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BANQUE BEMO SAL

Table of Contents

1. MISSION STATEMENT 42. 2010 FINANCIAL HIGHLIGHTS 63. CHAIRMAN’S MESSAGE 104. MANAGING DIRECTOR’S LETTER 125. PROFILE AND ORGANIZATION 16

Ownership Structure 17Shareholders 17Board of Directors, Senior Management, Management 18

Organization Chart 24Committees 26

6. BEMO GROUP STRUCTURE 30

Bemo Securitization sal – BSEC 31Bemo Europe-Banque Privee 32Banque Bemo Saudi Fransi – Syria 34Bemo Oddo Investment Firm Ltd-Dubai 35

7. MANAGEMENT ANALYSIS 36

Inflation and Growth,2011 a Challenging year” 37By Dr.Salim Chahine,PH.D Associate Professor of Finance

Corporate Governance Guidelines 38Risk Management 38Internal Audit 53Anti - Money Laundering 54

Human Resources 56Code of Deontology 58Business Lines and 2010 Business Review 59

Private Banking 59Personal Banking 60Banking in Syria 60Corporate Banking 61Centralized Business Support Center 63Corporate Social Responsibility 63Analysis of Financial Results and Position 64

8. INDEPENDENT AUDITORS’ REPORT 769. CONSOLIDATED FINANCIAL STATEMENTS 7810. BANQUE BEMO NETWORK 17011. BEMO GROUP NETWORK 17212. CORRESPONDENT BANKING AND FINANCIAL INSTITUTIONS 174

‘

Mission Statement

Banque Bemo Annual Report |

LIVE OUR VALUES WHILE

ACHIEVING HIGH RETURN ON EQUITY

AND OFFERING OUR CUSTOMERS

OUTSTANDING QUALITY

“ “

2010 Financial Highlights


Evolution of Total Assets

2002

2003

2004

2005

2006

2007

2008

2009

2010

706

,735

802

,071

951

,561

998

,748

1,0

68,6

87

1,1

96,0

27

1,3

71,3

94

1,8

32,7

71

1,8

23,9

47

LBP million

Evolution of Total Loans

2002

2003

2004

2005

2006

2007

2008

2009

2010

186

,202

211

,684

262

,005

297

,765

353

,129

479

,886

543

,228

630

,582

714

,323

LBP million

Evolution of Total Deposits

557

,535

627

,354

703

,252

781

,392

842

,292

939

,572

1,0

78,8

11 1

,455

,767

1,5

26,2

19

2002

2003

2004

2005

2006

2007

2008

2009

2010

LBP million

59,

614

62,

108

65,

001

71,

548

108

,356

110

,462

115,

938

129

,588

132,

331

2002

2003

2004

2005

2006

2007

2008

2009

2010

LBP million

Evolution of Shareholders’ Equity

Evolution of Net Profit

2002

2003

2004

2005

2006

2007

2008

2009

2010

LBP million

4,1

59

4,9

85

5,9

35 7

,744

10,

576

11,

702

11,

030

11,

729

12,

588

Evolution of Earnings per Share

2002

2003

2004

2005

2006

2007

2008

2009

2010

LBP

263

.56

315

.88

378

.60

495

.61

672

.22

596

.01

549

.01

591

.31

650

.47

Sources of Income

2002

2003

2004

2005

2006

2007

2008

2009

2010

30.5

0%

41.6

7%

42.4

2%

46.3

5%

55.1

0%

45.9

5%

43.5

1%

52.5

0%

54.1

9%

69.5

0%

58.3

3%

57.5

8%

53.6

5%

44.9

0%

54.0

5%

56.4

9%

47.5

0%

45.8

1%

Commissions and other Financial Revenues Net Interest

Sources of Interest Income

2002

2003

2004

2005

2006

2007

2008

2009

2010

14.0

3%

19.9

2%

18.2

9%

13.6

5%

13.8

2%

13.3

5%

21.3

2%

30.2

6%

32.5

%

36.0

6%

30.0

6%

28.0

1%

30.3

8%

36.8

9%

35.8

7%

22.4

9%

10.37

%

7.0%

49.9

0%

50.0

2%

53.7

0%

55.9

7%

49.2

9%

50.7

8%

56.1

9%

59.3

6%

60.6

%

Securities Banks Advances


Evolution of Solvancy ratio

2002

2003

2004

2005

2006

2007

2008

2009

2010

17.9

1%

12.0

9%

16.8

6%

17.3

9%

23.0

2%

17.6

3%

14.5

6%

20.2

7%

17.5

6%

Break down of Customers Loans

2002

2003

2004

2005

2006

2007

2008

2009

2010

3.68

%

1.84

%

1.89

%

0.51

%

0.23

%

0.11

%

0.07

%

0.06

%

0.05

%

85.2

1%

88.3

4%

91.1

8%

92.4

9%

95.9

3%

97.9

5%

97.9

1%

98.4

1%

98.3

5%

11.1

1%

9.82

%

6.93

%

7.00

%

3.84

%

1.94

%

2.02

%

1.53

%

1.60

%

Doubtful Loans Advances & Loans Commercial & Discounted Bills

Evolution of Share Price

2002

2003

2004

2005

2006

2007

2008

2009

2010

USD

3.50

3.50

3.50

3.45

4.00

4.04

4.83

4.90

5.50

Break down of Total Assets 2010

Other Assets | 3.35%

Cash & Banks | 34.30%Secutrities (Including T.Bills) | 21.25%Loans & Advances | 39.16%Acceptances | 1.93%

Chairman’s Message


Dr. Riad ObegiChairman

Dear Shareholders,

I am pleased to report that 2010 was a positive year despite the Financial Crisis and its impact on the

Banking sector worldwide and in Lebanon.

Throughout the year we capitalized on the achievements and continued our ongoing improvement

processes that were built during the previous years under the wise guidance of our Honorary Chairman,

Mr. Henry Obegi.

On July 2010, a strategic plan was set according to the global strategy and vision of Banque Bemo

“ to be the reference in Private and Corporate Banking in Lebanon and Syria“. It aims to provide our

customers with outstanding quality services while ensuring our shareholders an acceptable return on

equities and a growth of their goodwill. It also commits to Banque Bemo’s values which are the

cornerstone of our culture.

In that respect, and as part of its commitment to its development and to support its expansion, Banque

Bemo’s Capital has been increased by LBP 46 billion to become LBP 62.2 billion.

As we look to the year ahead, we realize that 2011 will be challenging given the precarious political

situations in some neighboring countries, but I am confident that with our new strategy and the support

of our stakeholders coupled with great aspirations and seasoned leadership, Banque Bemo is well

positioned for the future and we are sure that success will meet our expectations.

Riad B. ObegiChairman

Managing Director’s Letter


Dear Shareholders,

The pressures of the global economic crisis and the regional political stalemate continue to weigh on the

local economy. Nevertheless, and despite the intense rivalry among financial institutions, Banque BEMO

delivered a satisfactory performance for the year ending December 31, 2010. For the twelve months

under review, the Bank achieved after tax profits of LBP 12.6 billion compared with LBP 11.7 billion in

2009. Furthermore, the Bank maintained its market share, consolidated on its brand and contained

delinquency with the objective of maintaining a prudent and conservative approach with respect to our

shareholders investments and our clients interest. Every effort has been made to maintain a sound and

stable balance sheet.

The Bank’s results were achieved against a background of strict adherence to the objectives set by the

Board including consolidation and re-engineering of our module as a foundation for the future. For this

purpose, our chairman Mr. Riad Obegi reaffirmed the Bank’s vision in the Board meeting dated 15th

October 2010 “To be the reference in Private and Corporate Banking in Lebanon and Syria” with a

continuation of the “Relationship Management” business model. Within this framework our mission

statement that complements this vision and addresses the common expectations of our stakeholders was stated

to mean “live our values while achieving high return on equity and offering our customers outstanding

quality”. Armored by long established heritage of the Obegi family and professional all seasonned

bankers along with high regards for its values namely “conservatism, professionalism, family spirit and

honesty” the Bank is making a difference in its true Banking approach and services.

The whole set of empirical strategies applied turn around governance and mindset and this is how the

organizational, marketing, investment and financial strategies were and are drafted. The Board of

Directors has the full oversight and did set corporate governance guidelines to ensure that the risk

Mr. Samih H. SaadehManaging Director

profile of the Bank is in line with its risk capacity and risk appetite levels. Our business objectives and

obligations towards our clients and staff dictate policies for a focused business and a personalized

approach. Our road map is governed by our relationships business model whereby honesty and

professionalism lead to earn the trust of our clients. Accordingly our risk profile remains within

boundaries set to address the conservative but professional profile of all our shareholders and clients.

To solidify our operations and improve our risk culture the internal controls were further strengthened

through the establishment of a fully dedicated “Board Risk Committee” in line with best risk practices.

Simultaneously, the Risk Management Department was enlarged and centralized to address under its

umbrella the various types of risk namely credit, market and operational risks. Moreover, a Compliance

Department was established not to mention the various other departments contributing to a sound and

efficient internal control environment which is in place and in line with all prerogatives set by the

regulatory authorities.

As for the detailed performance achievements and milestones during the year 2010, this was another

year of success for the BEMO Group whereby our synergy with our subsidiary BSEC and affiliate BBSF and

sister offices namely BEMO Europe were cemented and started to take shape in a long way that would

lead to additional success.

We were also able to consolidate on our brand setting as a “Private and Corporate Bank” by addressing

our clients’ needs and adding new products and services constantly. In 2010 another building block was

added in the shareholders’ commitment to enhance the equity base of the Bank by the increase in

capital of LBP 46 billion in order to serve better our expansion and solvency requirements and confirms

our shareholders commitment for a solid capital base and financial posture.

Financial highlights for the year 2010 were as follows:

Our asset quality, continued to maintain one of the lowest ratios in terms of non performing loans to total

loans within the Lebanese Banking Sector remaining at a low of 0.06% for the past 3 years.

Total Loans 630,582 714,323Total Assets 1,832,771 1,823,947Total Deposits 1,455,767 1,526,219Total Capital Funds 129,588 132,331

In LBP billion 2009 2010


Lastly, we must recognize the hard work and dedication of the Management and Staff. Despite the

challenges, our employees continue to demonstrate their commitment, contributing to the bank’s

ongoing success and the brand we enjoy. We also wish to acknowledge our Honorary Chairman Mr. Henry

Obegi and Chairman Dr. Riad Obegi and the whole Board Members ongoing leadership and

prudent counsel, which has proven invaluable in navigating the organization through this challenging period.

Finally, we extend our appreciation to our stakeholders for their trust and we look forward to building a

“Private and Corporate” Bank that serves best the interest of our shareholders and clients.

Our aim is to build a clear line of sight between the Board vision, our clients needs and our strategic actions.

Sincerely yours,

Samih H. SaadehManaging Director

Profile & Organization


Banque Bemo sal is a Lebanese joint-stock companyestablished in 1994 as BEMO-Banque EuropéennePour le Moyen- Orient sal registered in the BeirutCommercial Registry under N 17837 and on theBanque du Liban’s list of banks under N 93. It hasbeen listed on the Beirut Stock Exchange since1999 under N 1111.

The Capital of Banque Bemo sal at 2010 year endwas equivalent to LBP 16.2 billion ( USD 10.7million) consisting of 16,000,000 shares of commonstock and 200,000 preferred shares . Out of thetotal 16,200,000 shares at December 31,2010,5,400,000 shares were publicly held and listed onthe Beirut Stock Exchange (BSE)

Further to the decision taken during theExtraordinary General Assembly Meeting held inJanuary 2011, Banque Bemo’s Capital increased inApril 2011 from LBP 16.2 billion to become LBP62.2 billion (USD 41.3 million) consisting of62,000,000 shares of common stock (“Ordinaryshares“) and 200,000 preferred shares .

Banque Bemo Profile

Sharikat Al Istismarat Al Oropia Lil Shark Al Aousat (Holding) sal Lebanon 9,714,075 60.71%Banque Saudi Fransi Saudi Arabia 1,600,000 10.00%Mr. Maroun Antanos Semaan Lebanon 1,454,689 9.09%Sheikh Issam Mohamad Kheiri Kabbani Saudi Arabia 471,667 2.95%Mr. Samih Halim Saadeh Lebanon 220,852 1.38%Mr. Henry Yordan Obegi Lebanon 9,500 0.06%Mr. Pierre Georges Khoury Lebanon 9,500 0.06%Mr. Georges Bechara Obegi Lebanon 9,500 0.06%Dr. Ara Ohannes Hrechdakian Lebanon 5,000 0.03%Sheikh Hassan Isam Mohamad Kabbani Saudi Arabia 5,000 0.03%Dr. Riad Bechara Obegi Lebanon 5,000 0.03%Mr. Jean Victor Hajjar Lebanon 5,000 0.03%Emir Karim Samir Abillama Lebanon 5,000 0.03%Mr.Antoine Youssef Mansour Wakim Lebanon 5,000 0.03%Other Shareholders - 2,480,217 15.50%Total Common Shares 16,000,000 100.00%Preferred Shares (Par Value Representation) 200,000Total 16,200,000

SHAREHOLDERS (31.12.2010) Country of Origin Shares in Capital

Number of Shares %

Ownership Stucture

Board of Directors, Senior Management, Management

Mr. Henry Y. OBEGI Honorary Chairman Dr. Riad B. OBEGI Chairman - General Manager Sharikat Al Istismarat Al Oropia Lil Sharek Al Aousat (Holding) sal Member Banque Saudi Fransi (Represented by MemberSheikh Ibrahim AL ISSA)Dr. Ara Ohannes HRECHDAKIAN MemberMr. Jean V. HAJJAR Member & Advisor to the ChairmanMr. Antoine Y. MANSOUR WAKIM MemberSheikh Hassan Isam M. KABBANI Member Mr. Samih H. SAADEH Managing Director - General ManagerMr. Georges B. OBEGI Member Emir Karim S. ABILLAMA Member

BOARD OF DIRECTORS (31.12.2010)

Dr.Nasri A. DIAB Me Adel J. MACARON

Legal Advisors

Deloitte & Touche Fiduciaire du Moyen Orient

Auditors

Dr. Riad B. Obegi Chairman - General ManagerMr. Samih H. Saadeh Managing Director - General ManagerMr. Nabil A. Hchaime Assistant General Manager - Banking in Syria Mr. Georges Y. Matloub Assistant General Manager - Corporate Banking Mr. Joseph H. Raffoul Assistant General Manager - Personal Banking ,Operations & FIsMr. Jean M. Rebeiz Assistant General Manager - Corporate Business Support

Senior Management

Mr. Joseph BAKHOS Chief Operating OfficerMr. Antoine CHAMANDI Chief Financial OfficerMs. Claudine FEGHALY Director- Organization & Enterprise Program ManagementMr. Gaby FRANGIEH Chief Risk OfficerMs. Lina GHANTOUS Director- Corporate BankingMr. Rebel HANNA Director- Personal Banking & Financial InstitutionsMr. Wassim KHODR Director- Treasury & Capital MarketsMr. Farid MESHAKA Director- ControllerMr. Antoine MISKAWI Director- Banking in SyriaMr. Kamal NADER Director- Corporate BankingMs. Hala NASR Director- Human Resources ManagementMr. Talal SHAYKHA Director- Corporate BankingMs. Myrna SOUFAN Chief Audit ExecutiveMs. Claude TABET Director- Communication & QualityMs. Annie TCHOUBOUKJIAN Compliance OfficerMr. Sami ZIADE Director- Private Banking

Management (31.12.2010)

Mr. Henry Yordan Obegi Honorary Chairman

Date of BirthBorn in 1926

NationalityLebanese

ExperienceMr. Henry Obegi’s professional experience spans over 65 years covering arange of positions in the commercial, industrial and banking sectors. Starting in 1945 with Maison Yordan Obegi, Mr. Henry Obegi actedbetween 1955 and 1986 as Chairman and General Manager of SociétéArabo-Allemande Yordan Obegi sal and held several positions in thebanking sector where he was Co-Founder and Board Member of CreditLibanais sal (1961 - 1985), Chairman and General Manager of Banque deL’Europe Meridionale (Brussels) (1973 - 1984), and assumed the presidency of European Arab Bank AG (Frankfurt) from 1978 until 1985.In addition to the above, Mr. Henry Obegi is the Chairman and GeneralManager of Obegi Group Holding sal and Henkel Lebanon sal and BoardMember of Unifert Holding sal.

BOARD OF DIRECTORS MEMBERS


Dr. Riad Bechara Obegi Chairman - General Manager


NationalityLebanese

EducationDr. Riad Obegi holds a Masters degree in Business Administration fromUniversité Paris IX Dauphine, a Masters degree from IEP– Paris, and a PHDdegree in Economics from Université Lyon Lumière.

ExperienceDr. Obegi is the Chairman of Banque de L’Europe Meridionale (Paris,Luxembourg) and is currently the Chairman of Banque Bemo Saudi FransiSA– Syria.In addition, Dr. Obegi holds several leading positions within the Obegigroup of companies, including Obegi Group Holding sal (Board Member).

Mr. Jean Victor Hajjar Member & Advisor to the Chairman


NationalityLebanese

ExperienceMr. Jean Hajjar started his professional career at BNCI-Aleppo-Syria,followed by the position of Assistant Manager at Banca Di Roma inAleppo and Manager at Société des Banques Reunies. He then held theposition of Deputy General Manager at Credit Libanais sal up until 1985.In 1986 Mr. Hajjar joined Banque de L’Europe Meridionale in Paris,Brussels and Luxembourg where he acted as General Manager.From 1994 to 2001, Mr. Hajjar acted as General Manager of Banque Bemosal – Lebanon.

Dr. Ara Ohannes Hrechdakian Member


NationalityLebanese

EducationPHD In Economics and political sciences– HiedelbergUniversity/Germany

ExperienceIn 1948 Dr. Ara Hrechdakian started his professional career as a founderand General Manager of ARA & Co established in Lebanon and Syriaacting as exclusive representatives and distributors of many Europeanbig companies in many fields.

Dr. Hrechdakian founded in 1962 S.L.I.D sal based in Lebanon for thetrade of cosmetics and chemicals, where he acted as CEO until 2010.

Dr Hrechdakian held several leading positions acting as founder and BoardMember and sometimes as CEO in several holdings in Europe and Lebanonsuch as Fertitrust and EMIC in Luxembourg,Western Chemicals in Belgiumand Hoechst Middle East Sal, Hostapharma SARL, Unifert sal, Unifertholding sal, Uniterminals sal, UNILEC sal, Societe des Entrepots Industriels& Commerciaux SARL , Societe Anonyme de Frigos & Entrepots sal.


Sheikh Ibrahim bin Mohamed Al Issa Member representing Banque Saudi Fransi


NationalitySaudi

EducationBachelors in Business Administration, Chapman University, California,USA (1974)

ExperienceCEO & Managing Director of several private companies in the field ofGeneral Contracting, Trading and Manufacturing Industries, Trourism,Advertisement.

Chairman and Board Member of several companies:

Chairman of Taiba Holding Company.Board Member of Banque Saudi Fransi.Board Member of Savola Group.Board Member of Yanbu Cement Company.Board Member of Al Maraie Company.

Mr. Samih Halim Saadeh Member


NationalityLebanese

EducationMr. Samih Saadeh holds a Masters Degree of Business Administrationfrom the American University of Beirut and a degree in law from theLebanese University. Also he acted as an appointed lecturer at LebaneseAmerican University (finance related courses) , the Association of Banksin Lebanon and at the Center for Banking Studies. Active member withinthe Lebanese Association of Banks Specialized Committees.

ExperienceMr. Saadeh is an Executive Board Member at Banque Bemo. His experience started with American Express Bank Ltd New York and Beirutfollowed by ABN Amro Bank – Beirut, whereby he managed and leadmany departments starting from Corporate and Financial Institutions atAmerican Express Bank to Corporate and Private Banking at ABN AMROBank. Throughout these years he developed a comprehensive knowledge in banking various services especially corporate finance andother investment banking related products and amassed an extensiveexperience in corporate lending financial structuring, strategic planningand leadership.Joined Banque Bemo in January 2003.Mr. Saadeh is currently the Managing Director of Banque Bemo SAL. Heacts as the head of various specialized committees of the Bank and he isalso a Member of the Board of Directors of Bemo Securitization (BSEC).

Sheikh Hassan Isam Mohamad Kabbani Member


NationalitySaudi

EducationPepperdine University, U.C.L.A

ExperienceSheikh Kabbani started his professional career in 1992 when he joinedthe BMC & UNITECH Company as their Business Development Manager. In1998, he was appointed as the Director of Administration and CreditControl of the IKK Group of Companies, a leading business group of SaudiArabia which encompasses many companies in the MENA Region.

He was assigned in 1999 the post of Vice Chairman of the IKK Group ofcompanies, and was promoted in October 2010 to that of ActingChairman, a position that he continues to hold in the present, involvingthe management of all aspects related to this business group, in and outof Saudi Arabia.

Sheikh Hassan Isam Kabbani sits on the Board of many companies of theIKK Groups, and on that of the Saudi United Cooperative Insurance (Walaa).He is a member of the American Businessmen of Jeddah and of the Cercled’Affaires Français de Jeddah.

Emir Karim Samir Abillamaa Member


NationalityLebanese

EducationEmir Karim Abillama holds a Bachelor of Science degree in MechanicalEngineering from Boston University, USA, a Master of Engineering degreein Industrial Engineering from Ecole Polytechnique in Montreal, Canadaand an MBA degree from INSEAD in Fontainebleau, France.

ExperienceSince 1993, Emir Abillama holds the position of Managing Director ofMitsulift and Equipment sal. and is currently member of the Board ofDirectors of Mitsulift and Equipment sal., Mitsulift Mediterranean Ltd, Cyliftand Equipment Ltd., Mitsulift Hellas SA, Mitsulift and Equipment Syria Ltd,and founding member of 22 oC. Emir Karim Abillama is also Chairman ofMitsulift Levant (Offshore) sal and Mitsulift Africa (Offshore) S.A.L.


Mr. Antoine Mansour Wakim Member


NationalityLebanese

EducationActuary studies in University of Lausanne, Switzerland (1967)AMP from INSEAD (1978)

ExperienceFormer Chairman and CEO of Allianz SNA. Mr. A. Wakim developed the business of SNA in the Arab world, Established in 1978“ la Marocaine - viein Morocco” , Maghrebia - Tunisia 1976, Jordan Eagle- Jordan1977, AllianzEgypt 2005, Allianz Saudi Arabia 2005 and Allianz Takaful in Bahrein2008.

Currently, Mr. A. Wakim is a Board member Of Allianz SNA,Hotel Dieu deFrance, of the Board Governors of the American Hospital of Paris. Memberof the Swiss Association of Actuaries (SAA) and the InternationalAssociation of Actuaries (IAA) since 1969

Mr. A. Wakim served as University lecturer for over 10 years in various universities in Lebanon, Board member of the National Social SecurityFund in Lebanon, former member of the advisory board of the BusinessSchool at AUB, member of the advisory Board of the family Business institute at LAU.

Mr. Georges Bechara Obegi Member


NationalityLebanese

EducationMr. Georges Obegi holds a degree in Economics from Université PARIS IXDauphine, a degree in Business Administration from Ecole des HautesEtudes Commerciales (HEC Paris) and an MBA from INSEAD(Fontainebleau).

ExperienceMr. Obegi holds several leading positions within the Obegi group ofcompanies, including Obegi Consumer Products Holding (Chairman –CEO), Unifert Holding (Chairman– CEO), and Obegi Chemicals Group(Board Member).

Organization Chart

Bank’s Internal Committees Members Chairperson

CommitteesAs at 31.12.2010

Audit Committee Jean HAJJAR - Board Member Jean HAJJAR& Advisor to the ChairmanHassan KABBANI - Board MemberAntoine WAKIM - Board MemberConstantin HADDAD - MemberSamih SAADEH - Board Member& Managing Director (Non Member)

Myrna Soufan - Chief Audit Executive (Non Member)

Credit Committee Henry OBEGI - Honorary Chairman Riad OBEGIRiad OBEGI - Chairman of the BoardJean HAJJAR - Board Member & Advisor to the ChairmanGeorges OBEGI - Board MemberKarim ABILLAMA - Board MemberSamih SAADEH - Board Member & Managing Director

Nominations, Henry OBEGI - Honorary Chairman Henry OBEGIRemunerations & Corporate Riad OBEGI - Chairman of the BoardGovernance Committee Jean HAJJAR - Board Member

& Advisor to the ChairmanGeorges OBEGI - Board MemberKarim ABILLAMA - Board MemberSamih SAADEH - Board Member & Managing Director

Risk Management Committee Riad OBEGI - Chairman of the Board Antoine WAKIMJean HAJJAR - Board Member & Advisor to the Chairman Antoine WAKIM - Board MemberIbrahim El Issa - Board Member

Gaby Frangieh - Chief Risk Officer (Non Member)

Assets & Liabilities Committee Jean HAJJAR-Board Member & Samih SAADEH(ALCO) Advisor to the Chairman

Samih SAADEH - Board Member & Managing Director Joseph RAFFOUL - AGM Personal Banking,Operations & FIsGhassan KTEILY - Consultant Antoine CHAMANDI - Chief Financial OfficerGaby FRANGIEH - Chief Risk Officer Rebel HANNA - Director Personal Banking & FIsWassim KHODR - Director Treasury & Capital Markets Talal SHAYKHA - Director Corporate Banking

Farid MESHAKA - Director Controller( Non Member)

Board Committees

Committees requested by Regulators

Members Chairperson


Banks’ Internal Committees Members Chairperson

BDL 110 Steering Committee Jean HAJJAR - Board Member Nabil HCHAIME& Advisor to the ChairmanNabil HCHAIME - AGM Banking in Syria Antoine CHAMANDI - Chief Financial OfficerGaby FRANGIEH - Chief Risk Officer

Samih SAADEH - Board Member & Managing Director (Non Member)Myrna SOUFAN - Chief Audit Executive ( Non Member)Farid MESHAKA - Director Controller ( Non Member)

Anti -Money Laundering Jean HAJJAR - Board Member Samih SAADEHCommittee & Advisor to the Chairman

Samih SAADEH - Board Member & Managing DirectorNabil HCHAIME - AGM Banking in SyriaJoseph RAFFOUL - AGM Personal Banking,Operations & Fin.InstitutionsGaby FRANGIEH - Chief Risk OfficerWassim KHODR - Director Treasury & Capital Markets Annie TCHOUBOUKJIAN - Compliance Officer

Zeina MOUAWAD - Anti Money Laundering Officer (Non Member)

Credit Committee Jean HAJJAR - Board Member Samih SAADEH& Advisor to the ChairmanSamih SAADEH - Board Member & Managing Director Nabil HCHAIME - AGM Banking in SyriaGeorges MATLOUB - AGM Corporate Banking Joseph RAFFOUL - AGM Personal Banking,Operations & FIs

Executive Committee/ Riad OBEGI - Chairman of the Board Riad OBEGIStrategy Committee Jean HAJJAR - Board Member

& Advisor to the Chairman Samih SAADEH - Board Member & Managing DirectorNabil HCHAIME - AGM Banking in SyriaGeorges MATLOUB - AGM Corporate Banking Jean REBEIZ - AGM Corporate Business Support Joseph RAFFOUL- AGM Personal Banking, Operations & FIsClaude TABET - Director Communication & QualityGaby FRANGIEH - Chief Risk Officer

Committees Not requested by Regulators

IT Security Committee Jean REBEIZ - AGM Corporate Business Support Jean REBEIZClaudine FEGHALY- Director Organization & EPMHenri HAYEK- IT ManagerEmile KHOURY- IT Security OfficerSerge GHAWITIAN- Systems & Network Administrator

Nada ASSAKER- Senior Business Analyst (Non Member)Maya DEBS- Senior Business Analyst (Non Member)

Real Estate Investments, Jean HAJJAR- Board Member Jean HAJJARPurchase & Renting & Advisor to the ChairmanCommittee Samih SAADEH- Board Member

& Managing Director Georges MATLOUB- AGM Corporate BankingJoseph RAFFOUL- AGM Personal Banking,Operations & Fin.Institutions

Farid MESHAKA-Director Controller (Non Member)

Asset Management Gaby FRANGIEH - Chief Risk Officer Wassim KHODRCommittee Wassim KHODR - Director Treasury

& Capital MarketsGhassan KTEILY - ConsultantJoseph MIKHAEL - Senior Financial Advisor

Business Continuity Planning Gaby FRANGIEH - Chief Risk Officer Talal SHAYKHACommittee Rebel HANNA - Director Personal Banking

& Financial InstitutionsWassim KHODR - Director Treasury & Capital MarketsAntoine MISKAWY - Director Banking in SyriaHala NASR- Director Human Resources Management Talal SHAYKHA - Director Corporate BankingSami ZIADE - Director Private BankingHenri HAYEK - IT ManagerMona KHAYAT - Trade Finance Manager

Collection Committee Jean HAJJAR - Board Member Jean HAJJAR& Advisor to the Chairman Nabil HCHAIME - AGM Banking in SyriaGeorges MATLOUB - AGM Corporate BankingJoseph RAFFOUL - AGM Personal Banking,operations & FIsAnnie TCHOUBOUKJIAN - Compliance Officer

Bank’s Internal Committees Members Chairperson


Operational Risk Assessment Joseph RAFFOUL - AGM Personal Banking , Joseph RAFFOULCommittee Operations & FIs

Gaby FRANGIEH - Chief Risk Officer Rebel HANNA - Director Personal Banking & Financial InstitutionsHala NASR - Director Human Resources Management Henri HAYEK - IT ManagerEmile KHOURY - IT Security OfficerSamar OUEIDAT - Treasury & Securities Support Manager

Sales & Marketing Committee Riad OBEGI - Chairman of the Board Riad OBEGISamih SAADEH - Board Member & Managing DirectorRebel HANNA - Director Personal Banking & Financial InstitutionsAntoine MISKAWY - Director Banking in Syria Talal SHAYKHA - Director Corporate BankingSami ZIADE - Director Private BankingAbdallah DOUMIT - Personal Banking ManagerNada DAGHFAL - Market Research ManagerSelim EL CHAMI - Director Investment Banking Group BSEC

Synergy Committee Riad OBEGI - Chairman of the Board Riad OBEGIClaudine FEGHALY - Director Organization & EPMFarid MESHAKA - Director ControllerClaude NAKHLE - Directeur Adjoint Controle de gestion,comptabilite et informatique- Bemo Europe

Samih SAADEH - Board Member (Non Member)& Managing Director (Non Member)Hans HRECHDAKIAN Administrateur et Directeur General Delegue (Non Member)- Bemo Europe

Talent Management Jean HAJJAR - Board Member Georges OBEGICommittee & Advisor to the Chairman

Georges OBEGI - Board MemberSamih SAADEH - Board Member & Managing DirectorNabil HCHAIME - AGM Banking in Syria Georges MATLOUB - AGM Corporate BankingJean REBEIZ - AGM Corporate Business Support Joseph RAFFOUL - AGM Personal Banking,Operations & FIsHala NASR - Director Human Resources Management

Members ChairpersonBanks’ Internal Committees

Bemo Group Structure


Bemo Securitization sal - BSEC

Bemo Securitization SAL (BSEC) is a specialized

investment banking entity. The business activity is

set to provide financing solutions to middle market

companies in the local and MENA countries, with

the main focus on Lebanon and Syria. BSEC enjoys

an image of know-how and professionalism as well

as a solid track-record, in diversified business

sectors such as, automotives, industry, retail and

real estate.

In line with growing market needs, BSEC offers a

broad range of services to clients with sophisticated

funding requirements. These services cover 3 main

areas of finance:

(i) the debt and structured finance (securitization

and asset based financing, syndications and

structured lending, bonds and Sukuk issuance, and

project finance),

(ii) the M&A (buy-side/sell-side, joint-ventures,

LBO) and Capital Raising,

(iii) the Administration and agency services,

(calculation and paying agency, fund administration

agency).

BSEC success is driven by a strong belief in a set of

values and principles: a commitment to its region

and an investment in knowledge. These values

have always been and continue to be reflected in

the company’s activities and business conduct.

BSEC is regulated by the Central Bank of Lebanon

and the Banking Control Commission. BSEC edge

has been underlined by numerous international

industry awards.

BSEC Head Office is located at:

3rd Floor, Two Park Avenue Building, Park AvenueBeirut Central District, Minet El Hosn

Beirut, LebanonTel: +961 1 997998Fax: +961 1 994801

www.bsec-sa.com

BEMO EUROPE - BANQUE PRIVEE | Main Activities:

. Wealth Management, Financial Estate Planning, Family Office Services

. Asset Allocation. Portfolio Advisory and Management, Cash Management

. Credit and Loan Accounts (Lombard, property, personal)

. Treasury, Foreign Exchange and Capital Market operations

In addition, the Luxembourg branch offers:

Fiduciary operations, Wealth structuring, domiciliation and management

France:63 Avenue Marceau, 75116 Paris, France Tel: +33 1 44 43 49 49Fax: +33 1 47 23 94 19

www.bemo.fr

BEMO EUROPE - BANQUE PRIVEE ‘

‘

(Fully owned by EMIC Holding – Luxembourg)

BEMO Europe was founded in 1976 as a commercialand a retail bank. It subsequently developed itsEuropean activities, specializing in Private Bankingand Wealth Management. Its present Head Office isin Paris, with a full branch in Luxembourg.

The Bank is regulated by the French BankingCommission (BDF), the Financial Market Authority(AMF), and the Commission de Surveillance duSecteur Financier (CSSF) for the LuxembourgBranch.

With the skills of a highly qualified team of professionals and bankers, it provides customizedsolutions in Wealth and Portfolio Management.The Bank prides itself for the personalized relationship management approach it offers its clients,within a range of quality products and services.

Luxembourg: 16 Boulevard RoyalL2449 Luxembourg,Tel: +352 226 3211Fax: +352 226 533

Products and Services are divided into 4 categories:

BANQUE BEMO SAUDI FRANSI SA - SYRIA

BBSF is the trading name for Banque Bemo SaudiFransi-SA, a bank recognized for its internationalstandards with Syrian roots and for being the firstto have operations in Syria. It is a private joint stockcompany established on the 4th of January 2004and registered in the Commercial Register of

Damascus under Law 13901.Since October 2009 the shares of BBSF are listed onthe Damascus Securities Exchange (DSE)BBSF’s capital amounted to SYP 3.705 billion as atDecember 2010 with the ownership structure asfollows:

Banque Bemo Saudi Fransi offers a full range of banking products and services through its widespreadnetwork of 37 branches and offices across Syria as of December 2010.

BANK ACCOUNTSCurrent & Savings AccountsSight & Fixed Term Deposits in the major currencies

FINANCIAL SERVICESCash Deposits & WithdrawalsInternal and External TransfersForeign ExchangeCollections of chequesBills Domiciliation & Issuance of Certificates

RETAIL BANKING Loans (Personal, Car, Housing, Commercial, MedicalEquipment)Cards (Debit, Prepaid, Cards provided by outsidetransfers in USD and Euro)

Salaries DomiciliationOnline Banking Services

COMMERCIAL BANKING AND TRADE FINANCEBuilding on its network of InternationalCorrespondents and on the expertise of itsManagement team, Banque Bemo Saudi Fransiprovides its clientele with quality services such as:Sight and Term Letters of CreditLetters of Guarantees (advance payment, bidbonds, performance bonds)Foreign credit investigationsRemittances and Collections of documentsShort and Medium Term loansDiscount of commercial papersAcceptances

Banque Bemo Saudi Fransi’s goal is to satisfy customers’ expectations by motivating its workforce, creatingtop value for its shareholders, ensuring error free operations for its customers and constantly extendingthe range of products and services throughout the country and in particular with the Syrian Diaspora.

The Bank’s Head Office is located at 29 Ayyar St. Salhia, P.O.Box 31117 Damascus Tel: +963 11 231 77 78,Fax: +963 11 231 87 78, www.bbsfbank.com

Banque Saudi Fransi (BSF) Saudi Arabia 27%Banque Bemo Sal Lebanon 22%Obegi Family Syria 6.37%Other shareholders Syria 44.63%

SHAREHOLDERS Country of Origin Shares in Capital


Bemo Oddo Investment Firm Ltd - Dubai

Bemo Oddo Investment Firm Ltd operates as a

financial intermediary since 2007 in the DIFC in

Dubai. Bemo Oddo Investment Firm Ltd is the

exclusive representative office of Oddo & Cie in the

MENA / GCC.

Oddo & Cie is an independent leading financial

partnership in France with more than 100 years of

history; it is one of the top ten in France in this new

model of partnership: Oddo & Cie is owned at 50%

by the Oddo family and related, 30% by the

management and 20% by the Allianz Insurance

Group. The company is active in investment

banking (brokerage and corporate banking) and

capital management (asset management and

custody/account services). Oddo & Cie manages

assets of more than Euro 21 billion as at June 2010.

