table of contents - fenicia bank
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Chairman’s Letter
Board of Directors
Management, Shareholders
Independent Auditors’ Report
Throughout The Year
Balance Sheet
Income Statement
Financial Highlights
Financial Ratios
Basel II & Risk Management
Charts
Indicators
Correspondent Banks
Head Office & Branches
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Table of Contents
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For the past two consecutive years, Lebanon has been confronted with enormous challenges. During2005, the assassination of Former Prime Minister Rafic Hariri had severe impacts on the economyand the banking sector leading eventually to a slow down in real GDP growth. The year 2006
started with positive prospects that were reflected in the first half through the increased flow of funds andthe improvement in tourism and real estate sectors. However, the war that erupted in July led to devastatingimpacts at the human, social and economic levels.
The loss in the banking sector due to the war was around USD 80 millions representing 15% of itsprofits. Nevertheless, this sector guided with the policies of the central bank was able to overcome thatperiod and achieve a balance sheet growth of 8.3% in 2006 compared to 3.7% in 2005. By the end of2006, the consolidated balance sheet of the Lebanese banking sector approached 350% of GDP that isconsidered one of the highest ratios in the region and even worldwide.
As for Bank of Kuwait and the Arab World and throughout 2006, we worked with incessantdetermination especially after the war, trying to fulfill our role by assisting our clients to pull through thenegative influences of the war. During the war, we implemented a contingency plan operating through halfof our branches to ensure a continuous and efficient service for our clients. After the cease-fire agreement,we made sure to reopen all our branches within few days.
Financial wise, we augmented our capital by 31% to become LBP 50 billions. Furthermore, our figureswere consistent with those of the banking sector and we witnessed growth in our deposits portfolio by12.51% whereas total assets growth rate approximated 13%. Our profits recorded a history high of 76%for the year. However due to the July war effects and in coherence with the central bank recommendationsalong with the management decisions, we accounted for a one-time provision against expected losses thusleading to a decline in the profit growth rate to 2.76%.
Strategic wise, we capitalized on facilitating our clients’ needs in Africa, specifically in the central part,as part of our expansionary plan. Regular visits were conducted as a preliminary step with the aim ofestablishing representative offices as a further step.
Internally, we launched the infrastructure of the E-Banking project. Moreover, we leveraged our staffwith a variety of training sessions. Likewise, we continued the rigorous work for a smooth shift toimplement the Basel II requirements starting 2008.
We believe we have gained much experience during the last couple of years and proved our solidstanding despite the crisis that took place. However, we look forward for better future achievements in orderto meet all the expectations driven with the deep dedication and commitment of each member in BKAWfamily.
ABDEL RAZZAK ACHOUR
Chairman – General Manager
3
Dear Stakeholders
Chai
rman
’s L
ette
r
4
LEGAL ADVISORS
Me. Charles GHAFARI
Me. Waddah EL-CHAER
AUDITORS
Grant Thornton
BO
AR
D o
f dir
ecto
rs
Mr. Abdel Razzak ACHOURChairman - General Manager
Mr. Aziz MAACARONMember
Dr. Mohamad CHEAIBMember
Mr. Youssef MERHIMember
Mr. Abdallah ACHOURMember
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Mr. Abdel Razzak ACHOURChairman - General Manager
Mr. Mohsen NAAMANIAssistant General Manager
Mr. Asaad KHOSHEISHAssistant General Manager
Dr. Ibrahim HAMMOUDCredit Dept. Manager
Mr. Muhieddine ARNAOUTLegal Dept. Manager
Mrs. Hala Achour SAFIEDDINEAdministration & H.R. Manager
Dr. Habib KOBEISSYI.T. Dept. Manager
Mr. Izzat MsheikRisk Manager
Mr. Emile KATTANInspection & Internal Audit Manager
Mr. Hachem FADLALLAHInternational Trade Dept. Manager
Mrs. Nada KARAKIOperation & Treasury Dept. Manager
Mrs. Samar HAMDANAccounting Dept. Manager
Mr. Ghassan HAIDARHead of Foreign Exchange Dept.
