ANNUAL REPORT 2017 - Abu Dhabi Islamic Bank (ADIB) · Abu Dhabi Islamic Bank and the Emirates...

ADIB EgyptANNUAL REPORT 2017

Table of Contents

ADIB at a Glance ....................................................................... 5

Note from the CEO and MD ................................................... 6

Overview of ADIB .................................................................... 8About ADIB Egypt 10

ADIB Egypt Subsidiaries 12

ADIB UAE: An Overview 13

Executive Management 14

2017 Awards 16

Branch Network 18

ATM Network 19

Business Review ..................................................................... 20Wholesale Banking 22

Retail Banking 23

Treasury 26

2017 Financial Highlights ..................................................... 28

Corporate Governance .............................................................30Corporate Governance Report 2017 32

Board of Directors 34

Fatwa & Shariaa Supervisory Board Report 38

Compliance – Anti-Money Laundering & Terrorism 39

Corporate Social Responsibility 40

Financial Statements ................................................................42

Our Retail division offers individual clients the means to achieve their goals via ADIB’s Shariaa-inspired financial products and services, including personal banking, business banking, and wealth management

Our Wholesale business offers the full array of Shariaa-compliant corporate banking services, financing organizations ranging from large corporations to small- and medium-sized enterprises, including financial and non-financial institutions

Retail Banking Wholesale Banking

ADIB at a Glance

Growing Portfolio of Fully Shariaa-Compliant Banking Products and Services

Mission, Vision and Values

EGP 2.7(billion) Total Revenue in 2017

EGP 435 (million) Net Income in 2017

EGP 16.8(billion) Net Customer Financing as of 31 December 2017

ShariaaCompliant

70 Egypt-based branches

2,285Experts on our dynamic team

Abu Dhabi Islamic Bank (ADIB) Egypt is an award-winning bank that started its operations in Egypt after the acquisition of the National Bank for Development (NBD), through the Emirati consortium between Abu Dhabi Islamic Bank and the Emirates International Investment Company (EIIC) in 2007

Our MissionIslamic financial solutions for everyone

Our VisionTo become a top-tier regional bank

Our Values• We keep it Simple and Sensible• We are Transparent• We work for Mutual Benefit• We nurture Hospitality and Tolerance• We are Shariaa Inspired

ADIB EGYPT Annual Report 2017 54 ADIB EGYPT Annual Report 2017

Note from the MD and CEO

Dear Shareholders and Clients,

While 2017 was challenging for business in Egypt, it was also a year of

new opportunities, which Abu Dhabi Islamic Bank was able to leverage

and deliver on its strategic goals

In terms of consolidated financial performance, results for 2017 posted

significant improvements over the previous year, with standalone net

income after tax recording a 21% y-o-y increase to reach EGP 435 0

million Our standalone balance sheet expanded as well, where total

financing grew 7% y-o-y to post EGP 16 8 billion while total deposits

increased 17% to EGP 29 9 billion as of 31 December 2017

Financial results are not the only measure of our success; as important

is how we address our customers’ changing needs and the solutions

we develop to meet, or even preempt, them We are always working to

expand our product offerings and make our services more accessible

Innovation is a top priority for ADIB Egypt and a key area of our

customer-oriented focus

In 2017, ADIB Egypt launched its mobile banking application, which

provides numerous services to customers We completed the

development of our ADIB Remit application for remittances by non-

resident Egyptian workers We rolled out a CRM application for SMEs

and launched an e-payment platform for both the SWIFT and ACH

systems We introduced e-collections in cooperation with Fawry, added

new functionalities to ATM services, and also launched used-car

financing services In addition, ADIB Egypt successfully partnered with

Etisalat to offer a one-of-a-kind co-branding card

We are proud to have been recognized for our innovation and success

ADIB Egypt is the recipient of six prestigious international awards from

Banker Africa, Islamic Business & Finance and Islamic Finance News It has

also been recognized by Forbes Middle East as one of the top 50 companies

listed on the Egyptian Exchange At the Infosys Finacle Client Innovation

Awards 2017, ADIB Egypt received the ‘Building a digital banking

experience’ award, a clear and positive acknowledgment of our Global

Transaction Banking achievements in 2017

Succeeding as a leading bank takes the dedication of an entire

organization, and the achievements of 2017 are thanks to the

phenomenal efforts of our high-caliber team of professionals with

extensive track records in the financial sector This is why ADIB Egypt

continues to emphasize skills and career development Our human

resources are our greatest asset, and by nurturing burgeoning and

flourishing talent, we optimize performance across the board To this

end, in 2017 we provided over 28,000 training hours, introduced two

talent management programs, and began work on the ADIB Competency

Framework, which will target talent acquisition, performance

management, and learning and development

We are where we are right now because of our focus on strategic goals,

our ability to surmount challenges, our commitment to innovation, and

the dedication of our team In fact, I would like to thank Zuhair Idris,

Chief of Staff, for his tremendous efforts in the role of Acting CEO Not

only did he successfully lead ADIB Egypt through a difficult time, he led

the Bank to great results

The momentum of 2017 will continue in 2018 as we focus on improving

our world-class Shariaa-compliant products for corporate, retail, and SME

segments, while our subsidiaries continue to offer superior services to

other market segments Digital banking solutions for both retail and

corporate customers will continue to be a key area of innovation

I look forward to yet another successful year as we continue to grow the

bank I have faith that the talent of our team, our forward-looking

strategies, and the trust our clients place in us will position us for another

year of prosperity

Sincerely,

Mohamed AlyCEO and Managing Director

6 ADIB EGYPT Annual Report 2017 ADIB EGYPT Annual Report 2017 7

Overview of ADIB


ProfileAbu Dhabi Islamic Bank (ADIB) Egypt is an award-winning bank that

started its operations after the acquisition of the National Bank for

Development (NBD) in 2007 by a consortium between Abu Dhabi

Islamic Bank and Emirates International Investment Company With

the goal of becoming one of Egypt’s leading universal Islamic banks,

ADIB offers a broad range of Shariaa-compliant banking solutions

that cater to the needs of corporate and retail customers It is

developing a state-of-the-art banking infrastructure and revamping

its 70-branch network In order to integrate further services, the Bank

established an Investment Banking arm, ADIB Capital Egypt; a leasing

company, ADILease; and an asset management arm, ADIB Invest ADIB

Egypt employs a dynamic team of over 2,285 experts to deliver its

client-centric products and services

Following NBD’s acquisition, the paid-up capital of ADIB Egypt increased

almost seven-fold, from EGP 281 million to EGP 2 billion and EGP 4 billion

in authorized capital In 2017, the Bank posted net income of EGP 435

million, up 21% compared to 2016 The Bank succeeded in establishing a

platform to serve retail, SME and corporate customers with both short-

and long-term financing solutions As a result, it has attracted a broad

portfolio of leading local and international companies operating in the

Egyptian market

In 2017, ADIB Egypt was named “Best Islamic Bank in North Africa”, “Best

Islamic SME Bank in North Africa”, and “Best Islamic Retail Bank in North

Africa” by Banker Africa Islamic Business & Finance awarded ADIB Egypt the

title of “Best Islamic Retail Bank in Egypt” and “Best Islamic SME Bank in

Egypt” ADIB Capital received International Finance News’ (IFN) “Mudarabah

Deal of the Year” award At the Infosys Finacle Client Innovation Awards

2017, ADIB Egypt received the ‘Building a digital banking experience’ award

Locally, ADIB Egypt was recognized by Amwal Al Ghad magazine as one of the

“Top 100 Companies in the Egyptian Market”

ADIB Egypt has partnered with leading Egyptian NGOs to contribute to

nationwide projects that support underprivileged segments of society,

helping build bridges to a brighter and healthier future

In 2018, the Bank will continue to enhance its world-class Shariaa-compliant

products and services for the retail, SME and corporate segments, while

subsidiaries (ADIB Capital, ADILease and ADIB Invest) continue to cater to

other market segments including a fast-growing non-bank financial services

sector In Internet banking, improving the customer experience will be the

focus for both retail and corporate clients ADIB Egypt will continue to

invest in human resources, developing and training employees and

recognizing their distinguished performance with awards

About ADIB Egypt

Company Name Purpose Bank Ownership Classification

ADIB Holding Financial 99 92% Subsidiary

ADIB Capital Securities 99 52% Subsidiary

ADIB Properties Real Estate Investments 97 88% Subsidiary

ADILease Leasing 95 91% Subsidiary

National Co For Glass & Crystal Manufacturing 86 13% Subsidiary

Cairo National Company for Investment & Securities Financial 75 73% Subsidiary

Alexandria National Co for Financial Investments Financial 69 12% Associated

National Company for Trading & Development (INTAD) Trading 65 74% Subsidiary

Assiut Islamic National Co for Trading and Investment Trading 55 13% Subsidiary

Cairo National Company for Brokerage and Securities Brokerage 42 65% Associated

ADIB Egypt Subsidiaries & Affiliated Companies

10.00%

ADIB Egypt is committed to the creation of sustainable value for all its stakeholders, including shareholders, employees and the communities where it operates

Abu Dhabi Islamic Bank 49.62%

National Investment Bank 10.00%

Emirates International Investment Company (EIIC) 9.51%

Others 30.87%

As of 31 December 2017

ADIB Egypt Ownership Structure

49.62%

9.51%

30.87%


ADILeaseADILease is an Egyptian joint stock company established in 2010 to

provide Shariaa-compliant leasing services ADILease serves businesses of

all sizes, offering financial leasing options to fund the assets necessary for

commercial activities, including machinery, passenger and commercial

vehicles, production lines, and material handling equipment ADILease

strives to meet its customers’ needs through efficient, reliable, and

comprehensive service packages that comply with Islamic Shariaa practice

and whose terms and conditions can be tailored for each client

ADILease witnessed a challenging 2017, due to a nearly 40% decline in

sales of new trucks in Egypt, which historically was the primary asset

financed by the company ADILease overcame that challenge by

cooperating with ADIB Egypt’s corporate team to finance new assets,

such as real estate for corporate office buildings and pharmacies, through

tripartite leasing agreements In addition, the company closed several

agreements to lease production lines in the ceramic and pharmaceutical

industries The company expanded its relationships in the booming

construction industry, specifically by financing ready-mix concrete

companies, which are experiencing growth as a result of Egypt’s ambitious

infrastructure projects

ADILease continued to upgrade its internal back office and infrastructure in

2017 The company completed its Oracle IT Systems’ upgrade, a project

begun in 2015, increasing the productivity of ADILease teams while

providing the necessary platform for future growth

Finally, due to effective expense controls, a diligent collection effort on

remedial accounts, and new profitable contracts, ADILease was able to grow

its after-tax profit in 2017, mainly by driving down operating costs

ADIB Capital EgyptADIB Capital is ADIB Egypt’s investment banking arm founded in 2012

ADIB Capital provides a full range of equity and financing services that

adhere to Islamic Shariaa principles, including both sell-side and buy-side

services for mergers and acquisitions and advising on and arranging Sukuk

issuances and placement along with securitization ADIB Capital also

arranges financing in the form of syndications, club deals, mezzanine

financing, and structured instruments ADIB Capital advises on equity

capital markets, including primary and secondary share issuances on the

Egyptian Stock Exchange

In 2017, ADIB Capital successfully arranged and advised on deals worth

EGP 3 billion for prominent public and private sector institutions

ProfileADIB is a leading bank in the GCC with more than AED 122 billion in assets

Its 980,000 customers benefit from the third-largest distribution network in

the UAE with more 80 branches and over 780 ATMs The Bank offers world-

class online, mobile and phone banking services, providing clients with

seamless digital access to their accounts 24 hours a day ADIB provides

solutions for retail, corporate, business and private banking, including wealth

management The Bank was established in 1997, and its shares are traded on

the Abu Dhabi Securities Exchange (ADX)

In the UAE, ADIB has more than 2,300 employees, and among banks,

leads in the recruitment, development, and promotion of local talent in

all the markets in which it operates The Bank has one of the highest

Emiratization ratios, with more than 40% of its workforce being UAE

nationals

ADIB is a leading global advocate of ethical finance, and in 2012, in

partnership with Thomson Reuters, the Bank launched the Ethical Finance

Innovation and Challenge Awards (EFICA) In 2016, the awards received

over 100 applications from all over the world, making them a global

benchmark for ethical practices in the financial industry

ADIB has presence in six strategic markets: Egypt, where it has 70

branches, the Kingdom of Saudi Arabia, the United Kingdom, Sudan, Iraq

and Qatar

ADIB Egypt Subsidiaries ADIB UAE: An Overview

AED 122 billion total assets

Long-standing leadership position in customer service in the UAE

84.6% Customer Financing to Deposit Ratio

Actively seeking to promote opportunities for UAE nationals; 42% of staff is Emirati — considerably above market norms

Distribution network includes 80 UAE-based branches and 780 ATMs

Leading global advocate of ethical finance

Adherence to Islamic principles is ensured by Fatwa and Shariaa Supervisory Board

Community support activities include our ‘Smartmoney’ financial literacy program, support for football in the UAE, community outreach programs, and sponsorship of humanitarian and cultural activities during the Holy Month of Ramadan

Key Facts on our Emirati Operations

For more than 20 years ADIB has delivered consistently strong growth in key performance indicators, placing it among the top-performing banks globally

Through its subsidiaries ADILease, ADIB Capital and ADIB Invest, ADIB Egypt is positioned as a provider of a full suite of financial services


Executive Management

ADIB Egypt’s Executive Management bring decades of banking experience to the table and are the driving force behind the Bank’s continued success

Amr RadwanHead of Investments, Private Banking and Investor Relations

Zuhair IdrisChief of Staff

Mohamed El SayedHead of Corporate and Business Sector

Mohamed AlyCEO and Managing Director

Soha El TurkyChief Financial Officer

Ahmed Effat El GamalHead of Consumer Banking

Tamer ShaheenHead of Treasury and Capital Markets

Heidi Ahmed KamalChief Risk Officer

Imran IbrahimHead of Operation andTechnology


In 2017, ADIB Egypt won the following awards:

2017 Awards

Amwal El Ghad Magazine recognized ADIB Egypt among the “Top 100 Companies in the Egyptian Market” in 2017

Locally

Internationally

“Best Islamic SME Bank in Egypt” for 2017 from Islamic Business

and Finance

“Best Islamic Bank in North Africa” for 2017

from Banker Africa

“Best Islamic SME Bank in North Africa” for 2017 from Banker

Africa

“Best Islamic Retail Bank in Egypt” for 2017 from Islamic Business

and Finance

ADIB Egypt was listed among the top 50 companies on the Egyptian Stock Exchange

by Forbes Middle East

“Building a Digital Banking Experience” award for 2017 at the Infosys Finacle Client

Innovation Awards

“Best Islamic Retail Bank in North Africa” for 2017

from Banker Africa

ADIB Capital was awarded the “Musharakah Deal of the Year” award by International Finance

News


Branch Network ATM Network

Delta Branches

Greater Cairo Branches

Maadi

Salah Salem

Ring Road

26 July Axis

26 July Axis

Al Fayoum - Al W

ahat Road

Cairo Suez Road

Ring Road

Maasara

Al Maadi

Al Kattamia

Cairo

Giza

70 BranchesAcross Egypt

Delta ATMs

Greater Cairo ATMs

81 ATMsAcross Egypt

Zagazig

Ismailia

Cairo

Port SaidDamiettaKafr

El-Sheikh

Tanta

Mansoura

Damanhour

Alexandria

Menoufeya

Banha

Helwan

Zagazig

Ismailia

Cairo

Port SaidDamiettaKafr

El-Sheikh

Tanta

Mansoura

Damanhour

Alexandria

Menoufeya

Banha

Maadi

Salah Salem

Ring Road

26 July Axis

26 July Axis

Al Fayoum - Al W

ahat Road

Cairo Suez Road

Ring Road

Maasara

Al Maadi

Al Kattamia

CairoGiza

Helwan

M e d i t e r r a n e a n S e a

Gul f o f Suez

Mersah MatruhAlexandria Port Said

Ismailia

Mansoura

KafrEl-Sheikh

Suez

Beni Suef

Minya

AsyutHurghada

Sohag

Qena

Luxor

Aswan

Fayoum

Banha

Cairo

Arish

Damietta

Mersah MatruhAlexandria Port Said

Ismailia

Mansoura

KafrEl-Sheikh

Suez

Beni Suef

Minya

AsyutHurghada

Sohag

Qena

Luxor

Aswan

Fayoum

Banha

Cairo

Arish

Damietta


Business Review


Overview of the Business Catering to a wide variety of corporate clients, ADIB Egypt’s Wholesale

Banking Group’s wide selection of Shariaa-compliant banking products

addresses each customer’s specific needs and requirements Ranging

from public-sector institutions, large corporations, mid-caps, SMEs,

multinational and financial companies, ADIB Egypt’s team of banking

experts and professionals provide custom-tailored financial products and

services to offer the maximum value for each client

Highlights of 2017During the year ended 31 December 2017, ADIB’s corporate achievements

saw the total wholesale portfolio fall by EGP 0 18 billion, with our wholesale

assets reaching EGP 11 5 billion, a 1 6% drop from 2016’s EGP 11 7 billion

Moreover, wholesale customer deposits grew 7 6% to reach EGP 8 1 billion,

an increase of EGP 0 5 billion from the same period last year

Meanwhile, our trade volumes increased 165% y-o-y in 2017, which

translated into a 62 5% increase in corporate fees and commissions

In 2017, we continued to develop our infrastructure, projects and

channels to meet our customers’ needs, launching Wholesale Banking’s

first phase of corporate Internet Banking as well as our ADIBRemit — a

fully automated solution that allows businesses to manage workers’

remittances Following the Bank’s contract with a leading software

provider, we also launched a Customer Relationship Management (CRM)

system for SMEs to provide a smoother and more efficient relationship-

management process, in line with ADIB Egypt’s long-term strategy of

maintaining a customer-centric approach

Strategy

As part of ADIB Egypt’s core philosophy to uphold the highest standards

and best-in-class quality of service, the Bank continued to enhance and

grow its product offering while maintaining and adding to its client base

In every transaction or interaction with our customers, we rise up as a

team to deliver exceptional financial products that not only meet our

clients’ ever-changing needs but also set the trend and kick off new and

exciting products that are at the leading edge of financial services

With exciting launches such as the Bank’s new Internet Banking

service for corporate clients and ADIBRemit, which enables our clients

to perform transactions online and across borders, ADIB Egypt remains

committed to staying ahead of the competition and integrating the

most advanced technologies

ADIB Egypt’s success would not be possible without its professional

team of banking professionals and their top-class expertise As the

backbone of ADIB Egypt’s operations and its client-centric approach, its

staff is its biggest asset and the Bank’s built-in competitive advantage

Continuous training, growth and development of human resources are

paramount to the realization of our long-term goals Therefore, as ADIB

Egypt looks to the future, we remain intent on enhancing the strength

of our team by continuously offering courses and training opportunities,

diligently retaining our qualified employees as well as building a

continuous pipeline of new members to join the ADIB Egypt family

Overview of the BusinessThe ADIB Egypt Retail Banking division provides clients with a wide

variety of comprehensive, personalized products and services that

help them achieve their goals while adhering to Shariaa-compliant

banking Offering a smooth and tailored experience, the Retail

Banking division in 2017 witnessed a successful run with strong

growth in consumer deposits and assets, remaining competitive in a

vibrant industry of over 40 banking institutions

As of December 2017, ADIB Egypt’s consumer liabilities grew EGP 3 8

billion to reach a total of EGP 21 7 billion, a 22% increase from the

previous year

Strategy

In 2017, ADIB Egypt’s strategy continued to focus on promoting its

customer-centric approach, servicing all consumer segments’ banking

and investment needs With transparency, simplicity and sensibility as

its core, over the year ADIB Egypt stressed the values of hospitality and

tolerance as it focused on offering diverse and convenient services for

Relationship Management

Furthermore, in 2017 the Bank strived to adapt to the continued

challenges presented by the economy, CBE reforms, as well as dynamic

market conditions, successfully ending the year with an outstanding

performance that spoke volumes of its ability to navigate Egypt’s banking

space The Bank was able to grow its liabilities portfolio, satisfying our

customers’ investment needs with new creative products while remaining

Shariaa-compliant Thanks to those new product launches and

enhancements on existing services, ADIB Egypt’s retail operations

flourished as it focused on improving its competitive edge and boosting

customer acquisition and brand equity

Highlights of 20172017 was particularly successful for the Retail Banking division By

year’s end, ADIB Egypt had experienced a remarkable growth of EGP

3 8 billion in Consumer Liabilities compared to the same period in

2016, with retail liabilities reaching a total of EGP 21 7 billion in an

impressive 22% growth y-o-y As of December 2017, Personal Finance

End of Period (EOP) accounts recorded an 8% increase y-o-y, and

Ending Net Receivables (ENR) increased by 41% for the same period

Moreover, Auto Finance EOP accounts increased by 6% y-o-y during

2017 while the ENRs grew 59% for the same period

The Personal and Auto-Finance department experienced a challenging

yet rewarding year in 2017; total sales for the year soared to EGP 2 6

billion, a 161% increase from 2016’s EGP 1 6 billion The Bank increased

the maximum finance amount limits for both personal and auto

Murabaha facilities, and launched a new Murabaha product: Used Cars

Murabaha, which allows clients to finance up to EGP 600,000 and up

to 75% of the car price In terms of overall performance, Personal and

Auto Finance schemes continued to enhance customers’ experience

and attract new clients

In addition, we enhanced our competitive edge with the launch of our

new Quarterly Savings accounts, as well as the continued promotion

of ADIB Egypt’s “ADIB Smart”, a unique value proposition serving our

customers’ financial needs with an edge in the market “ADIB Smart”

accounts offer customers Titanium and Platinum debit cards with 1%

cash back The Bank also launched new pricing promotions, with

special rates offered for Wekala products (where the Bank acts as a

legal agent to invest on behalf of its clients) In doing so, ADIB Egypt

succeeded in boosting customer acquisition and brand equity

Moreover, ADIB Egypt’s Assets department continued to cultivate its

customer-centric focus, ensuring the best and smoothest customer

experience through taking measures to streamline its procedures and

processes

ADIB Egypt’s Cards department continued to grow in 2017, with

cash-back cards growing 17% (7,308 cards) to reach a total of 51,444

and a total balance of EGP 355 5 million, posting revenues of EGP

64 8 million During the year, the Bank’s Cards team succeeded in

striking a strategic partnership with Etisalat Egypt, and a new ADIB-

Egypt Etisalat co-branded card was launched in three card types,

2010 1.5

2011 1.4

2012 3.2

2013 4.2

2014 5.7

2015 7.0

2016 11.7

2017 11.5

2010 2.0

2011 2.2

2012 1.9

2013 2.1

2014 3.6

2015 5.2

2016 7.6

2017 8.1

Wholesale Banking

Wholesale Assets (EGP bn) Wholesale Deposits (EGP bn)

Retail Banking

2017 saw exceptional performance in ADIB Egypt’s Retail Banking division, with Consumer Liabilities growing almost 22% to reach EGP 21 7 billion thanks to strong growth in Savings and Investments accounts

The provision of best-in-class wholesale banking services is at the core of ADIB Egypt’s strategy, with integrity and due diligence forming the building blocks of every transaction


Platinum, Titanium and Gold In addition, the Bank launched its first

commercial covered card catering to the Business Banking segment

and yielding a unique position in the market as the first-of-its-kind to

provide cash back ADIB also revised its procedures for customers

applying for a covered card, with customers now able to enjoy the

same effortless experience from conventional banks while remaining

Shariaa-compliant ADIB Egypt also continued to offer its Titanium

and Platinum debit cards with 1% cashback

Meanwhile in the Business Banking department, revenue increased by

40% y-o-y to reach EGP 143 8 million, up from EGP 102 4 million in 2016,

with net income reaching EGP 94 8 million and representing a 40%

increase from the EGP 67 8 million recorded in 2016

As part of its commitment to support the Egyptian economy,

promoting GDP growth, creating job opportunities and alleviating

poverty, the Bank continued to provide and expand access to finance

and banking for more individuals and small Egyptian businesses ADIB

Egypt promoted its new creative asset product schemes targeting

growing and successful sectors in Egypt, with the introduction of

Business Banking’s finance programs for companies and clinics –

helping them finance their business needs and medical equipment

with amounts up to EGP 1 million

The Business Banking segment continued to provide banking services

to clients through a number of well-qualified relationship managers

located in ADIB Egypt branches, offering their expert services in trade

finance, letters of credit and cash management

ADIB Egypt also continued offering Bancassurance insurance products

in cooperation with the Egypt Life Takaful Company, addressing

customers’ demand for Islamic insurance products In 2017, 3,000

customers signed up for our Takaful insurance products, with total

annual premiums amounting to EGP 34 million and total income

revenue of EGP 5 4 million, compared to EGP 2 6 million in 2016

Furthermore, ADIB Egypt continued to launch new digital services as

part of its plan to become the best Digital Banking provider in Egypt,

offering internet banking, mobile banking, mobile/wallet payment

and bill payment over ATM and e-collection Introducing ADIB

Internet and Mobile Banking, one of the latest and updated platforms

for the Bank, the two services offer numerous features such as running

balance inquiries, extracting statements and transferring between

accounts, with more promising services to come In addition, the

Bank pursued new payment channels for customers like e-collections,

facilitating the payments of cash back card dues in cooperation with

Fawry mobile services, offering clients an expansive, round-the-clock

network ADIB Egypt also continued to upgrade its ATM network to

include more diverse payment services, and as a result the number of

branches with the latest, fully-equipped ATMs increased by 16%

In 2017, ADIB@Work Banking Solutions, ADIB Egypt’s promising

service that appoints relationship managers as well as offered bundled

products and services for its clients, continued to tailor its services to

satisfy customer needs and improve its quality of service

Consequently, over the year ADIB@Work increased its asset sales

(Personal Finance and Auto) by 225% when compared to 2016 and

Liabilities’ new payroll accounts grew 136% Through ADIB@Work,

cash back card acquisitions also increased by 169%

As part of its digital banking initiatives in 2017, ADIB Egypt continued

to launch and maintain different online and digital channels for its

clients to build an active online community, helping the Bank survey

client interests, engage with them online, and fulfil their financial

needs The Bank launched its new website and added to its online

presence by actively participating on social media platforms such as

Facebook, Instagram, LinkedIn and YouTube To spur brand

engagement with customers, ADIB Egypt also used mobile targeting,

search engines and online display advertisements, all of which

translated into more business and customer satisfaction Since its

launch in 2015, ADIB Egypt’s Facebook page has garnered over

309,000 fans

Priority BankingADIB Egypt strives to offer its high net worth clients with world-class,

professional wealth management services Hand-in-hand with our

customer-centric focus, ADIB Egypt offers a truly distinctive service

with ADIB Gold that is unparalleled; rewarding our exclusive clients

with special privileges and unique benefits ADIB Gold customers

enjoy access to a team of well-appointed Relationship Managers

whose aim is to deliver the highest caliber of financial services while

diligently assessing and satisfying our clients’ needs and risk appetite

to preserve and grow their wealth By the end of 2017, ADIB Egypt’s

Gold division spanned 41 branches, with 12 lounges and 29 offices

Over the course of the year, ADIB Egypt was committed to providing

a wide range of Shariaa-compliant financial products and services

and responding to high demand levels As such, ADIB Egypt’s Shariaa-

compliant money market fund achieved 14 59% returns, ranking 1st

place among its peer group To meet client demand, ADIB Egypt’s

Board of Directors approved an increase in the fund’s size in 2017

The board also approved the launch of Egypt’s first Shariaa-compliant

capital-protected fund

Outlook for 2018ADIB Egypt’s forward-looking retail banking strategy includes

providing better services for its clients while simultaneously

increasing its market share in assets and liabilities, ultimately

maximizing its income and revenues y-o-y The Bank’s continued plan

for growth also involves increasing market share and revenues

through offering its distinctive services, such as those provided by its

dedicated network of Relationship Managers

On the financing side, 2018 will see the launch of Housing Finance,

while also growing the current financing portfolio by sourcing new

businesses with higher ticket sizes

The Bank’s Business Banking division will aim in 2018 to provide

better services to clients and increase the number of distinctive

clients enrolled in Internet Banking The Business Banking team will

also co-operate with the Cards team to increase the business card

penetration within the Business Banking portfolio

For its Cards business, ADIB Egypt is optimistic about 2018,

anticipating continued growth in key indicators such as revenues,

numbers of cards in force and average balances To achieve this, the

Cards team intends to launch a number of initiatives, including

another co-branded card, an array of prepaid cards serving various

segments as well as the continued enhancement of service and

customer experience by launching e-statements and integrating

covered cards with the current state-of-the-art Internet Banking and

Mobile Banking platforms

Digital Banking has also been set out as one of the main growth

avenues for ADIB Egypt in 2018, in order to fulfil the Bank’s vision to

be among Egypt’s best Digital Banking service providers One of the

most noteworthy projects forthcoming is the Mobile Wallet for

customers to conduct payments over their mobile phones ADIB

Egypt also intends to make available bill payments and cash back card

payments using Internet and Mobile Banking, as well as launching a

new payment channel that will allow customers to pay their Murabaha

installments through Fawry outlets across Egypt and make cardless

payments over ATMs for account deposits and covered card payments

ADIB Egypt also seeks to grow its Bancassurance offering to its

customer base by offering a full range of life and non-life Takaful

insurance products that would cater to all customers’ needs, whether

business or personal

Finally, ADIB Egypt believes that with its unique product offering,

wide geographical presences and well-qualified Relationship

Managers, it is well positioned to realize its ambitions for 2018 – in

terms of market share, balance sheet growth and revenue realizations

We will continue to provide a customer-centric banking experience,

catering to the needs of several customer segments with dedicated

efforts for our Affluent and Mass Affluent customers – all through

offering tailor-made products and services

Retail Banking Cont’d

Consumer Bank Assets (Retail & Priority) (EGP bn) Consumer Bank Deposits (Retail & Priority) (EGP bn)

2009 0.82010 1.32011 1.62012 1.82013 2.32014 3.12015 3.52016 3.92017 5.1

2009 5.8

2010 7.0

2011 8.4

2012 9.5

2013 11.0

2014 12.8

2015 14.4

2016 17.8

2017 21.7


Overview of the BusinessThe Treasury division is responsible for the creation, formulation and

upkeep of ADIB Egypt’s overall strategy It manages critical issues

such as liquidity and market risk, as well as provides different types of

support and services to our customers, from expert financial advice,

market analysis and updates on our new products and services

Highlights of 2017 Over the course of 2017, the Bank’s Treasury division kept to its course

and continued to steer its operations in the midst of challenging

economic headwinds; the division successfully handled the management

of excess liquidity as well as foreign exchange activity while maintaining

its focus on growing customer sales and the marketing desk

The average asset portfolio managed by Treasury increased by EGP 2 14

billion compared to last year to reach EGP 15 98 billion in 2017 Despite

harsh competition in the industry and much thinner spreads, foreign

exchange income reached EGP 133 million during the year, while fixed

income reported net revenue of EGP 2 8 million

Outlook for 2018Looking ahead, ADIB Egypt’s strategy for its Treasury division is to

continue its increased trading activities while launching new trading-

related verticals, all the while navigating global markets’ volatility and

local political and economic developments ADIB Egypt is committed to

diligently providing in-depth analysis on regional and international

market developments and trends to its clients, with regular updates to

help them make better investment decisions

ADIB Egypt’s wholesale banking division will continue to offer a

creative and tailored array of Shariaa-compliant financial products

and services specifically designed with our clients’ needs in mind In

the future, the Bank intends to collaboratively work to develop,

enhance and expand its product range, focusing on customers’ needs

and giving them more options – whether they’re individuals, large

corporations, SMEs, or financial or nonfinancial institutions

Finally, the division’s forward-looking strategy also includes a project

in collaboration with the Wholesale bank to build an online foreign

currency portal that will enable customers to conduct real-time

transactions, buying and selling foreign currency online

Treasury

2017 saw Treasury’s average asset portfolio growing by EGP 2 14 billion to reach EGP 15 98 billion with strong FX revenues despite a challenging economic environment


2017 Financial Highlights

Full-year revenue of EGP 2,687 million – a 30% or EGP 625 million y-o-y increase; Net income of EGP 435 million vs EGP 361 million in 2016 – a 21% y-o-y increase on the back of rapid top-line growth Customer assets reached EGP 16 8 billion, up 7% y-o-y

30%

21%

38%

12%

35%

17%

Total Revenue increased y-o-y

Net Income grew y-o-y

Net Revenue from Funds increased y-o-y

Total Assets increased y-o-y

Operating Profit climbed y-o-y

Core Deposits expanded y-o-y

2015 2016 2017 3 YR CAGR

Net Revenue 1,372 2,062 2,687 25 1%

Expenses (G&A) (696) (882) (1,094) 16 3%

Operating Profit (Margin) 676 1,180 1,593 33 1%

Credit Provisions and Impairment Charge (83) (353) (351) 62 0%

Net Profit 203 361 435 28 9%

Total Credit Provisions to Gross Financing Assets Ratio

New Bank 1 94% 3 17% 4 75%

Bad Bank 33 99% 34 78% 29 36%

Cost-to-Income Ratio (50 72%) (42 79%) (40 70%)

Income Statement for the Period Ending 31 December 2017 (EGP mn)

Balance Sheet as of 31 December 2017 (EGP mn)

