annual report 2012 · under the supervision of the central bank of tunisia (cbt). it is a member of...

Annual Report 2012

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About the Bank Tunis International Bank Burgan Bank KIPCO GroupBoard of Directors Senior Management Selected Financial Information Chairman’s Statement Bank’s performanceTIB AwardsGratitude Business Performance Business PerformanceNet Income Capitalisation Assets and LiabilitiesLoans and Advances Funding Auditors’ Report Financial Statement Consolidated Balance Sheet Consolidated Income Statement Consolidated Cash Flow Statement Statement of Changes in Shareholders’ Equity Notes to the Consolidated Financial Statements

Risk Framwork Credit RiskMarket RiskOperational Risk

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18

21

28

31

56

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Tunis International Bank (TIB), was created in June 1982 and was the first bank established in Tunisia as a fully licensed banking corporation under the Tunisian Law of 12th July 1976 replaced on 14th August 2009. TIB operates under the supervision of the Central Bank of Tunisia (CBT). It is a member of Tunisia’s Clearing House Association. TIB is a private offshore commercial bank, its main shareholder being Burgan Bank SAK - Kuwait, itself a subsidiary of the Kuwait Investment Projects Company (Holding) ‘‘KIPCO’’.

Burgan Bank, a subsidiary of KIPCO (Kuwait Projects Company), is a regional bank with majority owned subsidiaries in the MENA region. Burgan Bank was established in 1977 as a public shareholding company. Despite the fact that it is the youngest commercial bank in Kuwait, today, it ranks among the top Kuwaiti banks. BB has acquired a leading role in the retail, corporate and investment banking sector through innovative product offers and technologically advanced delivery channels. Burgan Bank offers both retail and commercial banking services and is active both in the Gulf region and internationally. Besides TIB, Burgan Bank has three other majority owned subsidiaries: Jordan Kuwait Bank (Jordan), Gulf Bank Algeria (Algeria), Bank of Baghdad (Irak), collectively known as the “Burgan Bank Group”

KIPCO is one of the most important diversified holding companies in the Middle East and North Africa. It has substantial ownership interests in a portfolio of 60 companies operating across 26 countries. Its group companies are very diversified, but with particular concentration in two areas of activity: the financial sector and the Media sector. KIPCO was assigned a long-term credit rating of BBB- and a short term rating of A3 by Standard & Poor’s. With these credit risk assessment, KIPCO enjoys the highest ratings for any similar private corporate sector company within the MENA region.Our bank’s reputation has been fully established as a local provider of the highest quality products and services. TIB provides a comprehensive range of international financial services for corporations, financial institutions,

TUNIS INTERNATIONAL BANK

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governments and individuals both in Tunisia and abroad including the following: Foreign Exchange and Money Market operations in all convertible currencies including Tunisian dinars, International Trade Financing, Private Banking Facilities, Loan Syndications and Forfaiting, Commercial Banking, Investments, Visa Card, American Express Card. Our product range will be constantly reviewed to ensure that we are able, within our credit and procedural policies, to meet the range of needs in our local market base. This will include maximising the products and services we are able to offer as a result of the synergies we have, and are further developing, with co-members of the KIPCO group.

The bank continues to be an innovative institution both internationally and domestically dedicated to banking services of the highest standards. As a Tunisian bank based in Tunis, TIB’s traditional and natural marketplace has been the Maghreb countries. The Maghreb countries will remain TIB’s primary target market by maximising the opportunities available to us through working with our subsidiary Gulf Bank Algeria in Algeria and also through the bank’s representative office in Tripoli, Libya.Looking towards the future, TIB aims to play a key role in promoting business and partnerships between Gulf investors and the Maghreb. In addition to this area, business has also been developed involving Western European and other Mediterranean countries.The bank’s traditional and natural customer base in Tunisia has been the offshore companies – usually majority owned by foreigners, exporting most if not all of their manufactured products, and able to deal freely in foreign currencies.

TIB website : www.tib.com.tn

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Tunis International Bank is a subsidiary of the Burgan Bank SAK – Kuwait group which is a subsidiary of the KIPCO Holding Company - Kuwait.

Burgan Bank, a subsidiary of KIPCO (Kuwait Projects Company), is a regional bank with majority owned five subsidiary banks in the MENA region and Turkey, including Tunis International Bank. Burgan Bank is the youngest and most dynamic conventional commercial bank, established in 1977, the Bank has acquired a leading role in the retail, corporate and investment banking sector through innovative product offers and technologically advanced delivery channels with growing Private Banking business. Burgan Bank offers both retail and commercial banking services and is active both in the Gulf region and internationally.Burgan Bank has extended its regional brand platform to Turkey. Following its recent completed purchase of 99.3 percent of Istanbul-based Eurobank Tekfen AS, will now be operating under the name of Burgan Bank – Turkey, where its subsidiaries EFG Istanbul Equities and EFG Leasing will be branded as Burgan Securities and Burgan Leasing respectively.

As of 31st December 2012, Burgan Bank has five subsidiaries whose financial statements are consolidated into the Bank’s financial statements. Its subsidiaries include, 60% of Gulf Bank Algeria (Algeria), 52% of Bank of Baghdad (Iraq), 51.1% of Jordan Kuwait Bank (Jordan) 99,3% of Burgan Bank Turkey and 86.6% of Tunis International Bank (Tunisia). It has continuously improved its performance over the years by applying a sustained revenue structure, good asset quality, diversified funding sources and a strong capital base. The adoption of state-of-the-art services and ground-breaking technology has positioned it as a trendsetter in the domestic market and within the MENA region.

The bank has been growing at a consistent pace; Burgan Bank standalone has 24 branches, 93 ATMs and advances Internet Banking service which is a testament to their customer focus. The bank currently employs 733 employees, comprising both Kuwaitis and Non-Kuwaitis that demonstrates the fabric of globalisation and openness in the organisation’s culture.

The bank is currently committed to developing its banking activities and getting ready to play a key role in the coming Kuwait Development Plan

BURGAN BANK

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and supporting its clients’ needs, with innovative and diversified investment and financial products, enhancing treasury operations, increasing syndication activities, and expanding the bank’s retail products.The brand has been created on a foundation of real values – of trust, commitment, excellence and progression. ‘People come first’ is the foundation on which its products and services are developed and are further augmented by its three pillars of innovative technology, staff competency and customer service. It is committed to offering an enhanced banking experience.

The bank is rated by internationally reputed rating agencies like S&P, Moodys, Capital Intelligence etc. and enjoys the following ratings

Rating agency Rating highlights Rating

Standard & Poor’s Counterparty Credit Rating BBB+ / A-2 (Long / Short Term)

Moody’s Bank Deposit Rating A3 / P- 2

Bank Financial Strength Rating D+

Capital Intelligence Foreign Currency A-/A2 (Long / Short Term)

Financial Strength BBB

Burgan Bank has won the coveted “Best Bank in Kuwait” award from EMEA Finance, a prominent publication and information source in the finance industry. The award reflects the bank’s performance and financial delivery in 2012. The bank’s latest achievement follows another important recognition gained earlier this year, in which Burgan Bank Group earned the “Best Banking Group in MENA” award from Global Banking & Finance Review.

The Bank was recertified in 2010 with ISO 9001:2008 certification in all its banking businesses, making it the only bank in the GCC to receive such accreditation. It also has to its credit the distinction of being the only bank in Kuwait to have won the JP Morgan Chase Quality Recognition Award, 12 year in succession.

Burgan Bank’s streak of accolades also included the “Best Bank Branding” award by the Banker Middle East. World Finance, one of the world’s most influential and leading financial magazines has also awarded Burgan Bank with the prestigious “Best Banking Group in Kuwait”. For the second consecutive year in 2012, Burgan Bank won World Finance’s “Best Private Bank” award along with the “Best Private Bank in Kuwait 2012” award from Capital Finance International.

In addition Burgan Bank received in 2012, the COMMERZBANK award for maintaining high standards of quality, efficiency and reliability while processing Euro currency transactions.

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Kuwait Projects Company (Holding) K.S.C (KIPCO) is a closed shareholding company organised under the laws of the State of Kuwait. KIPCO was registered as an investment company with the Central Bank of Kuwait and its shares are traded on the Kuwait Stock Exchange. On September 29, 1999, the legal status of the company was changed from an investment shareholding company to a holding shareholding company. The major shareholder of the company is Alfutooh Investments Co. W.L.L.

In April 2011, KIPCO was awarded a BBB- / A3 rating from Standard & Poor’s and a Baa3 / P-3 rating from Moody’s in June 2011.

KIPCO generated a net profit of KD 31.3 million (US$ 111.3 million), for the year ended 31 December, 2012 an increase of 4.2 per cent on the KD 30 million (US$ 107.7 million) profit reported in 2011.

The KIPCO Group is one of the biggest diversified holding companies in the Middle East and North Africa, with consolidated assets worth more than US$ 25.6 billion under management or control. The Group has substantial ownership interests in a portfolio of over 60 companies operating across 26 countries. The company’s main business sectors are financial services and media. Through the subsidiaries and affiliates of its core companies, KIPCO also has interests in real estate, industry, healthcare, education and the management & advisory sector.

Kuwait Projects Company has earned a reputation for quality and excellence as a premier investment holding company in the Middle East and North Africa (MENA) region. The company’s talented and committed workforce of 8,000 employees worldwide helps it create ideas, connect people, foster an entrepreneurial culture and uphold standards of professional excellence, and most importantly, its commitment to clients.

KIPCO group is an important and well respected Kuwaiti group. Company strategists centre their activities on two business sectors: Financial Services and Media and communications. The group is committed to investment in capital, manpower and technology in these sectors.

KIPCO GROUP

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Through its subsidiaries and affiliated companies the group has a presence in four of the five continents. Most of its investments are based in the Middle East region, especially in the countries of the Gulf Cooperation Council (GCC).The group companies utilise the synergies that exist within each sector as well as across sectors and act as responsible corporate citizens in each of their markets.

Investments of the group in the financial sector include commercial and investment banking, asset management and insurance. In the Media and Information Technology sector investments include broadcasting and computer industries. The Industrial sector is a widely diversified investment. It varies from dairy products to chemicals.

In the Real Estate business the group has sizeable investments in both the Arab world and the United States of America. Group entities are also involved in property development as well as property management. Management and Advisory services include direct investment, finance, private placement, mergers and acquisitions, derivatives and corporate restructuring. These services are provided by KIPCO group’s American and British based operations to both group companies and external clients.

