ANNUAL REPORT 2016

MANAGEMENT DISCUSSION AND ANALYSIS

1.0. INTRODUCTION

Founded in 1830, Bank Audi was incorporated in its present form in 1962 as a private joint stock company with limited liability (“société anonyme libanaise”) with a term of 99 years. Bank Audi is licensed by Banque du Liban (BDL) and registered on the Lebanese List of Banks under number 56 and on the Beirut Commercial Registry under number 11347. The Central Bank of Lebanon is the lead supervisor of Bank Audi and its subsidiaries. Bank Audi’s head office and registered address is Bank Audi Plaza, Omar Daouk Street, Bab Idriss, P.O. Box: 11-2560, Beirut, Lebanon.

The initial shareholders of Bank Audi were members of the Audi family, together with certain Kuwaiti investors. Since 1983, the shareholder base has expanded with an aim to build a diversified shareholders base in support of the growth story of the Group. At end-December 2016, a total number of common shares of 399,749,204, comprised of ordinary shares and Global Depositary Receipts (GDRs), were held by more than 1,500 shareholders varying between individual investors, institutional investors and a supranational agency. Ordinary shares are listed on the Beirut Stock Exchange while Global Depositary Receipts (GDRs) are listed on both the Beirut Stock Exchange and the London Stock Exchange.

Bank Audi has operations in Lebanon, Turkey, Egypt, France, Switzerland, Jordan, Saudi Arabia, Qatar, Abu Dhabi (through a representative office), Monaco and Iraq. Bank Audi Group operates principally through 10 banks and 3 financial companies in 11 countries, offering a full range of products and services that cover principally Commercial and Corporate Banking, Retail and Individual Banking, and Private Banking, as well as ancillary activities such as Investment Banking and Factoring. Throughout a network of 201 branches, 478 ATMs and 7,017 employees, the Bank draws its experience and expertise in providing more than 1 million clients with a full range of financial products and solutions.

Bank Audi ranks first among Lebanese banking groups and is positioned among the top Arab banking groups. Its strategy over the medium term is focused on three geographic development pillars, Lebanon, Turkey and Egypt, in addition to the continued development of its Private Banking business.

The discussion and analysis that follows cover the consolidated performance of Bank Audi in 2016. It was prepared based upon the audited consolidated financial statements of the Bank as at and for the fiscal years ended 31 December 2015 and 31 December 2016. Terms such as “Bank Audi”, “the Bank” or “the Group” refer to Bank Audi sal and its consolidated subsidiaries, as disclosed in Note 48 of the Bank’s 2016 audited financial statements. Main development pillars mentioned in the discussion and analysis refer to the following: Lebanese entities (consisting of Bank Audi sal, Audi Investment Bank sal, SOLIFAC, other minor Lebanese entities excluding consolidation adjustments), Turkey (representing Odea Bank A.Ş.), Egypt ( representing B ank A udi s ae ( Egypt)), P rivate B anking e ntities (consisting of Audi Private Bank sal, Banque Audi (Suisse), Audi Capital (KSA), Bank Audi LLC (Qatar) and Audi Capital Gestion (Monaco)), other entitites (consisting of Bank Audi France sa, Bank Audi sal - Jordan Branches , Bank Audi sal - Iraq Branches, and other European and MENA entities).

To note that, in September 2016, the Group deconsolidated and wrote off its investments in Bank Audi Syria, National Bank of Sudan and Arabeya Online. Subsequently, in the fourth quarter of 2016, the Bank sold its 76.56% participation in National Bank of Sudan.

The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS). Ernst & Young p.c.c. and BDO, Semaan, Gholam & Co. have jointly audited the annual financial statements.

As per regulatory requirements, the Bank maintains its accounts in Lebanese Pounds (LBP). Nonetheless, all figures presented in the following MD&A are in US Dollars (USD), unless otherwise stated, since the Bank transacts and funds the large majority of its business in US Dollars and functional currencies linked to the US Dollar. US Dollar amounts are translated from Lebanese Pounds at the closing rate of exchange published by the Central Bank of Lebanon (1,507.5 as of each of 31 December 2015 and 2016). References to foreign currency translation differences reflect the movement of functional currencies in the countries in which the Bank has a presence against the US Dollar.

All references to the Lebanese banking sector are to the 50 commercial banks operating in Lebanon as published by the Association of Banks in Lebanon (“ABL”). All references to the Bank’s peer group in Lebanon are to the Alpha Bank Group consisting of 14 banks with total deposits in excess of USD 2.0 billion each, as determined by Bankdata Financial Services WLL (publishers of Bilanbanques). All references to the Bank’s peer group in the MENA region are to the top regional Arab banking groups as compiled by the Bank’s Research Department.

Lebanon’s economic and banking data is derived from the International Monetary Fund, the Central Bank of Lebanon, various Lebanese governmental entities, and the Bank’s internal sources. The region’s economic and banking data is derived from the International Monetary Fund, the Economist Intelligence Unit, Bloomberg, the region’s central banks and the Bank’s internal sources.

This discussion and analysis starts with an overview of the Bank’s strategy, followed by a review of the operating environment and a comparative analysis of the Group’s financial conditions and results of operations as at end-December 2016 as compared to end-December 2015. An overview of share information comes next, followed by dividend policy, risk management, resources deployed, investors’ relations, compliance, environmental and social management system, and corporate social responsibility.