2015 2016 2017 3 YR CAGR

Total Assets 23,670 33,257 37,176 16 2%

Gross Customer Financing 10,885 15,793 16,837 15 6%

New Bank 10,678 15,592 16,620 15 9%

Bad Bank 207 201 217 1 5%

Customer Deposits 20,357 25,575 29,858 13 6%

Total Equity 1,302 1,737 2,207 19 2%

Non-performing Financing Ratio

Headline 5 61% 4 73% 4 49%

Of Which New Bank 3 14% 3 15% 3 08%

Capital Adequacy Ratio - Basel II (2013 onward) 10 04% 11 68% 13 70%

Tier 1 Ratio - Basel II 7 37% 6 49% 8 36%

Customer Financing to Deposit Ratio 53 47% 61 75% 56 39%

Management CommentaryADIB Egypt posted total revenues of EGP 2,687 million in 2017, EGP 625

million or 30% higher y-o-y driven by a EGP 562 million or 38% increase

in Net Revenue from Funds (NRFF), which in turn was fueled by growth

in financing and deposits The Bank’s NRFF margin improved, rising to

6 4% compared to 5 8% in the previous year Revenues were further

boosted by a significant increase in Net Fees and Commissions, which

grew 33% y-o-y to EGP 462 million Impressive top-line growth has

come at a time of solid recovery in the wider Egyptian economy

Credit provisions and impairment charges were flat from last year,

showing a charge of EGP 351 million in 2017 on the back of growth in

the financing portfolio Of the total credit provisions reported on the

income statement, a smaller portion was set aside for downgraded

clients in 2017, with more being taken for new customers ADIB Egypt’s

Net Income before tax increased by EGP 320 million or 40% to reach

EGP 1,129 million for FY2017 Despite a 55% y-o-y increase in tax

expense in 2017, Net Income for the year was 21% higher than in 2016,

coming in at EGP 435 million Solid growth in revenue has been filtered

down efficiently to the bottom line

During 2017, ADIB Egypt’s balance sheet continued to expand, growing

12% y-o-y to reach total assets of EGP 37 2 billion This was driven

largely by growth of 7% in customer financing – a rate below the market

average of 8 5% The Bank’s customer financing portfolio stood at EGP

16 8 billion as of 31 December 2017, representing a market share of

1 28% – down by 30 bps y-o-y This asset growth was funded by a y-o-y

growth in deposits of EGP 4 3 billion or 17%, compared to a market

average of 13 2% ADIB Egypt enjoys a strong liquidity position, as

illustrated by a financing/deposit ratio of 56 4%, as well as an average

full-year cost of funds of 9%, up from 6 4% in 2016

2017 2,687

2016 2,062

2015 1,372

2014 956

2013 580

2017 29,858

2016 25,575

2015 20,357

2014 16,602

2013 14,614

2017 56.39%

2016 61.75%

2015 53.47%

53.46%

45.18%

2014

2013

2017 1,593

2016 1,180

2015 676

373

74

2014

2013

2017 13.70%

2016 11.68%

2015 10.04%

11.52%

12.05%

2014

2013

2017 435

2016 361

2015 203

2014 264

2013 207

2017 2,687

2016 2,062

2015 1,372

2014 956

2013 580

2017 29,858

2016 25,575

2015 20,357

2014 16,602

2013 14,614

2017 56.39%

2016 61.75%

2015 53.47%

53.46%

45.18%

2014

2013

2017 1,593

2016 1,180

2015 676

373

74

2014

2013

2017 13.70%

2016 11.68%

2015 10.04%

11.52%

12.05%

2014

2013

2017 435

2016 361

2015 203

2014 264

2013 207

2017 2,687

2016 2,062

2015 1,372

2014 956

2013 580

2017 29,858

2016 25,575

2015 20,357

2014 16,602

2013 14,614

2017 56.39%

2016 61.75%

2015 53.47%

53.46%

45.18%

2014

2013

2017 1,593

2016 1,180

2015 676

373

74

2014

2013

2017 13.70%

2016 11.68%

2015 10.04%

11.52%

12.05%

2014

2013

2017 435

2016 361

2015 203

2014 264

2013 207

2017 2,687

2016 2,062

2015 1,372

2014 956

2013 580

2017 29,858

2016 25,575

2015 20,357

2014 16,602

2013 14,614

2017 56.39%

2016 61.75%

2015 53.47%

53.46%

45.18%

2014

2013

2017 1,593

2016 1,180

2015 676

373

74

2014

2013

2017 13.70%

2016 11.68%

2015 10.04%

11.52%

12.05%

2014

2013

2017 435

2016 361

2015 203

2014 264

2013 207

2017 2,687

2016 2,062

2015 1,372

2014 956

2013 580

2017 29,858

2016 25,575

2015 20,357

2014 16,602

2013 14,614

2017 56.39%

2016 61.75%

2015 53.47%

53.46%

45.18%

2014

2013

2017 1,593

2016 1,180

2015 676

373

74

2014

2013

2017 13.70%

2016 11.68%

2015 10.04%

11.52%

12.05%

2014

2013

2017 435

2016 361

2015 203

2014 264

2013 207

2017 2,687

2016 2,062

2015 1,372

2014 956

2013 580

2017 29,858

2016 25,575

2015 20,357

2014 16,602

2013 14,614

2017 56.39%

2016 61.75%

2015 53.47%

53.46%

45.18%

2014

2013

2017 1,593

2016 1,180

2015 676

373

74

2014

2013

2017 13.70%

2016 11.68%

2015 10.04%

11.52%

12.05%

2014

2013

2017 435

2016 361

2015 203

2014 264

2013 207

Revenues (EGP mn)

Operating Profit (EGP mn)

Net Income (EGP mn)

Customer Deposits (EGP mn)

Customer Financing to Deposit Ratio

Capital Adequacy Ratio

Financial Overview


Corporate Governance


Effective corporate governance aligned with global best practices is ADIB

Egypt’s foundation for long-term success as it strives to meet the highest

levels of transparency and disclosure The Bank adopts guidelines set by

the Central Bank of Egypt (CBE), the Egyptian Financial Supervisory

Authority (EFSA), the Organization for Economic Cooperation and

Development (OECD) Principles, and Islamic Shariaa principles and rulings

in accordance with the Bank’s articles of incorporation

To reinforce its commitment to robust corporate governance strategies,

policies and procedures, the Compliance Department prepared a

Corporate Governance Manual that was presented to and approved by

the Board of Directors in a meeting held on 27 July 2011, where the

importance of ensuring sound implementation of corporate governance

and spreading its culture in all fields of business and among all employees

was stressed The manual was amended to incorporate CBE directives and

is updated and reviewed periodically

Our Commitment to Corporate GovernanceADIB Egypt applies sound corporate governance principles that are

thoroughly and consistently implemented, providing a solid basis for

effective relationships governing all parties; the Bank, its Board of

Directors, its shareholders and its stakeholders These principles constitute

the overall framework guiding the Bank’s strategies and tools to achieve

its goals and take into account main governance principles ensuring:

1 The rights of shareholders and their capacity to fully exercise their

ownership rights

2 Equitable treatment of all shareholders

3 The role of stakeholders within the framework of corporate governance

4 Transparency and disclosure

5 The roles and responsibilities of the Board of Directors

6 An effective basis for an efficient governance system

Accordingly, the Bank guarantees equitable treatment of all shareholders

including minor and major shareholders It also recognizes the rights of

all shareholders as stipulated by the governing laws and guarantees

providing them with all the material information concerning the Bank’s

activities through the General Assembly, Investor Relations Department

and the Bank’s website It emphasizes the accountability of the board to

the Bank and to shareholders, in addition to abiding by regulations to

avoid conflict of interest

The General Assembly The General Assembly is the highest authority within the Bank’s organization

It includes all shareholders each within his/her percentage of ownership The

Bank’s management encourages shareholders to attend the General Assembly

meeting, which was held on 22 March 2017, and sends the official invitation

and meeting agenda to all shareholders to either attend the meeting in person

or through an official power of attorney to ensure equitable treatment The

assembly is managed in a manner that enables all shareholders to express

their opinion and discuss all topics in complete transparency

The main points discussed in the agenda:

• Approving the Board of Director’s report for the year 2016

• Approving the auditor’s balance sheet for the year 2016

• Approving the changes that took place to the board composition

• Approving the Bank’s balance sheet report for the year 2016

• Supporting a variety of initiatives related to Corporate Social Responsibil-

ity (CSR) that conform with Islamic Shariaa principles and rulings

• Presenting the General Assembly with the Shariaa report for 2016

Corporate Governance Report 2017

The Board of Directors• The Board of Directors consists of eight members (two executive and

six non-executive members)

• The Board of Directors is delegated by the General Assembly to set the

Bank’s strategic goals and follow up on the Bank’s activities and over-

see Executive Management to ensure aligned implementation

• The Board is responsible for providing effective governance over the

Bank’s activities and ensuring the efficiency of internal controls and

compliance with policies and procedures

• The Board is responsible for risk oversight, ensuring that necessary

steps are taken to foster a culture of risk-adjusted decision-making as

an integral component of the Bank’s corporate strategy, culture and

value generation process by predicting the Risk factor to avoid any un-

foreseen losses and thus protect shareholders’ interests

• The Board is accountable for the review and oversight of the Bank’s

activities, the organization’s financial soundness and for reporting re-

sults to the General Assembly in full disclosure and transparency

• The Board ensures compliance with all regulatory and supervisory re-

quirements, disclosure of shareholder policies, related parties’ regula-

tions and preserving the interests of shareholders, depositors, creditors,

employees and other stakeholders

Board of Directors MeetingsThe Board of Directors should meet at least once every two months,

which corresponds with the CBE’s Corporate Governance Directives for

banks The Bank’s annual report shows the number of Board meetings and

the number of meetings that each Director attended per year in order to

comply with CBE directives and best practices A board member may not

be absent for more than a third of Board meetings during the year, in

ADIB Egypt maintains a tight corporate governance structure, ensuring adherence to the rules and regulations of the CBE, EFSA and OECD, and abides by the principles of Islamic Shariaa

which case the Chairman must notify the General Assembly in order to

take necessary action

Board CommitteesA number of special committees have been established under the Board

of Directors to facilitate and enhance performance They review matters

within their remit and submit their findings and proposals to the Board for

approval Committees act under the responsibility of the Board and do

not exempt it from any liability Some committees are required by the

corporate governance guidelines of the CBE, while others are created to

ensure best practice standards of corporate governance

Board committees include:

• Audit Committee

• Executive Committee

• Risk Management Committee

• Governance, Nominations and Remuneration Committee


Board of Directors

Mohamed Aly CEO and Managing Director

Fareed BilbeisiActing Chairman

Mr Mohamed Aly was appointed Chief Executive Officer of ADIB Egypt in

November 2017 He enjoys over 30 years of international experience in the

financial services and banking industry, having held senior leadership roles at

several banks in the MENA region Prior to joining ADIB, Mr Aly was the CEO

at Mashreq Bank’s Egypt operations He has also held senior positions at

Credit Agricole, National Bank of Abu Dhabi and American Express, bringing

extensive experience from working across corporate, retail and private

banking, as well as in-depth knowledge of the Egyptian market

Mr Fareed Bilbeisi joined the National Holding Group (NHG) in 2011 as Group

CFO He currently holds the position of CEO at Scope Investment, in addition

to sitting on the boards of other NHG member companies Prior to joining

NHG, Mr Bilbeisi held the positions of CFO at Emaar Industries and Investments

from 2009 to 2011, Vice President at Kingdom Hotel Investments from 2005

to 2009 and Director at Ernst and Young from 1996 to 2005 Mr Bilbeisi has

served at a senior management level at 18 other companies, including Emirates

and Marriott Properties He has also served as a board member at the Four

Seasons Hotel Cairo at Nile Plaza and the Four Seasons Resort Sharm El Sheikh

With over two decades of experience, Mr Bilbeisi has vast knowledge of

industries ranging from banking to hospitality and manufacturing His

expertise lies in the areas of strategy development, finance and financial

planning, budget management, investment, business banking operations,

strategic project management, mergers and acquisitions and joint ventures

This is in addition to the experience he has gained in risk management and

auditing through his work with international auditing firms such as Arthur

Andersen

Mr Bilbeisi holds an MBA from Canisius College in the US and is a CPA He has

attended several executive training programs in funding, investment and

management at world-renowned business schools and institutes

Antoine ChemaliBoard Member

Mohamed Chaouki Board Member

Mr Antoine Chemali currently works on Special Projects for National

Holding He is the cofounder of Digital World Capital (DWC), a London-

based hedge fund investing in telecoms, media, and technology Prior to

DWC, Antoine was the CEO of Emirates International Investment

Company (EIIC), a company managing financial investments Mr Chemali

managed a global capital markets portfolio (including equities, fixed

income, derivatives and alternatives), a private equity fund and a strategic

investment portfolio invested in Europe, the GCC and MENA region He

serves on the board of several companies in different sectors, including

real estate and banking

Mr Mohamed Chaouki is a member of the Management Committee of

the Emirates International Investment Company (EIC) and the CEO of

AD Capital After years of extensive experience as an investment banker

and portfolio manager in Morocco’s thriving markets, Mr Chaouki

joined EIC in 2006 as a member of the Asset Management team in

charge of the MENA equities portfolio In 2008, he became Vice

President of Asset Management and subsequently Vice President of

Alternative Investments and Research He joined EIIC, AD Capital S A , in

2010 as a Regional Asset Manager at one of the very first Casablanca

Finance City companies Mr Chaouki is a member of the Management

Committee at EIIC and a board member of the Moroccan Asset

Management Society


Mohamed Ismail El Dahan Board Member

Mohamed Hassan Youssef Board Member

Mr Mohamed El Dahan is a member of the Board of Directors of Emaar

Misr and Emaar Syria Mr El Dahan has extensive experience in the real

estate, construction, and financial services and banking industries He

previously served as the CEO of Emaar Misr and has been with Emaar

Properties since 2005, holding positions including Head of Internal

Audit, Risk Management, and Compliance He has also been an Executive

Officer at Emaar Properties PJSC’s Group Business Development and

Operations and serves as a member of the Board of Directors of Emaar

Industries and as Chairman of its Executive Committee

Prior to joining Emaar, Mr El Dahan held various Internal and External

Audit Management positions at the Financial Audit Department of

H H the Ruler’s Court in the UAE and at the Central Auditing

Organization (CAO) in Egypt

He holds a BA in Accounting and a Postgraduate Diploma in Business

and Accounting from the American University in Cairo He has also

completed a CIA from the Institute of Internal Audit, a CFE from the

Association of Certified Fraud Examiners and a CPA designation from

the Montana Society of Certified Public Accountants in the US, in

addition to the Advanced Management Program for Senior

Management at INSEAD in France

Mr Mohamed Youssef became a member of ADIB Egypt’s Board of

Directors in August 2014, bringing more than 27 years of experience

to the table He is also the General Manager of Transport Project

Finance and Credit at the National Investment Bank (NIB), a position

he has held since September 2012

Mr Youssef started his career as an economic researcher at NIB before

moving to Kuwait, where he worked in economic media and translation

In 1998, he returned to Egypt and to NIB where he was appointed

manager of the Internal Follow-up Department, General Manager at

the Technical Office of the Vice Chairman & Managing Director as

well as his current position, where he administers government

investments worth around EGP 7 billion Mr Youssef was a member of

the Board of Directors of Nobaria Sugar and Refining Company for six

years, as well a member of the Board of Directors at Export Credit

Guarantee Company of Egypt for a year

He received his BA in Economics, as well as a Diploma of Islamic

Economics, from Cairo University and a Diploma of Translation and

Simultaneous Interpretation at the American University in Cairo,

where he later earned his MPPA

Board of Directors

Heidi Kamal Executive Board Member

Arif Usmani Board Member

Ms Heidi Kamal joined ADIB Egypt as Chief Risk Officer in 2009 She is

responsible for Wholesale Bank Credit Risk along with Operations, Market,

ADIB Capital, ADILease and ADIB Holding Her expertise lies in planning

business and portfolio strategies based on clear analyses of market conditions

and risk assessments Her banking career began in 1989 as an Officer at the

Bank of Credit and Commerce-Misr’s Corporate Bank Her professional

journey then led her to join Citibank, where she held a variety of progressively

responsible roles over the course of nearly 15 years before joining NBD Bank

of Dubai/ADIB Egypt

She holds an MBA from the Maastricht School of Management, Cairo and a

BSc in Commerce from Ain Shams University in Cairo

Mr Arif Usmani is the Global Wholesale Bank Head at ADIB with over

34 years of extensive banking experience, spanning several

geographies and disciplines In 1981, he joined Citi in Pakistan and

was based in Karachi until 1989 From 1989 to 2003, he held several

posts in various international markets including Saudi Arabia,

Singapore, Hong Kong, Slovakia and Nigeria

In Nigeria, Mr Usmani was the Division Head for West Africa and was

responsible for the management of Citi’s franchises in Nigeria, Cote

d’Ivoire, Cameroon, Gabon, Republic of Congo and Senegal In 2003,

he moved back to Saudi Arabia as a Citi affiliate and held the post of

Chief Risk Officer at the Saudi American Bank He continued in this

role when Citi sold its stake and the bank became part of the Samba

Financial Group In 2008, after the completion of his assignment with

Samba, he rejoined Citi as Country Head for Pakistan

Mr Usmani has a First Class Honours Degree in Theoretical Physics

from Imperial College, London and is an Associate of the Royal

College of Science


Fatwa and Shariaa Supervisory Board

The Fatwa and Shariaa Supervisory Board (“Shariaa Board”) is an

independent body of leading Islamic scholars who have gained extensive

experience in the fields of Islamic financial jurisprudence and banking

transactions The Shariaa Board has a major responsibility to oversee,

monitor and assess the Bank’s operations and business, including its

working environment and managerial decisions to ensure accordance

with the principles of Islamic Shariaa

The Shariaa Board’s Duties and ResponsibilitiesThe Fatwa and Shariaa Supervisory Board is entitled to supervise all of

the Bank’s business activities to ensure they fully adhere to the

principles of Shariaa Accordingly, the Shariaa Board maintains access

to whatever it deems necessary to perform its mandate including, but

not limited to, records, documents and any requested data The Board

of Directors has the right to monitor the Bank’s operations through its

own direct Shariaa auditing, reviewing and examination, or it may

depend on any independent internal auditing reports; or solicit any

specialized entity to help it carry out its responsibility according to

best practice

The main aspects of its mandate include:

• Issuing Fatwa resolutions and Shariaa decisions for all the Bank’s

operations and transactions

• The review and attestation of the Bank’s forms, contracts, agreements

and all documents related to its activities

• The review and approval of the Bank’s financing structures, investment

formulas, liquidity management processes and all relevant contracts

and documents

• The review and approval of all services offered and their relevant fees,

commissions and documentation

• The review and approval of the Bank’s operational policies and

procedures and ensuring compliance with the principles of Shariaa

• The review and approval of the Bank’s accounting principles and IT

systems used to account for the Bank’s business and operations

• The review and approval of the Bank’s code of ethics and implementing

measures it deems necessary to maintain an Islamic bank’s work

environment

During 2017, the Fatwa and Shariaa Supervisory Board met several

times during which they issued Fatwa resolutions and Shariaa decisions

on the various topics presented to it In the opinion of the Board, the

responsibility for ensuring that ADIB Egypt’s operations comply with the

principles of Islamic Shariaa ultimately falls on the Bank’s executive

management The Fatwa and Shariaa Supervisory Board’s role is to issue

an independent opinion on the degree of compliance As part of the

Bank’s transformation into a Shariaa-compliant institution, the

following measures have taken effect:

• The conversion of most of the Bank’s assets into Shariaa-compliant

ones, with remaining non-compliant assets being grouped into a

separate portfolio account awaiting necessary action by shareholders

All new financing is extended in accordance with the principles of

Shariaa

• New deposits are accepted and held in a Shariaa-compliant manner,

while older deposits have for the most part been transformed to

adhere to the principles of Shariaa

• The Board of Directors is currently drafting new Shariaa-compliant

structures for the Bank’s treasury tools, with non-compliant

transactions being annexed into the aforementioned shareholder

account

• The use of terminology that is compliant with the laws and principles

of Shariaa in financial statements issued for the current fiscal year,

excepting communication regarding treasury bills – until such time a

Shariaa-compliant framework is developed

• ADIB Egypt is not authorized to distribute Zakat, meaning that the

responsibility falls on the Bank’s shareholders

The Shariaa Board is responsible for ensuring strict compliance to the guiding principles of Islamic Shariaa across all of the Bank’s operations and procedures

Compliance – Anti-Money Laundering and Terrorism

ADIB Egypt is committed to the highest standards of anti-money

laundering (AML) and terrorism compliance combating The

Compliance Department ensures the implementation of sound

corporate governance practices, controls, and standards that prevent

the use of our products and services for laundering money derived

from illegal or criminal activities, or financing terrorist activities

To fulfill this commitment, we have developed and continue to

update policies and procedures that meet or exceed applicable legal

and regulatory requirements ADIB Egypt uses an automated system

to identify unusual transactions and continuously develops processes

to prevent the exploitation of bank products and services in money

laundering Staff awareness is also another main tool that helps

achieve this goal, and is one of the Compliance Department’s

priorities To this effect, 1,241 employees were trained during 2017,

to stress on the importance of controls, ‘Know Your Customer’

policies and reporting of suspicious transactions and full compliance

with regulations and governing rules

During 2017, all policies, procedures, contracts, forms, products

programs, marketing and advertising materials, and annual reports

were reviewed to ensure their compliance with laws and regulations

and CBE regulatory instructions Any changes in the business or legal

environment that could affect the Bank, for example through the

issuance of new regulatory instructions, prompt a comprehensive gap

analysis that is discussed with relevant Board members to take

corrective action In addition, a special comprehensive analysis report

is prepared detailing the gaps, whether for the Bank or its sister

companies and subsidiaries, and presented to senior management

with recommendations for control systems that ensure compliance

with regulations

ADIB Egypt implemented CBE instructions regarding controls over

bank customers’ foreign currency usage by checking all foreign

transfer requests to ensure their legitimacy for the protection of the

economy and to avoid the consequences of non-compliance The

Bank’s commitment to disclosure is evident in the many channels of

communication through which it exchanges information This

includes annual reports, the website and reports to regulatory bodies

Our Compliance Department works closely with local organizations,

including the Egyptian Money Laundering Combating Unit (EMLCU) and

the CBE to ensure adherence to Anti-Money Laundering Law No 80 for

the year 2002 and its amendments The ongoing cooperation to fight

money laundering and terrorism also complies with the recommendations

of the Financial Actions Task Force (FATF), the Wolfsberg Principles and

Basel Compliance requirements and best practices

ADIB Egypt is continuously working to develop and update its anti-money laundering (AML) and terrorism compliance combating policies and procedures


Corporate Social Responsibility

At ADIB Egypt, we believe financial institutions have a key role to play when it comes to the betterment of the societies in which we live and work, and we seek to provide avenues for the continued growth and development of Egypt’s economy and people

ADIB Egypt is firmly committed to serving the communities that have

placed their trust in us and that have made our business what it is

today We believe economic prosperity and the opportunities to

attain better standards of living should be accessible to all Our

Corporate Social Responsibility (CSR) efforts are focused on the

essential building blocks that allow communities to thrive Today,

ADIB works with many partners, including NGOs, hospitals, and

universities to help address society’s most pertinent needs As such, it

participated in various initiatives throughout 2017 centered primarily

on education, healthcare and community development

Education ADIB Egypt’s commitment to educational development stems from

our conviction that a community’s prosperity lies squarely on the

skills of its workforce As a vital tool for building a competitive

economy, education remained the core of our CSR agenda in 2017

We collaborated with a number of organizations to support projects

aimed at improving educational outcomes this year

These included:

• Partnering with the Misr El Kheir Foundation to sponsor the

administrative expenses of three community schools in the Luxor

and Aswan governorates for the academic year

• Creating a campaign in collaboration with Care International

Egypt to improve reading skills among schoolchildren and to

support a teacher training program

• Supporting the Nevine Loutfy Memorial Emergency Scholarship

Fund at the American University in Cairo

• Working with Injaz Egypt to develop new ways to advance Egypt’s

schools and universities

Healthcare Healthcare remained a primary focus of our CSR initiatives in 2017

Our activities in this vital community development plank aimed at

eliminating barriers to health to afford underprivileged members of

Egyptian society with higher healthcare standards through several

key initiatives

These included:

• Outfitting the Al Iman General Hospital in Assiut with new

machinery and equipment

• Donating an intensive phototherapy unit to Farshut Central

Hospital for the treatment of jaundice

• Donating two dialysis machines to the hemodialysis unit at the

Mubirah Hospital in Minya

• Sponsoring treatment for severe cases of rheumatoid arthritis in

cooperation with Resalet Nour Ala Nour

• Sponsoring treatment for burn victims with the Ahl Masr

Foundation

Community Development and Humanitarian Projects Our community development efforts in 2017 sought to improve the

quality of life for some of Egypt’s most disadvantaged and underserved

communities Working with several governorates and community

development agencies, ADIB Egypt worked to help communities help

themselves by providing a platform from which sustainable

development can grow

ADIB Egypt’s efforts included:

• Partnering with the Kheir We Baraka Society, ADIB funded the

Naga Ghabashi Village Development Program The project

involved several development efforts in the village of Naga

Ghabashi, located in the city of Girga in Sohag, including: food

donations, residential unit renovations, purchases of new clothes

for children, comprehensive medical checkups, delivering potable

water to homes, and supporting apprenticeships in the making of

palm-based products such as paper, handmade carpets, and

woven baskets

• Renovating and roofing 10 village homes in Assiut and Sohag

• Partnering with the Misr El Kheir Foundation to assist jailed

debtors with debt repayments

2018 and Beyond In the coming years, ADIB Egypt expects to extend its CSR efforts to even

more underprivileged members of society through expanding both the

geographic reach of our initiatives and the kinds of programs we engage

in Through partnering with key organizations and institutions, we will

continue to keep education and healthcare initiatives as the cornerstone

of our CSR agenda in keeping with our belief in their fundamental

importance when it comes to bolstering both individuals’ quality of life

and their communities by extension


Financial Statements

Separate Financial Statements 44Auditor’s Report 44

Separate Balance sheet as of 31 December 2017 46

Separate statement of Income for the year ended 31 December 2017 47

Separate statement of change in shareholders’ equity for the year ended 31 December 2017 48

Separate statement of Cash Flows for the year ended 31 December 2017 49

Separate statement of Cash Flows for the year ended 31 December 2017 Continued 50

Notes to the separate financial statements as of 31 December 2017 51

Consolidated Financial Statements 100Auditor’s Report 100

Consolidated Balance sheet as of 31 December 2017 102

Consolidated statement of Income for the year ended 31 December 2017 103

Consolidated statement of change in shareholders’ equity for the year ended 31 December 2017 104

Consolidated statement of Cash Flows for the year ended 31 December 2017 105

Consolidated statement of Cash Flows for the year ended 31 December 2017 Continued 106

Notes to the consolidated financial statements as of 31 December 2017 107


Auditor’s Report

44 ADIB Annual Report 2017 ADIB Annual Report 2017 45

Separate Balance sheet as of 31 December 2017 Separate statement of Income for the year ended

31 December 2017

Restated

Note31 December

2017 LE 000's

31 December 2016

LE 000's

AssetsCash and due from central bank of egypt 14 2,122,372 1,321,229 Due from banks 15 1,307,055 3,396,730 Treasury bills 16 7,828,942 4,726,234 Loans to banks (after deducting impairment loss) 17 266,402 - Conventional loans to customers (after deducting impairment loss) 17 222,023 215,565 Financing to customers (after deducting impairment loss) 17 16,348,484 15,577,917 Financial investmentsAvailable for sale 18 54,823 70,434 Held to maturity 18 6,850,312 5,719,617 Financial investments in subsidiaries and associates (net) 19 216,862 216,663 Intangible assets (net of accumulated amortization) 20 404 547 Other assets 21 1,436,094 1,246,554 Fixed assets (net of accumulated depreciation) 22 522,000 410,292 Deferred tax asset 27 - 354,923 Total assets 37,175,773 33,256,705

Liabilities and shareholders' equityLiabilitiesDue to banks 23 905,082 2,239,144 Customers' deposits 24 29,858,055 25,578,828 Subordinated financing 25 777,582 770,025 Other liabilities 26 1,712,360 1,192,553 Other provisions 27 1,635,524 1,697,338 Defined benefits obligation 34 47,787 41,787 Deferred tax liabilities 28 32,249 - Total liabilities 34,968,639 31,519,675

Shareholders' equityPaid in capital 29/2 2,000,000 2,000,000 Paid under capital increase 29/3 1,861,418 1,861,418 Reserves 30 402,862 161,407 Difference between face value and present value for subordinated financing

81,150 91,699

Accumulated losses 30/5 (2,138,296) (2,377,494)Total shareholders' equity 2,207,134 1,737,030 Total liabilities and shareholders' equity 37,175,773 33,256,705 Contingent liabilities and commitments 32 3,683,496 2,219,052

*The auditors’ report is attached

*The accompanying notes from (1) to (36) are integral part of these separate financial statements.

Mohamed Aly Soha El TurkyChief Executive Officer and Managing Director Chief Financial Officer

Cairo 20 February 2018

Restated

Note31 December

2017LE 000’s

31 December 2016

LE 000’s

Income from murabaha, musharaka, mudaraba and similar income 5 4,157,158 2,755,821

Cost of deposits and similar expenses 5 (2,103,706) (1,264,760)

Net revenue from funds 2,053,452 1,491,061

Fees and commission income 6 472,035 358,624

Fees and commission expense 6 (9,727) (10,058)

Net fees and commission income 462,308 348,566

Dividends income 7 1,358 2,393

Net trading income 8 133,343 213,664

Administrative expenses 9 (1,093,537) (881,545)

Other operating income 10 (112,641) (17,842)

Impairment of credit losses 11 (351,209) (353,272)

Gain from financial investments 18 36,206 6,278

Profits before taxes 1,129,280 809,303

Taxes 12 (694,398) (448,633)

Net profit for the year 434,882 360,670

Earnings per share 13 2.17 1.80

*The accompanying notes from (1) to (36) are integral part of these separate financial statements


Separate statement of change in shareholders’ equity for the year ended 31 December 2017

Separate statement of Cash Flows for the year ended 31 December 2017

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Restated

Note31 December

2017 LE 000’s

31 December 2016

LE 000’s

Cash flows from operating activities

Net Profit before tax 1,129,280 809,303 Adjustments to reconcile profit before tax to cash flows from operating activities:Depreciation of fixed assets 22 58,628 44,651

Amortization of intangible assets 20 1,006 5,406

Impairment losses for financing 17 402,090 359,098

Impairment losses for held to maturity investments - (1,668)

Premium And discount Amortization 18 (12,198) (5,682)

Other provisions formed 27 50,091 1,538,525

Other provisions no longer required 27 (94,697) (11,615)

Credit loss impairment no longer required 17 (50,880) (4,158)

Foreign currency revaluation of financing provisions 17 (1,185) 20,067

Foreign currency revaluation of other provisions 27 1,650 14,948

Foreign currency revaluation of Held to Maturity Investments 18 (21,964) -

Foreign currency revaluation of Available for Sale Investments 18 1,129 (25,858)

Impairment losses for assets reverted to the bank 10 20,000 3,604

Impairment losses of other assets 21 6,708 -

Gain on sale of fixed assets 10 (16,591) (17,745)

Gain (Loss) on sale of assets reverted to the bank 10 (472) 2 Impairment losses of financial investment in subsidiaries and associates

18 9,843 -

Impairment losses (recovery) of financial investment available for sale

18 9,884 -

Gain on sale of Available For Sale investments 18/3 (51,589) (5,143)

Gain on sale of Treasury Bills 18/3 (2,787) (1,135)

Dividends income 7 (1,358) (1,236)

Amortization of subordinated financing using EIR method 25 30,561 18,990 Foreign currency revaluation of subordinated financing with Coupon

(9,698) -

Foreign currency revaluation of subordinated financing without Coupon

6,706 281,780

Operating profit before changes in assets and liabilities resulted from in operational activities

1,464,157 3,022,134

Net decrease (increase) in assets and liabilities

Due from banks 1,958,854 (1,462,598)

Treasury bills maturing in more than 30 days 541,092 (1,732,125)

Financing and facilities to customers (1,373,228) (5,287,463)

Other assets (250,785) (388,605)

Due to banks (1,334,062) 1,576,843

Customers' deposits 4,279,227 5,217,990

Other liabilities 285,662 57,611

Defined Benefit Obligation 6,000 11,229

Cash flows resulting from operating activities 5,576,917 1,015,016

Used provisions - Other than financing losses 27 (18,858) (3,465)

Used provisions - Financing losses 17 (14,891) (15,561)

Paid Income Tax (73,081) -

Net cash flow resulting from operating activities 5,470,087 995,990


Notes to the separate financial statementsas of 31 December 2017

1- General informationAbu Dhabi Islamic Bank – Egypt (formerly National Bank for Development - SAE) was established in 1974 in accordance with Investment Law No. 43 of 1974 and its executive regulations and the amendments thereon in Arab Republic of Egypt 9, Rostom Street Garden City and the bank is listed on the Egyptian Stock Exchange (EGX).

Abu Dhabi Islamic Bank - Egypt is subject as a financial institution to the supervision and control of the Central Bank of Egypt (CBE). In addition, as a Shari’a compliant bank it complies with Shari’a principles in all transactions and products provided to its clients, whether such products are investment deposits, Islamic investment Sukuk or savings accounts as well as meeting client’s various financing needs by providing options such as Murabaha (Cost-plus), Musharka (Joint Venture), Ijarah (Leasing) and cash back cards. It also offers Islamic options for letter of guarantee and letter of credit. The Bank has a Shari’a Board composed of Islamic jurists who are continually consulted regarding all aspects of new existing and banking transactions.

On April 3rd, 2013 the Bank’s name was changed in the commercial register from the National Bank for Development” to “Abu Dhabi Islamic Bank - Egypt”.

The bank provides a full range of banking services to corporate, retail and micro finance clients in Egypt and the head office is located in Cairo, 9 Rostom st, Garden City. Through 68 branches across all governorates and are served by 2,289 employees at 31 December 2017

The separate financial statements for the Year ended 31 December 2017 were approved by the bank’s Board of Directors on 20 February 2018.

2- Summary of significant accounting policiesBelow are the significant of accounting policies applicable for the preparation of the separate financial statements;

A) Basis of preparation of the separate financial statementsThe separate financial statements have been prepared in accordance with the Central Bank of Egypt (CBE) basis of preparation of the Bank’s financial statements and principles of recognition and measurement as approved by its Board of Directors on 16th December 2008. These separate financial statements have been prepared under the historical cost convention as modified by the revaluation of trading financial investment, available for sale investment.

There separate financial statements have been prepared in accordance with the requirements of related applicable Egyptian laws and regulations. The bank has also prepared consolidated financial statements for the bank and its subsidiaries in accordance with the central bank of Egypt (CBE) basis of preparation issued on 16th December 2008 and according to EAS, which are companies in which the bank owns directly or indirectly more than half of the voting rights, or has the ability to control the financial and operational policies regardless of the type of activity.

Consolidated and separate financial statements are to be read together as of 31 December 2017 to gather sufficient information to understand the banks’ activities, results, cash flows and change in equity.

B) Associates and Subsidiary CompaniesB-1 SubsidiariesSubsidiaries are entities which the bank has the power to govern its financial and operating policies either directly or indirectly. Usually the bank’s ownership exceeds half the voting power taking into consideration potential future voting power where the bank has the option to exercise or convert that option at the time of assessment.

B-2 AssociatesAssociates are companies where the bank owns (from 20% to 50%) either directly or indirectly enough shares to influence the financial and operating policies of the company whilst not reaching control.

The purchase method is used to account for the acquisition of subsidiaries and associates by the Bank. The cost of an acquisition is measured at the fair value or/and asset given or/and equity instruments issued or/and liabilities assumed at the date of exchange plus costs directly attributable to the acquisition. Net assets including contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the minority Profit. The excess of acquisition cost over the Banks’ share of the fair value in the net assets acquired is recorded as goodwill. If the acquisition cost is less than the fair value of the net assets, the difference is recognized directly in the income statement under the item “Other operating income/(expenses)”.

