans and advances to banks Less:Impairment provision Gross loans and advances to customers Individual: - Overdraft - Credit cards - Personal loans - Mortgages - Other loans Corporate: - Overdraft - Direct loans - Syndicated loans - Other loans Unamortized bills discount Impairment provision Unearned interest Derivative financial instruments Financial investments: -Debt instruments -Investments in 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, 2017 Dec. 31, 2016 EGP Thousands EGP Thousands 54,653,848 39,216,387 6,728,843 1,383 (70) 1,933,420 161,451 (1,800) 1,780,416 2,899,930 13,910,837 416,616 - 12,450,826 44,200,770 26,627,825 112,802 (12,476) (10,994,446) (2,965,997) 40,001 1,901,875 2,423,125 10,745,352 306,930 20,838 12,452,698 44,503,511 24,840,803 110,382 (5,533) (9,818,007) (2,257,826) 269,269 74,767,989 65,039 224,684,136 58,601,911 36,723 185,441,509 3,605,001 1,017,690 1,700,516 69,514,413 75,837,620 2,832,705 650,607 2,382,849 65,575,370 71,441,531 The above table represents the Bank's Maximum exposure to credit risk on December 31, 2017, before taking into account 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 39.35% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 36.26%. 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: • 85.06% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 93.05% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 7,120,106 thousand. • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on December 31, 2017. • 96.80% of the investments in debt Instruments are Egyptian sovereign instruments. 216 Annual Report 2017 Annual Report 2017 217 Financial StatementS: conSolidated 3.1.6. Loans and advances Loans and advances are summarized as follows: Neither past due nor impaired Past due but not impaired Individually impaired Gross Less: Impairment provision Unamortized bills discount Unearned interest Net Dec.31, 2017 EGP Thousands Dec.31, 2016 EGP Thousands Loans and advances to customers 89,395,036 5,884,880 7,120,106 102,400,022 Loans and advances to banks 1,383 - - 1,383 Loans and advances to customers 85,586,627 5,133,220 6,585,667 97,305,514 Loans and advances to banks 161,451 - - 161,451 10,994,446 12,476 2,965,997 88,427,103 70 - - 1,313 9,818,007 5,533 2,257,826 85,224,148 1,800 - - 159,651 Impairment provision losses for loans and advances reached EGP 10,994,516 thousand. During the year, the Bank’s total loans and advances increased by 5.06%. 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 k n a b - 3 1 3 1 , - - 3 1 3 1 , s d n a s u o Th P G E o t s e c n a v d a d n a s n a o l l a t o T - - - 1 5 6 9 5 1 , s k n a b 1 5 6 9 5 1 , s d n a s u o Th P G E o t s e c n a v d a d n a s n a o l l a t o T s n a o l l a t o T s e c n a v d a d n a s r e m o t s u c o t s n a o l r e h t O 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 e t a r o p r o C l a u d i v i d n I 7 1 0 2 , 1 3 . c e D : s e d a r G : ) n o s i 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 7 2 6 1 9 9 6 , , 0 3 2 9 3 5 3 1 , , 6 8 7 6 7 5 5 , , 3 8 2 3 7 3 2 , , 6 7 5 5 0 4 1 9 , - - 5 6 6 4 9 , 0 9 1 5 1 , 5 5 8 9 0 1 , , 4 4 4 8 4 8 2 , , 1 6 9 5 7 4 0 2 , , 3 8 3 1 4 1 1 , , 1 5 2 9 1 6 9 , , 7 6 1 0 8 5 2 2 , , 3 1 5 8 1 9 3 , 1 1 8 0 5 2 , 9 4 1 5 7 9 , , 9 9 5 6 1 7 4 2 , , 0 8 0 3 9 0 7 3 , , 6 3 3 8 2 8 8 , 0 9 2 0 0 8 , 7 5 2 3 6 4 , 6 1 8 1 5 6 , , 9 9 6 3 4 7 0 1 , - - 1 3 9 5 0 4 , 9 8 1 1 , 0 2 1 7 0 4 , , 0 4 7 1 0 1 3 1 , , 2 3 2 1 8 7 2 , , 5 4 2 8 4 6 1 , 3 7 1 3 2 1 , 0 2 1 8 1 , 8 0 8 0 4 4 , 4 1 1 6 5 , 7 3 5 2 2 , 0 8 3 4 1 , 8 6 7 6 7 , 6 7 9 2 1 , 0 3 1 9 3 , , 1 4 8 3 8 6 3 1 , , 3 6 2 4 7 8 2 , , 9 1 1 7 7 7 1 , s n a o l l a t o T s e c n a v d a d n a s r e m o t s u c o t s n a o l r e h t O 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 e t a r o p r o C l a u d i v i d n I , 8 4 7 7 2 0 5 6 , , 5 2 5 9 4 0 6 1 , , 2 9 0 2 2 7 4 , , 2 4 1 8 8 6 1 , , 7 0 5 7 8 4 7 8 , - - 8 9 5 7 , 0 4 3 0 0 1 , 8 3 9 7 0 1 , , 7 0 1 4 2 4 8 1 , , 2 8 8 2 9 6 2 2 , - , 0 4 6 0 7 4 4 , , 5 9 1 1 5 2 4 , , 7 8 8 5 1 2 0 1 , 3 8 1 0 7 1 , 0 2 3 1 0 9 , , 0 3 9 4 6 0 3 2 , , 4 8 2 1 6 0 8 3 , , 4 0 9 9 7 2 9 , , 9 1 6 0 0 0 1 , 3 9 7 2 5 3 , 2 7 3 7 7 4 , , 8 8 6 0 1 1 1 1 , - - , 3 7 4 6 9 2 7 5 6 2 , 0 3 1 9 9 2 , , 3 8 2 7 3 1 0 1 , , 8 5 4 2 1 3 2 , , 1 0 3 4 8 7 1 , 2 5 9 7 2 2 , 3 1 3 5 8 , 1 1 2 4 0 1 , 6 9 6 1 5 , 2 0 2 9 1 , 3 1 7 4 1 , 3 3 1 5 7 , 9 8 5 3 1 , 6 8 6 7 1 , , 9 5 7 4 5 5 0 1 , , 9 6 0 8 9 3 2 , , 9 0 7 0 9 8 1 , s n a o i l g n m r o f r e p - n o N 6 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 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 218 Annual Report 2017 Annual Report 2017 219 Financial StatementS: conSolidated d n a s u o Th P G E e t a r o p r o C l a t o T 9 1 2 9 8 , 1 5 2 5 4 5 , , 2 8 9 2 8 0 4 , , 2 5 4 7 1 7 4 , l a t o T , 7 7 6 6 6 9 2 , 5 1 6 9 2 1 , 4 0 1 6 1 8 , - - 2 2 0 5 5 , 0 3 6 2 9 3 , , 6 9 3 2 1 9 3 , 8 7 8 3 4 , , 2 1 0 0 7 9 2 , s n a o l 8 7 8 3 4 , d e t a c i d n y S , 0 6 3 2 2 5 2 , 3 9 5 4 7 , 9 3 4 0 0 4 , 4 7 4 3 2 4 , 6 0 5 8 9 8 , , 9 6 6 9 2 0 1 , 8 6 1 6 4 , 7 8 9 4 4 1 , , 4 2 8 0 2 2 1 , 6 6 1 2 1 5 7 8 3 8 e t a r o p r o C - - 1 7 0 3 , s n a o l 1 7 0 3 , d e t a c i d n y S , 1 8 1 4 3 6 3 , 8 8 6 8 5 , 0 4 4 7 1 1 , , 9 0 3 0 1 8 3 , 1 3 5 0 3 , 0 3 7 5 4 4 , 1 1 8 7 2 4 , 2 7 0 4 0 9 , 7 3 0 0 6 9 , 4 4 7 6 5 1 , 7 4 6 0 5 , , 8 2 4 7 6 1 1 , 0 8 5 9 9 1 9 6 8 4 8 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 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 . , , d n a s u o h t 6 0 1 0 2 1 7 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 n a o l 5 5 1 3 3 , 7 4 5 9 1 , 0 2 5 0 1 , 2 2 2 3 6 , l a n o s r e P l a u d i v i d n I s n a o l 2 3 7 4 2 , 9 7 6 4 1 , 2 8 3 9 , 3 9 7 8 4 , l a n o s r e P l a u d i v i d n I 7 2 9 9 5 , 0 2 0 7 2 , 9 0 7 5 9 3 , 6 5 6 2 8 4 , 1 7 0 7 7 , 8 3 0 3 1 , 3 9 5 0 3 5 , 2 0 7 0 2 6 , s d r a c t i d e r C s t f a r d r e v O 2 5 9 4 5 , 4 6 9 2 2 , 6 6 0 2 2 4 , 2 8 9 9 9 4 , 0 9 2 5 7 , 1 0 8 3 1 , 0 2 1 2 8 5 , 1 1 2 1 7 6 , 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 7 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 6 1 0 2 , 1 3 . c e D s w o fl h s a c n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w d e s s e s s a y l l a u d i v i d n i s e c n a v d a d n a s n a o L s n a o l d e r i a p m i y l l i a u d v d n i I . 