Annual Report 2011

Transcription

Annual Report 2011

HH Sheikh
HH Sheikh
Sabah Al-Ahmad
Al-Jaber Al-Sabah
Nawaf Al-Ahmad
Al-Jaber Al-Sabah
Emir of the State of Kuwait
Crown Prince of the State of Kuwait
Financial
Highlights
Net Profits (1953 - 2011)
(US$ million)
1,200
1,000
Operating Income
(US$ million)
Total Assets
(US$ million)
Net Profits
(US$ million)
800
50,000
600
1,200
2,500
48,000
1,000
2,000
400
46,000
800
200
2011
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
44,000
1953
0
1,500
600
42,000
1,000
400
40,000
500
2011
Net Interest Income
1,018
1,317
1,353
1,288
1,368
Non-Interest income
506
509
508
502
572
Operating Expenses
406
573
646
571
582
Net Profit
982
917
952
1,083
1,086
Total Assets
41,427
42,984 46,337
46,308 48,921
Assets Under Management
9,804
10,174
8,673
9,348
9,083
Shareholder’s Equity excluding proposed dividend 5,391
5,170
6,132
7,446
7,781
Market Capitalization
11,049 11,776
18,173
18,547 15,792
Return on Beginning equity excluding proposed
dividends %
29.9
Year-end price per share - US$
7.40
4.24
4.02
5.17
4.02
Basic earnings per share (Cents)
28
24
25
28
28
Proposed cash dividends (Cents)
27
16
14
14
14
Proposed bonus shares (%)
10
10
10
10
10
17.0
18.4
17.7
35.00
35.00
30.00
30.00
25.00
20.00
2.50
2.00
1.50
10.00
1.00
10.00
5.00
0.50
2011
2010
2009
2008
2007
2011
2010
2009
2008
2007
5.00
2
2011
3.00
15.00
0.00
2010
3.50
15.00
0.00
2009
Return on Average Assets
(%)
20.00
14.6
2008
2011
2010
2009
2008
Return on Equity
(%)
40.00
25.00
2007
2011
2010
2009
2008
Cost / Income ratio
(%)
0.00
2011
2010
2010
2009
2009
2008
0
2008
2007
0
2007
( In US$ millions, except where noted)
2007
36,000
2007
200
38,000
National Bank of Kuwait - Annual Report 2011
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OUR MISSION
To be the premier Arab Bank
Highest Credit Rating
in the Middle East
To achieve consistently superior returns
for our shareholders
To deliver world-class products and services
to our customers
A+
AA-
Aa3
To invest in people
To benefit the communities in which we operate
NBK AT A GLANCE
( 1952 - 2012 )
NBK was established in 1952 as the first local bank and the first shareholding company
in Kuwait and the Gulf region. Over the years, NBK has remained the leading financial
institution in Kuwait and has successfully extended its well-established franchise
throughout the Middle East. NBK currently operates through a large international network
covering the world’s leading financial and business centers across 16 countries.
Best Bank
in the Middle East
NBK has long been recognized for its excellent and stable management team and
its clear and focused strategy. NBK’s strength rests on its consistent profitability, high
asset quality, and strong capitalization. NBK offers a full spectrum of innovative and
unrivalled financial and investment services and solutions for individuals, corporate and
institutional clients. NBK currently enjoys a dominant market share with a large and ever
expanding local and regional client base
NBK has consistently been awarded the highest ratings among regional banks by the
major international ratings agencies; Moody’s, Standard and Poor’s and Fitch Ratings.
In 2011, NBK was named “Best Bank in the Middle East” by Global Finance, Euromoney
and The Banker.