Restated

Note31 December

2017 LE 000’s

31 December 2016

LE 000’s

Cash flows from investing activities

Purchase of Available for Sale Investments 18 (396) (1,409,725)

Proceeds from sale of Available for Sale Investments 68,469 718,731

Payments to acquire fixed assets and preparation of branches 22 (142,975) (91,803)

Payments to acquire of intangible assets 20 (863) -

Proceeds from sale of fixed assets 18,907 21,329

Payments to acquire investment in subsidiaries and associate (10,042) (7,248)

Payments to acquire investment in HTM 18 (1,481,212) (614,862)

Proceeds from redemption of investment Held to Maturity 18 388,003 254,477

Proceeds from sale of Treasury Bills 18/3 2,787 1,135


Net cash flows (used in) investing activities (1,155,964) (1,126,730)

Cash flows from financing activities

Proceeds from Shareholders under Capital Increase

Proceeds from subordinated financing 25 - 328,797 Difference between face value and present value of subordinated financingNet cash flows provided from financing activities - 328,797

Net increase in cash and cash equivalents during the year 4,314,123 198,057

Cash and cash equivalents at the beginning of the year 1,633,182 1,435,125

Cash and cash equivalents at the end of the year 5,947,305 1,633,182

Cash and cash equivalents at end of year are represented in :

Cash and due from CBE 14 2,122,372 1,321,229

Due from banks 15 1,307,055 3,396,730

Treasury bills 16 7,828,942 4,726,234

Due from banks (maturing in more than 3 months) 15 (1,125,923) (3,084,777)

Treasury bills (maturing in more than 3 months) (4,185,142) (4,726,234)

Cash and cash equivalents at the end of the year 31 5,947,304 1,633,182

* The accompanying notes from (1) to (36) are integral part of these separate financial statements.

Separate statement of Cash Flows for the year ended 31 December 2017 Continued


Abu Dhabi Islamic Bank – Egypt (formerly National Bank for Development - SAE) Notes to Separate Financial Statements as of 31 December 2017 – Continued


Associates and subsidiaries in the financial statements are accounted for using the cost basis, investments are recognized by the acquisition expenses basis, deducting any impairment loss in value and dividend income is recognized in the income statement when it is declared, and the bank’s right to receive payments is established.

C) Segment ReportsA business segment is a group of assets and operations engaged in producing products and services which have similar risks and benefits; each sector is distinct from the other. Geographical sectors are related within an economic environment each with distinct characteristics. The bank does not have any geographical sectors that operate in a different economic environment as at 31 December 2017.

D) Foreign Currency TransactionsD-1 Trade and presentation currency

The Egyptian pound is the currency of preparation and presentation of the financial statements.

D-2 Transactions and balances in foreign currencyThe Banks’ accounting records are maintained in Egyptian pounds whilst transactions in other currencies are recorded at rates of exchange ruling on the transaction date. Monetary assets and the liabilities in foreign currencies are revalued into Egyptian pounds at the rates of exchange ruling at the balance sheet date with any resultant gain or loss being recorded in the income statement as follows:

• Net trading income or net income from financial instruments originally classified as a change in fair value through Income Statement according to its type.

• Other operating income/loss for other items.

The changes in fair value of monetary financial instruments denominated in foreign currencies and classified as available for sale (debt instruments) are classified into:

• Differences due to change in amortized cost of the instrument; these are recognized through Income Statement in Income from Murabha, Musharka, Mudarba and similar income.

• Differences due to changes in foreign currencies exchange rates; these are recognized through Income Statement in “Other operating income /expense”

• Differences due to change in fair value of the instrument which are recognized through equity in “Available for sale fair value reserve”.

Translation differences on non-monetary items such as equity securities held at fair value though profit or loss are reported as part of the fair value gain or loss translation difference on non-monetary items such as available for sale the income is recorded directly in equity within “Net unrealized gains and losses on available for sale assets” .

E) Financial assetsThe Bank classifies its financial assets into the following groups:

• Financial assets designated at fair value through Income Statement.• Financings and receivables.• Financial investments held to maturity.• Financial investments available for sale.

The management’s classification depends on the purpose of the investments at the time of its purchase.

F-1 Financial assets designated at fair value through Income StatementFinancial assets include investments Held for Trading:

• Financial instrument are recorded as held for trading if they are acquired for resale in the short term, or if they represent part of a specific financial instrument or portfolio that are managed together and there is an evidence of actual recent transactions which refers to gains\losses of income in the short term.

• Under all circumstances the bank does not re-classify any financial instrument into financial instruments measured at fair value through income statement or to a group of financial assets held for trading.

F-2 Financings and receivablesFinancings and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those:

• That the bank intends to sell immediately or in the short term, which are classified as held for trading, or are classified as financial assets designated at fair value through the income statement account.

• That the bank upon initial recognition designates the asset as available for sale.• For which the bank may not recover substantially all of its initial investment other than because of a credit deterioration

of the issuer.• Financing to Customers are measured by fair value on initial recognition which includes all transaction costs, fees and

commissions and payments to agents, brokers and suppliers.• Historical probability of default for the retail portfolio was calculated according to the realized loss for the past 3 to 6

months and based on average delinquency period for each product. For corporate portfolio, Historical probability of default was calculated as per the rates issued by Moody’s for the Middle East for each facility as per its facility risk rating.

F-3 Investments held to maturity Held to maturity financial investments are non-derivative assets which carry fixed or determinable payments and where the bank has the intention and the ability to hold to maturity. All held to maturity financial investments are reclassified as available for sale in case of a sale of significant portion unless the sale is in an emergency situation.

F-4 Financial investments available for saleAvailable for sale financial investments are non-derivatives financial assets that are intended to be held for unspecified period and may be sold to provide liquidity or due to changes in the prices of shares, foreign currencies, or Profit rate.

The following principles are followed for the financial assetsPurchases or sales of financial assets designated at fair value through profit and loss, held to maturity financial investments, and available for sale financial investments are recognized at the trade date which is the date the bank is committed to purchase or sell the financial asset.

Financial assets that are not classified as designated at fair value through profit and loss at initial measurement are recognize at fair value plus directly attributable costs of acquisition or issue while financial assets designated at fair value through profit and loss at initial measurement are recognized only at fair value, any directly attributable acquisition or issue costs are recorded in the “net trading income” in the income statement.

Financial assets are de-recognized where the rights to receive cash flows from the asset have expired or the bank has transferred all the risks and rewards of the asset to another party, while a financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.

Available for sale financial investments and financial assets designated at fair value through profit and loss are subsequently measured at fair value.

Held to maturity financial investments are subsequently measured at amortized cost.

Profit and loss due to changes in fair value of financial assets designated at fair value through profit and loss are recorded in income statement during the period it occurred.

Profit and losses arising from changes in fair value of available for sale financial investments are recognized directly in equity, when the asset is disposed of or impaired, the cumulative profit or loss previously recognized in equity is recognized in the income statement.

Monetary assets’ profit income is recognized based on the amortized cost method in the income statement. The foreign currency revaluation differences related to available for sale investments are recognized in the income statement. Available for sale equity instruments related to dividends are recognized in the income statement when they are declared.

Fair values are obtained from quoted market prices in liquid markets. Where no active market exists, or quoted prices are unobtainable the fair value is estimated using a variety of valuation techniques, including discounted cash flow and other pricing models. Inputs to pricing models are generally market-based where available and taken from reliable external data sources.




If the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed, an entity can measure the equity instrument at cost minus any impairment losses.

Profit calculated using the effective profit method and foreign currency gains and losses on monetary assets classified as available for sale are recognized in the income statement, Dividends on available for sale equity instruments are recognized in the income statement when the entities right to receive payment is established.

The fair values of quoted investments in active markets are based on current bid prices, If there is no active market for a financial asset, the bank measures the equity instruments that are classified as available for sale at cost net of impairment loss, if any.

The Bank reclassifies the financial asset previously classified as available for sale to which the definition of loans- debts (bonds or loans) applies by means of transferring the category of the instruments available for sale to the category of loans and debts or the financial assets held to maturity, once the Bank has the intention and ability to hold such financial assets in the near future or up to the maturity date, such reclassification is made at fair value as on that date. Any profits or losses related to such assets which have been previously recognized within equity shall be treated as follows:

• Financial assets with fixed or determinable payments and fixed maturity is valued at amortized cost, using the effective Profit method in case of impairment the profit and loss that have been previously recognized directly in equity is removed from equity and recognized in the income statement.

• Profit and loss related to financial assets without fixed or determinable maturity are held in equity till sale or disposal of the asset then removed from equity and recognized in the income statement, In case of impairment the profits and losses that have been previously recognized directly in equity are removed from equity and recognized in the income statement.

If the Bank changes its estimates regarding payments or proceeds, the book value of a financial asset (or group of financial assets) has to be adjusted to reflect the actual cash inflows and the change in this estimate through calculating the present value of estimated future cash flows using the effective Profit rate for the financial instrument. This adjustment is recognized as either income or expense in the income statement.

In all cases, if the Bank reclassified financial asset in accordance with what is referred to above and the Bank subsequently increase its future cash proceeds estimates resulted from an increase in the recoverable amount from its cash receipts, this increase is recognized as an adjustment to the effective Profit rate not as an adjustment in the book value of the asset at the date of change in estimate.

G) Offset of financial assets and financial liabilities

Financial assets and liabilities are offset when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. REPO and reverse REPO agreements are netted in balance sheet under treasury bills.

H) Profit income and expensesProfit income and expense for all profit-bearing financial instruments, except for those classified as held for trading or designated as at fair value through profit or loss, are recognized within ‘profit income’ and ‘profit expense’ in the income statement using the effective Profit rate method, The effective profit/Profit rate method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the profit income or profit expense over the relevant period.

The effective profit rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective profit rate, the bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options), but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective profit rate, transaction costs and all other premiums or discounts. Profit income on financings is recognized on accrual basis except for the Profit income on non-performing financings, which ceases to be recognized as revenue when the recovery of Profit or principle is in doubt.

When financings or debts are classified as non-performing or impaired, related profit income are not recognized but rather, are carried off balance sheet in statistical records and are recognized as revenues on the cash basis as follows:

• When collected and after recovery of all areas for retail financings, personal financings, real estate financings for personal housing and financings to small business.

• For corporate financings, profit income is also recognized on the cash basis, according to which Profit earned during the periods subsequent to reschedule agreements does not start to accrete on the financing principal until the bank collects 25% of the rescheduled installments and after payments of the installments continue to be regular for at least one year, Profit income will not be recognized as revenue until full payment of the loan balance before the rescheduling and client is considered to be performing.

I) Fees and Commission IncomeAccrued fees for loans or advances service are recognized as revenue at the time service is provided. Fees and commissions income related to non-performing or impaired loans or debts are suspended and are carried off-balance sheet and are recognized under income according to the cash basis, when Profit income is recognized.

Fees that represent a complementary part of the actual Profit on the financial asset in general and treated as adjustment to the actual Profit rate.

I-1 Commitment fees on loans granted are deferred if there is a possibility that such loans shall be drawn, since the commitment fees received by the Bank are deemed to be a compensation for the ongoing intervention to acquire the financial instrument; subsequently, they are recognized by adjusting the effective Profit rate on the loan. In the event of expiry of the commitment year without issuing the loan by the Bank, the fees are recognized as revenues at the expiry of the commitment Year.

I-2 Fees related to debt instruments which are measured at fair value are recognized under revenue at initial recognition. The fees for promotion of syndication loans are recognized as revenues upon completing the promotion process without retaining any part of the loan by the Bank, or if the Bank maintains a part thereof with the actual Profit rate available to other participants.

I-3 Commissions and fees arising from negotiation, or participating in a negotiation in favour of a third party as in share acquisition arrangements or purchase of securities or purchase or sale of businesses are recognized in the consolidated income statement when the transaction is completed.

I-4 Management advisory and other service fees are recognized as income on a time proportionate basis over the life time of the service.

J) Dividends IncomeDividends are recognized in the income statement when the right to receive dividends is established.

K) REPO and Reverse Repo agreementsFinancial instruments sold in accordance to re-purchase agreements are recognized as assets added to the balance of treasury bills on the balance sheet. Liabilities under purchase and re-sale agreements are deducted from the balance of treasury bills and the difference between sale price and re-purchase price is recognized as accrued income over the term of the agreement using effective Profit method.

L) Impairments of financial assetsL-1 Financial assets at amortized costAt each balance sheet date, the bank assesses whether there is an objective evidence that any financial asset or group of financial assets is impaired .These financial asset or group of financial assets is considered to be impaired if there is an objective evidence as a result of one or more events that occurred after its initial recognition of the asset ( loss event), and this loss event has an impact on the estimated future cash flow of financial asset or group of financial assets that can be reliably estimated.

The indicators used by the bank to determine that there is an objective evidence of impairment losses includes any of the following:

• Significant financial difficulties facing the client.• Violation to the terms of financing agreement, such as non-payment.• Expecting customer bankruptcy or entering into lawsuit liquidation or re-structuring of the facilities and financing

granted to him.




• The deterioration of the competitive position of the client.• The bank may not approve granting the client privileges or concessions in normal circumstances due to the existence of

financial difficulties of the customer due to economic or legal reasons.• The impairment of the collateral value.• The deterioration of the credit worthiness.

A substantive evidence for impairment loss of group of financial assets that shows the existence of clear information indicating a measurable decline in the expected future cash flows of such category since initial recognition including such that cannot be separately determined for each individual asset such as increase of default cases with respect to a banking product.

The bank estimates the period between the date on which the loss event has occurred and the date on which the impairment loss has been identified for each specific portfolio. For application purposes, the bank considers this period from 3 months to one year.

The bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Taking into consideration the following:

• If the bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment based on the historical loss rates.

• The bank determines that there is an objective evidence that impairment exist, assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

Impairment loss is calculated by the difference between the carrying amount and the present value of estimated future recorded cash flow, excluding future expected credit losses not changed yet, discounted at the financial assets’ original effective Profit rate. This impairment is booked in the income statement as “Impairment loss” and the book value of the financial asset is reduced by the impairment amount using “Impairment loss provision”.

If there is objective evidence that an impairment loss on financings and receivables or held-to-maturity investments carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash discounted at the financial asset’s original effective Profit rate. The carrying amount of the asset shall be reduced through use of an allowance account. The amount of the loss shall be recognized in profit or loss.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (asset nature, business nature, geographical location, type of collateral, delay position etc.) that are indicative of the debtors’ ability to pay all amounts due according to the contractual terms. Provisions are then related to estimate future payments as an indication of the borrowers’ ability to fulfill his contract.

When assessing the impairment loss for a group of financial assets on the basis of the historical loss rates, future cash flows in the group are estimated on the basis of the contractual cash flows of the Bank’s assets and the historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

The bank ensures that estimates of changes in future cash flow reflect the changes in related observable data from period to period For example, changes in unemployment rates, property price, the position of settlement and any other factors that indicate changes in the probable loss of the group or probable loss in its value. The methodology and assumptions used for estimating future cash flows are reviewed periodically by the bank to estimate the future cash flow.

L-2 Financial investments available for sale and held to maturity date in associates and subsidiary companiesAt each balance sheet date, the bank assesses whether there is objective evidence that any financial asset or group of financial assets, that are classified as available for sale has been impaired. In case there is a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is an objective evidence of impairment.

Such decline is presumed to be significant for the equity instruments if it reaches 10% of the cost of the financial instrument, whereas it is presumed a prolonged decline when it extends for a period of more than 9 months.

In respect of available for sale equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized directly in equity. However, if in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss for that debt instrument.

M) Intangible AssetsSoftware (computer programs)Expenditure on the upgrade and maintenance of computer programs is recognized as an expense in the income statement in the period in which it is incurred. Expenditures directly incurred in connection with specific software are recognized as intangible assets if they are controlled by the bank and when it is probable that they will generate future economic benefits that exceed its’ cost within more than one year. Direct costs include the cost of the staff involved in upgrading the software in addition to a reasonable portion of relative overheads.

Upgrade costs are recognized and added to the original cost of the software, when it is likely that such costs will increase the efficiency or enhance the performance of the computers software beyond their original specification.

Cost of the computer software recognized as an asset shall be amortized over the period of expected benefits which shall not exceed three years.

N) Fixed AssetsLands and buildings comprise the head office premises and branches. All fixed assets are carried at historical cost net of accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the fixed assets.

Subsequent costs are included in the assets carrying amount or recognized separately, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the bank and the cost of the item can be measured reliably. Repairs and maintenance expenses are recognized in profit or loss within “other operating costs” line item during the financial period in which they are incurred.

Depreciation is charged so as on all assets, other than land so as to write off the cost of assets over their estimated useful lives, using the straight-line method to the extent of their estimated residual values based on the following annual rates:

Item Life time

Buildings 20 years

Decorations and preparations 20 years

Integrated systems &equipment 5 years

Motor vehicles 5 years

Furniture and fittings 10 years

Other equipment 8 years

The residual value and useful life of the fixed assets is reviewed on every balance sheet date and adjusted whenever it’s necessary.

The bank reviews the carrying amounts of its depreciable fixed assets whenever changes in circumstances or events indicate that the carrying amounts of those assets may not be recovered. Where the carrying amount of an asset exceeds its recoverable amount, the carrying amount is reduced to its recoverable amount.

The recoverable amount of an asset is the higher of the asset’s net realizable value or value in use, gains and losses on disposals are determined by comparing proceeds with relevant carrying amount, these are included in profit or loss in other operating income/(expenses) in the income statement.




O) Impairment of non-financial assets:Non-financial assets that do not have definite useful lives, except for goodwill, shall not be amortized. These are annually tested for impairment. Depreciable fixed assets are tested for impairment whenever changes in circumstances or events indicate that the carrying amounts of those assets may not be recovered.

Impairment loss is recognized and the carrying amount of an asset is reduced to the extent that such carrying amount exceeds the asset’s recoverable amount. For the purpose of estimating the impairment loss, where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. At each balance sheet date, non-financial assets for which an impairment loss is recognized shall be reviewed to assess whether or not such impairment losses should be reversed through profit or loss.

P) LeasingThis is calculated as per law no. 95 for the year 1995, about finance leasing in case the contract grants the right to the tenant to purchase the asset by a set date and a set value, in addition to contract life covers more than 75% of estimated useful life, or if the fair value of total rental payments represent payments more than 90% of the assets value. Other contracts represent operational rent contracts.

P-1 RentFor leasing contracts the expense of rent in addition to maintenance is recognized as expenses in the income statement in the period incurred. If the Bank exercises its right to purchase the rented asset, the expenses of purchase is capitalized and depreciated over the remaining useful life as the same way other assets are depreciated.

The payments are recognized under operational rent and decreased by the amount of any payments received within the stated period and registered in the income statement as steady installments.

Q) Cash and cash equivalentsFor the purposes of the cash flows statement, cash and cash equivalents comprise balances due within three months from date of acquisition; they include cash and balances due from central bank of Egypt, other than those within the mandatory reserve, current accounts with banks and treasury bills.

R) Other provisionsProvisions for restructuring costs and legal claims are recognized when the Bank has a present legal or constructive obligation as a result of past events; it is more likely than that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.

Where there are a number of similar obligations, the likelihood that an outflow is required to settle an obligation is determine taking into consideration the group of obligations as a whole.

A provision is recognized even if the likelihood of an outflow with respect to any obligation in the group is minimal.

When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating income/ (expenses).

Provisions are measured at the present value of the expected required expenditures to settle obligations after one year from financial statement date using the appropriate rate in accordance with the terms of settlement ignoring the tax effect which reflects the time value of money. If the settlement term is less than one year the provision is booked using the present value unless time consideration has a significant effect.

S) TaxesTaxes include income taxes and deferred taxes are recognized in the income statement except for income tax relating to the owners’ equity which is recognized directly within the owners’ equity statement.

The income tax recognized for current period tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period, in addition to income tax adjustments related to previous years.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the separate financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period 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, However, when it is expected that the tax benefit will increase, the carrying amount of deferred tax assets shall increase to the extent of previous reduction.

T) Employees BenefitsEmployees saving insurance fund In the first of July 2013 the bank established a private social insurance fund (Alsondoq) according to the law number 54 for the year 1975 “private insurance funds law and the regulations”, The bank has registered the fund in 14 January of 2014 under number (884), the fund started on the first of April 2014, terms and modification of the fund is applied to the employees working in the head office of the bank and its branches in the Arab republic of Egypt.

The bank is committed to pay the subscriptions to the fund monthly calculated according to the rules of the fund and its modifications. Generally the fund is financed through the monthly subscriptions and some other resources specified in fund’s list.

The insurance benefits will be paid when the member reaches end of service due to retirement or death or total or partial disability, In case the term of membership is less than 3 years, the member will receive his contribution balance paid by himself to the fund on the date of retirement or membership.

Legacy staff medical benefit planThe Bank has a Defined Benefit Medicare Plan for its legacy employees during their service period and post retirement, the liabilities of this system represent in the present value of its liabilities minus its assets at the end of each period including the actuarial loss and revenues settlements and also the prior year cost. The liability determined by independent actuarial expert using the Projected Unit Credit method. the fair value of the liabilities are determined by the projected forecasted cash outflow using discount rate of governmental bonds with maturities similar the maturity of liability. The liability recorded in other liabilities.

The actuarial revenues or losses arising from change in actuarial assumptions and amendments in the medical plan are hitting the income statement.

U) Comparative figuresComparative figures are reclassified, where necessary, for consistency with changes in the current year’s presentation.

3- Financial risks managementThe bank, as a result of conducting its activities, is exposed to various financial risks. Since financial activities are based on the concept of accepting risks and analyzing and managing individual risks or group of risks together, the bank aims at achieving a well-balanced risks and relevant rewards, as appropriate and to reduce the probable adverse effects on the bank’s financial performance. The most important types of risks are credit risk, market risk, liquidity risk and other operating risks. The market risk comprises foreign currency risk, Profit rate risk and other pricing risks.

The risk management policies have been laid down to determine and analyze the risks, set limits to the risk and control them through reliable methods and up–to–date systems. The bank regularly reviews the risk management policies and systems and amendments thereto, so that they reflect the changes in markets, products and services and the best up-to–date applications.

Risks are managed in accordance with preapproved policies by the board of directors; the risk management department identifies, evaluates and covers financial risks, in close collaboration with the bank’s various operating units.

The board of directors provides written rules which cover certain risk areas, such as credit risk, foreign exchange risk, Profit rate risk and the use of derivative and non-derivative financial instruments.




3-1 Credit risk Credit risk is the risk that one party will fail to discharge an obligation and will cause the other party to incur a financial loss. The bank deems financings to customers, banks and financial investments in terms of bills, current accounts, deposits at banks, as financial assets exposed to credit risk of settling part or all of the dues by the concerned parties on the maturity date. Credit risk also exists on items not registered in the balance sheet such as financing commitments. Management processes and credit risk controls are the main concern of the credit risk management team in Risk Department, who reports to the Board of Directors, senior management and heads of each business unit.

3-1-1 Measurement of Credit RiskFinancings and facilities to clientsTo evaluate credit risk relating to financings and facilities to banks and/or clients the following 3 components are to be considered:

• Probability of default – by the client or counter party on its contractual obligations.• Exposure at default – current exposure to the counter party and its likely future developments from which the Bank

derive the exposure at default.• Loss given default

The banks daily activities include measurement of credit risk, which reflects estimated loss (expected loss model) required by Basel banking observatory committee, a conflict could generate between operational measurements and impairments as per the Egyptian Accounting Standards (no 26), which recognizes losses encountered on balance sheet (Recognized losses) rather than “Expected loss” (note 3/1/3).

The bank evaluates each client through a detailed weight categorization; these methods have been developed for internal evaluation usage and for analysis to reach the appropriate weighting. The banks’ clients have been categorized to 4 categories, reflecting the delay in payment, therefore clients could move between the various categories depending on evolving circumstances. The bank frequently and periodically reviews the efficiency of this method to estimate any delay cases.

Internal Categories

Category Description

1 Good debts

2 Regular follow up

3 Special follow up

4 Bad debts

Exposure at default is based on the amounts the bank expects to be outstanding at the time of default.

The estimated loss, is the loss incurred when delay in payment occurs, being a percentage of financing which differs depending upon client, nature of claim, available collaterals and guarantees.

Debt Instruments and treasury billsThe bank, in this case uses external categorization, such as standard and poor or other equivalents. If external classification is not available, the method of credit risk is followed. The investment in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirements at the same time.

3-1-2 Minimization and avoidance of risk:The Bank manages limits and controls concentration of credit risk wherever they are identified − in particular, to individual counterparties and banks, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industrial segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by individual, counterparties, product, and industrial sector and by country are approved quarterly by the board of directors.

The exposure to any one borrower including banks is further restricted by subsidiary limits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below:

CollateralsSeveral rules and policies are stated by the bank to minimize credit risk, one of which is collaterals, the bank specifies guidelines for certain types of collaterals. Major types are as follows:

• Real estate mortgage• Operating asset mortgage such as machinery and goods• Mortgage of financial instruments such as: securities or equities

Usually the long term facilities and corporate are with collaterals, while credit for retail are without collaterals to minimize any losses to minimal, The bank seeks extra collaterals from related parties if a sign of impairment of any financing or facility occurs.

Collaterals are taken as a guarantee for other assets except for financial and facilities and usually, treasury bills and securities are with no collaterals, except for financial pools covered by asset-backed securities and similar guaranteed by financial instruments.

Commitments related to creditsThe major need for commitments related to credits is for the client to have liquidity when needed.Guarantees and standby letters of credit issued by the bank on behalf of the client; to grantee a third party the right to withdrawal from the clients account within a certain limit.

Usually this is guaranteed by shipped merchandise or goods therefore the risk weight is less than direct financings.

Credit commitments represent the hidden unused part of the risk tolerated by the bank such as granting financings, LCs and LGs, the Bank then is subject to losses to equal value of credits. Losses indorsed by unused credits are less than the value, due to facilities being granted for possible commitments for a specific client with certain conditions, The Bank observes the credits till maturity date (long term credits hold a higher risk weight).

3-1-3 Impairment & Provisioning Policies

Internal rating system mentioned earlier (Note 3/1/1) focuses more on planning the quality of credit process and this in the beginning of investing and financing activities, other than that. Impairment losses is recognized only on the balance sheet date for financial reporting purposes according to the objective evidence of impairment as per noted in this disclosure and due to the difference in methodologies applied, usually impairment losses that is reported as per Central bank of Egypt laws and regulations using the estimated losses model is higher than those charged to the financial statements (note 3/1/4).

Impairment loss provisions stated on the end of year balance sheet are extracted from the categorized weight risk rating. Provisions are mainly calculated for credits holding the lowest category. The following table clarifies the percentage upon which the provisions are calculated as of 31 December 2017 related financing and facilities and impairment loss provision related to the internal bank rating:

31 December 2017 31 December 2016

Banks RatingFinancings and

FacilitiesImpairment loss

provisionsFinancings and

facilitiesImpairment loss

provisions

Good debts 78% 31% 78% 38%

Regular follow up 15% 8% 16% 10%

Special follow up 2% 5% 1% 1%

Bad debts 5% 56% 5% 51%

100% 100% 100% 100%




Internal evaluation helps to clarify if there are any significant indications existing for provisions, as per Egyptian Accounting Standards no. 26. Guided by the following points set by the bank:

• Financial problems faced by the client.• Breaching of financing contract for example overdue installments.• Prediction of bankruptcy or liquidation or financial restructure.• Deterioration of competitive position.• The Bank granting superior or extraordinary facilities that the bank could normally not agree upon.• Impairment of the collateral.• Deterioration of credit status

The bank’s policy includes revising all the bank’s assets (exceeding a certain percentage of importance) at least once per year or more if needed.

Loss is evaluated at the balance sheet date on all major accounts. Evaluation normally includes the existing collateral, verifying all payments and withdrawals expected from the account.

Impairment loss provision is charged on similar group of assets using historical expertise available, personal judgment and statistical methods.

3-1-4 Model of General Risk MeasurementIn addition to the 4 categories stated in note 3/1/1, the management takes on several other detailed measurements, to comply with the CBE requirements. Assets exposed to risk are categorized as per the CBE’s conditions and instructions, mainly related to the client, such as: activity, financial position, payment stability.

The bank calculates the impairment of assets exposed to credit risk, including commitments relating to credit on the basis of rates determined by CBE. In case, the required for impairment losses as per CBE credit worthiness rules on 16 December 2008, exceeds the provisions, that excess shall be debited to retained earnings and carried to the general reserve for banking risks in the equity section.

Such reserve is always adjusted on a regular basis, by any increase or decrease so that the reserve shall always be equivalent to the amount of increase between the two provisions. Such reserve is not available for distribution (note 30/3) and shows the movement on the general reserve for banking risks during the financial period.

As follows is the statement of credit rating for corporations as per the Bank’s internal ratings as compared with those of CBE’s; it also includes the percentages of provisions required for impairment of assets exposed to credit risk.

CBE rating CBE rating description Required provision % Internal ratingInternal rating

description

1 Low risk 0% 1 Good debts

2 Moderate risk 1% 1 Good debts

3 Satisfactory risk 1% 1 Good debts

4 Appropriate risk 2% 1 Good debts

5 Acceptable risk 2% 1 Good debts

6Marginally acceptable

risk3% 2 Normal watch list

7 Watch list 5% 3 Special watch list

8 Substandard 20% 4Non-performing

financing

9 Doubtful debts 50% 4Non-performing

financing

10 Bad debts 100% 4Non-performing

financing

3-1-5 Maximum limit for credit risk before guarantees

(All amounts are in thousand Egyptian pounds)31 December

201731 December

2016

LE 000’s LE 000’s

Balance sheet items exposed to credit risks

Treasury bills 8,257,550 4,906,726

Financing to customers and banks

Financing to banks 305,018 -

Retail loans

- Overdraft 3,012 2,407

- Covered cards 2,267,484 2,164,880

- Personal financing 6,512,773 4,728,914

- Real estate mortgage 40 49

Corporate loans:

- Overdraft 2,372,060 1,876,783

- Direct financing 9,370,277 9,807,672

- Syndicated financing 760,794 879,851

Financial investments:

-Debt instruments 6,842,812 5,707,117

Total 36,691,820 30,074,399

Off balance sheet items exposed to credit risks

Letters of credit (import & confirmed export ) 1,015,314 265,785

Letters of guarantee 1,363,652 917,694

Documentary credit 291,083 147,062

Bank guarantees 1,013,447 888,511

Total (note 32/2) 3,683,496 2,219,052

The above table represents the maximum limit of risk to be exposed to at the end of 31 December 2017 and without taking into consideration any guarantees, for balance sheet items, amounts stated depends on the net carrying amount shown in the balance sheet.

As shown in the preceding table 58.01 % ( 31 December 2016: 64.71%) of the maximum limit exposed to credit risk results from financings and facilities to customers, while investments in debt instruments represents 18.65% (31 December 2016: 18.98%).

The management is confident in its ability to maintain control on an ongoing basis and maintain the minimum credit risk resulting from financing portfolio, facilities, and debt instruments as follows:

• 93.40 % (31 December 2016: 94.45%) of the financings and facilities portfolio are rated on the highest 2 levels of the internal rating.

• 78.19 % (31 December 2016: 78.35 %) of the financing portfolio and facilities having no arrears or indicators of impairment.

• Financings and facilities valued on a separate basis amounting to LE 969mn (31 December 2016: LE 920mn) with impairment less than 4.65% from its value against (31 December 2016: 4.73 %).

• The bank applied more prudential selection process on granting financings and facilities during the financial Year ended 31 December 2017

• 100 % of investments in debt instruments and treasury bills represent debt instruments due from the Egyptian government.




3-1-6 Financing and facilities to customers:The status of balances of financings and facilities in terms of credit rating are as follows:

31 December 2017LE 000’s


Financings and

facilities to customers

Financing to banks Total

Financings and

facilities to customers

Financing to banks Total

Neither past due nor impaired 16,576,314 305,018 16,881,332 15,246,549 - 15,246,549

Past due not impaired 3,740,967 - 3,740,967 3,294,032 - 3,294,032

Subject to impairment* 969,159 - 969,159 919,975 - 919,975

Total (note 17) 21,286,440 305,018 21,591,458 19,460,556 - 19,460,556

Less:

Impairment loss provision ** (1,103,619) - (1,103,619) (717,606) - (717,606)

profit in suspense (51,337) - (51,337) (33,339) - (33,339)

Deferred profits (3,560,978) (38,616) (3,599,594) (2,916,129) - (2,916,129)

Net (note 17) 16,570,506 266,402 16,836,908 15,793,482 - 15,793,482

* The impairment loss provision for non-performing portfolio amounted to LE 92mn before acquisition (31 December 2016: LE 110mn).

Non-performing financing against guarantees and not subject to impairment after taking into consideration the collectability of the guarantees

Financings and facilities portfolio has increased by 6.61% as of 31 December 2017 (31 December 2016: increased by 53.53%).

Financing to banks and customers:

31 December 2017 Value in LE 000’s

Rating Retail Corporate Total

OverdraftCovered

cardsPersonal

financing

Real estate

mortgage OverdraftDirect

facilitiesSyndicated

financingFinancing and

facilities

Good financing 3,012 2,250,974 6,312,154 40 1,536,427 6,079,108 699,617 16,881,332

Regular follow up - 10,769 47,749 - 658,524 2,201,506 366,061 3,284,609

Special follow up - 4,277 8,851 - 177,244 265,986 - 456,358

Bad debts - 1,463 144,019 - - 823,677 - 969,159

Total 3,012 2,267,483 6,512,773 40 2,372,195 9,370,277 1,065,678 21,591,458


Rating Retail Corporate Total

OverdraftCovered

cardsPersonal

financing

Real estate

mortgage OverdraftDirect

facilitiesSyndicated

financingFinancing and

facilities

Good financing 2,407 2,149,632 4,550,095 49 1,241,388 7,191,117 111,860

- 15,246,548

Regular follow up - 10,653 47,090 - 635,379 1,673,735 767,991

- 3,134,848

Special follow up - 3,377 11,596 - 16 144,196 - 159,185

Bad debts - 1,218 120,133 - - 798,624 - 919,975

Total 2,407 2,164,880 4,728,914 49 1,876,783 9,807,672 879,851 19,460,556

Financing and facilities neither past due nor impairedThe credit worthiness for financings and facilities portfolio that are neither past due nor impaired is based on the banks’ internal rating.

Financing and facilities past due but not impairedThey are financings and facilities having arrears until 90 days and they are not subject to impairment unless there is information to the contrary, Financings and facilities to customers having arrears and not subject to impairment are represented as follows:

Value in LE 000’s

Retail

31 December 2017 Overdraft Covered cardsPersonal

financingsTotal Financing

and facilities

30 to 60 days arrears - 10,769 47,749 58,518

60 to 90 days arrears - 4,277 8,851 13,128

Total - 15,046 56,600 71,646

Corporate

Overdraft Direct financingSyndicated financings

Total Financing and facilities

30 to 60 days arrears 658,524 2,201,507 366,060 3,226,091

60 to 90 days arrears 177,244 265,984 - 443,228

Total 835,768 2,467,491 366,060 3,669,319

Retail


financingsTotal Financing

and facilities

30 to 60 days arrears - 10,653 47,089 57,742

60 to 90 days arrears - 3,377 11,596 14,973

Total - 14,030 58,685 72,715

Corporate


Total Financing and facilities

30 to 60 days arrears 635,379 1,673,735 767,991 3,077,105

60 to 90 days arrears 16 144,196 - 144,212

Total 635,395 1,817,931 767,991 3,221,317

At the initial recognition of financings and facilities, the fair value of the guarantees is determined using similar techniques for similar assets subsequently; its fair value is updated to reflect either the market price or prices of similar assets.