Bemo Oddo’s main interest is to promote Oddo &

Cie.’s expertise in Asset Management and Security

Brokerage / Research to top institutional investors

in the MENA / GCC: mainly investment authorities,

pension funds, banks, insurance companies,

financial Institutions, and family offices.

Oddo Asset Management’s flagship product is the

SMIDCAP Europe with about EURO 2.7 billion in

AUM, and Solid track-record with regular alpha

generation capacity. Assets are managed through

open funds and dedicated mandates. This strategy

is highly rated and researched by several global

consultants and institutions including Cambridge

associates and Mercer.

BEMO ODDO INVESTMENT FIRM LTD

Gate Village, Bldg 1, Level 1, Unit 109, DIFC

PO. Box 506671 Dubai, UAE

Tel: +971 4 323 0565

Fax: +971 4 323 0585

www.oddo.eu

Management Analysis


In 2010, the world economy engaged into a slow but solid recovery. Monetary and fiscal policies

adopted in several developed countries have succeeded to improve growth prospects, and spared us from

a much deeper and long-lasting recession. Developing countries have benefited from international and

domestic financial flows to expand their internal markets and lead global recovery. The overall improving

conditions in 2010 supported the increase of several stock markets in both developed and developing

countries (e.g., Dow Jones +11.02%, or Buenos Aires +51.83%). Yet, unresolved imbalances remain and

the global recovery is still exposed to significant risks.

While experiencing a weak economic recovery, several high income countries are struggled with high

public debt, and high unemployment rates (USA, Euro Countries, etc.). They are no longer able to pursue

their social policies. Low interest rates have unfortunately failed to fully support economic growth in

developed countries, and benefited to middle-income emerging countries with better growth prospects.

The later attracted private capital flows seeking profitable investment opportunities. However, emerging

economies are suffering from inflationary pressures related to the abundance of capital and the increase

in demand. This results in higher interest rates which increase prices of both real and financial assets, and

are likely to slow down economic growth.

During the last years, the overall increase in the cost of living and changes in climate conditions have

intensified social inequalities and geopolitical instabilities in several countries. These tensions should

continue to disrupt the supply of raw materials, e.g. oil, alimentary products, and other commodities, and

to maintain the current inflationary pressure, which could adversely affect world economic growth potential.

2011 will be for investors another challenging year where country risk should take a bigger place in

investment decision-making!

Salim Chahine, Ph.D.Associate Professor of Finance

MBA Program DirectorThe Olayan School of BusinessAmerican University of Beirut

Inflation and Growth | 2011 a challenging year

Corporate Governance Guidelines

Risk Management | Overview

Risk Management

Risk is an integral part of Banque BEMO’s businesses.

Management of that risk is therefore critical to the

Bank’s continuing profitability. Strong independent

prudential management has been a key the bank’ssuccess over many years. Where risk is assumed it

is within a calculated and controlled framework.

The main risks faced by the Bank are market risk,

equity risk, credit risk, liquidity risk, and

operational risk. Responsibility for these risks lies

with the individual businesses giving rise to them.

It is the responsibility of Risk Management Division

(RMD) to ensure appropriate assessment and

management of these risks within the bank.

To strengthen its risk management capabilities,

Banque Bemo SAL centralized the management of

risks in August 2010 within one unit that fully

remained independent of business promotion

units. Under the bank’s risk management system,

this unit analyzes and evaluates the Bank’s risk

exposures and reports regularly to the Board of

Directors and various committees, thereby enabling

Senior Management to participate in the risk

management process.

In addition and in line with international standards

and best practices, a Board Risk Committee was

established composed mostly of non-executive

directors and responsible for:

. Review and oversight of the risk profile of theBank and its subsidiaries within the context ofthe Board determined risk appetite

. Making recommendations to the Board concerningthe Group’s risk appetite and particular risks orrisk management practices of concern to theCommittee

. Reviewing management’s plans for mitigationof the material risks faced by the variousbusiness units of the bank

. Oversight of the implementation and review ofrisk management and internal compliance andcontrol systems throughout the bank

. Promotion of awareness of a risk based cultureand the achievement of a balance between riskminimization and reward for accepted risks

Board of Directors COMMITTEES INVOLVED

Board Risk Committee

Credit Committee

Assets & Liabilities Management Committee

Business Continuity Planning Committee

Operational Risk Assessment Committee

Risk Management (Credit, Market, Operational)

(Credit Administration)

Chairman

Managing Director


Risk Management | Basel II Capital Adequacy Ratio

The risk management principles followed by Banque

Bemo SAL are as follows:

Independence - RMD is independent of all otherareas of the Bank, reporting directly to theManaging Director. RMD recommendation isrequired for all material risk acceptance decisions.RMD identifies, quantifies and assesses all risksand sets prudential limits.

.

Centralized prudential management - With thenew centralization, RMD’s responsibility currentlyis covering risks from a Bank-wide perspectiveensuring a consistent approach across all areas.

.

Approval of all new business activities - In linewith regulatory directives, other activities of theBank such as new businesses or activities, offeringof new products or entering new markets needthe prior ratification of the RMD.

.

Continuous assessment and frequent monitoring -RMD continually reviews changes in risks broughtabout by both external developments and internalcircumstances. Monitoring is done daily whilemaintaining close ties with commercial divisions toensure that, should any limit breaches occur, thelatter are immediately addressed, and escalatedas necessary.

.

In April 2006, the Central Bank of Lebanon issued acircular (BDL Circular No 104) requiring banks inLebanon to report their capital requirements according to the Basel II guidelines. Basel II is aninternational Accord developed by the BaselCommittee on Banking Supervision to establish aglobal standard for how banks and other financialinstitutions measure and recognize risk. It allowedsetting of a more risk-sensitive framework for theassessment of risks and calculation of minimum capital requirements.

The Central Bank’s Basel II framework describes thefollowing three pillars to be mutually reinforcingand applicable progressively while ensuring a capital base which corresponds to the overall riskprofile of the bank:

Pillar 1-Minimum Capital Requirements: calculationof minimum capital requirements and the capitalratio based on charges for credit, market and operational risk resulting from the bank’s operations;

Pillar 2-Supervisory Review Process: stresses theimportance of bank management developing an

internal capital adequacy assessment process(ICAAP) and setting targets for capital that are commensurate with the bank’s particular risk profile and control environment. A framework is setfor assessment of risks not covered under Pillar 1and the sufficiency of capital to cover these risks aswell as Pillar 1 requirements for current and futureactivities of the bank is analyzed.

Pillar 3-Market discipline: its aim is mainly to bolster market discipline through enhanced disclosureby banks. Effective disclosure is essential to ensurethat market participants can better understandbanks’ risk profiles and the adequacy of their capital positions. Disclosure requirements and recommendations in several areas, including theway a bank calculates its capital adequacy and itsrisk assessment methods are set out.

The approaches adopted by the Bank for measuringminimum capital requirements for various Pillar 1risks as well as an update on Pillar 2 requirementsare discussed in the following sections. A detailedoverview on the nature of exposures is also indicated.

The Bank is subject to the capital adequacy requirements and guidelines as defined by the Central Bank

of Lebanon which are based on the guidelines of the Basel Committee on Banking Supervision

Risk Management | Scope of Application

The name of the top corporate entity in the group,

to which these regulations apply, is Banque Bemo

SAL. The consolidated financial statements are

prepared in accordance with the International

Financial Reporting Standards (IFRS). The following

entities of the group are fully consolidated with the

results of Banque Bemo SAL for regulatory purposes:

1. BEMO Securitization SAL: This entity is 96%

owned by the Bank. It is regulated by the Central

Bank of Lebanon and Banking Control Commission

and undertakes securitization transactions locally

and structured finance deals.

2. Ferticed Limited Holding (Luxembourg): This

entity is 100% owned by the Bank and is mainly

involved in providing insurance services.

3. Depository and Custody Company SAL: This entity

is 100% owned by the Bank and undertakes

depository and custody of securities activities.

Investments in the following entities associated

with the group are deducted from consolidated

capital (50% from Tier 1 and 50% from Tier 2) for

regulatory purposes:

1. Banque Bemo Saudi Fransi (BBSF): BBSF is

incorporated in Syria as a commercial bank. The

Bank owns 22% of the ordinary share capital of

BBSF.

2. BEMO Oddo Investment Firm Ltd- Dubai: BEMO

Oddo is incorporated in Dubai as a financial institution.

The Bank owns 25% of the ordinary share capital of

BEMO Oddo.

There are no other group entities for regulatory

purposes that are neither consolidated nor deducted

(i.e. where the investment is risk weighted). There

are no restrictions, or other major impediments, on

transfer of funds or regulatory capital within the

group.

Risk Management | Capital Structure

The capital is represented by 16,000,000 nominative shares authorized and fully paid with a par value of

LBP1,000 per share and divided as follows:

Listed Shares: 5,400,000

Unlisted Shares: 10,600,000

The Bank has not issued any capital instruments of innovative, complex or hybrid nature. The information

provided below has not been subject to an external audit

A-Core Capital - Tier 1Eligible paid-up share capital 16,080 16,291Perpetual, Non-Cumulative Preferred Shares 30,150 30,150Cash Contribution to Capital 29,105 29,105Eligible Reserves 31,965 29,219Retained Earnings 13,697 10,037Less: Treasury Shares (1,547) (1,059)Less: Intangible assets (831) (976)Less: Significant minority investments (50% deduction) (17,272.5) (14,791)Total Tier 1 101,346.5 97,976

Components of Capital (in LBP million) 2010 2009


Risk Management | Capital Adequacy

The approaches adopted by the Bank for measuringminimum capital requirements under Pillar 1 of theBasel Accord are described in the following sections. It is to be noted that since issuance ofCircular No 104 in April 2006 by the Central Bank of

Lebanon, the Banking Control Commission requestedfrom banks to conduct Quantitative Impact Studies(QIS) to assess the impact of implementation ofBasel II requirements. Up until this date, 8 quantitative studies were conducted.

Risk Management | Credit Risk

Pursuant to the Central Bank requirements, theBank has adopted the “Standardized Approach” formeasuring minimum capital requirement for creditrisk. Under this approach, exposures are spread intoportfolio segments based on the type of counterparty. The major portfolios defined as perCentral Bank directives (BDL Basic Circular No 115)are sovereigns, banks, corporate, SME, CommercialReal Estate, Other retail (including securities lending), residential, equity, and others. Dependingon the ratings assigned by qualified external creditrating agencies, a counterparty risk weight rangingfrom 0% to 150% is set for each portfolio segment.After application of specific provisions (if any) and/ or acceptable credit risk mitigations, initial

funded and non-funded exposures are multipliedby the specified risk weight of the counterparty toarrive at the corresponding Risk Weighted Asset(RWA).

Using product type specified Credit ConversionFactors (CCFs), off-balance sheet exposures areadjusted before determining the RWAs. As forderivatives, the latter are considered at their CreditEquivalent Amount before determining RWAs.

Minimum capital for Credit Risk is calculated as 8%multiplied by the aggregated mitigant adjustedRWAs for the Bank’s exposures.

Risk Management | Market Risk

The “Standard Measurement Approach” is used bythe Bank to calculate the regulatory capital requirements relating to market risk (coveringinterest rate risk in the trading book, equity pricerisk, foreign exchange risk and commodity price

risk). As indicated by the Basel Committee, theresulting measure of capital charge is multiplied by12.5 (reciprocal of 8%) to provide a comparablerisk weighted exposure number for market risks.

B-Supplementary Capital – Tier 2Subordinated Bonds 48,240 56,379Unrealized gain on AFS Portfolio 11 1,730Less: Significant minority investments (50% deduction) (17,272.5) (14,791)

TOTAL Tier 2 30,978.5 43,318

Total Eligible Capital (A+B) 132,325 141,294

Components of Capital 2010 2009

Risk Management | Operational Risk

Risk Management | Internal Capital Adequacy Assessment Process (ICAAP)

The Bank presently uses the “Basic IndicatorApproach” for calculation of regulatory capitalrequirements in terms of operational risk. Thisapproach applies a beta coefficient of 15% to theaverage gross income of the Bank for the preceding three financial years. Similarly to market

risk capital charge, the resulting measure of capitalcharge for operational risk is multiplied by 12.5(reciprocal of 8%) to provide a comparable riskweighted exposure number for operational risks.

An ICAAP document shall be finalized in June 2011prepared in line with the Banking ControlCommission requirements including detailedassessment of the risks not covered by Pillar 1 suchas liquidity, concentration, interest rate risk in thebanking book, and shall be integrated within the

capital planning process of the bank.

The Capital Adequacy measurement after application of corresponding risk weights and mitigants based on the aforementioned approachesis detailed in the following table:

The decline in 2010 is mainly due to the reductionin Eligible Capital (namely amortization of Tier 2instruments held) and an increase in risk weightedassets. It is worth noting that a capital increase of

LBP 46 billion has been approved by the GeneralAssembly in the last quarter of 2010 of which LBP 30billion form cash injection which will resultin an enhancement of the capital adequacy ratio.

Credit Risk – Standardized Approach 1,129,162 94% 1,078,745 94.3%

Sovereign Risk 426,291 37.8% 436,780 40.5%

Banks Risk 89,232 7.9% 107,439 10%

Public Sector Entities 2 2

Loans to Corporate Clients 334,765 29.6% 267,287 24.8%

Loans to SMEs 128,013 11.3% 114,999 10.6%

Other Retail Loans 24,319 2.2% 28,061 2.6%

Residential Loans 4,507 0.4% 3,292 0.3%

Commercial Real Estate Loans 80,129 7.1% 65,538 6.1%

Securitization 7,678 0.7% 7,654 0.7%

Non-Performing Loans 1,066 0.1% 1,648 0.2%

Other Assets 33,160 2.9% 46,045 4.2%

Market Risk – Standard Measurement Approach 8,013 0.7% 7,825 0.7%

Interest Rate Risk (Trading Book) 5,550 5,787

Equity Price Risk (Trading Book) 550 975

FX Risk 1,912 1,063

Commodities Risk (Not applicable) - -

Operational Risk – Basic Indicator Approach 57,331 4.8% 57,356 5.0%

Total Risk Weighted Assets 1,194,506 1,143,926

Total Capital Ratio 11.08% 12.35%

Tier 1 Capital Ratio 8.48% 8.56%

Capital Adequacy

2010 2009

Amount in LBP Million Share Amount in LBP Million Share


Risk Management | Risk Management Structure

As indicated, the management of risks for the Bankis centralized under the Risk Management Division.Through approved policies directly emanating fromthe business strategy of the Bank, management of

risks is conducted in a proactive approach withdirect interactions and presentation of matters tothe Managing Director and Board Risk Committee.

a) Credit Risk

For measuring minimum capital requirements forcredit risk using the Standardized Approach underBasel II, the Bank initiated the implementation in2010 of a dedicated capital measurement systemsupplied by the Core System provider and enablingautomated and real time measurement of exposures in detail along with proper calculation ofrisk weights, credit conversion factors and allocation of eligible credit risk mitigations.

Since 2005, the Bank uses an internal ratingmethodology for classification of counterparty riskand in the management of the underlying exposures appropriately. Significant exposures arequarterly reported to the Board of Directors. TheBank also follows the supervisory guidelines forasset classification, particularly those relating topast due and non-performing loans.

The Bank uses external credit ratings as publishedfrom Standard & Poors, Moody’s and Fitch for the

purpose of determining counterparty risk weights.These ratings are mainly applicable to the sovereigns,banks, and financial institutions/investmentsassets classes. A majority of the Corporate, SME andRetail clients is Lebanese i.e. not externally ratedand hence falling in the 100% risk weight category.

The Bank uses a wide range of collaterals in theprocess of managing its counterparty risks. Withrespect to credit risk mitigation, the applicablefinancial collateral is restricted to pledge of cashmargins, deposits held with the Bank and acceptable credit deposits held in cover of debitbalances under acceptable netting arrangements. Abreakup of gross credit risk exposures i.e. exposures after offsetting provisions but beforeapplication of credit risk mitigations (includingnon-funded exposures and after applying credit conversion factors) is presented below with therespective risk weights:

Sovereign Risk o.w. 671,077 672,635

Placements in LBP with Banque du Liban 0% 89,347 60,180

Placements in FC with Banque du Liban 100% 341,458 375,173

Placements in FC with other Central Banks 0% 6,198 -

Placements in FC with other Central Banks 20% - 7,275

Lebanese Treasury Bills in LBP 0% 148,334 161,343

Lebanese Eurobonds in FC 100% 84,833 60,132

Other government bills 0% 907 8,532

Banks Risk o.w. 289,096 386,728

Long and short term placements 20% 217,191 337,865


Risk WeightBuckets 20092010

Assets Segments(in LBP million)


Public Sector Entities 1,032 876

Public Sector Entities in LBP 0% 1,032 876

Public Sector Entities in FC 100% 2 -

Loan Portfolio Risk o.w. 809,493 728,908

Loans to Corporate Clients 20% 1,801 4,600



Loans to SME Clients 100% 179,570 151,610

Loans to Other Retail 100% 44,397 60,059

Residential Loans 35% 14,494 9,405

Claims secured by Commercial Real Estate 100% 118,226 98,157

Securitization 75% 10,237 10,205

Non-performing 100% 1,066 1,648

Other Assets o.w. 59,170 74,756

Other Assets (Cash, Regularization Accounts) 0% 8,828 7,436

Other Assets (Checks Purchased) 20% 21,231 26,294

Other Assets (Receivables) 50% 394 479

Other Assets (Fixed, HTM Investments, Assets

acquired in satisfaction of loans) 100% 28,717 40,547

Assets Segments(in LBP million)

Risk WeightBuckets 20092010

Risk Management | Credit Risk Management

Credit risk management is fundamental to thebank’s business. Such risk arises from lending, trading and other activities undertaken by theBank. Outlined below is the approach that the Bankhas taken to provide credit risk management oversight and control.

Oversight of the Bank’s credit risk is the responsibilityof the Risk Management Division. Since 2004, and subject to ongoing review, theBoard has approved a credit risk policy highlighting the target markets and credit riskacceptance criteria.

A delegated credit approval authority limit structure, approved by the Board of Directors, is inplace, whereby all credit extensions are approved.Prior to submission of any credit facility to the latter authorities, a technical review and a secondindependent opinion to assess the quality of theanalysis and the risks entailed is conducted by the

Risk Management Division. This includes a detailedreview of the purpose of the requested facility, thesource of repayment, the business risks that couldinhibit repayment (nature of the business/industry,competitiveness, operating efficiency, management),and the financial analysis of the borrower (financialstatement analysis and cash flow analysis, projection,“debt capacity” review and other financial risks).The technical review produces an evaluation reportwith comments and recommendations.Notwithstanding the amount of the credit requested,the approval process follows the same internal procedure which includes, after the review by therisk management department, the review andmajority approval by the Credit Committee. Approvalsare tiered based on transaction amount, line ofbusiness, aggregate credit facilities to the relatedcustomer group and loan classification. Beyond certain exposure thresholds, approval from theBoard Credit Committee is required.


Risk Management | Credit Concentration

The Bank seeks to be broadly represented in thegrowing sectors of the major markets it operatesin. Selectively, limits are set on specific industry orproduct segments in order to avoid over-concentrationin lending to those segments.Prudential limits have also been placed on exposures to single customer groups and on cross-border country exposure.

The bank has laid down a set of internal rules ondiversification, taking into account the level of core

capital funds and the level of risk it is willing totake. These rules are designed to safeguard itsresults from the impact of external events beyondthe bank’s control. The bank’s credit risk exposuresare a direct reflection of the bank’s business objectives and strategic focus whereby Corporateclients continue to constitute the largest portionwithin the Loan Portfolio.

By strictly abiding to the prerogatives set withinthe credit risk policy, the bank has been able tomaintain a satisfactory non-performing loans tototal loans ratio ranking amongst the top 5 banks in

the Lebanese banking sector during the past 5years. The table below highlights the breakdown ofthe Loan Portfolio excluding related parties by Riskgrading:

The above table indicates that by 31/12/2010around 86% (92% in 2009) of loans were classifiedas performing while 13% were classified as watch(7.6% in 2009). The main reason is the decision toreclassify an industry (Exposure of LL 41.7 bln)where the global financial crisis had an adverse

impact. As the impact was well tolerated by theplayers within this sector, a potential upgrading ofthe current rating to performing is to be implemented in 2011 noting that out of theamount under watch category, around LBP 21.86 blnis covered by earmarked pledged cash collateral.

Regular Loans 614,450 574,070Watch Loans 94,520 47,648Gross substandard loans (SLs) 1,399 2,030

o.w. net substandard loans 675 1,267o.w. unrealized interest 724 762

Gross doubtful and bad loans (DLs) 3,340 3,181Net doubtful and bad loans 390 379Loan loss reserves (inc.Unr.Interest) 2,950 2,802

Gross SLs & DLs 4,739 5,211Gross loans 713,709 626,929Total Loan loss reserves 3,674 3,564Gross DLs & SL to gross loans 0.66% 0.83%Loan loss reserves to gross DLs & SLs 77.5% 68.4%Watch Loans to gross loans 13.2% 7.6%Net DLs and Net SLs to Core Capital 1.05% 1.67%

in LBP Million 2010 2009

Breakdown by Counterparty type

Regular Retail Customers 9.9% 11.8%out of which Residential Loans 17.7% 13.1%Regular Corporate Customers 89.9% 87.8%out of which:- Corporate 76.2% 76.9%- SME (Others) 23.8% 23.1%Classified Customers 0.15% 0.26%Accrued Interest Receivable 0.08% 0.09%Total 100% 100%

Classification 2010 2009

Services 54,829 8% 52,271 8%Consumer Goods Trading 391,523 55% 318,921 51%Real Estate Development 79,828 11% 79,338 12%Manufacturing 107,633 15% 109,507 17%Financial Services 6,163 1% 7,027 1%Private Individuals 73,789 10% 63,431 10%Other 558 0% 87 0%Total 714,323 100% 630,582 100%

Economic Sector(in LBP Million) Amount Share % Amount Share %

Cash Collateral 183,213 25% 190,089 30%Bank Guarantees 305 0% 1,084 0%Pledged Portfolio 8,500 1% 10,860 2%Mortgage 52,778 7% 55,260 9%Personal Guarantees 266,042 38% 212,927 33%Facilities granted on Clean Basis 203,485 28% 170,962 27%Total 714,323 100% 641,182 100%

(in LBP millions) Amount Share % Amount Share %

With respect to breakdown by industry, Tradingindustries (mostly wholesale trading) continued torepresent the largest sector the bank is exposed tofollowed by Manufacturing Industries and Real

Estate Development (including contractors). Thetable below highlights the comparative breakdowns:

Exposure under the Real Estate Sector is adequatelycovered by assignments on sales effected, mortgages on properties held, and earmarked

pledged deposits representing 35% of total exposure. Concentrations above a certain threshold are closelymonitored and reported to the Board of Directors.

2010 2009

2010 2009

Risk Management | Collateralization of Loans

A significant proportion of the Bank’s loans areguaranteed. The types of security include cash collateral, mortgage over land and other property,bank guarantees, securities (i.e. Treasury Bills, debt

and equity securities) and personal guarantees. Thetable below shows the coverage types as of31/12/2010:


The above table shows that 25% of the existingexposure under funded facilities is duly covered bycash collateral. The bulk of these pledged depositsare held in the same currency similar to their corresponding exposure. In the cases where theexposure differs from the currency of the collateral,the amount of the latter is usually maintained at ahigher level where a certain margin is applied toaccount for any possible currency fluctuation.

Where mortgage cover is obtained against facilities,the underlying property is estimated by the Bank’sindependent appraiser prior to approving the extension, noting that it is the Bank’s policy to obtainmortgage cover representing 120% of the requestedfacility amount, and that the properties held undermortgage are all in prime locations in Beirut andMount Lebanon areas.

With regards to the exposures covered by personalguarantees and granted on clean basis, the latter areextended after a thorough analysis is conducted onthe soundness of the financial parameters and cashflows of the borrowers in the case of corporate lending and on the morality and financial means ofindividuals

Top 20 related group exposures (one-obligor)

While taking into consideration the present strategyoutlined by the Board of Directors indicating that target markets should be focused solely onCorporate and Private Banking, the table belowshows that the top 20 interconnected group exposures (consisting of around 100 clients) constitute around 43% of the total gross fundedexposures and are 3.2 times Tier 1 Equity.

When taking into account the existing pledgeddeposits and after netting the latter from the grossfunded exposures, the overall exposure to Tier 1Equity drops to 2.17 times. Most important to note isthe fact that the latter group exposures and although

interconnected are involved in diversified industriesthus reducing the risk of relying on one sector andmitigating the overall concentration risks. Moreover,the above is in line with the bank’s strategy to befocused on Corporate Banking.

A country risk framework is in place, covering theassessment and rating of countries, country reviewfrequency, as well as the maximum cross-bordercountry limit that can be granted to any one countrybased on its risk rating. Limits are allocated into

maturity time-bands and vary according to the risksof the country concerned and the political and economic outlook.

Largest 2 groups 92,562,868 12% 91% 82,022,214 12% 84%

Largest 5 groups 157,876,899 21% 156% 141,106,280 21% 144%

Largest 10 groups 242,265,337 32% 239% 213,719,412 32% 218%

Largest 20 groups 327,959,302 43% 323% 297,160,688 45% 303%

Figuresin LBP

FundedExposure

% of TotalPortfolio

% of Tier 1Equity

% of TotalPortfolio

% of Tier 1Equity

FundedExposure

31-Dec-2010 31-Dec-2009

Risk Management | Cross Border Credit Risk

Continuous and regular follow up is conducted onthe overall risk profile of banks with which the bankmaintains accounts. This is usually conductedthrough regular and at least weekly review of ratingactions undertook by major credit rating agencies aswell as a thorough financial risk assessment. The

Bank has maintained since its establishment veryclose and mutually beneficial relationships withprime banking correspondents. The table belowhighlights the present ratings of cross border counterparty banks where the bank is maintainingplacements:

As indicated in the table above, the bulk of placements with foreign banks are maintained withprime financial and multinational financial institutions enjoying a satisfactory credit rating. On aweekly basis, monitoring of rating actions by majorcredit rating agencies is conducted while keeping an

eye on the impact of developments on the globaleconomic conditions. The portion of placementsmaintained with un-rated financial institutions islargely held with custodian institutions and locallyoperating banks where no rating is assigned.

* Not rated mainly covers local Lebanese commercial banks

Risk Management | Counterparty (Bank) Risk

Stress testing and scenario analysis are used toensure that the Bank’s internal capital assessmentconsiders the impact of extreme but plausible scenarios on its credit risk profile and capital position(i.e. macroeconomic and microeconomic default scenarios). They provide an insight into the potentialimpact of significant adverse events on the Bank andhow these could be mitigated. The Bank’s targetcapital levels are set taking into account its riskappetite and its risk profile under future expectedand stressed economic scenarios. Based on the latest international regulatory directives published(mainly the Committee of European BankingSupervisors -CEBS), a credit risk stress test was conducted based on June 30, 2010 exposures.Several scenarios were assumed covering mainly thefollowing:. occurrence of a local/international economic

downturn resulting in an increase in credit risks

weighted assets and impacting level of eligiblecapital.

. downgrading a portion of watch clients to doubtfulcategories requiring potential additional provisioning and thus impacting level of eligible capital.

. assuming a severe economic downturn impacts one specific sector within the bank’s Loan portfolio.

Additional scenario and sensitivity analyses wereconducted, and the results show that the Bank’sequity can sustain any potential adverse impactresulting from the aforementioned and the capitaladequacy ratio, although reduced, shall remainabove the minimum regulatory ratio of 8%.

b) Market Risk Market risk is the exposure to adverse changes inthe value of the bank’s trading portfolios as a result

Risk Management | Credit Risk Stress Testing

AAA to AA 4%AA- to A+ 71%A to A- 21%BBB+ to BBB 0%Not Rated* 4%Total 100%

Rating Bracket % of Total Balances


The Bank is exposed to interest rate risk as a resultof mismatches in interest rate repricing of assets andliabilities and off-statement of financial positionitems that mature or reprice in a given period.

a) GAP Analysis: As per Basel II, the change in economic value of a

bank’s banking book balance sheet when subjectedto a 200 bps standardized shock should be below thesum of twenty percent of Tier1 and Tier 2 capital.For Banque BEMO, the interest rate sensitivity position based on contractual re-pricing arrangementsfor 2010 and 2009 are shown in the table below(Impact for one year only):

Risk Management | Interest Rate Risk in the banking book

of changes in market prices or volatility. The Bank isexposed to the following risks in each of the majormarkets in which it trades:. foreign exchange markets: changes in spot and

forward exchange rates and the volatility of exchange rates;

. interest rate markets: changes in the level, shapeand volatility of yield curves, the basis between different interest rate securities and derivatives and credit margins;

. equities markets: changes in the price and volatilityof individual equities, equity baskets and equity indices;

RMD measures exposures in all markets for eachdealing desk and for markets in aggregate. Limitsare sets for all exposures in all markets. Limits areset for individual markets and trading areas, and forthe Bank as a whole. ALCO approves and maintainsmonthly monitoring on all exposures while continuously being abreast of all developments inthe market and trends.

For the measurement of minimum capital requirement for market risks under Pillar 1, the Bankuses the Standard Measurement Approach as per thetable below:

Traded Interest Rate Risk 444 69% 463 74%Traded Equity Price Risk 44 7% 78 12%Foreign Exchange Risk 153 24% 85 14%Commodity Price Risk - - - -Total Capital Charge for Market Risks 641 626MRWA ( X 12.5) 8,012.5 7,825Share of Market RWA out of Total RWA 0.67% 0.7%

Amounts in LBP millions 2010 2009

Total Assets 963,640 251,251 59,472 52,159 Total Liabilities 1,314,591 171,093 44,058 40,776 TOTAL (350,951) 80,158 15,414 11,383 Term Position 1,070 (2,635) (77) - GAP (349,881) 77,523 15,337 11,383 Cumulative GAP (349,881) (272,358) (257,021) (245,638)Earnings at Risk (292) (908) (1,928) (3,685)

31/12/2010 (in LBP millions)(Based on BCCL Number 250)

< 1 M 1 to 3 M 3 to 6 M 6 to 12 M

Total Assets 890,734 322,899 82,282 56,735 Total Liabilities 1,329,026 206,157 27,889 26,105TOTAL (438,292) 116,742 54,393 30,630 Term Position 139 773 47 - GAP (438,153) 117,515 54,440 30,630 Cumulative GAP (438,153) (320,638) (266,198) (235,568)Earnings at Risk (365) (1,068) (1,996) (3,533)

31/12/2009 (in LBP millions)(Based on BCCL Number 250)

< 1 M 1 to 3 M 3 to 6 M 6 to 12 M

Currency Change in Basis Points EAR/NII (LBP or USD) EAR/Total NII LBP + 100 -45.05% -6.45%USD + 50 -1.25% -1.07%

Sensitivity of Net Interest Income

The effect of a 200 basis point change in interestrates upwards or downwards on the earnings of thebank for the 2010 fiscal year is LBP 3.685 billion(LBP 3.533 billion in 2009). This is mainly due tothe Lebanese currency mismatch in repricingwhereby the majority of liabilities are repricedwithin one month while LBP assets are repriced inperiods exceeding one month. It is worth notingthat this is in line with the market practice andmainly resulting from the lack of alternative

placements in LBP with similar repricing periods asliabilities.

b) Sensitivity of Interest Income and Shareholders’Equity:The 2 tables below shows the Sensitivity of InterestIncome and Shareholders’ Equity to reasonably possible parallel changes in interest rates, all othervariables being held constant.

This change is calculated over a one year periodand shows that an increase in LBP rates by 100 b.p.will negatively affect the net interest income in LBPby 46%. On the other hand, an increase of 50 b.p.in USD rates will negatively affect the net interest

income in USD by 1.25%. Overall and on a consolidated simultaneous impact from the above2 scenarios of rates increases (in LBP and USD), thetotal net interest income will be negatively impactedby 7.52% which is considered acceptable.

Table1: Sensitivity of Interest Income:

2010

CurrencyLBP -6.20%USD -3.88%

Sensitivity of Equity [GAP/(Tier 1+Tier 2)]

Table2: Sensitivity of Shareholders’ Equity:

2010

CurrencyLBP -4.50%USD -3.97%

Sensitivity of Equity [GAP/(Tier 1+Tier 2)]2009

Currency Change in Basis Points EAR/NII (LBP or USD) EAR/Total NII LBP +100 -40.20% -5.80%USD + 50 -1.42% -1.21%

Sensitivity of Net Interest Income2009


2010 maturity gap… … … … … … … 399,950 (801,805) 21,482 313,690 142,007 57,0072010 cumulative maturity gap… … 399,950 (401,855) (380,373) (66,683) 75,324 132,3312009 maturity gap… … … … … … … 379,362 (769,034) 111,111 278,740 80,641 48,7692009 cumulative maturity gap… … 379,362 (389,672) (278,561) 179 80,820 129,589

From 1 monthto 3 months

From 3monthsto 1 year

From 1 year to 3 years

From 3 yearsto 5 years

Over 5 years

In LBP millions

The sensitivity of equity is calculated by evaluatingthe impact of repricing gaps between assets andmultiplied by their corresponding weighting coefficients as defined by Basel Committee underthe Modified Duration approach. The result above

shows that around 10% of the bank’s equity is atrisk should a rate rise occur. The above does nottake into account the impact of the cash injectionin the amount of LBP 30billion out of the new capital increase amounting to LBP 46 billion.

Risk Management | Sensitivity of Net Interest Income to reasonable changes in interest rates:

The liquidity position of the Bank is monitored bythe Bank's ALCO, which aims at minimizing risk,while ensuring the best use of funds in the prevailingeconomic conditions. It is the policy of the Bank tomaintain liquidity at a high level; this policy isexpected to prevail so long as the current economicweakness continues in the Lebanese Republic andthe surrounding region. The Bank’s managementstrives to maintain a satisfactory liquidity level atthe Bank in line with approved policy guidelinesand regulatory requirements. The Management’s

efforts with regards to the maturities of fundingsources and uses are reflected in the Bank’s satisfactory liquidity position. Similar to other banksin the sector, the Bank had negative maturity gapsconcentrated in maturities of up to 3 months, whilethe maturity gaps were positive for maturities ofmore than 3 months. The table below summarizesthe maturity profile of the Bank’s assets and liabilities and the related maturity gaps for 2009and 2010:

The basis of the remaining period at the relevantbalance sheet date is mainly determinant of thecontractual maturities of assets and liabilities nottaking into consideration the effective maturities ofmany of the Bank’s liabilities indicated by the trackrecord of deposit retention at the Bank and subsequentcontinuous availability of liquid funds. The Bank’sforeign currency placements maintained with international banks carry a maturity of threemonths or less. Moreover, the Bank’s loans and

advances portfolio is mainly of a short-term nature.

Net liquid assets to deposits reached 60.47% whiletotal loans to deposits stood at 46.80% in 2010.The latter calculations exclude the impact of thepledged deposits held in cover of facilities granted.Upon inclusion, the net liquid assets to depositsratio would reach 70% and the ratio of total loansto deposits would reach 39.61%.

Risk Management | Liquidity

Accounts withno maturity

c) Operational Risk

The objectives of the Operational Risk unit withinthe Risk Management Division are mainly to developand maintain a common understanding of operational risks within the bank.

The main functions are centered on the following:-Identifying, monitoring and managing the bank’scurrent and potential operational risk exposures.. Improving ongoing internal control through

reduction of probability and potential impact oflosses

. Ensuring that there is a clear understanding of responsibility and accountability in managing and mitigating operational risks

. Maintaining an operational loss database

. Improving the risk and control awareness acrossthe bank

The main processes for managing operational riskare an ongoing monitoring through self-assessment and the documenting and registeringof incidents and quality deficiencies.The analysis of operational risk-related events,potential risk indicators and other early-warning signals are in focus when developing the processes.The mitigating techniques consist of business continuity plans together with crisis managementpreparedness in addition to maintaining adequateinsurance covers. The Bank currently uses the BasicIndicator Approach for assessment of minimumcapital requirement for Operational Risk underPillar 1 of the Accord.

Average Gross Income (2008-2010) 30,576Beta Coefficient 15%Operational Risk Capital Charge 4,587Operational Risk Weighted Assets 57,331Share of Total Risk Weighted Assets 4.79%

2010in LBP millions

Average Gross Income (2007-2009) 30,590Beta Coefficient 15%Operational Risk Capital Charge 4,589Operational Risk Weighted Assets 57,356Share of Total Risk Weighted Assets 4.97%

2009in LBP millions


Internal Audit | Department ’s role

Sound risk mitigation practice is at the heart ofBank’s added value. The role of the Internal Auditdepartment is to provide reasonable assurance onexisting controls, by testing them within a professional framework, where efficiency assessmentand improvements are systematically sought. Inthat respect, Internal Audit strikes the right balancebetween providing assurance about controls andefficiency (thus the enhancement of shareholders’value).