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NBK across the Globe
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1 KUWAIT (No. of branches 69)
Tel: +965 2242 2011
Fax: +965 2246 5190
10 TURKEY (No. of branches 20)
Turkish Bank
Tel: +90 212373 6373
Fax: +90 212225 0353
15 CHINA
Shanghai Representative Office
Tel: +86 21 6888 1092
Fax: +86 21 5047 1011
WATANI FINANCIAL
BROKERAGE COMPANY
Tel: +965 2259 4948
Fax: +965 2245 0809
5 SAUDI ARABIA
Jeddah Branch
Tel: +966 2 653 8600
Fax: +966 2 653 8653
6 BAHRAIN (No. of branches 2)
Tel: +973 17 155 555
Fax: +973 17 104 860
11 SWITZERLAND
Tel: +41229064343
Fax: +41229064399
NBK CAPITAL
Tel: +965 2224 6901
Fax: +965 2224 6905
16 SINGAPORE
Singapore Branch
Tel: +65 6222 5348
Fax: +65 6224 5438
7 QATAR (No. of branches 10)
Tel: +974 4447 000
Fax: +974 4447 000
12 FRANCE
Paris Branch
Tel: +33 1 5659 8600
Fax: +33 1 5959 8623
2 IRAQ (No. of branches 14)
Tel: +964 1 7182198 / 7191944
Tel: +964 1 718884406 / 7171673
Fax: +964 1 7170156
8 UNITED ARAB EMIRATES
Dubai Branch
Tel: +971 4 2929222
Fax: +971 4 2943337
3 JORDAN (No. of branches 4)
Tel: +962 6 580 0400
Fax: +962 6 580 0401
4 LEBANON (No. of branches 10)
Tel: +961 1 759 700
Fax: +961 1 747 866
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NBK Capital - UAE
Tel: +971 4 3652800
Fax: +971 4 3652805
9 EGYPT (No. of branches 41)
Al Watany Bank of Egypt
Tel: +202 333 88816 / 17
Fax: +202 333 79302
13 UNITED KINGDOM
London Branch
Tel: +44 20 7224 2277
Fax: +44 20 7224 2101
NBK maintained its lead in the domestic market where it has a dominant
position. It now has 67 branches and over 200 ATMs in Kuwait. The
bank strengthened its position in the region, where its expansion is part
of a strategy to diversify revenue streams and to achieve growth. NBK
made further consolidation of its regional operations, bringing the full
benefits of its unrivalled core management and treasury function to
extract synergies and enable closer integration. The Bank’s international
network now comprises 109 branches, subsidiaries and representative
offices in 16 countries on four continents, of which 10 are in the Middle
East.
14 UNITED STATES OF AMERICA
New York Branch
Tel: +1 212 303 9800
Fax: +1 212 319 8269
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Board
of
Directors
1 Mohammad Abdul Rahman Al-Bahar
Chairman
2 Nasser Musaed Abdullah Al-Sayer
Vice Chairman
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3 Hamad Abdul Aziz Al-Sager
Board Member
4 Ghassan Ahmed Saoud Al-Khalid
Board Member
5 Yacoub Yousef Al-Fulaij
Board Member
6 Hamad Mohammed Abdul Rahman Al-Bahar
Board Member
7 Muthana Mohamed Ahmed Al-Hamad
Board Member
8 Haitham Sulaiman Hamoud Al-Khaled
Board Member
9 Loay Jassim Mohammed Al-Kharafi
Board Member
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Chairman's
Message
2011
Dear Shareholders,
I am proud to present to you National Bank
of Kuwait Group’s 59th annual report. 2011
proved a rewarding year for the bank, which
achieved strong performance despite the
challenging global and regional financial and
political difficulties. NBK proved sustainably
resilient thanks to our conservative strategy,
intelligent risk management and strong
financial position. Over the course of the year,
NBK Group focused on the bank’s strengths,
continuing to develop the products, services
and alternative delivery channels to meet our
clients’ current and future needs and maintain
our reputation as the premier Arab bank.
Strong Financial Performance
NBK Group delivered success at every level despite a
difficult year. Stagnancy in the local operating environment
had a negative impact on business and economic activity
across the board while the weak performance of the Kuwait
Stock Exchange further eroded confidence.
Globally, the consequences of the global financial crisis and
credit crunch continued to impact business while the debt
crises in Europe and the United States added to the financial
gloom. At the same time, the political turmoil in the Arab
world impacted negatively the region as a whole, depressing
economic growth in North Africa and the Levant and feeding
investor fears.
