Commercial International Bank (CIB) Egypt
Annual Report 2018

Plain-text annual report

18 Beyond Banking Table of Contents CIB: An Introduction Timeline of Milestones Our History What We Do A Snapshot of Our Business Key Financial Highlights Strategy CIB’s Stock A Note From Our Chairman A Note From Our CEO Board of Directors’ Report 2018 In Review Institutional Banking Retail Banking COO Area Digital Banking and GTS Big Data Human Resources Financial Control Group Marketing and Corporate Communications Risk Group Compliance Group Internal Audit Sustainability Corporate Governance Management Committee Sustainable Development Department Community Development Corporate Social Responsibility Supporting the Best in Class: Squash CIB Foundation Subsidiaries and Affiliates CVentures Falcon Group Fawry Plus Financial Statements Separate Financial Statements Consolidated Financial Statements 04 06 12 13 14 16 18 24 28 32 36 58 60 66 72 76 84 88 92 94 98 108 110 112 114 128 132 140 142 144 148 154 156 157 159 160 162 230 Banking Beyond the Surface n m u t u a n i f a e l a f o p u l e s o c o r c a M CIB Introduction l e b a c d e r o m r a n a f o n o i t c e s s s o r C CIB InTRoDuCTIon Timeline of Milestones 1975 1977 • Becomes first joint venture bank in Egypt as 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 divests its stake 1983 in the Bank, deciding to reduce its minority holdings worldwide • Changes its name to Commercial International Bank (CIB) 1989 • Selected by BSP to become its agent in Egypt • Remains the only bank that offers this service to airline passengers 1991 • First Egyptian commercial bank to arrange debt swap transactions • Becomes first bank to launch smart card center in Egypt 1993 • Wins Euromoney’s ‘Best Bank in Egypt’ award, the first of six consecutive wins through to 1998 • 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 underwriters but relying instead on the Bank’s own marketing and placement capabili- ties for share sales EGP BN 9.6 Net profit in 2018 1994 1996 1997 1998 • First bank in Egypt to connect with the international SWIFT network • First Egyptian bank to have a Global Depository Receipt (GDR) program on the London Stock Exchange • First Egyptian bank to link to SWIFT via CITA • Concludes first and largest Euro-syndicated loan (USD 200 million) • Becomes first private sector bank with investment rating (after Luxor incident), rated ‘BBB -’ by Fitch IBCA • Rated ‘BBB -’ by S&P • First bank to link its database to that of Misr Clearing, Settlement & De- posit Company • First Egyptian bank to form a 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 • Hires first two Certified Bank Auditors (CBA) 6 Annual Report 2018 Annual Report 2018 7 CIB InTRoDuCTIon >> Timeline of Milestones EGP BN 20.4 Revenue in 2018 2001 • First Egyptian bank to register its shares on the New York Stock Exchange (NYSE) in the form of American Depository Receipts (ADR) Level 1 program • 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 • Introduces Heya, the first credit card on the market to acknowledge women’s financial independence 2005 2006 • Only bank in Egypt to be awarded the JP Morgan Quality Recognition Award, receiving the a annually through to 2012 • Launches Osoul, its first money market fund in local currency • First bank in Egypt to launch a page on Bloomberg for local debt securities • First to adopt a pricing policy according to client risk rating as a step for- ward to abide by Basel II requirements • First Egyptian bank to execute a EGP 200 million repo transaction in the local market • First and largest Egyptian bank to provide securitization trustee services 2007 • Only Bank in Egypt chosen by UNIFEM and World Bank to participate in the Gender Equity Model (GEM) • First regional bank to introduce unique concierge and Mastercard emergency services 2009 • Only Egyptian bank recognized 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 global transaction service 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 • First and only Egyptian bank to enforce business continuity standards • CIB Foundation becomes the first in Egypt to have its annual budget insti- tutionalized as part of its founding institution’s bylaws, as CIB shareholders unanimously agree to dedicate 1% of net annual profit to the Foundation • CIB-TCM becomes pioneer in trading in almost 114 new and unconven- tional currencies • First Egyptian bank to officially establish a Sustainable Development Department 2010 2011 2012 8 Annual Report 2018 Annual Report 2018 9 CIB InTRoDuCTIon >> Timeline of Milestones 2013 2014 • First Egyptian bank to receive JP Morgan Elite STP Award • First Egyptian bank to upgrade its ADRs to trade on the OTCQX platform • First Egyptian bank to sign an agreement with Bolero International, join- ing the Bolero multi-bank service for guarantees • First Egyptian bank to establish an ERM framework and roadmap, en- dorsed and monitored by the board • Becomes first Egyptian bank to use RAROC • Breaks the record for the highest number of blood donors in a corporate office in a single-day campaign in Egypt through the Triple Effect initia- tive inaugurated by the CIB Foundation • First Egyptian bank to introduce an interactive multimedia platform that offers customers the option of interacting with call center agents over video calls • First Egyptian bank to sign an agreement with Misr for Central Clearing, De- pository & Registry to issue debit cards for investors to collect cash dividends • Launches first co-brand credit card, Mileseverywhere, with national car- rier Egyptair • Introduces the first interactive social media platform in the Egyptian banking industry, available 24/7 to handle all customer queries • Becomes the first bank in Egypt to sponsor the establishment of intensive care units in Sohag through the CIB Foundation, donating EGP 6 million to outfit the Pediatric 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 2016 • Launches mobile banking application, which includes various bank- ing services, and offers clients numerous features to conveniently manage their accounts • Becomes the first Egyptian bank recognized as an active member in the glob- ally renowned United Nations Environmental Program – Financial Initiative • Wins the Socially Responsible Bank of the Year 2016 award from African Banker • Recognized for the first time for several awards, including - Best Bank in Egypt Supporting Women-Owned and Women-Run Businesses by the American Chamber of Commerce in Egypt - Two awards in Achievement in Liquidity Risk and Operational Risk for the Middle East and Africa by Asian Banker - Best Retail Risk Management Initiative in 2016 by Asian Banker - Most Active Issuing Bank in Egypt in 2015 by the European Bank for Reconstruction and Development - Middle East Most Effective Recovery 2016 by BCI 2017 • Named ‘World’s Best Bank in the Emerging Markets’ by Euromoney, making it the first bank in the Middle East and Africa to win this prestigious award • First Egyptian bank be named ‘Best Bank in the Middle East’ by Euromoney • Ranks first on the EGX’s sustainability index (S&P/EGX ESG) for the fourth year in a row since 2014 • Becomes the only Egyptian bank ranked on the FTSE4Good Sustain- ability Index 2015 • First Egyptian bank to successfully pass external quality assurance on its Internal Audit Department • Launches roadside assistance services in Egypt • Generates highest FX income in 10 years among private-sector banks in Egypt • First Egyptian bank to recognize conduct risk and establish a framework for it, despite the lack of regulatory requirements 2018 • Named ‘World’s Best Emerging Markets Bank’ by Global Finance, the second consecutive year in which CIB has been awarded this title by an international institution; CIB is the first bank in Egypt and the Middle East to win this prestigious award • First Middle Eastern company to be analyzed in a case study conducted by the Leadership Institute of the London Business School; CIB was selected in recognition of its data-driven, human-centric approach to leading transformation in the face of macroeconomic challenges • Establishes CVentures, Egypt’s first corporate venture capital firm pri- marily focused on investing in transformational fintech startups and next-generation financial services platforms • Receives ISO22301:2012 certification for Business Continuity Manage- ment by PECB, a global provider of training, examination, audit, and certification standards, in partnership with EGYBYTE, a leader in the MENA market for IT service management • Ranks first on the EGX Sustainability Index for the fifth consecutive year 10 Annual Report 2018 Annual Report 2018 11 CIB InTRoDuCTIon our History What We Do In March 2014, Actis undertook a partial realiza- tion of its investment in CIB by selling 2.6% of its stake on the open market, maintaining its seat on the board. In May 2014, the private equity firm sold its remaining 6.5% stake to several wholly-owned subsidiaries of Fairfax Financial Holdings, making the latter the sole strategic and largest shareholder in CIB. Fairfax is represented on CIB’s Board of Di- rectors (BoD) by 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) with ownership of 49% and 51%, respectively. In 1987, Chase divested its owner- ship stake as part of a shift in its international strat- egy. NBE acquired that stake, renaming the former joint venture Commercial International Bank (CIB). Over time, NBE’s ownership stake in CIB declined, falling to 19% in 2006. That year, a consortium led by Ripplewood Holdings acquired NBE’s remain- ing stake. In July 2009, Actis, a Pan-African private equity firm specializing in emerging markets, ac- quired 50% of the Ripplewood Consortium’s stake. In December 2009, Actis became the single largest shareholder in CIB with a 9.09% stake after Ripple- wood sold its remaining share of 4.7% on the open market. The emergence of Actis as the predominant shareholder marked a successful transition in the Bank’s strategic partnership. CIB is Egypt’s leading private-sector bank. It is an award-winning institution dedicated to creating outstanding stakeholder value and providing supe- rior customer service solutions to a broad range of clients. The Bank furnishes its clients with innova- tive solutions that satisfy their banking needs and facilitate their financial lives. The Bank’s dynamic business model and commitment to fully integrat- ing superior technology into its products and ser- vices allow it to maintain its market leadership and to offer staff an engaging work environment while generating mounting value. The Bank serves an expansive network of retail customers, high-net-worth (HNW) individuals, and enterprises and institutions that drive the Egyptian economy. With a well-established network of 203 branches and a workforce comprising 6,759 employ- ees, CIB provides tailored, client-centric services to clients in the corporate, commercial, retail, wealth, and small- and medium-size enterprise (SME) spheres while working to deliver the most streamlined, effi- cient banking service offering in the Egyptian market. The Bank has one fully owned subsidiary, CVen- tures, and two affiliates, Falcon Group and Fawry Plus, in which it owns stakes of 32.5% and 23.5%, respectively. CVentures was established in 2018 and is Egypt’s first corporate venture capital firm focused primarily on investing in category- defining companies in the field of financial services. Falcon Group is a provider of security services, cash-in-transit, property management, and general and technical services. Fawry Plus offers agent banking financial services, including limited KYC servies, the collection of documents needed for mobile wallet registration, prepaid and credit card issuance, loan issuance, and account opening, while also taking care of repaying loan and credit card dues and other payments such as utility, telecom, taxes, and fines. For several years, CIB has also enjoyed the titles of most profitable bank operating in Egypt and the bank of choice for over 500 of Egypt’s largest corporations. CIB was also named the World’s Best Bank in the Emerging Markets at the Global Finance 2018 special awards ceremony, one year after it was awarded same title from Euromoney. 12 Annual Report 2018 Annual Report 2018 13 CIB InTRoDuCTIon A Snapshot of our Businesses Corporate Banking and Global Customer Relations Group Widely recognized as Egypt’s preeminent corporate bank, CIB strives to be one of the region’s leading banks, serving enterprises ranging from industry- leading corporates to medium-sized businesses. Debt Capital Markets Global product knowledge, local expertise, and capital resources make CIB an Egyptian industry leader in project finance, syndicated loans, securi- tization, bonds, and structured finance. CIB’s proj- ect finance and syndicated loan teams facilitate market access for large borrowers, providing them with world-class services at execution times that are better than 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 (GTS) The Bank’s Digital Banking and GTS Division man- ages all corporate and consumer online channels from the business side. Making CIB part of our customers’ daily activities is the department’s primary objective, which it works to achieve by de- veloping a simple, trusted, and consultative digital experience that meets customers’ needs anytime, anywhere, and 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, maximizing return on investment. Consumer Banking The Consumer Banking Division continues to grow and develop within the institution. Dedi- cated to improving customer satisfaction and de- livering a consistently positive experience every time, we have different segments and offer a wide array of consumer banking products that include: • Private: This segment caters to the banking and investment needs of clients with a minimum assets under management (AUM) threshold of EGP 20 million through a range of alternative solutions, including: tailored banking products and services, new lending products, investment solutions, and other wealth-related services. • Wealth: This segment provides numerous in- vestment products and services to the largest number of affluent clients in Egypt, offering customers a unique set of products and services and an exceptional customer experience. • Plus: This segment caters to the needs of medium-net-worth individuals, providing them with dedicated Plus Bankers, simplified products, fast-track services, and personal- ized service offerings. • Core: This segment relies on a customer- centric brand proposition and use of behavioral segmentation to deepen relationships and im- prove loyalty among personal banking customers. • Personal Loans: We extend facilities to new- to-bank (NTB) clients, self employed clients, and those with AUMs outside CIB. We also focus on all segments and payroll clients. • Deposit Accounts: We offer a wide range of ac- counts that serve all client deposit and savings needs, which include tailored accounts for minors, youth, and senior citizens, as well as certificates of deposit. This is in addition to our standard range of current, savings, and time-deposit products. • Credit and Debit Cards: CIB offers a broad range of credit, debit, and prepaid cards issued in association with Visa and Mastercard. • Insurance Products: CIB’s insurance busi- ness provides life and insurance programs aimed at all segments. Business Banking The Business Banking segment serves over 48,000 SMEs and large enterprises with revenues ranging from EGP 1 million to over EGP 200 million. e p o c s o r c m e h t i r e d n u n o i t c e s s s o r c m e t s e e r t e m L i 14 Annual Report 2018 Annual Report 2018 15 CIB InTRoDuCTIon Key Financial Highlights Common Share Information Per Share Earning Per Share (EPS) * Dividends (DPS)** Book Value (BV/No of Share) Share Price (EGP) *** High Low Closing Shares Outstanding (millions) Market Capitalization (EGP millions) Value Measures Price to Earnings Multiple (P/E) Dividend Yield (based on closing share price) Dividend Payout Ratio Market Value to Book Value Ratio Financial Results (EGP millions) FY18 Consolidated FY17 Consolidated FY16 Consolidated FY15 Consolidated FY14 Consolidated FY13 Consolidated FY18 FY17 FY16 FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY18 Consolidated FY17 Consolidated FY16 Consolidated FY15 Consolidated FY14 Consolidated FY13 Consolidated FY18 FY17 FY16 FY15 FY14 FY13 FY12 FY11 FY10 FY09 7.26 5.76 4.56 3.58 3.55 2.67 2.42 2.43 3.00 2.63 Common Share Information Per Share Financial Measures 1.00 1.00 0.50 0.75 1.20 1.00 1.25 1.00 1.00 1.50 Cost : Income 20.33% 20.79% 21.36% 19.61% 22.84% 23.54% 20.35% 20.38% 21.26% 19.69% 22.91% 22.89% 28.01% 35.26% 33.11% 32.31% 29.26 24.43 18.44 14.39 16.31 13.46 18.94 15.03 14.59 23.75 Return on Average Common Equity (ROAE)***** Net Interest Margin (NII/average interest earning assets) 33.14% 32.45% 34.24% 33.46% 31.31% 29.45% 33.13% 32.71% 34.03% 32.80% 30.25% 24.77% 24.18% 22.23% 30.46% 31.18% 6.43% 4.97% 5.47% 5.74% 5.41% 5.36% 4.74% 3.71% 3.62% 3.81% 96.5 88.8 73.6 47.4 51.3 45.4 39.8 47.4 79.49 59.7 Return on Average Assets (ROAA) 3.03% 2.69% 2.71% 2.95% 2.94% 2.93% 3.02% 2.72% 2.70% 2.90% 2.87% 2.54% 2.47% 2.20% 3.11% 2.97% 67.0 71.1 30.8 28.9 32.6 27.4 21.1 18.5 33.75 29.5 Regular Workforce Headcount 6,759 6,551 6,714 6,332 5,697 5,490 6,759 6,551 6,422 5,983 5,403 5,193 4,867 4,517 4,360 4,162 74.1 77.4 76.4 38.1 49.2 32.6 34.6 18.7 47.4 54.68 1166.8 1161.8 1153.9 1147.1 908.2 900.2 597.2 593.5 590.1 292.5 86,439 89,865 88,155 43,692 44,673 29,330 20,646 11,098 27,973 15,994 10.2 13.4 16.8 10.6 13.9 12.2 14.3 7.7 15.8 20.8 1.35% 1.29% 0.65% 1.97% 2.44% 3.07% 3.62% 5.35% 2.11% 2.74% 15.3% 15.4% 9.7% 18.5% 29.9% 34.4% 33.9% 33.9% 27.6% 24.6% 2.53 3.17 4.14 2.65 3.02 2.42 1.83 1.24 3.25 2.30 Net Operating Income**** 20,379 14,890 11,315 10,189 7,741 6,700 20,351 15,192 11,370 10,165 7,717 6,206 5,108 3,837 3,727 3,173 Provision for Credit Losses - Specific Provision for Credit Losses - General 3,076 1,742 893 1,682 589 916 3,076 1,742 893 1,682 589 916 610 321 Total Provisions 3,076 1,742 893 1,682 589 916 3,076 1,742 893 1,682 589 916 610 321 6 6 9 9 Non Interest Expense 4,224 3,119 2,433 2,025 1,705 1,608 4,223 3,119 2,433 2,028 1,705 1,450 1,445 1,337 1,188 1,041 Net Profits 9,582 7,516 6,009 4,729 3,741 3,006 9,556 7,550 5,951 4,641 3,648 2,615 2,203 1,749 2,141 1,784 Balance Sheet and Off Balance Sheet Information (EGP millions) Cash Resources and Securities (Non. Governmental) 69,068 63,684 77,523 34,808 19,328 16,413 69,030 63,673 73,035 34,097 19,430 16,646 16,764 19,821 16,854 16,125 Net Loans and Acceptances 106,377 88,428 85,384 56,836 48,804 41,866 106,377 88,428 86,152 57,211 49,398 41,970 41,877 41,065 35,175 27,443 Assets Deposits 342,461 294,782 267,544 179,500 143,813 113,752 342,423 294,771 263,852 179,193 143,647 113,752 94,405 85,628 75,093 64,063 285,297 250,723 231,741 155,234 121,975 96,846 285,340 250,767 231,965 155,370 122,245 96,940 78,835 71,574 63,480 54,843 Common Shareholders Equity 34,228 28,439 21,374 16,535 14,754 11,960 34,147 28,384 21,276 16,512 14,816 12,115 11,311 8,921 8,609 6,946 Average Assets 318,622 281,163 223,522 161,657 128,783 103,854 318,597 279,312 221,523 161,420 128,700 104,079 90,017 80,361 69,578 60,595 Average Interest Earning Assets 290,869 257,931 203,053 146,033 117,031 94,749 290,869 258,315 203,625 145,835 117,133 94,605 79,834 70,549 61,624 53,431 Average Common Shareholders Equity Balance Sheet Quality Measures 31,334 24,907 18,955 15,645 13,357 11,362 31,265 24,830 18,894 15,664 13,465 11,713 10,116 8,765 7,777 6,288 Equity to Risk-Weighted Assets****** 16.93% 15.59% 13.34% 15.76% 15.77% 15.28% 16.89% 15.56% 13.28% 15.74% 15.84% 15.50% 15.69% 14.49% 15.85% 15.34% Risk-Weighted Assets (EGP billions) 186 169 150 96 84 70 186 169 150 96 84 70 65 55 49 41 Tier 1 Capital Ratio****** 16.16% 14.93% 12.90% 15.01% 15.70% 15.23% 16.16% 14.93% 12.90% 15.01% 15.70% 15.23% 14.33% 14.15% 15.66% 15.28% Adjusted Capital Adequacy Ratio****** 19.09% 18.03% 13.97% 16.06% 16.77% 16.32% 19.09% 18.03% 13.97% 16.06% 16.77% 16.32% 15.71% 15.40% 16.92% 16.53% * Based on net profit available for distribution (after deducting staff profit share and board bonus) and unadjusted for stock dividends ** 2018 DPS after taking into account the share distributions of one share for every four shares *** Unadjusted to stock dividends **** 2016, 2015, and 2014 excluded CI capital profit (discontinued operation) ***** Total equity after profit appropriation ****** After profit appropriation, from 2012 to 2018 as per Basel II regulations 16 Annual Report 2018 Annual Report 2018 17 CIB InTRoDuCTIon Strategy 40+ Years of innovative services CIB’s strength lies in a flexible strategy that allows it to constantly adapt to unremitting changes in market dynamics, creating value for stakeholders each step of the way. The BoD and executive management share a philosophy of placing clients at the heart of every de- cision and the same mission of achieving sustainable financial and non-financial growth. To accomplish this, we rely on our employees and are determined to constantly develop their skills and provide them with the latest innovative technology. Our Vision To uphold CIB’s distinct reputation as a leading and trusted financial institution in Egypt, respected for its people, strong core values, performance, and commit- ment to inclusive, responsible, and sustainable growth. Our Mission To create outstanding stakeholder value by pro- viding best-in-class financial solutions to the individuals and enterprises that drive Egypt’s economy. Through our innovative product offer- ings, superior customer service, staff development strategies, and commitment to sustainability, we will realize our ambitions and help shape the fu- ture of banking in Egypt for years to come. Our Objective To grow and help others grow. 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 our convictions and accept respon- sibility for our own mistakes • Comply fully with the laws, rules, and practices that govern CIB’s business in Egypt and abroad • Say what we do and do what we say Client Focus • Our clients are at the heart of our activities, and their satisfaction is our ultimate objective • Our success is dependent upon our ability to provide 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 Innovation • CIB has been a pioneer in the financial services industry since inception 40 years ago as the first joint venture bank in Egypt; we believe in- novation is a core competitive advantage and promote it accordingly • We seek to lead Egypt’s financial services indus- try into the future, with innovation being key to serving the millions of Egyptians who remain unbanked or underserved 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. Hard Work • Our work is governed by discipline and perse- verance 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 for their future goals and objectives Teamwork • We collaborate, listen, and share information openly within the CIB family to enhance every staff member’s knowledge base and skill set • Each member of our staff is an ambassador for CIB’s corporate brand and image • We value and respect each other’s cultural backgrounds and unique perspectives Respect for the Individual • We respect all individuals, whether employees, clients, shareholders, or community members • We treat each other with dignity and respect and take the time to respond 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 holds 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 Value Creation Model Value creation is and has always been one of the main pillars of the Bank’s strategy and focus. CIB works diligently to create value for its sharehold- ers, customers, employees, and society. To do this, the Bank efficiently utilizes its key resources to best serve its strategic priorities, taking into ac- count all the macroeconomic driving forces that prevail. This results in creating both financial and non-financial value for CIB’s stakeholders. CIB’s strength lies in a flexible strategy that allows it to constantly adapt to unremitting changes in market dynamics, creating value for stakeholders each step of the way. 18 Annual Report 2018 Annual Report 2018 19 CIB InTRoDuCTIon >> Strategy Value Creation Model Strategic Priorities Customer Centricity • Offer need-based bundled value propositions including digital solutions through data analytics • Quality of service initiatives to enhance customer experience Financial Performance • Asset quality • Profitability • Loan growth organizational Development and Sustainability • Performance-driven culture • Social and environmental management system • Human capital development operational Efficiency • Centralization of operational processes with focus on automation through STP • Business continuity, cybersecurity and resilience management Key Stakeholders Clients Shareholders and Investors Employees Society Resources (Input) Value Created (Outcome) Financial Capital Strong financial capital is always re-invested in the Bank’s activities • EGP 9.58 billion in net income • EGP 20.38 billion total revenues • EGP 34.2 billion net worth • EGP 342 billion total assets • EGP 285 billion total deposits • EGP 86.4 billion market capitalization • 33.1% ROAE • 4.06% NPLs • 20.3% cost/income Financial Performance • Ranked #1 bank among all Egyptian private-sector banks in terms of revenues, net worth, total assets, and deposits • The largest market capitalization in the Egyptian banking sector • One of the highest ROEs, compared to a market average of 21.5% • One of the lowest efficiency ratios among Egyptian private-sector banks Human Capital CIB’s in-depth expertise in differ- ent industries is mainly rooted in our skilled, specialized and dedicated staff • 6,759 total workforce as of year-end • 291,466 training hours • 92% of employees completed the fourth Employee Effectiveness Survey (EES) • 63% engagement level • 52% enablement level Human Capital • Highly skilled staff capable of sus- taining CIB’s path of success and maintaining the Bank’s leading posi- tion within the market Technological Infrastructure The Bank continuously invests in its IT systems and ensure they are up-to-date to make certain that the business runs smoothly • CIB’s systems availability exceeded 99% Technological Infrastructure • Stable, agile, and safe systems that provide seamless services to clients through CIB’s swift adoption of the latest technology as it arises 20 Annual Report 2018 Annual Report 2018 21 CIB InTRoDuCTIon >> Strategy Resources (Input) Value Created (Outcome) Resources (Input) Value Created (Outcome) Innovation Innovation is chiseled in the Bank’s DNA, and CIB is at the forefront of the market in offering simple, fast, and contextual experiences to its customers, with a special focus on digitalization Innovation • Expanding in digital banking plat- forms through availing more servic- es on digital portals to our clients. CIB offers bill payment through IVR; a service offered by no other bank in the market. Digital banking achieved total cost synergy of EGP 1.5 billion, a 156% y-o-y increase • #1 in mobile wallet activity in Egypt • #1 in mobile banking penetration in Egypt • 61% y-o-y increase in number of new mobile banking downloads, and 49% y- o-y increase in number of transactions • 95% y-o-y increase in number of new internet banking clients, and 26% y-o- y increase in number of transactions • 50% y-o-y increase in number of new smart wallet users, and 50% y-o-y increase in number of transactions • Largest ATM network among private banks, at 917 ATMs Brand Recognition CIB’s core values enabled the Bank to preserve and strengthen its brand positioning in the financial services market in Egypt as the largest private bank • #38 on Forbes Middle East “Top 100 Listed Companies in the Arab World”, and ranked #1 ahead of the other three Egyptian companies on the list Brand Recognition • CIB was named “World’s Best Emerg- ing Markets Bank” by Global Finance for 2018 for the second consecutive year after being named “World’s Best Bank in Emerging Markets” by Euro- money in 2017. CIB is the first bank in the Middle East and Africa to win this prestigious award Client Relationships • CIB listens attentively to its clients and continuously incorporates customer feedback into its financial offering as part of the Bank’s customer-centricity strategy. As a result, CIB’s Net Promoter Score (NPS) and Customer Satisfaction (CSAT) score improved year on year Sustainability CIB is managing its environmental footprint by applying the highest standards related to its energy and water consumption, carbon footprint, and waste management Client Relationships CIB has long-standing relationships with clients that are built on trust • 19% y-o-y increase in customer-base, reaching more than 1.3 million cli- ents in 2018 • 6% y-o-y increase in total new to bank clients in 2018 • More than 250 MNCs and interna- tional Companies are CIB clients, with 32 being Fortune 500 companies • CSAT: - Wealth 8.4 in 2018 (up from 8.3 in 2017) - Plus 8.3 in 2018 (up from 8.2 in 2017) - Corporate 8.1 in 2018 (up from 7.5 in 2017) • NPS: - Wealth 47 (vs 20.3 NPS ME Benchmark) - Plus 43 (vs 20.3 NPS ME Bench- mark) - Corporate 43 (vs 37.9 NPS ME Benchmark) • 2.53% decline in electricity con- Sustainability sumption in 90 mega buildings • Saved 103 million liters of water; 40% reduction in water consumption • Saved 737 A4 paper boxes • Two head offices are awarded the high- est environmental GPRS Green Level • Ranked #1 on the EGX Sustainability In- dex in 2018 for the fifth consecutive year • CIB became the first Arab and Afri- can company to be listed on the 2019 Bloomberg Gender Equality Index (GEI) — the world’s only comprehen- sive investment-quality data source on gender equality • Aligning our activities with the Sus- tainable Development Goals (SDGs), Egypt’s Vision 2030, and Paris Agree- ment on Climate Change • We have an e-waste management initiative to safely dispose of mobiles, computers, and others • Biodegradable plastic bags are now used across CIB • Our annual Sustainability Report is in line with the Global Reporting Initia- tive (GRI) Core Standards, which pro- vide the most comprehensive frame- work for sustainability reporting • CIB is one of only two banks in Egypt and the MENA region to par- ticipate in the development of the UNEP-FI’s Principles for Responsi- ble Banking, the first set of guiding principles focusing specifically on the banking industry 22 Annual Report 2018 Annual Report 2018 23 CIB InTRoDuCTIon CIB’s Stock 93% The highest freefloat on the EGX 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 prospects is 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 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 the NYSE in the form of 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 2018, CIB increased its ADR program by an additional 450 million ADRs to reach 500 mil- lion. By the end 2018, CIB’s total issued shares were 1,166,832,640, the Bank’s GDR outstanding position reached 358,139,055 shares, representing 30.70% of issued shares, and its ADR outstanding position recorded 16,946,344 shares, representing 1.45% of issued shares. CIB has the highest weight on the EGX30, account- ing for 34.19% of the index, and has the highest free float at 93.4%. The Bank’s stock is one of Egypt’s most liquid, and it is the most valuable financial institution with a market capitalization of EGP 86.4 billion as of December 2018. As of December 2018, CIB’s institutional shareholder structure was broken down by region as follows: North America Africa GCC UK & Ireland Continental Europe Rest of the World 57.71% 13.05% 9.92% 7.76% 6.78% 4.78% CIB works diligently to increase value for its stakeholders. One way it does so is through the Bank’s active Investor Relations Division, which maintains a proactive investor relations program to keep shareholders and investors abreast of de- velopments that could have had an impact on its performance. The team and senior management invest significant time in one-on-one meetings, roadshows, investor conferences, and conference calls. The team spares no effort in providing the investment community with a consistent stream of transparent disclosures while simultaneously en- suring analysts have the information they need to maintain balanced coverage of the Bank’s shares. During 2018, the team along with senior management took part in nine local and international investor conferences held in the UK, US, Africa, and the Gulf, in addition to seven roadshows and one business trip. Alongside several in-house meetings, the team conducted a total of 255 one-on-one and group meet- ings throughout the year and met with 491 local and international investment funds and research analysts. CIB hosted several conference calls in 2018, bringing its senior management together with the investor community. Disclosures, including regular updates and re- leases, were periodically made available on CIB’s Investor Relations website as well as the EGX, LSE, and OTCQX portals in a timely manner that en- sures fair access to information for investors from around the world, allowing them to make informed investment decisions. As a result of the team’s conscious efforts to fur- ther enhance its Investor Relations program, CIB’s Head of Investor Relations received a nod as the “Best Investor Relations Professional – Egypt” in a 2018 study conducted by the Middle East Investor Relations Association (MEIRA) in partnership with Extel. This is the fifth 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 (ADR Level 1 program) SYMBOL: CIBEY 24 Annual Report 2018 Annual Report 2018 25 CIB InTRoDuCTIon >> CIB’s Stock Key Indicators 10 EGP Par Value 1:1 GDR Convertibility 86.4 EGP Largest Market Cap on EGX30 34.19% Highest Weight on EGX30 7.26 EGP Earnings per Share Equity Analysts’ Ratings CIB is widely covered by leading research houses both locally and internationally. In 2018, 16 insti- tutions regularly issued research reports on CIB, with 62% of analyst recommendation being ‘Buy’, 31% ‘Hold”, and only 6% ‘Sell’. COMI started the year with an open price of EGP 76.97 and ended it at EGP 74.08, with -7.14% in VWAP (y-o-y) mainly on the back of global pres- sures and negative sentiment toward emerging markets. During 2018, CIB’s price reached a peak of EGP 96.50 and a valley of EGP 67.00. The aver- age VWAP price in 2018 was EGP 82.19, with an average volume of 1,037,108, and an average mar- ket capitalization of EGP 96 billion. Stock Performance in 2018 COMI EGX30 Index Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 26 Annual Report 2018 Annual Report 2018 27 CIB InTRoDuCTIon A note From our Chairman In Egypt and abroad, the pundits have framed the defining questions of 2019 in terms that are both short term and binary: Global growth is slowing — will it tip into recession? Will Egypt continue to at- tract foreign portfolio investors to its debt issuances and stock market? Is this the year that domestic interest rates start to come down? Will we see sig- nificant foreign direct investment? Who will move first: foreign or domestic investors? Like every bank and publicly traded company in the country, CIB has a fully vested interest in the answers to these questions. But our future as an in- stitution hinges not on those, but on more nuanced answers to much more long-term questions — ques- tions that can, for CIB, be boiled down to just two: • Can we help reinvent banking in Egypt for the digital age? • Can we help lead a conversation on the reinven- tion of capitalism? Our success not just as an institution, but also as a nation, hinges on the ability to answer these ques- tions in the affirmative. And as longtime share- holders know, we have been working on answers both inside CIB branches, offices, and dealing rooms since 2011, when we placed two things at the center of our strategy: First, innovation, and second, the imperative to improve the communi- ties in which we do business. Reinventing banking in Egypt for the digital age has been central to our strategy since political change swept our nation in 2011. It is a subject about which our industry and policy makers alike must do more. Banks are slowly awaking to the idea that brick-and-mortar branches are not the i g n w y fl r e t t u b l i a t w o l l a w s a f o o r c a m e m e r t x E 28 Annual Report 2018 Annual Report 2018 29 CIB InTRoDuCTIon >> A Note From Our Chairman only touchpoints that matter. But they are not ask- ing how they can disrupt themselves before they are disrupted by third parties. In parallel, policy makers need to expand the range of questions they are asking of the industry: The place of paper in an increasingly paperless society is only the first of many issues that must be addressed, which range from the rise of cryptocurrencies to the role of sandboxes in the trial of new technologies. Our government has signalled clearly that it is go- ing cashless — which will make it fundamentally paperless. The notion of physical signatures and of paper document storage are things of the past. They are among the many obstacles to digital inclusion — which, I argue, is core to financial inclusion. In calling for wider financial inclusion, Egypt is fundamentally calling for the democratization of financial services. But as financial services increas- ingly go online, this means that obstacles to digital inclusion are the same barriers that prevent fuller financial inclusion. Digital financial services — the same services that will empower people to better their lives — cannot be provided to consumers if the very consumers do not have access to the internet. At its core, financial inclusion means mobilizing money supply and savings to fund growth and de- velopment — whether that’s of micro-businesses or small companies, of national champions or state-driven mega-projects. As an industry and as a society, this means taking stock of all challenges (including regulatory ones) that stand in the way of digital inclusion and start breaking them down. That’s why, as Egypt takes over the presidency of the African Union this year, we are working with the government to make a Declaration on Financial In- clusion a cornerstone of development policy not just for Egypt, but for our continent. Broadband internet that is universally and affordably accessible by even the most humble of low-income earners is what will make financial inclusion possible. In parallel, a debate over the future of capitalism in Egypt is essential if we are going to create tan- gible value in the communities in which we live and serve. This debate is the next natural step in a shift that has seen companies move from philanthropy to corporate social responsibility, then onward to Environmental and Social Governance (ESG) ap- proaches and, today, to the new imperative to create shared value (CSV). In times gone by, a philanthropic approach to creat- ing value for a low-income earner was to donate to a charity that provides a benefit to her — it was about using corporate wealth to try to drive a measure of social change. A CSV-led approach would, as CEO Magazine wrote in 2016, put that donation in the context of a program that ensured benefits flowed back to the donor in the form of “improved morale, increased staff retention, status as an employer of choice [or] attracting new business.” However, Porter and Kramer, the Harvard pro- fessors who introduced the business concept in 2011, take it further — much closer to a definition we have used internally since the events of 2011 here in Egypt. They define CSV as a core business strategy, policies, and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. This means that our success and social progress are interdependent. In the case of a microenterprise owner, it isn’t just about banking her. It’s about providing her with the tools today that will help her grow her business to- morrow. As she grows and creates jobs, she becomes a driver not just of our business growth, but of the economic growth of our nation. These are the powerful ideas we know will guide our future, and they are feeding directly into our five- year plan. It will be a five-year plan that highlights ways to put technology at the heart of what we do and thereby empower our people to make the best possible business decisions. And it’s about ways we create shared value for our employees, our clients, our shareholders, and the wider economy. Hisham Ezz Al-Arab Chairman and Managing Director r e w o fl s u t o l i k n p a n o t o h s o r c a M 30 Annual Report 2018 Annual Report 2018 31 CIB InTRoDuCTIon A note From our CEo People are the cornerstone on which our strategy is built — brick by brick, byte by byte, transaction by transaction, day in and day out. At tellers’ counters and in our operation centres, in conversations with large corporate clients, and by sitting down with fresh graduates just entering the workforce, our people are helping Egyptians chart their financial futures. As they do so, every one of them plays an essential role in delivering a multi- track strategy that creates value for all stakehold- ers, from our clients to our shareholders and the communities in which we do business — and for the staff themselves, the vast majority of whom are shareholders in this institution. This is the cornerstone of our success: Banking is fundamentally a people business, and our talented employees are the people who are building the bank of the future and leading the conversation about our industry’s role in building a stronger nation. From our management committee to the most junior of support staff, these people delivered on an aggres- sive strategy that generated outstanding opera- tional results — results that translated directly into outperformance in our financials in 2018. Our staff of more than 6,750 people delivered these results because we have consistently provided them with the training, motivation, compensation, and sense of ownership they need to give their all every day. In doing so, they know they are not alone: Our management team practices an open-door policy at all levels, and we have ramped up our effort in the past year to broaden lines of communication and to hold small group meetings between regional staff and senior management nationwide. e p o c s o r c m e h t i r e d n u n o i t c e s t o o r n a e b d a o r B 32 Annual Report 2018 Annual Report 2018 33 CIB InTRoDuCTIon >> A Note From Our CEO In the year ahead, we will redouble our effort to reach our clients — current and potential — through the channels that matter, from the elec- tronic to the physical. Yes, the physical: Digital banks are the wave of the future in Egypt, as they are in developed markets, and CIB has clearly and consistently made significant headway in build- ing out some of the most innovative digital bank- ing frameworks the market has seen in recent years. But as experience as far away as Canada has shown, branches remain important in draw- ing new clients into the banking system, whether they are business owners or new entrants to the workforce, employees or retirees. And this is the very lynchpin of our strategy to champion financial inclusion in Egypt. From the business press to the halls of power, financial inclu- sion is the topic of the day — as it should be. It has also been central to our mission for years as we have sought to bring employers and their people into the banking system. By combining the strength of our long-standing branch network and digital solutions that bring us ever closer to a cashless society, bring- ing in as many people into the banking fold as pos- sible becomes not just a mission but a reality. That’s why our people work tirelessly to make it easier for our clients to bank with us, be that through tellers at brick-and-mortar branches or strategists develop- ing our digital channels. In terms of how we’ve accomplished this on the ground in 2018, our consumer banking arm deliv- ered another very strong year, and we see substan- tial room for continued growth in 2019 on both the asset and liabilities side. But we are particularly excited about the outlook in 2019 and 2020 for our institutional banking arm — the traditional growth engine of our bank. This outlook is underpinned by a cautiously optimistic reading of the macroeco- nomic climate in Egypt today. remittances, the Suez Canal, and the oil and gas industry — are all on the upswing. The state con- tinues to have access to foreign debt markets, and global institutional investors returned in early 2019 to Egyptian local-currency debt. As a nation, our foreign exchange position is strong, and the volatility we have so far seen in 2019 in the official exchange rate is fundamentally healthy. In parallel, inflation is edging down toward the single digits and it is now clear that consumer purchasing power is coming back: Egyptians are, by and large, shaking off the effects of the devalu- ation. While this is obviously good news for our consumer banking arm, it is better on the insti- tutional side of the business: Capacity utilization for our corporate clients is rising in lock-step with the return of consumer sentiment. These utilization rates set businesses on a straight- line path to a single destination: Borrowing not to finance working capital, but to fund capital expen- diture on expansion. Borrowing by corporate Egypt will send all the right signals to foreign investors who have (outside of the petroleum industry) largely sat out the last two years. It will signal that local busi- nesses have confidence in the domestic economy. All of us at CIB look forward to the real business of banking: The prudent management of risk as we extend capital to businesses and people who will use it to drive growth in our economy. It is why we all became bankers. It is why our five-year strat- egy is what it is. It is why we are actively leading the conversation about the future of our industry. And it is what makes us so passionate about leav- ing the communities with which we do business better than we found them. The government of Egypt has stayed the course through an aggressive reform process that is leaving us on a much stronger footing. Our four key sources of hard currency inflows — tourism, Hussein Abaza Chief Executive Officer l s a t s y r c e c i f o t o h s o r c a M 34 Annual Report 2018 Annual Report 2018 35 CIB InTRoDuCTIon Board of Directors’ Report Introduction Much has changed since last year’s BoD report; some developments were predicted, while others were completely unexpected. On balance, the macro and micro situations are better than they were at this time last year. Macroeconomic Environment Inflows of foreign currency into Egypt’s economy have risen significantly year-on-year (y-o-y), with growth coming from a number of sources. Remit- tances from Egyptians working abroad soared by 21% y-o-y to record USD 26 billion in FY2018. Tourism is flourishing once more, with tourist arrivals up by 48% and tourism receipts growing at a healthy 124%. As of FY2018, revenues from the Suez Canal had grown by 15% y-o-y. As the Zohr gas field ramps up production, Egypt has taken another step toward self-sufficiency in natural gas. The last shipment of imported lique- fied natural gas (LNG) was received in September 2018. By the end of 2019, Egypt should be making an- nual savings of USD 4-6 billion (or 32%-48%) on its pe- troleum import bill, which recorded USD 12.5 billion for FY2018. Egypt was named the largest recipient of foreign direct investment (FDI) in Africa in 2018 in a recent report by the United Nations Conference on Trade and Development (UNCTAD), with invest- ments made in the real estate, food processing, oil and gas exploration, and renewable energy sectors. Egypt’s FDIs in 2018 totaled USD 7.7 billion. These positive developments are reflected in Egypt’s current account: the deficit fell to USD 6 billion for FY2017/18 from USD 14 billion for FY2016/17, a de- cline of 59%. In FY2017/18 (which began in July 2017 and ended June 2018), Egypt achieved a primary budget surplus of 0.1% of GDP for the first time in over a decade. GDP growth accelerated to 5.2% for the year ended after rising for six consecutive quar- ters. FCY reserves at the Central Bank of Egypt (CBE) continued to increase on a monthly basis in 2018, recording their highest-ever level at the end of November at USD 44.5 billion, up from USD 36.7 bil- lion a year earlier, before declining by USD 2 billion to USD 42.55 billion in December 2018. The government pressed ahead with an economic reform program aimed at restoring macroeconomic stability and tackling long-standing impediments to growth. Further cuts were made to fuel and elec- tricity subsidies, which reduced Egypt’s subsidy bill to 5% of GDP for 2017/18, down from 6% for 2016/17. In 2018, Egypt received USD 2 billion under the IMF’s three-year USD 12 billion extended fund facil- ity (EFF) agreement signed back in November 2016. In light of the progress made by the government, Moody’s Investors Service rating agency changed Egypt’s Long-Term Issuer Ratings Outlook to Posi- tive from Stable and affirmed its B3 issuer ratings. In addition, Fitch Ratings affirmed Egypt’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a Positive Outlook. Egypt began attracting robust investor demand for local currency (LCY) sovereign debt, with foreign inflows into T-bills recording a peak of USD 23 bil- lion in March. However, due to a crisis in emerging markets beginning in April 2018, foreign investment in Egyptian T-bills fell by c. USD 8 billion between April and September. Nevertheless, these outflows did not result in further currency depreciation, with foreign outflows sourced mostly from the interbank market, indicating ample FCY liquidity. listed on the EGX) due to improved macroeconomic indicators, particularly FCY reserves and liquidity in the banking sector. Inflation eased during the year, recording 12% in December 2018, down from 15.7% in November 2018, and a significant y-o-y drop down from 21.9% in December 2017. Consumer purchasing power strengthened noticeably throughout the year. 2018 saw an uptick in lending to companies for working capital, as firms sought to meet in- creased demand. Companies continued to post- pone capital expenditure (CAPEX), however, as the interest rate environment remained elevated in 2018. Although the CBE cut interest rates by 100 basis points (bps) in February and by a further 100 bps in March, the 700 bps hike implemented since the currency floatation in 2016 means long-term borrowing remains expensive for many firms. Egypt’s banking sector remained the lifeline of the economy in 2018. The year witnessed steady improvement in asset quality, with aggregate non- performing loans (NPLs) as a percentage of gross loans standing at 4.4% in September 2018, down from 4.9% in FY2017. NPLs were almost fully covered by provisions as of September, with 98% of such as- sets allotted for. Banks were also well capitalized, with reported system-wide capital adequacy ratio (CAR) standing at 16% in September 2018, comfort- ably above the regulatory requirement of 11.9%. In December 2018, the CBE suspended the FCY repa- triation mechanism for new portfolio investments (including LCY Egyptian T-bills, T-bonds, and stocks In November, the Cabinet approved amendments to laws on income tax that would modify the treatment of sovereign portfolios held by banks and corpora- tions. The Ministry of Finance held meetings with the Federation of Egyptian Banks (FEB) to discuss the proposal and suggested methods for calculating the new tax, the final formula for which has yet to be announced by the ministry. The EGX was negatively affected by global forces coming to the fore in 2018, declining 13.2% to end December 2018 at 13,035.77 points. In light of this, the government postponed the planned privatization of 23 state-owned companies until conditions improve. Four IPOs took place in 2018, raising a total of EGP 5.2 billion and representing an increase of 25% over 2017. In short, Egypt’s economic recovery has continued to pick up steam despite persisting challenges. The market offers ample opportunities, which CIB’s executive management and employees are working diligently to turn to the Bank’s advantage. CIB’s Strategy CIB’s strength lies in a flexible strategy that allows it to adapt to the unremitting changes in market dynamics, creating value for stakeholders at each step. The BoD and executive management share the same philosophy of placing clients at the heart of every decision and achieving sustainable financial 36 Annual Report 2018 Annual Report 2018 37 CIB InTRoDuCTIon >> Board of Directors’ Report EGP BN 86 Market capitalization as of 2018 and non-financial growth. To accomplish this, we rely on the dedication of our employees, whom we are determined to help develop, while providing them with the latest innovative technology. the minimum regulatory requirement. The buffer is sufficient to accommodate any increase in capi- tal requirements in 2019 and will preempt any un- anticipated changes resulting from macro shifts. Relying on these time-tested values, CIB further con- solidated its leading position in the Egyptian market during 2018, assisted by a three-pronged strategy of: Dynamic Balance Sheet Management Responding to the high interest rate environment and its impact on long-term borrowing, CIB con- tinued to re-engineer its balance sheet in 2018 with the goal of preserving earnings. The Bank adopted a deposit-gathering strategy aimed at reshaping its funding mix. It attracted 9% of all new deposits in the banking system until October 2018 (according to the most recent available information by the CBE at the time of print), and managed to grow its current account and savings account (CASA) deposits to 56% of total deposits by the end of 2018. The Bank maintained resilient asset quality in 2018 through its conservative risk-management strategy, while booking provisions adequate to mitigate any potential risks. Provisions for 2018 amounted to EGP 3.1 billion, bringing the loan-loss provision balance to EGP 13 billion. Of this, EGP 1.82 billion pertains to the amount transferred from unearned interest to interest income and was fully provisioned for. NPLs represented 4.06% of the gross loan portfolio, cushioned by a solid 269% coverage ratio. The Bank remains comfortably covered in terms of capital adequacy, with year-end CAR recording 19.09% (after profit appropriation) — well above Return on average equity (ROAE) hit 33.1% in 2018 (after profit appropriation, based on the suggested profit appropriation schedule), marking the fifth consecutive year CIB has delivered an ROAE of above 30%. At 20.3%, CIB enjoys one of the lowest cost-to-income ratios among private-sector banks, guided by management’s effort to further enhance CIB’s returns through efficient cost controls. Investing in Technology During 2018, CIB continued to upgrade its infra- structure resiliency, optimize its IT storage, and build the platforms required to maintain the Bank’s position in the market. This year, CIB reaped the benefits of its 2015 move to introduce the concept of big data to the Egyptian banking industry. With the necessary platforms in place and skillful people available to analyze the data, the Bank is ready to further solidify its lead- ership position through the development of more customer-centric solutions. During the year, CIB’s Analytics and Data Man- agement (ADM) Department focused on support- ing other departments with actionable analytical findings that augment decision-making. It also continued to optimize operational processes, de- veloping solutions to reduce costs and processing times, while developing new products better able to fulfill customer needs. In 2018, the department implemented the follow- ing projects: • Distributed Ledger Technology (DLT): CIB was one of the Egyptian markets’ first adopt- ers of DLT, joining the Know Your Customer (KYC) project on R3’s Corda blockchain in 2017. This year, the team focused on testing different use cases for potential development into live projects and built a local blockchain network for banks and different financial services providers. • Segmentation: The Bank revamped its balance- based customer segmentation, developing a fully customized and data-driven behavioral segmentation system that will accelerate CIB’s transformation into a customer- rather than product-centric institution. • Digital Lending Program (DLP): ADM launched a program to help CIB penetrate the vast market of unbanked credit seekers based on their history, such as Careem cap- tains. The program could be replicated in the future in line with CIB’s commitment to foster financial inclusion in Egypt. • Anomaly-detection model: In cooperation with the Compliance Department, the ADM team developed a model to minimize fraud by identifying, monitoring, and controlling fraudulent customer behavior. • Early warning system (EWS): Working with the Business Banking team, ADM developed a set of guided processes that provide early identifica- tion of risks posed to business and corporate customers. The system’s function is to help the Bank proactively manage its loan portfolio by reducing unsecured lending risks. CIB Navigator: In 2018, ADM launched a tool that grants CIB employees access to dashboards, reports, and portals that help expedite decision- making. Integration of the tool into the operations of different business lines will incentivize relation- ship managers to persuade customers to switch to available digital portals. This year, the migration of a large volume of transactions from traditional channels to digital ones yielded cost synergies in excess of EGP 200 million. Technological advancement is spurring a broad transformation in the global banking industry. Banking transactions no longer require bank branches only, but rather the internet and smart- phones. Embracing such change, CIB has been building its digital banking platforms over the years and now provides its customers the convenience of instant, seamless banking at any time and any place. In 2018, CIB formulated its digital business plan with the goal of integrating the Bank further into its customers’ daily activities. 2018 saw the Bank upgrade several of its digital platforms, including ATMs, online banking, and its call center, further enhancing the customer experience and improving the efficiency of its services. CIB’s Interactive Voice Response (IVR) service is the only one of its kind in the Egyptian market that allows governmental and non-governmental bill payment and other exclu- sive solutions such as credit card settlement, while its network of ATMs is the largest of any private Egyptian bank. At 18%, CIB ranks first in terms of activity rate for Egyptian mobile wallets. In 2018, CIB’s online banking activity hit a record 61.4% — fruits of the Bank’s continuous digital investments. 38 Annual Report 2018 Annual Report 2018 39 CIB InTRoDuCTIon >> Board of Directors’ Report CIB believes that financial inclusion is about more than just extending financial services to the unbanked; it’s about improving people’s lives. Positively contributing to the Egyptian economy’s long-term growth and sustainable development is an objective that rates high on CIB’s agenda, directly aligning with CBE efforts to promote financial inclusion. In line with its firm commitment to help develop Egypt’s financial sector and extend the lat- est innovative financial offerings to customers, CIB launched CVentures in 2018, Egypt’s first fintech- focused corporate venture capital firm. CVentures will invest in transformational fintech startups and next-generation financial service platforms. Lever- aging the firm’s active exposure to international technology hubs and startup ecosystems, CIB ex- pects CVentures to be an ideal addition to its slate of innovative products and services. More on the fintech front, 2018 saw CIB intensify its fintech engagement by catering to the needs of fintech startups, and thus, helping the Bank build strategic alliances that enhance its financial inclu- sion objectives. The Bank’s activities aim to create awareness on the opportunities presented by this new segment and encourage entrepreneurs to start their businesses, with the ultimate goal be- ing to support fintech startups as they develop and launch their products and services. To date, CIB has sponsored 46 fintech startups and entrepreneurs operating in various fields. Thirty of these have been introduced to the market with CIB’s backing, receiv- ing airtime on Egypt’s number one entrepreneur- ship TV show Hona Al Shabab with pre-seed funds awarded to the winners. The year also saw CIB redouble its focus on agent banking — a tool to help widen the Bank’s reach among Egypt’s unbanked population and control the costs associated with the provision of various services to clients. The Bank established Egypt’s first agent bank, Fawry Plus — a greenfield invest- ment in agent banking. The Bank holds a 23.5% equity stake in Fawry Plus, a joint venture between CIB, Banque Misr, Fawry, and El Alameya For Con- sultations and Information Systems (ACIS). In recognition of these efforts, CIB became the first Egyptian bank to receive the “Financial Inclusion Champion of the Year” FinX Award in 2018 from FinTech Galaxy and Entrepreneur Middle East. The award is a testament to the Bank’s support for en- trepreneurship and the customer-centric banking services that it has made available for Egyptians. Talent Enhancement CIB is committed to cementing its identity as an employer of choice in the Egyptian banking sector, working constantly to provide employees with the capabilities needed to thrive. Starting as early as the onboarding process, employee development and satisfaction is paramount to CIB’s executive manage- ment, who focus on learning and development as well as rewards and recognition. As part of this strategy, CIB participated in 33 events and employment fairs across several univer- sities in Egypt and other venues during the year. To ensure that the search for top-quality candidates is not hindered by geographic logistics, in 2018 CIB established recruitment teams that visited nine gov- ernorates across Egypt. In 2018, CIB sought to further enhance engagement, working to increase satisfaction levels and refine perfor- mance-related communication between management and employees. Ten town halls were held with middle management during the year, while 66 HR awareness sessions were conducted with first-line managers. These efforts contributed to increased participation in the fourth Employee Effectiveness Survey (EES), which stood at 92% in 2018 compared to 88% in 2016. The en- gagement level grew to 63% compared to 59% in 2016. In 2018, more than 840 training courses covering both technical and soft skills benefited 5,357 em- ployees (79% of staff) across the organization. CIB also hired 587 external individuals in 2018 (59 in increased headcount and 528 replacements) across different areas of the Bank. Succession planning was also given considerable attention, with the aim of securing CIB’s legacy. Proper succession planning will help the Bank over- come challenges posed by a constantly changing business environment. Executive management is continuously identifying, assessing and developing cadres to ensure CIB has the calibers in place ready to assume responsibility. Forty-two key talents were selected to participate in technical and leadership development programs as part of CIB’s succession plan formulated in 2016. Seventy-two percent of these individuals have been promoted to roles of greater responsibility as of year-end 2018. 2018 Financial Position CIB reported another remarkable set of results in FY2018, with consolidated net income up 27% y-o-y to EGP 9.58 billion. Standalone net income reached EGP 9.56 billion, up 27% from 2017. Standalone rev- enues grew 34% over the previous year to EGP 20.4 billion. Net interest income hit EGP 18.1 billion in FY2018, an increase of 45% y-o-y. While the Bank has historically recognized the interest from doubtful loans, not yet classified as non-performing, in the unearned interest account on the balance sheet without recording it on the income statement out of conservatism, CIB ad- opted a new convention in 2018, as stipulated by the CBE. These amounts were channeled through interest income and an equal amount was taken as provisions, leaving the bottom line unaffected. Unearned interest accounts pertaining to non- performing clients are now recognized as an off- rather than on-balance-sheet item. The re- engineering of CIB’s unearned interest accounts was conducted over two consecutive quarters. In 2Q2018, EGP 761 million was transferred from unearned interest to interest income, followed by EGP 1.06 billion in 3Q2018. Normalized for EGP 1.82 billion additional interest income related to re-engineering of the unearned interest account, standalone revenues grew 22% and net interest income 31% over the previous year. It is worth noting that all unearned interest amounts eligible for recognition as interest income on the income statement or as an off-balance sheet item are now recognized as such, and such recycling will not 19% CAR as of 2018 recur after 2018. Non-interest income stood at EGP 2.2 billion for FY2018, with net income from fees and commissions recording EGP 2.4 billion. Despite a challenging year, the Bank’s financial its performance was strong, reflected across financial indicators. Operational efficiency was maintained during 2018, with the cost-to-income ratio standing at 20.3% compared to 20.8% in 2017. ROAE grew to 33.1% on a consolidated basis (post- appropriation) from 32.5% in 2017. Consolidated Return on Average Assets (ROAA) recorded 3.03% (post-appropriation) for 2018, up from 2.69% in 2017. As of year-end 2018, CIB booked a net interest margin (NIM) of 6.43% (or 5.81% after normalizing for the aforementioned recycled amount) — the Bank’s highest-ever — up from 4.97% a year earlier. CIB’s gross loan portfolio stood at EGP 120 billion at 2018 year-end, growing 17% (EGP 17 billion) y-o- y. This increase met the Bank’s strategic objectives in maintaining asset quality and enhancing profit- ability. CIB’s market share of total loans amounted to 6.96% in October 2018. The Bank aggressively pursued deposit growth in 2018, adding EGP 35 billion to its base, which grew to a total of EGP 285 billion over the year, an in- crease of 14% from 2017. CIB’s share of the deposits market reached 7.68% in October 2018. CIB ended the year with a buoyant balance sheet and capital base, reflected in its comfortable CAR of 19.09% (after profit appropriation), far 40 Annual Report 2018 Annual Report 2018 41 CIB InTRoDuCTIon >> Board of Directors’ Report EGP BN 47.5 Business Banking deposits in 2018 exceeding requirements stipulated by the CBE and boosting the Bank’s ability to deal with un- foreseen economic circumstances. In 2018, CIB continued to experience strong growth in net interest income, fees and commissions, and its balance sheet. Relative to peers, CIB maintained its leading position in terms of profitability and the size of its balance sheet. Overall, its strong financial performance in 2018 came in line with P&L targets. Appropriation of Income The BoD proposed the distribution of a dividend per share of EGP 1.00, after taking into account the subsequent share distributions after the date of issuance for financial statements, which was authenticated in the Bank’s commercial register as of 28 January 2019. In addition, CIB is increasing its legal reserve by EGP 478 million to EGP 2,188 million and its general reserve by EGP 6.4 billion to EGP 19.2 billion. This reinforces the Bank’s solid financial position, as evi- denced by a capital adequacy ratio (CAR) of 19.09%. The proposed dividend distribution falls in line with the Bank’s strategy of maintaining a healthy capital structure to address more stringent regulations, mitigate associated risks, as well as facilitate and support the Bank’s future growth plans. 