Kipco’s website : www.kipco.com

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BOARD OF DIRECTORS

Masoud Hayat Chairman of the BoardChairman of the Executive CommitteeKIPCO CEO Banking

Chairman of United Gulf Bank, BahrainChairman of Syria Gulf Bank, SyriaVice Chairman of Gulf Bank Algeria, AlgeriaVice Chairman of North Africa Holding Company, KuwaitVice Chairman Royal Capital Group, UAEBoard member of Jordan Kuwait Bank, JordanBoard Member of Bank of Baghdad, IrakBoard Member of KAMCO, Kuwait

Mr Hayat joined KIPCO as CEO, Banking in 2010. He has served the KIPCO Group in a number of key positions since 1997 and has extensive experience in the region’s both commercial & investment banking, and asset management sector.Mr Hayat has a degree with a major in Economics from Kuwait University; and High Diploma in Banking Studies from the Institute of Banking Studies, Kuwait, and attended different courses in Economy, Management & Money in Kuwait and outside Kuwait.

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Mohamed Fekih Deputy Chairman Member of the Executive Committee

Managing Director

Board and Executive Committee Member of Gulf Bank Algeria,AlgeriaChairman of UGFS – North Africa, Tunisia (Asset Management Company), Chairman of SACEM Industries, Tunisia Chairman of the Board Audit Committee of Tunisiana, Tunisia Board Member of Hannibal Lease, Tunisia

Mr. Mohmed Fekih has over 35 years of banking experience. His banking career began in 1976 with his joining Citibank Tunis. Mr. Mohamed Fekih graduated from the University of Law, Political and Economic Sciences of Tunis and holds a Diploma of higher Management Studies from the Higher Institute of Management of Tunis (Institut Superieur de Gestion de Tunis). He has also participated in various courses and seminars with well-known international institutions in the United States and Europe. Mr. Mohamed Fekih was granted the award the Banker of the year 2004 in Tunisia.

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Rabih Soukarieh Member of the BoardMember of the Executive CommitteeChairman of the Compensation CommitteeActing CEO, United Gulf Bank, Bahrain

Board and Executive Committee Member of Gulf Bank Algeria,AlgeriaChairman and Chief Executive Officer of Millennium Private Equity, Dubai Board and Executive Committee Member of North Africa Holdings Company, Kuwait Board Member of International Innovative Technologies, United Kingdom Board Member of Virgin Mobile Middle East Company.

Mr. Soukarieh is the Acting Chief Executive Officer of United Gulf Bank having held a number of executive positions within the bank and its subsidiaries intermittently over the past ten years. His career extends for over twenty years in the areas of corporate, commercial and investment banking as well as mobile telecommunications.

Mr. Soukarieh is a Chartered Financial Analyst; he holds an MBA from Northeastern University and a BSc from Indiana University-Bloomington.

Fethi Houidi Member of the Board Member of the Board Audit Committee

Honorary chairman of Nessma TV , Tunisia since 2008Mr. Houidi Chaired the Board Audit Committee of TIB (2008-2012)Chairman of the Board of Tunisiana, Tunisia (2002 - 2008)Mr. Houidi occupied high ranking duties in the public sector. He was Ambassador of Tunisia in Beirut from 2000-2002

Mr. Houidi holds a doctorate degree in Science of Communication from University of Paris II, Paris and Bachelor degree in French literature from University Paris Sorbonne, Paris

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Mohamed AL Qumaish Member of the Board Audit CommitteeMember of the Compensation CommitteeUGB representative

Board and Board Audit Committee member of KIPCO Asset Management Company (KAMCO), Kuwait Board and Board Audit Committee member Gulf Bank Algeria, Algeria Board and Board Audit Committee member of Syria Gulf Bank, Syria

Mr. Alqumaish has been with United Gulf Bank / Kipco group since September 2001 and has more than 16 years of commercial and investment banking experience in Internal Auditing, Risk Assessment, Compliance, Corporate Governance and Quality Assurance Services. He was previously employed by Ahli United Bank and Shamil Bank of Bahrain.Mr. Alqumaish holds an MBA from the University of Strathclyde Business School, UK, a Certified Internal Auditor ‘CIA’ and a Certified Information Systems Auditor ‘CISA’.

Yacoub Alghusain Independent Member of the Board Chairman of the Board Risk Committee

Mr. Alghusain is owner and proprietor of Coubi group, Oakville Canada. The company’s main business sectors are financial services: wealth management, trading and investment.

Mr. Alghusain was:Board member of Hempel Marine Paints in Kuwait, Bahrain, Qatar & KSA. • Board member of Sands Pharmaceutical in Canada and Fujeira Investment Group in Fujeira, UAE. Managing Director of Danish Saudi Dairy and member of the Board of Directors of Kuwait Danish Dairy.CEO of EPFM Management Training, Algeria.

Mr. Alghusain held management positions in various companies in USA, London & Kuwait. Mr. Alghusain holds an MBA from Colombia Graduate School of Business, New York and BA from International Business Law Tokai University, Japan.

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Khalid Al Zouman Member of the Board Member of the Board Risk Committee Burgan Bank representative

Mr. Al Zouman is the Chief Financial Officer, at Burgan Bank Group, Kuwait. Mr. Al Zouman joined Burgan in 2000. Prior to joining Burgan, Al Zouman was a Manager at Ernst & Young, Kuwait Office. He joined E&Y in September 1988.During his experience in E&Y, Al Zouman was trained in Pittsburg office, Pennsylvania USA during two years where he passed his certified public account examination.Mr. Al Zouman was appointed in January 2013 as Head of GM’s in Kuwait Bank’s Association CommitteeMr. Al Zouman is a Certified Public Account, USA; he holds a degree of Computer Science from Kuwait University.

Amr El Kasaby Member of the BoardMember of the Board Risk Committee

Burgan Bank representative

Mr. El-Kasaby is the Group Chief Internal Auditor, Internal Audit Department at Burgan Bank Group, Kuwait. El Kasaby joined Burgan in March 2007. Prior to joining Burgan Bank, El Kasaby was Acting Chief Internal Auditor of Internal Audit Department at Kuwait Finance House, Kuwait from October 2001 through February 2007. While there; he was responsible for managing engagement teams which provide professional auditing services to all departments within KFH.

Prior to joining KFH, El Kasaby was a Senior Manager at Ernst & Young, Kuwait Office. He joined E&Y in September 1988. During his thirteen and a half years, he gained experience in various industries: Banking, Manufacturing, Trading, Investments, Automotive, Oil and Gas.

Mr. El Kasaby graduated from Kuwait University in 1988 with a major in Accounting and Auditing. He is also a Certified Public Accountant since 1993, Certified Fraud Examiner since 2002 and Certified Internal Control Auditor since 2011

Abdelmajid Karoui Board Advisor

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Mohamed Fekih Managing DirectorDeputy Chairman

Nabil Chahdoura Assistant General ManagerHead of Investment, ALM and Business Development

Moncef Chaibi Assistant General ManagerCFO, Head of Systems

Zouhair Bhar Senior ManagerHead of Operations

Ali Tebib Senior ManagerChief Risk OfficerCompliance Officer

Mounir Karoui Senior ManagerHead of Treasury

Sami Fezzani ManagerTrade Finance, Financial Institution and Private Banking Dept

Fehmi Ben Amar ManagerCorporate Banking Dept.

Moez Ayachi ManagerHead of Internal ControlMLRO

Anas Labidi Head of Internal Audit

SENIOR MANAGEMENT

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The following is selected consolidated financial information (in US$000’s) of the Bank for the year ending December 31st.

Profit & Loss

2009 2010 2011 2012

Net Interest income 3 907 3 151 3 675 2 429

Other income 28 296 16 519 21 741 25 888

Operating costs 6 380 6 675 6 959 7 225

Operating profit 25 823 12 995 18 457 21 093

Provisions 10 775 975 2 775 2 500

Net profit after provisions 15 048 12 020 15 682 18 592

Dividend proposed 5 000 5 000 5 000 -

Balance Sheet

2009 2010 2011 2012

Cash 7 094 7 782 14 766 72 793

Time deposits 291 065 262 070 279 126 252 975

Investment 93 817 141 441 125 016 134 561

Loans and advances 100 494 119 835 105 964 98 784

Other assets 4 842 5 425 4 645 4 055

Total Assets 496 662 536 553 529 517 563 168

Deposits from banks 172 147 180 757 178 432 188 472

Deposits from customers 230 276 252 565 244 816 258 757

Other liabilities 6 603 8 443 10 118 9 538

Total liabilities 409 026 441 765 433 366 456 767

Shareholders’ funds 87 636 94 788 96 151 106 401

Capitalization

2009 2010 2011 2012

Share capital 25 000 50 000 50 000 50 000

Reserves 31 813 22 918 17 202 19 882

Retained earnings 15 775 9 850 13 267 17 927

Net Profit 15 048 12 020 15 682 18 592

Shareholders’ equity 87 636 94 788 96 151 106 401

Total capitalization 87 636 94 788 96 151 106 401

SELECTED FINANCIAL INFORMATION

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NET PROFIT (US $ millions)

2010

2010

2010

2011

2011

2011

2012

2012

2012

20

15

10

5

0

SHAREHOLDER’S EQUITY (US $ millions)

120

100

80

60

40

20

0

OPERATING INCOME (US $ millions)

50

40

30

20

10

0

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CHAIRMAN’S STATEMENT

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Dear Shareholders,

On behalf of the Board of Directors, I am pleased to present the audited and consolidated financial statements of Tunis International Bank (“TIB”, “Bank”) for the year ended 31 December 2012.

Despite the unprecedented and challenging economic conditions of Tunisia over the last year, your bank achieved a profit of US$ 18.59 million, a twenty-year record profit. Indeed, the year 2012 has been yet another year of steady and sustained progress for our Bank, underpinning our well established leading role in the Tunisian offshore banking sector.

BANK’S PERFORMANCE

TIB generated an impressive high operating income of US$28.317 million, which represents an increase of 11.42% on a year-on-year basis. Net operating income before write downs and provisions rose by 14.28% to US$ 21.09 million.

Earnings per share reached US$ 3.72 cents while return on shareholder’s equity recorded a historical level of 21.17%. This performance was achieved despite the persistent weakness in global equity markets, the successive cuts in interest rates and the continued global economic slowdown. These figures show the continued ability of the Bank to deliver steady value accretion to its shareholders, thereby maintaining the trend established over recent years.Year to date total consolidated assets increased by US$ 33.65 million to US$ 563.17 million or 6.36% over last year.

The Bank continues to emphasise on its customer service and is cognizant of the importance of building up customer loyalty. This integral principle form one of the cornerstones of our modus operandi we are confident that in the long run, the loyalty of our customers will ensure a stable and lower cost funding base.

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TIB AWARDS

The Bank’s commitment to uphold best practices and provide best customer services was recognized when it won in August 2012 the prize of first bank in Tunisia by The InterContinental Finance Magazine. This Award is designed to celebrate those banks that have excelled in their region (in our case on the Arab North Africa region) or globally.

Also, Tunis International Bank has won and received on April 30, 2012, “The Annual Golden International Arch of Europe, Award, for Quality and technology” This award was offered to the Bank by the “International Congress of Business Initiative Directions – BID”. This award recognises banks for their contribution to the business world and their high standing and professionalism.

