2011 - sgbl report... · 2013. 8. 12. · societe generale de banque au liban sal (sgbl) is a joint...
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1
AnnuAlreport
2011
We stand by you
2 1
Financial Highlights of 2011 02
Group Chairman’s Address 06
SGBL group Profile 10
Corporate Governance 14
Consolidated Financial Statements 20
SGBl network 116
Correspondent Banks 120
TABle oFcontentS
2 3
FinAnCiAlhighlightS
oF 2011
32
4 5
equity
USD520M
total assets
USD10,455M
Average roAafter tax
0.86%
Net profit
USD66.9M
loans andadvancesto customers
USD 2,906M
Average roeafter tax
15.13%
net banking income
USD 208.5M
Deposits from customers
USD 8,600M
As bankers, we at SGBL, endeavor to provide cutting edge universal banking services to best serve our individual and corporate clients, day after day.
our commitment
To grow alongside our clients and shareholders, against all odds
our mission
Professionalism, Team spirit, Innovation
our values
As at Dec. 31,2011
6 7
GroupchAirmAn’S
ADDreSS
76
8 9
Dear shareholders, dear partners,
The year 2011 marked a turning point in SGBL’s history. Our
Bank has taken on new proportions this year, comforting its
position in the Lebanese and regional banking industry, and
paving the way for future growth.
On September 7, 2011, SGBL obtained the final approval
from Banque du Liban to acquire the sound assets and
liabilities of Lebanese Canadian Bank. The acquisition – the
largest in Lebanon’s banking history – comes in line with the
Bank’s declared growth ambitions and the strategy set over
the past years.
This acquisition was actually a long and challenging process,
and as this report goes to press, I am very pleased to add
that it was a successful one. The outcome is a Bank with
critical size and potential to develop in the domestic and
regional markets.
With total assets increasing by twofold and a branch network
practically double its last year’s size, SGBL has reinforced
its capacity to achieve ambitious commercial and financial
performance in the coming years.
“
“
With total assetsincreasing by twofold and a branch network practically double its last year’ssize, SGBL has reinforced itscapacity toachieve ambitiouscommercialand financialperformancein the coming years.
Although the decision to move forth with a strategic
acquisition for SGBL group was made in the backdrop of
an overall uncertain political and economic framework – at
all of the domestic, regional and international levels – we are,
however, confident that recovery is on its way as the world
is growingly mobilized to build on the lessons learned from
the multiple facets of the crisis.
As we head deeper into 2012, the challenges of economic
recovery at the regional and more generally, at the global
level, are only being confirmed. It is now clear that recovery
will only be possible through the implementation of major
reforms and profound changes in the global economy. The
process is already on track, and the banking industry in
particular, is undergoing major transformations.
The international crisis has in fact unveiled fragilities that
have, in turn, led to more extensive regulations and more
rigorous monitoring. The financial industry now operates in
a new, challenging and continuously changing regulatory
environment. Lebanon – in line with the rest of the world – is
accelerating the implementation of Basle III regulations and
stricter prudential ratios.
In this backdrop, and in the aftermath of the acquisition
operation, SGBL is planning to increase its capital in
the coming months, in order to comply with local and
international regulations and standards. Capital injections
will be made in several Group entities in the aim of
strengthening the Group’s financial position ahead of
future development plans.
In parallel, we are putting in all the necessary efforts to identify
and foster intra-group synergies and bolster commercial
and financial performance across business lines. Business
processes have been streamlined for greater efficiency.
More than ever before, we are focusing on maintaining high
asset quality and a tight risk monitoring framework.
Whereas I would like to thank all of our partners for their
continuous support and their confidence in SGBL group,
I would like to praise in particular, the infallible support of
the Group’s staff: they have done a remarkable job in the
framework of our latest acquisition, and I strongly believe in
their skills to drive our Group towards new achievements.
Thank you.
Antoun Sehnaoui
We are putting in all the necessary efforts to bolstercommercial and financial performance across business lines. We are focusing on maintaining highasset quality and a tight risk monitoring framework.“
“8
10 11
SGBl Group profile
1110
12 13
SgBl group network
branches in Lebanon
branches in Jordan
branches in Cyprus
ATM’s
*7815
1006
Societe Generale de Banque au Liban sal (SGBL) is a joint stock company incorporated in 1953, with a term of 99 years. It is registered with the Commercial Registry of Beirut under No. 3696 and registered under No.19 on the list of banks licensed by Banque du Liban, the Central Bank of Lebanon.
the BankSGBL ranks among Lebanon’s Alpha Group banks, the country’s 12largest banks in terms of customer deposits (over USD 2 billion).
ranking
SGBL is the parent company of SGBL group, which encompasses a broad range of financial and non financial services delivered by specialized subsidaries.SGBL, SGBJ (Jordan) and SGBCy (Cyprus) the Group’s banks, operate according to the universal banking model. Their 3 core business lines are: Retail, Corporate, and Private Banking.The Group’s other businesses include: life insurance, leasing, financial brokerage and credit card processing.
With its core business anchored in lebanon, SGBl Group also operates in Jordan and Cyprus. Some of the Bank’s subsidiaries are therefore subject to supervision and examination by the authorities in their respective countries and/or lines of business.
regional network
SGBL’s head office is located on Riad El Solh Street, Beirut (Lebanon).The Bank’s headquarters are, however, located on Saloumeh Square, Sin El Fil (Lebanon).
Head Office
SGBL is part of the international network of Societe generale, one of the largest European financial services groups, which operates in 77 countries worldwide.
international networkSogeleASe liBAnPioneer and leader in the financial leasing market in Lebanon, Sogelease Liban offers professionals, craftsmen and enterprises of all sizes, solutions for financing their equipment.
SogecAp liBAnLife insurance company that ranks among the top 10 life insurance companies in Lebanon. Sogecap Liban offers a complete range of life insurance products based on contingency and capitalization.
fiDUSLeading financial institution that provides a full range of investment, brokerage, advisory and financial services to a diversified client base including high net-worth individuals, banks, corporations and financial institutions. Headquartered in Beirut, the firm maintains a dynamic presence in the Levant, the Gulf, Africa and Europe.
centre De trAitement monetiQUe (ctm)Specialized in credit card management, CTM is an electronic card processing company that is a joint venture between SGBL and Banque Libano-Française.
Subsidiaries
As at 31 Dec. 2011 in lebanon,Jordan, and Cyprus.
1850Staff
Business lines
Including Lebanese Canadian Bank branches following the acquisition of the bank. This number was later brought down to 67 during 2012.*
14 15
CorporATegovernAnce
SGBL’s Corporate Governance Charter sets the guidelines for efficient corporate governance that safeguards the interests of the Bank’s stakeholders and complies with international standards.
1514
16 17
SGBL’s Corporate Governance Charter sets the guidelines for efficient corpo-
rate governance that safeguards the interests of the Bank’s stakeholders and
complies with internationally accepted standards, as well as with the rules and
regulations that are in force in the countries where the Group is present. Cor-
porate governance policies and procedures are thoroughly documented as per
Societe Generale group standards and in line with the recommendations of the
local regulatory bodies as well as with the guidelines set by the Bank’s Board.
Sound corporate governance is achieved through:
The Board of Directors
Board Committees
Internal specialized committees that support the Executive Board in its mission
Board committeesThe Bank has established 4 committees derived from the Board of Directors and that report to the Board,
the duties and responsibilities of which pertain to audit, risk, governance and compensation.
The audit committee is a pillar of the bank’s internal control systems as it monitors, on a regular basis, its
performance and activities, and implements the rules and regulations of the Central Bank of Lebanon, namely
principal circular no.77 pertaining to internal control in banks.
The mission of the risk committee is to analyze periodically the Bank’s risk exposure, especially as regards
credit and market risks.
The compensation committee makes recommendations to the Board regarding the remuneration policy
within the Group, benefit packages, profit-sharing mechanisms, compensation packages for managers,
processes and issues pertaining to the replacement of administrators, etc.
The mission of the corporate governance committee consists of supervising, assessing and upgrading
corporate governance mechanisms to ensure that they operate effectively, in line with international practices.
executive board Management team
Antoun Sehnaoui Chairman & CEO
Gerard Garzuel Chief Operating Officer
Tarek Chehab Deputy General Manager
Head of the Commercial Division
Retail, Corporate and Private Banking
Georges Saghbini Deputy General Manager
Group CFO, Head of Business Development,
Strategy, and Corporate Secretariat
Khalil letayf Deputy General Manager
Head of the Resources and Services Division
Sleiman Maaraoui Head of the General Inspection & Audit Division
In line with applicable corporate governance guidelines, the Executive board is supported in its mission by
several specialized operational committees with a wide array of responsibilities: credit risk, asset and liability
management, anti money laundering, IT security, procurement, etc.
Board of directorsThe management of the Bank is vested in the Board of directors. The members
of the Board are elected by the General Assembly of Shareholders for a period
of three years, renewable at the end of their term.
The Board appoints one of its members as Chairman. The Chairman of the
Board of directors, in his capacity as General Manager, has extensive pow-
ers to execute the resolutions adopted by the General Assembly, to take the
necessary measures to ensure a proper day-to-day operating of the Bank, and
overall, to represent the Bank.
As at Dec. 31, 2011, the Bank’s Board of directors has the following mem-
bers:
CHAirMAn
Antoun SEHNAOUI
MeMBerS
Nabil SEHNAOUI
Khalil Andre KAMEL
Pierre Frederic KAMEL
KAFINVEST HOLDING LEBANON SAL
HOLDING A.P.Y. SEHNAOUI SAL
SOCIETE GENERALE (France) represented by Jean-Louis MATTEI
Jean-Louis MATTEI
Ishac Mazen HANNA
Haytham JOUD
17
18 19
Georges SAGHBiniDeputy General ManagerGroup CFO, Head of BusinessDevelopment, Strategy, and CorporateSecretariat.
Born in 1971. He joined SGBL group
in 1996. He has since occupied sev-
eral executive positions in the Bank and
within the Group. Mr. Saghbini is also
board member of SGBJ and SGBCy, the
Group’s subsidiary banks in Jordan and
Cyprus. He holds a Master’s degree in
Economics and a Post graduate diploma
in Money, Banking & Finance from the
University of Paris I - Sorbonne. Within
SGBL group, Mr. Saghbini is also chair-
man of Sogecap Liban, the Group’s life
insurance company.
Gerard GArzuelChief Operating Officer
Born in 1949. Mr. Garzuel joined SGBL
group in 2002 as Head of Retail Banking.
Prior to that, he was with Societe Generale
group where he occupied several execu-
tive positions both in France and across
the Societe Generale international net-
work, namely in Retail Banking. He holds
a degree from the Institut Technique de
Banque à l’International in Paris.
Antoun SeHnAouiChairman & CEO
Born in 1972. Mr. Sehnaoui holds a BA
in Business Administration – major in In-
ternational Finance and Banking from the
University of Southern California (USA).
He is a member of the Board of directors
of the Association of Banks in Lebanon.
Within SGBL group, he is also the chair-
man of Fidus, the Group’s financial bro-
kerage firm.
Sleiman MAArAouiHead of the General Inspection& Audit Division.
Born in 1968. He holds a Master’s de-
gree in Economics – major in Finance
from the University of Amiens (France).
Mr. Maaraoui held several executive posi-
tions in the banking sector in France be-
fore joining SGBL group in 2001.
Tarek CHeHABDeputy General Manager
Head of the Commercial Division - Retail,
Corporate and Private Banking.
Born in 1966. Mr. Chehab holds a Mas-
ter’s degree in Management – major in
Finance, from the University of Dauphine
in Paris. Before joining SGBL group in
1999 as General Manager of Fidus, Mr.
Chehab held several executive positions
in France in industrial and consulting
businesses. Within SGBL group, he is
also chairman of Sogelease Liban, the
Group’s leasing company.
Khalil leTAyFDeputy General ManagerHead of the Resources & Services Division.
Born in 1963. Mr. Letayf holds a degree
in Engineering from Ecole Centrale de
Paris. He held different managerial posi-
tions in the banking and e-payment in-
dustries in France and Lebanon before
joining SGBL group in 2008.
executive board
The Executive Board is supported in its mission by several specialized operational committees with a wide array of
responsibilities: credit risk, asset and liability management, anti money laundering, IT security, procurement, etc.
18
20 21
ConSoliDATeDfinAnciAl
StAtementS
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF SOCIETE GENERALE DE BANQUE AU LIBAN SAL
31 December 2011
2120
Notes 2011LL million
2010LL million
Interest and similar income
Interest and similar expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net (loss) gain on financial assets at fair value through profit
or loss
Net gain on foreign exchange
Net gain on financial investments
Net gain from sale of debt instruments at amortized cost
Other operating income
Net trading loss
Total operating income
Net credit losses
Impairment loss of goodwill
Net operating income
Personnel expenses
General and other operating expenses
Depreciation of property and equipment
Amortization of intangible assets
Total operating expenses
Operating profit
Share of profit from non-consolidated subsidiaries
Net profit from sale or disposal of other assets
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
4
5
6
7
8
28
9
10
34
11
12
30
31
27
13
553,357
(340,206)
213,151
78,108
(17,683)
60,425
(1,330)
5,638
6,467
2,797
27,146
-
314,294
(14,123)
-
300,171
(95,066)
(78,713)
(6,135)
(657)
(180,571)
119,600
299
927
120,826
(19,943)
100,883
97,790
3,093
100,883
369,132
(198,350)
170,782
76,721
(24,504)
52,217
852
13,830
45,745
-
33,128
(73)
316,481
(12,980)
(3,470)
300,031
(80,713)
(65,536)
(5,356)
(579)
(152,184)
147,847
365
30
148,242
(23,744)
124,498
121,961
2,537
124,498
Consolidated incomestatementFor the year ended 31 December 2011
The attached notes 1 to 59 form part of these consolidated financial statements22 23
Consolidated statementof financial position As at 31 December 2011
Consolidated statementof comprehensive income For the year ended 31 December 2011
The attached notes 1 to 59 form part of these consolidated financial statements The attached notes 1 to 59 form part of these consolidated financial statements
2011LL million
2010LL million
Profit for the year
Other comprehensive income
Net loss on available-for-sale financial investments, net of tax
Net movement in foreign currency reserve
Net loss from financial assets at fair value through other
comprehensive income, net of tax
Other comprehensive loss for the year, net of tax
Total comprehensive income for the year, net of tax
Attributable to:
Equity holders of the parent
Non-controlling interest
100,883
-
(557)
(18,717)
(19,274)
81,609
78,532
3,077
81,609
124,498
(10,025)
(2,691)
-
(12,716)
111,782
109,226
2,556
111,782
Notes 2011LL million
2010LL million
ASSETS
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Loans to banks and financial institutions
Derivative financial instruments
Financial assets pledged as collateral
Equity instruments at fair value through profit or loss
Debt instruments at fair value through profit or loss
Financial assets held-for-trading
Loans and advances to customers, net
Loans and advances to related parties, net
Debtors by acceptances
Financial investments – available-for-sale
Financial assets classified as loans and receivables
Financial investments – held-to-maturity
Investments in non-consolidated subsidiaries
Debt instruments at amortized cost
Financial assets at fair value through other comprehensive
income
Property and equipment
Intangible assets
Non-current assets held for sale
Other assets
Other intangible assets and goodwill
Total assets
LIABILITIES AND EQUITY
LIABILITIES
Due to Central Banks
Repurchase agreement with a Central Bank
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Derivative financial instruments
Customers’ deposits
Related parties’ deposits
Engagements by acceptances
Other liabilities
Provision for risks and charges
Total liabilities
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
17
39
23
40
41
2,040,254
405,505
1,402,526
11,686
1,599
27,875
37,648
54,652
-
4,322,223
58,734
110,860
-
-
-
63,143
6,474,941
109,566
218,358
10,555
146,310
71,624
192,492
15,760,551
67,061
982,605
532,430
95,434
7,655
12,929,279
35,640
110,860
176,115
40,256
14,977,335
1,089,549
134,600
1,151,364
-
559
8,683
9,637
-
204
2,072,306
45,601
76,885
1,237,909
1,276,583
303,807
2,875
-
-
78,312
3,229
113,320
33,303
23,824
7,662,550
55,119
-
121,503
313,383
2,758
6,146,520
13,311
76,885
148,025
34,025
6,911,529
24 25
The consolidated financial statements were authorized for issue in accordance with a resolution of the Board of Directors on 12 April 2012:
Con
solid
ated
sta
tem
ent o
f cha
nges
in e
qui
ty
For
the
year
end
ed 3
1 D
ecem
ber
2011
The attached notes 1 to 59 form part of these consolidated financial statements
The
atta
ched
not
es 1
to 5
9 fo
rm p
art o
f the
se c
onso
lidat
ed fi
nanc
ial s
tate
men
ts
Notes 2011LL million
2010LL million
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF PARENTShare capital – common sharesShare capital – preferred sharesShare premium – preferred sharesCash contribution by shareholdersUndistributable reserveDistributable reserveRevaluation reserve of propertyFair value reserveProfit for the yearForeign currency reserveDistributable retained earnings Undistributable retained earnings
Non-controlling interestTotal equityTotal liabilities and equity
4242424243444546
10,6204,036
284,015106,746153,20521,9123,934
(26,211)97,790(3,275)99,807
241
752,82030,396
783,21615,760,551
10,6204,036
282,748106,746115,67021,9123,934
20,204121,961
(2,730)37,710
-
722,81128,210
751,0217,662,550
Not
es
Shar
eca
pita
l –
com
mon
sh
ares
LL m
illio
n
Shar
eca
pita
l –
pre
ferr
ed
shar
esLL
mill
ion
Shar
e p
rem
ium
–
pref
erre
d sh
ares
LL m
illio
n
Cash
cont
ribut
ion
by s
hare
-ho
lder
sLL
mill
ion
Undi
s-tr
ibut
able
re
serv
esLL
mill
ion
Dist
ribut
able
re
serv
esLL
mill
ion
Reva
luat
ion
rese
rve
of
prop
erty
LL m
illio
n
Fair
valu
e re
serv
eLL
mill
ion
Fore
ign
curr
ency
tr
ansl
atio
n re
serv
eLL
mill
ion
Profi
t for
th
e ye
arLL
mill
ion
Dist
rib-
utab
le
reta
ined
ea
rnin
gsLL
mill
ion
Undi
s-tr
ibut
able
re
tain
ed
earn
ings
LL m
illio
nTo
tal
LL m
illio
n
Non-
cont
rolli
ngIn
tere
stLL
mill
ion
Tota
l equ
ityLL
mill
ion
Bal
ance
at 1
Jan
uary
201
0P
rofit
for
the
year
O
ther
com
preh
ensi
ve in
com
e
Tota
l com
preh
ensi
ve in
com
eIs
suan
ce o
f pre
ferr
ed s
hare
sTr
ansf
er to
reta
ined
ear
ning
sTr
ansf
er to
und
istr
ibut
able
rese
rves
Rel
ease
of u
ndis
trib
utab
le re
serv
esTr
ansf
er to
dis
trib
utab
le re
serv
esA
cqui
sitio
n of
non
-con
trol
ling
inte
rest
in S
GB
J A
cqui
sitio
n of
non
-con
trollin
g in
tere
st in
Soc
iete
Gen
eral
e B
ank
– C
ypru
s Lt
d Tr
ansf
er to
sha
re p
rem
ium
Div
iden
ds p
aid
to e
quity
hol
ders
of t
he p
aren
t
Bal
ance
at 3
1 D
ecem
ber
2010
Effe
ct o
f ado
ptin
g IF
RS
9 a
t 1 J
anua
ry 2
011
Res
tate
d ba
lanc
e at
1 J
anua
ry 2
011
Pro
fit fo
r th
e ye
arO
ther
com
preh
ensi
ve in
com
e
Tota
l com
preh
ensi
ve in
com
eTr
ansf
er to
reta
ined
ear
ning
sTr
ansf
er to
und
istr
ibut
able
rese
rves
Und
istr
ibut
able
rese
rves
writ
ten-
off
Acq
uisi
tion
of n
on-c
ontr
ollin
g in
tere
st in
SG
BJ
Oth
er tr
ansa
ctio
ns w
ith o
wne
rs a
nd n
on-c
ontro
lling
inte
rest
Tran
sfer
to s
hare
pre
miu
m
Div
iden
ds p
aid
to e
quity
hol
ders
of t
he p
aren
t
Bal
ance
at
31 D
ecem
ber
201
1
42 43 43 3 3 42 47 43 3 42 47
10,6
20- - - - - - - - - - - -
10,6
20-
10,6
20- - - - - - - - - -
10,6
20
1,91
2 - - -2,
124 - - - - - - - -
4,03
6 -
4,03
6 - - - - - - - - - -
4,03
6
133,
121 - - -
148,
284 - - - - - -
1,34
3 -
282,
748 -
282,
748 - - - - - - - -
1,26
7 -
284,
015
106,
746 - - - - - - - - - - - -
106,
746 -
106,
746 - - - - - - - - - -
106,
746
84,2
34- - - - -
35,9
72(4
,536
) - - - - -
115,
670 -
115,
670 - - - -
37,5
38 (3) - - - -
153,
205
17,6
93- - - - - - -
4,21
9 - - - -
21,9
12-
21,9
12- - - - - - - - - -
21,9
12
3,93
4 - - - - - - - - - - - -
3,93
4 -
3,93
4 - - - - - - - - - -
3,93
4
30,2
58-
(10,
054)
(10,
054) - - - - - - - - -
20,2
04(2
6,71
3)
(6,5
09) -
(18,
713)
(18,
713)
(989
) - - - - - -
(26,
211)
(49) -
(2,6
81)
(2,6
81) - - - - - - - - -
(2,7
30) -
(2,7
30) -
(545
)
(545
) - - - - - - -
(3,2
75)
100,
013
121,
961 -
121,
961 -
(100
,013
) - - - - - - -
121,
961 -
121,
961
97,7
90-
97,7
90(1
21,9
61) - - - - - -
97,7
90
17,9
84- - - -
100,
013
(35,
972)
4,53
6(4
,219
)(8
,465
) -(1
,343
)(3
4,82
4)
37,7
10 13
37,7
23- - -
122,
950
(37,
538) -
147
(682
)(1
,267
)(2
1,52
6)
99,8
07
- - - - - - - - - - - - - -24
1
241 - - - - - - - - - -
241
506,
466
121,
961
(12,
735)
109,
226
150,
408 - - - -
(8,4
65) - -
(34,
824)
722,
811
(26,
459)
696,
352
97,7
90(1
9,25
8)
78,5
32- -
(3)
147
(682
) -(2
1,52
6)
752,
820
76,3
582,
537 19
2,55
6 - - - - -(3
5,37
7)
(15,
327) - -
28,2
10(2
73)
27,9
373,
093
(16)
3,07
7 - - -(5
01)
(117
) - -
30,3
96
582,
824
124,
498
(12,
716)
111,
782
150,
408 - - - -
(43,
842)
(15,
327) -
(34,
824)
751,
021
(26,
732)
724,
289
100,
883
(19,
274)
81,6
09- -
(3)
(354
)(7
99) -
(21,
526)
783,
216
Notes 2011LL million
2010LL million
Off-statement of financial positionFinancing commitments
- Commitments issued to customers- Commitments issued to financial institutions- Undrawn commitments to lend
Guarantees commitments- Guarantees issued to financial institutions- Guarantees issued to customers- Guarantees received from financial institutions- Guarantees received from customers
Foreign currency operations- Foreign currencies to receive- Foreign currencies to deliver
Commitments on term financial instrumentsContingent liabilities from legal claimsFiduciary accountsAssets under managementImpaired loans fully provided for transferred to
off-statement of financial position
565656
5656
17
17
5152
50
20,435144,527791,307
40,476307,997100,650
2,876,424
283,155289,211
1,30644,145
205,329955,468
188,018
31,206120,258577,856
11,771163,439165,038
1,383,280
177,690179,889
4,42230,357
101,031709,188
193,128
26 27
Consolidated statementof cash flows For the year ended 31 December 2011
The attached notes 1 to 59 form part of these consolidated financial statements The attached notes 1 to 59 form part of these consolidated financial statements
Notes 2011LL million
2010LL million
OPERATING ACTIVITIESProfit before income tax Adjustments for:
Depreciation and amortizationImpairment loss on goodwillShare of profit from non-consolidated subsidiariesAmortization of the deferred costs resulting from the
acquisition of Inaash Bank SALProvision for impaired loans – customers Provision for impaired loans – related partiesLoans written offProvision for impaired debt instruments at amortized costProvision for impaired deposits with banks and financial
institutionsNet (write-back) provision for other impaired debit balancesRecoveries of credit lossesProvision for employees’ end of service benefitsGain from sale of property and equipmentGain from sale of non-current assets held-for-saleWrite-back of provisions for impairment of non-current
assets held-for-saleWrite-off of intangible assetsNet (write-back) provision for risks and chargesUnrealized (loss) gain on financial assets at fair value
through profit or lossUnrealized loss on derivative financial instrumentsWrite-off of property and equipment
Working capital changes:Cash and balances with the Central BanksDeposits with banks and financial institutionsAmounts due from Head Office, branches and affiliatesDue to Central BanksDue to banks and financial institutionsDue to Head Office, branches and affiliatesLoans and advances to customersLoans and advances to related partiesLoans to banks and financial institutionsOther assetsCustomers’ depositsRelated parties’ depositsOther liabilities
Cash from operationsEmployees’ end of service benefits paidTaxation paidProvision for risks and charges paidNet cash flows from operating activities
30 & 31
27
3321221010
10332111
9
9
41
120,826
6,792-
(299)
99036,4601,0239,1761,153
1,907(151)
(35,445)2,035(927)
(7,749)
(575)349
(4,691)
7,9393,857
71142,741
16,395(60,410)
7,164(46,689)69,164
(275,501)222,393(14,156)49,2004,904
817,44622,329
(53,590)901,390
(990)(34,319)
(329)865,752
148,242
5,9353,470(365)
26,35548,1326,839
770-
-173
(42,934)3,138
(30)(13,648)
(1,631)312
6,593
(474)8,837
-199,714
(57,503)1,724
92,747(249,991)(22,007)(4,184)
(64,086)10,771
-(616)
618,1715,503
10,906541,149
(1,098)(19,697)(1,553)
518,801
Notes 2011LL million
2010LL million
INVESTING ACTIVITIESAcquisition of assets and liabilities of the Lebanese Canadian
Bank SAL, net of cash acquiredPurchase of investment in non-consolidated subsidiaryOther transactions with owners and non-controlling interestNet purchase of financial assets held-for-tradingNet proceeds at maturity of financial investments – held-to-
maturityNet proceeds from sale (purchase) of financial assets at fair
value through profit or lossNet proceeds from sale of financial assets classified as loans
and receivables Net purchase of financial assets at fair value through other
comprehensive incomeNet purchase of debt instruments at amortized costNet purchase of financial investments – available-for-salePurchase of property and equipmentPurchase of intangible assetsProceeds from sale of property and equipmentAcquisition of non-controlling interest in Societe Generale de
Banque - JordanieAcquisition of non-controlling interest in Societe Generale –
Cyprus LtdProceeds from sale of non-current assets held for saleNet purchase of financial assets pledged as collateralNet cash flows used in investing activities
FINANCING ACTIVITIESIssuance of preferred sharesShare premium – preferred sharesDividend paid Net cash flows (used in) from financing activities
Effect of exchange rate changes and other adjustments
DECREASE/INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at 1 January
CASH AND CASH EQUIVALENTS AT 31 DECEMBER
3
3031
3
3
424247
48
1,386,748(30)
(799)-
-
2,679
-
(2,051)(2,172,963)
-(62,169)(1,953)2,127
(354)
-13,578
(10,509)(845,696)
--
(21,526)
(21,526)
(1,253)
(2,723)
1,517,566
1,514,843
---
(171)
187,882
(2,196)
2,827
--
(219,214)(22,621)
(1,488)947
(43,842)
(26,767)39,075
-(85,568)
2,124148,284(34,824)
115,584
(2,777)
546,040
971,526
1,517,566
28 29
Notes to the consolidatedfinancial statements31 December 2011
1 CORPORATE INFORMATION
Societe Generale de Banque au Liban SAL (the Bank) is a shareholding company registered in Beirut, Lebanon. It was registered in 1953 under no. 3696 at the Commercial Registry of Beirut and no. 19 on the list of banks published by the Bank of Lebanon. The headquarters of the Bank are located at Saloumeh Square, Sin El Fil, Lebanon.