2018 Operational Highlights Institutional Banking Despite lingering macroeconomic challenges, the Institutional Banking (IB) Group was able to meet its pre-set performance targets for 2018. The group contributed 78.4% to CIB’s loan growth during 2018. The Corporate Banking Group continued expand- ing its loan portfolio across different sectors, taking part in the government’s ambitious plans to develop the economy by financing several mega- projects in the power, construction, food and bev- erage, textile, telecommunication, and oil and gas sectors. The group grew its loan portfolio by 16.4% y-o-y to EGP 95.6 billion by year-end. The Debt Capital Markets Division further consolidated CIB’s high ranking among private Egyptian banks in the fields of syndicated loans and bookrunning. CIB came in seventh among African banks on the Bloomberg League Table for African Syndicated Loans in 1Q2018, a reflec- tion of the team’s efforts. With a market share of 3.7% of deals, CIB is ranked third among Egyptian banks in this area. In 3Q2018, CIB was ranked eighth among Initial Mandated Lead Arrangers, up from the 15th in 2017, with a market share in deals of 3.1%. On the domestic front, CIB captured the lion’s share of public sector debt arrangements during 2018, organizing syndicated medium-term loans worth c. EGP 69.1 billion for public sector companies and quasi-sovereigns in the power and oil and gas sectors. The division cemented CIB’s position as the top bank in Egypt in the structur- ing of local market securitizations, closing securi- tization deals worth EGP 4.4 billion out of a total EGP 5 billion in the Egyptian market. Retail Banking Leveraging CIB’s investment in data analytics, Con- sumer Banking made progress in implementing a behavioral segmentation strategy aimed at attract- ing, retaining, and deepening relationships with customers. By aligning tailor-made products and l i a t e d e m e r t x e n i z t r a u q a r u a w o b n a R i 42 Annual Report 2018 Annual Report 2018 43 CIB InTRoDuCTIon >> Board of Directors’ Report 90% STP rate for e-remittances services with the specific needs of each segment, the Bank was able to increase customer satisfaction by better catering to its clients’ needs. In 2018, Consumer Banking introduced a new high- net-worth (HNW) segment called Private, offering an exclusive bundle of products and services tailored to clients with a minimum net worth of EGP 20 million. Despite price competition from public-sector banks, Consumer Banking was able to increase CIB’s total deposit portfolio by 18.3% y-o-y to EGP 165.2 billion in 2018. The Bank focused on gathering low-cost deposits, particularly CASA, by offering competitive rates and leveraging its long-standing relationships with corporate clients to further gather payrolls. The loan portfolio grew by 21.9% y-o-y to EGP 22.9 billion in 2018, contributing to 21.6% of CIB’s loan growth during 2018. CIB also moved to digitalize its customer loyalty program in 2018, facilitating the redemption of the loyalty points earned when executing transactions. Substituting the physical voucher with an instant e-voucher, the move was well-received by customers and resulted in higher activation rates. The Bank’s branch network remains the main chan- nel for serving customers. In 2018, nine new branches were launched, bringing the total network to 203 branches. The Bank added 98 ATMs in 2018, expand- ing the network to 917. CIB commanded a POS net- work of 13,446 machines as of December 2018. On the Business Banking front, revenues grew steadily year-on-year in 2018, recording EGP 2,359 million at year-end 2018, up 16% y-o-y. Deposits grew 21% y-o-y to EGP 47.5 billion, representing 17% of CIB’s total deposits. The division’s client base grew 15% y-o-y to 48,229 companies. In 2018, the Business Banking Division collaborated with the US government-backed Overseas Private Investment Corporation (OPIC) to hold 12 workshops as part of the Women in Business Capacity Building program. The program aims to increase banking and financial awareness among women-owned and managed startups and small companies, promoting inclusion in the formal sector, providing access to finance, and raising CIB’s standing as an institution that upholds gender equality throughout the sector. Information Technology and Operations CIB remains committed to upgrading its IT sys- tems and ensuring that its platforms are continu- ously updated and capable of comprehensively supporting its growth plans. To improve and streamline the customer experience and enhance the Bank’s product mix, CIB inaugurated two major projects in 2018: the Core Banking Release, which will allow the Bank to transition to the R18 Platform, and a new digital platform for consum- ers. 2018 also witnessed the delivery of another key project: the Customer Relationship Manage- ment program, which is designed to build stron- ger relationships with customers. During the year, the IT department continued to improve the resiliency of CIB’s infrastructure, op- timize the Bank’s storage, and build the enterprise platforms to maintain CIB’s leadership position within the banking sector. The team also extended its support to the Analytics and Data Management team, integrating state-of-the art technology into the Data Warehouse infrastructure to enhance re- port extraction and data analysis. CIB’s transformation strategy has also entailed scalable infrastructure. In 2018, the Bank took the first steps toward implementing a new software defined network (SDN) to create a virtual network across data centers. By using this technology to cre- ate a responsive network data center, CIB will enjoy a new generation of distributed applications and will accommodate virtualized and non-virtualized environments. This will aid the Bank in fulfilling current and future business objectives related to digitalization and mobile application solutions. Operations continue to be at the core of CIB’s automation and re-engineering initiatives, which progressed in 2018 according to the automation roadmap set in late 2017. Developments ranged from shifting different tasks to call centers to re-engi- neering multiple processes that allow CIB to offload support duties from branch staff and shorten ser- vice delivery turnaround time. A focus on straight- through processing (STP) has allowed the Bank to reach an STP rate of 90% for e-remittances. Meanwhile, the SMS activation of debit cards low- ered the number of incoming calls to the call center, thus enhancing resource capacity. CIB’s IVR call tree was also revamped to allow customers to tackle day-to-day activities with ease. Security and Resilience Management As technology and the internet have grown in importance, cyber security has become a press- ing concern across almost all industries. CIB is continuously developing its capabilities to remain in tune with global trends and best practices. The Bank takes its security and customers’ welfare se- riously, and executive management has prioritized cyber security and resilience on its agenda. CIB maintains a full set of security governance poli- cies covering all aspects of security. These guidelines are based on international standards and best prac- tices and frameworks. The Bank’s visibility on cyber risks and threats is achieved through a fully opera- tional Security Operations Center (SOC). Undergoing continuous enhancement, SOC proactively mitigates risk by monitoring, analyzing, and responding to incidents. In 2018, the SOC introduced Cyber Threat Intelligence to further enhance the Bank’s detection and cyber threat hunting capabilities more proac- tively, providing CIB with early warning signals on cyber threats and risks. Over the years, CIB has invested heavily to mitigate cyber risks, deploying the strategies needed to en- sure proper management is in place. To improve its security posture, the Bank has invested in security workforce development and enablement, enhancing the security infrastructure technology stack, and has deployed advanced threat prevention through world- class security technologies. CIB operates a dedicated internal security control function to ensure security policies are properly enforced and to raise awareness among staff on cyber security and its importance. The Bank has been intensifying its efforts and widening the scope of its oversight along the busi- ness continuity and contingency management spectrum. To take its business continuity capabil- ities to the next level, CIB introduced ‘resilience management’ with a widened scope of oversight to cover third parties in addition to internal capa- bilities. The program seeks to ensure not only the resumption of business after a disruptive event, but also the preemptive protection of CIB’s brand equity, resources, and staff from threats. In 2018, CIB was the proud recipient of the ISO22301:2012 certification for Business Conti- nuity Management. ISO 22301 certification was awarded to CIB by Professional Evaluation and Certification Board (PECB), a global provider of training, examination, audit, and certifica- tion standards, in partnership with EGYBYTE, a leader in the MENA market for IT Service Man- agement. ISO 22301 is the International Standard for Business Continuity Management, providing guidance to certified organizations, allowing them to identify and manage current and po- tential threats to business. CIB’s ISO-certified Business Continuity Management System puts the Bank in a position to effectively limit the risk 44 Annual Report 2018 Annual Report 2018 45 CIB InTRoDuCTIon >> Board of Directors’ Report of unexpected incidents, allowing it to operate during challenges, reduce the likelihood of opera- tional disruptions, and continue to provide cus- tomers with expected services while maintaining the highest level of customer satisfaction. CIB received the following awards during 2018: Awards by Global Finance • Best Foreign Exchange provider in Egypt 2018 • Best Trade Finance Provider in Egypt for 2018 • Best Treasury & Cash Management Providers 2019 Business Outlook In 2019, CIB will remain committed to providing its clients with the highest quality of service and sup- porting their investment and financial growth plans, along with creating value for its shareholders. The Bank will continue to work diligently to maximize their returns through any operating environment. To this end, CIB will pursue a business strategy that prioritizes asset quality and profitability. in Egypt • Best Bank in Egypt • Best Subcustodian Bank in Egypt • Digital Bank of Distinction – Egypt • Best Online Cash Management – Egypt • Best Trade Finance Services – Egypt • Best Online Portal Services – Egypt • Best Information Security and Fraud Manage- ment – Egypt • The Innovators Awards and Recognition in 2018 CIB continued to garner awards during 2018. Financial institutions of global renown recognized the Bank’s ef- forts to grow and innovate in all facets of business. Awards by The Banker Africa • Best Corporate Bank in North Africa • Best Corporate Bank in Egypt • Best Private Bank in Egypt In September, CIB was named “World’s Best Emerg- ing Markets Bank” in Global Finance magazine’s World’s Best Banks Awards for 2018, making it the second consecutive time the Bank has received this accolade having been named by Euromoney as the “World’s Best Bank in Emerging Markets” in 2017. In June, CIB became the first Middle Eastern firm to be analyzed in a case study by the Leadership Institute at the London Business School (LBS), one of the world’s top five business schools. CIB was se- lected in recognition of its data-driven, customer- centric approach to leading transformation in the face of macroeconomic challenges. The Bank also ranked 38th on Forbes Middle East’s “Top 100 Listed Companies in the Arab World,” ranking the highest of the four Egyptian companies on the list. Besides recognizing the significant efforts of the team at CIB, such accolades extend international testament to the outstanding capabilities and competencies of Egyptian organizations in the face of adversity. Awards by EMEA Finance • Best FX Services in North Africa • Best Payment Services in North Africa • Best Local Bank Awards by Euromoney • Best Bank Transformation in the Middle East • Best Bank in Egypt Other awards include: • Best Regional Bank – Northern Africa by Afri- can Banker • Financial Inclusion Champion of the Year by FinX 2018 Commitment to Corporate Governance Best Practices, Ethics, and Corporate Values In its mission to provide best-in-class financial so- lutions to enterprises and individuals, CIB strives to apply international best practices in the area of corporate governance. The Bank is wholly com- mitted to the principles and corporate values that distinguish the finest governance structures. CIB’s corporate governance structure is anchored in a team of highly professional executive directors and a distinguished group of independent non-executive directors (NED). The BoD enjoys an optimal mix of skills, experience, and diversity in terms of gender and nationality. No changes to the BoD composition took place during 2018. CIB’s BoD comprises of nine directors, seven of whom are non-executives, with one representing Fairfax’s interest in CIB. Five of the non-executive members are independent, conform- ing to the international best practices of corporate governance. Chairman and Managing Director Mr. Hisham Ezz Al-Arab and CEO Mr. Hussein Abaza are the BoD’s executive directors. In line with CBE directives on corporate governance as well as international best practices, the Managing Director is responsible for ensuring adequate and effective governance through managing the indepen- dent control functions: risk, compliance, audit and legal, and also focusing on the strategic direction of the Bank. The CEO is responsible for managing the Bank’s business lines and day-to-day operations. CIB’s highly qualified BoD is supported by specialized committees that assist in fulfilling its responsibilities. The BoD has seven standing committees; five non-executive and two executive committees. Each committee chairper- son is responsible for briefing the BoD on the major issues raised by the committee he/she chairs. The BoD’s non-executive committees are: • Audit • Governance and Nomination • Compensation • Risk • Operations and Technology The BoD’s executive committees are: • Management • High Lending and Investment The BoD is also supported by internal and external auditors as well as other internal control depart- ments (Risk, Compliance, Internal Audit, and 7.26EGP EPS in 2018 Legal). Work carried out by these functions is fully utilized by the BoD to ensure the Bank adheres to international standards of corporate governance. CIB’s experienced executive management team plays an important role in the governance of the Bank by faithfully and efficiently executing the strategy set by the BoD and properly implementing the Bank’s policies. The Code of Corporate Governance is a cornerstone of CIB’s governance policy framework, aiming to en- hance long-term value for shareholders, employees, and other stakeholders. A Code of Conduct sets out the standards of behavior expected from all employ- ees, providing staff, senior management, and the BoD with a comprehensive frame of reference regarding their rights and duties. The code further enshrines the principles of equal employment opportunity and gender equality. CIB’s Conflict of Interest policy guar- antees that all staff and BoD members remain aware of and forthcoming about any conflict of interest between the Bank and their personal, professional, and business interests, providing guidance on how to handle those cases. The Bank’s Whistle-Blowing Policy encourages staff to report suspected violations of the law or Bank policies as well as any wrongdoing, while guaranteeing a supportive and encouraging environment for those who speak out. The Bank han- dles the claims of whistleblowers, be they employees or external actors, very seriously and at a senior level. CIB’s Conduct Risk Policy makes clear the Bank’s re- lationship with and duties toward its customers. 46 Annual Report 2018 Annual Report 2018 47 CIB InTRoDuCTIon >> Board of Directors’ Report Corporate Governance Highlights Board Independence: The majority of CIB’s directors are non-executive at seven out of nine members, five of whom are in- dependent directors. Gender Diversity: Two of the directors are women. Deep Banking and Related Knowledge and Experience: CIB’s directors have ex- tensive industry experience ranging from business and management to banking, law, and investment. CIB’s Governance Framework ensures that timely, transparent, and accurate disclosures are made avail- able with respect to material information regarding the Bank, its ownership, operations, and financial performance. It advocates the equal treatment of all shareholders with sound protection for their voting rights. Backed by a concrete set of policies and pro- cedures relevant to the scope, size, and complexity of CIB’s business, the framework also aims to sustain the success of the Bank’s business and operations, ensure proper implementation of internal and external regu- lations, and mitigate all possible types of risk. Commitment to Sustainability The Bank is proactive in making sustainability a permanent feature of its products and services. CIB takes pride in its role to develop the United Nations Environment Program Financial Initiative (UNEP- FI’s) Principles for Responsible Banking alongside 27 banks from five different continents, accounting for aggregate assets of more than USD 17 trillion. The banks were assisted by 12 civil society organizations from several countries and diverse backgrounds to ensure the principles take into account the various operational and market realities of banks in differ- ent countries, as well as banks at different stages of sustainable banking. The Principles for Responsible Banking are the first set of guiding principles to focus specifically on the banking industry and aim to ensure the integration of environmental, social, and governance (ESG) principles at a strategic, op- erational, and transactional levels in banks. For years, CIB has worked to provide sustainable capi- tal to help clients grow, give back to the communities in which we live and work, and incite actionable change in the area of environmental business practices. The six UNEP-FI principles — alignment, impact, clients and customers, stakeholders, governance and target setting, transparency and accountability — resonate with CIB’s sustainability culture. Commitment to these principles will empower the Bank to further sup- port and accelerate the fundamental change to which it aspires. CIB encourages other banks to endorse and take part in signing the Principles for Responsible Banking at the signing event in 2019. Deepening its commitment to responsible bank- ing, in 2018 CIB launched the Solar Loan Program, offering its customers special financing for the pur- chase and installation of solar panels. Supporting the government’s campaign to rationalize energy consumption by introducing renewable sources, the loan also helps customers switch to more affordable source of energy to mitigate rising living expenses. The Bank continued to reinforce its internal sustain- ability agenda during the year, a strategy anchored in three main pillars: Managing Our Ecological Footprint CIB managed its environmental footprint by apply- ing the highest standards and devoting resources to manage energy and water consumption, carbon footprint, and waste creation. • Lighting Efficiency: To support Egypt’s Light- ing Efficiency Improvement Initiative, in 2017 CIB began transitioning to LED lighting sys- tems across all its premises. As per the review from Egypt’s Ministry of Electricity and Renew- able Energy, the measures cut CIB’s energy consumption by 11 million KWs between 2014 and 2018. In 2018, annual savings on electric- ity consumption hit 40%, with the payback pe- riod reaching 14 months. CIB received a special award from the Energy Efficiency Project in 2018, recognizing the Bank’s outstanding ef- forts in ensuring energy efficiency. e t o n k n a b d n u o p n a i t p y g E 0 0 1 a f o l i a t e D 48 Annual Report 2018 Annual Report 2018 49 CIB InTRoDuCTIon >> Board of Directors’ Report • Water Efficiency: In 2018, CIB installed 1,600 aerators at select premises, saving the Bank and the environment 103 million liters of water. Consumption of water has been reduced by 40% and CIB has saved EGP 518,000 in water-related expenses. The Bank has developed a plan to in- stall aerators at all of its premises across Egypt. • Paper Reduction: CIB sells the paper waste created by branches to paper recycling start- ups. The proceeds are credited to the Sustain- ability Account and are subsequently used for green projects, such as green rooftops. In 2018, a total EGP 184,326 was credited to the Sustainability Account. • Electronic Waste (E-waste): At the end of 2017, CIB began implementing an e-waste manage- ment initiative, safely disposing of mobiles, computers, iPads, and similar devices, which totaled to EGP 1 million at the end of 2018. • National Initiative on Plastic Bag Consump- tion Reduction: CIB is cooperating with the Ministry of Environment in a national cam- paign to promote the use of biodegradable plastic bags and increase public awareness of the hazardous effects of non-biodegradable plastic. The Bank uses biodegradable plastic bags across all its premises. • Internal Carpooling Mobile Application: The Bank enlisted young Egyptian entrepreneurs to create a tailor-made carpooling application, Raye7, which is now used by more than 1,000 CIB employees, further reducing its carbon footprint while encouraging young entrepre- neurs to develop innovative solutions. • Green Buildings: Collaborating with the Housing and Building National Research Cen- ter, CIB obtained an Egyptian Green Pyramids Certificate. This initiative conforms to the standards of world-class Leadership in Energy and Environmental Design (LEED) programs, indicating that buildings have been con- structed and operated in a resource-efficient manner. Two CIB head offices were awarded the highest Green Building Rating under the Green Pyramids Rating System (GPRS). Inclusion Efforts • Special-needs Accessibility: CIB has success- fully equipped 26 branches with ramps, low teller desks, and toilet rails. Ninety-five talking ATMs have been installed at key locations across Egypt. Further broadening the accessibility of its servic- es to visually impaired customers, CIB expanded the use of debit cards from solely ATMs to POS machines. Training sessions on the provision of optimum service for special needs customers have been held for 250 CIB front-liners and cus- tomer representatives, and a code of accessibility has been developed to evaluate the ease of use at branches and ATMs in order to identify gaps and appropriate improvements. Monitoring and Reporting • CIB Sustainability Report: Since 2014, relevant sustainability KPIs have been identified and reported in an annual sustainability report. The report tracks the Bank’s performance and communicates its progress to stakeholders. CIB adheres to Global Reporting Initiative (GRI) standards, which provide the most comprehen- sive framework for sustainability reporting. • Science Based-Target Initiative (SBTi): The SBTi invited CIB to participate in a financial-sec- tor working group to develop a new assessment methodology identifying whether investing and lending activities are aligned with a 2°C trajectory. • Carbon Disclosure Project (CDP): In early 2018, CIB became the first Egyptian entity to participate in the global disclosure system Carbon Disclosure Project (CDP), which enables companies and states to measure and manage their environmental impacts. • Bloomberg Gender Equality Index (GEI): Based on 2018 reports and figures, CIB was included on the 2019 Bloomberg Gender Equality Index (GEI). Of the 230 companies selected for the GEI, CIB became the first Arab and African company to be named to the index. The Bloomberg GEI is the world’s only comprehensive investment-quality data source on gender equality. • FTSE4Good Sustainability Index: In 2018, CIB was recognized by the Financial Times as a constituent of the FTSE4Good Sustainability Index, marking the sixth consecutive year the bank has been a constituent. • EGX Sustainability Index: CIB ranked first on the EGX Sustainability Index for the fifth con- secutive year in 2018. Commitment to Corporate Social Responsibility CIB has continued to embed corporate social re- sponsibility (CSR) at the heart of the organization. This year, the Bank expanded its steadfast commit- ment to the communities in which it operates by diversifying its community development activities, which include supporting sports, fine art, culture, and social care. It has implemented various CSR projects and provided crucial support to the initia- tives of other organizations. The Bank’s CSR agenda in 218 included the following: • CIB contributed to a charity soccer tournament held in Ramadan 2018 to support the Abu El- Rish Children Hospital by donating the tourna- ment’s funds to the hospital. • The Bank participated in the exhibition of student projects in the faculties of fine arts at the universities of Luxor, Assuit, Menya, and Mansoura. CIB acquired distinctive artwork to incentivize young talents while enriching the Bank’s art collection. • CIB sponsored “Night with the Arts” for the second year in a row. This year, the exhibition “Nothing Vanishes, Everything Transforms” held at the historic Manial Palace showcased Egypt’s rich cultural heritage. • For the first time ever, CIB supported an African painting workshop led by Soma Art School in the Democratic Republic of Congo during the seventh edition of the Rencontre Internationale d’Art Contemporain (RIAC) event. • CIB maintains its commitment to preserve the legacy of Egypt across different fields, including art and cinema. The Bank sponsored the special 40% Reduction in water consumption “Cinema Edition” of the cultural magazine Rawi, which focuses on Egyptian heritage. • CIB continued to sponsor “Made in Egypt”, an exhibition of young Egyptian designers held in London featuring the country’s best artistic productions. • CIB and KidZania’s partnership began in 2013, and since this time, the Bank has suc- cessfully organized several trips each year to KidZania for more than 150 underprivileged and special needs children, as well as chil- dren with health conditions. • The Bank continued its sponsorship of the an- nual ceremony for the Egyptian Advance Society for Persons with Autism and Other Disabilities (ADVANCE) and sponsored 2018 World Autism Awareness Day in Egypt to support the integra- tion of people with disabilities into society. More- over, the Bank’s Smart Village headquarters and select branches were lit in blue in solidarity on World Autism Awareness Day. • CIB has been the main partner and finan- cial sponsor of Beena for three consecutive years. Beena is a protocol signed between the Bank and the Ministry of Social Solidarity to encourage active youth participation in the community and monitor the development of social care services. This initiative suc- cessfully attracted thousands of volunteers around Egypt who assisted in orphanages, elderly homes, and special-needs houses. • In 2018, CIB continued its sponsorship of El Sawy Culture Wheel, supporting various 50 Annual Report 2018 Annual Report 2018 51 CIB InTRoDuCTIon >> Board of Directors’ Report CIB continued to positively affect communities by strengthening its support for sports in Egypt and nurturing the country’s athletic talents. intellectual, cultural, and social activities, including concerts by internationally recog- nized artists, cultural nights, art exhibitions, documentary films, and many more. This year, the Bank launched a new initiative in cooperation with the CIB Foundation and other NGOs to provide entertaining and edu- cational programs at El Sawy Culture Wheel that target children. • CIB sponsored a science fair for school stu- dents to foster scientific thinking from an early age and encourage children to explore future careers in scientific fields. The fair featured groups of students from different grades who submitted projects to a panel of judges, who evaluated each project and awarded numerous titles to winning teams. • CIB was the sole banking sponsor of the second season of CBC’s televised entrepreneurship competition Hona Al Shabab in 2018. The com- petition supports young fintech entrepreneurs and business startups. In 2018, CIB continued to positively affect com- munities by strengthening its support for sports in Egypt and nurturing the country’s athletic tal- ents. Squash-related initiatives were again at the core of CIB’s CSR agenda. Junior Squash Teams’ • CIB maintained its sponsorship of the Egyp- tian Squash Federation for the seventh con- secutive year. The Bank also expanded its com- mitment by sponsoring the National Women’s and international championships. This support has played a direct role in the national teams’ accomplish- ments throughout the year, as the National Junior Squash Team won the World junior squash championship in India for the sixth time. Almost simultaneously, the National Women’s Squash Team was named Women’s World Team Champion in China, successfully retaining their title. • In support of young players leading the world’s squash rankings, CIB has created special spon- sorships to help six talented players maintain their rankings and continue representing the country around the world. The following play- ers were recipients of these sponsorships: - Ali Farag – 2nd on the Men’s PSA World Squash List CIB Foundation The CIB Foundation was established in 2010 as a non-profit organization under the oversight of Egypt’s Ministry of Social Solidarity. It is dedicated to improving health and nutrition outcomes and extending coverage to underprivileged children with limited access to quality healthcare. To meet its objectives, the Foundation relies on valuable partnerships with other institutions working in the field. During 2018, the CIB Foundation’s activities and initiatives included the following: - Nour El-Tayeb – 4th on the Women’s PSA Approved Projects in 2018 World Squash List - Tarek Momen – 3rd on the Men’s PSA World Squash List - Karim Abdel Gawad – 5th on the Men’s PSA World Squash List - Ramy Ashour – 24th on the Men’s PSA World Squash List - Hania El-Hammamy – 17th on the Women’s PSA World Squash List • CIB announced its partnership with Wadi De- gla Clubs to support young Egyptian squash athletes by developing their skills to enhance their international rankings. The additional athletes representing Wadi Degla and spon- sored by CIB are: - Raneem El Welily – 1st on the Women’s PSA World Squash List - Nouran Gohar – 8th on the Women’s PSA World Squash List • CIB continued for the second year its “Squash for Everyone” initiative in partnership with prominent Egyptian player Amr Shabana. The program aims to provide underprivileged children with an equal opportunity to practice squash and discover young, rising talents. • In April 2018, the Foundation’s Board of Trust- ees approved an EGP 18.9 million contribution to support the purchase of 33 upgraded moni- tors and four central station units for the Sur- gical Intensive Care Unit, Intensive Care Unit, and the Bone Marrow Transplant Unit at Chil- dren’s Cancer Hospital 57357. A further EGP 3.5 million was also donated to fund patient care expenses at the Cairo and Tanta branches. • In April 2018, the CIB Foundation’s Board of Trustees approved over EGP 14 million to fund the complete renovation and outfitting of El-Galaa Teaching Hospital’s Pediatric In- tensive Care Unit to extend services to more patients on the waiting list. • In April 2018, the Board of Trustees approved EGP 10.8 million in funding to Abou El-Reesh Children’s Hospital to purchase a fluoroscopy x-ray machine for the Radiology Department and a laparoscopy and thoracoscopy machine for the Pediatric Surgery Department. In July 2018, the CIB Foundation donated over EGP 3.3 million to cover the first tranche of the project. • The CIB Foundation allocated EGP 7.5 million in July 2018 to fund the purchase of necessary 33.1% ROAE in 2018 equipment and supplies for the Pediatric Den- tistry Clinic in El Kasr El Aini. The donation will also fund the establishment of another clinic in Sheikh Zayed to increase the efficiency of services provided to children and drastically re- duce the number of patients on the waiting list. • In 2017, the CIB Foundation contributed EGP 640,000 to purchase an outfitted mobile dental caravan for the Faculty of Oral and Dental Medi- cine at Cairo University, under the management of the Rotary Club of Zamalek. This year, the Foundation allocated an additional EGP 120,000 to cover the operating costs of 12 dental caravans that will be used to treat public school students in remote areas of Cairo and Giza for free. • In July 2018, the CIB Foundation allocated EGP 7 million to the Magdi Yacoub Heart Foundation to cover costs associated with 70 pediatric open- heart surgeries and donated EGP 3.5 million in Oc- tober 2018 to cover the first tranche of the project. • In February 2018, the CIB Foundation donated the final EGP 859,000 in a three-year EGP 15 mil- lion project to outfit two research labs in Magdi Yacoub Heart Foundation’s Aswan Heart Center. • In April 2018, the CIB Foundation’s Board of Trust- ees approved EGP 6.64 million in funding to outfit the Emergency Department located on the ground floor of the Alexandria University Children’s Hos- pital in El Shatbi. The CIB Foundation fulfilled its commitment to the project in October 2018. • The CIB Foundation donated over EGP 1.3 million in 2018 to cover the surgery costs of 39 underprivileged children suffering from con- genital heart diseases at El Kasr El Aini Hospi- tal, under the management of the Rotary Club of Giza Metropolitan. This contribution follows our March 2017 allocation of EGP 1.75 million to cover the costs associated with 50 pediatric 52 Annual Report 2018 Annual Report 2018 53 CIB InTRoDuCTIon >> Board of Directors’ Report open-heart surgeries. In addition, in October 2018, the CIB Foundation’s Board of Trustees approved an EGP 3.7 million budget to support another round of the project. • The Board of Trustees allocated EGP 3.1 million in April 2018 to purchase equipment for the Nasser Institute Hospital’s Pediatric Intensive Care Unit and Neonatal Intensive Care Unit. • In July 2018, the Foundation contributed a total of EGP 3 million to the annual operating costs of five pediatric units at Ain Shams University Hospital under the management of long-standing partner the Yahiya Arafa Children’s Charity Foundation. • Over the course of 2018, the CIB Foundation donated over EGP 1 million to cover 289 surger- ies as part of the fifth and fourth phase of the Children’s Right to Sight (CRTS) program led by the Rotary Club of Kasr El Nil. • The CIB Foundation donated EGP 1.67 million to the Egyptian Clothing Bank to provide 50,000 training suits to children in 19 governorates. • The CIB Foundation’s Board of Trustees approved a proposal to support the outfitting of the sensory and psychomotor rooms at the National Founda- tion for Family and Community Development’s specialized center for the rehabilitation of autistic children. The EGP 688,000 project will enable the center to serve around 250 children monthly. • In April 2017, the CIB Foundation fulfilled its commitment to contribute EGP 2 million to the MOVE Foundation for Children with Cerebral Palsy to renovate their premises and expand operations. The CIB Foundation also allocated EGP 608,400 to support the annual operating cost of the MOVE Foundation’s premises. In September 2018, the Foundation donated EGP 152,100 to cover the first install- ment of this commitment. Ongoing Projects • The CIB Foundation dedicated over EGP 5.1 mil- lion to fund the Egyptian Liver Care Society’s Children without hepatitis C (C-Free Child) program. This year, the CIB Foundation also invested in increasing the number and quality of hepatitis treatment centers in Egypt. • In August 2018, the CIB Foundation donated over EGP 91,000 to cover the first tranche of an EGP 4.1 million project to fund the treatment of 400 children with hepatitis C at the National Hepatology & Tropical Medicine Research In- stitute (NHTMRI). • In June 2017, the CIB Foundation pledged EGP 3.53 million to the purchase of 40 monitors, 45 infusion pumps, and 25 syringe pumps for the Inpatient Unit at Ain Shams University Hospital. In August 2018, the CIB Foundation donated over EGP 589,000 to cover the final installment for the project. • The CIB Foundation donated over EGP 14.4 million in 2018 to cover the fourth and fifth tranches of the Gozour Foundation for De- velopment’s 6/6 project to fund 264 eye exam caravans and provide 158,400 public school students in impoverished areas across Egypt with free eye examinations. • In partnership with Al-Noor Magrabi Founda- tion and Dar El Oyoun, the caravans, which are staffed with 25-30 doctors, nurses, and coordinators, were equipped with advanced medical tools, medications, and eyeglasses. They provided students with free ophthalmic exams, eye medication, and referrals to private hospitals for complex cases. Moreover, CIB staff members volunteered with the caravans. • Over 2018, the CIB Foundation donated over EGP 105,000 as part of an EGP 1.5 million part- nership with the Sawiris Foundation for Social Development and Star Care Foundation in 2016 to implement comprehensive community devel- opment projects in Sohag, Assiut, and Qena. • In June 2018, the Foundation contributed the final EGP 750,000 of an EGP 1 million pledge to Ahl Masr Foundation in 2016. This contri- bution funded the treatment of 159 pediatric burn patients whose families could not afford the costs of their treatment. • In September 2015, the CIB Foundation’s Board of Trustees approved an EGP 710,000 project under the Ophthalmic Clinic in Aswan to establish the first fully equipped diagnosis and referral center for children with glau- coma. In October 2018, the CIB Foundation donated over EGP 472,000 to cover the final installment of the project. CIB supported the Baladi Foundation’s efforts to detect glauco- ma in 500 children, treat these patients, and perform 50 surgeries for congenital glaucoma cases, while also training a team of doctors and nurses in Upper Egypt. • In April 2014, the CIB Foundation’s Board of Trustees approved the allocation of EGP 1 million to fund the outfitting of the Craniofacial Center at Sohag University Hospital. In October 2018, the CIB Foundation donated over EGP 323,000 cover- ing the final installments of the project. • The Foundation gave 50 KidZania tickets to underprivileged children. Over the course of the year, the CIB Foundation coordinated with its partners to organize multiple visits to Kid- Zania in which underprivileged and disabled children learned about adult professions in a child-friendly way. Children performed differ- ent jobs to earn and spend Kidzos, the official currency of KidZania, on games and other entertaining activities. 342 EGP K Assets in 2018 • In 2018, the CIB Foundation hosted 12 blood donation campaigns across its corporate of- fices to encourage CIB staff and customers to participate in an activity that saves thou- sands of lives across the country. Through this effort, 164 bags of blood were collected; these resources can potentially be used to save the lives of over 490 people. • In February 2018, the CIB Foundation invited CIB colleagues and their families to a bag- packing event at CIB’s Smart Village office to participate in packing of over 5,000 health and hygiene school bags for the students targeted by the 6/6 Eye Exam Caravan program. • In 2018, CIB launched a new initiative in part- nership with the CIB Foundation and El Sawy Culture Wheel to develop children’s skills through specialized workshops. Children in- volved in the initiative enjoyed a full day of ed- ucational activities and games that stimulated their cultural and scientific development. 54 Annual Report 2018 Annual Report 2018 55 CIB InTRoDuCTIon >> Board of Directors’ Report 2018 Performance Measures Results 2018 Performance Measures Results FINANCIAL • Maximize shareholder 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 33.1% (after profit appropriation) • 26% EPS growth • Total tier capital recorded 19.09% of risk-weighted assets BUSINESS OPERATIONS • Grow revenues 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 20.3% • Institutional banking profit before tax rose 19% over last year to reach EGP 8.8 billion, and loan portfolio grew by EGP 13.5 billion, an increase of 16% y-o-y • Retail banking profit before tax increased 28% y-o-y to EGP 5.2 billion, and deposits grew by EGP 33.8 billion, translating into 18.9% y-o-y increase CUSTOMER • Improve customer experience • Invest in core businesses to enhance customer experience • Much effort was exerted to improve cyber security standing, with a clear strategy and comprehensive plan to improve security capabilities and continuously pro- vide a safe banking environment for customers • CIB received ISO22301:2012 certification for Business Continuity Management by PECB, a global provider of training, examination, audit, and certification stan- dards, in partnership with EGYBYTE, a leader in the MENA market for IT Service Management EMPLOYEE • Focus on employee engagement score year-on-year • Enhance the employee experience by: Listening to employees - - Providing a healthy, safe, and flex- ible work environment - Providing competitive pay, benefits, and performance- based compensation Investing in training and development - • CIB had an average of 6,635 employees in 2018 with an average annual income of EGP 209,000 per employee • CIB implements an Employee Stock Ownership Plan (ESOP) as part of its compensation strategy, aimed at attracting, motivating, retraining, and rewarding out- standing employees, managers, and executive board members. ESOP allows designated employees to own CIB stocks at face value via ‘promise-to-sell’ agreements. CIB allocates 1% of its issued and paid-in capital to ESOP. During 2018, CIB allocated a total of 5,031,540 stocks to 4,091 employees. Since the inception of the program in 2006, and its renewal in 2015, the Bank has allocated 80,491,633 shares to its employees (taking into consider- ation capital increases throughout said period) COMMUNITY • Donate 1.5% of the Bank’s net annual profit through the CIB Foundation • Make positive contributions by: • Please refer to the CSR section for more details on CIB’s social involvement and community develop- ment initiatives - Supporting employees’ commu- nity involvement and fund- raising efforts - Supporting advances in its areas of focus, which include education, arts, culture, health, and protecting and preserving the environment SAFEGUARDING THE INTERESTS OF SHAREHOLDERS • CIB maintains a proactive investor relations program to keep sharehold- ers abreast of developments that could have an impact on the Bank’s performance. The team and senior management invest significant time in one-on-one meetings, road shows, investor conferences, and conference calls. The team spares no effort in providing the investment community with a consistent stream of transpar- ent disclosures while simultaneously ensuring analysts have the informa- tion they need to maintain balanced coverage of the Bank’s shares • As a result of the team’s conscious efforts enhance its Investor Relations program, CIB’s Head of Investor Relations received a nod as the “Best Investor Rela- tions Professional – Egypt” in a 2018 study conduct- ed by the Middle East Investor Relations Association (MEIRA) in partnership with Extel. This is the fifth year running in which CIB has received at least one award from MEIRA 56 Annual Report 2018 Annual Report 2018 57 2018 in Review Our operations in 2018 took us beyond traditional banking channels and services, driving our strategy to deliver a holistic, tailored, and exceptional experience for all stakeholders l a t s y r c e t a g a l e u b a f o n o i t c e s s s o r C 2018 In REvIEW Institutional Banking Corporate and Global Customer Relations Group Capitalizing on its extensive experience in the Egyp- tian market and its large client base, the Corporate Banking Group continued to support the Egyptian economy in 2018 despite a persistently challenging macroeconomic environment. CIB’s creative financial structuring capabilities and experienced credit teams have preserved our position as the top corporate bank in Egypt. The Bank offers a wide range of innovative credit products tailored to its clients’ specific financing needs and developed with an eye on maximizing shareholder return on investment. In 2018, the Corporate Banking Group financed mega-projects in the power, construction, food and beverages, petrochemicals, and oil and gas sec- tors. This effort is in line with the group’s strategy of targeting business opportunities created by the government’s stimulus efforts and prioritization of economic development. The group also continued to support medium-sized companies by offering customized financial solu- tions catering to their business needs, ensuring their integration into the financial sector, and promoting financial inclusion. 2018 Highlights 2018 posed a number of challenges to the Egyptian banking sector. Chief among these, the CBE main- tained interest rates almost at the previous year’s level, emerging markets witnessed substantial capital out- flows, and continuous subsidy cuts added to inflation- ary pressure on the Egyptian economy. Despite these and other hurdles, the group’s strategy of growing its loan portfolio across different sectors met with continued success in 2018. As of December 2018, CIB’s corporate loan portfolio grew by 20% to a record EGP 88.4 billion compared to EGP 73.9 billion in December 2017. The group finalized several key transactions dur- ing the period, including but not limited to: • Arrangement of a syndicated facility coupled with the extension of a bilateral facility to finance Egypt’s petroleum sector. The Bank helped ease the liquidity pressure the govern- ment faced in settling its outstanding dues to international oil companies. • Extension of several short-term transactions to the telecom industry mainly to finance compa- nies’ capital and operating requirements for the 4G network rollout. • Advancement of direct facilities and aggregate contingent business to finance the upgrade of Egypt’s national electricity grid and renewable energy plants under the second round of Egypt’s solar feed-in tariff scheme. • Finance the working investment needs of lead- ing companies in the food and beverage sector, a strategic, non-cyclical, and defensive sector. 2019 Forward-Looking Strategy CIB’s Corporate Banking Group plans to capitalize on the Egyptian economy’s growing resilience to macroeconomic pressures. As such, the group will focus on the following areas: • In support of the government’s declaration of 2019 as the Year of Education and its introduc- tion of associated initiatives, the group will explore opportunities to finance efforts to over- haul the education sector. CIB’s creative financial structuring capabilities and experienced credit teams have preserved our position as the top corporate bank in Egypt. • The group is exploring new opportunities for financing mega infrastructure projects in the following areas: ports, transportation, infrastruc- ture, and petrochemicals. We will also continue to support strategic sectors such as oil and gas, refineries, food and beverage, and healthcare. • Tourism receipts grew by 77% during the first half of 2018 to reach USD 4.8 billion, indicating a strong recovery and the success of Egypt’s worldwide marketing campaign. In 2019, the group will target the growth of untapped touristic destinations, such as New Alamein City, and support the renovation of existing hotels. • The group will work to introduce a number of new business segments and products, including but not limited to: - Bundling export products - Financing private sector gas trading - Developing new sustainable finance prod- ucts - Further promoting digital solutions - Financing industrial parks Financial Institutions Group The Financial Institutions Group (FIG) consists of three teams: Correspondent Banking, Non-Bank Financial Institutions, and Development Finance. To- gether, these teams are CIB’s first point of contact for credit institutions and manage the Bank’s relation- ships with different global institutions. 2018 Highlights • 2018 was an exceptional year for contingent busi- ness, FIG’s key income driver, reaching EGP 18.4 billion in new business. The group’s L/G fees con- tributed to 18% of FIG’s total fee growth in 2018. • FIG’s investment portfolio grew in 2018 due to an exponential increase in its securitization business. CIB’s participation in bonds issued under securitization transactions reached EGP 733 million, which led the non-banking FI investment portfolio to reach EGP 1.2 bil- lion in December 2018. • FIG’s portfolio of developmental programs reached a total of EGP 2.64 billion by the end of December 2018. 2019 Forward-Looking Strategy FIG will grow its business through several efforts, which include: • Continuing to aggressively attract LGs for new projects launched in 2018 with a focus on Europe and Asia by capitalizing on our strong relationships with correspondents; • Growing the loan portfolio by increasing pen- etration in existing sectors such as leasing, microfinance, and auto finance; • Launching digital cash management solutions to grow the microfinance loan portfolio; • Targeting insurance, investment, and broker- age companies to increase their LCY deposits; • Developing the cash business to include new products on the Vostro platform to enhance payment process for corresponding Vostro and launching the new factoring business; • Continuing to strengthen and activate com- munication channels with exporters and as- sociations targeting African markets, giving the group better exposure to trade trends and 60 Annual Report 2018 Annual Report 2018 61 2018 In REvIEW >> Institutional Banking allowing it to provide clients with banking so- lutions that cater to their needs. FIG will con- tinue to strengthen its relationship with select banks in Kenya, the COMESA region’s trade hub, to facilitate trade with East Africa; and • Maintaining CIB’s leading position in agency and participating bank services and solutions with donor and government entities. Treasury Group CIB’s Treasury Group is one of the best in Egypt, delivering exceptional services in liquidity and cash management, capital markets, and FX and de- rivatives. The Treasury Group consists of two main teams: Trading and Sales. The Trading Team’s main responsibility is to capitalize on movements in FX, fixed income, and money markets to enhance the Bank’s profits on outstanding positions and portfo- lios. The Sales Team’s task is to attract new customers and increase the flow of business to trading desks. 2018 Highlights CIB’s FX exposure makes a consistently positive contribution to the Bank’s consolidated reported earnings. As of year-end 2018, total FX gains stood at EGP 697.21 million, the highest FX profitability among all Egyptian private banks. CIB’s FX desk positively impacted the Bank’s non- interest income, growing the volume of trade prod- ucts opened at CIB from the sale of foreign currency through free market, incoming documentary collec- tions (IDCs), and letters of credit (LCs). CIB’s FX desk won several prestigious global awards in 2018, including: • Best FX Services in North Africa from EMEA • Best FX Provider in Egypt from Global Finance • Best Treasury & Cash Management Providers in Egypt from Global Finance 2019 Forward-Looking Strategy Over the coming quarters, the Treasury Team will seek to further enhance the performance of its trading and sales activities. The group has set the following goals for its teams: • Manage liquidity efficiently • Cultivate strong and profitable relationships with customers • Take all necessary steps to ensure proper risk management • Maximize the group’s profitability • Build on the trust our customers have in our Debt Capital Markets CIB’s Debt Capital Markets Division (DCM) is one of the most experienced divisions in the market, with an unmatched record in underwriting, structuring, and arranging large-ticket syndicated loans, in addition to securitization transactions, bonds, and project finance. DCM is a dedicated agency and security agency desk raising medium- and large-ticket project financing, PPP financing, and syndicated loans for its clients by: • Undertaking the role of principal arranger, book runner, and financial advisor • Evaluating feasibility studies to effectively ad- vise on bankable structure for the transactions • Preparing financial models and term sheets • Underwriting debt • Ensuring contractual, legal, and technical risks are properly mitigated by acting as technical bank or documentation bank and applying due diligence • Providing one of the only dedicated agent and security agent units in the banking sector 2018 Highlights • Project Finance and Syndications: DCM orga- nized and restructured syndicated medium-term loans worth EGP 69.1 billion for public sector companies and quasi-sovereigns in the power and oil and gas sectors. CIB captured the lion’s share of public sector debt arrangements in 2018. • Private Sector Borrowers: DCM concentrated this year on the oil and gas, telecoms, ports, refineries, power, and petrochemicals sectors. Additionally, the division focused on refinancing, restructuring, and re-engineering balance sheets for private sec- tor borrowers. It continued to play a pivotal role in advising and arranging securitization issuances in cooperation with several partner banks. • Securitization: In 2018, DCM closed securitiza- tion deals worth EGP 4.4 billion out of a total EGP 5 billion in the Egyptian market, firmly ce- menting CIB’s position as the top Egyptian bank structuring securitizations in the local market. The division also penetrated new sectors in 2018 including micro and consumer finance. DCM Awards in 2018 • Best Securitization Deal in Africa for Cor- please’s seventh securitization worth EGP 1.072 billion at the EMEA Finance Achieve- ment Awards 2018 • Best Securitization House at the EMEA Finance institution and the group Achievement Awards 2018 • Best Syndicated Facility in Africa for the EGP 13.5 billion EGPC transaction at the EMEA Fi- nance Achievement Awards 2018 • Best Project Finance Deal in Africa for the USD 900 million Egyptian Electricity Holding Company deal at the EMEA Finance Achieve- ment Awards 2018 On the Bloomberg Africa Bookrunner League Table, CIB ranked 7th among African banks in 3Q2018, a remarkable jump from our 11th place ranking in 2017. DCM was third among Egyptian banks on the table with a market share in Africa of 3.7%. Regarding the role of Initial Mandated Lead Ar- ranger, CIB ranked third among Egyptian banks and 8th among African banks, up from 15th in 2017. DCM’s market share stood at 3.1% for 3Q2018, posi- tioning CIB as the top-ranking private sector bank in Egypt in both arrangement of syndicated loans and bookrunning. 2019 Forward-Looking Strategy • Project Finance and Syndications: In line with the Egyptian government’s economic reform program, DCM will continue capital- izing on key industries and focus on expand- ing into alternative energy, utilities, and infrastructure plays, such as railways, ports, and new economic zones. DCM deals in the pipeline for 2019 amount to EGP 60 billion. • Securitizations: DCM has deals valued at EGP 6.05 billion in the pipeline for 2019, and the divi- sion plans to introduce new structures in the debt capital market. Direct Investment Group CIB’s investment arm, the Direct Investment Group (DIG), is responsible for the Bank’s direct equity acquisitions, divestitures, and equity portfolio man- agement across local and regional markets. DIG maximizes CIB’s return on investment by utilizing the Bank’s designated funds to invest in sectors with high potential for growth. 2018 Highlights DIG has expanded its deal-sourcing process to include SMEs as well as big-ticket transactions, whether independently or through co-investing, leveraging DIG’s expansive network in the market. During 2018, the team screened many new SMEs that operate in financial services, IT, food and beverage, healthcare, education, and renewable energy. DIG also finalized the establishment of CIB’s fully owned venture capital firm CVentures. On the divestiture side, DIG succeeded in fully exiting one of its portfolio investment companies operating in the electricity sector, achieving an IRR of c. 50%. DIG also partially exited two of the Bank’s investments and affiliates operating in the financial services and security services sectors. On the portfolio acquisitions front, DIG acquired a minority stake in a financial services and invest- ments company. Additionally, and in line with the Bank’s direction to support the government’s financial inclusion initiative, CIB partnered with strategic shareholders and established a greenfield investment in an agent banking services company. 2019 Forward-Looking Strategy In 2019, DIG will continue expanding its portfolio by making quality equity investments that provide CIB with the opportunity to create synergies and strate- gic alliances, generating lucrative financial returns. Strategic Relations Group The Strategic Relations Group (SRG) is an insti- tutional banking group dedicated to initiating, nurturing, and growing a banking relationship with strategic institutional depositors who are essential contributors to CIB’s stable funding base. The group’s primary goal is to offer a first- class banking experience while maintaining the delicate balance between mainstream commer- cial banking activities and the non-commercial needs of its clients. SRG’s strategic clientele comprise more than 180 diplomatic missions, NGOs, educational entities, and distinguished international and local donor agencies. The team works tirelessly to facilitate its clients’ business operations and meet their banking requirements by creating innovative, tailored products and services: • Customized digital solutions • Collection of tuition and visa fees • Monitoring and reporting of deposits activities • Fund management and pension savings plans • Providing a settlement system between tourism companies and airlines • Dispatching mobile tellers upon customer re- quest to act as a temporary small banking unit at the customer’s premises • Special offerings for staff loans 62 Annual Report 2018 Annual Report 2018 63 2018 In REvIEW >> Institutional Banking EGP MN 697.2 FX gains in 2018 2019 Forward-Looking Strategy • The group aims to become one of CIB’s primary corporate lead generators, focusing on existing relationships while simultaneously capturing new-to-bank opportunities by leveraging a wider networking base. • It recently designed a tailor-made, short-term bridge finance facility for the education sec- tor (including universities and schools) to eliminate cash flow gaps that develop during the year. This product is poised to become a major attraction for these institutions, help- ing expand our institutional depositor rate. Enterprises and Governmental Relations The Enterprises and Governmental Relations (EGR) Group manages the Bank’s relationship with cus- tomers falling under the umbrella of state-owned enterprises, government entities, and sovereign au- thorities. The EGR Group functions as a relationship manager under the Bank’s IB groups, catering to the needs of these strategic customers and growing CIB’s business with these sectors. The team possesses a deep understanding of client operations that allows its members to act as clients’ advocates within the Bank while also providing continuous support and financial ad- vice. EGR clients require higher flexibility and constant support in their transactions as well as financial and advisory assistance. EGR Group’s mission is to become the market leader in the provision of banking services to government and public sector entities. The group works tirelessly to acquire new business in these areas, capitalizing on our highly experienced staff, strong customer base, healthy and diversi- fied portfolio, and broad coverage of different sectors and industries. 2018 Highlights 2018 was another successful year as the EGR Group managed to attract EGP 5 billion in deposits, growing its balance sheet by 26% to EGP 24.3 billion in deposits. 2019 Forward-Looking Strategy • In 2019, the group plans to focus on government and public sector entities, which are expected to see in- creased cash flow due to the planned privatization of 23 public sector companies, the restructuring of others, and the establishment of a new sovereign wealth fund. We are also planning to attract cash- rich holding companies and their subsidiaries. • For the enterprise sector, the group is working on retaining existing customers as well as at- tracting new-to-bank companies in this sector. i g n w y fl r e t t u b e u b a l 64 Annual Report 2018 I Annual Report 2018 65 f i o s e c a c i r t n 2018 In REvIEW Retail Banking EGP BN 22.0 Total HNW deposits in 2018 Consumer Banking CIB Consumer Banking remains committed to ex- ecuting the segmentation strategy developed and communicated in 2017. This strategy continues to drive our efforts to deepen our customer relation- ships, execute targeted marketing campaigns, and attract new customers. Pillars of Our Consumer Banking Strategy • Data analytics and behavior segmentation: Le- veraging the Bank’s investment in data analyt- ics, we continue to drive a targeted lifestyle and behavioral approach to segmentation. We aim to retain, deepen, and grow our relationships with customers through tailored campaigns, along with more specific targeting criteria. • T24 banking upgrade: We are upgrading our current core banking IT system (Temenos T24) to benefit from new features, such as the arrangement architecture, to develop new products and expand STP to improve opera- tional efficiency. • Digital transformation to enhance customer experience and drive cost efficiency: CIB is cur- rently engaged in a number of transformational projects, such as loan origination, customer account onboarding, and upgrading our digital banking platform. We are implementing seg- mented operational processing and a service model that will ensure that CIB provides the best customer experience in the local market. • Aligning the product range to segment-specific needs: We continue to align our product of- ferings to our customer segments to enhance the customer experience, improve productiv- ity, and deepen relationships. In this vein, we launched our new high-net-worth segment Private together with an entirely new product and service proposition. • Improving customer loyalty: We digitized the current loyalty scheme, which had a marked impact on customers increased awareness and activity. through Private Segment The new segment caters to the banking and in- vestment needs of clients with a minimum AUM threshold of EGP 20 million by providing a range of alternative solutions, including: tailored bank- ing products and services, new lending products, investment solutions, and other wealth-related services. The segment aligns with regional com- petitor HNW propositions delivered via a sepa- rate distribution model. 2018 Private Financial Highlights • Total deposits reached EGP 22.0 billion • Total asset portfolio hit EGP 2.6 billion Key 2018 Private Milestones • Brand name and marketing plan: The soft launch of the segment took place in May, and individual meetings with all Private clients have already taken place. All branded ma- terials for the new segment, including the website and Internet banking platform, are aligned with its identity. • Operating model and dedicated premises: The segment will operate and welcome Cairo-based clients in Zamalek. A Client Advisor is perma- nently located at a branded CIB Private office serving clients based in Alexandria. Client. Advisors are the main touch point for any ser- vice within the Bank, but clients also have the option to call CIB short numbers. • Launch of new banking and investment products: The unveiling of the Mastercard World Elite credit card was aligned with the launch of the Private segment. We have also developed a branded debit card for Private clients. Other solutions such as structured CDs and portfolio management products are expected to be launched in 2019. Wealth Segment The Wealth segment continued expanding its brand position and focus on targeting affluent customers. The Bank continues to offer customers a unique set of products and services and an exceptional cus- tomer experience. The division developed an ongoing learning and development program via our “Wealth Academy” and the International Introduction to Securities and Investment exam offered by the Chartered Institute of Securities and Investment (CISI). As of December 2018, we have 48 certified Wealth Managers. Enhancing service levels and value proposition will continue to be the main focus. In January 2018, he Bank launched concierge services for all Wealth customers in partnership with Les Concierges Egypt. Additionally, it enhanced the Wealth internet banking experience by includ- ing the names and contact details of individual Wealth officers to better serve clients. In 2018, it pursued several brand-building initia- tives, sponsorships, and events that increased brand engagement, the most prominent of which was a partnership with the Four Seasons San Ste- fano in Alexandria, offering special perks ranging from free nights to discounts and special mem- bership discounts from Palm Hills club. It also offered the beIN Sports Package during the world cup and invited Wealth clients to the Ahl Misr An- nual Sohour Event. In addition, customers were also invited to a concert by renowned Egyptian composer and pianist Omar Khairat as part of the benefits strategy for the segment. 2018 Wealth Financial Highlights • Total deposits reached EGP 96.3 billion • Total asset portfolio hit EGP 11.4 billion Plus Segment In 2018, we focused on enhancing services by intro- ducing a new concierge service to Plus customers through our partnership with Les Concierge Egypt. We are currently in the pilot phase of offering gov- ernment service assistance. 2018 Plus Financial Highlights • Total deposits reached EGP 21.4 billion, increas- ing 22.5% y-o-y • Total assets hit EGP 1.7 billion, representing a 47.3% increase y-o-y Personal Banking Segment In 2018, our Personal Banking segment delivered a strong performance, adding 245,876 new-to-bank customers, which translated to a 21% increase in our 66 Annual Report 2018 Annual Report 2018 67 2018 In REvIEW >> Retail Banking customer base. Total deposits increased 19.9% while assets recorded strong growth of 14.9% and sav- ings accounts 16.8%. The performance stems from our customer-centric brand proposition and use of behavioral segmentation to deepen relationships and improve loyalty among personal banking cus- tomers. We also engaged in portfolio management activities to grow balances from existing customers and reduce stagnancy and attrition. In 2018, CIB also focused on increasing the revenue generated from marginally profitable customers by cross-selling assets and reducing the cost to serve. We have launched asset cross-sell campaigns and payroll packages differentiated by company size. Our digital migration efforts are paying off, with 23% more transactions off-loaded from our branch network in 2018 resulting in a substantial increase in the number of online banking registrations. In 2019, the segment will prioritize creating a new personal banking brand identity and product propositions to appeal to a wider base of consumers and continue to drive digital migration. 2018 Financial Highlights • Total deposits increased to EGP 18.9 billion, a 19.9% increase y-o-y • Total assets climbed to EGP 6.7 billion, increas- ing 14.9% y-o-y Consumer Assets The Consumer Banking Household segment achieved significant performance and continued to grow its market share of consumer assets, reaching 7.78% in 2018 compared to 7.67% in 2017. Additionally, CIB captured 9.9% of market growth in 2018 despite having only 6% of branches by market share. CIB is currently ranked the top private sector bank in terms of con- sumer assets, with our consumer asset portfolio up by 21.9% in 2018 to EGP 22.9 billion. Consumer assets re- corded total revenues of EGP 1.3 billion in 2018, which contributed 23% to total Consumer Banking revenues. 