GRATITUDE

Prior to closing and on behalf of the Board of Directors, I would like to express our special gratitude to the Tunisian Regulatory and other Authorities, especially the Central Bank of Tunisia for their continued and valued support, in these un-usual times.

I also wish to express my sincere gratitude to our shareholders for their unrelenting support, to our customers for their trust and confidence and last, but by no means least, to our Senior Management and staff members for their loyalty, dedication, professionalism and teamwork which contributed to the positive results in 2012, and upon whom we continue to rely.

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BUSINESS PERFORMANCE 2012

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Business Performance

Total revenue for the year was US$ 30.64 million, total consolidated assets reached US$563.17 million. TIB generated an impressive high operating income of US$28.32 million, which represents an increase of 11.41% on a year on year basis. Net operating income before write downs and provisions rose by 14.28% to US$ 21.09 million. Return on average assets (ROAA) was 3.40% vs. 2.94 in 2011 and return on equity (ROE) was 21.17% compared to 19.49 in 2011.

The effect of the successive cuts in the leading interest rate currencies coupled with the persistent weak global context had an implication on the interest income of the bank. Net interest income decreased by US$1.25 million over last year.

Pursuing its income sources diversification, the bank saw a significant increase in non interest income. The gradual switch from interest revenue to non interest revenue in the banking income is imposed by the range of zero maintained over interest rates of major currencies. As has been the case over the past, the bank maintained its tight control over non interest expenses, succeeding again to keep figures slightly above last year to date same period figures.

As a prudent measure, TIB’s loan portfolio was consciously reduced by US$7 million or 6.78% to US$98.8 million. This proactive step was taken to manage the drop in Tunisian offshore activity and to avoid possible reductions in collections from potential non performing loans. While other earning assets on the balance sheet (interbank placement) registered a decrease on a year on year basis, TIB’s investment portfolio rose by 7.64% to US$134.56 million, as the Bank focused on investment grade opportunities.

TIB’s interbank placement was consciously reduced due to the range of zero maintained over interest rates of major currencies. Consequently, interbank placement went down by US$ 26.2 million or 9.37% and cash and bank demand went up by US$ 58 million or 393%.

FINANCIAL REVIEW 2012

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Net Income

Net income at US$ 18.59 million in 2012 was 18.56% up compared to the previous year. To overcome the tight economic conditions and the general tendency of declining interest rates, the Bank commenced its conscious strategy of diversifying its income sources. As a result, non interest income recorded an increase of 19.08% to US $ 25.89 million compared to last year.Interest income, which used to account for around 55.83% of the bank’s total revenue in 2007 (was 74% in 2000) represented no more than 15.5% in 2012, reflecting the efforts made to better utilise funds in more profitable opportunities. The strong growth in non-interest income helped to propel the Bank’s operating profit and net operating profit.

Operating Income (US$ million)

Non-interest expenses increased only by US$ 266 k or 3.82% to US$7.2 million. Total expenses –including interest expenses – decreased by 1%, while total revenue increased significantly by 9.07%. The Bank continues to make significant effort in controlling expenses while keeping the same high standard of service and seeking more profitable opportunities.A 11.42% year on year increase in operating income to US$28.32 million reflects the Bank’s efficiency in dealing with a challenging market environment.

35000

30000

25000

20000

15000

10000

5000

0

US$

OperatingProfit

TotalRevenues

Non InterestIncome

Net InterestIncome

2012 2011

Main Income Indicators 2012

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Total Revenue Vs. Total Exprnses(US$ million)

Capitalisation

Shareholders’ funds before appropriation totalled US$106.40 million, an increase of 10.66% or US$10.25 million over the last year. The policy of the Bank has always been to maintain a good balance sheet structure and a strong capital base. It is supervised by the Tunisian financial Authority (Central Bank of Tunisia or CBT) and is required to maintain a minimum capital ratio of 8% known as the risk asset ratio. TIB’s capital adequacy ratio slightly in excess of 40% is significantly above the CBT and the internationally agreed threshold of 8%. TIB is ranked among the top banks in Tunisia when classified by risk asset ratio.The after tax profit for the year 2012 was US$18.59 million i.e. US$3.72 per US$10. . TIB is committed to constantly enhancing value to its shareholders.

Starting 2010, the paid up capital of the bank has increased from US$ 25 million to US$ 50 million. Consequently the number of shares increased from 2.5 million shares to 5 million shares.

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Return on Eauity Vs. Earning per Share

Assets and Liabilities

The Bank’s consolidated balance sheet at US$563.17 million was up by US$33.65 million or 6.36% compared to the previous year. While the exposures under loans and advances decreased following the global financial crisis and the plunge in all economic sectors, this was partially offset by the rise in the investment portfolio, which increased by US$9.55 million to US$134.56 million.

Earning Assets: loans & Investment (US$ million)

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Funding of the assets were made up essentially of total deposits of US$447.23 million (79.41% of total assets) of which customers’ deposits amounted to US$258.8 million and interbank deposits US$188.5 million. Customers’ deposits increased by 5.69% and interbank deposits registered an increase of 5.63%. Customers’ deposits represent almost 58% of total deposits and 46 % of total assets. These continue to remain a relatively stable and permanent source of funding.

The increase of general and legal reserves and the retention of retained earnings contributed to the increase of the Bank’s shareholders’ funds. As at 31 December 2012 total shareholders’ funds was US$106.4million (up by US$10.25million in 2011) including US$18.59 million net profit before distribution.

TIB’s average liquidity ratio of about 120% during the year is significantly above the CBT minimum requirements of 100% and the internationally agreed standards. The Bank continues to maintain a liquid balance sheet by having a high proportion of liquid assets at all times. Liquidity is actively managed through dealings in the major world markets through the Bank’s extensive network of international and reputable counterparties. Liquidity and capital adequacy ratios are viewed by bank regulatory authorities and credit analysts as one of the key indicators of a bank’s financial conditions. It indicates the margin of protection available to both depositors and creditors against unanticipated financial difficulties that may be experienced by a bank.

Loans and Advances

The Bank has no significant concentrations by economic sector, in its loans and advances portfolio. Credits to banks and financial institutions represent 83% of the total portfolio. The remaining 17% is loans to corporate and individuals. A large part of these loans is secured by liquid assets or bank guarantees. The Bank continues to provide loans and securities portfolio on a selective and prudent basis, in order to maintain a low insolvency risk and to preserve the value of the Bank

The Tunisian location of TIB coupled with the location of the Bank’s shareholders has influenced the geographic distribution of its loans and advances. Almost the entire portfolio is within Middle Eastern and North African countries although there is no significant concentration in any single country.

Based on a maturity profile analysis two third of TIB’s loan portfolio or US$67.5 million is due to mature within one year. The other one third facilities have a maturity greater than one year but less than 5 years. Most of these loan facilities are syndicated loans for banks established in OECD countries.

The method of loan provisioning was set in conformity with IAS regulations and Central Bank of Tunisia directives. Consistent with its policy of prudent provisioning, allowance for loan losses of the Bank fully covers adequately all exposures under noncurrent loans.All exposures pertaining to non performing loans that are over 90 days past due, or in a non accrual status have been provided for in compliance with the international and local regulatory requirements.

Funding

As a result of the cognizance of the importance of building up customer loyalty and the continues emphasis on customer service, TIB’s customer deposits rose by 5.69% or US$13.9 million to US$ 258.8 million. This focus was maintained throughout the year and is an integral principle in our core banking activities.

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The Bank continues to attract deposits on a selective basis and to focus on high net worth individuals and corporate clients with stable resources. With a ratio of customer loans to customer deposits of about 38.5%, TIB will seek to increase its customer commitments in order to improve the ratio of customer related funding to its loan portfolio. While customer deposits with a tenor of less than a month comprise the majority of total deposits, it must be borne in mind that these deposits are rolled over regularly and constitute a core source of funding for the Bank.

Deposits ( US$ million)

An analysis of the customer deposits by currency indicates that the composition of Euro denominated deposits representing about 56%, the US$ comes next with 35%.

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TUNIS INTERNATIONAL BANK

STATUTORY AUDITORS’ REPORTON CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31ST , 2012

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TUNIS INTERNATIONAL BANKSTATUTORY AUDITORS’ REPORT

Consolidated financial statements as of December 31st , 2012

To the Shareholders of Tunis International Bank,

In compliance with the assignment entrusted to us by your General Meeting held in March 26th, 2010, we present below our report on the consolidated financial statements of Tunis International Bank for the year ended December 31st, 2012 and on the specific procedures as prescribed by law and professional standards.

I. Report on the financial statements

We have audited the accompanying consolidated financial statements of Tunis International Bank which comprise the consolidated balance sheet as at December 31st, 2012, and the consolidated income statement, consolidated statement of comprehensive income, consolidates statement of cash flows and consolidated statement of changes in shareholders’ equity for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements present positive equities of USD 106 401 294, including a net income of USD 18 592 368.

1. Management’s Responsability for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance winth International Financial Reporting Standards. This responsability includes the design, the implementation and the monitoring of such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for making accounting estimates that are reasonable in the circumstances.

2. Statutory Auditor’s Responsability Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Tunisian Standards on Auditing. Those

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standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 3. Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Tunis International Bank as at December 31st, 2012 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

II. Specific examinations

We have also carried out the specific procedures prescribed by law and professional standards.

We have nothing to report on with respect to the consistency of the financial information included in the Board of Directors’ report with the financial statements.