Achour Group
Maacaron Group
Merhi Group
Dr. Mohamad Cheaib
Others
SHAREHOLDERS NATIONALITY SHARES IN CAPITAL
Lebanese
Lebanese
Lebanese
Lebanese
–
73.98%
14.99%
10.00%
01.00%
00.03%
MA
NA
GEM
EN
T
Bank Committees
1. Asset Liability Management Committee (ALCO)
2. Risk Management Committee
3. Credit Committee
4. IT security Committee
5. Archiving Committee
6. Anti-Money Laundry Committee (AML)
7. Credit Rating Committee
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Indep
enden
t A
udit
ors’
Rep
ort
7
8
Thro
ugh
out
the
yea
r Moving our heart to the heart...The construction
The year 2005 witnessed the groundwork. In February
2006, we signed an agreement with Hourieh Enterprise for
the construction of our future premises in downtown
Beirut. Throughout 2006 and despite all the critical
circumstances that took place in Lebanon, we resumed the
work for moving our headquarters to Beirut Central
District.
A vision towards abroad ...The foundation
In consistency with the management
vision to expand abroad and its reliance on
our good affiliation with a fertile customer
base in Africa, we started working on
establishing representative offices
specifically in the central part of Africa.
The first step was by implementing a
schedule of regular visits with the aim of
facilitating our clients’ banking needs
more efficiently.
Electronic banking ...The infrastructure
During the year 2002, we successfully launched the on-line banking system
with a commitment to introduce the E-banking service at a later stage. The
year 2006 witnessed the final retouches in preparing the infrastructure of this
project related to security procedures, website design, staff training and
equipment needed.
Overcoming the war ...The continuity
During July 2006, we experienced the unfortunate influences of the war. Seven
of our branches were non-operating due to their existing in dangerous locations,
yet we persisted on serving our clients through the rest of our branches.
We initiated an emergency room at our headquarters for the closed branches to follow up with the clients and
assist them in every possible way. Our contingency action plan was applied at all levels related to internal
operations, communication network, connections
with banks and suppliers and secure
accommodation for the bank’s employees with their
families close to their work locations.
After the war, four of our branches reopened
normally within a few days. Meanwhile, Ghazieh,
Haret Hreik and Bint-Jbeil continued operating off-
premises due to their total destruction during the
war. Later, these branches gradually opened after a
whole renovation process.
Comprehensive services ...The convenience
Within our mission framework of providing first-rate services, we registered significant growth in our basket of
banking services during 2006; 47% increase in commercial loans portfolio comprising 73% rise in the volume
of Kafalat and subordinated loans. Our International Trade Department witnessed an active growth in the
nominal volume of letters of credit approximated 23%. Furthermore, we extended the volume of our housing
loans to boost up by 50%. Moreover, our Plastic Cards Department recorded a noteworthy improvement with
45% increase in the number of outstanding cards in addition to installing two new ATMs at Bint-Jbeil and
Haret Hreik branches during their restoration processes.
Social responsibility...
The commitment
Throughout the years, we
always try to contribute for
the improvement of our
community through social,
cultural and educational
events. During the war, we
helped in the humanitarian relief of the displaced people through the Lebanese Association for the
Handicapped and other NGOs. Moreover, we continued in supporting children care through several
institutions such as Children’s Cancer Center – Lebanon and Espoir de Vie – Congo. Socially, we participated
in fundraising awareness campaigns with the Lebanese Medical Students’ International Committee.
Furthermore, we sponsored many social receptions and cultural events organized by schools and fraternities
in addition to sports events through sponsoring Al-Sadaka Sporting Club.