The Bank, together with its subsidiaries (the Group), are mainly involved in insurance, banking and financial services activities (commercial, investment and private).
The Bank is 19% owned by Societe Generale SA (France), which is referred to in these financial statements as the “Head Office”.
On 7 September 2011, the Bank acquired the assets, liabilities, rights and commitments of the Lebanese Canadian Bank SAL in accordance with the sale and purchase agreement signed on 22 June 2011.
2 ACCOUNTING POLICIES
2.1 Basis of preparationThe consolidated financial statements are prepared under the historical cost basis except for the restatement of certain tangible real estate properties in Lebanon according to the provisions of law No 282 dated 30 December 1993, and for the measurement at fair value of the following:• Derivative financial instrument;• Equity instruments at fair value through profit or loss;• Debt instrument at fair value through profit or loss;• Financial assets at fair value through other comprehensive income;• Financial investments – available-for-sale (applicable prior to 1 January 2011); and• Financial assets held-for-trading (applicable prior to 1 January 2011). The consolidated financial statements are presented in Lebanese Lira (LL), and all values are rounded to the nearest million Lebanese Lira, except when otherwise indicated. Statement of complianceThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and the regulations of the Bank of Lebanon and the Banking Control Commission.
Presentation of financial statementsThe Group presents its consolidated statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the consolidated statement of financial position date (current) and more than 12 months after the consolidated statement of financial position date (non-current) is presented in note 55.
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expense is not offset in the consolidated income statement unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group. Basis of consolidation The consolidated financial statements comprise the financial statements of Societe Generale de Banque au Liban SAL and its subsidiaries as at 31 December 2011. The financial statements of the subsidiaries are prepared for the same reporting year as Societe Generale de Banque au Liban SAL, using consistent accounting policies.
Subsidiaries are fully consolidated from the date on which control is transferred to the Bank. Control is achieved where the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All intra-group transactions, income and expenses are eliminated in full.
Non-controlling interests represent the portion of profit or loss and net assets of subsidiaries not owned, directly or indirectly, by Societe Generale de Banque au Liban SAL.
Non-controlling interests are presented separately in the consolidated income statement and within equity in the consolidated statement of financial position, but separate from parent shareholders’ equity. Any losses applicable to the non-controlling interests are allocated against the interests of the non-controlling interest even if this results in a deficit balance. Acquisitions of non-controlling interests are accounted for using the parent entity extension method, whereby the difference between the consideration and the fair value of the share of the net assets acquired is recognized as equity.
The consolidated financial statements represent the financial statements of the Bank and the following subsidiaries:
Percentage of share capital owned by the Bank
NameCountry of
incorporation Activities 2011 2010
Societe Generale Bank - Cyprus Ltd
Societe Generale de Banque - Jordanie
Fidus SAL*
Sogelease Liban SAL
Sogecap Liban SAL
Societe Generale Jordanie Brokerage Ltd
Cyprus
Jordan
Lebanon
Lebanon
Lebanon
Jordan
Banking
Banking
Financial services
Leasing
Insurance
Brokerage
100.00%
85.40%
49.00%
99.75%
75.00%
100.00%
100.00%
85.00%
49.00%
99.75%
75.00%
100.00%
*Effective 1 January 2004, the Bank obtained control, by virtue of agreement with other investors, over Fidus SAL, and consequently,
the financial statements of Fidus SAL have been consolidated with those of the Bank.
30 31
2.2 Significant accounting judgements, estimates and assumptionsIn the process of applying the Group’s accounting policies, management has exercised judgment and estimates in determining the amounts recognized in the consolidated financial statements. The most significant uses of judgment and estimates are as follows:
Going concernThe Group’s management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on the going concern basis.
Fair value of financial instrumentsWhere the fair values of financial assets and financial liabilities recorded on the consolidated statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models is derived from observable market data where possible, but where observable market data is not available, judgment is required to establish fair values. The judgments include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset-backed securities. The valuation of financial instruments is described in more detail in note 54.
Impairment losses on loans and advancesThe Group reviews its individually significant loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the consolidated income statement. In particular, management judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.
Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, loan to collateral ratios etc.), and judgments to the effect of concentrations of risks and economic data (including levels of unemployment, real estate price indices, country risk and the performance of different individual groups).
The impairment loss on loans and advances is disclosed in more detail in note 10, note 21 and note 22.
Impairment of available-for-sale investments – Applicable before 1 January 2011The Group reviews its debt securities classified as available-for-sale investments at each statement of financial position date to assess whether they are impaired. This requires similar judgment as applied to the individual assessment of loans and advances.
The Group also records impairment charges on available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is “significant” or “prolonged” requires judgment. In making this judgment, the Group evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.
Deferred tax assetsDeferred tax assets are recognized in respect of tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits, together with future tax planning strategies.
Business model – Applicable from 1 January 2011 In making an assessment whether a business model’s objective is to hold assets in order to collect contractual cash flows, the Group considers at which level of its business activities such assessment should be made. Generally, a business model is a matter of fact which can be evidenced by the way
business is managed and the information provided to management. However, in some circumstances it may not be clear whether a particular activity involves one business model with some infrequent asset sales or whether the anticipated sales indicate that there are two different business models.
In determining whether its business model for managing financial assets is to hold assets in order to collect contractual cash flows, the Group considers:• management’s stated policies and objectives for the portfolio and the operation of those policies in practice; • how management evaluates the performance of the portfolio;• whether management’s strategy focuses on earning contractual interest revenues;• the degree of frequency of any expected asset sales;• the reason for any asset sales; and• whether assets that are sold are held for an extended period of time relative to their contractual maturity.
Contractual cash flows of financial assets – Applicable from 1 January 2011 The Group exercises judgment in determining whether the contractual terms of financial assets it originates or acquires give rise on specific dates to cash flows that are solely payments of principal and interest on the principal outstanding and so may qualify for amortized cost measurement. In making the assessment, the Group considers all contractual terms, including any prepayment terms or provisions to extend the maturity of the assets, terms that change the amount and timing of cash flows and whether the contractual terms contain leverage.
2.3 Changes in accounting policy and disclosures2.3.1 New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year, except for the early adoption of phase one of IFRS 9 “Financial Instruments – Classification and Measurement” and the adoption of the following standards, interpretations and improvements to standards effective as of 1 January 2011:• IAS 24 Related Party Disclosures (amendment) effective 1 January 2011;• IAS 32 Financial Instruments: Presentation (amendment) effective 1 February 2010;• IFRIC 14 Prepayments of a Minimum Funding Requirement (amendment) effective 1 January 2011;• IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments effective 1 July 2010; and• Improvements to IFRSs (May 2010) effective either 1 July 2010 or 1 January 2011.
The adoption of the standards or interpretations is described below:IAS 24 Related Party Transactions (Amendment)The IASB issued an amendment to IAS 24 that clarifies the definitions of a related party. The new definitions emphasize a symmetrical view of related party relationships and clarifies the circumstances in which persons and key management personnel affect the related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group.
IAS 32 Financial Instruments: Presentation (Amendment)The IASB issued an amendment that alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the Group.
IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment)The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognized as pension asset. The amendment has had no effect on the financial position or performance of the Group.
IFRIC 19 Extinguishing Financial Liabilities with Equity InstrumentsIn November 2009, the IASB issued IFRIC 19 Extinguishing Financial Liabilities with Equity. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably
32 33
measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. The adoption of this interpretation has had no effect on the financial statements of the Group.
Improvements to IFRSsIn May 2010, the IASB issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard.
The adoption of the following amendments resulted in changes to accounting policies and to the presentation and disclosures but did not impact the financial position or performance of the Group.
IFRS 7 Financial Instruments – DisclosureThe amendment was intended to simplify the disclosures provided, by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context.
Other amendments resulting from Improvements to IFRSs to the following standards and interpretations did not have any impact on the accounting policies, financial position or performance of the Group:• IAS 1 Presentation of Financial Statements (Presentation of an analysis of each component of other
comprehensive income)• IFRS 3 Business Combinations (Contingent consideration arising from business combination prior to
adoption of IFRS 3 (as revised in 2008))• IFRS 3 Business Combinations (Un-replaced and voluntarily replaced share-based payment awards)• IAS 27 Consolidated and Separate Financial Statements• IAS 34 Interim Financial Statements• IFRIC 13 Customer Loyalty Programmes (determining the fair value of award credits)
2.3.2 Early adoption of IFRS 9 In compliance with Circular 265 of the Banking Control Commission issued on 23 September 2010, the Group early adopted effective 1 January 2011, Phase I of IFRS 9 as issued in November 2009 and reissued in October 2010 and related consequential amendments to other International Financial Reporting Standards. Adoption of IFRS 9 is mandatory from 1 January 2015. The initial application date of this standard with respect to the Group is 1 January 2011 in accordance with transitional provisions of the standard.
Phase I of IFRS 9 addresses the classification and measurement of financial assets and financial liabilities. IAS 39 is still being followed for impairment of financial assets and hedge accounting, as these will be covered through phase 2 and phase 3 of IFRS 9, respectively, which have not yet been completed by the International Accounting Standards Board (IASB). As IASB completes these phases, it will delete the relevant portions of IAS 39 and create chapters in IFRS 9 that would replace the requirements in IAS 39.
IFRS 9 introduced new classification and measurement requirements for financial assets and financial liabilities that are within the scope of IAS 39. It also cancelled all previous categories under IAS 39, namely, financial investments – available-for-sale, financial assets classified as loans and receivables and financial investments – held-to-maturity (see Note 2.4, Financial Instruments – Classification and Measurement after 1 January 2011).
The Group did not restate comparative information as permitted by the transitional provisions of IFRS 9 and has recognized the impact of early adoption of IFRS 9 as at 1 January 2011, in the opening retained earnings and other components of equity as of that date.
2.3.3 Effect of the early adoption of IFRS 9 “Financial Instruments – Classification and Measurement”Management revised the Group’s financial assets and liabilities as at 1 January 2011 for reclassification and measurement purpose according to the requirement of IFRS 9 and its transitional provisions.
The following table summarizes the new classification and measurement adjustments to the Group’s financial assets and liabilities as at 1 January 2011, the Group’s date of initial application of IFRS 9, based on which the opening retained earnings and fair value reserve were restated as at the new classification date.
The
atta
ched
not
es 1
to 5
9 fo
rm p
art o
f the
se c
onso
lidat
ed fi
nanc
ial s
tate
men
ts
Orig
inal
cla
ssifi
catio
n un
der I
AS 3
9Ne
w c
lass
ifica
tion
unde
r IFR
S 9
Orig
inal
car
ryin
g am
ount
un
der I
AS 3
9 / 3
1 De
cem
ber 2
010
LL m
illio
n
New
car
ryin
g am
ount
und
er
IFRS
9 /
1 Ja
nuar
y 20
11LL
mill
ion
Fair
valu
e re
serv
eLL
mill
ion
Reta
ined
ear
ning
sLL
mill
ion
Fina
ncia
l ass
ets
Cas
h an
d ba
lanc
es w
ith th
e C
entr
al B
anks
Dep
osits
with
ban
ks a
nd fi
nanc
ial i
nstit
utio
nsA
mou
nts
due
from
Hea
d O
ffice
, bra
nche
s an
d af
filia
tes
Der
ivat
ive
finan
cial
inst
rum
ents
Loan
s an
d ad
vanc
es to
cus
tom
ers,
net
Loan
s an
d ad
vanc
es to
rela
ted
part
ies,
net
Leba
nese
Tre
asur
y bi
lls –
den
omin
ated
in L
LS
hare
sS
hare
sD
ebt s
ecur
ities
issu
ed b
y ba
nks
Deb
t sec
uriti
es is
sued
by
bank
sD
ebt s
ecur
ities
issu
ed b
y ba
nks
Cor
pora
te b
onds
Leba
nese
Tre
asur
y bi
lls –
Eur
obon
dsLe
bane
se T
reas
ury
bills
– E
urob
onds
Leba
nese
Tre
asur
y bi
lls –
Eur
obon
dsC
ertifi
cate
s of
dep
osit
– de
nom
inat
ed in
LL
Cer
tifica
tes
of d
epos
it –
Eur
oCD
sLe
bane
se T
reas
ury
bills
– d
enom
inat
ed in
LL
Leba
nese
Tre
asur
y bi
lls –
den
omin
ated
in L
L pl
edge
d as
col
late
ral
Leba
nese
Tre
asur
y bi
lls –
Eur
obon
dsC
orpo
rate
bon
dsO
ther
gov
ernm
enta
l bon
dsS
hare
sS
hare
sFu
nds
Fina
ncia
l lia
bilit
ies
Due
to C
entr
al B
anks
Due
to b
anks
and
fina
ncia
l ins
titut
ions
Am
ount
s du
e to
Hea
d O
ffice
, bra
nche
s an
d af
filia
tes
Der
ivat
ive
finan
cial
inst
rum
ents
Cus
tom
ers’
dep
osits
R
elat
ed p
artie
s’ d
epos
its
Loan
s an
d re
ceiv
able
Loan
s an
d re
ceiv
able
Loan
s an
d re
ceiv
able
Hel
d fo
r tr
adin
gLo
ans
and
rece
ivab
leLo
ans
and
rece
ivab
leA
vaila
ble
for
sale
Ava
ilabl
e fo
r sa
leA
vaila
ble
for
sale
Ava
ilabl
e fo
r sa
leA
vaila
ble
for
sale
Ava
ilabl
e fo
r sa
leA
vaila
ble
for
sale
Ava
ilabl
e fo
r sa
leA
vaila
ble
for
sale
Loan
s an
d re
ceiv
able
Loan
s an
d re
ceiv
able
Loan
s an
d re
ceiv
able
Hel
d-to
-mat
urity
Hel
d-to
-mat
urity
H
eld-
to-m
atur
ityH
eld-
to-m
atur
ityH
eld-
to-m
atur
ityH
eld-
for-
trad
ing
Fair
valu
e th
roug
h pr
ofit o
r lo
ssFa
ir va
lue
thro
ugh
profi
t or
loss
Loan
s an
d re
ceiv
able
Loan
s an
d re
ceiv
able
Loan
s an
d re
ceiv
able
Hel
d fo
r tr
adin
gLo
ans
and
rece
ivab
leLo
ans
and
rece
ivab
le
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Fair
valu
e th
roug
h pr
ofit o
r lo
ssA
mor
tized
cos
tA
mor
tized
cos
tA
mor
tized
cos
tFa
ir va
lue
thro
ugh
othe
r co
mpr
ehen
sive
inco
me
Fair
valu
e th
roug
h pr
ofit o
r lo
ssA
mor
tized
cos
tFa
ir va
lue
thro
ugh
othe
r co
mpr
ehen
sive
inco
me
Fair
valu
e th
roug
h pr
ofit o
r lo
ssA
mor
tized
cos
tA
mor
tized
cos
tFa
ir va
lue
thro
ugh
profi
t or
loss
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Fair
valu
e th
roug
h pr
ofit o
r lo
ssFa
ir va
lue
thro
ugh
profi
t or
loss
Fair
valu
e th
roug
h pr
ofit o
r lo
ss
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Am
ortiz
ed c
ost
Fair
valu
e th
roug
h pr
ofit o
r lo
ssA
mor
tized
cos
tA
mor
tized
cos
t
1,08
9,54
913
4,60
01,
151,
364
559
2,07
2,30
645
,601
661,
618
15,6
112,
758
10,5
7111
3,23
626
,712
15,2
0638
2,77
69,
421
104,
203
664,
202
508,
178
46,8
488,
683
27,2
1818
,565
211,
176
204
7,49
42,
143
55,1
1912
1,50
331
3,38
32,
758
6,14
6,52
013
,311
1,08
9,54
913
4,60
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151,
364
559
2,07
2,30
645
,601
647,
246
15,6
112,
758
10,6
8411
3,23
626
,712
14,7
8837
1,07
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421
103,
850
664,
202
508,
178
46,8
488,
683
27,2
1818
,565
211,
176
204
7,49
42,
143
55,1
1912
1,50
331
3,38
32,
758
6,14
6,52
013
,311
- - - - - -(1
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34 35
2.4 Summary of significant accounting policies(1) Foreign currency translation
The consolidated financial statements are presented in Lebanese Lira. Each entity in the Group determines its own fuctional currency and items included in the financial statements of each entity are measured using that functional currency. (i) Transactions and balances Transactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the statement of financial position date. All differences arising on non-trading activities are taken to the consolidated income statement, with the exception of differences on foreign currency borrowings that provide an effective hedge against a net investment in a foreign entity. These differences are taken directly to equity until the disposal of the net investment, at which time they are recognized in the consolidated income statement. Tax charges and credits attributable to exchange differences on those borrowings are also recorded in equity.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing rate.
(ii) Group companiesAt the reporting date, the assets and liabilities of subsidiaries are translated into the Bank’s presentation currency at the rate of exchange as at the statement of financial position date, and their income statements are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the consolidated income statement in “Other operating expenses” or “Other operating income”.
(2) Financial instruments – classification and measurement(i) Date of recognitionAll financial assets and liabilities are initially recognized on the trade date, i.e. the date that the Group becomes a party to the contractual provisions of the instrument. This includes purchases or sales of financial assets that require delivery of assets within the timeframe generally established by regulation or convention in the market place.
(ii) Classification and measurement of financial investmentsA. Classificationandmeasurementoffinancialinstruments–from1January2011
a. Financial assetsThe classification of financial assets depends on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Assets are initially measured at fair value plus, in the case of a financial asset not at fair value through profit or loss, particular transaction costs. Assets are subsequently measured at amortized cost or at fair value. An entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. An entity is required to disclose such financial assets separately from those mandatorily measured at fair value.
Debt instruments at amortized cost Debt instruments that meet both of the following conditions are subsequently measured at amortized cost less any impairment loss (except for debt instruments that are designated at fair value through profit or loss upon initial recognition):• The asset is held within a business model whose objective is to hold assets in order to collect contrac-
tual cash flows; and• The contractual terms of the instrument give rise on specified dates to cash flows that are solely pay-
ments of principal and interest on the principal amount outstanding.
These financial assets are initially recognized at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributed to the acquisition are also included in the cost of investment. After initial measurement, these financial assets are measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount of premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included in “Interest and similar income” in the consolidated income statement. The losses arising from impairment are recognized in the consolidated income statement in “Impairment losses on other financial assets”.
Although the objective of an entity’s business model may be to hold financial assets in order to collect contractual cash flows, the entity need not hold all of those instruments until maturity. Thus an entity’s business model can be to hold financial assets to collect contractual cash flows even when sales of financial assets occur. However, if more than an infrequent number of sales are made out of a portfolio, the entity needs to assess whether and how such sales are consistent with an objective of collecting contractual cash flows. If the objective of the entity’s business model for managing those financial assets changes, the entity is required to reclassify financial assets.
Gains and losses arising from the derecognition of financial assets measured at amortized cost are reflected under “net (loss) gain from sale of debt instruments at amortized cost” in the consolidated income statement. Debt instruments and other financial assets at fair value through profit or loss Included in this category are those debt instruments that do not meet the conditions in “Debt instruments at amortized cost” above, and debt instruments designated at fair value through profit or loss upon initial recognition. These financial assets are recorded in the consolidated statement of financial position at fair value. Changes in fair value and interest income are recorded under “net (loss) gain on financial assets designated at fair value through profit or loss” in the consolidated income statement showing separately, those related to financial assets designated at fair value upon initial recognition from those mandatory measured at fair value. Gains and losses arising from the derecognition of debt instruments and other financial assets at fair value through profit or loss are also reflected under “net (loss) gain on financial assets designated at fair value through profit or loss” in the consolidated income statement showing separately, those related to financial assets designated at fair value upon initial recognition from those mandatory measured at fair value.
Equity instruments at fair value through profit or loss Investments in equity instruments are classified at fair value through profit or loss, unless the Group designates at initial recognition an investment that is not held for trading as at fair value through other comprehensive income.
These financial assets are recorded in the consolidated statement of financial position at fair value. Changes in fair value and dividend income are recorded under “net (loss) gain on financial assets at fair value through profit or loss” in the consolidated income statement. Gains and losses arising from the derecognition of equity instruments at fair value through profit or loss are also reflected under “net (loss) gain on financial assets designated at fair value through profit or loss” in the consolidated income statement. 36 37
Equity instruments at fair value through other comprehensive income Investments in equity instruments designated at initial recognition as not held for trading are classified at fair value through other comprehensive income.
These financial assets are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated under equity. The cumulative gain or loss will not be reclassified to the consolidated income statement on disposal of the investments.