Tunis, March 7th, 2013

AMC Ernst & Young Cabinet Mourad GUELLATYFehmi LAOURINE

31

FINANCIAL STATEMENTS

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II-1- Consolidated Balance Sheet

II-2- Consolidated Income Statement

II-3- Statement of Consolidated Comprehensive Income

II-4- Consolidated Cash Flows Statement

II-5- Consolidated Statement of changes in shareholders’ equity

II-6- Notes to the consolidated financial statements

II- FINANCIAL STATEMENTS

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CONSOLIDATED BALANCE SHEETAs of December 31, 2012(Amounts in US Dollars)

Notes 2012 2011

ASSETS

Bank demand and call deposits 3 72 793 033 14 765 898

Time deposits 4 252 974 719 279 126 226

Financial assets designated at fair value through P&L 2 036 455 2 042 874Financial assets at fair value through other comprehensive income

5 28 523 594 29 148 834

Financial assets measured at amortized cost 6 35 385 118 32 213 206

Investments in associated companies 7 68 616 231 61 610 962

Loans and advances, net 8 98 784 462 105 964 367

Accrued interest and other assets 9 1 136 192 1 828 631

Property and equipment, net 10 2 918 640 2 816 606

TOTAL ASSETS 563 168 444 529 517 604

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES 456 767 150 433 366 158

Deposits from banks and financial institutions 11 188 471 616 178 432 345

Deposits from customers 12 258 757 346 244 815 552

Accrued interest and other liabilities 13 9 538 188 10 118 261

SHAREHOLDERS’ EQUITY 14 106 401 294 96 151 446

Share capital 50 000 000 50 000 000

Reserves 21 280 547 17 456 272

Foreign currency translation reserve -1 398 820 -253 725

Retained earnings 36 519 567 28 948 899

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 563 168 444 529 517 604

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CONSOLIDATED INCOME STATEMENTFor the year ended December 31, 2012(Amounts in US Dollars)

Notes 2012 2011

TOTAL INCOME 30 640 291 28 092 941

Interest income 15 4 751 499 6 351 963

Other income, net 16 10 324 876 11 145 115

Share of results of associated companies 15 563 916 10 595 863

INTEREST EXPENSES 2 322 992 2 676 639

Interest expenses 17 2 322 992 2 676 639

OPERATING INCOME 28 317 299 25 416 302

Salaries and benefits 18 4 266 294 4 314 875

General and administrative expenses 19 2 958 637 2 643 672

NET OPERATING INCOME (BEFORE WRITE DOWNS AND PROVISIONS)

21 092 368 18 457 755

Allowance for doubtful loans 2 500 000 2 774 984

NET INCOME FOR THE YEAR 18 592 368 15 682 771

Number of shares 5 000 000 5 000 000

Earnings per share 20 3,72 3,14

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOMEFor the year ended December 31, 2012(Amounts in US Dollars)

2012 2011

PROFIT FOR THE YEAR 18 592 368 15 682 771

Net fair value (loss) gain from financial assets at fair value through other comprehensive income

-206 486 -5 180 503

Other comprehensive (loss) income for the year -206 486 -5 180 503

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 18 385 882 10 502 268

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CONSOLIDATED CASH FLOW STATEMENTFor the year ended December 31, 2012(Amounts in US Dollars)

2012 2011

OPERATING ACTIVITIES

Net income of the year 18 592 368 15 682 771

Adjustments for :

Depreciation 451 612 390 679

Social fund -200 000 -200 000

Share of profit from associated companies -9 941 299 -5 375 114

Operating profit before changes in operating assets and liabilities 8 902 681 10 498 336

CHANGES IN OPERATING ASSETS AND LIABILITIES

Time deposits 26 151 507 -17 055 998

Loans and advances 7 179 905 13 870 394

Accrued interest and other assets 692 439 565 250

Deposits from banks and financial institutions 10 039 271 -2 324 134

Deposits from customers 13 941 794 -7 749 166

Accrued interest and other liabilities -580 074 1 675 157

Net cash provided by operating activities 66 327 523 -520 161

INVESTING ACTIVITIES

Purchase of financial assets designated at fair value through P&L - -1 214 955

Sales of financial assets designated at fair value through P&L 6 419 -

Purchase of financial assets at fair value through other comprehensive income -406 186 -

Sales of financial assets at fair value through other comprehensive income 824 939 8 717 141

Purchase of financial assets measured at amortized cost -6 851 709 -4 712 064

Sale of financial assets measured at amortized cost 3 679 797 9 890 521

Purchase of fixed assets net -553 647 -176 350

Net cash used by investing activities -3 300 387 12 504 293

FINANCING ACTIVITIES

Dividends paid -5 000 000 -5 000 000

Net cash used by financing activities -5 000 000 -5 000 000

Increase / Decrease in cash and cash equivalents 58 027 136 6 984 132

Cash and cash equivalents as of 1st January 14 765 898 7 781 767

Cash and cash equivalents as of 31 December 72 793 033 14 765 898

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFor the year ended December 31, 2012(Amounts in US Dollars)

Share Capital Statutory ReserveGeneral Reserve

Balance as of December 31st, 2010 50 000 000 5 000 000 15 500 000Net income for the period Other comprehensive income Total comprehensive income Transfer to statutory reserve 660 556

Transfer to general reserve 900 000

Transfer to general reserve (others) 2 000 000

Dividends distributed Transfer to social fund Change in accounting policies

Share of changes recognised directly in associate’s equity

Balance as of December 31st, 2011 50 000 000 5 660 556 18 400 000Net income for the period

Other comprehensive income

Resorption investment revaluation reserve -7 604 288

Total comprehensive income -7 604 288

Transfer to statutory reserve 1 030 765 Transfer to general reserve 1 000 000

Transfer to general reserve (Others) 2 000 000

Dividends distributed

Transfer to social fund

Share of changes recognised directly in associate’s equity

Balance as of December 31st, 2012 50 000 000 6 691 321 13 795 712

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Revaluation Reserve

Investment FV reserve

Foreign Currency Reserve

Retained Earnings Total

1 000 000 168 139 1 253 906 21 866 467 94 788 512 15 682 771 15 682 771

-5 180 503 -5 180 503

-5 180 503 15 682 771 10 502 268

-660 556 - -900 000 -

-2 000 000 - -5 000 000 -5 000 000

-200 000 -200 000

-2 591 920 1 011 153 -1 580 767

-1 507 631 -850 936 -2 358 567

1 000 000 -7 604 284 - 253 725 28 948 899 96 151 44618 592 368 18 592 368

-206 486 -206 486

-7 604 284 -47 397 798 18 592 368 18 385 878

-1 030 765 --1 000 000 --2 000 000 --5 000 000 -5 000 000

-200 000 -200 000

-1 145 095 -1 790 935-2 936 030

1 000 000 -206 486 -1 398 820 36 519 567 106 401 294

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

The consolidated financial statements of Tunis International Bank for the year ended December 31, 2012 were authorised for issue in accordance with resolution of the Board of Directors on February 2013.

Tunis International Bank S.A. (TIB) was established in June 1982 in Tunisia as a fully licensed Bank operating mainly with non residents under the current Tunisian law 2009-64 of August 12th, 2009 and under the supervision of the Central Bank of Tunisia. The main activity of the Bank is corporate and private banking and Money Market operations. The Bank is exempted from corporate tax for activities with non residents. The Bank’s registered address is 18, avenue des Etats Unis d’Amerique P.O. Box 81 – Le Belvedere 1002, Tunis, Tunisia.

TIB is a subsidiary of Burgan Bank (Kuwait), member of KIPCO Group (Kuwait).

2. ACCOUNTING POLICIES

2.1. Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the International Accounting Standards Board (IASB).The consolidated financial statements have been prepared on a historical cost basis except for financial assets measured at fair value and financial assets measured at amortized cost.The consolidated financial statements have been presented in US Dollars being the functional currency of the Bank.

2.2. Principles of consolidation

TIB has an associated company located in Algeria. For the preparation of the consolidated financial statement of the Bank, TIB has consolidated its shares in AGB using the equity method.The associated company included in the consolidated financial statements of TIB is the following:

Name of associated company Country Year of incorporationGulf Bank Algeria Algeria 2003

An associated company is one in which the Bank exercises significant influence (but not control) over its operations, generally accompanying, directly or indirectly, a shareholding of between 20% and 50% of the equity share capital.Under the equity method, the investment in an associate is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Bank’s share of net assets of the investee. The Bank recognises in the consolidated statement of income its share of the total recognised profit or loss of the associate from the date that influence or ownership effectively commences until the date that it effectively ceases.

Distributions received from an associate reduce the carrying amount of the investment.

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Adjustments to the carrying amount may also be necessary for changes in the Bank’s share in the associate arising from changes in its equity that have not been recognised in the associate’s profit or loss. The Bank’s share of those changes is recognised directly in equity.

Whenever impairment requirements of IAS 36 indicate that investment in an associate may be impaired, the entire carrying amount of the investment is tested by comparing its recoverable amount with its carrying value. Goodwill is included in the carrying amount of an investment in an associate and, therefore, is not separately tested for impairment.

Unrealised gains on transactions with an associate are eliminated to the extent of the Bank’s share in the associate. Unrealised losses are also eliminated unless the transaction provides evidence of impairment in the asset transferred. An assessment of an associate is performed when there is an indication that the asset has been impaired, or that impairment losses recognised in prior years no longer exist.

2.3. Significant accounting judgments and estimates

In the process of applying the Bank’s accounting policies, management has used its judgment and made estimates in determining the amounts recognised in the consolidated financial statements.The most significant use of judgment and estimates are as follows:

Impairment allowances on loans and advancesThe Bank reviews its non performing portfolio at each reporting date to assess whether an allowance for impairment should be recorded in the income statement. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.

In addition to specific allowances against individual significant loans and advances, the Bank also makes a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a collectively risk of default.

Impairment of financial assets at amortised costWhere there is objective evidence that an identified financial asset is impaired, specific provisions for impairment are recognised in the income statement. Impairment is quantified as the difference between the carrying amount of the asset and the net present value of expected future cash flows discounted at the asset’s original effective interest rate where applicable. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. The carrying amount of the asset is reduced directly only upon write-off.The criteria that the Bank uses to determine that there is objective evidence of impairment loss include:• Delinquency in contractual payments of principal or interest• Cash flow difficulties experienced by the borrower• Breach of loan covenants or conditions• Initiation of bankruptcy proceedings• Deterioration in the borrower’s competitive position• Deterioration in the value of collateral.

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2.4. Summary of significant accounting policies

(a) Foreign currency translation

Translation of foreign currency transactionsMonetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the balance sheet date. All differences are recognised in the income statement. Income and expenses items incurred in foreign currencies are translated, into the functional currency monthly using the functional currency rate of exchange prevailing at thatdate.

Translation of financial statements of foreign operationsAssets and liabilities of foreign operations are translated at exchange rates prevailing at the balance sheet date. Income and expense items are translated at average exchange rates for the relevant period. All resulting exchange differences are taken directly to a foreign currency translation reserve the consolidated statement of changes in equity table.

(b) Investments

All investments are initially recognised at cost being the fair value of consideration given and including acquisition charges associated with the investments. After the initial recognition, investments, other than investments in associated companies, are measured as follows:

Financial assets designated at fair value through P&L :Investments classified as “Financial assets designated at fair value through P&L” are measured at fair value. Fair value is determined by reference to quoted bid prices. Fair value of investments listed on inactive markets and unlisted investments are determined using other generally accepted methods such as discounted cash flows or adjusted prices of similar investments. Realised and unrealised gains and losses on “Financial assets at fair value through P&L ” are included in the income statement .

Financial assets at fair value through other comprehensive income :Investments have been presented in financial assets at fair value through other comprehensive income in accordance with IFRS 9 to better reflect the Bank’s business model for managing such assets.Investments classified as “Financial assets at fair value through other comprehensive income” are measured at fair value. Fair value of investments listed on active markets is determined by reference to quoted bid prices. Fair value of investments listed on inactive markets and unlisted investments are determined using other generally accepted methods such as discounted cash flows or adjusted prices of similar investments. Investments whose fair value cannot be reliably measured are booked at cost. All fair value gain or losses are recognised in the statement of comprehensive income and not recycled through the income statement. Dividend income is recognized in the income statement.

