BLOM Bank SAL : 2021 Annual Report

ANNUAL REPORT

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Table of Content

I	Chairman's Letter	4
II	Key Figures	8
III	Main Indicators	10
IV	Organizational Chart	11
V	Group Chart	12
VI	Corporate Governance	14
	1. Code of Corporate Governance
	2. BLOM BANK S.A.L. Major Common Shareholders
	3. Honorary and Advisory
	4. Board of Directors
	5. Biographies of Key Members of BLOM BANK S.A.L. Management
	6. BLOM BANK S.A.L. Commercial Arrangements
	7. General Management of BLOM BANK S.A.L.
VII	Management Discussion & Analysis 2021	35
	1. The Operating Economic and Financial Environment in Lebanon in 2021
	2. Overview
	3. Evolution of Total Assets
	4. Sources of Funds
	5. Uses of Funds
	6. Performance
	7. Dividend Distribution
	8. Risk Management and Basel Preparations
	9. Corporate Governance
	10. Universal Banking Services
	11. Information Systems and Technology
	12. People Development
	13. Sustainability

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VIII	Consolidated Financial Statements	89
	1. Auditors' Report
	2. Consolidated Income Statement for the year ended 31 December 2021
	3. Consolidated Statement of Comprehensive Income for the year ended 31 December 2021
	4. Consolidated Statement of Financial Position as at 31 December 2021
	5. Consolidated Statement of Changes in Equity for the year ended 31 December 2021
	6. Consolidated Statement of Cash Flow for the year ended 31 December 2021
	7. Notes to the Consolidated Financial Statements
IX	Worldwide Correspondent Banks	224
X	BLOM BANK Group Management & Network	225
	1. Banks & Financial Subsidiaries
	2. Insurance Subsidiaries

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Chairman's Letter

ASSETS USD 26.47 billion

DEPOSITS USD 20.38 billion

LOANS USD 2.24 billion

The Lebanese economic crisis is close to finishing its third year, yet there is still no end in sight. Faced with these challenges, BLOM BANK tried its best to adjust to these difficult conditions and its efforts have been met with relative success. In terms of numbers, BLOM BANK's consolidated financial results for year 2021 show that net profits reached USD 4.417 million, compared to USD 2.604 million at end 2020. BLOM BANK also booked a total of USD 456.468 million in provisions for expected credit losses for sovereign exposure and lending portfolio, and it took an additional USD 72.177 million in provisions for trading position fluctuations, with all provisions recorded in the same currency as their related exposures.

As to balance sheet items, deposits were USD 20.381 billion at end 2021, lower by 3.36% from end 2020; while shareholders' equity stood at USD 3.182 billion, less by only 0.09%; and the Bank's deposits and shareholders' equity were each the largest in the Lebanese banking sector. As to assets, they were USD 26.469 billion, lower by 10.93%; whereas loans fell to USD 2.242 billion, less by 28.16%. And in terms of efficiency and relative asset quality, the cost to income ratio increased from 63.45% to 76.55%, and net NPLs decreased from 9.77% to 5.39%, a worthy achievement given the depth and length of the crisis.

Moreover, BLOM BANK abided by all relevant BDL regulations and circulars in preparing the Financials for 2021. In this respect, it is important to point out though, that the deteriorating economic and monetary situation in the economy and markets, and the continued absence of agreement on an adequate financial rescue plan, make it impossible to estimate the negative effect of the current crisis on Financial Statements according to the International Accounting Standards. Also, BLOM BANK would like, again, to apologize to its customers and to express its regret for all the restrictions that it was obliged to impose - like limits on withdrawals and international transfers -and that were applied without favoritism towards any of its clients, shareholders, or employees, in the aim of protecting the Bank's liquidity especially in USD.