21.9% Increase in consumer asset portfolio in 2018 Our key objective is to sustain this level of growth in 2019 and outpace the market by adopting a segment-driven strategy that promotes our prod- uct propositions, acquisitions, service models, portfolio, and life cycle management. This will translate to providing clients with need-based propositions. We will continue building and lever- aging our investments in technology transforma- tion and digital platform in 2019. Cards Business Our Credit Card portfolio has grown by 8% since 2017, outpacing the average market growth rate of 7%. At the end of December, our portfolio included 494,403 cards, and we experienced strong improvement in activation rates. End-of-period net receivables (ENR) grew 22.1% to EGP 3.5 billion. We are currently the second largest bank in the market in terms of ENR. CIB’s market share continued to increase, reaching 23.2% at the end of the year. Furthermore, CIB is first in the market in terms of spending, which was up 31% in 2018. This performance was mainly driven by: • Product launches and acquisition campaigns: Fee waiver acquisition campaigns for Core and Premium cards and the World Elite Card launch. • Effective attrition management: Credit card at- trition decreased from 10.1% in 2017 to 8.1% in 2018. • Activation initiatives and campaigns: We launched a new activation process in addition to the NTB Early Month on Book Program and dormant campaigns, which targeted inactive EGP BN 22.9 Consumer asset portfolio in 2018 customers and sought to raise awareness about benefits they could enjoy from CIB’s products and services. • Zero interest installment campaigns: Strategic partners included local and international compa- nies and shops such as Apple, Nestle, Carrefour, Hy- per One, Delta Group, Ragab Sons, and Souq.com. • Sales contests and incentives: Launch of suc- cessful sales contests and the revision of the incentive scheme. CIB’s investments in technology and data analytics will present significant further opportunities for growth in 2019. Personal Instalment Loans Product Our consumer loans portfolio grew significantly in 2018 to reach EGP 16.3 billion despite the economic and overall market challenges. The Personal Loans Business recorded total revenues of EGP 749.4 mil- lion, contributing 12% to total Consumer Banking revenues in 2018 driven by: • Product launches and acquisition campaigns: Salary up-front revolving overdrafts, secured facility CD bundle campaigns, beIN sports cam- paign, and behavioral segmentation campaigns. • Credit policy changes: Increasing AUM-based program limits, increasing maximum loan amount for self-employed customers, accept- ing customers that have full salary as variable income, implementing a new income computa- tion methodology (self-employed), and expand- ing outsourced companies to include all those meeting our policy criteria. • Sales contests and incentives: Launching successful sales contests and revising the incentive scheme. Mortgage Product The Mortgage Business experienced outstanding performance throughout 2018. Low-income mort- gage acquisitions registered revenues of EGP 28.8 million in 2018 and enjoyed a strong flow of referrals from the Mortgage Finance Fund, which bodes well for future growth. ENR reached EGP 799 million. Significant growth in CIB’s low-income segment was triggered by the following: • Operational process: Process enhancements in collaboration with other departments to reduce turnaround time. • Changes in credit risk policies: Outstanding performance of the low-income mortgage port- folio encouraged the Risk Group to approve certain policy changes that led to higher acqui- sition numbers throughout the year. • Recognition and incentives: Monthly sales recognition is based on productivity and target achievement. Liabilities The total deposit portfolio reached EGP 165 billion in 2018, up 18.3% from 2017. This growth was achieved despite aggressive price competition with public sec- tor banks. The key growth drivers in 2018 included: • Focusing on gathering low-cost deposits spe- cifically in CASA by offering competitive rates. • Promoting local currency floating CDs to coun- ter price competition. • Introducing competitively priced USD CDs to meet corporate lending requirements. We also focused on improving product profitability and enhancing spreads while growing the deposit base. These efforts have translated into a new port- folio mix for Consumber Banking CASA products; reaching 48.8% in CASA compared to 51.2% in term. CIB aspires to build a “sticky customer deposit” base that is less price sensitive. Insurance Business The Insurance Business provides life and general insurance programs that generate non-interest revenues in the form of fees for CIB Consumer Banking. CIB is the largest distributor of individual life insurance policies in Egypt in partnership with 68 Annual Report 2018 Annual Report 2018 69 2018 In REvIEW >> Retail Banking AXA. CIB is the first bank in Egypt to provide indi- vidual international health solutions that cover a wide array of global services. Strategic Goals • Increase revenue contribution to Consumer Banking. • Increase customer product penetration by ex- panding the insurance product range. 2018 Achievements in Life and Health Insurance • Life insurance written premiums (as measured by Annualized premiums insured) increased to EGP 555.6 million compared to EGP 482 million a year ago • Fee income increased by 26.5% in 2018 com- pared to 2017 • The Insurance Business generated EGP 182.6 million in revenues in 2018 compared to EGP 144.4 million in 2017 Business Banking Business Banking serves over 48,000 small and medium-sized enterprises through a network of over a hundred experienced relationship managers across the country. We aim to be the bank of choice for Egypt’s SMEs by providing market-leading services and an innovative portfolio of products and solutions tailored to the needs of smaller enterprises. Our broad range of integrated financial solutions includes cash management, secured and unsecured lending, trade finance, payment, and e-commerce to help our clients manage and grow their businesses. CIB is committed to supporting SMEs as a corner- stone of both Egypt’s and CIB’s growth. Revenues from the Business Banking Division have been steadily growing year on year, and we aim to continue growing our contribution to the Bank’s profitability and the Egyptian economy. 2018 Highlights Business Banking continued to display strong performance in 2018, as demonstrated by its perfor- mance indicators: • Deposits: reached EGP 48 billion, growing 21% y-o-y • Trade: EGP 55 billion was facilitated, grow- ing 34% y-o-y • Payments solutions: attained 30% market share, processing EGP 27 billion in transactions • Client base: increased 15% to reach 48,000 companies • Operating profits: increased 16% to EGP 2.4 billion Empowering Women in Business Business Banking has partnered with the US government-backed Overseas Private Investment Corporation (OPIC) to hold 12 workshops as part of the “Women in Business” Capacity Building Program that aims to increase banking and financial awareness among female-owned and managed start-ups and small companies. The program promotes inclusion in the formal sector, access to finance and bolsters the Bank’s stand- ing as an institution that upholds and supports gender equality throughout the sector. Segmentation Product Enhancement Cluster customers based on transactional behavior to develop customized services Data analytics will drive continuous en- hancement of product parameters and the customer experience Sales Management Marketing Campaigns Development of automated, data-driven sales management tool to accelerate growth and enhance sales productivity Campaign insights to enhance marketing decisions 2019 Forward-Looking Strategy Business Banking will continue to tailor its offering to clients’ changing financial needs in order to offer the best and most responsive customer experience in the market. Leveraging Data Our increasing use of data to enhance business decisions will drive innovation in segment-focused sales, risk management and process optimization. Professional Services Alliances Our exclusive alliances with leading providers of professional non-banking services allow clients to benefit from a wide range of services at dis- counted rates all under one roof. Digitalization Our market-leading online banking platform offers clients the ultimate convenience in managing their financial affairs around the clock. Dedicated Contact Center A dedicated Business Banking call center will be launched in 2019 to offer a new and flexible channel for client enquiries. Risk Infrastructure The build-out of our world-class, end-to-end risk infrastructure will support the ambitious growth targets for the SME business. A key pil- lar of our risk management strategy is the active monitoring of all accounts using comprehensive heat maps and early warning indicators that allow proactive assistance for clients prior to actual financial difficulties. The development of our in-house knowledge database of key indus- trial sectors is also a key differentiating factor for the credit business. Payment Acceptance CIB maintained its dominant position in Egypt’s payment acceptance sector through 13,446 POS machines throughout Egypt. Around 11,000 mer- chants benefit from our payment and e-commerce services, including our new installment option for online purchases. In 2018, CIB processed over EGP 27 billion in POS transactions, attaining a market-leading 30% share of all transactions. e p o c s o r c m a i h g u o r h t n e e s s a m e t s n o t t o c a f o n o i t c e s s s o r C 70 Annual Report 2018 Annual Report 2018 71 2018 In REvIEW Coo Area 2.8% Staff attrition rate due to incentive schemes Few banks in our region have fully embraced the po- tential of technology in digitalization. CIB, however, has bucked this trend, and has proved its devotion to scaling up the presence of financial solutions in the day-to-day lives of customers. CIB’s commitment to developing innovative prod- ucts and services suited to the digital era is as evident as ever. This year, CIB has inaugurated two major projects: the Core Banking Release, which will allow the Bank to transition to the R18 Platform, and a new digital platform for consumers. These interrelated projects will accelerate the Bank’s ef- forts to upgrade its functionalities, offer customers a better, more streamlined experience, and enhance CIB’s product mix. Such innovation will be crucial to maintaining the Bank’s position as a market leader. Many segments in Egypt’s credit market remain un- penetrated, leaving vast opportunities for growth. Seeking to tap into these segments, in 4Q2018 CIB launched its Supporting Financial Inclusion pro- gram with the aim of building the infrastructure required to bring financial services to unbanked Egyptians via digital channels. To stay competitive in the market, CIB has supple- mented its customer-centric approach with a focus on incorporating scalable technologies across all our services. Under the Sigma Program, CIB has suc- ceeded in delivering projects that enhance customer engagement, operational efficiency, and allow the Bank to capitalize on new sources of revenue. The year has seen CIB reap gains from increased cus- tomer interaction on our new corporate trade and cash platforms and a new workflow system that has optimized the operations landscape, allowing us to consolidate all workflows under a single system. One of the major projects delivered this year was our Customer Relationship Management program, with its account opening and service request modules. The program is a solution designed to build stronger rela- tionships with customers, whether the objective is cus- tomer retention or giving a boost to business growth. We continued this year to work on enhancing the Bank’s security posture to manage emerging cyber security threats and risk. CIB’s ongoing technologi- cal advancement relies on always keeping our secu- rity technologies updated to cope with the speed of change and maturity of the threats and risks, having the right security strategy, and incorporating secu- rity analysis to act as a cornerstone in all businesses. However, technological advancement can only suc- ceed with a team of the right caliber in place. Guided by our purpose of being an “Employer of Choice”, a number of initiatives were carried out to raise staff morale. These include periodic events held to award top performers among Call Center staff, which have helped reduce the staff attrition rate to 2.8%. Our staff empowerment efforts have involved extending their authorities, training, and motivation in the context of our customer-centric philosophy, in ad- dition to providing the iCare and iOwn training for staff in different domains. On the branch front, we launched a “Good to Great” program specifically tai- lored to customer-serving staff. On-the-job training continued with the same momentum. In alignment with international norms in the area of building staff skillsets, employees were offered certifications based on job requirements to meet today’s dynamic work environment needs across the COO arena, with special focus given to technical training for IT staff. Our branch network remains the main channel for serving customers. In 2018, we managed to deliver nine new branches to reach a total of 203 branches. ATMs have proven to be a main anchor in offloading branch customers, and we added 98 ATMs in 2018 for a total of 917 ATMs in the network. In 2019, CIB will continue to focus on investing in the technologies that bring to fruition our transforma- tion strategy and allow us to implement our digita- lization initiatives, construct scalable networks, and initiate projects that enhance the Bank’s security and the performance of its systems with a data-centric approach. As for operations, process re-engineering and customer satisfaction will be the primary drivers for most of the activities taking place next year. Information Technology The past couple of years have seen a real trans- formation in CIB’s IT functions. This transforma- tion has been at the heart of all the initiatives and activities we have successfully delivered. The Bank’s appetite for technological advancement has required IT to work on bringing this power to the whole Bank through integrating Big Data en- vironments, upgrading infrastructure resiliency, optimizing our storage, and building enterprise platforms to create the profound shift needed for CIB to continue to be a leading service provider. The rapid adoption of data analysis as a primary tool for creating a diverse spectrum of products and services customized to every customers’ taste has meant investing in the construction of our Big Data environment. We have implemented state-of-the art technology into our data warehouse infrastructure to enhance report extraction and data analysis. Naturally, aggressive business growth has meant expanding IT across various fronts. This year, we continued optimizing our storage to enhance performance, capacity, and data protection ca- pabilities. Growth has also required ongoing de- velopment of our security systems. We continue to reinforce our security strategy by integrating future security components, enhancing our net- work and data security. CIB’s transformation strategy also entails scalable infrastructure. In 2018, the Bank took the first steps toward implementing a new software defined network (SDN) to create a virtual network across data centers. With this technology, CIB can sup- port a new generation of distributed applications and accommodate virtualized and non-virtualized environments. The technology will also help the Bank fulfill current and future business objectives linked to the evolution in digitalization and mobile applications solutions. To better manage its activities, IT has com- menced an enterprise platform implementation strategy. The new platforms will link data col- lected from different technologies quickly and ef- ficiently, simplifying and unifying systems. These platforms grow more valuable as the volume of business increases, leading to an influx of activity both by internal users and customers. 72 Annual Report 2018 Annual Report 2018 73 2018 In REvIEW >> COO Area IT began to implement a program of automation and process re-engineering after assessing options for enhancing IT productivity and supporting IT re- source management and efficiency. Furthermore, IT monitoring capabilities have matured to deliver vis- ibility across the entire IT landscape and provide su- pervision over systems, business services, network, and customer touch points, as well as user behavior. Operations Channels and Customer Experience The Bank’s success goes beyond offering the usual services to our customers. It hinges on our ability to effectively execute the move to a more customer- centric approach, which will be achieved through operational efficiency, automation, and process re- engineering, all with the aim of reducing the costs of service and improving customer satisfaction. This in turn will be achieved through digital chan- nels, always with an eye to providing a first-class customer experience. CIB continues to maintain its attention to custom- ers’ voices, further developing its annual Customer Satisfaction & Net Promoter Score survey to mea- sure customer satisfaction across all segments and service channels. Major improvement against regional benchmarks was recorded in 2018 scores, a result of expanding key service indicators to include a mixture of globally recognized service standards and competitive analysis measures. When it comes to staying committed to our cus- tomer-centric strategy, it is imperative to build a culture that empowers staff to handle customers’ requests and complaints swiftly. One of the major initiatives the Bank adopted on this front in 2018 was the First Contact Resolution, implemented across the CIB Call Center to allow staff to serve the customer end-to-end and handle complaints in a dynamic and proactive manner. Our customers depend on us to provide top-notch service, and various initiatives were launched throughout the year to enhance their experience by applying a multi-vendor strategy with ATMs. This focus ensures the availability of multiple service providers, helping avoid any service dis- ruption and maintaining the quality of service provided to our customers. Operations continues to be at the core of the auto- mation and re-engineering initiatives. Movement in this area ranged from shifting different activities to the Call Center to re-engineering multiple processes to allow the Bank to offload support duties from branch staff and significantly shorten service deliv- ery turnaround time. Operations progressed in 2018 with the automation roadmap set in late 2017. The focus on STP has al- lowed the Bank to reach an STP rate of 90% for e- remittances. Orchestrating the digital strategy with both our efficiency and process re-engineering activities is a task that has required aligning all initiatives in a cohesive manner, ultimately reflected in a superior customer experience. SMS activation of debit cards was launched during 2Q2018, decreasing the load of incoming calls to the Call Center and thus enhanc- ing resource capacity. To allow customers to tackle their day to-day activities with ease, the IVR call tree was revamped. This increased customer migration to IVR and enhanced the IVR resolve rate to allow customers to conduct different financial activities quickly and efficiently. Despite the focus on aligning initiatives with our digital strategy, we never neglect opportunities to re-engineer different processes across the COO area, proactively applying changes to existing processes. Solid processes followed by front-liners for Corporate Account Opening have enhanced turnaround times. Remittance transaction processing time has improved through various process re-engineering initiatives that allowed for the absorption of a significant increase in the volume of transactions with the same resources. CIB increased its presence in Smart Village by opening a fourth building with a new, state-of-the art Training Center — a key venue in CIB’s Head Office expansion. The Bank is also utilizing technology to enhance staff’s work environment. With the initiation of a new automation initiative, the Quality Management Soft- ware system, to serve both the Premises and Facility Management departments, the Bank will positively influence processes in the real estate and premises projects division. During 2018, the procurement team has been working diligently with supply chain col- leagues to adopt new e-business suite technologies, helping reduce costs and save processing times. for the second consecutive year. CIB also fully com- plies with the Swift Customer Security Program (CSP) mandatory requirements. Security & Resilience Management With the ever-evolving cyber threat landscape and the rising global concerns surrounding cyber security, it has become increasingly important to develop a dynamic approach in the area of Se- curity and organizational resilience. CIB aims to continuously develop our capabilities to remain in tune with global trends and best practices. CIB takes its security and customers’ welfare seri- ously, and executive management has prioritized cyber security and resilience through the involve- ment of different committees and a mandate to regularly report a brief to the BoD. The Bank continues to focus on the execution of the security strategy adopted in 2015, with various programs implemented since then. Continuous enhancement of the Security Operations Center is an ongoing activity, and our capabilities were aug- mented this year through the introduction of cyber threat intelligence. This system provides CIB with early warning signals for more proactive manage- ment of the cyber security risks and threats. CIB understands the importance of education and training within this non-intuitive sphere, and con- tinues to run a Security and Resilience Awareness Program, offering different activities on multiple channels targeting customers. The Bank has also instituted several structured internal awareness ac- tivities and mandatory training for staff. Moreover, CIB continues to invest in enhancing the skills of the Security & Resilience Management team through learning and development programs. The Bank has hired globally renowned security con- sultancy services, emphasizing the priority it has placed on this strategic direction. Our consulting partners have assessed the quality of the investments made in the area of security and found them to enjoy a very structured and valid strategic approach, en- dorsing management directions in this domain. Compliance continues to be an area of focus, and CIB maintains certification status with the Payment Card Industry – Data Security Standards (PCI-DSS) Major investments have been deployed to improve and refresh CIB’s security infrastructure technolo- gies and strengthen our defense-in-depth strategy through world-class technology solutions coupled with an enabled workforce, policies, and procedures. Taking our business continuity capabilities to the next level, resilience management was introduced, with a widened scope of oversight for business continuity and contingency management to cover critical third parties in addition to the internal capabilities. Finally, this year the Bank proudly received ISO22301:2012 certification for Business Continuity Management. ISO 22301 certification was awarded to CIB by PECB, a global provider of training, ex- amination, audit, and certification standards, in partnership with EGYBYTE, a leader in the MENA market for IT Service Management. ISO 22301 is the International Standard for Busi- ness Continuity Management, providing guidance to certified organizations allowing them to iden- tify and manage the current and potential future threats to the business. Hence, taking a proactive approach to minimize the impacts of incidents, minimize downtime, improve recovery time, and demonstrate resilience to customers and suppliers. ISO certification is a major recognition of CIB’s efforts on the business continuity front. CIB’s ISO certified Business Continuity Management Sys- tem has left the Bank in a position to effectively limit the risk of unexpected incidents, allowing the Bank to operate during tough situations, reduce the likelihood of operational disruptions, and continue to provide customers with the ex- pected services while maintaining the highest levels of customer satisfaction. CIB is best known for its innovation, and has succeeded in embedding this culture at both the technological and operational levels. Most impor- tantly, innovation has been successfully used for the task of making our customers happy. 74 Annual Report 2018 Annual Report 2018 75 2018 In REvIEW Digital Banking and GTS 95.1% Migration rate in cash deposits to the ATM network The past three years have seen banks move quicker than ever to act on digitalization trends. At CIB, we’re not only adopting them, but we’re actively en- gaged in educating our clients about evolving digi- tal banking solutions and offering them accessible tools that make banking even more simple. In 2018, the digital business plan was built on of- fering an outstanding, trusted, and efficient digital financial experience tailored to customers’ needs. It also sought to support the Bank’s growth while keeping costs low. With this in mind, CIB’s digital strategy framework centers on four main pillars: enhancing the custom- er experience, increasing migration and automation ratios, optimizing cost, and generating revenue. Innovation and Fintech CIB Fintech Engagement was initiated to cater to fintech startup needs, providing them with the tools they need to survive in today’s competitive market. In 2018, we established an echo-model of support, built strategic alliances serving CIB’s financial inclusion objectives, and formulated a pipeline of fintechs to nurture and introduce to the market. Innovation Activities: Digital Studio CIB Digital Studio serves as a hub that focuses on fostering a culture of innovation within the Bank. By challenging employees to adopt a flexible mindset and think outside the box, the Digital Studio aims to accelerate CIB’s digital capabilities. potential partners, an introductory session called “Innovation and Pizza” that explained the innova- tion process, the “4 Ps” of innovation, the “5 traits of successful innovators,” and the ideation process. 2019 Forward-Looking Strategy In 2019, we plan to continue expanding CIB’s inter- nal innovation by conducting awareness sessions and thinking seminars. We will also implement an “Idea Management Solution” in collaboration with potential partners, an automated and monitored in- termediate platform between the innovation team and CIB employees. This platform will encourage employees to come up with new ideas, allow the innovation team to create specific challenges, and address defined pain points in digital banking. Fintech CIB strives to provide clients with innovative solu- tions to meet their financial needs and expectations while maintaining sustainable growth through creating value for stakeholders. The Bank collaborated with AUC Venture Lab (AUC V-Lab) to create AUC Venture Lab Fintech Accel- erator, powered by CIB. Its objective is to bolster the fintech scene in Egypt and help select startups grow and enter the market. The accelerator has completed two cycles in 2018, graduating 10 startups and sup- porting over 25 entrepreneurs. It has helped bring to the market innovative fintech startups such as PayMe, 7aweshly, Gameya, Ordera, and others. 2018 Highlights We took part in the first workshop organized by In addition to CIB’s long-standing sponsorship of AUC V-Lab, the Bank has collaborated with Temenos, the market leading software provider for banks and financial institutions. This tripartite agreement between CIB, AUC V-Lab and Temenos will support startups participating in upcoming fintech cycles by giving them the opportunity to test their products and services in a sandbox — a non-production cloud-based version of the Teme- nos T24 core banking system. 2018 Highlights • Rolled out the third fintech track cycle, which introduced four potential startups to the market. • Supported Hona Al Shabab, a competition hosted by leading Egyptian network CBC for emerging business entrepreneurs. Through this sponsorship, 30 startups have been introduced to the market in fields such as health, e-com- merce, food, payments, and fintech. • Utilized our strategic partnerships and agree- ments with Orange Lab and Dell EMC to support innovation activities and increase awareness. 2019 Forward-Looking Strategy In 2019, CIB Fintech Engagement aims to use fintech companies as a channel to launch profit- able and innovative technology-enabled business models to serve the Egyptian market that could be replicated in other emerging markets. This strategy will serve two objectives: contribute to Egypt’s financial inclusion initiative and explore new business models that fit existing business lines within the Bank. ATM Network CIB maintained its competitive advantage in the Egyptian market through operating the largest ATM network among private banks. By the end of December 2018, the Bank’s network was comprised of 917 ATMs. The network provides customers with a variety of services, including cash withdrawal and deposit, credit card settlement, bill payment, mobile top-up, mobile wallet cash-in/out, and check deposit services. 2018 Highlights • Maximizing the utilization and return from our ATM network was a key focus area dur- ing 2018. The average number of transactions across the ATM network increased by 12% y-o-y as of year-end, on the back of relocat- ing low-utilized ATMs to higher footfall locations and matching customer needs with ATMs’ wide range of value-added services. • The total ATM network increased by 98 ma- chines to 917 in December 2018 from 819 in December 2017. • The ATM network continues to serve branch migration efforts. As of December 2018, it achieved a 95% migration rate in cash de- posit transactions below EGP 10,000 versus branch deposit transactions. It also achieved a 98.35% migration rate in cash withdrawal transactions below EGP 20,000 versus with- drawal transactions at branches. • Corporate deposit card transactions saw a 128% increase as of December 2018 to 113,000 transactions with a total deposit value of EGP 731 million. • CIB opened numerous ATM centers in several locations such as Semouha in Alexandria and Hurghada to better serve high demand on ATMs in these areas. 76 Annual Report 2018 Annual Report 2018 77 2018 In REvIEW >> Digital Banking and GTS 2019 Forward-Looking Strategy Going forward, we will continue our efforts to en- courage customer migration from branches and enhance the customer experience. We will continue adding new functionalities at competitive prices and maximizing the utilization and profitability of our ATM network. We also plan to focus on various in-branch digital tactics to further optimize average waiting and service times. Internet and Mobile Banking CIB Internet and Mobile Banking enable custom- ers to easily access their accounts and conduct a broad range of financial transactions. In 2018, we focused on enhancing our Internet Banking customer experience, which boosted our Internet Banking subscribers by 95% y-o-y as of December 2018 and the number of transactions by 20% y-o-y as of December 2018. Our Mobile Banking app user base continued to increase, with a 151% y-o-y in- crease in the number of transactions. Additionally, CIB is in the analysis phase of implementing a new digital platform. It will cre- ate a seamless multichannel experience across our digital channels and provide customers with a premium Internet and Mobile Banking experi- ence with a range of banking functionalities and newly added services. 2018 Highlights • Launching the new Internet Banking user inter- face, which provided an enhanced user-friendly ex- perience with newly added functionalities such as: - Organize routine transactions in one con- venient location, making it easier to initiate transfers using a one-time password token. - Activity Calendar: Use the calendar view to keep track of past, present, and future transactions on all accounts. • Implementing various customer experience en- hancements over the Mobile Banking app that focus on improving usability and ease of use. • Creating a new Internet Banking interface for the newly launched Private segment. 2019 Forward-Looking Strategy Throughout 2019, CIB will focus on providing a customer-centric Internet and Mobile Banking ex- perience with the help of our new digital platform, adopting emerging online banking trends, offering new digital services, and collaborating with third parties. Phone Banking and Call Center CIB’s Call Center handled a total of 4.4 million calls as of December 2018. We have focused on offloading calls from the Call Center to the IVR self-service by increasing customer awareness. This strategy en- hanced the eligible migration rate for all financial inquiries to 78% as of December 2018 versus 70% in December 2017. We explored various chatbot solutions to help answer customers’ general non- financial questions such as branch working hours and product features. 2018 Highlights • Launched instant credit card settlement in Sep- tember 2018. 2019 Forward-Looking Strategy IVR: We plan to introduce a new feature to our IVR to serve CIB customers and non-customers, which will reduce our average call handling time and boost our Phone Banking penetration rates. Call Center: We aim to transform the Call Center into a multi-channel contact center by adding new touch points such as live chat and chatbots. - My Money Tool: Label and group transactions to easily review them and track spending. - Notifications: Customize and receive notifi- cations on the Internet Banking homepage re- garding account balances and exchange rates. CIB Mobile Payment (Smart Wallet) CIB Smart Wallet offers an innovative payment experience serving the banked and unbanked segments by providing a convenient, secure, and cost-effective way to make purchases using mobile devices. Customers can easily pay bills, recharge their mobile prepaid line, send money to any other wallet holder in Egypt, and deposit and withdraw funds from CIB’s ATM network or any of our authorized banking agents. In 2018, we focused on improving the quality of the customer experience by leveraging our strategic part- nerships, growing our banking agent network to regis- ter new wallets, and better reach our target segment. We also partnered with existing vendors to expand the number of available services on the wallet and boost client satisfaction. Additionally, we collaborated with other teams in the Bank to offer a higher value proposi- tion through launching products over the wallet and meet clients’ needs by monitoring and analyzing their behavior and transactional history. 2018 Highlights • Smart Wallet transaction volume rose 51%, and its value surged 92% y-o-y. • Ran marketing activities and multiple campaigns to increase wallet acquisition and activity rates. • Updated the Smart Wallet user interface to en- hance the user experience. 2019 Forward-Looking Strategy Throughout 2019, CIB will work on improving the user experience and customer journey. We will upgrade digital user interfaces and platforms and adopt a multi-vendor strategy to derive the most value from existing assets. In doing so, we will build the capacity to service every kind of customer in the best possible manner. We will also focus on our distribution network to further leverage our strategic partnerships and grow our agent network. This will allow us to register new wallet customers and expand our reach. CIB Business Online and Corporate Services Cash Management CIB is committed to serving our customers’ so- phisticated business needs through implementing 92% Surge in value of Smart Wallet transactions the most convenient, comprehensive, and com- petitive banking solutions. The Bank is committed to continuously improving its digital migration strategy and focusing on the e-payments market by introduc- ing the most comprehensive payment products. Corporate Download Portal The portal’s main function is to provide the most sophisticated and comprehensive reports, which allow customers to closely monitor escrow ac- count movements. • Post Dated Check (PDC) Reports: Providing customers with PDC movements and details to support companies in key sectors. It allows real estate corporates, for example, to closely follow their projects, unit payments, and in- stallments processes. • Extra Teller Info Details Service: Providing cash- rich corporates in sectors such as petroleum, real estate, and education with reports showing the se- lected or desired values regarding counter deposits. It also provides other reports such as: - Loans and time deposit position - Historical statements - Outgoing check reports - Swift statement MT940 Automated Clearing House The Automated Clearing House (ACH) network is a reliable and efficient nationwide electronic fund transfer system governed by the Egyptian Banks Company (EBC) under the supervision of the CBE. 78 Annual Report 2018 Annual Report 2018 79 2018 In REvIEW >> Digital Banking and GTS 2018 Highlights A noticeable increase in the number of transac- tions led to a significant impact on cash manage- ment cost synergy, reaching EGP 178 million as of December 2018, along with direct revenues, reaching EGP 26.4 million on the back of: • Presenting the ACH Direct Credit model and enrolling the largest syndicates in the pen- sion payment cycles with 690,751 transac- tions as of December 2018. • Becoming the market leader by having the largest market share among Egyptian banks and ranking number one for commercial domestic payments. This included ACH Receivable and ACH Payable (ACH Direct Credit and ACH Direct Debit) among Egyptian banks on the ACH online platform. - ACH Payable: Internal payments reached 895,506 with a value of EGP 13.5 billion and outgoing payments reached 1,156,267 with a value of EGP 25.3 billion as of December. - ACH Receivable: Collection transactions reached 2.26 million with a value of EGP 10.4 billion. • The number of ACH Direct Credit transactions reached 2 million in December 2018 versus 1.5 million in December 2017. • The number of ACH Debit transactions reached 2.26 million in December 2018 versus 1.6 million in December 2017. • The number of clients reached 9,247 as of De- cember 2018 versus 4,905 in December 2017. • Total Migration Rate as of December 2018: 86% Ongoing transfer migration rate of total bank transactions • Providing custody, securities, liquidity, and treasury modules over our online platform. • Providing SMS and email notifications for bank- ing transactions (debit and credit transactions). • Revamping Corporate Download Portal reports. • Revamping online portals (CIB Business Online and ACH) to increase and improve the customer experience and decrease turnaround time for online transactions. • Integrating with corporate financial systems such as oracle, ERB, and others. Strategic Agreements • Partnering with Egypt Post Office to offer over- the-counter agreements that allow custom- ers to send funds to their chosen beneficiary through our ACH channel; the beneficiary will be able to withdraw the amount at any post of- fice branch using their national ID. - Outgoing transfer migration rate reached - 86% of total bank transactions. Internal transfer migration rate reached 62% of total bank transactions. Trade Finance Management CIB Trade Online is our new market-leading online trade channel, offering clients the ability to conduct and manage their trade finance transactions online. 2019 Forward-Looking Strategy We plan to increase the number of subscribers and transaction volumes by expanding international re- mittance payments and targeting new markets and areas to increase our market share. CIB Trade Online provides customers with more trans- parency and visibility into their trade transactions, as well as saving time and money through its easy access, streamlined processing, and elimination of paperwork. 2018 Highlights Core Digital Business • Increasing CIB market share of international remittance solutions. • Reached 1,621 registered customers with 18,250 transactions over its trade portal with a migra- tion rate of 22% as of December 2018, and an EGP 9.3 million reduction in the cost of online trade transactions. Trade Finance’s adoption rate as of December 2018 for GCR was 38% and BB 11%. • Launched the Export Collection-Direct Col- lection via the CIB Business Online portal, a significant step toward improving the customer experience and relationships as- sociated with our trade service offerings over CIB Business Online. The new outgoing document collection service, Export Direct Collection, allows CIB Business Online cus- tomers to export their shipping documents directly from their premises without visiting a CIB branch and gives them direct access to track documents during every stage until they reach their final destination. • Applied a re-engineering processing cycle for un- confirmed export letters of credit (ELC) at all trade service hub branches. All shipping documents presented by customers under unconfirmed ELCs will now be completed on the same day. • Offered the Bill Financing Module over CIB Business Online as a discounting program to serve exporters asking to discount/forfeit their ELCs for immediate access to cash to serve their working-capital requirements. payment and collection services through banks offering these service using the E-Pay portal. CIB in cooperation with E-Finance successfully provided bill payment services for customers using E-Pay’s generalized portal. Currently, customers pay government dues at branches with the help of bank clerks who utilize E-Pay service screens. To provide the best quality services, we estab- lished the Corporate Payment Service (CPS) portal, which allows corporate customers to pay and manage their government payments in the comfort of their offices, 24/7. 2018 Highlights • CIB was ranked number one among Egyptian banks in e-finance government online payments. • CPS reached 512 registered customers with 20,750 transactions and a migration rate of 33% as of 2018. • Achieved a revenue of EGP 105 million as of December 2018. • Added the new Suez Canal Unified Invoice Service to the E-Pay portal, giving us the ability to cover the payment of taxes, customs, charging customs, so- cial insurance, and private university tuition fees. 2019 Forward-Looking Strategy Starting 2019, we plan to continue focusing on cus- tomer migration from branches to the online portal to allow customers to perform their transactions conveniently 24/7 without the need to visit a branch. We will provide our customers with the ultimate digi- tal solutions to benefit their businesses and support their growth ambitions. We will continue to enhance Business Online, adding features that make it a more convenient and secure platform for trade and supply chain finance, cash, treasury, and lending services. Corporate Payment Services As part of the Ministry of Finance’s aim to collect all government payments electronically, an agree- ment was reached between CIB and E-Finance Company (which develops and operates e-pay- ment platforms and channels) to enable customs, tax, and other government authorities to receive 2019 Forward-Looking Strategy Starting 2019, we plan to continue focusing on corporate customer migration from branches to the CPS portal to allow them to perform their transactions conveniently 24/7 without the need to visit a branch. Moreover, we will focus on providing governmental collection services for corporates and consumers over the Bank’s digital channels by giving individual customers the ability to pay for all government services through these platforms. Global Securities Services (GSS) In 2018, CIB was recognized as the best sub- custodian in Egypt by Global Finance for the ninth consecutive year. It recognized the Bank’s distinguished services provided to more than 26,000 clients with total assets under custody of EGP 367.5 billion through processing more than 300,000 transactions annually. 80 Annual Report 2018 Annual Report 2018 81 2018 In REvIEW >> Digital Banking and GTS EGP BN 367.5 Total assets under custody 2018 Highlights • Attracted new portfolios worth a total of EGP 16 billion during 2018, diversified between script- less and physical securities. • Increased fixed-income investments under cus- tody significantly with a 136% growth in T-bills as of December to EGP 47 billion. • Appointed as the local sub-custodian for Alexan- dria Mineral Oils Company (AMOC)’s new GDR program by global depository bank BNY Mellon. • Ranked number one in providing trustee ser- vices, handling 19 special purpose vehicles (SPVs) out of 22 SPVs in the market with total assets of EGP 7.7 billion. 2019 Forward-Looking Strategy • Enlarge CIB’s custody market share through registering the bank’s prime corporate clients in the central depository. • Focus on securitization services by approaching real estate, leasing, and financing companies. • Introduce new investment tools to attract new clients to invest in the stock market and in- crease market liquidity. Digital Governance Digital Governance is a dedicated division tasked with managing collaborations between the Digital Banking and GTS team and the Bank’s internal and external stakeholders. 2018 Highlights Industries (FEI), and others in a study on the transformation of the Egyptian economy to a cashless society. • Presented a detailed study to the FEB discuss- ing the challenges of the current CBE mobile payment regulations and CIB’s suggestions for its enhancement. 2019 Forward-Looking Strategy The Digital Governance team will continue work- ing tirelessly to ensure compliance across the Bank’s digital channels. It will continue challeng- ing stakeholders to adopt new technologies and increase their digital appetite and ensure that digital products, strategies, and financial inclu- sion efforts fall in line with regulatory guidelines and regulations updates. Digital Banking and GTS Awards The Corporate Channel Management Department received the following awards from Global Finance: • Best Corporate and Institutional Digital Bank in the Middle East in 2018 • Best Online Cash Management Providers • Best Trade Finance Services • Best Online Portal Services • Best Information Security and Fraud Management • Best Sub-Custodian Award • Best Payments and Collections, Liquidity, Working Capital Optimization, Short-Term In- vestments, and Money Market Fund • Collaborated with the Federation of Egyp- tian Banks (FEB), the Federation of Egyptian It also received the award of Financial Inclusion Champion of the Year by FinTech Galaxy. n o i t c e s s s o r c n i l i s s o f e t i n o m m A 82 Annual Report 2018 Annual Report 2018 83 2018 In REvIEW Big Data After laying a solid foundation over previous years, the Analytics and Data Management (ADM) De- partment flourished in 2018 after having succeeded in changing the Bank’s digital culture across the organization. For over two years, the team has worked relentlessly to propagate a culture that pri- oritizes data science and analytics and recognizes their importance. The team’s efforts materialized in 2018 and the business became ready to use data sci- ence to achieve its goals and accelerate growth. The team succeeded in building a favorable track record throughout the organization and became a trusted partner of various departments, allowing for more collaborative projects and higher dependency. Additionally, the team set a clear agenda to assist the Bank in providing personalized products to custom- ers, optimizing operational processes, understand- ing fast-paced market alterations and supporting the decision-making process. All this was conducted while maintaining CIB’s position as a market leader in the banking industry, and was reflected in the numerous awards CIB won during 2018. This was all achieved through: • Investing in innovation • Customer analytics • Risk analytics • Performance analytics • Technological advancements Moreover, in recognition of the Bank’s extensive efforts on the data front, London Business School (LBS) featured CIB’s data transformation as a case study in 2018, making CIB the first Middle Eastern company to be analyzed in a case study by the Leadership Institute. The case study covered the evolution of the Bank’s human capital culture, which enabled it to meet its overall data transformation strategy. It also discussed the Bank’s success in changing the orga- nizational design and operating model into a data- driven one. The case study will be taught in graduate programs for years to come. 2018 Highlights Innovation is the ADM team’s main tool to safe- guard the Bank’s current position as market leader. The industry is more dynamic than ever, with rapid changes taking place and new players attempting to enter the field. CIB must explore and utilize up- and-coming technologies capable of adding value to the Bank’s current business model. The ADM team believes that investing time and resources to embed innovation in the Bank’s everyday activities will translate to future earnings. Blockchain Blockchain has been a subject of intense study for the past few years. Using blockchain could change the dynamics of not only the banking sector but the economy as a whole. This technology can be used to create a digital identity, smart con- tracts, and cross-border transactions. As an early adopter of the technology in the Egyptian market, CIB was the first to join the Know Your Customer (KYC) project on R3’s Corda blockchain last year. This year, the Bank is reaping the benefits of the strategic decision to join this alliance. The ADM team is currently testing different use cases to de- velop live projects while simultaneously building a local blockchain network for banks and differ- ent financial services providers. One of the CBE’s current priorities is to improve the existing KYC process by launching a study to explore using distributed ledger technology (DLT) to pro- vide financial services. The plan will begin with KYC for retail customers, and corporate KYC processes will be added at a later stage. KYC, or eKYC in this case, becomes a stepping-stone toward financial inclusion. By adding data layers, such as medical records, subsidies, and governmental services, to the basic KYC structure, we can develop eKYC into a full digital identity for each citizen and pave the way for a more open banking platform. Smart contracts are another promising application of blockchain technology; they allow customers in various fields such as shipping, real estate, and insurance to execute transactions and agreements automatically without an intermediary. By investing funds and resources in developing blockchain technology, CIB is making transac- tions more secure, cheaper, and faster. The Bank will be able to perform cross-border transactions for a fraction of the cost and time; this technology can potentially replace SWIFT and other tradi- tional payment platforms. Consumer Analytics Throughout the year, the department continued to transform CIB from a product-centric institution to a customer-centric one, increasing product ac- quisition and customer satisfaction while optimiz- ing marketing costs. The team completed a number of projects in this area, such as revamping our balance-based customer segmentation to a fully customized, data-driven, behavioral segmentation e g n a r e s o c l n i t o h s s c i t p o r e b fi d o G l 84 Annual Report 2018 Annual Report 2018 85 2018 In REvIEW >> Big Data that puts the customers at the heart of the organi- zation and decision-making process. Additionally, the department completed a project to segment credit card users based on purchase behaviors in order to provide the cards business with distinct customer segments characterized by well-defined behaviors, interests, and preferences. Risk Analytics With the rise of computing power and new analyti- cal techniques, banks can now extract deeper and more valuable insights from their ever-growing volume of data. For the Risk Department, these trends present unique opportunities to better identify, measure, and mitigate risk. The ADM team also developed a churn-propensity model to identify high-risk customers prone to churn; retention strategies were successfully de- veloped based on this model. In 2018, the team also launched a Digital Lending Program (DLP) to penetrate an untapped market of credit seekers based on their history as Careem cap- tains. This program can be duplicated in the future to penetrate unbanked segments and increase financial inclusion through the use of data analytics tools. Aligned with CIB’s 360-degree customer-centric strategy, the analytics team developed a tool to track and measure behavioral KPIs for all corporate and business banking customer interactions. Vari- ous new principle types of consumer indices were established by combining new KPIs and customer data with the main objective of spotting at-risk cus- tomers and new opportunities. The team’s continuous efforts to analyze CIB cus- tomer data are expected to increase sales to new and existing customers, reduce customer churn, and in- crease loyalty while simultaneously delivering higher returns on marketing and promotions investments. The team developed an anomaly-detection model to minimize fraud by identifying, monitoring, and controlling fraudulent customer behavior that sug- gests a threat of tax evasion under CBE anti-money laundering laws and regulations. The team also collaborated with the Business Banking Department to create an early warning system comprised of a set of guided processes that identify risks at an early stage for business banking and corporate customers. The system’s main task is to support managing the loan portfolio and assist in taking proactive steps to reduce risks resulting from unsecured lending. Performance Analytics Performance analytics are an essential tool the team uses to achieve higher productivity and ef- ficiency. Using this tool, the team was able to antici- pate trends, prioritize resources, deliver automation and self-service, push towards consistent service improvement, and align services with CIB’s overall business goals and strategy. In 2018, the team worked on re-engineering and optimizing average wait times at branches. A new evaluation tool was created to measure and assess the impact of any recommended action, eliminat- ing the need to invest in new, untested methods and assess them after implementation. The team also analyzed cash withdrawal activity across the ATM network and found that the Bank’s current ATM cash levels and structure are over funded. Using this knowledge, the team derived a formula to lower cash costs (largely opportunity loss of interest income and unnecessary costs such as cash transportation) and increase returns with- out affecting customer satisfaction. Another performance analytics tool introduced by the team estimates the number of incoming calls to the call center, allowing for planning and allocating resources more efficiently. This tool has accurately captured call center demand in a fully automated manner. Insights gained from this tool have allowed us to create a more positive customer experience and optimize the depart- ment’s allocation of agents. This year, the team launched CIB Navigator; a dynamic digital performance dashboard that enables different lines of business to track cus- tomers’ adoption of digital transactions across available online channels, and helps relationship managers and customer service officers persuade more customers to transition to available digital portals. Greater utilization of digital channels will reduce traffic at CIB branches and hence, in- crease cost synergies. In this regard, the execution 200 EGP MN Cost savings due to digital channel migration of numerous transactions over alternative digital channels from traditional ones resulted in more than EGP 200 million cost saving in 2018. Ranking dashboards were developed to create a competitive environment to achieve CIB’s strategic goals and objectives. Many managers use this tool to track their teams’ performance. These dashboards are sent on a monthly basis to branch sales forces, as well as the direct sales and telesales teams, and acts as an element of encouragement to increase sales. 2019 Forward-Looking Strategy Starting 2019, the team will capitalize on the efforts and outcomes conducted in the arena of data ana- lytics over the last few years, parting from the no- tion that data is the future. The department plans to continue harnessing the power and wealth of data available to keep CIB at the forefront of the Egyp- tian and regional financial sectors and further drive value for all the Bank’s stakeholders. 86 Annual Report 2018 Annual Report 2018 87 2018 In REvIEW Human Resources As CIB continues to grow, the Human Resources Department will play an increasingly important role in maintaining the Bank’s reputation of excel- lence since people are the key to fully realizing the Bank’s strategy. The HR strategy mainly focuses on supporting the Bank’s expansion, employee ef- fectiveness, and digital transformation to provide exceptional customer care and experience. The aims outlined in the 2019 HR strategy focus on four main pillars: skill development and talent management, organizational effectiveness, auto- mation, and enhanced controls. Growth in these areas will support CIB’s efforts to achieve its core strategic goals and provide employees with an exceptional experience. The success of the 2019 strategy will depend on our ability to attract, retain, motivate, and develop highly qualified employees. Investing in our people remains a key goal, as they are the core channel through which we provide an exceptional customer experience and competitive financial services. Talent Management and Acquisition In 2018, CIB continued to adopt a balanced ap- proach to external talent acquisition by leveraging the skills and experience within the organization, while simultaneously seeking out the additional capabilities that will help the Bank achieve long- term sustainable performance. This year, CIB hired 587 external talented individuals (59 new headcount and 528 replacements), moved 429 across different areas of the Bank, and internally promoted 618 promising young talents for better exposure and enhanced career progression. In continuation of implementing a smooth onboard- ing process, CIB will continue conducting the Basic Banking Certificate program in order to blend and align all new hires with CIB Culture. In 2019, the Learning and Development Division will conduct 23 rounds of this program to meet business growth and recruitment requirements. In addition, a new onboarding program designed specifically for first line managers and above will be introduced. Moreover, a total of 33 events (Tawarny and Em- ployment Affairs) were held across universities and other venues in Egypt to promote CIB’s employer value proposition and competitive advantage. Tawarny is an initiative for university students to practice mock HR interviews and provide them with tips and constructive feedback to boost their confidence to prepare them for the corporate world. This initiative demonstrates CIB’s firm commitment to supporting Egyptian youth by preparing them for the labor market. We aim to create a new generation of qualified candidates who will drive the country’s development and growth. Building on our objective to initiate recruitment mobile teams outside Cairo, in 2018 HR introduced the “Ma7atetena 3andak” initiative in which a team visited nine areas across Egypt to facilitate the re- cruitment process for candidates at local hubs. Skills Development and Talent Management CIB leadership tracks continued in 2018, targeting senior management, middle management, and first- line managers. We extended leadership training to 547 employees based on defined and customized tracks. For senior managers, we worked with highly experienced international vendors to tailor complex materials based on intensive assessments that mea- sure the impact of the trainings against employee progress. Leadership tracks will resume in 2019 by including new leadership topics and talent manage- ment programs aimed at exposing them to new top- ics in addition to their core competencies. Moreover, 27 senior managers who joined INSEAD in 2016 became part of the high-level of Building a Winning Culture Program in 2018 to continue their leadership progression. At the middle management level, 81 IMD participants joined INSEAD for a one- day Talent Retention & Staff Engagement Program. The Essential Supervisory Skills program was de- veloped to help first-line managers enhance their managerial skills. The track was launched at the end of 2018 and will continue into 2019. We tailored learning tracks for various business areas and segments, including training both lo- cally and international certifications. In 2018, 79% of employees were trained. Moreover, 26 Wealth Managers and Plus Bankers were granted certifica- tions from Chartered Institute of Securities and In- vestment and 30 employees from Business Banking were accredited as SME Consultants by Simplified Examination to Maximize Profit (SEMP). In 2019, current learning tracks will resume, and we will also introduce new ones targeting areas such as Business Banking Risk, Tellers, Audit, Legal, Cash Counting and Blue Collars. As part of the Bank’s succession plan developed in 2016, 42 key talents were selected to enhancing their capabilities and widen their understanding by participating in technical and leadership skills development programs. Of these 42 delegates, 72% were promoted to larger roles as part of their career progression within CIB. In 2019, CIB will continue to add value to employees’ experiences by supporting their personal development plans and linking these plans to the 2019 succession plan. Finalization of the Competency Framework was a key priority in 2018. The Bank completed this framework model by conducting 25 competencies workshops. Hence, the now complete competency dictionary will become an integral component of the performance management system (PMS). Going forward, our skills development and talent management strategy will focus on linking past ef- forts in one comprehensive system that integrates all talent management initiatives. The strategy will capitalize on PMS automation, integrating the competencies framework within the PMS, creat- ing customized Personal Development Plans, and linking these plans to more personalized train- ing plans. Additionally, the strategy will focus on employing several phases to identify successors, identifying high potential employees, and develop- ing user-friendly career maps. As a result, HR and business managers will have the ability to identify gaps and develop personalized development plans to create a solid talent pool. Organizational Effectiveness The Bank’s HR strategy will continue to focus on promoting organizational effectiveness by improv- ing engagement levels, supporting customer experi- ence and service excellence, and enhancing the HR value proposition. The strategy will be executed through initiatives such as: 88 Annual Report 2018 Annual Report 2018 89 2018 In REvIEW >> Human Resources 63% Staff engagement level in 2018 92% Of employees completed the fourth EES Employee Engagement In continuation of the Bank’s effort to foster a cul- ture of high performance and ensure alignment among bank areas, during 2018 the Chief Human Resources Officer (CHRO) held 10 town halls to improve communication and increase the perfor- mance-related dialogue with middle management. Additionally, HR business partners conducted 66 awareness sessions with professionals and first-line managers to promote employee awareness of new HR policies and initiatives and increase satisfaction in the workplace. Moreover, CIB will start developing a robust engage- ment strategy that will improve the culture and enrich productivity while producing more sustainable results. Employee Effectiveness Survey In 2018, 92% of employees completed the fourth Employee Effectiveness Survey (EES) compared to the 88% who participated in 2016. The engagement (measured by employees’ loyalty, pride, and willing- ness to “go the extra mile” for the Bank) level was 63% compared to 59% in 2016, and enablement (measured by the degree to which employees experience an envi- ronment that fosters engagement) level reached 52% compared to 46% in 2016. Action plans for key focus areas were also developed to continue enhancing CIB’s effectiveness profile in the coming years. Customer Experience Building on the Bank’s strategy to develop young tal- ent and provide the best customer experience, CIB launched the iOwn program under the umbrella of iCare, a program started in 2018 to promote service excellence. iOwn is a service dedicated to manag- ing customer complaints to enhance the quality of services provided and increase customer satisfac- tion. The program was designed to empower staff to take full ownership of handling customer com- plaints and equip them with tools to address cus- tomer complaints using best practices. Additionally, the tool helps employees see various success stories and involves branch managers and deputy branch managers in mentorship and coaching efforts. In 2019, HR will launch another version of iOwn targeting all front liners. Three tailored versions of iOwn and iCare coaching will also be introduced to the central operations team to ensure proper man- agement of customer complaints, increase quality of service level, and maintain customer satisfaction. Value Proposition HR will continue to present a unique value proposi- tion to produce positive outcomes for key stakehold- ers and employees. This approach will not only allow the Bank to engage employees but also attract the best talent on the market. HR will improve its value proposition by further enhancing the variable pay programs to ensure that the distribution model is aligned with the Bank’s overall strategy. Finally, CIB has a unique model for deliver- ing employee benefits through HR, Corporate Services, the Social Services Community, and Social Insurance funds. HR will focus on unify- ing policy design to ensure consistency, market competitiveness, and employee satisfaction while aligning operations with the Bank’s internal pro- cesses. Additionally, HR will improve benefits and medical services across all business areas in col- laboration with the Social Services Community and Social Insurance Funds. Automation In 2018, L&D introduced more e-learning tools for CIB employees in collaboration with various busi- ness areas. Eleven different e-learning courses were introduced. In 2019, L&D will continue to offer more digital tracks to increase employees’ level of learn- ing, engagement, and enablement. Automation initiatives continued in 2018, with the launch of the PMS project. Automation of the PMS will significantly enhance the Performance Management process by increasing the accuracy of monitoring, performance evaluations, and cas- cading objectives to ensure alignment across areas of the Bank. Additionally, the Bank implemented the learning and development system solution as CIB’s official learning management system (LMS) to create an empowered automated learning experience for all staff training management activities. In 2019, HR will continue with the implementation of the new recruitment system, which will enhance the overall candidate experience by integrating CIB’s social media websites and effectively increasing the Bank’s digital presence. This system also sup- ports growing mobile usage among candidates by allowing them to apply via a dedicated mobile application process. Going forward, CIB will con- tinue adopting more integrated and innovative solutions with functional capabilities that enhance the Banks’ productivity and efficiency. 