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 Loans and advances restructured. Restructuring activities include rescheduling arrangements, applying obligatory management programs, modifying and deferral of payments. The application of restructuring policies are based on indicators or criteria of credit performance of the borrower that is based on the personal judgment of the management, which indicate that payment will most likely continue. Restructuring is commonly applied to term loans, specially customer loans. Renegotiated loans totaled at the end of the period: Loans and advances to customer Corporate - Direct loans Total Dec.31, 2017 Dec.31, 2016 8,577,197 8,577,197 7,771,415 7,771,415 3.1.7. Debt instruments, treasury bills and other governmental notes The table below presents an analysis of debt instruments, treasury bills and other governmental notes by rating agency designation at end of financial year, based on Standard & Poor’s ratings or their equivalent: Dec.31, 2017 AAA AA- to AA+ A- to A+ Lower than A- Unrated Total Treasury bills and other gov. notes - - - - 54,478,202 54,478,202 Trading financial debt instruments - - - 1,721,360 5,007,483 6,728,843 Non-trading financial debt instruments - 431,011 1,724,358 4,457,964 68,154,656 74,767,989 EGP Thousands Total - 431,011 1,724,358 6,179,324 127,640,341 135,975,034 , 6 0 1 0 2 1 7 , , 1 8 7 7 5 2 1 , , 5 5 8 5 4 4 3 , , 0 4 4 6 2 7 1 , - 0 6 9 3 , l a t o T d n a s u o Th P G E s n a o l d e t a c i d n y S e t a r o p r o C s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M l a t o T s n a o l d e t a c i d n y S s n a o l t c e r i D t f a r d r e v O 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 , 7 6 6 5 8 5 6 , , 9 8 6 9 1 3 1 , , 4 5 4 9 6 5 3 , , 5 7 3 8 6 3 1 , 8 3 8 0 2 , 9 7 4 7 , s n a o l l a n o s r e P , 1 1 2 1 2 6 l a u d i v i d n I s n a o l l a n o s r e P 2 0 3 8 4 2 , l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O 7 1 0 2 , 1 3 . c e D 7 6 0 4 2 , 2 9 7 0 4 , 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 6 1 0 2 , 1 3 . c e D 0 8 1 5 2 , 0 5 3 6 2 , 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 220 Annual Report 2017 Annual Report 2017 221 Financial StatementS: conSolidated 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 year. The Bank has allocated exposures to regions based on the country of domicile of its counterparties. EGP Thousands Upper Egypt Total Dec.31, 2017 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 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 54,653,848 Alex, Delta and Sinai - 6,728,843 1,383 (70) 956,756 2,329,790 8,632,679 342,764 10,228,588 29,818,885 23,487,639 87,088 (12,476) (10,994,446) (2,362,942) 40,001 - - - 621,743 488,529 4,437,647 66,414 1,731,524 11,262,255 2,831,056 25,714 - - (495,481) - - - - - 201,917 81,611 840,511 7,438 490,714 3,119,630 309,130 - - - (107,574) - 74,767,989 65,039 198,771,358 - - 20,969,401 - - 4,943,377 54,653,848 6,728,843 1,383 (70) 1,780,416 2,899,930 13,910,837 416,616 12,450,826 44,200,770 26,627,825 112,802 (12,476) (10,994,446) (2,965,997) 40,001 74,767,989 65,039 224,684,136 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 s 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 s d n a s u o Th l a t o T l a u d i v i d n I s e i t i v i t c a r e h t O r o t c e s t n e m n r e v o G e d a r t l i a t e r d n a e l a s e l o h W e t a t s e l a e R g n i r u t c a f u n a M l a i c n a n i F s n o i t u t i t s n i , 8 4 8 3 5 6 4 5 , , 3 4 8 8 2 7 6 , ) 0 7 ( 3 8 3 1 , , 6 1 4 0 8 7 1 , , 0 3 9 9 9 8 2 , , 7 3 8 0 1 9 3 1 , - - - - , 6 1 4 0 8 7 1 , , 0 3 9 9 9 8 2 , , 7 3 8 0 1 9 3 1 , 6 1 6 6 1 4 , 6 1 6 6 1 4 , , 6 2 8 0 5 4 2 1 , , 0 7 7 0 0 2 4 4 , , 5 2 8 7 2 6 6 2 , 2 0 8 2 1 1 , ) 6 7 4 2 1 ( , , ) 6 4 4 4 9 9 0 1 ( , , ) 7 9 9 5 6 9 2 ( , 1 0 0 0 4 , 9 3 0 5 6 , , 9 8 9 7 6 7 4 7 , , 6 3 1 4 8 6 4 2 2 , - - - - - - - - - ) 6 5 4 5 6 2 ( , , 3 4 3 2 4 7 8 1 , - - - - - - - - , 8 0 9 7 5 2 4 , , 1 9 3 0 6 5 1 , , 7 2 1 8 1 8 8 1 , , 8 4 8 3 5 6 4 5 , - - - - - - 8 4 2 6 1 6 , , 3 4 8 8 2 7 6 , , 1 5 1 7 4 0 3 , , 9 7 5 3 3 6 2 1 , - 0 0 6 1 , , ) 1 4 7 0 6 3 6 ( , , ) 1 7 2 0 2 0 2 ( , - - - , 4 1 0 7 5 2 6 1 , - - - - ) 7 5 8 8 3 ( , , 0 2 6 2 1 6 2 7 , - , 2 3 4 3 5 2 0 5 1 , - - - - - - - - - - - 5 0 6 1 2 5 , 4 3 9 4 7 5 , ) 7 7 0 2 2 ( , ) 8 5 5 2 5 1 ( , - - - 4 0 9 1 2 9 , - - - - - - - - - - - - - - 1 4 4 7 1 8 , 7 6 8 3 4 5 , 1 6 1 4 8 7 , ) 6 0 6 1 2 ( , , 3 6 8 3 2 1 2 , - - - - - - - - , 6 0 7 5 4 8 5 , - - ) 0 7 ( 3 8 3 1 , - - - - 8 1 9 1 9 3 , , 0 0 1 9 4 1 0 2 , , 3 9 8 6 3 5 1 1 , - 2 0 2 1 1 1 , , ) 6 2 5 9 1 1 4 ( , - - - ) 0 6 6 2 2 9 ( , , 5 1 7 0 0 6 2 3 , , 1 9 5 7 6 0 1 , - 1 0 8 2 1 1 , ) 6 7 4 2 1 ( , ) 2 0 7 5 3 ( , ) 9 8 9 ( 1 0 0 0 4 , , 9 6 3 5 5 1 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 - 7 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 t n e m t s e v n i l a i c n a n i F s t n e m u r t s n i t b e D - s n a o l l a n o s r e P - s d r a c t i d e r C - : l a u d i v i d n I s t f a r d r e v O - s 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 - 9 3 0 5 6 , s e i r a i d i s b u s d n a s e t a i c o s s a n i s t n e m t s e v n I - , 5 6 8 4 8 7 3 , l a t o T 222 Annual Report 2017 Annual Report 2017 223 Financial StatementS: conSolidated 3.2. Market risk Market risk represnts as fluctuations in fair value, future cash flow, foreign exchange rates and commodity prices, interest rates, credit spreads and equity prices, and it may reduce the Bank’s income or the value of its portfolios. The bank assigns the market risk management department to measure, monitor and control the market risk. In addition, regular reports are submitted to the Asset and Liability"Management Committee (ALCO), Board Risk Committee and the heads of each business unit." The bank separates exposures to market risk into trading or non-trading portfolios. 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 and 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 assesses 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 VaR Limits, for thetrading book, which have been approved by the board, and are monitored and reported on a daily basis to the Senior Management.In addition, monthly limits compliance is reported to the ALCO. The Bank has developed the internal model to calculate VaR, however, it is not yet approved by the Central Bank as the regulator iscurrently applying and requiring banks to calculate the Market Risk Capital Requirements according to Basel II Standardized 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, the bank computes on a daily basis trading Stressed VaR, combined with the trading 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 Dec. 31, 2017 EGP Thousands Dec. 31, 2016 Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Portfolio managed by others risk Investment fund Total VaR Medium 13,647 588,938 553,426 35,512 7,280 370 591,508 High Low Medium High Low 82,695 815,249 739,977 75,272 10,454 692 826,941 275 363,366 351,674 11,692 4,854 215 364,408 31,561 365,258 340,853 24,405 4,775 392 381,247 300,218 1,028,396 973,882 54,514 10,341 643 1,193,075 276 112,744 102,443 10,301 2,682 264 113,480 Trading portfolio VaR by risk type Dec. 31, 2017 Dec. 31, 2016 EGP Thousands Medium High Low Medium High Low Foreign exchange risk Interest rate risk - For trading purposes Funds managed by others risk Investment fund Total VaR 13,647 35,512 35,512 7,280 370 46,039 82,695 75,272 75,272 10,454 692 113,250 275 11,692 11,692 4,854 215 13,804 31,561 24,405 24,405 4,775 392 51,651 300,218 54,514 54,514 10,341 643 335,888 276 10,301 10,301 2,682 264 11,285 Non trading portfolio VaR by risk type Dec. 31, 2017 Dec. 31, 2016 EGP Thousands Medium High Low Medium High Low Interest rate risk - For non trading purposes Total VaR 553,426 553,426 739,977 739,977 351,674 351,674 340,853 340,853 973,882 973,882 102,443 102,443 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 exchange rate risk and financial instruments at carrying amounts, categorized by currency. Equivalent EGP Thousands Dec. 31, 2017 EGP USD EUR GBP Other Total 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 cus- tomers 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 10,910,051 2,419,832 849,425 71,041 412,940 14,663,289 4,465,131 31,854,175 7,996,060 875,492 128,908 45,319,766 45,189,229 12,145,247 1,382,300 5,573,837 - 1,721,360 1,383 - - - - - 53,565,401 46,899,704 1,893,051 41,866 39,714 287 - - - - - - - 58,716,776 7,295,197 1,383 