Dividends on these investments are recognized under “net gain on financial assets” in the consolidated income statement when the entity’s right to receive payment of dividend is established in accordance with IAS 18: “Revenue”, unless the dividends clearly represent a recovery of part of the cost of the investment.
Due from banks and financial institutions, loans to banks and financial institutions and loans and advances to customers and related parties – at amortized costAfter initial measurement, amounts “Due from banks and financial institutions”, “Loans to banks and financial institutions” “Loans and advances to customers and loans and advances to related parties” are subsequently measured at amortized cost using the effective interest rate method (EIR), less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in “Interest and similar income” in the consolidated income statement. The losses arising from impairment are recognized in the consolidated income statement in “Credit loss expense”.
b. Financial liabilitiesThe Group classifies all financial liabilities as subsequently measured at amortized cost using the effective interest rate method, except for: • financial liabilities at fair value through profit or loss (including derivatives); • financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or
when the continuing involvement approach applies;• financial guarantee contracts and commitments to provide a loan at a below-market interest rate which
after initial recognition are subsequently measured at the higher of the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18 Revenue.
An entity may, at initial recognition, irrevocably designate a financial liability as measured at fair value through profit or loss when:• doing so results in more relevant information, because it either eliminates or significantly reduces a
measurement or recognition inconsistency (sometimes referred to as “an accounting mismatch”) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases; or
• a group of financial liabilities or financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity’s key manage-ment personnel.
The amount of changes in fair value of a financial liability designated at fair value through profit or loss at initial recognition that is attributable to changes in credit risk of that liability is recognized in other comprehensive income, unless such recognition would create an accounting mismatch in the consolidated income statement. Changes in fair value attributable to changes in credit risk are not reclassified to consolidated income statement. Under IAS 39, the entire amount of the change in fair value of the financial liability designated at fair value through profit or loss was recognized in the consolidated income statement.
As at 31 December 2011, there are no financial liabilities designated at fair value through profit or loss by the Group. Financial liabilities consist of due to banks and financial institutions and customers’ and related parties’ deposits and are measured at amortized cost.
Due to banks and financial institutions, customers’ deposits and related parties’ depositsAfter initial measurement, due to banks and financial institutions, customers’ and related parties’ deposits are measured at amortized cost less amounts repaid using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the effective interest rate method.
c. Derivatives recorded at fair value through profit or lossThe Group uses derivatives such as forward foreign exchange contracts and interest rate swaps.
Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are included in “net (loss) gain on financial assets at fair value through profit or loss” in the consolidated income statement.
An embedded derivative shall be separated from the host and accounted for as a derivative if, and only if:(a) the hybrid contract contains a host that is not an asset within the scope of IFRS 9;(b) the economic characteristics and risks of the embedded derivative are not closely related to the eco-
nomic characteristics and risks of the host;(c) a separate instrument with the same terms as the embedded derivative would meet the definition of a
derivative; and(d) the hybrid contract is not measured at fair value with changes in fair value recognized in profit or loss.
B. Classificationandmeasurementoffinancialinvestments–Before1January2011The classification of financial instruments at initial recognition depends on the purpose and the management’s intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs except, in the case of financial instruments classified at fair value through profit or loss.
a. Financial assetsFinancial assets held-for-tradingFinancial assets or financial liabilities held-for-trading are recorded in the consolidated statement of financial position at fair value. Changes in fair value are recognized in “Net trading income”. Interest and dividend income is recorded in “Net trading income” according to the terms of the contract, or when the right to the payment has been established.
Included in this classification are equities which have been acquired principally for the purpose of selling or repurchasing in the near term.
Held-to-maturity financial investmentsHeld-to-maturity financial investments are non-derivative financial assets with fixed or determinable payments and fixed maturities, which the Group has the intention and ability to hold to maturity. After initial measurement, held-to-maturity financial investments are subsequently measured at amortized cost using the effective interest rate (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included in “interest and similar income” in the consolidated income statement. The losses arising from impairment of such investments are recognized in the consolidated income statement under “impairment losses on financial investments”.
38 39
If the Group were to sell or reclassify more than an insignificant amount of held-to-maturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as available-for-sale. Furthermore, the Group would be prohibited from classifying any financial asset as held-to-maturity during the following two years.
Financial assets designated at fair value through profit or loss Financial assets classified in this category are those that have been designated by management on initial recognition. Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met, and designation is determined on an instrument by instrument basis:• The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise
from measuring the assets or liabilities or recognizing gains or losses on them on a different basis;• The assets are part of a group of financial assets which are managed and their performance evaluated
on a fair value basis, in accordance with a documented risk management or investment strategy;• The financial instrument contains one or more embedded derivatives which significantly modify the cash
flows that would be otherwise required by the contract.
Financial assets at fair value through profit or loss are recorded in the consolidated statement of financial position at fair value. Changes in fair value are recorded in “Net gain or loss on financial assets at fair value through profit or loss”. Interest earned is accrued in “Interest income” using the effective interest rate, while dividend income is recorded in “Other operating income” when the right to the payment has been established.
Included in this classification are listed equities and bonds held to cover unit-linked liabilities.
Available-for-sale financial investmentsAvailable-for-sale investments include equity and debt securities. Equity investments classified as available-for-sale are those which are neither classified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.
After initial measurement, available-for-sale financial investments are subsequently measured at fair value. Unrealized gains and losses are recognized directly in equity (other comprehensive income) in the “fair value reserve”. When the investment is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the consolidated income statement. Where the Group holds more than one investment in the same security they are deemed to be disposed of on a first-in first-out basis. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the effective interest rate method. Dividends earned whilst holding available-for-sale financial investments are recognized in the consolidated income statement as “net gain on financial investments” when the right of the payment has been established. The losses arising from impairment of such investments are recognized in the consolidated income statement in “impairment losses on financial investments” and removed from the “available-for-sale reserve”.
Financial assets classified as loans and receivablesLoans and receivables include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These financial assets are initially recognized at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributed to the acquisition are also included in the cost of investment.
After initial measurement, loans and receivables are measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included in “Interest and similar income” in the consolidated income statement. The
losses arising from impairment are recognized in the consolidated income statement in “Impairment losses on financial instruments”. Gains or losses are recognized in the consolidated income statement when the investments are derecognized or impaired.
Due from banks and financial institutions and loans and advances to customers and related parties“Due from banks and financial institutions” and “Loans and advances to customers and related parties”, include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:• Those that the Group intends to sell immediately or in the near term and those that the Group upon initial
recognition designates as at fair value through profit or loss;• Those that the Group, upon initial recognition, designates as available-for-sale;• Those for which the Group may not recover substantially all of its initial investment, other than because
of credit deterioration.
After initial measurement, “Due from banks and financial institutions” and “Loans and advances to customers and related parties” are subsequently measured at amortized cost using the effective interest rate, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included in “Interest and similar income” in the consolidated income statement. The losses arising from impairment are recognized in the consolidated income statement in “Credit loss expense”.
b. Financial liabilities recorded at fair value through profit or lossThere were no changes in the classification and measurement of financial liabilities upon adoption of IFRS 9. IAS 39 requirements in respect of financial liabilities have been carried forward into IFRS 9 except for the fact that under IAS 39, the entire amount of the change in fair value of the financial liability designated at fair value through profit or loss was recognized in the consolidated income statement.
c. Derivatives The Group uses derivatives such as forward foreign exchange contracts and interest rate swaps. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are recognized in “net trading income”. An embedded derivative shall be separated from the host and accounted for as a derivative if, and only if:(a) the economic characteristics and risks of the embedded derivative are not closely related to the eco-
nomic characteristics and risks of the host;(b) a separate instrument with the same terms as the embedded derivative would meet the definition of a
derivative; and(c) the hybrid contract is not measured at fair value with changes in fair value recognised in profit or loss.
(iii) ‘Day 1’ profit or lossWhen the transaction price differs from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets, the Group immediately recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in “Net trading income”. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated income statement when the inputs become observable, or when the instrument is derecognized.
(iv) Reclassification of financial assetsFrom1January2011The Group reclassifies financial assets if the objective of the business model for managing those financial assets changes. Such changes are expected to be very infrequent. Such changes are determined by
40 41
the Group’s senior management as a result of external or internal changes when significant to the Group’s operations and demonstrable to external parties. If financial assets are reclassified, the reclassification is applied prospectively from the reclassification date, which is the first day of the first reporting period following the change in business model that results in the reclassification of financial assets. Any previously recognized gains, losses or interest are not restated. If a financial asset is reclassified so that it is measured at fair value, its fair value is determined at the reclassification date. Any gain or loss arising from a difference between the previous carrying amount and fair value is recognized in profit or loss. If a financial asset is reclassified so that it is measured at amortized cost, its fair value at the reclassification date becomes its new carrying amount.
Before1January2011Effective from 1 July 2008, the Group was permitted to reclassify, in certain circumstances, non-derivative financial assets out of the “Held-for-trading” category and into the “Available-for-sale”, “Loans and receivables”, or “Held-to maturity” categories. From this date it was also permitted to reclassify, in certain circumstances, financial instruments out of the ‘Available-for-sale’ category and into the “Loans and receivables” category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortized cost.
For a financial asset reclassified out of the “Available-for-sale” category, any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired then the amount recorded in equity is recycled to the consolidated income statement.
The Group may reclassify a non-derivative trading asset out of the “Held-for-trading” category and into the “Loans and receivables” category if it meets the definition of loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the effective interest rate from the date of the change in estimate.
Reclassification is at the election of management, and is determined on an instrument by instrument basis.
(3) Derecognition of financial assets and financial liabilities (i) Financial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:• the rights to receive cash flows from the asset have expired;• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation
to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ ar-rangement; and either:(a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
(ii) Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in the consolidated income statement.
(4) Repurchase and reverse repurchase agreementsSecurities sold under agreements to repurchase at a specified future date are not derecognized from the consolidated statement of financial position as the Group retains substantially all the risks and rewards of ownership. The corresponding cash received is recognized in the consolidated statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability within “Due to Banks and financial institutions and repurchase agreements”, reflecting the transaction’s economic substance as a loan to the Group. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of agreement using the effective interest rate. When the counterparty has the right to sell or repledge the securities, the Group reclassifies those securities in its consolidated statement of financial position to “Financial assets at fair value through profit or loss pledged as collateral”.
Conversely, securities purchased under agreements to resell at a specified future date are not recognized in the consolidated statement of financial position. The consideration paid, including accrued interest, is recorded in the consolidated statement of financial position within “Due from Banks and financial institutions and reverse repurchase agreements”, reflecting the transaction’s economic substance as a loan by the Group. The difference between the purchase and resale prices is recorded in “Net interest income” and is accrued over the life of the agreement using the effective interest rate.
If securities purchased under agreement to resell are subsequently sold to third parties, the obligation to return the securities is recorded as a short sale within “Financial liabilities” and measured at fair value with any gains or losses included in “net gain from financial instruments at fair value through profit or loss” in the consolidated income statement.
(5) Securities lending and borrowingSecurities lending and borrowing transactions are usually collateralized by securities or cash. The transfer of the securities to counterparties is only reflected on the consolidated statement of financial position if the risks and rewards of ownership are also transferred. Cash advanced or received as collateral is recorded as an asset or liability.
Securities borrowed are not recognized on the consolidated statement of financial position, unless they are then sold to third parties, in which case the obligation to return the securities is recorded as a trading liability and measured at fair value with any gains or losses included in “Net trading income”.
(6) Determination of fair valueThe fair value for financial instruments traded in active markets at the statement of financial position date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.
42 43
For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, option pricing models, credit models and other relevant valuation models.
Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Group’s best estimate of the most appropriate model assumptions.
An analysis of fair values of financial instruments and further details as to how they are measured are provided in note 54.
(7) Impairment of financial assetsThe Group assesses at each statement of financial position date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganization, default or delinquency in interest or principal payments and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
(i) Financial assets carried at amortized costFor financial assets carried at amortized cost (such as deposits with bank and financial institutions, loans to banks and financial institutions, amounts due from Head Office, branches and affiliates, debt instruments at amortized cost, loans and advances to customers, loans and advances to related parties (in addition to held to maturity financial instruments and financial assets classified as loans and receivables, applicable prior to 1 January 2011), the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets 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.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). 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 consolidated income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of “interest and similar income”.
Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the ‘Credit loss expense’.
The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.
Prior to 1 January 2011, if the Group has reclassified trading assets to loans and advances, the discount rate for measuring any impairment loss is the new effective interest rate determined at the reclassification date. 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 purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Group’s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors.
Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experienced.
An analysis of impairment allowance on loans and advances by class is disclosed in note 21 and note 22.
(ii) Available-for-sale financial investments – Before 1 January 2011For available-for-sale financial investments, the Group assesses at each statement of financial position date whether there is objective evidence that an investment is impaired.
In the case of debt instruments classified as available-for-sale, the Group assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement. Future interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of “Interest and similar income”. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognized in the consolidated income statement, the impairment loss is reversed through the consolidated income statement.
In the case of equity investments classified as available-for-sale, objective evidence would also include a “significant” or “prolonged” decline in the fair value of the investment below its cost. The Group treats “significant” generally as 20% and “prolonged” generally as greater than six months . Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement – is removed from equity and recognized in the consolidated income statement. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in the fair value after impairment are recognized directly in equity. (iii) Renegotiated loansWhere possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms
44 45
have been renegotiated any impairment is measured using the original effective interest rate as calculated before the modification of terms and the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate.
(iv) Collateral valuationThe Group seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit / guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the Group’s quarterly reporting schedule, however, some collateral, for example, cash or securities relating to marging requirements, is valued daily.
To the extent possible, the Group uses active market data for valuing financial assets held as collateral. Other financial assets which do not have readily determinable market value are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by third parties such as mortgage brokers, housing price indices, audited financial statements, and other independent sources.
(v) Collateral repossessedThe Group’s policy is to determine whether a repossessed asset is best used for its internal operations or should be sold. Assets determined to be useful for the internal operations are transferred to their relevant asset category at the lower of their repossessed value or the carrying value of the original secured asset. Assets that are determined better to be sold, are immediately transferred to assets held for sale at their fair value at the repossessed date in line with the Group’s policy.
(8) Hedge accountingThe Group makes use of derivative instruments to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from highly probable forcast transactions and firm commitments. In order to manage particular risks, the Group applies hedge accounting for transactions which meet the specified criteria.
At inception of the hedge relationship, the Group formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the risk management objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship at inception and on an ongoing basis.
At each hedge effectiveness assessment date, a hedge relationship must be expected to be highly effective on a prospective basis and demonstrate that it was effective (retrospective effectiveness) for the designated period in order to qualify for hedge accounting. A formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item. A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated are expected to offset in a range of 80% to 125% and were expected to achieve such offset in future periods. For situations where that hedged item is a forecast transaction, the Group assesses whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect the consolidated income statement.
(i) Fair value hedgesFor designated and qualifying fair value hedges, the cumulative change in the fair value of a hedging derivative is recognized in the consolidated income statement. Meanwhile, the change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item in the consolidated statement of financial position and is also recognized in “Net gain from financial instruments at fair value through profit or loss” in the consolidated income statement (or “net trading income” applicable prior to 1 January 2011).
If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is discontinued prospectively. For hedged items recorded at amortized cost, the difference between the carrying value of the hedged item on termination and the face value is amortized over the remaining term of the original hedge using the recalculated effective interest rate. If the hedged item is derecognized, the unamortized fair value adjustment is recognized immediately in the consolidated income statement.
(ii) Cash flow hedgesFor designated and qualifying cash flow hedges, the effective portion of the cumulative gain or loss on the hedging instrument is initially recognized directly in equity in the “Cash flow hedge reserve”. The ineffective portion of the gain or loss on the hedging instrument is recognized immediately in the consolidated income statement.
When the hedged cash flow affects the consolidated income statement, the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the consolidated income statement. When the forecast transaction subsequently results in the recognition of a non-financial assets or a non-financial liability, the gains and losses previously recognized in the other comprehensive income are removed from the reserve and included in the initial cost of the asset or liability.
When a hedging instrument expires, or is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income and is recognized when the hedged forecast transaction is ultimately recognized in the consolidated income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the consolidated income statement.
(9) Offsetting financial instrumentsFinancial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements. Therefore, the related assets and liabilities are presented gross in the consolidated statement of financial position.
(10) LeasingThe determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
Group as a lesseeLeases which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognized as an expense in the consolidated income statement on a straight line basis over the lease term. Contingent rents payable are recognized as an expense in the period in which they are incurred.
Group as a lessorLeases where the Group does not transfer substantially all the risk and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
(11) Recognition of income and expenseRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized.
46 47
(i) Interest and similar income and expenses For all financial instruments measured at amortized cost and (interest bearing financial assets classified as available-for-sale: applicable prior to 1 January 2011), interest income or expense is recorded using the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses.
The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and the change in the carrying amount is recorded as “interest and similar income” for financial assets and “interest and similar expenses” for financial liabilities.
Before 1 January 2011, for a reclassified financial asset (see note 2.4 (2) (iv)) for which the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the effective interest rate from the date of the change in estimate. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
(ii) Fee and commission incomeThe Group earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:
FeeincomeearnedfromservicesthatareprovidedoveracertainperiodoftimeFees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.
Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognized as an adjustment to the effective interest rate on the loan. When it is unlikely that a loan be drawn down, the loan commitment fees are recognized over the commitment period on a straight line basis.
FeeincomefromprovidingtransactionservicesFees 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 businesses, are recognized on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognized after fulfilling the corresponding criteria.
(iii) Dividend incomeDividend income is recognized when the Group’s right to receive the payment is established.
(iv) Net trading income – Before 1 January 2011Results arising from trading activities include all gains and losses from changes in fair value and related interest income or expense and dividends for financial assets “Held-for-trading”. This includes any ineffectiveness recorded in hedging transactions.
(v) Net gain on financial instruments at fair value through profit or loss – From 1 January 2011Results arising from financial instruments at fair value through profit or loss, include all gains and losses from changes in fair value and related income or expense and dividends for financial assets at fair value through profit or loss. This includes any ineffectiveness recorded in hedging transactions.
(vi) Net gain on financial assets – From 1 January 2011 Net gain on financial assets including gains and losses from sale of financial instruments classified other than fair value through profit or loss and other than at amortized cost, and dividend income on these financial instruments. (vii) Net gain on financial assets – Before 1 January 2011 Net gain on financial assets includes gain and losses from sale of financial instruments classified other than fair value through profit or loss, and dividend income on these financial instruments.
(12) Cash and cash equivalentsCash and cash equivalents as referred to in the consolidated statement of cash flows comprise cash and balances with the Central Banks, Treasury bills, certificates of deposit, other debt securities, deposits with banks and financial institutions, amounts due from Head Office, branches and affiliates, due to Central Banks, due to banks and financial institutions and amounts due to Head Office, branches and affiliates with an original maturity of three months or less.
(13) Investments in non-consolidated subsidiariesThe Group’s investment in its non-consolidated subsidiaries is accounted for using the equity method. Subsidiaries are entities which the Group controls, normally where it holds more than 50% of the voting power.
Under the equity method, the investments in the non-consolidated subsidiaries are carried on the consolidated statement of financial position at cost plus post acquisition changes in the Group’s share of net assets of the non-consolidated subsidiaries. Goodwill relating to the non-consolidated subsidiaries is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.
The consolidated income statement reflects the Group’s share of the results of operations of the non-consolidated. When there has been a change recognized directly in the equity of the non-controlling subsidiaries, the Group recognizes its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the non-consolidated subsidiaries are eliminated to the extent of the interest in the non-consolidated subsidiaries.
The financial statements of the non-consolidated subsidiaries are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognize an additional impairment loss on its investment in its non-controlling interest. The Group determines at each reporting date whether there is any objective evidence that the investment in the non-consolidated subsidiaries is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the non-consolidated subsidiary and its carrying value and recognizes the amount in the “share of profit of non-consolidated subsidiaries” in the consolidated income statement.
(14) Property and equipment Property and equipment are initially recorded at cost less accumulated depreciation and any impairment in value. Buildings acquired prior to 1 January 1994 were restated for the changes in the general purchasing power of Lebanese Lira after the approval of the Bank of Lebanon. Net surplus arising on restatement is credited to “Revaluation reserve of property”. Changes in the expected useful life are accounted for by changing the depreciation period or method, as appropriate, and treated as changes in accounting estimates.
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Depreciation is calculated using the straight line method to write-down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated. The estimated useful lives are as follows:
• Buildings• Furniture and fixtures• Installations• Vehicles
50 years5 to 12.5 years
16.67 years10 years
Property and equipment is derecognized on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in “Net profit from sale or disposal of other assets” in the consolidated income statement in the year the asset is derecognized.
(15) Business combinations and goodwillBusiness combinations are accounted for using the purchase method of accounting. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities but excluding future restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognized directly in the consolidated income statement in the year of acquisition.
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash–generating units (CGUs) or group of CGUs, which are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment in accordance with IFRS 8 Operating Segments.
Where goodwill forms part of a CGU (or group of CGUs) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained.
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and goodwill is recognized in the consolidated income statement.
(16) Intangible assetsThe Group’s intangible assets include the value of computer software and key money. An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated income statement in the expense category consistent with the function of the intangible asset.
Amortization is calculated using the straight line method to write down the cost of intangible assets to their residual values over 5 years.
(17) Non-current assets held for saleNon-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition, management has committed to the sale, and the sale is expected to have been completed within one year from the date of classification.
(18) Impairment of non-financial assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated income statement.
Impairment losses relating to goodwill cannot be reversed in the future periods.
(19) Customers’ deposits All customer deposits are carried at the amortized cost, less amounts repaid and adjustments for effective hedges.
(20) Financial guaranteesIn the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognized in the consolidated financial statements (within “Other liabilities”) at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognized less, when appropriate, cumulative amortization recognized in the consolidated income statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.
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Any increase in the liability relating to financial guarantees is recorded in the consolidated income statement in “Credit loss expense”. The premium received is recognized in the consolidated income statement in “Net fees and commission income” on a straight line basis over the life of the guarantee.
(21) Tax Taxes are provided for in accordance with regulations and laws that are effective in the countries where the Group operates. (i) Current tax Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax law used to compute the amount are those that are enacted or substantively enacted by the statement of financial positon date. The Bank’s profits from operation in Lebanon are subject to a tax rate of 15% after deducting the 5% tax on interest received according to Law no. 497/2003 dated 30 January 2003. (ii) Deferred taxDeferred tax is provided on temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
• In respect of taxable temporary differences associated with investments in subsidiaries, where the tim-ing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except:
• Where the deferred tax asset relating to the deductible temporary difference arises from the initial rec-ognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
• In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each statement of financial position date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.
Current tax and deferred tax relating to items recognized directly in equity are also recognized in equity and not in the consolidated income statement.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to net off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.
(22) Provision Provision are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
(23) Employees’ end of service benefitsThe Bank’s contributions for end of service benefits paid and due to the National Social Security Fund (NSSF) are calculated on the basis of 8.5% of the staff salaries. The final end of service benefits due to employees by the NSSF (a defined contribution plan) after completing 20 years of service, at the retirement age, or if the employee permanently leaves employment, are calculated based on the last month salary multiplied by the number of years of service as stipulated in the National Social Security Law. The Group is liable to pay to the NSSF the difference between the contributions paid and the final end of service benefits due to employees by the NSSF. End-of-service benefits for employees at foreign subsidiaries are accrued for in accordance with the laws and regulations of the respective countries in which the subsidiaries are located.
Contributions are recorded as an expense under “personnel expenses”.
(24) Fiduciary assetsThe Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity are recorded off-statement of financial position, as they are not the assets of the Group.
(25) Dividends on common and preferred sharesDividends on common and preferred shares are recognized as a liability and deducted from equity when they are approved by the Group’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Group.
Dividends for the year that are approved after the statement of financial position date are disclosed as an event after the statement of financial position date.
(26) Customer’s acceptancesCustomer’s acceptances represent term documentary credits which the Group has committed to settle on behalf of its client’s against commitments by those clients (acceptances). The commitments resulting from these acceptances are stated as a liability in the consolidated statement of financial position for the same amount.
(27) Equity reservesThe reserves recorded in equity (other comprehensive income) on the Group’s consolidated statement of financial position include:
“Change in fair value of financial instruments at fair value through other comprehensive income” reserve which comprises changes in fair value of equity instruments at fair value through other comprehensive income (Before 1 January 2011: available-for-sale financial instruments).
