arab banking corporation group abc tower, …...mr. mohammed h. layas, chairman extensive local...

Registered Address

Arab Banking Corporation GroupABC Tower, Diplomatic Area PO Box 5698, Manama Kingdom of Bahrain

(Commercial Registration Number 10299)

www.arabbanking.com

Arab Banking Corporation Group

Annual Report 2005

• Consistently generate increasing value for our shareholders

• Specialise in Arab-related activities across the world

• Invest in international financial institutions that diversify and enhance shareholder value

• Attract and retain high quality employees by providing rewarding careers

• A strong presence in the Arab world, and internationally, to complement and achieve optimal diversification of our earning stream

• A strong risk management process

• An effectively managed expense base focused on generating increasing shareholder value

• A strong and liquid financial institution withemphasis on asset quality

Our key objectives are to create and maintain:

Our mission is to:

Contents

2 The Board of Directors

4 Directors’ Report

8 Global Network

9 Financial Highlights

10 The President & Chief Executive’s Review of Operations

23 Corporate Governance

26 Group Financial Review

FINANCIAL STATEMENTS

29 Auditors’ Report

30 Consolidated Balance Sheet

31 Consolidated Statement of Income

32 Consolidated Statement of Cash Flows

33 Consolidated Statement of Changes in Equity

34 Notes to the Consolidated Financial Statements

51 Head Office Directory

52 International DirectoryFABR 173

“Our vision is to be the premier and most innovative international Arab financial group.

The way ahead remains challenging, but we are confident that the Group is well on the way to achieving its strategic aims.”

Mr. Mohammed H. Layas, Chairman

extensive local presence

Annual Report 2005 ABC Group

1

ABC’s Project Finance team with a United Stainless Steel Company (USCO) official at the construction site for USCO’s new stainless steel mill in Bahrain.

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ABC Group Annual Report 2005

EC Member of the Executive Committee AC Member of the Audit Committee NC Member of the Nomination and Compensation CommitteeGC Member of the Corporate Governance Committee RC Member of the Risk Committee * Chairman : Deputy Chairman

The Board of Directors

Deputy Chairman U.A.E. citizenB.Sc. in Economics, East Michigan University, U.S.A.

Deputy Managing Director, Abu Dhabi InvestmentAuthority, Chairman, National Bank of Abu Dhabiand a Director of Abu Dhabi Aviation. Mr. Al-Kindiis also a Director of ABC International Bank plc,U.K. He has been a Director of ABC since 1992 andhas over 25 years’ experience as an investmentbanker as well as holding a number of directorships in various public corporations.

Chairman LibyanB.A. Accounting and Business Management, University of Benghazi, Libya; Diploma of the Institute of EconomicDevelopment, Washington, U.S.A.

Chairman, Libyan Foreign Bank. Deputy Chairmanand former Director of British Arab CommercialBank, London, U.K, Banque IntercontinentaleArabe, Paris, France and Arab International Bank,Cairo, Egypt. Mr. Layas joined the Board of ABC in 2001 with over 35 years’ experience in international banking.

Deputy Chairman KuwaitiB.Sc. in Economics, Alexandria University, Egypt.

Second Vice Chairman, Kuwait Chamber ofCommerce & Industry. Director of KuwaitInvestment Authority. Past offices include Ministerof Trade and Industry of Kuwait; General Managerof Kuwait Investment Company and of KuwaitClearing Company. Mr. Al-Mutairi is also a Directorof ABC International Bank plc, U.K. He has been a Director of ABC since 2001 and has more than35 years of commercial and financial industryexperience.

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Mr. Mohammed Husain Layas EC* RC *

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Mr. KhalifaMohammed Al-Kindi EC: GC*

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Mr. Hilal Mishari Al-MutairiEC:

Director KuwaitiM.S. American University of Beirut.

Chairman and Managing Director, CommercialFacilities Company, Kuwait and Member of theBoard and the Executive Committee of KuwaitInvestment Authority. Mr. Al Humaidhi is also aMember of the Board of Kuwait Chamber ofCommerce & Industry and Director of Arab BankingCorporation – Egypt (S.A.E.). He has been aDirector of ABC since 2001 and has over 20 years’experience in the banking and investment sectors.

Director LibyanB.A. in Economics, Garyounis University, Libya; Masters Degree in Money, Banking and Finance, Sheffield University, U.K.

Governor, Central Bank of Libya; and Chairman ofABC International Bank plc, U.K. A former DeputyChairman of Wahda Bank, Libya, Mr. Ekdara hasbeen a Director of ABC since 2001 and has over 15years’ experience in banking and other businesssectors.

Director U.A.E. citizen B.Sc. in Economics, Northeastern University of Boston,U.S.A.

Executive Director of Abu Dhabi InvestmentAuthority and Director of Abu Dhabi National OilCompany For Distribution (ADNOC-FOD),International Petroleum Investment Company andNational Bank of Abu Dhabi. Also Vice Chairman of Arab Banking Corporation - Egypt (S.A.E.). He has been a Director of ABC since 1995, withover 20 years in investment banking.

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Mr. Farhat OmarEkdara EC GC NC

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Mr. Abdallah Saud Al Humaidhi EC GC NC*

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Mr. Eissa MohammedAl Suwaidi EC AC*


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Director KuwaitiM.B.A. and Ph.D. in Finance, Peter F. Drucker GraduateSchool of Management, Claremont Graduate University,California, U.S.A.

Dr. Al-Mudhaf is currently the Chairman & CEO of Al-Razzi Holding Company; the General Managerof Kuwait Health Insurance Company; Chairman ofBanco ABC Brasil; a Director of Credit OneCompany Kuwait for Commerce & Programmes; a Director of the Board of Governors in the OxfordInstitute for Energy Studies; a Director of theKuwait Public Institute for Social Security. He is alsoa lecturer in corporate finance; investment man-agement and financial institutions at KuwaitUniversity. Dr. Al-Mudhaf has formerly served asan advisor to the Finance and Economic AffairsCommittee at Kuwait’s Parliament. Dr. Al-Mudhafjoined ABC's Board in December 1999 and hasover 15 years’ experience in banking and finance.

Director SaudiPh.D. in Agricultural Economics, Oklahoma StateUniversity, U.S.A.

General Manager, Arab Investment Company,Riyadh; Member of the Boards of Saudi International Petrochemical Company, Jubail andSaudi Investment Fund, London, U.K.; Chairman,Saudi Moroccan Development InvestmentCompany, Casablanca. Dr. Humaidan is also theDeputy Chairman of Arab Banking Corporation(Jordan). He has over 25 years of experience inthe economic and investment fields gainedthrough his work at the Saudi Arabian Ministry ofPlanning, the Saudi Development Fund, and theArab Investment Company. Dr. Humaidan joinedABC as a Director in 2001.

Director U.A.E. citizenB.Sc. in Finance, M.B.A. University of West Florida, U.S.A.

Director General, Abu Dhabi Retirement Pensionsand Benefits Fund, Abu Dhabi; Director of Arab International Bank, Egypt; also Director of Arab Banking Corporation (Jordan). Mr. Al-Mansouri has been a Director of ABC since1997 and has more than 15 years’ experience ininvestment and commercial banking.

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Dr. Saleh Helwan Al Humaidan NC

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Dr. Anwar Ali Al-Mudhaf AC RC

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Mr. Mubarak Rashid Al-Mansouri NC RC

Director LibyanB.A. in Economics, University of Benghazi, Libya; M.B.A.University of Hartford, U.S.A.; Ph.D. in Economics,Academy of Science, Hungary.

Director of Accounting at the Central Bank of Libya;former Undersecretary of the Ministry of Planning,Economy and Commerce, Libya. Also a Director ofArab Banking Corporation - Tunisie. Dr. El-Arbahhas been a Director of ABC since 1996 and hasover 30 years’ experience in central government.Dr. El-Arbah previously held a chair inMacroeconomics from the University of Gharian(Libya).

Director LibyanM.B.A. Hartford University, U.S.A.

Mr. Abdelmaula is the Executive Director of theLibyan Foreign Investment Board. He serves also asDirector on the boards of Libyan Foreign Bank andArab Banking Corporation (Jordan). Mr Abdelmaulahas more than 20 years of banking and investment experience.

Director Bahraini Fellow of the Chartered Institute of ManagementAccountants (FCIMA), U.K.

Managing Director of National Bank of Bahrain;Chairman of Bahrain TelecommunicationsCompany. Also Director of ABC International Bankplc, U.K. Mr. Juma has been a Director of ABC since1994. He has more than 25 years’ experience as a commercial banker.

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Mr. Yousef AbdelmaulaEC GC

Secretary to the Board & Legal Counsel Libyan Ph.D. (Doctorat D'Etat) in Banking Laws, University of Paris(Sorbonne), France.

Secretary to ABC's Board of Directors since July1992, Dr. Kawan joined ABC in June 1991, havingpreviously spent some time with a prime FrenchLaw firm in Paris. He was made Legal Counsel andHead of Legal & Compliance in March 2004. Dr. Kawan also represents ABC as a Director on theboards of Arab Banking Corporation – Egypt (S.A.E.)and Arab Banking Corporation (Jordan).

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Dr. Khaled S. Kawan

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Dr. Saleh Lamin El-Arbah AC

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Mr. Hassan Ali Juma AC RC

The first action freed up substantial resources from two highly profitable disposals, providing a considerable boost to ABC’s capitalbase and laying down the necessary conditions for it to embark onfuture expansion. The second shifted the Group’s orientation away froma mainly geographical configuration towards a strictly product-basedstructure, designed to encourage and stimulate the latent synergiesavailable from re-focusing Group units on a set of common goals.

2005, the first full year under the new structure, did not disap-point. As the units settled into the new modus operandi it quicklybecame apparent that the product-based matrix template workedexceedingly well. The business units, from the branches and market-ing offices of ABC International Bank plc – the Group’s European arm – to the Arab world wholesale and retail banking units, to theNew York and Singapore offices, committed themselves to the newmarketing regime, resulting in deal after deal being arranged jointlybetween offices often an ocean apart, or introduced by banking subsidiaries in the Arab World to mainstream specialist departments,or passed to other subsidiaries in the Group better able to assist theclient.

The published result, an 18% increase in net profit to $129 million is highly commendable given that the disposals in 2004 effectively reduced the Group’s total assets by 50% (and total loansand advances by over 60%), significantly impacting its historical earning capability. Combined with the increase in its capital base theGroup was left quite under-leveraged (at year-end 2004 its risk assetratio - RAR - stood at 23.9%). Total assets grew in 2005 by 18%, and total loans and advances by 14% (an increase of $821 million)resulting in RAR of 19.9% at the year-end. It is a tribute to the newproduct groups that the lost revenues from the erstwhile Spanish andHong Kong subsidiaries have been entirely replaced – and more – byhealthy, new-shoot growth in the Group’s core businesses. Naturally,it will take time to build our assets to the optimal level - especiallyas we are determined not to sacrifice asset quality in the name of growth - but the year’s performance amply demonstrates, in ourview, the wisdom of our charted course.

Through steady and cautious asset expansion and judicious fee-earning product acquisition, combined with good impaired assetrecovery management, the Group was therefore able to increase itsnet operating income by 16% to $366 million. After deduction ofoperating expenses of $211 million, representing a growth rate over 2004 of only 6% - and that largely accountable by higher

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Directors’ Report

Last year we said that 2004 marked a turning point for ABC, atthe time it shed its largest non-core subsidiaries and embarkedon a major organisational restructuring.

Mr. Mohammed H. Layas,Chairman


performance-related staff expenses - the Group realised a pre-taxprofit of $155 million, 34% up on 2004.

In addition to the successful bedding in of the product-basedmatrix structure, 2005 also witnessed the implementation of a corporate matrix structure, building on the product matrix paradigm,covering the key support areas of risk management, informationtechnology and audit. This additional layering of the matrix structurenow reinforces the relationship between Group headquarters andbusiness units, to an extent never seen before. The change representsnot simply a move towards a more centralised institution adminis-tratively but, vitally, a more synergistic Group where all units, throughtheir various departmental connections with other Group membersand Group headquarters, are made aware of the work and initiativesof others, of their own contribution to the Group commonwealth and of the benefits available to them from this lattice-work of inter-locking relationships.

As these groundbreaking events were unfolding, another quietrevolution was taking place in risk management in ABC Group – the creation of an infrastructure designed both to emphasise andinstitutionalise the more conservative credit culture now consciouslyadopted by the Group and to capture the synergistic potentialitiesavailable from a multi-layered matrix-based organisation structure.2004 had seen the creation of the Board Risk Committee at the apexof the credit decision process, charged with determining the Group'srisk strategy and policy, ensuring the continuous evaluation of therisks to which the Group is exposed and designing and implementingappropriate internal controls to minimise those risks. This was followed in 2005 by two further significant initiatives: the establish-ment by each subsidiary of its own Board Risk Committee with analogous responsibilities, guided by Head Office Risk Department,and the commencement of a two-year technology project to imple-ment a new credit risk management infrastructure. The technologyupgrade is now more than halfway complete and should not only provide the Group with full Basel II compliance capability butshould moreover significantly enhance analytical standards and risk assessment competencies.

One further building block was laid down over the last two years– the introduction of new job evaluation and performance assess-ment systems, initially at ABC Head Office but destined for imple-mentation at all subsidiaries, branches and representative offices.The job evaluation system grades all jobs from top management

(All figures stated in US dollars)


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the pre-eminent financial institution

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Short and Long Term Loans($ million)

2004 2005

Short term Long term Loans Loans

2004 3,366 2,6462005 3,723 3,110

4,000

3,000

2,000

1,000

0

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Total Assets($ million)

2004 2005

14,922 17,588

20,000

15,000

10,000

5,000

0

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Shareholders’ Funds($ million)

2004 2005

1,852 1,926

2,000

1,500

1,000

500

0................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................

Deposits($ million)

2004 2005

10,587 13,418

15,000

10,000

5,000

0

2005, the first full year under the new structure, did not disappoint. As the units settled into the new modus operandi it quickly became apparent that

the product-based matrix template worked exceedingly well.

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Assets BreakdownPercentage

37%34%

Arab World

27%20%

WesternEurope

4%5%

Asia

22%30%

NorthAmerica

6%6%

LatinAmerica

4%5%

Others

20042005

down, while under the ‘Balanced Scorecard’ system the perform-ance of each individual is assessed in a transparent manner againstset objectives. Compensation is then determined by reference to that individual’s contribution to team results, within the contextof overall Group performance.

This combination of factors – the opportunity to build the Group’s balance sheet selectively and judiciously, adhering to new,strong credit assessment and judgmental techniques set in a conservative credit and supportive Groupwide organisational culture, with a shared and strong value system and supported by a management by objective approach – will, we are confident, be a major contributor to the Group’s ability to achieve consistent, continually improving, shareholder returns In the future.

In our quest for reliable medium term funding, 2005 saw thesuccessful launch of ABC’s $2.5 billion Euro Medium Term DepositNote (EMTDN) programme, listed on the London Stock Exchange and designed to give ABC multi-currency medium term fundingflexibility. ABC’s successful benchmark debut issue under the programme, a $400 million 5-year floating rate deposit note issue,rated BBB by Standard & Poor’s and Fitch Ratings, provided hard evidence of the recognition accorded the Group’s strength andrecent performance by both rating agencies and the internationalinvestment market.

Looking ahead, the Group, in recognition of the sea change witnessed in recent years in the economic performance across theArab world – which we are convinced is not wholly the result of higher hydrocarbon prices – and the increasing sophistication of regional investors who seek experienced international fund managers and alternative and cheaper finance and capital-raising sources, has decided on the creation of a new key productgroup, Investment Banking. The new group was formally launchedin January 2006 with the addition to ABC’s senior managementteam of an Investment Banking head, soon to be joined by a selected team of specialists in corporate finance, capital and equitymarkets, and fund management.

Meanwhile, we remain on track with our plans for gradualextension of our representation throughout the MENA region. At ourdomestic banking subsidiaries, we continue to expand our branch,ATM and cash deposit machine networks and to complete theimplementation of Internet and SMS technologies in those units notyet offering these services, in our efforts to widen our customerbase. The year will also mark the completion of the deployment ofthe global technological upgrade programme for all the wholesalebanking units, together with the major part of the implementationof the new retail banking standardisation programme to unify allthe domestic subsidiaries.

In the wholesale banking arena, the new Iraq branch, estab-lished in late 2005 and already providing trade finance services to several Iraqi government agencies and multinationals, will gradually widen its product and customer base. As negotiationsprogress with the Libyan Central bank in regard to our outstandingoperating licence application there, the Group has now opened similar discussions with the Central bank of Syria. A representativeoffice was meanwhile inaugurated in Lebanon in early 2006.

In closing, as our Group looks forward with confidence to steady and cautious growth, the Board would like to record itsappreciation for the continuing dedication and professionalism ofthe Group’s management and staff, in particular this year for their enthusiastic response to the need to adjust to new ways ofworking and collaborating with their colleagues. We would also like to express our thanks to all the regulatory authorities over-seeing our operations throughout the world for their guidance, inparticular to the Bahrain Monetary Agency for its unstinting support.

Mohammed LayasChairman

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Directors’ Report


Note: In compliance with the Bahrain Monetary Agency Circular No. BMA/751/93, EDBC/782/93 and ODG/407/03 set out below are the interests ofDirectors and Senior Managers in the shares of Arab Banking Corporation (B.S.C.) and the distribution of shareholding for the year ended 31 December2005.

1/1/2005 31/12/2005

Directors’ Shares 9,670 9,670Senior Managers’ Shares 16,923 532

Total 26,593 10,202

Directors’ remuneration, allowances and expenses for attendance at Board meetings for 2005 amounted to US$1,524,000 (2004: US$ 1,282,000).

2005 2004No. of % of total No. of % of total

No. of shares shareholders outstanding shares No. of shares shareholders outstanding shares% of shares held

Less than 1% 8,407,479 1,328 8.41 8,407,479 1,343 8.411% up to less than 5% 10,021,134 5 10.02 10,021,134 5 10.025% up to less than 10% - - - - - -10% up to less than 20% - - - - - -20% up to less than 50% 81,571,387 3 81.57 81,571,387 3 81.5750% and above - - - - - -Total 100,000,000 1,336 100.00 100,000,000 1,351 100.00

We remain on track with our plans for gradual extension of our representation throughout the MENA region.

embarking on future expansion


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Global Network2005 Highlights


ABC Parent (ABC BSC)

US$ millions

Total Assets 12,941

Total Loans and Advances 3,371

Total Deposits 9,381

Shareholders’ Funds 1,926

ABC Group

US$ millions

Total Assets 17,588

Total Loans and Advances 6,833

Total Deposits 13,491

Shareholders’ Funds 1,926

Arab Banking Corporation – Algeria

US$ millions

Total Assets 341Total Loans and Advances 83Total Deposits 272Shareholders’ Funds 46Number of Branches 4

ABC Islamic Bank (E.C.)