90 Annual Report 2018 Annual Report 2018 91 2018 In REvIEW Financial Control Group Throughout 2018, the Financial Control Group has continued to expand its scope of influence, tackling new functional areas and bettering the level of its workforce, thereby adding to CIB’s overall efficiency and contributing effectively to its continuous mar- ket-leading performance. Committing to CIB’s continuous record of compli- ance with both local and international account- ing regulations and further adding to its edge over peers in the early adoption of standards, the Financial Control Group, in collaboration with the Bank’s Risk Group, successfully finalized the implementation phase of IFRS 9, which the CBE mandated to be met by all banks by 1 January 2019. The “Impairment Calculation” model launched successfully this year and received official valida- tion from McMillan Woods, in accordance with the CBE’s requirement for an external audit validation. CIB became the first bank in Egypt to communi- cate trial financial statements to the CBE in accor- dance with IFRS 9 for three consecutive quarters in 2018. This ensures the Bank has complied with both CBE regulations and those set by the Interna- tional Accounting Standards Board (IASB), with the latter being requisite for CIB’s GDR program on the London Stock Exchange. Particularly relevant to its scope, the Financial Control Group continues to play a key role in driving the Bank’s financial performance and in adding to its overall competitive position. The group worked in close and regular collaboration with the Treasury Group throughout the year to adjust the dynamics of the Bank’s balance sheet in a way that sails efficient- ly with changing market conditions and upcoming regulations such as the capital charge required by the CBE to account for Interest Rate Risk in the Banking Book (IRRBB) and the new tax law recently enforced by the Egyptian Tax Authority. In 2018, the group also widened its role in Enterprise Risk Management (ERM). It set the roadmap required to take the Bank’s Economic Capital Model to the next level, in alignment with international best practices. This is expected to enhance the quality of the Bank’s Capital Allocation Models and of the entire pricing strategy for all Bank products and exposures. Striving to increase the group’s, and hence the over- all Bank’s, efficiency, this year saw the launch of a number of automation mechanisms to achieve both strategic and regulatory milestones in a timely and meticulous manner. The group’s units successfully collaborated to launch the SAS Project as an auto- mation mechanism to calculate the Bank’s CAR in a more accurate and systematic way. Furthermore, an effectual automation process was completed to clean up the non-performing portion of the Bank’s retail loan portfolio. With effective collaboration from the CBE, CIB also managed to finalize its Digital Reporting Project, particularly with regards to the process of reporting non-performing clients to the CBE, reducing turnaround times, and paper consumption required for such reporting. During the year, the group played an important role in upholding the Bank’s responsibility to the Egyptian economy overall. In line with the ongoing push toward financial inclusion across the banking sector, CIB’s Financial Control Group helped kick off the first phase in the Digital Lending Process. The en- deavor, which the group completed in collaboration with a dedicated taskforce from different groups across the Bank, provided lending facilities to micro businesses. As a member of the Tax Committee of the Federation of Egyptian Banks (FEB), CIB played a leadership role in formulating a protocol between the FEB and the Egyptian Tax Authority, which aims to settle tax disputes currently outstanding at courts between banks and the Tax Authority. In line with management’s aim to elevate the quality of human capital and contributing to the develop- ment of staff, the Financial Control Group success- fully launched the second phase of the Financial Control School – an in-house training facility tai- lored to aligning the group’s staff with continuous market developments. The course tackles key topic areas that provide the theoretical and practical foundations deemed necessary to better position finance staff for various prestigious certifications, mainly in international financial reporting, eco- nomics, derivatives and fixed income, and business ethics. Moving forward, the course is planned to eventually serve as a mandatory requirement and prerequisite for joining the Financial Control Group and as a promotion eligibility criterion. h s fi t o r r a p d e r o o c b a l i f o n fi l a r o t c e p e t a r o b a e l e h t n o s l i a t e D 92 Annual Report 2018 Annual Report 2018 93 2018 In REvIEW Marketing and Corporate Communications For several years, CIB has maintained its position as the largest private bank in the Egyptian market. During this time, the Bank has exemplified the highest standards of professional dedication, ethics, and innovation. CIB’s connection to its core values remain strong, and the Bank has strengthened its brand position in the financial services sector in Egypt and beyond. Both locally and internationally, CIB had been recognized for its customer focus, so- cial commitment, and innovation. During 2018, CIB received prestigious awards from world-renowned organizations. For the second consecutive year, CIB was named the “World’s Best Bank in the Emerging Markets” by Global Finance. The Bank received the same award from Euromoney in 2017. CIB is proud to be the first bank in Egypt and the Middle East to win this prestigious award. Additionally, CIB has received numerous interna- tional awards that demonstrate its excellence across different business lines. On the digital banking front, CIB received Global Finance’s “Digital Bank of Distinction in Egypt” award and FinTech Galaxy’s “Financial Inclusion Champion of the Year” award for the first time in 2018. Global Finance also recognized CIB as having the “Best Online Cash Management” and “Best Online Portal Services” in Egypt. In 2018, CIB received the following awards and recognitions: • Digital Bank of Distinction in Egypt by Global Finance • Best Online Cash Management in Egypt by Global Finance • Best Trade Finance Services in Egypt by Global Finance • Best Online Portal Services in Egypt by Global Finance • Best Information Security and Fraud Man- agement in Egypt by Global Finance • Best FX Services in North Africa by EMEA Finance • Best Payment Services in North Africa by EMEA Finance • Best Foreign Exchange Provider in Egypt by Global Finance • Best Trade Finance Provider in Egypt by Global Finance • Best Treasury & Cash Management Providers in Egypt by Global Finance • Best Bank in Egypt by Global Finance • Best Bank in Egypt by Euromoney • Best Bank Transformation in the Middle East by Euromoney • Best Regional Bank - Northern Africa by Afri- can Banker • Best Subcustodian Bank in Egypt by Global Finance • World’s Best Bank in the Emerging Markets by Global Finance • Best Local Bank in Egypt by EMEA Finance • Best Corporate Bank in North Africa by Banker Africa • Best Corporate Bank in Egypt by Banker Africa • Best Private Bank in Egypt by Banker Africa • The Innovators by Global Finance Moreover, CIB ranked 38th on Forbes Middle East’s “Top 100 Listed Companies in the Arab World,” ranking the highest of the four Egyptian companies on the list. Another unprecedented international achievement of this year is the London Business School’s (LBS) decision to conduct a case study of CIB. The Bank is the first Middle Eastern company to be analyzed in a case study by the Leadership Institute of the LBS — one of the world’s top five business schools. CIB was selected in recognition of its success in leading a data-driven, human-centric transformation in the face of macroeconomic challenges. The awards and recognitions received this year serve to reassert CIB’s strong position and out- standing performance as a local bank with global standards. This recognition is also a testament to the resilience of Egyptian organizations and the stability and positive growth of the Egyptian economy. The Bank’s outstanding achievements send a clear signal to investors and the inter- national community about the promise of the Egyptian market. The Marketing and Corporate Communications team has been diversifying its campaigns and activities to promote the Bank’s achievements and competitive market services across a va- riety of channels. In foreign media channels, senior management was featured in the world’s most prominent publications, including The Financial Times, Global Finance, The Banker, Bloomberg, Banker Africa, Yahoo! Finance, and The Economist. In addition to highlighting CIB’s achievements and leadership, these interviews also demonstrate the Bank’s commitment to supporting the country by sharing stories of its economic progress and enhancing its position worldwide. CIB has also been involved in several high-profile international events as a sponsor or key speaker. At the “Leading Transformation in Turbulent Times: In Conversation with Com- mercial International Bank-Egypt (CIB)” event organized by LBS, CIB Chairman and Managing Director Hisham Ezz Al-Arab gave insight on how CIB has created value for clients, shareholders, and society by investing in data and talent. On the local and regional media front, CIB main- tained a strong presence over the past year. Through advertisements and news releases pub- lished by reputable outlets, the Bank promoted its product launches and marketing campaigns. Members of CIB’s executive management were featured in prominent local publications, such as Akhbar Al-Yom, Al-Masry Al-Yom, Al-Alam Al-Yom, Al-Shorouk, and Al-Borsa. The Marketing and Cor- porate Communications team has been steadily ex- panding its media relationships and exposure over the years with a focus on online platforms. CIB has increased its media presence on many renowned news websites, such as Youm7, Veto Gate, Al-Watan, and Al-Mogaz, to reach an online audience of more than 50 million people. In 2018, CIB also sponsored the new season of televised entrepreneurship com- petition Hona Al Shabab hosted by well-known Egyptian TV host Lamees El-Hadidi. By participat- ing in this event, CIB widened its media exposure and — most importantly — extended support to several promising startups. The team also focused on expanding its internal communication channels. Such efforts included ongoing townhalls and casual staff events, which maintain direct communication lines between se- nior management and employees. It also launched an entertainment show named “CIB Bel 3araby” (CIB in Arabic) exclusively for staff. The first of its kind in the banking sector, the objective is to provide employees with a non-traditional corpo- rate communication experience using a show that 94 Annual Report 2018 Annual Report 2018 95 2018 In REvIEW >> Marketing and Corporate Communications The Marketing and Corporate Communications team has been diversifying its campaigns and activities to promote the Bank’s achievements and competitive market services across a variety of channels. tackles important Bank and employee concerns in a humorous way. Another newly modified internal communications channel is the biweekly digital newsletter “CIB Round-up”, which is issued to shed light on CIB-related news, the banking sector, and the Egyptian economy at large. Similarly, the team launched a new edition of the staff photography competition dubbed “Capture the Beauty of Egypt”, which allows staff to express their artistic talent. On the external communications front, other re- cently introduced communication channels are the digital media screens installed at selected branches and visual marketing materials installed across Cairo, Burg Al-Arab, Hurghada, Sharm El-Sheikh, and Aswan airports. These channels are considered more appealing, direct channels with customers that strengthen the Bank’s brand equity. In line with CIB’s commitment to supporting the community, the team continued to expand its cor- porate social responsibility activities by supporting an array of projects and initiatives across the coun- try, focusing on sports, art, culture, and lifestyle. As an organization, CIB believes that sports play an integral role in shaping the minds and health of Egyp- tian youth; the Bank has been diversifying its efforts to support Egyptian athletes. To know more about CIB’s efforts in supporting athletes, please refer to the Sup- porting the Best in Class: Squash section of the report. The Bank is also an active, long-standing sup- porter of the arts in Egypt. CIB continues to support art students in public universities across the country’s governorates by acquiring selected pieces from their projects for the Bank’s art collec- tion. For the second year in a row, CIB sponsored the Night with Art at the historic Manial Palace, an event at which more than 500 renowned inter- national guests had the opportunity to view rare and distinctive pieces by Egyptian artists in a re- markable historical showroom. Moreover, CIB has contributed to international events such as Made in Egypt, an exhibition of young Egyptian design- ers held in London, and the Africa Art Workshop organized by Soma Art School in the Democratic Republic of Congo during the seventh edition of International Contemporary Art. Such contribu- tions reflect the Bank’s steadfast commitment to Egypt and strengthen its ongoing efforts to promote Egypt’s positive image worldwide. One of the significant projects that complements the Bank’s role as an ambassador for the country in regional and international spheres is CIB’s special book. This annual production carries a different theme every year that promotes various aspects of the country. This year, the team produced “Faces & Places” in partnership with the renowned jour- nalist and photographer Roger Toll, who shares the Bank’s appreciation of Egypt’s complex and vibrant culture. This book highlights the diverse landscapes of our country as well as the juxtapo- sition of the past and present in our daily lives in the most authentic way possible: by sharing the experiences of its people. The team also produced a set of books entitled “Building Modern Egypt”, which features Downtown Cairo, the Suez Canal, Cinema Cairo, the Egyptian Bourse, and Egyptian Post to document modern Egyptian history. In 2018, CIB sponsored and contributed to numerous events and venues, with sponsorships encompassing art, culture, sports, CSR initiatives, and many others. The Marketing and Corporate Communications team has worked extensively on campaigns as well as product and segment launches this year. In line with CIB’s vision of customizing the Bank’s services and communication for each segment, the team revamped the identities of its existing segments to reflect the progressive journey of our customers’ growth with CIB. The Bank has also proudly intro- duced special campaigns for CIB Private, a new segment that caters to the investment and banking needs of customers with bankable assets of more than EGP 20 million. The team launched a dedicated webpage and a tailored Internet Banking experi- ence for clients in this segment. In addition, the CIB World Elite Mastercard was launched to provide the Bank’s HNW customers with a variety of enticing benefits, such as zero mark-up fees on foreign cur- rency transactions and zero over-limit fees. Major marketing campaigns include Travel to Russia contest, the Egyptair Apply & Win promo- tional campaign, and Cash on Phone campaign. CIB has also embarked on several partnerships with leading digital and technology brands in Egypt, including Apple and Souq.com. The Bank has also launched product-focused campaigns, including the equal payment plan campaign, 0% installments, and seasonal campaigns such as Back to School. The latter effort demonstrates the Bank’s transformation and adoption of a modern, digital-focused brand image. Digital banking was at the core of this year’s mar- keting campaigns. The team introduced various promotional offers and drives to promote CIB’s digital banking services and encourage customers to perform their everyday banking tasks online. More recently, CIB has invested more heavily in online media primarily as we consider it a more powerful platform to target and analyze customer behavior. To that end, the Digital Marketing team began utilizing new technologies such as geo- location to send SMS to customers in targeted vi- cinities, mobile advertising, and internet network collaboration. This strategy was first implemented in relation to ATM machines installed in the North Coast during the summer. It led to the execution of over 7,400 transactions in a single week and saved over EGP 512,000 in cost synergies. Other newly employed technologies include Airpush and Mad- dict, which make it possible to target mobile devic- es with tailored advertisements that match users’ behaviors. CIB also collaborated with Mastercard to execute four Smart Wallet campaigns in 2018 that resulted in an increase in transaction volumes from EGP 250,000 to over EGP 550,000 per month. During the month of Ramadan, a charity awareness campaign launched through Smart Wallet resulted in a 57% increase in donations to charitable causes, which reached over EGP 5 million. 96 Annual Report 2018 Annual Report 2018 97 2018 In REvIEW Risk Group The Risk Group identifies, monitors, controls, and manages the Bank’s risks against limits and toler- ance levels. The Chief Risk Officer (CRO) manages the following risk areas: credit, investment, opera- tional, conduct, market, liquidity, interest rate, IT, security, reputational, regulatory, legal, social and environmental, and other non-financial risks, as well as the Treasury Middle Office and Internal Con- trol Management functions. The Risk Group’s Enter- prise Risk Management (ERM) framework provides a holistic overview of all types of risks across the organization. CIB’s ERM framework dates back to 2014, positioning the Bank as a pioneer in the MENA region. The ERM framework provides the Bank with a cohesive approach to risk, integrated with an active risk culture, a flexible technology platform, and strong data governance, all tied together with a solid risk appetite framework. The ERM framework is comprised of control, governance, and oversight, which mitigate risks by utilizing existing risk-man- agement capabilities, helping improve the operating environment and reducing operational surprises. The group proactively monitors triggers for adverse events and provides an effective risk response. Enterprise Risk Management Main Objectives Identify, measure, and assess major risks Maintain a risk-reward balance in the business model Spread risk culture Provide an integrated, holistic view of the risk profile Risk Functions Risk Group Framework and Governance CIB’s risk governance structure utilizes the lines-of-defense model, with robust committee structures and a comprehensive set of policies and operating guidelines approved by the BoD and the Bank’s executive committees. The BoD, directly or in conjunction with BoD Committees, provides oversight of risk levels as well as key performance and risk indicators. Board of Directors BoD Committees Risk, Audit, Operations, and Technology The BoD provides, through the board committees, the core directives for the Risk Group. They approve the Risk Appetite Statement, as well as the policies that govern the main objectives of the Risk Group. Management Trace and evaluate major risk triggers and adopt mitigation plans Monitor and update major risk indicators Conduct in- house and online awareness sessions Maintain oversight on major local and international regulations Enhance policies and procedures in line with best practices Key Governing and Reporting Tools First Line of Defense Second Line of Defense Third Line of Defense Business Line Management Identify and manage inherent risks in the Bank’s activities Independent Risk and Compliance • Set framework and rules • Monitor and report on execution, management, and control Independent Audit Review/Challenge Provide an independent assessment of the overall risk management process Internal Capital Adequacy Assessment Process (ICAAP) Stress Testing Risk Appetite and Culture Manage Control Evaluate 98 Annual Report 2018 Annual Report 2018 99 2018 In REvIEW >> Risk Group Risk Committees The CRO along with experienced risk officers, who are key members of all risk-related committees, are responsible for the identification, assessment, and reporting of all types of risks across all business lines. Committee Name Function Risk Type High Lending and Investment Committee (HLIC) Responsible for managing the asset side of the balance sheet, with the aim of maintaining CIB’s sustainable business growth rate while ensuring that the Bank is compliant with internal credit policies and the CBE’s rules and regulations. • Institutional banking credit and investment risk Consumer Risk Committee (CRC) Business Banking Risk Committee (BBRC) Responsible for managing, approving, and moni- toring all matters related to the Consumer Bank- ing portfolio growth and quality. CRC decisions are primarily guided by the Bank’s approved risk appetite, while ensuring compliance with the principles stipulated by the Consumer Credit Policy Guide. Responsible for managing, monitoring and con- curring/approving all aspects related to the qual- ity and growth of the Business Banking portfolio. The Committee’s decisions are guided first and foremost by the current risk appetite of the Bank as well as the prevailing market trends, while en- suring full adherence to the stipulated guidelines set by the Business Banking Credit Policy Guide. • Consumer credit risk • Business banking credit risk Asset and Liability Committee (ALCO) Responsible for ensuring the optimal distribu- tion of assets and liabilities, maintaining a resil- ient risk/reward balance based on current and projected market conditions and approved BoD guidelines. • Liquidity risk • Market risk • Interest rate risk Non-Financial Risks and Compliance Committee (NFRCC) Responsible for the consolidation of non-financial and compliance risks and enhancing risk-re- sponse efficiency. The main objective is to oversee operational, reputational, conduct, and security risks and compliance frameworks, in addition to monitoring vendor and IT risks, and any new emerging non-financial risks. • Operational risk • Reputational risk • Conduct risk • Security risk • Compliance risk • Vendor risk • IT risk • Model risk • Strategic risk Financial Risks Institutional Banking 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 operating guidelines adopted by Bank’s 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, capturing all regulatory guidelines and histori- cal financial data and translating all aspects into qualitative and quantitative measures. • Credit Risk Analysis: The Bank employs a risk- progressive strategy in the credit approval process. This strategy takes into consideration industry norms, both domestic and interna- tional, along with a broad review of associated credit risks, which are weighed against the probability of occurrence. • Early Warning Signals (EWS) Framework: This is a comprehensive tool that closely moni- tors the quality of the corporate credit loan portfolio to detect at an early stage the dete- rioration of a set of key performance indicators that could adversely affect the creditworthiness of borrowers. The framework sets actions and escalating procedures to minimize foreseen losses and safeguard the Bank’s position. Financial Institutions and Country Risk The Financial Institutions (FI) and Country Risk Team was formed to actively support correspondent banks’ relationships through the continuous assess- ment of new markets or products presented by the business FI teams and ensuring an efficient, prudent, and timely approval process. Social and Environmental Credit Risk Management The Social and Environmental Credit Risk Team aims to safeguard the Bank against credit risks resulting from adverse social and/or environmental impacts from customer activities. This is achieved by implementing a comprehensive due diligence process to assess this risk for all clients prior to credit facility approval, as well as providing customers with tools to facilitate and encourage their shift to a greener economy. 269% NPL coverage ratio in 2018 Consumer and Business Banking Risk Management Consumer and Business Banking risk is man- aged using a robust risk framework based on best practices, which ensures sound risk identifi- cation and assessment. Mitigants are in place to ensure portfolio quality is within the Bank’s risk appetite. The Risk Team leverages an optimized Risk Reward Strategy with the help of advanced early warning indicators and solid data analyt- ics to ensure prudence and due diligence in cus- tomers’ selection as well as proactive portfolio monitoring to maximize the risk adjusted yields across asset products. Consumer risk follows a holistic credit cycle management approach, with specialist teams and functions managing products and policies: credit underwriting, collections and recoveries, strate- gic analytics, and account maintenance. On the Business Banking front, the Bank is transitioning to a new model in line with best practices and has revamped strategies with an eye on aggressive growth to enhance this portfolio in a sustained and profitable manner. The new Business Bank- ing Risk Management Structure was enriched with a holistic organizational structure encom- passing the entire credit cycle with new and spe- cialized units being established for early warning and account monitoring, centralized fraud, and rehabilitation of customers to ensure appropri- ate control over the portfolio. Simultaneously, the Business Banking Policy was revamped and approved by the BoD and re-engineered Standard Operating Processes have been put in place. The key pillars of the strategy are targeted in- dustry analysis and customer segmentation, the adoption of data-driven analytics for decision- making and customer selection, and the install- ment of a robust risk infrastructure for aggressive growth within the Bank’s risk appetite. 100 Annual Report 2018 Annual Report 2018 101 2018 In REvIEW >> Risk Group 4.06% Default ratio in 2018 With respect to the Consumer and Business Bank- ing portfolio quality, the Risk Group continues to adopt rigorous portfolio monitoring measures to detect key risks and maintain a healthy portfolio in line with the Bank’s approved risk appetite. More- over, the Risk Group incorporated dynamic collec- tion strategies to counter the impact of inflation and volatile macroeconomic conditions and took preemptive action to safeguard the Bank’s rights. With respect to portfolio growth and supporting the Consumer Bank’s Segmentation Strategy, the Con- sumer Risk Division collaborated with the business to put in place customized programs and promo- tions to target new business from the key segments. Market Risk Trading Market Risk CIB sets key limits to monitor and control market risk by considering both the Bank’s risk appetite as well as the projected business plan. These limits in- clude position, stop-loss, and value at risk (VaR) lim- its. The Bank primarily uses the VaR methodology to quantify market risk. VaR is a probabilistic measure of the potential loss under normal market conditions at a specific confidence level over a certain period. Non-Trading Market Risk (Interest Rate Risk in the Banking Book) CIB uses an effective risk-management process that maintains interest rate risk within prudent levels that ensure the Bank remains on safe and stable ground. CIB proactively positions the bal- ance sheet to benefit from a volatile interest rate environment. The Bank uses complementary technical approaches to measure and control in- terest rate risk, including duration, re-pricing gaps, change in economic value of equity (EVE), and earnings-at-risk (EaR). The Bank has an In- terest Rate Risk Policy, including related authori- ties and responsibilities for interest rate risk man- agement. The policy sets and enforces operating limits and parameters that maintain exposures within levels consistent with internal parameters covered in the policy to keep interest rate risk exposure within given boundaries over a range of possible changes in interest rates. Liquidity and Funding Risks The Bank has robust liquidity risk management guidelines within the Treasury Policy Guide and Treasury Risk Guide that summarize the Bank’s liquidity framework. This framework is critical in maintaining adequate liquidity and ensuring the Bank is able to meet all payment obligations. The Bank has established a liquidity risk management framework that is seamlessly integrated into the risk management process. Non-Financial Risks Operational Risk The Operational Risk Management framework was developed through sound monitoring tools, gov- ernance, and policies to manage operational risk across the whole organization and to minimize and mitigate potential and unexpected losses. The frame- work uses the following approaches to measure and control operational risk: • Loss Events Database includes the Bank’s op- erational risk events. • Risk and Control Self-Assessment (RCSA) is the identification of operational risks and controls and the effectiveness of each unit. It is related to assessments using validation processes, risks categories, control assessments, and the imple- mentation of action plans and their related track- ing and testing mechanisms. The outcome of the RCSA exercise is the risk heat map, which repre- sents the residual risk assessment that evaluates the adequacy and effectiveness of the set controls. • Key Risk Indicators (KRIs) consist of monitor- ing indicators and their results, in addition to assisting the concerned parties with the issues and identified gaps. • Stress Testing consists of utilizing the internal models to proactively assess extreme events. The division also runs regular awareness programs and training sessions to promote a strong risk cul- ture. It has also cultivated internal risk champions through the Champions Program who are responsi- ble for identifying and monitoring operational risks in their respective departments. Reputation Risk As part of the Reputation Risk roadmap, CIB launched a social media listening tool for moni- toring day-to-day incidents, tracking sentiment, and capturing the perception of the Bank. The Reputation Risk Team works on engaging the Bank’s key internal and external stakeholders through annual surveys to identify their expecta- tions and prioritize the risks to a heat map. Any incident that could impact the Bank’s reputation is escalated to the Reputation Risk Team, which in turn invokes the reputation event management process. The Reputation Risk Team holds ongo- ing culture awareness programs for all Bank’s employees through E-learning and one-to-one technical induction programs. Conduct Risk CIB took the initiative to be the first local Bank in Egypt to establish a Conduct Risk Framework, benchmarked against the Financial Conduct Au- thority (FCA) in the UK. The initiative is part of the ERM framework and includes a Treating Customers Fairly (TCF) component that emphasizes client needs starting from product design and approval and end- ing with post-sales services and complaint manage- ment. A conduct risk assessment is performed for all of the Bank’s products and digital channels. Vendor Risk CIB has a process in place to evaluate and monitor all the Bank’s vendors to ensure they meet the pre- defined criteria of approved suppliers and also to conduct relevant risk assessments. Information Technology Risk IT risks are primarily monitored via RCSA based on the best practice COBIT 5 Framework for the governance and management of enterprise IT. Top IT risks are monitored and reported with action plans to the Non- Financial Risks and Compliance Committee (NFRCC) and the Board Operations and Technology Committee. Model Risk Model risk is established as a centralized indepen- dent function under the Risk Group to strengthen the independency of internal model validation. Strategic Risk A framework is under development to manage the process of identifying, assessing, monitoring, and mitigating any internal or external risks that might affect the Bank’s business strategy and stra- tegic objective execution. 102 Annual Report 2018 Annual Report 2018 103 2018 In REvIEW >> Risk Group Other Risk Functions Internal Control Management (ICM) ICM is considered one of the main pillars of con- trol that captures risks by conducting various reviews across the entire branch network and different departments. Special investigations and assignments assess the risks and compliance of applied policies and procedures to ensure overall performance is consistent with predetermined standards, plans, and objectives. Treasury Middle Office (TMO) TMO monitors and controls all the Treasury Group positions on an intraday/daily basis against the Treasury Policy Guide (TPG), Credit Policy Guide (CPG), Investment Policy Guide (Direct Investment) limits, and CBE regulations to improve overall con- trol. It also prepares Treasury Compliance Reports. 2018 Highlights Strong Asset Quality CIB maintained its robust asset quality throughout the year. Default ratio improved from 6.95% in 2017 to 4.06% in 2018 (5.41% excluding the effect of the change in unearned treatment), evidencing the Bank’s effec- tive strategy of maintaining a credit-worthy portfolio during challenging economic conditions. The NPL coverage ratio recorded a healthy 269%. Sustainable Capital and Liquidity CIB maintained its CAR at 19.09%, well above the minimum requirement. The increased minimum requirements in 2019 do not constitute a threat to the Bank as CIB currently exceeds this minimum by a reasonable buffer. The Bank maintained its comfort- able liquidity position above CBE requirements and Basel III guidelines in both local currency and foreign currency. The LCY CBE liquidity ratio remained well above the regulator’s 20% requirement, recording 66.21% at the end of 2018, while the FCY liquidity ratio reached 55.04%, above the regulatory threshold of 25%. Net stable funding ratio (NSFR) was 243.36% for local currency and 165.61% for foreign currency, and the liquidity coverage ratio (LCR) was 667.84% for local currency and 338.82% for foreign currency, all above the 100% Basel III requirement. Operational Highlights 2018 was rife with global economic uncertainty that posed a challenge for the Egyptian market. Locally, new rules and regulations governing the banking industry have, in some cases, affected the Bank’s busi- ness model. However, the Bank continued to manage these volatile conditions via a forward-looking balance sheet strategy and a dynamic approach to assessing and implementing both local and international regu- lations to ensure it is fully prepared for any changes. Default Ratio Capital Adequacy Ratio (CAR) Consolidated Liquidity Coverage Ratio (LCY) 6.8% 6.8% 6.8% 6.95% 6.95% 6.95% 4.06% 4.06% 4.06% 14% 14% 14% 19.30% 19.09% 19.30% 19.09% 19.30% 19.09% 1097% 1097% 1097% 1019% 1019% 1019% 667.84% 667.84% 667.84% 2016 2016 2016 2017 2017 2017 2018 2018 2018 2016 2016 2016 2017 2017 2017 2018 2018 2018 2016 2016 2016 2017 2017 2017 2018 2018 2018 e k o h c i t r a t u c l y h s e r f a f o n o i t c e s s s o r C 104 Annual Report 2018 Annual Report 2018 105 2018 In REvIEW >> Risk Group The Risk Group continued to conduct training sessions to promote risk culture throughout the Bank and maintain a common taxonomy in the organization. The number of Operational and Con- duct Risk Champions throughout the organization nearly doubled in 2018. The SAS engine was upgraded for credit and market risks in line with best practices. A risk assessment of the Bank’s digital products was conducted to ensure CIB’s channels perform as intended with no losses or inconveniences to clients. The fraud functions have been centralized under the Risk umbrella with an enhanced scope encompassing all new products and services including digital bank- ing, e-commerce, and e-wallets along with a central- ized investigation and recovery team and enhanced monitoring tools to minimize fraud. In line with best practices and the Bank’s strategic goals, the Consumer Risk Division has taken progres- sive steps to put in place an enhanced risk infrastruc- ture for end-to-end automation of risk processes and policies. Application and behavioral scorecards are also being introduced along with an advanced deci- sion engine and a CRM system. CIB is compliant with CBE Interest Rate Risk in the Banking Book (IRRBB)’s final guidelines (aligned with Basel standards) and began to re- port results as of 3Q2018. internationally agreed targets detailed in the UN’s Paris Agreement and Sustainable Development Goals. The principles were unveiled in November 2018 during the UNEP-FI’s global roundtable. The Risk Group made significant strides through- out the year, having been instrumental in the un- veiling of the UNEP-FI Principles of Responsible banking — a set of frameworks governing interna- tional banking principles in line with sustainabil- ity standards. The Bank continued throughout the year to update the Social and Environmental (S&E) Credit Risk Policy Guide to align with inter- national standards for environmental, social, and governance (ESG) standards such as the Interna- tional Finance Corporation (IFC) Performance Standards. CIB its Green Finance Credit Line for customers who wish to shift to a greener approach to economic growth through energy efficiency and renewable energy. The S&E Credit Risk Department aligned with the lighting efficiency and solar solutions developed by the Ministry of Electricity and Renewable Energy and supported by the UNDP, where this allowed CIB to deliver a comprehensive product to customers that requires technical support and financing. launched 2019 Forward-Looking Strategy The Risk Group will continue to enhance the Financial and Non-Financial Risks Frameworks while leveraging its agile risk infrastructure to support the strategic shift in the way business will be conducted going forward. In 2018, CIB alongside 28 other global banks helped develop guidelines to bring the bank- ing industry’s operations into alignment with The IFRS 9 project is currently in the final implementa- tion stage and will be finalized in 2019. The Consumer Risk Team will implement end-to- end automation, under the umbrella of Consumer Risk Transformation, to help the business pro- vide instant decision-making, superior service delivery, and an enhanced customer experience. Similarly, predictive analytics will be implement- ed via the development of new models to better forecast probabilities of default and expected losses in line with the implementation of new regulations for IFRS9. The team will also support the initiation and expansion of digital products and penetration of untapped segments by using innovative credit tools and techniques for evalu- ation given the segment typically includes clients who do not have credit history. The systems and processes of the Collections & Re- covery Strategy, and related infrastructure, will be upgraded to provide flexible mapping of strategies and behavioral delinquency trends, facilitating im- proved collection activities and better recoveries. On the Business Banking front, focus will be placed on building scalable infrastructure to support the ag- gressive growth of the business. Attention will also be turned to enhancing the customer experience and the proactive detection of early warning trends and timely actions to maintain portfolio quality. CIB will also continue to act as a domestic and re- gional influencer in promoting the UNEP-FI Prin- cipals for Responsible Banking while capitalizing on CIB’s Green Finance initiative to introduce new products beyond energy efficiency and renewable energy technologies. n o f f i h c n o t o h s p u e s o C l 106 Annual Report 2018 Annual Report 2018 107 2018 In REvIEW Compliance Group Compliance is a multi-dimensional practice with vari- ous scopes. Within CIB, the Compliance Group focuses on international best practices and promotes the high- est standards of honesty, transparency, and integrity. CIB has a well-established independent Compliance Group, which demonstrates the Bank’s reliability and helps support the pursuit of growth strategies. The group protects the Bank from the risk of legal or regulatory sanctions, material financial loss, and loss to reputation resulting from failure to comply with laws, regulations, rules, related self-regulatory organization standards, or codes of conduct appli- cable to its banking activities. Additionally, the group provides intrinsic benefits including constructive communication, improved overall business prac- tices, and a better understanding of the regulatory environment. The group ensures that CIB adheres to compliance standards to safeguard the Bank against a full spectrum of compliance risks. Compliance, Policies, and Procedures Division The Compliance, Policies, and Procedures Division ensures that all controls, laws, and regulations are embedded in the applied policies and procedures, all of which are periodically reviewed to ensure they are up to date. The division is also responsible for reviewing and approving marketing materials, contracts, and customer forms. Over time, the scope of the division has expanded to include monitoring bank products through reports to ensure compli- ance with policies, processes, and regulations. 2018 Highlights Following the preventive measures taken by the Compliance Group in 2018, the Compliance Poli- cies and Procedures Division began implementing a risk-based approach to detect any violations through reports and take corrective action with all stakeholders. The practice is considered to be the basis of CIB’s monitoring and testing function, which will be a key focus in 2019. The Compliance Policies and Procedures Division enhanced the percentage of customer data updates by implementing several processes that encourage e-customers to update their personal data. At the same time, the division ensured that all existing controls and CBE regulations are embedded in the core banking system upgrade along with any new controls needed. Another accomplishment of 2018 involved reengineering initiatives to enhance turn- around time and increase customer satisfaction. Corporate Governance and Code of Conduct Division The Corporate Governance and Code of Conduct Division adopts corporate governance guidelines and structures CIB’s governance framework to en- hance long-term value for shareholders, employees, the community, and other stakeholders. The division also works to ensure that the corporate governance system is documented, transparent, and understand- able. The purpose of this division is to ensure that investors, both foreign and local, customers, employ- ees, and the general public are confident about the ways the Bank is managed and supervised. 2018 Highlights The Corporate Governance and Code of Conduct Di- vision updated all group governance policies in 2018 to match current international best practices. The division continued to manage relevant staff issues and encouraged the use of the Bank’s whistle blowing policy in cases of suspected wrongdoing. Moreover, the division efficiently managed potential conflicts of interest by reviewing several departments’ restructur- ing in comparison with the respective job descriptions. The division also ensured that neither employees nor insiders traded CIB stocks during blackout periods to promote transparency and integrity among all shareholders. Furthermore, the division conducted several induction sessions to raise staff awareness of governance and conduct-related issues, in line with CIB’s strategy to ensure that all employees are continuously trained in topics related to conduct. In 2018, 10 cases were presented to the Staff Issues Committee; these cases included performance dis- agreements, mismanagement issues, and violations of the Bank’s code of conduct. All issues raised to the committee were thoroughly investigated, and fair and sound decisions were reached. AML and Terrorism Financing Division The Anti-Money Laundering and Terrorism Financing (AML) Division develops, implements, and maintains the AML program across the Bank. The division screens transactions against negative lists and sanctioned countries, a measure that shields the Bank against money laundering and terrorism financing crimes. Ad- ditionally, the division maintains records of customers and reports suspicious activities to authorities. 2018 Highlights In 2018, the AML Division rolled out SAS – the in- dustry’s leading analytics software – to facilitate better monitoring and greater understanding of customers’ behavior. The AML Division also rolled out the Go AML re- porting system that supports secure automated reporting to the Egyptian Money Laundering Com- bating Unit (EMLCU). CIB’s AML team attended several international seminars in 2018 to remain up to date on AML trends locally and globally and ensure we upheld our standard of consistently enhancing performance and applying the highest international standards and best practices. Foreign Account Tax Compliance Act Division The Foreign Account Tax Compliance Act (FATCA) Division ensures correct implementation of FATCA regulations and actively follows up on any new updates or requirements, in addition to reporting annually to the US Internal Revenue Service (IRS). 2018 Highlights During 2018, the FATCA Division successfully uploaded two yearly reports to the IRS as a single Foreign Financial Institution (FFI) as well as another report as a Sponsoring Entity for CIB Mutual Funds. The division also provided continuous support for dif- ferent cases to facilitate the smooth implementation of FATCA rules while ensuring customer satisfaction. CBE Relations Division The CBE Relations Division acts as a business advisor for all the Bank’s departments to ensure they adhere to all CBE regulations and instructions. 2018 Highlights In 2018, the CBE Relations Division assured adher- ence to regulators’ instructions while eliminating any impact on business needs. The division acted as a business partner by participating in meetings held to develop new (mostly consumer) products as well as assisting in structuring credit approval lines to comply with CBE regulations. 2019 Forward-Looking Strategy Going forward, the Compliance Group plans to enhance the efficiency of processes and turnaround time, support CIB through the group’s divisions, and increase staff awareness of key compliance issues. At the same time, the group will continue to safe- guard the Bank against the full spectrum of com- pliance risks. The group will continue cementing compliance issues by delivering effective education and training programs and fostering the values of knowledge, honesty, integrity, respect, and profes- sionalism across the Bank. The Compliance Group will continue to adopt a risk- based approach that recognizes that different areas of the business and regulatory issues carry varying levels of regulatory risk. Accordingly, the Bank’s resources can be prioritized and allocated to areas with the highest need to boost productivity. In 2019, the group plans to complete preparations to implement Common Reporting Standards (CRS) in anticipation of local regulators’ announcement of their target rollout date. 108 Annual Report 2018 Annual Report 2018 109 2018 In REvIEW Internal Audit 2019 Forward-Looking Strategy The group’s strategy for the future is to continue ensuring that CIB’s stakeholders and senior man- agement apply efficient governance practices and risk management policies in an established in- ternal control environment. Additionally, we will continue to safeguard CIB as the Bank’s third line of defense. The group is also laying the ground- work for future developments in the digital and fintech spheres while simultaneously fortifying its cyber security management frameworks. The Internal Audit Group provides independent and objective assurance to its stakeholders, in addition to consulting activities designed to add value and improve the organization’s operations. Also, it sup- ports senior management in accomplishing CIB ob- jectives by assessing the adequacy and effectiveness of the control system. Concurrently, it evaluates and improves the effectiveness of Enterprise Risk Man- agement and Governance processes. The CIB Board Audit Committee is the backbone of the Internal Audit Group, supporting and safeguard- ing the independence of the third line of defense, in addition to overseeing operation and risk manage- ment, according to risk-based audit methodologies. Backed by the top-ranked expertise of our team members, all of whom hold specialization and professional certifications, the group assisted all stakeholders with issues that arose throughout the year. The training and self-development pro- grams offered to the team are considered among the best on the market. We provide our people with knowledge of the latest internal audit, risk management, finance, regulatory, and gover- nance functions. To ensure their ability to fulfil their functions effectively, our team members attend various committees as observers (non-voting members) to present the Group’s insights and align our efforts with CIB’s strategic plan and objectives. This way, we also fulfill our role as a trusted advisor to all stakeholders within CIB. 2018 Highlights 2018 was characterized by a need to look beyond the present to the future of the financial indus- try, namely fintech products and the underlying trend of leveraging big data. A new division was introduced to accommodate the growing need to support management in directing CIB’s audit teams to enrich their scope and objectives. The Consultancy and Special Investigation Division continued to provide CIB’s senior man- agement with all required in-depth scrutiny of concern, while the Follow-up Division’s closure percentile reached its highest level in recent years. As for the Quality Assurance Division, the Group broadened its scope to add another communications section to meet the regulator and external auditors’ requirements. The division conducted its standard internal quality assurance check of all audit engage- ments to ensure their alignment with IIA standards. In line with our role as a market leader, CIB began com- plying with IIA standards in 2015, three years before this practice became mandatory in the Egyptian mar- ket. In 2018, the Internal Audit Group again succeeded in complying with IIA Standards, as we were subject to External Quality Assurance as mandated by CBE. Ernst & Young International conducted the review and found that CIB was in full compliance with all standards except one. This single standard with which we were in partial compliance leaves room for future improve- ment and continual advancement as the Bank strives to remain ahead of local and regional competition. e t o n k n a b d n u o p n a i t p y g E e v fi a n o l i a t e D 110 Annual Report 2018 Annual Report 2018 111 Sustainability CIB goes beyond simply operating sustainably, but guides industry change by leading in the development of international frameworks f a e l g fi a n o s n e v i e h t f o e r u t x e t d n u o r g k c a B SuSTAInABILITy Corporate Governance In its mission to become the best financial insti- tution in Egypt, CIB strives to apply international best practices in the area of corporate governance. The Bank is wholly committed to the principles and corporate values that distinguish the finest governance structures. regarding the Bank, its ownership, operations, and financial performance. It also advocates the equal treatment of all shareholders with sound protection for their voting rights. The Bank continues to uphold its mandate to create value for shareholders in a sustainable and value-based manner. CIB’s corporate governance structure is anchored in highly professional executive directors and a distinguished group of independent non-execu- tive directors (NED). The BoD enjoys an optimal mix of skills, experience, and diversity in terms of gender and nationality. CIB’s highly qualified BoD is supported by special- ized Board Committees. Committees are chaired by the NEDs, who brief the BoD on major points raised by their respective committee. The board is also supported by internal and external auditors, as well as other internal control departments (Risk, Compliance, Internal Audit, and Legal). Work car- ried out by these functions is fully utilized by the BoD to ensure the Bank adheres to international standards of corporate governance. CIB’s experienced executive management team plays an important role in the governance of the Bank by faithfully and efficiently executing the strategy set by the BoD and properly implement- ing the Bank’s policies. Corporate governance issues are a core focus of CIB’s BoD. The Bank’s governance framework ensures that timely, transparent, and accurate disclosures are made available with respect to material information CIB’s governance framework aims to sustain the success of the Bank’s business and operations, backed by a concrete set of policies and procedures relevant to the scope, size, and complexity of CIB’s business. The BoD thus works to ensure proper im- plementation of internal and external regulations and to mitigate all possible risks. These mandates are complemented by a set of governance policies designed to promote a corpo- rate culture that emphasizes building trust with key stakeholders. Such a culture is aligned with the Bank’s purpose and business strategy while promoting integrity within the Bank. The Code of Corporate Governance is a cornerstone of CIB’s governance policy framework, aiming to enhance long-term value for shareholders, employ- ees, and other stakeholders. The Code of Conduct sets out the standards of behavior expected from all employees, providing staff, senior management, and the BoD with a comprehensive frame of refer- ence regarding their rights and duties. The code further enshrines the principles of equal employ- ment opportunity and gender equality. CIB’s Conflict of Interest policy guarantees that all staff and board members remain aware of and 9 Highly qualified individuals make up CIB’s BoD forthcoming about any conflict of interest be- tween the Bank and their personal, professional, and business interests, providing guidance on how to handle those cases. The Bank’s Whistle-Blowing Policy encourages staff to report suspected violations of the law or Bank policies as well as any wrongdoing, while guaran- teeing a supportive and encouraging environment for those who speak out. The Bank handles cases of whistle-blowing, be they from internal or external sources, very seriously and at a senior level. CIB’s Conduct Risk policy makes clear the Bank’s relationship with and duties toward its customers. This comprehensive policy structure reflects CIB’s prioritization of a strong governance framework, one that is fully backed by each of the Bank’s BoD members and firm leadership and vision. n o i t c e s s s o r c l a i t r a p m e t s a f l a f l A 114 Annual Report 2018 Annual Report 2018 115 SuSTAInABILITy >> Corporate Governance Business School. To mark the occasion, Mr. Ezz Al-Arab joined distinguished professors from LBS’s Leadership Institute and the Wheeler Institute for Business to dis- cuss the Bank’s innovation drive and the competitive advantage this gives CIB among other emerging mar- ket banks. He also discussed how artificial intelligence, blockchain, cloud computing, and big data will lead a revolution in the financial services industry. A firm believer in education, Mr. Ezz Al-Arab has ex- panded CIB’s collaboration with reputable educational organizations to provide diversified learning opportu- nities. Such collaborations include the CIB Endowed Professorship of Banking at AUC, designed to expose students to multiple perspectives that result in superi- or business leadership. In 2016, CIB and AUC launched the AUC Venture Lab FinTech Accelerator, Egypt’s first university-based incubator and accelerator that supports fintech entrepreneurs and bridges the gap between Egypt’s financial services industry and the emerging entrepreneurial ecosystem. Under Mr. Ezz Al-Arab’s leadership, CIB has received several prestigious international accolades, a testament to the Bank’s excellence in management and outstand- ing performance over the years. Among other awards, CIB received Euromoney’s 2018 “Best Bank Transforma- tion in the Middle East” and “Best Bank in the Middle East” in 2017, Global Finance’s 2017 “Digital Bank of Distinction in Egypt”, and was named African Banker’s 2016 “Socially Responsible Bank of the Year”. Mr. Ezz Al- Arab was recognized in 2016 for his “Outstanding Con- tribution 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. In 2018, CIB was named the “World’s Best Emerging Markets Bank” by Global Finance, a year after being recognized for the same award by Euromoney. CIB is the first bank in Egypt, North Africa, and Middle East to ever win this award. Mr. Ezz Al-Arab leads the Federation of Egyptian Banks as Chairman, is Co-chair of the Institute of International Finance’s Emerging Markets Advisory Council, and serves as Director of Mastercard Middle East’s Regional Advisory Board. He is also Chairman of the Board of Trustees of the CIB Foundation and is a Non-executive Director of the Board at Fairfax Africa. Mr. Ezz Al-Arab joined CIB from Deutsche Bank and previously served with JP Morgan and Merrill Lynch in postings that took him to Bahrain, New York, and Cai- ro. He holds a BA in Commerce from Cairo University. Mr. Hisham Ezz Al-Arab Chairman and Managing Director Mr. Hisham Ezz Al-Arab has been Chairman and Man- aging Director of CIB since 2002. He leads a team of more than 6,750 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, profitability, net worth, and market share of deposits. Under his leadership, CIB has grown into an institution that now serves more than 1.3 million customers nationally, from individuals to small- and medium-sized businesses and leading cor- porations among Egypt’s 500 largest firms. The Bank’s market capitalization has grown from EGP 1 billion at the beginning of Mr. Ezz Al-Arab’s term to EGP 86 billion as of December 2018, making its stock — a blue-chip component of the Egyptian Exchange — the global investment community’s preferred proxy for Egypt and a benchmark for the banking industry in emerging markets. Mr. Ezz Al-Arab’s term has seen CIB develop a unique culture that balances an innovation-driven entrepre- neurial spirit with a commitment to global best prac- tices in corporate governance and risk management. Nurtured for over 15 years, the Bank’s corporate cul- ture gives it a natural competitive advantage and led directly to the establishment of the first-of-its-kind em- ployee stock ownership program (ESOP) in 2006. More than 80% of all employees have benefited and continue to benefit from ESOP, making them shareholders and thereby aligning the interests of both employees and shareholders. In 2010, Mr. Ezz Al-Arab launched the CIB Foundation, a leading Egyptian voice for universal access to quality healthcare, with a particular focus on the needs of underprivileged children. In 2018, CIB became the first corporation in the Middle East to be the subject of a case study by the London Board of Director Highlights Board independence The majority of CIB’s directors are non-executive at seven out of nine members, five of whom are independent directors Deep banking and related knowledge and experience The majority of CIB’s directors have extensive industry experience ranging from business and management to banking and investment Gender diversity Two of the directors are women Board of Directors CIB is headed by a competent BoD, which pro- vides the Bank with the necessary leadership and experience to manage its business with integrity, efficiency and, most importantly, excellence. The BoD primarily focuses on long-term financial returns and seeks the best interests of all related stakeholders. The board is responsible for setting CIB’s strategic objectives, overseeing implementa- tion of said strategy, providing oversight of senior management, ensuring the effectiveness of the Bank’s internal control systems, managing risk, and securing CIB’s institutional reputation and long-term sustainability. Moreover, the board is responsible for setting compensation and performance goals and manages director nomination, evaluation, and suc- cession planning. It oversees CIB’s economic, social, and environmental sustainability initiatives, per- forming its duties with entrepreneurial leadership, a sound strategy, and risk management oversight to ensure risks are properly assessed and managed. CIB’s BoD consists of nine members who possess an appropriate balance of experience, competen- cies, and individual qualifications. These collec- tive qualities give the Bank a distinct competitive edge. Over the course of 2018, CIB’s BoD met seven times. Being the single largest shareholder in CIB through its wholly owned subsidiaries, Fairfax Fi- nancial Holding Ltd currently holds 6.6% of CIB’s local shares, following its transaction with Actis in May 2014. Fairfax Financial Holdings Ltd ap- points one representative to the Bank’s BoD. 116 Annual Report 2018 Annual Report 2018 117 SuSTAInABILITy >> Corporate Governance Mr. Hussein Abaza Chief Executive Officer and Board Member Mr. Hussein Abaza leads strategy and operations at CIB, an institution with more than 6,750 em- ployees serving more than 1.3 million customers, including Egypt’s 500 largest corporations, on- line and at 203 branches, 917 ATMs, and 13,446 points of sale nationwide. Mr. Abaza has been Chief Executive Officer and a Member of the Board of Directors since March 2017. He is Chair of the Board’s Executive Committees (Manage- ment and High Lending & Investment Commit- tees). He assumed this position after a six-year run as CEO of Institutional Banking. Prior to this, Mr. Abaza was the Bank’s Chief Operating Officer and, from 2001 to 2010, its Chief Risk Of- ficer responsible for managing credit, market, and operational risk across CIB. Mr. Abaza is also a leader of the Bank’s award- winning Investor Relations program, in which capacity he has helped CIB grow from a market capitalization of EGP 10.8 billion in 2008 to EGP 86 billion as of December 2018. Under Mr. Abaza’s leadership, the team managed Ripplewood’s 2009 exit from CIB, the entry into the shareholding structure of global emerging markets private equity firm Actis, and the subsequent sale of Actis’s 6.5% stake to Canadian insurance firm Fairfax Financial Holding Ltd. in the Egyptian Exchange’s first block trading transaction. The Bank’s IR program has taken home wins from the Extel / MEIRA poll for five consecutive years, from 2014 to 2018. In his more than 25 years with CIB, Mr. Abaza has become actively involved in the Bank’s region- ally renowned credit training program, providing talented young bankers with the theoretical basis and hands-on experience needed to assess the creditworthiness of organizations across all sec- tors of the economy. He brings to CIB a sharp interest in financial markets and non-bank financial services, having served as Head of Research and then Managing Director at EFG Hermes Asset Management from 1995 until his return to CIB in 2001. He called on that experience from 2014 to 2017 when he was Chairman of CI Capital, a leading Egyptian investment bank and subsidiary of CIB until the Bank exited its investments. Mr. Abaza joined CIB after obtaining his BA in Business Administration from AUC. He has pur- sued post-graduate training and education in Belgium, Switzerland, London, and New York. Mr. Jawaid Mirza Non-Executive Director of the Board & Lead Director, Chair of CIB’s Audit Committee Mr. Jawaid Mirza has been Lead Director and Non-Executive Independent Board Member at CIB since January 2014. Mr. Mirza chairs the Board Au- dit Committee, sits on the Board Risk Committee, Operations and Technology Committee (which he chaired for three years since its inception), the Corporate Governance and Nomination Commit- tee, and the Corporate Sustainability Committee. Mr. Mirza currently serves as Independent Non- Executive Board member of Eurobank Ergasias (Athens), where he chairs the Board Audit Com- mittee and sits on the Board Risk Committee. Mr. Mirza also serves as Non-Executive Independent Board Member of South Africa Bank of Athens (Johannesburg) and sits on the board’s Audit, Risk, and Technology Committees. Mr. Mirza holds various business management degrees from reputable institutions like Queens Business School (Toronto), Wharton Business School, Stanford Graduate School of Business, and is a member of the Institute of Corporate Directors, Canada. Mr. Mirza is a strong proponent and practitioner of international corporate governance practices and brings with him over 35 years of diversified experience and a solid track record in all facets of financial and risk management, technology, mergers and acquisitions, business turnarounds, and operations management. Over the years, Mr. Mirza has worked with global institutions like Citibank and ABN AMRO Bank Ltd, where he held several senior positions as CFO European Region, Managing Director and Chief Operating Officer for Global Private Banking, As- set Management and New Growth Markets (Con- sumer Banking), and Chief Financial Officer for the Asian Region including Australia/New Zealand and the Middle East. Mr. Mirza has led several due diligences for acquiring banks in Hungary, Taiwan, Thailand, Germany, Brazil, France, and Pakistan. He was also a member of the Top Executive Group at ABN AMRO Bank and a member of the Group Finance and Group COO Board. 118 Annual Report 2018 Annual Report 2018 119 SuSTAInABILITy >> Corporate Governance Dr. Kamel holds a PhD in Information Systems from the London School of Economics and Politi- cal Science, an MBA, a BA in Business Administra- tion, and an MA in Islamic Art and Architecture from AUC. His research and teaching interests include management of information technology, the transfer of information technology to devel- oping nations, organizational transformation, electronic business, decision support systems, and entrepreneurship. His work on information systems and management is published in schol- arly journals and books. Dr. Sherif Kamel Non-Executive Director of the Board, Chair of CIB’s Operations and Technology Committee Dr. Sherif Kamel has been a Non-Executive Board Member at CIB since May 2013. He chairs the Operations and Technology Committee and is a member of the Audit, Compensation, and Gover- nance and Nomination Committees. Dr. Kamel is Professor of Management and Dean of the School of Business at AUC. He serves the university as Vice President for Information Man- agement and as Associate Dean for Executive Ed- ucation at the School of Business. Before joining AUC, he was director of the Regional IT Institute and Training Manager at the Cabinet of Egypt’s Information and Decision Support Center. He is an Eisenhower Fellow and a Fellow at the Center for Global Enterprise. Dr. Kamel is a member of the AACSB Interna- tional Middle East Advisory Council, the Egypt- US Business Council, and a Board Member at the American Chamber of Commerce in Egypt and Education for Employment Egypt. He has served on the board of the Egyptian American Enterprise Fund and has been a member of the World Bank Knowledge Advisory Commission. Dr. Kamel was a founding member of the Internet Society of Egypt. He has been invited as panelist and speaker to a variety of policy, development, and leadership conferences and expert meetings, including the Asia-Middle East Dialogue, AACSB International, World Summit on the Information Society, the Center for Strategic and Internation- al Studies, Atlantic Council, German Marshall Fund, Middle East Institute, the International Monetary Fund, and the World Bank. Mr. Yasser Hashem Non-Executive Director of the Board, Chair of CIB’s Governance and Nomination Committee Mr. Yasser Hashem has been a Non-Executive Board Member at CIB since May 2013. He chairs the Gover- nance and Nomination Committee and is member of the Audit and Compensation Committees. Mr. Hashem has held the position of Managing Partner at ZH&P since 1996. The legal skills he has extended to the privatization of public sector entities and his role in the inception of private provision of telecom services in Egypt have made him a valued veteran of legal practice in Egypt. Combining a wide range of extensive legal knowledge with honed networking and interpersonal skills, Mr. Hashem protects and furthers the interest of over 100 local and international clients. With a special focus on corporate law, Mr. Hashem has supported the privatization program of public sector entities in Egypt through hundreds of re- structurings, incorporations of foreign and domes- tic companies, and advising foreign and local inves- tors on the most efficient vehicles and structures for implementing their investments in Egypt. In the fields of M&A and capital markets, he has reliably represented acquirers in all major tender of- fers and M&A transactions in Egypt and has led the four largest multibillion dollar M&A transactions in Egypt. He has also played a major role in most IPOs that have taken place in Egypt. Mr. Hashem has advised on Egypt’s most significant telecom license acquisitions and M&A transactions. The legal services he has extended to this sector in- clude the acquisition and mandatory tender offers of telecommunication companies, as well as support for consortia on a number of mobile and fixed wireless li- cense bids. He has contributed to the drafting and ne- gotiation of all major telecom licenses, including pub- lic pay phones, mobile cellular networks, private data networks, satellite, and marine fiber-optic cabling, among others. Mr. Hashem also led the team acting for the largest post-revolution acquisition transac- tions in the telecommunications sector in 2012 and advised Orange (one of the world’s leading network operators for mobile, broadband internet, and fixed lines) in its successful 100% acquisition of Mobinil for approximately USD 3 billion. Mr. Hashem’s expertise in the telecom sector has led to his appointment by Ministerial Decree as Member of the New Telecom- munications Act Drafting Committee. He was recognized by The legal 500 as “Leading Individual” for the years 2016, 2017, and 2018 and his name features in The legal 500’s Hall of Fame for having been recognized for seven consecutive years. He was also ranked by IFLR 1000 as Leading Lawyer in the Financial and Corporate Practice for 2016, 2017, and 2018. Mr. Hashem was ranked by Chambers and Partners Global as a “Band 1” Lawyer in the Corporate / M&A practice for the years 2017 and 2018 and as “Band 1” Lawyer in the Banking and Finance practice for the year 2018. His initial rank- ing by Chambers and Partners dates back to 2000. Mr. Hashem received his LL.B. from Cairo Uni- versity in 1989. He was admitted to the Egyptian Court of Cassation in 2007 and is a member of the Egyptian Society of International Law and the Li- censing Executive Society. He is fluent in Arabic, English, and German. 120 Annual Report 2018 Annual Report 2018 121 SuSTAInABILITy >> Corporate Governance With his 30 years of global experience in Bank- ing and financial services, Mr. Richards serves as Non-Executive Director for a number of com- panies. 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 London Business School’s Accelerated De- velopment Program and Ashridge Management College’s Group Level Strategy Program. He also attended the Leading Professional Services Firms Program at Harvard Business School. Mr. Mark Richards Non-Executive Director of the Board, Chair of CIB’s Risk Committee Mr. Mark Richards has served as Non-Executive Director of CIB’s Board of Directors since Febru- ary 2014, and chairs the Board’s Risk Committee and is member of the Compensation and Gover- nance and Nomination Committees. Mr. Richards was Chief Executive of IPGL (Hold- ings) Ltd., a major corporate holding company based in the United Kingdom. He also served as Chairman of Exotix Holdings Ltd., a frontier mar- kets brokerage and investment bank, and Direc- tor of Singapore Life, a rapidly growing digital life insurance group operating across Southeast Asia. Mr. Richards is also a non-executive director of international financial services search specialist Sheffield Howarth. 