“Distributable and non-distributable reserve” which include transfers from retained earnings in accordance with regulatory requirements.
“Revaluation reserve of property” which comprises the revaluation surplus relating to property (note 45).52 53
2.5 Standards issued but not yet effectiveStandards issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.
IAS 1 Presentation of Financial Statements – Presentation of Items of Other Comprehensive Income (OCI)The amendments to IAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Group’s financial position or performance. The amendment becomes effective for annual periods beginning on or after 1 July 2012.
IAS 12 Income Taxes – Recovery of Underlying AssetsThe amendments clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax in investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Further, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. The amendment becomes effective for annual periods beginning on or after 1 January 2012. The Group does not hold any investment property and therefore does not expect this change to have any impact on its financial position or performance.
IAS 19 Employee Benefits (Amendment)The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The amendment becomes effective for annual periods beginning on or after 1 January 2013. The Group does not expect that the amendment to have any impact on its financial position or performance.
IAS 27 Separate Financial Statements (as revised in 2011)As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013 and the Group does not expect the amendment to have any impact on its financial position or performance.
IAS 28 Investments in Associates and Joint Ventures (as revised in 2011)As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after 1 January 2013 and is not expected to have any impact ob the Group’s financial position or performance.
IFRS 7 Financial Instruments: Disclosures — Enhanced Derecognition Disclosure RequirementsThe amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Group’s separate financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets. The amendment becomes effective for annual periods beginning on or after 1 July 2011. The amendment affects disclosure only and has no impact on the Group’s financial position or performance.
IFRS 10 Consolidated Financial StatementsIFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013.
IFRS 11 Joint ArrangementsIFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-Controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. This standard becomes effective for annual periods beginning on or after 1 January 2013 and is not expected to have any impact on the Group’s financial position or performance.
IFRS 12 Disclosure of Involvement with Other EntitiesIFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 1 January 2013.
IFRS 13 Fair Value MeasurementIFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance. This standard becomes effective for annual periods beginning on or after 1 January 2013.
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3 BUSINESS COMBINATIONS
Acquisitions in 2011Acquisition of Lebanese Canadian Bank SALOn 7 September 2011, the Central Council of the Central Bank of Lebanon approved the acquisition by the Bank of the assets, liabilities, rights and commitments of the Lebanese Canadian Bank SAL in accordance with the sale and purchase agreement signed on 22 June 2011 for a consideration of US$ 580 million equivalent to LL 874,350 million, which is subject to adjustment as a result of the due diligence work that is being performed by independent professional firms.
Accordingly, the Lebanese Canadian Bank’s identifiable assets, liabilities and contingent liabilities as at the acquisition date, that meet the conditions for recognition under IFRS, were recognized at their fair values except for loans and advances to customers, investments in subsidiaries, intangible assets, non-current assets held for sale, and provision for risks and charges whose fair value had been determined provisionally as at 31 December 2011. Such assets and liabilities that have been determined provisionally are currently subject to assessment by the independent professional firms.
Assets acquired and liabilities assumedThe preliminary fair value of the identifiable assets and liabilities acquired from the Lebanese Canadian Bank SAL as at the date of acquisition were:
Fair value recognized on acquisition / LL million
AssetsCash and balances with the Central BankDeposits with banks and financial institutionsLoans to banks and financial institutionsLoans and advances to customersDebtors by acceptancesEquity securitiesDebt securitiesInvestments in subsidiariesProperty and equipmentIntangible assetsNon-current assets held for saleOther assets
LiabilitiesDue to the Central BankRepurchase agreements with the Central BankDue to banks and financial institutionsCustomers’ deposits Engagements by acceptancesOther liabilitiesProvision for risks and charges
Total identifiable net assets at fair value
Other intangible assets and goodwill arising on acquisition (note 34)
Purchase consideration transferred
3,741,362445,37060,886
2,494,56114,63654,186
1,689,52273,41283,9476,061
16,92441,166
8,722,033
169,502829,637926,495
5,965,31314,63697,82612,942
8,016,351
705,682
168,668
874,350
LL million
Cash flow on acquisitionNet cash acquired from the acquisitionCash paid
Net cash flow on acquisition
2,261,098(874,350)
1,386,748
The other intangible assets and goodwill of LL 168,668 million comprise the value of different intangible assets relating to the Bank’s operations and a residual value for goodwill. An exercise of purchase price allocation will be conducted during 2012 to determine the different values of the intangible assets and the resulting goodwill.
From the date of the acquisition, the assets and liabilities acquired from the Lebanese Canadian Bank SAL contributed LL 144,774 million of interest and commission income and LL 26,784 million to the profit before tax of the Bank.
Transaction costs of LL 11,759 million have been expensed and are included in general and other operating expenses (note 12).
Societe Generale de Banque – Jordanie (SGBJ)During 2011, the Bank acquired an additional 0.40% interest of the voting shares of Societe Generale de Banque – Jordanie for LL 354 million. The Bank obtained the approval of the Central Bank of Lebanon accordingly.
The carrying value of the net assets of Societe Generale de Banque – Jordanie (excluding goodwill on the original acquisition) at the acquisition date was LL 501 million, and the carrying value of the additional interest acquired was LL 354 million. The difference of LL 147 million between the consideration and the carrying value of interest acquired has been recognized in retained earnings within consolidated equity.
Acquisitions in 2010Societe Generale de Banque – Jordanie (SGBJ)On 28 December 2009, the Bank acquired an additional 29.94% interest of the voting shares of Societe Generale de Banque – Jordanie for LL 43,464 million and on 30 April 2010 the Bank also acquired an additional 0.72% interest of the voting shares of Societe Generale de Banque – Jordanie for LL 378 million. The Bank obtained the approval of the Central Bank of Lebanon on these two transactions on 29 April 2010.
The carrying value of the net assets of Societe Generale de Banque – Jordanie (excluding goodwill on the original acquisition) at the acquisition date was LL 115,361 million, and the carrying value of the additional interest acquired was LL 35,377 million. The difference of LL 8,465 million between the consideration and the carrying value of the interest acquired has been recognized in retained earnings within consolidated equity.
Societe Generale Bank – Cyprus Ltd The Bank purchased the remaining 42.3% of the total voting shares of Societe Generale Bank – Cyprus Ltd for EUR 12.39 million (equivalent to LL 26,767 million). The effective date of the acquisition was 16 December 2009; however, the approval of the Central Bank of Lebanon was given in August 2010. The Group recognized goodwill in relation to this acquisition as follows:
16 December 2009LL million
Fair value of net assets of Societe Generale Cyprus Ltd
Group’s share (42.30%)Goodwill arising from acquisition
Cost of acquisition
36,235
15,32711,440
26,767
56 57
4 INTEREST AND SIMILAR INCOME
2011LL million
2010LL million
Financial investments – available-for-sale
Financial assets classified as loans and receivables
Financial investments – held-to-maturity
Deposits with banks and financial institutions
Deposits with Head Office, branches and affiliates
Loans and advances to customers
Loans and advances to related parties
Deposits with the Central Banks
Debt instruments at amortized cost
Financial assets at amortized cost pledged as collateral
-
-
-
5,883
10,271
209,037
2,957
22,255
302,262
692
553,357
65,213
116,221
13,036
1,015
6,162
152,486
2,474
12,525
-
-
369,132 8 NET GAIN ON FINANCIAL INVESTMENTS
2011LL million
2010LL million
Interest income from financial assets at fair value through other comprehensive income
Gain on sale of financial investments – available-for-sale (note 46)Gain on sale of financial assets classified as loans and receivablesDividend income from financial assets at fair value through other
comprehensive incomeDividend incomeOther gains (losses)
5,406--
1,019-
42
6,467
-34,26710,517
-1,000
(39)
45,745
9 OTHER OPERATING INCOME
2011LL million
2010LL million
Income from services renderedWrite-back of impairment losses on non-current assets held-for-sale
(note 32) Gain from sale of non-current assets held-for-sale (note 32)Other operating income
720
5757,749
18,102
27,146
720
1,63113,64817,129
33,128
5 INTEREST AND SIMILAR EXPENSE
2011LL million
2010LL million
Due to banks and financial institutions
Due to Head Office, branches and affiliates
Customers’ deposits and other credit balances
Related parties’ deposits
24,458
3,633
308,538
3,577
340,206
9,919
3,333
182,597
2,501
198,350
6 FEE AND COMMISSION INCOME
2011LL million
2010LL million
Credit related fees and commissions
Portfolio and asset management fees
Other commission income
30,682
34,893
12,533
78,108
26,027
39,692
11,002
76,721
7 NET (LOSS) GAIN ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
2011LL million
2010LL million
Interest income on debt instruments at fair value through profit or loss
Profit from sale of debt instruments at fair value through profit or loss
Dividend income from equity instruments at fair value through profit
or loss
Fair value changes
3,907
2,221
481
(7,939)
(1,330)
-
378
-
474
852
58 59
11 PERSONNEL EXPENSES
2011LL million
2010LL million
Salaries and wagesNational Social Security Fund contributionsProvisions for employees’ end of service benefits (note 41)Other allowances
65,7069,3742,035
17,951
95,066
54,6937,5643,138
15,318
80,713
12 GENERAL AND OTHER OPERATING EXPENSES
2011LL million
2010LL million
Acquisition - related costs (note 3)Telecommunication and postageRentProfessional servicesMaintenance and repairsTaxes and feesPremiums for guarantee of depositsElectricity, water and fuelPublicity and advertisingPrintings and stationeryTravelling expenses and entertainmentLegal expensesInsurance premiumsNet provisions for risks and chargesOther operating charges
11,7598,2276,4347,4556,0634,2212,7833,4399,4802,6174,5971,5351,400
4958,208
78,713
-7,0326,0837,5404,8623,2712,5132,5747,0702,0923,5941,578
9936,5939,741
65,536
Current tax liabilities
2011LL million
2010LL million
Income tax dueLess: tax withheld on interestLess: Deferred tax amortized to the consolidated income statementOthers
19,943(16,042)
(157)2,181
5,925
23,744(8,288)
(218)2,681
17,919
10 NET CREDIT LOSSES
2011LL million
2010LL million
Provision for corporate loans (note 21)Provision for retail loans (note 21)Provision for corporate loans - related parties (note 22)Provision for other debit balances - other assets (note 33)Provision for deposits with banks and financial institutions (note 15)Provision for debt instruments at amortized cost (note 28)Loans written off
Less: Write-back of provision for corporate loans (note 21)Write-back of provision for retail loans (note 21)Write-back of provision for other debit balances – other assets (note 33)
(27,099)(9,361)(1,023)
-(1,907)(1,153)(9,176)
(49,719)
30,0345,411
151
(14,123)
(17,756)(30,376)(6,839)
(197)--
(770)
(55,938)
25,88317,051
24
(12,980)
13 INCOME TAX The components of income tax expense for the years ended 31 December 2011 and 2010 are:
2011LL million
2010LL million
Currenttax
Current income tax
Deferredtax
Relating to origination and reversal of temporary differences
20,100
(157)
19,943
23,962
(218)
23,744
Reconcilation of the total tax chargeThe reconciliation between the tax expense and the accounting profit for the years ended 31 December 2011 and 2010 is as follows:
2011LL million
2010LL million
Accounting profit before tax
Less: Revenues previously subject to tax Add: Non-deductible expenses
Taxable profit
Effective income tax rate
Income tax expense reported in the consolidated income statement
120,826
(24,832)32,848
128,842
16.50%
19,943
148,242
(20,983)40,265
167,524
16.02%
23,744
60 61
14 CASH AND BALANCES WITH THE CENTRAL BANKS
2011LL million
2010LL million
Cash
Current accounts with the Central Banks
Time deposits with the Central Banks
94,802
321,506
1,623,946
2,040,254
57,927
331,252
700,370
1,089,549
Cash and balances with the Central Banks include non-interest bearing balances held by the Group at the Central Bank of Lebanon in coverage of the obligatory reserve requirements for all banks operating in Lebanon on deposits in Lebanese Lira as required by the Lebanese banking rules and regulations. This obligatory reserve is calculated on the basis of 25% of sight commitments and 15% of term commitments after taking into account certain waivers related to subsidized loans denominated in Lebanese Lira. Accordingly, the obligatory reserve amounted to LL 236,639 million as at 31 December 2011 (2010: LL 123,347 million).
In addition to the above, all banks operating in Lebanon are required to deposit with the Central Bank of Lebanon interest-bearing placements at the rate of 15% of total deposits in foreign currencies regardless of its nature. These placements amounted to US$ 716,786,700 (equivalent to LL 1,080,556 million) as at 31 December 2011 (2010: US$ 473,750,250 equivalent to LL 714,179 million).
Societe Generale de Banque - Jordanie and Societe Generale Bank – Cyprus Ltd are also subject to obligatory reserve requirements with varying percentages, according to the banking rules and regulations of the Kingdom of Jordan and the Republic of Cyprus respectively.
16 AMOUNTS DUE FROM HEAD OFFICE, BRANCHES AND AFFILIATES
2011LL million
2010LL million
Sight deposits
Time deposits
Discounted bills
Less: Provision for impairment
178,565
1,228,166
834
1,407,565
(5,039)
1,402,526
22,306
1,128,650
408
1,151,364
-
1,151,364
The movement of provision for impairment of amounts due from Head Office, branches and affiliates as recognized in the consolidated statement of financial position is as follows:
2011LL million
2010LL million
Provision at 1 January
Acquisition of assets and liabilities of Lebanese Canadian Bank SAL
Provision at 31 December
-
5,039
5,039
-
-
-
Time deposits include an amount of LL 58,457 million (equivalent to Euro 30 million) as of 31 December 2011 (2010: Euro 30 million, equivalent to LL 59,923 million) pledged in favor of Societe Generale SA Paris in guarantee of documentary letters of credit and guarantees issued in favor of the Bank’s clients with any of the entities under Societe Generale Group.
15 DEPOSITS WITH BANKS AND FINANCIAL INSTITUTIONS
2011LL million
2010LL million
Current accounts
Time deposits
Checks for collection
Discounted bills
Pledged accounts
Less: Provision for impairment (note 10)
121,857
210,391
71,077
111
3,976
407,412
(1,907)
405,505
45,937
32,730
54,351
301
1,281
134,600
-
134,600
Current accounts represent balances deposited at correspondent banks for operating activities and do not generate interest revenues.
Deferred taxThe following table shows deferred tax recorded on the consolidated statement of financial position and changes recorded in the income tax expense:
2011 2010Deferred
tax assetsLL million
Deferred tax liabilities
LL million
Income statementLL million
Deferred tax assetsLL million
Deferred tax liabilities
LL million
Income statementLL million
Revaluation of financial investments – available-for-sale
Non-current assets held for sale
Depreciation of property and equipment
Impairment allowance for loans and advances
Unrealized losses on financial instruments at fair value through profit or loss
Others
-
133
3,984
3,432
1,015
426
8,990
182
-
-
-
-
-
182
-
2
-
(86)
-
(73)
(157)
-
135
3,533
2,719
-
221
6,608
4,334
-
-
-
-
-
4,334
-
(17)
-
(201)
-
-
(218)
62 63
18 FINANCIAL ASSETS PLEDGED AS COLLATERAL
2011LL million
2010LL million
Treasury bills mortgaged in favor of Central Bank of Lebanon, at
amortized cost
Accrued interest receivable
27,183
692
27,875
8,431
252
8,683
The balance represents Treasury bills pledged as collateral for soft loans obtained from the Central Bank of Lebanon to cover 60% of the replacement costs of the Bank’s damaged buildings and installations and to cover 60% of the Bank’s credit losses relating to debtors directly affected by the war in July 2006 (note 35).
Financial assets at amortized cost pledged as collateral consist of Lebanese Treasury bills as follows:
Financial assetsNominal value
LL millionCarrying value
LL million Coupon rate Maturity date
Lebanese Treasury bills
Lebanese Treasury bills
Lebanese Treasury bills
8,430
483
18,270
27,183
8,603
752
18,520
27,875
6.18%
6.18%
7.38%
25 March 2016
30 June 2016
12 February 2012
19 EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
2011LL million
2010LL million
Quoted
Shares
Funds
Unquoted
Shares
14,053
11,011
25,064
12,584
37,648
7,494
2,143
9,637
-
9,637
As a result of the early adoption of IFRS 9, the Group reclassified shares from “available-for-sale” amounting to LL 2,758 million (note 2.3.3) as at 1 January 2011 to “fair value through profit or loss”.
The Group also reclassified shares from held-for-trading amounting to LL 204 million as at 1 January 2011 to fair value through profit or loss.
17 DERIVATIVE FINANCIAL INSTRUMENTS
The table below shows the fair values of derivative financial instruments, recorded as assets or liabilities, together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at year-end and are indicative of neither the market risk nor the credit risk.
2011 2010
AssetsLL million
liabilitiesLL million
Notional amount
LL millionAssets
LL millionliabilities
LL million
Notional amount
LL million
Derivatives designated as fair value hedges Interest rate swaps
Derivatives held-for-trading Forward foreign exchange contracts
-
1,599
1,559
-
(7,655)
(7,655)
1,306
283,155
284,461
-
559
559
-
(2,758)
(2,758)
4,422
177,690
182,112
Derivatives often involve at their inception only a mutual exchange of promises with little or no transfer of consideration. However, these instruments frequently involve a high degree of leverage and are very volatile. A relatively small movement in the value of the asset, rate or index underlying a derivative contract may have a significant impact on the profit or loss of the Group.
Over-the-counter derivatives may expose the Group to the risks associated with the absence of an exchange market on which to close out an open position.
The Group’s exposure under derivative contracts is closely monitored as part of the overall management of the Group’s market risk (note 56.2).
Derivative financial instruments held or issued for trading purposesMost of the Group’s derivative trading activities relate to deals with customers that are normally offset by transactions with other counterparties.
The Group may also take position with the expectation of profiting from favorable movements in prices, rates or indices. Also included under this heading are any derivatives entered into for hedging purposes that do not meet the IAS 39 hedge accounting criteria.
As part of its asset and liability management, the Group uses derivatives for hedging purposes in order to reduce its exposure to credit and market risks. This is achieved by hedging specific financial instruments, portfolios of fixed rate financial instruments and forecast transactions as well as strategic hedging against overall financial position exposures.
The accounting treatment, explained in note 2.4 (8) ‘Hedge accounting’, depends on the nature of the item hedged and compliance with the IAS 39 hedge accounting criteria.
Fair value hedgesFair value hedges are used by the Group to protect it against changes in the fair value of financial assets and financial liabilities due to movements in exchange rates and interest rates. The financial instruments hedged for interest rate risk include loans and advances. The Group uses interest rate swaps to hedge interest rate risk.
64 65
21 LOANS AND ADVANCES TO CUSTOMERS, NET
2011LL million
2010LL million
Corporate lendingRetail lending
Less: Allowance for impairment
3,037,1291,928,5324,965,661
(643,438)
4,322,223
1,448,2881,171,8072,620,095
(547,789)
2,072,306
A reconciliation of the allowance for impairment losses by class, is as follows:
2011
CorporateLL million
RetailLL million
TotalLL million
Balance at 1 JanuaryAcquisition of assets and liabilities of Lebanese Canadian Bank SALCharge for the year (note 10)Unrealized interest for the yearTransfers from corporate loans to retail loansTransfers from other assets (note 33)Transfers from provision for risks and chargesWrite-back of provision (note 10)Provisions written off Transfers from off-statement of financial position (note 50)Difference of exchange
Balance at 31 December
Individual impairmentCollective impairment
Gross amount of loans individually determined to be impaired,before deducting the individually assessed impairment allowance
429,6681,182
27,09947,769
(608)--
(30,034)(16,343)
8,163(1,125)
465,771
464,4611,310
465,771
507,571
118,12150,9249,361
12,697608516
2,533(5,411)
(11,941)1,093(834)
177,667
174,3393,328
177,667
275,562
547,78952,10636,46060,466
-516
2,533(35,445)(28,284)
9,256(1,959)
643,438
638,8004,638
643,438
783,133
22 LOANS AND ADVANCES TO RELATED PARTIES, NET
2011LL million
2010LL million
Corporate lending
Retail lending
Less: Allowance for impairment
62,923
4,328
67,251
(8,517)
58,734
47,000
6,362
53,362
(7,761)
45,601
20 DEBT INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
2011LL million
2010LL million
QuotedLebanese Treasury bills - EurobondsDebt securities issued by banks
UnquotedLebanese Treasury bills – denominated in LL
9,23924,85534,094
20,558
54,652
---
-
-
As a result of the early adoption of IFRS 9, the Bank reclassified Lebanese Treasury bills – Eurobonds and debt securities issued by banks amounting to LL 9,421 million and LL 26,712 million respectively from “available-for-sale” (note 2.3.3) to “fair value through profit or loss”. Accordingly, fair value reserve decreased by LL 187 million and retained earnings increased by the same amount as at 1 January 2011.
2010
CorporateLL million
RetailLL million
TotalLL million
Balance at 1 JanuaryCharge for the year (note 10)Unrealized interest for the yearTransfers from retail loans to corporate loansWrite-back of provision (note 10)Provisions written off Transfers to off-statement of financial position (note 50)Transfers from off-statement of financial position (note 50)Difference of exchange
Balance at 31 December
Individual impairmentCollective impairment
Gross amount of loans individually determined to be impaired,before deducting the individually assessed impairment allowance
442,84517,75642,723
836(25,883)(40,356)(5,019)1,074
(4,308)
429,668
423,1696,499
429,668
516,457
105,39130,376
8,923(836)
(17,051)(4,661)(3,673)
479(827)
118,121
115,5922,529
118,121
178,000
548,23648,13251,646
-(42,934)(45,017)
(8,692)1,553
(5,135)
547,789
538,7619,028
547,789
694,457
Collateral repossessedDuring the year, the Group took possession of various real estates with carrying value of LL 25,935 million (2010: LL 14,828 million) which the Group is in the process of selling (note 32).
According to the Bank of Lebanon regulations and Banking Control Commission Circular no. 240 dated 8 January 2004, bad debts and related allowance for credit losses meeting the criteria set out in the circular have been transferred to the off-statement of financial position accounts.
The fair value of collateral that the Group holds relating to loans individually determined to be impaired as at 31 December 2011 amounted to LL 254,068 million (2010: LL 183,075 million). The collateral consists of cash, securities, letters of guarantee and properties.
66 67
24 FINANCIAL INVESTMENTS – AVAILABLE-FOR-SALE
2011LL million
2010LL million
Quoted
Lebanese Treasury bills – Eurobonds
Shares
Corporate bonds
Debt securities issued by banks
Unquoted
Lebanese Treasury bills – denominated in LL
Shares
Impairment allowance
-
-
-
-
-
-
-
-
-
-
-
392,197
14,134
15,206
150,519
572,056
661,618
4,250
665,868
(15)
665,853
1,237,909
All unquoted available-for-sale equities are recorded at cost as at 31 December 2010 since fair value cannot be reliably estimated. There is no market for these investments and the Group intends to hold them for the long term.
As a result of the early adoption of IFRS 9 as at 1 January 2011, the Group reclassified all available-for-sale financial instruments as at 1 January 2011 as follows:
Effect on opening balances
Fair value through other
comprehensive income
LL million
Amortized cost
LL million
Fair value through profit or
lossLL million
Retained earnings
LL million
Deferred tax
liabilitiesLL million
Fair value reserve
LL million
QuotedCorporate bondsLebanese Treasury bills – EurobondsDebt securities issued by banksShares
UnquotedLebanese Treasury bills – denominated
in LLShares
--
113,23611,376
-4,235
128,847
15,206382,77610,571
-
661,618-
1,070,171
-9,421
26,7122,758
--
38,891
-187
-76
--
263
-1,745
--
2,156-
3,901
(418)(11,889)
113(76)
(14,372)-
(26,642)
25 FINANCIAL ASSETS CLASSIFIED AS LOANS AND RECEIVABLES
2011LL million
2010LL million
QuotedTreasury bills – Eurobonds
UnquotedCertificates of deposit – Bank of Lebanon
-
-
-
104,203
1,172,380
1,276,583
As a result of the early adoption of IFRS 9 as at 1 January 2011, the Group reclassified all “financial assets classified as loans and receivables” as at 1 January 2011 to “debt instruments at amortized cost”.
Amortized costLL million
Effect on opening balance of fair value reserve / LL million
QuotedLebanese Treasury bills – Eurobonds
UnquotedCertificates of deposit – Denominated in LLCertificates of deposit – EuroCDs
104,203
664,202508,178
1,276,583
(353)
--
(353)
The effect on the opening balance of fair value reserve relates to Lebanese Treasury bills – Eurobonds reclassified during 2008 from “financial investments – available-for-sale” to “financial assets classified as loans and receivables” due to previous amendments to IAS 39 and IFRS 7.