Financing subject to individual impairmentFinancing and facilities to customers

Value in LE 000’s

31 December 2017 Retail Corporate Total

Covered cardsPersonal

financing Direct financing

Financing and facilities

Individual impairment 1,463 144,019 823,678 969,160



financing Direct financing


Individual impairment 1,218 120,133 798,624 919,975

Re-structured financingRestructuring activities include renegotiating, extending payment terms, applying mandatory management policies, and adjusting/postpone repayment terms. Renegotiating policies depend on indicators or standards in addition to the management personal judgment to show that regular payments are of high probability. These policies are subject to regular review. Long-term financings, especially financings to customers are usually subject to renegotiation.

Corporate 31 December

201731 December

2016

LE 000’s LE 000’s

- Direct financing 248,518 248,562

248,518 248,562

3-1-7 Investments in debt instruments and treasury billsThe following table represents breakdown of debt instruments and Treasury Bills, as per rating agencies at the end of the financial Year (Standard and Poor).

31 December 2017 Treasury bills

Investments in debt

instruments Total

LE 000’s LE 000’s LE 000’s

Less than B- 8,257,550 6,842,812 15,100,362

Total 8,257,550 6,842,812 15,100,362

Collateral acquisition

Treasury bills

Investments in debt

instruments Total

LE 000’s LE 000’s LE 000’s

Asset nature

Less than B- 4,906,726 5,707,117 10,613,843

Total 4,906,726 5,707,117 10,613,843

3-1-8 Sectors analysis according to the activity nature

Value in LE 000’s

31 December 2017 Wholesale Capital Retail Other Total

Revenue from activity sectors 1,147,740 392,934 1,438,965 (329,178) 2,650,461

Expenses of activity sectors (433,011) (17,107) (934,674) (136,389) (1,521,181)

Net Profit before tax for the year 714,729 375,827 504,291 (465,567) 1,129,280

Tax (160,814) (84,561) (113,465) (335,558) (694,398)

Net Profit for the year 553,915 291,266 390,826 (801,125) 434,882

Assets and liabilities according to activity sectors

Assets related to activity sectors 11,714,325 15,978,808 5,122,583 - 32,815,716

Non-classified assets - - - 4,360,057 4,360,057

Total assets 11,714,325 15,978,808 5,122,583 4,360,057 37,175,773

Liabilities of activity sectors 8,196,318 1,224,181 21,661,736 - 31,082,235

Non-classified liabilities - - - 3,886,404 3,886,404

Total liabilities 8,196,318 1,224,181 21,661,736 3,886,404 34,968,639

Value in LE 000’s

31 December 2016 Wholesale Capital Retail Other Total

Revenue and expense according to activity sector

Revenue from activity sector 906,970 469,343 752,405 (66,756) 2,061,962

Expenses of activity sector (148,849) (13,247) (666,515) (424,048) (1,252,659)

Net Profit before tax for the year 758,121 456,096 85,890 (490,804) 809,303

Tax (170,577) (102,622) (19,325) (156,109) (448,633)

Net Profit for the year 587,544 353,474 66,565 (646,913) 360,670

Assets and liabilities according to activity sectors

Assets related to activity sectors 12,564,306 6,006,714 6,896,250 - 25,467,270

Non-classified assets - - - 7,789,435 7,789,435

Total assets 12,564,306 6,006,714 6,896,250 7,789,435 33,256,705







3-1-9 Geographical sectors

Value in LE 000’s

Arab Republic of Egypt

Cairo Alex, Delta

& Sinai Upper Egypt Total

Other countries Total

Treasury bills 8,257,551 - - 8,257,551 - 8,257,551

Investments in debt instruments 6,842,812 - - 6,842,812 - 6,842,812

Facilities to banks 305,018 - - 305,018 - 305,018

Financing to customers

Retail:

Overdraft 1,971 902 139 3,012 - 3,012

Covered cards 2,208,609 46,962 11,913 2,267,484 - 2,267,484

Personal Financing 4,138,615 1,863,269 510,889 6,512,773 - 6,512,773

Real-estate mortgage 40 - - 40 - 40

Corporate financing:

Overdraft 2,371,843 214 3 2,372,060 - 2,372,060

Direct financing 9,338,618 30,862 796 9,370,276 - 9,370,276

Syndicated financing 760,794 - - 760,794 - 760,794

Balance as of 31 December 2017 34,225,871 1,942,209 523,740 36,691,820 - 36,691,820

Balance as of 31 December 2016 27,982,896 1,625,496 466,007 30,074,399 - 30,074,399

3-1-10 Activities segments

Value in LE 000’sFinancial

institutionManufacturing

institutionServices

Wholesale and retail

Governmental sector

Retail Others Total

Treasury bills - - - - 8,257,551 - - 8,257,551 Financings and facilities to Banks

305,018 - - - - - - 305,018

Consumer loans:-Overdrafts - - - - - 3,012 - 3,012 -Covered cards - - - - - 2,267,484 - 2,267,484 -Personal financing

- - - - - 6,512,773 - 6,512,773

-Mortgage financing

- - - - - 40 - 40

Corporate financing-Overdrafts - 596,351 222,919 206,892 1,345,402 - 496 2,372,060 -Directs financing

285,071 4,850,488 1,039,210 2,089,888 1,087,870 - 17,750 9,370,277

-Syndicated financing

- 394,734 269,076 - 96,984 - - 760,794

Financial investments-Debt instruments

- - - - 6,842,812 - - 6,842,812

Balance as of 31 December 2017

590,089 5,841,573 1,531,205 2,296,780 17,630,619 8,783,309 18,246 36,691,821

Balance as of 31 December 2016

440,008 5,973,253 1,047,741 2,042,351 13,649,230 6,921,816 - 30,074,399

3-2 Market Risk

The bank exposed to market risks which is the risk that the fair value or future cash flow fluctuation resulted from changes in market prices. Market risks arise from open market related to Profit rate, currency, and equity products of which each is exposed to general and specific market movements and changes in sensitivity levels of market rates or prices such as Profit rates, foreign exchange rates and equity instrument prices. The Bank divides its exposure to market risk into trading and non-trading portfolios.

Bank treasury is responsible for managing the market risks arising from trading and non-trading activities of which monitored by two separate teams. Regular reports about market risk are submitted to the Board of Directors and each business unit head periodically.

Trading portfolios include transactions where the Bank deals direct with clients or with the market; Non-trading portfolios primarily arise from managing assets and liabilities Profit rate price relating to retail transactions. Non-trading portfolios also includes foreign exchange risk and equity instruments risks arising from the Bank’s held-to-maturity and available-for-sale investments portfolios.




3-2-1 Market Risk Measurement techniquesThe following are the major measurement techniques used to manage the market risk:

• Value at riskThe Bank applies a ‘value at risk’ methodology (VAR) for trading and non-trading portfolios to estimate the market risk of positions held and the maximum expected losses based on a number of assumptions for various changes in market conditions. The ALCO committee sets separate limits for the value of risk that may be accepted by the Bank for trading and non- trading portfolios and monitored by the market risk department.

VAR is a statistical estimation of the expected losses on the current portfolio from adverse market movements in which it represents the ‘maximum’ amount the Bank expect to lose using confidence level (99%). Therefore there is statistical probability of (1%) that actual losses could be greater than the VAR estimation.

The Bank’s assessment of past movements is based on data for the past three years. The Bank applies these historical changes in rates prices indicators….etc. directly to its current positions this approach called historical simulation. Actual outcomes are monitored regularly to test the validity of the assumptions and factors used in the VAR calculation.

The use of this approach does not prevent losses from exceeding these limits if there are significant market movements.

As VAR considered a primary part of the Bank’s market risk control technique VAR limits are established by the ALCO Committee periodically for all trading and non-trading transactions and allocated to business units. Actual values exposed to market risk are compared to the limits established by the bank and reviewed daily by the market risk department.

The quality of the VAR model is continuously monitored through examining the VAR results for trading portfolio and results are reported to the ALCO Committee.

• Stress TestingStress testing provides an indicator of the expected losses that may arise from sharp adverse circumstances Stress testing are designed to match business using standard analysis for specific scenarios. The stress testing carried out by the Bank treasury. Stress testing include: risk factor stress testing where sharp movements are applied to each risk category and test emerging market stress, as emerging market portfolios are subject to sharp movements; and subject to special stress including possible stress events to specific positions or regions - for example the stress outcome to a region applying a free currency rate. The results of the stress testing are reviewed by top management and Board of directors

3-2-2 VAR summary Total value at risk per Risk category:

Value in LE 000’s


Average High Low Average More Less

Foreign Currency risk 17,158 38,547 628 36,074 - -

Profit rate risk 14,738 18,667 8,126 8,021 - -

Total value upon risk 31,896 57,214 8,754 44,095 - -

Total value at risk for trading portfolio per risk category:

Value in LE 000’s



Foreign Currency risk 17,158 38,547 628 36,074 - -

Profit rate risk 642 1,965 10 - - -

Total value upon risk 17,800 40,512 638 36,074 - -

Total value at risk for non trading portfolio per risk category:

Value in LE 000’s


Average High Low Average High Low

Profit rate risk 14,096 16,702 8,117 8,021 - -


The increase in VAR especially the Profit rate risk mainly proportion to the increase in market Profit rates volatility in the global financial markets.

The above three VAR results are calculated independently from the underlying positions and historical market movements. The aggregate of the trading and non-trading VAR results does not represent the bank’s VAR due to correlations of risk types and portfolio types and their effect.




3-2-3 Foreign exchange volatility riskThe Bank is exposed to foreign exchange rate volatility risk in terms of the financial position and cash flows.

The following table summarizes the Bank’ exposure to foreign exchange volatility risk at the end of the financial period

The following table includes the carrying amounts of the financial instruments in their currencies:


LE USD Euro Sterling Yen Others Total

Assets

Cash and due from CBE 2,001,796 81,181 25,307 1,755 98 12,235 2,122,372

Due from banks 407,844 692,437 37,773 9,218 2,193 157,589 1,307,054

Treasury bills 5,770,375 2,359,557 127,618 - - - 8,257,550

Facilities to Banks - 305,018 - - - - 305,018 Financing and facilities to customers

16,379,706 4,795,150 89,549 22,035 - - 21,286,440

Financial Investments

-Available for sale 10,951 43,871 - - - - 54,822

-Held to maturity 6,630,489 219,823 - - - - 6,850,312 -Investment in associates and subsidiaries

216,862 - - - - - 216,862

Total Financial Assets 31,418,023 8,497,037 280,247 33,008 2,291 169,824 40,400,430

Liabilities

Due to banks 51,332 800,208 - - - 53,543 905,083

Customers' deposits 25,047,046 4,383,343 294,720 36,992 1,880 94,074 29,858,055

Subordinated financing - 777,582 - - - - 777,582

Total Financial Liabilities 25,098,378 5,961,133 294,720 36,992 1,880 147,617 31,540,720

Net Financial Position 6,319,645 2,535,904 (14,473) (3,984) 411 22,207 8,859,710

31 December 2016

Total Financial Assets

24,256,632

10,249,021 163,879 221,692 1,136 199,595

35,091,955

Total Financial Liabilities 20,242,817 7,763,225 51,012 348,044 3,513 176,020 28,584,631

Net Financial Position 4,013,815 2,485,796 112,867 (126,352) (2,377) 23,575 6,507,324

3-2-4 Profit rate riskThe Bank is exposed to Profit rate risk which is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market Profit rates. Fair value Profit rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market Profit rates. The Bank is exposed to the effect of fluctuations in the prevailing levels of market Profit rates on both its fair value and cash flow risks. Profit margins may increase as a result of such changes but may profit decrease in the event that unexpected movements arise. The Board of Director sets limits on the level of mismatch of Profit rate reprising that may be undertaken which is monitored daily by Bank risk department.

The following table summarize the extend that the bank is exposed to fluctuation in profit rate that includes the book value for the financial instruments distributed on re-pricing dates or maturity date which is closest;

Value in LE 000’s

31 December 2017“Up to

1 Month”“1-3

months”“3-12

Months”“1-3

years”More than 3

years Total

Financial Assets

Cash and due from Banks and CBE 1,524,921 492,085 - 1,690,995 - 3,708,001

Treasury bills 1,188,177 2,589,726 4,479,647 - - 8,257,550

Facilities to banks - - - - 305,018 305,018

Financing and facilities to customers 2,709,541 2,911,510 5,974,998 4,259,514 3,283,526 19,139,089

Financial Investments

Available for sale - - - 54,823 - 54,823

Held to maturity - 147,533 541,749 3,492,504 2,668,538 6,850,324 Investments in subsidiaries and associates

- - - - 216,862 216,862

Other financials assets 45,395 - - 63,569 3,672,000 3,780,964

Total Financial Assets 5,468,034 6,140,854 10,996,394 9,561,405 10,145,944 42,312,631

Financial Liabilities

Dues to banks 235,829 - 709,108 - - 944,937

Customers deposits 5,650,000 2,564,095 4,004,646 16,501,772 1,114,921 29,835,434

Subordinated financing - - - - 777,582 777,582

Other financials liabilities 21,634 - - - 9,063,953 9,085,587

Total Financial Liabilities 5,907,463 2,564,095 4,713,754 16,501,772 10,956,456 40,643,540

Profit re-pricing (439,429) 3,576,759 6,282,640 (6,940,367) (810,512) 1,669,091

3-3 Liquidity riskLiquidity risk represents difficulty encountering the Bank in meeting its financial commitments when they fall due and replace funds when they are withdrawn. This may results in failure in fulfilling the Bank obligation to repay to the depositors and fulfilling lending commitments.

Banks liquidity managementThe Bank’s liquidity management process carried out by the Bank risk department includes:

• Daily funding managed by monitoring future cash flows to ensure that all requirements can be met when due. This includes availability of liquidity as they due or to be borrowed to customers. To ensure that the Bank reaches its objective the Bank maintains an active presence in global money markets.

• The Bank maintains a portfolio of highly marketable and diverse assets that assumed to be easily liquidated in the event of an unforeseen interruption of cash flow.

• Monitoring liquidity ratios in relation with internal requirements and central bank of Egypt requirements.• Managing financing and facilities concentration and dues.




For monitoring and reporting purposes, the Bank calculates the expected cash flow for the next day, week and month which are the main time Spain to manage liquidity the starting point to calculate these expectations is analyzing the financial liabilities dues and expected financial assets collections.

Its’ role is also to monitor the liquidity gaps between average maturity assets and the level and type of unused financing commitments, the ratio of usage of debit current accounts, and the effect of contingent liabilities such as LCs and LGs.

Funding strategy:Liquidity resources are reviewed through a separate team at the risk department to maintain wide diversification by currencies, geographical location, sources as well as maturities.

Assets available to meet all liabilities and cover financing commitments include cash, balances with the central bank, and balances due from banks, treasury bills and financings and facilities to banks and customers. Moreover, some financing and facilities to customers that are maturing during the year may be extended during the normal course of business of the bank. The bank has the ability to meet unexpected net cash flows through selling financial papers, and finding other financing sources.

3-4 Capital ManagementThe bank’s objectives in managing its capital include elements in addition to equity shown in the balance sheet are represented in the following:

• Compliance with capital legal requirements in Egypt.• Protecting the bank’s ability to continue as a going concern and enabling it to generate yield for shareholders and other

parties dealing with the bank.• Maintaining a strong capital base to enhance growth.

Capital adequacy ratio and capital usage is reviewed on a daily basis in accordance with regulatory authority’s requirements (CBE), through set models based on Basel II instructions; the required information is presented to the CBE on a quarterly basis.

The CBE regulations require compliance with the following:

• Maintaining LE 500mn as a minimum requirement for the authorized and issued capital.• Maintaining a ratio between capital elements, asset and contingent liability elements weighted by risk weights at 10% or more.

The capital adequacy ratio consists of the following two tiers:

Tier 1 It is the basic capital comprising of paid up capital after deducting the carrying amount of the treasury stocks, retained earnings, reserves resulting from profit appropriations except the general banking risk reserve less any goodwill previously recognized and any carried forward losses.

Tier 2Is the sub-ordinate capital comprising the equivalent of the general banking risk reserve in accordance with CBE credit rating deposits not more than 1.25 % of total assets and contingent liabilities (credit risk weights), subordinate deposits / financings maturing after more than 5 years (amortizing 20% of their value each year from the last 5 years of its life time), and 45 % of the increase between the fair value and carrying amount for the available for sale investments, investments held to maturity, and investments in affiliates and subsidiaries.

The numerator of capital adequacy ratio calculation has to consider:

• Subordinated capital not exceed the basic capital.• Subordinated financing (deposits) not exceed half basic capital.

Assets are risk weighted in a range from 0% to 100 % according to the debit party for each asset, to reflect related credit risk taking into consideration cash guarantees; the same treatment is used for the off-balance sheet amounts after making relevant adjustments to reflect the contingent nature and the potential loss for these amounts.

The bank has complied with all the local capital requirements during the Year. Following is a table summarizing capital and capital adequacy ratio:

31 December 2017

31 December 2016

LE 000’s LE 000’s

Tier 1 - Part A - Going concern capital - Basic

Capital shares 2,000,000 2,000,000

Paid under capital increase 1,861,418 1,861,418

Reserves 255,494 65,400

Accumulated loss (2,155,351) (2,341,431)

100% of the decline in the fair value of the book value of financial investments transferred from AFS to HTM

(12,941) (16,264)

Deduct: Deferred Tax (1,780) (214,632)

Deduct: Intangible Assets (323) (339)

Deduct: Financial institutions or insurance co investment (29,387) (21,174)

Total Going concern capital - Basic 1,917,130 1,332,978

Tier 1 - Part B - Going concern capital - Additional

Difference between FV and PV for subordinated financing 81,150 91,697

Total Tier 1 - Part B - Gone concern capital - Additional 81,150 91,697

Total Qualifying Capital (Tier 1) 1,998,280 1,424,675

Tier 2

Impairment losses related to financing, facilities, performing contingent liabilities 237,618 203,143

Subordinated financing 777,582 712,337

45 % of the increase in fair value compared to carrying amount of available for sale investment, investments held to maturity & investments in affiliates and associates

122,567 51,104

45% of special reserve 7,722 7,724

Total Qualifying Capital Tier 2 1,145,490 974,308

Capital Base 3,143,770 2,398,983

Contingent assets and liabilities weighted risk 19,009,463 16,251,404

Capital requirement for market risk 148,476 289,737

Capital requirement for operation risk 3,201,004 2,326,710

RWA 22,358,943 18,867,851

Total Going concern capital - Basic ratio ( % ) 14.06% 12.71%

Top 50 Impact 580,918 1,666,065

Capital Adequacy Ratio ( % ) * 13.70% 11.68%

• Based on consolidated Banking group with its financial institutions and in accordance with The CBE instructions issued on 24 December 2012.

3-5 Leverage Financial RatioCentral Bank of Egypt Board of Directors had approved in its meeting held on 7 July, 2015 special supervisory instructions related to leverage ratio which maintain a minimum level of leverage ratio of 3% to be reported on quarterly basis as following:

• Guidance ratio starting from reporting year ended December 2015 till year 2017.• Obligatory ratio to start from year 2018.




This ratio will be included in Basel requirement tier 1 (minimum level of capital adequacy ratio) in order to maintain the Egyptian Banking System strong and safe, as long as to keep up with the best international regulatory treatments. Leverage financial ratio reflect relationship between tier 1 for capital that is used in capital adequacy ratio (After Exclusions) and other assets (on balance sheet and off-balance sheet) that are not risk weighted assets.

Ratio ElementsA-The numerator elements The numerator consists of tier 1 for capital that is used in capital adequacy ratio (After Exclusions) in accordance with the requirements of the regulatory authority represented by the Central Bank of Egypt (CBE).

B-The denominator elements:The denominator consists of all bank assets (on balance sheet and off-balance sheet) as per the financial statements “Bank exposure” which includes the total of the following:

1. On balance sheet exposure items after deducting some of tier 1 exclusions for capital base2. Derivatives contracts exposures.3. Financing financial notes operations exposures.4. Off-balance sheet items (weighted by credit conversion factor)

The tables below summarize the leverage financial ratio:31 December

201731 December

2016LE 000’s LE 000’s

Tier 1 capital after exclusions (1) 1,998,280 1,424,675 Cash and due from Central Bank of Egypt (CBE) 2,989,646 4,091,646 Due to banks 707,441 627,539 Treasury bills 7,842,065 4,748,319 Financial assets held for trading 20,351 11,865 Financial investments available-for-sale 65,339 88,006 Financial investments held to maturity 6,850,312 5,719,617 Investments in subsidiaries and associates 224,798 144,971 Loans and credit facilities to customers 16,855,915 15,857,288 Fixed assets (Net of Accumulated depreciation & impairment loss Provisions) 525,164 413,837 Other assets 1,338,488 1,674,585 Deducted amounts from exposures (some of tier 1 exclusions for capital base) (31,490) (252,408)Total on-balance sheet exposures items after deducting some of tier 1 exclusions for capital base

37,388,029 33,125,265

Import L/Cs 181,047 53,048 Export L/Cs 22,016 109 L/Gs 673,784 433,489 L/Gs according to foreign banks 499,596 437,856 Contingent liabilities for general collaterals for financing facilities and similar collaterals

12,699 47,106

Bank acceptance 291,083 147,062 Total contingent liabilities 1,680,225 1,118,670 Capital commitments 21,087 17,680 Operating lease commitments 121,562 39,698 Loan commitments to clients /banks (unutilized part) original maturity year: 708,419 412,914 Total commitments 851,068 470,292

Total exposures off-balance sheet 2,531,293 1,588,962

Total exposures on-balance sheet and off-balance sheet (2) 39,919,322 34,714,227

Leverage Financial Ratio (1/2) 5.01% 4.10%

• Based on consolidated financial statements after the disposal of insurance activity.

4- Significant accounting estimates and assumption The bank undertakes estimations and assumption that affect the value of assets and liabilities that has been disclosed during the next financial period, consistently estimations and judgments are based on historical experience and other factors, including the expectations that has that of future events that are reasonably estimated in accordance with the available information and circumstances.

4-1 Impairment loss for financings and facilitiesThe bank reviews the portfolio of financings and facilities on at least a quarterly basis. The bank uses discretionary judgment on determining whether it is necessary to record impairment in the income statement using reliable data indicating measurable decline in the expected future cash flows from financing portfolio before identifying any decline at the level of one financing. This evidence include data indicating negative change in the ability of a portfolio of borrowers to repay the bank, or local and economic circumstances related to default. On scheduling future cash flows, the management use estimates based on previous experience related to impairment of assets having credit risks. Such experience refers to impairment similar to that of the portfolio in question.

The methods and assumptions used in estimating both the amount and timing of the future cash flows are reviewed on a regular basis to minimize any discrepancy between the estimated loss and actual loss based on given experience.

4-2 Impairment loss of equity instruments available for saleIn the case of investment in available for sale equity instrument, a significant or prolonged decline in the fair value of the instrument below its cost the bank considers it as impairment. Where such evidence exists, significant or prolonged decline needs a personal judgment. To make this judgment the bank assesses, besides other factors, the common share price volatility. In addition, impairment exists when there is objective evidence that a certain company has a financial difficulty in its cash flow from operating and financing activities, industry tool or sector or technological advances.

4-3 Financial Investments Held to MaturityNon-derivative financial assets with fixed or determinable payments and fixed maturity are classified as investments held to maturity. This category requires personal judgment and therefore the bank tests whether there is a genuine intent and ability to hold such investments to maturity. If the bank fails to hold such investments till maturity (except for certain tightly defined circumstance such as if an entity sells an insignificant amount of held to maturity investments close to maturity date), investments should be reclassified as available for sale, which will be measured at fair value instead of amortized cost.

5- Net revenue from fund

31 December 2017

31 December 2016

LE 000’s LE 000’s

Income from Murabha, Musharka, Mudarba and similar income


To customers 2,485,622 1,530,128

Treasury bills and bonds 1,546,743 1,141,434

Deposits and current accounts 124,793 84,259

4,157,158 2,755,821

Cost of Deposits and similar expenses

Deposits and Current Accounts:

- To banks (203,274) (99,864)

- To customers (1,900,432) (1,164,896)

(2,103,706) (1,264,760)

Net Revenue from fund 2,053,452 1,491,061




6- Net fees and commission income

31 December 2017

31 December 2016

LE 000’s LE 000’s

Fees and commissions income:

Fees and commissions related to financing 62,897 81,858

Fees related to corporate finance 292,606 180,162

Other fees 116,532 96,604

472,035 358,624

Fees and commissions expenses:

Other fees paid (9,727) (10,058)


7- Dividends income

31 December 2017

31 December 2016

LE 000’s LE 000’s

Available for sale investments 1,358 1,236

Investments in associates and subsidiaries - 1,157

Total 1,358 2,393

8- NET TRADING INCOME

31 December 2017

31 December 2016

LE 000’s LE 000’s

Foreign currencies operations

Gain from foreign currencies exchange 133,343 213,074

Debt instruments held for trading - 590

Total 133,343 213,664

9- Administrative expenses

31 December 2017

31 December 2016

LE 000’s LE 000’s

Employees Costs:

Salaries, wages and benefits (461,364) (391,180)

Social insurance (20,599) (18,014)

Employees benefits:

Defined contribution plan (37,345) (22,895)

Defined benefit plan (21,608) (23,701)

Depreciation and amortization (59,635) (50,055)

Other administrative expenses (492,986) (375,700)

Total (1,093,537) (881,545)

10- Other Operating Income

31 December 2017

31 December 2016

LE 000’s LE 000’s(Loss) Gain in revaluation of monetary assets & liabilities in foreign currencies other than trading

(98,363) 1,520,109

(losses) on sale of assets reverted to Bank 472 (2)

Gain on sale of fixed assets 16,591 17,745

Software cost (7,892) (2,935)

Operating lease (44,903) (37,175)

Early retirement costs-(Note 34) (3,909) (1,000)

Impairment loss for assets reverted to OREO's (20,000) (3,604)

Impairment loss for assets reverted to Bank (6,708) -

Impairment of other provisions (Note 27) 44,604 (1,526,909)

Others 7,467 15,929

Total (112,641) (17,842)

11- Impairment loss of credit losses31 December

2017LE 000’s

31 December 2016

LE 000’sFinancing and facilities to customers after deduction of provisions no longer required (Note 17)

(351,209) (354,940)

Impairment loss reversal of HTM investments (Note 18) - 1,668

Total (351,209) (353,272)

12- Taxes

31 December 2017

LE 000’s

31 December 2016

LE 000’s

Income Tax (307,226) (239,357)

Deferred tax (387,172) (209,276)

(694,398) (448,633)

31 December 2017

LE 000's

31 December 2016

LE 000's

Income before tax 1,129,280 809,303 Current Tax rate 22.5% 22.5%Income tax expense based on the applicable tax rate 254,088 182,093

Impact of Provisions and profit in suspense 49,565 362,090

Impact of Depreciation 543 (3,295)

Untaxable revenues (33,265) (342,651)

Loss / income tax unrecognized 63,757 5,128

undeductible expenses 52,484 5,911

Income Tax (Note 35) 307,226 239,357

Income tax according to effective tax rate 694,398 448,633

Effective tax rate 61% 55%

• Additional information about deferred tax is presented in note 28.




13- Earnings per shareEarnings per share calculated by dividing the net profit of the Year by weighted average number of ordinary issued shares during the Year.

31 December 2017

31 December 2016

LE 000’s LE 000’s

Net Profit for the year* 434,882 360,670

Weighted average of ordinary shares 200,000 200,000

Earning per share 2.174 1.803

* For the purpose of presenting earning per share, the bank did not discount board members and staff bonus due to accumulated loss which comply with

companies’ law no. 159 for 1981 article 194.

14- Cash and due from Central Bank of Egypt

31 December 2017

31 December 2016

LE 000’s LE 000’s

Cash 431,377 472,624

Due from Central Bank mandatory reserve requirements 1,690,995 848,605

Ending Balance 2,122,372 1,321,229

Non-profit bearing balances 2,122,372 1,321,229

Ending Balance 2,122,372 1,321,229

15- Due from banks

31 December 2017

31 December 2016

LE 000’s LE 000’s

Current accounts 181,132 311,953

Deposits 1,125,923 3,084,777

Ending Balance 1,307,055 3,396,730

Due from Central bank except mandatory reserve requirement 867,085 2,770,223

Local banks 124,162 123,745

Foreign banks 315,808 502,762

Ending Balance 1,307,055 3,396,730

Non profit bearing balances 181,132 423,953

Fixed profit balances 1,125,923 2,972,777

Ending Balance 1,307,055 3,396,730

16- Treasury bills31 December

201731 December

2016LE 000’s LE 000’s

Treasury Bills maturing within - 91 days 466,375 -

Treasury Bills maturing within - 182 days 1,080,450 60,000

Treasury Bills maturing within - 273 days 2,194,525 3,086,161

Treasury Bills maturing within - 364 days 4,516,200 1,760,565

Total 8,257,550 4,906,726

Unearned revenues (428,608) (180,492)

Ending Balance 7,828,942 4,726,234

17- Financing and facilities to banks and customers17- Financing and facilities to banks

31 December 2017

31 December 2016

LE 000’s LE 000’s

Overdraft 135 -

Syndicated financing 304,883 -

305,018 -

Deduct :

Deferred profit (38,616) -

266,402 -

17- Financing and facilities to customers

31 December 2017

31 December 2016

LE 000’s LE 000’s

Retail

Overdraft 3,012 2,407

Covered cards 2,267,484 2,164,880

Personal financing 6,512,773 4,728,914

Real estate mortgage 40 49

Total (1) 8,783,309 6,896,250

Corporate (including SMEs)

Overdraft 2,372,060 1,876,783

Direct financing 9,370,277 9,807,672

Syndicated financing 760,794 879,851

Total (2) 12,503,131 12,564,306

Total financing and facilities (1 + 2) 21,286,440 19,460,556

Deduct :

Impairment loss provision (1,103,619) (717,606)

Profit in suspense * (51,337) (33,339)

Deferred profit (3,560,977) (2,916,129)

Net 16,570,507 15,793,482

Net classified in the balance sheet as follows:

Conventional loans to customers (after deducting impairment loss) 222,023 215,565

Financing to customers (after deducting impairment loss) 16,348,484 15,577,917

Net 16,570,507 15,793,482




Movement analysis for impairment loss provision related to financing and facilities to customers:

31 December 2017

31 December 2016

LE 000’s LE 000’s

Balance at the beginning of the year 717,606 349,422

Impairment loss charged during the year 402,089 359,098

Recoveries of bad debt expense during the year 50,880 8,738

Used from provision during the year (14,891) (15,561)

Provision no longer required (50,880) (4,158)

Foreign currency revaluation differences (1,185) 20,067

Balance at the end of the year 1,103,619 717,606

• Profit in suspense was previously formed in accordance with credit instructions issued by CBE.

Movement analysis for impairment loss provision related to financing and facilities to customers:The following are the total financing and facilities to customers (net of deferred profit)

31 December 2017

31 December 2016

LE 000’s LE 000’s

Retail


Covered cards 355,672 310,939



Total (1) 5,267,924 4,039,954


Overdraft 2,372,060 1,876,783



Total (2) 12,457,538 12,504,473

Total financing and facilities to customers (1+2) 17,725,462 16,544,427

Less

Impairment loss provision (1,103,619) (717,606)

Profit in suspense * (51,337) (33,339)

Net 16,570,507 15,793,482

Net classified in the balance sheet as follows:

Conventional financing (after deducting impairment loss) 222,023 215,565

Financing to customer (after deducting impairment loss) 16,348,484 15,577,917

Net 16,570,507 15,793,482

• Profit in suspense was previously formed in accordance with credit instructions issued by CBE.

Movement analysis for impairment loss provision for financing and facilities to customers as per type:

Value in LE 000’s

Retail

OverdraftCovered

cardsPersonal

financingReal estate

mortgageTotal

Balance as of 1 January 2017 - 2,070 109,334 - 111,404

Impairment loss charged during the year - 11,881 23,113 - 34,994

Used from provision during the year - (11,302) (2,675) - (13,977)

Recoveries of bad debt expense during the year

- 1,445 262 - 1,707

Provision no longer required - (1,445) (262) - (1,707)

Balance as of 31 December 2017 - 2,649 129,772 - 132,421

Retail

OverdraftCovered

cardsPersonal

financing Real estate

mortgageTotal

Balance as of 1 January 2016 - 2,120 95,807 20 97,947

Impairment loss charged during the year - 7,019 17,438 (20) 24,437



- 1,834 3,057 - 4,891

Provision no longer required - (1,833) (3,057) - (4,890)


Corporate

OverdraftDirect

financingSyndicated

financingOther

financing Total

Balance as of 1 January 2017 8,218 577,821 20,163 - 606,202

Impairment loss charged during the year 17,568 358,092 (8,564) - 367,096

Used from provision during the year - (914) - - (914)


- 49,173 - - 49,173

Provision no longer required - (49,173) - - (49,173)

Foreign currency revaluation differences - (1,186) - - (1,186)

Balance as of 31 December 2017 25,786 933,813 11,599 - 971,198

Corporate

OverdraftDirect

financingSyndicated

financingOther

financing Total


Impairment loss charged during the year 253 322,875 11,534 - 334,662

Used from provision during the year - (4,580) - - (4,580)

Recoveries of bad debt expense during the year - 3,847 - - 3,847

Provisions not required - 732 - - 732

Foreign currency revaluation differences - 20,067 - - 20,067





18-Financial investments18-1 Financial Investment Available for sale

31 December 2017

31 December 2016

LE 000’s LE 000’s

18/1 Available for sale investment

Equity instruments - at fair value

Listed - 19,641

Unlisted 54,823 50,793

Total available for sale investments (1) 54,823 70,434

18/2 Financial Investment Held to maturity

Debt Instruments- at amortized cost

Treasury Bonds Listed in stock market 6,622,989 5,707,117

Treasury Bonds Unlisted in stock market 219,823 -

Mutual fund certificates - Sanabel Fund * 2,500 7,500

Mutual fund certificates - El-Naharda Fund ** 5,000 5,000

Total Investments held to maturity (2) 6,850,312 5,719,617

Total Financial Investments (1) + (2) 6,905,135 5,790,051

Categorized as follows:

Current 845,317 725,430

Non-Current 6,059,818 5,064,621

Total 6,905,135 5,790,051


Fixed profit debt instruments 6,842,812 5,707,117

Variable profit debt instruments 7,500 12,500

Variable profit equity instruments 54,823 70,434

Total 6,905,135 5,790,051

• Mutual Funds* Sanabel Islamic Mutual Fund

• The investments held to maturity include the bank’s investment in Sanabel Islamic mutual fund in association with ABC bank, managed by HC Company.