The department’s assessment of efficiency of

controls is organized within a risk based approach,where the resources are allocated based on riskexposure, while ensuring a comprehensive reviewof all the Bank’s activities within a 2 years cycle.The department’s contribution actually spans overthree axes:

. Improvement of internal control systems

. Improvement of Risk Management systems

. Improvement of Corporate Governance practices

throughout the bank

Internal Audit | Infrastructure

The Audit department relies on the Teammate software for the organization of its mission: it is astate of the art framework which allows for systematic and efficient conduct of audit missions.The department’s human resources represents acombination of expertise and skills of qualifiedstaff, many of which enjoy due certification andmore than 10 years of experience in banking andare regularly trained on the latest audit techniquesand banking activities. During 2010, the department conducted an overhaul of its risk universe to update and match itto the current situation of the Bank’s activities. Therisks related to existing controls have been clarified; a typology and hierarchy of identifiedrisks has also been completed.

The Internal Audit activity is also backed by areporting line that guarantees full independence

from the Bank’s executive management (the internalaudit department reports to the Board of Directors,through its Audit committee, composed by prominent independent Board Members). TheAudit Committee and Internal Audit departmentalso have a clear scope of activity through a fully documented audit charters, policies and procedures.

The above structure ensures that the Bank’sInternal Audit Department is in a position to identifyand evaluate the underlying reasons behind issuesinstead of limiting the remedy to treating theirsymptoms. The department’s risk focused approachhelps in identifying and highlighting critical risksand exposures before they unwind into problems.Furthermore, Internal Audit’s independence fromoperations fosters diversity in problem solvingapproaches, thus favoring setting up “out of thebox” propositions to enhance the Bank’s controls.

Internal Audit | 2010 activity

During year 2010, the department modified thebalance in its Internal Audit coverage whereincreased attention was aimed to risk, risk management and governance versus controlsassessment. The activity focused on 4 main fields:

. Review of the distribution and quality andintegrity of the information generated to manage the Bank’s activities, which is deemedessential for sound management practice.

. Review of the Bank’s activities, amongst

which the Treasury and Financial Markets activity (proprietary and client’s trading)

. An assessment of the processes and services involving the Bank and its stakeholders,

. A review of the Bank’s Subsidiary entities’ activities

At the outcome of the above assessments, theInternal Audit’s overall opinion is that existingcontrols and Risk Mitigation systems provide asound framework for the Bank’s activities.

Internal Audit

Anti - Money Laundering | Risk Local Regulators

The bank is subject to and complies with the AMLregulations of both the Lebanese and the Cypriotauthorities, namely basic circular 83 of 2001 of theCentral Bank of Lebanon and the Guidance Notes of1996 of the Central Bank of Cyprus and their subsequent amendments.

The Bank therefore committed to full compliancewith all AML laws and regulations, FATF recommendations and international standards ofBasel Committee regarding “Know Your Customer” procedures.

Anti - Money Laundering | Committee

The Bank has established an Anti-MoneyLaundering Committee. The Committee meets on quarterly basis in order to

ensure proper application of AML procedure,reporting of suspicious transactions to SIC andMOKAS and KYC form.

Anti - Money Laundering | Money Laundering Reporting Officers

The Money Laundering Reporting unit consists ofCentral Money Laundering Reporting Officer, andAssistant Money Laundering Reporting Officer forboth Beirut and Cyprus reporting directly toCompliance Officer of the newly establishedCompliance unit.

Branches MLROS are appointed in each branch andare responsible for adherence with DDML procedures and control of operations.

Anti - Money Laundering | Policies and Procedures

The Bank has written policies, procedures, andtools of controls in order to ensure that it complieswith the AML obligations in existing legislations

and regulations. The procedures are subject toannual review or amended when necessary.

Anti - Money Laundering | People Involved

All the staff members are involved without any exclusion.

Anti - Money Laundering


Anti - Money Laundering | Record keeping

Records concerning customer identification anddetails of transactions are retained in hard copy orany electronic form for at least 10 years for use of

evidence in any possible investigation into moneylaundering.

Anti - Money Laundering | Training & Awareness

All staff members attend general training coveringboth the awareness of DDML and money launderingfighting methods.

Staff members are regularly updated with anti-money laundering policies and procedures toprevent the Bank being used in criminal activities.

Anti - Money Laundering | Independent Audit and Compliance review function

The Bank’s internal and external auditors conductprograms of audits and compliance testing of theBank’s policies and operational procedures to AML.

The Bank is subject to regular compliance visitsfrom the local regulators in order to assess the levelof monitoring and abidance to the regulations.

Anti - Money Laundering | Correspondent banks

The Bank’s main correspondents are all primename International Banks. In addition, the Bank’sinternal policies ensure that we do not offerpayable- through accounts, or conduct business

with shell banks; hence recommendations 7 and 18of the FATF 40 recommendations in relation to cross-border correspondent banking are strictlyapplied.

Anti - Money Laundering | Customer due diligence /know your customer policy/ Monitoring

Compliance is conducted by the Money launderingreporting officer at the head office in Beirut on allnewly opened accounts on which both the CentralBank of Lebanon and Cyprus regulations are strictly applied.

Ongoing monitoring is an essential aspect of theKYC rules. Necessary automated tools are availablein that respect.

Our Human Resources motto

Putting People First

Banque Bemo’s Human Resources team is a

cooperative group of professionals dedicated to

creating partnerships by supporting all programs and

departments. We are committed to create new

processes and provide our employees with a healthy,

stable and positive work environment allowing for

equal opportunity in learning and personal growth.

As well, we aim at supporting our colleagues in

accomplishing their individual objectives enabling to

achieve the global objectives and strategy of our

Bank.

Our employees are provided with the same concern,

respect and caring attitude within the organization

that is reflected externally with every customer.

As strategic partners, we aim at optimizing the financial

results of our Bank through customer satisfaction, by

enhancing and creating new processes and focusing

on the learning and growth of our employees. During 2010, HR Management used various recruitment means and was successful in closing theopen vacancies with the best suitable candidates.Banque Bemo strives to fill in vacant positionsthrough internal recruitment to promote staff mobilityand provide growth opportunities

During the year:> Newly recruited staff reached 28 staff representing13% of our workforce out of which two personsjoined the Bank at managerial level> Internal transfer of 12 staff took place representing6% of our workforce At year end, our total FTE stood at 223.

Furthermore, a performance appraisal process fornew recruits was launched in 2010 to ensure smoothintegration process and to evaluate the results oftheir work.

76%

24%

70%

30%

Workforce Educational Level

University Graduate

Others

Age Distribution

Less than 45 yrs

Above 45 yrs

Average Age: 37 years

Human Resources Management


The main objective of our ongoing CareerDevelopment program is to ensure that we have thebest quality and professionals and to retain them. Inthis respect career development interviews wereconducted and job rotations programs were implemented for selected staff as per their needsanalysis

An effective succession planning for key positions isapproved by our Talent Management Committeeensuring first and second successors for every keyposition and highest quality of business

The new Job Grading system was finalized and implemented in January 2010. It was done in linewith the collective labor agreement recommendations

and guidelines based on competencies management.Several presentations were conducted to staff members to explain the process

In our continuous effort to develop the skills andknowledge of our staff members and provide themwith the needed competencies to better performtheir job, the training program was developed basedon Competencies Management approach.

The training program for the year was focused on the

following:

> Technical skills for most of our staff> Selling, Negotiation and Communication skills for

most of our relationship managers> Leadership skills for our managers

As champions of ethical behavior, five training sessions on “Values & Code of Deontology” were conducted during 2010 to our entire workforce. Itaims to ensure that a common understanding on ourcode of deontology is spread across the Bank’s work-force. As well it provides our staff with a sense ofidentity and it generates within them a commitmentto the beliefs and values of our Bank

Since transparency is a core principal of our HRManagement, the Employee Handbook was updatedduring 2010 and posted on our “online proceduressite” accessible to all staff. As well the compensation & Benefits procedure wasupdated to cope with the changes occurred duringthe year.

Indoor training with internal speakers 13 97Indoor training with external speakers 6 134Outdoor trainings 39 778Total 58 1009

No of topics No of hours

Number of staff who participated to above training program is 219.

Family SpiritProfessionalismConservatism

Honesty

Our Values

“ “

Deontology and Ethics have become synonymous

with Banque Bemo name since all business is

conducted in an honest, legal, and ethical manner

in order to provide state-of-the-art services within

Banque Bemo vision and quest for excellence.

The deontology principles are intended to be

applied and abided by Banque Bemo staff members

in their day-to-day behavior for the conduct of all

aspects of business activities of the Bank. They are

communicated to all employees through the Code

of Professional Ethics, Code of Conduct and the

Employee Handbook.

The Bank’s most important assets are its employees

who are at the heart of the organization. Therefore,

they are expected to act in accordance with the

highest standards of personal and professional

conduct, associated at all times with ethical

business practices.

A yearly report is submitted to the Board of

Directors by the Managing Director, monitoring the

level of understanding and abidance of the Code of

Professional Ethics by the staff members.

Living Banque Bemo’s core values of Family Spirit,

Professionalism, Conservatism and Honesty by each

employee is always reiterated by the Managing

Director at every occasion. These values constitute

a solid framework for a sustainable success.

Code of Deontology

All business must be conducted in an honest, legal, and ethical manner

“ “


Business Lines & 2010 Business Review

Being a forward-thinking institution, Banque Bemo

remains one of the key pioneers in providing its

clientele, their families and businesses, distinctive

Wealth Management services.

Through its Private Banking, Banque Bemo accentuates

the manner in which its team of financial advisors

conducts relationships with the Bank’s clients, while

enduring the principles of Professionalism,

Transparency, Fairness, and Ethics most importantly.

Private Bankers at Banque Bemo adopt a flexible

client-driven approach that does not impose

standard solutions.

We aim first at deeply understanding the clients’Wealth Management needs so as to earn their trust

over the long term.

We employ our new thinking and our expertise to

evaluate the client's investment objectives and

provide them with customized solutions that will

fulfill their financial requirements over time.

Banque Bemo Private Banking adopts a balanced

approach between business effectiveness and

efficiency while maintaining our keen promises to

our clients by creating a win-win scenario for both

the clients and the Bank.

We strive to make efficient use of customer profiling

and business processes in order to deliver added value

services that result in our customers’ satisfaction.

Within the framework of customer focus and

pro-activity, we implement strategic directions to

every customer interaction whereby we secure right

size delivery; we focus on the client’s current state of

mind to target additional opportunities while also

applying prevailing views by gathering information

from customers to improve processes and better

monitor their concerns and expectations.

We also consider times of economic downturns, during

which we will employ a balance between near-term

economics and long-term competitive positioning, in

order to maintain and strengthen our clients’ satisfaction.

Bemo Private Banking tenders a vast range of services

from Wealth Growth and Management, to Wealth

Protection, to succession and heritage related issues.

Besides solutions drawn from the available products

in the market, Banque Bemo Private Banking

professionals develop bespoke investment

strategies that match with clients’ risk appetite and

act in their best interests at all times.

Furthermore, Banque Bemo Private Banking

coordinates with specialists in matters pertaining to

asset allocation and optimization as well as wealth

structuring and the planning of the generational

transmission of the family estate.

Accordingly, Banque Bemo Private Banking

introduced Bemo Family Office, through which it

aims at protecting, growing and monitoring clients’family wealth. While maintaining full confidentiality,

Bemo Family Office provides its esteemed clients

with succession and wealth planning advice in addition

to trust and fiduciary services.

Private Banking

The Personal Banking is always keen to provide the

appropriate support to the Private Banking and

Corporate Banking Divisions.

During the year 2010, the Personal Banking Division

made a large move to be aligned with the General

Strategy of the Bank and the Vision defined by the

Board.

After reshaping its structure by creating the Market

Research Unit and the Help and Support Desk, the

Personal Banking Division created two new services

to be offered to HNWI:

> Concierge Service

> Consolidation of Accounts

These two services are designed to provide to our

clients real personalized, structured and tailor made

solutions to their respective situations. In addition,

the Personal Banking has put in place the necessary

action plan to launch the Bemo Community Card

which allows our clients to Spend and Earn Money in

the same time.

Through our network of branches designed and

equipped with a state of the art concept, and

through our Human Capital of qualified Relationship

Managers and staff, the Personal Banking Division

initiated an aggressive approach to stay closer to our

clients and be proactive in addressing their Financial

and Banking needs.

The ultimate goal is to provide Distinguished and

Innovative services with a Unique Flavour, to be the

Reference Bank for our HNWI and Corporate clients.

Our mission is to transact when others can’t.

Personal Banking

Established since the year 2000, the BSD (Banking

in Syria Division) has been catering for the Syrian

clientele’s banking needs with the authentic

Banque BEMO expertise through its longtime

established Damascus office.

The office is located in Damascus main free zone

area, and applies to the General Organization for

Free Zones license, specifically created for the free

zones operations , all over Syria.

With a bond that has been cherished throughout

the years, Banque BEMO has been constantly

present and active in the Syrian market , performing

diversified banking services to serve the Syrian

local and emigrated clientele , transcending the

borders of the Syrian soil to a worldwide range of

activities.

Banking in Syria (BSD)


Corporate lending always constituted the mainbusiness and profit engine for Banque Bemo. Whilethe lending policy is built on two major pillars –conservatism and risk awareness, aggressiveness isour tactic to grow and expand in a confident andprudent manner.

Despite the high competition of rivals, we wereable to translate our efforts through penetration ofnew economical and geographical sectors andwidening our base of prime clients.

Accordingly, in 2010, good growth ratios wereachieved in all directions as shown in the belowtables/graphs, and at the same time substandardand doubtful amounts were the lowest in the sec-tor. This proved the success of the hard businesscombination of conservatism and aggressiveness.

Advances: The year 2010 witnessed a remarkablegrowth in aggregate corporate loan portfolio, whichgrew from USD 351.5 million to USD 401.4 million,i.e. a 14.20% growth rate within the context of adynamic corporate banking policy addressinglending opportunities within a constantly changingenvironment and conditions, locally, regionally,and worldwide.

Letters of credit: volume opened during 2010reached USD 79.8 million. Although percentage ofgrowth is not large, we consider it a good achievementas most large and prime corporate customers aretrying to replace letters of credit with other cheaperimportation tools.

Corporate Banking

2006

2007

2008

2009

2010

in 000's usd

218.

469 27

3.75

4

308.

821

351.

574 40

1.44

3

2006

2007

2008

2009

2010

in 000's usd

54.4

51

81.9

74

98.2

00

79.2

99

79.8

55

Deposits: cross-selling is always a target for corporate division. In 2010, we achieved 13.3%increase in corporate deposits, from USD 240 million in 2009 to USD 271.683 thd in 2010. Thisachievement was mainly the result of our efficientchannels of distribution and excellent renderedservices.

Lending quality: The conservative policy andawareness are well manifested in figures related to2010 substandard and doubtful corporate loans,which amount to less than 1% (0.09%) of gross

corporate loans and 0.16% after provisionedamounts.

2006

2007

2008

2009

2010

in 000's usd

126.

115 16

3.73

6

191.

830

240.

684 27

1.68

3Total corporate loans (including acceptances) 273,754 308,821 351,574 401,443

Substandard loans 1,867 1,379 1,189 927Interest in suspense 317 378 445 480Net substandard loans 1,550 1001 744 447

Doubtful loans 2,980 3,018 2,709 2,794Not provisioned amount 370 203 197 218Provisioned amounts 2,610 2,815 2,512 2,576Provisions on capital 1,578 1,550 1,481 1,491Provisions on interest 1,032 1,265 1,031 1085

Total substandard & doubtful loans 4,847 4,397 3,898 3,721Total substandard & doubtful loans to total loans 1.77% 1.42% 1.10% 0.09%Net substandard & doubtful loans 1,920 1,204 941 665Net substandard & doubtful loans to total loans 0.70% 0.38% 0.27% 0.16%Net substandard loans to total loans 0.57% 0.32% 0.21% 0.11%Net doubtful loans to total loans 0.14% 0.065% 0.056% 0.054%

2007 2008 2009 2010Substandard & Doubtful Corporate Loans (USD Thousand)


Centralized Business Support Center

Corporate Social Responsability

The Centralized Business Support Center(Operations) represents 18% of the Bank’s manpower, is considered one of the Bank’s corner-stones and plays a crucial role in fulfilling theclients’ demands and in alignment with the Bank’svision.The Operations Department is composed by the following Departments:

- Central Back Offices (Incoming/OutgoingTransfers, Bills, Cards Management, CustomerSupport Desk, Checks Collection and Clearing Units)

- Foreign Exchange, Money Markets and FinancialMarkets Back Offices

- Trade Finance

- Legal Affairs

To cope with the Bank’s ambitions and high standards of quality, a qualified and dedicatedteam, built from experienced and knowledgeablehuman force who invest their expertise and talentsto serve the Bank’s business lines and its clients inall their requirements, offering them adequate,prompt, secure and proper services to meet theirexpectations.

In addition to their professional skills, BanqueBemo sal Management placed at the disposal ofthe Operations team members advanced IT solutions to ensure an exceptional customer service, within the shortest time frame and errorfree transactions.

The Operations Department has been rewarded byseveral Correspondent Banks, for the year 2010 andthroughout the previous years, in recognition oftheir high quality performance.

In its continuous effort to support cultural, socialand sports activities, Banque Bemo sal sponsoredfor the 5th year in a row the cultural activities ofthe “ Centre Sportif, Culturel et Social” of CollegeNotre Dame de Jamhour where the Center coveredthrough conferences, courses and events differenttopics and fields ranging between Movies,Psychology, Literature, Arts and Creations, CulinaryArts, Photography and many others.Banque Bemo contributed for the second consecutiveyear in supporting the “70th Local and 1st ArabFriendship Tennis Tournament” which was organized by the Brummana Sports Club atBrummana High School aiming to promote thissport among the young generation.In its commitment to “live The Bank values”,Banque Bemo encourages spreading the “FamilySpirit” amongst staff members through participationin cultural and sports events and the Managementsupport to its Football team activitiesIn 2010 the participation of Banque Bemo to BeirutMarathon, under the slogan “For a Smoke Free

Lebanon” in collaboration and partnership withTobacco Free Initiative (TFI) was to increase awareness of Tobacco’s negative impacts on Healthamong the youth. Banque BEMO supported TFI allyear long in its activities aspiring for a healthy andtobacco free society.

Emphasized efforts were deployed to fight againstCommunity’s threats, supporting NGO’s actions inthe Health and Educational fields. “Corporate SocialResponsibility” awareness was enhanced amongststaff members through participation to seminars.

The year end gathering took place as it becomes aBanque Bemo tradition where Board of Directors,Management, staff members, shareholders andfriends celebrated the achievements of 2010 andshared whishes for the coming 2011 and in thisoccasion Banque Bemo staff members expressedtheir gratitude towards the wise guidance of theHonorary Chairman Mr Henry Obegi during all theseyears.

Analysis of Financial Results and Position

Banque Bemo performance during 2010 was as

expected, the volume of operations and the results

generated were appreciated by the Senior

Management and the Board of Directors.

Considering the overall pressures the financial

institutions were facing, Banque Bemo sal has

maintained its position between its peers and was

able to achieve a moderate growth in the different

items of its balance sheet.

The following section has been prepared by the

Bank’s Management using for comparison purposes

the audited consolidated financial statements of the

Bank as at December 31, 2008, 2009 and 2010.

The Bank’s consolidated financial statements have

been prepared in accordance with standards issued

or adopted by the International Accounting

Standards Board and interpretations issued by the

International Financial Reporting Interpretations

Committee and general accounting plan for banks in

Lebanon and the regulations of the Central Bank and

the Banking Control Commission, and include the

results of the Bank and its consolidated subsidiaries

BEMO Securitization SAL, Ferticed Limited Holding

and Depository & Custody Company S.A.L. Where

appropriate in the context, references to the Bank

include the Bank and such consolidated subsidiaries.

The Bank maintains its accounts in Lebanese Pounds.

Accordingly, U.S. Dollar amounts stated in this

section have been translated from Lebanese Pounds

at the rate of exchange prevailing at the relevant

balance sheet date, in the case of balance sheet

data, and at the average rate of exchange for the

relevant period, in the case of income statement

data, and are provided for convenience only. In each

case, the relevant rate for both balance sheet data

and income statement data was LBP 1,507.5 per

USD 1.00, as, throughout the periods covered, the

Central Bank has maintained its policy of pegging

the value of the Lebanese Pound to the U.S. Dollar at

a fixed rate of LBP 1507.5 per USD 1.00. Banking

sector information has been derived from Central

Bank statistics, Bankdata Financial Services WLL and

the Bank's internal sources.

Unless otherwise stated, reference in this section to

the Bank’s customer deposits and loans and

advances (other than such references in the audited

consolidated financial statements of the Bank and its

consolidated subsidiaries included elsewhere herein)

shall be deemed to include deposits of, loans and

advances to, related parties.

Overview


Cash, compulsory reserve and Central Banks 211,896 382,083 80.32% 347,975 -8.93%

Deposits with banks and financial institutions 259,090 366,585 41.49% 273,607 -25.36%

Loans to banks 5,339 570 -89.32% 4,014 604.21%

Loans and advances to customers 543,228 630,582 16.08% 714,323 13.28%

Investment securities 250,966 361,972 44.23% 387,600 7.08%

Bank acceptances 45,870 32,712 -28.69% 35,285 7.86%

Other assets and investment in associates 55,005 58,267 5.93% 61,143 4.93%

Total Assets 1,371,394 1,832,771 33.64% 1,823,947 -0.48%

Customer Deposits 1,078,811 1,455,767 34.94% 1,526,219 4.84%

Engagement by acceptances 45,870 32,712 -28.69% 35,285 7.86%

Deposits from banks and institutions 94,917 139,285 46.74% 52,524 -62.29%

Subordinated Bonds 22,680 62,635 176.17% 62,355 -0.45%

Other Liabilities 13,178 12,784 -2.98% 15,234 19.15%

Total Liabilities 1,255,456 1,703,183 35.66% 1,691,617 -0.68%

Minority interest 61 -84 - -40

Total Shareholders’ Equity 115,938 129,588 11.77% 132,330 2.11%

Total Liabilities & Equity 1,371,394 1,832,771 33.64% 1,823,947 -0.48%

Net Income for the year 11,030 11,729 6.34% 12,588 7.32%

Return on Average Assets (ROAA) 0.86% 0.73% 0.68%

Return on Average Equity (ROAE) 9.74% 9.55% 9.61%

Audited Audited2008in LBP Millions 2009 2009-08 2010

Variation2010-09Variation

Analysis of Financial Position / Major Balance Sheet Items

The Bank’s main sources of funds in 2010 remained

its Customers’ Deposits, which consisted of 83.7%

of funding sources growing from 79.4% in 2009.

Tier I and Tier II equity accounted for 10.67% of

total sources of funds (10.49% in 2009) while the

share of deposits from banks and financial

institutions dropped from 7.6% in 2009 to 2.88% in

2010.

With respect to the uses of funds, the bank

maintained its conservative approach in terms of

maintaining a high asset quality and satisfactory

liquidity. Loans and advances to customers

captured 39.16% of total uses of funds in 2010

(compared to 34.41 in 2009). As for immediate

liquidity, the share of deposits with banks and

financial institutions and placements with Central

Banks remained at a satisfactory level of 34.08%,

increasing from 40.85% in 2009.

Total AssetsTotal Assets of LBP 1,823,947 million (US$ 1,210

million) as at December 31, 2010 as compared to

LBP 1,832,771 million (US$ 1,215.77 million) in

2009. Loans to customers reached LBP 714,323

million (US$ 473.85 million) as at December 31,

2010 as compared to LBP 630,582 million (US$

418.30 million) in 2009 reflecting a year-on-year

increase of 13.28%.

Deposits with banks and financial institutions and

cash compulsory reserve and Central Banks together

represented 34.08% of total assets in 2010. The

Bank maintains a major portion of its assets in

deposits with foreign banks for the purpose of

securing its correspondent banking needs that are

directly related to the documentary credit and

other trade related facilities as well as maintaining

a high liquidity. Careful consideration and thorough

financial risk assessment is applied when selecting

correspondent banks; only financially solid names

having a sound risk profile and with limited impact

from the financial crisis are selected not to mention

the historical relationship maintained.

Evolution of Main Balance Sheet ItemsBanque Bemo SAL has been able to maintain a

sustained performance since its establishment.

Ongoing well contemplated growth based on a

conservative approach allowed the bank to position

itself amongst the top achievers within its peer

group and the banking sector as a whole.

Cash, compulsory reserve and Central Banks 382,083 20.85% 347,975 19.08%Deposits with banks and financial institutions 366,585 20.00% 273,607 15.00%Loans to banks 570 0.03% 4,014 0.22%Loans and advances to customers 630,582 34.41% 714,323 39.16%Investment securities 361,972 19.75% 387,600 21.25%Other assets and investment in associates 90,979 4.96% 96,428 5.29%Total Uses of Funds 1,832,771 100.00% 1,823,947 100.00%

2009Uses of Funds | in LBP Millions % 2010 %

Customer Deposits 1,455,767 79.43% 1,526,219 83.68%Equity (including subordinated bonds) 192,222 10.49% 194,685 10.67%Other Liabilities 45,497 2.48% 50,519 2.77%Deposits from banks and financial institutions 139,285 7.60% 52,524 2.88%Total Sources of Funds 1,832,771 100.00% 1,823,947 100.00%

2009Sources of Funds | in LBP Millions % 2010 %


The Bank maintained its satisfactory rankings as compared to its peer group – BETA Group*:

* BETA Group as defined by Bilanbanques – Bank Data Publication including local banks with deposits between USD 500 million and USD 2 billion –BETA Group presently includes 10 banks – 2010 figures not yet published

**Ranking by doubtful & substandard loans to gross loans: prime ranking indicates lowest ratio amongst peer group and the banking sector as a whole.

1. Net interest income after provisions/Interest revenues2. Net income/(Cash & Central Bank; Lebanese government securities; deposits with other institutions; loans and advances to customers)3. Net income/(Total Assets less: fixed assets; Regularization accounts)4. Net income /Total Assets5. Net income/Average total assets6. Net income/Total Shareholders ̓equity7. Net Income/Average Shareholders ̓equity8. Salaries and general operating expenses/Net financial revenues9. Total Salaries and related expenses/Total operating expenses (excluding depreciation and losses on investment properties)10. Central Bank of Lebanon BIS capital adequacy ratio (Basel I Calculations)11. Shareholdersʼ Equity/Total Assets12. Net Loans/Customers ̓deposits13. Net Loans/Total Assets14. Net liquid assets/Customers ̓deposits; net liquid assets include cash; deposits at Central Bank and other institutions; investments on securities maturing within one year15. Net liquid assets/ Total Assets16. Doubtful loans/ Gross loans17. Doubtful Loans/Shareholders ̓Equity

Asset and Liability Management Interest earning assets to total assets 92.64% 93.11% 90.13%Interest bearing liabilities to total liabilities 93.49% 93.65% 96.63%

Profitability and EfficiencyNet interest margin 1 29.47% 27.14% 26.36%Return on interest earning assets 2 0.88% 0.67% 0.77%Return on earning assets 3 0.84% 0.66% 0.70%

Return on Assets 4 0.82% 0.64% 0.69%Return on Average Assets (ROAA) 5 0.87% 0.73% 0.69%Return on Equity 6 10.75% 9.95% 10.51%Return on Average Equity (ROAE) 7 11.05% 9.55% 10.61%

Cost-to-income 8 65.85% 66.88% 66.93%Staff expenses to total operating expenses 9 60.95% 55.06% 61.66%

Capital Adequacy, Liquidity and SolvencyBIS Capital Adequacy Ratio 10 14.56% 20.27% 17.56%Equity to assets 11 8.43% 7.07% 7.26%Loans to deposits 12 50.35% 43.32% 46.80%Loans to total assets 13 39.58% 34.41% 39.16%Net liquid assets to deposits 14 58.12% 66.72% 60.21%Net liquid assets to total assets 15 45.69% 53.00% 50.38%Doubtful loans to gross loans 16 0.75% 0.46% 0.47%Loan loss provisions to doubtful loans 89.39% 89.95% 88.31%Loan loss provisions to gross loans 0.67% 0.24% 0.41%Net doubtful loans to equity 17 0.33% 0.29% 0.33%

20092008Selected Financial Ratios and Statistics 2010

Ranking by total assets 6 6 5Ranking by total loans and advances 5 6 5Ranking by shareholders’ equity 3 4 5Ranking by total LC Openings of the year 1 3 3Ranking by Equity to Assets ratio 1 3 7Ranking by doubtful & substandard loans to gross loans 1** 1** 1**Ranking by loan loss provisions to doubtful loans 2 2 2

200920082007Banque Bemo SAL Rankings

The Bank’s doubtful and bad loans amounted to

LBP 3,339 million (US$ 2.21 million) as at

December 31, 2010 compared to LBP 3,181 million

(US$ 2.11 million) as at December 31, 2009 reflecting

an increase of 4.97%. Unrealized interest and

provisions on doubtful and bad debts reached LBP

2,949 million (US$ 1.96 million) as at December

31, 2010 as compared to LBP 2,801 million

(US$ 1.86 million) as at December 31, 2009 reflecting

an increase of 5.28%. Substandard Loans, net of

unrealized interest, reached LBP 676 million (US$

0.45 million) as at December 31, 2010 as compared

to LBP 1,267 million (US$ 0.84 million) at the end

of 2009, reflecting a year-on-year decrease of

46.65%.

Loan PortfolioThe Bank’s loans and advances to customersreached LBP 714,323 million (US$ 473.85 million)as at December 31, 2010 as compared to LBP630,582 million (US$ 418.30 million) in 2009reflecting a year-on-year increase of 13.28%. Loans

and advances to related parties (as defined byArticle 152 of the Code of Money and Credit) wereequivalent to LBP 3,748million (US$ 2.49 million)as at December 31, 2010 as compared to LBP 6,671million (US$ 4.42 million) in 2009.

Analysis of the Loan Portfolio by type of Borrower and Loan Classification including related parties

Regular Loans 540,416 628,294 16.26% 712,718 13.44%

Substandard Loans 2,571 2,030 -21.04% 1,400 -31.03%

Doubtful Loans 2,771 2,360 -14.83% 2,258 -4.32%

Bad Loans 825 821 -0.48% 1,081 31.67%

Accrued Interest receivable 577 641 11.09% 539 -15.91%

Total gross loans 547,160 634,146 15.90% 719,996 13.54%

Unrealized Interest on Substandard Loans -718 -763 -6.27% -724 -5.11%

Unrealized Interest on Doubtful Loans -1,378 -1,085 -21.26% -1,121 3.31%

Unrealized Interest on Bad Loans -195 -204 4.62% -319 56.37%

Provision Allowance on Doubtful Loans -1,013 -896 -11.55% -747 -11.55%

Provision Allowance on Bad Loans -628 -616 -1.91% -762 -23.7%

Total net loans 543,228 630,582 16.08% 714,323 13.28%

Unrealized interest /substandard loans (%) 27.92 37.58 51.71

Unrealized interest & Prov/ doubtful and bad loans (%) 89.40 88.05 88.32

Net Doubtful & Bad Loans / Total loans (%) 0.07 0.06 0.05

Audited Audited2008in LBP Millions 2009 2009/08 2010

Variation2010/09Variation


The main concentration in terms of geographic area

remains Lebanon. Through its well spread and

strategically located branches, the bank efficiently

caters for the needs of its client base. Within the

Middle East and Africa Region, Syria captures the

main territory in view of the historical ties with

prime corporate clients based in Damascus, Aleppo

and other Syrian regions. The bank is continuously

building its image and awareness in the market

through selective positioning within the targeted

niche market of Private and Corporate clients.

Analysis of the Loan Portfolio by Currency

Analysis of the Loan Portfolio by Geographic Area

The Bank’s loan portfolio is characterized by a high

level of dollarization matching the currency

composition of the sources of funds. However, as at

December 31, 2010 and 2009 98.8% of total loans

were denominated in foreign currencies.

Loans and advances to customers 7,421 530,039 47,049 538 38,864Loans and advances to related parties - 6,614 56 - -Total Loans 7,421 536,653 47,105 538 38,864

LBP (million)

US$ (million)

Euro (million)

GBP (million)

Other (million)Bank’s loan portfolio

December 31, 2009 (C/V in LBP)

Loans and advances to customers 8,907 585,151 43,772 509 72,236Loans and advances to related parties - 3,728 20 - -Total Loans 8,907 588,879 43,792 509 72,236

LBP (million)

US$ (million)

Euro (million)

GBP (million)

Other (million)Bank’s loan portfolio

December 31, 2010 (C/V in LBP)

Lebanon 567,934 90.07% 645,268 90.33%Middle East and Africa 62,134 9.85% 66,655 9.33%North America - 0.00% 42 0.01%Europe 124 0.02% 2,358 0.33%Other 390 0.06% - 0.00%Total 630,582 100.00% 714,323 100.00%

2009(LBP million)

Geographical area Share 2010(LBP million)

Share

Investment Securities PortfolioThe Bank’s portfolio consists of both fixed and variable income and is classified into two categories:

Available for sale and Held to maturity.

Available for saleQuoted equity securities 10,967 4.46% 14,390 4.02% 8,030 2.09%Unquoted equity securities 647 0.26% 647 0.18% 644 0.17%Lebanese treasury bills 119,811 48.68% 158,306 44.22% 145,879 38.01%Foreign treasury bills 8,070 2.25% 505 0.13%Lebanese government bonds 39,609 16.10% 58,863 16.44% 83,307 21.70%Cert. of deposit issued by Central Bank 10,890 4.40% 34,856 9.74% 65,151 16.97%Corporate Bonds 13,996 5.69% 37,834 10.57% 36,406 9.49%Accrued interest 4,018 1.63% 5,879 1.64% 6,176 1.61%Subtotal 199,938 81.22% 318,845 89.06% 346,098 90.17%Held to maturityForeign treasury bills 2,259 0.92% 399 0.11% 391 0.10%Lebanese government bonds 2,047 0.83% - -Cert. of deposit issued by Central Bank 27,256 11.07% 29,241 8.17% 29,241 7.62%Corporate Bonds 13,478 5.48% 8,410 2.35% 7,017 1.83%Accrued interest 1,154 0.48% 1,119 0.31% 1,061 0.28%Subtotal 46,194 18.78% 39,169 10.94% 37,710 9.83%Total investment portfolio securities 246,132 100.00% 358,014 100.00% 383,808 100.00%

2009in LBP Millions Share2008 Share 2010 Share

Analysis of the Loan Portfolio by Counterparty type

Regular retail customer 74,856 70,651 -5.62% 11.87% 9.89%- Mortgage loans. 9,694 12,387 27.78% 1.54% 1.73%- Personal loans 7,575 8,800 16.17% 1.20% 1.23%- Credit cards - - - - -- Overdrafts 18,994 16,460 -13.34% 3.01% 2.30%- Other 38,593 33,004 -14.48% 6.12% 4.62%

Regular corporate customers 553,438 642,049 16.01% 87.77% 89.88%- Corporate 427,071 490,233 14.79% 67.73% 68.63%- Small and medium enterprises 126,367 151,816 20.14% 20.04% 21.25%

Classified retail customers 147 - - 0.02% -- Substandard 147 - - 0.02% -- Doubtful - - - - -- Bad - - - - -

Classified corporate customers 1,500 1,065 -29.00% 0.24% 0.15%- Substandard 1,121 675 -39.79% 0.18% 0.09%- Doubtful 378 390 3.17% 0.06% 0.05%- Bad 1 - - -

Accrued interest receivable 641 558 -12.95% 0.10% 0.08%Total 630,582 714,323 13.28% 100% 100%

Carrying amount net of unrealizedinterest and impairment allowance

Share of Total Loans

Share of Total Loansin LBP Millions Variation

Counterparty type 2009 2010 2010/09 2009 2010


Customers’ Deposits in Lebanese Pounds accounted

for only 12.5% of total deposits as of December 31,

2009, have increased to read 14.2% in 2010. On

the other hand, foreign currency deposits accounted

of 87.5% of total deposits in 2009 have decreased

by 1.7% to read 85.8% as of December 31, 2010 in

accordance with the year-to-year increase of the

total deposits by 4.84%. Such an allocation,

coupled with the relatively lower interest rates on

foreign currency deposits resulted in an acceptable

average cost of funds in line with the industry. The

average cost of funds during the last 3 years was as

follows:

Customers’ DepositsThe Bank’s customers’ deposits were equivalent to

LBP 1,526,219 million (US$ 1,012.4 million) as at

December 31, 2010 compared to 1,455,767 million

(US$ 965.7 million) as at December 31, 2009,

reflecting a year-on-year increase of 4.84%.

Currency Composition and Cost of FundsIn 2009 and 2010, the Bank’s Customers’ Deposits

represented respectively 85.5% and 90.2% of total

liabilities. Time Deposits represent the largest

portion of the Bank’s deposits, owing to the

private/selective banking nature of the operations.