23 DEBTORS BY ACCEPTANCES
Acceptances resulted from letters of credit opened for the customers’ accounts for which settlement is delayed and is guaranteed by the Group.
A reconciliation of the allowance for impairment for loans and advances to related parties, by class, is as follows:
2011
CorporateLL million
RetailLL million
TotalLL million
Balance at 1 January
Charge for the year (note 10)
Unrealized interest for the year
Write-off during the year
Difference of exchange
Balance at 31 December
7,761
1,023
42
(380)
71
8,517
-
-
-
-
-
-
7,761
1,023
42
(380)
71
8,517
2010Balance at 1 January
Charge for the year (note 10)
Unrealized interest for the year
Difference of exchange
Balance at 31 December
777
6,839
51
94
7,761
-
-
-
-
-
777
6,839
51
94
7,761
68 69
27 INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES
Investments in non-conoslidated subsidiaries represent the following:
Ownership %
2011 2010 Activity2011
LL million2010
LL million
Societe Generale Libanaise Fonciere SARL
Societe Generale de Services d’Investissements SARL
SGBL Courtage Assurance SARL
Centre de Traitement Monetique SAL
Societe d’investissement et de Services «SIS»
LCB Investments Holding SAL
Less: Provision for impairment
• Societe Generale de Services d’Investissements SARL
• LCB Investments Holding SAL
98.66
98.50
100.00
50.00
99.00
100.00
98.66
98.50
100.00
50.00
-
-
Real estate
Services and studies
Brokerage
Financial services
Investment and management
Investment and management
1
467
1,262
1,555
17
111,215
114,517
(98)
(51,276)
63,143
5
408
987
1,573
-
-
2,973
(98)
-
2,875
During 2011, the Group’s share of profits from non-consolidated subsidiaries excluding LCB Investments Holding SAL amounted to LL 299 million (2010: LL 365 million).
The Group did not consolidate nor did it book the share of profits / losses of LCB Investments Holding SAL (a subsidiary) since the investment is subject to adjustments, along with other assets and liabilities acquired from the Lebanese Canadian Bank SAL (note 3), as a result of the due diligence work that is being performed by independent professional firms and since legal ownership is not yet transferred to the Group.
The following table illustrates summarized information of the Group’s investments in non-consolidated subsidiaries excluding LCB Investments Holding SAL:
2011LL million
2010LL million
Share of non-consolidated subsidiaries’ statements of financial position:Current assets Non-current assets Current liabilities Non-current liabilities
Net assets
Share of non-consolidated subsidiaries’ revenues and results:RevenuesProfit for the year
3,760
728 (1,076)
(110)
3,302
2,809
299
3,206
833 (986)
(80)
2,973
2,608
365
LCB Investments Holding SAL owns the following companies as at 31 December 2011:
% of ownership Activity
LCB Estates SAL
Tabadul Shares and Bonds LLC
LCB Insurance Brokerage House SAL
99.60
100.00
99.60
Brokerage and trading of real estate
Brokerage services pertaining to equity securities
Insurance Brokerage Services
26 FINANCIAL INVESTMENTS – HELD-TO-MATURITY
2011LL million
2010LL million
QuotedLebanese Treasury bills – EurobondsOther governmental debt securitiesCorporate bonds
UnquotedLebanese Treasury bills – denominated in LLOther governmental debt securitiesCorporate bonds
---
-
---
-
-
27,2181,8861,241
30,345
46,848209,29017,324
273,462
303,807
Held to maturity Treasury bills include a gross amount of LL 45,315 million as of 31 December 2010 pledged in favor of the Central Bank of Lebanon against a soft loan (note 35).
As a result of the early adoption of IFRS 9 as at 1 January 2011, the Group reclassified all “held-to-maturity” financial investments as at 1 January 2011 to “debt instruments at amortized cost”.
70 71
29 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
2011LL million
2010LL million
QuotedShares Securities issued by banks
UnquotedShares
11,533 93,534
105,067
4,499
109,566
- -
-
-
-
As a result of the early adoption of IFRS 9, the Group reclassified part of its financial assets at “fair value through other comprehensive income” as at 1 January 2011 (note 24).
Management of the Group believes that the fair value of unquoted shares is equal to their cost amounting to LL 4,499 million as at 31 December 2011, since there is insufficient information available to measure fair value.
The table below shows the details of financial assets classified at “fair value through other comprehensive income as at 31 December 2011:
2011LL million
2010LL million
QuotedHolcim Liban SAL BNPI 7.195% Societe Generale 5.922% Societe Generale 9.375% Societe Generale 4.196% Societe Generale 8.75% Credit Agricole 6.637% Credit Agricole 4.13% Deutsche Bank 5.33% Deutsche Bank 5.628% Jordan Mortgage Refinancing Company Jordan loans Guarantee Company
UnquotedBank of Beirut preferred shares - 2009 MasterCard Visa S.W.I.F.T. SCRL Metropolitan Club SAL Banque de L’habitat Kafalat Societe Financiere du Liban SAL 3 Angle Capital SA
11,195 23,460 23,796 4,848 5,520 5,884 8,838 6,490 7,650 7,048
213 125
105,067
2,261
219 746
52 62
1 458 301 399
4,499
109,566
- - - - - - - - - - - -
-
- - - - - - - - -
-
-
28 DEBT INSTRUMENTS AT AMORTIZED COST
2011LL million
2010LL million
QuotedLebanese Treasury bills – EurobondsLebanese Treasury bills – Eurobonds pledged as collateral against
repurchase agreementsDebt securities issued by banksCertificates of deposit – private sectorOther governmental debt securitiesCorporate debt securities
UnquotedLebanese Treasury bills – denominated in LLLebanese Treasury bills – denominated in LL pledged as collateral
against repurchase agreementsCertificates of deposit – denominated in LLCertificates of deposit – EuroCDsOther governmental debt securitiesCorporate debt securities
Provision for impairment (note 10)
672,578
651,487 34,526 3,125
55,393 18,360
1,435,469
2,760,095
401,171 701,779 904,179 258,747 14,654
5,040,625
(1,153)
5,039,472
6,474,941
-
- - - - -
-
-
- - - - -
-
-
-
-
As a result of the early adoption of IFRS 9, the Group reclassified part of its debt instruments at “amortized cost” as at 1 January 2011 (notes 24, 25 and 26).
During the year, the Bank sold debt instruments at amortized cost due to the need to fund unforeseen capital expenditures represented by the acquisition of the Lebanese Canadian Bank’s assets and liabilities. The total fair value of these instruments at the derecognition date amounted to LL 191,239 million with cumulative gain on disposal amounting to LL 2,797 million.
72 73
Dividend and interest income recognized in the consolidated income statement from financial assets at fair value through other comprehensive income are as follows:
2011LL million
2010LL million
Interest income from financial assets held at the end of the year
Interest income from financial assets derecognized during the year
Dividend income
3,986
1,420
1,019
6,425
-
-
-
-
During the year, the Group sold financial assets at fair value through other comprehensive income. The total fair value of these investments at the derecognition date amounted to LL 104,934 million with cumulative gains on disposal of LL 989 million. These gains were reclassified from “fair value reserve” to “retained earnings” during the year.
30 PROPERTY AND EQUIPMENT
Advances on purchase of fixed assets
LL million
Land andbuildingsLL million
Furniture and fixtures
LL millionInstallations
LL millionVehicles
LL millionTotal
LL million
Cost At 1 January 2011AdditionsAcquisition of assets and liabilities of
Lebanese Canadian Bank SALDisposalsTransfers from non current assets
held-for-sale (note 32)TransfersTransfers to intangible assets (note 31)Write-offExchange differences
At 31 December 2011
DepreciationAt 1 January 2011Provided during the yearRelating to disposalsRelating to write-offExchange differences
At 31 December 2011
ImpairmentAt 1 January 2011 and 31 December 2011
Net carrying amountAt 31 December 2011
18,491 54,983
12,610
(565)
- (17,631)
(313) -
(1)
67,574
- - - - -
-
-
67,574
58,283 2,199
61,464
(745)
1,575 14,260
- - -
137,036
12,163 1,357 (208)
- -
13,312
1,357
122,367
54,217 3,043
4,841 (668)
-
2,218 -
(109) (126)
63,416
45,138 3,023 (653) (94)
(140)
47,274
-
16,142
35,349 1,535
4,913
(55)
- 1,153
- (171) (62)
42,662
30,195 1,509
(55) (170) (67)
31,412
-
11,250
1,648
409
119 (127)
- - -
(55) (2)
1,992
823 246 (44)
- (58)
967
-
1,025
167,988 62,169
83,947 (2,160)
1,575
- (313) (335) (191)
312,680
88,319 6,135 (960) (264) (265)
92,965
1,357
218,358
Advances on purchase of fixed assets
LL million
Land andbuildingsLL million
Furniture and fixtures
LL millionInstallations
LL millionVehicles
LL millionTotal
LL million
Cost At 1 January 2010AdditionsDisposalsTransfersTransfers to intangible assets (note 31)Write-offExchange differences
At 31 December 2010
DepreciationAt 1 January 2010Provided during the yearRelating to disposalsRelating to write-offExchange differences
At 31 December 2010
ImpairmentAt 1 January 2010 and 31 December 2010
Net carrying amountAt 31 December 2010
4,575
18,334 (847)
(3,481) (90)
- -
18,491
- - - - -
-
-
18,491
57,232
67 -
984 - - -
58,283
11,120 1,043
- - -
12,163
1,357
44,763
51,375 2,457 (391)
1,208 -
(36) (396)
54,217
42,855 2,934 (336) (36)
(279)
45,138
-
9,079
33,821 1,385 (942)
1,289 - -
(204)
35,349
30,033 1,234 (928)
- (144)
30,195
-
5,154
1,288
378 (10)
- - -
(8)
1,648
695 145
(9) -
(8)
823
-
825
148,291
22,621 (2,190)
- (90) (36)
(608)
167,988
84,703
5,356 (1,273)
(36) (431)
88,319
1,357
78,312
According to the provisions of law no. 282 dated 31 December 1993 and the Central Bank of Lebanon circulars, the Group restated the cost of buildings acquired prior to 1 January 1994 for the changes in the general purchasing power of the Lebanese Lira. The restatement amounted to LL 3,934 million as of 31 December 2011 (2010: same) and was added to property and equipment with a corresponding entry to revaluation reserve included in shareholders’ equity (note 45).
74 75
31 INTANGIBLE ASSETS
Advances onintangible assets
LL millionKey money
LL million
Licenses and software
LL millionTotal
LL million
Cost At 1 January 2011AdditionsAcquisition of assets and liabilities of Lebanese
Canadian Bank SALWrite-offTransfersTransfer from property and equipment (note 30)Exchange differences
At 31 December 2011
AmortizationAt 1 January 2011Provided during the yearRelating to write-offExchange differences
At 31 December 2011
Net book valueAt 31 December 2011
1,106 1,172
- -
(626) 313
-
1,965
- - - -
-
1,965
1,842
-
6,061 - - - -
7,903
1,842
- - -
1,842
6,061
8,587
781
- (581) 626
- (36)
9,377
6,464
657 (232) (41)
6,848
2,529
11,535 1,953
6,061 (581)
- 313 (36)
19,245
8,306
657 (232) (41)
8,690
10,555
Advances onintangible assets
LL millionKey money
LL million
Licenses and software
LL millionTotal
LL million
Cost At 1 January 2010AdditionsWrite-offTransfersTransfer from property and equipment (note 30)Exchange differences
At 31 December 2010
AmortizationAt 1 January 2010Provided during the yearRelating to write-offExchange differences
At 31 December 2010
Net book valueAt 31 December 2010
697 644
- (235)
- -
1,106
- - - -
-
1,106
1,842
- - - - -
1,842
1,842
- - -
1,842
-
7,829
844 (312) 235 90
(99)
8,587
5,965
579 -
(80)
6,464
2,123
10,368 1,488 (312)
- 90
(99)
11,535
7,807
579 -
(80)
8,306
3,229
32 NON-CURRENT ASSETS HELD FOR SALE
2011LL million
2010LL million
Property and equipment (i)
Subsidiaries (ii)
132,837
13,473
146,310
113,320
-
113,320
(i) The movement of property and equipment held for sale recognized in the consolidated statement of financial position is as follows:
2011LL million
2010LL million
CostAt 1 January AdditionsAcquisition of assets and liabilities of Lebanese Canadian Bank SALDisposalsOther adjustments Transfer to property and equipment (note 30)
At 31 December
Impairment:At 1 JanuaryWrite-back during the yearOther adjustments
At 31 December
Net carrying amount:At 31 December
132,796
9,01116,924(5,829)
411(1,575)
151,738
19,476 (575)
-
18,901
132,837
143,430
14,828 -
(25,427) (35)
-
132,796
21,102 (1,631)
5
19,476
113,320
Property and equipment held-for-sale represent primarily land and buildings acquired by the Group in settlement of certain loans and advances.
As at 31 December 2011, the fair value of the property acquired in settlement of debts as estimated by the Group amounted to LL 212,804 million (2010: LL 182,870 million).
During the year, the Group disposed of property and equipment held for sale with carrying value of LL 5,254 million (2010: LL 23,796 million) and recognized a gain of LL 7,749 million (2010: LL 13,648 million) and a write-back of impairment losses amounting to LL 575 million (2010: LL 1,631 million) (refer to note 9), in addition to the release of reserve for non-current assets held for sale amounting to LL 1,005 million (2010: LL 2,011 million). This amount relates to appropriations previously booked on property acquired in settlement of debts (refer to note 43).
76 77
33 OTHER ASSETS
2011LL million
2010LL million
Net deferred costs resulting from the acquisition of Inaash Bank SAL (i)
Prepaid expenses
Stamps
Printed materials and stationery
Credit cards inventory
Deferred employee termination benefits (ii)
Deferred tax assets (note 13)
Other debtors
Provision for other debtors (iii)
-
6,262
696
960
2,091
22,549
8,990
33,445
(3,369)
71,624
990
3,072
395
554
251
-
6,608
24,760
(3,327)
33,303
(i) Net deferred costs resulting from the acquisition of Inaach Bank SALThe net deferred costs resulting from the Inaash Bank SAL acquisition consist of the following:
Initial deferred costs from the acquisition
LL million
Additional deferred costs resulting subsequent to
the acquisitionLL million
TotalLL million
Gross deferred costs: At 1 January 2011 and 31 December 2011
Amortization: At 1 January 2011 Amortization for the year
At 31 December 2011
Net deferred costs: At 31 December 2011
At 31 December 2010
180,120
180,120
-
180,120
-
-
10,553
9,563 990
10,553
-
990
190,673
189,683 990
190,673
-
990
(ii) Subsidiaries held for sale include the following as at 31 December:
2011LL million
2010LL million
Prime Bank (Gambia) Ltd
LCB Finance SAL
8,826
4,647
13,473
-
-
-
These subsidiaries were acquired with the acquisition of the assets and liabilities of the Lebanese Canadian Bank SAL. However, the Group intends to dispose of or liquidate these subsidiaries.
The initial costs resulting from the acquisition of Inaash Bank SAL amounted to LL 180,120 million. The costs are deferred and amortized over the period of future economic benefits from the soft loan (LL 250,000 million) and related facilities received from the Central Bank of Lebanon. The Group used the proceeds of the soft loan to subscribe to two-year Treasury bills which were pledged in favor of the Bank of Lebanon as a guarantee for the settlement of the soft loan. The soft loan of LL 250,000 million matured during 2010 and accordingly the initial deferred costs from the acquisition were fully amortized to the consolidated income statement during 2010.
On 10 January 2003, the Central Council of the Bank of Lebanon approved granting the Group an additional soft loan amounting to LL 45,567 million to cover the additional costs of LL 10,553 million (US$ 7 million) incurred subsequent to Inaash Bank SAL’s acquisition by the Group. The loan bears interest determined by reference to interest rates on Lebanese Treasury bills or any other guideline set by the Central Bank of Lebanon less the margin needed to cover the costs. This rate is revised on a regular basis. The proceeds from the loan were invested in financial instruments issued by the Central Bank of Lebanon which are pledged in favor of the Central Bank of Lebanon as a guarantee for the settlement of the soft loan. The additional costs are deferred and amortized over the period of the future economic benefits from the soft loan. The soft loan of LL 45,567 million matured during 2011 and accordingly the initial deffered costs from acquisition were fully amortized to the consolidated income statement during 2011.
(ii) Deferred employee termination benefitsDeferred employee termination benefits amounting to LL 22,549 million as at 31 December 2011, represent compensations paid to employees whose contracts were terminated as a result of the acquisition of the assets and liabilities of the Lebanese Canadian Bank SAL during 2011.
Also included under loans and advances to customers an amount of LL 28,337 million representing additional compensations paid to employees whose contracts were not terminated and are calculated on the basis of 60% of the value of the compensation had the employees’ contracts been terminated.
These compensations were calculated on the basis provided for in the staff compensation arbitrary decision dated 29 August 2011.
In connection with the above compensations, the Central Bank of Lebanon exempted the Group from part of the obligatory reserves denominated in Lebanese Lira. Part of these reserves were invested in Lebanese Treasury bills whose nominal value amounted to LL 80,000 million and maturing on 1 December 2016. The interest income generated from these Treasury bills will be offset against these deferred compensations up to an amount of US$ 40 million equivalent to LL 60,300 million over the period of the future economic benefits of the Treasury bills.
(iii) Provision for other debtorsThe movement of provision for other debtors recognized in the consolidated statement of financial position is as follows:
2011LL million
2010LL million
Provision at 1 January
Acquisition of assets and liabilities of Lebanese Canadian Bank SAL
Provided during the year (note 10)
Written-back during the year (note 10)
Provision written-off
Transfers to loans and advances (note 21)
Other adjustments
Provision at 31 December
3,327
95
-
(151)
-
(516)
614
3,369
3,228
-
197
(24)
(30)
-
(44)
3,327
78 79
34 OTHER INTANGIBLE ASSETS AND GOODWILL
2011LL million
2010LL million
Cost: At 1 January Additions (note 3)
At 31 December
Impairment: At 1 January Impairment charge for the year
At 31 December
Net book value:At 31 December
27,294
168,668
195,962
3,470
-
3,470
192,492
15,854 11,440
27,294
-
3,470
3,470
23,824
Goodwill acquired through business combinations has been allocated to five individual cash generating units for impairement testing as follows:
2011LL million
2010LL million
Societe Generale de Banque – Jordanie
Fidus SAL
Sogecap Liban SAL
Societe Generale Bank – Cyprus Ltd
Assets and liabilities of the Lebanese Canadian Bank SAL (i)
2,393
199
813
20,419
168,668
192,492
2,393
199
813
20,419
-
23,824
The goodwill and other intangible assets generated from the acquisition of the assets and liabilities of the Lebanese Canadian Bank SAL comprise the value of different intangible assets relating to the Group’s operations and a residual value for goodwill. A purchase price allocation exercise will be conducted during 2012 to determine the different values of the intangible assets and the resulting goodwill.
Key assumptions used in value in use calculationsThe recoverable amount of Societe Generale Bank – Cyprus Ltd and Societe Generale de Banque – Jordanie have been determined based on value in use calculations, using cash flow projections based on financial budgets approved by senior management covering a five-year period. The following rates are used by the Group:
Societe Generale Bank – Cyprus Ltd Societe Generale de Banque – Jordanie
2011 2010 2011 2010
Discount rate
Projected growth rate
8.35%
2.5%
8.35%
2.5%
10.3%
2.5%
10.3%
2.5%
The calculation of value in use for both Societe Generale Bank – Cyprus Ltd and Societe Generale de Banque – Jordanie is most sensitive to interest margin, discount rates, market share during the budget period, projected growth rates used to extrapolate cash flows beyond the budget period, current local gross domestic product (GDP) and local inflation rates.
As a result of this analysis, management has recognized an impairment charge of LL 3,470 million against goodwill generated from the acquisition of Societe Generale Bank – Cyprus Ltd. This impairment charge is recorded within “Impairment loss of goodwill” in the consolidated income statement during 2010.
Interest marginsInterest margins are based on current fixed interest yields.
Discount ratesDiscount rates reflect the current market assessment of the risk specific to each cash generating unit. The discount rate was estimated based on the average percentage of a weighted average cost of equity for the banking industry, determined on a pre-tax basis. This rate was further adjusted to reflect the market assessment of any risks specific to the cash generating unit for which estimates of cash flows have not been adjusted.
Market share assumptionsThese assumptions are important because, as well as using industry data for growth rates, management assesses how the unit’s relative position to its competitors might change over the budget period. Management expects the Group’s share to be stable over the budget period.
Projected growth rates, GDP and local inflation ratesAssumptions are based on published industry research.
Sensitivity to changes in assumptionsExcept for Societe Generale Bank – Cyprus Ltd (cash generating units), management believes that no reasonably possible change in any of the above assumptions would cause the carrying of the units to exceed their recoverable amount.
35 DUE TO CENTRAL BANKS
2011LL million
2010LL million
Current account
Term soft loans
Accrued interst
39,565
27,183
313
67,061
-
53,998
1,121
55,119
Term soft loans include:• 10-year term loan amounting to LL 250,000 million granted in 2000 from the Central Bank of Lebanon
as a result of the acquisition of Inaash Bank SAL with an effective interest rate of two-year Treasury bills less 8.22%. This loan matured during 2010 (note 33);
• 8-year term loan amounting to LL 45,567 million granted in 2003 from the Central Bank of Lebanon sub-sequent to the acquisition of Inaash Bank SAL with an interest rate determined by the Central Bank of Lebanon every 2 years. The effective interest rate for 2011 was 6.77% (2010: same). This loan matured during 2011 (note 33); and
80 81
36 REPURCHASE AGREEMENTS WITH A CENTRAL BANK
2011LL million
2010LL million
Due to Central Bank of Lebanon 982,605 -
The Bank has a programme to sell securities under agreements to repurchase (‘repos’). The securities sold under agreements to repurchase are transferred to the Central Bank of Lebanon and the Bank receives cash in exchange. The Central Bank of Lebanon is not allowed to sell or pledge those securities lent or sold under repurchase agreements in the absence of default by the Bank and has an obligation to return the securities at the maturity of the contract. The Bank has determined that it retains substantially all the risks and rewards of these securities and therefore has not derecognized them. In addition, it recognizes a financial liability for cash received as collateral.
The carrying amount and fair value of securities sold under agreements to repurchase at 31 December 2011 was LL 1,052,658 million and LL 1,096,108 million respectively (2010: nil). Those securities are presented in the consolidated statement of financial position under “Debt instruments at amortized cost” (note 28). These repurchase agreements mature at the latest on 30 March 2012.
37 DUE TO BANKS AND FINANCIAL INSTITUTIONS
2011LL million
2010LL million
Sight deposits
Time deposits
98,625
433,805
532,430
54,606
66,897
121,503
38 AMOUNTS DUE TO HEAD OFFICE, BRANCHES AND AFFILIATES
2011LL million
2010LL million
Sight deposits
Time deposits
29,286
66,148
95,434
7,847
305,536
313,383
• Term loans amounting to LL 27,183 million as at 31 december 2011 (2010: LL 8,431 million) were granted by the Central Bank of Lebanon to cover 60% of the replacement costs of the Bank’s damaged buildings and installations and to cover 60% of the Bank’s credit losses relating to debtors directly af-fected by the war in July 2006. The effective interest rate for 2011 was 3% (2010: 5.07%).
These loans are secured by the pledge of Lebanese Treasury bills amounting to LL 27,183 million included under financial assets pledged as collateral as of 31 December 2011 (2010: LL 8,431 million) (note 18). These loans mature during 2012.
39 CUSTOMERS’ DEPOSITS
2011
CorporateLL million
RetailLL million
TotalLL million
Sight deposits
Net creditor accounts against debtor accounts and blocked margins
Time deposits
Savings accounts
684,532
48,419
732,951
1,366,932
24,882
2,124,765
960,831
167,603
1,128,434
3,075,590
6,600,490
10,804,514
1,645,363
216,022
1,861,385
4,442,522
6,625,372
12,929,279
2010Sight deposits
Net creditor accounts against debtor accounts and blocked margins
Time deposits
Savings accounts
419,207
59,084
478,291
745,397
83,595
1,307,283
547,905
108,599
656,504
1,946,271
2,236,462
4,839,237
967,112
167,683
1,134,795
2,691,668
2,320,057
6,146,520
Included in customers’ deposits as at 31 December 2011, are coded accounts amounting to LL 12,936 million (2010: LL 39,945 million). These accounts are opened in accordance with article 3 of the Banking Secrecy Law dated 3 September 1956.