Despite this, NBK Group achieved a strong performance
thanks to the bank’s resilience, clear strategy, conservative
culture, high professional standards and stable management
team, all of which have limited the bank’s exposure to lower
quality assets in and outside of Kuwait.
NBK’s net profits reached KWD 302.4 million (USD 1,086
million) in 2011, contributing more than 50% of the Kuwaiti
banking sector profits for the year and confirming NBK’s
lead position in Kuwait. High returns to our shareholders
remained the focus of the group. Return on equity and
return on assets were strong by regional and international
capital ratios turn more important in such gloomy times,
NBK’s capital adequacy ratio reached a comforting 18.3%
at year-end 2011 ahead of most peers and significantly
above all regulatory requirements. NBK’s asset quality
indicators remained a differentiator in times when it is
becoming a significant challenge for financial institutions
across the globe. NPLs/Gross loans ratio remained
significantly low at 1.55% with a high provision coverage
buffer exceeding 240%.
At end December 2011, total group assets reached KWD
13.6 billion (USD 48.9 billion) and total shareholders’ equity
grew to KWD 2.2 billion (USD 7.8 billion).
NBK Board of Directors has recommended the distribution
of 40 fils cash dividend per share, representing 40% of the
nominal share value. The board has also recommended the
distribution of a 10% bonus shares (10 shares for every 100
shares owned) to shareholders registered at the time of the
annual general assembly.
Highest rated in the Middle East
Around the world, NBK is recognized as the premier Arab
bank. Its strong reputation is well founded: NBK continues
to hold the highest credit ratings among banks in the
Middle East, with rating agencies confirming the bank’s
leading franchise, strong financial position, robust earnings
capabilities and above peers asset quality. NBK has also
been recognized for its clear and consistent strategic
direction, its transparency and strong governance and the
stability and professionalism of its management team.
NBK is currently rated “Aa3” by Moody’s, “AA-” by Fitch
Ratings and carries a “A+” rating from Standard and Poor’s.
All NBK ratings have a stable outlook.
Recognition from rating agencies is especially important
in times of volatility and turmoil as credit ratings become
fundamental for assessing a financial institution’s quality;
in this instance further confirming NBK’s solid reputation
and regional leadership. Added to this, NBK has been
recognized as the ‘Best Bank in the Middle East’ for
the second consecutive year by the leading financial
publications; Global Finance, EuroMoney and The Banker.
standards reaching 14.6% and 2.25%, respectively. As
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Investing in the future
exponential growth taking place in Qatar.
NBK Group continues to grow both at home and abroad.
teams and our devoted employees for their commitment
prominent and respected business, financial and political
and professionalism. It has always been the people behind
leaders.
the bank that have led the way forward and I am confident
Regionally and internationally, NBK Group has the largest
At the same time, we remain committed to Egypt as a
branch network of any Gulf bank. NBK Group has invested
long term strategic market and despite the current political
USD 150 million in recent years in information technology
turmoil believe in the long term prospects for the Egyptian
Human Resources and CSR
strategy, its leadership and its way forward and am honored
and system upgrades while improving our alternative
economy and the potential opportunities in the region’s
NBK continued its commitment to Kuwait’s society and
to chair the world’s premier Arab bank.
delivery channels and e-banking capabilities to enhance
largest market. We’ve also experienced only limited impact
community. We believe that our people are our most
NBK’s customer service experience.
to our operations there thanks to our conservative and
valuable resource and to that end we’ve implemented
consistent strategy and determination to lay a forward-
numerous professional development and training programs
NBK offers a range of cross border services. Thanks to
thinking groundwork by building a professional class
while focusing recruiting efforts on hiring and training the
our regional expansion efforts, NBK has enjoyed a greater
of talent indoctrinated with NBK values, culture and
country’s best and brightest minds. Through programs like
Mohammed Abdul Rahman Al-Bahar
diversification of income streams and a growing customer
professionalism.