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(Figures in thousands LBP)Balance Sheet as on December 31st
Assets 2006 2005
Cash & Central Bank 208,544,933 226,874,764Lebanese Treasury Bills 245,881,412 191,091,166
Banks & Financial Institutions 116,214,069 116,237,127• Current Accounts 17,520,795 21,967,568• Time Deposits 89,259,335 84,572,549• Securities Purchased under Resale Agreements 9,433,939 9,697,010
Loans & Advances to Customers* 158,752,647 120,400,087• Commercial Loans 66,706,602 45,305,685• Current Debtor Accounts 83,575,601 64,998,499• Loans & Advances to Related Parties 3,450,866 4,085,605• Doubtful Loans 5,019,578 6,010,298
Customers Acceptances Liability 21,623,019 14,536,892Investments & Loans to Related Parties 497,656 497,656Tangible Fixed Assets 23,064,793 18,695,577Intangible Fixed Assets 92,680 92,680Other Assets 17,784 19,187Regularization Accounts & Miscellaneous Debtors 3,280,208 2,976,703
Total Assets 777777,,996699,,220011 669911,,442211,,883399* After deduction of:
• Provisions for doubtful debts 10,547,691 11,870,471
• Unrealized interest 8,042,306 6,603,167
* Of which substandard loans 3,610,342 4,909,348
• Unrealized interest on substandard loans 961,390 1,384,168
Off-Balance Sheet AccountsEngagements by Signature Received 3,384,683 2,243,028• From Financial Intermediaries 3,384,683 2,243,028
Total Off-Balance Sheet Accounts 33,,338844,,668833 22,,224433,,002288
Bad debts written-off 19,561,381 17,320,400
(Figures in thousands LBP)Balance Sheet as on December 31st
Liabilities 2006 2005
Banks & Financial Institutions 1,540,977 7,539,204• Current Accounts 549,572 35,094• Time Deposits 991,405 7,504,110
Customers’ Deposits 671,547,961 596,888,307• Sight Deposits 62,118,170 61,970,925• Time Deposits 99,020,312 85,592,430• Saving Accounts 505,279,073 444,508,421• Related Parties Accounts 5,130,406 4,816,531
Engagements by Acceptances 21,623,019 14,536,892Miscellaneous Creditor Accounts 9,170,352 5,540,350Order & Regularization Accounts 1,501,319 1,942,403Provisions for Contingencies & Charges 6,949,822 2,090,089
Capital 50,000,000 38,000,000Reserves for General Banking Risks 2,170,625 1,825,537Reserves & Premiums 6,467,310 16,237,587Net Results of the Year 6,551,244 6,374,898Variation in Revaluation of Fixed Assets 446,572 446,572
Total Liabilities 777,969,201 691,421,839
Off-Balance Sheet AccountsEngagements by Signature Issued 48,704,422 56,123,989• To Financial Intermediaries 38,963,049 40,148,739• To Clients 9,741,373 15,975,250
Total Off-Balance Sheet Accounts 48,704,422 56,123,989
Fiduciary Account Assets 17,774,904 16,517,961
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(Figures in thousands LBP)Income Statement for the year ended December 31st
2006 2005Interest & similar income 49,764,526 41,387,240
Lebanese treasury bills 18,954,602 14,816,025
Deposits & similar accounts in banks & financial institutions 16,865,578 15,194,051
Loans & advances to customers 13,668,869 10,849,889
Loans & advances to related parties 275,477 527,275
Interest & similar charges -30,650,907 -25,232,932
Deposits & similar accounts from banks & financial institutions -31,856 -170,617
Deposits from customers & other creditor accounts -30,211,612 -24,543,783
Deposits from related parties -407,439 -518,532
Net provisions less recoveries on loans & advances -6,525,545 -3,226,337
Provisions on loans & advances -7,129,260 -3,830,857
Write-back of provisions on loans & advances 603,715 604,520
Net interest received 12,588,074 12,927,971Income from marketable securities & financial instruments
with variable income 24,173 20,144
Net income from commissions 4,572,025 3,899,045
Commissions received 4,900,354 4,163,222
Commissions paid -328,329 -264,177
Profit from financial operations 571,808 543,735
Positive balance from foreign exchange operations 571,808 543,735
Loss from financial operations -134,422 -148,809
Negative balance from foreign exchange operations -134,422 -148,809
Net profit or loss from financial operations 437,386 394,926Other operating revenues 27,456 22,252
Other operating expenses -199,227 -139,665
Administrative & general expenses -10,207,003 -9,518,772
Salaries, wages & staff expenses -6,134,575 -5,707,615
General operating expenses -4,072,428 -3,811,157