Included in customers’ deposits as of 31 December 2011, are deposits from related parties amounting to LL 1,349 million (2010: LL 1,004 million).
82 83
40 OTHER LIABILITIES
2011LL million
2010LL million
Due to the National Social Security Fund
Balances payable as a result of Inaash Bank SAL acquisition
Accrued expenses
Investment contracts liabilities (i)
Redeemed preffered shares payable to third parties (ii)
Interest and commissions received in advance
Customers’ transactions between Head Office and branches
Current tax liabilities (note 13)
Accrued interest
Insurance contracts liabilities
Deferred tax liabilities (note 13)
Other creditors
1,159
201
20,022
77,280
21,859
7,481
6,419
5,925
3,164
9,915
182
22,508
176,115
864
201
14,618
66,642
-
7,274
3,061
17,919
1,782
7,309
4,334
24,021
148,025
(i) Investment contract liabilities – insurance businessThe change in investment contract liabilities is analyzed as follows:
2011Deposit
componentLL million
Unit-linked liabilities
LL million
Provision for participation
LL millionTotal
LL million
At 1 January
Investment component of premiums received
Surrenders paid and cancellations
Provision for participation
Changeininvestmentcontractliabilities:
Accrued interest, net
Unrealized gain
Others
At 31 December
46,685
11,136
(5,067)
511
53,265
1,507
-
99
1,606
54,871
19,114
6,905
(3,305)
-
22,714
371
(995)
(13)
(637)
22,077
843
-
-
(511)
332
-
-
-
-
332
66,642
18,041
(8,372)
-
76,311
1,878
(995)
86
969
77,280
2010Deposit
componentLL million
Unit-linked liabilities
LL million
Provision for participation
LL millionTotal
LL million
At 1 January
Investment component of premiums received
Surrenders paid and cancellations
Changeininvestmentcontractliabilities:
Accrued interest, net
Unrealized gain
Others
At 31 December
41,154
9,851
(5,499)
45,506
1,702
-
(523)
1,179
46,685
13,684
6,668
(2,688)
17,664
290
474
686
1,450
19,114
843
-
-
843
-
-
-
-
843
55,681
16,519
(8,187)
64,013
1,992
474
163
2,629
66,642
The investment contract liabilities have been determined and certified on 18 January 2012 by an independent sworn actuary.
(ii) Redeemed preferred shares payable to third parties represent liabilities acquired with the acquisition of the Lebanese Canadian Bank SAL and relating to preferred shares redeemed by the Lebanese Canadian Bank SAL and not yet claimed by the holders of those shares.
41 PROVISION FOR RISKS AND CHARGES
2011LL million
2010LL million
Employees’ end of service benefits (i)
Provision for miscellaneous risks
Provision for contingencies and charges
Other provisions
25,823
9,954
3,871
608
40,256
17,225
9,849
6,348
603
34,025
(i) Employees’ end of service benefitsMovements in the provision for end of service benefits recognized in the consolidated statement of financial position are as follows:
2011LL million
2010LL million
Balance at 1 January
Provided during the year (note 11)
Acquisition of assets and liabilities of Lebanese Canadian Bank SAL
Paid during the year
Difference of exchange
Balance at 31 December
17,225
2,035
7,756
(990)
(203)
25,823
15,394
3,138
-
(1,098)
(209)
17,225
84 85
42 SHARE CAPITAL
a) Common sharesThe authorized, issued and fully paid share capital as of 31 December 2011 comprised of 50,000 shares of nominal value of LL 212,400 each (2010: same).
b) Preferred sharesOn 22 July 2008, the Bank issued 9,000 preferred shares (Series 2008) for a nominal amount of LL 212,400 each (a total of LL 1,912 million) plus a share premium denominated in US Dollars of US$ 9,859. Accordingly, share premium of LL 133,121 million represents a premium of US$ 88,731,675 (or LL 133,763 million) less issuance costs of LL 642 million.
On 15 March 2010, the Bank issued 10,000 preferred shares (Series 2010) for a nominal amount of LL 212,400 each (a total of LL 2,124 million) plus a share premium denominated in US Dollars of US$ 9,859. Accordingly, share premium of LL 148,284 million represents a premium of US$ 98,590,000 (or LL 148,624 million) less issuance costs of LL 340 million.
The payment of dividends for preferred shareholders is dependent on:(1) The availability of non-consolidated net income for a specific year after appropriation of legal and other
regulatory reserves;(2) The continuous compliance with regulations issued by the Bank of Lebanon and the Banking Control
Commission; and(3) The approval of the Ordinary General Assembly of shareholders to distribute those dividends.
During 2011, the Bank transferred LL 1,267 million (2010: LL 1,343 million) from “retained earnings” to the “share premium – preferred shares”. These represent the appropriation of transaction costs incurred on preferred shares and additional premiums of 2% relating to preferred shares – Series 2008 and 1.75% relating to preferred shares – Series 2010.
c) Cash contribution by shareholdersCash contribution to capital of US$ 70,810,000 was paid by the shareholders in prior years. The shareholders resolved during their Ordinary General Assembly dated 21 July 2010 to convert part of their cash contribution to capital from US Dollars to Euro. The Bank of Lebanon approved this conversion on 8 November 2010. Accordingly, the Bank converted US$ 35,066,400 to EUR. Cash contribution to capital amounted to US$ 35,743,600 and EUR 26,229,259 as at 31 December 2011 totalling LL 106,746 million (2010: LL 106,746 million). These contributions were granted by the shareholders of the Bank in order to support and develop the activities of the Group, in accordance with the following conditions:• Every shareholder is committed to retain the contributions during the lifetime of the Bank;• The shareholders commit to cover any loss using their contributions according to the provisions of article
4 (A-B) of circular N° 1114 of the Central Bank of Lebanon and article 134 of the Money and Credit Act;• The shareholders have the right to use or not to use these contributions in case of a capital increase;
and• Interest rate applied on these contributions is determined based on the latest 3-year Eurobond issue
less 0.5% and payment is subject to the approval of the Banking Control Commission and the share-holders’ General Assembly resolution. The Bank did not pay any interest on the cash contribution during the year 2011 (2010: same).
Both the Central Council of Bank of Lebanon and the Ordinary General Assembly of the Bank approved these contributions.
43 UNDISTRIBUTABLE RESERVES
Legalreserve
LL million
Reserve for general
banking risksLL million
Reserve against doubtful and
impaired loansLL million
Reserve for capital
increaseLL million
Reserve for non-current assets held
for saleLL million
TotalLL million
At 1 January 2010
Appropriation during the year
Transfers
At 31 December 2010
Appropriation during the year
Transfers
Write-off
At 31 December 2011
32,584
10,369
-
42,953
11,715
-
-
54,668
37,831
8,791
-
46,622
7,336
-
-
53,958
3,191
-
(2,525)
666
-
-
(3)
663
-
11,142
-
11,142
12,950
1,005
-
25,097
10,628
5,670
(2,011)
14,287
5,537
(1,005)
-
18,819
84,234
35,972
(4,536)
115,670
37,538
-
(3)
153,205
a) Legal reserveAs required by local regulations where the Group operates, a percentage of the net profit for the year should be transferred to legal reserve. This reserve is not available for dividend distribution.
b) Reserve for general banking risksIn compliance with main circular No. 50 issued by the Central Bank of Lebanon, the Bank should appropriate from its net profit for the year, a minimum amount of 2 per thousand and a maximum of 3 per thousand from the total risk weighted assets and off-statement of financial position items based on the rates specified by the Central Bank of Lebanon as a reserve for general banking risks. The accumulated balance of this reserve should not be less than 2% of the total risk weighted assets and off-statement of financial position items at the end of 2017.
In addition, Societe Generale de Banque – Jordanie and Societe Generale Bank – Cyprus Ltd are also required to appropriate reserves for general banking risks in accordance with local requirements.
c) Reserve against doubtful and impaired loansIn compliance with pronouncement 20/2008 of the Banking Control Commission issued on 13 September 2008, the Bank should appropriate to a special reserve an amount equal to its portfolio of doubtful and impaired loans which were not settled in accordance with the Central Bank basic circular no. 73 and its subsequent amendments.
The Bank releases this reserve to retained earnings when:• The loan is settled and fully paid; or• Partial settlement of the loan leading to a reserve in excess of the loan net carrying amount; or• A provision is made in the income statement.
d) Reserve for capital increaseIn compliance with the circular No. 167 issued by the Banking Control Commission, the Bank is required to appropriate the net write-back of provisions for doubtful debts in a particular year to the reserve for capital increase when the net results are positive.
During the General Assembly Meeting held on 30 April 2010, the shareholders resolved to appropriate an amount of LL 710 million resulting from the net write-back of provisions to the reserve for capital increase.
In compliance with the circular No. 173 issued by the Banking Control Commission, the Bank is required to appropriate the gain realized from the sales of non-current assets held for sale to the reserve for capital increase when the net results are positive.
86 87
During the General Assembly Meeting held on 30 April 2011, the shareholders resolved to appropriate an amount of LL 12,950 million resulting from the sale of non-current assets held for sale during 2010 to reserve for capital increase.
During the General Assembly Meeting held on 20 October 2010, the shareholders resolved to appropriate an amount of LL 7,798 million resulting from the sale of non-current assets held for sale during 2009 to reserve for capital increase.
During the General Assembly Meeting held on 18 June 2010, the shareholders resolved to appropriate an amount of LL 2,634 million resulting from the sale of non-current assets held for sale during 2008 to reserve for capital increase.
e) Reserve for non-current assets held for saleIn compliance with pronouncements of the Banking Control Commission, when properties acquired in settlement of debts are not sold within the timeframe required by local regulators, the Bank should appropriate an amount equal to 5% or 20% of the carrying value of such properties. The annual appropriation, which is from the net profit of the respective year after appropriations to legal reserve and reserve for general banking risks, is reported under “reserve for non-current assets held for sale”.
The Bank shall make a transfer from this reserve into “Reserve for capital increase” (2010: to “retained earnings”) in the following circumstances:• The reserve appropriated in prior years related to a property disposed of; or• The reserve appropriated in prior years, equal or up to an impairment loss recognized in the income
statement against the acquired property.
44 DISTRIBUTABLE RESERVES
General reserves
2011LL million
2010LL million
Balance at 1 January
Appropriation during the year
Balance at 31 December
21,912
-
21,912
17,693
4,219
21,912
These reserves were appropriated according to resolutions by the Ordinary General Assembly of Shareholders.
45 REVALUATION RESERVE OF PROPERTY
2011LL million
2010LL million
Revaluation amount
Book value
Sale of real estate
Revaluation variance
5,499
(945)
(620)
3,934
5,499
(945)
(620)
3,934
The Central Bank of Lebanon and the tax authorities approved on 29 March 1995 and on 18 April 1995 respectively, the revaluation of some of the buildings owned by the Bank and used for operating purposes in accordance with law no. 282 dated 30 December 1993 (note 30).
46 FAIR VALUE RESERVE
2011LL million
2010LL million
Balance at 1 January
Effect of adopting IFRS 9 at 1 January
Restated balance at 1 January
Net realized gains on financial investments – available-for-sale reclassified to the consolidated income statement (note 8)
Net unrealized gains on financial investments – available-for-sale, net of tax
Net unrealized loss on financial assets at fair value through othercomprehensive income, net of tax
Net realized gain on financial instruments transferred to retained earnings
Net movement
Balance at 31 December
20,204
(26,713)
(6,509)
-
-
(18,713)
(989)
(19,702)
(26,211)
30,258
-
30,258
(34,267)
24,213
-
-
(10,054)
20,204
47 DIVIDENDS PAID TO EQUITY HOLDERS OF THE PARENT
According to the resolution of the General Assembly Meeting held on 30 April 2011, the following dividends were declared and paid, from the 2010 profits:
2011
Numberof shares
Dividend per share In LL
Total LL million
Dividends for preferred shares – 2008 issue
Dividends for preferred shares – 2010 issue
21,526
9,000
10,000
21,526
1,356,750
931,454
21,526
12,211
9,315
21,526
According to the resolution of the General Assembly Meeting held on 30 April 2010, the following dividends were declared and paid, from the 2009 profits.
2010Dividends for ordinary shares
Dividends for preferred shares – 2008 issue
50,000
9,000
452,250
1,356,750
22,613
12,211
34,824
88 89
48 CASH AND CASH EQUIVALENTS
2011LL million
2010LL million
Cash and balances with the Central Banks
Financial instruments – Treasury bills
Financial instruments – Certificates of deposit
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Due to Central Banks and repurchase agreements
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Less: balances with maturities exceeding 3 months
Cash and balances with the Central Banks
Financial instruments – Treasury bills
Financial instruments – Certificates of deposit
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Due to Central Banks
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Cash and cash equivalents at 31 December
2,040,254
4,543,003
1,605,958
405,505
1,402,526
(1,049,666)
(532,430)
(95,434)
8,319,716
642,639
4,543,003
1,605,958
59,939
75,292
(8,430)
(113,528)
-
6,804,873
1,514,843
1,089,549
1,232,084
1,172,380
134,600
1,151,364
(55,119)
(121,503)
(313,383)
4,289,972
659,034
1,232,084
1,172,380
1,436
82,456
(55,119)
(44,364)
(275,501)
2,772,406
1,517,566
49 RELATED PARTY TRANSACTIONS
The Group enters into transaction arrangements and agreements involving major shareholders, directors, management and their related concerns in the ordinary course of business at commercial interest and commission rates.
The following transactions have been entered into with related parties during 2011:
Majorshareholders
LL million
Other related parties
LL million2011 Total LL million
Loans and advances (customers, Head Office, branches and affiliates)
Customers’ deposits (customers, Head Office, branches and affiliates)
Letters of guarantees
Interest income / loans
Interest expense / deposits
Dividend income
Commissions income
Technical assistance fees expense
Technical assistance income
Rent expense
Commission expense
1,156,481
14,504
2,628
4,208
553
14
364
1,552
-
1,713
542
50,873
21,149
2,088
962
1,367
-
-
660
671
-
-
1,207,354
35,653
4,716
5,170
1,920
14
364
2,212
671
1,713
542
The following transactions have been entered into with related parties during 2010:
Majorshareholders
LL million
Other related parties
LL million2011 Total LL million
Loans and advances (customers, Head Office, branches and affiliates)
Customers’ deposits (customers, Head Office, branches and affiliates)
Letters of guarantees
Interest income / loans
Interest expense / deposits
Dividend income
Commissions income
Technical assistance fees expense
Technical assistance income
Rent expense
Commission expense
Purchase of buildings
900,317
9,339
4,126
4,853
1,911
10
458
1,499
-
2,386
2
6,737
36,036
5,535
873
1,235
734
-
-
600
671
-
738
-
936,353
14,874
4,999
6,088
2,645
10
458
2,099
671
2,386
740
6,737
90 91
Compensation of the key management personnel is as follows:
2011LL million
2010LL million
Key management personnel compensation 4,891 4,852
Terms and conditions of transactions with related partiesThe above mentioned transactions arose from the ordinary course of business. The interest charged to and by related parties are at normal commercial rates.
50 IMPAIRED LOANS FULLY PROVIDED FOR TRANSFERRED TO OFF-STATEMENT OF FINANCIAL POSITION
2011LL million
2010LL million
Corporate loans
Retail loans
168,822
19,196
188,018
174,228
18,900
193,128
As per Banking Control Commission Circular no. 240, banks are required to transfer to the off-statement of financial position doubtful loans fully provided for and which meet some additional criteria outlined in the circular.
The movement in allowance for impairment losses for doubtful loans fully provided for was as follows:
2011LL million
2010LL million
Balance at 1 January
Impairment loss during the year
Acquisition of assets and liabilities of the Lebanese Canadian Bank
Transfer from the statement of financial position (note 21)
Transfer to the statement of financial position (note 21)
Write-offs
Provision written-back
Difference of exchange
Balance at 31 December
193,128
9,053
909
-
(9,256)
(5,713)
(14)
(89)
188,018
180,976
8,833
-
8,692
(1,553)
(3,193)
(407)
(220)
193,128
51 FIDUCIARY ACCOUNTS
A summary of the Group’s fiduciary accounts according to law no. 520 dated 6 June 1996 relating to the development of financial markets and fiduciary contracts is as follows:
2011LL million
2010LL million
Deposits with banks
Loans and advances
Equity instruments
Certificates of deposit
146,241
19,790
30,241
9,057
205,329
66,160
13,568
12,231
9,072
101,031
52 ASSETS UNDER MANAGEMENT
2011LL million
2010LL million
Treasury bills and Eurobonds
Bonds and other debt instruments
Equity instruments
Certificates of deposit
Funds
Deposits with banks
Precious metals
209,368
179,179
382,964
51,372
109,043
15,053
8,489
955,468
36,463
52,195
351,642
-
268,888
-
-
709,188
53 CONTINGENT LIABILITIES, COMMITMENTS AND LEASING ARRANGEMENTS
To meet the financial needs of customers, the Group enters into various irrevocable commitments and contingent liabilities. These consist of financial guarantees, letters of credit, acceptance and other undrawn commitments to lend. Even though these obligations may not be recognized on the consolidated statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Group (note 56.1).
Letters of credit, guarantees (including standby letters of credit) and acceptances commit the Group to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Guarantees and standby letters of credit carry the same credit risk as loans.
Legal claimsLitigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Group has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss is reasonably estimated, the Group makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year end, the Group had several unresolved legal claims.
92 93
Capital commitmentsAt 31 December 2011, the Group had capital commitments in respect of premises and equipment purchases amounting to LL 8,228 million (2010: LL 1,453 million).
Operating lease commitments – Group as lesseeThe Group enters into commercial leases on premises. There are no restrictions placed upon the lessee by entering into these leases.
Future minimum lease payments under non-cancelable operating leases as at 31 December are as follow:
2011LL million
2010LL million
Within one year
After one year but not more than five years
More than five years
7,272
16,272
-
23,544
4,575
9,141
705
14,421
Other contingenciesThe Bank’s books and records were reviewed by the Department of Income Tax for the years 2006 and 2007. Accordingly, the Department of Income Tax imposed additional taxes and penalties amounting to LL 2,727 million. The Bank filed an objection against this assessment and provided for estimated potential liabilities of LL 2,637 million as at 31 December 2011. The books and records of the Bank remain subject to review by the Department of Income Tax for the years 2008 to 2011. The ultimate outcome of any review that may take place cannot be presently determined.
The Bank’s contributions to the National Social Security Fund (NSSF) have not been reviewed since May 2004. The ultimate outcome of any review that may take place cannot be presently determined.
The Bank’s books and records have not yet been reviewed by the department of Value Added Tax (VAT) since inception. The ultimate outcome of any VAT review that might take place cannot be presently determined.
Sogecap Liban SAL contributions to the National Social Security Fund (NSSF) have not been reviewed by the NSSF since 2000. The ultimate outcome of any review that may take place cannot presently be determined.
Sogecap Liban SAL’s (a subsidiary) books have been reviewed by the Department of Income Tax for the years 2006, 2007, 2008 and 2009. The results of the review are not final yet. However, the subsidiary has received a preliminary assessment whereby the Department of Income Tax imposed additional taxes and penalties in the amount of LL (000) 557,000. Sogecap Liban SAL provided an amount of LL (000) 603,000 for the year ended 31 December 2011 for this tax and filed an objection against this assessment.
Fidus SAL (a subsidiary) books and records have not been reviewed by the Department of Income Tax since 2007 (inclusive). The ultimate outcome of any review that may take place cannot presently be determined.
Fidus SAL contributions to the National Social Security Funds (NSSF) are being reviewed from 2002 till September 2011. The outcome of this review is not yet determined, however, management believes that any additional contributions and penalties will not have a material effect on the financial position of the subsidiary.
Societe Generale de Banque – Jordanie (a subsidiary) books are being reviewed by the income tax authorities for the years 2010 and 2011. The ultimate outcome cannot presently be determined.
Societe Generale Bank – Cyprus (a subsidiary) books are being reviewed by the income tax authorities. The ultimate outcome cannot presently be determined.
54 FAIR VALUE OF FINANCIAL INSTRUMENTS
Determination of fair value and fair value hierarchyThe Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
Level 1LL million
Level 2LL million
Level 3LL million
TotalLL million
31 December 2011
Financial assets:Derivative financial instruments:
Forward foreign exchange contracts
Financial assets at fair value through other comprehensive income:
SharesDebt securities issued by banks
Equity instruments at fair value through profit or loss:
SharesFunds
Debt instruments at fair value through profit or loss:
Lebanese Treasury bills (LL)Lebanese Treasury bills (Eurobonds)Debt securities issued by banks
Financial liabilities:Derivative financial instruments:
Forward foreign exchange contracts
-
11,53393,534
105,067
14,053 11,011
25,064
- 9,239
24,855
34,094
164,225
-
1,559
4,499 -
4,499
12,584 -
12,584
20,558 - -
20,558
39,200
(7,655)
-
- -
-
- -
-
- - -
-
-
-
1,559
16,032 93,534
109,566
26,637 11,011
37,648
20,558 9,239
24,855
54,652
203,425
(7,655)
94 95
Level 1LL million
Level 2LL million
Level 3LL million
TotalLL million
31 December 2010
Financial assets:Derivative financial instruments:
Forward foreign exchange contracts
Financial assets – held-for-trading:Shares
Equity instruments at fair value through profit or loss:
SharesFunds
Financial investments – available-for-sale:Lebanese Treasury bills (LL) Lebanese Treasury bills (Eurobonds) Shares Corporate bonds Debt securities issued by banks
Financial liabilities:Derivative financial instruments:
Forward foreign exchange contracts
-
198
7,494 2,143
9,637
-
392,197 14,134 15,206
150,519
572,056
581,891
-
559
6
- -
-
661,618
- - -
661,618
662,183
(2,758)
-
-
- -
-
- - - -
-
-
-
559
204
7,494 2,143
9,637
661,618 392,197 14,134 15,206
150,519
1,233,674
1,244,074
(2,758)
Financial instruments recorded at fair valueThe following is a description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These incorporate the Group’s estimate of assumptions that a market participant would make when valuing the instruments.
DerivativesDerivative products valued using a valuation technique with market observable inputs are interest rate swaps and forward foreign exchange contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including foreign exchange spot and forward rates and interest rate curves.
Equity and debt instruments at fair value through profit or loss (from 1 January 2011)Equity and debt instruments at fair value through profit or loss valued using valuation techniques or pricing models consist of unquoted shares and Treasury bills denominated in LL. These assets are valued using models which only incorporate data observable in the market.
Financial investments – available-for-sale (prior to 1 January 2011)Available-for-sale financial assets valued using a valuation technique or pricing models primarily consist of unquoted Treasury bills denominated in Lebanese Lira.
These assets are valued using models which only incorporate data observable in the market.
Financial assets held-for-trading (prior to 1 January 2011)Held-for-trading financial assets comprise over the counter financial instruments purchased from counterparties. Fair value is provided using valuation models which use discounted cash flow analysis which incorporates either only observable data or both observable and non-observable data.
Set out below is a comparison by class of the carrying amounts and fair values of the Group’s financial instruments that are not carried at fair value in the consolidated financial statements. The table does not include the fair values of non-financial assets and non-financial liabilities.
2011 2010Carrying value
LL millionFair valueLL million
Carrying valueLL million
Fair valueLL million
Financial assets
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Loans to banks and financial institutions
Financial assets pledged as collateral
Loans and advances to customers, net
Loans and advances to related parties, net
Debt instruments at amortized cost
Financial assets classified as loans and receivables
Financial Investmements – held-to-maturity
Financial liabilities
Due to Central Banks
Due to banks and financial institutions
Repurchase agreements with a Central Bank
Amounts due to Head Office, branches and affiliates
Customers’ deposits
Related parties’ deposits
2,040,254
405,505
1,402,526
11,686
27,875
4,322,223
58,734
6,474,941
-
-
14,743,744
67,061
532,430
982,605
95,434
12,929,279
35,640
14,642,449
2,040,254
405,505
1,402,526
11,686
28,616
4,322,223
58,734
6,512,307
-
-
14,781,851
67,034
532,430
982,605
95,434
12,929,279
35,640
14,642,422
1,089,549
134,600
1,151,364
-
8,683
2,072,306
45,601
-
1,276,583
303,807
6,082,493
55,119
121,503
-
313,383
6,146,520
13,311
6,649,836
1,089,549
134,600
1,151,364
-
8,926
2,072,306
45,601
-
1,342,005
306,473
6,150,824
56,062
121,503
-
313,383
6,146,520
13,311
6,650,779
96 97
Fair value of financial assets and liabilities not carried at fair valueThe following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the consolidated financial statements:
Assets for which fair value approximates carrying valueFor financial assets and financial liabilities that have a short term maturity (less than three months) it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, and savings accounts without a specific maturity.