102,400,022 40,001 24,667,305 45,167,722 65,039 189,643,429 5,807,476 - - - - - 100,849,464 12,120,836 - - - 988,399 - - - 541,848 30,474,781 45,167,722 65,039 304,143,976 534,701 152,712,537 55,547 129,196 153,431,981 1,212,410 85,772,953 141,437 3,545,540 45,974 10,952,101 - - 90,672,340 10,998,075 26,079 935,525 - - 961,604 58,754 349,936 - - 408,690 1,877,918 250,723,052 196,984 3,674,736 256,472,690 36,211,448 10,177,124 1,122,761 26,795 133,158 47,671,286 224 Annual Report 2017 Annual Report 2017 225 Financial StatementS: conSolidated 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 val- ue and cash flow risks. Interest marginsmay 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 the 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, 2017 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 in- struments (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 in- struments (including IRS notional amount) Long term loans Total financial liabilities Total interest re-pricing gap Up to 1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non-Interest Bearing Total - - - 32,633,606 12,038,721 647,439 3,395,960 6,823,666 48,497,150 - - - - - - 14,663,289 14,663,289 - 45,319,766 - 58,716,776 99,586 1,383 - - 904 3,807,571 2,920,368 466,768 7,295,197 - - - - 1,383 65,216,595 11,787,421 14,459,839 8,594,614 2,341,553 - 102,400,022 967,641 494,350 7,628,334 3,112,098 - 287 12,202,710 1,602,509 32,499 - 195,543 9,089,021 - 103,949,779 34,099,159 80,518,230 - 2,955,001 - 12,119,880 15,888,478 7,827,374 25,263,827 - - 56,666,588 25,209,175 668,371 30,474,781 - 45,167,722 65,039 15,863,754 316,306,685 65,039 1,137,760 106,568,106 - 18,578,123 - 31,298,719 - 50,294,632 - 710,069 740,158 1,877,918 43,273,403 250,723,052 5,866,665 5,684,039 11,627 655,925 - 141,437 12,359,693 36,393 82,631 113,608,924 27,814,445 31,392,977 3,552,283 3,429 50,953,986 - 710,069 3,674,736 44,154,998 268,635,399 - (9,659,145) 6,284,714 49,125,253 5,712,602 24,499,106 (28,291,244) 47,671,286 * After adding Reverse repos and deducting Repos. 3.3. Liquidity risk Liquidity risk occurs when the Bank does not have sufficient financial resources to meet its obligations arising from its financial liabilities as they fall due or to replace funds when they are withdrawn. Consequently, the bank may fail to meet obligations to repay depositors and fulfill lending commitments. 3.3.1. Liquidity risk management process The Bank’s liquidity management process, carried by the assets and Liabilities Management Department and monitored independently by the Risk Management Department, and includes Projecting cash flows by major currency under various stress scenarios and considering the level of liquid assets necessary in relation thereto: - Maintaining 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 CBE regulations. • Managing the concentration and profile of debt maturities. • Monitoring and reporting takes the form of cash flow measurement and projections for the next day, week and month respectively, as these are key periods for liquidity management. The starting point for those assets 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, mea- sured by the remaining contractual maturities and the maturities assumption for non contractual products are based on there behavior studies. Dec. 31, 2017 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, 2016 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 1,877,918 31,348,143 36,393 - 21,728,194 6,743 - - 71,335,328 109,570,301 3,429 82,631 - 1,877,918 16,741,086 250,723,052 3,674,736 3,545,540 33,262,454 21,734,937 71,417,959 109,573,730 20,286,626 256,275,706 57,644,515 33,970,656 79,938,643 96,174,026 36,636,599 304,364,439 Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP Thousands 3,008,996 30,227,170 49,862 - 24,495,657 11,298 - - 55,763,261 108,564,259 14,469 84,614 - 12,690,448 - 3,008,996 231,740,795 160,243 33,286,028 24,506,955 55,847,875 108,578,728 12,690,448 234,910,034 63,513,318 35,561,586 67,012,053 81,180,812 23,129,786 270,397,555 Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, due from CBE and due from banks, treasury bills, other government notes , loans and advances to banks and customers. In the normal course of business, a proportion of customer loans contractually repayable within one year will be extended. In addition, debt instrumentand 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. 226 Annual Report 2017 Annual Report 2017 227 Financial StatementS: conSolidated 3.3.4. Derivative cash flows Derivatives settled on a net basis The Bank’s derivatives that will be settled on a net basis include: Foreign exchange derivatives: exchange traded options and over-the-counter (OTC) ,exchange traded forwards cur- rency options. Interest rate derivatives: interest rate swaps, forward rate agreements, OTC and exchange traded interest rate options, other interest ratecontracts and exchange traded futures. Loans and advances to banks Loans and advances to banks are represented in loans that do not consider bank placing. The expected fair value of the loans and advancesrepresents the discounted value of future cash flows expected to be collected. Cash flows are dis- counted 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. 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: Financial Investments Investment securities include only interest-bearing assets, held to maturity assets, and available for sale assets that are measured at fair value. Dec. 31, 2017 Liabilities Derivatives financial instruments - Foreign exchange derivatives - Interest rate derivatives Total Off balance sheet items Dec. 31, 2017 Up to 1 month One to three months Three months to one year One year to five years Total EGP Thousands 28,136 100 28,236 15,784 165 15,949 11,627 38,577 50,204 - 102,595 102,595 55,547 141,437 196,984 Up to 1 year 1-5 years Over 5 years Total Letters of credit, guarantees and other commitments Total 47,214,887 47,214,887 18,219,180 18,219,180 6,798,552 6,798,552 72,232,619 72,232,619 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: Credit facilities commitments Total Up to 1 year 1,295,563 1,295,563 1-5 years 5,728,813 5,728,813 Total 7,024,376 7,024,376 • Complying with the legally imposed capital requirements in Egypt. • Protecting the Bank’s ability to continue as a going concern and enabling the generation of yield forshareholders and other parties dealing with the bank. 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. 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. Book value Fair value The required data is submitted to the Central Bank of Egypt on a monthly basis. Dec.31, 2017 Dec.31, 2016 Dec.31, 2017 Dec.31, 2016 Central Bank of Egypt requires the following: Financial assets Due from banks Gross loans and advances to banks Gross loans and advances to customers Financial investments Held to Maturity Total financial assets Financial liabilities Due to banks Due to customers Long term loans Total financial liabilities 45,319,766 1,383 102,400,022 58,011,034 161,451 97,305,514 44,782,984 1,383 96,397,613 56,270,958 161,451 99,578,137 45,167,722 192,888,893 53,924,936 209,402,935 45,595,034 186,777,014 51,541,583 207,552,129 1,877,918 250,723,052 3,674,736 256,275,706 3,008,996 231,740,795 160,243 234,910,034 1,813,466 245,616,661 3,674,736 251,104,863 2,924,416 234,065,309 160,243 237,149,968 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. • Maintaining EGP 500 million as a minimum requirement for the issued and paid-in capital. • Maintaining a minimum level of capital adequacy ratio of 11.25%, calculated as the ratio between total value of the capital elements, and the risk-weighted assets and contingent liabilities of the Bank (credit risk, market risk and opertional risk). While taking into consideration the conservation buffer. Tier one: Tier one comprises 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, interim profits and deducting previously recog- nized goodwill and any retained losses Tier two: Tier two represents the gone concern capital which is compposed of general risk provision according to the impairment provision guidelines issued by the Central Bank of Egypt 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 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. 