US$ millions

Total Assets 610Total Loans and Advances 374Total Deposits 549Shareholders’ Funds 56Number of Branches -

Arab Banking Corporation (Jordan)

US$ millions


Arab Banking Corporation – Egypt (S.A.E.)

US$ millions


Arab Banking Corporation – Tunisie, S.A.

US$ millions


ABC International Bank plc

US$ millions

Total Assets 3,399Total Loans and Advances 1,352Total Deposits 2,582Shareholders’ Funds 444Number of Branches 4

Banco ABC Brasil S.A.

US$ millions

Total Assets 1,094Total Loans and Advances 835Total Deposits 862Shareholders’ Funds 136Number of Branches 4


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Financial Highlights

Principal shareholders Registered addressKuwait Investment Authority (Kuwait) Arab Banking Corporation (B.S.C.)Central Bank of Libya (Libya) ABC Tower, Diplomatic AreaAbu Dhabi Investment Authority (Abu Dhabi) P.O. Box 5698, Manama, Kingdom of Bahrain Individual and Institutional Investors Publicly quoted company listed on Bahrain Stock Exchange.

(Commercial Registration Number 10299)

Capitalisation (US$ million)

Ratios (%)

FinancialPosition(US$ million)

Earnings(US$ million)

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2005 2004 2003 2002 2001Restated * Restated **

Net interest income 193 152 158 464 469Other operating income 159 153 259 257 293Total operating income 352 305 417 721 762Profit before provisions, tax and minority interests 141 106 203 230 288Writeback/(Provisions for credit losses) 14 10 (74) (204) (128)Profit before tax and minority interests 155 116 87 26 160Net profit (loss) for the year from continuing operations 129 109 71 (41) 102Net profit for the year from discontinued operations - 470 49 - -

Total assets 17,588 14,922 30,068 28,915 26,545Loans and advances 6,833 6,012 15,921 14,981 14,225Placements with banks and other financial institutions 3,264 4,305 6,651 6,802 6,444Trading securities 593 184 86 373 341Non Trading securities 6,003 3,617 5,204 4,632 3,616Shareholders’ funds 1,926 1,852 1,585 1,371 1,872

ProfitabilityCost: Income ratio (costs as % of gross operating income) 60 65 51 68 62Net profit (loss) as % of average shareholders’ funds 6.8 30.1 7.9 (2.8) 5.4Net profit (loss) as % of average assets 0.81 4.07 0.83 (0.15) 0.38Dividend cover (times) 1.84 1.93 1.81 - 1.54

CapitalRisk weighted assets (US$ million) 10,476 8,249 18,051 19,015 17,891Capital base (US$ million) 2,089 1,974 2,661 2,495 2,373Risk asset ratio - Tier 1 17.6 15.7 12.0 11.5 11.8Risk asset ratio - Total 19.9 23.9 14.7 13.1 13.3Average shareholders’ funds as % of average total assets 11.9 13.5 10.5 5.2 7.2Loans and advances as a multiple of shareholders’ funds (times) 3.5 3.2 10.0 10.9 7.6Total debt as a multiple of shareholders’ funds (times) 8.1 7.0 17.6 19.8 12.9Term financing as multiple of shareholders' funds (times) 0.82 0.99 1.17 1.59 0.97

AssetsLoans and advances as % of total assets 38.9 40.3 52.9 51.8 53.6Securities as % of total assets 37.5 25.5 17.6 17.3 14.9Non-accrual loans as % of gross loans 3.6 5.1 4.5 4.9 4.5Loans loss provisions as % of non-accrual loans 154.6 141.4 102.0 94.7 94.8Loan loss provisions as % of gross loans 5.6 7.2 4.6 4.6 4.3

LiquidityLiquid assets ratio 57.8 56.4 42.1 43.1 40.9Deposits to loans cover (times) 2.0 1.8 1.6 1.5 1.5

Basic Earnings per share - Profit for the year $1.29 $5.79 $1.20 ($0.41) $1.02- Profit from continuing operations $1.29 $1.09 $0.71 $0.00 $0.00

Dividends per share - Cash $0.70 $2.90 $0.70 $0.00 $0.70- Stock 0.062 shares

Net asset value per share $19.26 $18.52 $16.84 $14.57 $19.89

Authorised 1,500 1,500 1,500 1,500 1,500Issued, Subscribed and fully paid-up 1,000 1,000 1,000 1,000 1,000

* Figures for 2003 restated to exclude amounts relating to the discontinued operations where required.

** Figures for 2002 restated following revisions to International Accounting Standard 39.

In the OECD, South Korea led the way with an estimated 4.1% GDPgrowth, followed by the United States with 3.5%. Japan managedan encouraging 2.5%. Although the euro zone’s overall growth wasmuted (several countries managing only 1% or so), some countriesperformed well – Spain for example turning in a remarkable 3.3%.Britain recorded 1.7% growth. China’s growth was, at an estimated9.3%, again the highest among Asian economies, although India’sbooming economy is fast closing the gap.

The Arab world, too, saw robust economic expansion. While oiland gas producers reaped the benefits of higher energy prices, the non-energy producers also benefited, as continued economicgrowth in the industrialised economies helped to sustain demandfor their agricultural and merchandise export products and tourismservices. Population-driven imperatives also led to many infrastruc-ture project start-ups such as those in the water, power, telecomsand transportation sectors. Liquidity in the region continued to rise,flowing into regional stock markets and property as well as infra-structure and tourism developments.

The Group was in turn able to benefit from these favourableconditions, by taking full advantage of its lead position in the regionas a provider of speciality financial products - project, structured,trade and Islamic financing, forfaiting, tailored treasury productsand advisory services - as much as through the extension of tradi-tional trade finance and retail banking services. Thus, despite thepressure on margins caused by high market liquidity, we were ableto maintain our interest revenues from our loan portfolio throughportfolio growth of nearly 14%. While the Group rebuilds its lever-age following the major disposals in 2004, excess equity is invest-ed in low-risk instruments and earnings from this source thereforeincreased significantly. These factors contributed to a 27% rise inour net interest income. Although our non-interest incomeincreased by only 4%, this was better than had been expected con-sidering the lead time applicable to the many medium-term projectand other structured financings currently in course of completion.Our total income, excluding loan loss provision write-backs, wastherefore $47 million, or 15%, above that for 2004. By keeping therise in our operating expenses down to 6%, we were able toachieve a net operating income (including provision write-backs of$14 million) of $155 million, more than 33% higher than 2004’s$116 million, a most satisfactory result.

I mentioned last year that the Group had identified six keyproduct areas on which to focus its development efforts in thefuture – Treasury, Trade Finance, Project & Structured Finance, RetailBanking, Islamic Banking and Syndications. The progress of theseproduct groups is outlined in the following pages, together withthat of individual retail banking subsidiaries, ABC International Bankplc – responsible for assisting and financing European-MENA tradeflows on behalf of the Group - ABC Brasil S.A. and our key headoffice departments.

To these products we have, however, decided to add a seventh– Investment Banking. The decision to create a new product group,based in Bahrain, is the result of our conviction that the MENAregion’s recent strong growth represents not just a temporary surgein investment activity fuelled by increased oil and gas revenues but is, rather, indicative of a fundamental shift in the region’s economic landscape. Indeed, the energy-producing countries continue to base their annual budgets on highly conservativeassumptions, such that even if oil prices were to fall below, say, $50a barrel, this would not affect the projects and other expenditureplanned for the medium term – particularly by the GCC countries.We believe that scheduled infrastructure expenditure by both the oilproducing and non-producing states is now largely driven by thosestates’ need to satisfy the demands of their growing populations for employment and higher living standards. Moreover, these governmental initiatives are rapidly being followed by new private-enterprise investment from within the region and abroad. We areconvinced that the region is now ready for the development of regional capital markets and stock exchanges and for intermedi-ation services which channel the resources of private savers and investors into new forms of funding for investors seeking to leverage on their equity stakes in new projects and enterprises.The task of our new product group will be to provide the conduit for these initiatives, by way of corporate finance and advisory services, public and private equity issues, private placements and,for the investor, first class fund management services. We shall be actively building the stage for this venture over 2006 and I hopeto report satisfactory progress next year.

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The President & Chief Executive’s Review of Operations

Although world economic growth fell short of 2004’s record 5%, the 4.7% p.a. average growth over the last 2 years amplydemonstrates the pace of expansion exhibited by the strongesteconomies.

Ghazi M. Abdul-Jawad,President & Chief Executive


(All figures stated in US dollars unless otherwise indicated)

The Group had identified six key product areas on which to focus its development efforts in the future – Treasury, Trade Finance, Project & Structured Finance,

Retail Banking, Islamic Banking and Syndications.

robust economic expansion


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Project & Structured FinanceABC has the largest dedicated project and structured finance teambased in the Arab world, providing advisory, structuring and arrang-ing services to a growing regional and international client base. In addition to its Bahrain headquarters, the Project & StructuredFinance group, which was expanded in 2005 to meet the demandsof an exceptionally strong market, maintains specialist teams inLondon and Paris, allowing it to cover the entire MENA region moreeffectively.

The launch of the $3.6 billion Qatargas II financing in the summer of 2004 marked the beginning of a surge in Middle Eastproject financings that has yet to abate. The GCC in particularaccounted for a significant part of the $30 billion raised in 2005 for Middle East projects, including a number of high profile loanarrangements in which ABC was a mandated lead arranger.Successful deals include $1.5 billion for Qatar Chemical Company (II)and $760 million raised for the related Qatofin project; $4.6 billionfor Ras Laffan Liquefied Gas Company; $1.011 billion for BahrainPetroleum Company’s low sulphur production project and $770 million raised for Aromatics Oman LLC.

One of the main factors responsible for the recent tremendousincrease in project activity is the availability of low-cost hydro-carbons, which has enabled regional oil and gas-rich states to pushahead with petrochemical and industrial development projects benefiting, respectively, from low cost feedstock and low electricityprices.

Non-hydrocarbon producing countries, too, have initiated infrastructure and privatisation programmes, designed to broadentheir economic base. Several such projects are now either in theadvanced planning stage - for example in Tunisia, Morocco andJordan - or indeed have already been completed, as with Turkey’srecent port, telecom and steel privatisations. Population growth isalso driving infrastructure development in the region - as demandfor power and potable water grows exponentially, new plants ormajor expansions are being planned throughout the region. Here,ABC was able to expand the scope of its advisory services in 2005with a joint P&SF Bahrain/London team supporting one of the bidders for the acquisition and expansion of a power and water plantin Bahrain. Building on its experience in regional telecoms, P&SF also achieved notable success as a mandated lead arranger for the $490 million financing for Algeria’s third GSM licence on behalfof Wataniya Telecom Algeria.

Current growth trends look set to continue, with over $75 billionof projects in the pipeline. However, the financing arena is very com-petitive. Several international banks with significant underwritingappetite have recently entered the local project finance market and this together with the strong regional liquidity has put pressureon lending margins. P&SF has therefore concentrated on seekinglead arranging mandates where yields can be enhanced throughsubsequent sell-down. Furthermore, as growth trends extend across

As our product groups develop new business relationships through-out the MENA region and in those countries that form the region’snatural trading partners, while the Arab World Division builds on ourexisting platforms through network and service expansion and theestablishment of promising new regional outlets, we believe we arenow well on the road to achieving consistent double-digit growth.

Product Groups

Group TreasuryGroup Treasury’s role as central coordinator of ABC Group’s funding and liquidity management remains the most important of its strategic objectives of liquidity, profitability and customer relationships. ABC’s liquidity is monitored daily to ensure that ABC Group is prepared and able to meet any contingency arisingworldwide. ABC Group’s medium-term requirements are metthrough a combination of certificates of deposit, note issues, privateplacements and other borrowings by ABC or ABCIB, managed orcoordinated by Group Treasury.

In 2005, Group Treasury successfully launched a $2.5 billionEMTDN (Euro Medium Term Deposit Note) Programme, mandated to Citibank and HSBC and listed on the London Stock Exchange. The Programme was structured to enable deposit notes to be issued,in order that investors would rank pari passu with all other largedepositors under Bahrain Law. Both the Programme itself, and ABC’sdebut issue of 5-year floating rate deposit notes, were given longterm ratings of BBB by S&P and Fitch Ratings and, due to over-subscription, the benchmark issue was successfully closed at $400million. The issue also introduced the Group to a whole new set of investors, mainly from European and Far Eastern markets. The Programme’s flexibility will enable ABC to enter into bilateraltransactions and private placements in any currency, or over anyperiod, in addition to launching further general issues.

Under Group Treasury’s direction, the core Bahrain and LondonHubs have also continued to focus on diversification of ABC Group’sfunding and revenue streams. Both these hubs, through aggressivecalling and regular interaction at all levels, have been building adiversified funding base, widening and deepening relationships with corporate and financial institutional customers, central banksand government entities, as well as developing Islamic and otherproducts designed to encourage new funding sources and feeincome business.

Group Treasury also made great strides in its role as a major revenue generator and contributor to ABC Group’s overall profit-ability. Treasury’s FX and Derivatives trading and proprietary portfolio activities have helped in diversifying ABC Group’s revenuemix and its performance was recently recognised externally when ABC received the accolade ‘Best Treasury Bank in the MiddleEast’ under Euromoney magazine’s 2005 Awards for Excellence.

The Group was in turn able to benefit from thesefavourable conditions, by taking full advantage of its lead position in the region as a provider ofspeciality financial products.


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North Africa and the Levant, advisory and arranging opportunitiesare being pursued where ABC is well positioned through its branchnetworks and representative offices to play a leading role.

The outlook for P&SF therefore remains highly positive. Theexpanded team will focus on developing the advisory franchise andgenerating more non-loan related fee income, while continuing tobuild on ABC’s successful underwriter and lead arranger reputation,consolidating ABC’s premier position in the MENA region.

Trade FinanceGlobal Trade Finance activities are centred on the Group’s two hubs,at ABCIB’s European headquarters in London and the head office inBahrain.

During 2005 the London Hub’s Trade Finance unit enjoyed a further increase in turnover, especially in receivables financing, forfaiting and other forms of bespoke trade finance, which complement its more traditional products such as documentary letters of credit, guarantees, bonding and commodity finance. As ABCIB Trade Finance has begun to reap the twin benefits of theinter-Group synergies emerging out of the product matrix structureand the closer integration of ABCIB’s European branches and newmarketing offices, its contribution to the Group has increased significantly. Total volumes for on and off balance sheet items in2005 thus exceeded US$5.5 billion, the result of the financing oftrade flows to and from 19 Arab world countries.

The Bahrain Hub’s Trade Finance unit, meanwhile, continued togrow its origination and distribution capabilities, firmly establishingitself as an integral part of the product group’s activity. The Bahrainunit’s Trade Finance product range is equally diverse, although its key growth area is in its forfaiting activity. With the Singapore representative office now focusing its efforts on trade finance andforfaiting under the direction of the Bahrain unit, Bahrain TradeFinance hopes to develop opportunities to finance more Far East-MENA trade flows.

In 2005 the product group’s efforts and performance were duly recognised through the award of ‘Best Regional Bank in theMiddle East and North Africa’ by Trade Finance magazine and ‘Best Trade Bank in the Middle East’ by Trade & Forfaiting magazine.For 2006, its increased profile and marketing activities look to continue, as it seeks to leverage on its expanding client base to increase opportunities for intermediating in the increasing international trade flows with the MENA region.

Islamic Financial ServicesIn 2005, the Islamic Financial Services product group underwentrapid development in terms of product range offered, skill baseemployed, asset growth and profitability. ABC Group’s Islamic financeactivities now stretch across wholesale, corporate, treasury and retailareas, benefiting from access to the Group’s geographically diversenetwork, with its availability to both the Arab world and westernmarkets, and from the synergistic advantages available from harnessing the skills of its teams of specialists in project finance,trade finance, syndications, treasury and capital markets. Equally, the Shari’a-compliant structuring expertise of ABC Islamic Bank inBahrain and ABCIB’s Islamic Asset Management unit in London is acentral resource available to other ABC product groups and bankingunits.

There were some notable achievements in product develop-ment during the year, many of them innovative and groundbreakingin the Islamic banking market. ABC Islamic Bank launched a highlysuccessful sukuk issue – the first of its kind - on behalf of a leadingKuwaiti consumer finance and investment company. It also unveiledtwo new Shari’a-compliant hedging instruments, both of which werewell received by investors in the marketplace. Meanwhile, ABCIBannounced the first buy-to-let, self-certification and discounted rateIslamic mortgage products aimed at British resident Muslims - hailedby Muslim community leaders and commentators for achieving realequivalence with conventional mortgage products, these offeringswere an immediate success and business volumes have grownquickly. The London team also rolled out a Shari’a-compliant inter-modal container leasing contract and, in the commercial real estatefield, introduced a Parallel Phased Istisna’a contract, an innovativeproduct which enables Islamic finance to compete on equal termswith conventional commercial development finance. Finally, ABCIBlaunched the world’s first Shari’a-compliant mezzanine financing of asingle shipping asset (a VLCC vessel) - structured as a sukuk, theissue was then distributed out of Bahrain by ABC Islamic Bank, anexcellent example of the enhanced benefits now accruing from theproduct matrix organisation structure.

The Bahrain and London teams have been expanded throughrecruitment of additional high calibre staff, and IFS is well placed tomeet the growing worldwide demand for Islamic banking products.

Retail Banking & SMEFor the Retail Banking product group, 2005 saw a continuation ofbusiness growth momentum, as distribution channels were expand-ed throughout the Group’s retail banking subsidiaries.

In Algeria, retail banking supporting infrastructure was installedas the unit prepared for a 2006 product launch, commencing withthe opening of 3 new branches. The strategic objective also calls fornew consumer lending products to be developed and distributedthrough both existing and new channels, particularly in Algiers.