Customers’ Accounts at amortized cost 182,623 1,044,358 173,938 43,807 11,041Total Customers’ Deposits in LBP (million) 1,455,767

Customers’ Accounts at amortized cost 216,774 1,117,331 138,469 44,503 9,142Total Customers’ Deposits in LBP (million) 1,526,219

LBP US$ Euro GBP Others

December 31, 2009 (C/V in LBP million)

LBP US$ Euro GBP Others

December 31, 2010 (C/V in LBP million)

2010 6.20 2.902009 7.36 3.412008 7.21 4.06

Average Rate LBP (%)Year Average rate FCY (%)

Interest income increased by 1.76% to LBP 74,081

million (US$ 49.14 million) in 2010 as compared to

LBP 72,799 million (US$ 48.29 million) in 2009. In

addition, interest expense increased by 2.85% to

LBP 54,552 million (US$ 36.18 million) in 2010 as

compared to LBP 53,040 million (US$ 35.18

million) in 2009. As a result, net interest income

received by the Bank for 2010 increased by 6.97%

as compared to 2009.

Interest and Similar Income

From loans and advances to customers 38,840 42,832 11.43% 44,622 4.18%From deposits with banks, financial institutions and Central Bank 15,563 7,552 -51.47% 5,154 -31.75%From investment securities (Available for Sale & Held until Maturity) 14,752 22,030 49.34% 24,068 9.25%Other 446 385 -13.68% 237 -38.44%Total 69,201 72,799 5.20% 74,081 1.76%



Interest income 69,201 72,799 5.20% 74,081 1.76%Interest expense 46,421 53,040 14.26% 54,552 2.85%Net interest income (after provisions) 20,375 18,061 -11.36% 19,319 6.97%Other fee based income 7,480 7,359 -1.62% 7,606 3.35%Gain on exchange and other operating income* 9,685 14,483 49.54% 15,705 8.43%Salaries 13,931 14,693 5.47% 16,173 10.07%General operating expenses 8,717 9,291 6.58% 10,054 8.21%Other expenses (including tax expenses) 3,862 4,189 8.47% 3,815 -8.95%Minority interest 200 144 -28% 98 -31.94%Net Income 11,030 11,729 6.35% 12,686 8.16%

* Includes gains/loss on securities and exchange transactions



As indicated in the table below, most of the Bank

performance indicators maintained their positive

trend. After the sharp interest rate declination in

2009, the net interest income (after provisions)

recorded a 6.97% Increase compared to 2009

reaching LBP 19,3 bln. Other fee base income have

also increased by 3.35% compared to 2009 to reach

LBP 7.6 bln. Also, gain on exchange and other

operating income compensated increased by

8.43% from LBP 14.5 bln to LBP 15.7 bln.

Consequently, covering the increase in salaries and

operating expenses and generating additional net

income reaching LBP 12.7 bln increasing by 8.16%

as compared to LBP 11.7 bln in 2009.

Net Interest

Analysis of Performance Indicators


Interest and Similar ChargesThe following table sets forth a breakdown of the

Bank’s interests and similar charges for the years

ending December 31, 2008, 2009 and 2010:

This increase of 1.76% in interest received was

primarily due to the following:

- An increase in the interest received from loans

and advances to customers which reached LBP

44,622 million (US$ 29.60 million) in 2010 and

constituted 60.23% of total interest and similar

income as compared to LBP 42,832 million (US$

28.41 million) and 58.84% in 2009. This increase

was mainly due to the growth witnessed in

average loans and advances to customers.

- An increase in the interest received from

investment securities which reached LBP 24,068

million (US$ 15.96million) in 2010 and constituted

32.48% of total interest and similar income as

compared to LBP 22,030 million (US$ 14.61

million) and 30.26% in 2009.

The Interest received from deposits with banks,

financial institutions and Central Bank reached LBP

5,154 million (US$ 3.42 million) in 2010 and

constituted 6.95% of total interest and similar

income as compared to LBP 7,552 million (US$ 5.01

million) and 10.37% in 2009 reflecting a year-on-

year decrease of 31.75%. The decrease is mainly

related to the large reduction in international

reference rates (Fed Funds, LIBOR) as central banks

around the world lowered their index rates to face

the economic pressures of the international

financial crisis.

Interest and similar charges reached LBP 54,553

million (US$ 36.19 million) in 2010 as compared to

LBP 53,040 million (US$ 35.18 million) in 2009

reflecting a year-on-year increase of 2.85%. The

increase is mainly due to the augmentation

witnessed in interest paid on customers’ deposits

which rose from LBP 47,725 million (US$ 31.66

million) in 2009 to LBP 49,262 million (US$ 32.68

million) in 2010 constituting 90.30% of total interest

and similar charges compared to and 89.98% in

2009. However, a remarkable increase in interest

paid on subordinated bonds which scored LBP

4,242 million (US$ 2.81 million) in 2010 as

compared to LBP 3,318 million (US$ 2.20 million) in

2009 reflecting a year-on-year increase of 27.85%.

On the other hand, interest paid on Banks and

financial institutions decreased by 54.79% to read

LBP 585 million (US$ 0.39mln) in 2010 compared

to LBP 1,294 million (US$ 0.86 million) in 2009.

Banks and financial institutions 2,145 1,294 -39.67% 585 -54.79%Customers’ deposits 41,357 47,725 15.40% 49,262 3.22%Subordinated bonds 1,551 3,318 113.93% 4,242 27.85%Cash contribution to capital 1,368 703 -48.61% 464 -34.00%Total 46,421 53,040 14.26% 54,553 2.85%



Subordinated bonds 22,680,316 62,634,641 62,355,223

Equity

Share capital 16,000,000 16,000,000 16,000,000

Treasury shares -597,085 -1,059,111 -1,547,330

Preferred shares 30,150,000 30,150,000 30,150,000

Shareholders’ cash contribution to capital 29,104,984 29,104,984 29,104,984

Reserves 26,492,043 29,870,723 32,235,272

Retained earnings 8,428,452 10,272,701 13,718,210

Cumulative change in fair value of investment securities -4,931,717 3,460,701 22,937

Income for the year 11,229,947 11,872,286 12,686,412

Equity attributable to the Group 115,876,624 129,672,284 132,370,485

Minority interest 61,000 -84,030 -39,982

Total Equity 115,937,624 129,588,254 132,330,503

Tier I and Tier II Equity 138,617,940 192,222,895 194,685,726

20092008In LBP thousands 2010

As at December 31, 2010, the bank’s consolidated

shareholder’s equity (including Tier I & Tier II)

reached LBP 194.68 billion (US$ 129.14 million)

increasing by 1.3% from 2009. It is worth mentioning

that in March 2011 the bank enjoyed a capital

increase of LBP 46 billion of which LBP 16 billion

were allocated from reserves and retained earnings

and LBP 30 billion from fresh cash injection.

Capitalization

Interest Sensitive Assets and LiabilitiesThe Bank maintains a satisfactory level of interest

sensitive funds on both sides of its balance sheet.

The table below shows the composition of assets

and liabilities as at December 31, 2009 and 2010:

The major components of interest earning assets

are cash held at the Central Bank, Lebanese T-Bills,

bonds and financial instruments with fixed income,

deposits at other banks and financial institutions,

and loans and advances to customers. As to interest

bearing liabilities, customer deposits and

engagements constitute the largest component.

Interest earning assets to total assets… … 93.11% 90.13%Interest bearing liabilities to total liabilities 93.65% 96.63%

2009In percentage 2010

Unrealized gain/(loss) on Lebanese Treasury Bills 3,099,951 2,527,821

Unrealized gain/(loss) on Lebanese Government Bonds -428,376 -3,319,295

Unrealized gain/(loss) on Foreign Treasury Bills 93,631 -9,359

Unrealized gain/(loss) on Certificates of Deposits

issued by BDL 640,792 1,366,875

Unrealized gain/(loss) on Corporate Bonds -58,006 -324,919

Unrealized gain/(loss) on Equity securities 112,709 -218,186

Total 3,460,701 22,937

2009in LBP thousand 2010

- In accordance with banking laws and regulations,

subordinated bonds are considered as Tier II capital

for the purposes of computation of the Risk Based

Capital Ratio, to be decreased by 20% on a yearly

basis.

- Preferred Shares: Issued on June 1, 2006, the

preferred shares are callable five years from

issuance date on June 1, 2011.

The positive impact of the revaluation of available-

for-sale investment securities was mainly driven

from the following financial instruments:

Common Equity* 99,522,284 51.75 102,220,485 52.49

Preferred Equity 30,150,000 15.68 30,150,000 15.49

Subordinated Bonds 62,634,641 32.57 62,355,223 32.02

Total 192,306,925 100 194,725,708 100

2009Balance % Balance %in LBP Thousand

2010

The decline in the revaluation of the above

financial instruments was mainly due to the drop in

prices of the Lebanese Government bonds

reflecting the country's economic instability which

was mirrored by a lower appetite for such

instruments.

Distribution by nature

* Including net income


Independent Auditors’ Report

CONSOLIDATED FINANCIAL STATEMENTS

BANQUE BEMO S.A.L.

CONSOLIDATED FINANCIAL STATEMENTSAND AUDITORS’ REPORT

YEAR ENDED DECEMBER 31, 2010

TABLE OF CONTENTS

Consolidated Financial Statements:

Consolidated Statement of Financial Position 80

Consolidated Income Statement 82

Consolidated Statement of Comprehensive Income 83

Consolidated Statement of Changes in Equity 84

Consolidated Statement of Cash Flows 86

Notes to the Consolidated Financial Statements 88-

BANQUE BEMO S.A.L.CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Cash and Central Banks 5 347,974,878 382,083,230

Deposits with banks and financial institutions 6 273,606,963 366,584,801

Trading assets 7 3,791,378 3,957,840

Loans to banks 8 4,014,194 570,233

Loans and advances to customers 9 710,574,798 623,911,235

Loans and advances to related parties 10 3,748,215 6,670,738

Available-for-sale investment securities 11 346,098,471 318,845,288

Held-to-maturity investment securities 11 37,709,882 39,169,297

Customers' liability under acceptances 12 35,284,637 32,711,940

Investments in associates 13 34,545,320 29,776,737

Assets acquired in satisfaction of loans 14 2,831,019 10,053,946

Property and equipment 15 18,475,116 12,236,519

Intangible assets 16 831,285 975,862

Other assets 17 4,460,924 5,223,719

Total Assets 1,823,947,080 1,832,771,385

FINANCIAL INSTRUMENTS WITH OFF-BALANCE

SHEET RISK: 40

Documentary and commercial letters of credit 91,062,319 90,385,113

Guarantees and standby letters of credit 60,425,485 74,553,480

Forward contracts 166,227,418 177,698,608

FIDUCIARY DEPOSITS AND ASSETS UNDER

MANAGEMENT 41 12,528,198 13,595,868

2010 | LBP’000Notes

December 31,

ASSETS

2009 | LBP’000

THE ACCOMPANYING NOTES 1 TO 48 FORM AN INTEGRAL PART OF THE CONSOLIDATEDFINANCIAL STATEMENTS


Deposits and borrowings from banks 18 52,523,732 139,284,967

Customers' accounts at amortized cost 19 1,501,704,182 1,443,805,427

Related parties' accounts at amortized cost 20 24,514,571 11,961,482

Acceptance liability 12 35,284,637 32,711,940

Other liabilities 21 9,997,918 7,286,224

Provisions 22 5,236,314 5,498,450

1,629,261,354 1,640,548,490

Subordinated bonds 23 62,355,223 62,634,641

Total liabilities 1,691,616,577 1,703,183,131

Share capital 24 16,000,000 16,000,000

Treasury shares 24 (1,547,330) (1,059,111)

Preferred shares 25 30,150,000 30,150,000

Shareholders’ cash contribution to capital 26 29,104,984 29,104,984

Reserves 27 32,235,272 29,870,723

Retained earnings 13,718,210 10,272,701

Cumulative change in fair value of investment

securities 28 22,937 3,460,701

Profit for the year 30 12,686,412 11,872,286

Equity attributable to the Group 132,370,485 129,672,284

Non-controlling interest 29 (39,982) (84,030)

Total equity 132,330,503 129,588,254

Total Liabilities and Equity 1,823,947,080 1,832,771,385


December 31,

LIABILITIES

2009 | LBP’000


EQUITY

BANQUE BEMO S.A.L.CONSOLIDATED INCOME STATEMENT

Interest income 32 74,081,456 72,798,683Interest expense 33 (54,552,516) (53,040,128)Net interest income 19,528,940 19,758,555

Fee and commission income 34 8,380,348 8,171,216Fee and commission expense 35 (774,416) (812,230)Net fee and commission income 7,605,932 7,358,986

Net interest and other gains/(losses) on trading portfolio 36 326,747 432,336Gain on exchange 2,574,658 2,782,954Other operating income 37 12,803,365 11,267,444Net financial revenues 42,839,642 41,600,275

Allowance for impairment ofloans and advances 9 & 17 (265,859) (1,205,303)Write-back of impairment loss on loans and advances 9 56,411 346,221Collections on written-off loans - 50,707Allowance for impairment ofinvestment securities (net) 11 - (889,425)Net financial revenues after net impairment charge 42,630,194 39,902,475

Staff costs 38 (16,172,913) (14,692,897)Administrative expenses (10,054,364) (9,291,363)Depreciation and amortization 15 & 16 (2,376,041) (2,338,225)Provision/(write-back of provision) for contingencies 22 71,786 (362,620)Other expenses (28,531,532) (26,685,105)

Profit before income tax 14,098,662 13,217,370Income tax expense 21 (1,510,582) (1,488,678)Profit for the year 30 12,588,080 11,728,692

Attributable to:Equity holders of the Group 12,686,412 11,872,286Non-controlling interest (98,332) (143,594)

12,588,080 11,728,692Basic and diluted earnings per share (LBP) 39 650/47 591/31


Year Ended | December 31,

2009 | LBP’000



BANQUE BEMO S.A.L.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Profit for the year 12,588,080 11,728,692

Other comprehensive income ("OCI"):

Net (loss)/gain on available-for-sale securities (4,558,130) 7,672,109

Net gain on available-for-sale securities recycled

to profit and loss 638,045 1,507,673

Deferred tax relating to components of OCI 482,321 (787,364)

Net other comprehensive (loss)/income for the year (3,437,764) 8,392,418

Total comprehensive income for the year 9,150,316 20,121,110

Attributable to:

Equity holders of the Group 9,248,648 20,264,704

Non-controlling interest (98,332) (143,594)

9,150,316 20,121,110

2010 | LBP’000


2009 | LBP’000


BANQUE BEMO S.A.L.CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Balances at January 1, 2009 16,000,000 (597,085) 30,150,000 29,104,984 5,920,750 7,631,500

Total comprehensive income - - - - - -

Allocation of income of the year 2008 - - - - 945,259 1,984,375

Dividends paid -- Note 31 - - - - - -

Acquisition of treasury shares - (462,026) - - - -

Other movement - - - - - -

Non-Controlling interest - - - - - -

Balances at December 31, 2009 16,000,000 (1,059,111) 30,150,000 29,104,984 6,866,009 9,615,875

Total comprehensive income - - - - - -

Allocation of income of the year 2009 - - - - 457,793 2,306,732

Dividends paid -- Note 31 - - - - - -

Acquisition of treasury shares - (488,219) - - - -

Transfer of assets acquired

in satisfaction of debts

to property and equipment - Note 14 - - - - - -

Other movement - - - - - -

Non-controlling interest - - - - - -

Balances at December 31, 2010 16,000,000 (1,547,330) 30,150,000 29,104,984 7,323,802 11,922,607

CapitalTreasuryShares

PreferredShares

LegalReserve

Reservefor General

BankingRisk

Shareholders’Cash

Contributionto Capital


EQUITY ATTRIBUTABLE TO THE GROUP | LBP’000


OtherReserves

Reserve for Assets Acquired in

Satisfaction ofDebts

RetainedEarnings

CumulativeChange in Fair

Value ofInvestmentSecurities

Income of the year Total

Non-Controlling

interest Total

LBP’000

12,718,363 221,430 8,428,452 (4,931,717) 11,229,947 115,876,624 61,000 115,937,624

- - - 8,392,418 11,872,286 20,264,704 (143,594) 20,121,110

- 449,046 7,851,267 - (11,229,947) - - -

- - (5,963,358) - - (5,963,358) - (5,963,358)

- - - - - (462,026) - (462,026)

- - (43,660) - - (43,660) - (43,660)

- - - - - - (1,436) (1,436)

12,718,363 670,476 10,272,701 3,460,701 11,872,286 129,672,284 (84,030) 129,588,254

- - - (3,437,764) 12,686,412 9,248,648 (98,332) 9,150,316

- 455,694 8,652,067 - (11,872,286) - - -

- - (5,929,021) - - (5,929,021) - (5,929,021)

- - - - - (488,219) - (488,219)

- (855,670) 855,670 - - - - -

- - (133,207) - - (133,207) - (133,207)

- - - - - - 142,380 142,380

12,718,363 270,500 13,718,210 22,937 12,686,412 132,370,485 (39,982) 132,330,503



2009 | LBP’000

Cash flows from operating activities:

Profit before tax 14,098,662 13,217,370

Adjustments to reconcile profit to net cash

provided by/(used in) operating activities:

Depreciation and amortization 15 & 16 2,376,041 2,338,225

Provision for credit losses (net) 9 82,155 451,553

Provision for loss on foreign currency position 88,054 6,000

Allowance for impairment of

investment securities 11 - 889,425

Provision for receivables from

securitization operations 17 113,063 753,750

Provision for other receivables 17 14,230 -

Non-controlling interest 142,380 (1,436)

Provision for end-of-service indemnities (net) 22 492,573 577,541

(Write-back of provision)/provision

for contingencies 22 (71,786) 362,620

Unrealized gain on trading securities 36 (21,863) (101,283)

Equity income from investment in associates 13 (4,768,583) (4,781,458)

Loss from sale of property and equipment 7,911 9,167

Settlement of end-of-service indemnity 22 (33,594) (295,677)

Decrease/(increase) in deposits with

banks and financial institutions 63,300,043 (89,675,678)

Increase in loans and advances (90,811,280) (82,520,469)

Assets acquired in satisfaction of loans 43 - (368,747)

Net decrease/(increase) in other assets 2,095,937 (130,256)

Increase in customers’ and related parties’ deposits at amortized cost 83,538,612 375,852,720

Increase in non-interest earning compulsory reserve (1,654,035) (10,233,658)

Increase in due to banks and financial institutions 11,788,659 2,993,659

Net increase/(decrease) in other liabilities 2,189,903 (405,927)

Income tax paid (1,317,255) (2,134,703)

Others (including effect of exchange rate changes) (2,882) 4,251

Net cash provided by operating activities 81,646,945 206,806,989

BANQUE BEMO S.A.L.CONSOLIDATED STATEMENT OF CASH FLOWS


Cash flows from investing activities:

Securities 43 (30,504,323) (103,306,263)

Treasury shares (488,219) (462,026)

Property and equipment (1,065,708) (2,352,092)

Proceeds from sale of property and equipment 2,714 107,786

Dividends received from associates - 1,080,293

Intangible assets (192,051) 1,745

Net cash used in investing activities (32,247,587) (104,930,557)

Cash flows from financing activities:

Dividends paid (5,929,021) (5,963,358)

Subordinated bonds (279,418) 39,954,325

Net cash (used in)/provided by financing activities (6,208,439) 33,990,967

Effect of exchange rates changes on cash

and cash equivalents - Beginning of year (2,685,741) 135,343

Net increase in cash and cash equivalents 40,505,178 136,002,742

Cash and cash equivalents - Beginning of year 162,162,540 26,159,798

Cash and cash equivalents - End of year 43 202,667,718 162,162,540




2009 | LBP’000

BANQUE BEMO S.A.L.

NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2010

1. GENERAL INFORMATION

Banque Bemo S.A.L. is a Lebanese joint-stock

company listed on the Beirut Stock Exchange and

registered in the Commercial Register under

Number 17837 and on the list of banks published

by the Central Bank of Lebanon under Number 93.

The Bank's headquarters are located in Beirut.

The Bank provides a full range of commercial,

corporate and private banking activities through a

network of 9 branches in Lebanon in addition to a

branch in Limassol, Cyprus.

2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)

2.1 Standards and Interpretations effective for the current period with no effect on the financial statements

The following new and revised standards,

interpretations have been adopted in the current

period with no material impact on the disclosures

and amounts reported for the current and prior

years but may affect the accounting for future

transactions or arrangements:

Amendments to IFRS 2 Share-based Payment –Group Cash-settled Share-based PaymentTransactions.

The amendments clarify the scope of IFRS 2, aswell as the accounting for group cash-settledshare-based payment transactions in the separate (or individual) financial statements of anentity receiving the goods or services when anothergroup entity or shareholder has the obligation tosettle the award.


IFRS 3 (revised) Business Combinations and consequential amendments to IAS 27 (revised)Consolidated and Separate Financial Statements,IAS 28 (revised) Investments in Associates and IAS31 (revised) Interests in Joint Ventures.

IFRS 3 (revised) allows a choice on a transaction-by-transaction basis for the measurement of non-controlling interest either at fair value or at thenon-controlling interest’s share of recognized identifiable net assets of the acquiree. Contingentconsideration is measured at fair value at the acquisition date; subsequent adjustments to the consideration are recognized against the cost ofacquisition only to the extent that they arise fromnew information obtained within the measurementperiod about the fair value at the date of acquisition.All other subsequent adjustments to contingentconsideration classified as an asset or a liability arerecognized in profit or loss. All acquisition-relatedcosts are expensed. IAS 27 (revised in 2008)requires that transactions with non-controllinginterests to be recognized within equity, with noimpact on goodwill or profit or loss.

Amendments to IAS 39 Financial Instruments:Recognition and Measurement – Eligible HedgedItems

IFRS 3 (revised) allows a choice on a transaction-by-transaction basis for the measurement of non-controlling interest either at fair value or at thenon-controlling interest’s

The amendments provide clarification on twoaspects of hedge accounting: identifying inflationas a hedged risk or portion, and hedging withoptions.

IFRIC 17 Distributions of Non-cash Assets to Owners The Interpretation provides guidance on the appropriate accounting treatment when an entitydistributes assets other than cash as dividends toits shareholders.

IFRIC 18 Transfers of Assets from Customers The Interpretation addresses the accounting byrecipients for transfers of property, plant and equipment from “customers” and concludes thatwhen the item of property, plant and equipmenttransferred meets the definition of an asset from theperspective of the recipient, the recipient shouldrecognise the asset at its fair value on the date ofthe transfer, with the credit being recognised as revenue in accordance with IAS 18 Revenue recognition.

Improvements to IFRSs issued in 2009 (those thatare mandatory for the first time for the financialyear beginning January 1, 2010)

• Amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Disclosures of non-current assets (or disposal groups) classified as held for sale or discontinuedoperations.

• Amendments to IFRS 8 Operating Segments - Disclosure of information about segment assets.

• Amendments to IAS 1 Presentation of Financial Statements- Current/non-current classification of convertible instruments.

• Amendments to IAS 7 Statement of Cash Flows- Classification of expenditures on unrecognizedassets.

• Amendments to IAS 17 Leases – Classification of leases of land and buildings.

• Amendments to IAS 36 Impairment of Assets –Unit of accounting for goodwill impairment test.

• Amendments to IAS 38 Intangible Assets – Additional consequential amendments arising from revised IFRS 3. Measuring the fair value ofan intangible asset acquired in a business combination.

• Amendments to IAS 39 Financial Instruments: Recognition and Measurement - Treating loan prepayment penalties as closely related embedded derivatives. Scope exemption for business combination contracts. Cash flow hedge accounting.

• IFRIC 9 Reassessment of Embedded Derivatives -Scope of IFRIC 9 and revised IFRS 3.

• IFRIC 16 Hedges of a Net Investment in a Foreign Operation - Amendment to the restrictionon the entity that can hold hedging instruments.


• Amendments to IFRS 1 Limited Exemption fromComparative IFRS 7 Disclosures for First-time Adopters.

July 1, 2010

• Amendments to IFRS 7 Disclosures – Transfersof Financial Assets increase the disclosure requirements for transactions involving transfersof financial assets. These amendments areintended to provide greater transparencyaround risk exposures of transactions when afinancial asset is transferred but the transferorretains some level of continuing exposure in theasset. The amendments also require disclosureswhere transfers of financial assets are not evenlydistributed throughout the period. Currently, theGroup has not entered into such transactions.

July 1, 2011

IFRS 9 Financial Instruments issued inNovember 2009 and amended in October 2010introduces new requirements for the classificationand measurement of financial assets and financialliabilities and for derecognition. IFRS 9 requiresall recognized financial assets that are within thescope of IAS 39 to be subsequently measured atamortized cost or fair value. Specifically, debtinvestments that are held within a businessmodel whose objective is to collect the contractualcash flows, and that have contractual cash flowsthat are solely payments of principal and interest on the principal outstanding are generallymeasured at amortized cost. All other debtinvestments and equity investments are measured at their fair values. At initial recognition, an entity may make an irrevocableelection to present in other comprehensiveincome subsequent changes in the fair value ofan investment in an equity instrument that is

Early adoption decided by the Group effectiveJanuary 1, 2011

Effective for Annual Periods Beginning on or After

2.2 Standards and Interpretations in issue but not yet effective

The Group has not applied the following new standards, amendments and interpretations that have been

issued but not yet effective:

•

not held for trading. The gain or loss that is presented in other comprehensive incomeincludes any related foreign exchange component.Dividends on such investments are recognized inprofit or loss in accordance with IAS 18 Revenueunless the dividend clearly represents a recoveryof part of the cost of the investment. Amountspresented in other comprehensive income shallnot be subsequently transferred to profit or loss.However, the entity may transfer the cumulativegain or loss within equity

The most significant effect of IFRS 9 regarding theclassification and measurement of financial liabilitiesrelates to the accounting for changes in fair valueof a financial liability (designated as at fair valuethrough profit or loss) attributable to changes inthe credit risk of the issuer. Specifically, under IFRS9, for financial liabilities that are designated as atfair value through profit or loss, the amount ofchange in the fair value of the financial liabilitythat is attributable to changes in the credit risk ofthe issuer is recognized in other comprehensiveincome, unless the recognition of the effects ofchanges in the liability’s credit risk in other comprehensive income would create or enlargean accounting mismatch in profit or loss. Changesin fair value attributable to a financial liability’scredit risk are not subsequently reclassified toprofit or loss.

IFRS 9 will be early adopted in the Group’s consolidated financial statements for the annualperiod beginning January 1, 2011 and its applica-tion will have an impact on amounts reported inrespect of the Group’s financial assets as summa-rized under section 2.3 below.

Early adoption decided by the Group effectiveJanuary 1, 2011

• IAS 24 Related Party Disclosures (as revised in2009) modifies the definition of a related partyand simplifies disclosures for government-relatedentities. The disclosure exemptions introduced inIAS 24 (as revised in 2009) do not affect the Groupbecause it is not a government-related entity.However, disclosures regarding related partytransactions and balances in these financial statements may be affected when the revisedversion of the Standard is applied in futureaccounting periods because some counterpartiesthat did not previously meet the definition of arelated party may come within the scope of theStandard.

January 1, 2011


• The amendments to IAS 32 titled Classification ofRights Issues address the classification of certainrights issues denominated in a foreign currency aseither an equity instrument or as a financial liability.To date, the Group has not entered into anyarrangements that would fall within the scope ofthe amendments.

February 1, 2010

• Amendment to IFRIC 14 - Prepayments of aMinimum Funding Requirement. The amendmentscorrect an unintended consequence of IFRIC 14IAS 19 – The Limit on a Defined Benefit Asset,Minimum Funding Requirements and theirInteraction.

January 1, 2011

• Improvements to IFRSs issued in 2010 -Amendments to: IFRS 3; IFRS 7; IAS1; IAS 27;IAS34; IFRIC 13.

Most of the amendments are effective for annualperiods beginning on or after January 1, 2011

• IFRIC 19 Extinguishing Financial Liabilities withEquity Instruments provides guidance regardingthe accounting for the extinguishment of a financialliability by the issue of equity instruments. In particular equity instruments issued under sucharrangements will be measured at their fairvalue, and any difference between the carryingamount of the financial liability extinguished andthe fair value of equity instruments issued will be recognized in profit or loss. To date, the Group hasnot entered into transactions of this nature.

July 1, 2010

2.3 Impact of the adoption of IFRS 9 effective January 1, 2011 on the amounts reported

As discussed in section 2.2 above, IFRS 9 will be

adopted in the Group’s consolidated financial

statements for the annual period beginning January

1, 2011. Management’s preliminary assessment of

the impact of the application of IFRS 9 is summarized

as follows:

• In accordance with the provisions of IFRS 9,

adoption by the Group in 2011 will be applied

retrospectively and comparative amounts will not

be restated as permitted by IFRS 9.

• Effective January 1, 2011 the Group’s

available-for-sale financial assets under IAS 39 will

be classified as financial assets at fair value through

profit or loss, financial assets at fair value through

other comprehensive income, and financial assets

at amortized cost. Accordingly it is expected that

the cumulative fair value gains in relation to these

available-for-sale financial assets amounting to

LBP22.94million will be reclassified to retained

earnings to the extent of LBP884.48million (loss)

and the remaining amount (along with the

cumulative deferred tax charge) amounting to

LBP907.42million (gain) will be offset against

those financial assets which will be classified as

amortized cost.

• Effective January 1, 2011 part of the Group’sfinancial assets classified as amortized cost (loans

& receivable and held-to-maturity) under IAS 39

will be classified as financial assets at fair value

through profit or loss. Accordingly, related change

in fair value amounting to LBP130.46million (gain)

will be booked as an adjustment to retained

earnings as at January 1, 2011 net of tax effect.

3. SIGNIFICANT ACCOUNTING POLICIES

a. Statement of Compliance

The consolidated financial statements have been

prepared in accordance with International Financial

Reporting Standards (IFRSs) as issued by the

International Accounting Standards Board (IASB).

B. Basis of Preparation and Measurement

The consolidated financial statements have been

prepared on the historical cost basis except for the

following:

• Financial assets and liabilities at fair value

through profit and loss which are measured at

fair value.

• Available-for-sale financial assets which are

measured at fair value.

• Derivative financial instruments which are

measured at fair value.

Assets and liabilities are grouped according to their

nature and are presented in an approximate order

that reflects their relative liquidity.

The principal accounting policies adopted are set

out below:

C. Basis of Consolidation

The consolidated financial statements of Banque

Bemo S.A.L. Group incorporate the financial

statements of the Banque Bemo S.A.L. (the “Bank”)and enterprises controlled by the Bank (its sub-

sidiaries). Control is achieved when, among other

things, the Bank has the power to govern the

financial and operating policies of an entity so as to

obtain benefits from its activities.


D. Business Combinations

Acquisitions of subsidiaries are accounted for using

the purchase method. The cost of the business

combination is measured as the aggregate of the

fair values (at the date of exchange) of assets

given, liabilities incurred or assumed, and equity

instruments issued by the Group in exchange for

control of the acquiree, plus any costs directly

attributable to the business combination. The

acquiree’s identifiable assets, liabilities and

contingent liabilities that meet the conditions for

recognition under IFRS 3 Business Combinations are

recognized at their fair values at the acquisition

date, except for non-current assets (or disposal

groups) that are classified as held for sale in

accordance with IFRS 5. Non-current Assets Held

for Sale and Discontinued Operations, which are

recognized and measured at fair value less costs to

sell.

Goodwill arising on acquisition is recognized as an

asset and initially measured at cost, being the

excess of the cost of the business combination over

the Group’s interest in the net fair value of the

identifiable assets, liabilities and contingent

liabilities recognized. If, after reassessment, the

Group’s interest in the net fair value of the

acquiree’s identifiable assets, liabilities and

contingent liabilities exceeds the cost of the

business combination, the excess is recognized

immediately in profit or loss.

The consolidated subsidiaries consist of:

Where necessary, adjustments are made to the

financial statements of the subsidiaries to bring

their accounting policies into line with those used

by other entities of the Group.

All intra-group transactions, balances, income and

expenses are eliminated in full on consolidation.

Non-controlling interest in the net assets (excluding

goodwill) of consolidated subsidiaries are identified

separately from the Group’s equity therein.

Non-controlling interest consist of the amount of

those interests at the date of the original business

combination and the minority’s share of changes in

equity since the date of the combination.

Subsequent to acquisition, the carrying amount of

non-controlling interest is the amount of those

interests at initial recognition plus the non-controlling

interest share of subsequent changes. Total

comprehensive income is attributable to non-

controlling interests even if this results in the non-

controlling interests having a deficit balances.

Bemo Securitization S.A.L. Lebanon 1998 96.00 Securitization & Structured Finance

Ferticed Limited Holding Luxembourg 1995 100.00 Holding Company

Depository & Custody CompanyS.A.L. Lebanon 2007 100.00 Depository and custody

of securities

Country ofIncorporation

Date ofAcquisition orIncorporation

Percentage ofOwnership

%Business Activities

Company

E. Foreign Currencies

The consolidated financial statements are presentedin Lebanese Pound (“LBP”) which is the Group’sreporting currency. However, the primary currencyof the economic environment in which the Groupoperates (functional currency) is the U.S. Dollar(“USD”).

In preparing the financial statements of the individualentities, transactions in foreign currencies arerecorded at the rates of exchange prevailing at thedates of the transactions. At each statement offinancial position date, monetary items denominatedin foreign currencies are retranslated at the ratesprevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value wasdetermined. Non-monetary items that are measuredin terms of historical cost in a foreign currency arenot retranslated.

Exchange differences are recognized in profit or lossin the period in which they arise except forexchange differences on transactions entered intoin order to hedge certain foreign currency risks, andexchange differences on monetary items receivablefrom or payable to a foreign operation for whichsettlement is neither planned nor likely to occur,

which form part of the net investment in a foreignoperation, and which are recognized in the foreigncurrency translation reserve and recognized in profitor loss on disposal of the net investment.

For the purpose of presenting consolidated financialstatements, the assets and liabilities of the Group’sforeign operations are expressed in LebanesePounds using exchange rates prevailing at thestatement of financial position date. Income andexpense items are translated at the averageexchange rates for the period. Exchange differencesarising, if any, are recorded in other comprehensiveincome and accumulated under equity classified asin the Group’s foreign currency translation reserve.Such exchange differences are recognized in profitor loss in the period in which the foreign operationis disposed of.

Cash flows provided by and used in foreign currenciesunder various activities, as included in the statementof cash flows, are converted into Lebanese Poundsat year-end exchange rates, except for cash andcash equivalents at the beginning of the yearwhich is converted at the prior year closingexchange rates and the effect of currency fluctuation,if any, is disclosed separately.

F. Financial assets and Liabilities

The Group initially recognizes loans and advances,deposits, debt securities issued and subordinatedliabilities on the date that they are originated. Allother financial assets and liabilities are initially recognized on the trade date at which the Groupbecomes a party to the contractual provisions ofthe instrument.

A financial asset (or a part of a financial asset, or apart of a group of similar financial assets) is derecognized, when the contractual rights to thecash flows from the financial asset expire.

In instances where the Group is assessed to havetransferred a financial asset, the asset is

derecognized if the Group has transferred substantiallyall the risks and rewards of ownership. Where theGroup has neither transferred nor retained substantially all the risks and rewards of ownership,the financial asset is derecognized only if the Grouphas not retained control of the financial asset. TheGroup recognizes separately as assets or liabilitiesany rights and obligations created or retained inthe process.

A financial liability (or a part of a financial liability)can only be derecognized when it is extinguished,that is when the obligation specified in the contractis either discharged, cancelled or expires.

Recognition and Derecognition


Financial assets and liabilities are set off and thenet amount is presented in the balance sheetwhen, and only when, the Group has a legal right

to set off the amounts or intends either to settle ona net basis or to realize the asset and settle the liability simultaneously.

Offsetting

The fair values of financial assets and financial liabilities are determined as follows:

• the fair value of financial assets and financialliabilities with standard terms and conditions andtraded on active liquid markets are determinedwith reference to quoted market prices;

• the fair value of other financial assets andfinancial liabilities (excluding derivative instruments)are determined in accordance with generally

accepted pricing models based on discounted cashflow analysis using prices from observable currentmarket transactions; and

• the fair value of derivative instruments, arecalculated using quoted prices. Where such pricesare not available, use is made of discounted cashflow analysis using the applicable yield curve forthe duration of the instruments for non-optionalderivatives, and option pricing models for optionalderivatives.

Fair Value Measurement

Financial assets, other than those at fair value

through profit or loss, are assessed for indicators of

impairment at each reporting date. Financial

assets are impaired where there is objective

evidence that as a result of one or more observable

loss events including significant or prolonged

decline in fair value beyond one business cycle that

occurred after the initial recognition of the financial

asset or group of financial assets, the estimated

future cash flows of the investment have been

impacted.

For financial assets carried at amortized cost, the

amount of the impairment loss or specific provision

for credit losses on non-performing loans and

advances to customers, is the difference between

the asset’s carrying amount and the present value of

estimated future cash flows, discounted at the original

effective interest rate, taking into consideration, the

liquidating value of any security on hand for non-

performing loans and advances to customers.