Fixed rate financial instrumentsThe fair value of fixed rate financial assets and liabilities carried at amortized cost are estimated by comparing market interest rates when they were first recognized with current market rates for similar financial instruments. The Group does not have fixed interest bearing deposits with a maturity greater than one year.
55 MATURITY ANALYSIS OF ASSETS AND LIABILITIES
The table below shows an analysis of assets and liabilities analyzed according to when they are expected to be recovered or settled.
Less than one year
LL million
More than one year
LL millionTotal
LL million
At 31 December 2011
ASSETS
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Loans to banks and financial institutions
Derivative financial instruments
Financial assets pledged as collateral
Equity instruments at fair value through profit or loss
Debt instruments at fair value through profit or loss
Loans and advances to customers, net
Loans and advances to related parties, net
Debtors by acceptances
Investments in non-consolidated subsidiaries
Debt instruments at amortized cost
Financial assets at fair value through other comprehensive income
Property and equipment
Intangible assets
Non-current assets held for sale
Other assets
Other intangible assets and goodwill
TOTAL ASSETS
1,249,327
405,505
1,402,526
1,396
1,599
18,520
37,290
54,652
2,014,620
58,646
110,860
-
1,117,121
2,134
5,016
8,473
133,425
59,231
-
6,680,341
790,927
-
-
10,290
-
9,355
358
-
2,307,603
88
-
63,143
5,357,820
107,432
213,342
2,082
12,885
12,393
192,492
9,080,210
2,040,254
405,505
1,402,526
11,686
1,599
27,875
37,648
54,652
4,322,223
58,734
110,860
63,143
6,474,941
109,566
218,358
10,555
146,310
71,624
192,492
15,760,551
Less than one year
LL million
More than one year
LL millionTotal
LL million
LIABILITIESDue to Central Banks
Repurchase agreements with a Central Bank
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Derivative financial instruments
Customers’ deposits
Related parties’ deposits
Engagements by acceptances
Other liabilities
Provision for risks and charges
TOTAL LIABILITIES
NET
39,639
982,605
516,653
95,434
7,655
12,808,526
35,640
110,860
98,836
859
14,696,707
(8,016,366)
27,422
-
15,777
-
-
120,753
-
-
77,279
39,397
280,628
8,799,582
67,061
982,605
532,430
95,434
7,655
12,929,279
35,640
110,860
176,115
40,256
14,977,335
783,216
Less than one year
LL million
More than one year
LL millionTotal
LL million
At 31 December 2010
ASSETSCash and balances with the Central Banks
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Derivative financial instruments
Financial assets pledged as collateral
Equity instruments at fair value through profit or loss
Financial investments – held-to-maturity
Loans and advances to customers, net
Loans and advances to related parties, net
Debtors by acceptances
Financial investments – available-for-sale
Financial assets classified as loans and receivables
Financial assets held-for-trading
Investments in non-consolidated subsidiaries
Property and equipment
Intangible assets
Non-current assets held for sale
Other assets
Other intangible assets and goodwill
TOTAL ASSETS
720,211
134,600
1,121,508
559
8,683
9,637
261,757
1,018,332
45,312
76,885
271,285
117,270
-
-
2,537
1,507
100,900
-
-
3,890,983
369,338
-
29,856
-
-
-
42,050
1,053,974
289
-
966,624
1,159,313
204
2,875
75,775
1,722
12,420
33,303
23,824
3,771,567
1,089,549
134,600
1,151,364
559
8,683
9,637
303,807
2,072,306
45,601
76,885
1,237,909
1,276,583
204
2,875
78,312
3,229
113,320
33,303
23,824
7,662,550
98 99
Less than one year
LL million
More than one year
LL millionTotal
LL million
LIABILITIESDue to Central BanksDue to banks and financial institutionsAmounts due to Head Office, branches and affiliatesDerivative financial instrumentsCustomers’ depositsRelated parties’ depositsEngagements by acceptancesOther liabilitiesProvision for risks and charges
TOTAL LIABILITIES
NET
46,68988,060
283,5282,758
6,126,21813,31176,88581,3831,110
6,719,942
(2,828,959)
8,43033,44329,855
-20,302
--
66,64232,915
191,587
3,579,980
55,119121,503313,383
2,7586,146,520
13,31176,885
148,02534,025
6,911,529
751,021
56 RISK MANAGEMENT
The Group devotes significant resources to the ongoing adaptation of its risk management framework, in order to keep pace with the increasing diversification of its activities. The risk management is implemented in compliance with the two following fundamental principles:• risk assessment departments are completely independent from the operating divisions• a consistent approach to risk assessment and monitoring is applied at the Group level
a) Risk management structureThe Board of Directors is ultimately responsible for identifying and controlling risks; however, there are separate independent bodies responsible for managing and monitoring risks.
Board of DirectorsThe Board of Directors is responsible for the overall risk management approach and for approving the risk strategies and principles.
Risk ManagementThe Risk Management Unit is responsible for implementing and maintaining risk related procedures to ensure an independent control process.
Group TreasuryGroup Treasury is responsible for managing the Group’s assets and liabilities and the overall financial structure. It is also primarily responsible for the funding and liquidity risks of the Group.
Internal AuditRisk management processes throughout the Group are audited annually by the internal audit function, that examines both the adequacy of the procedures and the Group’s compliance with the procedures. Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Board of Directors.
b) Risk measurement and reporting systemsIn 2003, the Group launched a major project to quantify its credit risks using a RAROC (Risk-Adjusted Return on Capital) approach. One of the main objectives is to establish, using quantitative methods, the level of loss expected on credit transactions over the course of the business cycle.
Taking advantage of the experience gained on this project, the Group has also begun work to upgrade its risk management procedures in line with Basel II and III standards.
Monitoring and controlling risks is primarily performed based on limits established by the Group. These limits reflect the business strategy and market environment of the Group as well as the level of risk that the Group is willing to accept, with additional emphasis on selected industries. In addition, the Group monitors and measures the overall risk-bearing capacity in relation to the aggregate risk exposure across all risk types and activities.
c) Risk mitigationAs part of its overall risk management, the Group uses derivatives and other instruments to manage exposures resulting from changes in interest rates, foreign currencies, credit risks, and exposures arising from forecast transactions.
The Group actively uses collateral to reduce its credit risks.
d) Excessive concentrationThe Group also attempts to control credit risk by regular monitoring of its credit exposures and continuous assessment of the creditworthiness of counterparties by the credit risk committee.
56.1 CREDIT RISKCredit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentrations, and by monitoring exposures in relation to such limits.
The Group has established a credit quality review process to provide early identification of possible changes in the creditworthiness of counterparties, including regular collateral revisions. Counterparty limits are established by the use of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the Group to assess the potential loss as a result of the risks to which it is exposed and take corrective action. The risk rating system, which is managed by an independent unit, provides a rating based on client and transaction level. The classification system includes ten grades, of which five grades relate to the performing portfolio (credit facilities which are neither past due nor impaired: risk rating “1”, “2”, “3”, “4” and “5”( and credit facilities which are past due but not impaired )risk rating “6a” and “6c”), substandard individually impaired loans (risk rating 6b) and doubtful individually impaired loans (risk rating 7 and 8). The Group uses the above internal rating system for the classifications of all of its financial assets portfolio.
Derivative financial instrumentsCredit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as recorded on the consolidated statement of financial position. In the case of credit derivatives, the Group is also exposed to or protected from the risk of default of the underlying entity referenced by the derivative.
With gross-settled derivatives, the Group is also exposed to a settlement risk, being the risk that the Group honors its obligation but the counterparty fails to deliver the counter-value.
Credit-related commitments riskThe Group makes available to its customers guarantees which may require that the Group makes payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit) commit the Group to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Such commitments expose the Group to similar risks as loans and are mitigated by the same control processes and policies.
Risk concentrations: maximum exposure to credit risk without taking account of any collateral and other credit enhancements
The Group’s concentrations of risk are managed by client/counterparty and by geographical region. The maximum credit exposure to any client or counterparty as at 31 December 2011 was LL 1,887,794 million (2010: LL 899,158 million) before taking account of collateral or other credit enhancements and LL 838,128 million (2010: LL 844,039 million) net of such protection.
The following table shows the maximum exposure to credit risk for the components of the consolidated statement of financial position, including derivatives, by geography before the effect of mitigation through the use of master netting and collateral agreements. Where financial instruments are recorded at fair value, the amounts shown represent the current credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values.
100 101
2011 2010
LebanonLL million
Outside LebanonLL million
TotalLL million
LebanonLL million
Outside LebanonLL million
TotalLL million
Financial assets
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Derivative financial instruments
Financial assets pledged as collateral - Lebanese Treasury bills
Equity instruments at fair value through profit or loss - Shares - Funds
Debt instruments at fair value through profit or loss - Lebanese Treasury bills - Debt securities issued by banks
Financial assets held-for-trading - Shares
Amounts due from Head Office, branches and affiliates
Loans to banks and financial institutions
Loans and advances to customers, net
Loans and advances related parties, net
Financial investments – available-for-sale - Lebanese Treasury bills - Shares - Other debt securities
Financial assets classified as loans and receivables - Lebanese Treasury bills - Certificates of deposit
Financial investments – held-to-maturity - Lebanese Treasury bills - Corporate bonds - Other governmental debt securities
Debt instruments at amortized cost - Lebanese Treasury bills - Other governmental debt securities - Certificates of deposit - Other debt securities
Financial assets at fair value through other comprehensive income - Shares - Debt securities issued by banks
1,922,469
260,779
980
27,875
13,404 -
29,797 -
-
5,307
623
3,288,384
54,565
- - -
- -
- -
-
4,485,331
- 1,609,083
-
14,279 -
11,712,876
117,785
144,726
619
-
13,233 11,011
- 24,855
-
1,397,219
11,063
1,033,839
4,169
- - -
- -
- -
-
-
314,140 -
66,387
1,753 93,534
3,234,333
2,040,254
405,505
1,599
27,875
26,637 11,011
29,797 24,855
-
1,402,526
11,686
4,322,223
58,734
- - -
- -
- -
-
4,485,331 314,140
1,609,083 66,387
16,032 93,534
14,947,209
921,082
55,504
364
8,683
- -
- -
202
541
-
1,250,316
41,431
1,053,815
15,306 -
104,203 1,172,380
74,066
-
-
- - - -
- -
4,697,893
168,467
79,096
195
-
7,494 2,143
- -
2
1,150,823
-
821,990
4,170
- 3,063
165,725
- -
-
18,565
211,176
- - - -
- -
2,632,909
1,089,549
134,600
559
8,683
7,494 2,143
- -
204
1,151,364
-
2,072,306
45,601
1,053,815 18,369
165,725
104,203 1,172,380
74,066 18,565
211,176
- - - -
- -
7,330,802
Collateral and other credit enhancementsThe amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.
The main types of collateral obtained are as follows: • For commercial lending: mortgage over real estate properties, liens over inventory and trade receivables,
cash and securities• For retail lending: mortgages over residential properties, vehicles etc.
Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for impairment losses.
It is the Group’s policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Group does not occupy repossessed properties for business use.
Credit quality per class of financial assetsThe credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows the credit quality by class of asset based on the Group’s internal credit rating system. The amounts presented are gross of impairment allowances.
2011Neither past
due nor impaired
LL million
Past due but not
impairedLL million
Individually impaired
TotalLL million
SubstandardLL million
DoubtfulLL million
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Loans to banks and financial institutions
Amounts due from Head Office, branches and affiliates
Derivative financial instruments
Equity instruments at fair value through profit or loss - Shares - Funds
Debt instruments at fair value through profit or loss - Lebanese Treasury bills - Debt securities issued by banks
Loans and advances to customers - Corporate - Retail
Loans and advances to related parties - Corporate - Retail
Financial assets pledged as collateral - Lebanese Treasury bills
Debt instruments at amortized cost - Lebanese Treasury bills - Other governmental debt securities - Certificates of deposit - Other debt securities
Financial assets at fair value through other comprehensive income - Shares - Debt securities issud by banks
Moody’s equivalent
2,040,254
403,597
1,396
1,402,526
1,599
26,637 11,011
29,797 24,855
2,515,530 1,650,894
54,298 4,328
27,875
4,485,331
314,140 1,609,083
66,387
16,032 93,534
14,779,104
Aaa – B3*
-
-
-
-
-
- -
- -
14,028 2,076
- -
-
- - - -
- -
16,104
Not rated
-
-
-
-
-
- -
- -
17,857 18,300
- -
-
- - - -
- -
36,157
Not rated
-
3,815
16,099
5,039
-
22,612 -
- -
489,714 257,262
8,625
-
-
- - -
1,153
15 -
804,334
Not rated
2,040,254
407,412
17,495
1,407,565
1,599
49,249 11,011
29,797 24,855
3,037,129 1,928,532
62,923
4,328
27,875
4,485,331
314,140 1,609,083
67,540
16,047 93,534
15,635,699
Not rated
102 103
2010Neither past
due nor impaired
LL million
Past due but not
impairedLL million
Individually impaired
TotalLL million
SubstandardLL million
DoubtfulLL million
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Derivative financial instruments
Financial assets held-for-trading - Shares
Equity instruments at fair value through profit or loss - Shares - Funds
Loans and advances to customers - Corporate - Retail
Loans and advances to related parties - Corporate - Retail
Financial investments – available-for-sale - Lebanese Treasury bills - Shares - Other debt securities
Financial assets classified as loans and receivables - Lebanese Treasury bills - Certificates of deposit
Financial assets pledged as collateral - Lebanese Treasury bills
Financial investments – held-to-maturity - Lebanese Treasury bills - Corporate bonds - Other governmental debt securities
Moody’s equivalent
1,089,549
134,600
1,151,364
559
204
7,494 2,143
931,590 993,044
32,560 6,362
1,053,815
18,369 165,725
104,203 1,172,380
8,683
74,066 18,565
211,176
7,176,451
Aaa – B3*
-
-
-
-
-
- -
241 763
- -
- - -
- -
-
- - -
1,004
Not rated
-
-
-
-
-
- -
54,915 37,768
- -
- - -
- -
-
- - -
92,683
Not rated
-
-
-
-
-
- -
461,542 140,232
14,440
-
-
15 -
- -
-
- - -
616,229
Not rated
1,089,549
134,600
1,151,364
559
204
7,494 2,143
1,448,288 1,171,807
47,000 6,362
1,053,815
18,384 165,725
104,203 1,172,380
8,683
74,066 18,565
211,176
7,886,367
Not rated
(*) Due from Head Office, branches and affiliates, derivative financial instruments, loans and advances to customers, loans and advances to related parties and financial assets held-for-trading are not rated by Moody’s.
It is the Group’s policy to maintain accurate and consistent risk rating across the credit portfolio. This facilitates focused management of the applicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system is supported by a variety of financial analytics, combined with processed market information to provide the main inputs for the measurement of counterparty risk. All internal risk ratings are tailored to the various categories and are derived in accordance with the Group’s rating policy. The attributable risks are assessed and updated regularly.
Carrying amount by class of financial assets whose terms have been renegotiated.The table below shows the carrying amount of renegotiated financial assets by class:
2011LL million
2010LL million
Corporate loans
Retail loans
26,934
52,332
79,266
34,307
16,508
50,815
Impairment assessmentFor accounting purposes, the Group uses an incurred loss model for the recognition of losses on impaired financial assets. This means that losses can only be recognized when objective evidence of a specific loss event has been observed. Triggering events include the following:• Significant financial difficulty of the customer;• A breach of contracts such as default of payment;• Where the Group grants the customer a concession due to the customer experiencing financial difficulty;• It becomes probable that the customer will enter bankruptcy or other financial reorganisation;• Observable data that suggests that there is a decrease in the estimated future cash flows of the loan.
Individually assessed allowancesThe Group determines the allowance appropriate for each individually significant loan or advance on an individual basis, including any overdue payments of interests, credit rating downgrades, or infringement of the original terms of the contract. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance once a financial difficulty has risen, projected receipts and the expected payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral and the timing of the expected cash flows. Impairment allowances are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.
Collectively assessed allowancesAllowances are assessed collectively for losses on loans and advances, debt securities classified as loans and receivables and held to maturity that are not individually significant (including credit cards, residential mortages and unsecured consumer lending) and for individually significant loans that have been assessed individually and found not to be impaired. Allowances are evaluated separately at each reporting date with each portfolio.
The Group generally bases its analysis on historical experience. However, when there are significant market developments, regional and / or global, such as the market turmoil in 2007 / 2008, the Group would include macroeconomic factors within its assessments. These factors include, depending on the characteristics of the individual or collective assessment: unemployment rates, current levels of bad debts, changes in laws, changes in regulations, bankruptcy trends, and other consumer data. The Group may use the aforementioned factors as appropriate to adjust the impairment allowances.
The collective assessment is made for groups of assets with similar risk characteristics, in order to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as historical losses on the portfolio, levels of arrears, credit utilization, loan to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and local or industry-specific problems). This approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. Local
104 105
management is responsible for deciding the length of this period which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignment with the Group’s overall policy.
Financial guarantees and letters of credit are assessed and provisions are made in a similar manner as for loans.
Commitments and guaranteesTo meet the financial needs of customers, the Group enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognized on the consolidated statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Group.
The table below shows the Group’s maximum credit risk exposure for commitments and guarantees.
The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Group could have to pay if the guarantee is called on. The maximum exposure to credit risk relating to a loan commitment is the full amount of the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognized as a liability in the consolidated statement of financial position.
2011LL million
2010LL million
Financial guarantees
Letters of credit
Undrawn commitments to lend
Acceptances
348,473
164,962
791,307
110,860
1,415,602
175,210
151,464
577,856
76,885
981,415
56.2 MARKET RISK Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market prices.
Market risk arises from fluctuations in interest rates, foreign exchange rates and equity prices. The Board has set limits on the value of risk that may be accepted. This is monitored on a weekly basis by the Asset and Liability Committee.
56.2.1 INTEREST RATE RISK Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Group is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets, liabilities and off-statement of financial position items which will mature or reprice in a particular period. The Group manages this risk by matching the repricing of assets and liabilities through risk management strategies.
Interest rate sensitivityThe following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the Group’s consolidated income statement and consolidated equity.
The sensitivity of the consolidated income statement is the effect of the assumed changes in interest rates on the profit or loss for the year, based on the floating rate financial assets and financial liabilities held at 31 December, including the effect of hedging instruments. The sensitivity of equity is calculated by revaluing fixed rate available-for-sale financial assets (applicable prior to 1 January 2011) and fixed rate financial
assets at fair value through other comprehensive income (from 1 January 2011), including the effect of any associated hedges and swaps designated as cash flow hedges, at 31 December for the effects of the assumed changes in interest rates. The total sensitivity of equity is based on the assumption that there are parallel shifts in the yield curve.
2011 2010
Currency
Increase/ decrease in basis points
LL million
Sensitivity of profit or loss
LL million
Sensitivity of equity
LL million
Increase/ decrease in basis points
LL million
Sensitivity of profit or loss
LL million
Sensitivity of equity
LL million
Lebanese Lira
US Dollars
Euro
Lebanese Lira
US Dollars
Euro
+ 50
+ 50
+ 50
- 50
- 50
- 50
(8,427)
(7,818)
(227)
8,427
7,818
227
(514)
(692)
-
531
709
-
+ 50
+ 50
+ 50
- 50
- 50
- 50
906
1,302
292
(906)
(1,302)
(292)
(2,734)
(2,016)
(41)
2,784
9,444
41
Interest sensitivity gapThe table below analyses the Group’s interest risk exposure on financial assets and liabilities. The Group’s assets and liabilities are included at carrying amount and categorized by the earlier of contractual repricing or maturity date.
2011 (LL million)
Up to 1month
1 to 3months
3 monthsto 1 year
1 to 2years
2 to 5years
Over 5years
Non interestbearing Total
ASSETS
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Loans to banks and financial institutions
Financial assets pledged as collateral
Derivative financial instruments
Equity instruments at fair value through profit or loss
Debt instruments at fair value through profit or loss
Loans and advances to customers
Loans and advances to related parties
Debt instruments at amortized cost
Financial assets at fair value through other comprehensive income
TOTAL ASSETS
LIABILITIES
Due to Central Banks
Repurchase agreements with a Central Bank
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Customers’ deposits
Related parties’ deposits
TOTAL LIABILITIES
Total interest sensitivity gap
1,146,370
246,001
1,312,965
11,686
-
-
-
-
1,581,699
53,024
123,806
-
4,475,551
-
-
302,340
92,922
8,866,873
35,457
9,297,592
(4,822,041)
557,775
24,913
65,687
-
18,520
-
-
8
523,578
56
270,487
-
1,461,024
8,430
982,605
74,148
-
2,155,592
-
3,220,775
(1,759,751)
200,000
49,444
15,565
-
-
-
-
-
1,069,743
5,586
648,183
-
1,988,521
-
-
138,914
-
1,265,788
-
1,404,702
583,819
-
-
-
-
-
-
-
1,209
374,396
24
1,309,142
8,596
1,693,367
-
-
4,677
-
83,297
-
87,974
1,605,393
-
-
-
-
9,355
-
-
13,758
446,873
43
1,528,082
23,307
2,021,418
18,753
-
8,826
-
29,127
-
56,706
1,964,712
-
10,291
-
-
-
-
-
39,677
294,577
1
2,479,648
59,835
2,884,029
-
-
2,274
-
6,244
-
8,518
2,875,511
136,109
74,856
8,309
-
-
1,599
37,648
-
31,357
-
115,593
17,828
423,299
39,878
-
1,251
2,512
522,358
183
566,182
(142,883)
2,040,254
405,505
1,402,526
11,686
27,875
1,599
37,648
54,652
4,322,223
58,734
6,474,941
109,566
14,947,209
67,061
982,605
532,430
95,434
12,929,279
35,640
14,642,449
304,760
106 107
2010 (LL million)
Up to 1month
1 to 3months
3 monthsto 1 year
1 to 2years
2 to 5years
Over 5years
Non interestbearing Total
ASSETS
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Amounts due from Head Office, branches and affiliates
Derivative financial instruments
Financial assets pledged as collateral
Equity instrument at fair value through profit or loss
Loans and advances to customers
Loans and advances to related parties
Financial investments – available-for-sale
Financial assets classified as loans and receivables
Financial investments held-to-maturity
TOTAL ASSETS
LIABILITIES
Due to Central Banks
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Customers’ deposits
Related parties’ deposits
TOTAL LIABILITIES
Total interest sensitivity gap
645,852
80,180
1,004,416
-
-
-
545,563
40,972
32,067
-
531
2,349,581
-
77,204
22,867
4,192,435
12,456
4,304,962
(1,955,381)
226,123
-
89,885
-
-
-
445,770
83
51,693
-
11,490
825,044
8,431
5,158
-
1,440,150
803
1,454,542
(629,498)
-
5
19,974
-
8,683
-
814,567
4,456
168,499
84,926
55,898
1,157,008
45,567
21,783
260,421
397,548
-
725,319
431,689
-
-
29,856
-
-
-
133,564
23
156,390
40,726
183,691
544,250
-
4,894
29,855
14,772
-
49,521
494,729
-
-
-
-
-
-
115,405
60
275,793
1,009,219
50,465
1,450,942
-
9,716
-
483
-
10,199
1,440,743
-
-
-
-
-
-
11,961
7
516,732
109,368
-
638,068
-
2,609
-
5,047
-
7,656
630,412
217,574
54,415
7,233
559
-
9,637
5,476
-
36,735
32,344
1,732
365,705
1,121
139
240
96,085
52
97,637
268,068
1,089,549
134,600
1,151,364
559
8,683
9,637
2,072,306
45,601
1,237,909
1,276,583
303,807
7,330,598
55,119
121,503
313,383
6,146,520
13,311
6,649,836
680,762
56.2.2 CURRENCY RISKCurrency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group has set limits on positions by currency. In accordance with the Group’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits.