Meanwhile, the Egyptian and Jordanian subsidiaries successfullylaunched their own marketing campaigns, innovatively involving theparticipation of some leading consumer brands. Under the businessmodel developed in Head Office a direct sales approach was alsointroduced in these subsidiaries with the purpose of widening thedistribution reach and developing alternative sales channels aimedat increasing both the customer acquisition rate and the banks’ market share.

As part of the ongoing cost-minimisation initiative, an option for outsourcing credit and debit card management to Arab FinancialServices, ABC’s affiliate company based in Bahrain, and card trans-action processing on the ATM network to Euronet, was launched in coordination with Head Office Global Information Technology. In the area of risk management, the Group consumer credit policywas re-emphasised in all units and a portfolio review and evaluationprocess initiated, with the aim of strengthening consumer credit riskmanagement and assisting the identification of early warningtrends.

Retail workshops have been organised to ensure the migrationof best practices throughout the retail delivery units and to improveskill levels through effective intra-unit communication, shared experience and collective learning exchange programmes.

......................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................SyndicationsThis was another record year for the Syndications group, both interms of deals closed and underwriting income generated. Workingwith the ABC Group business units, the team successfully closed 11syndicated transactions, 4 of which were under sole mandates.

Successes included sole mandates for a $240 million amortisingterm loan facility for an Iranian bank, and a secured amortisingmedium term loan for a major Kuwaiti finance company, launched at $100 million but increased following oversubscription to $150 million. Both syndications were successfully placed among a widegroup of regional and international lenders. The team also workedclosely with ABC Islamic Bank in negotiating and winning the solemandate to arrange and syndicate a $50 million Musharaka Sukukfor The Investment Dar Company, Kuwait, again a highly successfuland oversubscribed debut financing, where the issue size was even-tually doubled. In the project finance field, Syndications acted asjoint bookrunner for the successful BAPCO financing.

While the Syndications group admirably reinforced ABC’s leadingrole in the MENA region in 2005 the team, already grown inresponse to market demand, expects to expand further in 2006 tomeet the many new opportunities anticipated in the near future. The demand for infrastructure investment in North Africa and theLevant, for instance, appears to be reaching the stage where it cannot be satisfied solely from local sources, and Syndications there-fore plans to build an early lead in the origination and distributionmarket there, in a repeat of its highly successful strategy in theTunisian syndicated market over 2001-2004 where it gained a dominant position. The GCC syndicated market, where total demandfor finance reached an unprecedented $41 billion in 2005 (four times the norm), also presents an abundance of opportunities ofinterest to ABC Group, particularly in project related finance – wheredemand hit $21 billion – and the burgeoning corporate market,which reached $15 billion in 2005 driven by corporate expansion and mergers and acquisition activity and which shows no signs ofabating.

Government & Financial InstitutionsThe Government & Financial Institutions (G&FI) unit enjoyed a 40%increase in gross income over 2004, as new relationships wereforged and new products developed for the benefit of its clients.

Among the unit’s achievements in the year were the structuringand successful launching of a subordinated loan issue for a Kuwaitiprime bank and a major syndicated loan facility for a Kuwaiti financecompany arranged in conjunction with Syndications group. It alsowon sole mandates from two Iranian banks for substantial tradefinance facilities and a highly successful debut borrowing for aTunisian bank.

Banking Group

Arab Banking Corporation - Egypt (S.A.E.) Following several years of economic recession, the Egyptian economy began a new economic cycle in 2004. Growth continued in2005, with Egyptian GDP rising 4.9% in the fiscal year to June 2005and the current account also registering a surplus, of 3.3% of GDP.Business sentiment improved in tandem, sucking in more imports butalso increasing inward investment. The Central Bank’s more coherentmonetary management policy, focused on inflation as the bedrock ofmonetary policy, led in the first half of the year to steadily increasinginterest rates and a significant real appreciation of the Egyptian poundagainst the Dollar. The rate of inflation consequently gradually subsided (from a high of 11.3% in 2004), enabling the Central Bankto manage interest rates down in the second half.

ABC’s investment in ABC Egypt was increased in June 2005through a rights issue that raised an additional $50 million capital for the bank.

ABC Egypt enjoyed growth in all business sectors. As itsCorporate Banking Division has developed closer associations withthe leading syndication banks and larger corporations, its portfoliohas both grown and achieved greater diversity. The CorrespondentBanking Division has likewise expanded its trade finance relationswith local and international banks, enabling it to deliver comprehen-sive, value-added trade finance products to a growing clientele. The Retail Banking Group has also enlarged its liability and loanproduct range, unveiling both its new credit card, offered throughABC’s Bahrain-based specialist affiliate Arab Financial Services, and a Bancassurance initiative in conjunction with Allianz Egypt which enables customers to avail themselves of a variety of savingsand insurance schemes. These new products, together with theexpanded delivery channels - a new branch was opened at El Haramand the ATM network expanded to 33 machines – helped to achievea tangible improvement in Retail Banking’s asset portfolio.

ABC Egypt’s net interest margin rose by 25% to $10.3 million,partly as a result of its capital increase in June, as well as increasedinterest rates. Other income grew by 37% to $4.5 million to give a total operating income of $14.8 million, 28% up on 2004. Withoperating expenses remaining stable, net operating income was acreditable $3.4 million compared with only $0.3 million in 2004.After accounting for credit recoveries, provisions and taxation, netprofit was more than double that of 2004, at $4.5 million.

ABC Egypt is confident that the structural reform process will accelerate in 2006 and impact positively on the local businessenvironment, supporting the bank’s loan portfolio expansion strategy. At the same time it intends to continue its efforts toimprove the quality of its assets, building on its recent achievementof an internal portfolio risk rating matching that of Egyptian sovereign risk. Delivery channels will be further expanded with the opening of a new branch in Heliopolis in early 2006, while more new asset and liability products are to be added to the bank’sever-increasing repertoire.

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While the Syndications group admirably reinforcedABC’s leading role in the MENA region in 2005 the team, already grown in response to marketdemand, expects to expand further in 2006 tomeet the many new opportunities anticipated inthe near future.

While the Arab World Division builds on our existing platforms through network and service expansion and the establishment of promising

new regional outlets, we believe we are now well on the road to achieving consistent double-digit growth.

From left: Sh. Rashed Al Khalifa, Corporate & Institutional Banking,Mr. Amr El-Ashmawi, Trade Finance & Forfaiting and Mr. John McWall, Syndications

building relationships


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over time by 11 more outlets, commencing with 3 new Algiersbranches in 2006. With its IT systems upgrade now successfullyimplemented, ABC Algeria is confident of being able to deliver quality products to an expanding corporate and retail customer base.

Arab Banking Corporation - TunisiaDespite the sharp rise in crude oil prices in 2005, and the challengesencountered by the textile sector following the dismantling of theMulti-Fibre Agreement and the quota system, the Tunisian economystill managed a 4.2% GDP growth rate in 2005. This was due mainly to the recovering tourism industry, increased exports and the growth in foreign investments and remittance transfers fromTunisian workers abroad, resulting in a stronger balance of paymentsand a subdued inflation rate.

ABC’s Tunisian units concentrated on enhancing credit risk management whilst seeking new and diversified sources of revenueand profitability. At ABC Tunisie, a conservative strategy led to areduction in the loan portfolio, producing an overall drop in totalassets - nevertheless, the bank’s net interest margin increased by two-thirds to $2.5 million. As net commission and other income remained stable at $0.7 million, total operating income roseby 42% to $3.1 million which, however, after deduction of operatingexpenses of $4.9 million and loan loss provisions of $13.3 millionrelating to earlier years (as the bank replaced ABC guarantees with its own specific provisions following an increase in its paid upcapital), was transformed into a net loss for the year of $15.1 million.

Now that the troubled period of poor loan performance isbehind it, ABC Tunisie believes that it is well on the way to recovery.Besides its existing corporate and commercial banking activity, ABCTunisie seeks to diversify its revenue streams by extending goodquality personal loans to corporate clients’ employees and otherservices to selected medium to high worth individuals. The activitiesof ABC’s Tunis branch, which concentrates on larger trade finance and corporate financings, complete the suite of services offered byABC Group in Tunisia.

ABC Islamic Bank (E.C.)Following the reorganisation in 2004 of ABC Group’s Islamic franchiseunder a single product group and the completion of a largely successful transitional year, 2005 witnessed a quantum shift in performance for ABC Islamic Bank. Total income doubled to $8.0 million and, after increased operating expenses reflecting mainlybonus accruals and increased premises expenses, net incomeincreased by 186%. This excellent performance was the result of a combination of 50% balance sheet growth and a deliberate shift towards fee-based earnings. Moreover, the growth in footingswas funded through externally generated liabilities, reflecting thesuccess of a concerted liability marketing campaign.

Initiatives aimed at broadening the bank’s product base included the launch of two Shari’a-compliant hedging products,Muwa’amah and Tabdeel, equating to conventional currency andinterest rate swaps. Both were well received by GCC investors. The bank also managed a highly successful debut sukuk issue onbehalf of The Investment Dar Company, the first for a Kuwaiti financecompany. This Sukuk Al Musharika was structured, arranged andunderwritten by ABC Islamic Bank at the $50 million level, followingwhich it was 100% oversubscribed. The bank was also mandated

Arab Banking Corporation (Jordan)In 2005 Jordan’s economy continued the strong rate of growth experienced in 2004, driven partly by the reconstruction efforts inIraq (for which Jordan is the main hub) and partly by the strength-ening manufacturing, transport and communications sectors. GDPgrowth reached 7.5% p.a. in the first three-quarters of 2005, just alittle higher than for the same period of 2004. Increased exportswere, however, exceeded by merchandise imports, causing the tradedeficit to widen considerably.

ABC Jordan has been providing financial services to the expanding sectors of the economy for many years, and 2005 was no exception as the total loan portfolio grew by a quarter. The yearalso witnessed the launch of several new non-lending products,notably prepaid debit cards, MasterCard issuance and SMS banking.The ATM network was expanded, selected branches renovated and preparations completed for the opening of a new branch in early2006. Successful efforts to reduce non-performing loans througheffective follow up procedures resulted in NPLs falling to less than4% of total loans, 120% covered by specific loan loss provisions.

As yet another outstanding performance was recorded at ABCJordan, total revenues rose by 33% to $38.5 million. After deductionof operating expense, provisions and taxation, net profit was 68%higher at $16.7 million. Consequently, earnings per share hit a newrecord high at JD0.344.

In 2006 ABC Jordan intends to intensify its marketing efforts,focusing especially on high-profit products like credit cards andBancassurance and backed by an expanding product base, salesteam and branch network. It will also continue the expansion of itsATM network, to which it will add new cash deposit and cashexchange machines.

Arab Banking Corporation - AlgeriaThe Algerian economy again achieved remarkable progress in 2005as GDP grew by 6.5% and foreign exchange reserves rose by a further $10 billion to $50 billion, pushing the external debt ratiodown to a healthy 20%. The main contributors to the improving performance were the high oil and gas revenues combined with increasing foreign investment. The downside, for the bankingindustry, was the resultant strong market liquidity which, combinedwith the growing competition between the local and the private sector banks, put further pressure on margins.

ABC Algeria had an excellent year, with increases of 39% to $8.3 million in its net interest income and 37% to $10.7 million innon-interest income, on the back of a 37% loan portfolio expansion,a substantial increase in trade finance turnover and increased moneymarket and marketable securities earnings. Total operating incomewas $19.0 million, 42% higher than 2004. With operating expenseswell contained, together with some recovery of previously incurredloan loss provisions, the bank returned a net profit of $8.1 million, a 63% improvement over the previous year and a welcome returnto the above-20% returns on equity seen in earlier years.

Following a strategic reorganisation in 2004 ABC Algeria hasrepositioned itself to concentrate on trade finance and retail bankingactivities. Its new retail division aims to expand the branch network


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lead arranger for the $330 million Islamic finance tranche of the $1 billion Bahrain Petroleum Company (BAPCO) facility.

Rationalisation of the bank’s Islamic fund platform resulted inthe dissolution of ABC Islamic Fund in view of an element of productduplication with its other liquidity management fund, ABC ClearingCompany. The latter’s operating base was accordingly expanded to accommodate the 99% of ABC Islamic Fund investors who elected to transfer their investment rather than be repaid outright.The Islamic credit card initiative was also suspended, earmarked forlater re-launch directly into the retail market. Further rationalisationled to an additional $20 million capital injection from the parent andan intake of new specialist staff, increasing headcount from 9 to 15,both in anticipation of planned future growth.

ABC Islamic Bank’s performance in 2005 marks a further step on the road to achieving its ambitious long-term aim - to be the premier innovative and service-oriented Islamic bank in the region.While the bank continues to focus on achieving a greater share of theregional corporate market, given the steady shift towards Islamicbanking in the region (where industry growth is currently projectedat 15-20% per annum), its long-term plans now include a majorpush into the growing Islamic capital market arena and careful planning towards eventual entry into the retail market.

ABC International Bank plc2005 witnessed two distinct patterns of economic behaviour inABCIB’s areas of operations. On the one hand, those European countries where ABCIB is physically represented exhibited a lack-lustre performance, with many large euro zone economies remaining weak. On the other, economic growth in ABCIB’s key target markets in the MENA region provided more than sufficientbusiness opportunities, both in infrastructure development andimport financing. Whereas the substantial increase in foreignexchange reserves of the region’s hydrocarbon exporting countries –particularly in the GCC countries - underpinned the continuing development of their energy and other infrastructure, the widerNorth Africa and Levant areas also experienced a surge in invest-ment activity, as greater emphasis was placed on infrastructure andprivatisation programmes designed to broaden their economic base.

The Group’s product-led matrix management structure introduced in 2004 was meanwhile firmly integrated in ABCIB in 2005 and, in the generally favourable environment in the MENA region, the bank’s freshly focused approach to marketing and product delivery was rewarded by notable improvements in performance across all ABCIB’s operating areas.

The MENA region’s fiscal surpluses led to strong demand for all kinds of trade finance and intermediation services. ABCIB’s Trade Finance Unit consequently enjoyed a surge in demand for itsspecialist and general services, particularly receivables financing andforfaiting facilities. Despite intensified competition in the market,the unit, which aims to offer exporters a comprehensive range of products and services, from traditional products to structured, customised solutions developed specifically for its clients, achievedturnover and profitability levels significantly in excess of 2004 levels.

High liquidity levels in the MENA region, however, led to manytransactions being financed at local level – often in local currency –and several countries’ foreign debt being refinanced at lower cost orretired altogether. While this somewhat restricted the opportunitiesfor ABCIB’s project team and subdued its returns, the team never-theless achieved some notable successes, including being mandatedlead arranger for the $490 million financing for Wataniya TelecomAlgeria, in respect of the third Algerian GSM licence, and achievingwidespread recognition for its $76 million ship finance for the Pacific Star Group, which innovatively combined a conventional senior debt tranche with a single asset Islamic sukuk.

The Islamic Asset Management team continued its theme ofinnovative product development. Following its success with the firstShari’a-compliant mezzanine financing of a single shipping asset tobe brought to the market – the Al Safeena sukuk issue – it arrangedthe lease of 1,500 containers to a major European shipping lineunder a specially written Shari’a-compliant intermodal containerleasing contract. In a buoyant UK real estate market, it arranged thepartial finance, under its new Parallel Phased Istisna’a contract, of a£30 million residential development project in the north of England.Its Al Bait UK Real Estate Fund, launched with Global Securities Houseof Kuwait in 2004, meanwhile continued to benefit from a growingsector allocation.

ABCIB’s Islamic retail finance arm, which offers financial products to British resident Muslims under the ‘alburaq’ brand, introduced a much expanded, and market leading, Islamic mortgage product range, now being distributed through Bristol & West Building Society and selected branches of Lloyds TSB. Thenumber of applications is anticipated to rise rapidly in 2006.Recognising the premier nature of the offering, Islamic Banking & Finance magazine named alburaq the ‘Best Islamic MortgageProvider’ in its global awards section. The alburaq programme was also a finalist in Mortgage Finance Gazette’s ‘Most Innovative UK Mortgage Product’ category, competing with a market place of8,000 UK mortgage products.

Project Finance magazineWinner of Deal of the Year award

EMEA Petrochemicals Qatofin/Q-Chem II

EMEA Oil & GasRasGas 2+3

Arab Banking Corporation closesUS$150 million syndicated MediumTerm Loan facility for CommercialFacilities Company (S.A.K.)

At our domestic banking subsidiaries, we continue to expand our branch, ATM and cash deposit machine networks and to complete the implementation of Internet and SMS technologies in those units not yet offering these services,

in our efforts to widen our customer base.

increased market profile

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ABC International Bank plc (continued)Organisationally, ABCIB made significant progress in crystallising thebenefits of integration of the European branches, as the Frankfurtand Milan support operations were restructured and a number ofadministrative, payment and reporting responsibilities transferred toLondon. The centralisation of the regional Treasury offices in Europein the London Hub resulted in significant cost savings as well as moreefficient execution capabilities. ABCIB Treasury meanwhile addressedits two main priorities for the year - to lengthen the maturity of thebank’s liabilities and to broaden the deposit base - by, respectively,creating an investment platform to facilitate investment grade floating rate bond issues and initiating an aggressive programme to cross-sell treasury products to the bank’s commercial customerbase. Significant growth in both areas is anticipated for 2006.

In 2005 ABCIB’s operating income rose by 16% to £45.7 million.Interest margin grew by 10%, to £26.2 million, mainly on account of higher return on equity funds. Improved trade finance margin was offset by project finance run-offs. Non-interest income alsoimproved, and was up 24% at £19.5 million, as trade finance activity surged and Islamic banking fees and sell down profits madea significant contribution. Operating expenses were reduced by 7%to £30.6 million as a result of a number of cost saving initiatives.ABCIB therefore reported an increase in net profit to £15.6 million,more than double 2004’s £6.6 million.

Banco ABC Brasil S.A.For Brazil, the year started with an overheated economy and inflationary pressures, forcing the monetary authorities to increaseinterest rates, which in turn led to appreciation of the Brazilian Real.As it became clear that the foreign trade balance and internal debtsituation would not be negatively impacted by this cycle, the marketadjusted to the new economic perspective with less price expansionand a downward inflationary trend. Inflation thus averaged around5.7% for 2005 against a target of 5.1%. GDP growth for the year,forecast at 2.2%, although somewhat restrained was sufficient toconfirm the validity of the economic policies being followed. Exportsrose to $118 billion while imports expanded to $74 billion, theresultant resources flow permitting a reduction in external debt andincreasing foreign appetite for Brazilian investments.