In addition to specific provision for credit losses on

non-performing loans and advances to customers,

provision for collective impairment is made on a

portfolio basis for credit losses where there is

objective evidence that unidentified losses exist at

the reporting date. This provision is estimated

based on various factors including credit ratings

allocated to a borrower or group of borrowers, the

current economic conditions, the experience the

Group has had in dealing with a borrower or group of

borrowers and available historical default information

The carrying amount of the financial asset is

reduced by the impairment loss directly through

the use of an allowance account. When a loan or

advance to a customer is uncollectible, it is written

off against the provision account. Changes in the

carrying amount of the provision account are

recognized in the income statement.

With the exception of available-for-sale equity

Impairment of Financial Assets

instruments, if, in a subsequent period, the amount

of the impairment loss decreases and the decrease

can be related objectively to an event occurring

after the impairment was recognized, the previously

recognized impairment loss is reversed through the

income statement to the extent that the carrying

amount of the investment at the date the

impairment is reversed does not exceed what the

amortized cost would have been had the impairment

not been recognized.

In respect of available-for-sale equity securities,

any increase in fair value subsequent to an

impairment loss is recognized directly in other

comprehensive income.

G. Investment Securities

Investment securities are initially measured at fairvalue plus incremental direct transaction costs, andsubsequently accounted for depending on their

classification as either held-to-maturity or available-for-sale.

Held-to-maturity investments are non-derivativeassets with fixed or determinable payments andfixed maturity that the Group has the positiveintent and ability to hold to maturity, and which arenot designated at fair value through profit or loss oravailable-for-sale.

Held-to-maturity investments are carried at amortizedcost using the straight line method where results

approximate those resulting from the effectiveinterest method, less any impairment loss. Anysale or reclassification of a significant amount ofheld-to-maturity investments not close to theirmaturity would result in the reclassification of allheld-to-maturity investments as available-for-sale,and prevent the Group from classifying investmentsecurities as held-to-maturity for the current andthe following two financial years.

Held-to-Maturity Investment Securities

Available-for-sale (“AFS”) investments are non

derivative investments that are not designated as

another category of financial assets. Unquoted

equity securities whose fair value cannot be

reliably measured are carried at cost. Fair value is

determined in the manner described in Note 3(F).

Gains and losses arising from changes in fair value

are recognized directly in other comprehensive

income and accumulated in “cumulative change in

fair value of investment securities” with the exception

of impairment losses, interest and foreign

exchange gains and losses on monetary assets,

which are recognized directly in profit or loss. Where

the investment is disposed of or is determined to be

impaired, the cumulative gain or loss previously

accumulated in the “cumulative change in fair value

of investment securities” is reclassified to profit or

loss for the period.

The fair value of available-for-sale monetary assets

denominated in a foreign currency is determined in

that foreign currency and translated at the spot rate

at the statement of financial position date. The

change in fair value attributable to translation

differences that result from a change in amortized

cost of the asset is recognized in the income

statement, and other changes are recognized in

other comprehensive income.

Available-for-Sale Investment Securities


H. Trading Assets

A financial asset is classified as held for trading if:

• it has been acquired principally for the purposeof selling in the near future; or

• it is a part of an identified portfolio of financialinstruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

Financial assets held-for trading are stated at fairvalue, with any resultant gain or loss recognized inprofit or loss. Fair value is determined in the mannerdescribed in note 3(F).

Subsequent to their initial recognition, tradingsecurities are not reclassified except when theymeet the qualifying conditions of IAS 39 amendments on fair value.

I. Loans and Advances

Loans and advances are non-derivative financialassets with fixed or determinable payments thatare not quoted in an active market. Loans andadvances are disclosed at amortized cost net ofunearned interest and after provision for credit

losses where applicable. Bad and doubtful debtsare carried on a cash basis because of doubts andthe probability of non-collection of principal and/orinterest.

j. Derivative Financial Instruments

Derivatives are initially recognized at fair value atthe date a derivative contract is entered into andare subsequently remeasured to their fair value ateach statement of financial position date. Theresulting gain or loss is recognized in profit or lossimmediately unless the derivative is designatedand effective as a hedging instrument, in whichevent the timing of the recognition in profit or loss

depends on the nature of the hedge relationship.The Group designates certain derivatives as eitherhedges of the fair value of recognized assets or liabilities or firm commitments (fair value hedges),hedges of highly probable forecast transactions orhedges of foreign currency risk of firm commitments(cash flow hedges), or hedges of net investmentsin foreign operations

Debt securities exchanged against securities with

longer maturities, with similar risks, and issued by

the same issuer, are not derecognized from financial

assets because they do not meet the conditions for

derecognition. Premiums and discounts derived

from the exchange of said securities are deferred to

be amortized as a yield enhancement on a time

proportionate basis, over the period of the extended

maturities.

Exchange of Debt Securities

The change in fair value on available-for-sale debt

securities reclassified to held-to-maturity is

segregated from the change in fair value of

available-for-sale debt securities under equity and

is amortized over the remaining term to maturity of

the debt security as a yield adjustment.

Derivatives embedded in other financial instruments

or other host contracts are treated as separate

derivatives when their risks and characteristics are

not closely related to those of the host contracts

and the host contracts are not measured at fair

value with changes in fair value recognized in profit

or loss.

Embedded derivatives

The Group designates certain hedging instruments,

which include derivatives, embedded derivatives

and non-derivatives in respect of foreign currency

risk, as either fair value hedges, cash flow hedges,

or hedges of net investments in foreign operations.

Hedges of foreign exchange risk on firm

commitments are accounted for as cash flow

hedges.

At the inception of the hedge relationship, the entity

documents the relationship between the hedging

instrument and the hedged item, along with its risk

management objectives and its strategy for

undertaking various hedge transactions.

Furthermore, at the inception of the hedge and on

an ongoing basis, the Group documents whether

the hedging instrument that is used in a hedging

relationship is highly effective in offsetting changes

in fair values or cash flows of the hedged item.

Hedge accounting

Changes in the fair value of derivatives that are

designated and qualify as fair value hedges are

recorded in profit or loss immediately, together

with any changes in the fair value of the hedged

item that are attributable to the hedged risk. The

change in the fair value of the hedging instrument

and the change in the hedged item attributable to

the hedged risk are recognized in the line of the

income statement relating to the hedged item.

Hedge accounting is discontinued when the Group

revokes the hedging relationship, the hedging

instrument expires or is sold, terminated, or

exercised, or no longer qualifies for hedge accounting.

The adjustment to the carrying amount of the

hedged item arising from the hedged risk is

amortized to profit or loss from that date.

Fair Value Hedge

The effective portion of changes in the fair value of

derivatives that are designated and qualify as cash

flow hedges are deferred in other comprehensive

income. The gain or loss relating to the ineffective

portion is recognized immediately in profit or loss.

Amounts previously recognized in other

comprehensive income and accumulated in equity

are reclassified to profit or loss in the periods when

the hedged item is recognized in profit or loss in

the same line of the income statement as the

recognized hedged item. However, when the

forecast transaction that is hedged results in the

recognition of a non-financial asset or a non-financial

liability, the gains and losses previously deferred in

equity are transferred from equity and included in

the initial measurement of the cost of the asset or

liability.

Hedge accounting is discontinued when the Group

revokes the hedging relationship, the hedging

instrument expires or is sold, terminated, or

Cash Flow Hedge:


Hedges of net investments in foreign operations

are accounted for similarly to cash flow hedges.

Any gain or loss on the hedging instrument relating

to the effective portion of the hedge is recognized

in other comprehensive income in the foreign

currency translation reserve. The gain or loss relating

to the ineffective portion is recognized immediately

in the income statement.

Gains and losses deferred in the foreign currency

translation reserve are recognized in the income

statement on disposal of the foreign operation.

Hedges of Net Investments in Foreign Operations

exercised, or no longer qualifies for hedge accounting.

Any cumulative gain or loss deferred in equity at

that time remains in equity and is recognized when

the forecast transaction is ultimately recognized in

profit or loss. When a forecast transaction is no

longer expected to occur, the cumulative gain or

loss that was deferred in equity is recognized

immediately in profit or loss.

k. Investments in Associates

An associate is an entity over which the Group hassignificant influence and that is neither a subsidiarynor an interest in a joint venture. Significant influenceis the power to participate in the financial andoperating policy decisions of the investee but is notcontrol or joint control over those policies.

The results and assets and liabilities of associatesare incorporated in these financial statementsusing the equity method of accounting, exceptwhen the investment is classified as held for sale,in which case it is accounted for in accordance withIFRS 5 Non-current Assets Held for Sale andDiscontinued Operations. Under the equitymethod, investments in associates are carried inthe consolidated statement of financial position at cost as adjusted for post-acquisition changes in theGroup’s share of the net assets of the associate,less any impairment in the value of individualinvestments. Losses of an associate in excess ofthe Group’s interest in that associate (whichincludes any long-term interests that, in substance,form part of the Group’s net investment in the

associate) are not recognized, unless the Group hasincurred legal or constructive obligations or madepayments on behalf of the associate.

Any excess of the cost of acquisition over theGroup’s share of the net fair value of the identifiableassets, liabilities and contingent liabilities of theassociate recognized at the date of acquisition isrecognized as goodwill. The goodwill is includedwithin the carrying amount of the investment andis assessed for impairment as part of the investment.Any excess of the Group’s share of the net fair valueof the identifiable assets, liabilities and contingentliabilities over the cost of acquisition, afterreassessment, is recognized immediately in theincome statement.

Where a group entity transacts with an associate ofthe Group, profits and losses are eliminated to theextent of the Group’s interest in the relevant associate.

L. Property and Equipment

Property and equipment are stated at historicalcost, less accumulated depreciation and impairmentloss, if any.

Depreciation of property and equipment, other

than land and advance payments on capital expenditures is calculated systematically using thestraight-line method over the estimated usefullives of the related assets using the following annual rates:

N. Assets acquired in satisfaction of loans

Non-financial assets acquired in satisfaction ofloans are reported separately in the statement offinancial position as their acquisition is regulatedby the local banking authorities and do not meetthe definition of investment properties nor the definition of non-current assets held for sale. Theseassets are recorded at the lower of their fair value

and the carrying amount of the loan at the date ofexchange and are subsequently carried at cost lessany impairment loss. Assets acquired in satisfactionof loans are subject to a regulatory reserve appropriated from profit for the year in case theseassets are not liquidated within 2 years from acquisition.

M. Intangible Assets

Intangible assets consisting of computer softwareare amortized over a period of 3 to 5 years and are

subject to impairment testing.

Leasehold improvements are depreciated over theshorter of the lease term and their useful lives estimated at five years.

The gain or loss arising on the disposal or retirement

of an item of property and equipment is determined as the difference between the salesproceeds and the carrying amount of the asset andis recognized in the income statement.

Property 2.5Furniture and fixtures 7.5 to 8Equipment 10 to 12Computer hardware 20Installations 15 to 20Vehicles 12 to 20

Rate | %


O. Impairment of Tangible and Intangible Assets

At each statement of financial position date, thecarrying amounts of tangible and intangible assetsare reviewed to determine whether there is anyindication that these assets have suffered animpairment loss. If any such indication exists, therecoverable amount of the asset is estimated inorder to determine the extent of the impairmentloss, if any.

Intangible assets with indefinite useful lives aretested for impairment at each reporting date andwhenever there is an indication that the asset maybe impaired.

Recoverable amount is defined as the higher of:

- Fair value that reflects market conditions at thestatement of financial position date less cost to sell,if any. To determine fair value of properties, theBank adopts the market comparability approach asindicated later in this note.

- Value in use assessed as the present value ofestimated future cash flows expected to arise fromthe continuing use of asset and from its disposal atthe end of its useful life, only for applicable assetswith cash generation units, as applicable.

Where an impairment loss subsequently reverses,the carrying amount of the asset is increased to therevised estimate of its recoverable amount, but sothat the increased carrying amount does notexceed the carrying amount that would have beendetermined had no impairment loss been recognized for the asset in prior years. A reversalof an impairment loss is recognized immediately inprofit or loss, unless the relevant asset is carried ata revalued amount, in which case the reversal ofthe impairment loss is treated as a revaluationincrease.

The fair value of the Group’s owned properties andof properties acquired in satisfaction of debts, is theestimated market value, as determined by real estateappraisers on the basis of market comparability; thatis, by comparing with similar transactions in thesame geographical area and on the basis of theexpected value of a current sale between a willingbuyer and a willing seller, that is, other than in aforced or liquidation sale and after applying a haircut percentage.

The impairment loss is recognized in the incomestatement.

P. Financial Liabilities and Equity Instruments Issued by the Bank

Debt and equity instruments are classified as eitherfinancial liabilities or as equity in accordance with

the substance of the contractual arrangement

Classification as debt or equity

An equity instrument is any contract that evidencesa residual interest in the assets of an entity afterdeducting all of its liabilities. Equity instruments

are recorded at the proceeds received, net of directissue costs.

Equity instruments

Q. Employees' Benefits

Obligations for contributions to defined employees’ benefits are recognized as an expense on a currentbasis.

Financial guarantees contracts are contracts thatrequire the Group to make specified payments toreimburse the holder for a loss it incurs because aspecified debtor fails to make payment when duein accordance with the terms of a debt instrument.These contracts can have various judicial forms (guar-antees, letters of credit, credit-insurance contracts).

Financial guarantee contract liabilities are measuredinitially at their fair values and are subsequentlymeasured at the higher of:

• the amount of the obligation under the contract,as determined in accordance with IAS 37Provisions, Contingent Liabilities and ContingentAssets; and

• the amount initially recognized less, whereappropriate, cumulative amortization recognized inaccordance with the revenue recognition policiesset out above.

Financial guarantee contract liabilities

Other financial liabilities, including borrowings, areinitially measured at fair value, net of transactioncosts.

Other financial liabilities are subsequently measuredat amortized cost with interest expense recognizedon an effective yield basis

Other financial liabilities

The provision for staff termination indemnities is

based on the liability that would arise if the

employment of all the staff were terminated at the

statement of financial position date. This provision

is calculated in accordance with the directives of

the Lebanese Social Security Fund and Labor laws

based on the number of years of service multiplied

by the monthly average of the last 12 months

remunerations and less contributions paid to the

Lebanese Social Security National Fund and interest

accrued by the Fund.

Employees' End-of-Service Indemnities: (Under the Lebanese Jurisdiction)

Obligations in respect of defined benefit pension

plans is calculated separately for each plan by

estimating the amount of future benefit that

employees have earned in return for their service

in the current and prior periods; that benefit is

discounted to determine its present value, and any

unrecognized past service costs and the fair value

of any plan assets are deducted.

Defined benefit plans: (Under Other Jurisdictions)


R. Provisions

Provisions are recognized when the Group has apresent obligation (legal or constructive) as a resultof a past event, it is probable that an outflow ofresources embodying economic benefits will berequired to settle the obligation and a reliable estimate can be made of the amount of the obligationat the statement of financial position date.

The amount recognized as a provision is the bestestimate of the consideration required to settle thepresent obligation at the balance sheet date, takinginto account the risks and uncertainties surroundingthe obligation. Where a provision is measuredusing the cash flows estimated to settle the presentobligation, its carrying amount is the present valueof those cash flows.

S. Revenue and Expense Recognition:

Interest income and expense are recognized on anaccrual basis, taking account of the principal outstanding and the rate applicable, except fornon-performing loans and advances for whichinterest income is only recognized upon realization.Interest income and expense include the amortizationof discounts or premiums.

Interest income and expense presented in theincome statement include:

- Interest on financial assets and liabilities at amortized cost.

- Interest on available-for-sale investment securities.

- Fair value changes in qualifying derivatives and related hedged items when interest rate risk is the hedged risk.

Net trading income presented in the income statement includes:

- Interest income and expense on the trading portfolio.

- Dividend income on the trading equities.- Realized and unrealized gains and losses on

the trading portfolio assets.

Fees and commission income and expense that areintegral to the effective interest rate on a financialasset or liability (i.e. commissions and fees earnedon the loan book) are included under interestincome and expense.

Other fees and commission income are recognizedas the related services are performed.

Dividend income is recognized when the right toreceive payment is established.

Where the outcome of a securitization contract canbe estimated reliably, revenue and costs are recognized by reference to the stage of completionof the contract activity at the balance sheet date.This is normally measured by the proportion thatcontract costs incurred for work performed to datebear to the estimated total contract costs, exceptwhere this would not be representative of thestage of completion.

Where the outcome of a contract cannot be estimated reliably, contract revenue is recognizedto the extent of contract costs incurred that it isprobable will be recoverable. Contract costs are recognized as expenses in the period in which theyare incurred. When it is probable that total contractcosts will exceed total contract revenue, the expectedloss is recognized as an expense immediately

T. Treasury Shares

Treasury shares are stated at cost. Any gainor loss on sale is reflected as an adjustment

to retained earnings.

U. Fiduciary Deposits

All fiduciary deposits are held on a non-discre-tionary basis and related risks and rewards belong

to the account holders. Accordingly, they arereflected as off-balance sheet accounts.

V. Income Tax

Income tax expense is the sum of the tax currentlypayable and deferred tax. Income tax is determinedand provided for in accordance with the tax prevailinglaws.

Income tax is recognized in the income statementexcept to the extent that it relates to items recognized in other comprehensive income (OCI),in which case it is recognized in OCI

Current tax payable is calculated based on taxable

profit for the period. Taxable profit differs from

profit as reported in the income statement because

it excludes items of income or expense that are

taxable or deductible in other years and it further

excludes items that are never taxable or deductible,

(other than temporary timing differences). The

Group’s liability for current tax is calculated using

tax rates that have been enacted or substantively

enacted by the statement of financial position date.

Debt securities invested by Group entities operating

in Lebanon are subject to withheld tax by the

issuer, and deducted at year end from the corporate

tax liability not eligible for deferred tax benefit,

and therefore, accounted for as prepayment on

corporate income tax and reflected as a part of

income tax provision.

Current Tax

Deferred tax is the tax expected to be payable or

recoverable on differences between the carrying

amounts of assets and liabilities in the financial

statements and the corresponding tax bases used

in the computation of taxable profit, and is

accounted for using the balance sheet liability

method. Deferred tax liabilities are generally

recognized for all taxable temporary differences

and deferred tax assets are recognized to the

extent that it is probable that taxable profits will be

available against which deductible temporary

differences can be utilized. Such assets and liabilities

are not recognized if the temporary difference arises

from goodwill or from the initial recognition (other

than in a business combination) of other assets and

liabilities in a transaction that affects neither the

taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is

reviewed at each balance sheet date and reduced

to the extent that it is no longer probable that

sufficient taxable profits will be available to allow

all or part of the asset to be recovered.

Deferred Tax


W. Earnings Per Share

The computation of basic earnings per share isbased on the weighted average number of outstanding shares during the year. This weightedaverage during the year and for all years presented,

is adjusted for events that have changed the number of ordinary shares outstanding without acorresponding change in resources.

X. Cash and Cash Equivalents

Cash and cash equivalents comprise balances withmaturities of a period of three months including:

cash and balances with the Central Banks, deposits

with banks and financial institutions, and depositsdue to banks and financial institutions.

A. Critical accounting judgments in applying the Group’s accounting policies

The Group’s accounting policies provide scope forinvestment securities to be designated on inceptioninto different categories in certain circumstancesbased on specific conditions. In classifying investment

securities as held-to-maturity, the Group has determined that it has both the positive intent andability to hold these assets until their maturity asrequired by in accounting policy under Note 3.

In the application of the Group’s accounting policies, which are described in note 3, the directorsare required to make judgments, estimates andassumptions about the carrying amounts of assetsand liabilities that are not readily apparent fromother sources. The estimates and associatedassumptions are based on historical experience andother factors that are considered to be relevant.Actual results may differ from these estimates.

The estimates and underlying assumptions arereviewed on an ongoing basis. Revisions toaccounting estimates are recognized in the periodin which the estimate is revised if the revisionaffects only that period or in the period of the revision and future periods if the revision affectsboth current and future periods.

(i) Classification of Financial Assets:

Deferred tax is charged or credited in the income

statement, except when it relates to items charged

or credited directly to other comprehensive income,

in which case the deferred tax is also dealt within

other comprehensive income.

Deferred tax assets and liabilities are offset when

there is a legally enforceable right to set off current

tax assets against current tax liabilities and when

they relate to income taxes levied by the same

taxation authority and the Group intends to settle

its current tax assets and liabilities on a net basis.

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

B. Key Sources of Estimation Uncertainty

The following are the key assumptions concerningthe future, and other key sources of estimationuncertainty at the statement of financial position

date, that have a significant risk of causing a materialadjustment to the carrying amounts of assets andliabilities within the next financial year.

The Group reviews its loan portfolio to assessimpairment on a regular basis. In determiningwhether an impairment loss should be recorded,the Group makes judgments as to whether there isany observable data indicating that there is ameasurable decrease in the estimated future cashflows from a portfolio of loans. This evidence mayinclude observable data indicating that there hasbeen an adverse change in the payment status ofthe debtors of the Group, or national or local economic conditions that correlate with defaults on

assets in the Group. Management uses judgmentand estimates based on historical loss experiencefor assets with credit risk characteristics and objective evidence of impairment similar to thosein the portfolio when estimating its cash flows. Themethodology and assumptions used for estimatingboth the amount and the timing of future cashflows are reviewed regularly to reduce any differences between loss estimates and actual lossexperience.

(i) Impairment losses on loans and advances

The determination of fair value for financial assets

for which there is no observable market price

requires the use of valuation techniques as

described in Note 3F. For financial instruments that

trade infrequently and have little price transparency,

fair value is less objective, and requires varying

degrees of judgment depending on liquidity,

concentration, uncertainly of market factors, pricing

assumptions and other risks affecting the specific

instrument.

Where available, management has used market

indicators in its mark to model approach for the

valuation of the Lebanese government debt securities

and Central Bank of Lebanon certificates of deposit

at fair value. The IFRS fair value hierarchy allocates

the highest priority to quoted prices (unadjusted) in

active markets for identical assets or liabilities, and

the lowest priority to unobservable inputs. The fair

value hierarchy used in the determination of fair

value consists of three levels of input data for

determining the fair value of an asset or liability.

Level 1- quoted prices for identical items in active,

liquid and visible markets such as stock exchanges,

Level 2- observable information for similar items in

active or inactive markets,

Level 3- unobservable inputs used in situations

where markets either do not exist or are illiquid.

Unobservable inputs are used to measure fair value

to the extent that observable inputs are not

available, thereby allowing for situations in which

there is little, if any, market activity for the asset or

liability at the measurement date. However, the

fair value measurement objective should remain

the same; that is, an exit price from the perspective

of a market participant that holds the asset or owes

the liability. Unobservable inputs are developed

based on the best information available in the

circumstances, which may include the reporting

entity's own data. Where practical, the discount

rate used in the mark to model approach included

observable data collected from market participants,

(ii) Determining Fair Values


including risk free interest rates and credit default

swap rates for pricing of credit risk (both own and

counter party), and a liquidity risk factor which is

added to the applied discount rate. Changes in

assumptions about any of these factors could affect

the reported fair value of the Lebanese

Government debt securities and Central Bank of

Lebanon certificates of deposit.

The Group exercises judgment to consider impairment

on the available-for-sale equity investments. This

includes determination of a significant or prolonged

decline in the fair value below its cost. In making

this judgment, the Group evaluates among other

factors, the normal volatility in share price.

In addition, the Group considers impairment to be

appropriate when there is evidence of deterioration

in the financial health of the investee, industry and

sector performance, changes in technology, and

operational and financing cash flows.

(iii) Impairment of available for-sale equity investments

5. CASH AND CENTRAL BANKS

Cash on hand 7,740,077 5,445,399Current accounts with Central Bank of Lebanon (of which compulsory reserves LBP29.49billion in 2010 and LBP27.76billion in 2009) 38,077,815 32,712,757Current accounts with other Central Banks 6,195,924 7,273,020Term placements with Central Bank of Lebanon 294,874,616 333,054,525Blocked accounts with Central Bank of Lebanon 541,989 2,981,842Accrued interest receivable 544,457 615,687

347,974,878 382,083,230

2010 | LBP’000

December 31,

2009 | LBP’000

Compulsory deposits with Central Banks are not

available for use in the Group’s day-to-day operations

and are reflected at amortized cost.

Cash compulsory reserves with the Central Bank of

Lebanon represent non-interest earning deposits in

Lebanese Pounds computed on the basis of 25%

and 15% of the average weekly sight and term

customers’ deposits in Lebanese Pounds in accordance

with the local banking regulations.

Term placements with the Central Bank of Lebanon

include an amount of LBP175billion as at December

31, 2010 (LBP168billion as at December 31, 2009)

representing the equivalent in foreign currencies of

amounts deposited in accordance with local banking

regulations which require banks to maintain interest

earning placements in foreign currency to the

extent of 15% of customers’ deposits in foreign

currencies, certificates of deposit and loans

acquired from non-resident financial institutions.

Term placements with Central Bank of Lebanon

earn fixed or floating interest rates and carry the

following maturities:

1st quarter 2011 28,800,816 1.5532nd quarter 2011 6,030,000 1.1003rd quarter 2011 2,261,250 0.791Year 2012 102,189,670 0.968Year 2013 28,623,660 1.016Year 2014 80,802,020 1.282Year 2015 46,167,200 1.557

294,874,616

Counter Value of Amount in LBP |

LBP’000MATURITY

Average Interest Rate |

%

December 31, 2010F/Cy Base Accounts

1st quarter 2010 82,776,875 1.0642nd quarter 2010 45,561,550 1.0853rd quarter 2010 32,107,350 1.021Year 2011 12,813,750 1.832Year 2012 92,711,250 0.876Year 2013 2,261,250 1.162Year 2014 64,822,500 1.160

333,054,525


LBP’000


%

December 31, 2009F/Cy Base Accounts

MATURITY


Deposits with banks and financial institutionsinclude deposits in the amount of LBP4.41billionsubject to right of setoff by the related correspondentsagainst trade finance and other facilities at 2010year end (LBP3.74billion against trade finance andother facilities as at December 31, 2009).

Margin accounts and pledged deposits are blockedagainst trade finance and treasury transactions andbanking facilities (Refer to Note 44).

Term placements and pledged deposits bear thefollowing maturities:

6. DEPOSITS WITH BANKS AND FINANCIAL INSTITUTIONS

Checks in course of collection 21,231,456 26,294,086Current accounts 44,468,759 137,978,135Current accounts - related parties 1,759,661 4,977,303Term placements 160,005,496 162,822,231Term placements - related parties 8,145,499 1,418,037Pledged deposits - related parties 8,216,754 8,165,003Margin accounts 29,725,831 24,712,108Accrued interest receivable 53,507 217,898

273,606,963 366,584,801

2010 | LBP’000

December 31,

2009 | LBP’000

1st quarter 2011 154,980,535 0.3682nd quarter 2011 21,387,214 0.809

176,367,749


LBP’000


%

December 31, 2010Balances in F/Cy

MATURITY

1st quarter 2010 136,574,918 0.4102nd quarter 2010 26,765,919 0.7193rd quarter 2010 7,537,500 1.3004th quarter 2010 1,526,934 1.220

172,405,271


LBP’000


%

December 31, 2009Balances in F/Cy

MATURITY

Accrued interest receivable is segregated as follows:

Current accounts - - 13,455 7,578Term placements 29,935 23,158 180,583 154Pledged deposits 414 - 206 15,922

30,349 23,158 194,244 23,654

Non-RelatedParties |LBP’000

RelatedParties |LBP’000

Non-RelatedParties |LBP’000

RelatedParties |LBP’000

December 31, 2010 December 31, 2009

The change in fair value on trading securities in theamount of LBP22million is recorded under “Netinterest income and other gains/(losses) on trading

portfolio” in the consolidated income statement forthe year ended December 31, 2010 (LBP101millionfor the year 2009) (Note 36).

Regular Retail Customers:

-Mortgage loans 12,386,898 - - 12,386,898 9,693,772 - - 9,693,772

-Personal loans 8,800,132 - - 8,800,132 6,818,558 - - 6,818,558

-Overdrafts 16,459,822 - - 16,459,822 18,994,146 - - 18,994,146

-Other 32,379,624 - - 32,379,624 38,592,524 - - 38,592,524

Regular Corporate Customers:

-Corporate 487,127,224 - - 487,127,224 421,251,750 - - 421,251,750

-Small and medium

enterprises 151,816,371 - - 151,816,371 126,367,439 - - 126,367,439

Classified Retail Customers:

-Substandard - - - - 237,219 (90,712) - 146,507

-Bad 262,083 (103,239) (158,844) - 283,105 (72,499) (210,606) -

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7. TRADING ASSETS

Loans to banks are reflected at amortized cost andrepresent letters of credit and acceptances discounted by customers and maturing in the year

2011 (in the year 2010 for balances outstanding asat December 31, 2009).

8. LOANS TO BANKS

Loans and advances to customers are reflected at amortized cost and consist of the following:

9. LOANS AND ADVANCES TO CUSTOMERS

Equity securities - Quoted 3,791,378 3,957,8403,791,378 3,957,840

C/V of F/Cy |LBP’000


December 31,

2010 2009


The movement of substandard loans with relatedunrealized interest during 2010 and 2009 is

summarized as follows:

Classified Corporate Customers:

-Rescheduled 151,683 (45,062) (106,621) - 249,953 (63,428) (180,323) 6,202

-Substandard 1,399,774 (724,527) - 675,247 1,792,851 (671,491) - 1,121,360

-Doubtful 2,106,775 (1,075,625) (640,760) 390,390 2,110,369 (1,021,170) (716,975) 372,224

-Bad 818,968 (215,606) (603,362) - 538,110 (131,584) (405,213) 1,313

Accrued interest receivable 539,090 - - 539,090 545,440 - - 545,440

714,248,444 (2,164,059) (1,509,587) 710,574,798 627,475,236 (2,050,884) (1,513,117) 623,911,235

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Balance January 1 2,030,070 (762,203) 1,267,867Withdrawals on loans 24,700 - 24,700Additions to unrealized interest 172,311 (172,311) -Settlements (753,077) - (753,077)Write-back of unrealized interest - 135,757 135,757Write-off (62,910) 62,910 -Effect of exchange rate changes (11,320) 11,320 -Balance December 31 1,399,774 (724,527) 675,247

Substandard Loans |LBP’000

Unrealized Interest |LBP’000

Net Book Value |LBP’000

2010

Balance January 1 2,570,812 (717,624) 1,853,188Withdrawals on loans 34,553 - 34,553Additions to unrealized interest 343,454 (343,454) -Settlements (720,735) - (720,735)Write-back of unrealized interest - 104,473 104,473Write-off (198,014) 198,014 -Effect of exchange rate changes - (3,612) (3,612)Balance December 31 2,030,070 (762,203) 1,267,867

Substandard Loans |LBP’000

Unrealized Interest |LBP’000

Net Book Value |LBP’000

2009

Balance January 1 3,181,537 (1,288,681) (1,513,117) 379,739 3,595,963 (1,572,966) (1,641,524) 381,473

New doubtful loans 234,001 - - 234,001 22,526 - - 22,526

Withdrawals on existing

doubtful loans 15,945 - - 15,945 345,309 - - 345,309

Settlement of loans (258,113) - - (258,113) (546,448) - - (546,448)

Additions to unrealized

interest and allowance

for impairment 307,008 (307,008) (138,566) (138,566) 351,244 (351,244) (451,553) (451,553)

Write-back - 101,085 56,411 157,496 - 280,862 346,221 627,083

Write-off (91,193) 17,171 74,022 - (594,316) 359,577 234,739 -

Effect of exchange rate

changes (49,676) 37,901 11,663 (112) 7,259 (4,910) (1,000) 1,349

Balance December 31 3,339,509 (1,439,532) (1,509,587) 390,390 3,181,537 (1,288,681) (1,513,117) 379,739

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2010 2009

Regular retail loans 624,274 755,925Large enterprises 3,105,591 5,819,225Accrued interest receivable 18,350 95,588

3,748,215 6,670,738

2010 |LBP’000

2009 |LBP’000

December 31,

Quoted equity securities - 8,029,973 8,029,973 - - -

Unquoted equity securities 615,120 29,212 644,332 - - -

Lebanese treasury bills 145,879,214 - 145,879,214 - - -

Foreign treasury bills - 504,500 504,500 - 390,576 390,576

Lebanese government bonds - 83,307,304 83,307,304 - - -

Certificates of deposit issued by

the Central Bank of Lebanon 49,823,495 15,327,205 65,150,700 5,000,000 24,240,600 29,240,600

Corporate bonds - 36,406,114 36,406,114 - 7,016,868 7,016,868

196,317,829 143,604,308 339,922,137 5,000,000 31,648,044 36,648,044

Accrued interest receivable 3,614,160 2,562,174 6,176,334 243,613 818,225 1,061,838

199,931,989 146,166,482 346,098,471 5,243,613 32,466,269 37,709,882

LBP |LBP’000


Total |LBP’000

LBP |LBP’000


Total |LBP’000

December 31, 2010

Available-for-Sale Held-to-Maturity

Loans and advances to related parties are partially secured (Refer to Note 42).

The movement of doubtful, bad and rescheduledloans and related unrealized interest and allowance

for impairment during 2010 and 2009 is summa-rized as follows:

10. LOANS AND ADVANCES TO RELATED PARTIES

11. INVESTMENT SECURITIES


December 31, 2010

LBP Base Accounts F/Cy Base Accounts

Available-for-sale securities and related cumulative change in fair value, impairment allowance andaccrued interest are distributed between Lebanese Pounds and foreign currencies as follows:

Quoted equity securities - 14,389,870 14,389,870 - - -

Unquoted equity securities 615,120 31,589 646,709 - - -

Lebanese treasury bills 158,306,031 - 158,306,031 - - -

Foreign treasury bills - 8,070,477 8,070,477 - 399,199 399,199

Lebanese government bonds - 58,863,889 58,863,889 - - -


the Central Bank of Lebanon 21,401,960 13,454,136 34,856,096 5,000,000 24,240,600 29,240,600

Corporate bonds - 37,833,596 37,833,596 - 8,410,301 8,410,301

180,323,111 132,643,557 312,966,668 5,000,000 33,050,100 38,050,100

Accrued interest receivable 3,744,102 2,134,518 5,878,620 243,613 875,584 1,119,197

184,067,213 134,778,075 318,845,288 5,243,613 33,925,684 39,169,297

LBP |LBP’000


Total |LBP’000

LBP |LBP’000


Total |LBP’000

December 31, 2009

Available-for-Sale Held-to-Maturity

Quoted equity securities - - - - 8,207,143 8,029,973 (177,179) -

Unquoted equity

securities at cost 615,120 615,120 - - 29,212 29,212 - -

Lebanese treasury bills 142,905,307 145,879,214 2,973,907 2,454,700 - - - -

Foreign treasury bills - - - - 514,930 504,500 (10,430) 3,256

Lebanese Government bonds - - - - 87,102,768 83,307,304 (3,795,464) 1,525,990


Central Bank of Lebanon 48,264,243 49,823,495 1,559,252 1,159,460 15,278,369 15,327,205 48,836 252,506

Corporate bonds - - - - 36,724,684 36,406,114 (318,571) 780,422

191,784,670 196,317,829 4,533,159 3,614,160 147,857,106 143,604,308 (4,252,798) 2,562,174

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A. Available-for-sale investment securities

December 31, 2009


Quoted equity securities - - - - 14,113,655 14,389,870 276,215 -

Unquoted equity

securities at cost 615,120 615,120 - - 31,589 31,589 - -

Lebanese treasury bills 154,659,030 158,306,031 3,647,001 3,037,233 - - - -

Foreign treasury bills - - - - 7,976,846 8,070,477 93,631 45,034

Lebanese Government bonds - - - - 59,392,160 58,863,889 (528,271) 1,268,094

Certificates of deposit issued

by Central Bank of Lebanon 20,808,597 21,401,960 593,363 706,869 13,293,627 13,454,136 160,509 221,100

Corporate bonds - - - - 37,875,595 37,833,596 (41,999) 600,290

176,082,747 180,323,111 4,240,364 3,744,102 132,683,472 132,643,557 (39,915) 2,134,518

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December 31, 2010 December 31, 2009LBP Base Accounts LBP Base Accounts

Lebanese treasury bills:

- Up to one year 38,900,000 39,033,647 39,783,369 8.650 35,000,000 35,247,287 35,340,035 8.827

- 1 year to 3 years 67,000,000 68,550,750 70,739,896 8.509 15,800,000 117,711,743 121,260,252 9.014

- 3 years to 5 years 19,582,000 20,309,691 20,625,097 7.600 1,700,000 1,700,000 1,705,744 8.225

- Beyond 5 years 15,000,000 15,011,219 14,730,852 8.044 - - - -

140,482,000 142,905,307 145,879,214 152,500,000 154,659,030 158,306,031

Certificates of deposit issued by Central Bank of Lebanon:

- 1 year to 3 years 15,000,000 16,108,859 16,734,919 10.069 - - - -

- 3 years to 5 years 21,000,000 21,425,792 22,609,868 8.131 20,000,000 20,808,597 21,401,960 9.684

- Beyond 5 years 10,000,000 10,729,592 10,478,708 7.997 - - - -

46,000,000 48,264,243 49,823,495 20,000,000 20,808,597 21,401,960

186,482,000 191,169,550 195,702,709 172,500,000 175,467,627 179,707,991

Amortized Cost |

LBP’000Fair Value |

LBP’000Yield |

%

Nominal Value |LBP’000

Amortized Cost |

LBP’000Fair Value |

LBP’000Yield |

%

Nominal Value |LBP’000

The change in fair value (gain) as at December 31,

2010 in the amount of LBP280million (LBP4.20

billion (gain) for 2009) is recorded in other

comprehensive income and accumulated in equity

net of deferred tax liability in the amount of

LBP257million (deferred tax liability in the amount

of LBP739 million in 2009).