Allocations to depreciation & provision of tangible &
intangible fixed assets -469,961 -537,241
Ordinary results before taxes 6,772,923 7,068,660Extraordinary results before taxes -221,679 -39,629
Extraordinary revenues 4,219 18,525
Extraordinary expenses -225,898 -58,154
Income tax 0 -654,133
Net results after taxes 6,551,244 6,374,898
(Figures in millions LBP)Financial Highlights
2006 2005 % of Change
Total Assets
LBP 278,180 260,499
USD 499,789 430,923
Customer Deposits
LBP 222,482 203,093
USD 449,066 393,795
Total Net Liquidity
LBP 230,708 213,166
USD 338,391 313,497
Shareholders’ Equity
LBP 64,266 61,781
USD 1,370 1,103
Total Loans & Advances
LBP 27,422 20,401
USD 131,331 99,999
Net Income
LBP 6,551 6,375
12,52%
12,51%
8,06%
4.38%
31,85%
2,76%
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Financial Ratios
2006 2005
Liquidity Ratios
Net Liquidity in LBP 102.80% 104.11%
Net Liquidity in Foreign Currencies 42.64% 45.26%
Total Net Liquidity 81.01% 85.51%
Liquid Assets / Total Assets 73.35% 77.26%
Loans / Deposits in LBP 12.33% 10.05%
Loans / Deposits in USD 29.25% 25.39%
Loans / Deposits (Total) 23.64% 20.17%
Asset Quality Ratios
Doubtful Loans / Total Loans 14.87% 16.47%
Loan Provisions / Doubtful Loans 78.74% 79.97%
Loan Provisions / Total Loans 11.71% 13.17%
Capital Adequacy Ratio 26.42% 32.14%
Profitability Ratios
Return on Average Equity 11.09% 11.28%
Return on Average Assets 0.84% 0.92%
Number of Shares Outstanding (in millions) 500 380
Earnings per Share in LBP (after tax) 13 17
Net Asset Value per Share in LBP 1,556 1,820
Management Efficiency Ratios
Interest Paid / Interest Received 61.59% 60.97%
Total Commissions / Financial Income 8.77% 8.90%
Cost / Income 88.28% 86.37%
Cost per Average Branch (in millions LBP) 3,525 3,033
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Basel II & Risk Management
The risk management process starts at the Board of Directors level, which overseas the bank’s overall
risk assisted by a “Risk Management Committee” that meets regularly. There is an independent risk
management department that measures and manages these different risks reporting directly to the
Chairman – General Manager.
Credit Risk Management:
Credit risk is the loss resulting from any of the borrowers or other counter parties defaulting on their
obligations. The bank measures credit risk using the “Standardized Approach” as per Basel II requirements
to determine its capital adequacy ratio that was 11.22 % as of 31/12/2006.
Furthermore, our credit portfolio is categorized into Corporate, Small & Medium Enterprises (SME) and Retail
for the purpose of risk assessment. As for concentration, our risk management unit overseas the risk at the
client, group, industry, area, and country levels taking into account different sovereign risk rating. It is worth
mentioning that a major credit risk evolved due to the “July War” which cost the bank around USD 3 millions
in a collective provision.
Market Risk Management:
Market risk is the risk of losses due to fluctuations in the financial markets. The bank has established
guidelines that define its trading portfolio despite the fact that we don’t hold any securities for trading
purposes for the time being. As for our banking books, securities are recorded at book value and interest rate
is measured using “ Maturity Gap Analysis”. All of the above is under the supervision of our Asset Liability
Management Committee (ALCO), which has set the bank’s “Market Risk Policy” that clearly describes the
bank’s exposure limits.
Operational Risk Management:
Operational Risk is the risk of loss resulting from failure in processes, human operations and systems, or
from external events. The capital requirement for operational risk using “Basic Indicator Approach” was
around LBP 3 billions. Besides, we initiated the process of creating a database for operational loss data to
categorize these losses into the different business lines and banking activities. Operational losses for the year
2006 totaled around LBP 487 millions of which 92 % was a result of the “July War” as damage to physical
assets, given that we never seized operations during the war mainly due to a preset “Business Continuity
Plan” as well as a “Procedures Manual” which detailed the instructions for most of the operations.