Partly as a result of appreciation of the Real and partly in reflection of growth of the corporate and inter-bank (documentarycredit and payroll lending related) credit portfolios, ABC Brasil’s totalloans expanded in 2005 by 30% to $835 million. The bank also significantly increased its holdings of marketable securities. Loweraverage corporate spreads however meant that - even with close tozero default rates - the bank’s net interest margin, at $34.9 million,was 6% lower than 2004. Nevertheless, other income includingtreasury income improved to $9.3 million compared with 2004’snegative $2.2 million (which had reflected mainly treasury lossesthat year). Net operating income consequently rose 25% to $19.1million however, due to significantly higher taxation provision,2005’s net profit at $9.2 million was only 3% above that for the previous year.

ABC Brasil foresees a favourable economic scenario for 2006,although not without some negative influences as a weakened government goes to the polls. It expects significant growth in bothasset volumes and spreads, anticipating further appreciation of the Real against the Dollar, with the growing SME and retail loanbusinesses contributing more to the bottom line as they reach economically viable levels.

Credit & Risk GroupImplementing the recommendations of the Mercer Oliver Wyman(MOW) report following its 2004 feasibility study, various changes in the organisation and processes were made in 2005. As mentionedunder Corporate Governance, Subsidiary Board Risk Committees(SBRCs) were formed at each of the major subsidiaries, along with committees analogous to the HOCC and ALCO in Head Officewhere they did not already exist. In addition the following wereimplemented:

ProcessesEach business unit has now formulated and put in place its mediumterm and one-year Risk Strategy. Its Risk Profile – viewed from theperspective of Ratings, Industry, Country and Tenor – then undergoesregular quarterly review by its respective SBRC. A process has been put in place related to budgeting and business planning,whereunder the Risk Profile of each business unit’s Business Plan is consolidated and reviewed for acceptability within the approvedRisk Strategy. A consolidated Group Risk Profile for the coming year is then reviewed by the Board Risk Committee (BRC).

An exercise was conducted to establish prudential consolidatedand individual ABC unit threshold approval levels in relation to credit exposure to corporate and financial institution customers. Thiswas based on the combined impact of restrictions linked to eachlending unit’s capital, profitability and legal lending limit, as well asto the customer’s risk rating and Probability of Default index. Theresults were used to set lending authorities for each unit’s SBRC (andthe HOCC on a consolidated basis). In line with the BRC’s delegationof day-to-day management, additional credit approval authoritieswere then further delegated down the line to HOCC and unit CreditCommittees where appropriate. This has speeded up the creditapproval process for a significant number of cases.

Risk Systems Enhancement ABC’s technology project plan, launched in 2004, aims at the creationof a new credit risk management infrastructure incorporating the key blocks recommended by MOW. Certain key elements were completed in 2005, namely the implementation of a new creditapplication processing system, limits and exposures managementsystem, the associated data warehousing capability and Moody’sKMV suite of products, which will enhance analytical/underwritingstandards as well as provide proxies for default estimates. Upon successful completion of the project plan, Basel II requirements will be met for ABC, who will simultaneously be provided with aneffective economic capital allocation tool.

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Among e-Business Initiatives in progress, the web-based ABCOn-line e-Trade Finance system, which allows ABC customers tomanage their global trade portfolios and issue documentary creditson-line, was successfully introduced at ABC Jordan. EISII - the latestgeneration of the EIS On-line Executive Information System, offeringmobile ABC executives easy access to customer information andaccount details via pocket PCs - was also successfully deployedGroupwide.

The Corporate Performance Management system, whichenables senior management to view income streams from all theGroup’s major products and assess operating units and individualaccount officer performance against goals, was installed at all wholesale banking units.

New Anti-Money Laundering software, enhancing and com-plementing existing regulatory compliance and procedures, installedat the Bahrain headquarters in 2004, was rolled out in 2005 to ABCIB and ABC New York branch. The system scans payment trafficand customer static data against blacklist databases and is fully compliant with international regulatory requirements. Deploymentwill continue in 2006.

For 2006, a key objective for GIT is the achievement of Basel IIreadiness, in addition to ongoing enhancement of ABC’s risk man-agement capabilities, especially as regards the newly implementedcredit systems, default estimation and portfolio management.

ConclusionIn conclusion, we view 2005’s performance with some satisfaction,especially considering that the year opened with the Group facing a much reduced asset volume and low leverage following the saleof our two major non-core subsidiaries. Our new product-basedstructure, coupled with enhanced credit management, have contributed to the substantially improved volume of good qualitybusiness that we have managed to put on our books and thereplacement of the revenues lost from our subsidiary disposals injust one year. The asset and organisational base thus created will be our springboard, from which we will expand both our key product range and our delivery channels. We look towards 2006,therefore, with renewed confidence in our ability to meet our keygoals and move nearer to realising our Vision - to be the premierinternational Arab financial group.

Risk Systems Enhancement (continued) Following its review of all ABC subsidiaries’ treasury activities in 2005, Market Risk Management (MRM)’s proposed new Grouptrading and investment limits and revised Asset Liability MandatePolicy were approved by ALCO and the BRC. MRM also conducted a strategic risk systems review to evaluate the existing systemscapabilities and new solutions available in the market, resulting inthe implementation of FOFIX (a Riskdata product), enhancing theTreasury team’s investment portfolio monitoring capability. MRM alsoinitiated an internal capital allocation methodology and developedan enhanced capital allocation framework, due for testing in 2006.

Global Information Technology2005 marked the completion by GIT of the Group’s original globaltechnology upgrade and standardisation programme for the wholesale banking units. The core system only remains to be implemented at ABC’s new Iraq branch, along with a customised version at ABC Islamic Bank, both of which are scheduled for installation in 2006.

Under the Group’s strategic plan to update and enhance its risk management capabilities, GIT also implemented ABC’s new, in-house developed, credit approval/limits system - its EnterpriseCredit Risk Management System - significantly improving real-timeglobal credit exposure monitoring/reporting, including advancedinternal ratings analytical tools.

Progress was maintained on the Arab World Retail CoreSystems Standardisation Programme, intended to increase operational efficiency and reduce costs across the retail units. Basedon the platform already in use at ABC Egypt, the system will operatethrough a Bahrain-based Retail Processing Hub, obviating the needfor separate IT centres in each retail subsidiary. ABC Tunis/Tunisie willgo live with the new system in early 2006, followed by the otherretail units. Rollout of the Group’s standard Front Office Dealing and Position System to all Arab world domestic banking units commenced with ABC Jordan; ABC Egypt will follow in 2006.

Deployment under the EMV Compliance initiative, which entailsoutsourcing the ATM driving and debit card management and implementing Euro Master & Visa (EMV) Compliance for all theGroup’s Arab world retail banking units, was completed at ABCJordan, with ABC Egypt and ABC Algeria scheduled for early 2006. Meanwhile, the Group’s global Trade Finance System, alreadyoperational in all wholesale banking units, was implemented at ABC Tunisie and will be progressively rolled out to the remainingretail banking units.

Best Treasury Bank in the Middle Eastvoted by Euromoney magazine

Treasury Dealing Desk


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renewed confidence

Renewed confidence in our ability to meet our key goals and move nearer to realising our Vision -

to be the premier international Arab financial group.

capital management

ABC’s capital management is aimed at maintaining an optimum level of capital to enable it to pursue strategies that build long-term

shareholder value.

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From left: Mr. Jehangir Jawanmardi, Audit Group Head, Mr. Riyad Al Dughaither, Chief Credit & Risk OfficerMr. Sael Al Waary, Support Group Head, Mr. Abdulmagid Breish, Deputy Chief Executive & Chief Banking Officer

Mr. Essam El Wakil, Group Treasurer, Mr. Nour Nahawi, Arab World Division HeadMr. Asaf Mohyuddin, Planning & Financial Control Head


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Corporate Governance

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half-yearly meeting with the Head Office Credit Committee to discussmajor risk policy and planning issues.

The Nomination and Compensation Committee is responsiblefor the formulation of the Group’s executive remuneration policy and senior management appointments and remuneration. TheCommittee has formal terms of reference approved by the Board andmeets at least twice during the year.

Compliance

In accordance with the rules of the Bahrain Monetary Agency (BMA),ABC has appointed a Compliance Officer and a Money LaunderingReporting Officer (MLRO).

The role of the Compliance Officer is to act as central coordinatorfor the Group in respect of all matters relating to BMA regulatoryreporting and other requirements. This responsibility currently lieswith the Senior Vice President, Financial Control. The compliance function covers areas such as corporate governance, adherence to best practices, codes of conduct and conflict of interest. Each operating entity in the Group, to the extent required by applicable lawand regulation, has appointed a local compliance officer to ensureadherence to local requirements and regulatory issues.

The BMA’s laws and regulations with respect of Anti-MoneyLaundering (AML) apply to all ABC branches and subsidiaries. TheGroup is committed to ensuring adherence to these regulations and to the recommendations of the Basel Committee and FinancialAction Task Force which they incorporate, which are in turn reflectedin ABC’s own Group AML Manual which has been approved by theBoard of Directors. The Group has strict Know Your Customer policiesand units are precluded from establishing a new business relationshipuntil all relevant parties to the relationship have been identified, the nature of the business they expect to conduct has been established and satisfactory evidence of identity obtained. ABC’s AMLpolicies are available on its website.

The MLRO appointed in each unit is responsible for supervisingthe unit’s AML activities and for maintaining appropriate and effectivesystems, controls and records to ensure compliance with local AML regulations and the provisions of the Group AML Manual. TheMLRO is also responsible for reviewing and reporting any suspicionsconcerning a customer or an account to that unit’s regulator and senior management.

The responsibilities of the Group’s MLRO – currently the Head ofOperations, Bahrain – include formulating, issuing and implementingthe Group’s AML strategies and policies on an ongoing basis, over-seeing appropriate AML training to all relevant staff, supervising and coordinating the activities of the unit MLROs and reporting to the President & Chief Executive and the Board of Directors on critical money laundering issues which require the attention of seniormanagement. The Group MLRO reports directly to the President & Chief Executive, in addition to having a direct and independentreporting line to the BMA.

Board of Directors

The Board of Directors is responsible for the overall direction, supervision and control of the Group. It meets regularly (usually six times a year) to consider key aspects of the Group's affairs, strategy and operations. The shareholders appoint the Board for aspecific term of three years. There are currently 12 Directors on theBoard, all non-executive, with varied backgrounds and experience,who individually and collectively exercise independent and objective judgement. As a rule Directors do not have, and in 2005 no Director had at any time during the year, any direct or indirectmaterial interest in any contract of significance with ABC or any of itssubsidiaries.

Specific responsibilities have been delegated to the followingBoard Committees:

The Group Audit Committee is responsible to the Board forensuring that the Group maintains an effective system of financial,accounting and risk management controls. The Committee also monitors compliance with the requirements of the regulatory authorities in the various countries in which the Group operates. It normally meets at least four times a year, regularly reviewing matters with both the external and Group Audit as well as selectedmembers of management invited to discuss relevant issues. TheCommittee also makes recommendations to the Board regarding theappointment of external auditors. Group Audit Department reportsdirectly to the Committee.

The primary purpose of the Corporate Governance Committee isto assist the Board in shaping and monitoring the CorporateGovernance policies and practices of the Group and to evaluate compliance with policies and procedures. The Corporate GovernanceCommittee has a formal charter approved and reviewed by the Board and currently consists of four members, all of whom are non-executive directors of ABC. Amongst its other duties, theCommittee reviews and assesses the adequacy of the Group’s policies and practices on corporate governance, all matters related to Board Committees and their membership, including the selectionfor service on ABC's subsidiaries’ boards of directors, Board and Board Committee compensation, related issues and managementsuccession plans, making recommendations to the Board as appropriate.

The Board Risk Committee comprises four members and acts onbehalf of the Main Board on all risk issues. It is responsible for thecontinual review and approval of the Group’s Risk Policies andMedium Term and Annual Risk Strategy/Appetite, within which business strategy, objectives and targets are formulated. TheCommittee continuously reviews the Group’s Risk Profile to ensurethat it is within the Risk Policies and Appetite parameters, meetingquarterly and reporting key developments at each Board meeting.The Committee delegates authority to senior management to conduct day-to-day business within the prescribed policy and strategy parameters, ensuring that processes and controls are adequate to manage Risk Policies and Strategy. It also holds a formal

......................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................Risk Management

In conducting its business and operations the Group encounters a variety of risks falling under the general categories of credit, market,liquidity, operational and legal risks. The Group seeks to managethese risks strategically to assist it in building shareholder value. The following describes the way in which it does this and the organisational structure it employs in doing so.

At the apex of risk management is the Board Risk Committee(BRC). Once the BRC sets the Group's Risk Strategy/Appetite and Policy guidelines, it entrusts responsibility to senior managementfor implementation, including identifying and evaluating, on acontinuous basis, significant risks to the business of the Group and designing and implementing appropriate internal controls tominimise them. This is done through the senior management committees and the Credit & Risk Group in Head Office whose head, ABC’s Chief Credit & Risk Officer, has a ’dotted’ functional reporting line to the BRC in addition to reporting directly to thePresident & Chief Executive.

The Head Office Credit Committee (HOCC) is responsible for credit decisions at the higher levels of ABC’s lending portfolio, settingcountry limits, dealing with impaired assets and general credit policymatters. It normally meets weekly and comprises relevant membersof senior management, chaired by the President & Chief Executive.

The chief responsibility of the Asset and Liability Committee(ALCO) is to define long-term strategic plans and short-term tacticalinitiatives to direct asset and liability allocation prudently for the achievement of the Group’s strategic goals. ALCO additionallymonitors the Group’s liquidity and market risks, economic develop-ments, market fluctuations and the Group’s risk profile to ensureongoing activities are compatible with the risk/reward guidelinesapproved by the BRC. ALCO generally meets monthly, is chaired by the President & Chief Executive and draws its membership fromrelevant senior management.

The Board has recently mandated the creation of an OperationalRisk Management Committee which, supported by a newOperational Risk Management Unit, will oversee the independentOperational Risk Management function. Each ABC subsidiary isresponsible for managing its own risks. Each subsidiary has its ownSubsidiary Board Risk Committee, Credit Committee and ALCO (in thecase of major subsidiaries), or equivalent, with responsibilities generally analogous to the Group committees.

The Credit & Risk Group (CRG) has overall responsibility for centralised credit policy and procedure formulation, country risk and credit exposure reporting, control and risk-related regulatorycompliance, remedial loans management and the provision of analytical resources to senior management. It is also responsible for identifying market risks arising from the Group's activities, recommending to the relevant central committees appropriate policies and procedures for managing exposure to such risks andestablishing the systems necessary to implement effective controls.

Credit RiskABC Group’s portfolio and credit exposures are managed in accordance with the Group Credit Policy, which applies Groupwidequalitative and quantitative guidelines, with particular emphasis on

avoiding undue concentrations or aggregations of risk. ABC's bankingsubsidiaries are governed by specific credit policies that, whilst closely following and subject to the Group Credit Policy, may beadapted to suit local practices and regulatory requirements as well asindividual units' product and sectoral needs. The Credit Risk section of the CRG’s Risk Management Department (RMD) coordinates alltechnology development related to credit risk management and provides senior management with consolidated information on Group exposures to counterparties, countries and industries.

The first level of protection against undue credit risk is throughGroup country, industry and other risk threshold limits, together with customer and customer group credit limits, set by the BRC andthe HOCC and allocated between ABC and its banking subsidiaries.Credit exposure to individual customers or customer groups is controlled through a tiered hierarchy of delegated approval authorities based on the risk rating of the customer. Where unsecuredfacilities sought are considered to be beyond prudential limits, Group policies require collateral in the form of cash, securities, legalcharges over the customer's assets or third-party guarantees to mitigate the credit risk. The Group also increasingly employs RAROCas a measure to evaluate the risk and reward relationship at the transaction approval stage. 2005 saw further enhancements tothis process.

Day-to-day management of existing credit exposure is theresponsibility of the business unit officers who, in turn, must adhereto the detailed requirements for regular review of the customers and analysis of their financial and economic condition, under theoversight of the CRG’s Head Office Credit Department in the case of customers with limits exceeding the relevant business unit’sauthority. Significant aggregated credit exposures are regularlyreviewed by senior management, as are industry/sectoral exposuresperiodically. Business unit portfolios are subject to detailed semi-annual Head Office reviews involving assessment of business focusand return as well as credit issues. A review of all risk ratings is conducted at the other quarter ends. Group Audit carries out separateRisk Asset Reviews of business units to assess and provide an independent opinion on the quality of their credit exposures andadherence to credit policies and procedures.

In assessing its credit exposure, ABC applies an internally developed risk rating scale, under which credits with ratings 1-7 (with+ve and –ve modifiers) rank as satisfactory and non-performing orimpaired credits are categorised into ratings 8-11 under four separateadverse risk ratings. Subject to minimum loan loss provision levels mandated under the Group Credit Policy, specific provisions inrespect of impaired assets are based on estimated potential loss.Non-specific provisions are also maintained to cover unidentified possible future losses. Credit exposures found to rank below satisfac-tory grade are segregated and more actively supervised as impairedassets under the guidance or supervision of the CRG’s Remedial Loans Unit (RLU). The RLU provides business units with advice, assistance and training in relation to managing impaired assets,including development of realistic exit strategies and maximisation of credit recoveries. Impaired assets are reviewed regularly by the respective business units, with progress reports at least quarterlyto the RLU, who in turn reports their progress to senior managementand regulators.

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Corporate Governance



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Market RiskThe Group has established risk management policies and limits within which exposure to market risk is monitored, measured andcontrolled by the RMD with strategic oversight exercised by ALCO. TheRMD’s Market Risk Management (MRM) unit is responsible for devel-oping and implementing market risk policy and risk measuring/mon-itoring methodology and for reviewing all new trading products andtrading products and limits prior to ALCO approval. MRM’s core respon-sibility is to measure and report market risk against limits throughoutthe Group.

Foreign Exchange Rate Risk - The Group is exposed to foreignexchange rate risk through both its trading portfolios and its structur-al positions. Foreign exchange rate risk is managed by appropriatelimits and stop loss parameters determined by each subsidiary's localALCO and approved by its Board. ABC's structural balance sheet posi-tions, which relate to its net investment in its foreign subsidiaries, arereviewed regularly by ALCO in accordance with the Group's strategicplans and managed on a dynamic basis by Group Treasury, hedgingsuch exposures as appropriate.