• The number of bank’s certificates share is 25k and 2.5% of par value LE 100. The acquisition cost amounted to LE 2,545K and market value of the certificate amounted to LE 153.724 as of 31 December 2017 (December 31, 2016: LE 124.26)

** Abu Dhabi Islamic Bank (El-Naharda) Mutual Fund

• The Bank has established Abu Dhabi Islamic Bank (El-Naharda) Mutual Fund compatible with the principles of Islamic

Sharia law, the fund is managed by Beltone management of investment funds.• The number of bank’s certificates share is 50k and 2% of par value LE 100, market value of the certificate amounted to

LE 135.68 as of 31 December 2017 (31 December 2016: LE 118.26). • During the year 2016, the Bank reclassified treasury bonds amounted to LE 5,341 Million from Available For Sale

investment portfolio into Held to maturity investment portfolio using last trade price on the date of reclassification, and the revaluation difference for the reclassified bonds amounted to 19.8 Million included as Available For Sale fair value reserve, the bank management reclassification has been executed in accordance with market risk management strategy.

Financial investment AFS

Financial investment

HTMTotal

LE 000’s LE 000’s LE 000’s

Balance as of 31 December 2017 70,434 5,719,617 5,790,051

Additions 396 1,481,212 1,481,608

Premium and Discount Amortization - 12,198 12,198

Disposals (sales/redemption) (16,880) (388,003) (404,883)

Foreign monetary investment revaluation difference (1,129) 21,964 20,835

Net change in the fair value 11,886 3,324 15,210

Reversal of Impairment loss (9,884) - (9,884)


Balance as of 31 December 2016 4,696,467 10,831 4,707,298

Additions 1,409,725 614,862 2,024,587

Premium Amortization - 5,682 5,682


Transfer from AFS to HTM investments (5,341,050) 5,341,050 -

Foreign monetary investment revaluation difference 25,858 - 25,858

Net change in the fair value (6,978) - (6,978)

Impairment loss provisions - 1,669 1,669


18-3 Gain from financial investment

31 December 2017

31 December 2016

LE 000’s LE 000’s

Gain on sale of investments available for sale 51,589 5,143

Impairment losses on equity instruments available for sale* (9,884) -

Gain on sale of treasury bills 2,787 1,135

Recovery / Impairment loss of investments in subsidiaries (9,843) -

Gain on sale of investment fund securities held to maturity 1557 -

Total 36,206 6,278




19- Financial investments in subsidiaries and associates (Net)

Value in LE 000’s


Value Share Value Share

% %

Investments in subsidiaries

National Company for Crystal and Glass 5,172 5.42% 10,036 5.42%

Cairo National Company for Investment 76,797 64.75% 76,797 64.75%

National Company for Trading and Development (Entad)

19,207 40.00% 19,207 40.00%

Assuit Islamic National for Trading and Development

23,477 40.00% 24,634 40.00%

ADI Holding Company*** - 99.60% 4,980 99.60%

ADI Capital Company** 11,575 92.86% 375 7.14%

ADI Properties 13 5.00% 13 5.00%

ADIB Investment* 4,900 98.00% 4,900 98.00%

Cairo National Company for Brokerage and Securities

1,413 46.16% 1,413 46.16%

Alexandria National Company for Investments

2,181 9.04% 2,181 9.04%

ADILease Leasing Company 52,127 95.80% 52,127 95.80%

196,862 196,663

Investments in associates

Orient Takaful Insurance Company 20,000 20.0% 20,000 20.0%

Total 216,862 216,663

*As per ADIB board of directors decision on 9/2015 and CBE approval on 11/2015 incorporation procedures of ADIB Investment Company was completed and

the bank has established the company on 3/2016 and there is no call for the constituent assembly up till now.

**ADIB has an obsession on %85.8 from the capital of ADIB Capital Company during Year 2017 with total amount LE11.2Mn.

***ADIB has impaired all his investment in ADIB Holding during June 2017 with total amount LE 4.9Mn.

• As per a study by the bank’s management to determine the level of control exercised over the companies, classified as associated companies, has resulted in some of these companies being reclassified to be subsidiaries.

Value in LE 000’s

CountryTotal

assetsTotal

liabilities Total

Revenues

Net profit/(loss)

Ownership %

Subsidiaries *

National Company for Crystal and Glass Egypt 257,681 424,611 171,919 (85,073) 5.42%

Cairo National Company for Investment Egypt 98,942 127 10,103 329 64.75%

ENTAD Egypt 71,343 10,769 5,123 3,101 40.00%

Assuit Islamic Company For Trade and Development

Egypt 80,805 9,287 13,207 2,591 40.00%

ADI Holding Egypt 75,435 180,249 7,467 (102,664) 99.60%

ADI Capital Egypt 6,278 3,147 9,096 (9,393) 92.86%

ADI Properties Egypt 59,544 105,965 5,879 (17,353) 5.00%

ADIB Invest Egypt 5,140 45 199 199 98.00%

Cairo National Company for Brokerage & Securities

Egypt 5,944 2,570 2,613 108 46.16%

Alexandria National Company for Financial Investments

Egypt 12,090 291 620 (534) 9.04%

ADI Lease Egypt 225,176 171,951 128,099 5,021 95.80%

Associates

Arab Mashriq Company for Takaful Insurance Egypt 1,258,173 995,939 149,032 33,155 20.00%

2,156,551 1,904,951 503,357 (170,513)

*Based upon last approved financial statement

20-Intangible assets (Net of accumulated amortization)

31 December 2017

31 December 2016

LE 000’s LE 000’s

Computer software

Net book value at the beginning of the year 547 5,953

Additions 863 -

Amortization for the year (1,006) (5,406)

Net book value at end of the year 404 547




21- Other assets

31 December 2017

31 December 2016

LE 000’s LE 000’s

Accrued revenues 430,616 353,561

Pre-paid expenses 136,506 90,895

Down payments under purchase fixed assets 65,671 95,348

Assets reverted to the bank in settlement of debts (Net of Impairment) 90,550 115,409

Deposits and custody 2,075 1,883

Due from related Parties* 46 104

Due from tax authority - Debit balance ** 271,828 271,828

Accounts under settlement with correspondents 410,735 286,820

Other debit balances 34,775 30,706

Ending balance 1,442,802 1,246,554

Provision for Impairment of other assets (6,708) -

Net of other assets 1,436,094 1,246,554

*Due from related parties consists of

31 December 2017

31 December 2016

LE 000’s LE 000’s

ADI Holding ** 46 104

Ending Balance 46 104

** Represents amounts under settlements in dispute with the Tax Authority (Note 35).

22- Fixed assets (Net of accumulated depreciation)

Value LE 000’s

“Land & premises”

“Machinery & equipment”

Other assets Total

Net book value at 1 january 2017 137,439 1,316 271,537 410,292

Additions 2,500 1,187 168,965 172,652

Disposals (3,160) (61) (1,492) (4,713)

Impairment related to fixed assets

Depreciation (6,037) (454) (52,137) (58,628)

Depreciation related to disposals 1,120 61 1,216 2,397

Net book value at 31 december 2017 131,862 2,049 388,089 522,000

Cost 168,034 5,940 779,496 953,470

Accumulated depreciation (36,172) (3,891) (391,407) (431,470)




Other assets Total

Net book value at 1 january 2016 139,668 1,322 225,734 366,724

Additions 5,908 364 85,531 91,803

Disposals (10,464) (180) (2,991) (13,635)

Depreciation (5,649) (370) (38,632) (44,651)



Cost 168,694 4,814 612,023 785,531



• Fixed Assets not registered to the name of the bank amounted to LE 22mn as of 31 December 2017 (31 December 2016: EGP 8.43mn) Legal registration procedures are under progress.

• Fully depreciated assets as of 31 December 2017 and still in use amounted to LE 266 (31 December 2016: LE 214)




23- Due to banks

31 December 2017

31 December 2016

LE 000’s LE 000’s


Deposits 759,108 2,210,247

Ending Balance 905,082 2,239,144

Local banks 90,659 200,039

Foreign banks 814,423 2,039,105


Non - profit balances 145,974 28,898

Fixed profit balances 759,108 2,210,246


24- Customers’ deposits 31 December

201731 December

2016

LE 000’s LE 000’s

Demand deposits 7,856,917 7,079,998

Time deposits and call accounts 7,261,713 3,969,838

Term saving certificates 8,933,356 9,517,332

Savings deposits 5,164,439 4,066,849

Other deposits 641,630 944,811

Ending Balance 29,858,055 25,578,828

Corporate deposits 9,399,898 8,789,491

Retail deposits 20,458,157 16,789,337

Ending Balance 29,858,055 25,578,828

Non profit balances 4,268,724 5,170,090

Variable profit balances 25,589,331 20,408,738

Ending Balance 29,858,055 25,578,828

Current balances 20,924,699 16,061,496

Non-current balances 8,933,356 9,517,332

Ending Balance 29,858,055 25,578,828

25- Subordinated financing 31 December

201731 December

2016

LE 000’s LE 000’s

Subordinated financing - Non profit bearing * 458,483 441,228

Subordinated financing - Profit bearing ** 319,099 328,797

777,582 770,025

31 December 2017

31 December 2016

Balance at the beginning of the year-PV for subordinated 441,228 258,205

Cost of subordinated loan using EIR 30,561 18,990

Foreign exchange differences (13,306) 281,780

Balance at the end of the year 458,483 441,228

* Subordinated financing with zero coupon represents amount of USD 39 Million granted from Abu Dhabi Islamic Bank- UAE under Wakala investment

agreement for 6 years starting from 27 December 2012 with a profit rate equals to 0.125% from the investment amount and the expected profit equals to

(LIBOR USD) on any extension period after those 6 years. On 27 March 2016, a supplementary agreement for the subordinated financing has been made to

increase the tenor period for 3 tranches of the agreement ending 27 December 2023 instead of 27 December 2018 by an amount of USD 29,250 Thousands,

subsequently, at 27 December 2016 a supplementary agreement for the subordinated financing has been made to increase the tenor period for fourth

tranche of the agreement ending 27 December 2023 instead of 27 December 2018 by an amount of USD 9,750 Thousands . The bank has recorded the

mentioned first three tranches by using discount rate 7.51% and the fourth one with rate 5.88% which affected the shareholder’s equity by a net amount of

LE 81,150 Thousands, which is represents the difference between the face value and the present value of the subordinated financing as of subordinated

financing extension agreement date.

** On 29 September 2016 the bank was granted an additional subordinated financing of USD 9mn from Abu Dhabi Islamic Bank-UAE under Wakala

investment agreement for 7 years starting from 29 September 2016 with a profit rate equals to 5.88% from the investment amount, which is not significantly

different from the market discount rate.

And On 29 December 2016 the bank was granted an additional subordinated financing of USD 9mn from Abu Dhabi Islamic Bank-UAE under Wakala



26- Other liabilities

31 December 2017

31 December 2016

LE 000’s LE 000’s


Accrued expenses 269,782 217,298

Due to Tax Authority - Credit balances * 271,828 271,828

Other credit balances ** 988,751 634,060

Ending Balance 1,712,360 1,192,553

* Represents amounts under settlements in dispute with the Tax Authority (Note 36).

** Other credit balance includes the income tax due.




Income tax due31 December

201731 December

2016

LE 000’s LE 000’s

Balance at the beginning of the year 473,692 235,060

Balance Due during the year 307,226 238,632

Amount Paid during the year (73,081) -

Ending Balance 707,837 473,692

27- Other provisions

Value LE 000’s

Contingent *claims

TaxContingent

liabilitiesTotal

Balance as of 1 January 2017 1,614,259 53,870 29,209 1,697,338

Formed during the year 25,153 3,310 21,628 50,091

Used during the year (13,827) (5,031) - (18,858)

Provision no longer required (93,217) - (1,480) (94,697)

Foreign exchange difference - - 1,650 1,650

Balance as of 31 December 2017 1,532,368 52,149 51,007 1,635,524

Contingent *claims

Tax*Contingent

liabilitiesTotal

Balance as of 1 January 2016 100,002 43,639 12,437 156,078

Formed during the year 1,527,164 9,537 1,824 1,538,525

Used during the year (1,292) (2,173) - (3,465)

Provision no longer required (11,615) - - (11,615)

Foreign exchange difference - - 14,948 14,948

Transferred from other liabilities to tax provision

- 2,867 - 2,867

Balance as of 31 December 2016 1,614,259 53,870 29,209 1,697,338

*As notified in the bank’s General Assembly Meeting held on 18 October 2015, there is a probable claim from Abu Dhabi Islamic Bank-UAE relating to a

difference in opinion as to whether the USD amounts paid by Abu Dhabi Islamic Bank-UAE under capital increase should be treated as EGP amounts. Based on

Abu Dhabi Islamic Bank-Egypt’s external legal opinion on probability of loss from the foreign currency movement, the bank has built a provision of EGP 1,515

million under provision for probable claims for the effect of the foreign currency movement from 31 December 2014 up to 31 December 2017.

28- Deferred tax assets

The deferred tax calculated on the differences based on the liability using the actual tax rate.

31 December 2017

31 December 2016

LE 000’s LE 000’s

Assets / (liabilities)

“Assets / (liabilities)”

The following is balance of assets/liabilities of deferred tax:

Fixed assets depreciation (47,700) (31,400)

Provisions (other than the impairment loss for financing) 3,900 27,811

Profits in suspense 11,551 7,501

Tax losses carried forward - 351,011

Net tax resulted in assets (32,249) 354,923

31 December 2017

31 December 2016

LE 000’s LE 000’s

Assets / (Liabilities)

“Assets / (Liabilities)”

Movement of deferred tax assets and liabilities :

Beginning balance of the year 354,923 564,199

Additions 4,050 5,565

Disposals (391,222) (214,841)

Ending balance of the year (32,249) 354,923

• Deferred tax assets resulted from tax losses carried forward are not recognized unless there’s future taxable profits is likely to happen by which the bank can benefit from on the short term.

29- Capital29-1 Authorized capitalThe authorized capital amounts to LE 4bn (31 December 2016: LE 4bn)

29-2 Issued and paid in capitalThe issued and paid in capital amounted to LE 2bn (31 December 2016: LE 2bn) represented by 200mn shares with a nominal value of LE 10 per share.

29-3 Amounts paid under capital increaseADIB – UAE made cash deposit of LE 1,662Mn as amounts paid under capital increase up till year 2012, on 28 December, 2011 ADIB – UAE approved to transfer the full amount of subordinated financing of LE 199mn to amounts paid under capital increase, Accordingly balance of total amounts paid under capital increase reached LE 1,861mn till 31 December 2017 (31 December 2016 LE 1,861mn).

30- Reserves and accumulated losses

31 December 2017

31 December 2016

LE 000’s LE 000’s

Reserves

Legal reserves 22,878 22,878

General reserves 42,522 42,522

Special reserves 26,257 26,257

Fair value reserves - investments available for sale 5,525 (9,685)

General banking risk reserve 115,585 79,435

General banking risk reserve - IFRS9 190,095 -


The reserves movement is presented as follows:




30-1 Special reserves*

31 December 2017

31 December 2016

LE 000’s LE 000’s

Adjustments resulted from change in the valuation policy of AFS Investments related to prior years

17,165 17,165

Adjustment resulted from valuation policy of impairment loss for financing and facilities of prior years

9,092 9,092


* Distribution from this reserve prohibited unless there is CBE approval.

30-2 Fair value reserve – available for sale investments

31 December 2017

31 December 2016

LE 000’s LE 000’s

Beginning balance (9,685) (2,707)

(Loss) Change in fair value 15,200 (6,432)

(Loss) Profit transferred to income statement related to AFS disposals 10 (546)

Ending Balance 5,525 (9,685)

30-3 General Banking Risk Reserves

31 December 2017

31 December 2016

LE 000’s LE 000’s

Beginning balance 79,435 72,782

Transferred from ( To) accumulated losses 36,150 6,653


• The CBE instructions require the Bank to provide general bank reserves to guarantee any differences in impairment loss measurement methods for financings/facilities and assets reverted to the Bank.

30-4 General Bank Reserve IFRS – 9*

31 December 2017

31 December 2016

LE 000’s LE 000’s

Balance at the beginning of the year - -

Net Effect of 1% from contingent assets and liabilities weighted risk 190,095 -

190,095 -

* This reserve is prohibited to be used without CBE approval.

30-5 Accumulated Losses

31 December 2017

31 December 2016

LE 000’s LE 000’s

Balance at the beginning of the year (2,377,494) (2,750,501)


Transferred from general banking risk reserve (36,150) (6,653)

Transferred from general banking risk reserve - IFRS 9 (190,095) -

Amortization of the subordinated financing using EIR 30,561 18,990

Ending Balance (2,138,296) (2,377,494)

31- Cash and cash equivalent

For the purpose of presenting the cash flow statement, cash and cash equivalents include the following balances maturing within less than 3 months from the date of acquisition.

31 December 2017

31 December 2016

LE 000’s LE 000’s

Cash and due from CBE (Note14) 2,122,372 1,321,229

Due from banks (Note15) 1,307,055 3,396,730

Treasury bills (Note 16) 7,828,942 4,726,234

Due from banks maturities more than3 months (1,125,923) (3,084,777)

Treasury bills maturities more than 3 months (4,185,142) (4,726,234)

Ending Balance 5,947,304 1,633,182

32- Contingent liabilities and Commitments32-1 Capital CommitmentsThe Banks contracts for capital commitments reached LE 21,087 Thousands as of 31 December 2017 (31 December 2016: LE 6,520 Thousands). Representing purchases of fixed assets and the management is adequately confident that finance shall be made available to cover these commitments when due.

32-2 Contingent Liabilities Note 3/1/5

31 December 2017

31 December 2016

LE 000’s LE 000’s

Letters of credit (import and Confirmed export) 1,015,314 265,785




Total 3,683,496 2,219,052

32-3 Operating Lease commitment

31 December 2017

31 December 2016

LE 000’s LE 000’s

Less than one year - -

From 1 year up to 5 years 6,274 16,079

More than 5 years 115,288 23,619

Total 121,562 39,698




33- Related party transactions33-1 The related party balances included in the financial statement are as follows

31 December 2017 Subsidiaries

and Associates “ Major

shareholder “ Total

LE 000’s LE 000’s LE 000’s

Financing and facilities to customers 646,652 - 646,652

Due from banks - 128,972 128,972

Other assets 4,894 - 4,894

651,546 128,972 780,518

Due to banks - 713,295 713,295

Customers' deposits 51,536 - 51,536

Subordinated financing - 777,582 777,582

Paid under capital increase - 1,861,418 1,861,418

Difference between face value and present value (Subordinated Financing)

- 81,150 81,150

51,536 3,433,445 3,484,981


and Associates “ Major


LE 000’s LE 000’s LE 000’s

Financing and facilities to customers 688,571 - 688,571

Due from banks - 57,437 57,437

Other assets 4,251 - 4,251

692,822 57,437 750,259

Due to banks - 1,646,970 1,646,970


Other liabilities - 59 59



Difference between face value and present value (Subordinated Financing)

- 91,699 91,699

64,393 4,370,171 4,434,564

33-2 During the Year significant transactions with related parties included in the income statement are as follows


and associates “ Major


LE 000’s LE 000’s LE 000’s

Profit from Murabaha, Musharaka, Mudaraba and similar income

37,422 159 37,581

Cost of deposits and similar expenses (1,668) (28,099) (29,767)

Fees and commissions expenses (6,533) - (6,533)

Cost of subordinated loan using the effective profit rate - (10,549) (10,549)

Cost of subordinated loan with rate - (20,127) (20,127)


and associates “ Major


LE 000’s LE 000’s LE 000’s

Profit From Murabaha, Musharaka, Mudaraba and Other Similar Income

66,033 - 66,033

Cost of deposits and similar costs (1,204) - (1,204)

Fees and commissions cost (5,295) - (5,295)



• Salaries and wages for the Year ended 31 December 2017 includes an amount of LE 28.5Mn which represents average total top 20 salaries paid during the Year.

34-Employees benefits

31 December 2017

31 December 2016

LE 000’s LE 000’s

Liabilities listed on balance sheet:

Medical benefits post retirement 47,787 47,787

47,787 47,787

31 December 2017

31 December 2016

LE 000’s LE 000’s

Amounts recognized in the income statement

Pension benefits (37,345) (22,895)

Medical benefits post retirement (21,608) (23,701)

(58,953) (46,596)

34-1 Private insurance fundAt the first of July 2013, the bank established private insurance fund (the fund) according to Law No.54 for year 1975, the fund registered in EFSA on 14 January 2014 with No. (884), on 1 April 2014 the fund started its work. The employees in the head office and all branches are committed to the fund regulations. The bank obligated to pay monthly contributions, in which, calculated according to fund regulation, generally the fund financed through monthly contributions in addition to other resources that detected in fund regulation.


EFSA has approved to start investing the monthly contributions accrued to employees and depositing the amount in the fund manager investment account.

34-2 Cost of early retirement to employeesBank paid EGP 3,909 Mn till 31 December 2017 million EGP to the employees whom requested early retirement during the year.




34-3 Legacy staff medical benefit planThe Bank has a Defined Benefit Medicare Plan for its legacy employees during their service period and post retirement, the bank hired independent actuarial expert to conduct the study and determine the necessary amount of the obligation to be recorded in financial statements using the projected unit credit method. The main assumptions are used by the actuarial expert listed as follows:-

• Death rate from British table A49-ULT52• Inflation rate 12%• Discount rate 9.5%• Using projected unit credit method in calculating liabilities

35- Tax positionCorporate Tax

• The Bank’s corporate income tax position has been examined, paid and settled with the tax authority since the operations start up until the end of year 2012, pending disputed points are transferred to committees and the courts for adjudication.

• The bank’s corporate income tax position under examination for the year 2013:2014 and for 2015 it has been providing the tax declaration for 2015 within the legal deadline.

• The Bank started from February 2012 on the basis of the opinion of the legal advisor and the tax advisor of the Bank to raise the case in front of the judicial courts to recover the value of the payment of the treasury bills/bonds taxes as the bank was incurring tax losses during the financial years of the dispute and the following which lead to stop paying these taxes and their penalties which is shown in other assets “due from tax authority”, (Note 21). During the period, the Bank appealed to the Supreme Administrative Court against the ruling issued by the Administrative Court of First Instance rejecting the case to form a multiplicity of plaintiffs and filing another claim individually on 6 July 2017 to refund what paid of T-bills/Bonds taxes in excess of the tax payable amounts during the financial years in dispute, based on the same foundations already cited by the previous case, and saw both legal advisor and consultant tax of the Bank that the court ruling of this case will be in the favor of the bank.

• The Bank has charged the necessary provisions for tax on income of T-Bills/Bonds for the years which the bank incurs tax profits

Salary tax• Tax inspections and internal committee for the years prior 2013/2014 has been finalized and no tax due for this year• The Bank’s salary tax is currently under examination for the year 2015/2016.• The bank pays the payroll taxes on monthly basis on the due dates as stated by law.

Stamp duty tax

• Tax Inception and payment done till end 31 March 2013.• Period from 1 April 2013 till 31 December 2015 still under inception.• Year 2016, bank didn’t receive any notes to start the inception.

Sales tax• Inspection of the bank branches till 2015 has been finalized and all taxes due were paid. • Years 2016/2017 still to inspect.

Real estate Tax• The bank received claims for real estate tax for some branches and the bank objected on these claims in the legal

deadlines, and we are following - up the objections in front of the appeal committees for these claims.

36- Subsequent events:The IASB issued IFRS 9 ‘Financial Instruments’ in its final form in July 2014 and Central Bank of Egypt (“CBE”) issued a circular on 28 January 2018 instructing Banks to implement the standard with effect from 1 January 2019. IFRS 9 sets out the requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non- financial assets, impairment of financial assets and hedge accounting. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.

a. Classification and measurement The adoption of this standard will have an effect on the classification and measurement of Group’s financial assets but is not expected to have a significant impact on the classification and measurement of financial liabilities. The classification and measurement of financial assets will depend on how these are managed (the entity’s business model) and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at amortized cost, fair value through other comprehensive income or fair value through statement of income. The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.

b. Impairment of financial assets The impairment requirements apply to financial assets measured at amortized cost, fair value through other comprehensive income, and lease receivables and certain loan commitments and financial guarantee contracts. At initial recognition, allowance is required for expected credit losses (‘ECL’) resulting from default events that are possible within the next 12 months (’12-month ECL’). In the event of a significant increase in credit risk, allowance is required for ECL resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’).

Financial assets where 12-month ECL is recognized are considered to be ‘stage 1’, financial assets which are considered to have experienced a significant increase in credit risk are in ‘stage 2’, and financial assets for which there is objective evidence of impairment so are considered to be in default or otherwise credit impaired are in ‘stage 3’.

The assessment of whether credit risk has increased significantly since initial recognition is performed for each reporting period by considering the change in the risk of default occurring over the remaining life of the financial instrument, rather than by considering an increase in ECL.

The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should incorporate all available information which is relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money. As a result, the recognition and measurement of impairment is intended to be more forward-looking than under IAS 39 and the resulting impairment charge will tend to be more volatile.

The Bank is in the process of quantifying the impact of this standard on the Bank’s consolidated financial statements, when adopted. CBE in its circular of 28 January 2018 has mandated all Banks to account for a reserve equal to 1% of the credit Risk Weighted Assets (“RWA”) as of 31 December 2017, The reserve amounted EGP 190,094,628 CBE has also advised that this reserve should be included in Tier 1 Capital and should be appropriated only with CBE’s approval.


Auditor’s Report


Consolidated balance sheet as at 31 December 2017 Consolidated statement of income for the year ended 31 December 2017

Note31 December

2017 LE 000's

31 December 2016

LE 000's

AssetsCash and due from central bank of egypt (CBE) 13 2,125,571 1,322,098 Due from banks 14 1,308,392 3,398,494 Treasury bills 15 7,851,533 4,748,319 Financial assets held for trading 16 20,676 16,754 Facilities to banks ( net of impairment losses) 1/17 266,402 - Conventional financing to customers_net of impairment loss 2/17 222,023 215,565 Islamic financing to customers_net of impairment loss 2/17 16,060,969 15,016,128

Financial investmentsAvailable for sale investment 1/18 82,406 98,551 Held to maturity 2/18 6,850,312 5,719,617 Financial investments in associates 19 71,901 59,984 Intangible assets_net of accumulated amortization 20 404 564 Other assets 21 1,584,763 1,374,226 Projects under construction 22 16,107 14,664 Fixed assets_net of accumulated depreciation 23 743,069 641,804 Investment property_net of accumulated depreciation 24 50,517 60,168 Assets held for sale_net 11,170 996 Leased assets_net of accumulated depreciation 25 149,028 185,420 Deferred tax assets 31 - 354,863 Total assets 37,415,243 33,228,215

Liabilities and shareholders' equityLiabilitiesDue to banks 26 905,082 2,239,144 Customers' deposits 27 29,832,871 25,516,880 Subordinated financing 28 777,582 770,025 Other liabilities 29 1,845,575 1,292,817 Other provisions 30 1,659,225 1,719,231 Defined benefits obligations 37 70,893 65,354 Deferred tax liabilities 31 31,230 - Total liabilities 35,122,458 31,603,451

Shareholders' equityPaid in capital 2/32 2,000,000 2,000,000 Paid under capital increase 3/32 1,861,418 1,861,418 Reserves 33 431,634 188,978 Difference between face value and present value for subordinated financing

81,150 91,699

Accumulated losses 4/33 (2,126,748) (2,564,156)2,247,454 1,577,939

Non-controlling interest 45,331 46,825 Total shareholders' equity 2,292,785 1,624,764 Total liabilities and shareholders' equity 37,415,243 33,228,215

Contingent liabilities and commitments 2/35 3,683,496 2,219,052

*The auditors’ report is attached

*The accompanying notes from (1) to (36) are integral part of these separate financial statements.

Mohamed Aly Soha El TurkyChief Executive Officer and Managing Director Chief Financial Officer

Cairo 20 February 2018

Note31 December

2017LE 000’s

31 December 2016

LE 000’s

Income from murabaha, musharaka, mudaraba and other similar income

5 4,125,576 2,702,704

Cost of deposits and similar expenses 5 (2,102,180) (1,263,787)

Net revenue from funds 2,023,396 1,438,917

Fees and commission income 6 473,525 359,223

Fees and commission expense 6 (9,727) (10,058)



Net trading income 8 143,482 214,928

Administrative expenses 9 (1,172,144) (957,762)

Other operating (expenses) 10 (47,981) 50,779

(Impairment loss) reversal of impairment credit losses 11 (132,766) (267,105)

Share of associates results 6,502 7,952

Gain from financial investments 3/18 46,128 5,652

Profits before taxes 1,332,624 845,294

Taxes 12 (701,026) (448,256)


Distributed as follows

Equity holders of the bank 633,092 414,096

Non-controlling interest (1,494) (17,058)


*The accompanying notes from (1) to (36) are integral part of these separate financial statements


Consolidated statement of change in shareholders’ equity for the year ended 31 December 2017

Consolidated statement of cash flows for the year ended 31 December 2017

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Note31 December

2017 LE 000’s

31 December 2016

LE 000’s Cash flows from operating activitiesProfit before tax 1,332,624 845,294 Adjustment to reconcile profit before tax to cash flows from operating activities:Depreciation of fixed assets 23 82,909 68,125 Amortization of intangible assets 20 1,023 5,439 Depreciation of investment property 24 2,975 3,565 Depreciation of leased assets 25 83,927 84,033 Impairment charged for credit losses 17 183,647 272,931 Impairment charged for held to maturity investments - (1,669)Premium And discount Amortization 1/18 (12,198) (5,682)Other provisions charged 30 53,035 1,551,290 Other provisions no longer required 30 (95,352) (11,615)Loan loss provisions no longer required 2/17 (50,880) (4,158)Foreign currency revaluation of held to maturity investments 2/18 (21,964) - Foreign currency revaluation of available for sale investments 1/18 1,129 (25,856)Loss from revaluation of assets held for trading 8 (5,739) (1,041)Foreign currency revaluation of other provisions 30 1,650 14,948 Foreign currency revaluation of Loan Loss provisions 2/17 (1,185) 20,067 Impairment loss of other assets 10 6,708 - Impairment loss of assets reverted to bank 10 - 3,604 Gain on sale of assets reverted to the bank 10 (472) 2 Gain on sale of fixed assets 10 (16,741) (12,486)Gain on sale of Leased assets 10 (30) (2)Gain on sale of assets held for trading 8 (4,400) (813)Gain on sale of Investment Property 10 (4,208) (2,307)Gain on sale of treasury bills 3/18 (2,787) (1,134)Impairment loss of investment in associates - 332 Impairment loss of investment in AFS 3/18 9,994 194 Gain on sale of available for sale investments 3/18 (51,778) (5,101)Share of Associates' results (6,502) (7,952)Dividends Income 7 (2,209) (2,768)Employees Benefits charged 37 6,051 11,925 Amortization of subordinated loan using EIR method 28 30,561 18,990 Foreign currency revaluation of subordinated financing - With coupon

(9,698) -

Foreign currency revaluation of subordinated financing - Zero coupon

6,706 281,780

Operating profit before changes in assets and liabilities utilized in operational activities

1,516,796 3,099,935

Net increase in assets & liabilitiesDue from banks 1,958,854 (1,462,598)Treasury bills with maturity more than 90 days 543,192 (1,745,890)Financial assets held for trading (14,911) 12,033 Loans and Islamic financing to customers & Banks (1,415,293) (5,291,609)Other assets (221,416) (386,340)Due to banks (1,334,062) 1,576,843 Customers' deposits 4,254,043 5,161,292 Other liabilities 334,023 120,360 Employees Benefit used 37 (512) 434 Tax Paid (77,162) (1,665)Cash flows resulting from operating activities 5,543,552 1,082,795 Used provisions - Other than financing losses 30 (19,338) (5,114)Used provisions - Financing losses 2/17 (14,891) (15,561)Net cash flows resulting from operating activities 5,509,323 1,062,120


Note31 December

2017 LE 000’s

31 December 2016

LE 000’s Cash flows from investing activitiesPayments to acquire fixed assets and down payments under branches preparition

23 (157,603) (105,039)

Proceeds from sale of fixed assets 19,731 21,055 Payments to acquire intangible assets 20 (863) - Payments to acquire Leased assets (61,268) (84,856)Proceeds from sale of Leased assets 2,106 1,897 Proceeds from Sale of Investment Property 10,884 18,347 Proceeds from Sale of Assets Held for Sale 150 - Proceeds (Payment) of Projects under construction (1,444) 1,550 Payments to acquire investments available for sale 1/18 (2,397) (1,409,725)Proceeds from sale of Investments available for sale 1/18 96,634 718,731 Payments to acquire investment in associates (19,913) (17,144)Proceeds from sale of Investments in associates 11,124 16,481 Payments to purchase investments Held to maturity (1,481,212) (614,862)Proceeds from sale of investments Held to maturity 2/18 388,003 254,477 Proceeds from sale of treasury bills 2,787 1,134 Dividends income 2,209 2,768 Net cash flows (used in) investing activities (1,191,072) (1,195,186)

Cash flows from financing activitiesProceeds from subordinated financing - 328,797 Dividends paid (45) (324)Net cash flows used in ( resulting from ) financing activities

(45) 328,473

Net increase in cash and cash equivalents during the year 4,318,206 195,407 Cash and Cash Equivalents at the beginning of the year 1,637,367 1,441,960 Cash and cash equivalents at the end of the year 5,955,573 1,637,367 Cash and cash equivalents at end of period are represented inCash and due from Central Bank of Egypt 13 2,125,571 1,322,098 Due from banks 14 1,308,392 3,398,494 Treasury bills 15 7,851,533 4,748,319 Due from banks (maturing in more than 90 Days) (1,126,773) (3,085,202)Treasury bills (maturing in more than 90 Days) (4,203,150) (4,746,342)Cash and cash equivalents at end of the year 34 5,955,573 1,637,367

*The accompanying notes from (1) to (36) are integral part of these financial statements.

Consolidated statement of cash flows for the period ended 31 December 2017 Continued

Notes to Consolidated Financial Statements as of 31 December 2017

1- General informationAbu Dhabi Islamic Bank – Egypt (formerly National Bank for Development - SAE) was established in 1974 in accordance with Investment Law No. 43 of 1974 and its executive regulations and the amendments thereon and is listed on the Egyptian Stock Exchange (EGX).

Abu Dhabi Islamic Bank - Egypt is subject as a financial institution to the supervision and control of the Central Bank of Egypt (CBE). In addition, as a Shari’a compliant bank it complies with Shari’a principles in all transactions and products provided to its clients, whether such products are investment deposits, Islamic investment Sukuk or savings accounts as well as meeting client’s various financing needs by providing options such as Murabaha (Cost-plus), Musharka (Joint Venture), Ijarah (Leasing) and cash back cards. It also offers Islamic options for letter of guarantee and letter of credit. The Bank has a Shari’a Board composed of Islamic jurists who are continually consulted regarding all aspects of new existing and banking transactions.