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. Prior to joining Fairfax, Mr. Khosrowshahi was the President and CEO of Fuji Fire & Marine In- surance Company Ltd., based in Japan. He is the only non-Japanese individual who has been the President of a publicly traded Japanese insurance company. In 2002, Fuji Fire & Marine embarked on hefty reforms after an investment by major share- holders American International Group (AIG) and ORIX Corporation. He was elected President in June 2004 and successfully implemented a turn- around strategy to return Fuji to profitability and growth by taking strategically leading positions within the insurance industry in Japan. From 2001 to 2004, he was the President of AIG’s Gen- eral Insurance operations based in Seoul, South Ko- rea where a major restructuring plan resulted in sig- nificant revenue and profitability increases through specific product and channel strategies. From 1997 to 2001, Mr. Khosrowshahi was Vice Chairman and Managing Director of AIG Sigorta based in Istanbul, Turkey, and was involved in negotiating strategic alliances and joint ventures with Turkish conglomer- ates and working with governmental regulators to improve support for new product introductions to 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. He also held various underwriting and management positions with increasing responsibilities at AIG’s headquarters in New York after he joined AIG in 1986. He has served on the board of the Foreign Affairs Council and the Insurance Society of Philadel- phia. He has also been a council member of USO in South Korea, the Chairman of the insurance com- mittee of the American Chamber of Commerce in South Korea, and a member of the Turkish Busi- nessmen’s Association. He is also a member of the U.K. Chartered Insurance Institute. 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. Bijan Khosrowshahi Non-Executive Director of the Board, Chair of CIB’s Compensation Committee Mr. Bijan Khosrowshahi has sat on CIB’s Board of Directors as a Non-Executive Member since October 2014, representing the interest of Fair- fax Financial Holdings Ltd. Mr. Khosrowshahi chairs the Compensation Committee and is a member of the Risk and Governance and Nomi- nation Committees. Mr. Khosrowshahi is the President and CEO of Fairfax International. He joined Fairfax Financial Holdings in June 2009 and is currently based in London, UK. Fairfax is a financial services hold- ing company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. Fair- fax is listed on the Toronto Stock Exchange. Fairfax International focuses on expanding Fairfax Financial Holdings’ insurance presence outside North America. Mr. Khosrowshahi also represents Fairfax’s interests as a board mem- ber at the Gulf Insurance Group K.S.C.P., Gulf Insurance & Reinsurance Company in Kuwait, Bahrain Kuwait Insurance Company B.S.C., Arab Misr Insurance Group S.A.E. in Egypt, Arab Orient Insurance Company in Jordan, Gulf Sigorta A.S. in Turkey, Alliance Insurance Company P.S.C in the UAE, Jordan Kuwait Bank in Jordan, Colonnade Insurance S.A. in Luxem- bourg, Southbridge Compañía de Seguros Ge- nerales S.A. in Chile, La Meridional Compañía Argentina de Seguros S.A. in Argentina, and SBS Seguros Colombia S.A. in Colombia. 122 Annual Report 2018 Annual Report 2018 123 SuSTAInABILITy >> Corporate Governance Public Administration (MPA) from the Harvard School of Government; and 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 interna- tional awards and recognitions for her excellence in leadership. She has been decorated with the Wissam Alaouite from HM King Mohamed VI of Morocco, named “Personalité d’avenir” by the Government of France, and selected as one of “The 50 Most Influential Women in Africa”. She has also received the “Outstanding Alumni Award” from the University of Manchester. Dr. Abou-Zeid is also member of the prestigious Global Leaders Broadband Commission for Sus- tainable Development and of the Stewardship Board for System Initiative on Shaping the Future of Energy. She co-leads the Steering Committee of Smart Africa and the Africa-EU Digital Economy High Level Task Force. Dr. Amani Abou-Zeid Non-Executive Director of the Board Dr. Amani Abou-Zeid has served as a Non-Exec- utive Board Member at CIB since December 2017, sitting on the Risk, Compensation, and Gover- nance and Nomination Committees. Dr. Abou-Zeid is the African Union Commis- sioner in charge of Infrastructure, Energy, ICT and Tourism. For more than 30 years, she has served in leadership positions at international organizations such as the African Development Bank (Af DB), UNDP, and USAID, with a focus on infrastructure and energy programs. Over her career, she has amassed a remarkable mix of experience from across Africa, France, the UK, and Canada, working across constituencies with a wide array of stakeholders. As Commissioner of the AfDB, she has managed the organization’s largest operational portfolio and implemented national and continental multi- sectoral development programs, including the world’s largest solar power plant (Nour). In 2018, Commissioner Abou-Zeid launched the Single Af- rican Air Transport Market, delivering on the first flagship project for African Integration under Af- rican Union Agenda 2063. She also launched the African digital identity DotAfrica, among other continental initiatives. An Egyptian national, Dr. Abou-Zeid has enjoyed a wide-ranging, multi-disciplinary academic training, including: a B.Sc. in Electrical Engineer- ing from Cairo University; MBA in Project Man- agement from the French University for African Development (Université Senghor); a Masters of Mrs. Magda Habib Non-Executive Director of the Board Mrs. Magda Habib has been a Non-Executive Board Member at CIB since December 2017, sitting on the Operations and Technology, Compensation, and Governance and Nomination Committees. Mrs. Habib is the Co-founder and Chief Executive Of- ficer of Dawi Clinics, a chain of primary care clinics established in Egypt in 2016. Mrs. Habib has vast ex- perience in the technical information technology and electronic payments fields, as well as smart banking solutions. She draws upon 25 years of expertise in various managerial arenas, including strategic brand management, consumer and retail marketing, corpo- rate communications, and investor relations. She has also been a 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 of the executive team, Mrs. Habib helped establish Fawry as the lead- ing electronics payment 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 mem- ber of Raya Holding’s executive team, where she played a key role in the merger and development of Raya Group, as well as being responsible for the creation and development of the Raya brand during its evolution into one of Egypt’s leading technology players. Mrs. Habib obtained an MBA from INSEAD, France. She holds a B.Sc. with Honors in Com- puter Science from AUC. 7 Committees help the BoD fulfill its responsibilities Board of Directors’ Committees CIB’s BoD has seven standing committees that as- sist in fulfilling its responsibilities. Each committee chairperson is responsible for briefing the BoD on the major issues raised by the committee he/she chairs. Such briefings enable the members of the BoD to carry out their duties in an effective manner. Each committee operates under a written charter that sets out its responsibilities and composition re- quirements, reporting to the BoD on a regular basis. Separate committees may be set up by the BoD to consider specific issues when the need arises. 124 Annual Report 2018 Annual Report 2018 125 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 This Committee was established to offer effective oversight of the in- tegrity 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 independence and objectivity of each and the quality of the audit and compliance processes. The Committee met five times in 2018. Management Committee Responsible for executing the Bank’s strategy as approved by the BoD and in compliance with the Bank’s policies Governance and Nomination Committee Responsible for CIB’s corporate governance as well as the BoD’s nomination process and succession planning Chair: Mr. Yasser Hashem Members: All other NEDs This Committee advises the BoD on the general oversight of gover- nance matters and ensures the promotion of a sound governance cul- ture within the BoD 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 crite- ria for selecting new directors and assisting the BoD in identifying individuals qualified to become BoD members and recommending director nominees to shareholders. Besides these functions, the Com- mittee provides advice and assistance to the BoD, when necessary, with respect to a potential successor to the Bank’s Chief Executive Officer. The committee met four times in 2018. Compensation Committee Responsible for compensation of the BoD and the Bank’s executive officers Chair: Mr. Bijan Khosrow- shahi Members: All other NEDs This Committee was established to provide guidance to the BoD with regards to the appropriate compensation for the BoD and the Bank’s executive officers and to ensure that compensation is consistent with the Bank’s objectives, strategy, and control envi- ronment. The Committee ensures that clear policies for the Bank’s salaries and compensation schemes are in place and that they are effective at attracting and retaining the best caliber professionals. The Committee met two times in 2018. Risk Committee Supervising risk management Chair: Mr. Mark Richards Members: Mr. Jawaid Mirza Mr. Bijan Khosrow- shahi Dr. Amani Abou-Zeid Operations and Technology Committee Assisting the BoD in overseeing Bank operations, technology strategy, and operations and technology risk Chair: Dr. Sherif Kamel Members: Mr. Jawaid Mirza Mrs. Magda Habib This Committee oversees risk exposure management functions and assesses management’s compliance with the risk strategies and policies approved by the BoD through periodic reports sub- mitted by the Risk Management Group. The Committee makes rec- ommendations to the BoD regarding risk management strategies and policies (including those related to capital adequacy, liquidity management, various types of risk: credit, market, operation, com- pliance, reputation, and any other risks the Bank might be exposed to). The Committee met four times in 2018. This Committee was established to provide oversight of the Bank’s operations, technology strategy, and significant investments in support of this strategy, as well as operations and technology risk management. The Committee met four times in 2018. The Committee is responsible for executing the Bank’s strat- egy as approved by the BoD. The Committee manages the day-to-day functions of the Bank to ensure alignment with strategy, effective controls, risk assessment, and efficient use of the Bank’s resources. The Committee also monitors the Bank’s strategic affiliates and subsidiaries. The Committee met 16 times in 2018. Chair: Mr. Hussein Abaza Voting Members: Mr. Ahmed Issa – CEO Consumer Banking Mr. Amr El-Ganainy – CEO Institutional Banking Mr. Mohamed Sultan – Chief Operating Officer Ms. Pakinam Essam – Chief Risk Officer 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. Under the authori- ties delegated to the Committee as stipulated in the Bank’s Credit and Investment Policies, it is empowered to take deci- sions respecting asset allocation. The Committee convened weekly throughout 2018 and met 50 times. External Auditor The Board Audit Committee recommends the appointment and/or termination of the external auditor, which is approved at the General Assembly Meeting of Shareholders. Moreover, the Board Audit Committee evaluates the performance of the ex- ternal auditor and endorses the prepared financial statements to ensure they reflect the Bank’s perfor- mance and faithfully reveal its genuine financial position. In adherence to CBE regulations, external auditors are reappointed every five years to ensure objectivity and exposure to new practices. Shareholders’ Rights CIB’s Annual General Meeting of Shareholders is held in March each year, no later than six months after the end of the Bank’s financial year. The Gen- eral Assembly provides a platform for shareholders to exercise their voting rights. Additional Extraor- dinary General Shareholder meetings may be con- vened at any time by the BoD. Shareholder consent is required for key decisions such as: • Adoption of financial statements • Voting on proposed dividends by the BoD • Significant changes to the Bank’s corporate governance practices • Remuneration policy • Remuneration of Non-Executive Directors • 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 126 Annual Report 2018 Annual Report 2018 127 SuSTAInABILITy Management Committee Mr. Hussein Abaza Chief Executive Officer and Board Member Mr. Hussein Abaza leads strategy and operations at CIB, an institution with more than 6,750 em- ployees serving more than 1.3 million customers, including Egypt’s 500 largest corporations, online and at 203 branches, 917 ATMs, and 13,446 points of sale nationwide. Mr. Abaza has been Chief Executive Officer and a Member of the Board of Directors since March 2017. He assumed this posi- tion after a six-year run as CEO of Institutional Banking. Prior to this, Mr. Abaza was the Bank’s Chief Operating Officer and, from 2001 to 2010, its Chief Risk Officer responsible for managing credit, market, and operational risk across CIB. Mr. Abaza is also a leader of the Bank’s award-win- ning investor relations program, in which capacity he has helped CIB grow from a market capitaliza- tion of EGP 10.8 billion in 2008 to EGP 86 billion as of December 2018. Under Hussein’s leadership, the team managed Ripplewood’s 2009 exit from CIB, the entry into the shareholding structure of global emerging markets private equity firm Actis, and the subsequent sale of Actis’s 6.5% stake to Canadian insurance firm Fairfax Financial Hold- ing Ltd. in the Egyptian Exchange’s first block trading transaction. The Bank’s IR program has taken home wins from the Extel / MEIRA poll for five consecutive years, from 2014 to 2018. In more than 25 years with CIB, Mr. Abaza has be- come actively involved in the Bank’s regionally re- nowned credit training program, providing talented young bankers with the theoretical basis and hands- on experience needed to assess the creditworthiness of organizations across all sectors of the economy. He brings to CIB a sharp interest in financial mar- kets and non-bank financial services, having served as Head of Research and then Managing Director at EFG Hermes Asset Management from 1995 until his return to CIB in 2001. He called on that experience from 2014 to 2017 when he was Chairman of CI Capi- tal, a leading Egyptian investment bank and subsid- iary of CIB until the Bank exited its investments. Mr. Abaza joined CIB after obtaining his BA in Busi- ness Administration from AUC. He has pursued post-graduate training and education in Belgium, Switzerland, London, and New York. Mr. Mohamed Sultan Chief Operating Officer Mr. Mohamed Sultan is CIB’s Chief Operating Of- ficer, 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 and IT before assuming his role as COO. Under his leadership and management, the Opera- tions Group was significantly developed, resulting in major expansions within the operations function. New divisions were established serving the expan- sion of the business or merging several operations divisions, including Corporate Services, Alternative Channels, and Real Estate and Facility Management. In his continuous efforts to enhance the Bank’s in- ternal and external customer experience in align- ment with CIB’s overall objectives and strategic goals, multiple departments were established, in- cluding Treasury Middle Office, Operations Con- trol Management, Retail Operations, Customer Care and Experience, as well as the Sustainable Development Department. His vision brought about the establishment of the Security and Resilience Management Group, with a clear strategic mandate to develop and firmly establish the Bank’s business continuity and cy- ber security management capabilities. Under his leadership, CIB has obtained ISO22301:2012 Cer- tification in Business Continuity Management, positioning CIB as the pioneer and leader among peer financial institutions in the market. In 2015 and 2016, Mr. Sultan led a major trans- formation strategy in the IT Department, adding significant value to existing technology and en- hanced infrastructure. The aim was a more solid foundation that provides superior services to cus- tomers and allows the business to grow smoothly as the Bank moves forward. Mr. Sultan has also been leading programs under the Bank’s Strategic and Digital Transformational Agenda and has played a significant role in expediting the adoption of digital technologies with the aim of maintaining CIB’s role as market leader in this domain. Prior to joining CIB, Mr. Sultan held the positions of Vice President of Branch Operations and Con- trol Management at Mashreq Bank and Country Operations Head at the National Bank of Oman. He has attended several leadership programs in top business schools and is also an alumnus of INSEAD Business School. 128 Annual Report 2018 Annual Report 2018 129 SuSTAInABILITy >> Management Committee Mr. Amr El Ganainy Chief Executive Officer, Institutional Banking Mr. Amr El Ganainy joined CIB in 2004 as General Manager of the Financial Institutions Group. In January 2010, he assumed his role as President of the Global Customer Relations Department, before taking on his current role 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 Member of The Egyptian Holding Co. for Airports and Air Navigation, General Assembly Member of Egyptair Holding Co., Honorary Chair- man of Inter-Arab Cambist Association (ICA), Honorary Chairman of Egyptian Dealers Associa- tion (ACI Egypt), and a member of the American Chamber of Commerce in Egypt. Mr. El Ganainy has served as Chairman of CI Asset Management Co., Chairman of Commercial Inter- national 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 Chair- man of Capital Securities Brokerage Co. Prior to joining CIB, Mr. El Ganainy worked at the United Bank of Egypt as General Manager, Treasurer and Head of Correspondent Banking and was Chief Dealer of the Export Develop- ment Bank. He began his career as a dealer at Suez Canal Bank. Mr. Ahmed Issa Chief Executive Officer, Retail Banking Mr. Ahmed Issa is the Chief Executive officer of Retail Banking, a responsibility he assumed in January 2017. He started his banking career in 1993 at CIB branches and attended CIB’s industry-leading credit course in 1994. He was later promoted through the ranks within CIB’s Corporate and Investment Banking divi- sions between 1995 and 2001. His career has seen him take on notable positions such as Head of Research at CIBC, Managing Director of CI Capital Investment Banking, Head of the Financial Institutions Group at CIB Corporate Banking, Chairman of Egypt’s lead- ing lease finance company, Corplease, Chairman of Egypt’s largest security company, Falcon Group, and the first Head of Strategic Planning at CIB. Mr. Issa is an industry veteran, chairing the Bank- ing and Finance Committee of the American Chamber of Commerce in Egypt and speaking regularly at the chamber’s industry committee meetings. He was Chair of the Audit Committee of the Board at the Ministry of Civil Aviation Finance Holding Company and in 2017 was selected by His Excellency the Prime Minister of Egypt to sit on the Board of Egypt’s Trade Development Authority. In April 2018, at the request of His Excellency the Minister of Aviation, he became a member of the Board of Directors at Egyptair Holding Company. Mr. Issa has been industrious about self-develop- ment throughout his career. In 2001, he earned an MBA from the University of North Carolina at Chapel Hill. He was a Fulbright Scholar at Har- vard University and at Merrill Lynch in 1997. Ms. Pakinam Essam Chief Risk Officer Ms. Pakinam Essam serves as CIB’s Chief Risk Officer (CRO), having been appointed in Janu- ary 2011. Since then, she commenced the Risk Transformation Process, and the CIB Risk Group evolved into a forward-looking, holistic organiza- tion with an integrated view of risks, covering all key areas including institutional banking, consumer banking, business banking, market, operational, liquidity, and interest rate risks. She has expanded the group’s coverage to focus on emerging non-financial risks, such as conduct, cyber security, information security, vendor management, IT, reputation, and social and en- vironmental risks. Ms. Essam is championing the Bank’s Enterprise Risk Management framework, with emphasis on infrastructure, process, envi- ronment, and risk culture. Under her leadership, CIB has been recognized for six prestigious risk awards by Asian Banker Sin- gapore for the Middle East and Africa in the fol- lowing categories: Enterprise Risk Management, Retail Risk, Liquidity Risk, and Operational Risk. Ms. Essam is a key member of the Bank’s executive committee 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. l a t e p a i l h a d k n p a i n o s u c o f e v i t c e e S l 130 Annual Report 2018 Annual Report 2018 131 SuSTAInABILITy Sustainable Development Department The report provides insight into the Bank’s energy use and net greenhouse gas (GHG) emissions in terms of tons of carbon dioxide equivalent (tCO2e). CIB’s 2017 report covers 52 branches and 899 em- ployees in the Giza and Alexandria governorates — two of the top GHG emitting governorates in Egypt, with populations of 8.7 million and 5.2 mil- lion inhabitants and emissions of 28 million and 17 million MtCO2e, respectively. CIB’s emissions per employee for scopes 1 and 2 were 5.60 MtCO2e, higher than the median of the bank- ing sector’s emissions for scope 1 and 2 emissions of 4.50 MtCO2e/employee and the international best practice 2.82 MtCO2e/employee, according to the Carbon Disclosure Project organization (CDP). The Bank needs therefore to cut its emissions by at least 20% to reach median ranges. CIB strives to adapt and contribute to the evolv- ing landscape of the business community and harness challenges and opportunities alike to support long-term value creation while ensur- ing a more sustainable, inclusive, and climate- resilient future. Aligning CIB’s activities with the Sustainable Development Goals (SDGs), Egypt’s Vision 2030, and the Paris Agreement on Climate Change is a crucial step in this direction. Equally important is partnering with leading global enti- ties to achieve synergies. Instilling a bank-wide culture of sustainability re- mains at the core of CIB’s agenda. We are also gradu- ally and responsibly integrating environmental, social, and governance (ESG) considerations into our policies, core business, and day-to-day practices. This effort is reinforced by systematic awareness-raising activities, cross-departmental training, e-learning programs, and the use of a variety of social media channels. Managing our Ecological Footprint CIB is managing its environmental footprint by applying the highest standards and employing the greatest resources when it comes to mitigating its en- ergy and water consumption, carbon footprint, and waste management. Considerable progress has been made since 2014 in this regard despite significant growth in the Bank’s operations and headcount. CIB Carbon Footprint Calculations Stemming from its serious commitment to sustain- ability and transparency, and in line with the SDGs and Egypt’s Vision 2030, CIB issued its first Carbon Footprint Report in 2017. This new reporting effort is a natural progression following the Bank’s sustain- ability reports published in 2015, 2016, and 2017. This initiative places CIB at the forefront of Egypt’s banking sector with regards to a comprehensive carbon foot- print assessment and sets the standards for our peers. 40% Annual savings in energy consumption CIB’s EMISSIONS PER SCOPE (MtCO2e) Scope 1 – Direct Emissions Owned Vehicles Refrigerants Leakage Scope 2 – Direct Emissions Purchased Electricity Scope 3 – Indirect Emissions Transportation Aerial Transportation Water and Wastewater Paper Consumption Solid Waste Disposal 14% 991.41 60.82 54% 3,983.60 32% 1,135.90 262.82 21.56 54.59 852.03 Total Emissions Emissions/Employee MtCo2e Emissions/Employee MtCo2e (Scopes 1 & 2) 7,362.73 8.19 MtCo2e 5.60 MtCo2e 132 Annual Report 2018 Annual Report 2018 133 SuSTAInABILITy >> Sustainable Development Department Lighting Efficiency In support of Egypt’s promising nation-wide Lighting Efficiency Improvement Initia- tive, we transitioned to LED lighting systems across our premises in 2017. This re- duced the Bank’s energy consumption by 11 KWs between 2014 and 2018, according to a review conducted by the Egyptian Ministry of Electricity and Renewable Energy. Annual savings on electricity consumption reached 40%, and the payback period was 14 months. CIB received a special award from the Energy Efficiency Project in recog- nition of its outstanding energy efficiency efforts. Outcome: CIB’s electricity consumption is consistently being monitored and fig- ures show that usage in 90 mega CIB buildings (large premises) located in Egypt’s main cities has dropped 2.53% in 2018 to 18204316.67 KWs from the 18666336.64 KWs consumed in 2017. Water Efficiency In 2018, CIB initially installed 1,600 aerators as part of a trial effort to reduce water consumption across its premises. This project was highly successful, and the Bank developed a plan to install aerators across all premises in Egypt and all new build- ings in the coming years. This effort has led us to save 103 million liters of water in 2018, a 40% reduction in consumption. Outcome: This effort has led us to save EGP 518,000 in water-related expenses and achieved a return on our investment in only four months. Paper Reduction Paper reduction is a promising area for the division. Paper reduction efforts spurred a healthy “Paper Champs!” competition between branch offices seeking to cut down on paper waste. Any paper waste our branches create is sold to paper recycling startups. Proceeds are credited to the Sustainability Account, whose credit is subsequently used for green projects such as green rooftops. Outcome: In 2018, a total EGP 184,326 was credited to the Sustainability Account as part of these efforts. Despite the annual increase in CIB’s staff and number of branches, bank-wide paper consumption rose marginally to record 38 million sheets in 2018, up from 35 million sheets in 2017. Electronic Waste (E-waste) With the world becoming digitally dependent, reducing digital waste is vital. CIB began to implement an e-waste management initiative during the latter part of 2017 to safely dispose of mobiles, computers, iPads, and similar devices. Outcome: In 2018, a total of EGP 1 million was credited to the Sustainability Account as part of these efforts. National Initiative on Plastic Bag Consumption Reduction CIB is cooperating with the Ministry of Environment to participate in a national campaign to promote the use of biodegradable plastic bags. It sets to increase public awareness of the hazardous effects of non-biodegradable plastic on human health, the environment, and the economy. Biodegradable plastic bags are now used across the Bank; a change consistent with the international trend of sustain- able consumption and production. Internal Carpooling Application CIB encourages its employees to use a tailored carpooling application called Raye7 CIB that connects CIBians who want to carpool to and from work every day. In 2018, the application was used by over 1,000 employees. This initiative has generated a positive environmental impact, strengthened ties in our community, and allowed us to support young Egyptian entrepreneurs. 134 Annual Report 2018 Annual Report 2018 135 SuSTAInABILITy >> Sustainable Development Department Green Buildings CIB collaborated closely with the Housing and Building National Research Centre and the Ministry of Housing, Utilities, and Urban Development to obtain an Egyptian Green Pyramids Certificate. This world-class, home-grown initiative is comparable to the internationally recognized Leadership in Energy and Environmental Design (LEED) standards. It is a mark of distinction signifying that a building has been con- structed or is operated in a way that is green, high-performing, and resource-efficient. CIB also contributed to the development of a Green Building Rating System – Green Pyramids Rating System (GPRS). Two of our head offices were awarded the highest environmental GPRS Green Level for meeting the following criteria: • General accessibility and design quality that provides easy access to all stakeholders • Use of renewable energy sources, such as covering the building with solar sheets (rooftop panels and curved façade panels) and installing a central solar water heater • Establishment of internal and external vertical gardens that improve air-quality, insulation, and visual comfort; native plants are used and consume the mini- mum amount of water through an automatic irrigation system • Roof designed as a social space with seating and a cafeteria shaded by solar-grids • Efficient energy performance through use of LED lighting, occupancy sensors, and double-glass for insulation • Connection of all electrical, PV, HVAC, and water meters to a building manage- ment system that ensures effective monitoring and optimization • Prevention of ozone depletion through use of split units with environmentally friendly refrigerant 407-A • Installation of photocell taps in toilets and a gray water system to minimize water consumption • Adherence to sustainable housekeeping practices, such as environmentally friendly pesticide control, waste management policies, and use of segregated trash bins Noise Audit on Branches In line with our goal to protect the environment and provide a better setting for both employees and customers, the Bank has voluntarily conducted a review of noise ratios at five branches that serve a large number of clients from a cross section of the population. CIB is following up on the recommendations of the noise audit report. We have cre- ated a task force responsible for implementing the following changes: • Periodic maintenance to maintain device efficiency • Use of soundproof glass and double-glass in louder areas • Reduction in the sound of the Qmatic system in branches Electronic Tuk-tuks CIB led an initiative to transform the tuk-tuk taxi system in El Gouna, a luxury Egyptian resort on the Red Sea. El Gouna has made significant efforts to preserve its environment and community through efforts such as becoming a zero waste town, producing organic food, and working to become the only carbon-free resort in Egypt. Because of the noise and pollution created by tuk-tuks, El Gouna was eager to replace the existing fleet with state-of-the-art, zero-emission solar electric vehicles. CIB proudly contributed to the project by delivering the necessary e- tuk-tuks to El Gouna. Accepted locally and globally Classic debit card Cash and purchase Maximum daily limit of EGP 500 Accepting increase of daily cash limit through the VIP Call Center Existing debit card pricing applies 136 Annual Report 2018 Annual Report 2018 137 SuSTAInABILITy >> Sustainable Development Department Inclusion Efforts Special-needs Accessibility: A Holistic Approach This issue has been high on CIB’s list of priorities for a few years now, and by 2018 we successfully equipped 26 branches with ramps, low teller desks, and toilet rails. Additionally, we installed 95 talking ATMs at key locations across Egypt. In addition, we conducted training sessions for 250 front-liners and customer representatives on how to best serve customers with special needs. This training was conducted in partnership with an NGO with an extensive track record in the field of special needs advocacy. CIB is also developing a code of acces- sibility that evaluates branches’ and ATMs’ ease of use to identify gaps and appropriate improvements. We are also establishing partnerships to increase job accessibility and recruitment levels for special needs individuals in Egypt. Recently, CIB extended even more accessibility to visually impaired customers by providing easier access to POS terminals. Prior to this, access was limited to the use of ATMs. Monitoring and Reporting Science Based Targets Initiative As no widely accepted approach exists to assess whether investing and lending activities are aligned with a 2°C trajectory, the Science Based Targets ini- tiative (SBTi) invited CIB to participate in a financial sector working group to develop a new assessment methodology. SBTi is a partnership between CDP, UN Global Compact, WRI, and WWF that seeks to increase corporate ambition on climate action by mobilizing companies to set greenhouse gas emis- sion reduction targets so that by 2020 we limit global warming to 2°C. Embedding science-based targets as a fundamental component of sustainability man- agement practices is crucial in achieving this goal. CIB Sustainability Report To track our performance and periodically benchmark and communicate our progress to stakeholders, we identify and report on sustain- ability KPIs relevant to our business. CIB adheres to the Global Reporting Initiative (GRI) stan- dards, which provide the most comprehensive framework for sustainability reporting. The Bank has been developing a standalone sustainability report every year since 2014. Carbon Disclosure Project CIB participated for the first time in early 2018 in this global disclosure system, making it the first Egyptian company to do so. The Carbon Disclosure Project enables companies and states to measure and manage their environmental impacts. Bloomberg Gender Equality Index (GEI) CIB was included on the 2019 Bloomberg Gender Equality Index (GEI) based on data collected and reported in 2018. Of the 230 companies selected for the GEI, CIB became the first Arab and African company to be named on the index. The Bloomberg GEI is the world’s only comprehensive, investment- quality data source on gender equality. Collectively, these companies have a combined market capital- ization of USD 9 trillion and employ over 15 million people, 7 million of whom are women. FTSE4Good Sustainability Index CIB was recognized by the Financial Times as a con- stituent of the FTSE4Good Sustainability Index for the third consecutive year in 2018. EGX Sustainability Index In 2018, CIB ranked first on in the EGX Sustainabil- ity Index for the fifth consecutive year. e g n a r e s o c l n i d e r u t p a c k o o b a f o s e g a P 138 Annual Report 2018 Annual Report 2018 139 Community Development CIB’s community development activities run the gamut of support to health, sports, social welfare, and art d r a o b t i u c r i c a f o t o h s o r c a M CoMMunITy DEvELoPMEnT Corporate Social Responsibility CIB has continued to embed corporate social re- sponsibility (CSR) at the heart of the organization. This year, it has expanded its steadfast commitment to the communities in which it operates by diversi- fying its community development activities, which include supporting sports, fine art, culture, and social care. It has implemented various CSR projects and provided crucial support to the initiatives of other organizations. In 2018, CIB continued to positively impact its communities by strengthening its support for sports in Egypt and nurturing the country’s ath- letic talents. Squash-related initiatives were again at the core of CIB’s CSR agenda, and we broadened our support to generate more opportunities and value for a wider community. To know more about CIB’s efforts in supporting Egyptian athletes in the squash arena, please refer to the Supporting the Best in Class: Squash section of this report. Supporting Students of Fine Arts Faculties: CIB works hard to uncover hidden artistic talent across Egypt by shedding light on distinctive artwork and supporting students in the faculties of fine arts. The Bank participated in the exhibition of student proj- ects at the universities of Luxor, Assuit, Menya, and Mansoura. We acquired distinctive works to enrich our art collection while incentivizing young talents. Night with Arts at Manial Palace: CIB sponsored “Night with the Arts” for the second year in a row. This year, the exhibition “Nothing Vanishes, Everything Transforms” showcased Egypt’s rich cultural heritage, having been held at the historic Manial Palace. With more than 500 renowned guests in attendance, CIB displayed one of its art pieces from its art collection for the first time. Africa Art Workshop: For the first time ever, CIB supported an African painting workshop led by Soma Art School in the Democratic Republic of Congo during the seventh edition of the Rencontre Internationale d’Art Contemporain (RIAC) event. Sponsorship of Ramadan Soccer Tournament for Abu El-Rish Children’s Hospital: CIB contrib- uted to a charity soccer tournament last Rama- dan, which was held to support the Abu El-Rish Children Hospital. All the tournament’s funds were donated to the hospital. Promoting the Legacy of Egyptian Cinema: CIB maintains its commitment to preserve the legacy of Egypt across different fields, including art and cin- ema. The Bank sponsored the special “Cinema Edi- tion” of the cultural magazine “Rawi”, which focuses on Egyptian heritage. Another significant area in which CIB focused its CSR efforts in 2018 is art and culture. Out of a belief that the advancement of a nation stems from im- proving the culture and aesthetic sense of society, CIB has been diversifying its support of artistic endeavors throughout Egypt. Made in Egypt: CIB aims to support entrepre- neurial spirit in Egypt by identifying distinc- tive artistic talents. This year, CIB continued to sponsor “Made in Egypt”, an exhibition of young Egyptian designers held in London featuring the country’s best artistic productions. CIB continued to positively impact its communities by strengthening its support for sports in Egypt and nurturing the country’s athletic talents. CIB’s CSR initiatives and activities are designed with the goal of making a positive, sustainable impact on people’s lives. KidZania: CIB and KidZania’s partnership began in 2013, and since then, the Bank has successfully or- ganized several trips each year to KidZania for more than 150 underprivileged children, special needs chil- dren, as well as children with health conditions. Under the auspices of the CIB Foundation, the trips provided children a fun setting in which to learn about diverse banking operations, such as issuing cheques, debit cards, and depositing and withdrawing money using KidZania’s official currency: Kidzos. Autism International Day/ADVANCE: This year, the Bank continued its sponsorship of the Egyp- tian Advance Society for Persons with Autism and Other Disabilities (ADVANCE)’s annual ceremony. We also sponsored 2018 World Autism Awareness Day in Egypt to support the integration of people with disabilities into society. In further efforts, the Bank’s Smart Village headquarters and select branches were lit in blue in solidarity on World Autism Awareness Day. Beena: CIB has been the main partner and finan- cial sponsor of Beena for three consecutive years. Beena is a protocol signed between the Bank and the Ministry of Social Solidarity to encourage ac- tive youth participation in the community and monitor the development of social care services. This initiative successfully attracted thousands of volunteers around Egypt who assisted in orphan- ages, elderly homes, and special-needs houses. El Sawy Culture Wheel: In 2018, CIB continued its long-lasting sponsorship of El Sawy Culture Wheel, supporting its various intellectual, cultural, and social activities, including concerts by internation- ally recognized artists, cultural nights, art exhibi- tions, documentary films, and more. This year, the Bank launched a new initiative in cooperation with the CIB Foundation and other NGOs to provide entertaining and educational programs at El Sawy Culture Wheel that target children. Science Fair Sponsorship: CIB sponsored a sci- ence fair for school students to foster the scientific thinking process from an early age and encourage children to explore future careers in scientific fields. The fair featured groups of students from dif- ferent grades who submitted projects to a panel of judges, which evaluated each project and awarded numerous titles to winning teams. Exclusive Sponsorship of Hona Al Shabab: This year, CIB was the sole banking sponsor of the second season of CBC’s televised entrepreneur- ship competition Hona Al Shabab. Hosted by Egyptian broadcast presenter Lamees El Hadidi, the competition supports young fintech entrepre- neurs and business startups. Of the 30 startups involved, interactive design-lab startup Argineer- ing nabbed the first place. After the competition, a special event was held in CIB headquarters in Smart Village to celebrate the winners and con- testants with CIB senior management. 142 Annual Report 2018 Annual Report 2018 143 CoMMunITy DEvELoPMEnT Supporting the Best in Class: Squash In 2018, CIB continued to positively impact the community in which it does business through a key component of its social development agenda: supporting and nurturing the country’s athletic talents. At CIB, we recognized early on the true potential of Egypt’s squash players, who have come not only to dominate world rankings, but completely revolutionize the way the game is being played. This year, we broadened our support of the sport to capitalize on the traction its players are carving out globally. It is our belief that support- ing these talents generates more opportunities and value for the Egyptian athletic community and raises the profile of Egypt on the world stage. Sponsorship of Egyptian Squash Federation CIB maintained its sponsorship of the Egyptian Squash Federation for the seventh consecutive year. The Bank also expanded its commitment by sponsoring the National Women’s and Junior Squash Teams. This support has played a direct role in the national teams’ accomplishments throughout the year, including the fact that the National Junior Squash Team won the World Junior Squash Championship in India for the sixth time since 1994. Almost simultaneously, the National Women’s Squash Team was named Women’s World Team Champion in China, suc- cessfully retaining their title. The country’s dominant position in the squash world stems from a tight-knit squash community. Egyptian players have introduced a dynamic new style of squash that emphasizes offense and has brought a flood of major honors while entertain- ing spectators the world over. Egypt’s squash community has produced five world number ones in the men’s game and two in the women’s game. Six Egyptian players are among the world’s top 10 men players and four Egyptians are among the top 10 women as of February 2019. The squash community embodies the values that CIB strives to instill in its own staff and to promote in the wider community. Young players from all walks of life have had the chance to display their excellence on the global stage thanks to a steely per- severance, openness to competition, support from peers, and the availability of resources. Squash dem- onstrates clearly what Egyptian youth are capable of achieving in a competitive arena when they have the community’s support and attention. Currently, Egyptian players hold the Men’s World Team Championship, the Women’s World Team Championships, and the Juniors’ World Team Championship titles. Sponsorship of Squash Tournaments CIB has expanded its squash-related sponsor- ships to open up doors for more Egyptian athletes to progress in the PSA world rankings. The first was the CIB Wadi Degla Squash Circuit, which was held in October 2018 and involved over 40 players from 16 countries. CIB also sponsored the CIB BlackBall Open in December 2018, the first major PSA Platinum tournament to take place in Egypt since the Men’s 2016 PSA World Champion- ship. The event witnessed the participation of 48 top players from all over the world who competed for a prize of USD 180,000. CIB also sponsored the Maadi Club Squash Tournament. Sponsorship of Egyptian Athletes In support of young players leading the world’s squash rankings, CIB has created special sponsor- ships to help six talented players maintain their rankings and continue representing the country around the world. The following players were re- cipients of these sponsorships: Ali Farag – 2nd on the Men’s PSA World Squash List A graduate of Harvard University with a degree in Mechanical Engineering, Ali Farag has estab- lished himself as one of the most popular players on the PSA World Tour. The 26-year old has won 14 PSA titles, including the US Open 2017, Qatar Classic 2018, and most recently the JP Morgan Tournament of Champions in January, which will see him move to the World No. 1 spot for the first time in his career in March 2019. Farag managed to reach the finals of all seven tournaments of this season so far. Farag is known for his sportsman- ship, as he won the end-of-season PSA Awards, the Fan’s Player of the Season award, and the Spirit of Squash award in 2016 and 2017. Nour El-Tayeb – 4th on the Women’s PSA World Squash List Known for her acrobatic playing style, Nour El- Tayeb is one of the most entertaining and consis- tent players gracing the PSA World Tour. She is the winner of eight PSA titles, a three-time Egyptian National Champion, two-time Women’s World Team Champion, and the 2011 World Junior Cham- pion. El-Tayeb became the third-youngest Tour title winner in 2010, winning a second Tour title in 2011. During her career, she has also won the US Open and Windy City Open. In 2017, Farag and El- Tayeb made history by becoming the first married couple to win a major sporting event on the same day, both winning the US Open. Tarek Momen – 3rd on the Men’s PSA World Squash List A graduate of AUC’s School of Engineering, Tarek Mo- men won his first Tour title at the Irish Open in 2011. He is the winner of six PSA titles, the biggest being the PSA World Tour Gold Channel Vas Open in London 2018. He was a semifinalist at the World Open 2015 in Seattle, finalist at the Qatar Classic Open 2017, and the Tournament of Champions in New York 2018. He was also Egypt’s National Champion in 2009. Momen engineered one of the biggest squash shocks in recent history when he won the Malaysian Open in 2012 despite being unseeded for the competition. In 2018, Momen nabbed the Channel VAS Open title, and in 2019 he won the CCI International. Karim Abdel Gawad – 5th on the Men’s PSA World Squash List Karim Abdel Gawad emerged as one of the world’s leading players in the 2016/17 season. He was the 2016 World Champion and World No.1. Abdel Ga- wad is the winner of 20 PSA tournaments, and was the 2016 Qatar classic winner, 2017 Tournament of Champions (TOC) winner, and the 2017 World team’s winner. With multiple prestigious titles already under his belt, the 2016/17 season saw him rake in an astonishing five Tour titles including the World Open to become the fifth Egyptian player ever to top the PSA Men’s World Rankings. Most recently in 2018, he won the CIB BlackBall Open. Ramy Ashour – 24th on the Men’s PSA World Squash List Known as ‘The Artist,’ Ramy Ashour is one of the most talented players in the history of the game. In 2010, Ashour became the World No. 1 at the age of 22 – the youngest player to reach that summit 144 Annual Report 2018 Annual Report 2018 145 CoMMunITy DEvELoPMEnT >> Supporting the Best in Class: Squash e t i S h s a u q S : t i d e r c o t o h P in 26 years. With several prestigious titles to his name including three World Opens, Ashour has stunned fans all over the world with his technical excellence, going 49 matches unbeaten in 2012. Hania El-Hammamy – 17th on the Women’s PSA World Squash List At just 18 years old, Hania El-Hammamy is already a force to be reckoned with in the women’s game. In 2015, El-Hammamy shocked the squash world to become the first player born this century to lift a PSA World Tour title, and later becoming the second youngest PSA World Tour title winner in history. The young star broke into the world’s top 40 in September 2016. In 2019, El-Hammamy won the British Junior Open and followed this up with two back-to-back titles on the Senior tour. Partnership with Wadi Degla Clubs’ Darwish Squash Academy CIB announced its partnership with Wadi De- gla Clubs to support young Egyptian squash athletes by developing their skills to enhance their international rankings. The partnership is part and parcel of the Bank’s strategy to support up-and-coming talents from the ground up and builds on our pioneering role in this area. The additional athletes representing Wadi Degla and sponsored by CIB are: Raneem El Welily – 1st on the Women’s PSA World Squash List Raneem El Welily is currently the World’s No.1 Women’s Singles player. She snatched her first professional win back in 2009 and has since gone on to win 19 Open titles, including the World Open in Manchester in 2017 where she became the World Champion. El Weleily is also a two-time World Junior Champion and a four-time Women’s World Team Champion. She recently set a record by reaching eight consecutive finals on the tour. Her most memorable achievement was in Sep- tember 2015, when she became the first player in over nine years to dethrone Nicol David at the top of the World Rankings, becoming the first ever female Egyptian No.1 in any sport. Nouran Gohar – 8th on the Women’s PSA World Squash List An immensely talented youngster, Nouran Gohar is currently ranked as the number eight Women’s Single player in the world. She began 2017 as World Number Two. Prior to starting her senior career, Gohar was crowned World Junior champi- on twice, winning back to back titles in 2015 and 2016. In 2016, she also won her first Open Single title at the Hong Kong Open, a win that propelled her to the number three spot in international rankings for the year. Squash for Everyone CIB continued for the second year its “Squash for Everyone” initiative in partnership with prominent Egyptian player Amr Shabana. The program aims to provide underprivileged children with an equal op- portunity to practice squash and while doing its role to discover young, rising talents. Ali Farag Nour El-Tayeb Tarek Momen Raneem El Welily Nouran Gohar Ramy Ashour Note: All official squash rankings are as of 5th February 2019, the latest available at the time of publication. Hania El-Hammamy Karim Abdel Gawad 146 Annual Report 2018 Annual Report 2018 147 CoMMunITy DEvELoPMEnT CIB Foundation Established in 2010 as a non-profit organization under Ministry of Social Solidarity Decree No. 588 of 2010, the CIB Foundation represents another aspect of the Bank’s effort to develop a sustainable and effective channel through which the Bank can give back to the Egyptian society. As an organization, the CIB Foundation is dedicated to improving health and nutrition services extended to underprivileged children with limited access to quality healthcare by developing life-changing community initiatives. Our efforts include not only donating money but also monitoring and following up on projects’ impact. Over the years, the CIB Foundation has received multiple awards that serve as a testament to our success in creating a meaningful and sustainable impact. In 2016, we were named “Socially Respon- sible Bank of the Year” by African Banker after hav- ing received the “Most Socially Responsible Bank in North Africa” title from them the previous year. EMEA Finance Pan-Africa award for “Corporate Social Responsibility” in 2014. Mission and Vision The goal of the CIB Foundation is to ease the bur- den of procuring quality, affordable healthcare services for families and children in need. It is our belief that for a community to be productive, all its members must be healthy citizenry and that children deserve the opportunity to lead the healthiest lives possible. We achieve our mission by enhancing the quality of services offered by our partner institutions: public health partners that have a wide community reach allowing them to target those with the greatest need. We work closely with providers to maximize the size and sustainability of our impact. Budget and Financing Through the generous support of CIB shareholders, 1.5% of the Bank’s annual net profit is allocated to the CIB Foundation every year. 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 channeled toward the implementation of child development projects. The Foundation’s Board of Trustees, its staff, and CIB volunteers ensure that our resources are utilized to reach as many children as possible. 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 1.5% Of CIB’s annual net profit is allocated to the CIB Foundation Approved Projects in 2018 Children’s Cancer Hospital 57357 In April 2018, the Foundation’s Board of Trustees approved an EGP 18.9 million contribution to sup- port the purchase of 33 upgraded monitors and four central station units for the Surgical Intensive Care Unit, Intensive Care Unit, and the Bone Mar- row Transplant Unit at Children’s Cancer Hospital 57357. This equipment will automatically report patients’ physiological and biological functions, preventing human interference and increasing the efficiency of services provided to patients. As another demonstration of the Foundation’s commitment to the hospital, EGP 3.5 million was donated in April 2018 to fund patient care expenses at the Cairo and Tanta branches. One of our main goals is to bring happiness as well as tangible health benefits to children. In May 2018, CIB staff volunteers partnered with the Foundation and the team at the Children’s Cancer Hospital 57357 to decorate the hospital to bring the Ramadan spirit to patients and their families. El-Galaa Teaching Hospital In April 2018, the CIB Foundation’s Board of Trustees approved over EGP 14 million to fund the complete renovation and outfitting of El-Galaa Teaching Hospital’s Pediatric Intensive Care Unit (PICU) with eight beds rather than three to extend services to more patients on the waiting list. Once complete, this year-long project will allow the hospital to help nearly 1,000 additional children every year. The renovation and construction of the PICU includes the installation of central oxygen and ventilation networks, covering of all surfaces with anti-bacterial material, construction of isolation rooms, installation of a medical gas system, and provision of emergency electrical supplies. More- over, state-of-the-art medical equipment, such as ICU beds, resuscitation units, monitors, ventila- tors, endoscopes, ultrasound machine, and central monitoring stations were purchased. Abou El-Reesh Children’s Hospital (Japanese) Abou El-Reesh Children’s Hospital is a long-standing partner of the CIB Foundation, and in April 2018, the Board of Trustees approved EGP 10.8 million in fund- ing to purchase a fluoroscopy x-ray machine for the Radiology Department and a laparoscopy and tho- racoscopy machine for the Pediatric Surgery Depart- ment. In July 2018, the CIB Foundation donated over EGP 3.3 million to cover the first tranche of the project. Both pieces of equipment will assist the hospital in increasing the efficiency of services provided to patients and minimizing the number of children on the waiting list. Faculty of Oral and Dental Medicine at Cairo University Pediatric Dental Clinic As part of its long-term partnership with the Faculty of Oral and Dental Medicine, the CIB Foundation allocated EGP 7.5 million in July 2018 to fund the purchase of the necessary equipment and supplies for the Pediatric Dentistry Clinic in El Kasr El Aini. The donation will also fund the establishment of 148 Annual Report 2018 Annual Report 2018 149 CoMMunITy DEvELoPMEnT >> CIB Foundation another clinic in Sheikh Zayed to increase the ef- ficiency of services provided to children, including those with special needs, and drastically reduce the number of patients on the waiting list. The Faculty of Oral and Dental Medicine at Cairo University treats over 95,000 children annually from across Egypt, and it is one of the few providers of den- tal health services for children with special needs in the country. The department also offers a variety of practical training programs for undergraduate, graduate and continuing education students. Mobile Dental Caravan In 2017, the CIB Foundation contributed EGP 640,000 to purchase an outfitted mobile dental caravan for the Faculty of Oral and Dental Medicine at Cairo University, under the management of the Rotary Club of Zamalek. This year, the Foundation allocated an ad- ditional EGP 120,000 to cover the operating costs of 12 dental caravans that will be used to treat public school students in remote areas of Cairo and Giza for free. Magdi Yacoub Heart Foundation 70 Open-Heart Surgeries In July 2018, the CIB Foundation allocated EGP 7 million to the Magdi Yacoub Heart Foundation to cover costs associated with 70 pediatric open- heart surgeries. Through its ongoing contributions, the CIB Foundation supports the Magdi Yacoub Foundation’s efforts to drastically reduce the num- ber of children on the open-heart surgery waitlist. In October 2018, the CIB Foundation donated EGP 3.5 million to cover the first tranche of the project. Research Labs In February 2018, the CIB Foundation donated the final EGP 859,000 in a three-year EGP 15 million project to outfit two research labs in the Magdi Ya- coub Heart Foundation’s Aswan Heart Center. These labs will help researchers at the heart center gain a deeper understanding of various heart diseases and identify possible therapeutic strategies. Through this program, young Egyptian scientists and researchers can contribute to the advancement of world-class research from within their own country. Alexandria University Children’s Hospital – El Shatbi In April 2018, the CIB Foundation’s Board of Trustees approved EGP 6.64 million in funding to outfit the Emer- gency Department located on the ground floor of the Al- exandria University Children’s Hospital in El Shatbi. The hospital serves a large number of patients from areas across Egypt, including Alexandria, El-Beheira, Kafr El-Sheikh, and Matrouh. The CIB Foundation fulfilled its commitment to the project in October 2018. Rotary Club of Giza Metropolitan – Open Heart Surgeries The CIB Foundation donated over EGP 1.3 million in 2018 to cover the surgery costs of 39 underprivi- leged children suffering from congenital heart dis- eases at El Kasr El Aini Hospital, under the manage- ment of the Rotary Club of Giza Metropolitan. This contribution follows our March 2017 allocation of EGP 1.75 million to cover the costs associated with 50 pediatric open-heart surgeries. The initiative was created to reduce the long waitlist of children in need of open-heart surgery. In recognition of the importance of this program and its initial success, in October 2018, the CIB Foundation’s Board of Trustees approved an EGP 3.7 million budget to support another round of the project and fund an additional 100 pediatric open- heart surgeries at El Kasr El Aini Hospital. Nasser Institute Hospital As part of the CIB Foundation’s commitment to supporting the health sector, the Board of Trustees allocated EGP 3.1 million in April 2018 to purchase much needed equipment for the Nasser Institute Hospital’s Pediatric Intensive Care Unit and Neo- natal Intensive Care Unit. Yahiya Arafa Children’s Charity Foundation: Annual Operating Costs In line with the CIB Foundation’s commitment to sustainability and provision of quality service, in July 2018 we contributed a total of EGP 3 million to the annual operating costs of five pediatric units at Ain Shams University Hospital under the man- agement of our long-standing partner the Yahiya Arafa Children’s Charity Foundation. Rotary Club of Kasr El Nil: Children’s Right to Sight Program Over the course of 2018, the CIB Foundation do- nated over EGP 1 million to cover 289 surgeries as part of the fifth and fourth phase of the Children’s Right to Sight (CRTS) program led by the Rotary Club of Kasr El Nil. The aim of this initiative is to fund between 500 and 600 eye surgeries for a to- tal amount of EGP 2 million in each phase to help eradicate blindness in children and infants. The Egyptian Clothing Bank 2018 marks the fifth year of the CIB Foundation’s partnership with the Egyptian Clothing Bank (ECB), an NGO dedicated to providing clothing and home textiles to those in need in Egypt. The CIB Founda- tion donated EGP 1.67 million to provide 50,000 training suits to children in 19 governorates. The National Foundation for Family and Community Development The CIB Foundation’s Board of Trustees approved a proposal to support the outfitting of the sensory and psychomotor rooms at the National Founda- tion for Family and Community Development’s specialized center for the rehabilitation of au- tistic children. These rooms help care providers improve the sensory experiences of children with autism, allowing them to become healthier and more productive members of society. The EGP 688,000 project will enable the center to serve around 250 children monthly. The National Foundation for Family and Com- munity Development is a non-profit organization established in 1991 to assist Egyptian families in raising their living standards by financing micro projects, training individuals, and sponsoring and training persons with intellectual disabilities. MOVE Foundation for Children with Cerebral Palsy In April 2017, the CIB Foundation fulfilled its com- mitment to contribute EGP 2 million to the MOVE Foundation for Children with Cerebral Palsy to renovate their premises and expand operations. Established in 2004, the MOVE Foundation seeks to positively affect the lives of an estimated 250,000 children living with the disability in Egypt. MOVE aims to enroll these children into the public school system to allow them to become healthier and more productive members of society. In another demonstration of the Foundation’s com- mitment to sustainability and ongoing quality ser- vice provision, the CIB Foundation allocated EGP 608,400 to support the annual operating cost of the MOVE Foundation’s premises. In September 2018, the Foundation donated EGP 152,100 to cover the first installment of this commitment. Ongoing Projects Egyptian Liver Care Society - Children Without Virus C Program The CIB Foundation dedicated over EGP 5.1 million to fund the Egyptian Liver Care Society’s Children without hepatitis C (C-Free Child) program, the only program in Egypt offering free screening and treatment for children. Established in 2008, the Egyptian Liver Care Society aims to cure hepatitis patients by training medical staff and providing financial support for the treatment of hepatitis patients, including funding liver transplants. This year, the CIB Foundation also invested in increas- ing the number and quality of hepatitis treatment centers in Egypt. National Hepatology & Tropical Medicine Research Institute In August 2018, the CIB Foundation donated over EGP 91,000 to cover the first tranche of an EGP 4.1 million project to fund the treatment of 400 children with hepatitis C at the National Hepatology & Tropi- cal Medicine Research Institute (NHTMRI). Estab- lished in 1932, NHTMRI is an institute for medical 150 Annual Report 2018 Annual Report 2018 151 CoMMunITy DEvELoPMEnT >> CIB Foundation research on endemic diseases in Egypt; it is the first center in the country to treat hepatitis C patients and accept referral cases. as this provide CIB staff members with opportuni- ties to learn more about the Foundation’s activities and different ways to give back to the community. New Children’s Hospital - Ain Shams University Hospital In June 2017, the CIB Foundation pledged EGP 3.53 million for the purchase of 40 monitors, 45 infusion pumps, and 25 syringe pumps for the Inpatient Unit at Ain Shams University Hospital. In August 2018, the CIB Foundation donated over EGP 589,000 to cover the final installment for the project. With 1,290 patients served at the hospital each month, this contribution is expected to benefit 15,500 children annually. Sawiris Foundation and Star Care for Helping Children: Together for Change Project Over 2018, CIB Foundation donated over EGP 105,000 as part of an EGP 1.5 million partnership with the Sawiris Foundation for Social Develop- ment and Star Care Foundation in 2016 to imple- ment comprehensive community development projects in Sohag, Assiut, and Qena. The projects are under the management of the Association of Businesswomen in Assiut. Gozour Foundation for Development: Eye Exam Caravans The CIB Foundation donated over EGP 14.4 mil- lion in 2018 to cover the fourth and fifth tranches of the Gozour Foundation for Development’s 6/6 project to fund 264 eye exam caravans and provide 158,400 public school students in impoverished ar- eas across Egypt with free eye examinations. This year’s donation is one portion of an EGP 50.5 mil- lion contribution to fund 6/6 Eye Exam Caravans in the governorates of Sohag, Qena, Luxor, and Aswan over a three-year period. In partnership with Al-Noor Magrabi Foundation and Dar El Oyoun, the caravans, which are staffed with 25-30 doctors, nurses, and coordinators, were equipped with advanced medical tools, medica- tions, and eyeglasses. They provided students with free ophthalmic exams, eye medication, and refer- rals to private hospitals for complex cases. CIB staff members also joined in this project by volunteering with the caravans. They distrib- uted eyeglasses and medication to children and led awareness sessions on healthy eye practices for the student beneficiaries of the program. Events such They include the renovation and upgrade of commu- nity health centers, training doctors and nurses, or- ganizing health awareness campaigns, building the skills of teachers in community schools, distributing in-kind support to students, and offering regular sports, soft skills recreational activities, and econom- ic empowerment opportunities. The CIB Foundation is committed to funding the healthcare sector. Ahl Masr Foundation - Burn Victim Operations In June 2018, the Foundation contributed the final EGP 750,000 of an EGP 1 million pledge to Ahl Masr Foundation in 2016. This contribution funded the treatment of 159 pediatric burn patients whose fam- ilies could not afford the costs of their treatment. Baladi Foundation - Ophthalmic Clinic in Aswan In September 2015, the CIB Foundation’s Board of Trustees approved an EGP 710,000 project to estab- lish the first fully equipped diagnosis and referral center for children with glaucoma in Upper Egypt. In October 2018, the CIB Foundation donated over EGP 472,000 to cover the final installment of the project. CIB supported the Baladi Founda- tion’s efforts to detect glaucoma in 500 children, treat these patients, and perform 50 surgeries for congenital glaucoma cases, while also training a team of doctors and nurses in Upper Egypt. Sohag University Hospital - Craniofacial Center In April 2014, the CIB Foundation’s Board of Trust- ees approved the allocation of EGP 1 million to fund the outfitting of the Craniofacial Center at So- hag University Hospital. In October 2018, the CIB Foundation donated over EGP 323,000 covering the final installment of the project. A team of sur- geons specialized in hearing, speech therapy, and dentistry have established the Craniofacial Centre to serve patients from Sohag, Qena, and Aswan, primarily with cleft lip and cleft palate deformities. In addition to prescribing courses of treatment, the center performs specialized multi-stage corrective surgeries. The specialized services offered at the center will allow it to become a major referral cen- ter for patients from across the country. KidZania Cairo CIB has a long-standing corporate sponsorship rela- tionship with the KidZania Cairo edutainment city, and in every quarter of 2018, the Foundation gave 50 KidZania tickets to underprivileged children. Over the course of the year, the CIB Foundation coordi- nated with its partners to organize multiple visits to KidZania in which underprivileged and disabled children learned about adult professions in a child- friendly way. Children performed different jobs to earn and spend Kidzos, the official currency of Kid- Zania, on games and other entertaining activities. Blood Donation Campaigns The CIB Foundation hosted 12 blood donation campaigns across its corporate offices to encour- age CIB staff and customers to participate in an activity that saves thousands of lives across the country. Through this effort, 121 bags of blood were collected; these resources can potentially be used to save the lives of over 490 people. 14.4 EGP MN Donated in 2018 to the Gozour Foundation for Development 6/6 Eye Exam Caravan Program – CIB Family Bag Packing Event In February 2018, the CIB Foundation invited CIB colleagues and their families to a bag-packing event at CIB’s Smart Village office to participate in pack- ing of over 5,000 health and hygiene school bags for the students targeted by the 6/6 Eye Exam Caravan program. The event was highly successful, and many participants expressed interest in bringing their chil- dren to participate in more CIB Foundation activities. El Sawy Culture Wheel In 2018, CIB launched a new initiative in partner- ship with the CIB Foundation and El Sawy Cul- ture Wheel to develop children’s skills through specialized workshops. Children involved in the initiative enjoyed a full day of educational ac- tivities and mental games that stimulated their cultural and scientific development. The first series of workshops hosted the children of Red Crescent Society in Dar El-Salam, and a different NGO is invited every week. 152 Annual Report 2018 Annual Report 2018 153 Subsidiaries and Affiliates CIB offers a full suite of services that range from security solutions to innovative fintech offerings through one wholly-owned subsidiary and two strategic affiliates e t o n k n a b o r u E 0 2 a n o n e e s s a e p o r u E n o p u l e s o c d e l i a t e D SuBSIDIARIES AnD AFFILIATES Cventures Established in 2018, CVentures is Egypt’s first cor- porate venture capital firm focused primarily on investing in category-defining companies with the potential to create meaningful change in financial services. CVentures has a strong investment bias toward entrepreneurs pushing boundaries and developing solutions based on new and innovative technologies. The firm partners with bold founders with deep market insights to build truly ground- breaking businesses with fundamentally distin- guishable characteristics and disruptive business models. CVentures primarily participates in Series A and Series B investment rounds, and — on a selective basis — seed investment rounds in core financial applications including, but not limited to, capital markets and payments, money transfers and remittances, digital lending and financial data platforms, artificial intelligence, data analytics and machine learning, security and enterprise IT, insuretech, blockchain, marketing and customer experience, alternative finance, regtech, and digi- tal banking solutions. 