Financial assets measured at amortized cost:Financial assets which held within a business model whose objective is to hold assets in order to collect contractual cash flow and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding are carried at amortised cost, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition. Any gain or loss on such investments is recognised in the income statement.

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(c) Deposits with banks and other financial institutions

Deposits with banks and other financial institutions are stated net of any amounts written off and allowance for impairment.

(d) Allowance for possible losses on income earning assets

The Bank provides for possible losses on its income earning assets based upon a review and evaluation of its exposures, taking into consideration the applicable regulations of Central Bank of Tunisia. Income earning assets include placements with other banks, loans and advances, marketable securities investments and commitments and contingencies arising from off balance.

The Bank has estimated the allowance for possible losses on income earning assets based upon all the circumstances and events known at the date of these financial statements. The allowance for loan losses comprises specific allowances against loans and advances and a collective impairment allowances.

Specific allowances are calculated based on the borrowers’ debt servicing ability and adequacy of security. Specific allowances are made as soon as the debt servicing of the loan has been identified as doubtful and when management considers the estimated repayment realisable from the borrower is likely to fall short of the amount of principal and interest outstanding. These are treated as non performing loans.

A collective impairment allowance is maintained for losses that are not yet identified but can reasonably be expected to arise, based on historical experience, from the existing overall credit portfolio over its remaining life. In determining the level of the collective impairment allowances, management also refers to the composition of the portfolio, industry and the Central Bank of Tunisia’s requirements.

(e) Cash and cash equivalents

Cash and cash equivalents comprise cash and those balances of the demand and call deposits with banks including Central Banks and financial institutions.

(f) Offsetting

Consolidated financial assets and consolidated financial liabilities are only offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and the Bank intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

(g) Trade and settlement date accounting

All purchases and sales of consolidated financial assets including “regular way” ones are recognised on settlement date.

(h) Interest income and expenses

The Bank recognises interest income and expenses on an accrual basis. The Bank does not recognise interest income on loans or other income earning assets which are classified as nonperforming.

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Loans and other income earning assets are classified as non-performing when these are classified as doubtful or loss, respectively class 2, 3 and 4 following the regulations issued by Central Bank of Tunisia, or when in the opinion of management, collection of interest and/or principal is doubtful. When a loan is classified as non-performing, any interest income previously recognised but not yet collected is reversed. Interest on non-performing loans and other income earning assets under Central Bank of Tunisia’s guidelines is recognised in the statement of income only to the extent of cash received.

(i) Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation. Expenditures which extend thefuture useful life of assets or provide further economic benefits are capitalised and depreciated.Fixed assets are depreciated using the straight line method over their estimated useful life.

3. BANK DEMAND AND CALL DEPOSITS

2012 2011

Cash 943 955 1 358 232

Due from Banks 71 849 078 13 407 666

72 793 033 14 765 898

4. TIME DEPOSITS

2012 2011

Up to 3 months 248 397 566 273 806 664

From 3 months to 1 year 4 577 153 5 319 562

252 974 719 279 126 226

5. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

A- By nature

2012 2011

Listed securities 12 619 771 12 511 912

Unlisted securities 15 903 823 16 636 922

28 523 594 29 148 834

B- By currency

2012 2011

Kuwaiti Dinars 22 090 301 21 912 310

US Dollars 1 720 390 1 628 311

Bahraini Dinars 3 133 289 3 133 289

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United Arab Emirates Dirhams 824 939 1 649 922

Tunisian Dinars 754 675 825 002

28 523 594 29 148 834

6. FINANCIAL ASSETS MEASURED AT AMORTIZED COST

A- By nature

2012 2011

Government bonds and debt securities 4 133 646 7 281 598

Other bonds and debts securities 31 251 472 24 931 608

35 385 118 32 213 206

B- By currency

2012 2011

Euros 3 183 646 2 753 250

USD 26 860 923 24 076 086

KWD 5 340 549 5 383 870

35 385 118 32 213 206

C- By maturity

2012 2011

Up to 3 months 3 183 646 -


Over 1 year 26 860 923 28 617 715

35 385 118 32 213 206

7. INVESTMENTS IN ASSOCIATED COMPANIES

The Bank has a participation in Gulf Bank Algeria (AGB), a Bank incorporated in Algeria. The sharesof AGB are not listed in any public exchange.Summarised financial information of AGB is set out below:

2012 2011

Total assets 1 345 762 048 989 245 922

Total liabilities (1 145 057 474) (811 892 246)

Net assets 200 704 574 177 353 676

Revenues 135 955 550 92 636 119

Profit for the year 51 879 721 35 319 542

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8. LOANS AND ADVANCES, NET

2012 2011

Bank and financial institutions 84 793 034 96 462 306

Corporate businesses, private and others 20 127 840 26 622 288

104 920 874 123 084 594

Allowances for loan losses (6 136 412) (17 120 227)

98 784 462 105 964 367

8.1. Geographical analysis

2012 2011

Middle East/Africa 98 784 462 105 964 367

98 784 462 105 964 367

8.2. Maturity analysis

2012 2011

Up to 3 months 13 461 201 16 041 303


Over 1 year 14 714 063 20 548 386

98 784 462 105 964 367

8.3. Allowances for loan losses

The movements of allowance for loan losses are as follows :

Specific allowance

General allowance

Total

Balance as of 31 December 2011 15 811 544 1 308 683 17 120 227Allowances of the year 2 500 000 - 2 500 000Amounts written off -13 500 000 - -13 500 000Reclassification 646 034 -646 034 -Exchange adjustment 16 185 - 16 185Balance as of 31 December 2012 5 473 763 662 649 6 136 412

In line with Central Bank instruction addressed to all banks in order to build up collective provision to cover potential risks arising from the ongoing, local as well as international, economic and financial environment.TIB has made a collective provision allocation amounting to 663 KUS$. This amount has been calculated using the model as indicated in the CBT circular N°2012-20 of December 6th, 2012.

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8.4. Non-performing loans

Loans andadvances

Interestsuspended

ProvisionsCollateral

heldagainst NPL

Bank and financial institutions 20 259 320 441 486 4 401 663 4 000 000

Corporate businesses, private and others

3 994 335 735 885 1 072 100 2 181 621

24 253 655 1 177 371 5 473 763 6 181 621

9. ACCRUED INTEREST AND OTHER ASSETS

2012 2011

Accrued interest receivable 486 783 420 665

Prepayments 649 409 1 407 966

1 136 192 1 828 631

10. PROPERTY AND EQUIPMENT

Net value2012

Net value2011

Land 700 000 700 000

Building 1 342 593 1 487 832

Office furniture and other fixed assets 876 047 628 774

Total net 2 918 640 2 816 606

11. DEPOSITS FROM BANKS AND FINANCIAL INSTITUTIONS

2012 2011

Repayable on demand 1 887 427 1 039 481

Up to 3 months 182 561 648 157 654 144


188 471 616 178 432 345

12. DEPOSITS FROM CUSTOMERS

2012 2011

Up to 3 months 253 561 048 238 989 840


258 757 346 244 815 552

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13. ACCRUED INTEREST AND OTHER LIABILITIES

2012 2011

Accrued interest payable 273 644 404 052

Waiting for settlement 834 910 1 042 701

Accrued expenses 2 352 995 2 151 743

Retirement benefits provision 2 896 596 2 830 623

Other liabilities 3 180 042 3 689 142

9 538 187 10 118 261

14. SHAREHOLDERS’ EQUITY

20122012 20112011

Share capital 50 000 000 50 000 000

Reserves (a) 21 280 547 17 456 272

Foreign currency translation reserve (b) -1 398 820 -253 725

Retained earnings 17 927 199 13 266 128

Part of reserve in associated company 5 295 984 2 113 673

Net profit of the period 18 592 368 15 682 771

106 401 294 96 151 446

a- Reserves are detailed as follows

2012 2011

Statutory Reserves 6 691 321 5 660 556

General reserve 13 795 712 18 400 000

Revaluation reserve 1 000 000 1 000 000

Fair value Reserve -206 486 -7 604 284

21 280 547 17 456 272

b- The foreign currency translation reserve represents the net foreign exchange gain (loss) arisingfrom translating the financial statements of the associated companies from their functional currenciesinto United States Dollars.

15. INTEREST INCOME

2012 2011

Interest on interbank placements 2 241 983 3 081 027

Interest on loans and advances 2 509 517 3 270 936

4 751 499 6 351 963

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16. OTHER INCOME

2012 2011

Investment income (16.1) 2 843 387 2 791 740

Foreign exchange 2 602 913 3 648 825

Fees and commissions 4 878 576 4 704 550

10 324 876 11 145 115

16.1 Investment income

2012

Interest on financial assets at amortized cost 2 496 755

Dividends from financial assets at fair value through other comprehensive income 504 482

Dividends from financial assets designated at fair value through P&L 24 691

Losses on financial assets designated at fair value through P&L -114 686

Fees on financial assets -67 856

2 843 387

17. INTEREST EXPENSES

2012 2011

Interest expenses on deposits and collaterals 490 644 723 300

Interest expenses on interbank deposits 1 832 347 1 953 339

2 322 992 2 676 639

18. SALARIES AND BENEFITS

2012 2011

Wages and salaries 3 325 934 3 154 118

Social security costs 596 950 614 728

Pension costs 332 800 537 426

Other 10 610 8 603

4 266 294 4 314 875

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19. GENERAL AND ADMINISTRATIVE EXPENSES

2012 2011

Depreciation 451 612 390 679

Premises costs 357 911 336 150

IT costs 167 423 159 933

Communication 330 179 339 516

Marketing & Advertising costs 168 878 157 937

Board fees 273 000 273 000

Tax 82 493 38 617

Administration costs 1 127 141 947 840

2 958 637 2 643 672

20. EARNINGS PER SHARE

2012 2011

Net profit attribualble to ordinary equity holders 18 592 368 15 682 771

Weighted average number of ordinary shares 5 000 000 5 000 000

Basic earnings per share 3,72 3,14

21. COMMITMENTS AND CONTINGENCIES

2012 2011

Forward exchange contracts purchases 16 918 948 11 155 034

Forward exchange contracts sales 16 927 485 11 163 038

Letters of credit, guarantees and acceptances 18 047 718 22 782 324

51 894 151 45 100 396

22. FAIR VALUE HIERARCHY

IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank’s market assumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1 : Quoted prices in active markets for identical assets or liabilities. This level includes listed

49

equity securities and debt instruments on exchanges.

• Level 2 : Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

• Level 3 : Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components.

This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible.