Based on General Assembly resolution EGM held on September 3, 2007 has approved the amendment of the National Bank for Development was renamed to Abu Dhabi Islamic Bank - Egypt after completing a conversion of the Bank’s activities in accordance with the provisions and principles of Islamic law.

The bank provides a full range of banking services to corporate, retail and micro finance clients in Egypt and the head office is located in Cairo, 9 Rostom st, Garden City. Through 68 branches across all governorates and are served by 2,289 employees at 31 December 2017

The Consolidated financial statements for the year ended 31 December 2017 have been approved by the bank’s board of directors on 20 February 2017.

2- Summary of significant accounting policiesBelow are the significant of accounting policies applicable for the preparation of the consolidated financial statements;

A) Basis of preparation of the consolidated financial statementThese consolidated financial statements have been prepared in accordance with the Central Bank of Egypt (CBE) basis of preparation of the bank’s consolidated financial statements and principles of recognition and measurement as approved by its board of directors on December 16th, 2008. These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of trading financial investment, Available for sale financial assets.

There consolidated financial statements have been prepared in accordance with the requirements of related applicable Egyptian laws and regulations. The bank has also prepared consolidated financial statements for the bank and its subsidiaries in accordance with the central bank of Egypt (CBE) basis of preparation, which are companies in which the bank owns directly or indirectly more than half of the voting rights, or has the ability to control the financial and operational policies regardless of the type of activity.

B) Basis of consolidationB-1 SubsidiariesSubsidiaries are entities (including special purpose entities) which the group has the power to govern its financial and operating policies. Usually the group’s ownership exceeds half the voting power taking into consideration potential future voting power that the group has the option to exercise or convert at the time of control assessment.

Subsidiaries are fully consolidated from the date the group assumed control; it is disposed at the date the group losses control.

Group acquisition of entities is accounted for using purchase method. The cost of acquisition is measured at the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued and any costs directly attributable to the acquisition process.

Identifiable acquired assets, liabilities and assumed contingent liabilities are recognized at fair value at the date of acquisition.

Excess of acquisition cost over the fair value of the group’s share in net identifiable acquired assets is recognized as goodwill. If the acquisition cost is less than the fair value of net identifiable acquired assets, the difference is recognized in the income statement.


Abu Dhabi Islamic Bank – Egypt (formerly National Bank for Development - SAE) Notes to Consolidated Financial Statements as of 31 December 2017 – Continued.


Subsidiaries which have been consolidated in the bank’s financial statements are as follows:

Company Ownership % Industry

National company for Glass 86.13% Manufacturing

National company for trading and development (ENTAD) 65.74% Commercial

Assuit Islamic company for trading and development 55.13% Commercial

Cairo national company for investment 75.73% Financial Investment

ADI Lease for Financial Lease 95.91% Financial Lease

Abu Dhabi Islamic holding company 99.92% Holding

Abu Dhabi Islamic Capital 99.88% Financial Investment

Abu Dhabi Islamic Properties 44.24% Real estate

ADIB Invest 99.89% Financial Investment

Alexandria National Company for Financial Investments 69.12% Financial Investment

Cairo National Company for Brokerage & Securities 51.25% Financial Investment

Transactions, balances and unrealized gains resulting from transactions between the group entities are eliminated in the consolidated financial statements unless they indicate impairment in the value of transferred assets. Accounting policies of subsidiaries are changed when necessary to comply with the group’s accounting policies.

B-2 Transactions with Non-controlling interestsThe group considers transactions with non-controlling interests as transactions with external parties. Gains and losses due to sale to non-controlling interests are recognized in the income statement. Purchase from non-controlling interests results in goodwill which represents the difference between consideration given and book value of subsidiary’s net assets.

B-3 AssociatesAssociates are entities over which the bank influences the financial and operating policies of the company whilst not reaching control, usually the bank’s ownership represents 20% to 50% of the voting power. Investment in associates is initially measured at cost and is accounted for subsequently using equity method. Investment in associates includes goodwill (less impairment loss) which was recognized at acquisition.

The group’s share in associates’ profit or loss post acquisition is recognized in the income statement while the group’s share in changes in associates’ equity pre acquisition is recognized in the group’s equity. The book value of investment in associates in adjusted with the post-acquisition accumulated changes. If the group’s share of the associates’ loss exceeds its book value the group does not recognize further losses. Transactions, balances and unrealized gains resulting from transactions between the group entities are eliminated in the consolidated financial statements unless they indicate impairment in the value of transferred assets. Gains and losses that result from changes in ownership structure of associates are recognized in income statement.

B-4 InventoryInventory is measured at the lower of cost or net realizable value, Inventory costs include all costs incurred in bringing the inventory to its present location and condition as follows:

• Raw materials, spare parts, packing tools and fuel.• Purchase costs using moving average method.• Finished and Simi-finished products.• Manufacturing costs, direct-labor costs and in-direct costs based on normal activity rates.

Net realizable value is the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale. Reverse on inventory impairment resulting from the increase in net realizable value is recognized in the income statement during the occurring period of this impairment reverse.

B-5 Real Estate InvestmentGains or losses arising from changes in the fair value of real estate investments are recognized in the profits and losses of the year when they were realized.

The fair value of real estate investments is the exchange value of a particular asset between parties each of them has a desire to exchange and aware of the standing facts, dealing with free willing and this estimate of the fair value, in particular, does not include the estimated price inflation or deflation with special conditions or certain conditions such as unusual funding or the special arrangements of sale, Re-lease, The particular amounts or concessions granted by any party related to the sale.

The property determines the fair value without making any deduction for the transaction costs that may be incurred by the facility in the process of selling or the other exclusion.

B-6 Projects under constructionCosts incurred in construction or to acquire fixed assets are recognized as projects under construction till it becomes ready for use after that these assets are transferred to fixed assets when it becomes ready for use, depreciation starts at the date of transfer.

Projects under construction are carried at historical cost after deducting impairment.

B-7 Defined benefit systemThe National Company for Glass and Crystal gives end of service benefits for employees of the company; the right to obtain these benefits is calculated based on the last salary and length of service for employees.

B-8 Segment reportingA business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is a segment by which, provide products or services within a particular economic environment that are subject to risks and returns different from those of segments operating in other economic environments.

The bank does not have any geographical sectors that operate in a different economic framework as of 31 December 2017.

C) Foreign Currency TransactionsC-1 Trade and presentation currencyThe Egyptian pound is the currency of preparation and presentation of the consolidated financial statements.

C-2 Transactions and balances in foreign currencyThe banks’ accounting records are maintained in Egyptian pounds, transactions in other foreign currencies are recorded at rates of exchange ruling on the transaction date. Monetary assets and the liabilities in foreign currencies are revaluated into Egyptian pounds at the rates of exchange ruling at the balance sheet date, any resultant gain or loss is then recorded in the income statement as follows:

• Net trading income or net income from financial instruments originally classified as a change in fair value through profit and loss according to its type.

• Other operating income/loss for other items.

The changes in fair value of monetary financial instruments denominated in foreign currencies and classified as available for sale (debt instruments) are classified into:

• Differences due to change in amortized cost of the instrument; these are recognized through profit and loss in “Profit/Interest and similar income”

• Differences due to changes in foreign currencies exchange rates; these are recognized through profit and loss in “Other operating income / Expense”

• Differences due to change in fair value of the instrument which recognized through equity in “Available for sale fair value reserve”.

Translation differences on non-monetary items such as equity securities held at fair value though profit or loss are reported as part of the fair value gain or loss translation difference on non-monetary items such as available for sale the income is recorded directly in equity within “Net unrealized gains and losses on available for sale assets” .




D) Financial assetsThe bank classifies its financial assets into the following groups:

• Financial assets designated at fair value through profit and loss.• Financings and receivables.• Financial investments held to maturity.• Financial investments available for sale.

The management’s classification depends on the purpose of the investments at the time of its purchase.

D-1 Financial assets designated at fair value through profit and lossThis group includes financial assets held for trading

Financial instrument are recorded as held for trading if it is acquired for resale in short term, or if it represents a part of specific financial instrument portfolio that are managed together and there is an evidence for actual recent transactions refers to the gain of income in short term.

Financial assets are recognized in the early recognition at fair value through profit and loss.

In managing some investment portfolio like investment in equity instruments they are evaluated and reported with fair value according to investment strategy or risk management and preparing reports to top management according to these bases, these investments are designated at fair value through profit and loss.

Under all circumstances, the bank does not re-classify any financial instrument into financial instruments measured at fair value through profit and loss or to a group of financial assets held for trading.

D-2 Financings and receivablesFinancings and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those:

• That the bank intends to sell immediately or in the short term, which are classified as held for trading, or that classified as financial assets designated at fair value through profit and loss.

• Assets that classified as available for sale in the early recognition.• That the bank upon initial recognition designates as available for sale or for which the bank may not recover

substantially all of its initial investment, other than because of a credit deterioration of the issuer.• Financings and receivables are measured at fair value in the early recognition and it is the pricing of transaction in which

includes cost of the transaction that includes fees and commissions paid to agents, brokers, merchants and advisors.• Historical probability of default for retail portfolio was calculated according to the realized loss for the past 3 to 6

months and based on average delinquency period for each product. For corporate portfolio, Historical probability of default was calculated as per the rates issued by Moody’s for the Middle East for each facility as per its facility risk rating.

D-3 Financial Investments held to maturityHeld to maturity financial investments are non-derivative assets which carry fixed or determinable payments and where the bank has the intention and the ability to hold to maturity. All held to maturity financial investments are reclassified as available for Sale in case of a sale of significant amounts unless the sale is in an emergency situation

D-4 Financial investments available for saleAvailable for sale financial investments are non-derivatives financial assets that are intended to be held for unspecified period and may be sold to provide liquidity or due to changes in the prices of shares, foreign currencies, or interest rate.

The following principles are followed for the financial assetsPurchases or sales of financial assets designated at fair value through profit and loss, held to maturity financial investments, and available for sale financial investments are recognized at the trade date which is the date the bank is committed to purchase or sell the financial asset.

Financial assets that are not classified as designated at fair value through profit and loss at initial measurement are recognize at fair value plus directly attributable costs of acquisition or issue while financial assets designated at fair value through profit and loss at initial measurement are recognized only at fair value, any directly attributable acquisition or issue costs are recorded in the “net trading income” in the income statement.

Financial assets are de-recognized where the rights to receive cash flows from the asset have expired or the bank has transferred all the risks and rewards of the asset to another party, while a financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.

Available for sale financial investments and financial assets designated at fair value through profit and loss are subsequently measured at fair value.

Held to maturity financial investments are subsequently measured at amortized cost.

Profit and loss due to changes in fair value of financial assets designated at fair value through profit and loss are recorded in income statement during the period it occurred.

Profit and losses arising from changes in fair value of available for sale financial investments are recognized directly in equity, when the asset is disposed of or impaired, the cumulative profit or loss previously recognized in equity is recognized in the income statement.

Monetary assets’ interest/profit income is recognized based on the amortized cost method in the income statement. The foreign currency revaluation differences related to available for sale investments are recognized in the income statement. Available for sale equity instruments related to dividends are recognized in the income statement when they are declared.

Fair values are obtained from quoted market prices in liquid markets. Where no active market exists, or quoted prices are unobtainable the fair value is estimated using a variety of valuation techniques, including discounted cash flow and other pricing models. Inputs to pricing models are generally market-based where available and taken from reliable external data sources.

If the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed, an entity can measure the equity instrument at cost minus any impairment losses.

Interest/profit calculated using the effective interest/profit method and foreign currency gains and losses on monetary assets classified as available for sale are recognized in the income statement, Dividends on available for sale equity instruments are recognized in the income statement when the entities right to receive payment is established.

The fair values of quoted investments in active markets are based on current bid prices, If there is no active market for a financial asset, the bank measures the equity instruments that are classified as available for sale at cost net of impairment loss, if any.

The Bank reclassifies the financial asset previously classified as available for sale to which the definition of loans- debts (bonds or loans) applies by means of transferring the category of the instruments available for sale to the category of loans and debts or the financial assets held to maturity, once the Bank has the intention and ability to hold such financial assets in the near future or up to the maturity date, such reclassification is made at fair value as on that date. Any profits or losses related to such assets which have been previously recognized within equity shall be treated as follows:

• Financial assets with fixed or determinable payments and fixed maturity is valued at amortized cost, using the effective interest method in case of impairment the profit/interest and loss that have been previously recognized directly in equity is removed from equity and recognized in the income statement.

• Profit and loss related to financial assets without fixed or determinable maturity are held in equity till sale or disposal of the asset then removed from equity and recognized in the income statement, In case of impairment the profits and losses that have been previously recognized directly in equity are removed from equity and recognized in the income statement.

If the Bank changes its estimates regarding payments or proceeds, the book value of a financial asset (or group of financial assets) has to be adjusted to reflect the actual cash inflows and the change in this estimate through calculating the present value of estimated future cash flows using the effective interest rate for the financial instrument. This adjustment is recognized as either income or expense in the income statement.

In all cases, if the Bank reclassified financial asset in accordance with what is referred to above and the Bank subsequently increase its future cash proceeds estimates resulted from an increase in the recoverable amount from its cash receipts, this increase is recognized as an adjustment to the effective interest rate not as an adjustment in the book value of the asset at the date of change in estimate.




E) Offset of financial assets and financial liabilities:Financial assets and liabilities are offset when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

REPO and reverse REPO agreements represent by net in balance sheet under treasury bills caption.

F) Profit/Interest income and expensesG-1 Interest income and expense for all interest/profit-bearing financial instruments, except for those classified as held for trading or designated as at fair value through profit or loss, are recognized within ‘income from Murabha, Musharka, Mudarba and other similar income and cost of deposits and similar cost in the income statement using the effective profit/interest rate method, The effective profit/interest rate method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the profit/interest income or profit/interest expense over the relevant year.

The effective profit/interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective profit/interest rate, the bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options), but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective profit/interest rate, transaction costs and all other premiums or discounts.

When financings or debts are classified as non-performing or impaired, related profit/interest income are not recognized but rather, are carried off balance sheet in statistical records and are recognized as revenues on the cash basis as follows:

• When collected and after recovery of all areas for retail financings, personal financings, real estate financings for personal housing and financings to small business.

• For corporate financings, profit/interest income is also recognized on the cash basis, according to which interest earned during the periods subsequent to reschedule agreements does not start to accrete on the financing principal until the bank collects 25% of the rescheduled installments and after payments of the installments continue to be regular for at least one year, interest income will not be recognized as revenue until full payment of the loan balance before the rescheduling and client is considered to be performing.

G-2 Revenue is recognized to the extent that bank has a reasonable assurance of the future benefits related to the transaction will be realized and revenue can be reliably measured, revenue is measured by its fair value of the net consideration paid or received after deducting any discount or sales tax or custom fees.

Mentioned below criteria to be taken in consideration before the recognition of revenue:

Sale of goods: Revenue derived from the sale of goods when the bank transferred all risks and rewards to the buyer and usually happens when the goods are delivered to the buyer or the common carrier.

G) Fees and commission incomeAccrued fees for loans or advances service are recognized as revenue at the time service is provided. Fees and commissions income related to non-performing or impaired loans or debts are suspended and are carried off-balance sheet and are recognized under income according to the cash basis, when interest income is recognized as shown in (H/2)

Fees that represent a complementary part of the effective interest on the financial asset in general and treated as adjustment to the effective interest rate.

G-1 Commitment fees on loans granted are deferred if there is a possibility that such loans shall be drawn, since the commitment fees received by the Bank are deemed to be a compensation for the ongoing intervention to acquire the financial instrument; subsequently, they are recognized by adjusting the effective interest rate on the loan. In the event of expiry of the commitment year without issuing the loan by the Bank, the fees are recognized as revenues at the expiry of the commitment Year.

G-2 Fees related to debt instruments which are measured at fair value are recognized under revenue at initial recognition. The fees for promotion of syndication loans are recognized as revenues upon completing the promotion process without retaining any part of the loan by the Bank, or if the Bank maintains a part thereof with the actual interest rate available to other participants.

G-3 Commissions and fees arising from negotiation, or participating in a negotiation in favour of a third party as in share acquisition arrangements or purchase of securities or purchase or sale of businesses are recognized in the consolidated income statement when the transaction is completed

G-4 Management advisory and other service fees are recognized as income on a time proportionate basis over the life time of the service.

H) Dividends IncomeDividends are recognized in the income statement when the right to receive dividends is established.

I) REPO and reverse REPO agreementsFinancial instruments sold in accordance to re-purchase agreements are recognized as assets added to the balance of treasury bills on the balance sheet. Liabilities under purchase and re-sale agreements are deducted from the balance of treasury bills and the difference between sale price and re-purchase price is recognized as accrued income over the term of the agreement using effective interest method.

J) Impairments of financial assetsJ-1 Financial assets held with cost to depreciationThe bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a portfolio of assets is impaired. A financial asset or a portfolio of assets is impaired and impairment losses is incurred if, and only if, there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and prior to the balance sheet data (‘a Loss Event’) and that loss event or events has had an impact on the estimated cash flow of the financial asset or the portfolio of financial assets that can be reliably estimated.

Objective evidence that a financial asset or a portfolio of financial assets is impaired includes observable data that comes to the attention of the bank about the following loss events:

• Significant financial difficulty of the issuer or the obligor.• A breach of contract, such as a default or delinquency in interest or principal payments.• It becomes probable that the borrower will enter bankruptcy or liquidation.• Deterioration of Financial position of the borrower.• The lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a

concession that the lender would not otherwise consider.• Impairment in the value of guarantee.• Deterioration of creditworthiness.

A substantive proof for impairment loss of group of financial assets that shows the existence of clear information indicating a measurable decline in the expected future cash flows of such category since initial recognition including such that cannot be separately determined for each individual asset such as increase of default cases with respect to a banking product.

The bank estimates the period between the date on which the loss event has occurred and the date on which the impairment loss has been identified for each specific portfolio. For application purposes, the bank considers this period from 3 months to one year.

The bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Taking into consideration the following:

• If the bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment based on the historical loss rates.

• The bank determines that there is an objective evidence that impairment exist, assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

• An asset that is individually assessed for impairment but for which an impairment loss is not recognized is included in a group of other similar assets.




Impairment loss is calculated by the difference between the carrying amount and the present value of estimated future recorded cash flow, excluding future expected credit losses not changed yet, discounted at the financial assets’ original effective interest rate. This impairment is booked in the income statement as “Impairment loss” and the book value of the financial asset is reduced by the impairment amount using “Impairment loss provision”.

If there is objective evidence that an impairment loss on financings and receivables or held-to-maturity investments carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash discounted at the financial asset’s original effective interest rate. The carrying amount of the asset shall be reduced through use of an allowance account. The amount of the loss shall be recognized in profit or loss.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (asset nature, business nature, geographical location, type of collaterals, delay positions, etc.) that are indicative of the debtors’ ability to pay all amounts due according to the contractual terms. Provisions are then related to estimate future payments as an indication of the borrowers’ ability to fulfill his contract.

When assessing the impairment loss for a group of financial assets on the basis of the historical loss rates, future cash flows in the group are estimated on the basis of the contractual cash flows of the Bank’s assets and the historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

The bank ensures that estimates of changes in future cash flow reflect the changes in related observable data from period to period. For example, changes in unemployment rates, property price, the position of settlement and any other factors that indicate changes in the probable loss of the group or probable loss in its value.

The methodology and assumptions used for estimating future cash flows are reviewed periodically by the bank to estimate the future cash flow.

J-2 Financial investments available for sale and held to maturity date in associates companiesAt each balance sheet date, the bank assesses whether there is objective evidence that any financial asset or group of financial assets that are classified as available for sale has been impaired. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is an objective evidence of impairment.

Such decline is presumed to be significant for the equity instruments if it reaches 10% of the cost of the financial instrument, whereas it is presumed a prolonged decline when it extends for a period of more than 9 months.

In respect of available for sale equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized directly in equity. However, if in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss for that debt instrument.

K) Intangible assetsSoftware (computer programs)Expenditure on upgrade and maintenance of computer programs is recognized as an expense in the income statement in the period in which it is incurred. Expenditures directly incurred in connection with specific software are recognized as intangible assets if they are controlled by the bank and when it is probable that they will generate future economic benefits that exceed its cost within more than one year. Direct costs include the cost of the staff involved in upgrading the software in addition to a reasonable portion of relative overheads.

Upgrade costs are recognized and added to the original cost of the software when it is likely that such costs will increase the efficiency or enhance the performance of the computers software beyond their original specification.

Cost of the computer software recognized as an asset shall be amortized over the period of expected benefits which shall not exceed three years.

L) Fixed assetsLands and buildings comprise the head office premises and branches. All fixed assets are carried at historical cost net of accumulated depreciation and accumulated impairment losses Cost includes expenditures that are directly attributable to the acquisition of the fixed assets.

Subsequent costs are included in the assets carrying amount or recognized separately, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the bank and the cost of the item can be measured reliably. Repairs and maintenance expenses are recognized in profit or loss within “other operating costs” line item during the financial period in which they are incurred.

Depreciation is charged on all assets, other than land so as to write off the cost of assets over their estimated useful lives, using the straight-line method to the extent of their estimated residual values based on the following annual rates:

Item Life time

Buildings 20 years

Decorations and preparations 20 years

Integrated systems &equipment 5 years

Motor vehicles 5 years

Furniture and fittings 10 years

Other equipment 8 years

The residual value and useful life of the fixed assets is reviewed on every balance sheet date and adjusted whenever its necessary.

The bank reviews the carrying amounts of its depreciable fixed assets whenever changes in circumstances or events indicate that the carrying amounts of those assets may not be recovered. Where the carrying amount of an asset exceeds its recoverable amount, the carrying amount is reduced to its recoverable amount.

The recoverable amount of an asset is the higher of the asset’s net realizable value or value in use. Gains and losses on disposals are determined by comparing proceeds with relevant carrying amount. These are included in profit or loss in other operating income (expenses) in the income statement.

M) Leased assetsLeased assets are stated at acquisition cost.The assets are depreciated using the straight line method according to the useful life of the assets starting from the date of usage.

N) Investment propertyInvestment property is held to earn rentals or for capital appreciation or both. Therefore, an investment property generates cash flows largely independently of the other assets held by an entity.

Investment property are treated the same accounting treatment for fixed assets.

O) Impairment of non-financial assetsNon-financial assets that do not have definite useful lives, except for goodwill, shall not be amortized. These are annually tested for impairment. Depreciable fixed assets are tested for impairment whenever changes in circumstances or events indicate that the carrying amounts of those assets may not be recovered.

Impairment loss is recognized and the carrying amount of an asset is reduced to the extent that such carrying amount exceeds the asset’s recoverable amount.

For the purpose of estimating the impairment loss, where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

At each balance sheet date, non-financial assets for which an impairment loss is recognized shall be reviewed to assess whether or not such impairment losses should be reversed through profit or loss.




P) LeasingThis is calculated as per law no. 95 for the year 1995, about finance leasing in case the contract grants the right to the tenant to purchase the asset by a set date and a set value, in addition to contract life covers more than 75% of estimated useful life, or if the fair value of total rental payments represent payments more than 90% of the assets value. Other contracts represent operational rent contracts.

Q-1 RentAs for leasing contracts, the expense of rent in addition to maintenance, is recognized as expenses in the under income statement, If the bank decides upon the usage of its right in purchasing the rented assets, the expenses of purchase is capitalized and depreciated over the remaining useful life the same way as other assets are depreciated

The payments are recognized under operational rent decreased by the amount of any payments received within the stated period, registered in the income statement as steady installments.

Q) Cash and cash equivalentsFor the purposes of the cash flows statement, cash and cash equivalents comprise balances due within three months from date of acquisition; they include cash and balances due from central bank of Egypt, other than those within the mandatory reserve, current accounts with banks and treasury bills.

R) Other provisionsProvisions for restructuring costs and legal claims are recognized when the Bank has a present legal or constructive obligation as a result of past events; it is more likely than that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.

Where there are a number of similar obligations, the likelihood that an outflow is required to settle an obligation is determine taking into consideration the group of obligations as a whole.

A provision is recognized even if the likelihood of an outflow with respect to any obligation in the group is minimal.

When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating income/expenses.

Provisions are measured at the present value of the expected required expenditures to settle obligations after one year from financial statement date using the appropriate rate in accordance with the terms of settlement ignoring the tax effect which reflects the time value of money. If the settlement term is less than one year the provision is booked using the present value unless time consideration has a significant effect.

S) TaxesTaxes include income taxes and deferred taxes, both are recognized in the income statement except for income tax relating to the owners’ equity, which is recognized directly within the owners’ equity statement.

The bank’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period, in addition to income tax adjustments related to previous years.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period 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. However, when it is expected that the tax benefit will increase, the carrying amount of deferred tax assets shall increase to the extent of previous reduction.

T) Employees BenefitsT-1 Employees saving insurance fundIn the first of July 2013 the bank established a private social insurance fund (Alsondoq) according to the law number 54 for the year 1975 “private insurance funds law and the regulations”, The bank has registered the fund in 14 January of 2014 with a number of registration (884), Working in this fund started on the first of April 2014, terms and modification of the fund is applied on the employees working in the head office of the bank and its branches in the Arab republic of Egypt.

The bank is committed to pay the subscriptions to the fund monthly calculated according to the rules of the fund and its modifications. Generally the fund is financed through the monthly subscriptions and some other resources specified in fund’s list.


T-2 Legacy staff medical benefit planThe Bank has a Defined Benefit Medicare Plan for its legacy employees during their service period and post retirement, the liabilities of this system represent in the present value of its liabilities minus its assets at the end of each period including the actuarial loss and revenues settlements and also the prior year cost.

The liability determined by independent actuarial expert using the Projected Unit Credit method.

The fair value of the liabilities are determined by the projected forecasted cash outflow using discount rate of governmental bonds with maturities similar the maturity of liability. The liability recorded in other liabilities.

The actuarial revenues or losses arising from experience change in actuarial assumptions and amendments in the medical plan are hitting the income statement. The bank applies the monthly payment method to the medical plan for current employees; these payments hit the income statement in employee’s benefits item.

U) Comparative figuresComparative figures are reclassified, where necessary, for consistency with changes in the current year’s presentation.

3- Management of financial risksThe bank, as a result of conducting its activities, is exposed to various financial risks. Since financial activities are based on the concept of accepting risks and analyzing and managing individual risks or group of risks together, the bank aims at achieving a well-balanced risks and relevant rewards, as appropriate and to reduce the probable adverse effects on the bank’s financial performance. The most important types of risks are credit risk, market risk, liquidity risk and other operating risks. The market risk comprises foreign currency risk, interest rate risk and other pricing risks.

The risk management policies have been laid down to determine and analyze the risks, set limits to the risk and control them through reliable methods and up–to–date systems. The bank regularly reviews the risk management policies and systems and amendments thereto, so that they reflect the changes in markets, products and services and the best up-to–date applications.

Risks are managed in accordance with preapproved policies by the board of directors; the risk management department identifies, evaluates and covers financial risks, in close collaboration with the bank’s various operating units.

The board of directors provides written rules which cover certain risk areas, such as credit risk, foreign exchange risk, interest rate risk and the use of derivative and non-derivative financial instruments.

3-1 Credit risk Credit risk is the risk that one party will fail to discharge an obligation and will cause the other party to incur a financial loss. The bank deems financings to customers, banks and financial investments in terms of bills, current accounts, deposits at banks, as financial assets exposed to credit risk of settling part or all of the dues by the concerned parties on the maturity date. Credit risk also exists on items not registered in the balance sheet such as financing commitments Management processes and credit risk controls are the main concern of the credit risk management team in Risk Department, who reports to the Board of Directors, senior management and heads of each business unit.




3-1-1 Measurement of credit riskFinancings and facilities to clientsTo evaluate credit risk relating to financings and facilities to banks and/or clients the following 3 components are to be considered:

• Probability of default – by the client or counter party on its contractual obligations.• Exposure at default – current exposure to the counter party and its likely future developments from which the Bank

derive the exposure at default.• Loss given default

The banks daily activities include measurement of credit risk, which reflects estimated loss (expected loss model) required by Basel banking observatory committee, a conflict could generate between operational measurements and impairments as per the Egyptian Accounting Standards (no 26), which recognizes losses encountered on balance sheet (Recognized losses) rather than “Expected loss” (note 3/1/3).

The bank evaluates each client through a detailed weight categorization; these methods have been developed for internal evaluation usage and for analysis to reach the appropriate weighting. The banks clients have been categorized to 4 categories, reflecting the delay in payment, therefore clients could move between the various categories depending on evolving circumstances. The bank frequently and periodically reviews the efficiency of this method to estimate any delay cases.

Internal categories:

Category Description

1 Good debts

2 Regular follow up

3 Special follow up

4 Bad debts

• Exposure at default is based on the amounts the bank expects to be outstanding at the time of default.• The estimated loss, is the loss incurred when delay in payment occurs, being a percentage of financing which differs

depending upon client, nature of claim, available collaterals and guarantees.

Debt instruments and treasury billsThe bank in this case uses external categorization, such as standard and poor or other equivalents. If external classification is not available, the method of credit risk is followed. The investment in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirements at the same time.

3-1-2 Minimization and avoidance of riskThe Bank manages limits and controls concentration of credit risk wherever they are identified − in particular, to individual counterparties and banks, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industrial segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by individual, counterparties, product, and industrial sector and by country are approved quarterly by the board of directors.

The exposure to any one borrower including banks is further restricted by subsidiary limits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. some other specific control and mitigation measures are outlined below:

CollateralsSeveral rules and policies are stated by the bank to minimize credit risk, one of which is collaterals, the bank specifies guidelines for certain types of collaterals. Major types are as follows:

• Real estate mortgage• Operating asset mortgage such as machinery and goods• Mortgage of financial instruments such as: securities or equities

Usually the long term facilities and corporate are with collaterals, while credit for retail are without collaterals to minimize any losses to minimal, The bank seeks extra collaterals from related parties if a sign of impairment of any financing or facility occurs.

Collaterals are taken as a guarantee for other assets except for financial and facilities and usually, treasury bills and securities are with no collaterals, except for financial pools covered by asset-backed securities and similar guaranteed by financial instruments.

Commitments related to creditsThe major need for commitments related to credits is for the client to have liquidity when needed. Guarantees and standby letters of credit issued by the bank on behalf of the client, to grantee a third party the right to withdrawal from the clients account within a certain limit.

Usually this is guaranteed by shipped merchandise or goods therefore the risk weight is less than direct financings.

Credit commitments represent the hidden unused part of the risk tolerated by the bank such as granting financings, LCs and LGs, the bank then is subject to losses to equal value of credits. Losses indorsed by unused credits are less than the value, due to facilities being granted for possible commitments for a specific client with certain conditions. The bank observes the credits till maturity date (long term credits hold a higher risk weight).

3-1-3 Impairment & provisioning policiesInternal rating system mentioned earlier (Note 3/1/1) focuses more on planning the quality of credit process and this in the beginning of investing and financing activities, other than that. Impairment losses is recognized only on the balance sheet date for financial reporting purposes according to the objective evidence of impairment as per noted in this disclosure and due to the difference in methodologies applied, usually impairment losses that is reported as per Central bank of Egypt laws and regulations using the estimated losses model is higher than those charged to the financial statements (note 3/1/4).

Impairment loss provisions stated on the end of period balance sheet are extracted from the categorized weight risk rating. Provisions are mainly calculated for credits holding the lowest category. The following table clarifies the percentage upon which the provisions are calculated as of 31 December 2017 related financing and facilities and impairment loss provision related to the internal bank rating:


Banks ratingLoans and


provisionsLoans and


provisions

Good debts 78% 31% 78% 38%

Regular follow up 15% 8% 16% 10%

Special follow up 2% 5% 1% 1%

Bad debts 5% 56% 5% 51%

100% 100% 100% 100%

Internal evaluation helps to clarify if there are any significant indications existing for provisions, as per Egyptian accounting standards no. 26, guided by the following points set by the bank:

• Financial problems faced by the client.• Breaching of financing contract for example overdue installments.• Prediction of bankruptcy or liquidation or financial restructure.• Deterioration of competitive position.• The bank granting superior or extraordinary facilities that the bank could normally not agree upon.• Impairment of the collateral• Deterioration of credit status.




The bank’s policy includes revising all the bank’s assets (exceeding a certain percentage of importance) at least once per year or more if needed.

Loss is evaluated at the balance sheet date on all major accounts. Evaluation normally includes the existing collateral, verifying all payments and withdrawals from the account. Impairment loss is charged on similar assets; historical expertise, personal judgment statistical methods.

3-1-4 Model of general risk measurementIn addition to the 4 categories stated in note 3/1/1, the management takes on several other detailed measurements, to comply with the CBE requirements. Assets exposed to risk are categorized as per the CBE’s conditions and instructions, mainly related to on the client, such as: activity, financial position, payment stability.

The bank calculates the impairment of assets exposed to credit risk, including commitments relating to credit on the basis of rates determined by CBE. In case, the required for impairment losses as per CBE credit worthiness rules on 16 December 2008 exceeds the provisions, that excess shall be debited to retained earnings and carried to the general reserve for banking risks in the equity section.

Such reserve is always adjusted, on a regular basis, by any increase or decrease so that the reserve shall always be equivalent to the amount of increase between the two provisions. Such reserve is not available for distribution (note 33/3) and shows the movement on the general reserve for banking risks during the financial period.

As follows is the statement of credit rating for corporations as per the bank’s internal ratings as compared with those of CBE’s, it also includes the percentages of provisions required for impairment of assets exposed to credit risk.

CBE rating CBE rating description Required provision % Internal ratingInternal rating

description

1 Low risk 0% 1 Good debts

2 Moderate risk 1% 1 Good debts

3 Satisfactory risk 1% 1 Good debts

4 Appropriate risk 2% 1 Good debts

5 Acceptable risk 2% 1 Good debts

6Marginally acceptable

risk3% 2 Regular Follow up

7Risk needs special

attention5% 3 Special Follow up

8 Substandard 20% 4Non performing

financing

9 Doubtful debts 50% 4Non performing

financing

10 Bad debts 100% 4Non performing

financing

3-1-5 Maximum limit for credit risk before guarantees5-A Maximum limit for credit risk before guarantees

31 December 2017

31 December 2016

LE 000’s LE 000’s

Balance sheet items exposed to credit risks

Treasury bills 8,281,126 4,929,251

Loans and financing to Banks 305,018 -

Loans and financing to customers

Retail loans

- Overdraft 3,012 2,407

- Covered cards 2,267,484 2,164,880

- Personal financing 6,512,773 4,728,914

- Real estate mortgage 40 49

Corporate Loans:

- Overdraft 2,372,060 1,876,783

- Direct financing 8,729,530 9,123,237

- Syndicated financing 760,794 879,851

Financial investments:

- Debt instruments 6,842,812 5,707,117

Total 36,074,649 29,412,489

Off balance sheet items exposed to credit risks

Letters of credit (Import & confirmed export ) 1,015,314 265,785




Total (Note 35-2) 3,683,496 2,219,052

The above table represents the maximum limit of risks to be exposed to at the end of 31 December 2017 and without taking into consideration any guarantees, for balance sheet items, amounts stated depends on the net carrying amount shown in the balance sheet.