2019 Forward-Looking Strategy In the next year, we plan to expand our network and foster meaningful relationships with experi- enced startup founders, leading technology inves- tors, and prominent innovation executives across regional and global entrepreneurship ecosystems and technology hubs. We will also look to invest in category-changing companies that complement and intersect with CIB’s core businesses. On an opportunistic basis, we aim to attract non-fintech companies and financial inclusion enablers with unique value propositions and promising finan- cial returns. This includes efforts to enhance the customer experience and leverage virtualization to provide transparency, access, and personalized services through persistent connectivity. Website: www.cventureseg.com Ownership CIB .............................................. 99.98% CIB Social Insurance Fund .......... 0.001% CIB Social Community ................ 0.001% CVentures has a strong investment bias toward entrepreneurs pushing boundaries and developing solutions based on new and innovative technologies. 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 manage- ment’s strategy is centered on service excellence. The company provides a plethora of services including, but not limited to: security services, money transfer, technical systems and security products, public ser- vices and project management, and tourism and con- cierge services to a variety of industries such as the industrial, commercial, tourism, and public sectors. The group provides state-of-the-art, holistic solutions tailored to every client’s specific re- quirements. 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 organizations, such as the Unit- ed Nations, and a number of embassies in Egypt. With a portfolio of over 754 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, and is dedicated to pro- viding them with the highest quality of service and treating their goals and objectives as its own. 2018 Highlights Falcon for Security Services met all its 2018 targets, managing to boost its annual income for 2018 by 14%. During the year, the company was able to se- cure work with numerous prominent institutions and successfully add new segments of clients by securing several new projects such as Porto Sokhna, El Zamalek Sporting Club, a new conference hall, Ownership CIB ......... 32.5% Others ........67.5% several metro stations across Cairo, and all free zones across the country. Falcon for Security Services increased its provision of security services for public events by 100% in 2018, with the company providing security at events such as the Egypt Can Conference, the Automech For- mula exhibition, several African Champions League matches, the 2018 China Trade Fair, and Edex 2018. The company reached a market share of 70% dur- ing 2018 and aspires to maintain its position as an industry leader by growing both organically and through acquisitions during the coming year. 2019 Forward-Looking Strategy As part of the group’s goal of providing top-notch solutions for its customers, Falcon companies plan to use managed service providers for their ac- tivities starting 2019. In the coming year, the group expects to target multiple prominent institutions 156 Annual Report 2018 Annual Report 2018 157 SuBSIDIARIES AnD AFFILIATES and clients, including banks, embassies, and hospi- tals to add to its roster of customers. 2019 will see Falcon expand its product and service offering to ensure clients remain fully satisfied and confident in the company’s service quality and continue to regard it as their number one choice in terms of efficiency and customer service. In 2019, the group plans to expand its market presence by 25%. Falcon for Public Services and Project Management Falcon for Public Services and Project Manage- ment operates all facility systems to the com- fort and satisfaction of facility occupants. The company offers general cleaning, landscaping, façade cleaning, and marble polishing at the highest quality, efficiency, and cost effectiveness. In 2018, Falcon for Public Services and Project Management held a market share of 20%, serving a large client base out of 330 different locations across Egypt. 2018 Highlights 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 conference hall, Toshiba El Araby Group, and Cequens. On top of securing new contracts, the company has also been able to renew important deals such as with the Port Said Security Directorate, the Embassy of the Sultanate of Oman, the Embassy of the State of Kuwait, Mall of Arabia, FLO Water, the Parliament, and Al Azhar University Hospital. 2019 Forward-Looking Strategy The company’s strategy is based on its firm belief that performance is measured by clients’ success. Over the next year, the company plans to sign several sizeable contracts with government agencies as they continue to carefully select, train, and supervise their profes- sionals 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 repu- table banks and companies in Egypt, providing CIT services, ATM replenishment, maintenance, vaulting, cash management, and valuables trans- portation through a highly qualified team. In 2018, the company increased its market share to 38% through the acquisition of new award contracts and expanding its client portfolio. 2018 Highlights Throughout the year, Falcon for Cash in Transit Ser- vices signed new contracts to increase its market pres- ence, achieving a market share increase of 15% in 2018. The company served 1,450 ATMs in 2018 compared to the 1,160 served in 2017 and added nine new armored vehicles to its fleet. In 2018, Falcon signed a partnership agreement with one of the largest companies in the world that will allow it to provide more services and offer expanded benefits to its clients. It also managed to increase cash volumes by 40% in 2018 and gross revenues by 22%. 2019 Forward-Looking Strategy The company plans to grow its market share through providing new services for retail, having already in- tegrated new solutions to collect cash from shopping centers. Falcon for Cash in Transit will also make use of the latest technology to further improve its ATM services and its managed cash offerings, in line with its strategy to streamline operations. The company is also investing considerable resources to train its team members to ensure they 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. In 2018, Falcon Tech succeeded in expanding its market share to 70% by signing several new impor- tant contracts, which now allow the company to provide security systems to airports, commercial malls, and universities across Egypt. 2018 Highlights The company signed deals with several new cli- ents including the Ministry of Armed Forces, the General Intelligence, the Suez for Petroleum Pro- duction Company, El Ahly Club, the Egyptian Civil Protection Authority, 20 new CIB branches, Cairo International Airport, and the Egyptian Post. Falcon for PR and Communications (Tawasul) Falcon for PR and Communications (Tawasul) special- izes in communication services and consultancy as well as event and conference management. The divi- sion also offers media services. Website: www.falcongroupinternational.org Fawry Plus Fawry Plus was established in 2017 as a joint ven- ture between CIB, Banque Misr, Fawry, and ACIS. Its strategy is to become Egypt’s first banking agent while playing an active role toward achiev- ing financial inclusion. Fawry Plus aims to provide a wide array of banking and financial services to end consumers and businesses through a network of retail branches across Egypt, focusing on serv- ing urban and underserved regions. Fawry Plus branches will provide banking services including limited KYC services and document col- lection required for mobile wallet registration, prepaid and credit card issuance, loan issuance, and account opening. Other services include collecting bank correspondence and mail, cash withdrawal and deposits, repaying loan and credit card dues, as well as various bill payments such as utility, tele- com, subscription fees, taxes, and fines. 2018 Highlights • Opened 36 new branches to reach a total of 66 operating branches • Rented out 91 spaces in its branches for bank ATMs • Worked with several banks and the CBE to put in place the standards and procedures for agent banking in Egypt 2019 Forward-Looking Strategy Fawry Plus plans on becoming the preferred destina- tion for banking customers in 2019, as its branches will be less crowded, closer to residential areas, and work longer hours than banks. Ownership CIB ......... 23.5% Others ........76.5% The company also intends to sign several sizeable con- tracts with multiple banks, financial institutions, and other industry players to provide their services through Fawry Plus branches. The company is looking to double its cash management service to EGP 35 billion in 2019 from EGP 18 billion in 2018. Fawry Plus will focus on serving the e-commerce industry in terms of cash management and logistics. The company’s branches will serve as drop-off/pick-up stations for customers as well as fulfillment hubs for courier companies. Website: www.fawry-plus.com 158 Annual Report 2018 Annual Report 2018 159 Financial Statements i s n o c r e v l i s f o k c a t s a f o e d s i e h t n o s e g d R i Financial StatementS: Separate 162 Annual Report 2018 Annual Report 2018 163 Financial StatementS: Separate Separate balance sheet as at December 31,2018 Separate income statement for the year ended December 31, 2018 Notes Dec. 31, 2018 Dec. 31, 2017 Notes Dec. 31, 2018 Dec. 31, 2017 EGP Thousands EGP Thousands Assets Cash and balances with central bank Due from banks Treasury bills and other governmental notes Trading financial assets Loans and advances to banks, net Loans and advances to customers, net Derivative financial instruments Financial investments - Available for sale - Held to maturity Investments in associates and subsidiaries 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 Other loans Provisions Total liabilities Equity Issued and paid up capital Reserves Reserve for employee stock ownership plan (ESOP) Retained earnings * Total equity Total liabilities and equity 15 16 17 18 19 20 21 22 22 23 24 41 32 25 26 27 21 29 28 30 31 34 34 34 20,058,974 46,518,892 41,999,252 2,737,705 67,703 106,309,205 52,289 39,217,890 73,630,764 68,633 9,563,218 238,715 308,370 1,651,875 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 1,414,519 342,423,485 294,771,321 7,259,819 285,340,472 132,858 3,625,579 6,501,553 3,721,529 1,694,607 308,276,417 11,668,326 12,184,667 738,320 9,555,755 34,147,068 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 10,137,515 489,334 6,138,790 28,383,650 342,423,485 294,771,321 The accompanying notes are an integral part of these financial statements . (Audit report attached) * Including net profit for the current year 164 Annual Report 2018 Hisham Ezz Al-Arab Chairman and Managing Director Interest and similar income Interest and similar expense Net interest income Fee and commission income Fee and commission expense Net fee and commission income Dividend income Net trading income Profits (Losses) on financial investments Administrative expenses Other operating (expenses) income 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 6 7 8 9 22 10 11 41 12 13 32 & 13 14 37,403,709 (19,260,190) 18,143,519 28,671,166 (16,167,155) 12,504,011 3,402,616 (991,957) 2,410,659 25,958 1,089,076 402,067 (4,222,779) (1,589,675) (130,208) (3,076,023) 13,052,594 (3,625,579) 128,740 9,555,755 2,794,211 (796,107) 1,998,104 34,513 1,292,215 496,045 (3,118,839) (1,002,570) (130,208) (1,742,281) 10,330,990 (2,778,973) (1,678) 7,550,339 7.26 7.22 5.76 5.67 Hisham Ezz Al-Arab Chairman and Managing Director Annual Report 2018 165 Financial StatementS: Separate Separate cash flow for the year ended December 31, 2018 Separate cash flow for the year ended December 31, 2018 (cont.) 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 Impairment charge for other assets Available for sale investments exchange revaluation differences Intangible assets amortization Financial investments impairment charge Exchange differences in financial investments in subidiary Utilization of other provisions Other provisions no longer used Exchange differences of other provisions Profits from selling property, plant and equipment (Profits) losses from selling financial investments Shares based payments 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 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 for purchases of subsidiary and associates Payment for purchases of property, plant, equipment and branches constructions Proceeds from selling property, plant and equipment Proceeds from redemption of held to maturity financial investments Payment for purchases of held to maturity financial investments 166 Annual Report 2018 Notes Dec. 31, 2018 Dec. 31, 2017 EGP Thousands 13,052,594 10,330,990 25 12 30 24 22 41 22 23 30 30 30 11 22 16 42 18 21 19-20 43 26 27 29 11 22 22 390,830 3,076,023 101,501 316,763 (102,991) 130,208 39,561 (465) (2,114) (17,670) (2,269) (1,045) (441,628) 408,346 - 351,005 1,742,281 212,622 - 100,078 130,208 (108,349) - (25,463) (97,897) 11,840 (607) 99,047 290,884 (340,504) 16,947,644 12,696,135 (13,661,577) 4,640,524 4,557,492 (66,141) (21,255,952) (2,263,465) 5,381,901 34,573,102 (2,778,973) 1,025,022 27,099,577 - (10,575) (874,708) 1,045 (2,594,442) (16,466,420) (4,850,063) 120,431 (4,007,616) (1,133,497) (1,131,078) 18,802,058 (2,017,034) 1,897,201 1,315,675 750 (44,318) (745,696) 607 5,532,271 13,354,468 (33,995,313) (4,597,254) Notes Dec. 31, 2018 Dec. 31, 2017 EGP Thousands Payment for purchases of available for sale financial invest- ments Proceeds from selling available for sale financial invest- ments Proceeds from selling non current assets held for sale Net cash used in investing activities Cash flow from financing activities Increase in long term loans Dividend paid Capital increase Net cash used in (provided from) 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 22 22 28 15 16 17 15 17 (12,670,761) (25,868,230) 2,059,341 - (39,958,700) 1,261,980 768,515 (15,869,178) 46,793 (2,143,177) 50,315 (2,046,069) 3,514,493 (1,350,204) 79,351 2,243,640 (14,905,192) (12,309,863) 49,208,837 34,303,645 61,518,700 49,208,837 20,058,974 46,518,892 41,999,252 (13,526,763) (10,733,386) (50,013,324) 34,303,645 14,663,289 45,319,766 54,478,202 (8,878,986) (1,719,586) (54,653,848) 49,208,837 Annual Report 2018 167 Financial StatementS: Separate s d n a s u o h T P G E r o f y t i u q e l ' s r e d o h e r a h s n i s e g n a h c f o t n e m e t a t s e t a r a p e S 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 l a t o T , 4 9 9 5 7 2 1 2 , n a p l e e y o p m e l r o f e v r e s e R k c o t s i p h s r e n w o 0 6 4 3 4 3 , e v r e s e R . S F A . r o F i d e n a t e R i s g n n r a e e v r e s e r e v r e s e r . f f i d k s i r 9 S R F I s k s i r i g n k n a B n o i t a u a v e r l s t n e m t s e v n i l a t i p a C e v r e s e r l i a c e p S e v r e s e r l a r e n e G e v r e s e r l a g e L e v r e s e r p u d a p i l a t i p a c d n a d e u s s I , 5 5 5 0 5 9 5 , , ) 4 4 2 0 8 1 2 ( , 3 3 1 0 1 , 5 4 6 0 2 , , 3 0 4 4 5 5 4 , , 3 6 3 5 3 0 1 , , 0 6 6 8 3 5 1 1 , e c n a l a b g n n n i g e B i 7 1 0 2 , 1 3 . c e D 1 5 3 9 7 , - - - ) 0 1 0 5 4 1 ( , , ) 6 3 7 9 9 5 4 ( , , ) 4 0 2 0 5 3 1 ( , , 9 3 3 0 5 5 7 , - - 6 8 2 7 3 5 , - - - - - , ) 4 0 2 0 5 3 1 ( , , 9 3 3 0 5 5 7 , - ) 5 1 6 ( , ) 9 4 5 1 1 4 1 ( , 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 , - - - - - - - , 9 4 5 1 1 4 1 , - - - - - 9 1 0 3 , - - 5 1 6 4 3 6 3 , - - - - - - - 6 8 2 7 3 5 , - - - - - - - 2 8 6 1 , - - - - - - - - , ) 8 5 9 2 4 6 1 ( , 5 1 8 1 1 , 5 4 6 0 2 , - - 1 5 3 9 7 , e s a e r c n i l a t i p a C - - - - - - , 0 2 6 5 4 4 4 , - - - - - - 4 4 4 7 9 2 , - - - - - - - , 3 2 0 0 0 0 9 , , 7 0 8 2 3 3 1 , , 1 1 0 8 1 6 1 1 , ) 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 r a e y e h t r o f t fi o r p t e N 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 e h t f o d n e e h t t a e c n a l a B r a e y e v r e s e r k s i r 9 S R F I s e v r e s e r o t d e r r e f s n a r T d i a p d n e d i v i D s d n a s u o h T P G E r a e y e h t r o f y t i u q e l ' s r e d o h e r a h s n i s e g n a h c f o t n e m e t a t s e t a r a p e S 8 1 0 2 , 1 3 r e b m e c e D d e d n e l a t o T , 0 5 6 3 8 3 8 2 , n a p l e e y o p m e l r o f e v r e s e R k c o t s i p h s r e n w o 4 3 3 9 8 4 , e v r e s e R . S F A . r o F i d e n a t e R i s g n n r a e e v r e s e r e v r e s e r . f f i d k s i r 9 S R F I s k s i r i g n k n a B n o i t a u a v e r l s t n e m t s e v n i l a t i p a C e v r e s e r l i a c e p S e v r e s e r l a r e n e G e v r e s e r l a g e L e v r e s e r p u d a p i l a t i p a c d n a d e u s s I , 0 9 7 8 3 1 6 , , 9 4 5 1 1 4 1 , , 3 2 0 0 0 0 9 , , 7 0 8 2 3 3 1 , , 1 1 0 8 1 6 1 1 , e c n a l a b g n n n i g e B i 8 1 0 2 , 1 3 . c e D 5 1 3 0 5 , - - - ) 0 6 3 9 5 1 ( , , ) 4 2 9 4 9 9 3 ( , , ) 7 7 1 3 4 1 2 ( , , 5 5 7 5 5 5 9 , - , ) 1 2 8 7 0 1 2 ( , - - - - - ) 9 8 6 ( , ) 7 7 1 3 4 1 2 ( , , 5 5 7 5 5 5 9 , 6 4 3 8 0 4 , 6 4 3 8 0 4 , - - - - - - - - , 8 6 0 7 4 1 4 3 , 0 2 3 8 3 7 , , 5 5 7 5 5 5 9 , , 9 4 5 1 1 4 1 , - - - - - 4 3 6 3 , - 9 8 6 3 2 3 4 , , ) 8 5 9 2 4 6 1 ( , - - - - , ) 1 2 8 7 0 1 2 ( , - - , ) 9 7 7 0 5 7 3 ( , - 6 0 6 - - - - - - - - - - - - 5 1 8 1 1 , 5 4 6 0 2 , 1 2 4 2 1 , 5 4 6 0 2 , - - 5 1 3 0 5 , e s a e r c n i l a t i p a C - - - - - , 2 9 1 6 7 7 3 , - - - - - 6 8 4 7 7 3 , - - - - - - , 5 1 2 6 7 7 2 1 , , 3 9 2 0 1 7 1 , , 6 2 3 8 6 6 1 1 , s e v r e s e r o t d e r r e f s n a r T d i a p d n e d i v i 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 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 f o d n e e h t t a e c n a l a B r a e y e h t o t ) m o r f ( d e r r e f s n a r T e v r e s e r k s i r k n a b r a e y e h t r o f t fi o r p t e N 168 Annual Report 2018 Annual Report 2018 169 Financial StatementS: Separate proposed appropriation account for the year ended December 31, 2018 notes to the separate financial statements for the year ended December 31, 2018 Net profit after tax Profits selling property, plant and equipment transferred to capital reserve according to the law Bank risk reserve Available net profit for distributing IFRS 9 risk reserve* Total To be distributed as follows: Legal reserve General reserve Dividends to shareholders** Staff profit sharing Board members bonus CIB's foundation Total EGP Thousands Dec. 31, 2018 Dec. 31, 2017 9,555,755 7,550,339 (1,045) (842) 9,553,868 - 9,553,868 477,736 6,375,588 1,458,541 955,387 143,308 143,308 9,553,868 (607) (689) 7,549,043 (1,411,549) 6,137,494 377,487 3,616,830 1,161,801 754,904 113,236 113,236 6,137,494 * The IFRS 9 risk reserve is created 1% of the total weighted credit risk of net profit after tax for 2017 (Note 34). ** Based on a dividend per share of EGP 1, after taking into account the subsequent share distributions of one share for every four shares. 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 181 branches, and 22 units employing 6759 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. Financial statements have been approved by board of directors on February 4, 2019. 2. Summary of accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2.1. Basis of preparation The separate financial statements have been prepared in accordance with Egyptian financial reporting standards issued in 2006 and its amendments and in accordance with the Central Bank of Egypt regulations approved by the Board of Di- rectors on December 16, 2008. The separate financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities classified as trading or held at fair value through profit or loss, available for sale invest- ment and all derivatives contracts. The separate and consolidated financial statements of the Bank and its subsidiaries have been prepared in accordance with the relevant domestic laws and the Egyptian financial reporting standards, the affiliated companies are entirely included in the consolidated financial statements and these companies are the companies that the Bank - directly or indi- rectly – has more than half of the voting rights or has the ability to control the financial and operating policies, regardless of the type of activity, the Bank’s consolidated financial statements can be obtained from the Bank's management. The Bank accounts for investments in subsidiaries and associate companies in the separate financial statements at cost minus impairment loss. The separate financial statements of the Bank should be read with its consolidated financial statements, for the year ended on December 31, 2018 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 170 Annual Report 2018 Annual Report 2018 171 Financial StatementS: Separate excess of the Bank’s share of the fair value of the identifiable net assets acquired over the cost of the acquisition. The cost method is applied to account for investments in subsidiaries and associates, whereby, investments are recorded based on the acquisition cost including any goodwill, deducting any impairment losses, and dividends are recorded in the income statement in the adoption of the distribution of these profits and evidence of the Bank right to collect them. 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. 2.3. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns different from those of segments operating in other economic environments. 2.4. Foreign currency translation 2.4.1. Functional and presentation currency The financial statements are presented in Egyptian pound, which is the Bank’s functional and presentation currency. 2.4.2. Transactions and balances in foreign currencies The Bank maintains its accounting records in Egyptian pound. Transactions in foreign currencies during the period are translated into the Egyptian pound using the prevailing exchange rates on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the end of reporting period at the prevailing exchange rates. Foreign exchange gains and losses resulting from settlement and translation of such transac- tions and balances are recognized in the income statement and reported under the following line items: • Net trading income from held-for-trading assets and liabilities. • Other operating revenues (expenses) from the remaining assets and liabilities. Changes in the fair value of investments in debt instruments; which represent monetary financial instruments, denomi- nated in foreign currencies and classified as available for sale assets are analyzed into valuation differences resulting from changes in the amortized cost of the instrument, differences resulting from changes in the applicable exchange rates and differences resulting from changes in the fair value of the instrument. Valuation differences resulting from changes in the amortized cost are recognized and reported in the income statement in ‘income from loans and similar revenues’ whereas differences resulting from changes in foreign exchange rates are recognized and reported in ‘other operating revenues (expenses)’. The remaining differences resulting from changes in fair value are deferred in equity and accumulated in the ‘revaluation reserve of available-for-sale investments’. Valuation differences resulting from the non-monetary items include gains and losses of the change in fair value of such equity instruments held at fair value through profit and loss, as for recognition of the differences of valuation resulting from equity instruments classified as financial investments available for sale within the fair value reserve in equity. 2.5. Financial assets The Bank classifies its financial assets in the following categories: • Financial assets designated at fair value through profit or loss. • Loans and receivables. • Held to maturity investments. • Available for sale financial investments. Management determines the classification of its investments at initial recognition. 2.5.1. Financial assets at fair value through profit or loss This category has two sub-categories: • Financial assets held for trading. • Financial assets designated at fair value through profit and loss at inception. Financial instruments, other than those held for trading, are classified as financial assets designated at fair value through profit and loss if they meet one or more of the criteria set out below: • When the designation eliminates or significantly reduces measurement and recognition inconsistencies that would arise from measuring financial assets or financial liabilities, on different bases. Under this criterion, an accounting mismatch would arise if the debt securities issued were accounted for at amortized cost, because the related derivatives are mea- sured at fair value with changes in the fair value recognized in the income statement. The main classes of financial instru- ments designated by the Bank are loans and advances and long-term debt issues. • Applies to groups of financial assets, financial liabilities or combinations thereof that are managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information about the groups of financial instruments is reported to management on that basis. • Relates to financial instruments containing one or more embedded derivatives that significantly modify the cash flows resulting from those financial instruments, including certain debt issues and debt securities held. • Any financial derivative initially recognized at fair value can't be reclassified during the holding period. Re-classification is not allowed for any financial instrument initially recognized at fair value through profit and loss. 2.5.2. Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: - Those that the Bank intends to sell immediately or in the short term, which is classified as held for trading, or those that the Bank upon initial recognition designates as at fair value through profit and loss. • Those that the Bank upon initial recognition designates and available for sale; or • Those for which the holder may not recover substantially all of its initial investment, other than credit deterioration. 2.5.3. Held to maturity financial investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturi- ties that the Bank's management has the positive intention and ability to hold till maturity. If the Bank has to sell other than an insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale unless in necessary cases subject to regulatory approval. 2.5.4. Available for sale financial investments Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The following are applied in respect to all financial assets: Debt securities and equity shares intended to be held on a continuing basis, other than those designated at fair value, are classified as available-for-sale or held-to-maturity. Financial investments are recognized on trade date, when the group enters into contractual arrangements with counterparties to purchase securities. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Bank transfers substantially all risks and rewards of the ownership. Financial liabilities are derecognized when they are extinguished, that is, when the obligation is discharged, cancelled or expired. Available-for-sale, held–for-trading and financial assets designated at fair value through profit and loss are subsequently measured at fair value. Loans, receivables and held-to-maturity investments are subsequently measured at amortized cost. 172 Annual Report 2018 Annual Report 2018 173 Financial StatementS: Separate Gains and losses arising from changes in the fair value of the ‘financial assets designated at fair value through profit or loss’ are recognized in the income statement in ‘net income from financial instruments designated at fair value’. Gains and losses arising from changes in the fair value of available for sale investments are recognized directly in equity, until the financial assets are either sold or become impaired. When available-for-sale financial assets are sold, the cumulative gain or loss previously recognized in equity is recognized in profit or loss. Interest income is recognized on available for sale debt securities using the effective interest method, calculated over the asset’s expected life. Premiums and discounts arising on the purchase are included in the calculation of effective interest rates. Dividends are recognized in the income statement when the right to receive payment has been established. The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset, or no current demand prices available, the Bank measures fair value using valuation models. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation models commonly used by market participants. If the Bank has not been able to estimate the fair value of equity instru- ments classified as available for sale, the value is measured at cost less impairment. Available for sale investments that would have met the definition of loans and receivables at initial recognition may be reclassified out to loans and advances or financial assets held to maturity. In all cases, when the Bank has the intent and ability to hold these financial assets in the foreseeable future or till maturity. The financial asset is reclassified at its fair value on the date of reclassification, and any profits or losses that have been recognized previously in equity, are treated based on the following: • If the financial asset has a fixed maturity, gains or losses are amortized over the remaining life of the investment using the effective interest rate method. In case of subsequent impairment of the financial asset, the previously recognized unreal- ized gains or losses in equity are recognized directly in the profits and losses. • In the case of financial asset which has infinite life, any previously recognized profit and loss in equity will remain until the sale of the asset or its disposal, in the case of impairment of the value of the financial asset after the re-classification, any gain or loss previously recognized in equity is recycled to the profits and losses. • If the Bank adjusts its estimates of payments or receipts of a financial asset that in return adjusts the carrying amount of the asset (or group of financial assets) to reflect the actual cash inflows, the carrying value is recalculated based on the present value of estimated future cash flows at the effective yield of the financial instrument and the differences are rec- ognized in profit and loss. • In all cases, if the Bank re-classifies financial asset in accordance with the above criteria and increases its estimate of the proceeds of future cash flow, this increase adjusts the effective interest rate of this asset only without affecting the invest- ment book value. 2.6. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a legally enforceable right to offset the recognized amounts and there is an intention to be settled on a net basis. Agreements of repos & reverse repos are shown by the net in the financial statement in treasury bills and other govern- mental notes. 2.7. Derivative financial instruments and hedge accounting Derivatives are recognized initially, and subsequently, at fair value. Fair values of exchange traded derivatives are ob- tained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques, including discounted cash flow models and option pricing models. Derivatives are classified as assets when their fair value is positive and as liabilities when their fair value is negative. Embedded derivatives in other financial instruments, such as conversion option in a convertible bond, are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, provided that the host contract is not classified as at fair value through profit and loss. These embedded derivatives are measured at fair value with changes in fair value recognized in income statement unless the Bank chooses to designate the hybrid contract as at fair value through net trading income through profit and loss. The timing method of recognition in profit and loss, of any gains or losses arising from changes in the fair value of deriva- tives, depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. The Bank designates certain derivatives as: • Hedging instruments of the risks associated with fair value changes of recognized assets or liabilities or firm commit- ments (fair value hedge). • Hedging of risks relating to future cash flows attributable to a recognized asset or liability or a highly probable forecast transaction (cash flow hedge) • Hedge accounting is used for derivatives designated in a hedging relationship when the following criteria are met. 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 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. 174 Annual Report 2018 Annual Report 2018 175 Financial StatementS: Separate 2.9. Fee and commission income Fees charged for servicing a loan or facility that is measured at amortized cost, are recognized as revenue as the service is provided. Fees and commissions on non-performing or impaired loans or receivables cease to be recognized as income and are rather recorded off balance sheet. These are recognized as revenue, on a cash basis, only when interest income on those loans is recognized in profit and loss, at that time, fees and commissions that represent an integral part of the effective interest rate of a financial asset, are treated as an adjustment to the effective interest rate of that financial asset. Commitment fees and related direct costs for loans and advances where draw down is probable are deferred and recog- nized as an adjustment to the effective interest on the loan once drawn. Commitment fees in relation to facilities where draw down is not probable are recognized at the maturity of the term of the commitment. Fees are recognized on the debt instruments that are measured at fair value through profit and loss on initial recognition and syndicated loan fees received by the Bank are recognized when the syndication has been completed and the Bank does not hold any portion of it or holds a part at the same effective interest rate used for the other participants portions. Commission and fee arising from negotiating, or participating in the negotiation of a transaction for a third party such as the arrangement of the acquisition of shares or other securities and the purchase or sale of properties are recognized upon completion of the underlying transaction in the income statement . Other management advisory and service fees are recognized based on the applicable service contracts, usually on accrual basis. Financial planning fees related to investment funds are recognized steadily over the period in which the service is provided. The same principle is applied for wealth management; financial planning and custody services that are provided on the long term are recognized on the accrual basis also. 2.10. Dividend income Dividends are recognized in the income statement when the right to collect it is declared. 2.11. Sale and repurchase agreements Securities may be lent or sold according to a commitment to repurchase (Repos) are reclassified in the financial state- ments and deducted from treasury bills balance. Securities borrowed or purchased according to a commitment to re- sell them (Reverse Repos) are reclassified in the financial statements and added to treasury bills balance. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest rate method. 2.12. impairment of financial assets 2.12.1. Financial assets carried at amortised cost The Bank assesses on each balance sheet date whether there is objective evidence that a financial asset or group of fi- nancial assets is impaired. A financial asset or a group of financial assets is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event/s’) and that loss event/s has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: • Cash flow difficulties experienced by the borrower ( e.g, equity ratio, net income percentage of sales). • Violation of the conditions of the loan agreement such as non-payment. • Initiation of bankruptcy proceedings. • Deterioration of the borrower’s competitive position. • The Bank for reasons of economic or legal financial difficulties of the borrower by granting concessions may not agree with the Bank granted in normal circumstances. • Deterioration in the value of collateral or deterioration of the creditworthiness of the borrower. The objective evidence of impairment loss for a group of financial assets is observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, for instance an increase in the default rates for a particular banking product. The Bank estimates the period between a losses occurring and its identification for each specific portfolio. In general, the periods used vary between three months to twelve months. The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individu- ally significant, and individually or collectively for financial assets that are not individually significant and in this field the following are considered: • If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, wheth- er significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collec- tively assesses them for impairment according to historical default ratios. • If the Bank determines that an objective evidence of financial asset impairment exist that is individually assessed for im- pairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of esti- mated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. If a loan or held to maturity investment has a variable inter- est rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract when there is objective evidence for asset impairment. As a practical expedient, the Bank may measure impair- ment on the basis of an instrument’s fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the group’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the con- tractual terms of the assets being evaluated. For the purposes of evaluation of impairment for a group of a financial assets according to historical default ratios future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Estimates of changes in future cash flows for groups of assets should be reflected together with changes in related observ- able data from period to period (e.g. changes in unemployment rates, property prices, payment status, or other indicative factors of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank. 2.12.2. Available for sale investments The Bank assesses on each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets classify under available for sale is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. During periods start from first of January 2009, the decrease consider significant when it became 10% from the book value of the financial instrument and the decrease consider to be extended if it continues for period more than 9 months, and if the mentioned evidences become available then any cumulative gains or losses previously recognized in equity are recognized in the income statement , in respect of available for sale equity securities, impairment losses previously recognized in profit and loss are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the income statement, the impairment loss is reversed through the income statement to the extent of previously recognized impairment charge from equity to income statement. 176 Annual Report 2018 Annual Report 2018 177 Financial StatementS: Separate 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. 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. Operating lease payments leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘general and administrative expenses’. 2.16.2. Being lessor For finance lease, assets are recorded in the property, plant and equipment in the balance sheet and amortized over the expected useful life of this asset in the same manner as similar assets. Lease income is recognized on the basis of rate of re- turn on the lease in addition to an amount corresponding to the cost of depreciation for the period. The difference between the recognized rental income and the total finance lease clients' accounts is transferred to the in the income statement until the expiration of the lease to be reconciled with a net book value of the leased asset. Maintenance and insurance expenses are charged to the income statement when incurred to the extent that they are not charged to the tenant. In case there is objective evidence that the Bank will not be able to collect the of financial lease obligations, the finance lease payments are reduced to the recoverable amount. For assets leased under operating lease it appears in the balance sheet under property, plant and equipment, and depre- ciated over the expected useful life of the asset in the same way as similar assets, and the lease income recorded less any discounts given to the lessee on a straight-line method over the contract period. Cash and cash equivalents 2.17. For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. 2.18. Other provisions Provisions for restructuring costs and legal claims are recognized when the Bank has present legal or constructive obliga- tions as a result of past events; where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. In case of similar obligations, the related cash outflow should be determined in order to settle these obligations as a group. The provision is recognized even in case of minor probability that cash outflow will occur for an item of these obligations. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating income (expenses). Provisions for obligations, other than those for credit risk or employee benefits, due within more than 12 months from the balance sheet date are recognized based on the present value of the best estimate of the consideration required to settle 178 Annual Report 2018 Annual Report 2018 179 Financial StatementS: Separate 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. CIB owns a private insurance fund for financing end of service benefits, pensions and medical insurance for employees under the supervision of the Ministry of Social Solidarity. 2.20. income tax Income tax on the profit and loss for the period and deferred tax are recognized in the income statement except for income tax relating to items of equity that are recognized directly in equity. Income tax is recognized based on net taxable profit using the tax rates applicable on the date of the balance sheet in ad- dition to tax adjustments for previous years. Deferred taxes arising from temporary time differences between the book value of assets and liabilities are recognized in accordance with the principles of accounting and value according to the foundations of the tax, this is determining the value of deferred tax on the expected manner to realize or settle the values of assets and liabilities, using tax rates appli- cable on the date of the balance sheet. Deferred tax assets of the Bank recognized when there is likely to be possible to achieve profits subject to tax in the future to be possible through to use that asset, and is reducing the value of deferred tax assets with part of that will come from tax benefit expected during the following years, that in the case of expected high benefit tax, deferred tax assets will in- crease within the limits of the above reduced. 2.21. Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost also any difference between proceeds net of transaction costs and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. 2.22. Dividends Dividends on ordinary shares and profit sharing are recognized as a charge of equity upon the general assembly approval. Profit sharing includes the employees’ profit share and the Board of Directors’ remuneration as prescribed by the Bank's articles of incorporation and the corporate law. 2.23. comparatives Comparative figures have been adjusted to conform with changes in the presentation of the current period where necessary. 2.24. non-current assets held for sale A non-current asset (or disposal group) to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. 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 for- eign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments. In addition, credit risk management is responsible for the independent review of risk management and the control environment. 3.1. credit risk The Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in loans and advances, debt securities and other bills. There is also credit risk in off-balance sheet finan- cial arrangements such as loan commitments. The credit risk management and control are centralized in a credit risk management team in bank treasury and reported to the Board of Directors and head of each business unit regularly. 3.1.1. Credit risk measurement 3.1.1.1. Loans and advances to banks and customers In measuring credit risk of loans and facilities to banks and customers at a counterparty level, the Bank reflects three components (i) the ‘probability of default’ by the client or counterparty on its contractual obligations (ii) current expo- sures to the counterparty and its likely future development, from which the Bank derive the ‘exposure at default’; and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’). 180 Annual Report 2018 Annual Report 2018 181 Financial StatementS: Separate These credit risk measurements, which reflect expected loss (the ‘expected loss model’) are required by the Basel commit- tee on banking regulations and the supervisory practices (the Basel committee), and are embedded in the Bank’s daily operational management. The operational measurements can be contrasted with impairment allowances required under EAS 26, which are based on losses that have been incurred on the balance sheet date (the ‘incurred loss model’) rather than expected losses (note 3.1). The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judg- ment and are validated, where appropriate. Clients of the Bank are segmented into four rating classes. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predictive power with regard to default events. Bank’s rating 1 2 3 4 Description of the grade Performing loans Regular watching Watch list Non-performing loans Loss given default or loss severity represents the Bank expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigation. 3.1.1.2. Debt instruments and treasury and other bills For debt instruments and bills, external rating such as standard and poor’s rating or their equivalents are used for man- aging of the credit risk exposures, and if this rating is not available, then other ways similar to those used with the credit customers are uses. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirement at the same time. 3.1.2. Risk limit control and mitigation policies The Bank manages, limits and controls concentrations of credit risk wherever they are identified − in particular, to indi- vidual counterparties and banks, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by individual, counterparties, product, and industry sector and by country are approved quarterly by the Board of Directors. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off- balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange con- tracts. Actual exposures against limits are monitored daily. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below: 3.1.2.1. Collateral The Bank sets a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: • Mortgages over residential properties. • Mortgage business assets such as premises, and inventory. • Mortgage financial instruments such as debt securities and equities. Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are 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. 182 Annual Report 2018 Annual Report 2018 183 Financial StatementS: Separate Impairment and provisioning policies 3.1.3. The internal rating system described in Note 3.1.1 focus on the credit-quality mapping from the lending and investment activities perspective. Conversely, for only financial reporting purposes impairment losses are recognized for that has been incurred on the balance sheet date when there is an objective evidence of impairment. Due to the different method- ologies applied, the amount of incurred impairment losses in balance sheet are usually lower than the amount determined from the expected loss model that is used for internal operational management and CBE regulation purposes. The impairment provision reported in balance sheet at the end of the period is derived from each of the four internal credit risk ratings. However, the majority of the impairment provision is usually driven by the last two rating degrees. The follow- ing table illustrates the proportional distribution of loans and advances reported in the balance sheet for each of the four internal credit risk ratings of the Bank and their relevant impairment losses: Bank’s rating 1-Performing loans 2-Regular watching 3-Watch list 4-Non-Performing loans December 31, 2018 December 31, 2017 Loans and advances (%) Impairment provision (%) Loans and advances (%) Impairment provision (%) 78.61 11.65 5.68 4.06 12.61 17.85 33.18 36.36 69.53 15.53 7.99 6.95 11.61 21.51 23.70 43.18 The internal rating tools assists management to determine whether objective evidence of impairment exists under EAS 26, based on the following criteria set by the Bank: • Cash flow difficulties experienced by the borrower or debtor • Breach of loan covenants or conditions • Initiation of bankruptcy proceedings • Deterioration of the borrower’s competitive position • Bank granted concessions may not be approved under normal circumstances due to economic, legal reasons and financial difficulties facing the borrower • Deterioration of the collateral value • Deterioration of the credit situation The Bank’s policy requires the review of all financial assets that are above materiality thresholds at least annually or more regularly when circumstances require. Impairment provisions on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date, and are applied to all significant accounts individually. The assess- ment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. Collective impairment provisions are provided portfolios of homogenous assets by using the available historical loss experience, experienced judgment and statistical techniques. 3.1.4. Pattern of measuring the general banking risk In addition to the four categories of the Bank's internal credit ratings indicated in note 3.1.1, management classifies loans and advances based on more detailed subgroups in accordance with the CBE regulations. Assets exposed to credit risk in these categories are classified according to detailed rules and terms depending heavily on information relevant to the customer, his activity, financial position and his repayment track record. The Bank calculates required provisions for impairment of assets exposed to credit risk, including commitments relating to credit on the basis of rates determined by CBE. In case, the provision required for impairment losses as per CBE credit worthiness rules exceeds the required provisions by the application used in balance sheet preparation in accordance with EAS. That excess shall be debited to retained earnings and carried to the general banking risk reserve in the equity section. Such reserve is always adjusted, on a regular basis, by any increase or decrease so, that reserve shall always be equivalent to the amount of increase between the two provisions. Such reserve is not available for distribution. Below is a statement of institutional worthiness according to internal ratings, compared to 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 accept- able risk Watch list Substandard Doubtful Bad debts 0% 1% 1% 2% 2% 3% 5% 20% 50% 100% 1 1 1 1 1 2 3 4 4 4 Performing loans Performing loans Performing loans Performing loans Performing loans Regular watching Watch list Non performing loans Non performing loans Non performing loans 3.1.5. 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 Gross loans and advances to customers Individual: - Overdraft - Credit cards - Personal loans - Mortgages Corporate: - Overdraft - Direct loans - Syndicated loans - Other loans Unamortized bills discount Unearned interest Derivative financial instruments Financial investments: -Debt instruments - Other assets (Accrued revenues) Total Off balance sheet items exposed to credit risk Financial guarantees Customers acceptances Letters of credit (import and export) Letter of guarantee Total EGP Thousands Dec. 31, 2018 50,013,324 Dec. 31, 2017 54,653,848 2,270,080 70,949 1,635,910 3,540,849 17,180,864 876,372 13,992,595 49,179,820 32,899,950 125,429 (65,718) (16,038) 52,289 112,213,297 4,509,514 288,479,486 7,962,043 1,050,573 4,178,288 66,166,953 79,357,857 6,728,843 1,383 1,780,416 2,899,930 13,910,837 416,616 12,450,826 44,200,770 26,627,825 112,802 (12,476) (2,965,997) 40,001 74,767,989 3,870,654 239,484,267 3,605,001 1,017,690 1,700,516 69,514,413 75,837,620 184 Annual Report 2018 Annual Report 2018 185 The above table represents the Bank's Maximum exposure to credit risk on December 31, 2018, before taking into account any held collateral. Financial StatementS: Separate . . % 9 6 9 3 t n e s e r p e r s t n e m u r t s n i t b e d n i s t n e m t s e v n i e l i h w s r e m o t s u c d n a s k n a b o t s e c n a v d a d n a s n a o l m o r f d e v i r e d s i e r u s o p x e m u m i x a m l a t o t e h t f o % 0 4 1 4 . , e v o b a n w o h s s A . t e e h s e c n a l a b e h t n i d e t r o p e r s a s t n u o m a g n i y r r a c t e n n o d e s a b e r a e v o b a t u o t e s s e r u s o p x e e h t , t e e h s e c n a l a b n o d e z i n g o c e r s t e s s a r o F s n a o l ' s k n a b e h t h t o b m o r f g n i t l u s e r k s i r t i d e r c f o e r u s o p x e l a m n m n i i i a t s u s d n a l o r t n o c o t e u n i t n o c o t y t i l i b a s t i n i t n e d fi n o c s i t n e m e g a n a M . m e t s y s g n i t a r k s i r t i d e r c l a n r e t n i e h t f o s e d a r g o w t p o t e h t n i d e t a r t n e c n o c e r a s e c n a v d a d n a s n a o l e h t f o % 6 2 0 9 . r a e y l a i c n a n fi e h t g n i r u d s e c n a v d a d n a s n a o l g n i t n a r g n e h w s e s s e c o r p t n e d u r p e r o m d e t n e m e l p m i s a h k n a B e Th . s t n e m u r t s n i n g i e r e v o s n a i t p y g E e r a s t n e m u r t s n I t b e d n i s t n e m t s e v n i e h t f o % 6 5 8 9 . . 8 1 0 2 , 1 3 r e b m e c e D n o d e d n e s e c n a v d a d n a s n a o L . . d e r i a p m i r o n e u d t s a p r e h t i e n e b o t d e r e d i s n o c e r a o i l o f t r o p s e c n a v d a d n a s n a o l f o % 4 9 5 9 . . , , d n a s u o h t 0 6 4 5 5 8 4 P G E d e u l a v e r a y l a u d i v i d n i d e s s e s s a s e c n a v d a d n a s n a o L • • • • • • . 6 1 3 . : i g n w o l l o f e h t n o d e s a b s t n e m u r t s n i t b e d d n a o i l o f t r o p s e c n a v d a d n a 186 Annual Report 2018 3 8 3 1 , s k n a b - - 3 8 3 1 , - - 0 7 3 1 3 1 , s r e m o t s u c , 6 3 0 5 9 3 9 8 , , 0 8 8 4 8 8 5 , , 6 0 1 0 2 1 7 , , 2 2 0 0 0 4 2 0 1 , , 6 4 4 4 9 9 0 1 , 6 7 4 2 1 , , 7 9 9 5 6 9 2 , , 3 0 1 7 2 4 8 8 , - - s k n a b 9 4 9 0 7 , - - 9 4 9 0 7 , 6 4 2 3 , 3 0 7 7 6 , , 2 3 6 4 2 2 4 , s r e m o t s u c , 7 9 6 1 5 3 0 1 1 , , 0 6 4 5 5 8 4 , , 9 8 7 1 3 4 9 1 1 , , 8 2 8 0 4 0 3 1 , 8 1 7 5 6 , 8 3 0 6 1 , , 5 0 2 9 0 3 6 0 1 , s d n a s u o h T P G E o t s e c n a v d a d n a s n a o L o t s e c n a v d a d n a s n a o L o t s e c n a v d a d n a s n a o L o t s e c n a v d a d n a s n a o L 7 1 0 2 , 1 3 . c e D 8 1 0 2 , 1 3 . c e D : s w o l l o f s a d e z i r a m m u s e r a s e c n a v d a d n a s n a o L d e r i a p m i r o n e u d t s a p r e h t i e N d e r i a p m i t o n t u b e u d t s a P d e r i a p m i y l l a u d i v i d n I 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 t e N s s o r G : s s e L . l a r e t a l l o c t n e i c ffi u s r o g n i t a r t i d e r c d o o g h t i w s r e m o t s u c l i a t e r r o s k n a b , s e s i r p r e t n e e g r a l h t i w s s e n i s u b e h t n o e r o m s e s u c o f k n a B e h t , k s i r t i d e r c o t e r u s o p x e e l b a p o r p e h t e z i m n m o t r e d r o n I i i . d n a s u o h t 4 7 0 4 4 0 , , 3 1 P G E d e h c a e r s e c n a v d a d n a s n a o l r o f s e s s o l n o i s i v o r p t n e m r i a p m I . . % 0 7 6 1 y b d e s a e r c n i s e c n a v d a d n a s n a o l l a t o t ’ s k n a B e h t , r a e y e h t g n i r u D : ) n o i s i v o r p t n e m r i a p m i g n i t c u d e d r e t f a ( s k n a b d n a s r e m o t s u c o t s e c n a v d a d n a s n a o l t e N s d n a s u o h T P G E e t a r o p r o C l i a u d v d n i I 8 1 0 2 , 1 3 . c e D s k n a b s r e m o t s u c s n a o l r e h t O s n a o l s n a o l t c e r i D t f a r d r e v O s e g a g t r o M s n a o l l a t o T l a t o T d n a s n a o l d n a s n a o l o t s e c n a v d a o t s e c n a v d a d e t a c d n y S i l a n o s r e P t i d e r C s d r a c s t f a r d r e v O : s e d a r G - - 3 5 1 5 1 , 0 5 5 2 5 , 3 0 7 7 6 , , 2 3 4 5 7 2 2 9 , , 2 7 2 6 4 5 1 1 , , 6 1 1 7 5 4 2 , 1 4 1 2 1 1 , , 1 6 9 0 9 3 6 0 1 , - - - 6 4 6 2 2 1 , 6 4 6 2 2 1 , , 0 2 9 1 7 1 9 2 , , 0 3 3 2 6 0 9 2 , , 9 1 9 6 8 8 1 1 , , 6 9 8 6 8 3 1 , , 1 2 8 3 4 7 8 , 8 0 8 4 8 2 , , 4 3 6 7 9 5 1 , 7 4 5 9 5 7 , 0 6 7 5 6 2 , - 7 6 2 9 , 4 , 4 2 6 3 4 8 0 3 , , 2 5 0 3 1 4 9 3 , , 0 3 2 2 1 9 2 1 , - - , 0 1 6 1 5 8 7 7 3 2 , 7 8 9 3 5 8 , , 1 6 3 7 9 2 6 1 , , 7 0 5 3 8 3 3 , , 9 3 1 9 9 4 1 , 1 4 5 9 0 5 , 1 1 8 3 5 2 , 6 7 6 3 4 , 4 9 0 8 7 , 4 8 7 4 3 , 0 5 8 2 1 , 3 7 3 8 6 , 9 1 3 0 2 , 7 6 9 3 4 , , 9 8 3 4 0 1 7 1 , , 5 3 2 9 0 5 3 , , 8 9 7 1 3 6 1 , s n a o i l g n m r o f r e P i g n h c t a w r a l u g e R t s i l h c t a W s n a o i l g n m r o f r e p - n o N l a t o T s d n a s u o h T P G E e t a r o p r o C l i a u d v d n i I 7 1 0 2 , 1 3 . c e D s k n a b s r e m o t s u c s n a o l r e h t O s n a o l s n a o l t c e r i D t f a r d r e v O s e g a g t r o M s n a o l l a t o T l a t o T d n a s n a o l d n a s n a o l o t s e c n a v d a o t s e c n a v d a d e t a c d n y S i l a n o s r e P t i d e r C s d r a c s t f a r d r e v O : s e d a r G . t s e r e t n i d e n r a e n u d n a s l l i b d e t n u o c s i d d e z i t r o m a n u e h t g n i t c u d e d t u o h t i W - - - 3 1 3 1 , 3 1 3 1 , , 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 , , 1 6 9 5 7 4 0 2 , , 7 6 1 0 8 5 2 2 , , 6 3 3 8 2 8 8 , , 4 4 4 8 4 8 2 , , 1 5 2 9 1 6 9 , , 3 8 3 1 4 1 1 , , 3 1 5 8 1 9 3 , 0 9 2 0 0 8 , 7 5 2 3 6 4 , 1 1 8 0 5 2 , 9 4 1 5 7 9 , 6 1 8 1 5 6 , , 9 9 5 6 1 7 4 2 , , 0 8 0 3 9 0 7 3 , , 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 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 Annual Report 2018 187 Financial StatementS: Separate l a t o T 1 7 1 9 9 1 , , 1 1 1 3 6 4 1 , , 3 8 0 5 3 3 1 , , 5 6 3 7 9 9 2 , - s n a o l 7 5 9 9 9 , 3 7 2 7 1 , 0 3 2 7 1 1 , . d e t a c d n y S i e t a r o p r o C 5 1 4 8 6 7 , 4 7 3 7 5 1 , 4 9 1 5 4 9 , 9 3 7 4 9 5 , 4 2 5 4 2 , 9 8 8 9 8 3 , 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 1 9 4 1 6 9 , 5 8 3 0 8 1 , 1 9 3 5 8 , , 3 8 9 0 7 8 1 , , 2 5 1 9 0 0 1 , , 7 6 2 7 2 2 1 , 7 9 3 2 9 1 1 4 0 3 6 8 1 3 8 3 , 8 6 1 8 2 , 3 6 7 2 2 , 9 4 2 9 8 , s e g a g t r o M s n a o l l a n o s r e P t i d e r C s d r a c 5 3 4 0 5 4 , 1 8 3 3 8 , 1 2 1 2 4 , 1 4 3 2 7 4 , 4 4 6 8 6 , 6 6 4 0 2 , s t f a r d r e v O 7 3 9 5 7 5 , 1 5 4 1 6 5 , 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 l i a u d v d n i I 8 1 0 2 , 1 3 . c e D , , d n a s u o h t 0 6 4 5 5 8 4 P G E d e l a t o t e r a s e e t n a r a u g m o r f s w o fl h s a c n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w d e s s e s s a y l l a u d i v i d n i s e c n a v d a d n a s n a o L s n a o l d e r i a p m i y l l a u d i v i d n I : 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 d e t a c d n y S i 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 , 1 7 0 3 , s n a o l - - 1 7 0 3 , . , 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 , 0 3 7 5 4 4 , 1 3 5 0 3 , 1 1 8 7 2 4 , 2 7 0 4 0 9 , s n a o l t c e r i D t f a r d r e v O l a t o T 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 5 5 1 3 3 , 7 4 5 9 1 , 0 2 5 0 1 , 2 2 2 3 6 , s e g a g t r o M s n a o l l a n o s r e P t i d e r C s d r a c 9 0 7 5 9 3 , 7 2 9 9 5 , 0 2 0 7 2 , 3 9 5 0 3 5 , 1 7 0 7 7 , 8 3 0 3 1 , s t f a r d r e v O , 6 5 6 2 8 4 2 0 7 0 2 6 , 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 l i a u d v d n i I 7 1 0 2 , 1 3 . c e D : 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 l a t o T , 0 6 4 5 5 8 4 , s n a o l 4 6 6 2 7 1 , d e t a c d n y S i , 4 4 4 5 6 4 4 , 1 1 3 0 8 , - 7 4 0 6 , 9 6 8 1 6 , s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M s n a o l l a n o s r e P 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 term loans, specially customer loans. Renegotiated loans totaled at the end of the year: Loans and advances to customer Corporate - Direct loans Total Dec.31, 2018 Dec.31, 2017 7,673,956 7,673,956 8,577,197 8,577,197 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, 2018 AAA AA- to AA+ A- to A+ Lower than A- Total Treasury bills and other gov. notes - - - 41,999,252 41,999,252 Trading financial debt instruments - - - 2,270,080 2,270,080 Non-trading financial debt instruments - - - 112,213,297 112,213,297 EGP Thousands Total - - - 156,482,629 156,482,629 , 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 , , 1 1 2 1 2 6 l a t o T s n a o l d e t a c d n y S i s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M s n a o l l a n o s r e P t i d e r C s d r a c 2 7 8 2 2 , t i d e r C s d r a c 7 6 0 4 2 , s t f a r d r e v O 3 5 2 6 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 t f a r d r e v O 7 1 0 2 , 1 3 . c e D 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 e t a r o p r o C l i a u d v d n i I 8 1 0 2 , 1 3 . c e D , , d n a s u o h t 0 6 4 5 5 8 4 P G E d e l a t o t e r a s e e t n a r a u g m o r f s w o fl h s a c n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w d e s s e s s a y l l a u d i v i d n i s e c n a v d a d n a s n a o L s n a o l d e r i a p m i y l l a u d i v i d n I 188 Annual Report 2018 Annual Report 2018 189 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, 2018 Treasury bills and other governmen- tal notes Trading financial assets: - Debt instruments Gross loans and advances to banks Less:Impairment provision Gross loans and advances to cus- tomers 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 Total Cairo 50,013,324 2,270,080 70,949 (3,246) 948,571 2,806,734 10,820,446 795,852 11,941,245 32,889,668 30,010,681 80,000 (65,718) (9,707,342) (16,038) 52,289 112,213,297 245,120,792 Alex, Delta and Sinai Upper Egypt Total EGP Thousands - - - - 558,087 632,771 5,401,963 72,124 1,415,913 12,894,439 2,687,040 45,429 - (3,024,196) - - - 20,683,570 - - - - 129,252 101,344 958,455 8,396 635,437 3,395,713 202,229 - - (309,290) - - 50,013,324 2,270,080 70,949 (3,246) 1,635,910 3,540,849 17,180,864 876,372 13,992,595 49,179,820 32,899,950 125,429 (65,718) (13,040,828) (16,038) 52,289 - 5,121,536 112,213,297 270,925,898 s r o t c e s y r t s u d n I . 2 . 8 . . 1 3 s d n a s u o h T P G E l a t o T l i a u d v d n i I s e i t i v i t c a r e h t O r o t c e s e d a r t l i a t e r e t a t s e l a e R g n i r u t c a f u n a M s n o i t u t i t s n i 8 1 0 2 , 1 3 . c e D t n e m n r e v o G l d n a e a s e o h W l ' . 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 l i a c n a n F i 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 , 4 2 3 3 1 0 0 5 , , 0 8 0 0 7 2 2 , 9 4 9 0 7 , ) 6 4 2 3 ( , , 0 1 9 5 3 6 1 , , 9 4 8 0 4 5 3 , , 4 6 8 0 8 1 7 1 , - - - - , 0 1 9 5 3 6 1 , , 9 4 8 0 4 5 3 , , 4 6 8 0 8 1 7 1 , 2 7 3 6 7 8 , 2 7 3 6 7 8 , - - - - - - - - , 4 2 3 3 1 0 0 5 , - - - - - - , 0 8 0 0 7 2 2 , , 5 9 5 2 9 9 3 1 , , 0 2 8 9 7 1 9 4 , , 0 5 9 9 9 8 2 3 , 9 2 4 5 2 1 , ) 8 1 7 5 6 ( , 9 8 2 2 5 , ) 8 3 0 6 1 ( , , ) 8 2 8 0 4 0 3 1 ( , , 7 9 2 3 1 2 2 1 1 , - - - - - - - ) 8 3 0 6 1 ( , ) 6 8 5 4 3 1 ( , , 9 4 9 0 8 6 2 , , 1 1 8 9 4 3 7 1 , , 5 5 7 6 8 0 1 , , 6 1 2 7 2 7 5 , - - - - 9 2 4 3 , , 8 3 0 5 6 1 1 , , ) 6 3 7 5 3 2 8 ( , - - - - ) 5 2 8 4 7 2 ( , , 8 5 2 8 0 1 3 2 , , 4 6 2 5 8 9 0 1 1 , - - - - - - - - - - - - , 6 2 6 3 9 4 , 3 5 8 4 8 8 - 0 0 0 6 1 , ) 9 3 1 5 6 ( , - - - - - - - - - - - - - - - - - - - - , 5 8 4 7 6 3 , 0 0 3 2 2 2 - - ) 9 3 9 5 ( , , 9 2 2 5 9 6 1 , - - - , 9 0 0 2 8 4 7 , , 3 0 6 1 5 5 3 2 , , 3 2 0 8 7 1 8 , - 0 0 0 6 0 1 , , ) 1 7 9 2 8 2 4 ( , - - 9 4 9 0 7 , ) 6 4 2 3 ( , - - - - 7 2 0 4 5 5 , - 1 3 3 6 2 2 , ) 8 1 7 5 6 ( , ) 2 3 6 1 4 ( , - 9 8 2 2 5 , , 2 5 8 8 9 2 1 , , 3 3 0 8 2 2 1 , , 8 9 8 5 2 9 0 7 2 , , 1 7 3 3 8 0 3 2 , , 1 9 4 3 6 9 2 1 , , 2 7 0 6 1 9 2 9 1 , , 0 4 3 9 2 3 1 , , 5 7 0 9 7 2 2 , , 4 6 6 4 3 0 5 3 , , 5 8 8 9 1 3 3 , 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 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 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 : l a u d i v i d n I s r e m o t : s t e s s a l a i c n a n fi g n i d a r T s t n e m u r t s n i t b e D - s e t o n s 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 - l a t o T s n a o l l a n o s r e P - s d r a c t i d e r C - 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 - 190 Annual Report 2018 Annual Report 2018 191 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. 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 fo 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 statisticalprobability (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 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 bankcomputes 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 Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Portfolio managed by others risk Investment fund Total VaR EGP Thousands Dec.31, 2018 Dec.31, 2017 Medium 231 453,569 429,195 24,374 7,030 119 High 1,482 645,193 586,852 58,341 11,507 267 Low Medium 20 238,077 232,882 5,195 1,969 55 13,647 588,938 553,426 35,512 7,280 370 High 82,695 815,249 739,977 75,272 10,454 692 Low 275 363,366 351,674 11,692 4,854 215 455,104 647,983 238,493 591,508 826,941 364,408 Trading portfolio VaR by risk type Foreign exchange risk Interest rate risk - For trading purposes Funds managed by others risk Investment fund Total VaR Dec.31, 2018 Dec.31, 2017 Medium 231 24,374 24,374 7,030 119 26,165 High 1,482 58,341 58,341 11,507 267 60,912 Low 20 5,195 5,195 1,969 55 5,611 Medium 13,647 35,512 35,512 7,280 370 46,039 High 82,695 75,272 75,272 10,454 692 113,250 Low 275 11,692 11,692 4,854 215 13,804 Non trading portfolio VaR by risk type Interest rate risk - For non trading purposes Total VaR Dec.31, 2018 Dec.31, 2017 Medium High Low Medium High Low 429,195 429,195 586,852 586,852 232,882 232,882 553,426 553,426 739,977 739,977 351,674 351,674 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. 192 Annual Report 2018 Annual Report 2018 193 Financial StatementS: Separate 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. 