The remaining periods to maturity of available-for-

sale debt securities, denominated in Lebanese

Pounds excluding accrued interest, is as follows:

CONTRACTUALMATURITY


The remaining periods to maturity of available-for-saledebt securities, denominated in foreign currencies

excluding accrued interest, is as follows:

Lebanese Government bonds:- Up to one year 7,688,250 7,826,011 7,729,872 7.599- 1 year to 3 years 50,680,643 54,357,113 52,301,932 7.910- 3 years to 5 years 7,989,750 9,067,895 8,431,131 7.594- 5 years to 10 years 11,306,250 12,664,894 11,762,043 7.312- Beyond 10 years 3,186,855 3,186,855 3,082,326 6.307

80,851,748 87,102,768 83,307,304Certificates of deposit issued byCentral Bank of Lebanon:- 3 years to 5 years 13,567,500 15,278,369 15,327,205 8.852

13,567,500 15,278,369 15,327,205Corporate bonds:- Up to one year 7,878,579 6,880,533 6,873,422 6.220- 1 year to 3 years 11,937,525 12,033,680 12,086,252 4.548- 3 years to 5 years 1,884,375 1,862,864 1,849,513 3.566- 5 years to 10 years 15,127,763 15,088,332 15,041,835 6.747- Beyond 10 years 859,275 859,275 555,092 10.062

37,687,517 36,724,684 36,406,114Foreign treasury bills:- 1 year to 3 years 75,375 83,492 80,199 5.169- 5 years to 10 years 452,250 431,438 424,301 2.798

527,625 514,930 504,500132,634,390 139,620,751 135,545,123

Lebanese Government bonds:- Up to one year 5,196,165 5,138,065 5,139,662 6.877- 1 year to 3 years 18,301,992 18,383,481 18,349,058 7.403- 3 years to 5 years 11,957,113 12,848,189 12,355,180 8.067- 5 years to 10 years 18,415,243 18,728,338 18,822,278 7.226- Beyond 10 years 3,972,263 4,294,087 4,197,711 7.522

57,842,776 59,392,160 58,863,889Certificates of deposit issued byCentral Bank of Lebanon:- 5 years to 10 years 12,060,000 13,293,627 13,454,136 8.964

12,060,000 13,293,627 13,454,136Corporate bonds:- Up to one year 1,098,199 1,114,675 780,730 9.235- 1 year to 3 years 22,168,963 21,577,762 21,825,987 5.163- 3 years to 5 years 5,325,820 5,169,904 5,149,241 4.937- 5 years to 10 years 10,077,638 10,013,254 10,077,638 7.294

38,670,620 37,875,595 37,833,596Foreign treasury bills:- 1 year to 3 years 3,391,875 3,388,460 3,372,654 1.613- 3 years to 5 years 3,015,000 3,075,778 3,186,554 5.220- 5 years to 10 years 1,507,500 1,512,608 1,511,269 3.986

7,914,375 7,976,846 8,070,477116,487,771 118,538,228 118,222,098

December 31, 2010 | F/Cy Base Accounts

December 31, 2009 | F/Cy Base Accounts

Amortized Cost |LBP’000

Fair Value |LBP’000

Yield |%

Nominal Value |LBP’000MATURITY

Amortized Cost |LBP’000


Yield |%

Nominal Value |LBP’000MATURITY

The movement of available-for-sale investment

securities, denominated in Lebanese Pounds

excluding accrued interest is summarized as fol-

lows:

Balance January 1, 2010 615,120 158,306,031 21,401,960 180,323,111

Additions - 87,982,000 26,000,000 113,982,000

Sale - (74,000,000) - (74,000,000)

Redemption - (26,000,000) - (26,000,000)

Net variation in premium - 290,019 1,455,646 1,745,665

Net change in unearned interest - (25,742) - (25,742)

Unrealized gain/(loss) from

change in fair value - (673,094) 965,889 292,795

Balance December 31, 2010 615,120 145,879,214 49,823,495 196,317,829

2010

LebaneseTreasury Bills |

LBP’000

Certificates ofdeposit issued bythe Central Bank

of Lebanon |LBP’000

Total |LBP’000

UnquotedEquity Securities |

LBP’000

Balance January 1, 2009 615,120 119,811,302 - 120,426,422

Additions - 105,600,000 20,000,000 125,600,000

Sale - (40,000,000) - (40,000,000)

Redemption - (31,000,000) - (31,000,000)

Net variation in premium - 879,219 808,597 1,687,816

Net change in unearned interest - 120,946 - 120,946

Unrealized gain/(loss)

from change in fair value - 2,894,564 593,363 3,487,927

Balance December 31, 2009 615,120 158,306,031 21,401,960 180,323,111

2009

LebaneseTreasury Bills |

LBP’000

Certificates ofdeposit issued by

the Central Bank ofLebanon |LBP’000

Total |LBP’000

UnquotedEquity Securities |

LBP’000


The movement of available-for-sale investment

securities, denominated in Foreign Currencies

excluding accrued interest, is summarized as

follows:

The movement of allowance for impairment on available-for-sale investment securities is summarized as

follows:

Balance January 1, 2010 14,389,870 31,589 8,070,477 58,863,889 13,454,136 37,833,596 132,643,557

Additions 1,256,753 - 431,438 71,392,185 12,060,000 32,730,521 117,870,897

Sale (7,193,444) - (7,839,000) (48,383,213) (10,552,500) (32,689,202) (106,657,359)

Net variation in premium 30,179 - (54,354) 4,701,636 477,243 (78,239) 5,076,465


from change in fair value (453,385) - (104,061) (3,267,193) (111,674) (276,572) (4,212,885)

Effect of exchange rates changes - (2,377) - - - (1,113,990) (1,116,367)

Balance December 31, 2010 8,029,973 29,212 504,500 83,307,304 15,327,205 36,406,114 143,604,308

2010

Unq

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uity

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ritie

s |

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Balance January 1, 2009 10,966,749 31,252 - 39,609,257 10,890,180 13,995,508 75,492,946

Additions 2,389,653 - 8,755,259 117,412,914 7,537,500 32,868,125 168,963,451

Reclassification

between categories - - - 4,522,500 (4,522,500) - -

Sale (941,564) - (767,883) (104,900,126) (1,507,500) (10,725,634) (118,842,707)

Net variation in premium 30,176 - (10,530) 1,381,832 721,006 (182,457) 1,940,027


from change in fair value 1,920,264 - 93,631 810,773 335,450 2,531,736 5,691,854

Effect of exchange

rates changes 24,592 337 - 26,739 - 235,743 287,411

Impairment losses - - - - - (889,425) (889,425)

Balance December 31, 2009 14,389,870 31,589 8,070,477 58,863,889 13,454,136 37,833,596 132,643,557

2009

Unq

uote

d Eq

uity

Secu

ritie

s |

C/V

LBP’

000

Fore

ign

Trea

sury

Bill

s|C/

V LB

P’00

0

Leba

nese

Gov

ernm

ent

Bond

s |

C/V

LBP’

000

Cert

ifica

tes

ofDe

posit

Issu

ed b

yCe

ntra

l Ban

k of

Leba

non

|C/

V LB

P’00

0

Quo

ted

Equ

itySe

curit

ies

|C/

V LB

P’00

0

Tota

l |C/

V LB

P’00

0

Corp

orat

e Bo

nds

|C/

V LB

P’00

0

Balance beginning of the year 2,035,125 1,145,700Charge for the year - 1,206,000Write-back - (316,575)Balance end of the year 2,035,125 2,035,125

2010 |LBP’000

2009 |LBP’000

Accrued interest receivable on available-for-sale investment securities is distributed as follows:

Held-to-maturity investment securities are distributed between Lebanese Pounds and foreign currencies

as follows:

Lebanese treasury bills 2,454,700 3,037,233Foreign treasury bills 3,256 45,034Lebanese government bonds 1,525,990 1,268,094Certificates of deposit issued by the Central Bank of Lebanon 1,411,966 927,969Corporate bonds 780,422 600,290

6,176,334 5,878,620

2010 |LBP’000

2009 |LBP’000

B. Held-to-maturity investment securities

Foreign treasury bills - - - 390,576 8,695 400,995Certificates of deposit issued bythe Central Bank of Lebanon 5,000,000 243,613 5,539,394 24,240,600 721,598 25,450,254Corporate bonds - - - 7,016,868 87,932 7,212,874

5,000,000 243,613 5,539,394 31,648,044 818,225 33,064,123

AmortizedCost |

LBP’000

Accrued InterestReceivable |

LBP’000Fair Value |LBP’000

AmortizedCost |

LBP’000



LBP Base Accounts

December 31, 2010

F/Cy Base Accounts

Foreign treasury bills - - - 399,199 8,637 401,372Certificates of deposit issued by the Central Bank of Lebanon 5,000,000 243,613 5,345,015 24,240,600 721,598 25,366,971Corporate bonds - - - 8,410,301 145,349 8,519,147

5,000,000 243,613 5,345,015 33,050,100 875,584 34,287,490

AmortizedCost |

LBP’000



AmortizedCost |

LBP’000



LBP Base Accounts

December 31, 2009

F/Cy Base Accounts


The movement of held-to-maturity securities

during the years 2010 and 2009 denominated in

Foreign Currencies, excluding accrued interest, is as

follows:

Held-to-maturity investments denominated in

Lebanese Pounds are segregated over remaining

period to maturity as follows:

Balance, January 1, 2009 2,259,485 2,047,087 27,255,600 13,478,507 45,040,679

Additions 401,372 - - 4,171,817 4,573,189

Redemptions (2,260,690) (2,047,087) (3,015,000) (9,337,376) (16,660,153)

Effect of discount/premium

amortization (968) - - 762 (206)

Effect of exchange rate changes - - - 96,591 96,591

Balance, December 31, 2009 399,199 - 24,240,600 8,410,301 33,050,100

Redemptions - - - (1,194,620) (1,194,620)

Effect of discount/premium

amortization (8,623) - - (89,299) (97,922)

Effect of exchange rate changes - - - (109,514) (109,514)

Balance, December 31, 2010 390,576 - 24,240,600 7,016,868 31,648,044

ForeignTreasury Bills |

LBP’000

LebaneseGovernment

Bonds |LBP’000

CorporateBonds |LBP’000

TOTAL |LBP’000

Certificates ofdeposit issued bythe Central Bank

of Lebanon |LBP’000

Certificates of deposit issued byCentral Bank of Lebanon:- 3 years to 5 years 5,000,000 5,000,000 5,539,394 10.250

5,000,000 5,000,000 5,539,394

Redemption Value |LBP’000

Net Carrying Value |LBP’000


Yield |%

December 31, 2010

Certificates of deposit issued byCentral Bank of Lebanon:- 3 years to 5 years 5,000,000 5,000,000 5,345,015 10.250

5,000,000 5,000,000 5,345,015


Net Carrying Value |LBP’000


Yield |%

December 31, 2009

MATURITY

MATURITY

Held-to-maturity investments denominated in foreign currencies are segregated over remaining

period to maturity as follows:

Acceptances represent documentary credits which

the Group has committed to settle on behalf of its

customers against commitments by those

customers (acceptances). The commitments resulting

from these acceptances are stated as a liability in

the balance sheet for the same amount.


Foreign treasury bills:

- 1 year to 3 years 376,875 390,576 400,995 5.307 376,875 399,199 401,372 5.192

376,875 390,576 400,995 376,875 399,199 401,372

Certificates of deposit issued by Central Bank of Lebanon:

- 1 year to 3 years 24,240,600 24,240,600 25,450,254 9.000 - - - -

- 3 years to 5 years - - - - 24,240,600 24,240,600 25,366,971 9.000

24,240,600 24,240,600 25,450,254 24,240,600 24,240,600 25,366,971

Corporate bonds:

- Up to one year 603,000 614,994 619,522 6.336 1,194,620 1,184,204 1,176,701 5.674

- 1 year to 3 years 6,273,086 6,401,874 6,593,352 6.038 5,851,093 6,020,743 6,144,888 6.188

- 3 years to 5 years - - - - 1,130,625 1,205,354 1,197,558 4.885

6,876,086 7,016,868 7,212,874 8,176,338 8,410,301 8,519,147

31,493,561 31,648,044 33,064,123 32,793,813 33,050,100 34,287,490

NetCarryingValue |LBP’000


Yield |%


NetCarryingValue |LBP’000


Yield |%


CONTRACTUALMATURITY

12. CUSTOMERS’ LIABILITY UNDER ACCEPTANCES

Investments in associates, which are unlisted, are as follows:

13. INVESTMENTS IN ASSOCIATES

Banque Bemo Saudi Fransi S.A Syria 22 34,082,238 29,416,050BEMO Oddo Investment Firm Ltd. UAE 25 463,082 360,687

34,545,320 29,776,737

Country ofIncorporation

Interest Held |%

Carrying Value |LBP’000

Carrying Value |LBP’000

December 31, 2010 2009


The movement of investments in associates is as follows:

The investment in Banque Bemo Saudi Fransi represents a 22% equity stake in the bank's capital,which was initially subscribed into in 2003.

The Group accounted for its share in the net incomeof the associate bank for the year ended December31, 2010, in the amount of LBP4.67billion(USD3.09million) recorded under “Other operatingincome” in the accompanying consolidated incomestatement (Note 37) (its share in the net incomefor the year ended December 31, 2009 amountedto LBP4.73billion (USD3.14million).

During 2008, the Group acquired a 25% equitystake in BEMO Oddo Investment Firm Ltd., (“BEMO

Oddo”) a financial institution incorporated in theDubai International Financial Centre (DIFC) in theUnited Arab Emirates whose capital amounted toUSD2,000,000 for an amount of USD500,000.

The Group accounted for its share in the net gain ofthe associate for the year ended December 31,2010 in the amount of LBP102million (USD 68thousand) recorded under “Other operatingincome” in the accompanying consolidated incomestatement (Note 37) (its share in net gain for theyear ended December 31, 2009 amounted toLBP54million (USD36thousand)).

Assets acquired in satisfaction of loans have been

acquired through enforcement of security over

loans and advances.

The movement of assets acquired in satisfaction of

loans during 2010 and 2009 was as follows:

14. ASSETS ACQUIRED IN SATISFACTION OF LOANS

Real Estate

Balance, January 1, 29,776,737 26,118,697Share in net profit of associates (Note 37) 4,768,583 4,781,458Dividends received - (1,080,293)Other - (43,125)Balance, December 31 , 34,545,320 29,776,737

LBP’000 LBP’000

2010 2009

Balance, January 1, 10,053,946 9,685,199Real estate registration fees - 368,747Transfer to property and equipment (Note 15) (7,222,927) -Balance, December 31 2,831,019 10,053,946

2010 |LBP’000

2009 |LBP’000

The movement of reserve for assets acquired in satisfaction of debts during 2010 and 2009 was as follows:

On June 15, 2010, the Central Council of the CentralBank of Lebanon approved in its decision number4/20/10, the Bank’s transfer of plot number 1560,located in Achrafieh, whose book value amountedto LBP7.22billion to property and equipment. Thisplot will be used by the Bank to complement itspremises located on the adjacent plot number 444in Achrafieh. As a result, the Group reversed the

reserve for assets acquired in satisfaction of debtsin the amount of LBP856million to retained earnings.

As at December 31, 2010 and 2009, the fair valueof assets acquired in satisfaction of debts exceededtheir net carrying amount.

The additions to property and equipment during2010, relate mainly to the renovation of the branchin Chtaura (mainly to the opening of a new branch

in Rabieh, as well as refurbishments of theheadquarters located in Achrafieh during 2009).

Balance as at January 1, 2009 221,430Allocation from 2008 income 449,046Balance as at December 31, 2009 670,476Allocation from 2009 income 455,694Reversed to retained earnings (855,670)Balance as at December 31, 2010 270,500

LBP’000

Gross amount:

Balance January 1, 2009 - 5,600,788 2,076,322 4,689,694 572,618 7,546,112 829,435 21,314,969

Additions - - 124,577 273,655 312,802 1,296,144 50,608 2,057,786

Disposal - - (18,511) (22,638) (218,246) (12,552) (8,291) (280,238)

Transfers between categories - - 11,407 - - 809,738 (821,145) -

Transfer to intangible assets - - - - - - - -

Balance December 31, 2009 - 5,600,788 2,193,795 4,940,711 667,174 9,639,442 50,607 23,092,517

Additions - - 49,098 290,808 - 20,892 753,299 1,114,097

Disposals - - (16,085) (264,503) - (4,973) (50,608) (336,169)

Transfer from assets acquired

in satisfaction of

debts (Note 14) 7,222,927 - - - - - - 7,222,927

Balance December 31, 2010 7,222,927 5,600,788 2,226,808 4,967,016 667,174 9,655,361 753,298 31,093,372

Accumulated depreciation:

Balance January 1, 2009 - 499,898 1,096,157 2,771,722 171,719 4,435,868 - 8,975,364

Additions - 143,772 158,391 477,579 106,754 1,121,175 - 2,007,671

Write-off on disposal - - (7,296) (13,978) (102,602) (3,161) - (127,037)

Balance December 31, 2009 - 643,670 1,247,252 3,235,323 175,871 5,553,882 - 10,855,998

Additions - 143,770 161,698 480,239 122,587 1,132,627 - 2,040,921

Write-off on disposal - - (14,031) (261,067) - (3,565) - (278,663)

Balance December 31, 2010 - 787,440 1,394,919 3,454,495 298,458 6,682,944 - 12,618,256

Carrying amount:

December 31, 2010 7,222,927 4,813,348 831,889 1,512,521 368,716 2,972,417 753,298 18,475,116

December 31, 2009 - 4,957,118 946,543 1,705,388 491,303 4,085,560 50,607 12,236,519

Build

ings

|LB

P’00

0

Furn

iture

|LB

P’00

0

Com

pute

rEq

uipm

ents

|LB

P’00

0

Vehi

cles

|LB

P’00

0

Land

|LB

P’00

0

Adv

ance

s on

Capi

tal

Expe

nditu

re |

LBP’

000

Tota

l |LB

P’00

0

Inst

alla

tion

&Im

prov

emen

t |

LBP’

000

15. PROPERTY AND EQUIPMENT


Cost:Balance, January 1, 2009 2,219,925Acquisitions 326,966Balance, December 31, 2009 2,546,891Acquisitions 190,046Balance, December 31, 2010 2,736,937

Amortization:Balance, January 1, 2009 1,242,318Amortization for the year 330,554Write-off (1,843)Balance, December 31, 2009 1,571,029Amortization for the year 335,120Write-off (497)Balance, December 31, 2010 1,905,652

Carrying amounts:December 31, 2010 831,285December 31, 2009 975,862

LBP’000

This caption consists of purchased software summarized as follows:

16. INTANGIBLE ASSETS

17. OTHER ASSETS

Purchased Software

Positive change on forward exchange contracts - 959,833Exchange difference on fixed exchange position 231,654 231,654Stamps 63,616 63,198Deferred charges 84,807 106,600Receivables from securitization operations 34,613 561,070Receivable from an associate bank and financial institution 147,753 101,387Accrued income 13,325 98,106Prepayments 707,478 629,347Sundry accounts receivable 3,177,678 2,472,524

4,460,924 5,223,719

LBP’000LBP’000

December 31,

20092010

The movement of deferred charges is as follows

During 2010, a provision for doubtful receivables of

LBP113million was set up against receivables from

securitization operations and recorded under

“Allowance for impairment of loans and advances”

in the consolidated income statement (LBP754million

in 2009). Furthermore, a provision for doubtful

receivables of LBP14.2million was set up during

2010 against receivables from the National Social

Security Fund recorded under “Allowance for

impairment of loans and advances” in the

consolidated income statement.

Receivable from an associate bank and financial

institution includes a receivable in the amount of

LBP147million (USD97,811) from an associate bank

as at December 31, 2010 representing charges paid

by the Group on behalf of Bank Bemo Saudi Fransi

S.A. (LBP97million (USD64,048) in 2009).

It also includes a receivable in the amount of LBP

303 thousand (USD200) from an associate financial

institution as at December 31, 2010 representing

expenses paid by the Group on behalf of BEMO

Oddo Investment Firm Ltd. (LBP4.8million

(USD3,207) in 2009).

Deposits and borrowings from banks and financial

institutions are reflected at amortized cost and

consist of the following:

Balance, January 1, 2009 149,247Amortization (42,647)Balance, December 31, 2009 106,600Amortization (21,793)Balance, December 31, 2010 84,807

LBP’000

Deferred Expenses

Current deposits of banks

and financial institutions 932 17,828,468 17,829,400 - 91,759,823 91,759,823

Current deposits - related

parties - 7,752,354 7,752,354 777 16,460,291 16,461,068

Money market deposits - 4,681,532 4,681,532 - 3,188,768 3,188,768

Money market deposits –

related parties - 12,166,362 12,166,362 - 10,552,500 10,552,500

Other short-term borrowings 10,050,000 - 10,050,000 17,300,000 - 17,300,000

Accrued interest payable 19,112 24,972 44,084 6,435 16,373 22,808

10,070,044 42,453,688 52,523,732 17,307,212 121,977,755 139,284,967

LBP | LBP’000

C/V of F/Cy | LBP’000

Total | LBP’000

LBP | LBP’000

C/V of F/Cy | LBP’000

Total | LBP’000

December 31, 2009December 31, 2010

18. DEPOSITS AND BORROWINGS FROM BANKS AND FINANCIAL INSTITUTIONS


The maturities of money market deposits are as follows:

First quarter 2011 16,395,644 0.800Second quarter 2011 452,250 1.455

16,847,894

F/Cy Base Accounts | LBP’000 Average Interest Rate | %

December 31, 2010

MATURITY

The maturities of other short-term borrowings are as follows:

Fourth quarter 2011 10,050,000 6.310 - -10,050,000 -

LBP Base Accounts |LBP’000


%


%

December 31, 2010

MATURITY

First quarter 2010 13,133,764 0.454Second quarter 2010 607,504 1.468

13,741,268

F/Cy Base Accounts | LBP’000

F/Cy Base Accounts | LBP’000

Accrued interest payable is distributed as follows:

Non-related parties 24,972 6,435Related parties 19,112 16,373

44,084 22,808

December 31,

2010 2009

LBP’000 LBP’000

First quarter 2010 17,300,000 3.974 - -17,300,000 -

LBP Base Accounts |LBP’000


%


%

December 31, 2009

MATURITYF/Cy Base Accounts | LBP’000

Average Interest Rate | %

December 31, 2009

MATURITY

19. CUSTOMERS’ ACCOUNTS AT AMORTIZED COST

Deposits from customers:- Current and demand deposits 21,647,505 298,084,369 319,731,874- Term deposits 174,139,828 777,044,773 951,184,601- Collateral against loans and advances 13,695,525 203,863,112 217,558,637Margins and other accounts:- Margins for irrevocable import letters of credit - 7,208,625 7,208,625- Margins on letters of guarantee 835,995 2,506,153 3,342,148- Other margins 50,250 140,951 191,201Accrued interest payable 739,866 1,747,230 2,487,096Total 211,108,969 1,290,595,213 1,501,704,182

LBP | LBP’000

Counter Value in LBP of F/Cy | LBP’000

Total | LBP’000

December 31, 2010

Deposits from customers:- Current and demand deposits 19,880,216 286,316,567 306,196,783- Term deposits 150,252,589 746,405,113 896,657,702- Collateral against loans and advances 8,343,925 217,405,254 225,749,179Margins and other accounts:- Margins for irrevocable import letters of credit - 7,483,391 7,483,391- Margins on letters of guarantee 1,468,062 2,886,010 4,354,072- Other margins 258,525 155,752 414,277Accrued interest payable 1,124,474 1,825,549 2,950,023Total 181,327,791 1,262,477,636 1,443,805,427

LBP | LBP’000

Counter Value in LBP of F/Cy | LBP’000

Total | LBP’000

December 31, 2009

- Less than LBP200million 140,474,062 9.35 4,493- From LBP200million to LBP1.5billion 500,142,439 33.30 936- Over LBP1.5billion 861,087,681 57.35 213

1,501,704,182 100.00 5,642

Total Deposits | LBP’000

% to Total Deposits | %

No. of Customers

December 31, 2010

- Less than LBP200million 137,081,220 9.49 4,367- From LBP200million to LBP1.5billion 484,703,720 33.57 906- Over LBP1.5billion 822,020,487 56.94 198

1,443,805,427 100.00 5,471

Total Deposits | LBP’000

% to Total Deposits | %

No. of Customers

December 31, 2009

Deposits from customers at amortized cost are allocated by brackets of deposits as follows:


20. RELATED PARTIES’ ACCOUNTS AT AMORTIZED COST

2010 206,849,033 6.20 1,238,383,424 2.90 49,261,8022009 139,491,801 7.36 1,088,690,370 3.41 47,724,6182008 56,393,625 7.21 883,192,803 4.06 41,357,282

Average Balance of Deposits |

LBP’000

AverageInterest Rate |

%

Average Balance of Deposits |

LBP’000

AverageInterest Rate |

%

Cost of Funds | LBP’000


Current and demand deposits 3,502,580 3,502,580 9,924,350 9,924,350 13,426,930Term deposits 2,147,922 2,147,922 8,916,517 8,916,517 11,064,439Margins on letters of guarantee 12,000 12,000 - - 12,000Accrued interest payable 2,537 2,537 8,665 8,665 11,202

5,665,039 5,665,039 18,849,532 18,849,532 24,514,571

InterestBearing | LBP’000

Total | LBP’000


Total | LBP’000

Grand Total |

LBP’000

LBP

December 31, 2010

Counter Value in LBP of F/Cy

Customers' deposits at amortized cost included coded

number deposit accounts (secret account) stated at

LBP2.09billion as of December 31, 2010

(LBP2.19billion for 2009). These accounts were

opened at the Group under the provisions of Article 3

of the Banking Secrecy Law dated September 3, 1956.

Under the provisions of this Article, the Group's man-

agement, in the normal course of business, cannot

reveal the identities of these depositors to third par-

ties, including its independent public accountants.

Time deposits at amortized cost as at December 31,

2010 include fiduciary deposits received from a

non-resident related bank in the amount of

LBP42.70billion (USD28,329,641) (LBP78.39billion for

2009).

The average balances of deposits at amortized cost,

including related party deposits, and related cost of

funds over the last 3 years were as follows:

Current and demand

deposits 60,600 119,274 179,874 1,246,381 1,246,381 1,426,255

Term deposits 1,099,718 - 1,099,718 6,580,910 6,580,910 7,680,628

Collateral against loans

and advances - - - 2,758,800 2,758,800 2,758,800

Margins on letters of

guarantee 12,000 - 12,000 - - 12,000

Accrued interest payable 3,610 - 3,610 80,189 80,189 83,799

1,175,928 119,274 1,295,202 10,666,280 10,666,280 11,961,482


Non-InterestBearing | LBP’000

Total | LBP’000


Total | LBP’000

Grand Total |

LBP’000

LBP

December 31, 2009

Counter Value in LBP of F/Cy

Deposits from related parties at amortized cost are allocated by brackets of deposits as follows:

- Less than LBP500million 2,361,238 9.63- From LBP500million to LBP1.5billion 1,557,672 6.35- Over LBP1.5billion 20,595,661 84.02

24,514,571 100.00

Total Deposits | LBP’000 % to Total Deposits | %

December 31, 2010

- Less than LBP500million 1,124,035 9.40- From LBP500million to LBP1.5billion 1,647,683 13.77- Over LBP1.5billion 9,189,764 76.83

11,961,482 100.00

Total Deposits | LBP’000 % to Total Deposits | %

December 31, 2009

Current tax liability 250,375 522,880Deferred tax liability - Note 28 257,424 739,748Deferred tax on gain from investment in associates - Note 13 501,838 393,809Tax on salaries 362,106 322,666Tax on interest paid to customers accounts 229,933 192,879Other taxes payable 1,013,495 922,763Due to the National Social Security Fund 242,858 244,345Checks and incoming payment orders in course of settlement 355,565 657,753Accrued expenses 2,367,511 1,743,651Negative change on forward exchange contracts 1,641,994 -Sundry accounts payable 2,334,115 909,481Unearned income 23,313 3,111Accrued interest payable on cash contribution to capital - Note 26 417,391 633,138

9,997,918 7,286,224

LBP’000 LBP’000

December 31,

2010 2009

21. OTHER LIABILITIES


22. PROVISIONS

The Social Security declarations for the years ended

December 31, 2009 and 2010 for the

abovementioned subsidiary were reviewed during

the year 2010 by the National Social Security Fund;

accordingly, additional contributions were due in the

amount of LBP628thousand which were fully settled

at year-end 2010.

Sundry accounts payable include an amount of

LBP21.68million representing an advance payment

from minority shareholders, who are related parties,

on the capital increase of Bemo Securitization S.A.L.

(a subsidiary).

The determination of income tax of the Bank is

presented as follows:

Income before income tax (before elimination ofinter-company transactions) 6,415,331 3,715,951Add: Non-deductible expenses/losses 3,170,401 6,253,942Less:- Non-taxable revenues/gains (685,820) (1,485,122)- Income of Cyprus branch and subsidiaries (1,721,381) (121,858)Taxable income for the year 7,178,531 8,362,913Enacted tax rate in Lebanon (subject to 15%) 15% 15%

1,076,780 1,254,437Add: Income tax provision - branches and subsidiaries 433,802 234,241

1,510,582 1,488,678Less: Tax paid during the year in the form of withholding tax (904,584) (825,347)Less: Cyprus income tax paid during the year (412,671) (173,778)

193,327 489,553Brought forward balance from non-resident branch 52,431 29,242Exchange difference on brought forward balance 4,617 4,085Current tax liability 250,375 522,880

2010 2009

LBP’000 LBP’000

LBP’000 LBP’000

December 31,

2010 2009

Provision for staff end-of-service indemnity 2,653,784 2,212,838Provision for contingencies 2,208,822 2,999,958Provision for loss on foreign currency position 373,708 285,654

5,236,314 5,498,450

The movement of provision for staff end-of-service indemnity is as follows:

Balance, January 1, 2,212,838 1,929,779Additions 509,522 781,570Settlements (33,594) (295,677)Write-back (16,949) (204,029)Exchange difference (18,033) 1,195Balance, December 31, 2,653,784 2,212,838

2010 2009

LBP’000 LBP’000

The movement of the provision for contingencies was as follows:

This caption consists of the following:

Subordinated bonds in the amount of USD15million

approved by the exceptional General Assembly

meeting held on May 17, 2004 and issued during

July 2004, have matured on July 26, 2009. These

bonds earned interest at an annual rate of 6.5% net

of 5% tax on interest.

The exceptional General Assembly approved in its

meeting held on March 10, 2009 the issuance of

subordinated bonds in the amount of

USD40,000,000 divided into 4,000 bonds of

USD10,000 nominal value each. These bonds were

issued on May 30, 2009 and mature on June 30,

2014. The bonds are subject to an annual interest

of 7% payable on December 31 and June 30 of

each year.

The Group maintains enough liquid funds within its

liquidity to redeem these bonds at maturity.

In this connection, interest expense on bonds for

the year 2010 amounting to LBP4.24billion is

recorded in the consolidated income statement

(LBP3.31 billion for 2009).

Balance, January 1, 2,999,958 2,113,892Additions 3,468 788,627Write-back (75,254) (426,007)Reclassification (to)/from other liabilities (719,350) 523,446Balance, December 31, 2,208,822 2,999,958

2010December 31,

2009

LBP’000 LBP’000

Subordinated bonds 60,227,376 60,206,120Accrued interest payable 2,127,847 2,428,521

62,355,223 62,634,641

2010December 31,

2009

LBP’000 LBP’000

23. SUBORDINATED BONDS


In accordance with banking laws and regulations,

subordinated bonds are considered as Tier II capital

for the purposes of computation of Risk Based

Capital Ratio, to be decreased by 20% on a yearly

basis.

The capital is represented by 16,000,000 nomina-

tive shares authorized and fully paid with a par

value of LBP1,000 per share and divided as follows:

- Listed Shares: 5,600,000

- Unlisted Shares: 10,400,000

The movement of ordinary and preferred treasury

shares during 2010 and 2009 was as follows:

The Extraordinary General Assembly approved in its

meeting held on January 31, 2011, the increase of

share capital from LBP16billion to LBP62billion

thereby raising the share capital by LBP46billion

through the issuance of 46,000,000 ordinary shares

with a par value of LBP1,000 per share against a

transfer of LBP16billion from retained earnings,

free reserves, and legal reserve and the remaining

balance to be subscribed into in cash.

24. SHARE CAPITAL

On June 1, 2006, the Group issued preferred shares

in the amount of USD20million (LBP30billion) on

the basis of 200,000 shares at USD100.

The preferred shares are callable five years from

the issuance date on June 1, 2011 and bear

interest on a non-cumulative basis at an annual

rate of 8%.

25. PREFERRED SHARES

Balance - January 1 283,795 1,059,111 215,335 597,085Acquisition/disposal, net 77,200 488,219 68,460 462,026Balance - December 31 360,995 1,547,330 283,795 1,059,111

2010 2009

# of Shares Amount | LBP’000 # of Shares Amount | LBP’000

This caption represents capital injection of

USD19,306,789 made by shareholders, in the form

of shareholders’ cash contribution to capital, each to

the extent of his/her shareholding in the Bank’s

equity. Effective July 2002, the cash contribution is

subject to an interest rate of Libor + 1%.

This sort of equity instrument consists of

non-refundable capital injection which could be

converted into share capital and it has the

advantage of being booked and maintained in

foreign currencies which allows for hedging against

national currency fluctuation.

Interest on shareholders’ cash contribution is

payable yearly from the Bank’s unrestricted net

profits after receiving the approval of the Banking

Control Commission. In this connection, the related

interest expense amounted to LBP464million for

the year ended December 31, 2010 (LBP703million

for 2009). Accrued interest payable of

LBP417million and LBP633million net of the related

withheld tax, is recorded under “Other Liabilities” as

at December 31, 2010 and 2009, respectively,

(Note 21).

26. SHAREHOLDERS’ CASH CONTRIBUTION TO CAPITAL

Reserves consist of the following as at December 31, 2010 and 2009:

In accordance with the requirements of the

Lebanese Money and Credit Law, the Group trans-

fers since its inception 10% of its net income to the

legal reserve account. This reserve is not available for

distribution.

The reserve for general banking risks is constituted

according to local banking regulations from income

on the basis of a minimum of 2 per mil and a

maximum of 3 per mil of the total risk weighted

assets, off-balance sheet risk and global exchange

position as defined for the computation of the

solvency ratio at year-end. This reserve is constitut-

ed in Lebanese Pounds and in foreign currencies to

the extent of LBP1.6billion and LBP10.32billion,

respectively, in proportion to the composition of

the Group’s total risk weighted assets and off-

balance sheet items. This reserve is not available

for distribution.