228 Annual Report 2017 Annual Report 2017 229 Financial StatementS: conSolidated When calculating the numerator of capital adequacy ratio, the rules set limits of total tier 2 to no more than tier 1 capital and also limits the subordinated to no more than 50% of tier1. Assets risk weight scale ranging from zero to 100% is 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 adjustments 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 summarize the compositions of teir 1, teir 2 , the capital adequacy ratio and leverage ratio . 1. The capital adequacy ratio Dec.31, 2017 Dec.31, 2016 EGP Thousands EGP Thousands 11,618,011 - 10,543,783 89,873 (2,450,136) 7,515,555 27,317,086 Restated** 11,538,660 (22,981) 10,542,939 90,025 (2,793,404) - 19,355,239 Tier 1 capital Share capital (net of the treasury shares) Goodwill Reserves Retained Earnings (Losses) Total deductions from tier 1 capital common equity Net profit for the period Total qualifying tier 1 capital Tier 2 capital 45% of special reserve 45% of foreign currencies translation differences Subordinated Loans Impairment provision for loans and regular contingent liabilities Total qualifying tier 2 capital Total capital 1+2 Risk weighted assets and contingent liabilities 128,698,992 Total credit risk 6,701,579 Total market risk 14,696,762 Total operational risk 150,097,333 Total *Capital adequacy ratio (%) 13.97% *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. **After 2016 profit distribution. 49 - 3,545,540 1,679,656 5,225,245 32,542,331 49 3,865 - 1,606,644 1,610,558 20,965,797 141,154,879 9,241,563 18,222,831 168,619,273 19.30% 2. Leverage ratio Total qualifying tier 1 capital On-balance sheet items & derivatives Off-balance sheet items Total exposures *Percentage Dec.31, 2017 Dec.31, 2016 EGP Thousands EGP Thousands 27,317,086 300,593,997 44,965,272 345,559,269 7.91% Restated** 19,355,239 271,962,373 41,080,543 313,042,916 6.18% *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 14 July 2015. **After 2016 profit distribution. For December 2017 NSFR ratio record 195.33% (LCY 232.44% and FCY 152.27%), and LCR ratio record 1018.68% (LCY 626.59% and FCY 377.14%). For December 2016 NSFR ratio record 183.3% (LCY 234.4% and FCY 140.0%), and LCR ratio record 1116.8% (LCY 1769.8% and FCY 434.8%) . 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 and 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 ob- servable data indicating the availability of 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 indicate that there has been an adverse change in the payment status of borrowers in the Bank, or national or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by +/-5% Impairment of available for-sale equity investments 4.2. The Bank determines that available-for-sale equity investments are impaired when there has been a significant or pro- longed decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impair- ment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. 4.3. Fair value of derivatives The fair value of financial instruments that are not quoted in active markets are determined by using valuation tech- niques. these valuation techniques (as models) are validated and periodically reviewed by qualified personnel indepen- dent 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.For practicality purposes, 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 as held to maturity. This requires significant judgment, in which the bank evaluates its intention and ability to hold such invest- ments to maturity. If the bank fails to keep these investments to maturity other than for the specific circumstances –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. 230 Annual Report 2017 Annual Report 2017 231 Financial StatementS: conSolidated 5. Segment analysis 5.1. By business segment The Bank is divided into four main business segments on a worldwide basis: 6. Net interest income • 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 –Including other banking business, such as Assets Management. Transactions between the business segments are on normal commercial terms and conditions. Dec.31, 2017 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets Dec.31, 2016 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets Corporate banking SME's Investment banking Retail banking Asset Liability Mangement EGP Thousands Total 5,656,651 2,342,539 2,955,690 4,841,757 639,646 16,436,283 (3,550,176) (696,877) (105,293) (1,780,505) (7,226) (6,140,077) 2,106,475 (576,762) 1,529,713 82,149,279 1,645,662 (442,854) 1,202,808 2,352,091 2,850,397 (767,053) 2,083,344 137,645,556 3,061,252 (823,795) 2,237,457 18,444,909 632,420 (170,187) 462,233 54,190,257 10,296,206 (2,780,651) 7,515,555 294,782,092 Corporate banking SME's Investment banking Retail banking Asset Liability Mangement Total 5,117,764 1,558,634 2,367,468 3,017,976 201,808 12,263,650 (2,327,301) (475,389) (53,393) (1,268,235) (5,667) (4,129,985) 2,790,463 (724,546) 2,065,917 107,923,620 1,083,245 (281,954) 801,291 3,826,756 2,314,075 (611,561) 1,702,514 101,472,259 1,749,741 (455,433) 1,294,308 15,011,250 196,141 (51,053) 145,088 39,309,870 8,133,665 (2,124,547) 6,009,118 267,543,755 5.2. By geographical segment Dec. 31, 2017 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2016 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets 232 Annual Report 2017 Cairo 13,445,181 (5,306,193) 8,138,988 (2,200,134) 5,938,854 265,665,575 Cairo 10,972,520 (3,464,852) 7,507,668 (1,961,608) 5,546,060 240,916,621 Alex, Delta & Sinai 2,499,912 (670,176) 1,829,736 (492,390) 1,337,346 22,598,945 Alex, Delta & Sinai 1,104,147 (499,518) 604,629 (157,377) 447,252 21,740,165 EGP Thousands Upper Egypt Total 491,190 (163,708) 327,482 (88,127) 239,355 6,517,572 16,436,283 (6,140,077) 10,296,206 (2,780,651) 7,515,555 294,782,092 Upper Egypt Total 186,983 (165,615) 21,368 (5,562) 15,806 4,886,969 12,263,650 (4,129,985) 8,133,665 (2,124,547) 6,009,118 267,543,755 Interest and similar income - Banks - Clients Total Treasury bills and bonds Financial investments in held to maturity and available for sale debt instruments Total Interest and similar expense - Banks - Clients Total Financial instruments purchased with a commitment to re-sale (Repos) Other loans Total Net interest income 7. Net fee and commission income Fee and commission income Fee and commissions related to credit Custody fee Other fee Total Fee and commission expense Other fee paid Total Net income from fee and commission 8. Dividend income Trading securities Available for sale securities Total 9. Net trading income Profit (Loss) from