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2002 2003 2004 2005 2006
2002 2003 2004 2005 2006
2002 2003 2004 2005 2006
408,463
483,525547,469
622,532691,422
777,969
45,32851,226
56,510
62,884 65,636
472,647
84,395 94,128 110,695 120,400 158,753
Deposits
Loans
534,789
596,888
671,548
• Customer Loans & Deposits Growth in millions of LBP
• Balance Sheet Growth in millions of LBP
• Shareholders’ Equity Growth in millions of LBP
Charts
17
Trade & Services
Industry
Agriculture
Construction
Consumption
Finance
Others
92%
4% 1%3%
Ordinary Loans
Watch Loans
Substandard Loans
Doubtful & Bad Loans
N.B.All our financial securities are classified as held to maturity according to the IAS # 39.During 2007, the bank converted its amortization method of the financial securities from the straight line to the effective interest rate in order to comply with IAS # 39 and BCC circular # 245.
Loan Diversification across Economic Sectors in 2006
Loan Portfolio Credit Classification in 2006
Indicators
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American Express Bank LTD
Bank of New York
HSBC
The British Arab Commercial Bank
Bank of Beirut (U.K.) LTD.
ABN - Amro Bank N.V.
Bank of New York
Dresdner Bank AG
ABC International Bank
HSBC
Banca Fideuram
Capitalia Gruppo Bancario
Société Générale
BLOM Paris
Banque Audi Saradar France
BLC Bank
Fortis Bank
Byblos Bank Belgium SA
Bank of New York - Tokyo
Bank of Kuwait & the Middle East
H.O.K.S.C
The Netherlands
Germany
Italy
France
Belgium
Japan
Kuwait
United Kingdom
USA New York
New York
New York
London
London
Amsterdam
Frankfurt
Frankfurt
Frankfurt
Milano
Milano
Rome
Paris
Paris
Paris
Paris
Brussels
Brussels
Tokyo
Kuwait
Correspondent Banks
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Verdun Ain El Tineh, Belle Vue Bldg., Telefax: (01) 866306 (ATM outdoor)
(Main Branch)
Hamra Makdessi Str., Chouman Bldg., Telefax: (01) 346348 - 739925 - (03) 310051
Achrafieh Sassine Square, Dr. Maalouf Bldg., Telefax: (01) 338635 - 219030 - (03) 722664 (ATM outdoor)
Haret Hreik Bir El Abed, Al-Arid Str., Itani Bldg., Telefax: (01) 559928 -543510 - (03) 310053 (ATM outdoor)
Mouawad Chiah, Mouawad Str., Sheaito Center, Telefax: (01) 549700/1 - (03) 310064 (ATM outdoor)
Zalka Autostrade Zalka, Elysée Center, Telefax: (01) 884450/1 - 896650/1 - (03) 310052
Khaldeh Autostrade Khaldeh, Zebian Bldg., Telefax: (05) 801241 - (03) 310055 (ATM outdoor)
Bickfaya Autostrade Bickfaya, Massoud Bldg., Telefax: (04) 983221 - 982320/2 - (03) 310054 (ATM outdoor)
Ghazieh Main Road, Ghaddar Bldg, Telefax: (07) 221958 - (03) 310062
Nabatieh Main Road, Sabbagh Center, Telefax: (07) 762546 - (03) 370123
Tyre Zein Bldg., facing Banque du Liban, Telefax: (07) 740522 - (03) 274131
Abbassieh Jal Albaher, Main Road, Belle Vue Bldg., Telefax: (07) 742710/722 - (03) 310057 (ATM outdoor)
Bint Jbeil Main Road, Al Shamy Bldg., Telefax: (07) 450051 - (03) 790191 (ATM outdoor)
Chtaura Main Road, Telefax: (08) 546630/1 - (03) 310056 (ATM outdoor)
Verdun, Ain El Tineh, Belle Vue Bldg.Telefax: (00 961 1) 866306, Fax: (00 961 1) 865299,Tlx: 23776 - 23778 LE BANKUT, P.O.Box: 113-6248
E-mail: info@bkawbank.comZip Code: 1103-2110 Beirut Lebanon, SWIFT: BKAWLBBE
website: www.bkawbank.com
Head Office
Branches
... providing first-rate services, and contributing
to economy by building a solid corner stone.
Our future headquarters in Downtown – Beirut
Still
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