Interest Rate Risk - In managing the interest rate risk resultingfrom the Group’s trading and banking activities, the effect of interestrate movements is assessed using sensitivity analyses and othermodelling techniques. There are established limits on individual busi-ness units' aggregate maximum exposures to interest rate risk and onan overall basis for the core banking units. Board approved tradinglimits are monitored by RMD and any exceptions brought to theattention of ALCO.

Equity, Debt Securities and Commodity Risk - As a normal partof its treasury trading activities, the Group is exposed to the risk of anadverse impact on its earnings due to movements in the prices ofindividual securities or commodities, or generally in the value of theirrespective markets or their related derivatives. Management of theserisks is similar to that in relation to foreign exchange risk.

Liquidity RiskABC maintains liquid assets at prudential levels to ensure that cashcan quickly be made available to honour all its obligations, evenunder adverse conditions. The Group is generally in a position ofexcess liquidity, its principal sources of liquidity being its deposit base,liquidity derived from its operations and inter-bank borrowings. It hasspecific policies regarding liquid assets coverage of short-term whole-sale deposits and in particular the potential risk impact of with-drawals by large single depositors, ensuring that there is no relianceon any one customer or small group of customers. Maturity mismatchis also managed within internal policy limits. The maturity profile ofthe Group’s assets, liabilities and off-balance sheet items is given inNote 15 to the Financial Statements.

DerivativesIn the normal course of business, the Group enters into many kinds ofderivative activities in both its trading and banking books. ABC mayon occasion use derivatives to manage its own structural positions. In the trading book, the Group assists customers and counterparties(typically financial and governmental institutions and major corp-orations) to alter their risk profile in a particular area of risk by structuring deals to suit individual needs. The positions accumulatedfrom such activity are either passed on to others in the market

......................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................

or retained as open positions and managed for a profit. The Group'strading activities are largely managed in Bahrain, within appropriatelimits and stop loss parameters. For all trading options products, RMD conducts a two-factor stress analysis. All volatility parametersare calculated by RMD. The Option stress adds another independentmeasurement of risk.

Operational RiskGroup policy dictates that the operational functions of booking,recording and monitoring of transactions are carried out by staff that are independent of the individuals initiating the transactions.Business units have primary responsibility for identifying and manag-ing their own operational risks. As mentioned above, an independentOperational Risk Management Unit is being formed within the RMD, which will create the framework for best practice OperationalRisk measurement under Basel II stipulations.

The Group’s information technology arm is continually develop-ing and refining the Group’s security software to ensure that its systems can reliably identify and intercept unauthorised access. The Group pays close attention to disaster recovery. All essential operational data required for business continuity are backed up onseparate computers both within the Head Office and elsewhere inBahrain, in addition to being downloaded hourly to the Group’sservers in London.

Legal RiskInadequate documentation, legal and regulatory incapacity or insufficient authority of a counterparty, contract invalidity or unen-forceability, are all examples of legal risk. Management of this risk isthe responsibility of the Head Office Legal & Compliance Department(LCD) and is carried out through effective consultation with internaland external legal counsels, together with close monitoring of the litigation cases involving the Group. All major Group subsidiaries have their own in-house legal departments, acting under the guidance of the LCD.

Capital Management

The BMA is the lead regulator for ABC and sets and monitors its capital requirements on both a consolidated and an unconsolidatedbasis. Individual banking subsidiaries are regulated directly by their local banking supervisors, who set and monitor their capitaladequacy requirements. The BMA requires each Bahrain-based bank or banking group to maintain a minimum ratio of total capitalto risk-weighted assets of 12%, taking into account both on and off balance sheet transactions. ABC Group’s capital management is aimed at maintaining an optimum level of capital to enable it topursue strategies that build long-term shareholder value, whilstalways meeting minimum regulatory ratio requirements. Details ofrisk weighted assets, capital base and the risk asset ratio are provided in Note 27 of the consolidated financial statements.

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Group Financial Review

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Income Statement

In 2005, the Group’s (after tax) net profit for the year increased to$129 million from $109 million in 2004.

Net interest income was 27% higher than 2004, at $193 million(2004: $152 million), while non-interest income grew by 4% to $159million (2004: $153 million). A $14 million net write back of provisions for impaired assets (2004: $10 million write back) contributed to a higher net operating income, which at $366 millionwas 16% higher than 2004 ($315 million).

Operating expenses increased by 6% to $211 million (2004:$199 million). Profit before taxation and minority interests on continuing operations was therefore $155 million, an increase of 34% on 2004’s $116 million. After taxation on operations outsideBahrain of $20 million (2004: $3 million) and minority interests insubsidiaries of $6 million (2004: $4 million), the net profit for the year of $129 million was 18% higher than that for 2004.

Sources and Uses of Funds

Liquid assets, comprising trading and non-trading securities, placements and liquid funds, totalled $10,169 million (2004: $8,409million). Non-trading securities (almost entirely ‘available for sale’ securities) stood at $6,003 million (2004: $3,617 million),money market placements at $3,264 million (2004: $4,305 million)and liquid funds and trading securities at $902 million (2004: $487million). The loans and advances portfolio stood at $6,833 million(2004: $6,012 million) while investments in associates, interestreceivable, premises and equipment and other assets, in aggregatestanding at $586 million (2004: $501 million), made up the remain-der of the total assets. Placements, together with liquid funds of$309 million (2004: $303 million), represented 20.3% (2004:30.9%) of total assets. Total liquid assets, including non-tradingsecurities, represented 57.8% (2004: 56.4%) of total assets.

These assets were funded by deposits from customers of$5,310 million (2004: $5,081 million), deposits from banks andother financial institutions totalling $8,108 million (2004: $5,506million), term notes, bonds and other term financings of $1,575

million (2004: $1,828 million) and certificates of deposit $73 million (2004: $94 million). Interest payable, taxation and other liabilities amounted to $549 million (2004: $521 million) in aggregate. Deposits included $1,260 million (2004: $179 million)relating to sale and repurchase agreements. Term funding totalled$1,575 million (2004: $1,828 million).

Total assets of the Group increased 18% by 2005 year-end to$17,588 million (2004: $14,922 million). Average assets were up12% to $15,904 (2004: $14,228 million) while average liabilities,excluding shareholders' equity, amounted to $14,109 million (2004:$12,302 million).

Credit Commitments, Contingent Items and Derivatives

At the end of 2005, ABC Group's consolidated off-balance sheet itemsstood at $12,105 million (2004: $12,790 million). The total credit risk-weighted asset equivalent of commitments and contingent items and derivatives was $1,402 million (2004: $1,383 million). The total volume of documentary credits, acceptances and guaranteesundertaken during the year was $7,884 million (2004: $6,180 million), 62% (2004: 53%) of which related to the Arab world.

The Group uses a range of derivative products for the purposesof hedging and servicing customer-related requirements, as well asfor proprietary trading purposes. The market risk-weighted equivalentof the exposures under these categories at the end of 2005 was $287 million (2004: $197 million).

No significant credit derivative trading activities were under-taken during the year.

Geographical and Maturity Distribution of the Balance Sheet

In 2005, ABC Group's total assets in the Arab world increased,although the proportion of its assets there fell from 37% to 34% asits assets in Western Europe fell from 27% to 20%. The Group’s assetsin North America increased to 30% from 22% and Asia from 4% to5%. The proportion of liabilities to Western Europe increased from 9% to 12% while those to Asia remained at 4%. The proportion of liabilities to the Arab world decreased from 77% to 71%.

(All figures stated in US dollars)


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Assets Liabilities & Equity

(%) 2005 2004 2005 2004

Arab world 34 37 71 77Western Europe 20 27 12 9Asia 5 4 4 4North America 30 22 5 2Latin America 6 6 5 4Others 5 4 3 4

100 100 100 100

Earning Loans & Assets Advances

(%) 2005 2004 2005 2004

Arab world 35 37 69 64Western Europe 20 27 7 14Asia 7 4 8 2North America 30 23 1 3Latin America 6 6 12 12Others 2 3 3 5

100 100 100 100

An analysis of the maturity profile of earning assets shows that, atthe end of 2005, 48% (2004: 60%) did not exceed one year’s maturity. Loans and advances maturing within one year amounted to 56% (2004: 56%) of all loans and advances. The proportion of liabilities maturing within one year was 76% (2004: 75%) of all liabilities and equity.

Earning Liabilities & Assets Equity

(%) 2005 2004 2005 2004

Within 1 month 25 28 53 441 - 3 months 9 12 17 173 - 6 months 5 10 4 106 -12 months 9 10 2 4Over 1 year 49 38 10 9Undated 3 2 14 16

100 100 100 100

......................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................Distribution of Credit Exposure

ABC Group’s credit exposure (defined as the gross credit risk to which the Group is potentially exposed) as at 31 December 2005 is givenbelow.

($ millions) Funded Exposure CreditCommitments

& Contingent Items Derivatives*2005 2004** 2005 2004** 2005 2004**

Customer typeBanks 7,183 5,577 1,109 1,180 97 45 Non-banks 5,350 4,094 2,029 1,518 23 72 Sovereign 4,446 4,733 1,057 1,782 1 1

16,979 14,404 4,195 4,480 121 118 Risk rating1 = Exceptional 4,914 3,699 104 50 3 42 = Excellent 1,646 2,303 154 798 53 33 3 = Superior 3,020 1,709 767 533 38 12 4 = Good 2,545 2,318 854 863 24 28 5 = Satisfactory 2,113 1,740 1,591 674 2 38 6 = Adequate 2,450 2,069 469 1,379 1 27 = Watchlist 171 333 223 134 - 18 = Special Mention 50 96 11 11 - -9 = Substandard 15 10 - 33 - -10 = Doubtful 27 33 22 4 - -11 = Loss 28 94 - 1 - -

16,979 14,404 4,195 4,480 121 118

* Derivative exposures are computed as the cost of replacing derivative contracts represented by mark-to-market values where they arepositive, and an estimate for the potential change in market values reflecting the volatilities that affect them.

** 2004 data has been restated to reflect the change effected in 2005 to the master scale supporting ABC's risk rating system, whichhas been refined to become more conservative and risk sensitive.

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Group Financial Review


are minimum 2:1 revenue to expense and a 15% risk-adjusted return on capital (RAROC). Based on its evaluation of the followingfactors, management remains optimistic that the Group can meetthese targets over time:

Political stability – On the whole, management believes that theGroup's activities and assets are sufficiently widely diversified to provide a cushion against major losses from isolated cases of political instability. The Group has in place rigorous, regularly tested,disaster recovery procedures to face eventualities arising from political or other disruptions. The Group has no significant risk exposures outside of the Arab world, the USA and Europe.

Energy prices – Global hydrocarbon prices have a direct impact on theannual budgets and infrastructure improvements of many of thecountries in the Arab world. This in turn affects both the Group’sOECD-based exporting and contracting customers and its importercustomers in the MENA region. When hydrocarbon prices are high,producing countries benefit, increasing their demand for capitalequipment and construction services for infrastructure-building anddevelopment projects, in addition to consumer goods. Lower energyprices benefit residents of developed countries who in turn increasetheir appetite for tourism services and developing countries’ goods -which enhances the revenues of the agricultural producers andtourism-dependent countries. The Group’s revenues can benefit fromeither of these scenarios. The prognosis is for a steady increase inhydrocarbon prices over the medium term, after some anticipateddownward adjustment to current highs.

Foreign currency values – Where ABC’s subsidiaries are capitalisedwith currencies other than the US dollar, it is exposed to fluctuationsin the values of those currencies. ABC takes all appropriate steps to hedge against such fluctuations where this is practicable or desirable.

Volatility of currency markets - Foreign exchange rate volatility canaffect the Group’s foreign exchange trading revenues. The Groupbelieves that it benefits overall from currency volatility, in view ofthe opportunities for profitable proprietary trading thus generated.

Interest rates – Although the Group’s net interest revenue can benegatively affected by interest rate changes, the impact is mainly onincome from equity funds since its lending and marketable securitiesholdings are based predominantly on floating or short-term interestrates and therefore largely insulated from interest rate swings.

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Classified Loans and Provisions

Non-performing loans and off-balance sheet credits are formallydefined as those in default on contractual repayments of principal or payment of interest in excess of 90 days. In practice,however, all credits that give rise to reasonable doubt as to timelycollection, whether or not they are in such default, are treated asnon-performing. Such credits are immediately placed on non-accrual status, with all past due interest being reversed and accumu-lated unpaid interest thereafter excluded from income.

The total of all loans on non-accrual status as at the end of 2005was $262 million (2004: $331 million). Aggregate provisions at the end of 2005 stood at $405 million (2004: $468 million) and constituted 155% (2004: 141%) of all non-performing loans and5.6% (2004: 7.2%) of gross loans and advances.

An ageing analysis is given below in respect of all loans andadvances on non-accrual, together with their related provisions:

($ millions) Principal Provisions Net Book Value

Less than 3 months 1 - 13 months to 1 year 7 1 61 to 3 years 115 87 28Over 3 years 139 133 6

262 221 41

Group Capital Structure and Capital Adequacy Ratios

The Group’s capital base of $2,089 million comes substantially fromthe shareholders’ funds of $1,926 million, as was also the case in2004 when shareholders’ funds of $1,852 million formed the greaterpart of the capital base of $1,974 million. The consolidated capitaladequacy ratio as at 31 December 2005 was 19.9% (2004: 23.9%),significantly above the regulatory minimum of 12% and the 8%guideline under the Basel Accord for international banks.

All ABC Group subsidiaries meet the capital adequacy require-ments of their respective regulatory authorities.

Factors Affecting Historical or Future Performance

ABC Group seeks greater diversification in its revenue base primarilythrough regional expansion and the facilitation of Arab world business investment and trade flows. Its activities include the financing of trade, investment and infrastructure development, oftenthrough innovative and tailored structures and through a wide array of available facilities, including Islamic banking, project and structured financing and treasury services and products.

The Group's primary financial goal is consistent generation ofvalue for its shareholders, including sustainable growth in earningsand assets per share. Having achieved its target of a maintainablecapital adequacy ratio of at least 15%, its chief long-term goals


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We have audited the accompanying consolidated balance sheet of Arab Banking Corporation (B.S.C.) [the Bank] and its subsidiaries [the Group] as of 31 December 2005, and the related consolidated statements of income, cash flows and the changesin equity for the year then ended. These consolidated financial statements are the responsibility of the Bank’s Board of Directors.Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2005 and of the results of its operations and its cash flows for the year then ended in accordance withInternational Financial Reporting Standards.

We confirm that, in our opinion, proper accounting records have been kept by the Bank and the consolidated financial statements, and the contents of the Directors’ report relating to these consolidated financial statements, are in agreement therewith. We further report, to the best of our knowledge and belief, that no violations of the Bahrain Commercial CompaniesLaw, nor of the Bahrain Monetary Agency Law, nor of the memorandum and articles of association of the Bank have occurredduring the year ended 31 December 2005 that might have had a material adverse effect on the business of the Bank or on itsconsolidated financial position and that the Bank has complied with the terms of its banking licence. We obtained all the information and explanations which we required for the purposes of our audit.

21 February 2006Manama, Kingdom of Bahrain

Auditors’ Report to the Shareholders ofArab Banking Corporation (B.S.C.)

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Profit and Loss Account For the year ended 31st December 2005

2005 2004Note £000 £000

Interest receivable and similar income arising from debtsecurities and certificates of deposit purchased 18,110 7,017 Other interest receivable and similar income 52,620 41,077

70,730 48,094

Interest payable 2 46,978 28,198

Net interest income 23,752 19,896

Fees and commissions receivable 16,754 10,219Fees and commissions payable (3,103) (1,574)Dealing profits 183 -Other operating income 3 1,932 3,814

15,766 12,459

Total operating income 39,518 32,355

Administrative expenses 4 (33,238) (26,630)Depreciation and amortisation (1,213) (996)Provision release 5 1,494 3,371

(32,957) (24,255)

Profit on ordinary activities before tax 6 6,561 8,100Tax (charge)/ credit on ordinary activities 7 (129) 523

Profit for the financial year 6,432 8,623

A statement of total recognised gains and losses has not been included as there were no recognised gains or losses for the current or previous financial year other than those already dealt with in the profit and loss account.

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Consolidated Balance Sheet31 December 2005

All figures in US$ million

Note 2005 2004

ASSETSLiquid funds 309 303Trading securities Cairo, Egyp3t 3 593 184Placements with banks and other financial institutions 3,264 4,305Non-trading securities 4 6,003 3,617Loans and advances 5 6,833 6,012Investments in associates 29 31Interest receivable 146 89Other assets 6 282 238Premises and equipment 129 143

TOTAL ASSETS 17,588 14,922

LIABILITIESDeposits from customers 5,310 5,081Deposits from banks and other financial institutions 8,108 5,506Certificates of deposit 73 94Interest payable 109 72Taxation 7 44 23Other liabilities 8 396 426TERM NOTES, BONDS AND OTHER TERM FINANCING 9 1,575 1,828

TOTAL LIABILITIES 15,615 13,030

EQUITY 10Share capital 1,000 1,000Reserves 430 428Retained earnings 496 424

EQUITY ATTRIBUTABLE TO THE SHAREHOLDERS OF THE PARENT 1,926 1,852Minority interests 47 40

TOTAL EQUITY 1,973 1,892

TOTAL LIABILITIES AND EQUITY 17,588 14,922

These consolidated financial statements were authorised for issue by the Board of Directors on 21 February 2006 and signed ontheir behalf by the Chairman and President & Chief Executive.

Mohammed Layas Ghazi M. Abdul-Jawad Chairman President & Chief Executive

The attached notes 1 to 27 form part of these consolidated financial statements.