27. RESERVES

Legal reserve 7,323,802 6,866,009Reserve for general banking risks 11,922,607 9,615,875Reserve for assets acquired in satisfaction of debts - Note 14 270,500 670,476Other reserves 12,718,363 12,718,363

32,235,272 29,870,723

2010December 31,

2009

LBP’000 LBP’000


The cumulative change in fair value of investment securities consists of the following:

28. CUMULATIVE CHANGE IN FAIR VALUE OF INVESTMENT SECURITIES

Unrealized gain/(loss) on

Lebanese treasury bills 2,973,907 (446,086) 2,527,821 3,647,001 (547,050) 3,099,951


Lebanese Government

bonds (3,795,464) 476,169 (3,319,295) (528,271) 99,895 (428,376)

Unrealized gain /(loss) from

foreign treasury bills (10,430) 1,071 (9,359) 93,631 - 93,631


certificates of deposit

issued by Central Bank

of Lebanon 1,608,088 (241,213) 1,366,875 753,872 (113,080) 640,792


corporate bonds (318,570) (6,348) (324,919) (41,999) (16,007) (58,006)


equity securities (177,170) (41,017) (218,186) 276,215 (163,506) 112,709

280,361 (257,424) 22,937 4,200,449 (739,748) 3,460,701


CumulativeChange in inFair Value |

LBP’000

DeferredTaxes |LBP’000

Net |LBP’000

CumulativeChange in Fair Value |

LBP’000

DeferredTaxes |LBP’000

Net |LBP’000

The movement of the cumulative change in fair value of available-for-sale investment securities during

2010 is as follows:

Balance - January 1, 2010 3,460,701Unrealized gain/(loss) during 2010 on:-Treasury bills (673,094)- Lebanese government bonds (3,660,952)- Foreign treasury bills (200,909)- Certificates of deposit issued by Central Bank of Lebanon 854,216- Corporate bonds (365,481)- Equity securities (526,510)Gain not realized upon redemption, reversed 14,597Gain recycled to income statement 638,045Change in deferred tax 482,324Balance - December 31, 2010 22,937

Group’s Share | LBP’000

The movement of the cumulative change in fair value of available-for-sale investment securities during

2009 is as follows:

Balance - January 1, 2009 (4,931,717)Unrealized gain/(loss) during 2009 on:- Treasury bills 3,398,456- Lebanese government bonds 241,627- Foreign treasury bills 93,631- Certificates of deposit issued by Central Bank of Lebanon 928,812- Corporate bonds 1,004,781- Equity securities 1,979,174Gain not realized upon redemption, reversed 25,628Gain recycled to income statement 1,507,673Change in deferred tax (787,364)Balance - December 31, 2009 3,460,701

Group’s Share | LBP’000

29. NON-CONTROLLING INTEREST

Capital 80,030 294,021Reserves and retained earnings (21,680) (234,457)(Loss)/profit for the year (98,332) (143,594)

(39,982) (84,030)

2010December 31,

2009

LBP’000 LBP’000

The consolidated profit for the year is allocated as follows between the Bank and its subsidiaries:

30. PROFIT FOR THE YEAR

Income of the Bank 15,042,337 - 15,042,337Income of subsidiaries:Bemo Securitization S.A.L. (2,375,465) (98,977) (2,474,442)Depository and Custody Co. S.A.L. 19,540 645 20,185Total 12,686,412 (98,332) 12,588,080

Year Ended | December 31, 2010

Bank’s Share |LBP’000

Total | LBP’000Non-Controlling Interest |LBP’000


Income of the Bank 12,277,432 - 12,277,432Income of subsidiaries:Bemo Securitization S.A.L. (398,672) (143,315) (541,987)Depository and Custody Co. S.A.L. (6,474) (279) (6,753)Total 11,872,286 (143,594) 11,728,692

Year Ended | December 31, 2009

Bank’s Share |LBP’000

Total | LBP’000

Non-Controlling Interest |LBP’000

The following dividends were declared and paid by the Group:

31. DIVIDENDS PAID

LBP225 and LBP225 per ordinary share paid by the Bank in 2010 and 2009 respectively 3,517,021 3,551,358USD8 per preferred share paid by the Bank in 2010 and 2009 2,412,000 2,412,000

5,929,021 5,963,358

2010 2009

LBP’000 LBP’000

Interest income on the Group’s trading portfolio is included under “net interest and other gains/(losses)

on trading portfolio” (Note 36).

32. INTEREST INCOME

Interest income from:Term deposits with Central Banks 3,976,588 4,729,001Deposits with banks and financial institutions 1,035,056 2,639,486Deposits with related party banks and financial institutions 142,586 183,206Available-for-sale investment securities 19,850,791 18,728,162Held-to-maturity investment securities 4,217,823 3,302,012Loans and advances to customers 44,312,170 42,814,323Loans and advances to related parties 309,600 17,158Interest realized on impaired loans and advances toCustomers - Note 9 236,842 385,335

74,081,456 72,798,683

2010Year Ended | December 31,

2009

LBP’000 LBP’000


33. INTEREST EXPENSE

Interest expense on:Deposits and borrowings from banks and financial institutions 333,632 1,137,604Deposits and borrowings from related party banks andfinancial institutions 251,058 156,058Customers’ accounts at amortized cost 49,162,128 47,348,516Related parties’ accounts at amortized cost 99,674 376,102Subordinated bonds - Note 23 4,242,256 3,318,361Shareholders’ cash contribution to capital - Note 26 463,768 703,487

54,552,516 53,040,128


2009

LBP’000 LBP’000

34. FEE AND COMMISSION INCOME

Commission on documentary credits 1,786,440 1,717,601Commission on letters of guarantee 801,343 936,216Service fees on customers’ transactions 5,228,492 5,110,273Other 564,073 407,126

8,380,348 8,171,216


2009

LBP’000 LBP’000


35. FEE AND COMMISSION EXPENSE

Commission on transactions with banks 469,535 505,423Commission on transactions with related party banks 41,564 33,337Other 263,317 273,470

774,416 812,230


2009

LBP’000 LBP’000


36. NET INTEREST AND OTHER GAINS / (LOSSES) ON TRADING PORTFOLIO

Dividends received on equity securities 304,122 368,319Change in fair value of trading portfolio (net) - Note 7 21,863 101,283Loss on sale of trading assets - (52,190)Gain on sale of trading assets 762 14,924

326,747 432,336


2009

LBP’000 LBP’000



37. OTHER OPERATING INCOME

Gain on sale of available-for-sale securities:- Equities 334,695 1,099,333- Lebanese Government bonds 2,556,442 1,979,777- Corporate bonds 687,021 628- Lebanese treasury bills 1,638,570 533,525- Foreign treasury bills 235,310 13,174- Certificates of deposit issued by Central Bank of Lebanon 450,050 120,443Dividends on available-for-sale securities 215,285 204,380Share in profits of associates - Note 13 4,768,583 4,781,458Revenues from securitization operations 652,936 1,308,435Other 1,264,473 1,226,291

12,803,365 11,267,444


2009

LBP’000 LBP’000


38. STAFF COSTS

The computation of the basic earnings per share is

based on the Group’s net income before non-

recurring income, net of dividends paid to preferred

shares holders, and the weighted average number of

outstanding shares during each year, net of treasury

shares held by the Group.

The weighted average number of shares to

compute basic earnings per share is 15,644,314

shares in 2010 (15,756,078 shares in 2009).

39. EARNINGS PER SHARE

Salaries and related charges 14,103,061 12,623,872Social Security contributions 1,577,279 1,491,484Provision for end-of-service indemnities (net) 492,573 577,541

16,172,913 14,692,897


2009

LBP’000 LBP’000

The guarantees and standby letters of credit and

the documentary and commercial letters of credit

represent financial instruments with contractual

amounts representing credit risk. The guarantees

and standby letters of credit represent irrevocable

assurances that the Group will make payments in

the event that a customer cannot meet its obligations

to third parties and are not different from loans and

advances on the balance sheet. However,

documentary and commercial letters of credit,

which represent written undertakings by the Group

on behalf of a customer authorizing a third party to

draw drafts on the Group up to a stipulated amount

under specific terms and conditions, are collateralized

by the underlying shipments documents of goods

to which they relate and, therefore, have

significantly less risks.

40. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS

In the ordinary course of its activities, the Group

conducts transactions with related parties including

shareholders, directors, subsidiaries and associates.

Balances with related parties excluding accrued

interest consist of the following:

41. FIDUCIARY DEPOSITS AND ASSETS UNDER MANAGEMENT

42. BALANCES / TRANSACTIONS WITH RELATED PARTIES

Fiduciary deposits invested in certificates ofdeposit issued by the Central Bank of Lebanon 2,965,479 2,965,479Fiduciary deposits from related parties invested in loansgranted to related party companies 6,633,000 7,499,813Shares in trust 2,929,719 2,928,323Funds under trust - 202,253

12,528,198 13,595,868

2010December 31,

2009

Resident Customer |LBP’000

Resident Customer |LBP’000

Shareholders, directors and other key managementpersonnel and close family members:Direct facilities and credit balances:- Secured loans and advances 362,422 540,178- Unsecured loans and advances 245,248 734,004- Deposits 9,087,674 9,774,690

2010December 31,

2009

LBP’000 LBP’000


Interest rates charged on balances outstanding are

the same as applicable rates that would be charged

in an arm’s length transaction. Secured loans and

advances are covered by real estate mortgages to

the extent of LBP372.82million and by pledged

deposits of the respective borrowers to the extent

of LBP2.4billion.

The remunerations of executive management

amounted to LBP1.93billion during 2010

(LBP1.74billion 2009) in addition to incentives

linked to performance.

Associated companies:Direct facilities and credit balances:- Secured loans and advances 2,407,349 5,046,068- Unsecured loans and advances 714,846 254,900- Deposits 15,415,695 2,102,993

Indirect facilities:- Letters of guarantee 172,814 346,610

2010December 31,

2009

LBP’000 LBP’000

Cash and cash equivalents for the purpose of the cash flows statement consist of the following:

43. CASH AND CASH EQUIVALENTS

Cash 7,740,077 5,445,399 5,765,672Current accounts with Central Banks 5,501,301 2,867,374 1,232,111Time deposits with Central Banks 7,499,820 15,075,000 14,196,880Checks for collection and current accountswith banks and financial institutions 67,459,872 169,249,533 74,181,773Time deposits with banks and financialinstitutions 150,234,441 103,842,150 23,724,943Current deposits from banks (23,601,432) (106,464,416) (46,529,081)Time deposits from banks (12,166,361) (27,852,500) (46,412,500)

202,667,718 162,162,540 26,159,798

2010

December 31,

2009 2008

LBP’000 LBP’000LBP’000

Time deposits with and from Central Banks and

banks and financial institutions represent

inter-bank placements and borrowings with an

original term of 90 days or less.

The following operating, investing and financing

activities that represent non-cash items were

excluded from the cash flow statement:

(a) Decrease in the fair value of available-for-sale

securities in the amount of LBP3.92billlion during

2010 (increase in the amount of LBP9.18billion in

2009).

(b) Decrease in deferred tax liability under “Other

liabilities” in the amount of LBP482million during

2010 (increase in deferred tax liability under “Other

liabilities” in the amount of LBP787million in

2009).

(c) Transfer of assets acquired in satisfaction of

debts to property and equipment in the amount of

LBP7.22billion during the year ended December 31,

2010.

The carrying values of financial assets given as collateral are as follows:

44. COLLATERAL GIVEN

Deposits with banks and financial institutions:Union Bank of Switzerland 8,702,979 Forward contracts 143,123,134

Options and swaps transactions 44,590,981Deutsche Bank 7,455,352 Acceptances less than one year 1,536,860Commerzbank 13,567,500 Forward contracts 2,203,559

Acceptances less than one year 5,309,15629,725,831

Pledged deposits with related parties:Bemo Paris 8,216,754 Letters of credit and letters of

guarantee NIL37,942,585

December 31, 2010

Pledged Amount |LBP’000

Nature of FacilityAmount ofFacility | LBP’000

Pledged Amount |LBP’000

Nature of FacilityAmount ofFacility | LBP’000

Deposits with banks and financial institutions:Union Bank of Switzerland 5,223,263 Forward contracts 139,898,696

Options and swaps transactions 128,662,762Deutsche Bank 7,428,845 Acceptances less than one year 4,886,267Commerzbank 12,060,000 Forward contracts 8,860,216

Acceptances less than one year 140,95124,712,108

Pledged deposits with related parties:Bemo Paris 8,165,003 Letters of credit and letters of

guarantees NIL8,165,003

32,877,111

December 31, 2009


The Group manages its capital to comply with thecapital adequacy requirements set by the CentralBank of Lebanon, the Group’s lead regulator.

Central Bank of Lebanon requires each bank orbanking group to hold a minimum level of regulatory capital of LBP10billion for the headoffice and LBP500million for each local branch andLBP1.5billion for each branch abroad. Furthermore,the minimum capital adequacy ratio set by the regulator is 8% (Basel II Ratio).

The Group’s capital is split as follows:

Tier I capital: Comprises share capital, after deduction of treasury shares, shareholders’ cashcontribution to capital, non-cumulative perpetualpreferred shares, share premium, reserves fromappropriation of profits, retained earnings (exclusive of current year’s net profit) and minorityinterest. Goodwill and unfavorable change in fairvalue of available-for-sale securities are deductedfrom Tier I Capital.

Tier II capital: Comprises qualifying subordinatedliabilities, collective impairment allowance, cumulative favorable change in fair value of available-for-sale securities and revaluation surplusof owned properties.

Investments in associates are deducted from Tier Iand Tier II capital.

Furthermore, various limits are applied to the elements of capital base: Qualifying Tier II capitalcannot exceed Tier I capital and qualifying shortterm subordinated loan capital may not exceed50% of Tier I capital.

The Group has complied with imposed capitalrequirements throughout the period.

The Group’s risk based capital ratio according to BasleII as of December 31, 2010 and 2009, is as follows:

45. CAPITAL MANAGEMENT

Risk-weighted assets 1,194,506 1,143,926Credit risk 1,129,162 1,078,745Market risk 8,013 7,825Operational risk 57,331 57,356

Tier I capital (including net income less proposed dividends and Reserves for assets acquired in satisfaction of loans) 101,346 97,976Tier II capital 30,979 43,318Total capital 132,325 141,294

Capital adequacy ratio - Tier I 8.48% 8.56%Capital adequacy ratio - Tier I and Tier II 11.08% 12.35%

2010December 31,

2009

LBP million LBP million

The Group’s capital strategy is based on the following

constraints:

> Comply with regulatory ratios, on individual and

consolidated basis, primarily in respect of the

Capital Adequacy Ratio under Basle II.

> Ensure a high Return on Equity for the common

shareholders.

> Dividends payout policy is consistent to provide

shareholders with acceptable dividend yield.

The Group’s total equity funding consists of the

following:

Consequently, the allocation of equity among different categories of equity components is as follows:

Equity allotted to common shares 102,220,485 99,522,284 2,698,201 2.71Preferred shares 30,150,000 30,150,000 - -Subordinated bonds 62,355,223 62,634,641 (279,418) 0.45Total equity 194,725,708 192,306,925 2,418,783

2010Balances | December 31, Variation

2009 Amount

LBP’000 LBP’000 LBP’000 %

Common shareholders’ equity 52.49 51.75Preferred shares 15.49 15.68Subordinated debts 32.02 32.57Total equity 100.00 100.00

2010December 31,

As % of Total Equity

2009

% %

The Group has exposure to the following risks

arising from financial instruments:

- Credit risk

- Liquidity risk

- Market risk

The Board of Directors has overall responsibility for

the establishment and oversight of the Group’s risk

management framework. The Board has estab-

lished a credit and market risk management

department and various committees to develop

and monitor the Group’s risk management policies

and their implementation.

The Group’s risk management policies are estab-

lished to identify and analyze the risks faced by the

Group, to set appropriate risk limits and controls,

and to monitor risks and adherence to limits.

Regular review of risk management policies and

systems to reflect changes in market conditions,

products and services offered is the responsibility

of the various committees and the Board of

Directors. The Group, through its management

standards and procedures, aims to develop a

disciplined control environment, in which employees

understand their roles and obligations

46. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT


Credit risk is the risk of financial loss to the Group if

a counterparty to a financial instrument fails to

discharge an obligation. Financial assets that are

mainly exposed to credit risk are deposits with

banks, loans and advances and investment securities.

Credit risk also arises from off-balance sheet finan-

cial instruments such as letters of credit and letters

of guarantee.

Concentration of credit risk arises 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 of credit risk indicate the relative

sensitivity of the Group’s performance affecting a

particular industry or geographical location.

The Group manages credit risk by developing poli-

cies and procedures that are regularly reviewed to

ensure continuous effective credit risk manage-

ment in light of changes in business strategy.

Credit risk management policies and practices define

lending limits, credit approval authorization matrices,

and risk identification and monitoring systems. The

Group applies an internal rating system that takes

into account criteria related to the borrower (e.g.

nature of the activity, financial performance and

structure, credit history, cash flows, projected

financials and management) and to the credit quality

(e.g. purpose, amount, tenor, collateral presented

as a second way out). The Group also sets lending

limits to a single obligor or a related group of obligors.

A. CREDIT RISK

(1) Management of credit risk

(a) Loans and advances

The Group assesses the probability of default of

individual counterparties using internal rating tools.

The Group’s rating scale reflects the range of

default probabilities defined for each rating class as

explained below:

> Special Mention /Vulnerable: Loans and

advances rated Watch List are loans that are not

impaired but for which the Group determines that

they require special monitoring.

> Past due but not impaired: Loans past due but

not impaired are loans where contractual interest

or principal are past due but the Group’s management

believes that impairment is not appropriate on the

basis of the level of collateral available and the

stage of collection of amounts owed to the Group.

> Substandard loans: Substandard loans are

loans that are inadequately protected by current

sound worth and paying capacity of the obligor or

by any collateral pledged in favor of the group.

(2) Measurement of credit risk

Exposures where an indication of the possibility

that the Group will sustain a loss if certain

irregularities and deficiencies are not addressed

exists are classified under this category.

> Doubtful loans: Doubtful loans have, in

addition to the weaknesses existing in substandard

loans, characteristics indicating that current existing

facts and figures make the collection in full highly

improbable. The probability of loss is high but

certain reasonable and specific pending factors

which if addressed could strengthen the probability

of collection, result in the deferral of the exposure

as an estimated loss until a more exact status is

determined.

> Loss: Loans classified as loss are considered as

uncollectible and of such minimal value that their

classification as assets is not warranted. This does

not mean that the loan is absolutely unrecoverable

or has no salvage value. However, the amount of

loss is difficult to measure and the Group does not

wish to defer the writing of the loan even partial

recovery might occur in the future. Loans are

charged off in the period in which they are deemed

uncollectible and therefore classified as loss.

The Group establishes an allowance for impairment

that represents its estimate of incurred losses in its

loan portfolio. The main component of its allowance

are specific loss component that relate to individually

significant exposures, and a minor part of a

collective loan loss allowance established for retail

and Small and Medium Enterprises (SME's) where

there is objective evidence that unidentified losses

exist at the reporting date. This provision is

estimated based on various factors including the

current economic conditions, the experience the

Group has had in dealing with a borrower or group of

borrowers and available historical default information.

Collateral:

The Group mainly employs collateral to mitigate

credit risk. The principal collateral types for loans

and advances are:

- Pledged deposits

- Mortgages over real estate properties (land,

commercial and residential properties)

- Bank guarantees

- Financial instruments (equities and debt securities)

- Business other assets (such as inventories and

accounts receivable)

(3) Risk mitigation policies

(a) Exposure to credit risk and concentration by

counterparty

The tables below reflect the Group’s exposure to

credit risk by counterparty segregated between the

categories of financial assets:

(4) Financial assets with credit risk exposure and related concentrations


(a.1) Deposits with central banks (excluding cash on hand):

(a.2) Deposits with banks and financial institutions (excluding accrued interest):

Less than LBP15billion 1 544,056 1.65 6,202,619 2.02Over LBP15billion 1 32,576,515 98.35 300,911,611 97.98

2 33,120,571 100.00 307,114,230 100.00

LBP Base Accounts

December 31, 2010

F/Cy Base Accounts

No. of Counter |Parties

Total Amount |LBP’000

% to TotalDeposits |

%



%BRACKET

Less than LBP15billion 1 2,981,995 9.08 7,280,228 2.11Over LBP15billion 1 29,845,383 90.92 336,530,225 97.89

2 32,827,378 100.00 343,810,453 100.00

LBP Base Accounts

December 31, 2009

F/Cy Base Accounts




%



%BRACKET

Less than LBP5billion 1,521,548 100.00 32,333,181 11.89From LBP5billion to LBP15billion - - 113,691,391 41.79Over LBP15billion - - 126,007,336 46.32

1,521,548 100.00 272,031,908 100.00

LBP Base Accounts

December 31, 2010

F/Cy Base Accounts



%



%BRACKET

Less than LBP5billion 460,990 37.60 30,715,755 8.41From LBP5billion to LBP15billion - - 98,041,009 26.85From LBP15billion to LBP30billion 765,024 62.40 161,647,880 44.27Over LBP30billion - - 74,736,245 20.47

1,226,014 100.00 365,140,889 100.00

LBP Base Accounts

December 31, 2009

F/Cy Base Accounts



%



%BRACKET

(a.3) Loans and advances to customers (excluding accrued interest and unearned interest):

Less than LBP500million 1,024 2,190,970 24.59 57,614,284 8.21From LBP500million to LBP5billion 201 6,659,666 74.73 335,596,995 47.83Over LBP5billion 28 60,601 0.68 308,384,165 43.96

1,253 8,911,237 100.00 701,595,444 100.00

LBP Base Accounts

December 31, 2010

F/Cy Base Accounts



% to Total | %


% to Total | %BRACKET

Less than LBP500million 1,044 1,557,639 20.98 56,442,257 9.15From LBP500million to LBP5billion 169 5,849,186 78.79 267,968,124 43.47Over LBP5billion 26 17,008 0.23 291,977,692 47.38

1,239 7,423,833 100.00 616,388,073 100.00

LBP Base Accounts

December 31, 2009

F/Cy Base Accounts



% to Total | %



(a.4) Loans and advances to related parties:

Less than LBP500million 132 100.00 624,186 16.65From LBP500million to LBP1.5billion - - 698,199 18.63Over LBP1.5billion - - 2,425,698 64.72

132 100.00 3,748,083 100.00

LBP Base Accounts

December 31, 2010

F/Cy Base Accounts


% to Total | %



Less than LBP500million 148 33.03 1,010,677 15.37From LBP500million to LBP1.5billion 300 66.97 3,354,912 50.30Over LBP1.5billion - - 2,304,701 34.33

448 100.00 6,670,290 100.00

LBP Base Accounts

December 31, 2009

F/Cy Base Accounts


% to Total | %




(a.5) Available-for-sale investment securities:

Less than LBP15billion 615,120 0.31 69,514,462 47.56 46From LBP15billion toLBP50billion - - 15,579,714 10.66 1Over LBP50billion 199,316,869 99.69 61,072,306 41.78 1

199,931,989 100.00 146,166,482 100.00 48

LBP Base Accounts

December 31, 2010

F/Cy Base Accounts

No. of CounterParties |


% to Total |%



Less than LBP15billion 615,120 0.33 60,970,880 45.24 53From LBP15billion toLBP50billion 22,108,829 12.01 73,807,195 54.76 3Over LBP50billion 161,343,264 87.66 - - 1

184,067,213 100.00 134,778,075 100.00 57

LBP Base Accounts

December 31, 2009

F/Cy Base Accounts



% to Total | %



%BRACKET

(a.6) Held-to-maturity investment securities:

Less than LBP5billion - - 7,504,071 23.11 13Over LBP5billion 5,243,613 100.00 24,962,198 76.89 1

5,243,613 100.00 32,466,269 100.00 14

LBP Base Accounts

December 31, 2010

F/Cy Base Accounts

No. of CounterParties|


% to Total | %



Less than LBP5billion - - 8,963,491 26.42 12Over LBP5billion 5,243,613 100.00 24,962,193 73.58 1

5,243,613 100.00 33,925,684 100.00 13

LBP Base Accounts

December 31, 2009

F/Cy Base Accounts



% to Total | %



Below are the details of the Group’s exposure to credit risk with respect to loans and advances to

customers:

Regular accounts 709,312,388 - 709,312,388 193,787,905 85,251,783 19,258,328 - 298,298,016

Past due regular loans and

advances but not impaired:

Between 30-60 days 79,561 - 79,561 - - - - -

Between 60-90 days 40,340 - 40,340 - - - - -

Between 90-180 days 47,357 - 47,357 - - - - -

Beyond 180 days 29,515 - 29,515 - - - - -

Impaired:

Substandard 675,247 - 675,247 - 1,703,475 220,218 - 1,923,693

Doubtful and bad loans 1,793,356 (1,402,966) 390,390 - 972,338 - - 972,338

Rescheduled 106,621 (106,621) - - 67,837 - - 67,837

712,084,385 (1,509,587) 710,574,798 193,787,905 87,995,433 19,478,546 - 301,261,884

Fair Value of Collateral Held

December 31, 2010

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Regular accounts 621,582,039 - 621,582,039 198,684,869 77,196,981 24,946,618 300,828,468

Past due regular loans and

advances but not impaired:

Between 30-60 days 86,206 - 86,206 - - - -

Between 60-90 days 68,299 - 68,299 - - - -

Between 90-180 days 192,305 - 192,305 - - - -

Beyond 180 days 334,780 - 334,780 - - - -

Impaired:

Substandard 1,267,867 - 1,267,867 467,251 5,472,225 285,294 6,224,770

Doubtful and bad loans 1,706,331 (1,332,794) 373,537 - 904,500 - 904,500

Rescheduled 186,525 (180,323) 6,202 - 67,838 - 67,838

625,424,352 (1,513,117) 623,911,235 199,152,120 83,641,544 25,231,912 308,025,576

Fair Value of Collateral Held

December 31, 2009

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Balance sheet Exposure:Cash and central banks 347,974,878 - - - - - - - 347,974,878Deposits with banks and financialinstitutions - 273,606,963 - - - - - - 273,606,963Trading assets - 3,791,378 - - - - - - 3,791,378Loans to banks - 4,014,194 - - - - - - 4,014,194Loans and advances to customers - 6,163,271 79,828,360 106,918,462 389,115,504 54,828,693 73,181,420 539,088 710,574,798Loans and advances to related parties - - - 714,838 2,407,349 8 607,670 18,350 3,748,215Available-for-sale investmentsecurities 300,237,632 26,986,496 3,017,231 1,961,372 10,236,741 3,658,999 - - 346,098,471Held-to-maturity investmentsecurities 30,605,079 5,788,337 - 1,316,466 - - - - 37,709,882Customers' liability under acceptances - - - 11,444,964 23,729,966 109,707 - - 35,284,637Other assets - - - - - - - 3,360,044 3,360,044

678,817,589 320,350,639 82,845,591 122,356,102 425,489,560 58,597,407 73,789,090 3,917,4821,766,163,460Off-Balance sheet Risks:Documentary and commercial letters of credit - - 549,837 21,817,481 68,623,241 71,760 - - 91,062,319Guarantees and standby letters of credit 1,962,845 6,573,826 16,053,173 16,355,601 14,698,048 2,968,361 1,813,631 - 60,425,485Forward Contracts - 152,781,871 - 1,360,256 2,216,241 - 9,869,050 - 166,227,418

December 31, 2010

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Balance sheet Exposure:Cash and central banks 382,083,230 - - - - - - - 382,083,230Deposits with banks and financialinstitutions - 366,584,801 - - - - - - 366,584,801Trading assets - 3,949,196 - 8,644 - - - - 3,957,840Loans to banks - 570,233 - - - - - - 570,233Loans and advances to customers - 7,026,988 76,490,429 109,506,458 316,615,597 52,027,444 62,157,238 87,081 623,911,235Loans and advances to related parties - - 2,848,044 - 2,304,702 243,810 1,274,182 - 6,670,738Available-for-sale investmentsecurities 265,383,455 30,679,857 3,717,959 6,346,081 10,203,885 2,514,051 - - 318,845,288Held-to-maturity investmentsecurities 30,613,641 7,116,455 - 1,439,201 - - - - 39,169,297Customers' liability underacceptances - - 35,331 8,595,566 24,081,043 - - - 32,711,940Other assets - - - - - - - 3,134,981 3,134,981

678,080,326 415,927,530 83,091,763 125,895,950 353,205,227 54,785,305 63,431,420 3,222,062 1,777,639,583Off-Balance sheet Risks:Documentary and commercial letters of credit - - - 21,926,767 68,458,346 - - - 90,385,113Guarantees and standby letters of credit - 25,423,088 16,715,956 13,733,326 14,602,619 2,842,756 1,235,735 - 74,553,480Forward Contracts - 158,864,821 - 112,143 8,905,142 - 9,816,502 - 177,698,608

December 31, 2009

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(b) Concentration of financial assets by industry or sector:

Cash and Central Banks 341,770,385 - - 6,204,493 - 347,974,878Deposits with banks and financial institutions 32,489,379 20,133,379 35,595,790 184,683,423 704,992 273,606,963Trading assets 3,791,378 - - - - 3,791,378Loans to banks 4,014,194 - - - - 4,014,194Loans and advances to customers 641,536,440 66,655,123 41,759 2,341,476 - 710,574,798Loans and advances to related parties 3,731,611 - - 16,604 - 3,748,215Available for saleinvestment securities 317,229,507 4,875,369 11,614,764 12,378,831 - 346,098,471Held-to-maturity investment securities 31,777,485 399,270 3,885,304 1,647,823 - 37,709,882Customers' liability under acceptances 14,883,784 20,400,853 - - - 35,284,637Investments in associates - 34,545,320 - - - 34,545,320Assets acquired in satisfaction of loans 2,831,019 - - - - 2,831,019Property and equipment 17,844,411 - - 630,705 - 18,475,116Intangible assets 803,733 - - 27,552 - 831,285Other assets 4,371,510 76,089 - 13,325 - 4,460,924Total Assets 1,417,074,836 147,085,403 51,137,617 207,944,232 704,992 1,823,947,080

FINANCIAL INSTRUMENTSWITH OFF-BALANCE SHEET RISK:Documentary and commercial letters of credit 35,092,875 54,523,318 - 1,446,126 - 91,062,319Guarantees and standby letters of credit 48,313,827 11,668,505 1,130 442,023 - 60,425,485Forward contracts 16,859,716 609,397 - 148,758,305 - 166,227,418

LIABILITIESDeposits and borrowings from banks 18,319,238 22,990,768 2,907,889 6,325,514 1,980,323 52,523,732Customers' accounts at amortized cost 1,062,989,175 321,823,907 11,863,653 92,803,025 12,224,422 1,501,704,182Related parties' accounts at amortized cost 24,497,649 - - 16,922 - 24,514,571Customers' acceptance liability - 4,190,530 566,792 13,041,511 17,485,804 35,284,637Other liabilities 8,927,908 660,125 - 409,885 - 9,997,918Provisions 2,990,559 1,976,333 - 269,422 - 5,236,314Subordinated bonds 62,355,223 - - - - 62,355,223Total liabilities 1,180,079,752 351,641,663 15,338,334 112,866,279 31,690,549 1,691,616,577

December 31, 2010

Middle Eastand Africa |

LBP’000North America |

LBP’000Europe |LBP’000

Other |LBP’000

Lebanon |LBP’000

Total |LBP’000

(c) Concentration of assets and liabilities by geographical area:

ASSETS


Cash and central banks 374,806,898 - - 7,276,332 - 382,083,230Deposits with banks andfinancial institutions 36,518,756 22,203,425 43,563,250 260,427,002 3,872,368 366,584,801Trading assets 3,957,840 - - - - 3,957,840Loans to banks 570,233 - - - - 570,233Loans and advances to customers 561,292,306 62,134,399 - 94,410 390,120 623,911,235Loans and advances to related Parties 6,641,924 - - 28,814 - 6,670,738Available for sale investment securities 274,475,587 7,773,678 23,214,787 13,131,858 249,378 318,845,288Held-to-maturity investment securities 31,768,859 407,835 5,236,741 1,755,862 - 39,169,297Customers' liability underacceptances 12,905,967 19,805,973 - - - 32,711,940Investments in associates - 29,776,737 - - - 29,776,737Assets acquired in satisfaction of loans 10,053,946 - - - - 10,053,946Property and equipment 11,648,830 - - 587,689 - 12,236,519Intangible assets 961,654 - - 14,208 - 975,862Other assets 5,036,257 - - 187,462 - 5,223,719Total Assets 1,330,639,057 142,102,047 72,014,778 283,503,637 4,511,866 1,832,771,385

FINANCIAL INSTRUMENTSWITH OFF-BALANCE SHEET RISK:Documentary and commercial letters of credit 35,147,014 53,650,077 - 1,588,022 - 90,38 5,113Guarantees and standby letters of credit 58,398,919 14,772,766 1,131 1,380,664 - 74,553,480Forward contracts 18,051,740 4,355,484 - 155,291,384 - 177,698,608

LIABILITIESDeposits and borrowings from banks 25,665,860 27,976,195 4,320,564 81,322,348 - 139,284,967Customers' accounts atamortized cost 996,671,918 292,658,356 7,503,460 125,210,169 21,761,524 1,443,805,427Related parties' accounts at amortized cost 11,961,482 - - - - 11,961,482Acceptance liability 370,812 3,736,851 201,402 11,957,081 16,445,794 32,711,940Other liabilities 6,251,291 575,368 - 459,565 - 7,286,224Provisions 3,278,625 1,976,333 - 243,492 - 5,498,450Subordinated bonds 62,634,641 - - - - 62,634,641Total liabilities 1,106,834,629 326,923,103 12,025,426 219,192,655 38,207,318 1,703,183,131

December 31, 2009

Middle Eastand Africa |

LBP’000North America |

LBP’000Europe |LBP’000

Other |LBP’000

Lebanon |LBP’000

Total |LBP’000

ASSETS

Liquidity risk is the risk that the Group will be

unable to meet its net funding requirements.

Liquidity risk can be caused by market disruptions

or credit downgrades, which may cause certain

sources of funding to dry up immediately.

Liquidity risk is the Group’s ability to ensure the

availability of funding to meet commitments, both

on-balance and off-balance sheet commitments, at

a reasonable cost on time. The management of

liquidity should not lead to threats to the Group’s

solvency.

Liquidity risk arises when in case of crisis, refinanc-

ing may only be raised at higher market rates

(funding risk), or assets may only be liquidated at

a discount to market rates (market liquidity risk).

Liquidity risk is also caused by mismatches in the

maturities of assets and liabilities (uses and sources

of funds).