Level 1 Level 2 Level 3 TOTAL

Financial assets designated at fair value through P&L

Equity Securities 2 036 455 - - 2 036 455

Debt Securities - - - -

Financial assets at fair value through other comprehensive income

Equity Securities 12 619 771 15 903 823 - 28 523 594

Debt Securities - - - -

Financial assets measured at amortized cost

Equity Securities - - - -

Debt Securities 35 385 118 - - 35 385 118

Investments in associated companies

Equity Securities - 68 616 231 - 68 616 231

Debt Securities -- - - -

50 041 344 84 520 054 - 134 561 398

23. 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’s interest sensitivity position is based on maturity dates and contractual repricing arrangements. As of 31 December 2012 it was as follows:

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Up to 3 months

3 month to 1 year

Over 1 yearNon interest

bearing items

TOTAL

Bank demand and call deposits 71 849 078 - - 943 955 72 793 033

Time deposits 248 397 566 4 577 153 - - 252 974 719


- - - 2 036 455 2 036 455


- - - 28 523 594 28 523 594


3 183 646 5 340 549 26 860 923 - 35 385 118

Investments in associated companies

- - - 68 616 231 68 616 231

Loans and advances, net 13 461 201 70 609 198 14 714 063 - 98 784 462

Accrued interest and other assets - - - 1 136 192 1 136 192

Property and equipment - - - 2 918 640 2 918 640

Total assets 336 891 491 80 526 900 41 574 986 104 175 067 563 168 444Deposits from Banks and financial institutions

184 449 075 4 022 541 - - 188 471 616

Deposits from customers 253 561 048 5 196 298 - - 258 757 346Accrued interest and other liabilities

- - - 9 538 188 9 538 188

Shareholders’ equity - - - 106 401 294 106 401 294Total liabilities and shareholders’ equity

438 010 123 9 218 839 - 115 939 482 563 168 444

Currency wise interest rates are as follows:

20122012 20112011

US Dollars % %

Assets 0.05 - 8.60 0.20 - 6.53

Liabilities 0.06 - 1.25 0.13 - 1.10

Kuwaiti Dinars

Assets 2.37 - 2.5 -

Liabilities 2.00 - 2.50 2.5

Tunisian Dinars

Assets 3.30 - 6.25 4.00 - 6.00

Liabilities 2.25 - 5.00 5.50 - 5.00

Euros

Assets 0.01 - 7.00 0.25 - 7.75

Liabilities 0.06 - 2.30 0.38 - 1.90

British Pounds

Assets 0.40 - 1.45 0.40 – 0.47

Liabilities 0.25 - 0.50 0.25 - 0.38

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24. CURRENCY RISK

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Bank considers the US Dollar as its functional currency. Positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits.The Bank had the following net exposures denominated in foreign currencies as of 31 December 2012 :

2012 - 000’USD

Long position Short position

Euros - -163

Tunisian Dinars - -39

Saudi Riyals 17 -

British Pounds - -1

Japanese Yen 13 -

Moroccan Dirham 13 -

Canadian Dollars 56 -

Kuwaiti Dinar - -14

Bahraini Dinar - -74

Danish Kroner 72 -

Libyan Dinar 16 -

Algerian Dinar 3 -

Swiss Francs 2 -

Arab Emarates Dirhams 93 -

Others 2 -7

287 -298

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25. LIQUIDITY RISK

The matyrity profile of the assets and liabilities as of 31 Dec 2012 was as follows

Up to 3 months

3 month to 1 year

1 year to 5 years

Undated TOTAL

Bank demand and call deposits 72 793 033 - - - 72 793 033

Time deposits 248 397 566 4 577 153 - - 252 974 719


2 036 455 - - - 2 036 455


- - - 28 523 594 28 523 594


3 183 646 5 340 549 26 860 923 - 35 385 118

Investments in associated companies - - - 68 616 231 68 616 231

Loans and advances, net 13 461 201 70 609 198 14 714 063 - 98 784 462

Accrued interest and other assets - - - 1 136 192 1 136 192

Property and equipment - - - 2 918 640 2 918 640

Total assets 339 871 901 80 526 900 41 574 986 101 194 657 563 168 444

Deposits from Banks and financial institutions

184 449 075 4 022 541 - - 188 471 616

Deposits from customers 253 561 048 5 196 298 - - 258 757 346

Accrued interest and other liabilities - - - 9 538 188 9 538 188

Shareholders’ equity - - - 106 401 294 106 401 294

Total liabilities and shareholders’ equity

438 010 123 9 218 839 - 115 939 482 563 168 444

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26. RELATED PARTY BALANCES & TRANSACTIONS

December 2012

Assets Major

shareholder «BB»

Associated companies

«AGB»

Key management

Others Related Parties

Total

Bank demand and call deposits 10 922 2 550 - - 13 472

Time deposits 49 845 400 - - 20 000 000 69 845 400

Financial assets designated at fair value through P& L

- - - 210 448 210 448


- - - 5 766 727 5 766 727


- - - 15 252 772 15 252 772

Investment managed by a related party

- - - 13 124 774 13 124 774

Investments in Associated Companies

- 68 616 231 - - 68 616 231

Loans and advances, net - - 1 243 440 - 1 243 440

Accrued Interest receivable 1 196 - - 34 521 35 717

49 857 518 68 618 781 1 243 440 54 389 242 174 108 981

Liabilities

Deposits from Banks and financial institutions

55 706 504 - - 4 022 164 59 728 668

Accrued Interest payable 47 429 - - 22 486 69 915

55 753 933 - - 4 044 650 59 798 583

Off-Balance sheet

Letters of credit, guarantees and acceptances

- 4 855 704 - - 4 855 704

- 4 855 704 - - 4 855 704

Interest Statement

Interest Income 121 113 - 37 748 984 2481 143 109

Other Income - - - 1 510 314 1 510 314

Share of profit of associates - 15 563 916 - - 15 563 916

Interest Expense -1 188 300 - - -123 774 -1 312 074

General & Administrative expenses - - - -227 500 -227 500

-1 067 187 15 563 916 37 748 2 143 288 16 677 765

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Key management compensation

Remuneration paid or accrued in relation to key management, including Directors and other Senior Officers was as follows:

2012 2011

Short term employee benefits - including salary & bonus

892 030 1 046 412

Accrual for end of services indemnity 64 364 130 802

956 394 1 177 214

27. SEGMENTAL INFORMATION

20122012 20112011

Assets

North America 12 622 000 10 392 455

Europe 138 680 000 137 835 000

Middle East/ Africa 411 866 444 381 290 149

563 168 444 529 517 604

Liabilities

Europe 43 842 000 12 903 000


456 767 150 433 366 158

Investment Income


North America 399 957 302 659

Europe 313 020 300 795

2 843 387 2 791 740

Interest Income

Europe 493 044 1 263 685


4 751 499 6 351 963

Other Income


7 481 489 8 353 375

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28. CREDIT RISK

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Bank manages credit risk by setting limits for individual counterparties, and groups of counterparties and for geographical and industry segments. The Bank also monitors credit exposures, and continually assesses the creditworthiness of counterparties. In addition, the Bank obtains security where appropriate, enters into master netting agreements and collateral arrangements with counterparties, and limits the duration of exposures.For details of the composition of the assets by geographic segment refer to note 27.Credit risk in respect of derivative financial instruments is limited to those with positive fair values.

29. CONCENTRATIONS

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographic location.The distribution of assets and liabilities by geographic region is disclosed in note 27.

30. MARKET RISK

Market risk is defined as the risk of loss in the value of on or off balance sheet financial instruments caused by a change in market.

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RISK FRAMEWORK

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1. Introduction

Under the directives of Central Bank of Tunisia (CBT), banks operating in Tunis are required to cover comprehensively the disclosure of information required by Circular n°2011-06 of May 20th, 2011. This information are similar to the disclosure of information under Pillar 3 of the Revised Capital Adequacy Standard (RCAS) in line with the Basel Committee’s revised capital adequacy framework issued in June 2004, popularly known as Basel II, with effect from 1st of July 2012. Given below are the necessary disclosures pertaining to the Bank’s Capital Structure, Corporate Governance, Risk Management objectives and policies, information relating to the Credit Exposure, Credit Risk Mitigation, Market Risk and Operational Risk, provisioning policy and compensations as required under the CBT regulations. Circular n°2011-06 of May 20th, 2011aims to provide a consistent and comprehensive disclosure framework that enhances comparability between banks and further promotes improvements in risk management practices. The Bank has implemented the requirements laid down by CBT disclosure, covering both the qualitative and quantitative items. These are also published in the Bank’s annual report and hosted on the Bank’s website.

2. Capital Structure

• Main features of Capital Instruments

The Bank’s paid up capital entirely consists of ordinary shares which have proportionate voting rights. None of these shares are traded in the Tunisian Stock Exchange (TSE).

TABLE I : Consolidated Capital Structure of the Bank

US$’000s

Paid up share capital 50 000

Reserves 56 607

Less: Treasury shares -

Less: Investments in unconsolidated subsidiaries -

T I E R 1 Capital 106 607

45% of fair valuation reserves -457

General provision 663

T I E R 2 Capital 869

Total Eligible Capital after deductions 106 813

As per CBT regulations, Tier 2 capital cannot exceed 100% of Tier 1 and subordinated debts cannot exceed 50% of Tier 1.

3. Capital Adequacy

• Bank’s Approach to Capital Adequacy Assessment

The Bank has in place a system under which the capital adequacy of the Bank is being calculated on a monthly basis, based on the CBT circular instructions n°91-24 and subsequent amendments. Based on this system, the CAR of the Bank has been above the required threshold of 8% during the year 2012.

er

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TABLE II: Capital requirement for each Portfolio

US$’000s

Claims on banks 497 353

Claims on corporate 47 168

Retail exposures 2 796

Past due exposures 24 254

Other exposures 4 055

Total 575 626

Total Credit risk weighted exposure 202 381

Total Capital Ratio (%) 53.11%

TIER I Capital Ratio (%) 52.68%

4. Risk Management

The Bank has set up a Risk Management Structure (RMS) headed by the Chief Risk Officer who reports directly to the Chief Executive Officer, in order to ensure the independence of the function. The RMS does not have any business targets in terms of either levels of business or income/profits to be achieved, with a view to ensuring its objectivity in analyzing the various risks. The mission of the RMS is to identify, measure and control various risks and report to the top management of the Bank on the effects and, where possible, mitigations. The Bank has a well documented Risk and Disclosure Policy that classifies the risks faced by it in its day-to-day activities into certain families of risks and accordingly specific responsibilities have been given to various officers for the identification, measurement, control and reporting of these identified families of risks. Among the families of risks are:

• Credit Risk which includes default risk of clients and counterparties • Market Risk which includes interest rate, foreign exchange and equity risks • Operational Risk which includes risks due to operational failures

The RSM is responsible to ensure that the relevant details for measurement of the risk and allocation of the appropriate risk weights to the exposures, so that the computation of the RWAs can be made appropriately.