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Balance SheetAs at 31st December 2005

2005 2004Note £000 £000

AssetsCash and balances at central banks 24,223 8,098 Certificates of deposit purchased 8 190,000 239,441 Loans and advances to banks 9 695,260 287,482Loans and advances to customers 10 896,427 664,224Debt securities 13 79,117 18,341Interest in associated undertakings 14 4,809 923Shares in Group undertakings 15 1,075 1,165Tangible fixed assets 16 3,613 2,931Other assets 3,292 1,340Prepayments and accrued income 17 17,035 13,112

Total assets 1,914,851 1,237,057

LiabilitiesDeposits from banks and other financial institutions 18 1,246,744 585,381 Deposits from customers 19 116,855 132,750 Certificates of deposit issued 20 32,119 40,112Other liabilities 21 27,683 13,058Accruals and deferred income 22 12,864 12,182 Term borrowing 23 185,594 196,289

1,621,859 979,772

Subordinated liability 24 44,154 47,175

Called up share capital 26 182,296 150,000Profit and loss account 66,542 60,110

Equity shareholders’ funds 27 248,838 210,110

Capital resources 292,992 257,285

Total liabilities and shareholders’ funds 1,914,851 1,237,057

Memorandum items

Contingent liabilitiesAcceptances and endorsements 13,798 3,387 Guarantees and letters of credit 633,946 334,205

647,744 337,592

CommitmentsOther commitments

30 176,575 121,421

176,575 121,421


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Consolidated Statement of IncomeYear ended 31 December 2005


Note 2005 2004

OPERATING INCOMEInterest income 705 512Interest expense (512) (360)

Net interest income 193 152Other operating income 11 159 153

Total operating income 352 305

Write back of impairment provisions - net 14 10

NET OPERATING INCOME AFTER PROVISIONS 366 315

OPERATING EXPENSESStaff 134 121Premises and equipment 23 24Other 54 54

Total operating expenses 211 199

PROFIT BEFORE TAXATION 155 116

Taxation on foreign operations 7 (20) (3)

NET PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 135 113

DISCONTINUED OPERATIONS (SUBSIDIARIES SOLD IN 2004)

Profit from discontinued operations - net of tax 12 (b) - 470

NET PROFIT FOR THE YEAR FROM DISCONTINUED OPERATIONS - 470

NET PROFIT FOR THE YEAR 135 583Income attributable to minority interests (6) (4)

INCOME ATTRIBUTABLE TO THE SHAREHOLDERS OF THE PARENT 129 579

BASIC EARNINGS PER SHARE (expressed in US $) 26- Profit for the year 1.29 5.79- Profit from continuing operations 1.29 1.09


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Consolidated Statement of CashflowsYear ended 31 December 2005


Note 2005 2004

OPERATING ACTIVITIESIncome attributable to the shareholders of the parent 129 579Items not involving cash flow:

Write back of impairment provisions- net (14) (10)Depreciation 11 11

Items considered separately:Gains less losses on non-trading securities 11 (6) (9)Profit on sale of subsidiaries 12 (b) - (470)

Changes in operating assets and liabilities:Trading securities (409) (112)Placements with banks and other financial institutions 925 (646)Loans and advances (958) 357Other assets (100) 164Deposits from customers 261 1,834Deposits from banks and other financial institutions 2,749 (1,634)Other liabilities 33 (65)Other non-cash movements (10) (97)

Net cash from (used in) operating activities 2,611 (98)

INVESTING ACTIVITIESNet proceeds from sale of subsidiaries 12 (b) - 1,198Purchase of non-trading securities (3,805) (3,770)Sale and redemption of non-trading securities 1,513 2,462Purchase of premises and equipment (7) (13)Sale of premises and equipment 2 3

Net cash used in investing activities (2,297) (120)

FINANCING ACTIVITIESRedemption of certificates of deposit - net (19) (25)Issue of term notes, bonds and other term financing 544 616Repayment of term notes, bonds and other term financing (779) (105)Cash dividend paid - 2003 - (66)

- 2004 final/interim (50) (226)

Net cash (used in) from financing activities (304) 194

Decrease in liquid funds 10 (24)Effect of exchange rate changes on liquid funds (4) 8Liquid funds* at beginning of the year

(2004: excluding US$ 390 million relating to subsidiaries sold in 2004) 303 319

Liquid funds* at end of the year 309 303

* Liquid funds comprise cash, nostro balances and balances with central banks.

The cash flows of the previous year do not include the activities of Banco Atlantico S.A. Group companies,Spain and International Bank of Asia, Hong Kong which have been sold.



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Consolidated Statement of Changes in EquityYear ended 31 December 2005


Attributable to shareholders of the parent

Cumulative

Share Statutory General Retained changes in Minority Total

capital reserve reserve Others 1 earnings 2 fair values Total interests equity

Balance at the end of the year 2003 1,000 205 140 16 211 13 1,585 512 2,097

Foreign exchange translation adjustments - - - - (13) - (13) - (13)Cumulative changes in fair values and other - - - (9) - 2 (7) - (7)

Net income recognised directly in equity - - - (9) (13) 2 (20) - (20)

Net profit for the year – 2004 - - - - 579 - 579 4 583

Total recognised income and expense for the year - - - (9) 566 2 559 4 563

Transfers during the year - 58 10 (10) (58) - - - -Cash dividend - 2003 - - - - (66) - (66) - (66)Interim cash dividend - 2004 - - - - (226) - (226) - (226)Interim stock dividend - 2004 - - - 3 (3) - - - -Sale of subsidiaries - - - - - - - (476) (476)

Balance at the end of the year 2004 1,000 263 150 - 424 15 1,852 40 1,892

Foreign exchange translation adjustments - - - - 6 - 6 1 7Cumulative changes in fair values and other - - - - - (11) (11) - (11)

Net income recognised directly in equity - - - - 6 (11) (5) 1 (4)

Net profit for the year – 2005 - - - - 129 - 129 6 135

Total recognised income and expense for the year - - - - 135 (11) 124 7 131

Transfers during the year - 13 - - (13) - - - -Dividend - - - - (50) - (50) - (50)

Balance at the end of the year 2005 1,000 276 150 - 496 4 1,926 47 1,973

1) Others include treasury stock [2005 & 2004: Nil], extra-ordinary financial reserve [2005: Nil & 2004: US$ 10 million], capital reserve [2005 & 2004: Nil] and share premium [2005 & 2004: Nil].

2) Retained earnings include US$ 2 million (2004: negative balance of US$ 4 million) representing net unrealised gains/losses on translation of investments in foreign subsidiaries into US dollars and non-distributable reserves amounting to US$ 144 million (2004: US$ 118 million).


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Notes to the Consolidated Financial Statements31 December 2005

1. Incorporation and ActivitiesThe Parent Bank, Arab Banking Corporation (B.S.C.), [the Bank] incorporated in the Kingdom of Bahrain by an Amiri decree, operatesunder an offshore banking licence issued by the Bahrain Monetary Agency.

2. Significant Accounting PoliciesThe consolidated financial statements of Arab Banking Corporation (B.S.C.) and its subsidiaries [the Group] are prepared in accordancewith International Financial Reporting Standards (IFRS) and in conformity with the Bahrain Commercial Companies Law and the BahrainMonetary Agency Law. The following is a summary of the significant accounting policies which are consistent with those used in theprevious year:

Accounting conventionThese consolidated financial statements are prepared under the historical cost convention, as modified by the measurement at fairvalue of derivatives, trading and available for sale financial assets. In addition, as more fully discussed below, assets and liabilities thatare hedged, items in fair value hedges, and are otherwise carried at cost, are adjusted to record changes in fair values attributable tothe risk being hedged.

The consolidated financial statements have been presented in United States Dollars which is the functional currency of the Group.

Early adoption of IAS 32 and IAS 39During 2003, the Group had early adopted the revised versions of IAS 32 and IAS 39 which would have become mandatory for theyear ended 31 December 2005.

ConsolidationThese consolidated financial statements include the financial statements of the Parent Bank and its subsidiaries after adjustment for minority interests and elimination of inter-company transactions and balances. The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Bank, using consistent accounting policies.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from thedate on which control is transferred out of the Group.

Liquid fundsLiquid funds comprise cash, nostro balances and balances with central banks.

Trading securitiesTrading securities are initially recorded at cost and subsequently remeasured at fair value with any gains and losses arising from changes in fair values being included in the consolidated statement of income in the period in which it arises. Interest earnedand dividends received are included in interest income and other operating income respectively.

Placements with banks and other financial institutionsPlacements with banks and other financial institutions are stated at cost net of any amounts written off and provision for impairment.The carrying values of such assets which are being effectively hedged for changes in fair value are adjusted to the extent of thechanges in fair value being hedged. Resultant changes are recognised in the consolidated statement of income.

Non-trading securitiesThese are classified as follows:- Held to maturity- Available for sale

All non-trading securities are initially recognised at cost, being the fair value of the consideration given including incremental acquisition charges associated with the security.

Held to maturitySecurities which have fixed or determinable payments and fixed maturity which are intended to be held to maturity, are subsequentlymeasured at amortised cost, less provision for impairment in value.


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Available for saleSecurities intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity, changes ininterest rates or equity prices are classified as “available for sale”. After initial recognition, these are normally remeasured at fair value,unless fair value cannot be reliably determined in which case they are measured at cost less impairment. Fair value changes whichare not part of an effective hedging relationship, are reported as a separate component of equity until the investment is derecognisedor the investment is determined to be impaired. On derecognition or impairment the cumulative gain or loss previously reported as "cumulative changes in fair value" within equity, is included in consolidated statement of income for the period.

That portion of any fair value changes relating to an effective hedging relationship is recognised directly in the consolidated statement of income.

Loans and advancesLoans and advances quoted in an active market are classified as “held to maturity” or “available for sale” depending on management'sintent.

Loans and advances that are not quoted in an active market are classified as “unquoted loans and advances”.Unquoted loans and advances and held to maturity loans and advances are stated at amortised cost, less provision for impairment.Loans and advances classified as available for sale are stated at fair value. Unless unrealised gains and losses on remeasurement

to fair value are part of an effective hedging relationship, they are reported as a separate component of equity until the loan is sold,collected or otherwise disposed of, or the loan is determined to be impaired, at which time the cumulative gain or loss previouslyreported in equity is included in the consolidated statement of income for the period.

In relation to loans and advances which are part of an effective hedging relationship any gain or loss arising from a change in fair value is recognised directly in the consolidated statement of income. The carrying values of loans and advances which are beingeffectively hedged for changes in fair value are adjusted to the extent of the changes in fair value being hedged.

Investments in associatesInvestments in associates are accounted for by the equity method. Associates are enterprises in which the Bank exercises significantinfluence, normally where it holds 20% to 50% of the voting power.

Premises and equipmentPremises and equipment are stated at cost, less accumulated depreciation and provision for impairment in value, if any.

Freehold land is not depreciated. Depreciation on other premises and equipment is provided on a straight-line basis over their estimated useful lives.

Impairment and uncollectability of financial assetsAn assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial assetmay be impaired. If such evidence exists, an impairment loss is recognised in the statement of income. The recoverable amount isbased on the net present value of anticipated future cash flows, discounted at the original interest rate.

In addition to the provision for specific impaired loans and advances, a provision is made to cover impairment against specific groupof assets where there is a measurable decrease in estimated future cash flows.

Impairment is determined as follows:a) for assets carried at amortised cost, impairment is based on the present value of estimated future cash flows discounted at the

original effective interest rate;b) for assets carried at fair value, impairment is the difference between cost and fair value; andc) for assets carried at cost, impairment is based on the present value of estimated future cash flows discounted at the current

market rate of return for a similar financial asset.

In the case of impaired available for sale equity securities, any increase in fair value is recognised as an increase in cumulativechanges in fair value directly in equity until disposed of.

DepositsAll money market and customer deposits are carried at amortised cost. An adjustment is made to these, if part of an effective fairvalue hedging strategy, to adjust the value of the deposit for the fair value being hedged with the resultant changes being recognisedin the consolidated statement of income.

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2. Significant Accounting Policies (continued)

Repurchase and resale agreementsAssets sold with a simultaneous commitment to repurchase at a specified future date (‘repos’) are not derecognised. The counterpartyliability for amounts received under these agreements is included in deposits from banks and other financial institutions or depositsfrom customers, as appropriate. The difference between sale and repurchase price is treated as interest expense using effective yield method. Assets purchased with a corresponding commitment to resell at a specified future date (‘reverse repos’) are not recognised in the balance sheet, as the bank does not obtain control over the assets. Amounts paid under these agreements are included in placements with banks and other financial institutions or loans and advances, as appropriate. The difference between purchase and resale price is treated as interest income using effective yield method.

ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and the costs tosettle the obligation are both probable and able to be reliably measured.

Employee pension and other end of service benefitsCosts relating to employee pension and other end of service benefits are generally accrued in accordance with actuarial valuationsbased on prevailing regulations applicable in each location.

Revenue recognitionInterest income and loan fees which are considered an integral part of the effective yield of a loan, are recognised using the effectiveyield method unless collectibility is in doubt. The recognition of interest income is suspended when loans become impaired, such aswhen overdue by more than 90 days. Other fee income and expense are recognised when earned or incurred.

Premiums and discounts on non trading securities and loans and advances (except loans and advances carried at fair value throughstatement of income) are amortised using the effective interest method and taken to interest income.

Where the Bank enters into an interest rate swap to change interest from fixed to floating (or vice versa) the amount of interestincome or expense is adjusted by the net interest on the swap.

Fair valuesFor securities, derivatives and loans and advances traded in organised financial markets, fair value is determined by reference to quoted market prices. Bid prices are used for assets and offer prices are used for liabilities. In the case of units in mutual funds, or similar investment vehicles fair values are based on the last published bid price.

For unquoted securities fair value is determined by reference to brokers' quotes, recent transaction(s), the market value of similar securities, or based on the expected cash flows discounted at current rates applicable for items with similar terms and riskcharacteristics.

The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount payableon demand.

The fair value of forward exchange contracts is calculated by reference to forward exchange rates with similar maturities. The fairvalue of unquoted derivative instruments is determined either by discounted cash flows, internal pricing models or by reference to brokers’ quotes.

Significant accounting judgements and estimates

JudgementsIn the process of applying the Group's accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect in the amounts recognised in the financial statements:

Classification of investments and quoted loans and advancesUpon acquisition of an investment, management decides whether it should be classified as held to maturity, held for trading or available for sale.

The Group classifies investments as trading if they are acquired primarily for the purpose of making short term profit.Securities intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity, changes

in interest rates or equity prices are classified as available for sale.Quoted loans and advances are classified as "held to maturity" or "available for sale" depending on management's intent.For those deemed to be held to maturity the Group ensures that the requirements of IAS 39 are met and in particular the Group

has the intention and ability to hold these to maturity.


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Estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation at the balance sheet date, that have a significant riskof causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment losses on financial assetsOn a quarterly basis the Group assesses whether a provision for impairment should be recorded in the income statement. In particular,considerable judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgement and uncertainty, and actual results may differ resulting in future changes in such provisions.

Impairment against specific group of financial assetsIn addition to specific provisions against individually significant loans and advances and investments, the Group also makes a provision to cover impairment against specific group of financial assets where there is a measurable decrease in estimated future cashflows. This provision is based on any deterioration in the internal grade of the financial assets since it was granted. The amount of provision is based on historical loss pattern for loans within each grading and is adjusted to reflect current economic changes.

The internal grading process takes into consideration factors such as deterioration in country risk, industry, technological obsolescence as well as identified structural weakness or deterioration in cash flows.

Taxation on foreign operationsThere is no tax on corporate income in the Kingdom of Bahrain. Taxation on foreign operations is provided for in accordance with thefiscal regulations applicable in each location. No provision is made for any liability that may arise in the event of distribution of the reserves of subsidiaries. A substantial portion of such reserves is required to be retained to meet local regulatory requirements.

Foreign currenciesMonetary assets and liabilities in foreign currencies are translated into US dollars at the market rates of exchange prevailing at the balance sheet date. Any gains or losses are taken to the consolidated statement of income.

The assets and liabilities of foreign operations are translated at rates of exchange ruling at the balance sheet date. Income andexpense items are translated at average exchange rates for the period. Foreign exchange translation gains and losses arising fromtranslating the financial statements of subsidiaries into US dollars are recorded directly in retained earnings.

Trade and settlement date accountingAll “regular way” purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Bank commits to purchase or sell the asset.

DerivativesThe Group enters into derivative instruments including forwards, futures, forward rate agreements, swaps and options in the foreignexchange, interest rate and capital markets. These are stated at fair value. Derivatives with positive market values (unrealised gains)are included in other assets and derivatives with negative market values (unrealised losses) are included in other liabilities in the consolidated balance sheet.

Changes in the fair values of derivatives held for trading activities or to offset other trading positions are included in other operating income in the consolidated statement of income.

For the purposes of hedge accounting, hedges are classified into two categories: (a) fair value hedges which hedge the exposureto changes in the fair value of a recognised asset or liability; and (b) cash flow hedges which hedge the exposure to variability in cashflows that is attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction.

Changes in the fair value of derivatives that are designated, and qualify, as fair value hedges and that prove to be highly effective in relation to the hedged risk, are included in other operating income along with the corresponding changes in the fair valueof the hedged assets or liabilities which are attributable to the risk being hedged.

Changes in the fair value of derivatives that are designated, and qualify, as cash flow hedges and that prove to be highly effectivein relation to the hedged risk are recognised in a separate component of equity, and the ineffective portion recognised in the consolidated statement of income. The gains or losses on cash flow hedges recognised initially in equity are transferred to the consolidated statement of income in the period in which the hedged transaction impacts the income. Where the hedged transactionresults in the recognition of an asset or a liability the associated gain or loss that had been initially recognised in equity is included in the initial measurement of the cost of the related asset or liability.

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2. Significant Accounting Policies (continued)

Hedge accounting is discontinued when the derivative hedging instrument either expires or is sold, terminated or exercised, no longer qualifies for hedge accounting or is revoked. Upon such discontinuance:

- in the case of cash flow hedges, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. When such transaction occurs the gain or loss retained in equity is recognised in the consolidated statement of income or included in the initial measurement of the cost of the related asset or liability, as appropriate. Where the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the consolidated statement of income.

- in the case of fair value hedges of interest bearing financial instruments any adjustment to the carrying amount relating to thehedged risk is amortised in the consolidated statement of income over the remaining term to maturity.

Certain derivative transactions, while providing effective economic hedges under the Group's asset and liability management and risk management positions, do not qualify for hedge accounting under the specific rules in IAS 39 and are therefore accounted foras derivatives held for trading and the related fair value gains and losses reported in other operating income.

Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value throughthe income statement. These embedded derivatives are measured at fair value with the changes in fair value recognised in theincome statement.

Fiduciary assetsAssets held in trust or in a fiduciary capacity are not treated as assets of the Group and, accordingly, are not included in the consolidated balance sheet.

OffsettingFinancial assets and financial liabilities are only offset and the net amount reported in the balance sheet when there is a legallyenforceable right to offset the recognised amounts and the Bank intends to settle on a net basis.