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. Dec.31, 2018 EGP USD EUR GBP Other Total Dec.31, 2018 Equivalent EGP Thousands Up to1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non- Interest Bearing Total Financial assets Cash and balances with central bank Due from banks Treasury bills and other governmental notes Trading financial assets Gross loans and advances to banks Gross loans and advances to customers Derivative financial instruments Financial investments - Available for sale - Held to maturity Investments in associates and subsidiaries Total financial assets Financial liabilities Due to banks Due to customers Derivative financial instruments Other loans Total financial liabilities Net on-balance sheet financial position 15,822,884 2,511,902 657,323 80,582 986,283 20,058,974 15,730,309 23,594,720 6,743,789 366,545 83,529 46,518,892 31,491,429 12,272,607 1,333,103 1,802,626 935,079 - 70,949 - - - - - 63,518,898 52,952,122 2,938,691 22,078 39,355 12,934 - 26,664,326 73,630,764 12,367,155 - 186,409 - 54,533 14,100 - - - - - - - - - - - - - 45,097,139 2,737,705 70,949 119,431,789 52,289 39,217,890 73,630,764 68,633 228,755,124 104,731,568 11,859,315 469,205 1,069,812 346,885,024 5,958,780 183,026,820 85,912 138,809 1,099,145 89,794,399 46,946 3,582,720 92,882 11,046,226 - - 12,773 1,005,452 - - 96,239 467,575 - - 7,259,819 285,340,472 132,858 3,721,529 189,210,321 94,523,210 11,139,108 1,018,225 563,814 296,454,678 39,544,803 10,208,358 720,207 (549,020) 505,998 50,430,346 - 3,969 38,375 (3,711,230) 33,676,642 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 ad- vances to customers Derivatives financial instruments (includ- ing IRS notional amount) Financial investments - Available for sale - Held to maturity Investments in associates and subsidiaries Total financial assets 118,167,504 132,500 9,361,480 77,155,228 1,510,540 - - - 12,438,963 401,563 5,425,047 43,383,322 - - - - - - 20,058,974 20,058,974 1,724 46,518,892 - 45,097,139 - - 1,643,653 626,428 429,249 2,737,705 5,483 17,829 42,233 1,435 - 70,949 13,993,151 14,231,235 10,708,275 3,343,900 - 119,431,789 9,650 399,197 5,899,343 - - 7,818,730 73,030 2,055,231 457,834 26,632,213 19,793,116 27,257,651 18,158,565 8,324,189 602,845 - 39,217,890 73,630,764 - - - - 68,633 68,633 34,000,555 85,523,193 65,344,271 30,454,517 21,161,425 354,651,465 Financial liabilities Due to banks Due to customers Derivatives financial instruments (including IRS notional amount) Other loans Total financial liabilities Total interest re- pricing gap 7,002,464 148,906,076 - 22,012,700 - 24,470,575 - 40,675,873 - 533,317 257,355 48,741,931 7,259,819 285,340,472 2,148,569 5,011,865 33,028 705,837 - 33,380 10,000 87,286 443,188 3,147,675 - - 7,899,299 3,721,529 158,090,489 27,034,565 24,590,889 41,824,898 3,680,992 48,999,286 304,221,119 (39,922,985) 6,965,990 60,932,304 23,519,373 26,773,525 (27,837,861) 50,430,346 * After adding Reverse repos and deducting Repos. 194 Annual Report 2018 Annual Report 2018 195 Financial StatementS: Separate 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 Consumer 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, 2018 Financial liabilities Due to banks Due to customers Other loans Total liabilities (contractual and non contractual maturity dates) Total financial assets (contractual and non contractual maturity dates) Dec.31, 2017 Financial liabilities Due to banks Due to customers Other 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 yeas Total EGP Thousands 6,632,843 29,932,979 33,380 626,976 23,750,618 10,000 - 72,467,784 87,286 - 145,207,840 443,188 - 13,981,251 3,147,675 7,259,819 285,340,472 3,721,529 36,599,202 24,387,594 72,555,070 145,651,028 17,128,926 296,321,820 41,324,915 40,718,467 74,369,489 141,260,576 49,075,657 346,749,104 Up to 1 month One to three months Three months to one year One year to five years Over five years Total 1,877,918 31,348,143 36,393 - 21,728,194 6,743 - 71,335,328 82,631 - 109,570,301 3,429 - 16,785,404 3,545,540 1,877,918 250,767,370 3,674,736 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 Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, due from CBE and due from banks, treasury bills, other government notes , loans and advances to banks and customers. In the normal course of business, a proportion of customer loans contractually repayable within one year will be extend- ed. In addition, debt instrument and treasury bills and other governmental notes have been pledged to secure liabilities. The Bank would also be able to meet unexpected net cash outflows by selling securities and accessing additional funding sources such as asset-backed markets. 3.3.4. Derivative cash flows The Bank’s derivatives include: Foreign exchange derivatives: exchange traded options and over-the-counter (OTC) ,exchange traded forwards currency options that will be settled on a gross basis Interest rate derivatives: interest rate swaps, forward rate agreements, OTC and exchange traded interest rate options, other interest rate contracts and exchange traded futures . The table below analyses the Bank’s derivative undiscounted financial liabilities into maturity groupings based on the re- maining period of the balance sheet to the contractual maturity date will be settled on a net basis. The amounts disclosed in the table are the contractual undiscounted cash flows: Up to 1 month One to three months Three months to one year One year to five years Total EGP Thousands Dec.31, 2018 Liabilities Derivatives financial instruments - Foreign exchange derivatives - Interest rate derivatives Total Off balance sheet items Dec.31, 2018 Letters of credit, guarantees and other commitments Total Dec.31, 2018 Credit facilities commitments Total 34,388 197 34,585 22,205 6 22,211 29,319 3,709 33,028 - 85,912 43,034 43,034 46,946 132,858 EGP Thousands Up to 1 year 1-5 years Over 5 years Total 51,260,372 14,088,753 6,046,689 71,395,814 51,260,372 14,088,753 6,046,689 71,395,814 EGP Thousands Up to 1 year 1,399,900 1,399,900 1-5 years 7,773,882 7,773,882 Total 9,173,782 9,173,782 196 Annual Report 2018 Annual Report 2018 197 Financial StatementS: Separate 3.4. Fair value of financial assets and liabilities 3.4.1. Financial instruments not measured at fair value The table below summarizes the book value and fair value of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value. Financial assets Due from banks Gross loans and advances to banks Gross loans and advances to customers Financial investments Held to Maturity Total financial assets Financial liabilities Due to banks Due to customers Other loans Total financial liabilities Book value Fair value Dec.31, 2018 Dec.31, 2017 Dec.31, 2018 Dec.31, 2017 46,518,892 70,949 119,431,789 45,319,766 1,383 102,400,022 46,859,224 70,949 115,452,376 44,782,984 1,383 96,397,613 73,630,764 239,652,394 45,167,722 192,888,893 41,237,872 203,620,421 45,595,034 186,777,014 7,259,819 285,340,472 3,721,529 296,321,820 1,877,918 250,767,370 3,674,736 256,320,024 7,069,442 280,729,572 3,721,529 291,520,543 1,813,466 245,616,661 3,674,736 251,104,863 Due from banks The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of floating interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and similar maturity date. Loans and advances to banks Loans and advances to banks 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. Financial Investments Investment securities include only interest-bearing assets, held to maturity assets, and available for sale assets that are measured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Due to other banks and customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar maturity date. 3.5 capital management For capital management purposes, the Bank’s capital includes total equity as reported in the balance sheet plus some other elements that are managed as capital. The Bank manages its capital to ensure that the following objectives are achieved: • 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 for shareholders and other parties dealing" with the bank. • Maintaining a strong capital base to enhance growth of the Bank’s operations. Capital adequacy and the use of regulatory capital are monitored on a daily basis by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the banking supervision unit in the Central Bank of Egypt. The required data is submitted to the Central Bank of Egypt on a monthly basis. Central Bank of Egypt requires the following: • Maintaining EGP 500 million as a minimum requirement for the issued and paid-in capital. • Maintaining a minimum level of capital adequacy ratio of 11.875%, 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. 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 400% 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. 198 Annual Report 2018 Annual Report 2018 199 Financial StatementS: Separate The tables below summarize the compositions of teir 1, teir 2 , the capital adequacy ratio and leverage ratio . 4. Critical accounting estimates and judgments 1- The capital adequacy ratio Tier 1 capital Share capital (net of the treasury shares) Reserves IFRS 9 Reserve Retained Earnings (Losses) Total deductions from tier 1 capital common equity Net profit for the year Total qualifying tier 1 capital Tier 2 capital 45% of special reserve 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 Total credit risk Total market risk Total operational risk Total *Capital adequacy ratio (%) Dec.31, 2018 EGP Thousands Dec.31, 2017 Restated** 11,668,326 14,829,948 1,411,549 55,089 (4,754,596) 6,881,450 30,091,766 49 3,582,720 1,879,734 5,462,503 11,618,011 10,543,783 1,411,549 89,873 (2,450,399) 3,960,829 25,173,646 49 3,545,540 1,679,656 5,225,245 35,554,269 30,398,891 156,952,618 5,959,133 23,292,505 186,204,256 19.09% 141,154,879 9,239,998 18,222,831 168,617,708 18.03% * Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. ** After 2017 profit distribution. 2- Leverage ratio Total qualifying tier 1 capital On-balance sheet items & derivatives Off-balance sheet items Total exposures *Percentage Dec.31, 2018 30,091,766 346,163,131 45,407,765 391,570,896 7.68% EGP Thousands Dec.31, 2017 Restated** 25,173,646 300,593,997 44,965,272 345,559,269 7.28% * Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 14 July 2015. ** After 2017 profit distribution. For December 2018 NSFR ratio record 209.70% (LCY 243.36% and FCY 165.61%), and LCR ratio record 601.53% (LCY 667.84% and FCY 338.82%). 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%). 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 quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating 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 counter- party), 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. 200 Annual Report 2018 Annual Report 2018 201 Financial StatementS: Separate 5. Segment analysis The Bank is divided into four main business segments on a worldwide basis: • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products • Investment banking – incorporating financial instruments Trading, structured financing, Corporate leasing,and merger and acquisitions advice. • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages; • Others –Including other banking business, such as Assets Management. Transactions between the business segments are on normal commercial terms and conditions. Dec.31, 2018 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets 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 EGP Thousands Asset Liability Mangement Total 8,999,279 2,452,934 3,870,401 6,163,506 639,484 22,125,604 (5,516,282) (739,340) (427,332) (2,373,798) (16,258) (9,073,010) 3,482,997 1,713,594 3,443,069 3,789,708 623,226 13,052,594 (933,068) (459,085) (922,426) (1,015,293) (166,967) (3,496,839) 2,549,929 1,254,509 2,520,643 2,774,415 456,259 9,555,755 102,743,816 2,159,095 165,584,686 22,693,303 49,242,585 342,423,485 Corporate banking SME's Investment banking Retail banking Asset Liability Mangement 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 1,645,662 2,850,397 3,061,252 632,420 10,330,990 (576,762) (442,854) (767,053) (823,795) (170,187) (2,780,651) 1,564,497 1,202,808 2,083,344 2,237,457 462,233 7,550,339 82,138,508 2,352,091 137,645,556 18,444,909 54,190,257 294,771,321 5.2. By geographical segment Dec.31, 2018 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec.31, 2017 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets 6. Net interest income Cairo Alex, Delta & Sinai Upper Egypt Total EGP Thousands 17,766,245 3,424,556 934,803 22,125,604 (7,545,066) (1,304,228) (223,716) (9,073,010) 10,221,179 (2,738,280) 7,482,899 2,120,328 (568,053) 1,552,275 316,635,596 19,340,837 711,087 (190,506) 520,581 6,447,052 13,052,594 (3,496,839) 9,555,755 342,423,485 Cairo Alex, Delta & Sinai Upper Egypt Total 13,479,965 2,499,912 491,190 16,471,067 (5,306,193) 8,173,772 (2,200,134) 5,973,638 (670,176) 1,829,736 (492,390) 1,337,346 (163,708) (6,140,077) 327,482 (88,127) 239,355 10,330,990 (2,780,651) 7,550,339 265,654,804 22,598,945 6,517,572 294,771,321 Interest and similar income - Banks - Clients Total Treasury bills and bonds Reverse repos Financial investments in held to maturity and available for sale debt instruments Total Interest and similar expense - Banks - Clients Total Financial instruments purchased with a commitment to re-sale (Repos) Other loans Total Net interest income EGP Thousands Dec.31, 2018 Dec.31, 2017 3,338,266 15,274,649 18,612,915 18,582,089 2,519 206,186 37,403,709 (840,233) (18,001,197) (18,841,430) (112,366) (306,394) 3,532,274 10,921,054 14,453,328 14,039,447 - 178,391 28,671,166 (463,409) (15,686,959) (16,150,368) (2,037) (14,750) (19,260,190) (16,167,155) 18,143,519 12,504,011 202 Annual Report 2018 Annual Report 2018 203 Financial StatementS: Separate 7. Net fee and commission income 11. Other operating (expenses) 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 10. Administrative expenses Staff costs Wages and salaries Social insurance Other benefits Other administrative expenses * Total EGP Thousands Dec.31, 2018 Dec.31, 2017 1,456,930 140,247 1,805,439 3,402,616 (991,957) (991,957) 2,410,659 1,362,660 117,268 1,314,283 2,794,211 (796,107) (796,107) 1,998,104 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 EGP Thousands Loans and advances to customers and banks Total Dec.31, 2018 Dec.31, 2017 13. Adjustments to calculate the effective tax rate 9,951 16,007 25,958 11,474 23,039 34,513 EGP Thousands Dec.31, 2018 Dec.31, 2017 668,071 (38,904) (20,865) 8,179 472,595 764,732 (17,118) (23,732) (21,230) 589,563 1,089,076 1,292,215 EGP Thousands Dec.31, 2018 Dec.31, 2017 (2,237,595) (78,841) (61,976) (1,844,367) (4,222,779) (1,620,326) (65,033) (51,682) (1,381,798) (3,118,839) Profit before tax Tax rate Income tax based on accounting profit Add / (Deduct) Non-deductible expenses Tax exemptions 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 * The expenses related to the activity for which the bank obtains a commodity or service and all taxes and charges incurred by the bank - except for income tax - donations, depreciation and impairment of non financial assets other than subsidiaries and associates 204 Annual Report 2018 EGP Thousands Dec.31, 2018 Dec.31, 2017 59,863 1,045 (400,596) (1,249,987) (1,589,675) (61,065) 607 (114,725) (827,387) (1,002,570) EGP Thousands Dec.31, 2018 Dec.31, 2017 (3,076,023) (3,076,023) (1,742,281) (1,742,281) EGP Thousands Dec.31, 2018 Dec.31, 2017 13,052,594 22.50% 2,936,834 872,324 (314,360) 2,041 3,496,839 26.79% 10,330,990 22.50% 2,324,473 626,536 (173,358) 3,000 2,780,651 26.92% EGP Thousands Dec.31, 2018 Dec.31, 2017 9,553,868 (143,308) (955,387) 8,455,173 1,163,898 7.26 1,171,642 7.22 7,549,043 (113,236) (754,904) 6,680,903 1,159,156 5.76 1,177,722 5.67 Annual Report 2018 205 Financial StatementS: Separate 15. Cash and balances with central bank 18. Trading financial assets 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 Floating 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 EGP Thousands Dec.31, 2018 Dec.31, 2017 6,532,211 5,784,303 13,526,763 20,058,974 20,058,974 8,878,986 14,663,289 14,663,289 EGP Thousands Debt instruments - Governmental bonds Total Equity instruments - Mutual funds Total - Portfolio managed by others Total Dec.31, 2018 Dec.31, 2017 19. Loans and advances to banks, net 4,168,973 42,349,919 46,518,892 25,397,558 4,109,576 17,011,758 46,518,892 1,724 10,203,376 36,313,792 46,518,892 46,518,892 2,679,189 42,640,577 45,319,766 15,863,399 3,894,775 25,561,592 45,319,766 - 9,940,362 35,379,404 45,319,766 45,319,766 EGP Thousands Dec.31, 2018 Dec.31, 2017 - 3,669,700 49,441,511 (3,097,887) 50,013,324 (8,014,072) (8,014,072) 41,999,252 - 1,289,425 57,602,997 (4,238,574) 54,653,848 (175,646) (175,646) 54,478,202 Time and term loans Impairment provision Total Current balances Total Analysis for impairment provision of loans and advances to banks Beginning balance Release during the year Exchange revaluation difference Ending balance EGP Thousands Dec.31, 2018 Dec.31, 2017 2,270,080 2,270,080 6,728,843 6,728,843 38,376 38,376 429,249 99,587 99,587 466,767 2,737,705 7,295,197 EGP Thousands Dec.31, 2018 Dec.31, 2017 70,949 (3,246) 67,703 67,703 67,703 1,383 (70) 1,313 1,313 1,313 EGP Thousands Dec.31, 2018 Dec.31, 2017 (70) (3,140) (36) (3,246) (1,800) 1,697 33 (70) 206 Annual Report 2018 Annual Report 2018 207 Financial StatementS: Separate 20. Loans and advances to customers, net Individual - Overdraft - Credit cards - Personal loans - Real estate 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 EGP Thousands Dec.31, 2018 Dec.31, 2017 1,635,910 3,540,849 17,180,864 876,372 23,233,995 13,992,595 49,179,820 32,899,950 125,429 96,197,794 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 83,392,223 119,431,789 102,400,022 (65,718) (13,040,828) (16,038) 106,309,205 44,549,290 61,759,915 106,309,205 (12,476) (10,994,446) (2,965,997) 88,427,103 38,960,491 49,466,612 88,427,103 * An amount of EGP 1,818mn has been charged to impairment provision against unearned interest recognized in income. Of this amount, EGP 1,057mn has been charged in Q3 2018, which is the second and final re-engineering for such accounts. 208 Annual Report 2018 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 f o n o s i i v o r p t n e m r i a p m i r o f s i s y l a n a , ) 0 9 9 8 2 7 0 1 ( , , ) 1 1 7 2 8 9 2 ( , 4 7 7 7 2 9 , ) 0 2 0 2 4 ( , ) 5 9 2 0 8 ( , , ) 2 4 2 6 0 9 2 1 ( , - - - 4 6 1 ) 7 4 9 2 ( , ) 3 8 7 2 ( , , ) 6 2 2 1 1 9 1 ( , 3 7 2 1 7 5 , ) 0 9 8 8 8 6 ( , - ) 3 8 4 7 2 ( , , ) 6 2 3 6 5 0 2 ( , , ) 0 9 6 7 0 1 7 ( , , ) 2 6 8 7 2 9 2 ( , 1 0 5 6 5 3 , ) 0 2 0 2 4 ( , ) 7 9 6 5 4 ( , , ) 8 6 7 6 6 7 9 ( , , ) 7 2 1 7 0 7 1 ( , 7 7 8 3 3 6 , - - ) 5 1 1 7 ( , , ) 5 6 3 0 8 0 1 ( , l a t o T s n a o l r e h t O s n a o l d e t a c d n y S i 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 ) 6 5 4 5 6 2 ( , ) 2 7 1 0 9 ( , 0 3 3 1 7 2 , ) 8 8 2 0 5 ( , ) 6 8 5 4 3 1 ( , - - - - - - - ) 6 9 4 9 ( , ) 9 8 8 2 1 ( , ) 5 8 3 2 2 ( , e t a r o p r o C ) 6 9 9 6 2 2 ( , ) 6 7 9 1 5 ( , 3 6 3 8 2 2 , ) 6 6 8 5 2 ( , ) 5 7 4 6 7 ( , ) 7 6 6 5 2 ( , ) 9 0 5 4 2 ( , 7 6 9 2 4 , ) 5 0 4 4 2 ( , ) 4 1 6 1 3 ( , - ) 7 1 ( ) 8 9 7 ( ) 7 9 2 3 ( , ) 2 1 1 4 ( , s n a o l r e h t O s n a o l e t a t s e l a e R s n a o l l a n o s r e P s d r a c t i d e r C t f a r d r e v O l a u d i v i d n I l a t o T s n a o l r e h t O s n a o l d e t a c d n y S i 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 ) 3 5 4 5 5 2 ( , 3 4 5 3 5 , ) 5 9 6 1 4 ( , ) 1 5 8 1 2 ( , , ) 6 5 4 5 6 2 ( - - - 8 3 8 0 2 , ) 8 3 8 0 2 ( , ) 1 0 8 7 ( , ) 3 4 7 3 ( , 0 8 0 2 , ) 2 3 ( ) 6 9 4 9 ( , e t a r o p r o C 1 6 5 1 , ) 9 5 ( ) 2 9 5 0 9 1 ( , ) 6 0 9 7 3 ( , ) 6 9 9 6 2 2 ( , ) 6 5 0 5 2 ( , ) 8 2 3 5 1 ( , 7 7 4 6 3 , ) 0 6 7 1 2 ( , ) 7 6 6 5 2 ( , ) 6 6 1 1 1 ( , ) 6 5 5 5 ( , 5 2 4 3 1 , - ) 7 9 2 3 ( , s n a o l r e h t O s n a o l e t a t s e l a e R s n a o l l a n o s r e P s d r a c t i d e r C t f a r d r e v O l a u d i v i d n I , ) 4 5 5 2 6 5 9 ( , , ) 3 8 2 2 0 7 1 ( , 5 8 1 2 8 3 , ) 4 5 0 3 2 ( , 6 1 7 6 7 1 , , ) 0 9 9 8 2 7 0 1 ( , - - 6 ) 9 0 5 ( ) 4 4 4 2 ( , ) 7 4 9 2 ( , , ) 3 7 8 5 7 7 1 ( , - - 1 1 0 4 5 , ) 4 6 3 9 8 1 ( , , ) 6 2 2 1 1 9 1 ( , , ) 7 2 2 2 4 4 6 ( , , ) 2 7 3 5 2 1 1 ( , 5 8 1 2 8 3 , ) 4 5 0 3 2 ( , 8 7 7 0 0 1 , , ) 0 9 6 7 0 1 7 ( , , ) 0 1 0 2 4 3 1 ( , - - 1 2 9 1 2 , ) 8 3 0 7 8 3 ( , , ) 7 2 1 7 0 7 1 ( , r a e y e h t g n i r u d d e s a e l e r ) d e g r a h c ( d e s a e l e R e c n a l a b g n n n i g e B i 8 1 0 2 , 1 3 . c e D * r a e y e h t g n i r u d s e i r e v o c e R r a e y e h t g n i r u d ff o e t i r W e c n a l a b g n i d n E r a e y e h t g n i r u d d e s a e l e r ) d e g r a h c ( d e s a e l e R e c n a l a b g n n n i g e B i 8 1 0 2 , 1 3 . c e D i e c n e r e ff d n o i t a u l a v e r e g n a h c x E * r a e y e h t g n i r u d s e i r e v o c e R r a e y e h t g n i r u d ff o e t i r W e c n a l a b g n i d n E r a e y e h t g n i r u d d e s a e l e r ) d e g r a h c ( d e s a e l e R e c n a l a b g n n n i g e B i 7 1 0 2 , 1 3 . c e D * r a e y e h t g n i r u d s e i r e v o c e R r a e y e h t g n i r u d ff o e t i r W e c n a l a b g n i d n E r a e y e h t g n i r u d d e s a e l e r ) d e g r a h c ( d e s a e l e R e c n a l a b g n n n i g e B i 7 1 0 2 , 1 3 . c e D i e c n e r e ff d n o i t a u l a v e r e g n a h c x E * r a e y e h t g n i r u d s e i r e v o c e R r a e y e h t g n i r u d ff o e t i r W e c n a l a b g n i d n E s t n u o m a ff o n e t t i r w y l s u o i v e r p m o r F * Annual Report 2018 209 Financial StatementS: Separate 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. 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). 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 predetermined amount in foreign currency or interest rate. Options contracts are either traded in the market or negotiated between The Bank and one of its clients (Off balance sheet). The Bank 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 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) 21.1.2. Fair value hedge EGP Thousands Dec.31, 2018 Dec.31, 2017 Notional amount 5,360,272 3,628,415 Assets Liabilities 21,112 18,243 39,355 73,105 12,807 85,912 Notional amount 6,820,350 1,640,985 Assets Liabilities 36,597 3,117 49,687 5,860 39,714 55,547 Interest rate derivatives - Governmental debt instruments hedging - Customers deposits hedging Total (2) Total financial derivatives (1+2) EGP Thousands Dec.31, 2018 Dec.31, 2017 Notional amount 662,803 7,103,638 Notional amount 655,925 11,506,784 Assets Liabilities - 12,934 12,934 52,289 9,164 37,782 46,946 132,858 Assets Liabilities - 287 287 25,996 115,441 141,437 40,001 196,984 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 9,164 thousand at December 31, 2018 against EGP 25,996 thousand at the December 31, 2017, Resulting in gains form hedging instruments at December 31, 2018 EGP 16,832 thousand against EGP 19,633 thousand at the December 31, 2017. Losses arose from the hedged items at December 31, 2018 reached EGP 34,193 thousand against losses of EGP 44,924 thousand at December 31, 2017. 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 24,848 thousand at the end of December 31, 2018 against EGP 115,154 thousand at December 31, 2017, resulting in gains from hedging instruments at December 31, 2018 of EGP 90,306 thousand against losses of EGP 76,302 thousand at December 31, 2017. Losses arose from the hedged items at December 31, 2018 reached EGP 94,856 thousand against gains EGP 81,488 thousand at December 31 , 2017. 210 Annual Report 2018 Annual Report 2018 211 Financial StatementS: Separate 22. Financial investments 22.1. profits (losses) on financial investments Available for sale - Listed debt instruments with fair value - Listed equity instruments with fair value - Unlisted equity instruments by amortized cost Total Held to maturity - Listed debt instruments - Unlisted instruments Total EGP Thousands Dec.31, 2018 Dec.31, 2017 38,615,045 458,094 144,751 39,217,890 29,632,780 83,346 758,655 30,474,781 73,598,251 32,513 73,630,764 45,135,209 32,513 45,167,722 Total financial investment 112,848,654 75,642,503 - Actively traded instruments - Not actively traded instruments Total Fixed interest debt instruments Floating interest debt instruments Total Beginning balance Addition Deduction Exchange revaluation differences for foreign financial as- sets Profit (losses) from fair value difference Available for sale impairment charges Ending Balance as of Dec.31, 2017 Beginning balance Addition Deduction Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Released (Impairment) charges of available for sale Ending Balance as of Dec.31, 2018 Available for sale financial investments 5,447,291 25,868,230 (1,361,027) (100,078) 512,016 108,349 30,474,781 30,474,781 12,670,761 (1,872,988) 102,991 (2,118,094) (39,561) 39,217,890 108,496,980 4,351,674 112,848,654 110,985,264 1,228,033 112,213,297 Held to maturity financial investments 53,924,936 4,597,254 (13,354,468) 73,721,199 1,921,304 75,642,503 72,612,620 2,155,369 74,767,989 EGP Thousands Total 59,372,227 30,465,484 (14,715,495) - (100,078) - - 45,167,722 45,167,722 33,995,313 (5,532,271) - - - 512,016 108,349 75,642,503 75,642,503 46,666,074 (7,405,259) 102,991 (2,118,094) (39,561) 73,630,764 112,848,654 Profit (Loss) from selling available for sale financial instruments Released (Impairment) charges of available for sale equity instruments Released (Impairment) charges of non current assets held for sale Total 23. Investments in associates and subsidiaries EGP Thousands Dec.31, 2018 Dec.31, 2017 441,628 (39,561) - 402,067 (99,047) 254,588 340,504 496,045 Company's country Company's assets Company's liabilities (without equity) Company's revenues Company's net profit Investment book value Stake % EGP Thousands Egypt Egypt - - - - - - - - 44,783 99.99 14,100 23.50 Egypt 860,057 640,554 926,624 72,954 9,750 32.5 860,057 640,554 926,624 72,954 68,633 Company's country Company's assets Company's liabilities (without equity) Company's revenues Company's net profit Investment book value Stake % EGP Thousands Egypt - - - - 44,318 99.99 Egypt 512,388 367,470 505,461 52,695 9,750 32.5 512,388 367,470 505,461 52,695 54,068 Dec.31, 2018 Subsidiaries - CVenture Capital Associates - Fawry plus - International Co. for Security and Services (Falcon) Total Dec.31, 2017 Subsidiaries - CVenture Capital Associates - International Co. for Security and Services (Falcon) Total 212 Annual Report 2018 Annual Report 2018 213 Financial StatementS: Separate 24. Other assets Accrued revenues Prepaid expenses Advances to purchase of fixed assets Accounts receivable and other assets (after deducting the provision)* Assets acquired as settlement of debts Insurance Total Dec.31, 2018 4,509,514 186,797 768,733 3,790,709 276,520 30,945 9,563,218 EGP Thousands Dec.31, 2017 3,870,654 230,296 522,211 2,193,590 45,083 24,973 6,886,807 * A provision with amount EGP 317 million has been created against pending installments. This item includes other assets that are not classified under specific items of balance sheet assets, such as: accrued income and prepaid expenses, amounts paid in advance relating to taxes on bills and bonds, custodies, debit accounts under settlement and any balance that has no place in another asset category. s d n a s u o h T P G E d n a d n a e r u t i n r u F i s e n h c a M 8 1 0 2 , 1 3 . c e D l a t o T i g n h s n r u f i t n e m p u q e i t u o - g n i t t i F l s e c h e V i T I , 3 8 6 3 2 1 4 , 6 8 1 8 2 6 , ) 3 0 2 5 5 9 ( , , 6 6 6 6 9 7 3 , , 4 6 1 9 0 7 2 , 0 3 8 0 9 3 , ) 3 0 2 5 5 9 ( , , 1 9 7 4 4 1 2 , , 5 7 8 1 5 6 1 , , 9 1 5 4 1 4 1 , 5 3 1 8 , 9 8 6 1 5 1 , ) 3 2 0 1 7 ( , 1 0 8 8 8 , 2 8 1 2 3 1 , 7 0 7 7 , ) 3 2 0 1 7 ( , 6 6 8 8 6 , 5 3 9 9 1 , 7 0 5 9 1 , 0 2 % 3 6 7 6 1 5 , 2 9 1 3 3 1 , 6 7 2 2 7 , 3 4 3 8 5 6 , 1 0 6 5 , 3 6 3 9 8 , ) 2 3 1 0 0 2 ( , ) 6 9 2 5 0 2 ( , ) 7 1 8 2 3 ( , 3 2 8 9 4 4 , 7 1 1 0 2 4 , 8 0 4 7 5 , 3 2 3 5 2 5 , 9 7 6 8 3 5 , 8 4 0 3 7 , 7 4 1 2 6 , 8 8 0 3 5 , 9 1 6 2 1 , ) 2 3 1 0 0 2 ( , ) 6 9 2 5 0 2 ( , ) 7 1 8 2 3 ( , 0 2 % 3 9 3 7 7 2 , 0 3 4 2 7 1 , 6 4 6 6 9 , 1 3 4 6 0 4 , 2 9 8 8 1 1 , 4 6 6 9 1 1 , . 3 3 3 % 0 9 8 2 3 , 7 5 2 9 2 , 5 7 2 6 3 , 0 2 % , 7 8 1 6 4 6 1 , , 6 7 3 7 4 3 ) 8 6 0 3 1 4 ( , , 5 9 4 0 8 5 1 , , 9 9 3 5 0 2 1 , , 9 4 9 9 8 1 ) 8 6 0 3 1 4 ( , 0 8 2 2 8 9 , 5 1 2 8 9 5 , 8 8 7 0 4 4 , . 3 3 3 % 6 0 6 1 6 , 9 2 6 6 9 9 , ) 7 6 8 2 3 ( , i s e s m e r P , 8 6 3 5 2 0 1 , 9 9 0 0 5 , 9 9 6 9 5 3 , ) 7 6 8 2 3 ( , 1 3 9 6 7 3 , 7 3 4 8 4 6 , 0 3 9 6 3 6 , 5 % - - - - - - d n a L 9 0 7 4 6 , 9 0 7 4 6 , 9 0 7 4 6 , 9 0 7 4 6 , ) 3 ( r a e y e h t i f o g n n n i g e b t a n o i t a i c e r p e d d e t a l u m u c c A ) 4 ( r a e y e h t f o d n e t a n o i t a i c e r p e d d e t a l u m u c c A n o i t a i c e r p e d r a e y t n e r r u C * r a e y e h t g n i r u d s l a s o p s i D ) 3 - 1 ( s t e s s a t e n g n i n n i g e B ) 4 - 2 ( s t e s s a t e n g n i d n E s e t a r n o i t a i c e r p e D ) 1 ( s t e s s a s s o r g g n n n i g e B i r a e y e h t g n i r u d s n o i t i d d A * r a e y e h t g n i r u d s l a s o p s i D ) 2 ( s t e s s a s s o r g g n i d n E 8 1 0 2 , 1 3 . c e D i t n e m p u q e d n a t n a p l , y t r e p o r P . 5 2 s d n a s u o h T P G E d n a d n a e r u t i n r u F i s e n h c a M 7 1 0 2 , 1 3 . c e D . s s e c o r p n i e r a s e r u d e c o r p s n o i t a r t s i g e r r i e h t e l i h w s t e s s a d e r e t s i g e r n o n d n a s u o h t 8 8 6 , 6 1 3 P G E s e d u l c n i e t a d t e e h s e c n a l a b e h t n o e u l a v s t e s s a d e x fi t e N . n o i t a r e p o n i l l i t s s t e s s a r o f d n u o p e n o f o e u l a v n o i t n e t e r a h t i w d e t a i c e r p e d y l l u f e r a s t e s s a d e x i F * . s t e s s a d e x fi r o f d e g r a h c n o i s i v o r p t n e m r i a p m i o n s a w e r e Th , 8 8 7 6 9 6 3 , - 5 9 8 6 2 4 , , 3 8 6 3 2 1 4 , , 9 5 1 8 5 3 2 , - 5 0 0 1 5 3 , , 4 6 1 9 0 7 2 , , 9 1 5 4 1 4 1 , , 9 2 6 8 3 3 1 , 5 3 2 7 , 4 5 4 4 4 1 , - 3 5 2 7 , 9 8 6 1 5 1 , 9 2 9 4 2 1 , - 0 2 % 7 0 5 9 1 , 5 2 5 9 1 , 2 8 1 2 3 1 , 1 9 1 7 5 , 2 7 5 9 5 4 , - 3 6 7 6 1 5 , 2 2 5 2 7 3 , 5 9 5 7 4 , - 0 2 % 6 4 6 6 9 , 0 5 0 7 8 , 7 1 1 0 2 4 , 0 7 5 0 5 , 3 7 7 7 0 6 , - 3 4 3 8 5 6 , 8 6 3 8 6 4 , 1 1 3 0 7 , - 9 7 6 8 3 5 , 4 6 6 9 1 1 , 5 0 4 9 3 1 , . 3 3 3 % 3 0 7 1 , 0 6 6 7 8 , - 3 6 3 9 8 , 4 0 9 7 4 , 4 8 1 5 , - 8 8 0 3 5 , 5 7 2 6 3 , 6 5 7 9 3 , 0 2 % , 8 3 6 5 9 3 1 , - , 9 4 5 0 5 2 , 7 8 1 6 4 6 1 , - , 5 5 1 6 7 1 , 4 4 2 9 2 0 1 , , 9 9 3 5 0 2 1 , 8 8 7 0 4 4 , 4 9 3 6 6 3 , . 3 3 3 % 7 4 6 9 5 , 2 8 9 6 3 9 , - 9 2 6 6 9 9 , 2 9 1 5 1 3 , 7 0 5 4 4 , - 5 % 9 9 6 9 5 3 , 0 3 9 6 3 6 , 0 9 7 1 2 6 , l a t o T i g n h s n r u f i t n e m p u q e i t u o - g n i t t i F l s e c h e V i T I i s e s m e r P d n a L 9 0 7 4 6 , - - 9 0 7 4 6 , - - - - 9 0 7 4 6 , 9 0 7 4 6 , ) 3 ( r a e y e h t i f o g n n n i g e b t a n o i t a i c e r p e d d e t a l u m u c c A ) 4 ( r a e y e h t f o d n e t a n o i t a i c e r p e d d e t a l u m u c c A n o i t a i c e r p e d r a e y t n e r r u C * r a e y e h t g n i r u d s l a s o p s i D ) 3 - 1 ( s t e s s a t e n g n n n i g e B i ) 4 - 2 ( s t e s s a t e n g n d n E i s e t a r n o i t a i c e r p e D ) 1 ( s t e s s a s s o r g g n n n i g e B i r a e y e h t g n i r u d s n o i t i d d A * r a e y e h t g n i r u d s l a s o p s i D ) 2 ( s t e s s a s s o r g g n d n E i 8 1 0 2 , 1 3 . c e D . s s e c o r p n i e r a s e r u d e c o r p s n o i t a r t s i g e r r i e h t e l i h w s t e s s a d e r e t s i g e r n o n d n a s u o h t 2 6 4 3 5 3 P G E s e d u l c n , i e t a d t e e h s e c n a l a b e h t n o e u l a v s t e s s a d e x fi t e N 214 Annual Report 2018 Annual Report 2018 215 Financial StatementS: Separate 26. Due to banks 28. Other loans Current accounts Deposits Total Central banks Local banks Foreign banks Total Non-interest bearing balances Floating bearing interest 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 Floating interest bearing balances Fixed interest bearing balances Total Current balances Non-current balances Total EGP Thousands Dec.31, 2018 Dec.31, 2017 503,539 6,756,280 7,259,819 190,801 6,009,778 1,059,240 7,259,819 257,355 89,568 6,912,896 7,259,819 7,259,819 1,067,374 810,544 1,877,918 128,527 714,294 1,035,097 1,877,918 740,158 23,169 1,114,591 1,877,918 1,877,918 Interest rate % Maturity date Maturing through next year EGP Thousands Balance on Balance on Dec.31, 2018 Dec.31, 2017 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 months T/D or 9% which is more 3 months libor + 6.2% 3 months libor + 6.2% 3-5 years* 117,286 125,429 87,314 04/01/2020* 13,380 13,380 41,882 10 years 10 years - - 1,791,360 1,772,770 1,791,360 1,772,770 130,666 3,721,529 3,674,736 Interest rates on variable-interest subordinated loans are determined in advance every 3 months/every quarter. Subordi- nated loans are not repaid before their repayment dates. EGP Thousands * Represents the date of loan repayment to the lending agent. Dec.31, 2018 Dec.31, 2017 92,465,717 43,561,846 81,059,934 62,812,279 5,440,696 285,340,472 116,885,763 168,454,709 285,340,472 48,741,931 23,738,113 212,860,428 285,340,472 202,169,757 83,170,715 285,340,472 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 21,022,474 186,427,175 250,767,370 178,830,593 71,936,777 250,767,370 29. Other liabilities Accrued interest payable Accrued expenses Accounts payable Other credit balances Total EGP Thousands Dec.31, 2018 Dec.31, 2017 1,347,397 733,218 4,101,884 319,054 6,501,553 1,516,471 507,543 3,277,350 175,167 5,476,531 216 Annual Report 2018 Annual Report 2018 217 Financial StatementS: Separate , 0 9 6 9 4 4 1 , 0 3 3 0 8 1 , , 7 0 6 4 9 6 1 , s d n a s u o h T P G E 0 1 9 6 , 7 7 6 7 5 , l e c n a a b g n d n E i - - - ) 0 7 6 7 1 ( , ) 0 7 6 7 1 ( , - - ) 3 2 9 ( ) 1 9 1 1 ( , ) 4 1 1 2 ( , s t n u o m a d e s r e v e R s t n u o m a d e z i l i t U 0 1 9 6 , 3 7 7 5 4 , , 2 0 3 0 7 4 1 , 4 7 1 2 9 , , 9 5 1 5 1 6 1 , - ) 9 2 ( ) 8 9 3 5 9 ( , ) 0 7 4 2 ( , ) 7 9 8 7 9 ( , - - ) 5 2 7 ( ) 8 3 7 4 2 ( , ) 3 6 4 5 2 ( , e c n a a b l i g n d n E s t n u o m a d e s r e v e R s t n u o m a d e z i l i t U - 7 6 6 6 ) 2 4 9 2 ( , ) 9 6 2 2 ( , e g n a h c x E e c n e r e f f i d n o i t a u a v e r l e g n a h c x E e c n e r e f f i d n o i t a u a v e r l - ) 7 5 ( ) 0 3 7 ( 7 2 6 2 1 , 0 4 8 1 1 , - - 0 2 8 2 1 , 1 8 6 8 8 , 1 0 5 1 0 1 , s t n u o m a d e g r a h C , 2 0 3 0 7 4 1 , 4 7 1 2 9 , , 9 5 1 5 1 6 1 , 0 1 9 6 , 3 7 7 5 4 , l e c n a a b g n n n g e B i i - 9 4 5 0 7 3 8 1 1 , 3 0 7 3 9 , 2 2 6 2 1 2 , 0 1 9 6 , 5 3 0 6 4 , , 3 0 7 4 3 4 1 , 9 0 4 6 2 , , 7 5 0 4 1 5 1 , s t n u o m a d e g r a h C e c n a a b l i g n n n g e B i s m i a l c x a t e m o c n i r o f n o i s i v o r P 8 1 0 2 , 1 3 . c e D s m i a l c l a g e l r o f n o i s i v o r P t n e g n i t n o c r o f n o i s i v o r P m i a l c r e h t o r o f n o i s i v o r P l a t o T s m i a l c x a t e m o c n i r o f n o i s i v o r P 7 1 0 2 , 1 3 . c e D s m i a l c l a g e l r o f n o i s i v o r P t n e g n i t n o c r o f n o i s i v o r P m i a l c r e h t o r o f n o i s i v o r P l a t o T s n o s i i v o r P . 0 3 . 0 1 0 2 , 7 1 h c r a M n o n o i s i c e d y l b m e s s a l a r e n e g y r a n i d r o a r t x e e h t o t g n i d r o c c a n o i l l i b 0 2 P G E d e h c a e r l a t i p a c d e z i r o h t u a e Th . s n o i t a r e p o g n i k n a b f o k s i r l a i t n e t o p e h t e c a f o T * l a t i p a c . 1 . 1 3 y t i u q E . 1 3 e r a h s h c a e r o f e u l a v r a p 0 1 P G E h t i w s e r a h s d n a s u o h t 3 3 8 , , 6 6 1 1 n o d e d i v i d e b o t e t a d t e e h s e c n a l a b t a d n a s u o h t 6 2 3 , , 8 6 6 1 1 P G E d e h c a e r l a t i p a C n i d i a P d n a d e u s s I " . 8 1 0 2 t s u g u A h t 6 2 d e t a d r e t s i g e r l a i c r e m m o c e h t n i d e r e t s i g e r d n a - c a ) 7 1 0 2 n i , d n a s u o h t 1 1 0 8 1 6 1 1 P G E t s n , , , , i a g a ( d n a s u o h t 6 2 3 8 6 6 1 1 P G E h c a e r o t 8 1 0 2 2 0 t s u g u A n o d n a s u o h t 5 1 3 0 5 P G E t n u o m a y b , l a t i p a C n i d i a P d n a d e u s s i e s a e r c n I . . . . m a r g o r p P O S E r o f e h c n a r t h t n n f o e c n a u s s i y b 8 1 0 2 i , 1 3 y r a u n a J n o n o i s i c e d s r o t c e r i D f o d r a o B o t g n i d r o c - o N n o n o i s i c e d s r o t c e r i D f o d r a o B o t g n i , , d r o c c a d n a s u o h t 1 1 0 8 1 6 1 1 P G E h c a e r o t 7 1 0 2 4 2 y a M n o d n a s u o h t 1 5 3 9 7 P G E t n u o m a y b , , l a t i p a C n i d i a P d n a d e u s s i e s a e r c n I . . . . m a r g o r p P O S E r o f e h c n a r t h t h g i e f o e c n a u s s i y b 6 1 0 2 , 9 r e b m e v n o n o i s i c e d s r o t c e r i D f o d r a o B o t g n i , , d r o c c a d n a s u o h t 0 6 6 8 3 5 1 1 P G E h c a e r o t 6 1 0 2 9 1 l i r p A n o d n a s u o h t 7 5 0 8 6 P G E t n u o m a y b , , l a t i p a C n i d i a P d n a d e u s s i e s a e r c n I . . . . m a r g o r p P O S E r o f e h c n a r t h t n e v e s f o e c n a u s s i y b 5 1 0 2 , 0 1 r e b m e v o N - i c e d g n i t e e M y l b m e s s A l a r e n e G y r a n i d r O o t g n i , , d r o c c a 3 0 6 0 7 4 1 1 h c a e r o t 5 1 0 2 , 0 1 r e b m e c e D n o d n a s u o h t 1 2 1 4 9 2 2 P G E t n u o m a y b , , l a t i p a C n i d i a P d n a d e u s s i e s a e r c n I ber 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. • The Extraordinary General Assembly approved in the meeting of March 21,2016 continue 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 10% of issued and paid- in capital at par value ,through 10 years starting year 2016 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. - m e v o N n o n o i s i c e d s r o t c e r i D f o d r a o B o t g n i , , d r o c c a d n a s u o h t 2 8 4 6 7 1 9 P G E h c a e r o t 5 1 0 2 5 l i r p A n o d n a s u o h t 8 4 7 4 9 P G E t n u o m a y b , , l a t i p a C n i d i a P d n a d e u s s i e s a e r c n I . e v r e s e R l a r e n e G e h t n o g n i z i l a t i p a c y b s e r a h s g n i d n a t s t u o r u o f y r e v e r o f e r a h s e n o a f o n o i t u b i r t s i d y b 5 1 0 2 , 2 1 h c r a M n o n o i s • • • • • 218 Annual Report 2018 Annual Report 2018 219 Financial StatementS: Separate 32. Deferred tax assets (Liabilities) Deferred tax assets and liabilities are attributable to the following: Assets (Liabilities) EGP Thousands Assets (Liabilities) Dec.31, 2018 Dec.31, 2017 Fixed assets (depreciation) Other provisions (excluded loan loss, contingent liabilities and income tax provi- sions) Intangible Assets Other investments impairment Reserve for employee stock ownership plan (ESOP) Interest rate swaps revaluation Trading investment revaluation Forward foreign exchange deals revaluation Balance (49,750) 53,552 53,657 65,788 166,122 4,695 7,394 6,912 308,370 (31,409) 31,038 36,712 56,698 110,100 5,340 (37,478) 8,629 179,630 Movement of Deferred Tax Assets and Liabilities: Beginning Balance Additions / disposals Ending Balance Assets (Liabilities) EGP Thousands Assets (Liabilities) Dec.31, 2018 Dec.31, 2017 179,630 128,740 308,370 181,308 (1,678) 179,630 Details of the outstanding tranches are as follows: Maturity date Exercise price Fair value EGP EGP 2019 2020 2021 Total 10.00 10.00 10.00 28.43 65.55 68.13 No. of shares in thousand 8,433 7,175 8,150 23,758 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% 12th tranche 11th tranche 10 77.35 3 15.54% 1.29% 26% 10 73.08 3 16.77% 0.68% 30% Volatility is calculated based on the daily standard deviation of returns for the last five years. 34. Reserves and retained earnings 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 instruments is measured using the Black-Scholes pricing model. Details of the rights to share outstanding during the year are as follows: Legal reserve General reserve Capital reserve Retained earnings Special reserve Reserve for A.F.S investments revaluation difference Banking risks reserve IFRS 9 risk reserve Ending balance EGP Thousands Dec.31, 2018 Dec.31, 2017 1,710,293 12,776,215 12,421 9,555,755 20,645 (3,750,779) 4,323 1,411,549 21,740,422 1,332,807 9,000,023 11,815 6,138,790 20,645 (1,642,958) 3,634 1,411,549 16,276,305 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 220 Annual Report 2018 Dec.31, 2018 No. of shares in thousand Dec.31, 2017 No. of shares in thousand 21,280 8,338 (828) (5,032) 23,758 22,351 7,601 (737) (7,935) 21,280 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, taken into consideration that IFRS 9 will be effective as of January 1, 2019. 34.1. Banking risks reserve Beginning balance Transferred to bank risk reserve Ending balance EGP Thousands Dec.31, 2018 Dec.31, 2017 3,634 689 4,323 3,019 615 3,634 Annual Report 2018 221 Financial StatementS: Separate 34.2. legal reserve 35. Cash and cash equivalent 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 Transferred to reserves Dividend paid Net profit for the year Transferred ( from) to bank risk reserve IFRS 9 risk reserve Ending balance 34.5 reserve for employee stock ownership plan Beginning balance Transferred to reserves Cost of employees stock ownership plan (ESOP) Ending balance EGP Thousands Dec.31, 2018 Dec.31, 2017 1,332,807 377,486 1,710,293 1,035,363 297,444 1,332,807 EGP Thousands Dec.31, 2018 Dec.31, 2017 (1,642,958) (2,107,821) (3,750,779) (2,180,244) 537,286 (1,642,958) EGP Thousands Dec.31, 2018 Dec.31, 2017 6,138,790 (3,994,924) (2,143,177) 9,555,755 (689) - 9,555,755 5,950,555 (4,599,736) (1,350,204) 7,550,339 (615) (1,411,549) 6,138,790 EGP Thousands Dec.31, 2018 Dec.31, 2017 489,334 (159,360) 408,346 738,320 343,460 (145,010) 290,884 489,334 222 Annual Report 2018 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 36. Contingent liabilities and commitments 36.1. legal claims EGP Thousands Dec.31, 2018 Dec.31, 2017 20,058,974 46,518,892 41,999,252 (13,526,763) (10,733,386) (50,013,324) 34,303,645 14,663,289 45,319,766 54,478,202 (8,878,986) (1,719,586) (54,653,848) 49,208,837 • There is a number of existing cases filed against the bank on December 31,2018 without provision as the bank doesn't ex- pect to incur losses from it. • A provision for legal cases that are expected to generate losses has been created. (Disclosure No. 30) 26.2 capital commitments 26.2.1. Financial investments The capital commitments for the financial investments reached on the date of financial position EGP 165,676 thousand as follows: Available for sale financial investments Investments value 358,268 Paid 192,593 Remaining 165,676 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 198,026 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 EGP Thousands Dec.31, 2018 Dec.31, 2017 66,166,953 4,178,288 1,050,573 71,395,814 69,514,413 1,700,516 1,017,690 72,232,619 EGP Thousands Dec.31, 2018 Dec.31, 2017 9,173,782 7,024,376 Annual Report 2018 223 Financial StatementS: Separate 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 3,449,254 with redeemed value of EGP 1,247,250 thousands. • The market value per certificate reached EGP 361.60 on December 31, 2018. • The Bank portion got 137,112 certificates with redeemed value of EGP 49,580 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 511,604 with redeemed value of EGP 99,118 thousands. • The market value per certificate reached EGP 193.74 on December 31, 2018. • The Bank portion got 50,000 certificates with redeemed value of EGP 9,687 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 335,313 with redeemed value of EGP 34,336 thousands. • The market value per certificate reached EGP 102.40 on December 31, 2018. • The Bank portion got 27,690 certificates with redeemed value of EGP 2,835 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 91,131 with redeemed value of EGP 19,353 thousands. • The market value per certificate reached EGP 212.37 on December 31, 2018. • The Bank portion got 50,000 certificates with redeemed value of EGP 10,619 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 93,948 with redeemed value of EGP 21,779 thousands. • The market value per certificate reached EGP 231.82 on December 31, 2018. • The Bank portion got 50,000 certificates with redeemed value of EGP 11,591 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 145,943 with redeemed value of EGP 26,051 thousands. • The market value per certificate reached EGP 178.50 on December 31, 2018. • The Bank portion got 50,000 certificates with redeemed value of EGP 8,925 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 CVenture Capital 39. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro EGP Thousands 5,414 137,766 1,309 Income 94 850 Expenses 277,139 2,041 EGP Thousands Dec.31, 2018 Dec.31, 2017 (636,384) 578,745 2,189 (20) 658 37,144 182,639 (313,246) (1,566) (523) 637 46,768 Main currencies positions above represents what is recognized in the balance sheet position of the Central Bank of Egypt. 40. Tax status corporate income tax • Settlment of corporate income tax since the start of activity till 2016 • 2017 examined & paid • The yearly income tax return is submitted in legal dates Salary tax • Settlment of salary tax since the start of activity till 2017 Stamp duty tax • The period since the start of activity till 31/07/2006 was examined & paid, disputed points have been transferred to the court for adjudication • The period from 01/08/2006 till 31/12/2017 was examined & paid in accordance with the protocol signed between the Fed- eration of Egyptian Banks & the Egyptian Tax Authority 224 Annual Report 2018 Annual Report 2018 225 Financial StatementS: Separate 41. Intangible assets: Book value Amortization Net book value EGP Thousands Dec.31, 2018 Dec.31, 2017 651,041 (412,326) 238,715 651,041 (282,118) 368,923 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. Cashflow disclosures 42. Treasury bills and other governmental notes - net increase (decrease) Dec.31, 2018 91 Days ma- turity Unearned interest Net 182 Days ma- turity Unearned interest Net 364 Days ma- turity Unearned interest Net Total unearned interest Net Change Dec.31, 2018 Dec.31, 2017 Total Net Total Net Change - - 3,669,700 (86,343) 49,441,511 (3,011,544) - - - - - 1,289,425 (87,067) 3,583,357 1,202,358 (2,380,999) 57,602,997 (4,151,507) 46,429,967 53,451,490 7,021,523 (3,097,887) (4,238,574) 50,013,324 54,653,848 4,640,524 Dec.31, 2017 91 Days ma- turity Unearned interest Net 182 Days ma- turity Unearned interest Net 364 Days ma- turity Unearned interest Net Total unearned interest Net Change Dec.31, 2017 Dec.31, 2016 Total Net - - 1,289,425 (87,067) 57,602,997 (4,151,507) Net Change Total 1,051,375 (22,416) - 1,028,959 1,028,959 4,350,975 (264,565) 1,202,358 4,086,410 2,884,052 36,010,730 (1,909,712) 53,451,490 34,101,018 (19,350,472) (4,238,574) (2,196,693) 54,653,848 38,187,428 (16,466,420) 226 Annual Report 2018 Annual Report 2018 227 Financial StatementS: Separate 43. Other assets - net increase (decrease) non cash transactions: Non-cash transactions that are not included in the statement of cash flows are as follows: Proceeds from selling available for sale financial investments Payment for purchases of subsidiary and associates Other assets Financial statements balance 2,314,616 (14,100) (2,515,215) Non cash transactions 255,275 (3,525) (251,750) Dec.31, 2018 EGP Thousands Cash flow balance 2,059,341 (10,575) (2,263,465) Total other assets by end of 2017 Assets acquired as settlement of debts Advances to purchase of fixed assets Total 1 Total other assets by end of 2018 Assets acquired as settlement of debts Advances to purchase of fixed assets Unrealized amount from avilable for sale investments Impairment charge for other assets Total 2 Change (1-2) Total other assets by end of 2016 Assets acquired as settlement of debts Advances to purchase of fixed assets Total 1 Total other assets by end of 2017 Assets acquired as settlement of debts Advances to purchase of fixed assets Total 2 Change (1-2) EGP Thousands Dec.31, 2018 6,886,807 (45,083) (522,211) 6,319,513 9,563,218 (276,520) (768,733) (251,750) 316,763 8,582,978 (2,263,465) EGP Thousands Dec.31, 2017 5,446,025 (56,599) (203,410) 5,186,016 6,886,807 (45,083) (522,211) 6,319,513 (1,133,497) 228 Annual Report 2018 Annual Report 2018 229 Financial StatementS: conSolidated 230 Annual Report 2018 Annual Report 2018 231 Financial StatementS: conSolidated consolidated balance sheet as at december 31, 2018 consolidated income statement for the year ended december 31, 2018 Notes Dec. 31, 2018 Dec. 31, 2017 Notes Dec. 31, 2018 Dec. 31, 2017 EGP Thousands EGP Thousands Assets Cash and balances with central bank Due from banks Treasury bills and other governmental notes Trading financial assets Loans and advances to banks, net Loans and advances to customers, net Derivative financial instruments Financial investments - Available for sale - Held to maturity Investments in 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 Derivative financial instruments Current tax liabilities Other liabilities Other loans Provisions Total liabilities Equity Issued and paid up capital Reserves Reserve for employee stock ownership plan (ESOP) Retained earnings * Total equity Total liabilities and equity 15 16 17 18 19 20 21 22 22 23 24 41 32 25 26 27 21 29 28 30 31 34 34 34 20,058,974 46,518,892 41,999,252 2,737,705 67,703 106,309,205 52,289 39,217,890 73,630,764 106,558 9,563,018 238,715 308,370 1,651,875 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 1,414,519 342,461,210 294,782,092 7,259,819 285,296,869 132,858 3,625,579 6,501,553 3,721,529 1,694,607 1,877,918 250,723,052 196,984 2,778,973 5,476,531 3,674,736 1,615,159 308,232,814 266,343,353 11,668,326 12,184,667 738,320 9,637,083 34,228,396 11,618,011 10,137,515 489,334 6,193,879 28,438,739 342,461,210 294,782,092 The accompanying notes are an integral part of these financial statements . (Audit report attached) * Including net profit for the current year 232 Annual Report 2018 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 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 42 14 37,403,709 (19,260,190) 18,143,519 28,671,166 (16,167,155) 12,504,011 3,402,616 (991,957) 2,410,659 25,958 1,089,076 402,067 (4,223,959) (1,589,675) (130,208) (3,076,023) 27,419 13,078,833 (3,625,579) 128,740 9,581,994 - - 9,581,994 - 9,581,994 2,794,211 (796,107) 1,998,104 34,513 1,292,215 165,111 (3,118,839) (1,002,570) (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 7.26 7.22 5.76 5.67 Hisham Ezz Al-Arab Chairman and Managing Director Annual Report 2018 233 Financial StatementS: conSolidated consolidated cash flow for the year ended december 31, 2018 Separate cash flow for the year ended december 31, 2018 (cont.) Notes Dec. 31, 2018 Dec. 31, 2017 EGP Thousands 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 Cash flow from financing activities Increase in long term loans Dividend paid Capital increase Net cash used in (provided from) 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 22 22 28 15 16 17 15 17 (12,670,761) 2,059,341 - (25,868,230) 1,261,980 768,515 (39,958,700) (15,842,584) 46,793 (2,143,177) 50,315 (2,046,069) 3,514,493 (1,350,207) 79,351 2,243,637 (14,905,192) (12,309,863) 49,208,837 34,303,645 61,518,700 49,208,837 20,058,974 46,518,892 41,999,252 (13,526,763) (10,733,386) (50,013,324) 34,303,645 14,663,289 45,319,766 54,478,202 (8,878,986) (1,719,586) (54,653,848) 49,208,837 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 Impairment charge for other assets Available for sale investments exchange revaluation differences 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) losses from selling financial investments Shares based payments Bank's share in the profits of associates Operating profits before changes in operating assets and liabilities Net decrease (increase) in assets and liabilities Due from banks Treasury bills and other governmental notes Trading financial assets Derivative financial instruments Loans and advances to banks and customers Other assets Due to banks Due to customers Income tax obligations paid Other liabilities Net cash provided from operating activities Cash flow from investing activities Proceeds from redemption of subsidiary and associates Payment for purchases of associates Payment for purchases of property, plant, equipment and branches constructions Proceeds from selling property, plant and equipment Proceeds from redemption of held to maturity financial investments Payment for purchases of held to maturity financial investments Notes Dec. 31, 2018 Dec. 31, 2017 EGP Thousands 13,078,833 - 10,029,122 291,134 25 12 30 24 22 41 22 30 30 30 11 22 16 43 18 21 19-20 44 26 27 29 11 22 22 390,830 3,076,023 101,501 316,763 (102,991) 130,208 39,561 (2,114) (17,670) (2,269) (1,045) (441,628) 408,346 (27,419) 351,005 1,742,281 212,622 - 100,078 130,208 (108,349) (25,463) (97,897) 11,840 (607) 99,047 290,884 (38,636) 16,946,929 12,987,269 (13,661,577) 4,640,524 4,557,492 (66,141) (21,255,952) (2,263,465) 5,381,901 34,573,817 (2,778,973) 1,025,022 27,099,577 (2,594,442) (16,466,420) (4,850,063) 120,431 (4,775,382) (863,655) (1,131,078) 18,982,257 (2,017,034) 1,897,201 1,289,084 - (10,575) 750 - (874,708) (763,420) 1,045 5,532,271 (33,995,313) 607 13,354,468 (4,597,254) 234 Annual Report 2018 Annual Report 2018 235 Financial StatementS: conSolidated s d n a s u o h T P G E l a t o T l e v i t a u m u C r o f i s e c n e r r u c k c o t s i n g e r o f e e y o p m e l e v r e s e R y t i r o n M i l s r e d o h e r a h S l n o i t a s n a r t i p h s r e n w o i d e n a t e R e v r e s e R . S F A . r o F S R F I k s i r 9 i g n k n a B s t n e m t s e v n i s k s i r n o i t a u a v e r l l a t i p a C l i a c e p S l a t o T t s e r e t n I y t i u q E s e c n e r e f f i d n a p l i s g n n r a e e v r e s e r e v r e s e r . f f i d e v r e s e r e v r e s e r l a r e n e G e v r e s e r l a g e L d e u s s I i d a p d n a e v r e s e r l a t i p a c p u 7 1 0 2 , 1 3 . c e D 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 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 , 5 5 4 4 7 3 1 2 , 8 8 5 8 , 0 6 4 3 4 3 , , 0 8 5 0 4 0 6 , , 2 3 5 7 0 5 1 2 , - 1 5 3 9 7 , , 5 0 6 9 3 5 7 , , ) 4 0 2 0 5 3 1 ( , 7 7 0 3 3 1 , - - - 0 5 0 4 2 , - 1 5 3 9 7 , , 5 5 5 5 1 5 7 , , ) 4 0 2 0 5 3 1 ( , - - - - ) 7 2 1 7 5 1 ( , ) 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 , - - - - - - - 6 8 2 7 3 5 , 4 8 8 0 9 2 , , 9 3 7 8 3 4 8 2 , - - - - - - ) 8 8 5 8 ( , - ) 8 8 5 8 ( , ) 8 8 5 8 ( , - - - - - - - - - ) 0 1 0 5 4 1 ( , , ) 6 3 7 9 9 5 4 ( , , ) 4 0 2 0 5 3 1 ( , - - ) 2 5 1 ( ) 5 1 6 ( , 5 5 5 5 1 5 7 , , ) 9 4 5 1 1 4 1 ( , - - - - - - - - - , 9 4 5 1 1 4 1 , 4 8 8 0 9 2 , - - 4 3 3 9 8 4 , , 9 7 8 3 9 1 6 , , 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 , - - - - - - - - - - 3 3 1 0 1 , 5 4 6 0 2 , 5 1 8 1 1 , 5 4 6 0 2 , - - 1 5 3 9 7 , , 1 5 2 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 , - - 2 5 1 - - - - - , 3 2 0 0 0 0 9 , - - - - - - - - 4 4 4 7 9 2 , - - - - - - - - - , 7 0 8 2 3 3 1 , , 1 1 0 8 1 6 1 1 , e s a e r c n i l a t i p a C o t d e r r e f s n a r T s e v r e s e r 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 i g n n n i g e B e c n a l a b f o l a s o p s i D y r a i d i s b u s r a e y - n w o n i e g n a h C - t n e c r e p p h s r e i e g a d e s i l a e r n u t e N n o ) s s o l ( / n i a g S F A k n a b o t ) m o r f ( d e r r e f s n a r T e v r e s e r k s i r k s i r 9 S R F I e v r e s e r f o t s o C k c o t s s e e y o p m e l i n a l p p h s r e n w o ) P O S E ( e h t t a e c n a l a B r a e y e h t f o d n e s d n a s u o h T P G E l a t o T l e v i t a u m u C r o f i s e c n e r r u c k c o t s i n g e r o f e e y o p m e l e v r e s e R y t i r o n M i l s r e d o h e r a h S l n o i t a s n a r t i p h s r e n w o i d e n a t e R e v r e s e R . S F A . r o F S R F I k s i r 9 i g n k n a B s t n e m t s e v n i s k s i r n o i t a u a v e r l l a t i p a C l i a c e p S l a r e n e G l a t o T t s e r e t n I y t i u q E s e c n e r e f f i d n a p l i s g n n r a e e v r e s e r e v r e s e r . f f i d e v r e s e r e v r e s e r e v r e s e r l a g e L e v r e s e r d e u s s I i d a p d n a l a t i p a c p u 8 1 0 2 , 1 3 . c e D 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 8 1 0 2 , 1 3 r e b m e c e d d e d n e r a e y - 5 1 3 0 5 , , 9 3 7 8 3 4 8 2 , , ) 7 7 1 3 4 1 2 ( , , 4 9 9 1 8 5 9 , , ) 1 2 8 7 0 1 2 ( , - 6 4 3 8 0 4 , , 6 9 3 8 2 2 4 3 , - - - - - - - - - - 5 1 3 0 5 , , 9 3 7 8 3 4 8 2 , , ) 7 7 1 3 4 1 2 ( , , 4 9 9 1 8 5 9 , , ) 1 2 8 7 0 1 2 ( , - 6 4 3 8 0 4 , , 6 9 3 8 2 2 4 3 , - - - - - - - - - - - 4 3 3 9 8 4 , , 9 7 8 3 9 1 6 , - - - - ) 0 6 3 9 5 1 ( , - ) 9 8 6 ( , ) 4 2 9 4 9 9 3 ( , , ) 7 7 1 3 4 1 2 ( , , 4 9 9 1 8 5 9 , 6 4 3 8 0 4 , - 0 2 3 8 3 7 , , 3 8 0 7 3 6 9 , , 9 4 5 1 1 4 1 , - - - - - - - , 9 4 5 1 1 4 1 , - - - - - 4 3 6 3 , 9 8 6 - 3 2 3 4 , - - - - , ) 8 5 9 2 4 6 1 ( , , ) 1 2 8 7 0 1 2 ( , - - , ) 9 7 7 0 5 7 3 ( , - 6 0 6 - - - - - - - - - - - - 5 1 8 1 1 , 5 4 6 0 2 , 1 2 4 2 1 , 5 4 6 0 2 , - - 5 1 3 0 5 , , 3 2 0 0 0 0 9 , , 7 0 8 2 3 3 1 , , 1 1 0 8 1 6 1 1 , , 2 9 1 6 7 7 3 , - - - - - , 5 1 2 6 7 7 2 1 , - - - - - 6 8 4 7 7 3 , - - - - - - , 3 9 2 0 1 7 1 , , 6 2 3 8 6 6 1 1 , o t d e r r e f s n a r T s e v r e s e r d i a p d n e d i v i D f o t fi o r p t e N r a e y e h t d e s i l a e r n u t e N n o ) s s o l ( / n i a g S F A k n a b o t ) m o r f ( d e r r e f s n a r T e v r e s e r k s i r k c o t s s e e y o p l - m e f o t s o C ) P O S E ( n a l p i p 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 r a e y i g n n n i g e B e c n a l a b - n i l a t i p a C e s a e r c 236 Annual Report 2018 Annual Report 2018 237 Financial StatementS: conSolidated notes to the consolidated financial statements for the year ended december 31, 2018 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 181 branches, and 22 units employing 6759 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. The bank owns investments in a subsidiary “C-Ventures”, in which the bank’s share is 99.99%. Financial statements have been approved by board of directors on February 4, 2019. 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. 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. Monetary assets and liabilities denominated in foreign currencies are retranslated at the end of reporting period at the prevailing exchange rates. Foreign exchange gains and losses resulting from settlement and translation of such transac- tions and balances are recognized in the income statement and reported under the following line items: 2.1. 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 basis of the consolidation is as follows: • Eliminating all balances and transactions between the Bank and group companies. • The cost of acquisition of subsidiary companies is based on the company's share in the fair value of assets acquired and obligations outstanding on the acquisition date. • Minority shareholders represent the rights of others in subsidiary companies. • Proportional consolidation is used in consolidating method for companies under joint control. 2.2. Subsidiaries and associates 2.2.1. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Bank has owned directly or indirectly the control to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are consid- ered when assessing whether the Bank has the ability to control the entity or not. 2.2.2. Associates Associates are all entities over which the Bank has significant influence but do not reach to the extent of control, generally accompanying a shareholding between 20% and 50% of the voting rights. The Bank applies the Equity Method in its consolidated financial statements, initially recognizing the Bank’s investments in associate companies at amortized cost. The book value of associate investments is subsequently increased or decreased by recognition of the Bank’s share in the profits or losses of associate companies after the date of acquisition among the Bank’s profit or loss. The book value for associate investments is also decreased by the dividends received from associate companies. • Net trading income from held-for-trading assets and liabilities. • Other operating revenues (expenses) from the remaining assets and liabilities. Changes in the fair value of investments in debt instruments; which represent monetary financial instruments, denomi- nated in foreign currencies and classified as available for sale assets are analyzed into valuation differences resulting from changes in the amortized cost of the instrument, differences resulting from changes in the applicable exchange rates and differences resulting from changes in the fair value of the instrument. Valuation differences resulting from changes in the amortized cost are recognized and reported in the income statement in ‘income from loans and similar revenues’ whereas differences resulting from changes in foreign exchange rates are recognized and reported in ‘other operating revenues (expenses)’. The remaining differences resulting from changes in fair value are deferred in equity and accumulated in the ‘revaluation reserve of available-for-sale investments’. Valuation differences resulting from the non-monetary items include gains and losses of the change in fair value of such equity instruments held at fair value through profit and loss, as for recognition of the differences of valuation resulting from equity instruments classified as financial investments available for sale within the fair value reserve in equity. 2.5. Financial assets The Bank classifies its financial assets in the following categories: • Financial assets designated at fair value through profit or loss. • Loans and receivables. • Held to maturity investments. • Available for sale financial investments. Management determines the classification of its investments at initial recognition. 2.5.1. Financial assets at fair value through profit or loss This category has two sub-categories: • Financial assets held for trading. • Financial assets designated at fair value through profit and loss at inception. 238 Annual Report 2018 Annual Report 2018 239 Financial StatementS: conSolidated A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repur- chasing in the short term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit making. Derivatives are also categorized as held for trading unless they are designated as hedging instruments. Financial instruments, other than those held for trading, are classified as financial assets designated at fair value through profit and loss if they meet one or more of the criteria set out below: • When the designation eliminates or significantly reduces measurement and recognition inconsistencies that would arise from measuring financial assets or financial liabilities, on different bases. Under this criterion, an accounting mismatch would arise if the debt securities issued were accounted for at amortized cost, because the related derivatives are mea- sured at fair value with changes in the fair value recognized in the income statement. The main classes of financial instru- ments designated by the Bank are loans and advances and long-term debt issues. • Applies to groups of financial assets, financial liabilities or combinations thereof that are managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information about the groups of financial instruments is reported to management on that basis. • Relates to financial instruments containing one or more embedded derivatives that significantly modify the cash flows resulting from those financial instruments, including certain debt issues and debt securities held. Any financial derivative initially recognized at fair value can't be reclassified during the holding period. Re-classification is not allowed for any financial instrument initially recognized at fair value through profit and loss. 2.5.2. Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: • Those that the Bank intends to sell immediately or in the short term, which is classified as held for trading, or those that the Bank upon initial recognition designates as at fair value through profit or loss. • Those that the Bank upon initial recognition designates as available for sale; or • Those for which the holder may not recover substantially all of its initial investment, other than credit deterioration. 2.5.3. Held to maturity financial investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturi- ties that the Bank’s management has the positive intention and ability to hold till maturity. If the Bank has to sell other than an insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale unless in necessary cases subject to regulatory approval. 2.5.4. Available for sale financial investments Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The following are applied in respect to all financial assets: Debt securities and equity shares intended to be held on a continuing basis, other than those designated at fair value, are classified as available-for-sale or held-to-maturity. Financial investments are recognized on trade date, when the group enters into contractual arrangements with counterparties to purchase securities. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Bank transfers substantially all risks and rewards of the ownership. Financial liabilities are derecognized when they are extinguished, that is, when the obligation is discharged, cancelled or expired. Available-for-sale, held–for-trading and financial assets designated at fair value through profit and loss are subsequently mea- sured at fair value. Loans and receivables and held-to-maturity investments are subsequently measured at amortized cost. Gains and losses arising from changes in the fair value of the ‘financial assets designated at fair value through profit or loss’ are recognized in the income statement in ‘net income from financial instruments designated at fair value’. Gains and losses arising from changes in the fair value of available for sale investments are recognized directly in equity, until the financial assets are either sold or become impaired. When available-for-sale financial assets are sold, the cumulative gain or loss previously recognized in equity is recognized in profit or loss. Interest income is recognized on available for sale debt securities using the effective interest method, calculated over the asset’s expected life. Premiums and discounts arising on the purchase are included in the calculation of effective interest rates. Dividends are recognized in the income statement when the right to receive payment has been established. The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset, or no current demand prices available, the Bank measures fair value using valuation models. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation models commonly used by market participants. If the Bank has not been able to estimate the fair value of equity instru- ments classified as available for sale, the value is measured at cost less impairment. Available for sale investments that would have met the definition of loans and receivables at initial recognition may be reclassified out to loans and advances or financial assets held to maturity. In all cases, when the Bank has the intent and ability to hold these financial assets in the foreseeable future or till maturity. The financial asset is reclassified at its fair value on the date of reclassification, and any profits or losses that has been recognized previously in equity, is treated based on the following: • If the financial asset has a fixed maturity, gains or losses are amortized over the remaining life of the investment using the effective interest rate method. In case of subsequent impairment of the financial asset, the previously recognized unreal- ized gains or losses in equity are recognized directly in the profits and losses. • In the case of financial asset which has infinite life, any previously recognized profit or loss in equity will remain until the sale of the asset or its disposal, in the case of impairment of the value of the financial asset after the re-classification, any gain or loss previously recognized in equity is recycled to the profits and losses. • If the Bank adjusts its estimates of payments or receipts of a financial asset that in return adjusts the carrying amount of the asset (or group of financial assets) to reflect the actual cash inflows, the carrying value is recalculated based on the present value of estimated future cash flows at the effective yield of the financial instrument and the differences are rec- ognized in profit and loss. • In all cases, if the Bank re-classifies financial asset in accordance with the above criteria and increases its estimate of the proceeds of future cash flow, this increase adjusts the effective interest rate of this asset only without affecting the invest- ment book value. 2.6. offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a legally enforceable right to offset the recognized amounts and there is an intention to be settled on a net basis. 2.7. derivative financial instruments and hedge accounting Derivatives are recognized initially, and subsequently, at fair value. Fair values of exchange traded derivatives are ob- tained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques, including discounted cash flow models and option pricing models. Derivatives are classified as assets when their fair value is positive and as liabilities when their fair value is negative. 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. 240 Annual Report 2018 Annual Report 2018 241 Financial StatementS: conSolidated The timing of recognition in profit and loss, of any gains or losses arising from changes in the fair value of derivatives, depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. The Bank designates certain derivatives as: • Hedging instruments of the risks associated with fair value changes of recognized assets or liabilities or firm 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 effec- tive interest rate of a financial asset, are treated as an adjustment to the effective interest rate of that financial asset. Com- mitment fees and related direct costs for loans and advances where draw down is probable are deferred and recognized as an adjustment to the effective interest on the loan once drawn. Commitment fees in relation to facilities where draw down is not probable are recognized at the maturity of the term of the commitment. Fees are recognized on the debt instruments that are measured at fair value through profit and loss on initial recognition and syndicated loan fees received by the Bank are recognized when the syndication has been completed and the Bank does not hold any portion of it or holds a part at the same effective interest rate used for the other participants portions. Commission and fee arising from negotiating, or participating in the negotiation of a transaction for a third party such as the arrangement of the acquisition of shares or other securities or the purchase or sale of properties are recognized upon completion of the underlying transaction in the income statement . Other management advisory and service fees are recognized based on the applicable service contracts, usually on accrual basis. Financial planning fees related to investment funds are recognized steadily over the period in which the service is provided. The same principle is applied for wealth management; financial planning and custody services that are provided on the long term are recognized on the accrual basis also. Operating revenues in the holding company are: • Commission income is resulting from purchasing and selling securities to a customer account upon receiving the transac- tion confirmation from the Stock Exchange. • Mutual funds and investment portfolios management which is calculated as a percentage of the net value of assets under management according to the terms and conditions of agreement. These amounts are credited to the assets management company’s revenue pool on a monthly accrual basis. 