foreign exchange 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 Total Dec.31, 2017 EGP Thousands Dec.31, 2016 EGP Thousands 3,532,278 10,921,054 14,453,332 14,039,447 178,391 28,671,170 (463,409) (15,686,959) (16,150,368) (2,037) (14,750) (16,167,155) 12,504,015 2,568,172 6,656,743 9,224,915 9,794,089 125,214 19,144,218 (111,249) (9,010,782) (9,122,031) (153) (4,328) (9,126,512) 10,017,706 Dec.31, 2017 EGP Thousands Dec.31, 2016 EGP Thousands 1,362,658 117,268 1,197,018 2,676,944 (624,278) (624,278) 2,052,666 965,388 69,967 930,174 1,965,529 (417,573) (417,573) 1,547,956 Dec.31, 2017 EGP Thousands 11,475 23,039 34,514 Dec.31, 2016 EGP Thousands 5,045 29,191 34,236 Dec.31, 2017 EGP Thousands 764,732 (17,118) (23,732) (21,230) 589,563 1,292,215 Dec.31, 2016 EGP Thousands 603,565 12,947 (15,055) 38,472 675,253 1,315,182 Annual Report 2017 233 Financial StatementS: conSolidated 10. Administrative expenses 14. Earning per share Dec.31, 2017 EGP Thousands Dec.31, 2016 EGP Thousands (1,620,326) (65,033) (51,682) (1,375,467) (3,112,508) (1,188,799) (50,542) (44,146) (1,149,165) (2,432,652) Dec.31, 2017 EGP Thousands (61,065) 607 (114,725) (888,285) (1,063,468) Dec.31, 2016 EGP Thousands (682,556) 1,682 (72,442) (483,871) (1,237,187) Dec.31, 2017 EGP Thousands (1,742,281) (1,742,281) Dec.31, 2016 EGP Thousands (892,874) (892,874) Dec.31, 2017 EGP Thousands 10,320,256 22.50% 2,322,058 Dec.31, 2016 EGP Thousands 8,147,813 22.50% 1,833,258 379,390 (173,358) 256,358 (6,797) 3,000 2,780,651 26.94% 922,754 (127,439) (584,097) 42,922 6,485 2,093,883 25.70% 1.Staff costs Wages and salaries Social insurance Other benefits 2.Other administrative expenses Total 11. Other operating (expenses) income Profits (losses) from non-trading assets and liabilities revaluation Profits from selling property, plant and equipment Release (charges) of other provisions Other income/expenses Total 12. Impairment charge for credit losses Loans and advances to customers Total 13. Adjustments to calculate the effective tax rate Profit before tax 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 234 Annual Report 2017 Net profit for the year, available for distribution Board member's bonus Staff profit sharing *Profits shareholders' Stake Weighted 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 *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 17. Treasury bills and other governmental notes 91 Days maturity 182 Days maturity 364 Days maturity Unearned interest Total 1 Repos - treasury bills Total 2 Net Dec.31, 2017 EGP Thousands 7,549,043 (113,236) (754,904) 6,680,903 1,159,156 5.76 Dec.31, 2016 EGP Thousands 5,948,258 (89,224) (594,826) 5,264,208 1,159,156 4.54 1,177,722 5.67 1,176,718 4.47 Dec.31, 2017 EGP Thousands 5,784,303 Dec.31, 2016 EGP Thousands 5,083,805 8,878,986 14,663,289 14,663,289 5,438,235 10,522,040 10,522,040 Dec.31, 2017 EGP Thousands 2,679,189 42,640,577 45,319,766 15,863,399 3,894,775 25,561,592 45,319,766 - 45,319,766 45,319,766 45,319,766 Dec.31, 2016 EGP Thousands 4,090,352 53,920,682 58,011,034 37,447,892 204,309 20,358,833 58,011,034 33 58,011,001 58,011,034 58,011,034 Dec.31, 2017 EGP Thousands - 1,289,425 57,602,997 (4,238,574) 54,653,848 (175,646) (175,646) 54,478,202 Dec.31, 2016 EGP Thousands 1,051,375 4,350,975 36,010,730 (2,196,693) 39,216,387 (39,203) (39,203) 39,177,184 Annual Report 2017 235 Financial StatementS: conSolidated 18. Trading financial assets 20. Loans and advances to customers, net 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, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 6,728,843 6,728,843 99,587 99,587 466,767 7,295,197 1,933,420 1,933,420 180,157 180,157 331,557 2,445,134 Dec. 31, 2017 EGP Thousands 1,383 (70) 1,313 1,313 - 1,313 Dec. 31, 2016 EGP Thousands 161,451 (1,800) 159,651 110,053 49,598 159,651 Dec. 31, 2017 EGP Thousands (1,800) 1,697 33 (70) Dec. 31, 2016 EGP Thousands (9,899) 20,368 (12,269) (1,800) 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, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 1,780,416 2,899,930 13,910,837 416,616 - 19,007,799 12,450,826 44,200,770 26,627,825 112,802 83,392,223 102,400,022 (12,476) (10,994,446) (2,965,997) 88,427,103 38,960,491 49,466,612 88,427,103 1,901,875 2,423,125 10,745,352 306,930 20,838 15,398,120 12,452,698 44,503,511 24,840,803 110,382 81,907,394 97,305,514 (5,533) (9,818,007) (2,257,826) 85,224,148 36,671,277 48,552,871 85,224,148 236 Annual Report 2017 Annual Report 2017 237 Financial StatementS: conSolidated Analysis for impairment provision of loans and advances to customers Individual Dec. 31, 2017 Overdraft Credit cards Beginning balance Released (charged) released during the year Write off during the year Recoveries during the year Ending balance (11,166) (5,556) 13,425 - (3,297) (25,056) (15,328) 36,477 (21,760) (25,667) Personal loans (190,592) (37,906) 1,561 (59) (226,996) Real estate loans (7,801) (3,743) 2,080 (32) (9,496) Other loans Total (20,838) (255,453) 20,838 (41,695) - - - 53,543 (21,851) (265,456) Dec. 31, 2017 Beginning balance Released (charged) released during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans (1,342,010) (387,038) - - 21,921 (1,707,127) (6,442,227) (1,125,372) 382,185 (23,054) 100,778 (7,107,690) Corporate Syndicated loans (1,775,873) (189,364) - - 54,011 (1,911,226) Other loans Total (2,444) (509) - - 6 (2,947) (9,562,554) (1,702,283) 382,185 (23,054) 176,716 (10,728,990) Dec. 31, 2016 Beginning balance Released (charged) released during the year Write off during the year Recoveries during the year Ending balance Overdraft Credit cards (11,835) (26,985) Individual Personal loans (135,339) Real estate loans (10,192) 669 (20,366) (55,022) - - (11,166) 37,099 (14,804) (25,056) 6 (237) (190,592) 2,391 - - (7,801) Other loans Total (20,881) (205,232) 43 (72,285) - - (20,838) 37,105 (15,041) (255,453) Dec. 31, 2016 Beginning balance Released (charged) released during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans (589,620) (132,021) - - (620,369) (1,342,010) (2,888,702) (1,206,476) 71,767 (33,221) (2,385,595) (6,442,227) Corporate Syndicated loans (1,024,226) 498,657 - - (1,250,304) (1,775,873) Other loans Total (1,327) (1,117) - - - (2,444) (4,503,875) (840,957) 71,767 (33,221) (4,256,268) (9,562,554) 21. Derivative financial instruments 21.1Derivatives The Bank uses the following financial derivatives for non hedging purposes. Forward contracts represent commitments to buy foreign and local currencies including unexecuted spot transactions. Future contracts for foreign currencies and/or interest rates represent contractual commitments to receive or pay net on the basis of changes in foreign exchange rates or interest rates, and/or to buy/sell foreign currencies or financial instru- ments in a future date with a fixed contractual price under active financial market. Credit risk is considered low, and future interest rate contract represents future exchange rate contracts negoti- ated for case by case,These contracts require 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 contracts are exchange of currencies or interest (fixed rate versus variable rate for example) or both (meaning foreign exchange and interest rate contracts). Contractual amounts are not exchanged except for some foreign exchange contracts. Credit risk is represented in the expected cost of foreign exchange contracts that takes place if other parties default to fulfill their liabilities. This