3. Trading Securities2005 2004

Externally managed funds 584 160 Debt securities 8 22 Equities 1 2

593 184

Externally managed funds represent investments in hedge funds (fund of funds) managed by internationally renowned asset managers.

4. Non-Trading Securities

2005 2004Available for saleAAA rated debt securities 3,961 2,512 AA to A rated debt securities 1,166 531 Other investment grade debt securities 396 344 Other debt securities 422 175 Equity securities 51 48

5,996 3,610

Held to maturity - Debt securities 7 7

6,003 3,617

Available for sale investments include investments of US$ 340 million (2004: US$ 208 million) of a structured finance nature whichare of investment grade and are managed by international investment banks with underlying investments in predominantly AAArated debt securities.

Unquoted equity securities of US$ 24 million (2004: US$ 20 million) are carried at cost. This is due to the unpredictable natureof future cash flows and lack of suitable alternative methods to arrive at a reliable fair value.



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5. Loans and Advances2005 2004

i) By industrial sectorFinancial services 2,965 2,345 Other services 1,546 1,500 Manufacturing 1,678 1,503 Construction 133 196 Trade 324 381 Consumer 104 32 Government 276 357 Other 212 166

7,238 6,480 Loan loss provisions (405) (468)

6,833 6,012

ii) By classification 2005 2004Quoted loans and advances:

Available for sale 62 160 Held to maturity 3 1

Unquoted loans and advances 7,173 6,319

7,238 6,480Loan loss provisions (405) (468)

6,833 6,012

The movements in loan loss provisions during the year were as follows: 2005 2004

At 1 January 468 608Charge for the year 32 42 Write backs/recoveries (46) (52)Write-offs (52) (99) Foreign exchange translation and other adjustments * 3 (31)

At 31 December 405 468

* Foreign exchange translation and other adjustments include US$ Nil (2004: U$ 25 million) transferred to provisions on non-trading securities following the restructuring of a loan converted partially into equity.

At 31 December 2005 uncollected interest in suspense on past due loans amounted to US$ 182 million (2004: US$ 175 million).The gross carrying value of loans placed on a non-accrual basis amounted to US$ 262 million at the year end (2004: US$ 331

million).

6. Other Assets2005 2004

Positive fair value of derivatives (note 13) 72 73 Assets acquired on debt settlement 11 11 Staff loans 16 11 Bank owned life insurance 25 25 Securities sold awaiting value 35 10 Deferred tax assets 10 16 Others 113 92

282 238

The negative fair value of derivatives amounting to US$ 77 million (2004: US$ 89 million) is included in other liabilities (Note 8). Details of derivatives are given in Note 13.


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7. Taxation on Foreign Operations2005 2004

Consolidated balance sheet: Current tax liability 11 5Deferred tax liability 33 18

44 23

Consolidated statement of income:Current tax on foreign operations 11 10Deferred tax on foreign operations 9 (7)

20 3

In view of the operations of the Group being subject to various tax jurisdictions and regulations, it is not practical to provide a reconciliation between the accounting and taxable profits together with the details of effective tax rates.

8. Other Liabilities2005 2004

Negative fair value of derivatives (note 13) 77 89 Margin deposits including cash collateral 66 98 Employee related payables 46 41 Non corporate tax payable 12 10 Securities purchased awaiting value 48 10 Cheques for collection 17 19 Deferred income 25 13 Accrued charges and other payables 105 146

396 426

The positive fair value of derivatives amounting to US$ 72 million (2004: US$ 73 million) is included in other assets (Note 6). Detailsof derivatives are given in Note 13.

9. Term Notes, Bonds and Other Term Financing

In the ordinary course of business, the Parent Bank and certain subsidiaries raise term financing through various capital marketsat commercial rates.

Total obligations outstanding at 31 December 2005

Parent Bank Subsidiaries Total Aggregate maturities: 2006 100 126 226 2007 300 100 4002008 50 - 50 2009 500 - 500 2010 399 - 399

1,349 226 1,575

Total obligations outstanding at 31 December 2004 1,460 368 1,828

All obligations bear floating rates of interest.



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10. Equity

a) Share capital 2005 2004

Authorised – 150 million shares of US$ 10 each 1,500 1,500

Issued, subscribed and fully paid – 100 million shares of US$ 10 each 1,000 1,000

b) Statutory reserve As required by the Articles of Association of the Bank and the Bahrain Commercial Companies Law, 10% of the net profit for the year is transferred to the statutory reserve. Such annual transfers will cease when the reserve totals 50% of the paid up share capital. The reserve is not available for distribution but can be utilised as security for purpose of a distribution in such circumstances as stipulated in the Bahrain Commercial Companies Law and following the approval of the Bahrain Monetary Agency.

c) General reserve The general reserve underlines the shareholders’ commitment to enhance the strong equity base of the Bank.

11. Other Operating Income 2005 2004

Fee and commission income 94 72 Fee and commission expense (16) (7)Gains less losses on non-trading securities 6 9Gains less losses on dealing in foreign currencies 11 1Gains less losses on dealing in derivatives 9 11Gains less losses on trading securities 27 7Gains less losses on loans carried at fair value through statement of income - 20 Other – net 28 40

159 153

12. Investments in Subsdiaries and Associates

a) The principal subsidiaries, all of which have 31 December as their year end, are as follows: Interest of

Country of Arab Banking incorporation Corporation

(B.S.C.) (%)

ABC International Bank plc United Kingdom 100 ABC Islamic Bank (E.C.) Bahrain 100 Arab Banking Corporation (ABC) – Jordan Jordan 87 Banco ABC Brasil S.A. Brazil 84 ABC Algeria Algeria 70 Arab Banking Corporation - Egypt [S.A.E.] Egypt 98 ABC Tunisie Tunisia 100

The principal associate is Arab Financial Services B.S.C. (c), incorporated in Bahrain, with a 43% ownership (2004: 42%)


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12. Investments in Subsdiaries and Associates (continued)

b) Discontinued operations - Sale of subsidiaries The sales of the Bank’s retail subsidiaries, Banco Atlantico S.A. group of companies, Spain and International Bank of Asia Limited,Hong Kong, agreements for which were entered into in 2003, were completed during the previous year.

Proceeds, net of expenses, from the sales of Banco Atlantico S.A. group of companies and International Bank of Asia Limitedamounted to US$ 1,200 million and US$ 301 million, respectively; tax expense arising from the sales amounted to US$ 303 million and nil, respectively.

The profit on disposal of the subsidiaries was calculated based on the carrying values as presented in the audited financial statements for the year ended 31 December 2003.

The comparative figures relating to the previous year do not include the results of International Bank of Asia Limited and BancoAtlantico S.A. group of companies as these were sold effective 31 December 2003.

13. Derivatives

In the ordinary course of business the Group enters into various types of transactions that involve derivative financial instruments. The table below shows the positive and negative fair values of derivative financial instruments. The notional amount is that 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 not indicative of either market or credit risk.

2005 2004Positive Negative Notional Positive Negative Notional

fair value fair value amount fair value fair value amount

Derivatives held for trading:Interest rate and currency swaps 33 34 2,137 49 44 1,989Forward foreign exchange contracts 18 12 1,585 9 10 1,727 Options 14 8 2,403 11 15 2,626Futures 6 7 232 2 - 508Forward rate agreements - - - - - 10

71 61 6,357 71 69 6,860

Derivatives held as hedges:Interest rate and currency swaps 1 16 1,235 1 20 612Forward foreign exchange contracts - - 318 - - 749Futures - - - 1 - 89

1 16 1,553 2 20 1,450

72 77 7,910 73 89 8,310

Risk weighted equivalents (credit and market risk) 299 208

Derivatives held as hedges include:

a) Fair value hedges which are predominantly used to hedge fair value changes arising from interest rate fluctuations in loans andadvances, placements, deposits and available for sale debt securities; and

b) Cash flow hedges with a notional amount of US$ 5 million (2004: US$ 7 million), comprising interest rate swaps of US$ 5 million(2004: US$ 7 million), the fair value of which is immaterial.



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Derivative product types Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or financial instrument at a specific price and date in the future. Forwards are customised contracts transacted in the over-the-counter market. Foreign currency and interest rate futures are transacted in standardised amounts on regulated exchanges and are subject to daily cashmargin requirements. Forward rate agreements are effectively tailor-made interest rate futures which fix a forward rate of interest on a notional loan, for an agreed period of time starting on a specified future date.

Swaps are contractual agreements between two parties to exchange interest or foreign currency amounts based on a specificnotional amount. For interest rate swaps, counterparties generally exchange fixed and floating rate interest payments based on anotional value in a single currency. For cross-currency swaps, notional amounts are exchanged in different currencies. For cross-currency interest rate swaps, notional amounts and fixed and floating interest payments are exchanged in different currencies.

Options are contractual agreements that convey the right, but not the obligation, to either buy or sell a specific amount of a commodity or financial instrument at a fixed price, either at a fixed future date or at any time within a specified period.

Derivative related credit risk Credit risk in respect of derivative financial instruments arises from the potential for a counterparty to default on its contractualobligations and is limited to the positive fair value of instruments that are favourable to the Group. The majority of the Group’sderivative contracts are entered into with other financial institutions and there is no significant concentration of credit risk in respectof contracts with positive fair value with any individual counterparty at the balance sheet date.

Derivatives held or issued for trading purposes Most of the Group’s derivative trading activities relate to sales, positioning and arbitrage. Sales activities involve offering productsto customers. Positioning involves managing market risk positions with the expectation of profiting from favourable movementsin prices, rates or indices. Arbitrage involves identifying and profiting from price differentials between markets or products. Also included under this heading are any derivatives which do not meet IAS 39 hedging requirements.

Derivatives held or issued for hedging purposes The Group has adopted a comprehensive system for the measurement and management of risk. Part of the risk managementprocess involves managing the Group’s exposure to fluctuations in foreign exchange rates (currency risk) and interest rates throughasset and liability management activities. It is the Group’s policy to reduce its exposure to currency and interest rate risks to acceptable levels as determined by the Board of Directors. The Board has established levels of currency risk by setting limits oncurrency position exposures. Positions are monitored on an ongoing basis and hedging strategies used to ensure positions are maintained within established limits. The Board has established levels of interest rate risk by setting limits on the interest rate gaps for stipulated periods. Interest rate gaps are reviewed on an ongoing basis and hedging strategies used to reduce theinterest rate gaps to within the limits established by the Board.

As part of its asset and liability management the Group uses derivatives for hedging purposes in order to reduce its exposure to currency and interest rate risks. This is achieved by hedging specific financial instrument, forecasted transactions as well as strategic hedging against overall balance sheet exposures. For interest rate risk this is carried out by monitoring the duration ofassets and liabilities using simulations to estimate the level of interest rate risk and entering into interest rate swaps and futuresto hedge a proportion of the interest rate exposure, where appropriate. Since strategic hedging does not qualify for special hedgeaccounting related derivatives are accounted for as trading instruments.

The Group uses forward foreign exchange contracts and currency swaps to hedge against specifically identified currency risks. In addition, the Group uses interest rate swaps and interest rate futures to hedge against the interest rate risk arising from specifically identified loans and securities bearing fixed interest rates. The Group also uses interest rate swaps to hedge againstthe cash flow risks arising on certain floating rate loans. In all such cases the hedging relationship and objective, including detailsof the hedged item and hedging instrument, are formally documented and the transactions are accounted for as hedges.


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14. Credit Commitments and Contingent Items

Credit commitments and contingent items include commitments to extend credit, standby letters of credit, acceptances and guarantees, which are structured to meet the various requirements of customers.

At the balance sheet date, the principal outstanding and the risk weighted equivalents were as follows: 2005 2004

Short-term self-liquidating trade and transaction-related contingent items 2,657 2,663 Direct credit substitutes, guarantees and acceptances 498 430 Forward asset purchase commitments 19 -Undrawn loans and other commitments 1,021 1,387

4,195 4,480

Risk weighted equivalents 1,390 1,372

15. Maturities of Assets, Liabilities and Off Balance Sheet Items

The maturity analysis of assets, liabilities and off balance sheet items based on remaining period to the contractual maturity date,except for Mortgage Backed Securities, Small Business Administration pools and Collateralised Debt Obligations classified as non-trading securities amounting to US$ 3,770 million (2004: US$ 2,268 million) which is based on expected repayment dates isas follows:

Within 1 1 to 3 3 to 6 6 to 12 1 to 5 5 to 10 10 to 20 Over 20At 31 December 2005 month months months months years years years years Undated Total

Assets Liquid funds 309 - - - - - - - - 309 Trading securities 2 1 - 2 1 1 - 1 585 593 Placements with banks and other

financial institutions 2,565 611 54 34 - - - - - 3,264 Non-trading securities 5 38 36 650 2,372 1,967 884 - 51 6,003 Loans and advances 1,343 815 788 861 2,022 665 334 5 - 6,833 Others - - - - - - - - 586 586

Total assets 4,224 1,465 878 1,547 4,395 2,633 1,218 6 1,222 17,588

Liabilities, Minority Interests and Equity Deposits from customers 3,302 1,293 427 77 188 23 - - - 5,310 Deposits from banks and other financial

institutions 5,897 1,632 312 129 125 13 - - - 8,108 Certificates of deposit 18 27 28 - - - - - - 73 Term notes, bonds and other term

financing 7 69 - 150 1,349 - - - - 1,575 Others - - - - - - - - 549 549 Equity and minority interests - - - - - - - - 1,973 1,973

Total liabilities, minority interests and equity 9,224 3,021 767 356 1,662 36 - - 2,522 17,588

Off Balance Sheet ItemsCredit commitments and contingent items 807 605 686 836 1,073 103 55 30 - 4,195 Foreign exchange contracts 2,446 962 531 338 22 - 14 - - 4,313 Interest rate contracts 137 543 338 310 1,108 916 245 - - 3,597

Total 3,390 2,110 1,555 1,484 2,203 1,019 314 30 - 12,105

At 31 December 2004 Total assets 4,280 1,633 1,423 1,425 3,524 1,569 353 4 711 14,922

Total liabilities, minority interests and equity 6,499 2,445 1,531 655 1,359 20 - - 2,413 14,922

Off Balance sheet items 3,515 2,334 1,955 1,663 2,204 957 135 27 - 12,790



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16. Interest Rate Risk

Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments. The bank is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities. The Board has established levels of interest rate risk by setting interest rate sensitivity limits

Positions are monitored on an ongoing basis and hedging strategies used to ensure positions are maintained within established limits.

The bank’s interest sensitivity position based on contractual repricing arrangements or maturity at 31 December 2005 has beenshown in the table below:

6 Non-months interest Effective

Up to 1 1 to 3 3 to 6 to 1 1 to 5 Over 5 bearing interest month months months year years years items Total rates

Liquid funds 309 - - - - - - 309 1.1 Trading securities 2 1 - 2 1 2 585 593 5.0 Placements with banks and other

financial institutions 2,569 612 48 35 - - - 3,264 4.6 Non-trading securities 3,766 1,496 141 26 333 190 51 6,003 4.5 Loans and advances 2,145 1,737 1,736 589 545 81 - 6,833 5.7 Others - - - - - - 586 586 -

Total assets 8,791 3,846 1,925 652 879 273 1,222 17,588

Deposits from customers 3,583 1,151 292 46 67 24 147 5,310 3.7 Deposits from banks and other

financial institutions 6,004 1,641 345 93 5 - 20 8,108 3.9 Certificates of deposit 19 27 27 - - - - 73 4.4 Others - - - - - - 549 549

TERM NOTES, BONDS AND OTHER TERM FINANCING 107 1,068 400 - - - - 1,575 4.6

Equity and minority interests - - - - - - 1,973 1,973

Total liabilities, minority interests and equity 9,713 3,887 1,064 139 72 24 2,689 17,588

On balance sheet gap (922) (41) 861 513 807 249 (1,467) - Off balance sheet gap 698 56 (181) 7 (281) (299) - -

Total interest rate sensitivity gap (224) 15 680 520 526 (50) (1,467) -

Cumulative interest rate sensitivity gap (224) (209) 471 991 1,517 1,467 - -

At 31 December 2004Cumulative interest rate sensitivity gap 450 539 720 771 1,548 1,666 - -


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17. Significant Net Foreign Currency Exposures

Significant net foreign currency exposures, arising mainly from investments in subsidiaries, are as follows:

2005 2004

US$ US$ Long (Short) Currency equivalent Currency equivalent

Brazilian real (12) (5) 11 4 Egyptian pound 228 40 190 31 Jordanian dinar 54 76 36 51 Pound sterling 13 22 9 18 Saudi riyal (68) (18) (231) (61)Algerian dinar 2,332 32 1,725 24

18. Credit Risk

Credit risk is the risk that a customer or counterparty will fail to meet a commitment, resulting in financial loss to the Group. Suchrisk arises from lending, trade finance, treasury and other activities undertaken by the Group. Credit risk is actively monitored inaccordance with the credit policies which clearly define delegated lending authorities, policies and procedures. The managementof credit risk also involves the monitoring of risk concentrations by industrial sector as well as by geographic location. For detailsof composition of loans and advances portfolio refer note 5.

19. Geographical Distribution of Assets, Liabilities and Off Balance Sheet Items

2005 2004

Credit Credit

commitments commitments

Liabilities and Liabilities and

and contingent and contingent

Assets equity items Assets equity items

Western Europe 3,439 2,156 759 3,976 1,392 821 Arab World 5,985 12,501 2,517 5,583 11,501 2,872 Asia 919 746 291 596 585 212 North America 5,244 810 332 3,226 228 370Latin America 1,091 823 241 865 588 160Other 910 552 55 676 628 45

17,588 17,588 4,195 14,922 14,922 4,480

20. Segmental Information

Segmental information is presented in respect of the Group's business and geographical segments. The primary reporting format,business segments is based on the products and services provided or the type of customer serviced and reflects the manner inwhich financial information is evaluated by management and the Board of Directors.

For financial reporting purposes, the Group is divided into the following main business segments:

Treasury focuses primarily on diversification of funding sources and revenue streams by marketing to develop and build long-termcustomer relationships, and investments in capital efficient and diversified investment portfolios.

Project and Structured Finance offers clients and project sponsors considerable experience and proven ability in structuring, arranging, and syndicating complex transactions, and providing advisory services to clients throughout the Arab world.

Trade Finance offers structured trade finance and forfaiting solutions to meet the needs of all types of customers, including government and financial institutions.