As shown in the preceding table, 57.23 % (December 31st, 2016: 63.84 %) of the maximum limit exposed to credit risk results from financings and facilities to customers, but the investment in debt 18.97% (31 December 2016 : 19.40%)

The management is confident in its ability to maintain control on an ongoing basis and maintain the minimum credit risk resulting from financing portfolio, facilities, and debt instruments as follows:

• 95.18 % (December 31st, 2016: 94.25%) of the financings and facilities portfolio are rated on the highest 2 levels of the internal rating.

• 79.51 % (December 31st, 2016: 77.56%) of the financing portfolio and facilities having no arrears or indicators of impairment.

• Financings and facilities valued on a standalone basis amounting to LE 554.5mn (December 31st, 2016: LE 489.1mn) with impairment less than 2.65 % from its value against (December 31st, 2016: LE 4.90%).

• The bank applied more prudential selection process on granting financings and facilities during the financial year ended at 31 December 2017.

• 100% of investments in debt instruments and treasury bills represent debt instruments due from the Egyptian government.




3-1-6 Financing and facilitiesThe status of balances of financing in terms of credit rating is as follows:



Financing and facilities to customers


to Banks

Total Financing

and Facilities


Total Financing

and Facilities

Neither past due nor impaired 16,350,177 305,018 16,655,195 14,993,010 14,993,010

Past due not impaired 3,740,967 - 3,740,967 3,294,033 3,294,033

Subject to impairment* 554,549 - 554,549 489,078 489,078

Total (note 17) 20,645,693 305,018 20,950,711 18,776,121 18,776,121

Less:

Impairment loss provision** (762,530) - (762,530) (594,960) (594,960)

Interest in suspense (51,337) - (51,337) (33,339) (33,339)

Deferred profits (3,548,834) (38,616) (3,587,450) (2,916,129) (2,916,129)

Net (note 17) 16,282,992 266,402 16,549,394 15,231,693 15,231,693

* Customers financing and facilities subjected to impairment related to the period before acquisition.

• Non-performing financing against guarantees and not subject to impairment after taking into consideration the collectability of the guarantees.

• Financings and facilities portfolio has increased by 8.7% as of 31st December 2017 (31st December 2016: increased by 56.26%).

Financing and facilities to customers and banks

31 December 2017 Value in LE 000’sRetail Corporate Total

Rating

OverdraftCovered

cardsPersonal

financing

Real estate

mortgage Overdraft

Direct facilities

Syndicated financing


Good debts 3,012 2,250,974 6,312,154 40 1,536,427 5,852,971 699,617 16,655,195

Regular follow up - 10,769 47,749 - 658,524 2,201,506 366,060 3,284,608

Special follow up - 4,277 8,851 - 177,244 265,986 - 456,358

Bad debts - 1,464 144,019 - - 409,067 - 554,550

Total 3,012 2,267,484 6,512,773 40 2,372,195 8,729,530 1,065,677 20,950,711

31 December 2016 Value in LE 000’sRetail Corporate Total

Rating

OverdraftCovered

cardsPersonal

financing

Real estate

mortgage Overdraft

Direct facilities

Syndicated financing


Good debts 2,407 2,149,632 4,550,095 49 1,241,388 6,937,579 111,860 14,993,010 Regular follow up - 10,653 47,090 - 635,379 1,673,734 767,991 3,134,847

Special follow up - 3,377 11,596 - 16 144,197 - 159,186

Bad debts - 1,218 120,133 - - 367,727 - 489,078

Total 2,407 2,164,880 4,728,914 49 1,876,783 9,123,237 879,851 18,776,121

Financing and facilities past due but not impairedThe credit worthiness for financings and facilities portfolio that are neither past due nor impaired is based on the banks’ internal rating they are financing having arrears until 90 days and they are not subject to impairment unless there is information to the contrary. Financings and facilities to customers having arrears and not subject to impairment and fair value of related guarantees are represented as follows:

Value in LE 000’s

Retail


financingsTotal

30 to 60 days arrears - 10,769 47,749 58,518

60 to 90 days arrears - 4,277 8,851 13,128

Total - 15,046 56,600 71,646

Corporate


Total

30 to 60 days arrears 658,524 2,201,509 366,060 3,226,093

60 to 90 days arrears 177,244 265,984 - 443,228

Total 835,768 2,467,493 366,060 3,669,321

Retail


financingsTotal

30 to 60 days arrears - 10,653 47,089 57,742

60 to 90 days arrears - 3,377 11,597 14,974

Total - 14,030 58,686 72,716

Corporate


Total

30 to 60 days arrears 635,379 1,673,735 767,991 3,077,105

60 to 90 days arrears 16 144,195 - 144,211

Total 635,395 1,817,930 767,991 3,221,316

At the initial recognition of financings and facilities, the fair value of the guarantees is determined using similar techniques for similar assets subsequently; its fair value is updated to reflect either the market price or prices of similar assets.




Financings subject to individual impairmentFinancings and facilities to clients as follows

Value in LE 000’s


Covered cards

Personal financing

Direct financing

Financing and Facilities to

customers

Financings subject to individual impairment

1,463 144,019 409,068 554,550



financing Direct

financing

Financing and Facilities to

customers

Financings subject to individual impairment

1,218 120,133 367,727 489,078

3-1-7 Investments in debt instruments and treasury billsThe following table represents breakdown of debt instruments and Treasury Bills, as per rating agencies at the end of the financial (Standard and Poors – Mercis).


Investments in debt

instruments Total

LE 000’s LE 000’s LE 000’s

Less than B- 8,281,126 6,842,812 15,123,938

8,281,126 6,842,812 15,123,938


Investments in debt

instruments Total

LE 000's LE 000's LE 000's

Less than B- 4,929,251 5,707,117 10,636,368

4,929,251 5,707,117 10,636,368

3-1-8 Sectors analysis according to activity nature

Value in LE 000’s

31 December 2017Wholesale

bankingCapital

bankingRetail

bankingOther

operationTotal

Revenue and expense according to activities sectorRevenue from activity sectors 1,108,368 407,165 1,446,449 (322,595) 2,639,387

Expenses of activity sectors (214,568) (17,107) (934,674) (140,413) (1,306,762)

Profit before tax for the year 893,800 390,058 511,775 (463,008) 1,332,625

Tax (160,814) (84,561) (113,465) (342,187) (701,027)

Profit for the year 732,986 305,497 398,310 (805,195) 631,598

Assets and liabilities according to activity sectorAssets related to activity sectors 11,575,838 16,023,412 5,122,583 - 32,721,833

Non-Classified assets - - - 4,693,411 4,693,411

Total assets 11,575,838 16,023,412 5,122,583 4,693,411 37,415,243




Value in LE 000’s

31 December 2016Wholesale

bankingCapital

bankingRetail

bankingOther

operation TotalRevenue and expense according to activity sectorsRevenue from activity sectors 906,970 469,343 752,405 1,210,450 3,339,168

Expenses of activity sectors (148,849) (13,247) (666,515) (1,665,263) (2,493,874)

Profit before tax for the year 758,121 456,096 85,890 (454,813) 845,294

Tax (170,577) (102,622) (19,325) (155,732) (448,256)

Profit for the year 587,544 353,474 66,565 (610,545) 397,038

Assets and liabilities according to activity sectorsAssets related to activity sectors 11,879,871 10,643,225 6,896,250 - 29,419,346

Non-Classified assets - - - 3,808,869 3,808,869

Total assets 11,879,871 10,643,225 6,896,250 3,808,869 33,228,215







3-1-9 Geographical sectors

31 December 2017

Value in LE 000’s

Arab Republic of Egypt

Cairo Alex, Delta

& Sinai Upper Egypt Total Other

countries Total

Treasury bills 8,281,126 - - 8,281,126 - 8,281,126

Financial assets held for trading

20,676 - - 20,676 - 20,676

Investments in debt instruments

6,622,989 - - 6,622,989 - 6,622,989

Facilities to Banks 305,018 - - 305,018 - 305,018

Financing to customers

Retail

Overdraft 1,971 902 139 3,012 - 3,012

Covered cards 2,208,609 46,962 11,913 2,267,484 - 2,267,484

Personal financing 4,138,615 1,863,269 510,889 6,512,773 - 6,512,773

Real estate mortgage 40 - - 40 - 40

Corporate

Overdraft 2,371,843 214 3 2,372,060 - 2,372,060

Direct financing 8,697,871 30,862 797 8,729,530 - 8,729,530

Syndicated financing 760,794 - - 760,794 - 760,794

Total as of 31 December 2017 33,409,552 1,942,209 523,741 35,875,502 - 35,875,502

Total as of 31 December 2016 31,136,712 1,625,496 466,007 33,228,215 - 33,228,215

3-1-10 Activities sectors

Value in LE 000’sFinancial

institutionManufacturing

institutionServices

Wholesale and retail

Governmental sector

Retail Others Total

Treasury bills - - - - 8,281,126 - - 8,281,126 Financial assets held for trading:Equity instruments

20,676 - - - - - - 20,676

Loans and facilities to Banks

305,018 - - - - - - 305,018

Loans and facilities to customersConsumer loans:Overdrafts - - - - - 3,012 - 3,012 Covered cards - - - - - 2,267,484 - 2,267,484 Personal financing

- - - - - 6,512,773 - 6,512,773

Mortgage financing

- - - - - 40 - 40

Corporate loansOverdrafts - 596,351 222,919 206,892 1,345,402 - 496 2,372,060 Directs financing 285,071 4,209,741 1,039,210 2,089,889 1,087,870 - 17,749 8,729,530 Syndicated financing

- 394,734 269,076 - 96,984 - - 760,794

Financial investmentsDebt instruments - - - - 6,842,812 - - 6,842,812 Total as of 31 December 2017

610,765 5,200,826 1,531,205 2,296,781 17,654,194 8,783,309 18,245 36,095,325

Total as of 31 December 2016

456,762 5,288,818 1,047,741 2,042,351 13,671,755 6,921,816 - 29,429,243

3-2 Market risk The bank exposed to market risks which is the risk that the fair value or future cash flow fluctuation resulted from changes in market prices. Market risks arise from open market related to interest rate, currency, and equity products of which each is exposed to general and specific market movements and changes in sensitivity levels of market rates or prices such as interest rates, foreign exchange rates and equity instrument prices. The Bank divides its exposure to market risk into trading and non-trading portfolios.

Bank treasury is responsible for managing the market risks arising from trading and non-trading activities of which monitored by two separate teams. Regular reports about market risk are submitted to the Board of Directors and each business unit head periodically.

Trading portfolios include transactions where the Bank deals direct with clients or with the market; Non-trading portfolios primarily arise from managing assets and liabilities interest rate price relating to retail transactions. Non-trading portfolios also includes foreign exchange risk and equity instruments risks arising from the Bank’s held-to-maturity and available-for-sale investments portfolios.




3-2-1 Market risk measurement techniquesAs part of the management of market risk, the Bank undertakes various hedging strategies as well as entering into interest rate swap contracts to offset the associated debt instruments and funds for long -term fixed-income risk if the application of the fair value option. Here are the top measuring tools used to control the risk of the market:

A. Value at risk:The Bank applies a ‘value at risk’ methodology (VAR) for trading and non-trading portfolios to estimate the market risk of positions held and the maximum expected losses based on a number of assumptions for various changes in market conditions. The Board sets separate limits for the value of risk that may be accepted by the Bank for trading and non- trading portfolios and monitored by the market risk department.

VAR is a statistical estimation of the expected losses on the current portfolio from adverse market movements in which it represents the ‘maximum’ amount the Bank expect to lose using confidence level (98%). Therefore there is statistical probability of (2%) that actual losses could be greater than the VAR estimation. The VAR module assumes that the holding year is 10 days before closing the opening position. It also assumes that market movements during the holding year will be the same as 10-days before. The Bank’s assessment of past movements is based on data for the past five hundred days. The Bank applies these historical changes in rates prices indicators….etc. directly to its current positions this approach called historical simulation. Actual outcomes are monitored regularly to test the validity of the assumptions and factors used in the VAR calculation.

The use of this approach does not prevent losses from exceeding these limits if there are significant market movements.

As VAR considered a primary part of the Bank’s market risk control technique VAR limits are established by the Board annually for all trading and non-trading transactions and allocated to business units. Actual values exposed to market risk are compared to the limits established by the bank and reviewed by the ALCO committee.

The average daily VAR for the Bank during the current

The quality of the VAR model is continuously monitored through examining the VAR results for trading portfolio and results are reported to the top management and Board of Directors.

B. Stress testing:Stress testing provides an indicator of the expected losses that may arise from sharp adverse circumstances Stress testing are designed to match business using standard analysis for specific scenarios. The stress testing carried out by the Bank treasury. Stress testing include: risk factor stress testing where sharp movements are applied to each risk category and test emerging market stress, as emerging market portfolios are subject to sharp movements; and subject to special stress including possible stress events to specific positions or regions - for example the stress outcome to a region applying a free currency rate.

The results of the stress testing are reviewed by top management and Board of directors

3-2-2 VAR summary Total value at risk according to type of risk

Value in LE 000’s

12 Months ended 31 December 2017 12 Months ended 31 December 2016

Average High Low Average More LessForeign currency risk 17,158 38,547 628 36,074 - -

Interest rate risk 14,738 18,667 8,127 8,021 - -


Total value at risk for trading investment held for trade:

Value in LE 000’s



Foreign currency risk 17,158 38,547 628 36,074 - -

Interest rate risk 642 1,965 10 - - -

Total value upon risk 17,800 40,512 638 36,074 - -

Total value at risk for Non-trading investment held for trade upon type of risk:

Value in LE 000’s


Average High Low Average High LowInterest rate risk 14,096 16,702 8,117 8,021 - -


The increase in VAR especially the interest rate risk mainly proportion to the increase in market interest rates volatility in the global financial markets.

The above three VAR results (average, high and low) are calculated independently from the underlying positions and historical market movements. The aggregate of the trading and non-trading VAR results does not represent the bank’s VAR due to correlations of risk types and portfolio types and their effect.




3-2-3 Foreign exchange volatility riskThe below table includes the book values of the financial instruments before deducting the impairment losses.

31 December 2017

Value in LE 000’sEGB USD Euro Sterling Yen Others Total

Assets

Cash and due from CBE 2,004,995 81,181 25,307 1,755 98 12,235 2,125,571

Due from banks 409,181 692,437 37,773 9,218 2,193 157,589 1,308,391

Treasury bills 5,793,950 2,359,557 127,618 - - - 8,281,125 Financial assets held for trading

20,676 - - - - - 20,676

Financing and facilities to Banks

- 305,018 - - - - 305,018


15,738,959 4,795,150 89,549 22,035 - - 20,645,693

Financial investments

- Available for sale 38,534 43,871 - - - - 82,405

- Held to maturity 6,630,489 219,823 - - - - 6,850,312

Investments in associates 71,901 - - - - - 71,901

Total Financial Assets 30,708,685 8,497,037 280,247 33,008 2,291 169,824 39,691,092

LiabilitiesDue to banks 51,332 800,208 - - - 53,543 905,083

Customers' deposits 25,021,862 4,383,343 294,720 36,992 1,880 94,074 29,832,871

Subordinated Loan - 777,582 - - - - 777,582 Total Financial Liabilities

25,073,194 5,961,133 294,720 36,992 1,880 147,617 31,515,536

Net financial position 5,635,491 2,535,904 (14,473) (3,984) 411 22,207 8,175,556

31 December 2016

Total Financial Assets 23,485,547 10,249,021 163,879 221,692 1,136 199,595 34,320,870 Total Financial Liabilities

20,180,868 7,763,225 51,012 348,044 3,513 176,020 28,522,682

Net Financial Position 3,304,679 2,485,796 112,867 (126,352) (2,377) 23,575 5,798,188

3-2-4 Profit rate riskThe Bank is exposed to profit rate risk which is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market profit rates. Fair value profit rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank is exposed to the effect of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Profit margins may increase as a result of such changes but may profit decrease in the event that unexpected movements arise. The Board of Director sets limits on the level of mismatch of interest rate reprising that may be undertaken which is monitored daily by Bank risk department

The following table summarize the extend that the bank is exposed to fluctuation in profit rate that includes the book value for the financial instruments distributed on reprising dates or maturity date which is closest

Value in LE 000’s

31 December 2017“Up to

1 Month”“1-3

months”“3-12

Months”“1-3

years”More than

3 years Total

Financial assets

Cash and due from CBE 1,528,120 492,085 1,337 1,690,995 - 3,712,537

Treasury bills 1,188,177 2,594,326 4,498,622 - - 8,281,125

Financial assets held for trading - 20,676 - - - 20,676

Facilities to banks - - - - 305,018 305,018

Financing and facilities to customers 2,709,541 2,911,510 5,974,998 4,259,514 2,642,779 18,498,342

Financial investments

- Available for sale - - - 82,406 - 82,406

- Held to maturity - 147,533 541,749 3,492,504 2,668,538 6,850,324

Investments in associates - - - - 71,901 71,901

Other financial assets 45,395 - - 63,569 4,268,561 4,377,525

Total financial assets 5,471,233 6,166,130 11,016,706 9,588,988 9,956,797 42,199,854

Financial liabilities

Dues to banks 235,829 - 709,108 - - 944,937

Customers deposits 5,650,000 2,564,095 3,979,462 16,501,772 1,114,921 29,810,250

Subordinated financing - - - - 777,582 777,582

Other financial liabilities 21,634 - - - 9,329,627 9,351,261

Total financial liabilities 5,907,463 2,564,095 4,688,570 16,501,772 11,222,130 40,884,030

Interest re-pricing (436,230) 3,602,035 6,328,136 (6,912,784) (1,265,333) 1,315,824

3-3 Liquidity riskLiquidity risk represents difficulty encountering the Bank in meeting its financial commitments when they fall due and replace funds when they are withdrawn. This may results in failure in fulfilling the Bank obligation to repay to the depositors and fulfilling lending commitments.

Liquidity risk management processThe Bank’s liquidity management process carried out by the Bank risk department includes:

• Daily funding managed by monitoring future cash flows to ensure that all requirements can be met when due. This includes availability of liquidity as they due or to be borrowed to customers. To ensure that the Bank reaches its objective the Bank maintains an active presence in global money markets.

• The Bank maintains a portfolio of highly marketable and diverse assets that assumed to be easily liquidated in the event of an unforeseen interruption of cash flow.

• Monitoring liquidity ratios in relation with internal requirements and central bank of Egypt requirements. • Managing financing and facilities concentration and dues.




For monitoring and reporting purposes The Bank calculates the expected cash flow for the next day, week and month which are the main time Spain to manage liquidity.

The starting point to calculate these expectations is analyzing the financial liabilities dues and expected financial assets collections.

Its’ role is also to monitor the liquidity gaps between average maturity assets and the level and type of unused financing commitments, the ratio of usage of debit current accounts, and the effect of contingent liabilities such as LCs and LGs.

Funding strategyLiquidity resources are reviewed through a separate team at the risk department to maintain wide diversification by currencies, geographical location, sources as well as maturities.

Assets available to meet all liabilities and cover financing commitments include cash, balances with the central bank, Balances due from banks, treasury bills and financings and facilities to banks and customers. Moreover, some financing and facilities to customers may be extended during the normal course of business of the bank. The bank has the ability to meet unexpected net cash flows through selling financial papers, and finding other financing sources.

The CBE regulations require compliance with the following:

• Maintaining LE 500mn as a minimum requirement for the authorized and issued capital. • Maintaining a ratio between capital elements, asset and contingent liability elements weighted by risk weights at 10% or

more.

The capital adequacy ratio consists of the following two tiers:

Tier 1: It is the basic capital comprising of paid up capital (after deducting the carrying amount of the treasury stocks), retained earnings, reserves resulting from profit appropriations except the general banking risk reserve less any goodwill previously recognized and any carried forward losses.

Tier 2: Is the sub-ordinate capital comprising the equivalent of the general bank risk reserve in accordance with CBE credit rating deposits not more than 1.25 % of total assets and contingent liabilities (weighted credit risk rates), subordinate deposits / financings maturing after more than 5 years (amortizing 20% of their value each year), and 45 % of the increase between the fair value and carrying amount for the available for sale investments, investments held to maturity, and investments in affiliates and subsidiaries.

The numerator of capital adequacy ratio calculation has to consider:

• Subordinated capital not exceed the basic capital. • Subordinated financing (deposits) not exceed half basic capital.

Assets are risk weighted in a range from 0% to 100 % according to the type of asset, to reflect related credit risk taking into consideration cash guarantees; the same treatment is used for the off-balance sheet amounts after making relevant adjustments to reflect the contingent nature and the potential loss for these amounts.

The bank has complied with all the capital requirements during the period. Following is a table summarizing capital and capital adequacy ratio:

According to Basel II31 December

201731 December

2016

LE 000’s LE 000’s

Tier 1 Capital

Going concern capital - Basic

Capital shares 2,000,000 2,000,000

Paid under capital increase 1,861,418 1,861,418

Reserves 255,494 65,400

Accumulated loss (2,155,351) (2,341,431)

Deduct:100% of the decline in the fair value of the book value of financial investments transferred from AFS to HTM

(12,941) (16,264)

Deduct: Deferred Tax (1,780) (214,632)

Deduct: Intangible Assets (323) (339)

Deduct: Financial institutions and Insurance Co. investment (29,387) (21,174)

Total Going concern capital - Basic 1,917,130 1,332,978

Going concern capital - Additional

Difference between FV and PV for subordinated financing 81,150 91,697

Total Going concern capital - Additional 81,150 91,697

Total Tier 1 Capital 1,998,280 1,424,675

Tier 2 Capital

Impairment losses related to financing, facilities, performing contingent liabilities 237,618 203,143

Subordinated financing 777,582 712,337

45 % of the increase in fair value compared to carrying amount of available for sale investment, investments held to maturity & investments in affiliates and associates

122,567 51,104

45% of special reserve 7,722 7,724

Total Tier 2 Capital 1,145,490 974,308

Capital base (Tier 1 +Tier2) 3,143,770 2,398,983

Contingent assets and liabilities weighted risk 19,009,463 16,251,404

Capital requirement for market risk 148,476 289,737

Capital requirement for operation risk 3,201,004 2,326,710

Total risk weighted assets and contingent liabilities 22,358,943 18,867,851

*Capital adequacy ratio ( % ) Out of TOP 50 Effect 14.06% 12.71%

Top 50 Excess charge 580,918 1,666,065

*Capital adequacy ratio ( % ) 13.70% 11.68%

*Based on consolidated Banking group with its financial institutions and in accordance with The CBE instructions issued on 24 December 2012.




3-4 Leverage Financial RatioCentral Bank of Egypt Board of Directors had approved in its meeting held on 7 July, 2015 special supervisory instructions related to leverage ratio which maintain a minimum level of leverage ratio of 3% to be reported on quarterly basis as following:

• Guidance ratio starting from reporting year end September 2015 till December 2017.• Obligatory ratio to start from year 2018.

This ratio will be included in Basel requirement tier 1 (minimum level of capital adequacy ratio) in order to maintain the Egyptian Banking System strong and safe, as long as to keep up with the best international regulatory treatments. Leverage financial ratio reflect relationship between tier 1 for capital that is used in capital adequacy ratio (After Exclusions) and other assets (on balance sheet and off-balance sheet) that are not risk weighted assets.

Ratio Elements:Ratio ElementsA-The numerator elements The numerator consists of tier 1 for capital that is used in capital adequacy ratio (After Exclusions) in accordance with the requirements of the regulatory authority represented by the Central Bank of Egypt (CBE).

B-The denominator elements:The denominator consists of all bank assets (on balance sheet and off-balance sheet) as per the financial statements “Bank exposure” which includes the total of the following:

1. On balance sheet exposure items after deducting some of tier 1 exclusions for capital base2. Derivatives contracts exposures.3. Financing financial notes operations exposures.4. Off-balance sheet items (weighted by credit conversion factor)

The tables below summarize the leverage financial ratio:

31 December 2017

31 December 2016

LE 000’s LE 000’s

Tier 1 capital after exclusions (1) 1,998,280 1,424,675

Cash and due from Central Bank of Egypt (CBE) 2,989,646 4,091,646

Due To Banks 707,441 627,539

Treasury bills 7,842,065 4,748,319

Financial assets held for trading 20,351 11,865

Financial investments available-for-sale 65,339 88,006

Financial investments held to maturity 6,850,312 5,719,617

Investments in subsidiaries and associates 224,798 144,971

Loans and credit facilities to customers 16,855,915 15,857,288

Fixed assets (Net of Accumulated depreciation & Impairment loss Provisions) 525,164 413,837

Other assets 1,338,488 1,674,585

Deducted amounts from exposures (some of tier 1 exclusions for capital base) (31,490) (252,408)Total on-balance sheet exposures items after deducting some of tier 1 exclusions for capital base

37,388,029 33,125,265

Total on-balance sheet exposures, Derivatives contracts and financing financial securities

37,388,029 33,125,265

Import L/Cs 181,047 53,048

Export L/Cs 22,016 109

L/Gs 673,784 433,489

L/Gs according to foreign banks 499,596 437,856 Contingent liabilities for general collaterals for financing facilities and similar collaterals

12,699 47,106

Bank acceptance 291,083 147,062

Total contingent liabilities 1,680,225 1,118,670

Capital commitments 21,087 17,680

Operating lease commitments 121,562 39,698

Loan commitments to clients /banks (unutilized part) original maturity period 708,419 412,914

Total commitments 851,068 470,292

Total exposures off-balance sheet 2,531,293 1,588,962

Total exposures on-balance sheet and off-balance sheet (2) 39,919,322 34,714,227

Leverage financial ratio (1/2) 5.01% 4.10%




4- Significant accounting estimatesThe bank undertakes estimations and judgments that affect the value of assets and liabilities that have been disclosed during the next financial period, consistently estimations and judgments are based on historical experience and other factors, including the expectations of future events that are reasonably estimated in accordance with the available information and circumstances.

4-1 Impairment loss for financings and facilitiesThe bank reviews the portfolio of financings and facilities on at least a quarterly basis to evaluate the impairment. The bank uses discretionary judgment on determining whether it is necessary to record impairment in the income statement using reliable data indicating measurable decline in the expected future cash flows from financing portfolio before identifying any decline at the level of one financing. This evidence include data indicating negative change in the ability of a portfolio of borrowers to repay the bank, or local and economic circumstances related to default. On scheduling future cash flows, the management use estimates based on previous experience related to impairment of assets having credit risks. Such experience refers to impairment similar to that of the portfolio in question.

The methods and assumptions used in estimating both the amount and timing of the future cash flows are reviewed on a regular basis to minimize any discrepancy between the estimated loss and actual loss based on given experience.

4-2 Impairment loss of equity instruments available for saleIn the case of investment in available for sale equity instrument, a significant or prolonged decline in the fair value of the security below its cost is considered as impairment. Where such evidence exists, significant or prolonged decline needs a personal judgment. To make this judgment the bank assesses- besides other factors- the common share price volatility. In addition, impairment exists when there is objective evidence that a certain company has a financial difficulty in its cash flow from operating and financing activities, industry tool or sector or technological advances.

4-3 financial investments held to maturityNon-derivative financial assets with fixed or determinable payments and fixed maturity are classified as investments held to maturity. This category requires personal judgment and therefore the bank tests whether there is a genuine intent and ability to hold such investments to maturity. If the bank fails to hold such investments till maturity (except for certain tightly defined circumstance such as if an entity sells an insignificant amount of held to maturity investments close to maturity date), investments should be reclassified as available for sale, which will be` measured at fair value instead of amortized cost.

5- Net revenue from funds

31 December 2017

31 December 2016

LE 000’s LE 000’s

Income from Murabaha, Musharaka, Mudaraba and other similar income

Financing and facilities to customers 2,450,718 1,474,909

Treasury bills and bonds 1,549,924 1,143,530

Deposits and current accounts 124,934 84,265

Total 4,125,576 2,702,704

Cost of deposits and similar expenses

Deposits and current accounts:

To banks (203,274) (99,864)

To customers (1,898,906) (1,163,923)

Total (2,102,180) (1,263,787)

Net Revenue from funds 2,023,396 1,438,917

6- Net fees and commission income

31 December 2017

31 December 2016

LE 000’s LE 000’s

Fees and commissions income:

Fees and commissions related to financing 62,898 81,858

Fees related to corporate finance 286,611 175,315

Other fees 124,016 102,050

Total 473,525 359,223

Fees and commissions expenses:

Other fees paid (9,727) (10,058)


7- Dividends income

31 December 2017

31 December 2016

LE 000’s LE 000’s

Investments held for trading 770 563

Available for sale investments 1,439 2,205

Total 2,209 2,768

8- Net trading income

31 December 2017

31 December 2016

LE 000’s LE 000’s

Foreign currencies operations:

Gain from foreign currencies exchange 133,343 213,074

Debt instruments held for trading - 590

Equity instruments held for trading 10,139 1,264

Total 143,482 214,928

9- Administrative expenses

31 December 2017

31 December 2016

LE 000’s LE 000’s

Employees' cost

Salaries and wages and benefits (495,164) (424,616)

Social insurance (21,635) (19,008)

Employees' benefits

Defined contribution plan (37,396) (23,591)

Defined benefit plan (21,608) (23,701)

Depreciation and amortization (86,907) (77,127)

Other administrative expenses (509,434) (389,719)

Total (1,172,144) (957,762)




10- Other operating income

31 December 2017

31 December 2016

LE 000’s LE 000’s

Profit from revaluations of monetary assets & liabilities other than trading (118,699) 1,517,808

Gain (Loss) on sale of assets reverted to bank 472 (2)

Gain on sale of fixed assets 16,741 12,486

Gain on sale of investment properties 4,208 2,307

Gain from sale of Leased Assets 30 2

Software cost (7,892) (2,935)

Operating lease (44,903) (37,175)

Impairment Losses For Assets Reverted To The Bank - (3,604)

Impairment Losses For Other Assets (6,708) -

Early retirement costs (3,909) (1,000)

Impairment of other provisions 43,058 (1,539,674)

Others 69,621 102,566

Total (47,981) 50,779

11- Impairment credit losses

31 December 2017

31 December 2016

LE 000’s LE 000’sFinancing and facilities to customers after deducting provision no longer required (Note 17)

(132,766) (268,773)

Reversal of impairment of HTM investments - 1,668

Total (132,766) (267,105)

12- Taxes

31 December 2017

31 December 2016

LE 000’s LE 000’s

Income tax (312,984) (240,508)

Deferred tax * (388,042) (207,748)

(701,026) (448,256)

• Additional information about deferred tax is presented in note 31. The effective tax that has been charged to the income statement could be different from the amount that arises using tax rates as shown below.

31 December 2017

31 December 2016

LE 000’s LE 000’s

Income before tax 1,332,624 845,294

Current Tax Rate 22.5% 22.5%

Income tax (expenses) based on applied tax price 299,840 190,191

Impact of Provisions 30,868 362,090

Impact of Depreciation 3,724 (3,295)

Untaxable revenues (33,412) (342,651)

Loss / income tax unrecognized 62,657 5,128

undeductible expenses 24,365 (3,715)

Income Tax 312,984 240,508

Income tax according to effective tax rate 701,026 448,256

Effective tax rate 52.6% 53.0%

• Additional information about deferred tax is presented in note 31.

13- Cash and due from central bank of Egypt

31 December 2017

31 December 2016

LE 000’s LE 000’s

Cash 434,575 473,493

Due from Central Bank mandatory reserve requirement 1,690,996 848,605

Total 2,125,571 1,322,098

Non-profit bearing balances 2,125,571 1,322,098

14- Due from banks

31 December 2017

31 December 2016

LE 000’s LE 000’sCurrent accounts 182,469 313,717

Deposits 1,125,923 3,084,777

Total 1,308,392 3,398,494

Due from Central bank except mandatory reserve requirement 867,085 2,770,223

Local banks 125,499 125,509

Foreign banks 315,808 502,762

Total 1,308,392 3,398,494

Non-profit bearing balances 182,469 425,717

Fixed profit balances 1,125,923 2,972,777

Total 1,308,392 3,398,494




15- Treasury bills

31 December 2017

31 December 2016

LE 000’s LE 000’s

Treasury bills maturing within 91 days 470,975 2,000

Treasury bills maturing within 182 days 1,089,425 80,525

Treasury bills maturing within 273 days 2,203,526 3,086,161

Treasury bills maturing within 364 days 4,517,200 1,760,565

8,281,126 4,929,251

Unearned revenues (429,593) (180,932)

Total 7,851,533 4,748,319

16- Financial assets held for trading

31 December 2017

31 December 2016

LE 000’s LE 000’s

Equity Instruments

Domestic companies shares 18,529 10,869

Mutual funds certificates 2,147 5,885

Total 20,676 16,754

17- Financings and Facilities to banks and customers17-1 Financing and facilities to banks

31 December 2017

31 December 2016

LE 000’s LE 000’s

Overdraft 135 -

Syndicated financing 304,883 -

305,018 -

Less

Deferred profit (38,616) -

Net 266,402 -

17-2 Financing and facilities to banks

31 December 2017

31 December 2016

LE 000’s LE 000’s

Retail


Covered cards 2,267,484 2,164,880



Total (1) 8,783,309 6,896,250


Overdraft 2,372,060 1,876,783



Total (2) 11,862,384 11,879,871

Total financing and facilities (1+2) 20,645,693 18,776,121

Impairment losses (762,530) (594,960)

Profit in suspense* (51,337) (33,339)

Deferred profit (3,548,834) (2,916,129)

Net 16,282,992 15,231,693

Classified in balance sheet as follow

Conventional loans to customers after deducting impairment loss 222,023 215,565

Financing to customers after deducting impairment loss 16,060,969 15,016,128

Net 16,282,992 15,231,693

* Profit in suspense was previously formed in accordance with credit instructions issued by CBE.