risk is monitored continuously through comparisons of fair value and contractual amount, and in order to control the outstanding credit risk, the Bank evaluates other parties using the same methods as in bor- rowing activities. Options contracts in foreign currencies and/or interest rates represent contractual agreements for the buyer (issuer) to the seller (holders) as a right not an obligation whether to buy (buy option) or sell (sell option) at a certain day or within certain year for a predetermined mamount 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 is 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 is considered a base to analyze the realized financial instruments on the balance sheet, but it doesn’t provide an indicator for the projected cash flows of the fair value for current instru- ments, and those amounts don’t reflects credit risk or interest rate risk. Derivatives in the Bank's benefit that are classified as (assets) are conversely considered (liabilities) as a result of the changes in foreign exchange prices or interest rates related to these derivatives. Contractual / expected total amounts of financial derivatives can fluctuate from time to time as well as the range through which the financial derivatives can be in benefit for 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 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 instru- ments hedging - Customers deposits hedging Total 3 Total financial derivatives (1+2+3) Notional amount 6,820,350 1,640,985 - Notional amount 655,925 11,506,784 Dec.31, 2017 Dec.31, 2016 Assets Liabilities Notional amount Assets Liabilities 36,597 3,117 39,714 - - 49,687 2,174,176 182,508 178,479 5,860 55,547 2,662,940 79,890 262,398 61,404 239,883 - - 34,706 144 144 - - 39,714 55,547 262,542 239,883 Dec.31, 2017 Dec.31, 2016 Assets Liabilities Notional amount Assets Liabilities - 287 287 25,996 675,861 115,441 141,437 16,382,128 - 6,727 6,727 45,629 45,579 91,208 40,001 196,984 269,269 331,091 238 Annual Report 2017 Annual Report 2017 239 Financial StatementS: conSolidated 21.2. Hedging derivatives 21.2.1Fair 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- ernmentaldebt instruments in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 25,996 thousand at December 31, 2017 against EGP 45,629 thousand at the December 31, 2016, Resulting in gains form hedging instruments at December 31, 2017 EGP 19,633 thousand against losses EGP 19,333 thousand at the December 31, 2016. Losses arose from the hedged items at December 31, 2017 reached EGP 44,924 thousand against losses of EGP 30,579 thousand at December 31, 2016. The Bank uses interest rate swap contracts to cover part of the risk of potential increase in fair value of its fixed rate cus- tomer deposits in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 115,154 thousand at the end of December 31, 2017 against EGP 38,852 thousand at December 31, 2016, resulting in losses from hedging instruments at December 31, 2017 of EGP 76,302 thousand against losses of EGP 28,916 thousand at December 31, 2016. Gains arose from the hedged items at December 31, 2017 reached EGP 81,488 thousand against gains EGP 56,314 thousand at December 31 , 2016. 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 for- eign financial assets Profit (losses) from fair value difference Impairment charges Ending Balance as of Dec. 31, 2015 Beginning balance Addition/transfer Deduction (selling - redemptions - trans- fer) Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Impairment charges Ending Balance as of Dec. 31, 2016 Dec. 31, 2017 EGP Thousands Dec. 31, 2016 EGP Thousands 29,632,780 83,346 758,655 30,474,781 4,709,487 97,631 640,173 5,447,291 45,135,209 32,513 45,167,722 53,892,423 32,513 53,924,936 75,642,503 59,372,227 73,721,199 1,921,304 75,642,503 72,612,620 2,155,369 74,767,989 57,097,553 2,274,674 59,372,227 56,090,139 2,511,772 58,601,911 Available for sale financial investments 46,289,075 3,334,122 (46,335,658) 2,219,961 42,132 (102,341) 5,447,291 5,447,291 25,868,230 (1,361,027) (100,078) 512,016 108,349 30,474,781 Held to maturity financial investments 9,261,220 44,667,810 (4,094) - - - 53,924,936 53,924,936 4,597,254 Total EGP Thousands 55,550,295 48,001,932 (46,339,752) 2,219,961 42,132 (102,341) 59,372,227 59,372,227 30,465,484 (13,354,468) (14,715,495) - - - 45,167,722 (100,078) 512,016 108,349 75,642,503 240 Annual Report 2017 Annual Report 2017 241 Financial StatementS: conSolidated 22.1 Profits (Losses) on financial investments 25. Property, plant and equipment Profit (Loss) from selling available for sale financial instruments Released (Impairment) charges of available for sale equity instruments Profit (Loss) from selling investments in associates Released (Impairment) charges of non current assets held for sale Total Dec. 31, 2017 EGP Thousands (99,047) 254,588 - 9,570 165,111 Dec. 31, 2016 EGP Thousands 35,193 (102,078) (90,447) 131,799 (25,533) 23. Investments in associates Dec. 31, 2017 Company’s country Company’s assets EGP Thousands Company’s revenues Company’s net profit Investment book value Stake % Company’s liabilities (without equity) Dec. 31, 2017 EGP Thousands Land Premises IT Vehicles Fitting -out Machines and equipment Furniture and furnishing Total 64,709 - 64,709 919,258 1,395,638 250,549 77,371 87,660 607,773 50,570 1,703 996,629 1,646,187 89,363 658,343 459,572 57,191 516,763 144,454 3,679,064 444,619 151,689 4,123,683 7,235 - - 315,192 1,029,244 47,904 468,368 372,522 124,929 2,358,159 44,507 176,155 5,184 70,311 47,595 7,253 351,005 - 359,699 1,205,399 53,088 538,679 420,117 132,182 2,709,164 64,709 64,709 636,930 604,066 %5 440,788 36,275 119,664 366,394 39,756 139,405 %20 %33.3 %33.3 96,646 87,050 %20 19,507 1,414,519 19,525 1,320,905 %20 Beginning gross assets (1) Additions during the year Ending gross assets (2) Accumulated depreciation at begin- ning of the year (3) Current year depreciation Accumulated depreciation at end of the year (4) Ending net assets (2-4) Beginning net assets (1-3) Depreciation rates Net fixed assets value on the balance sheet date includes EGP 353,462 thousand non registered assets while their registrations procedures are in process. Associates - International Co. for Security and Services (Falcon) Total Egypt 512,388 367,470 505,461 52,695 65,039 32.5 512,388 367,470 505,461 52,695 65,039 26. Due to banks Dec. 31, 2016 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 - International Co. for Security and Services (Falcon) Total 24. Other assets Egypt 300,739 208,188 301,390 12,478 36,723 35 300,739 208,188 301,390 12,478 36,723 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, 2017 EGP Thousands 3,870,454 230,296 522,211 2,193,590 45,083 24,973 6,886,607 Dec. 31, 2016 EGP Thousands 3,318,761 144,422 203,410 1,691,603 56,599 19,768 5,434,563 Current accounts Deposits Total Central banks Local banks Foreign banks Total Non-interest bearing balances Fixed interest bearing balances Total Current balances 27. 