Residual contractual maturities of financial assets and liabilities:

The tables below show the Group’s assets and liabilities in Lebanese Pounds base accounts segregated

by maturity:

B. LIQUIDITY RISK

(1) Management of Liquidity risk

Cash and Central Banks 35,428,348 541,988 - - - - 35,970,336

Deposits with banks

and financial institutions 1,524,939 - - - - - 1,524,939

Loans and advances to customers 8,842,139 8,100 34,263 22,595 - - 8,907,097

Loans and advances to related parties 132 - - - - - 132

Available for sale investment securities 651,167 2,075,404 38,299,380 89,484,753 44,099,117 25,322,169 199,931,990

Held-to-maturity investment securities - - - - 5,243,613 - 5,243,613

Property and equipment 17,769,484 - - - - - 17,769,484

Intangible assets 803,733 - - - - - 803,733

Other assets 1,559,028 - - - - - 1,559,028

Total Assets 66,578,970 2,625,492 38,333,643 89,507,348 49,342,730 25,322,169 271,710,352

LIABILITIESDeposits and borrowings from banks 931 10,069,112 - - - - 10,070,043

Customers' accounts at

amortized cost 22,534,668 170,225,310 14,552,324 3,796,666 - - 211,108,968

Related parties' accounts at

amortized cost 3,514,581 2,150,459 - - - - 5,665,040

Other liabilities 5,159,966 - - - - - 5,159,966

Provisions 2,983,024 - - - - - 2,983,024

Total Liabilities 34,193,170 182,444,881 14,552,324 3,796,666 - - 234,987,041

Maturity Gap 32,385,800 (179,819,389) 23,781,319 85,710,682 49,342,730 25,322,169 36,723,311

LBP Base Accounts

December 31, 2010

Up to 3Months |LBP’000

3 Months to 1 year |LBP’000

1 to 3 Years |

LBP’000

3 to 5 Years |

LBP’000

Accounts with NoMaturity |LBP’000

Total |LBP’000

5 to 10 Years |

LBP’000

ASSETS


The tables below show the Group’s assets and liabilities in Foreign Currencies base accounts segregated by

maturity:

Cash and Central Banks 17,129,926 28,800,816 8,291,250 130,813,330 126,969,220 - - 312,004,542

Deposits with banks

and financial institutions 83,519,947 182,326,913 6,235,164 - - - - 272,082,024

Trading assets 3,791,378 - - - - - - 3,791,378

Loans to banks 4,014,194 - - - - - - 4,014,194

Loans and advances

to customers 561,037,971 118,725,519 20,795,966 804,126 304,119 - - 701,667,701

Loans and advances to

related parties 624,185 698,200 2,425,698 - - - - 3,748,083

Available for sale

investment securities 3,141,299 604,147 18,099,078 64,894,089 27,746,035 26,037,885 5,643,948 146,166,481

Held-to-maturity investment

securities - 247,508 458,495 31,760,266 - - - 32,466,269

Customers' liability under

acceptances - 28,050,264 7,234,373 - - - - 35,284,637

Investments in associates 34,545,320 - - - - - - 34,545,320

Assets acquired in satisfaction

of loans 2,831,019 - - - - - - 2,831,019

Property and equipment 705,632 - - - - - - 705,632

Intangible assets 27,552 - - - - - - 27,552

Other assets 2,886,030 - 13,325 - - - 2,541 2,901,896

Total Assets 714,254,453 359,453,367 63,553,349 228,271,811 155,019,374 26,037,885 5,646,489 1,552,236,728

LIABILITIESDeposits and borrowings

from banks 25,414,425 16,564,130 475,134 - - - - 42,453,689


amortized cost 304,630,607 927,899,595 58,065,012 - - - - 1,290,595,214

Related parties' accounts

at amortized cost 9,924,349 8,925,182 - - - - - 18,849,531

Liability under acceptances - 28,050,264 7,234,373 - - - - 35,284,637

Other liabilities 4,467,321 - 78,176 292,455 - - - 4,837,952

Provisions 2,253,290 - - - - - - 2,253,290

Subordinated bonds - - - - 62,355,223 - - 62,355,223

Total Liabilities 346,689,992 981,439,171 65,852,695 292,455 62,355,223 - - 1,456,629,536

Maturity Gap 367,564,461 (621,985,804) (2,299,346) 227,979,356 92,664,151 26,037,885 5,646,489 95,607,192

F/Cy Base Accounts

December 31, 2010



1 to 3 Years |

LBP’000

3 to 5 Years |

LBP’000


Total |LBP’000

5 to 10 Years |

LBP’000

Over 10 Years |

LBP’000

ASSETS

Cash and Central Banks 31,546,860 2,981,842 - - - 34,528,702

Deposits with banks and

financial institutions 1,227,983 - - - - 1,227,983

Loans and advances to customers 7,305,064 89,015 26,880 - - 7,420,959

Loans and advances to related parties 447 - - - - 447

Available-for sale investment securities 615,120 5,007,276 30,930,051 123,658,781 23,855,981 184,067,209

Held-to-maturity investment securities - - - - 5,243,613 5,243,613

Property and equipment 11,598,226 - - - - 11,598,226

Intangible assets 961,654 - - - - 961,654

Other assets 2,470,212 - - - - 2,470,212

Total Assets 55,725,566 8,078,133 30,956,931 123,658,781 29,099,594 247,519,005

LIABILITIESDeposits and borrowings from banks 777 17,306,435 - - - 17,307,212

Customers' accounts at amortized cost 19,881,030 153,909,022 6,354,066 1,183,677 - 181,327,795

Related parties' accounts at amortized cost 179,873 1,115,329 - - - 1,295,202

Other liabilities 3,786,552 - - - - 3,786,552

Provisions 3,271,088 - - - - 3,271,088

Total Liabilities 27,119,320 172,330,786 6,354,066 1,183,677 - 206,987,849

Maturity Gap 28,606,246 (164,252,653) 24,602,865 122,475,104 29,099,594 40,531,156

LBP Base Accounts

December 31, 2009



1 to 3 Years |

LBP’000

3 to 5 Years |

LBP’000


Total |LBP’000

ASSETS

Cash, and Central Banks 14,500,003 82,776,875 77,668,900 105,525,000 67,083,750 - - 347,554,528


financial institutions 181,000,204 148,526,262 35,830,352 - - - - 365,356,818

Trading assets 3,957,840 - - - - - - 3,957,840

Loans to banks 570,233 - - - - - - 570,233

Loans and advances

to customers 492,813,885 108,754,966 14,022,504 883,667 15,254 - - 616,490,276

Loans and advances

to related parties 1,076,331 241,219 5,352,741 - - - - 6,670,291

Available-for-sale

investment securities 14,421,463 5,269,809 1,797,052 43,611,759 20,909,104 44,510,004 4,258,888 134,778,079

Held-to-maturity

investment securities - 1,332,494 - 6,425,642 26,167,548 - - 33,925,684

Customers' liability under

acceptances - 27,369,598 5,342,342 - - - - 32,711,940

Investments in associates 29,776,737 - - - - - - 29,776,737

Assets acquired in satisfaction

of loans 10,053,946 - - - - - - 10,053,946

F/Cy Base Accounts

December 31, 2009



1 to 3 Years |

LBP’000

3 to 5 Years |

LBP’000


5 to 10 Years |

LBP’000

Over 10 Years |

LBP’000

ASSETS

Total |LBP’000


Property and equipment 638,293 - - - - - - 638,293


Other assets 2,753,507 - - - - - - 2,753,507

Total Assets 751,576,650 374,271,223 140,013,891 156,446,068 114,175,656 44,510,004 4,258,888 1,585,252,380

LIABILITIES

Deposits and borrowings

from banks 107,805,148 13,466,172 706,435 - - - - 121,977,755


amortized cost 286,317,221 931,628,454 44,531,957 - - - - 1,262,477,632


at amortized cost 1,246,382 6,588,243 2,831,655 - - - - 10,666,280

Liability under acceptances - 27,369,598 5,342,342 - - - - 32,711,940

Other liabilities 3,224,866 - 93,791 181,015 - - - 3,499,672

Provisions 2,227,362 - - - - - - 2,227,362

Subordinated bonds - - - - 62,634,641 - - 62,634,641

Total Liabilities 400,820,979 979,052,467 53,506,180 181,015 62,634,641 - - 1,496,195,282

Maturity Gap 350,755,671 (604,781,244) 86,507,711 156,265,053 51,541,015 44,510,004 4,258,888 89,057,098

Concentration of Liabilities by counterparty:

Information regarding the concentration of liabilities by counterparty is disclosed under the

respective notes to the financial statements.

The market risk is the risk that the fair value or future

cash flows of a financial instrument will be affected

because of changes in market prices such as

interest rate, equity prices, foreign exchange and

credit spreads.

Market risks include interest rate risk and exchange

risk.

The Group has established an Assets and Liabilities

Management Committee (ALCO) to manage market

risks. ALCO’s primary objective is to maximize

interest income spread and trading income while

maintaining market risks at an appropriate level

through regular management and measurement of

these risks.

The Group has developed policies and procedures

to manage market risks and ensure compliance

with regulatory requirements and limits in addition

to internal risk strategies and limits.

C. MARKET RISKS

1. Management of market risks:

Foreign exchange risk is the risk that changes in

foreign currency rates will affect the Group’s

income or the value of its holdings of financial

instruments. The objective of foreign currency risk

management is to manage and control foreign cur-

rency risk exposure within acceptable parameters

while optimizing the return on risk.

Foreign exchange exposure arises from normal

banking activities, primarily from the receipt of

deposits and the placement of funds. Future open

positions in any currency are managed by means of

forward foreign exchange contracts. It is the policy

of the Group that it will, at all times, adhere to the

limits laid down by the Central Bank as referred to

below. It is not the Group’s intention to take open

positions on its own account (proprietary trading)

but rather to maintain square or near square

positions in all currencies.

The treasury department is responsible for monitor-

ing the compliance with the regulatory ratios set by

the Regulatory Authorities. ALCO is supported by

the finance department by reports of any breach of

these ratios.

Below is the carrying value of assets and liabilities

segregated by major currencies to reflect the

Group’s exposure to foreign currency exchange risk

at year end:

2. Foreign exchange risk:

Cash and Central Banks 35,970,336 241,105,897 70,522,098 320,369 56,178 347,974,878


financial institutions 1,524,939 228,008,020 16,761,996 6,750,042 20,561,966 273,606,963

Trading assets - 3,791,378 - - - 3,791,378

Loans to banks - 4,014,194 - - - 4,014,194

Loans and advances to customers 8,907,097 585,151,040 43,771,535 508,983 72,236,143 710,574,798

Loans and advances to related parties 132 3,727,675 20,408 - - 3,748,215

Available for sale investment securities 199,931,990 132,008,330 14,158,151 - - 346,098,471

Held-to-maturity investment securities 5,243,613 31,072,301 1,393,968 - - 37,709,882

Customers' liability under acceptances - 26,655,518 4,285,425 - 4,343,694 35,284,637

Investments in associates - 34,545,320 - - - 34,545,320

Assets acquired in satisfaction of loans - 2,831,019 - - - 2,831,019

Property and equipment 17,769,484 630,708 74,924 - - 18,475,116

Intangible assets 803,733 27,552 - - - 831,285

Other assets 1,559,028 2,711,395 190,501 - - 4,460,924

Total Assets 271,710,352 1,296,280,347 151,179,006 7,579,394 97,197,981 1,823,947,080

LIABILITIESDeposits and borrowings from banks 10,070,043 38,390,138 1,508,356 663,197 1,891,998 52,523,732

Customers' accounts at amortized cost 211,108,968 1,100,112,111 137,339,155 44,001,827 9,142,121 1,501,704,182

Related parties' accounts at amortized cost 5,665,040 17,218,633 1,130,007 500,890 1 24,514,571

Acceptance Liability - 26,655,518 4,285,425 - 4,343,694 35,284,637

December 31, 2010

US$C/V in LBP |

LBP’000

EuroC/V in LBP |

LBP’000

GBPC/V in LBP |

LBP’000

OtherCurrenciesC/V in LBP |

LBP’000

LBP |LBP’000 Total |

LBP’000

ASSETS


Other liabilities 5,159,966 (46,315,064) 6,636,306 (37,525,885) 83,684,586 11,639,909

Provisions 2,983,024 1,983,870 269,420 - - 5,236,314

Subordinated Bonds - 62,355,223 - - - 62,355,223

Total Liabilities 234,987,041 1,200,400,429 151,168,669 7,640,029 99,062,400 1,693,258,568

Currencies to be delivered - (87,606,665) (16,968,852) (42,550,193) (21,347,418) (168,473,128)

Currencies to be received - 38,224,640 21,866,318 5,002,685 105,021,476 170,115,119

- (49,382,025) 4,897,466 (37,547,508) 83,674,058 1,641,991

Net on-balance sheet financial position 36,723,311 46,497,893 4,907,803 (37,608,143) 81,809,639 132,330,503

Cash and Central Banks 34,528,702 262,824,185 84,436,598 89,084 204,661 382,083,230


financial institutions 1,227,983 220,990,465 51,369,045 42,130,231 50,867,077 366,584,801

Trading assets - 3,957,840 - - - 3,957,840

Loans to banks - 570,233 - - - 570,233

Loans and advances to customers 7,420,959 530,038,966 47,049,355 538,427 38,863,528 623,911,235

Loans and advances to related parties 447 6,614,032 56,259 - - 6,670,738

Available-for-sale investment securities 184,067,209 121,801,843 11,463,863 1,512,373 - 318,845,288

Held-to-maturity investment securities 5,243,613 31,144,524 1,545,440 1,235,720 - 39,169,297

Customers' liability under acceptances - 24,832,178 7,526,437 115,474 237,851 32,711,940

Investments in associates - 29,776,737 - - - 29,776,737

Assets acquired in satisfaction of loans - 10,053,946 - - - 10,053,946

Property and equipment 11,598,226 638,293 - - - 12,236,519

Intangible assets 961,654 14,208 - - - 975,862

Other assets 2,470,212 95,060,215 (19,724,183) (525,856) (71,096,836) 6,183,552

Total Assets 247,519,005 1,338,317,665 183,722,814 45,095,453 19,076,281 1,833,731,218

LIABILITIESDeposits and borrowings from banks 17,307,212 111,264,714 1,814,496 1,167,886 7,730,659 139,284,967

Customers' accounts at amortized cost 181,327,795 1,035,042,767 172,604,841 43,789,467 11,040,557 1,443,805,427

Related parties' accounts at amortized cost 1,295,202 9,315,104 1,333,778 17,398 - 11,961,482

Liability under acceptances - 24,832,178 7,526,437 115,474 237,851 32,711,940

Other liabilities 3,786,552 3,251,638 220,484 24,944 2,606 7,286,224

Provisions 3,271,088 1,983,870 243,492 - - 5,498,450

Subordinated bonds - 62,634,641 - - - 62,634,641

Total Liabilities 206,987,849 1,248,324,912 183,743,528 45,115,169 19,011,673 1,703,183,131

Currencies to be delivered - (130,540,727) (14,942,692) (12,033,348) (24,313,221) (181,829,988)

Currencies to be received - 37,884,108 35,045,187 12,543,509 95,397,351 180,870,155

- (92,656,619) 20,102,495 510,161 71,084,130 (959,833)

Net on-balance sheet exchange position 40,531,156 (2,663,866) 20,081,781 490,445 71,148,738 129,588,254

December 31, 2009

US$C/V in LBP |

LBP’000

EuroC/V in LBP |

LBP’000

GBPC/V in LBP |

LBP’000

OtherCurrenciesC/V in LBP |

LBP’000

LBP |LBP’000 Total |

LBP’000

ASSETS

Interest rate risk arises when there is a mismatchbetween positions, which are subject to interestrate adjustment within a specified period. TheGroup’s lending, funding and investment activitiesgive rise to interest rate risk. The immediateimpact of variation in interest rate is on the Group’snet interest income, while a long term impact is onGroup’s net worth since the economic value ofGroup’s assets, liabilities and off-balance sheet

exposures are affected.

Interest rate risk is the risk that changes in interestrates will affect the Group’s income or the value ofits holdings of financial instruments. The objectiveof interest rate risk management is to manage and control interest rate risk exposure within acceptableparameters while optimizing the return on risk.

Below is a summary of the Group’s interest rate gapposition on assets and liabilities reflected at carryingamounts at year end segregated between floating

and fixed interest rate earning or bearing andbetween Lebanese Pound base accounts:

3. Interest rate risk

Cash and Central Banks 35,970,336 - - - - - - - 35,970,336


financial institutions 1,062,079 462,860 462,860 - - - - - 1,524,939

Loans and advances

to customers 12,876 8,837,363 8,837,363 34,263 22,595 - - 56,858 8,907,097

Loans and advances

to related parties - 132 132 - - - - - 132

Available for sale

investment securities 4,265,328 2,024,194 2,024,194 37,723,128 87,474,815 43,234,966 25,209,559 193,642,468 199,931,990

Held-to-maturity

investment securities 243,613 - - - - 5,000,000 - 5,000,000 5,243,613

Property and equipment 17,769,484 - - - - - - - 17,769,484

Intangible assets 803,733 - - - - - - - 803,733

Other assets 1,559,028 - - - - - - - 1,559,028

Total Assets 61,686,477 11,324,549 11,324,549 37,757,391 87,497,410 48,234,966 25,209,559 198,699,326 271,710,352

LIABILITIESDeposits and borrowings

from banks 19,111 10,050,932 10,050,932 - - - - - 10,070,043

Customers' accounts

at amortized cost 739,865 192,286,223 192,286,223 14,332,960 3,749,920 - - 18,082,880 211,108,968


at amortized cost 2,538 5,662,502 5,662,502 - - - - - 5,665,040

Other liabilities 5,159,966 - - - - - - - 5,159,966

Provisions 2,983,024 - - - - - - - 2,983,024

Total Liabilities 8,904,504 207,999,657 207,999,657 14,332,960 3,749,920 - - 18,082,880 234,987,041

Interest rate gap position 52,781,973 (196,675,108) (196,675,108) 23,424,431 83,747,490 48,234,966 25,209,559 180,616,446 36,723,311

Lebanese Pounds Base Accounts

December 31, 2010

Floating Interest Rate Fixed Interest Rate

Up

to T

hree

Mon

ths

|LB

P’00

0

Tota

l |LB

P’00

0

Ove

r 3

Mon

ths

to 1

yea

r |

LBP’

000

Non

-Int

eres

tBe

arni

ng

|LB

P’00

0

Tota

l |LB

P’00

0

Gra

nd T

otal

|LB

P’00

0

1 to

3

Year

s |

LBP’

000

3 to

5

Year

s |

LBP’

000

5 to

10

Year

s |

LBP’

000

ASSETS


Cash and Central Banks 34,528,702 - - - - - - 34,528,702


financial institutions 766,993 460,990 460,990 - - - - 1,227,983

Loans and advances to customers 2 7,420,957 7,420,957 - - - - 7,420,959

Loans and advances to related parties - 447 447 - - - - 447

Available-for-sale investment securities 4,359,218 4,961,021 4,961,021 30,379,016 121,260,252 23,107,702 174,746,970 184,067,209

Held-to-maturity investment securities 243,613 - - - - 5,000,000 5,000,000 5,243,613

Property and equipment 11,598,226 - - - - - - 11,598,226


Other assets 2,470,212 - - - - - - 2,470,212

Total Assets 54,928,620 12,843,415 12,843,415 30,379,016 121,260,252 28,107,702 179,746,970 247,519,005

LIABILITIES

Deposits and borrowings from banks 6,435 17,300,777 17,300,777 - - - - 17,307,212

Customers' accounts at amortized cost 1,124,478 171,006,302 171,006,302 8,035,050 1,161,965 - 9,197,015 181,327,795


at amortized cost 122,883 1,172,319 1,172,319 - - - - 1,295,202

Other liabilities 3,786,552 - - - - - - 3,786,552

Provisions 3,271,088 - - - - - - 3,271,088

Total Liabilities 8,311,436 189,479,398 189,479,398 8,035,050 1,161,965 - 9,197,015 206,987,849

Interest rate gap position 46,617,184 (176,635,983) (176,635,983) 22,343,966 120,098,287 28,107,702 170,549,955 40,531,156

Up

to T

hree

Mon

ths

|LB

P’00

0

Tota

l |LB

P’00

0

Ove

r 3

Mon

ths

to 1

yea

r |

LBP’

000

Non

-Int

eres

tEa

ring

|LB

P’00

0

Tota

l |LB

P’00

0

Gra

nd T

otal

|LB

P’00

0

1 to

3

Year

s |

LBP’

000

3 to

5

Year

s |

LBP’

000

ASSETS

Lebanese Pounds Base Accounts

December 31, 2009

Floating Interest Rate Fixed Interest Rate

Below is a summary of the Group’s interest rate gap

position on assets and liabilities reflected at carrying

amounts at year end segregated between floating

and fixed interest rate earning or bearing and

between Foreign Currencies base accounts:

The effect of a 200 basis point change in interest rates upwards or downwards on the earnings of the Group

for the subsequent fiscal year is LBP3.68billion increase/decrease.

Cash and Central Banks 5,439,467 40,491,275 - - 40,491,275

Deposits with banks

and financial institutions 21,885,906 226,538,925 2,261,250 - 228,800,175

Trading assets 3,791,378 - - - -

Loans to banks 4,014,194 - - - -

Loans and advances to customers 1,511,466 678,384,619 - 321,130 678,705,749

Loans and advances to related parties 18,349 1,322,385 - - 1,322,385

Available for sale investment securities 4,660,658 604,147 - - 604,147

Held-to-maturity investment securities 727,220 247,505 - - 247,505

Customers' liability under acceptances 35,284,637 - - - -

Investments in associates 34,545,320 - - - -

Assets acquired in satisfaction of loans 2,831,019 - - - -

Property and equipment 705,632 - - - -

Intangible assets 27,552 - - - -

Other assets 2,901,896 - - - -

Total Assets 118,344,694 947,588,856 2,261,250 321,130 950,171,236

LIABILITIES

Deposits and borrowings from banks 2,171,701 37,568,488 2,261,250 - 39,829,738

Customers' accounts at amortized cost 1,384,633 1,231,236,634 - - 1,231,236,634

Related parties' accounts at amortized cost 1,458 18,848,073 - - 18,848,073

Liability under acceptances 35,284,637 - - - -

Other liabilities 4,837,952 - - - -

Provisions 2,253,290 - - - -

Subordinated Loans 2,127,847 - - - -

Total Liabilities 48,061,518 1,287,653,195 2,261,250 - 1,289,914,445

Interest rate gap position 70,283,176 (340,064,339) - 321,130 (339,743,209)

December 31, 2010

Foreign Currency Base Accounts

Floating Interest Rate

Up to ThreeMonths |LBP’000

3 months to 1year |

LBP’000Total |

LBP’000

Non-InterestBearing |LBP’000

1 to 3 Years |

LBP’000

ASSETS



December 31, 2010

Fixed Interest Rate

8,291,250 130,813,330 126,969,220 - - 266,073,800 312,004,542

21,395,943 - - - - 21,395,943 272,082,024

- - - - - - 3,791,378

- - - - - - 4,014,194

19,511,385 1,634,982 304,119 - - 21,450,486 701,667,701

2,407,349 - - - - 2,407,349 3,748,083

17,979,797 64,468,363 27,330,922 25,505,106 5,617,488 140,901,676 146,166,481

458,495 31,033,049 - - - 31,491,544 32,466,269

- - - - - - 35,284,637

- - - - - - 34,545,320

- - - - - - 2,831,019

- - - - - - 705,632

- - - - - - 27,552

- - - - - - 2,901,896

70,044,219 227,949,724 154,604,261 25,505,106 5,617,488 483,720,798 1,552,236,728

452,250 - - - - 452,250 42,453,689

57,973,947 - - - - 57,973,947 1,290,595,214

- - - - - - 18,849,531

- - - - - - 35,284,637

- - - - - - 4,837,952

- - - - - - 2,253,290

- - 60,227,376 - - 60,227,376 62,355,223

58,426,197 - 60,227,376 - - 118,653,573 1,456,629,536

11,618,022 227,949,724 94,376,885 25,505,106 5,617,488 365,067,225 95,607,192

Over 3 MonthsLess than 1 year |

LBP’000Total |

LBP’000Grand Total |

LBP’000

1 to 3 Years |

LBP’000

3 to 5 Years |

LBP’000

5 to 10 Years |

LBP’000Over 10 years |

LBP’000

Cash and Central Banks 4,511,954 92,764,924 77,668,900 105,525,000 67,083,750

Deposits with banks and financial institutions 26,128,094 303,398,371 - - -

Trading assets 3,957,840 - - - -

Loans to banks 570,233 - - - -

Loans and advances to customers 523,381 601,034,785 - 573,122 -

Loans and advances to related parties 95,587 1,481,150 - - -

Available for sale investment securities 16,555,982 5,165,219 - - -

Held-to-maturity investment securities 875,588 1,184,204 - - -

Customers' liability under acceptances 32,711,940 - - - -

Investments in associates 29,776,737 - - - -

Assets acquired in satisfaction of loans 10,053,946 - - - -

Property and equipment 638,293 - - - -

Intangible assets 14,208 - - - -

Other assets 2,753,507 - - - -

Total Assets 129,167,290 1,005,028,653 77,668,900 106,098,122 67,083,750

LIABILITIES

Deposits and borrowings from banks 16,373 121,353,877 - - -

Customers' accounts at amortized cost 6,016,522 1,209,021,659 - - -

Related parties' accounts at amortized cost 661 7,833,964 - - -

Liability under acceptances 32,711,940 - - - -

Other liabilities 3,499,672 - - - -

Provisions 2,227,362 - - - -

Subordinated bonds - - - - -

Total Liabilities 44,472,530 1,338,209,500 - - -

Interest rate gap position 84,694,760 (333,180,847) 77,668,900 106,098,122 67,083,750

December 31, 2009


Floating Interest Rate

Up to ThreeMonths |LBP’000

3 months to 1year |

LBP’0003 to 5 Years |

LBP’000

Non-Interest Earning |LBP’000

1 to 3 Years |

LBP’000

ASSETS

Below is a summary of the Group’s interest rate gap

position on assets and liabilities reflected at carrying

amounts at year end segregated between floating

and fixed interest rate earning or bearing and

between Foreign Currencies base accounts:



December 31, 2009

Fixed Interest Rate

343,042,574 - - - - - - 347,554,528

303,398,371 35,830,353 - - - - 35,830,353 365,356,818

- - - - - - - 3,957,840

- - - - - - - 570,233

601,607,907 14,069,213 274,757 15,018 - - 14,358,988 616,490,276

1,481,150 5,093,554 - - - - 5,093,554 6,670,291

5,165,219 755,323 43,547,522 20,691,002 43,865,321 4,197,710 113,056,878 134,778,079

1,184,204 - 6,419,938 25,445,954 - - 31,865,892 33,925,684

- - - - - - - 32,711,940

- - - - - - - 29,776,737

- - - - - - - 10,053,946

- - - - - - - 638,293

- - - - - - - 14,208

- - - - - - - 2,753,507

1,255,879,425 55,748,443 50,242,217 46,151,974 43,865,321 4,197,710 200,205,665 1,585,252,380

121,353,877 607,505 - - - - 607,505 121,977,755

1,209,021,659 47,439,451 - - - - 47,439,451 1,262,477,632

7,833,964 2,831,655 - - - - 2,831,655 10,666,280

- - - - - - - 32,711,940

- - - - - - - 3,499,672

- - - - - - - 2,227,362

- - - 62,634,641 - - 62,634,641 62,634,641

1,338,209,500 50,878,611 - 62,634,641 - - 113,513,252 1,496,195,282

(82,330,075) 4,869,832 50,242,217 (16,482,667) 43,865,321 4,197,710 86,692,413 89,057,098

Over 3 MonthsLess than 1 year |

LBP’000Total |

LBP’000Total |

LBP’000Grand Total |

LBP’000

1 to 3 Years |

LBP’000

3 to 5 Years |

LBP’000

5 to 10 Years |

LBP’000Over 10 years |

LBP’000

The summary of the Group’s classification of each class of financial assets and liabilities covered by IAS

39, and their fair values are as follows:

47. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Cash and Central Banks - - - 347,974,878 - 347,974,878 347,974,878

Deposits with banks

and financial institutions - - - 273,606,963 - 273,606,963 273,606,963

Trading assets 3,791,378 - - - - 3,791,378 3,791,378

Loans to banks - - - 4,014,194 - 4,014,194 4,014,194

Loans and advances to customers - - - 710,574,798 - 710,574,798 710,574,798

Loans and advances to related parties - - - 3,748,215 - 3,748,215 3,748,215

Available for sale investment securities - 346,098,471 - - - 346,098,471 346,098,471

Held-to-maturity investment securities - - 37,709,882 - - 37,709,882 39,665,355

Customers’ liability under acceptances - - - - 35,284,637 35,284,637 35,284,637

Other assets - - - 3,360,044 - 3,360,044 3,360,044

Total 3,791,378 346,098,471 37,709,882 1,343,279,092 35,284,637 1,766,163,460 1,768,118,933

FINANCIAL LIABILITIES

Deposits and borrowings from banks - - - - 52,523,732 52,523,732 52,523,732

Customers' accounts at amortized cost - - - - 1,501,704,182 1,501,704,182 1,501,704,182

Related parties' accounts at amortized cost - - - - 24,514,571 24,514,571 24,514,571

Acceptance liability - - - - 35,284,637 35,284,637 35,284,637

Subordinated bonds - - - - 62,355,223 62,355,223 63,217,192

Total - - - - 1,676,382,345 1,676,382,345 1,677,244,314

December 31, 2010

Available-for-Sale |LBP’000

Held-to-Maturity |LBP’000

Loans &Receivables |

LBP’000

Other atAmortized

Cost |LBP’000

TradingAssets |LBP’000

TotalCarryingValue |LBP’000

Total FairValue |LBP’000

FINANCIAL ASSETS


Cash and Central Banks - - - 382,083,230 - 382,083,230 382,083,230

Deposits with banks

and financial institutions - - - 366,584,801 - 366,584,801 366,584,801

Trading assets 3,957,840 - - - - 3,957,840 3,957,840

Loans to banks - - - 570,233 - 570,233 570,233

Loans and advances to customers - - - 623,911,235 - 623,911,235 623,911,235

Loans and advances to related parties - - - 6,670,738 - 6,670,738 6,670,738

Available for sale investment securities - 318,845,288 - - - 318,845,288 318,845,288

Held-to-maturity investment securities - - 39,169,297 - - 39,169,297 40,751,702

Customers’ liability under acceptances - - - - 32,711,940 32,711,940 32,711,940

Other assets - - - 3,134,981 - 3,134,981 3,134,981

Total 3,957,840 318,845,288 39,169,297 1,382,955,218 32,711,940 1,777,639,583 1,779,221,988

FINANCIAL LIABILITIES

Deposits and borrowings from banks - - - - 139,284,967 139,284,967 139,284,967

Customers' accounts at amortized cost - - - - 1,443,805,427 1,443,805,427 1,443,805,427

Related parties' accounts at amortized cost - - - - 11,961,482 11,961,482 11,961,482

Acceptance liability - - - - 32,711,940 32,711,940 32,711,940

Subordinated bonds - - - - 62,634,641 62,634,641 63,813,581

Total - - - - 1,690,398,457 1,690,398,457 1,691,577,397

December 31, 2009

Available-for-Sale |LBP’000

Held-to-Maturity |LBP’000

Loans &Receivables |

LBP’000

Other atAmortized

Cost |LBP’000

TradingAssets |LBP’000

TotalCarryingValue |LBP’000

Total FairValue |LBP’000

FINANCIAL ASSETS

The fair value of current deposits (including non-

interest earning compulsory deposits with Central

Banks), and overnight deposits is their carrying

amount. The estimated fair value of fixed interest

earning deposits with maturities or interest reset

dates beyond one year from the balance sheet date

is based on the discounted cash flows using prevailing

money-market interest rates for debts with similar

credit risk and remaining maturity.

The basis for the determination of the estimated fair

values with respect to financial instruments carried at

amortized cost and for which quoted market prices

are not available is summarized as follows:

(a). DEPOSITS WITH CENTRAL BANK AND FINANCIAL INSTITUTIONS:

The estimated fair value of loans and advances to

customers is based on the discounted amount of

expected future cash flows determined at current

market rates.

(b). LOANS AND ADVANCES TO CUSTOMERS AND TO BANKS:

The estimated fair value of held-to-maturity

investment securities is based on current yield curve

appropriate for the remaining period to maturity.

(c). HELD-TO-MATURITY INVESTMENT SECURITIES:

The fair value of deposits with current maturity or no

stated maturity is their carrying amount. The estimated

fair value on other deposits is based on the discounted

cash flows using interest rates for new deposits with

similar remaining maturity.

(d). DEPOSITS AND BORROWINGS FROM BANKS AND CUSTOMERS’ DEPOSITS:

The estimated fair value of other borrowings and

certificates of deposits is the discounted cash flow

based on a current yield curve appropriate for the

remaining period to maturity.

(e). OTHER BORROWINGS AND CERTIFICATES OF DEPOSIT:

The following table shows an analysis of financial instruments at fair value by level of the fair value hierarchy:

(f). FAIR VALUE HIERARCHY:

Trading assets:

Quoted equity securities 3,791,378 - - 3,791,378

3,791,378 - - 3,791,378

Available for sale investment

securities:


Lebanese treasury bills - 145,879,214 - 145,879,214

Foreign treasury bills 504,500 - - 504,500

Lebanese government bonds - - 83,307,304 83,307,304


the Central Bank of Lebanon - - 65,150,700 65,150,700

Corporate bonds 36,406,114 - - 36,406,114

44,940,587 145,879,214 148,458,004 339,277,805

Unquoted equity securities

– at cost - - - 644,332

44,940,587 145,879,214 148,458,004 339,922,137

48,731,965 145,879,214 148,458,004 343,713,515

December 31, 2010

Level 2 |LBP’000

Level 3 |LBP’000

Toal |LBP’000

Level 1 |LBP’000

FINANCIAL ASSETS


Trading assets:


3,957,840 - - 3,957,840

Available-for-sale investment

securities:


Lebanese treasury bills - 158,306,031 - 158,306,031

Foreign treasury bills 8,070,477 - - 8,070,477

Lebanese government bonds - - 58,863,889 58,863,889


the Central Bank of Lebanon - - 34,856,096 34,856,096

Corporate bonds 37,833,596 - - 37,833,596

60,293,943 158,306,031 93,719,985 312,319,959

Unquoted equity securities

- at cost - - - 646,709

60,293,943 158,306,031 93,719,985 312,966,668

64,251,783 158,306,031 93,719,985 316,924,508

December 31, 2009

Level 2 |LBP’000

Level 3 |LBP’000

Toal |LBP’000

Level 1 |LBP’000

FINANCIAL ASSETS

The financial statements for the year ended

December 31, 2010 were approved by the Board of

Directors in its meeting held on April 15, 2011.

48. APPROVAL OF THE FINANCIAL STATEMENTS

Banque Bemo Network


Banque Bemo salRCB 17837List of Banks N 93 – BSE N 1111Capital LBP 16,200,000,000*

Head Office: Elias Sarkis Ave, Bemo Bldg, Ashrafieh

Tel: 01-200 505 / 01-203 240 /01-203 176

Fax: 01-217 860

P.O.Box: 16-6353 Beirut- Lebanon

[email protected]

* On April 2011 Capital Increased by LPB 46 Billion to reach LBP 62.2 Billion, out of which LBP 30 Billion from cash injection

General Management:Beirut Central District, Riad El Solh Square,

Esseily Bldg, Block A, 7th Floor

Tel: 01-992 600

Fax: 01-983 368

Swift: EUMOLBBE

P.O.Box: 11-7048 Beirut, Lebanon

Branches:

Ashrafieh: Elias Sarkis Ave, Bemo Bldg, Ashrafieh Tel: 01-200 505 / 01-203 240 | Fax: 01-217 860 ATM Machine”

Riad El Solh: Beirut Central District, Riad El Solh Square, Esseily Bldg, Bloc A, 7th Floor Tel: 01-992 600 | Fax: 01-983 368

Dora: Dora Hwy, Tashdjian Banking Center Tel: 01-257 771/4 | Fax: 01-257 775 ATM Machine”

Kantari: Fakhreddine Street, Tager Bldg, Tel & Fax: 01-373 314/5 “ATM Machine”

Zouk: Zouk Mikael Hwy, Vega Center, 1st Floor Tel & Fax: 09-211 182

Chtaura: Jdita Main Road, Khalil Akl Center, Tel: 08-544 725-8 | Fax: 08-544 729 ATM Machine

Verdun: Ramlet El Baida, Saeb Salam Ave. Al Iwan Bldg Tel: 01-799 420-2 | Fax: 01-799 427 “ATM Machine”

Sin El Fil: 93, Charles De Gaulle Ave, Debahy Center Tel: 01-513 990-3 | Fax: 01-513 997 “ATM Machine”

Rabieh: Rabieh Main Road, Lahlouh Center Tel: 04-408 910 | Fax: 04-408 919 “ATM Machine

Branch Abroad:

Cyprus: Limassol - Doma Court, 227 Makarios III Ave P.O.Box: 56232-3305 Limassol-Cyprus Tel: + 357 25-583628 / 587640 Fax: 357 25-588611 Swift: EUMOCY2I

Bemo Group Network


SUBSIDIARY

Bemo Securitization SA ( BSEC)3rd Floor, Two Park Avenue Building, Park AvenueBeirut Central District, Minet El HosnBeirut, LebanonTel: +961 1 997998Fax: +961 1 994801Website: www.bsec-sa.com

ASSOCIATE BANK

Banque Bemo Saudi Fransi SA – SyriaHead OfficeDamascus – 29 Ayyar Street Salhia P.O.Box: 31117 Damascus, Syria Tel: +963 11 231 7778Fax: +963 11 231 8778Website: www.bbsfbank.com

SISTER BANK

Bemo Europe – Banque PrivéeParis63 Avenue Marceau, 75116 Paris, France Tel: +33 1 44 43 49 49Fax: +33 1 47 23 94 19Website: www.bemo.fr

Luxembourg 16 Royal Boulevard – L 2449 Luxembourg Tel: +352 22 63211Fax: +352 22 6533

ASSOCIATE INVESTMENT FIRM

Bemo Oddo Investment Firm Ltd-Dubai Gate Village,Building 1Level 1, Unit 109DIFCP.O.Box: 506671Dubai, UAETel : + 971 4 323 0565Fax: + 971 4 323 0585Website: www.oddo.eu

Correspondent Banking &Financial Institutions


Country City Correspondent

Australia Sydney JP Morgan Chase Bank NA

Belgium Brussels Deutsche Bank AG

Canada Montreal National Bank of Canada

China Hong Kong Bank of China

Denmark Copenhagen Nordea Bank Danmark

Finland Helsinki Nordea Bank Finland

France Paris Banque de L'Europe Meridionale

Germany Frankfurt Deutsche Bank AG

Commerzbank AG

Italy Milan Intesa Sanpaolo SPA

Japan Tokyo Deutsche Bank

Korea Seoul Deutsche Bank AG

Commerzbank AG

KSA Riyadh Banque Saudi Fransi

Norway Oslo Nordea Bank Norge

Spain Madrid Banco Sabadell S.A.

Sweden Stockholm Nordea Bank AB Sweden

Switzerland Zurich UBS AG

Syria Damascus Banque Bemo Saudi Fransi

Taiwan Taipei Deutsche Bank

UAE Dubai Standard Chartered Bank

Al Mashreq Bank

UK London Deutsche Bank AG

USA New York JP Morgan Chase Bank NA

Bank of New York Mellon

The Financial Institutions Department is in regularinteraction with the different Correspondent Banksand Financial Institutions at arm’s-length basis withloyalty and transparency.Having established very good relationships withInternational Banks with a wide network spreadover different Countries and Regions, the FinancialInstitutions Department succeeded in creating a solidand reliable base allowing to cater for the differentCorporate and Private Clients needs, be it in Trade

Finance or in Payment Orders and Transfers or anyother transactions that require Correspondentsinvolvement.Our professional approach allows us to build up tailored structures in Trade Finance in cooperationwith Prime Name Correspondents to address ourCorporate Clients’ specific requirements.Such set up has proven to be a mutually profitablerelation as well as a clear mutual recognition duringall times and under all circumstances.

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