A. Credit Risk

1. Strategies and Processes

A thorough credit risk assessment is done before extending loan. The credit Risk assessment includes borrower risk analysis, industry risk analysis, historical financial analysis, projected financial performance, the conduct of the account, and security of proposed loan. The assessment originates from relationship manager/ account officer and approved by Credit Review Committee. The Credit Committee under elevated authority approves the credit proposals. Executive Committee of the Board approves the proposal beyond the authority limit of the management. The Board of Directors reviews the proposals approved by the Executive Committee.

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In determining single borrower/Large loan limit, the instruction of CBT is strictly followed. Segregation of duties has been established for Credit Approval, Relationship Management and Credit Administration. Internal Audit is conducted on periodical interval to ensure compliance of Bank and Regulatory policies. Loans are classified as per CBT’s guidelines.

2. Structure and Organization

The Credit Analysis function is responsible for making independent financial analysis and appraisal of credit proposals that are marketed by the business groups. There are detailed guidelines for financial analysis that are followed which gives its independent views/recommendations on credit proposals brought to it by the Relationship Managers of the various business groups. These proposals are then further processed in accordance with the delegation of powers approved by the Board. The Bank’s structure of delegation of powers envisages that a credit approval requires, in addition to the recommendation of the concerned business group, the concurrence of an official of the CRO. This ensures that the approval process has an in-built mechanism of checks and balances with the concurrence of an independent functionary before a credit proposal can be approved.

3. Scope and Nature of Reporting Systems

After the approval of the credit proposal, the Credit Control unit (Credit Administration) entrusted with the responsibility of checking that the conditions precedent for the draw-down of the credit facilities as approved are fulfilled before the facilities are made available to the client/counterparty. This unit, which is independent of the Credit Analysis unit of the Department, also follows up on the conduct of the accounts by the client/counterparty in accordance with the terms of approval and reports any irregularities for necessary corrective action. The Bank has in place an internal credit rating system. This system which consists of various steps to be followed by the Credit Analyst indicates the client score.

4. Hedges and Mitigants

The Credit Policy of the Bank outlines guidelines for mitigating risks in terms of availability of credit enhancements and/or collaterals to support the exposure, the coverage ratio of collateral value to the loan to be granted, the threshold levels for top-up of security and liquidation. The policy and procedures of the Bank also lay down the required methods and intervals for valuation of the different collaterals so as to determine the necessity for top-up by the client and/or procedure for liquidation.The collaterals accepted by the bank mainly consist of cash in the form of deposits with the Bank, shares, bonds, insurance and bank guarantees. Other various forms of real estate and equipment are also considered. For the purposes of credit risk mitigation, only such of the collaterals that are permitted by the CBT and where the conditions stipulated are fully met are considered. As regards shares, bonds etc., the Bank fulfills the stipulated regulatory requirements for their periodic valuation, etc. In regard to real estate assets, the Bank accepts only valuation from, professional and govt. recognized valuers who are required to assess the value of the collateral before they are accepted as security. The periodicity of the valuation is again in line with the regulatory requirements.

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B. Market Risk


The operations of the Bank’s Treasury and Investment activities give rise to the market risks assumed by the Bank. The Bank has a well-defined and CBT compliant Treasury, Investment and ALCO Policies. The Policies cover rules concerning the positions that the Bank assumes in the course of its trading in foreign exchange, equities and interest rate risk positions of its banking book in terms of mismatches in maturity and/or re-pricing periods. At present, the Bank does not trade in commodities. The ALCO discusses and deliberates on all aspects of credit, market and liquidity risks. These meetings are chaired by the Chief Executive Officer. The ALCO policy has been framed with due consideration for the respective local regulation that have an effect on the market risks assumed by each of them. While quantifying market risks, the Bank considers risks arising out of movements in interest rates (for each of the currencies in which it holds positions), foreign exchange and price of trading investments.

2. Structure and Organisation

The Risk Management, in consultation with both Treasury & Investment Depts., lays down the various market limits and rules. These limits are approved by the Board Executive Committee & the Board of Directors. These limits relate to intra-day and overnight positions as well as positions under different maturity buckets, counterparty exposure limits, etc. While the adherence of these limits is monitored by Investments and Treasury Depts., they are also independently monitored by the Risk Officer and Internal Control Dept.

3. Scope and Nature of Reporting Systems

The Bank has in place software systems that allow independent, on-line monitoring of the intra-day positions from outside the dealing room. This system also enables the Market Risk Controller to monitor the activities of the various members of the Treasury Dealing Room simultaneously as the dealing transactions are made.

4. Hedges and Mitigants

A major part of the banking and trading books of the Bank are in Euro & USD. The Bank use interest rate and currency swaps to hedge its interest rate and currency positions in foreign currencies.

C. Operational Risk


The Bank has set up an Incident Management System (IMS) under which various incidents of operational risks are noted and registered with all the relevant details. These incidents may relate to either actual or potential loss resulting from an operational failure or dysfunction, either due to external or internal causes. Whether, the incident generates a loss or even a profit or have no material incidence on the banks’ net income should be reported. This will enable the bank not only to take corrective action as & when necessary to prevent recurrence of such incidents but also institute

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adequate systems & procedures to quantify the operational loss that the bank may be exposed to, in its various departments, functions and the provision of its services. These incidents are, at appropriate intervals, reported to the top management of the Bank.

The Bank also has a Business Continuity and Recovery Plan. The plan stipulates that periodic testing must be conducted to detect events affecting the Bank’s business processes.

2. Structure and Organisation

The various operational functions of the Bank come under the Operations Group headed by the Chief Operating Officer (COO) who oversees the day-to-day operational and support functions. In order to ensure the independence of the various operating departments, the COO reports directly to the Chief Executive Officer.

5. Credit Exposures

5.1. Definition of Past Due and Impaired Assets

In regard to income recognition, asset classification and provisioning requirements, the Bank, as a matter of policy, follows the relevant regulations of CBT. Where considered appropriate for reasons of prudence, a more conservative policy is followed in regard to the amounts of loan loss provisions than those calculated by using the norms laid down in these regulations. as is the international practice in the banking industry and as laid down under the CBT regulations, an exposure is considered as non-performing if it continues to remain past due for more than 90 days.

5.2. Approaches for Specific and General Provisions

As required under the CBT regulations, the Bank maintains two types of loan loss reserves:

• General provision called “Provision Collective”, the Bank was required to maintain this provision a on the outstanding performing exposure, both on and off-balance sheet.

• In regard to impaired assets, the Bank determines the necessary level of specific provision in terms of the norms laid down under the CBT regulations. These regulations require the Bank to make a provision of at least 20% of the value of the exposure (net of the value of eligible collateral as defined therein) if it remains past due for more than 90 days but less than 180 days, 50% if the period of past due is more than 180 days but less than 1 year and 100% if the past due period exceeds 1 year. However, based on the circumstances of a particular exposure, if and when the Bank considers it necessary, a higher level of provisioning is made even if these default periods are not attained.

In all cases of non-performing exposures, the Bank does not recognize any accrued income. Interest/commission on such exposure is recognized as income only on actual receipt.

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5.3. Credit Risk Management Policy

The Bank gives, in addition to the financial position of the client/counterparty, due consideration to the sector of activity of the client/counterparty, the exposure of the Bank to the group to which the client/counterparty belongs, the nature of credit facilities, their purpose and the source of repayment and any other considerations that are essential for the credit assessment. The availability or otherwise of acceptable collateral, the standing and reputation of the client/counterparty, market reports, the exposures assumed by other banks on the same client/counterparty etc. are some of the considerations that are examined before approving credit facilities. As a rule, all credit exposures are reviewed at least once in a year.

TABLE III : Credit Risk Exposure

Gross credit exposure US$’000s

Funded Unfunded

Claims on sovereigns 56 099

Claims on banks 330 347 6 232

Claims on corporate 17 427 11 816

Retail exposures 2 796

Past due exposures 24 254

Total 430 923 18 048

TABLE IV : Geographic Distribution of Gross Credit Exposures

US$’000s

TunisiaOther MENA

countriesEurope Turkey Total

Claims on sovereigns 56 099 0 0 0 59 099

Claims on banks 13 443 259 946 6 983 49 975 330 347

Claims on corporate 17 224 0 203 0 17 427

Retail exposures 1 133 1 663 0 0 2 796

Past due exposures 3 994 20 260 0 0 24 254

Total 91 893 281 869 7 186 49 975 430 923

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TABLE V : Gross Credit risk exposures by Residual Contractual Maturity

US$’000s

Up to 3 months

3 to 6 months

6 to 12 months

Over 12 months

Total

Claims on sovereigns 56 099 0 0 0 56 099

Claims on banks 256 790 38 133 35 424 0 330 347

Claims on corporate 0 493 1 137 15 797 17 427

Retail exposures 0 0 0 2 796 2 796

Past due exposures 0 0 0 24 254 24 254

Total 312 889 38 626 36 561 42 847 430 923

TABLE VI : Impaired loans and provisions by standard portfolio

US$’000s

Impaired loans (net of suspended interest and collateral)

Specific provision

General provision

Specific provision charge / charge off (-)

Claims on banks 15 818 4 402 663 -2500

Claims on corporate 1 076 1 072 0 0

Total 16 894 5 474 663 -2 500

TABLE VII : Geographical distribution of impaired loans (net)

US$’000s

TunisiaOther MENA

countriesEurope Turkey

Rest of the world

Total

Claims on banks 0 15 818 0 0 0 15 818

Claims on corporate 1 076 0 0 0 0 1 076

Total 1 076 15 818 0 0 0 16 894

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6. Credit Risk Mitigation (CRM)

The main CRM techniques applied by the Bank are based on eligible collaterals. On and off- balance sheet netting is also used to mitigate client risks.

6.1. On and Off-Balance Sheet Netting

The generic legal documents that the Bank obtains from its clients normally include a clause that permits the Bank to offset the client’s dues to the Bank against the Bank’s dues to the client. Thus, if the same legal entity that has obtained credit facilities from the Bank also maintains credit balances in its accounts, the Bank would normally have the legal right to set off the credit balances against its dues. In respect of some counterparty banks, there are specific agreements that provide for netting on and/or off-balance sheet exposures. Additionally, in specific cases, the Bank approves credit facilities to a client against pledge/block of his deposits to cover the whole or part of his dues.