2.10. dividend income Dividends are recognized in the income statement when the right to collect is established. 2.11. Sale and repurchase agreements Securities may be lent or sold subject to a commitment to repurchase (Repos) are reclassified in the financial statements and deducted from treasury bills balance. Securities borrowed or purchased subject to a commitment to resell them (Re- verse Repos) are reclassified in the financial statements and added to treasury bills balance. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. 2.12. impairment of financial assets 2.12.1. Financial assets carried at amortised cost The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of finan- cial assets is impaired. A financial asset or a group of financial assets is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event/s’) and that loss event/s has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. 242 Annual Report 2018 Annual Report 2018 243 Financial StatementS: conSolidated 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. 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. 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. 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, 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. 2.13. Real estate investments The real estate investments represent lands and buildings owned by the Bank in order to obtain rental returns or capital gains and therefore do not include real estate assets which the Bank exercised its work through or those that have owned by the Bank as settlement of debts. The accounting treatment is the same used with property, plant and equipment. 2.14. Property, plant and equipment Land and buildings comprise mainly branches and offices. All property, plant and equipment are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisi- tion of the items. Subsequent costs are included in the asset’s carrying amount or as a separate asset, as appropriate, only when it is prob- able that future economic benefits will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to other operating expenses during the financial period in which they are incurred. Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their residual values over estimated useful lives, as follows: Buildings Leasehold improvements Furniture and safes Typewriters, calculators and air-conditions 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, at each balance sheet date. Deprecia- ble assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recovered. An asset’s carrying amount is written down immediately to its recoverable value if the asset’s car- rying amount exceeds its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. Gains and losses on disposals are determined by comparing the selling proceeds with the asset carrying amount and charged to other operating expenses in the income statement. 244 Annual Report 2018 Annual Report 2018 245 Financial StatementS: conSolidated 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’. 2.16.2. Being lessor For finance lease, assets are recorded in the property, plant and equipment in the balance sheet and amortized over the expected useful life of this asset in the same manner as similar assets. Lease income is recognized on the basis of rate of re- turn on the lease in addition to an amount corresponding to the cost of depreciation for the period. The difference between the recognized rental income and the total finance lease clients' accounts is transferred to the in the income statement until the expiration of the lease to be reconciled with a net book value of the leased asset. Maintenance and insurance expenses are charged to the income statement when incurred to the extent that they are not charged to the tenant. In case there is objective evidence that the Bank will not be able to collect the of financial lease obligations, the finance lease payments are reduced to the recoverable amount. For assets leased under operating lease it appears in the balance sheet under property, plant and equipment, and depre- ciated over the expected useful life of the asset in the same way as similar assets, and the lease income recorded less any discounts given to the lessee on a straight-line method over the contract period. 2.17. cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and non-restricted balances with Central Bank, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. 2.18. other provisions Provisions for restructuring costs and legal claims are recognized when the Bank has present legal or constructive obliga- tions as a result of past events; where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. In case of similar obligations, the related cash outflow should be determined in order to settle these obligations as a group. The provision is recognized even in case of minor probability that cash outflow will occur for an item of these obligations. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating in- come (expenses). Provisions for obligations, other than those for credit risk or employee benefits, due within more than 12 months from the balance sheet date are recognized based on the present value of the best estimate of the consideration required to settle the present obligation at the balance sheet date. An appropriate pretax discount rate that reflects the time value of money is used to calculate the present value of such provisions. For obligations due within less than twelve months from the bal- ance sheet date, provisions are calculated based on undiscounted expected cash outflows unless the time value of money has a significant impact on the amount of provision, then it is measured at the present value. 2.19. Share based payments The Bank applies an equity-settled, share-based compensation plan. The fair value of equity instruments recognized as an expense over the vesting period using appropriate valuation models, taking into account the terms and conditions upon which the equity instruments were granted. The vesting period is the period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied. Vesting conditions include service conditions and performance conditions and market performance conditions are taken into account when estimating the fair value of eq- uity instruments at the date of grant. At each balance sheet date the number of options that are expected to be exercised are estimated. Recognizes estimate changes, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. CIB owns a private insurance fund for financing end of service benefits, pensions and medical insurance for employees under the supervision of the Ministry of Social Solidarity. 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. 246 Annual Report 2018 Annual Report 2018 247 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. 248 Annual Report 2018 Annual Report 2018 249 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: Bank’s rating 1-Performing loans 2-Regular watching 3-Watch list 4-Non-Performing Loans December 31, 2018 December 31, 2017 Loans and advances (%) Impairment provision (%) Loans and advances (%) Impairment provision (%) 78.61 11.65 5.68 4.06 12.61 17.85 33.18 36.36 69.53 15.53 7.99 6.95 11.61 21.51 23.70 43.18 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 250 Annual Report 2018 Annual Report 2018 251 Financial StatementS: conSolidated The Bank’s policy requires the review of all financial assets that are above materiality thresholds at least annually or more regularly when circumstances require. Impairment provisions on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date, and are applied to all significant accounts individually. The assess- ment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. Collective impairment provisions are provided portfolios of homogenous assets by using the available historical loss experience, experienced judgment and statistical techniques. 3.1.4. Pattern of measuring the general banking risk In addition to the four categories of the Bank’s internal credit ratings indicated in note 3.1.1, management classifies loans and advances based on more detailed subgroups in accordance with the CBE regulations. Assets exposed to credit risk in these categories are classified according to detailed rules and terms depending heavily on information relevant to the customer, his activity, financial position and his repayment track record. The Bank calculates required provisions for impairment of assets exposed to credit risk, including commitments relating to credit on the basis of rates determined by CBE. In case, the provision required for impairment losses as per CBE credit worthiness rules exceeds the required provisions by the application used in balance sheet preparation in accordance with EAS. That excess shall be debited to retained earnings and carried to the general banking risk reserve in the equity section. Such reserve is always adjusted, on a regular basis, by any increase or decrease so, that reserve shall always be equivalent to the amount of increase between the two provisions. Such reserve is not available for distribution. Below is a statement of institutional worthiness according to internal ratings compared with CBE ratings and rates of provisions needed for assets impairment related to credit risk: CBE Rating 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 accept- able risk Watch list Substandard Doubtful Bad debts 0% 1% 1% 2% 2% 3% 5% 20% 50% 100% 1 1 1 1 1 2 3 4 4 4 Performing loans Performing loans Performing loans Performing loans Performing loans Regular watching Watch list Non performing loans Non performing loans Non performing loans 3.1.5. 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 Gross loans and advances to customers Individual: - Overdraft - Credit cards - Personal loans - Mortgages Corporate: - Overdraft - Direct loans - Syndicated loans - Other loans Unamortized bills discount Unearned interest Derivative financial instruments Financial investments: -Debt instruments - Other assets (Accrued revenues) Total Off balance sheet items exposed to credit risk Financial guarantees Customers acceptances Letters of credit (import and export) Letter of guarantee Total EGP Thousands Dec. 31, 2018 50,013,324 Dec. 31, 2017 54,653,848 2,270,080 70,949 6,728,843 1,383 1,635,910 3,540,849 17,180,864 876,372 13,992,595 49,179,820 32,899,950 125,429 (65,718) (16,038) 52,289 112,213,297 4,509,314 288,479,286 7,962,043 1,050,573 4,178,288 66,166,953 79,357,857 1,780,416 2,899,930 13,910,837 416,616 12,450,826 44,200,770 26,627,825 112,802 (12,476) (2,965,997) 40,001 74,767,989 3,870,454 239,484,067 3,605,001 1,017,690 1,700,516 69,514,413 75,837,620 The above table represents the Bank's Maximum exposure to credit risk on December 31, 2018, 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, 41.40% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represent 39.69%. 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: • 90.26% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 95.94% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 4,855,460 thousand. • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on December 31, 2018. • 98.56% of the investments in debt Instruments are Egyptian sovereign instruments. 252 Annual Report 2018 Annual Report 2018 253 Financial StatementS: conSolidated 3.1.6. Loans and advances Neither past due nor impaired Past due but not impaired Individually impaired Gross Less: Impairment provision Unamortized bills discount Unearned interest Net Dec.31, 2018 Dec.31, 2017 EGP Thousands Loans and advances to customers 110,351,697 4,224,632 4,855,460 119,431,789 13,040,828 65,718 16,038 106,309,205 Loans and advances to banks 70,949 - - 70,949 3,246 - - 67,703 Loans and advances to customers 89,395,036 5,884,880 7,120,106 102,400,022 10,994,446 12,476 2,965,997 88,427,103 Loans and advances to banks 1,383 - - 1,383 70 - - 1,313 Impairment provision losses for loans and advances reached EGP 13,044,074 thousand. During the year, the Bank’s total loans and advances increased by 16.70%. In order to minimize the propable exposure to credit risk, the Bank focuses more on the business with large enterprises,banks or retail customers with good credit rating or sufficient collateral. 254 Annual Report 2018 : ) n o i s i v o r p t n e m r i a p m i g n i t c u d e d r e t f a ( s k n a b d n a s r e m o t s u c o t s e c n a v d a d n a s n a o l t e N s d n a s u o h T P G E e t a r o p r o C l i a u d v d n i I 8 1 0 2 , 1 3 . c e D s k n a b s r e m o t s u c s n a o l r e h t O s n a o l s n a o l t c e r i D t f a r d r e v O s e g a g t r o M s n a o l l a t o T l a t o T d n a s n a o l d n a s n a o l o t s e c n a v d a o t s e c n a v d a d e t a c d n y S i l a n o s r e P t i d e r C s d r a c s t f a r d r e v O : s e d a r G - - 3 5 1 5 1 , 0 5 5 2 5 , 3 0 7 7 6 , , 2 3 4 5 7 2 2 9 , , 2 7 2 6 4 5 1 1 , , 6 1 1 7 5 4 2 , 1 4 1 2 1 1 , , 1 6 9 0 9 3 6 0 1 , - - - 6 4 6 2 2 1 , 6 4 6 2 2 1 , , 0 2 9 1 7 1 9 2 , , 6 9 8 6 8 3 1 , 8 0 8 4 8 2 , , 0 3 3 2 6 0 9 2 , , 1 2 8 3 4 7 8 , , 4 3 6 7 9 5 1 , 7 4 5 9 5 7 , 0 6 7 5 6 2 , , 9 1 9 6 8 8 1 1 , - 7 6 2 9 , 4 , 4 2 6 3 4 8 0 3 , , 2 5 0 3 1 4 9 3 , , 0 3 2 2 1 9 2 1 , - - , 0 1 6 1 5 8 7 7 3 2 , , 7 8 9 3 5 8 , 1 6 3 7 9 2 6 1 , , 7 0 5 3 8 3 3 , , 9 3 1 9 9 4 1 , 1 4 5 9 0 5 , 1 1 8 3 5 2 , 6 7 6 3 4 , 4 9 0 8 7 , 4 8 7 4 3 , 0 5 8 2 1 , 3 7 3 8 6 , 9 1 3 0 2 , 7 6 9 3 4 , , 9 8 3 4 0 1 7 1 , , 5 3 2 9 0 5 3 , , 8 9 7 1 3 6 1 , s n a o i l g n m r o f r e p - n o N i g n h c t a w r a l u g e R t s i l h c t a W l a t o T s n a o i l g n m r o f r e P s d n a s u o h T P G E e t a r o p r o C l i a u d v d n i I 7 1 0 2 , 1 3 . c e D s k n a b s r e m o t s u c s n a o l r e h t O s n a o l s n a o l t c e r i D t f a r d r e v O s e g a g t r o M s n a o l l a t o T l a t o T d n a s n a o l d n a s n a o l o t s e c n a v d a o t s e c n a v d a d e t a c d n y S i l a n o s r e P t i d e r C s d r a c s t f a r d r e v O : s e d a r G . t s e r e t n i d e n r a e n u d n a s l l i b d e t n u o c s i d d e z i t r o m a n u e h t g n i t c u d e d t u o h t i W - - - 3 1 3 1 , 3 1 3 1 , , 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 , , 1 6 9 5 7 4 0 2 , , 4 4 4 8 4 8 2 , , 7 6 1 0 8 5 2 2 , , 1 5 2 9 1 6 9 , , 3 8 3 1 4 1 1 , , 3 1 5 8 1 9 3 , , 6 3 3 8 2 8 8 , 0 9 2 0 0 8 , 7 5 2 3 6 4 , 1 1 8 0 5 2 , 9 4 1 5 7 9 , 6 1 8 1 5 6 , , 9 9 5 6 1 7 4 2 , , 0 8 0 3 9 0 7 3 , , 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 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 Annual Report 2018 255 Financial StatementS: conSolidated l a t o T 1 7 1 9 9 1 , , 1 1 1 3 6 4 1 , , 3 8 0 5 3 3 1 , , 5 6 3 7 9 9 2 , 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 , : 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 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 year: Loans and advances to customer Corporate - Direct loans Total Dec.31, 2018 Dec.31, 2017 7,673,956 7,673,956 8,577,197 8,577,197 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, 2018 AAA AA- to AA+ A- to A+ Lower than A- Total Treasury bills and other gov. notes - - - 41,999,252 41,999,252 Trading financial debt instruments - - - 2,270,080 2,270,080 Non-trading financial debt instruments - - - 112,213,297 112,213,297 EGP Thousands Total - - - 156,482,629 156,482,629 l a t o T , 0 6 4 5 5 8 4 , s n a o l 4 6 6 2 7 1 , d e t a c d n y S i , 4 4 4 5 6 4 4 , 1 1 3 0 8 , - 7 4 0 6 , 9 6 8 1 6 , s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M s n a o l l a n o s r e P l a t o T s n a o l d e t a c d n y S i s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M s n a o l l a n o s r e P , 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 , 1 1 2 1 2 6 , t i d e r C s d r a c 2 7 8 2 2 , t i d e r C s d r a c 7 6 0 4 2 , s t f a r d r e v O 3 5 2 6 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 t f a r d r e v O 7 1 0 2 , 1 3 . c e D 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 e t a r o p r o C l i a u d v d n i I 8 1 0 2 , 1 3 . c e D , , d n a s u o h t 0 6 4 5 5 8 4 P G E d e l a t o t e r a s e e t n a r a u g m o r f s w o fl h s a c n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w d e s s e s s a y l l a u d i v i d n i s e c n a v d a d n a s n a o L s n a o l d e r i a p m i y l l a u d i v i d n I 1 7 0 3 , s n a o l - - 1 7 0 3 , . d e t a c d n y S i e t a r o p r o C , 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 , 0 3 7 5 4 4 , 1 3 5 0 3 , 1 1 8 7 2 4 , 2 7 0 4 0 9 , s n a o l t c e r i D t f a r d r e v O l a t o T 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 5 5 1 3 3 , 7 4 5 9 1 , 0 2 5 0 1 , 2 2 2 3 6 , s e g a g t r o M s n a o l l a n o s r e P t i d e r C s d r a c 9 0 7 5 9 3 , 7 2 9 9 5 , 0 2 0 7 2 , 3 9 5 0 3 5 , 1 7 0 7 7 , 8 3 0 3 1 , s t f a r d r e v O 6 5 6 2 8 4 , 2 0 7 0 2 6 , 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 l i a u d v d n i I 7 1 0 2 , 1 3 . c e D d e t a c d n y S i e t a r o p r o C - s n a o l 7 5 9 9 9 , 3 7 2 7 1 , 0 3 2 7 1 1 , 5 1 4 8 6 7 , 4 7 3 7 5 1 , 4 9 1 5 4 9 , 9 3 7 4 9 5 , 4 2 5 4 2 , 9 8 8 9 8 3 , 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 1 9 4 1 6 9 , , 5 8 3 0 8 1 1 9 3 5 8 , , 3 8 9 0 7 8 1 , , 2 5 1 9 0 0 1 , , 7 6 2 7 2 2 1 , 7 9 3 2 9 1 1 4 0 3 6 8 1 3 8 3 , 8 6 1 8 2 , 3 6 7 2 2 , 9 4 2 9 8 , s e g a g t r o M s n a o l l a n o s r e P t i d e r C s d r a c 5 3 4 0 5 4 , 1 8 3 3 8 , 1 2 1 2 4 , 1 4 3 2 7 4 , 4 4 6 8 6 , 6 6 4 0 2 , s t f a r d r e v O 7 3 9 5 7 5 , 1 5 4 1 6 5 , 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 l i a u d v d n i I 8 1 0 2 , 1 3 . c e D . t n e m r i a p m i f o e c n e d i v e e v i t c e j b o n a s i e r e h t s s e l n u , d e r i a p m i d e r e d i s n o c t o n e r a e u d t s a p s y a d 0 9 n a h t s s e l s e c n a v d a d n a s n a o L : d e r i a p m i t o n t u b e u d t s a p s e c n a v d a d n a s n a o L 256 Annual Report 2018 Annual Report 2018 257 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. Dec.31, 2018 Treasury bills and other governmen- tal 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 Total Cairo 50,013,324 2,270,080 70,949 (3,246) 948,571 2,806,734 10,820,446 795,852 11,941,245 32,889,668 30,010,681 80,000 (65,718) (9,707,342) (16,038) 52,289 112,213,297 245,120,792 Alex, Delta and Sinai Upper Egypt Total EGP Thousands - - - - 558,087 632,771 5,401,963 72,124 1,415,913 12,894,439 2,687,040 45,429 - (3,024,196) - - - 20,683,570 - - - - 129,252 101,344 958,455 8,396 635,437 3,395,713 202,229 - - (309,290) - - 50,013,324 2,270,080 70,949 (3,246) 1,635,910 3,540,849 17,180,864 876,372 13,992,595 49,179,820 32,899,950 125,429 (65,718) (13,040,828) (16,038) 52,289 - 5,121,536 112,213,297 270,925,898 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 s d n a s u o h T P G E l a t o T l t n e m n r e v o G l d n a e a s e o h W l l i a c n a n F i i a u d v d n i I s e i t i v i t c a r e h t O r o t c e s e d a r t l i a t e r e t a t s e l a e R g n i r u t c a f u n a M s n o i t u t i t s n i 8 1 0 2 , 1 3 . c e D , 4 2 3 3 1 0 0 5 , , 0 8 0 0 7 2 2 , 9 4 9 0 7 , ) 6 4 2 3 ( , , 0 1 9 5 3 6 1 , , 9 4 8 0 4 5 3 , , 4 6 8 0 8 1 7 1 , - - - - , 0 1 9 5 3 6 1 , , 9 4 8 0 4 5 3 , , 4 6 8 0 8 1 7 1 , 2 7 3 6 7 8 , 2 7 3 6 7 8 , - - - - - - - - , 4 2 3 3 1 0 0 5 , - - - - - - , 0 8 0 0 7 2 2 , , 5 9 5 2 9 9 3 1 , , 0 2 8 9 7 1 9 4 , 9 2 4 5 2 1 , ) 8 1 7 5 6 ( , , 0 5 9 9 9 8 2 3 , , ) 8 2 8 0 4 0 3 1 ( , 9 8 2 2 5 , ) 8 3 0 6 1 ( , , 7 9 2 3 1 2 2 1 1 , - - - - - - - ) 8 3 0 6 1 ( , ) 6 8 5 4 3 1 ( , , 8 9 8 5 2 9 0 7 2 , , 1 7 3 3 8 0 3 2 , , 9 4 9 0 8 6 2 , , 5 5 7 6 8 0 1 , , 1 1 8 9 4 3 7 1 , , 8 3 0 5 6 1 1 , - 9 2 4 3 , , ) 6 3 7 5 3 2 8 ( , - - - , 1 9 4 3 6 9 2 1 , , 6 1 2 7 2 7 5 , , 8 5 2 8 0 1 3 2 , - - - - ) 5 2 8 4 7 2 ( , , 4 6 2 5 8 9 0 1 1 , - - - - - - - - - - - - 6 2 6 3 9 4 , 3 5 8 4 8 8 , - 0 0 0 6 1 , ) 9 3 1 5 6 ( , - - - - - - - - - - - - - - - - , 9 2 2 5 9 6 1 , , 9 0 0 2 8 4 7 , - - 9 4 9 0 7 , ) 6 4 2 3 ( , - - - - 7 2 0 4 5 5 , - - - 5 8 4 7 6 3 , 0 0 3 2 2 2 , - - ) 9 3 9 5 ( , , 3 0 6 1 5 5 3 2 , , 3 2 0 8 7 1 8 , - - - - 0 0 0 6 0 1 , , ) 1 7 9 2 8 2 4 ( , , 2 5 8 8 9 2 1 , - - 1 3 3 6 2 2 , ) 8 1 7 5 6 ( , ) 2 3 6 1 4 ( , 9 8 2 2 5 , , 3 3 0 8 2 2 1 , , 2 7 0 6 1 9 2 9 1 , , 0 4 3 9 2 3 1 , , 5 7 0 9 7 2 2 , , 4 6 6 4 3 0 5 3 , , 5 8 8 9 1 3 3 , : s t e s s a l a i c n a n fi g n i d a r T r e h t o d n a s l l i b y r u s a e r T s e t o n l a t n e m n r e v o g s t n e m u r t s n i t b e D - 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 t n u o c s i d s l l i b d e z i t r o m a n U s n a o l d e t a c i d n y S - s n a o l r e h t O - n o i s i v o r p t n e m r i a p m I l a i c n a n fi e v i t a v i r e D t s e r e t n i d e n r a e n U s t n e m u r t s n i s n a o l l a n o s r e P - s d r a c t i d e r C - s t f a r d r e v O - s e g a g t r o M - : e t a r o p r o C s n a o l t c e r i D s t f a r d r e v O - - s r e m o t s u c : l a u d i v i d n I : s t n e m t s e v n i l a i c n a n F i s t n e m u r t s n i t b e D - l a t o T 258 Annual Report 2018 Annual Report 2018 259 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 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 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 Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Portfolio managed by others risk Investment fund Total VaR EGP Thousands Dec.31, 2018 Dec.31, 2017 Medium 231 453,569 429,195 24,374 7,030 119 High 1,482 645,193 586,852 58,341 11,507 267 Low Medium 20 238,077 232,882 5,195 1,969 55 13,647 588,938 553,426 35,512 7,280 370 High 82,695 815,249 739,977 75,272 10,454 692 Low 275 363,366 351,674 11,692 4,854 215 455,104 647,983 238,493 591,508 826,941 364,408 Trading portfolio VaR by risk type Foreign exchange risk Interest rate risk - For trading purposes Funds managed by others risk Investment fund Total VaR Dec.31, 2018 Dec.31, 2017 Medium 231 24,374 24,374 7,030 119 26,165 High 1,482 58,341 58,341 11,507 267 60,912 Low 20 5,195 5,195 1,969 55 5,611 Medium 13,647 35,512 35,512 7,280 370 46,039 High 82,695 75,272 75,272 10,454 692 113,250 Low 275 11,692 11,692 4,854 215 13,804 Non trading portfolio VaR by risk type Interest rate risk - For non trading purposes Total VaR Dec.31, 2018 Dec.31, 2017 Medium High Low Medium High Low 429,195 429,195 586,852 586,852 232,882 232,882 553,426 553,426 739,977 739,977 351,674 351,674 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. 260 Annual Report 2018 Annual Report 2018 261 Financial StatementS: conSolidated 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. Dec.31, 2018 EGP USD EUR GBP Other Total Equivalent EGP Thousands Financial assets Cash and balances with central bank Due from banks Treasury bills and other govern- mental notes Trading financial assets Gross loans and advances to banks Gross loans and advances to customers Derivative financial instruments Financial investments - Available for sale - Held to maturity Investments in associates Total financial assets Financial liabilities Due to banks Due to customers Derivative financial instruments Other loans Total financial liabilities Net on-balance sheet financial position 15,822,884 2,511,902 657,323 80,582 986,283 20,058,974 15,730,309 23,594,720 6,743,789 366,545 83,529 46,518,892 31,491,429 12,272,607 1,333,103 1,802,626 935,079 - 70,949 - - - - - 63,518,898 52,952,122 2,938,691 22,078 39,355 12,934 - 26,664,326 73,630,764 92,458 12,367,155 - 14,100 186,409 - - - - - - - - - - - - - - 45,097,139 2,737,705 70,949 119,431,789 52,289 39,217,890 73,630,764 106,558 228,793,049 104,731,568 11,859,315 469,205 1,069,812 346,922,949 5,958,780 182,983,217 85,912 138,809 1,099,145 89,794,399 46,946 3,582,720 92,882 11,046,226 - - 12,773 1,005,452 - - 96,239 467,575 - - 7,259,819 285,296,869 132,858 3,721,529 189,166,718 94,523,210 11,139,108 1,018,225 563,814 296,411,075 39,626,331 10,208,358 720,207 (549,020) 505,998 50,511,874 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. Dec.31, 2018 Up to1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non- Interest Bearing Total - 3,969 38,375 (3,711,230) 33,676,642 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 ad- vances to customers Derivatives financial instruments (includ- ing IRS notional amount) Financial investments - Available for sale - Held to maturity Investments in associates Total financial assets 118,167,504 132,500 9,361,480 77,155,228 1,510,540 - - - 12,438,963 401,563 5,425,047 43,383,322 - - - - - - 20,058,974 20,058,974 1,724 46,518,892 - 45,097,139 - - 1,643,653 626,428 429,249 2,737,705 5,483 17,829 42,233 1,435 - 70,949 13,993,151 14,231,235 10,708,275 3,343,900 - 119,431,789 9,650 399,197 5,899,343 - - 7,818,730 73,030 2,055,231 457,834 26,632,213 19,793,116 27,257,651 18,158,565 8,324,189 602,845 - 39,217,890 73,630,764 - - - - 106,558 106,558 34,000,555 85,523,193 65,344,271 30,454,517 21,199,350 354,689,390 Financial liabilities Due to banks Due to customers Derivatives financial instruments (including IRS notional amount) Other loans Total financial liabilities Total interest re- pricing gap 7,002,464 148,862,473 - 22,012,700 - 24,470,575 - 40,675,873 - 533,317 257,355 48,741,931 7,259,819 285,296,869 2,148,569 5,011,865 33,028 705,837 - 33,380 10,000 87,286 443,188 3,147,675 - - 7,899,299 3,721,529 158,046,886 27,034,565 24,590,889 41,824,898 3,680,992 48,999,286 304,177,516 (39,879,382) 6,965,990 60,932,304 23,519,373 26,773,525 (27,799,936) 50,511,874 * After adding Reverse repos and deducting Repos. 262 Annual Report 2018 Annual Report 2018 263 Financial StatementS: conSolidated 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, 2018 Financial liabilities Due to banks Due to customers Other loans Total liabilities (contractual and non contractual maturity dates) Total financial assets (contractual and non contractual maturity dates) Dec.31, 2017 Financial liabilities Due to banks Due to customers Other 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 yeas Total EGP Thousands 6,632,843 29,932,979 33,380 626,976 23,750,618 10,000 - 72,467,784 87,286 - 145,207,840 443,188 - 13,937,648 3,147,675 7,259,819 285,296,869 3,721,529 36,599,202 24,387,594 72,555,070 145,651,028 17,085,323 296,278,217 41,324,915 40,718,467 74,369,489 141,260,576 49,075,657 346,749,104 Up to 1 month One to three months Three months to one year One year to five years Over five years Total 1,877,918 31,348,143 36,393 - 21,728,194 6,743 - 71,335,328 82,631 - 109,570,301 3,429 - 16,741,086 3,545,540 1,877,918 250,723,052 3,674,736 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 Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, due from CBE and due from banks, treasury bills, other government notes , loans and advances to banks and customers. In the normal course of business, a proportion of customer loans contractually repayable within one year will be extend- ed. In addition, debt instrument and treasury bills and other governmental notes have been pledged to secure liabilities. The Bank would also be able to meet unexpected net cash outflows by selling securities and accessing additional funding sources such as asset-backed markets. 3.3.4. Derivative cash flows The Bank’s derivatives include: Foreign exchange derivatives: exchange traded options and over-the-counter (OTC) ,exchange traded forwards currency options that will be settled on a gross basis Interest rate derivatives: interest rate swaps, forward rate agreements, OTC and exchange traded interest rate options, other interest rate contracts and exchange traded futures . The table below analyses the Bank’s derivative undiscounted financial liabilities into maturity groupings based on the re- maining period of the balance sheet to the contractual maturity date will be settled on a net basis. The amounts disclosed in the table are the contractual undiscounted cash flows: Up to 1 month One to three months Three months to one year One year to five years Total EGP Thousands Dec.31, 2018 Liabilities Derivatives financial instruments - Foreign exchange derivatives - Interest rate derivatives Total Off balance sheet items Dec.31, 2018 Letters of credit, guarantees and other commitments Total Dec.31, 2018 Credit facilities commitments Total 34,388 197 34,585 22,205 6 22,211 29,319 3,709 33,028 - 85,912 43,034 43,034 46,946 132,858 EGP Thousands Up to 1 year 1-5 years Over 5 years Total 51,260,372 14,088,753 6,046,689 71,395,814 51,260,372 14,088,753 6,046,689 71,395,814 EGP Thousands Up to 1 year 1,399,900 1,399,900 1-5 years 7,773,882 7,773,882 Total 9,173,782 9,173,782 264 Annual Report 2018 Annual Report 2018 265  73,630,764 239,652,394 45,167,722 192,888,893 41,237,872 203,620,421 45,595,034 186,777,014 Central Bank of Egypt requires the following: Financial StatementS: conSolidated 3.4. Fair value of financial assets and liabilities 3.4.1. Financial instruments not measured at fair value The table below summarizes the book value and fair value of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value. Financial assets Due from banks Gross loans and advances to banks Gross loans and advances to customers Financial investments Held to Maturity Total financial assets Financial liabilities Due to banks Due to customers Other loans Total financial liabilities Book value Fair value Dec.31, 2018 Dec.31, 2017 Dec.31, 2018 Dec.31, 2017 46,518,892 70,949 119,431,789 45,319,766 1,383 102,400,022 46,859,224 70,949 115,452,376 44,782,984 1,383 96,397,613 7,259,819 285,296,869 3,721,529 296,278,217 1,877,918 250,723,052 3,674,736 256,275,706 7,069,442 280,685,969 3,721,529 291,476,940 1,813,466 245,616,661 3,674,736 251,104,863 Due from banks The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of floating interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and similar maturity date. Loans and advances to banks Loans and advances to banks 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. Financial Investments Investment securities include only interest-bearing assets, held to maturity assets, and available for sale assets that are measured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Due to other banks and customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar maturity date. 3.5 capital management For capital management purposes, the Bank’s capital includes total equity as reported in the balance sheet plus some other elements that are managed as capital. The Bank manages its capital to ensure that the following objectives are achieved: • 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 for shareholders and other parties dealing with the bank. Capital adequacy and the use of regulatory capital are monitored on a daily basis by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the banking supervision unit in the Central Bank of Egypt. The required data is submitted to the Central Bank of Egypt on a monthly basis. • Maintaining EGP 500 million as a minimum requirement for the issued and paid-in capital. • Maintaining a minimum level of capital adequacy ratio of 11.875%, 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. 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 400% 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. 266 Annual Report 2018 Annual Report 2018 267 Financial StatementS: conSolidated The tables below summarize the compositions of teir 1, teir 2 , the capital adequacy ratio and leverage ratio . 1- The capital adequacy ratio 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. Tier 1 capital Share capital (net of the treasury shares) Reserves IFRS 9 Reserve Retained Earnings (Losses) Total deductions from tier 1 capital common equity Net profit for the year Total qualifying tier 1 capital Tier 2 capital 45% of special reserve 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 Total credit risk Total market risk Total operational risk Total *Capital adequacy ratio (%) Dec.31, 2018 EGP Thousands Dec.31, 2017 Restated** 11,668,326 14,829,948 1,411,549 55,089 (4,754,596) 6,881,450 30,091,766 49 3,582,720 1,879,734 5,462,503 11,618,011 10,543,783 1,411,549 89,873 (2,450,399) 3,960,829 25,173,646 49 3,545,540 1,679,656 5,225,245 35,554,269 30,398,891 156,952,618 5,959,133 23,292,505 186,204,256 19.09% 141,154,879 9,239,998 18,222,831 168,617,708 18.03% * Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. ** After 2017 profit distribution. 2- Leverage ratio Total qualifying tier 1 capital On-balance sheet items & derivatives Off-balance sheet items Total exposures *Percentage Dec.31, 2018 30,091,766 346,163,131 45,407,765 391,570,896 7.68% EGP Thousands Dec.31, 2017 Restated** 25,173,646 300,593,997 44,965,272 345,559,269 7.28% * Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 14 July 2015. ** After 2017 profit distribution. For December 2018 NSFR ratio record 209.70% (LCY 243.36% and FCY 165.61%), and LCR ratio record 601.53% (LCY 667.84% and FCY 338.82%). 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%). 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 quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating 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 counter- party), 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. 268 Annual Report 2018 Annual Report 2018 269 Financial StatementS: conSolidated 5. Segment analysis 5.1. By business segment The Bank is divided into four main business segments on a worldwide basis: • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products • Investment banking – incorporating financial instruments Trading, structured financing, Corporate leasing,and merger and acquisitions advice. • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages; • Others –Including other banking business, such as Assets Management. Transactions between the business segments are on normal commercial terms and conditions. Dec.31, 2018 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets 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 EGP Thousands Asset Liability Mangement Total 9,025,518 2,452,934 3,870,401 6,163,506 639,484 22,151,843 (5,516,282) (739,340) (427,332) (2,373,798) (16,258) (9,073,010) 3,509,236 1,713,594 3,443,069 3,789,708 623,226 13,078,833 (933,068) (459,085) (922,426) (1,015,293) (166,967) (3,496,839) 2,576,168 1,254,509 2,520,643 2,774,415 456,259 9,581,994 102,781,541 2,159,095 165,584,686 22,693,303 49,242,585 342,461,210 Corporate banking SME's Investment banking Retail banking Asset Liability Mangement 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 1,645,662 2,850,397 3,061,252 632,420 10,296,206 (576,762) (442,854) (767,053) (823,795) (170,187) (2,780,651) 1,529,713 1,202,808 2,083,344 2,237,457 462,233 7,515,555 82,149,279 2,352,091 137,645,556 18,444,909 54,190,257 294,782,092 5.2. By geographical segment Dec.31, 2018 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec.31, 2017 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets 6. Net interest income Cairo Alex, Delta & Sinai Upper Egypt Total EGP Thousands 17,792,484 3,424,556 934,803 22,151,843 (7,545,066) (1,304,228) (223,716) (9,073,010) 10,247,418 (2,738,280) 7,509,138 2,120,328 (568,053) 1,552,275 316,673,321 19,340,837 711,087 (190,506) 520,581 6,447,052 13,078,833 (3,496,839) 9,581,994 342,461,210 Cairo Alex, Delta & Sinai Upper Egypt Total 13,445,181 2,499,912 491,190 16,436,283 (5,306,193) 8,138,988 (2,200,134) 5,938,854 (670,176) 1,829,736 (492,390) 1,337,346 (163,708) (6,140,077) 327,482 (88,127) 239,355 10,296,206 (2,780,651) 7,515,555 265,665,575 22,598,945 6,517,572 294,782,092 Interest and similar income - Banks - Clients Total Treasury bills and bonds Reverse repos Financial investments in held to maturity and available for sale debt instruments Total Interest and similar expense - Banks - Clients Total Financial instruments purchased with a commitment to re-sale (Repos) Other loans Total Net interest income EGP Thousands Dec.31, 2018 Dec.31, 2017 3,338,266 15,274,649 18,612,915 18,582,089 2,519 206,186 37,403,709 (840,233) (18,001,197) (18,841,430) (112,366) (306,394) 3,532,274 10,921,054 14,453,328 14,039,447 - 178,391 28,671,166 (463,409) (15,686,959) (16,150,368) (2,037) (14,750) (19,260,190) (16,167,155) 18,143,519 12,504,011 270 Annual Report 2018 Annual Report 2018 271 Financial StatementS: conSolidated 7. Net fee and commission income 11. Other operating (expenses) 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 10. Administrative expenses Staff costs Wages and salaries Social insurance Other benefits Other administrative expenses * Total EGP Thousands Dec.31, 2018 Dec.31, 2017 1,456,930 140,247 1,805,439 3,402,616 (991,957) (991,957) 2,410,659 1,362,660 117,268 1,314,283 2,794,211 (796,107) (796,107) 1,998,104 EGP Thousands Dec.31, 2018 Dec.31, 2017 9,951 16,007 25,958 11,474 23,039 34,513 EGP Thousands Dec.31, 2018 Dec.31, 2017 668,071 (38,904) (20,865) 8,179 472,595 764,732 (17,118) (23,732) (21,230) 589,563 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 and banks 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 10% Withholding tax Income tax / Deferred tax Effective tax rate 1,089,076 1,292,215 14. Earning per share EGP Thousands Dec.31, 2018 Dec.31, 2017 (2,237,595) (78,841) (61,976) (1,845,547) (4,223,959) (1,620,326) (65,033) (51,682) (1,381,798) (3,118,839) 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. EGP Thousands Dec.31, 2018 Dec.31, 2017 59,863 1,045 (400,596) (1,249,987) (1,589,675) (61,065) 607 (114,725) (827,387) (1,002,570) EGP Thousands Dec.31, 2018 Dec.31, 2017 (3,076,023) (3,076,023) (1,742,281) (1,742,281) EGP Thousands Dec.31, 2018 Dec.31, 2017 13,078,833 22.50% 2,942,737 866,421 (314,360) 2,041 3,496,839 26.74% 10,320,256 22.50% 2,322,058 628,951 (173,358) 3,000 2,780,651 26.94% EGP Thousands Dec.31, 2018 Dec.31, 2017 9,553,868 (143,308) (955,387) 8,455,173 1,163,898 7.26 1,171,642 7.22 7,549,043 (113,236) (754,904) 6,680,903 1,159,156 5.76 1,177,722 5.67 Annual Report 2018 273 * The expenses related to the activity for which the bank obtains a commodity or service and all taxes and charges incurred by the bank - except for income tax - donations, depreciation and impairment of non financial assets other than subsidiaries and associates 272 Annual Report 2018 Financial StatementS: conSolidated 15. Cash and balances with central bank 18. Trading financial assets 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 Floating 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 EGP Thousands Dec.31, 2018 Dec.31, 2017 6,532,211 5,784,303 13,526,763 20,058,974 20,058,974 8,878,986 14,663,289 14,663,289 EGP Thousands Dec.31, 2018 Dec.31, 2017 4,168,973 42,349,919 46,518,892 25,397,558 4,109,576 17,011,758 46,518,892 1,724 10,203,376 36,313,792 46,518,892 46,518,892 2,679,189 42,640,577 45,319,766 15,863,399 3,894,775 25,561,592 45,319,766 - 9,940,362 35,379,404 45,319,766 45,319,766 EGP Thousands Dec.31, 2018 Dec.31, 2017 - 3,669,700 49,441,511 (3,097,887) 50,013,324 (8,014,072) (8,014,072) 41,999,252 - 1,289,425 57,602,997 (4,238,574) 54,653,848 (175,646) (175,646) 54,478,202 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 Impairment provision Total Current balances Total Analysis for impairment provision of loans and advances to banks Beginning balance Release during the year Exchange revaluation difference Ending balance EGP Thousands Dec.31, 2018 Dec.31, 2017 2,270,080 2,270,080 6,728,843 6,728,843 38,376 38,376 99,587 99,587 429,249 2,737,705 466,767 7,295,197 EGP Thousands Dec.31, 2018 Dec.31, 2017 70,949 (3,246) 67,703 67,703 67,703 1,383 (70) 1,313 1,313 1,313 EGP Thousands Dec.31, 2018 Dec.31, 2017 (70) (3,140) (36) (3,246) (1,800) 1,697 33 (70) 274 Annual Report 2018 Annual Report 2018 275 Financial StatementS: conSolidated 20. Loans and advances to customers, net Individual - Overdraft - Credit cards - Personal loans - Real estate 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 EGP Thousands Dec.31, 2018 Dec.31, 2017 1,635,910 3,540,849 17,180,864 876,372 23,233,995 13,992,595 49,179,820 32,899,950 125,429 96,197,794 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 83,392,223 119,431,789 102,400,022 (65,718) (13,040,828) (16,038) 106,309,205 44,549,290 61,759,915 106,309,205 (12,476) (10,994,446) (2,965,997) 88,427,103 38,960,491 49,466,612 88,427,103 * An amount of EGP 1,818mn has been charged to impairment provision against unearned interest recognized in income. Of this amount, EGP 1,057mn has been charged in Q3 2018, which is the second and final re-engineering for such accounts. 276 Annual Report 2018 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 f o n o s i i v o r p t n e m r i a p m i r o f s i s y l a n a , ) 0 9 9 8 2 7 0 1 ( , 4 7 7 7 2 9 , ) 0 2 0 2 4 ( , ) 5 9 2 0 8 ( , , ) 1 1 7 2 8 9 2 ( , , ) 2 4 2 6 0 9 2 1 ( , - - - 4 6 1 ) 7 4 9 2 ( , ) 3 8 7 2 ( , , ) 6 2 2 1 1 9 1 ( , , ) 0 9 6 7 0 1 7 ( , , ) 7 2 1 7 0 7 1 ( , 3 7 2 1 7 5 , ) 0 9 8 8 8 6 ( , - ) 3 8 4 7 2 ( , , ) 6 2 3 6 5 0 2 ( , , ) 2 6 8 7 2 9 2 ( , 1 0 5 6 5 3 , ) 0 2 0 2 4 ( , ) 7 9 6 5 4 ( , , ) 8 6 7 6 6 7 9 ( , 7 7 8 3 3 6 , - - ) 5 1 1 7 ( , , ) 5 6 3 0 8 0 1 ( , l a t o T s n a o l r e h t O s n a o l d e t a c d n y S i 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 ) 6 5 4 5 6 2 ( , ) 2 7 1 0 9 ( , 0 3 3 1 7 2 , ) 8 8 2 0 5 ( , , ) 6 8 5 4 3 1 ( - - - - - - - ) 6 9 4 9 ( , ) 9 8 8 2 1 ( , ) 5 8 3 2 2 ( , e t a r o p r o C ) 6 9 9 6 2 2 ( , ) 6 7 9 1 5 ( , 3 6 3 8 2 2 , ) 6 6 8 5 2 ( , ) 5 7 4 6 7 ( , ) 7 6 6 5 2 ( , ) 9 0 5 4 2 ( , 7 6 9 2 4 , ) 5 0 4 4 2 ( , ) 4 1 6 1 3 ( , - ) 7 1 ( ) 8 9 7 ( ) 7 9 2 3 ( , ) 2 1 1 4 ( , s n a o l r e h t O s n a o l e t a t s e l a e R s n a o l l a n o s r e P s d r a c t i d e r C t f a r d r e v O l a u d i v i d n I , ) 4 5 5 2 6 5 9 ( , , ) 3 8 2 2 0 7 1 ( , 5 8 1 2 8 3 , ) 4 5 0 3 2 ( , 6 1 7 6 7 1 , , ) 0 9 9 8 2 7 0 1 ( , - - 6 ) 9 0 5 ( ) 4 4 4 2 ( , ) 7 4 9 2 ( , , ) 3 7 8 5 7 7 1 ( , , ) 7 2 2 2 4 4 6 ( , , ) 0 1 0 2 4 3 1 ( , - - 1 1 0 4 5 , ) 4 6 3 9 8 1 ( , , ) 6 2 2 1 1 9 1 ( , , ) 2 7 3 5 2 1 1 ( , 5 8 1 2 8 3 , ) 4 5 0 3 2 ( , 8 7 7 0 0 1 , , ) 0 9 6 7 0 1 7 ( , - - 1 2 9 1 2 , ) 8 3 0 7 8 3 ( , , ) 7 2 1 7 0 7 1 ( , l a t o T s n a o l r e h t O s n a o l d e t a c d n y S i 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 ) 3 5 4 5 5 2 ( , 3 4 5 3 5 , ) 5 9 6 1 4 ( , ) 1 5 8 1 2 ( , ) 6 5 4 5 6 2 ( , - - - 8 3 8 0 2 , ) 8 3 8 0 2 ( , ) 1 0 8 7 ( , ) 3 4 7 3 ( , 0 8 0 2 , ) 2 3 ( ) 6 9 4 9 ( , e t a r o p r o C 1 6 5 1 , ) 9 5 ( ) 2 9 5 0 9 1 ( , ) 6 0 9 7 3 ( , ) 6 9 9 6 2 2 ( , ) 6 5 0 5 2 ( , ) 8 2 3 5 1 ( , 7 7 4 6 3 , ) 0 6 7 1 2 ( , ) 7 6 6 5 2 ( , ) 6 6 1 1 1 ( , ) 6 5 5 5 ( , 5 2 4 3 1 , - ) 7 9 2 3 ( , s n a o l r e h t O s n a o l e t a t s e l a e R s n a o l l a n o s r e P s d r a c t i d e r C t f a r d r e v O l a u d i v i d n I r a e y e h t g n i r u d d e s a e l e r ) d e g r a h c ( d e s a e l e R e c n a l a b g n n n i g e B i 8 1 0 2 , 1 3 . c e D * r a e y e h t g n i r u d s e i r e v o c e R r a e y e h t g n i r u d ff o e t i r W e c n a l a b g n i d n E r a e y e h t g n i r u d d e s a e l e r ) d e g r a h c ( d e s a e l e R e c n a l a b g n n n i g e B i 8 1 0 2 , 1 3 . c e D i e c n e r e ff d n o i t a u l a v e r e g n a h c x E * r a e y e h t g n i r u d s e i r e v o c e R r a e y e h t g n i r u d ff o e t i r W e c n a l a b g n i d n E r a e y e h t g n i r u d d e s a e l e r ) d e g r a h c ( d e s a e l e R e c n a l a b g n n n i g e B i 7 1 0 2 , 1 3 . c e D * r a e y e h t g n i r u d s e i r e v o c e R r a e y e h t g n i r u d ff o e t i r W e c n a l a b g n i d n E r a e y e h t g n i r u d d e s a e l e r ) d e g r a h c ( d e s a e l e R e c n a l a b g n n n i g e B i 7 1 0 2 , 1 3 . c e D i e c n e r e ff d n o i t a u l a v e r e g n a h c x E * r a e y e h t g n i r u d s e i r e v o c e R r a e y e h t g n i r u d ff o e t i r W e c n a l a b g n i d n E s t n u o m a ff o n e t t i r w y l s u o i v e r p m o r F * Annual Report 2018 277 Financial StatementS: conSolidated 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. 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). 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 predetermined amount in foreign currency or interest rate. Options contracts are either traded in the market or negotiated between The Bank and one of its clients (Off balance sheet). The Bank 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 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) 21.1.2. Fair value hedge Dec.31, 2018 Dec.31, 2017 EGP Thousands Notional amount 5,360,272 3,628,415 Assets Liabilities Notional amount Assets Liabilities 21,112 18,243 39,355 73,105 12,807 85,912 6,820,350 1,640,985 36,597 3,117 49,687 5,860 39,714 55,547 Interest rate derivatives - Governmental debt instruments hedging - Customers deposits hedging Total (2) Total financial derivatives (1+2) EGP Thousands Dec.31, 2018 Dec.31, 2017 Notional amount 662,803 7,103,638 Notional amount 655,925 11,506,784 Assets Liabilities - 12,934 12,934 9,164 37,782 46,946 52,289 132,858 Assets Liabilities - 287 287 25,996 115,441 141,437 40,001 196,984 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 9,164 thousand at December 31, 2018 against EGP 25,996 thousand at the December 31, 2017, Resulting in gains form hedging instruments at December 31, 2018 EGP 16,832 thousand against EGP 19,633 thousand at the December 31, 2017. Losses arose from the hedged items at December 31, 2018 reached EGP 34,193 thousand against losses of EGP 44,924 thousand at December 31, 2017. 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 24,848 thousand at the end of December 31, 2018 against EGP 115,154 thousand at December 31, 2017, resulting in gains from hedging instruments at December 31, 2018 of EGP 90,306 thousand against losses of EGP 76,302 thousand at December 31, 2017. Losses arose from the hedged items at December 31, 2018 reached EGP 94,856 thousand against gains EGP 81,488 thousand at December 31 , 2017. 278 Annual Report 2018 Annual Report 2018 279 Financial StatementS: conSolidated 22. Financial investments 21.1. Profits (losses) on financial investments Profit (Loss) from selling available for sale financial instruments Released (Impairment) charges of available for sale equity instruments Released (Impairment) charges of non current assets held for sale Total 23. Investments in associates EGP Thousands Dec.31, 2018 Dec.31, 2017 441,628 (39,561) - 402,067 (99,047) 254,588 9,570 165,111 Company's country Company's assets Company's liabilities (without equity) Company's revenues Company's net profit Investment book value Stake % EGP Thousands Egypt - - - - 14,100 23.50 Egypt 860,057 640,554 926,624 72,954 92,458 32.50 860,057 640,554 926,624 72,954 106,558 Company's country Company's assets Company's liabilities (without equity) Company's revenues Company's net profit Investment book value Stake % EGP Thousands Egypt 512,388 367,470 505,461 52,695 65,039 32.50 512,388 367,470 505,461 52,695 65,039 Dec.31, 2018 Associates - Fawry plus - International Co. for Security and Services (Falcon) Total Dec.31, 2017 Associates - International Co. for Security and Services (Falcon) Total Available for sale - Listed debt instruments with fair value - Listed equity instruments with fair value - Unlisted equity instruments by amortized cost Total Held to maturity - Listed debt instruments - Unlisted instruments Total EGP Thousands Dec.31, 2018 Dec.31, 2017 38,615,045 458,094 144,751 39,217,890 29,632,780 83,346 758,655 30,474,781 73,598,251 32,513 73,630,764 45,135,209 32,513 45,167,722 Total financial investment 112,848,654 75,642,503 - Actively traded instruments - Not actively traded instruments Total Fixed interest debt instruments Floating interest debt instruments Total Beginning balance Addition Deduction Exchange revaluation differences for foreign financial as- sets Profit (losses) from fair value difference Available for sale impairment charges Ending Balance as of Dec.31, 2017 Beginning balance Addition Deduction Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Released (Impairment) charges of available for sale Ending Balance as of Dec.31, 2018 Available for sale financial investments 5,447,291 25,868,230 (1,361,027) (100,078) 512,016 108,349 30,474,781 30,474,781 12,670,761 (1,872,988) 102,991 (2,118,094) (39,561) 39,217,890 108,496,980 4,351,674 112,848,654 110,985,264 1,228,033 112,213,297 Held to maturity financial investments 53,924,936 4,597,254 (13,354,468) 73,721,199 1,921,304 75,642,503 72,612,620 2,155,369 74,767,989 EGP Thousands Total 59,372,227 30,465,484 (14,715,495) - (100,078) - - 45,167,722 45,167,722 33,995,313 (5,532,271) - - - 512,016 108,349 75,642,503 75,642,503 46,666,074 (7,405,259) 102,991 (2,118,094) (39,561) 73,630,764 112,848,654 280 Annual Report 2018 Annual Report 2018 281 Financial StatementS: conSolidated 24. Other assets Accrued revenues Prepaid expenses Advances to purchase of fixed assets Accounts receivable and other assets (after deducting the provision)* Assets acquired as settlement of debts Insurance Total Dec.31, 2018 4,509,314 186,797 768,733 3,790,709 276,520 30,945 9,563,018 EGP Thousands Dec.31, 2017 3,870,454 230,296 522,211 2,193,590 45,083 24,973 6,886,607 * A provision with amount EGP 317 million has been created against pending installments. This item includes other assets that are not classified under specific items of balance sheet assets, such as: accrued income and prepaid expenses, amounts paid in advance relating to taxes on bills and bonds, custodies, debit accounts under settlement and any balance that has no place in another asset category. s d n a s u o h T P G E d n a d n a e r u t i n r u F i s e n h c a M 8 1 0 2 , 1 3 . c e D l a t o T i g n h s n r u f i t n e m p u q e i t u o - g n i t t i F l s e c h e V i T I , 3 8 6 3 2 1 4 , 6 8 1 8 2 6 , ) 3 0 2 5 5 9 ( , , 6 6 6 6 9 7 3 , , 4 6 1 9 0 7 2 , 0 3 8 0 9 3 , ) 3 0 2 5 5 9 ( , , 1 9 7 4 4 1 2 , , 5 7 8 1 5 6 1 , , 9 1 5 4 1 4 1 , 5 3 1 8 , 9 8 6 1 5 1 , ) 3 2 0 1 7 ( , 1 0 8 8 8 , 2 8 1 2 3 1 , 7 0 7 7 , ) 3 2 0 1 7 ( , 6 6 8 8 6 , 5 3 9 9 1 , 7 0 5 9 1 , 0 2 % 3 6 7 6 1 5 , 2 9 1 3 3 1 , 6 7 2 2 7 , 3 4 3 8 5 6 , 1 0 6 5 , 3 6 3 9 8 , ) 2 3 1 0 0 2 ( , ) 6 9 2 5 0 2 ( , ) 7 1 8 2 3 ( , 3 2 8 9 4 4 , 7 1 1 0 2 4 , 8 0 4 7 5 , 3 2 3 5 2 5 , 9 7 6 8 3 5 , 8 4 0 3 7 , 7 4 1 2 6 , 8 8 0 3 5 , 9 1 6 2 1 , ) 2 3 1 0 0 2 ( , ) 6 9 2 5 0 2 ( , ) 7 1 8 2 3 ( , 0 2 % 3 9 3 7 7 2 , 0 3 4 2 7 1 , 6 4 6 6 9 , 1 3 4 6 0 4 , 2 9 8 8 1 1 , 4 6 6 9 1 1 , . 3 3 3 % 0 9 8 2 3 , 7 5 2 9 2 , 5 7 2 6 3 , 0 2 % , 7 8 1 6 4 6 1 , 6 7 3 7 4 3 , , ) 8 6 0 3 1 4 ( , 5 9 4 0 8 5 1 , , 9 9 3 5 0 2 1 , 9 4 9 9 8 1 , , ) 8 6 0 3 1 4 ( 0 8 2 2 8 9 , , 5 1 2 8 9 5 , 8 8 7 0 4 4 . 3 3 3 % 6 0 6 1 6 , , 9 2 6 6 9 9 ) 7 6 8 2 3 ( , i s e s m e r P , 8 6 3 5 2 0 1 , 9 9 0 0 5 , 9 9 6 9 5 3 , ) 7 6 8 2 3 ( , 1 3 9 6 7 3 , 7 3 4 8 4 6 , 0 3 9 6 3 6 , 5 % - - - - - - d n a L 9 0 7 4 6 , 9 0 7 4 6 , 9 0 7 4 6 , 9 0 7 4 6 , ) 3 ( r a e y e h t i f o g n n n i g e b t a n o i t a i c e r p e d d e t a l u m u c c A ) 4 ( r a e y e h t f o d n e t a n o i t a i c e r p e d d e t a l u m u c c A n o i t a i c e r p e d r a e y t n e r r u C * r a e y e h t g n i r u d s l a s o p s i D ) 3 - 1 ( s t e s s a t e n g n i n n i g e B ) 4 - 2 ( s t e s s a t e n g n i d n E s e t a r n o i t a i c e r p e D ) 1 ( s t e s s a s s o r g g n n n i g e B i r a e y e h t g n i r u d s n o i t i d d A * r a e y e h t g n i r u d s l a s o p s i D ) 2 ( s t e s s a s s o r g g n i d n E 8 1 0 2 , 1 3 . c e D i t n e m p u q e d n a t n a p l , y t r e p o r P . 5 2 s d n a s u o h T P G E d n a d n a e r u t i n r u F i s e n h c a M 7 1 0 2 , 1 3 . c e D . s s e c o r p n i e r a s e r u d e c o r p s n o i t a r t s i g e r r i e h t e l i h w s t e s s a d e r e t s i g e r n o n d n a s u o h t 8 8 6 , 6 1 3 P G E s e d u l c n i e t a d t e e h s e c n a l a b e h t n o e u l a v s t e s s a d e x fi t e N . n o i t a r e p o n i l l i t s s t e s s a r o f d n u o p e n o f o e u l a v n o i t n e t e r a h t i w d e t a i c e r p e d y l l u f e r a s t e s s a d e x i F * . s t e s s a d e x fi r o f d e g r a h c n o i s i v o r p t n e m r i a p m i o n s a w e r e Th , 4 6 0 9 7 6 3 , - 9 1 6 4 4 4 , , 3 8 6 3 2 1 4 , , 9 5 1 8 5 3 2 , - 5 0 0 1 5 3 , , 4 6 1 9 0 7 2 , , 9 1 5 4 1 4 1 , , 5 0 9 0 2 3 1 , - - 5 3 2 7 , 4 5 4 4 4 1 , 3 5 2 7 , 9 8 6 1 5 1 , 9 2 9 4 2 1 , - - 1 9 1 7 5 , 2 7 5 9 5 4 , 3 6 7 6 1 5 , 2 2 5 2 7 3 , 5 9 5 7 4 , 0 2 % 7 0 5 9 1 , 5 2 5 9 1 , 0 2 % 6 4 6 6 9 , 0 5 0 7 8 , 2 8 1 2 3 1 , 7 1 1 0 2 4 , - - 0 7 5 0 5 , 3 7 7 7 0 6 , 3 4 3 8 5 6 , 8 6 3 8 6 4 , 1 1 3 0 7 , 9 7 6 8 3 5 , 4 6 6 9 1 1 , 5 0 4 9 3 1 , . 3 3 3 % - 3 0 7 1 , 0 6 6 7 8 , 3 6 3 9 8 , 4 0 9 7 4 , 4 8 1 5 , - 8 8 0 3 5 , 5 7 2 6 3 , 6 5 7 9 3 , 0 2 % , 8 3 6 5 9 3 1 , - 9 4 5 0 5 2 , , 7 8 1 6 4 6 1 , , 4 4 2 9 2 0 1 , - 5 5 1 6 7 1 , , 9 9 3 5 0 2 1 , , 8 8 7 0 4 4 , 4 9 3 6 6 3 . 3 3 3 % - - 1 7 3 7 7 , , 8 5 2 9 1 9 9 2 6 6 9 9 , 2 9 1 5 1 3 , 7 0 5 4 4 , 5 % 9 9 6 9 5 3 , 0 3 9 6 3 6 , 6 6 0 4 0 6 , l a t o T i g n h s n r u f i t n e m p u q e i t u o - g n i t t i F l s e c h e V i T I i s e s m e r P - - - - - - d n a L 9 0 7 4 6 , 9 0 7 4 6 , 9 0 7 4 6 , 9 0 7 4 6 , ) 3 ( r a e y e h t i f o g n n n i g e b t a n o i t a i c e r p e d d e t a l u m u c c A ) 4 ( r a e y e h t f o d n e t a n o i t a i c e r p e d d e t a l u m u c c A n o i t a i c e r p e d r a e y t n e r r u C * r a e y e h t g n i r u d s l a s o p s i D ) 3 - 1 ( s t e s s a t e n g n i n n i g e B ) 4 - 2 ( s t e s s a t e n g n i d n E s e t a r n o i t a i c e r p e D ) 1 ( s t e s s a s s o r g g n n n i g e B i r a e y e h t g n i r u d s n o i t i d d A * r a e y e h t g n i r u d s l a s o p s i D ) 2 ( s t e s s a s s o r g g n i d n E 8 1 0 2 , 1 3 . c e D . s s e c o r p n i e r a s e r u d e c o r p s n o i t a r t s i g e r r i e h t e l i h w s t e s s a d e r e t s i g e r n o n d n a s u o h t 2 6 4 3 5 3 P G E s e d u l c n , i e t a d t e e h s e c n a l a b e h t n o e u l a v s t e s s a d e x fi t e N 282 Annual Report 2018 Annual Report 2018 283 Financial StatementS: conSolidated 26. Due to banks 28. Other loans Current accounts Deposits Total Central banks Local banks Foreign banks Total Non-interest bearing balances Floating bearing interest 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 Floating interest bearing balances Fixed interest bearing balances Total Current balances Non-current balances Total EGP Thousands Dec.31, 2018 Dec.31, 2017 503,539 6,756,280 7,259,819 190,801 6,009,778 1,059,240 7,259,819 257,355 89,568 6,912,896 7,259,819 7,259,819 1,067,374 810,544 1,877,918 128,527 714,294 1,035,097 1,877,918 740,158 23,169 1,114,591 1,877,918 1,877,918 Interest rate % Maturity date Maturing through next year EGP Thousands Balance on Balance on Dec.31, 2018 Dec.31, 2017 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 months T/D or 9% which is more 3 months libor + 6.2% 3 months libor + 6.2% 3-5 years* 117,286 125,429 87,314 4 January 2020* 10 years 10 years 13,380 13,380 41,882 - - 1,791,360 1,772,770 1,791,360 1,772,770 130,666 3,721,529 3,674,736 Interest rates on variable-interest subordinated loans are determined in advance every 3 months/every quarter. Subordi- nated loans are not repaid before their repayment dates. EGP Thousands * Represents the date of loan repayment to the lending agent. Dec.31, 2018 Dec.31, 2017 92,422,114 43,561,846 81,059,934 62,812,279 5,440,696 285,296,869 116,842,160 168,454,709 285,296,869 48,741,931 23,738,113 212,816,825 285,296,869 202,126,154 83,170,715 285,296,869 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 21,022,474 186,471,493 250,723,052 178,786,275 71,936,777 250,723,052 29. Other liabilities Accrued interest payable Accrued expenses Accounts payable Other credit balances Total EGP Thousands Dec.31, 2018 Dec.31, 2017 1,347,397 733,218 4,101,884 319,054 6,501,553 1,516,471 507,543 3,277,350 175,167 5,476,531 284 Annual Report 2018 Annual Report 2018 285 Financial StatementS: conSolidated 0 1 9 6 , 7 7 6 7 5 , , 0 9 6 9 4 4 1 , - - ) 0 7 6 7 1 ( , 0 3 3 0 8 1 , - , 7 0 6 4 9 6 1 , ) 0 7 6 7 1 ( , - - ) 3 2 9 ( ) 1 9 1 1 ( , ) 4 1 1 2 ( , s d n a s u o h T P G E l e c n a a b g n d n E i s t n u o m a d e s r e v e R s t n u o m a d e z i l i t U e c n a a b l i g n d n E s t n u o m a d e s r e v e R s t n u o m a d e z i l i t U 0 1 9 6 , 3 7 7 5 4 , , 2 0 3 0 7 4 1 , 4 7 1 2 9 , , 9 5 1 5 1 6 1 , - ) 9 2 ( ) 8 9 3 5 9 ( , ) 0 7 4 2 ( , ) 7 9 8 7 9 ( , - - ) 5 2 7 ( ) 8 3 7 4 2 ( , ) 3 6 4 5 2 ( , - 7 6 6 6 ) 2 4 9 2 ( , ) 9 6 2 2 ( , e g n a h c x E e c n e r e f f i d n o i t a u a v e r l e g n a h c x E e c n e r e f f i d n o i t a u a v e r l - ) 7 5 ( 7 2 6 2 1 , ) 0 3 7 ( 0 4 8 1 1 , s t n u o m a d e g r a h C e c n a a b l i g n n n g e B i - - 0 2 8 2 1 , 1 8 6 8 8 , 1 0 5 1 0 1 , s t n u o m a d e g r a h C - 9 4 5 0 7 3 8 1 1 , 3 0 7 3 9 , 2 2 6 2 1 2 , , 2 0 3 0 7 4 1 , 0 1 9 6 , 3 7 7 5 4 , l e c n a a b g n n n g e B i i s m i a l c x a t e m o c n i r o f n o i s i v o r P 8 1 0 2 , 1 3 . c e D s m i a l c l a g e l r o f n o i s i v o r P t n e g n i t n o c r o f n o i s i v o r P s n o s i i v o r P . 0 3 4 7 1 2 9 , m i a l c r e h t o r o f n o i s i v o r P , 9 5 1 5 1 6 1 , 0 1 9 6 , 5 3 0 6 4 , , 3 0 7 4 3 4 1 , s m i a l c x a t e m o c n i r o f n o i s i v o r P s m i a l c l a g e l r o f n o i s i v o r P t n e g n i t n o c r o f n o i s i v o r P 7 1 0 2 , 1 3 . c e D l a t o T 9 0 4 6 2 , m i a l c r e h t o r o f n o i s i v o r P , 7 5 0 4 1 5 1 , . s n o i t a r e p o g n i k n a b f o k s i r l a i t n e t o p e h t e c a f o T * l a t o T 31. Equity 31.1. capital "Issued and Paid in Capital reached EGP 11,668,326 thousand at balance sheet date to be divided on 1,166,833 thousand shares with EGP 10 par value for each share and registered in the commercial register dated 26th August 2018. • Increase issued and Paid in Capital by amount EGP 50,315 thousand on August 02,2018 to reach EGP 11,668,326 thousand (against EGP 11,618,011 thousand in 2017) according to Board of Directors decision on January 31, 2018 by issuance of ninth tranche for E.S.O.P program. • 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. • The Extraordinary General Assembly approved in the meeting of March 21,2016 continue 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 10% of issued and paid- in capital at par value ,through 10 years starting year 2016 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. 286 Annual Report 2018 Annual Report 2018 287 Financial StatementS: conSolidated 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 Other investments impairment Reserve for employee stock ownership plan (ESOP) Interest rate swaps revaluation Trading investment revaluation Forward foreign exchange deals revaluation Balance Movement of Deferred Tax Assets and Liabilities: Beginning Balance Additions / disposals Ending Balance 33. Share-based payments Assets (Liabilities) EGP Thousands Assets (Liabilities) Dec.31, 2018 Dec.31, 2017 (49,750) 53,552 53,657 65,788 166,122 4,695 7,394 6,912 308,370 (31,409) 31,038 36,712 56,698 110,100 5,340 (37,478) 8,629 179,630 Assets (Liabilities) EGP Thousands Assets (Liabilities) Dec.31, 2018 Dec.31, 2017 179,630 128,740 308,370 181,308 (1,678) 179,630 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 288 Annual Report 2018 Dec.31, 2018 No. of shares in thousand Dec.31, 2017 No. of shares in thousand 21,280 8,338 (828) (5,032) 23,758 22,351 7,601 (737) (7,935) 21,280 Details of the outstanding tranches are as follows: Maturity date Exercise price Fair value EGP EGP 2019 2020 2021 Total 10.00 10.00 10.00 28.43 65.55 68.13 No. of shares in thousand 8,433 7,175 8,150 23,758 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% 12th tranche 11th tranche 10 77.35 3 15.54% 1.29% 26% 10 73.08 3 16.77% 0.68% 30% Volatility is calculated based on the daily standard deviation of returns for the last five years. 34. Reserves and retained earnings Legal reserve General reserve Capital reserve Retained earnings Special reserve Reserve for A.F.S investments revaluation difference Banking risks reserve IFRS 9 risk reserve Ending balance EGP Thousands Dec.31, 2018 Dec.31, 2017 1,710,293 12,776,215 12,421 9,637,083 20,645 (3,750,779) 4,323 1,411,549 21,821,750 1,332,807 9,000,023 11,815 6,193,879 20,645 (1,642,958) 3,634 1,411,549 16,331,394 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, taken into consideration that IFRS 9 will be effective as of January 1, 2019. 34.1. Banking risks reserve Beginning balance Transferred to bank risk reserve Ending balance EGP Thousands Dec.31, 2018 Dec.31, 2017 3,634 689 4,323 3,019 615 3,634 Annual Report 2018 289 Financial StatementS: conSolidated 34.2. legal reserve 35. Cash and cash equivalent 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 Transferred to reserves Dividend paid Net profit of the year Transferred ( from) to bank risk reserve Disposal of subsidiary IFRS 9 risk reserve Ending balance 34.5. Reserve for employee stock ownership plan Beginning balance Transferred to reserves Cost of employees stock ownership plan (ESOP) Ending balance EGP Thousands Dec.31, 2018 Dec.31, 2017 1,332,807 377,486 1,710,293 1,035,363 297,444 1,332,807 EGP Thousands Dec.31, 2018 Dec.31, 2017 (1,642,958) (2,107,821) (3,750,779) (2,180,244) 537,286 (1,642,958) EGP Thousands Dec.31, 2018 Dec.31, 2017 6,193,879 (3,994,924) (2,143,177) 9,581,994 (689) - - 9,637,083 6,040,580 (4,599,736) (1,350,204) 7,515,555 (615) (152) (1,411,549) 6,193,879 EGP Thousands Dec.31, 2018 Dec.31, 2017 489,334 (159,360) 408,346 738,320 343,460 (145,010) 290,884 489,334 290 Annual Report 2018 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 36. Contingent liabilities and commitments 36.1. legal claims EGP Thousands Dec.31, 2018 Dec.31, 2017 20,058,974 46,518,892 41,999,252 (13,526,763) (10,733,386) (50,013,324) 34,303,645 14,663,289 45,319,766 54,478,202 (8,878,986) (1,719,586) (54,653,848) 49,208,837 • There is a number of existing cases filed against the bank on December 31,2018 without provision as the bank doesn't expect to incur losses from it. • A provision for legal cases that are expected to generate losses has been created. (Disclosure No. 30) 36.2. capital commitments 26.2.1. Financial investments The capital commitments for the financial investments reached on the date of financial position EGP 165,676 thousand as follows: Available for sale financial investments 358,268 192,593 165,676 Investments value Paid Remaining 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 198,026 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 EGP Thousands Dec.31, 2018 Dec.31, 2017 66,166,953 4,178,288 1,050,573 71,395,814 69,514,413 1,700,516 1,017,690 72,232,619 EGP Thousands Dec.31, 2018 Dec.31, 2017 9,173,782 7,024,376 Annual Report 2018 291 Financial StatementS: conSolidated 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 3,449,254 with redeemed value of EGP 1,247,250 thousands. • The market value per certificate reached EGP 361.60 on December 31, 2018. • The Bank portion got 137,112 certificates with redeemed value of EGP 49,580 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 511,604 with redeemed value of EGP 99,118 thousands. • The market value per certificate reached EGP 193.74 on December 31, 2018. • The Bank portion got 50,000 certificates with redeemed value of EGP 9,687 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 335,313 with redeemed value of EGP 34,336 thousands. • The market value per certificate reached EGP 102.40 on December 31, 2018. • The Bank portion got 27,690 certificates with redeemed value of EGP 2,835 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 91,131 with redeemed value of EGP 19,353 thousands. • The market value per certificate reached EGP 212.37 on December 31, 2018. • The Bank portion got 50,000 certificates with redeemed value of EGP 10,619 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 93,948 with redeemed value of EGP 21,779 thousands. • The market value per certificate reached EGP 231.82 on December 31, 2018. • The Bank portion got 50,000 certificates with redeemed value of EGP 11,591 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 145,943 with redeemed value of EGP 26,051 thousands. • The market value per certificate reached EGP 178.50 on December 31, 2018. • The Bank portion got 50,000 certificates with redeemed value of EGP 8,925 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 other transactions with related parties International Co. for Security & Services CVenture Capital 39. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro EGP Thousands 5,414 137,766 1,309 Income 94 850 Expenses 277,139 2,041 EGP Thousands Dec.31, 2018 Dec.31, 2017 (636,384) 578,745 2,189 (20) 658 37,144 182,639 (313,246) (1,566) (523) 637 46,768 Main currencies positions above represents what is recognized in the balance sheet position of the Central Bank of Egypt. 40. Tax status corporate income tax • Settlment of corporate income tax since the start of activity till 2016 • 2017 examined & paid • The yearly income tax return is submitted in legal dates Salary tax • Settlment of salary tax since the start of activity till 2017 Stamp duty tax • The period since the start of activity till 31/07/2006 was examined & paid, disputed points have been transferred to the court for adjudication • The period from 01/08/2006 till 31/12/2017 was examined & paid in accordance with the protocol signed between the Fed- eration of Egyptian Banks & the Egyptian Tax Authority 292 Annual Report 2018 Annual Report 2018 293 Financial StatementS: conSolidated 41. Intangible assets: 43. Treasury bills and other governmental notes - net increase (decrease) Book value Amortization Net book value EGP Thousands Dec.31, 2018 Dec.31, 2017 651,041 (412,326) 238,715 651,041 (282,118) 368,923 According to CBE's regulation issued on Dec 16, 2008, an annual amortization of 20% has been applied on intangible assets 42. Profit (loss) of disposal from discontinued operations Profits from disposal of investments in subsidaries Total CIB have a minority stake of 10.00% of CI Capital Holding. EGP Thousands Dec.31, 2018 Dec.31, 2017 - - 168,900 168,900 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 EGP Thousands "CI Capital Holding Co. S.A.E" Dec.31, 2018 Dec.31, 2017 - - - - - (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 calculation 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. Cashflow disclosures 294 Annual Report 2018 dec.31, 2018 91 Days ma- turity Unearned interest Net 182 Days ma- turity Unearned interest Net 364 Days ma- turity Unearned interest Net Total unearned interest Net Change dec.31, 2017 91 Days ma- turity Unearned interest Net 182 Days ma- turity Unearned interest Net 364 Days ma- turity Unearned interest Net Total unearned interest Net Change Dec.31, 2018 Dec.31, 2017 Total Net Total Net Change - - 3,669,700 (86,343) 49,441,511 (3,011,544) - - - - - 1,289,425 (87,067) 3,583,357 1,202,358 (2,380,999) 57,602,997 (4,151,507) 46,429,967 53,451,490 7,021,523 (3,097,887) (4,238,574) 50,013,324 54,653,848 4,640,524 Dec.31, 2017 Dec.31, 2016 Total Net Net Change Total 1,051,375 (22,416) - 1,028,959 1,028,959 4,350,975 (264,565) 1,202,358 4,086,410 2,884,052 36,010,730 (1,909,712) 53,451,490 34,101,018 (19,350,472) - - 1,289,425 (87,067) 57,602,997 (4,151,507) (4,238,574) (2,196,693) 54,653,848 38,187,428 (16,466,420) Annual Report 2018 295 Financial StatementS: conSolidated 44. Other assets - net increase (decrease) Total other assets by end of 2017 Assets acquired as settlement of debts Advances to purchase of fixed assets Total 1 Total other assets by end of 2018 Assets acquired as settlement of debts Advances to purchase of fixed assets Unrealized amount from avilable for sale investments Impairment charge for other assets Total 2 Change (1-2) Total other assets by end of 2016 Assets acquired as settlement of debts Advances to purchase of fixed assets Total 1 Total other assets by end of 2017 Assets acquired as settlement of debts Advances to purchase of fixed assets Total 2 Change (1-2) non cash transactions: Non-cash transactions that are not included in the statement of cash flows are as follows: Proceeds from selling available for sale financial investments Payment for purchases of subsidiary and associates Other assets Financial statements balance 2,314,616 (14,100) (2,515,215) Non cash transactions 255,275 (3,525) (251,750) 296 Annual Report 2018 EGP Thousands Dec.31, 2018 6,886,607 (45,083) (522,211) 6,319,313 9,563,018 (276,520) (768,733) (251,750) 316,763 8,582,778 (2,263,465) EGP Thousands Dec.31, 2017 5,715,667 (56,599) (203,410) 5,455,658 6,886,607 (45,083) (522,211) 6,319,313 (863,655) Dec.31, 2018 EGP Thousands Cash flow balance 255,275 (3,525) (251,750) Commercial International Bank S.A.E Nile Tower Building 21/23 Charles De Gaulle Street Giza, Cairo, P.O. Box 2430 Tel: (+202) 3747 2000 Fax: (+202) 3570 3632 www.cibeg.com 

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