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, 2017 EGP Thousands 1,067,374 810,544 1,877,918 128,527 714,294 1,035,097 1,877,918 740,158 1,137,760 1,877,918 1,877,918 Dec. 31, 2016 EGP Thousands 271,470 2,737,526 3,008,996 163,420 2,636,009 209,567 3,008,996 545,463 2,463,533 3,008,996 3,008,996 Dec. 31, 2017 EGP Thousands 72,442,872 49,952,470 70,486,930 53,075,098 4,765,682 250,723,052 107,753,682 142,969,370 250,723,052 43,229,085 207,493,967 250,723,052 178,786,275 71,936,777 250,723,052 Dec. 31, 2016 EGP Thousands 60,068,884 57,478,218 69,215,320 38,519,158 6,459,215 231,740,795 110,157,621 121,583,174 231,740,795 26,385,328 205,355,467 231,740,795 159,492,892 72,247,903 231,740,795 242 Annual Report 2017 Annual Report 2017 243 Financial StatementS: conSolidated 28. Long term loans 31. Equity Interest rate % Maturity date Financial Investment & Sector Cooperation (FISC) Agricultural Research and Develop- ment Fund (ARDF) Social Fund for Development (SFD) European Bank for Reconstruction and Development (EBRD) subordi- nated Loan International Finance Corporation (IFC) subordinated Loan Balance 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 months libor + 6.2% 3 months libor + 6.2% 3-5 years 3-5 years 4 January 2020 10 years 10 years Maturing through next year EGP Thousands Balance on Dec. 31, 2017 EGP Thousands Balance on Dec. 31, 2016 EGP Thousands - - 2,778 83,886 87,314 88,800 41,882 41,882 68,665 - - 1,772,770 1,772,770 - - 125,768 3,674,736 160,243 The variable interest rate on the subordinated loan is determined in advance every 3 months and the subordinated loans are not repaid before their due dates. 29. Other liabilities Accrued interest payable Accrued expenses Accounts payable Other credit balances Total 30. Other provisions Dec. 31, 2017 Provision for income tax claims Provision for legal claims Provision for contingent Provision for other claim Total Dec. 31, 2016 Dec. 31, 2017 EGP Thousands 1,516,471 507,543 3,277,350 175,167 5,476,531 Dec. 31, 2016 EGP Thousands 1,455,029 645,979 1,329,189 149,133 3,579,330 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP Thousands 22,145 34,267 1,434,704 22,941 1,514,057 - 549 118,370 93,703 212,622 - (57) 12,627 (730) 11,840 (725) - (24,738) (25,463) (29) (95,398) (2,470) (97,897) - - 22,145 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts 34,005 1,470,303 88,706 1,615,159 Ending balance EGP Thousands 22,145 Provision for income tax claims 29,556 Provision for legal claims 31,000 Provision for Stamp Duty 759,174 Provision for contingent 19,886 Provision for other claim Total 861,761 * To face the potential risk of banking operations. - - 9,630 - 132,845 8,372 150,847 1,456 - 579,997 2,097 583,550 - (924) - - (2,772) (3,696) - 22,145 (5,451) (31,000) (37,312) (4,642) (78,405) 34,267 - 1,434,704 22,941 1,514,057 244 Annual Report 2017 31.1. 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 11,618,011 thousand to be divided on 1,161,801 thou- sand shares with EGP 10 par value for each share"and registered in the commercial register dated 17th May 2017. • Increase issued and Paid in Capital by amount EGP 79,351 thousand on May 24,2017 to reach EGP 11,618,011 thousand ac- cording to Board of Directors decision on November 9, 2016 by issuance of eighth tranche for E.S.O.P program. • Increase issued and Paid in Capital by amount EGP 68,057 thousand on April 19,2016 to reach EGP 11,538,660 thousand according to Board of Directors decision on November 10, 2015 by issuance of seventh tranche for E.S.O.P program. • Increase issued and Paid in Capital by amount EGP 2,294,121 thousand on December 10, 2015 to reach 11,470,603 accord- ing to Ordinary General Assembly Meeting decision on March 12 ,2015 by distribution of a one share for every four out- standing 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 tranche 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 tranche 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 tranche 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 tranche 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 tranche 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. 31.2. Reserves According to The Bank status 5% of net profit is used to increase the legal reseve to reaches 50% of The Bank's issued and paid in capital. Central Bank of Egypt concurrence for usage of special reserve is required. 32. 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 Balance Assets (Liabilities) Dec. 31, 2017 EGP Thousands (31,409) 31,038 36,712 56,698 110,100 5,340 (37,478) 8,629 179,630 Assets (Liabilities) Dec. 31, 2016 EGP Thousands (28,741) 16,300 17,090 86,845 79,981 3,722 18,338 (12,227) 181,308 Annual Report 2017 245 Financial StatementS: conSolidated 33. 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 instru- ments is measured using the 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 2018 2019 2020 Total Dec. 31, 2017 No. of shares in thousand 22,351 7,601 (737) (7,935) 21,280 Dec. 31, 2016 No. of shares in thousand 20,373 9,262 (478) (6,806) 22,351 EGP Exercise price 10.00 10.00 10.00 EGP Fair value * 31.67 28.43 65.55 No. of shares in thousand 5,077 8,791 7,412 21,280 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: Exercise price Current share price Expected life (years) Risk free rate % Dividend yield% Volatility% 11th tranche 10th tranche 10 73.08 3 16.8% 0.68% 30% 10 38.09 3 12% 2.50% 31% Volatility is calculated based on the daily standard deviation of returns for the last three years. 34. Reserves Legal reserve General reserve Retained earnings (losses) Special reserve Reserve for A.F.S investments revaluation difference Banking risks reserve Cumulative foreign currencies translation differences Total Dec. 31, 2017 EGP Thousands 1,332,807 9,000,023 89,873 32,460 (1,642,958) 3,634 - 8,815,839 Dec. 31, 2016 EGP Thousands 1,035,363 4,554,251 31,462 30,778 (2,180,243) 3,019 8,588 3,483,218 On 28 January 2018, Central Bank of Egypt issued instructions indicating the following: Creating IFRS 9 risk reserve (1% of the total weighted credit risk) deducted from 2017 net profit after tax, to be used after obtaining CBE's approval. 34.1. Banking risks reserve Beginning balance Transferred to bank risk reserve Ending balance 34.2. Legal reserve Beginning balance Transferred from previous year profits Ending balance 34.3. Reserve for A.F.S investments revaluation difference Beginning balance Unrealized gain (loss) from A.F.S investment revaluation Ending balance 34.4. Retained earnings Beginning balance Dividend previous year Change in ownership percentage Transferred from special reserve Transferred to retained earnings (losses) Transferred from previous year profits Ending balance 35. 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, 2017 EGP Thousands 3,019 615 3,634 Dec. 31, 2016 EGP Thousands 2,513 506 3,019 Dec. 31, 2017 EGP Thousands 1,035,363 297,444 1,332,807 Dec. 31, 2016 EGP Thousands 803,355 232,008 1,035,363 Dec. 31, 2017 EGP Thousands (2,180,244) 537,286 (1,642,958) Dec. 31, 2016 EGP Thousands (2,202,462) 22,219 (2,180,243) Dec. 31, 2017 EGP Thousands 31,462 - - (152) - 58,563 89,873 Dec. 31, 2016 EGP Thousands (64,566) (3,896) 11,666 - 88,258 - 31,462 Dec. 31, 2017 EGP Thousands 14,663,289 45,319,766 54,478,202 (8,878,986) (1,719,586) (54,653,848) 49,208,837 Dec. 31, 2016 EGP Thousands 10,522,040 58,011,034 39,177,184 (5,438,235) (2,565,895) (38,187,428) 61,518,700 36. Contingent liabilities and commitments 36.1. Legal claims There is a number of existing cases filed against the bank on December 31,2017 without provision as the bank doesn't expect to incur losses from it. 246 Annual Report 2017 Annual Report 2017 247 Financial StatementS: conSolidated 36.2. Capital commitments 36.2.1. Financial investments The capital commitments for the financial investments reached on the date of financial position EGP 166,798 thousand as