Beyond the numbers, the Bank's financial performance was also underpinned by initiatives and partnerships that helped bolster its standing and the flow of services to its clients and the wider community. Reflective of the bank's dynamic course, three initiatives stand out:

1. OMT Visa Prepaid Card: In line with our financial inclusion strategy and CSR activities in providing payment options for the unbanked, we have extended our existing partnership with OMT. Given that OMT has a wide network of more than 1,200 outlets dispersed across Lebanon, individuals who are living in rural areas would now have access to get a first of its kind dual currency prepaid card: the OMT prepaid card. This initiative has witnessed great success as we have noticed a high demand on the card whereby more than 15,000 cards have already been issued since the launching.
2. BLOM Bank Winner of WFP-Louise Agencies Cash Assistance Program: The WFP-LouiseAgencies have always led initiatives to support families who are in need as is the case in Lebanon right now. To that effect, BLOM BANK was selected by the Agencies as a Financial Service Provider (FSP) for the cash by agents and cash in envelop solutions. The contract is for three years with an option to extend it for a maximum of 2 consecutive periods of one year each. In fact, this initiative is among several successful initiatives that BLOM BANK has worked on along with the UN agencies. And one of the most recent projects was Winter Cash Assistance for Lebanese, whereby BLOM BANK has extended the disbursement of cash assistance through the network of OMT.
3. The Building Beirut Businesses Back and Better Funds. In December 2020, the World Bank established a multi-donortrust fund "The Building Beirut Businesses Back and Better (B5) Fund". The fund is comprised of a USD 25 million grant financed by the Lebanon Financing Facility (LFF). The objective of this fund is to support MSEs that were impacted by the Port of Beirut explosion of August 4, 2020 and to help them sustain

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their operations. In order to ensure that our customers are aware of this fund, we have coordinated closely with those that were impacted by the blast and made sure they have all the needed information in order to submit their applications and benefit from the grant.

BLOM's initiatives were not restricted to the Bank only, but as importantly they were also projected at the macro level. Most crucial in this context is its contribution to the ongoing debate regarding the economic plan approved by the government in May 2022 and the Staff-Level agreement signed with the IMF in April 2022. To start with, the Bank strongly supports the necessity of an agreement between the IMF and the Lebanese government; and it agrees with all the preconditions of the agreement. It also believes that the agreement is the only and best way to get Lebanon out of its prolonged crisis.

Also, the Bank strongly approves of the government's economic plan, especially the parts that relate to economic and governance reforms. Where the Bank differs with the plan, however, is in its treatment of the financial gap at BDL, but fortunately this disagreement is currently being negotiated with the government. The financial gap represents Lebanese banks' deposits at BDL, and it is estimated at more than USD 60 billion; more important, the gap arose because of spending by the government on expenditures such as transfers to EDL, electric power ships, subsidies to basic commodities, Eurobonds…etc. So banks, and by extension depositors and shareholders, are not legally and morally responsible for the financial gap.

Accordingly, the Bank took the initiative to formally submit to the government a proposal that uses the Lebanese state's current and future revenues to close BDL's financial gap. Most important and sizeable are the revenues from the future oil and gas discoveries off the Lebanese coast -- at current prices, preliminary estimates put these revenues at about USD 350 billion at a minimum. This could be done by earmarking a percentage of these hydrocarbon revenues and placing them in a special purpose vehicle (SPV) that would be established to that purpose. The SPV, as an independent company, would then issue financial papers (stocks and/or warrants) to depositors on a pro-rata basis and in accordance to the size of each depositor's money. And these papers could be listed on the stock exchange to provide immediate liquidity to depositors and to attract foreign investors.

We remain hopeful that the Staff-Level agreement with the IMF will become an Executive-Board agreement and the economic plan will be implemented with a just distribution of BDL financial losses. That should bode well for the country, for Lebanese banks, and of course for BLOM BANK. The Bank has managed rather well its current "survival mode", consolidating its capital base, reducing its loan book, taking more provisions, and all without laying off any employee or closing off any branch (except for consolidation purposes). A successful implementation of the reform program will then move the Bank to its "recovery mode", and will give it a chance to regroup and to take the interests of its stakeholders to a higher level. We certainly hope so, and we certainly will work hard to make that happen.

It is no exaggeration to say that Lebanon's economic crisis is deepening, especially in the absence of a functioning government and any corrective reform measures. This is naturally bound to impose tremendous pressures on banks to adjust to these difficult operating conditions. We at BLOM Bank feel confident that we can withstand these difficulties as we have geared our strategies to that purpose. We are shoring up our capital base and maintaining a CAR that is higher than what is required. And last but not least, we are trying to retain our staff and provide them with the feasible incentives so as to maintain the quality and credibility of our services. All this in the aim of preserving our shareholders' value and the interests of our stakeholders, and in the hope that the Bank will be on good footing once economic recovery and progress resume back in Lebanon in the near future.

Saad AZHARI

Chairman and General Manager

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