Commercial banking and corporate offers a variety of products and services for its clients through a relationship-based approachand cooperation and coordination among the Group’s product and geographic units.

Islamic banking services provides through its dedicated operations, institutional, corporate, high net worth and retail Sharia'a-compliant products and services.



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Retail is aimed at offering a wide range of consumer finance and wealth management products to the retail sector.

Other comprises items which are not directly attributable to specific business segments and earnings on the Group's net free capital. Unallocated operating expenses are reported separately.

The results reported for the business segments are based on the Group's internal financial reporting systems. The accounting policies of the segments are the same as those applied in the preparation of the Group's consolidated financial statements as setout in Note 2. Transactions between segments are conducted at estimated market rates on an arm's length basis.

Secondary segment information is based upon the location of the units responsible for recording the transaction.

Primary segment information2005

Project Commercial and banking Islamic Equity

structured Trade and banking andTreasury finance finance corporate services Retail Other Total

Net interest and other income 106 30 91 50 17 13 45 352

Segment result 74 15 57 37 8 1 45 237

Unallocated operating expenses (82)Net Profit before taxation and minority interests from continuing operations 155

Segment assets employed 9,694 1,330 3,615 1,329 755 171 694 17,588

Segment liabilities, minority interests and equity 15,175 - - - - - 2,413 17,588

2004

Project Commercial and banking Islamic Equity

structured Trade and banking andTreasury finance finance corporate services Retail Other Total

Net interest and other income 79 31 63 51 10 10 61 305

Segment result 55 17 27 25 4 2 61 191

Unallocated operating expenses (75)Net Profit before taxation and minority interests

from continuing operations 116

Segment assets employed 8,107 1 ,483 2,783 1,156 595 98 700 14,922

Segment liabilities, minority interests and equity 12,581 - - - - - 2,341 14,922


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20. Segmental Information (continued)2005 2004

Arab Europe and Arab Europe andWorld Americas Total World Americas Total

Segment profit before taxation and minority interests from continuing operations 120 35 155 106 10 116

Segment profit before taxation and minority interests from discontinued operations - - - 773 - 773

Segment assets 12,845 4,743 17,588 10,292 4,630 14,922

21. Repurchase and Resale Agreements

Proceeds from assets sold under repurchase agreements at the year-end amounted to US$ 1,260 million (2004: US$ 179 million). Amounts paid for assets purchased under resale agreements at the year-end amounted to US$ 163 million (2004: US$ 49 million)

and relate to customer product and treasury activities.

22. Transactions with Related Parties

These are with major shareholders, directors, senior management, associates and other related parties. Transactions with related parties are made on the same commercial terms as those applicable to comparable transactions with unrelated parties and do notinvolve more than a normal amount of risk.

The year end balances in respect of related parties included in the consolidated financial statements are as follows:

Major shareholders Directors Associates 2005 2004

Loans and advances - - - - 16Deposits from customers 660 2 9 671 407

The expenses in respect of related parties included in the consolidated financial statements are as follows:

Interest expense 6 - - 6 6

Compensation of the key management personnel is as follows: 2005 2004

Short term employee benefits 10 10 Post employment benefits 5 2

15 12



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23. Fiduciary Assets

Funds under management at the year-end amounted to US$ 3,517 million (2004: US$ 3,208 million). These assets are held in afiduciary capacity and are not included in the consolidated balance sheet.

24. Fair Value of Financial Instruments

“Fair value” is the amount at which an asset could be exchanged or a liability settled in a transaction between knowledgeable,willing parties in an arm’s length transaction. Underlying the definition of fair value is the presumption that the Group is a goingconcern without any intention or requirement to curtail materially the scale of its operation.

The carrying value of financial instruments is not significantly different from the fair values.

25. Assets Pledged as Security

At the balance sheet date, in addition to the items mentioned in note 21, assets amounting to US$ 114 million (2004: US$ 125million) have been pledged as security for borrowings and other banking operations.

26. Basic Earnings and Dividend per Share

“Basic” earnings per share is calculated by dividing the net profit for the year by the weighted average number of shares duringthe year. No figures for diluted earnings per share have been presented, as the Bank has not issued any capital based instrumentswhich would have any impact on earnings per share, when exercised.

The Group’s earnings and dividend per share for the year are as follows: 2005 2004

Net profit for the year from continuing operations 129 109 Net profit for the year 129 579 Weighted average number of shares outstanding during the year (million) 100 100 Basic earnings per share (US$)

- Profit for the year 1.29 5.79 - Profit from continuing operations 1.29 1.09

Dividend per share- Proposed cash dividend (US$) 0.70 0.50 - Interim cash dividend paid (US$) - 2.40 - Interim stock dividend distributed (per share) - 0.062

During the previous year, an interim cash dividend of US$ 2.4 per share and an interim stock dividend of 0.062 shares for each share held on 2 September 2004 was approved by the Board of Directors and the Bahrain Monetary Agency. This waspaid/distributed on 13 October 2004. A final dividend of US$ 0.70 per share (2004: US$ 0.50 per share) has been proposed forapproval at the Annual Ordinary General Meeting.


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27. Capital Adequacy

The risk asset ratio calculations, in accordance with the capital adequacy guidelines established for the global banking industry, areas follows:

Capital base 2005 2004

Tier 1 capital 1,842 1,292Tier 2 capital 247 682

Total capital base 2,089 1,974

Risk Weighted Exposures Balance Risk weighted equivalents

2005 2004 2005 2004Assets Cash and claims on, guaranteed by or collateralised by securities of central

governments and central banks of OECD countries 2,830 2,873 - -

Claims on banks and public sector companies incorporated in OECD countries and short term claims on banks incorporated in non-OECD countries 8,291 7,014 1,658 1,403

Claims secured by mortgage of residential property 82 79 41 40

Claims on public sector entities, central governments, central banks and longer term claims on banks incorporated in non-OECD countries and all other assets, including claims on private sector entities 5,908 4,881 5,908 4,881

Off balance sheet itemsCredit commitments and contingent items (note 14) 4,194 4,480 1,390 1,372

Derivatives (note 13) 7,910 8,310 12 11

Credit risk weighted assets and off balance sheet items 9,009 7,707Market risk weighted assets and off balance sheet items * 1,467 542

Total risk weighted assets 10,476 8,249

Risk asset ratio 19.9% 23.9%

* Market risk capital requirements are based on the standardised measurement methodology.



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Head Office Directory

Head OfficeABC Tower, Diplomatic Area, PO Box 5698, Manama, Kingdom of Bahrain Tel: (973) 17 543 000 Fax: (973) 17 533 163 / 17 533 062 Tlx: 9432 ABCBAH BN http://www.arabbanking.com [email protected]

Ghazi Abdul-Jawad President & Chief Executive

Abdulmagid Breish Deputy Chief Executive & Chief Banking Officer

Legal & Compliance Dr Khaled Kawan,Legal CounselTel: (973) 17 543 367 [email protected]

Audit GroupJehangir Jawanmardi Tel: (973) 17 543 387 [email protected]

Planning & Financial Control Asaf Mohyuddin Tel: (973) 17 543 274 [email protected]

Support Group

Sael Al Waary,Group HeadTel: (973) 17 543 707 [email protected]

Corporate Communications & Premises & EngineeringNawaf Beyhum Tel: (973) 17 543 307 [email protected]

Human Resources & Administration Dr Lulwa Mutlaq Tel: (973) 17 543 308 [email protected]

Operations Andrew WilsonTel: (973) 17 543 714 [email protected]

Global Information TechnologyAbbas MalallaTel: (973) 17 543 [email protected]

Banking Group

Arab World DivisionNour Nahawi,Division HeadTel: (973) 17 543 272 [email protected]

Co-ordination Unit Qutub Yousafali Tel: (973) 17 543 273 [email protected]

Islamic Financial Services Duncan SmithTel: (973) 17 543 347 [email protected]

Retail Banking Sethu Venkateswaran Tel: (973) 17 543 [email protected]

Recovery Business UnitNabil HamdanTel: (973) 17 543 [email protected]

Global Products

Project & Structured Finance Graham Scopes Tel: (973) 17 543 622 [email protected]

SyndicationsJohn McWall Tel: (973) 17 543 967 [email protected]

Corporate & Institutional Banking Rashed Al KhalifaTel: (973) 17 543 314 [email protected]

Trade Finance & ForfaitingPaul Jennings,Global HeadTel: (44) (20) 7776 [email protected]

Amr El Ashmawi Tel: (973) 17 543 [email protected]

Treasury Group

Essam El Wakil,Group Treasurer Tel: (973) 17 543 375 / 17 532 [email protected]

Ali Mirza,Assistant TreasurerTel: (973) 17 543 241 [email protected]

Treasury & Marketable Securities

FX, Middle East Currencies & SalesKareem Dashti Tel: (973) 17 533 044 [email protected]

Derivatives, MM, Islamic, New Products & Treasury SupportAmr GadallahTel: (973) 17 543 555 [email protected]

Fixed Income Proprietary Investment & Trading Arif Mumtaz Tel: (973) 17 533 169 [email protected]

Portfolio Management Mahmoud Zewam Tel: (973) 17 533 169 [email protected]

Alternative Investments & Equity Pradeep Mehra Tel: (973) 17 543 441 [email protected]

Investment Banking Group

Colin Geddes,Group HeadTel: (973) 17 543 [email protected]

Corporate FinanceDavid Clarke Tel: (973) 17 543 [email protected]

EquitiesStephen Inglis Tel: (973) 17 543 [email protected]

Placement and Fund Raising GroupMichael MillerTel: (973) 17 543 [email protected]

Credit & Risk Group

Riyad M. Al Dughaither,Chief Credit & Risk OfficerTel: (973) 17 543 280 [email protected]

Risk Management Department Abhijit Choudhury Tel: (973) 17 543 288 [email protected]

Head Office Credit Department Kishore Rao Naimpally Tel: (973) 17 543 570 [email protected]

Remedial Loans UnitStephen Jenkins Tel: (973) 17 543 713 [email protected]

Economics Department Margaret PurcellTel: (973) 17 543 776 [email protected]

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International Directory

Representative Offices

Abu Dhabi 10th Floor, East Tower of the Trade Centre 2nd Street, Abu Dhabi Mall, PO Box 6689, Abu Dhabi, UAE Tel: (971) (2) 644 7666 Fax: (971) (2) 644 4429 [email protected] Mohamed El Calamawy, Chief Representative

TehranGround floor, Number 12A, Nezami Ganjavi Street (corner ofHamassi Alley), Tavanir Street, Tehran, IranTel: (98) (21) 88662455Fax: (98) (21) [email protected] Aziz Farrashi,Chief Representative

Tripoli That Emad Administrative Centre Tower 5, 16th Floor, PO Box 3578, Tripoli, Libya Tel: (218) (21) 335 0226/

335 0227 / 335 0228 Fax: (218) (21) 335 0229 [email protected] Mansour Abouen,Chief Representative

Singapore9 Raffles Place, #60-03 Republic Plaza Singapore 048619 Tel: (65) 653 59339 Fax: (65) 653 26288 Kah Eng Leaw,Chief Representative [email protected]

Subsidiaries

ABC Islamic Bank (E.C.) ABC Tower, Diplomatic Area,PO Box 2808, Manama, Kingdom of Bahrain Tel: (973) 17 543 000 Fax: (973) 17 536 379 / 533 163 Tlx: 9432 / 9433 ABCBAH BN Naveed Khan,Managing Director [email protected]

ABC Securities W.L.L. ABC Tower, Diplomatic Area PO Box 5698, Manama, Kingdom of Bahrain Tel: (973) 17 535 760 Fax: (973) 17 533 012 Tlx: 9432 ABCBAH BN Mahmoud Zewam,General Manager [email protected]

Arab Banking Corporation - Algeria PO Box 367, 54 Avenue des Trois Freres Bouaddou, Bir Mourad Rais, Algiers, Algeria Tel: (213) (21) 541 515 / 541 534 Fax: (213) (21) 541 604 / 541 122 [email protected] Swift: ABCODZAL Reidha Slimane Taleb,General Manager

Ghassan Haikal,Deputy General Manager.

Arab Banking Corporation - Egypt (S.A.E.)(ABC Bank, Egypt) 1, El Saleh Ayoub St., Zamalek, Cairo, Egypt Tel: (202) 736 2684 (10 lines)/

(202) 736 3629 Fax: (202) 736 3643 / 14 [email protected] Tarek Helmy,Chief Executive Officer

ABC Securities (Egypt) S.A.E. 1, El Saleh Ayoub St. Zamalek, Cairo, Egypt Tel: (202) 736 2684 (10 lines)/

(202) 736 3629 Fax: (202) 736 3643 / 14 Tarek Helmy,Chairman [email protected]

Arab Banking Corporation (Jordan) PO Box 926691, Amman 11190, Jordan Tel: (962) (6) 566 4183-5 (General)

(962) (6) 569 2713 (Dealing Room) (962) (6) 560 8302 (Foreign Dept.)

(962) (6) 562 3684 (Main Branch)Fax: (962) (6) 568 6291 (General)

(962) (6) 562 3685 (Main Branch) Tlx: 22258/21114 ABC JO [email protected] Ammar Al Safadi, Deputy Chief Executive & Acting Chief Executive

Branches

Tunis (OBU) ABC Building, Rue du Lac d'Annecy, Les Berges du Lac, 1053 Tunis, Tunisia Tel: (216) (71) 861 861

(216) (71) 861 110 (Treasury) Fax: (216) (71) 860 921 / 860 835 Tlx: 12505 ABCTU TN [email protected] Direct Dealing Reuters Code: ABCT Swift: ABCOTNTT Saddek O. El-Kaber, Resident Country Manager & General Manager

BaghdadAl Saadon St., Al Firdaws SquareNational Bank of Iraq BuildingBaghdad, IraqTel: (964) (1) 7173774 /

7173776/717 3779Fax: (964) (1) 717 3364Mowafaq H. Mahmood,General Manager Mobile: (964) 790 161 8048 [email protected]

New York 32nd Floor, 277 Park Avenue, New York NY 10172-3299, USA Tel: (1) (212) 583 4720 Fax: (1) (212) 583 0921 Tlx: 661978/427531 ABCNY(General);

421911/661979 ABCFX (Dealing Room) Direct Dealing Reuters Code: ABCN Robert Ivosevich,General ManagerTel: (1) (212) 583 4863 [email protected]

L. Christian Rigby, Trade Finance Tel: (1) (212) 583 4873 [email protected]

Rami El Rifai, Corporate FinanceTel: (1) (212) 583 [email protected]

Thomas Fitzherbert,Trade and Corporate FinanceTel: (1) (212) 583 [email protected]

David Siegel,Treasurer Tel: (1) (212) 583 4783 [email protected]

Grand Caymanc/o ABC New York Branch


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International Directory

ABC International Bank plc - Marketing Offices

UK & IrelandStation House, Station Court, RawtenstallRossendale BB4 6AJ, UKTel: (44) (1706) 237900Fax: (44) (1706) 237909John Clegg,[email protected]

Iberia – Representative OfficePaseo de la Castellana 1632° Dcha, Madrid 28046, SpainTel: (34) (91) 5672822Fax: (34) (91) 5672829Usama Zenaty,[email protected]

Nordic RegionStortorget 18-20, SE-111 29 StockholmSwedenTel: (46) 823 0450Fax: (46) 823 0523Klas Henrikson,[email protected]

Turkey – Representative OfficeEski Büyükdere Cad. Ayazaga Yolu SokIz Plaza No:9 Kat:19 D:69 34398 Maslak - Istanbul, TurkeyTel: (90) (212) 329 8000 Fax: (90) (212) 290 6891Muzaffer Aksoy,[email protected]

ABC (IT) Services Ltd.Arab Banking Corporation House 1-5 Moorgate, London EC2R 6AB, UK Tel: (44) (20) 7776 4050 Fax: (44) (20) 7606 2708 [email protected] Sael Al Waary,Director

Banco ABC Brasil S.A. Av. Pres. Juscelino Kubitschek, 1400 04543-000 Itaim Bibi São Paulo – SP, Brazil Tel: (55) (11) 317 02000 Fax: (55) (11) 317 02001 Tito Enrique da Silva Neto,President [email protected]

Affiliate

Arab Financial Services Company B.S.C. (c) PO Box 2152, Manama, Kingdom of Bahrain Tel: (973) (17) 290 333 Fax: (973) (17) 291 323 / 290 050 Tlx: 7212 AFS BN Rasool Hujair,Chief Executive Officer Fax: (973) 17 291 122 [email protected]

ABC Tunisie ABC Building, Rue du Lac d’Annecy, Les Berges du Lac, 1053 Tunis, Tunisia Tel: (216) (71) 861 861

(216) (71) 861 110 (Treasury) Fax: (216) (71) 960 427 / 960 406 Tlx: 12505 ABCTU TN [email protected] Direct Dealing Reuters Code: ABCTSwift: ABCOTNTT Sadok Attia,General Manager

ABC International Bank plc - Head Office and London BranchArab Banking Corporation House1-5 Moorgate, London EC2R 6AB, UKTel: (44) (20) 7776 4000 (General)

(44) (20) 7726 4091 (Dealing Room)Fax: (44) (20) 7606 9987 (General)

(44) (20) 7606 1710 (Dealing Room)Tlx: 893748 ABC GEN G (General)

892171 ABC FXL G (Dealing Room)Direct Dealing Reuters Code: ABCLSwift: ABCE GB 2LMichael Duval, Managing Director & Chief Executive [email protected]

William Playle, Head of Risk ManagementTel: (44) (20) 7776 [email protected]

ABC International Bank plc (Paris Branch) 4 rue Auber, 75009 Paris, France Tel: (33) (1) 49525400 Fax: (33) (1) 47207469Tlx: 648343 ABC F (General) Alexander Ashton,General Manager [email protected]

ABC International Bank plc (Frankfurt Branch) Neue Mainzer Strasse 7560311 Frankfurt am Main, GermanyTel: (49) (69) 71403-0Fax: (49) (69) 71403-240 Tlx: 411 536 AIBF D [email protected] Gerald Bumharter,General Manager

ABC International Bank plc (Milan Branch) Via Turati 16/18, 20121 Milan, Italy Tel: (39) (02) 863331 Fax: (39) (02) 86450117 Swift: ABCO IT MM Paolo Provera,General Manager [email protected]

Sami Bengharsa,Deputy General ManagerTel: (39) (02) [email protected]

arab banking corporation group abc tower, …...mr. mohammed h. layas, chairman extensive local...

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