Movement analysis for impairment loss provision related to financing and facilities to customers;

31 December 2017

31 December 2016

LE 000's LE 000's

Impairment loss provision

Balance at the beginning of the period 594,960 312,943

Impairment loss charged during the period 183,646 272,931

Recoveries from written off debts 50,880 8,738

Used from provision during the period (14,891) (15,561)

Provisions no longer required (50,880) (4,158)

Foreign currency revaluation differences (1,185) 20,067

Balance at the end of period 762,530 594,960




The following are the total Financing and facilities to customers (Net of Deferred Profit)

31 December 2017

31 December 2016

LE 000’s LE 000’s

Retail


Covered cards 355,672 310,939



Total (1) 5,267,924 4,039,954


Overdraft 2,372,060 1,876,783



Total (2) 11,828,935 11,820,038

Total financing and facilities (1+2) 17,096,859 15,859,992

Impairment losses provisions (762,530) (594,960)

Profit in suspense ** (51,337) (33,339)

Net 16,282,992 15,231,693

Classified in balance sheet as follow

Conventional financing (after deducting impairment loss) 222,023 215,565

Islamic financing (after deducting impairment loss) 16,060,969 15,016,128

Net 16,282,992 15,231,693

** Profit in suspense was previously formed in accordance with credit instructions issued by CBE.

Movement analysis for impairment loss provision related to financing to customers as per type

Retail Value in LE 000’s

OverdraftCovered

cardsPersonal


mortgageTotal

Balance as of 1 January 2017 - 2,070 109,335 - 111,405

Impairment loss charged during the period - 11,881 23,113 - 34,994

Used from provision during the period - (11,302) (2,675) - (13,977)

Recoveries from written off debts - 1,445 262 - 1,707

Provision no longer required - (1,445) (262) - (1,707)


Retail

OverdraftCovered

cardsPersonal


mortgageTotal

Balance as of 1 January 2016 - 2,120 95,808 20 97,948

Impairment loss charged during the year - 7,019 17,438 (20) 24,437


Recoveries from written off debts - 1,834 3,057 - 4,891

Provisions no longer required - (1,833) (3,057) - (4,890)


Corporate

OverdraftDirect

financingSyndicated

financingOthers Total


Impairment loss charged during the period 17,568 139,648 (8,564) - 148,652

Used from provision during the period - (914) - - (914)

Recoveries from written off debts - 49,173 - - 49,173

Provisions no longer required - (49,173) - - (49,173)

Foreign currency revaluation differences - (1,185) - - (1,185)


Corporate

OverdraftDirect

financingSyndicated

financingOthers Total


Impairment loss charged during the year 253 236,707 11,534 - 248,494

Used from provision during the year - (4,580) - - (4,580)

Recoveries from written off debts - 3,847 - - 3,847

Transferred to other provisions - - - - -

Provisions no longer required - 732 - - 732

Foreign currency revaluation differences - 20,067 - - 20,067





18- Financial investments

31 December 2017

31 December 2016

LE 000’s LE 000’s

18/1 Available for sale investment

Equity instruments - at fair value

Listed 13,282 30,059

Unlisted 69,124 68,492

Total available for sale investments (1) 82,406 98,551

18/2 Financial investment held to maturity

Debt instruments- at amortized cost

Listed Treasury Bills 6,622,989 5,707,117

Un listed Treasury Bills 219,823 -

Mutual fund certificates - Sanabel (*) 2,500 7,500

Mutual fund certificates - El-Naharda (**) 5,000 5,000

Total investments held to maturity (2) 6,850,312 5,719,617 Total financial investments (1 + 2) 6,932,718 5,818,168


Current 845,317 5,737,176

Non-current 6,087,401 80,992

6,932,718 5,818,168


Fixed profit debt instruments 6,842,812 5,707,117

Variable profit debt instruments 7,500 12,500

Variable profit equity instruments 82,406 98,551

6,932,718 5,818,168

Unlisted Financial Investment Available for Sale were recorded at cost since its inception date as there is no active market for these investments to determine its fair value.

Mutual fund* Sanabel Islamic Mutual Fund

• The investments held to maturity include the bank’s investment in Sanabel Islamic mutual fund in association with ABC bank, managed by HC Company.

• The number of bank’s certificates share is 25k and 2.5% of par value LE 100. The acquisition cost amounted to LE 2,500k and market value of the certificate amounted to LE 153.72 (December 31, 2016: LE 124.26).

** Abu Dhabi Islamic Bank (El-Naharda) Mutual Fund

• The Bank has established Abu Dhabi Islamic Bank (El-Naharda) Mutual Fund (compatible with the principles of Islamic Sharia law, the fund is managed by Beltone management of investment funds.

• The number of bank’s certificates share is 50k and 2% of par value LE 100, market value of the certificate amounted to LE 135.68 (31 December 2016: LE 118.36).

• The Bank reclassified treasury bonds amounted to LE 5,341 Million from Available For Sale investment portfolio into Held to maturity investment portfolio using last trade price on the date of reclassification, and the revaluation difference for the reclassified bonds amounted to 19.8 Million included as Available For Sale fair value reserve, the bank management reclassification has been executed in accordance with market risk management strategy

Available for sale investment

Financial investment held

to maturity Total

LE 000’s LE 000’s LE 000’s

Balance as of 1 January 2017 98,551 5,719,617 5,818,168

Additions 2,397 1,481,212 1,483,609

Premium and discount amortization - 12,198 12,198


Foreign currency revaluation difference (1,129) 21,964 20,835

Net change in the fair value 7,708 3,324 11,032

Impairment loss provisions (9,994) - (9,994)


Balance as of 1 January 2016 4,765,248 10,831 4,776,079

Additions 1,409,725 614,862 2,024,587

Premium amortization - 5,682 5,682


Transferred from AFS to HTM (5,341,050) 5,341,050 -

Foreign currency revaluation difference 25,856 - 25,856

Net change in the fair value (17,564) - (17,564)

Impairment loss provisions (194) 1,669 1,475


18-3 Gain from financial investment

31 December 2017

31 December 2016

LE 000’s LE 000’s

Gain On Sale Of T.Bills 2,787 1,134

Gain On Sale Of Investment In Subsidiaries & Associates - (57)

Gain On Sale Of AFS Investment 51,778 5,101

Impairment Of Investment In Subsidiaries & Associates - (332)

Impairment Of Investment AFS (9,994) (194)

Gain of sale of HTM MF 1,557 -

Total 46,128 5,652




19- Financial Investments in associates (Net)

Value in LE 000’s


Value Share Value Share

% %Arab Oriental Company for Takaful insurance - Egypt

55,409 20% 43,395 20%

Assuit National Company for Agricultural Development

15,855 53% 15,823 53%

United Group for Trading and Engineering 637 24% 766 24%

71,901 59,984

20- Intangible assets

31 December 2017

31 December 2016

LE 000’s LE 000’s

Computer software

Net book value at the beginning of the period 564 6,003

Additions 863 -

Amortization for the period (1,023) (5,439)

Net book value at the end of the period 404 564

21- Other assets

31 December 2017

31 December 2016

LE 000’s LE 000’s


Pre-paid expenses 142,531 93,654

Down payments under purchase fixed assets 65,671 95,348

Assets reverted to the bank in settlement of debts (Net of impairment) 90,550 95,409

Deposits and custody 5,295 5,121

Due from tax authority - Debit balances* 271,828 271,828

Settlement account- leasing 23,980 19,940

Inventory 43,561 47,791

Suspense account-correspondent banks 410,735 286,820

Other debit Balance 103,574 109,800

Total 1,591,471 1,374,226

Impairment of other assets (6,708) -

Net other debit Balance 1,584,763 1,374,226

* Represents amounts under settlements in dispute with the tax authority Note (38)

22- Projects under construction

31 December 2017

31 December 2016

LE 000’s LE 000’s

Balance for beginning of the period 14,664 15,850

Additions 3,385 6,174

Disposal (1,942) (7,360)

Net book value at the end of the period 16,107 14,664

23- Fixed assets – Net of accumulated depreciation

Value LE 000’s



Other assets Total

Net book value as of 1 January 2017 229,367 90,976 321,461 641,804

Additions 2,582 2,273 182,425 187,280

Disposals (3,144) (3,685) (4,034) (10,863)

Depreciation (7,703) (11,913) (63,293) (82,909)

Depreciation related to disposals 1,120 2,688 3,949 7,757

Net book value as of 31 December 2017 222,222 80,339 440,508 743,069

Cost 240,579 112,683 666,242 1,019,504





Other assets Total

Net book value as of 1 January 2016 210,421 101,604 301,962 613,987

Additions 28,739 862 75,438 105,039

Disposals (10,633) (221) (12,108) (22,962)

Depreciation (7,304) (11,490) (49,331) (68,125)



Cost 241,141 114,095 487,851 843,087



• Fixed Assets not registered to the name of the bank amounted to LE 22mn as of 31 December 2017 (31 December 2016: EGP 8.43mn) Legal registration procedures are under progress.

• Fully depreciated assets as of 31 December 2017 and still in use amounted to LE 266mn (31 December 2016: LE 214mn)




24- Investment property (Net)

Value LE 000’s

Land Premises Other Total

Balance as of 1 January 2017 13,159 46,736 273 60,168

Disposals (400) (7,518) - (7,918)

Depreciation expense - (2,838) (137) (2,975)

Depreciation expense related to disposals - 1,242 - 1,242

Balance as of 31 December 2017 12,759 37,622 136 50,517

Balance as of 1 January 2016 27,125 50,090 410 77,625

Disposals (13,966) (2,429) - (16,395)

Depreciation expense - (3,428) (137) (3,565)

Depreciation expense related to disposals - 2,503 - 2,503

Balance as of 31 December 2016 13,159 46,736 273 60,168

25- Financial leased assets (Net)

31 December 2017

31 December 2016

LE 000’s LE 000’s

Cost


Additions 61,268 84,856

Disposals (69,642) (62,593)

319,850 328,224

Accumulated depreciation

Beginning balance (142,804) (119,469)

Depreciation (83,927) (84,033)

Disposals 55,909 60,698

(170,822) (142,804)

Net book value at the end of the period 149,028 185,420

26- Due to banks

31 December 2017

31 December 2016

LE 000’s LE 000’s


Deposits 759,108 2,210,246

Total 905,082 2,239,144

Local banks 90,659 200,039

Foreign banks 814,423 2,039,105

Total 905,082 2,239,144

Non-profit bearing balances 145,974 28,898

Fixed profit bearing balances 759,108 2,210,246

Total 905,082 2,239,144

27- Customers’ deposits

31 December 2017

31 December 2016

LE 000’s LE 000’s

Demand deposits 7,844,878 7,037,495

Time deposits and call accounts 7,248,569 3,950,393

Term saving certificates 8,933,356 9,517,332

Savings deposits 5,164,439 4,066,849

Other deposits 641,629 944,811

Total 29,832,871 25,516,880

Corporate deposits 9,374,714 8,727,543

Retail deposit 20,458,157 16,789,337

Total 29,832,871 25,516,880

Non-profit balances 4,256,685 5,127,587

Variable profit balances 25,576,186 20,389,293

Total 29,832,871 25,516,880

Current balances 20,899,515 15,999,548

Non-current balances 8,933,356 9,517,332

Total 29,832,871 25,516,880

28- Subordinated financing

31 December 2017

31 December 2016

LE 000’s LE 000’s

Subordinated Financing without coupon* 458,483 441,228

Subordinated Financing with coupon** 319,099 328,797

Total 777,582 770,025

31 December 2017

31 December 2016

LE 000’s LE 000’s

Balance at the beginning of the period 441,228 258,205

Cost of subordinated loan using EIR 30,561 18,990

Closure of subordinated financing given on 27 Dec 2012 - (117,747)

Foreign exchange difference (13,306) 281,780

Total 458,483 441,228

* Subordinated financing represents amount of USD 39 Million granted from Abu Dhabi Islamic Bank- UAE under Wakala investment agreement for 6 years

starting from 27 December 2012 with a profit rate equals to 0.125% from the investment amount and the expected profit equals to (LIBOR USD) on any

extension period after those 6 years. On 27 March 2016, a supplementary agreement for the subordinated financing has been made to increase the tenor

period for 3 tranches of the agreement ending 27 December 2023 instead of 27 December 2018 by an amount of USD 29,250 Thousands, subsequently, at 27

December 2016 a supplementary agreement for the subordinated financing has been made to increase the tenor period for fourth tranche of the agreement

ending 27 December 2023 instead of 27 December 2018 by an amount of USD 9,750 Thousands . The bank has recorded the mentioned first three tranches

by using discount rate 7.51% and the fourth one with rate 5.88% which affected the shareholder’s equity by a net amount of LE 81,150 Thousands, which is

represents the difference between the face value and the present value of the subordinated financing as of subordinated financing extension agreement date.

** On 29 September 2016 the bank was granted an additional subordinated financing of USD 9mn from Abu Dhabi Islamic Bank-UAE under Wakala






** On 29 December 2016 the bank was granted an additional subordinated financing of USD 9mn from Abu Dhabi Islamic Bank-UAE under Wakala



29- Other liabilities

31 December 2017

31 December 2016

LE 000’s LE 000’s

Accrued revenue 181,999 69,400

Unearned revenues from the sale & leaseback assets - 2,080

Accrued expenses 274,821 225,813

Down payment - leasing clients 37,344 38,932

Due to tax authority - Credit balances * 271,828 271,828

Other credit balances 1,079,583 684,764

Total 1,845,575 1,292,817

*Represents amounts under settlements in dispute with the Tax Authority (note 38)

30- Other Provisions

Value LE 000’s

* Provision for Contingent

Claims

Provision for Tax

Provision for Contingent

Liabilities

Other Provision

Total

Balance as of 1 January 2016 1,615,817 62,483 29,209 11,722 1,719,231

Provisions charged during the period 26,122 4,553 21,628 732 53,035

Provisions used during the period (13,827) (5,096) - (415) (19,338)

Provisions no longer required (93,231) - (1,480) (641) (95,352)

Foreign exchange difference - - 1,650 - 1,650

Balance as of 31 December 2017 1,534,881 61,940 51,007 11,398 1,659,225

Balance as of 1 January 2016 101,281 49,451 12,437 3,686 166,855

Provisions charged during the year 1,527,443 13,987 1,824 8,036 1,551,290

Provisions used during the year (1,292) (3,822) - - (5,114)

Provision no longer required (11,615) - - - (11,615)

Foreign exchange difference - - 14,948 - 14,948

Transferred to tax provision - 2,867 - - 2,867

Balance as of 31 December 2016 1,615,817 62,483 29,209 11,722 1,719,231

*As notified in the bank’s General Assembly Meeting held on 18 October 2015, there is a probable claim from Abu Dhabi Islamic Bank-UAE relating to a

difference in opinion as to whether the USD amounts paid by Abu Dhabi Islamic Bank-UAE under capital increase should be treated as USD or EGP amounts.

Based on Abu Dhabi Islamic Bank-Egypt’s external legal opinion on probability of loss from the foreign currency movement, the bank has built a provision of

EGP 1,515 million under provision for probable claims for the effect of the foreign currency movement from 31 December 2014 up to 31 December 2017.

31- Deferred taxThe deferred tax calculated on the differences based on the liability using the actual tax rate.

31 December 2017

31 December 2016

LE 000’s LE 000’s


“Assets / (liabilities)”

The following is balance of assets/liabilities of deferred tax:Fixed assets (Depreciation) (48,905) (34,371)Provisions (other than the impairment loss for financing) 6,114 30,264 Profit in suspense 11,561 7,959 Tax losses carried forward - 351,011 Net tax resulted in assets (31,230) 354,863

31 December 2017

31 December 2016

LE 000’s LE 000’s



Movement of deferred tax assets and liabilities method:

Beginning balance of the period 354,863 564,521 Additions 3,169 5,183 Disposals (389,262) (214,841)Ending balance of the period (31,230) 354,863

Deferred tax assets resulted from tax losses carried forward are not recognized unless there’s future taxable profits is likely to happen by which the bank can benefit from on the short term.

32- Capital32-1 Authorized capitalThe authorized capital amounts to LE 4bn (December 31st, 2016: LE 4bn)

32-2 Issued and paid-In capital:The issued and paid in capital amounted to LE 2Bn (December 31st, 2016: LE 2Bn) represented by 200mn shares with a nominal value of LE 10 per share

32-3 Amounts paid under capital increaseADIB – UAE made cash deposit of LE 1,662k as amounts paid under capital increase up till year 2012, on 28 December, 2011 ADIB – UAE approved to transfer the full amount of subordinated financing of LE 199mn to amounts paid under capital increase, Accordingly balance of total amounts paid under capital increase reached LE 1,861mn at 31 December 2017 (December 31, 2016 LE 1,861Mn).




33- Reserves and accumulated losses

31 December 2017

31 December 2016

Reserves LE 000’s LE 000’s

Legal reserves 42,522 22,878

General reserve 22,878 42,522 Special reserves 31,640 26,257 Fair value reserve – Investments available for sale 28,912 17,884 General Banking Risk Reserve 115,587 79,437 General Reserve IFRS 9 190,095 - Total 431,634 188,978

33-1 Special reserves

31 December 2017

31 December 2016

LE 000’s LE 000’s

Adjustments resulted from change in the valuation policy of AFS Investments related to prior years

17,165 17,165

Adjustment resulted from valuation policy of impairment loss for financing and facilities of prior years

9,092 9,092

Adjustments for change in FX Revaluation of monetary assets and liabilities 5,383 -

Total 31,640 26,257

• Distribution from this reserve prohibited unless there is CBE approval• Distribution from this reserve prohibited unless there FRA.

33-2 Fair value reserve – Available for sale investments

31 December 2017

31 December 2016

LE 000’s LE 000’s


Net Change in fair value 11,028 (17,018)(Loss) Profit transferred to income statement related to AFS disposals - (546)Ending balance of the period 28,912 17,884

33-3 General banking risk reserves

31 December 2017

31 December 2016

LE 000’s LE 000’s


Transferred from ( To) accumulated losses 36,150 6,653 Ending balance 115,587 79,437

The CBE instructions require the bank to provide general bank reserves to guarantee any differences in impairment loss measurement methods for financings/facilities and assets reverted to the bank (Note 3/1/4)

33-4 Accumulated losses

31 December 2017

31 December 2016

LE 000’s LE 000’s

Beginning balance (2,564,156) (2,980,943)

Prior Year Adjustments - (10,494)Net income for the period 633,092 414,096 Transferred to general banking risk reserve (36,150) (6,653)Transfer to Credit Reserve - IFRS 9 (190,095) - Amortization of the difference between FV and PV of the subordinated financing 30,561 18,990 Prior periods adjustment - Subsidiaries - 4,104 Dividends paid - Dividend subsidiaries - (3,256)

Ending balance of the period (2,126,748) (2,564,156)

33-5 General Reserve IFRS 9*

31 December 2017

31 December 2016

LE 000’s LE 000’s

Beginning balance - -

1% of Risk - weighted Assets - Credit Risk 190,095 - Total 190,095 -

* This reserve is prohibited to be used without CBE approval.

34- Cash and cash equivalentFor the purpose of presenting the cash flow statement, cash and cash equivalents include the following balances maturing within less than 3 months from the date of acquisition.

31 December 2017

31 December 2016

LE 000’s LE 000’s

Cash and due from CBE (Note 13) 2,125,571 1,322,098

Due from banks (Note 14) 1,308,392 3,398,494 Treasury bills (Note 15) 7,851,533 4,748,319 Due from banks maturities more than 3 months (1,126,773) (3,085,202)Treasury bills maturities more than 3 months (4,203,150) (4,746,342)Total 5,955,573 1,637,367

35- Contingent liabilities and commitments35-1 Capital commitments:The Banks contracts for capital commitments reached LE 21,087 Thousands as of 31 December 2017 (31 December 2016: LE 6,520 Thousands). Representing purchases of fixed assets and the management is adequately confident that finance shall be made available to cover these commitments when due.




35-2 Contingent liabilities

31 December 2017

31 December 2016

LE 000’s LE 000’s

Financing commitment 1,015,314 265,785

Letter of guarantee 1,363,652 917,694 Documentary credit 291,083 147,062 Bank guarantees 1,013,447 888,511 Total 3,683,496 2,219,052

35-3 Operating lease commitment

31 December 2017

31 December 2016

LE 000’s LE 000’s

Less than one year

From 1 year up to 5 years 6,274 16,079 More than 5 years 115,288 23,619 Total 121,562 39,698

36- Related party transactions36-1 The related party balances included in the consolidated financial statement were as follows

AssociatesMajor

shareholderTotal

LE 000’s LE 000’s LE 000’s

31 December 2017

Due from banks - 128,972 128,972

Total - 128,972 128,972

Due to banks - 713,295 713,295




Difference between face value and present value of subordinated loan

- 81,150 81,150

Total 6,705 3,433,445 3,440,150

AssociatesMajor

shareholderTotal

LE 000’s LE 000’s LE 000’s

31 December 2016

Due from banks - 57,437 57,437

Total - 57,437 57,437

Due to banks - 1,646,970 1,646,970


Other liabilities - 59 59



Difference between face value and present value of subordinated loan

- 91,699 91,699

Total 6,526 4,370,171 4,376,697




36-2 During the Period significant transactions with related parties included in the consolidated income statement are as follows:

AssociatesMajor

shareholderTotal

LE 000’s LE 000’s LE 000’s

31 December 2017

Profit from Murabaha, Musharaka, Mudaraba and similar income

- 159 159

Cost of deposits and similar expenses - (28,099) (28,099)



AssociatesMajor

shareholderTotal

LE 000’s LE 000’s LE 000’s

31 December 2016

Cost of subordinated loan with zero copoun - (18,990) (18,990)

Cost of subordinated loan using EIR - (2,101) (2,101)

* Salaries and wages for the Period ended 31 December 2017 includes an amount of Thousand LE 20,8K which represents average total top 20 salaries paid during the Period.

37- Employees Benefits

31 December 2017

31 December 2016

LE 000’s LE 000’s

Liabilities listed in Balance sheet

Medical benefits past retirement 70,893 65,354 Total 70,893 65,354

Amounts recognized in Income statementPension benefits (37,396) (23,591)Medical benefits past retirement (21,608) (23,701)Total (59,004) (47,292)

37-1 Private insurance fundAt the first of July 2013, the bank established private insurance fund (the fund) according to Law No.54 for year 1975, the fund registered in EFSA on 14 January 2014 with No. (884), on 1 April 2014 the fund started its work. The employees in the head office and all branches are committed to the fund regulations. The bank obligated to pay monthly contributions, in which, calculated according to fund regulation, generally the fund financed through monthly contributions in addition to other resources that detected in fund regulation.


EFSA has approved to start investing the monthly contributions accrued to employees and depositing the amount in the fund manager investment account.

37-2 Legacy staff medical benefit planThe Bank has a Defined Benefit Medicare Plan for its legacy employees during their service period and post retirement, the bank hired independent actuarial expert to conduct the study and determine the necessary amount of the obligation to be recorded in financial statements using the projected unit credit method.

• The main assumptions are used by the actuarial expert listed as follows:-• Death rate from British table A49-ULT52• Inflation rate 12%• Discount rate 9.5%• Using projected unit credit method in calculating liabilities

37-3 Early retirement costBank pays 3,909 million EGP to the employees whom requested early retirement during the period to the employees who requested early retirement during the year.

37-4 End of service fund - Defined benefit plan for employees in National Company for Glass and CrystalThe national company for Crystal and Glass has End of service Defined benefit plan for workers. The company has assigned an independent actuarial expert to estimate the obligations resulting from the end of service mentioned above applying the total present value method of end of service reward discharged when the employees stay at work until they reach the legal age of retirement or death prior to that calculated in accordance with the terms of the actual service until 12/31/2014 and inserted at an annual salary until the end of the service.

The main assumptions used by the actuarial expert were represented as follows:

• The life rate according to the British table A67-70ULT of life rates.• Discount rate 12.5%• According to the restated labor law which were decided to have a minimum annual premium of 7% has been

considered that rate of 7% calculated annually • Legal retirement age is 60 years.

The expense of the liability was charged to the accumulated losses according to the Egyptian accounting standard No. 5 (Accounting policies and changes in accounting estimations and faults).




38- Tax positionTax position for ADIB - EGCorporate Tax

• The Bank’s corporate income tax position has been examined, paid and settled with the tax authority since the operations start up until the end of year 2012, pending disputed points are transferred to committees and the courts for adjudication.

• The bank’s corporate income tax position under examination for the year 2013:2014 and for 2015 it has been providing the tax declaration for 2015 within the legal deadline.

• The Bank started from February 2012 on the basis of the opinion of the legal advisor and the tax advisor of the Bank to raise the case in front of the judicial courts to recover the value of the payment of the treasury bills/bonds taxes as the bank was incurring tax losses during the financial years of the dispute and the following which lead to stop paying these taxes and their penalties which is shown in other assets “due from tax authority”, (Note 21). During the period, the Bank appealed to the Supreme Administrative Court against the ruling issued by the Administrative Court of First Instance rejecting the case to form a multiplicity of plaintiffs and filing another claim individually to refund what paid of T-bills/Bonds taxes in excess of the tax payable amounts during the financial years in dispute, based on the same foundations already cited by the previous case, and saw both legal advisor and consultant tax of the Bank that the court ruling of this case will be in the favor of the bank.

• The Bank has charged the necessary provisions for tax on income of T-Bills/Bonds for the years which the bank incurs tax profits

Salary tax• Tax inspections and internal committee for the years prior 2013/2014 has been finalized and no tax due for this

year• The Bank’s salary tax is currently under examination for the year 2015/2016.• The bank pays the payroll taxes on monthly basis on the due dates as stated by law.

Stamp duty tax

• Tax Inception and payment done till end 31 March 2013.• Period from 1 April 2013 till 31 December 2015 still under inception.• Year 2016, bank didn’t receive any notes to start the inception.

Sales tax

• Inspection of the bank branches till 2015 has been finalized and all taxes due were paid. • Years 2016/2017 still to inspect.

Real estate Tax

• The bank received claims for real estate tax for some branches and the bank objected on these claims in the legal deadlines, and we are following - up the objections in front of the appeal committees for these claims.

Tax position for National Company for glass and crystalCorporate tax

• Tax inspections till year 2006 have been fully completed and all due taxes have been paid.• However there is an incurred retained tax losses, an estimated tax inspection had been done from 2007 till 2010

and the dispute is being considered in the appeals committee.• Company books have not been inspected for years ended 2011 till 2015.

Sales tax

• Tax inspections till year 2012 have been fully completed all due taxes have been paid.• Tax inspections for the years 2013 and 2014 have been done and the dispute is being considered in the appeals

committee.• Company books have not been inspected for year ended 2015.

Salary tax• Tax inspections till year 2004 have been fully completed and all due taxes have been paid.• However there is an incurred retained tax losses, an estimated tax inspection had been done from 2005 till 2010

and the dispute is being considered in the appeals committee.• Company books have not been inspected for years ended 2011 till 2015.

Stamp duty tax

• Tax inspections for the years prior 2015 have been fully completed and all due taxes have been paid.

Tax position for national company for trading and development (ENTAD):Sales tax

• Tax inspections till 2011 have been fully completed and all due taxes have been paid.• From year 2012 up to date, the company books have not been inspected and the company is submitting the tax

declarations on the legal dates and pay all taxes according to these declarations.

Stamp duty tax

• Tax inspections till year 2004 have been fully completed and all due taxes have been paid.• Company books have not been inspected for years ended 2005 up to date.

Salary tax• Period from the beginning of the activity till 31/12/2004:

Tax inspection has been fully completed and all due taxes have been paid.

• Period from 1/1/2005 up to date:Company is paying due taxes regularly as per the monthly salary schedules in its due dates, Tax inspection is not performed till date.

Corporate tax:• Period from the beginning of the activity till 31 December 2004

The tax inspection had been done and there is final claim with EGP 4.8Mn in addition to the late payment penalties and the company paid EGP 1.7Mn and the rest of due taxes will be settled.

• Period from 1/1/2005 up to date:Company is paying due taxes regularly as per the monthly salary schedules in its due dates, Tax inspection is not performed till date.




Tax position for Cairo national company for investmentIncome tax

• From 1995 till 2012:Tax inspection has been fully completed and all due taxes have been paid as agreed with tax authority.

• From 2005 till 2016:The tax return was prepared and delivered to tax authority for this period in accordance with income tax law No.91 for the year 2005 and its executive regulations.

The income tax EGP 65,058 is representing the withholding taxes on treasury bills-bonds and the tax of dividends income on shares.

Salary tax

• Tax inspection from 1995 till 2014 has been fully completed and all due taxes have been paid.• The taxes are paid monthly and in regular basis.

Stamp duty tax

• Tax inspection from 1995 to 2010 has been fully completed and all due taxes have been paid.• Tax inspection for the periods from 2011 to 2014 is not performed yet.

Real estate Tax

• The company paid the due real estate tax till 31-December-2015 according to the latest valuation of the company headquarter without any disputes with the tax authority.

Tax position for Assiut Islamic company for trading and developmentIncome tax

• From 1989 till 1992:Tax inspections for the years have been fully completed and all due taxes have been paid.

• From 1993 till 1995:The company paid in accordance to the latest court order.

• From 1996 and 1997:The company books are inspected waiting for the inspection declaration to be prepared by the inspection officer.

• From 1998 till 2002:Processing by the council of the country.

• For 2003 till 2004:However the company books are not inspected, the company received from # 19 and it is appealed.

• For 2005 till 2009:The tax return was prepared and delivered to tax authority for this period in accordance with income tax law No.91 for the year 2005 and its executive regulations.

• For 2010 till 2015:The tax inspection for these years in under processing.

Salary tax

• Tax inspections have been fully completed and all due taxes have been paid till 31 December 1994.• The taxes paid monthly and in regular basis till the balance sheet date.• The tax inspection for year 1995 till 2011 is under processing.

Withholding tax

• Tax inspection have been fully completed and all due taxes have been paid till 30 September 2005.• The tax is paid regularly on quarterly basis till the balance sheet date.

Stamp duty tax

• Tax inspection has been completed and all the due taxes have been paid up to 31 December 2010. • Tax inspection for 2011 till 2016 has not been done yet.

Sales TaxThe company is submitting the tax declarations of National Palace Hotel regularly till the balance sheet date.

Social insuranceThe insurance due taxes are paid on regular basis till the balance sheet date.

Tax position for ADI leaseCorporate tax

• Tax inspections till year ended 2000 have been fully completed and all due taxes have been settled.• Tax inspections from 1/1/2001 till 31/12/2009 have been fully completed and the company notified of the tax

inspection result with form (19) and objected on legal dates to the result of the tax inspection and the internal committee is currently considering the tax dispute and this dispute is settled with paying the tax differences.

• No tax inspection has been carried out from 2010 up till now.

Salary tax

• Salary tax inspections till 2001 have been fully completed and the company objected to the result of the tax inspection and the internal committee was notified and all due taxes have been settled.

• Salary tax inspections from 1/1/2002 till 31/12/2009 have been fully completed and the internal committee was held and all due taxes have been settled.

• No tax inspection has been carried out from 2010 up till now.

Stamp tax

• Tax inspections till 31/12/2010 have been fully completed and all due taxes have been settled.• No tax inspection has been carried out from 2011 up till now.




Tax position for ADI HoldingCorporate tax No tax inspection has been carried out up till date.

Salary tax

• Salary tax is paid on regular monthly payments.• No tax inspection has been carried out up till date.

Stamp taxNo tax inspection has been carried out up till date.

Value added taxThe company is not subject to this tax.

Tax position for ADIB capitalCommercial & Industrial income tax

• Company is subject to tax law no. 91 year 2005 and its amendments.• No tax inspection has been carried out up till date.

Salary tax


Stamp taxCompany is subject to tax law no. 143 year 2006 and its amendments.

Value added taxThe company is not subject to this tax.

Tax position for ADI propertiesCommercial and manufacturing profits tax

• The company is subject to the corporate tax No.91 for 2005 and its amendments.• There is no tax inspection has taken place for the period from the inception date till date.

Salary tax


Stamp duty taxes

• The company is subject to the corporate tax No.143 for 2006 and its amendments.• No tax inspection has been carried out up till date.

Tax position for Cairo national company for brokerage and securities:Corporate tax

• Tax inspections from 1995 to 2004 have been fully completed and all due taxes have been settled.• Years from 2005 to 2016 tax declarations have been sent on time according to law regulations 1991 – 2005 and

settled.• The inspection for years 2010 till 2012 is under processing.

Salary tax

• Tax inspections from 1995 to 2012 have been fully completed and all due taxes have been settled.• Tax inspection for years 2013 till 2017 is under processing.• The taxes are paid monthly and in regular basis.

Tax position for Alexandria national company for investment:Corporate tax

• Tax inspections from the beginning of the activity till 31 December 2010 have been fully completed and all due taxes have been settled.

• Years from 1 January 2011 to 31 December 2015 no tax inspection has been carried out and tax declarations have been sent on time and no tax dues have been recognized.

Movable values tax

• Years from the beginning of the of the company’s activity till 31 December 1999 no agreement has been set with the tax authority regarding the tax pools for 1996/1999 with amount EGP 279 K and a court case was raised without judgment till now.

• Tax inspections from 1 January 2000 to 31 December 2004 have been fully completed and all due taxes have been settled.

Salary tax

• Tax inspections till 2006 have been fully completed and all due taxes have been settled.• Tax inspections from 1/1/2007 till 31/12/2009 have been fully completed.• Salary tax is paid to tax authority on regular monthly payments from employees’ salaries

Stamp tax

• Tax inspections till 2012 have been fully completed and all due taxes have been settled.• No tax inspection has been carried out from 1 January 2013 till 31 December 2015.



39- Subsequent events:The IASB issued IFRS 9 ‘Financial Instruments’ in its final form in July 2014 and Central Bank of Egypt (“CBE”) issued a circular on 28 January 2018 instructing Banks to implement the standard with effect from 1 January 2019. IFRS 9 sets out the requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non- financial assets, impairment of financial assets and hedge accounting. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.

A) Classification and measurement The adoption of this standard will have an effect on the classification and measurement of Group’s financial assets but is not expected to have a significant impact on the classification and measurement of financial liabilities. The classification and measurement of financial assets will depend on how these are managed (the entity’s business model) and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at amortized cost, fair value through other comprehensive income or fair value through statement of income. The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.

B) Impairment of financial assets The impairment requirements apply to financial assets measured at amortized cost, fair value through other comprehensive income, and lease receivables and certain loan commitments and financial guarantee contracts. At initial recognition, allowance is required for expected credit losses (‘ECL’) resulting from default events that are possible within the next 12 months (’12-month ECL’). In the event of a significant increase in credit risk, allowance is required for ECL resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’).

Financial assets where 12-month ECL is recognized are considered to be ‘stage 1’; financial assets which are considered to have experienced a significant increase in credit risk are in ‘stage 2’; and financial assets for which there is objective evidence of impairment so are considered to be in default or otherwise credit impaired are in ‘stage 3’.

The assessment of whether credit risk has increased significantly since initial recognition is performed for each reporting period by considering the change in the risk of default occurring over the remaining life of the financial instrument, rather than by considering an increase in ECL.

The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should incorporate all available information which is relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money. As a result, the recognition and measurement of impairment is intended to be more forward-looking than under IAS 39 and the resulting impairment charge will tend to be more volatile.

The Bank is in the process of quantifying the impact of this standard on the Bank’s consolidated financial statements, when adopted. CBE in its circular of 28 January 2018 has mandated all Banks to account for a reserve equal to 1% of the credit Risk Weighted Assets (“RWA”) as of 31 December 2017, the reserve amounted EGP 190,094,628. CBE has also advised that this reserve should be included in Tier 1 Capital and should be appropriated only with CBE’s approval.

164 ADIB Annual Report 2017

ANNUAL REPORT 2017 - Abu Dhabi Islamic Bank (ADIB) · Abu Dhabi Islamic Bank and the Emirates...

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