6.2. Collateral Policy

It is the Bank’s endeavour to obtain acceptable collateral cover for its exposures as far as commercially practicable. The collateral normally consists of real estate properties, shares listed in leading stock exchanges, other traded and untraded securities such as bonds, etc. Under Tunisian laws, bank guarantees such as stand by letter of credit (SBLCs)

6.3. Main Types of Collateral

The Credit Policy of the Bank defines the types of collateral that are acceptable and the collateral coverage ratio, which is the ratio of the value of the collateral to the exposure, for each type of acceptable collateral. The policy also stipulates that the terms of credit facilities should stipulate a top-up level. If the value of collateral falls to a level where the actual coverage available breaches the top-up level, the client is required to either lodge additional collateral or reduce his outstanding dues accordingly. If the client fails to do either of these and the value of collateral falls further, the terms also stipulate a liquidation threshold, which is the level of coverage at which the Bank may proceed to liquidate the collateral to realize its dues. These various ratios, after approval, are monitored independently by the Credit Administration unit and reported to the concerned business group for follow up with the client.

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TABLE VIII : Net Credit exposure after risk mitigation

US$’000s

Before CRM CRM Net Exposure

Claims on sovereigns 56 099 0 56 099

Claims on banks - Rated 310 566 53 867 256 699

Claims on banks - Unrated 19 781 0 19 781

Claims on corporate 17 427 7 457 9 970

Retail exposures 2 796 0 2 796

Past due exposures 24 254 6 181 18 073

Total 430 923 67 505 363 418

7. Corporate Governance

The Corporate Governance Manual provides the legal, institutional, and regulatory framework for the enterprise risk management activity of the bank. The Manual includes:

• Corporate governance which provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined. The Structure consists of the Board, Executive Committee, Board Audit Committee, Credit Committee,ALCO Committee, Investment Committee, IT risk Committee and Internal Audit Committee.

• Insider Trading, Code of Ethics, Related Party Transactions and Segregation of Duties.

The Risk Management Infrastructure and system at TIB is managed through the Risk Policy & Guidelines. These principles, guidelines & procedures reflect the risks inherent in TIB’s businesses. They are reviewed periodically and amended when necessary and ratified by the Board.

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7.1. Corporate governance

The foundation of TIB’s corporate governance policy is to protect its shareholders’ and depositors’ interests through exercising prudent credit and risk control measures. The Bank’s policy is also to obtain yields that are commensurate with the risks taken. TIB at all times actively monitors its loans and advances book and strives to conduct extensive due diligence on its counterparties prior to extending funded or unfunded facilities. Recognizing that losses may occur occasionally, it is the Bank’s policy to maintain an adequate level of provisions against both the identifiable known losses and also any potential losses, in line with globally accepted International Accounting Standards (IAS).

The Board of Directors and the management of the Bank are committed to governing and maintaining the Bank’s operations effectively and efficiently within the regulatory environment. Corporate governance policies are regularly reviewed for incorporating best practice and are reinforced to strengthen the ability of the Board to effectively supervise management, enhance long-term shareholder value and protect the interests of depositors. It is also the Bank’s policy to strictly abide by the all laws and regulations of the jurisdictions in which it operates. The adopted Code of Conduct applies to all employees, officers, trainees, part time staff and other Bank representatives, and includes members of the Board of Directors.TIB’s Senior Management regularly revisits the Bank’s organizational and managerial structures, the technological platform, and the operational procedures, in order to adopt the most appropriate and efficient management and business practices as well as systems.

The control and management of the Bank is undertaken through the following bodies:

• The General Assembly of the Bank;• The Board of Directors and;• Committees of the Board of Directors, which assist the Board in the discharge of its duties. These include:

·The Executive Committee,·The Board Audit Committee,·The Board Risk Committee·The Board Compensation committee

• Management Committees

·The Management Committee,·The Credit Committee,·The Assets and Liabilities Committee.·The Internal Audit Committee,·The Investment Committee.·The IT risk Committee.

The Board meets on a quarterly basis and when required. The Committees of the Board of Directors meet at least six times a year. The Board Audit Committee and the Board Risk Committee are headed by independent Directors. All management committees meet on a monthly basis.

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7.2. Board’s Conduct of Affairs

The Board heads leads and controls the Bank. The Board is collectively responsible and ultimately accountable for the affairs and performance of the Bank. All Board members must objectively take decisions in the interest of the Bank.

The Board holds four regular meetings each year, as well as additional meetings as may be required. Board meeting are usually held at the Bank’s premises or at any other place that is deemed appropriate by the Board members.

In the event of the non availability of one or more Board members, a meeting via telephone and/or videoconference may take place.

To ensure that the financial and human resources are in place for the Bank to meet the planned objectives, the Board shall work with the management of the Bank. Management of the Bank remains accountable to the Board.The responsibilities of the Board’s Chairman include ensuring that the Board functions effectively and independently of management and that it meets its obligations and responsibilities.

The Board shall ensure that financial disclosures made by the Bank are fair, transparent and comprehensive.

The Board is ultimately responsible for ensuring that the Bank is in compliance with relevant laws and regulations that it is subject to. These laws involve the Central bank of Tunisia regulation, the Commercial Code, the Labor Law, occupational health and safety, etc...

All Board members as well as senior management are bound to observe the following best practice:

• Board members should not:

·Enter into competition with the Bank;·Use company privileged information or take advantage of business opportunities for himself or any relatives;·Misuse the bank’s assets.

• Board members should:

·Report to the Board any conflict of interest arising from their other activities or commitments to other organisations.·Declare in writing all of their directorship positions and/or interests above 5% in other enterprises to the Board on annual basis or immediately after becoming so.

7.3. Code of conduct

The Board believes that the Board, executive officers and the entire Bank’s staff must endorse a culture of strong corporate governance and ethical business conduct. The Code of Conduct addresses many areas of business such as Good Faith, Integrity, Compliance, Quality and Respect. These principles apply equally in dealings with clients, Counterparties, Regulatory Authorities, and Business Colleagues and towards the Bank itself. The Board took the lead by endorsing these values for itself, senior management and all employees.

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Activities and relationships that diminish a proper conduct of corporate governance should be prohibited such as:• Conflict of interest;• Lending to officers (except on an arm’s length basis) and other forms of self dealing;• Providing preferential treatment to related parties and other favored entities (lending on highly favorable terms, covering trading losses, waiving commission, etc.)• Insider trading

The Board of Directors ensures that senior management implements policies that prohibit such conduct and ensures that deviations are reported and establish process that allow monitoring compliance with these policies.

The adopted Code of Conduct applies to all employees, officers, trainees, part time staff and other Bank representatives, including members of the Board of Directors.

7.4. Insider Trading

By his/her position in the Bank, an employee may have access to “material non-public information”. This non-public information includes information that is not available to the public at large, which would be important to an investor in making a decision to buy, sell or retain a security. This non-public information includes but is not limited to: projections of future earnings or losses or dividend payment; news of a pending or proposed merger or acquisition, tender offer or exchange offer; news of a significant sale of assets or the disposition of a subsidiary; significant changes in management or shareholdings; significant new products or discoveries; or impending financial liquidity problems.It should be noted that both positive and negative information might be considered material.

Insiders in a position of trust must not pass that information on to others, and shall not purchase or sell a security or recommend a security transaction of the employee’s own account, the account of a family member, the account of any customer of the Bank or any other person is such case. In addition to disciplinary procedures which may lead to dismissal, the use or disclosure of such information can result in civil or criminal penalties under the Tunisian law.

7.5. Anti-Money Laundering

The bank has implemented strict Anti-Money Laundering (AML) policies and procedures that meet local regulatory requirements as well as international best practices. These AML policies include Know Your Customer (KYC) procedures to control and identify both new and existing clients, and detailed measures to enable proper detection and reporting of suspicious activities and abnormal transactions. The education and training, both internally and externally, of all of the Bank’s staff forms an integral part of our AML policies.

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Internal Audit conducts periodic reviews of the responsibilities of key personnel to minimise areas of potential conflict of interest and ensure that independent checks are in place. Also, TIB has in place an independent Internal Control Dept. It is responsible for verifying, checking and controlling all the bank operating transactions. The Bank’s Head of Internal Control Department also acts as the Money Laundering Reporting Officer (MLRO) and is responsible for ensuring that adequate Anti Money Laundering procedures are in place and ensuring effective compliance with the CBT regulations and FATF recommendations. Recently the bank bought a system that gives details of potential suspicious transactions. The system is under the supervision of the MLRO. 7.6. Related Party Exposures Reference to CBT circular n°2012-09, total exposure on related parties should not exceed one time of the bank’s shareholders’ funds.

TABLE IX:

(Amount in US$’000s)

Client Class Weighted exposures

% FPN

GULF BANK ALGERIA 0 50 127 57,38%

UNITED GULF BANK 0 10 595 12,13%

KUWAIT PROJECTS CO 0 1 045 1,20%

UNITED REAL ESTATE 0 5 446 6,23%

NORTH AFRICA HOLD.CO 0 4 742 5,43%

JORDAN KUWAIT BANK 0 1 011 1,16%

BURGAN BANK 0 1 986 2,27%

MASOUD HAYYAT 0 1 243 1,42%

ROYAL CAPITAL CO 0 825 0,94%

KIPCO ASSET MANAGEME 0 416 0,48%

KAMCO ENERGY SERVICE 0 479 0.55%

MANAFAE INVESTMENT 0 199 0,23%

TOTAL 78 114 89,42%

With a ratio of 89.42%, TIB complies with the local regulation.

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KIPCO GROUP BANKS

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Burgan BankP.O. Box 5389, Safat13054, KuwaitTelephone: +(965) 243 9000Fax: +(965) 246 1148E-mail: [email protected]: www.burgan.com

United Gulf Bank B.S.C.P.O. Box 5964UGB Tower, Diplomatic AreaManama, Kingdom of BahrainTelephone: +(973) 17 533 233Fax: +(973) 17 533 137Telex: 9556 UGBADM BNEmail: [email protected]: www.ugbbah.com

Jordan Kuwait BankP.O. Box 9776, Amman 11191, JordanTelephone: +(962) 6 568 8814Fax: +(962) 6 569 4105E-mail: [email protected]: www.jordan-kuwait-bank.com

Gulf Bank AlgeriaRoute de Cheragas, Dely IbrahimAlgiers - AlgeriaTelephone: +(213) 21 91 07 81 21 91 00 31 21 91 03 08 Fax: +(213) 21 91 02 64 21 91 02 37Email: [email protected]

Syria Gulf BankP.O. Box 373, 29 May StreetDamascus, SyriaTelelephone: +(963) 11 232 6111Fax: +(963) 11 232 6112

Bank of BaghdadKaradaP.O. Box 3192 Alwiya, IraqTelephone: +(964) 171 750 07Fax: +(964) 171 750 06Website: www.bankofbaghdad.net

Burgan Bank TurkeyEski Buyukdere cad.Tekfen tower n° 20934 330 4 levent / IstanbulTelelephone: +(90) 212 371 3737

212 357 0809Fax: +(90) 212 289 6565E-mail : [email protected]

Design by GARCICOMPhone: (+216) 71 822 616/617Fax :( +216) 71 822 618

annual report 2012 · under the supervision of the central bank of tunisia (cbt). it is a member of...

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