follows: Available for sale financial investments Investments value 368,650 Paid Remaining 201,853 166,798 36.2.2. Fixed assets and branches constructions The value of commitments for the purchase of fixed assets, contracts, and branches constructions that have not been implemented till the date of financial statement amounted to EGP 196,284 thousand. • The market value per certificate reached EGP 189.53 on December 31, 2017. • The Bank portion got 50,000 certificates with redeemed value of EGP 9,477 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 94,470 with redeemed value of EGP 18,237 thousands. • The market value per certificate reached EGP 193.05 on December 31, 2017. • The Bank portion got 50,000 certificates with redeemed value of EGP 9,653 thousands. Takamol fund 36.3. Letters of credit, guarantees and other commitments • CIB bank established an accumulated return mutual fund under license no.431 issued from financial supervisory author- Dec. 31, 2017 EGP Thousands 69,514,413 1,700,516 1,017,690 72,232,619 Dec. 31, 2016 EGP Thousands 65,575,370 2,382,849 650,607 68,608,826 Dec. 31, 2017 EGP Thousands 7,024,376 Dec. 31, 2016 EGP Thousands 7,245,061 ity on February 18, 2015. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 139,586 with redeemed value of EGP 23,241 thousands. • The market value per certificate reached EGP 166.50 on December 31, 2017. • The Bank portion got 50,000 certificates with redeemed value of EGP 8,325 thousands. 38. 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. 38.1. Loans, advances, deposits and contingent liabilities Letters of guarantee Letters of credit (import and export) Customers acceptances Total 36.4. Credit facilities commitments Credit facilities commitments 37. Mutual funds Osoul fund • CIB established an accumulated return mutual fund under license no.331 issued from capital market authority on Febru- ary 22, 2005. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 4,500,204 with redeemed value of EGP 1,408,654 thousands. • The market value per certificate reached EGP 313.02 on December 31, 2017. • The Bank portion got 295,425 certificates with redeemed value of EGP 92,474 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 518,708 with redeemed value of EGP 96,366 thousands. • The market value per certificate reached EGP 185.78 on December 31, 2017. • The Bank portion got 128,000 certificates with redeemed value of EGP 23,780 thousands. Aman fund ( CIB and Faisal Islamic Bank Mutual Fund) • CIB and Faisal Islamic Bank established an accumulated return mutual fund under license no.365 issued from capital market authority on July 30, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 334,711 with redeemed value of EGP 33,752 thousands. • The market value per certificate reached EGP 100.84 on December 31, 2017. • The Bank portion got 39,000 certificates with redeemed value of EGP 3,933 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 96,452 with redeemed value of EGP 18,281 thousands. Loans and advances Deposits Contingent liabilities 38.2. Other transactions with related parties International Co. for Security & Services 39. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro 40. Tax status EGP Thousands 5,936 64,779 1,372 Income EGP Thousands 185 Expenses EGP Thousands 228,429 Dec. 31, 2017 EGP Thousands 182,639 (313,246) (1,566) (523) 637 46,768 Dec. 31, 2016 EGP Thousands 1,371,677 (1,360,474) 266 851 25 4,440 Corporate income tax The Bank's corporate income tax position has been examined, paid and settled with the tax authority since the operations start up until the end of year 2014. The Bank's corporate income tax has been examined and paid for the period 2015 - 2016. Corporate income tax annual report is submitted. 248 Annual Report 2017 Annual Report 2017 249 Financial StatementS: conSolidated Salary tax The Bank's salary tax has been examined, paid and settled since the operations start up until the end of 2015. Stamp duty tax The Bank's stamp duty tax has been examined and paid since the operations start up until 31/7/2006. Any disputes are currently under discussion at the tax appeal committee and the court for adjudication. The Bank's stamp duty tax is being re-examined for the period from 1/8/2006 till 31/12/2016 according to the protocol between the Federation of Egyptian banks and the tax authority. 41. Intangible assets: Book value Amortization Net book value Dec. 31, 2017 EGP Thousands 651,041 (282,118) 368,923 Dec. 31, 2016 EGP Thousands 651,041 (151,910) 499,131 According to CBE's regulation issued on Dec 16, 2008, an annual amortization of 20% has been applied on intangible assets starting from acquisition date. 42. Non current assets held for sale Assets Due from banks Treasury bills and other governmental notes Trading financial assets Brokerage clients - debit balances Financial investments available for sale Goodwill Other assets Property, plant and equipment Total Liabilities Brokerage clients - credit balances Due to customers Other liabilities Current tax liabilities Other provisions Total Minority interest Net Dec. 31, 2017 EGP Thousands - - - - - - - - - Dec. 31, 2016 EGP Thousands 653,742 21,214 36,894 463,052 9,850 22,981 3,576,254 106,451 4,890,438 Dec. 31, 2017 EGP Thousands - - - - - - - - - Dec. 31, 2016 EGP Thousands 616,845 19,589 2,972,202 37,214 38,826 3,684,676 89,689 3,774,365 1,116,073 43. Profits from disposal of investments in subsidaries Profits from disposal of investments in subsidaries Total On the 2nd of March 2017, the Egyptian Financial Supervisory Authority (EFSA) granted the bank its non-objection on a number of non-related Egyptian and Gulf investors for the sale of part of its ownership stake in CI Capital Holding ("CI Capital"), CIB has successfully executed the transfer of 76.55% of CICH's shares. Dec. 31, 2017 EGP Thousands 168,900 168,900 Dec. 31, 2016 EGP Thousands - - CIB has executed the transfer of 13.44% of CICH's shares and remained a minority stake of 10.00% of CI Capital Holding. Minority stake has been transferred to available for sale due to the bank's intention for maintaining the ownership per- centage of such investment. Subsidary net assets Less: Add/Deduct: FX translation reserve Non-controling interests "CI Capital Holding Co. S.A.E sold stocks (Net)" Net "CI Capital Holding Co. S.A.E" Dec. 31, 2017 EGP Thousands (701,170) 8,588 157,127 704,355 168,900 Although the effective date of selling process is 20 March 2017, however, for the purpose of facilitating the calcula- tion of the value of profits arising from the sale of shares, the net assets of the subsidary as at 31 December 2016 were adjusted by 2017 first quarter financial statements which is the earliest reliable date in the calculation of CI Capital shares selling profit. Important Events On 28 January 2018, the Central Bank of Egypt issued instructions on the following: IFRS 9 will be applied starting from 1st of January 2019. The bank will issue audited financial statements under the current CBE regulations as at 31 March 2018, in addition to issuing a drafted financial statements in compliance with the new instructions recieved from CBE regarding IFRS 9. "IFRS 9 risk reserve has been created (1% of the total weighted credit risk) of 2017 net profit after tax, to be used after ob- taining the"CBE's consent. 250 Annual Report 2017 Annual Report 2017 251 

Continue reading text version or see original annual report in PDF format above