The table below indicates the currencies to which the Group had significant exposure at 31 December on its non-trading monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of a reasonably possible movement of the currency rate against the Lebanese Lira, with all other variables held constant, on the consolidated income statement (due to fair value of currency sensitive non-trading monetary assets and liabilities) and consolidated equity (due to the change in fair value of currency swaps and forward foreign exchange contracts used as cash flow hedges). A negative amount in the table reflects a potential net reduction in consolidated income statement or equity, while a positive amount reflects a net potential increase. An equivalent decrease in each of the below currencies against the Lebanese Lira would have resulted in an equivalent but opposite impact.
2011 2010
Currency
Change in currency
rate in %
Effect on profit
before taxLL million
Effect on equityLL million
Change in currency rate
in %
Effect on profit
before taxLL million
Effect on equityLL million
US Dollars
Euro
+2.5
+2.5
(597)
259
2,006
613
+2.5
+2.5
88
(1)
3,783
772
The following consolidated statements of financial position as at 31 December 2011 and 2010 are detailed in Lebanese Lira (LL million) and foreign currencies, primarily US$, translated into LL million:
31 December 2011 31 December 2010
LL million
Foreign currencies in
LL million Total
LL million LL million
Foreign currencies in
LL millionTotal
LL million
ASSETS
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Loans to banks and financial institutions
Amounts due from head office, branches and affilitates
Derivative financial instruments
Equity instruments at fair value through profit or loss
Debt instruments at fair value through profit or loss
Loans and advances to customers, net
Loans and advances to related parties, net
Debtors by acceptances
Financial assets held-for-trading
Financial investments – available-for-sale
Financial assets classified as loans and receivables
Financial investments – held-to-maturity
Debt instruments at amortized cost
Financial assets pledged as collateral
Financial assets at fair value through other comprehensive income
Investments in non-consolidated subsidiaries
Property and equipment
Intangible assets
Non-current assets held for sale
Other assets
Other intangible assets and goodwill
TOTAL ASSETS
LIABILITIES
Due to Central Banks
Repurchase agreements with a Central bank
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Derivative financial instruments
Customers’ deposits
Related parties’ deposits
Engagement by acceptances
Other liabilities
Provision for risks and charges
TOTAL LIABILITIES
NET EXPOSURE
728,486
61,347
-
1,535
609
-
15,598
1,019,876
112
-
-
-
-
-
3,863,045
27,875
521
3,204
154,372
9,467
10,868
44,384
1,011
5,942,310
27,496
401,515
19,117
206
7,324
4,616,269
1,759
-
10,407
29,221
5,113,314
828,996
1,311,768
344,158
11,686
1,400,991
990
37,648
39,054
3,302,347
58,622
110,860
-
-
-
-
2,611,896
-
109,045
59,939
63,986
1,088
135,442
27,240
191,481
9,818,241
39,565
581,090
513,313
95,228
331
8,313,010
33,881
110,860
165,708
11,035
9,864,021
(45,780)
2,040,254
405,505
11,686
1,402,526
1,599
37,648
54,652
4,322,223
58,734
110,860
-
-
-
-
6,474,941
27,875
109,566
63,143
218,358
10,555
146,310
71,624
192,492
15,760,551
67,061
982,605
532,430
95,434
7,655
12,929,279
35,640
110,860
176,115
40,256
14,977,335
783,216
403,051
9,017
-
-
373
-
-
344,367
639
-
-
662,089
664,202
46,849
-
8,683
-
2,875
72,900
2,162
(2,369)
10,422
1,011
2,226,271
55,119
-
12,344
33
2,730
1,842,976
1,624
-
28,498
15,493
1,958,817
267,454
686,498
125,583
-
1,151,364
186
9,637
-
1,727,939
44,962
76,885
204
575,820
612,381
256,958
-
-
-
-
5,412
1,067
115,689
22,881
22,813
5,436,279
-
-
109,159
313,350
28
4,303,544
11,687
76,885
119,527
18,532
4,952,712
483,567
1,089,549
134,600
-
1,151,364
559
9,637
-
2,072,306
45,601
76,885
204
1,237,909
1,276,583
303,807
-
8,683
-
2,875
78,312
3,229
113,320
33,303
23,824
7,662,550
55,119
-
121,503
313,383
2,758
6,146,520
13,311
76,885
148,025
34,025
6,911,529
751,021
56.2.3 EQUITY PRICE RISKEquity price risk is the risk that the fair value of equities decreases as the result of changes in the level of equity indices and individual stocks. A 10 percent increase in the value of the Group’s equities at 31 December 2011 would have increased equity by LL 1,132 million (2010: LL 1,413 million). An equivalent decrease would have resulted in an equivalent but opposite impact.
56.2.4 PREPAYMENT RISKPrepayment risk is the risk that the Group will incur a financial loss because its customers and counterparties repay or request repayment earlier than expected. The fixed rate asset of the Group is not significant
108 109
compared to the total assets. Moreover, other market conditions causing prepayment is not significant in the markets in which the Group operates. Therefore the Group considers the effect of prepayment on net interest income not material after taking into account the effect of any prepayment penalties.
56.3 LIQUIDITY RISK AND FUNDING MANAGEMENTLiquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Group might be unable to meet its payment obligations when they fall due under normal and stress circumstances. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain sources of funding to dry up immediately. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and of monitoring future cash flows and liquidity on a daily basis. The Group has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which would be used to secure additional funding if required.
The Group maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption of cash flow. The Group also has committed lines of credit that it can access to meet liquidity needs. In addition, the Group maintains a statutory deposit with the Central Banks on customer deposits. In accordance with the Group’s policy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Group. The most important of these is to maintain limits on the ratio of net liquid assets to customers’ liabilities, set to reflect market conditions. Net liquid assets consist of cash, short-term bank deposits and liquid debt securities available for immediate sale, less deposit from banks and other issued securities and borrowings due to mature within the next month. The ratio during the year was as follows:
2011 %
2010 %
Advances to deposit ratio
Year-end
Average
Maximum
Minimum
34.78
34.23
36.13
31.62
34.71
37.07
39.13
34.71
The Group stresses the importance of current accounts and savings accounts as sources of funds to finance lending to customers. They are monitored using the advances to deposit ratio, which compares loans and advances to customers as a percentage of core customer current and savings accounts, together with term funding with a remaining term to maturity in excess of one year. Loans to customers that are part of reverse repurchase arrangements, and where the Group receives securities which are deemed to be liquid, are excluded from the advances to deposits ratio.
2011 %
2010 %
Net liquid assets to customer liabilities ratios
Year-end
Average
Maximum
Minimum
25.56
33.88
44.93
24.00
35.72
31.68
35.84
26.32
The Group defines liquid assets for the purposes of the liquidity ratio as cash balances, short-term interbank deposits and highly rated debt securities available for immediate sale and for which a liquid market exists.
The table below summarizes the maturity profile of the undiscounted cash flows of the Group’s financial assets and liabilities as at 31 December. Trading derivatives are shown at fair value in a separate column. All derivatives used for hedging purposes are shown by maturity, based on their contractual undiscounted repayment obligations.
Repayments which are subject to notice are treated as if notice were being given immediately. However, the Group expects that many customers will not request repayment on the earliest date the Group could be required to pay and the table does not reflect the expected cash flows indicated by the Group’s deposit retention history.
31 December 2011Trading
derivativeLL million
Up to 1month
LL million
1 to 3months
LL million
3 months to 1 year
LL million
1 to 5 years
LL million
Over 5years
LL millionTotal
LL million
Financial assets
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Loans to banks and financial institutions
Amount due from Head Office, branches and affiliates
Derivative financial instruments
Equity instruments at fair value through profit or loss
Debt instruments at fair value through profit or loss
Loans and advances to customers, net
Loans and advances to related parties, net
Financial assets pledged as collateral
Debt instruments at amortized cost
Financial assets at fair value through other comprehensive income
Total undiscounted financial assets
Financial liabilities
Due to Central Banks
Repurchase agreement with a Central Bank
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Derivative financial instruments
Customers’ deposits
Related parties’ deposits
Total undiscounted financial liabilities
Total net financial assets (liabilities)
-
-
-
-
1,599
-
-
-
-
-
-
-
1,599
-
-
-
-
7,655
-
-
7,655
(6,056)
850,515
344,383
983
1,321,696
-
37,290
716
935,958
54,329
692
194,003
2,134
3,742,699
39,640
2,217
303,995
95,840
-
9,436,905
36,841
9,915,438
(6,172,739)
69,566
24,854
413
66,872
-
-
8
271,460
125
18,429
276,478
-
728,205
-
1,022,256
74,175
-
-
2,174,266
-
3,270,697
(2,542,492)
339,994
37,350
-
18,065
-
-
-
799,286
4,196
-
744,073
-
1,942,964
-
-
141,023
-
-
1,382,099
-
1,523,122
419,842
831,270
-
-
-
-
358
6,634
1,395,426
71
11,506
3,550,383
6,261
5,801,909
27,792
-
13,503
-
-
124,877
-
166,172
5,635,737
-
-
10,290
-
-
-
88,578
1,349,945
20
-
3,467,662
215,630
5,132,125
-
-
2,274
-
-
7,916
-
10,190
5,121,935
2,091,345
406,587
11,686
1,406,633
1,599
37,648
95,936
4,752,075
58,741
30,627
8,232,599
224,025
17,349,501
67,432
1,024,473
534,970
95,840
7,655
13,126,063
36,841
14,893,274
2,456,227
110 111
31 December 2010Trading
derivativeLL million
Up to 1month
LL million
1 to 3months
LL million
3 months to 1 yearLL million
1 to 5 years
LL million
Over 5years
LL millionTotal
LL million
Financial assets
Cash and balances with the Central Banks
Deposits with banks and financial institutions
Amount due from Head Office, branches and affiliates
Derivative financial instruments
Financial assets pledged as collateral
Financial assets held-for-trading
Equity instruments at fair value through profit or loss
Loans and advances to customers, net
Loans and advances to related parties, net
Financial investments – available-for-sale
Financial assets classified as loans and receivables
Financial investments – held-to-maturity
Total undiscounted financial assets
Financial liabilities
Due to Central Banks
Due to banks and financial institutions
Amounts due to Head Office, branches and affiliates
Derivative financial instruments
Customers’ deposits
Related parties’ deposits
Total undiscounted financial liabilities
Total net financial assets (liabilities)
-
-
-
559
-
-
-
-
-
-
-
-
559
-
-
-
2,758
-
-
2,758
(2,199)
652,502
134,594
1,011,735
-
252
-
-
221,977
38,894
57,218
33,882
212,654
2,363,708
1,121
77,349
23,275
-
4,281,489
12,509
4,395,743
(2,032,035)
-
-
90,222
-
-
-
-
191,612
2,163
55,742
13,077
2,978
355,794
-
5,158
-
-
1,460,895
813
1,466,866
(1,111,072)
68,631
6
20,086
-
8,949
-
9,637
608,341
4,259
187,902
136,182
50,817
1,094,810
47,720
5,558
265,237
-
416,436
-
734,951
359,859
383,425
-
29,989
-
-
204
-
604,177
309
462,357
1,216,551
45,400
2,742,412
9,589
30,834
30,465
-
16,007
-
86,895
2,655,517
-
-
-
-
-
-
-
638,587
7
936,976
120,278
-
1,695,848
-
2,609
-
-
5,830
-
8,439
1,687,409
1,104,558
134,600
1,152,032
559
9,201
204
9,637
2,264,694
45,632
1,700,195
1,519,970
311,849
8,253,131
58,430
121,508
318,977
2,758
6,180,657
13,322
6,695,652
1,557,479
The table below shows the contractual expiry by maturity of the Group’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest date it can be drawn down. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.
2011
On demandLL million
Less than3 monthsLL million
3 to 12months
LL million
1 to 5years
LL million
Over 5years
LL millionTotal
LL million
Commitments issued to financial institutions
Commitments issued to customers
Guarantees issued to financial institutions
Guarantees issued to customers
Undrawn commitments to lend
Total
68,847
6,956
9,908
52,749
791,307
929,767
28,340
6,029
11,998
56,092
-
102,459
36,207
7,450
17,573
156,623
-
217,853
11,133
-
225
24,156
-
35,514
-
-
772
18,377
-
19,149
144,527
20,435
40,476
307,997
791,307
1,304,742
2010
On demandLL million
Less than3 monthsLL million
3 to 12months
LL million
1 to 5years
LL million
Over 5years
LL millionTotal
LL million
Commitments issued to financial institutions
Commitments issued to customers
Guarantees issued to financial institutions
Guarantees issued to customers
Undrawn commitments to lend
Total
31,457
30,040
1,068
28,708
577,856
669,129
53,103
1,166
6,382
58,125
-
118,776
28,514
-
2,714
53,330
-
84,558
7,184
-
147
3,992
-
11,323
-
-
1,460
19,284
-
20,744
120,258
31,206
11,771
163,439
577,856
904,530
The Group expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments.
57 OPERATIONAL RISK
Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Group cannot expect to eliminate all operational risks, but through a control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff training and assessment processes, including the use of internal audit.
58 CAPITAL
The Group maintains an actively managed capital base to cover risks inherent to the business. The adequacy of the Group’s capital is monitored using, among other measures, the rules and ratios established by the Central Bank of Lebanon and the Banking Control Commission.
The Group should maintain a required capital adequacy ratio (not less than 8%) based on its capital funds over the total risk weighted assets.
The primary objectives of the Group’s capital management are to ensure that the Group complies with externally imposed capital requirements and that the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders’ value.
The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years, however, they are under constant scrutiny of the Board.
2011LL million
2010LL million
Regulatory capital
Tier 1 capital
Tier 2 capital
Total capital
Risk-weighted assets
Credit risk
Market risk
Operational risk
Total risk-weighted assets
439,961
111,260
551,221
8,751,799
52,986
455,339
9,260,124
401,817
154,013
555,830
4,582,427
5,028
407,687
4,995,142
The capital adequacy ratio as of 31 December (including profit for the year less proposed dividends) is as follows:
Tier 1 capital ratio
Total capital ratio
4.75%
5.95%
8.04%
11.13%
112 113
59 COMPARATIVE INFORMATION
Reclassifications in the statement of financial positionPursuant to the early adoption of phase I of IFRS 9, the Group reclassified comparative balances relating to its investments in financial instruments as fully described in note 2.3.3 to these financial statements. Besides, comparative balances relating to the following line items of the statement of financial position were also reclassified as per the requirements of BDL intermediary circular 251 dated 15 April 2011:
Current classification Previous ClassificationAmount reclassified
LL million
Other assets
Other liabilities
Other liabilities
Provision for risks and charges
Undistributable reserves
Distributable reserves
Undistributable reserves
Financial assets pledged as collateral
Customers’ deposits
Equity instruments at fair value through profit or loss
Deferred tax assets
Deferred tax liabilities
Current tax liabilities
Employees’end of service benefits
Reserves related to share capital
Reserves related to share capital
Other reserves
Financial investments – held-to-maturity
Other liabilities
Financial assets at fair value through profit or loss
6,608
4,334
17,919
17,225
100,717
21,912
14,953
8,683
13,074
9,637
Due to the acquisition of the assets, liabilities, rights and obligations of the Lebanese Canadian Bank SAL, the Central Bank of Lebanon exempted the Bank of some regulatory requirements as follows:
• Compliance with Articles 152, 153 and 154 of the Code of Money and Credit was waived for a period of 3 years.
• Compliance with some banking ratios imposed by the Central Bank of Lebanon namely the ones speci-fied in Basel II and the foreign exchange position was waived till 31 December 2013. The Bank is in the process of increasing its equity through issuance of common shares and through issuance of preferred shares during 2012.
114
116 117
SGBlnetWork
117116
118 119
The Group’scontact informationeleCTroniC BAnKinGwww.esgbl.com: for clients to check their accounts on the web www.sgbl.com: our website in Arabic, French and English
CAll CenTer1274 / (+961) 3 477777
GenerAl MAnAGeMenTSin el Fil - Saloumeh roundabout, P.O.Box: 11– 2955, Tel: (+961) 1 480190Fax: +961 1 502820, Telex: 44453-44368 LE - Swift: SGLILBBX, e-mail: [email protected]
HeADQuArTerSRiad el Solh - Riad el Solh street, Tel: (+961) 1 980783/4 – Fax: (+961) 1 980785
The regional networkJorDAnAMMAN - SGBJ - Societe Generale de Banque – Jordanie, Tel: +962 6 5600300, Fax: +962 6 5624275, Headquarters: Shmeisani - P.O.Box 560 Amman - 11118 www.sgbj.com.jo
CypruSNICOSIA - SGBCy - Societe Generale Bank – Cyprus, Tel: +357 22 399777, Fax: +357 22 399700,Headquarters: 20 Agias Paraskevis, 2002 Strovolos, Nicosia P.O.Box. 25400, www.sgcyprus.com
Affiliated companiesSoGeleASe liBAn
26 - SGBL bldg, Jal el Dib square, Beirut, Lebanon, Tel: +961 4 723043, Fax: +961 4 723041
SoGeCAp liBAn
Sogecap bldg, 41 street, Dekwaneh, Beirut, Lebanon, Tel: +961 1 511696/7, Fax: +961 1 511694/5
www.sogecapliban.com
FiDuS S.A.l.
Sehnaoui bldg, Riad el Solh, Beirut, Lebanon, Tel: +961 1 990600, Fax: +961 1 990610
www.fidus.com.lb
CenTre De TrAiTeMenT MoneTiQue (CTM)
Ashrafieh, Beirut, Lebanon, Tel: +961 1 577612/3/4, Fax: +961 1 577611
The network in lebanonGreATer BeiruTAirport Road: Airport Boulvard Tel: (01) 453000 Fax: (01) 453939Badaro: Badaro Street Tel: (01) 386295 - 386297 Fax: (01) 386296Barbir: Barbir Street Tel: (01) 659693 – 630983 Fax: (01) 647305Bourj El Brajneh: Ain Sekke Street Tel: (01) 451137/8 Fax: (01) 451139Chiah: Chiah, Moucharrafieh Tel: (01) 277311/3 Fax: (01) 545993Chiah: Chiah, Al Ariss Boulevard Tel: (01)277832/6 Fax: (01) 277830Ghobeiry: Main Road Tel: (01) 856116/7 Fax: (01) 841431Hamra: Banque du Liban Street Tel: (01) 350020/1 Fax: (01) 751764Jeitawi; Achrafieh,Orthodox Hospital Street Tel: (01) 448170/1 Fax: (01) 562402 Kfarchima: Old Saida road, Kfarchima’s bridge Tel: (05) 47009 Fax: (05) 470094Khalde: Khalde Highway Tel: (05) 800184 – (01) 803990 Fax: (05) 803151Makdessi: Hamra, Makdessi Street Tel: (01) 346090 Fax: (01) 349954Mar Elias: Moussaytbe, Mar Elias Street Tel: (01) 312223/4 Fax: (01) 309231Mathaf: Mathaf, facing ISF Tel: (01) 422558/9 Fax: (01) 422558/9Mazraa: El Mama Street, Corniche Saeb Salam Tel: (01) 818155/6 Fax: (01) 314794Raouche: Main Road Tel: (01) 783501 Fax: (01) 783504Riad El Solh: Banks Street Tel: (01) 980783/4 Fax: (01) 984008Sadat: Hamra, Lagos Center Tel: (01) 743075/7 Fax: (01) 743076St Charles: Mina el Hosn, St Charles City Center Tel: (01) 366337 Fax: (01) 366337Saint Nicolas: Achrafieh, St Nicolas Street Tel: (01) 200528/9 – 337837 Fax: (01) 335232Sassine: Achrafieh, Sassine Square Tel: (01) 200525 – 215513 Fax: (01) 200526Tarik el Jdideh: Boustany Street Tel: (01) 311523 Fax: (01) 302333Verdun: Main Street Tel: (01) 860703 Fax: (01) 860706Unesco: Moussaytbeh, Unesco Crossroad Tel: (01) 796200 Fax: (01) 769204
MounT leBAnonAntelias: Armenian Patriarchate Street Tel: (04) 410480/1 Fax: (04) 402137Baabda: Next to Serail Tel: (05) 468135 - 468770 Fax: (05) 468065Bourj Hammoud: Municipality Square Tel: (01) 258883/4 – (04) 255993 – 259991 Fax:(01) 267116Dora: Dora highway Tel: (01) 250222 Fax: (01) 255666Furn El Chebbak: Gharios Center Tel: (01) 289143 – 291992 Fax: (01) 293631Hazmieh: Faubourg St Jean Tel: (05) 455900 Fax: (05) 455901Horch Tabet: Horch Tabet, Tayyar Center Tel: (01) 512550/3 Fax: (01) 512552Jdeideh: Monte Libano Bldg Tel: (01) 893555 – 895044 Fax: (01) 884237Jal el Dib: Main Street, Oscar Center Tel: (04) 713000 Fax: (04) 715515Mansourieh: Mansourieh Square, Old Road Tel: (04) 401076 – 531911 Fax: (04) 401872Mansourieh: Mansourieh Boulevard Tel: (04) 533281 Fax: (04) 533285Mazraat Yachouh - Elyssar: Main Road Tel: (04) 916551/2 Fax: (04) 916553Sin El Fil: Saloume Roundabout Tel: (01) 483001 - 499813 Fax: (01) 502820Sin El Fil: Sin el Fil Boulevard Tel: (01) 482430 Fax: (01) 482433Ajaltoun: Main Street Tel: (09) 230683/4 Fax: (09) 231065Bikfaya: Bikfaya Square Tel: (04) 986271/2 Fax: (04) 981392
Broumana: Main Street Tel: (04) 961538 - 963652 Fax: (04) 961539Dbayeh: Awkar Roundabout Tel: (04) 402312 Fax: (04) 402315Dhour El Choueir: Dhour El Choueir Square Tel: (04) 390352 – 391129 Fax: (04) 390574Jounieh: Banque du Liban Street Tel: (09) 936801 - 936522 Fax: (09) 831714Jounieh: Main entrance of the Apôtres College Tel: (09) 643510 Fax: (09) 643511Jbeil: Old Souk Tel: (09) 541170 – 949316 Fax: (09) 540877Jbeil: Next to the municipality Tel: (09) 542900 Fax: (09) 542904Kaslik: Sarba Highway Tel: (09) 640716 – 640037 Fax: (09) 831715Zouk Mosbeh: Jeita Roundabout, Facing NDU Tel: (09) 226640 Fax: (09) 226643
SouTHNabatieh: Nabatieh, Main Road Tel: (07) 764204/5 Fax: (07) 768288Nabatieh: Nabatieh, Mahmoud Fakih Street Tel: (07) 760256 Fax: (07) 760256Saida: Saida, Jezzini Street Tel: (07) 725549 - 724704 Fax: (07) 753945Saida: Saida, Riad el Solh Street Tel: (07) 753001 Fax: (07) 752959Sour: Sour, Al Ramel Tel: (07) 741702 - 349437 Fax: (07) 740614Sour: Sour, Al Massaref Street Tel: (07) 343420 Fax: (07) 343420
norTHBatroun: Batroun main entrance Tel: (06)744288 - 744470 Fax: (06) 744255Abdeh: Main Road, Tel: (06) 471041/3 Fax: (06) 471044 Amioun: Main Street Tel: (06) 950962 – 950723 Fax: (06) 952762Halba: Main Street Tel: (06) 692743 Fax: (06) 693970Kfaraaka: Koura Main Road Tel: (06) 953535 – 952900 Fax: (06) 952901Tripoli: Fouad Chehab Boulevard Tel: (06) 441043 – 624988 Fax: (06) 430321Tripoli: Al Maarad Boulevard, Tripoli Center Tel: (06) 435222 Fax: (06) 435220Mina: Tripoli, Al Mina Street Tel: (06) 442549 –424048 Fax: (06) 442594
118
120 121
CorreSponDenTBAnkS
121120
122 123
Country Bank Australia Commonwealth Bank of Australia
Canada Canadian Imperial Bank of Commerce
Denmark Danske Bank A/S
France Societe Generale
Germany
Commerzbank AG Deutsche Bank FFT
Japan Mizuho Corporate Bank Ltd
Jordan Societe Generale de Banque - Jordanie
Kuwait Mashreq Bank
New Zealand ANZ National Bank Limited
Saudi Arabia Riyad Bank
Sweden Skandinaviska Enskilda Banken AB (PUBL)
Switzerland Credit Suisse, Zurich
United Arab Emirates Mashreq Bank
United Kingdom
National Westminster Bank PLC HSBC London
Societe Generale United States The Bank of New York Mellon JP Morgan New York