the High Fliers leadership program developed in partnership
Chairman of the Board of Directors
base across the region. In 2011, NBK Group focused on
of a bright and profitable future. I am confident in NBK’s
with the American University of Beirut, we’re grooming our
developing and upgrading IT capabilities across the group
Islamic banking
next generation of leaders and providing a forum for their
including rolling out Internet banking services in Bahrain,
NBK’s acquisition of a 47.3% stake in Boubyan Bank
acquisition of best practices in management, leadership
Dubai, Egypt and Jordan and strengthening security
throughout 2009-2010 laid the foundation for our strategic
and strategic thinking. Supporting the government’s
measures in all business locations.
expansion into the growing market of Islamic banking.
Kuwaitization initiative, NBK Group hired more than 200
In 2011, we began reaping the fruitful results of this
nationals, with nationals now comprising at least 60 percent
Under a new state-of-the-art banking system, NBK is in the
effort. Boubyan Bank showed significant improvement in
of the Group’s employees.
final phase of integrating its business units to the new core
profitability and market share following NBK’s strategic
system. During the year, NBK rolled out a new mobile phone
stake acquisition. NBK will continue supporting Boubyan
NBK’s commitment to corporate social responsibility is
banking platform in order to facilitate services and access
Bank by providing world class talent and expertise though
evident in the numerous cultural, community and social
and deliver an international standard of quality customer
we remain committed to operating as two separate
activities and charities the bank supported throughout
service to its customers in Kuwait. NBK also maintains the
entities.
the year. We continued our financial support for the NBK
largest branch network in Kuwait, providing ready access
Children’s Hospital, organized a series of community and
Governance
health initiatives, including a widely popular walkathon aimed
Success is built and NBK’s success is built on a solid
at encouraging a healthier lifestyle for people in Kuwait.
Additionally, NBK broke ground on its new head office in
foundation of rigorous and independent risk management
Our Ramadan social program included providing iftar for
the heart of Kuwait’s financial district. The new head office
practices, conservative strategy, stable leadership and
hundreds in Kuwait daily as well as sending aid relief for
will utilize the most advanced and cutting edge engineering
sound corporate governance systems and principals. Our
those struck by famine and fighting in war-torn Somalia.
and environment-friendly standards while adding a new
long serving board and executive management team have
landmark to Kuwait’s architectural achievements.
taken the lead in implementing and enforcing strict risk
Thanks and appreciation
management policies ring fenced from outside interference
Finally, on behalf of the board and executive management
Regional expansion strategy pays off
and in full compliance with all policies and regulations
of the bank, I would like to thank the authorities and
NBK Group’s regional expansion strategy has been
promulgated by government authorities.
regulators for their ongoing support of Kuwait’s economic
to our customers throughout the country.
stability and growth. We would also like to express our
validated by the Arab world’s changing geopolitical realities.
Despite unrest and a challenging operating environment,
NBK has been recognized for the last two consecutive years
deepest appreciation and thanks to the Central Bank of
NBK’s regional operations proved resilient. Though NBK
for its Investor Relations best practices which demonstrate
Kuwait for its continued support and leadership and its
has shifted focus to strengthening our GCC presence
the bank’s dedication to transparency and high level of
steady guidance during a very challenging year.
where growth remains imminent – especially focused on
disclosures.
We thank our shareholders and our customers for the trust
they place in us and for their continued support of NBK as
the Qatari market – we remain committed to our long term
regional expansion strategy.
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knowledge of a diverse group of some of the world’s most
Our International Advisory Board provides a critical sounding
the top financial institution in Kuwait and one of the leading
board for bank strategy and for understanding the changes
banks in the MENA region.
Our stake in International Bank of Qatar and our
taking place within the global financial system. Being the
commitment to its capital increase is expected to contribute
first Arab bank to have an international advisory board,
I would like to thank our Group Chief Executive Officer for
to the Group’s growth by increasing our exposure to the
NBK benefits from the expertise, experience and firsthand
his incisive leadership, our executive and management
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International
Advisory
Board
Chairman:
1 Sir John Major
Former Prime Minister of the United Kingdom
Members:
2 HRH Prince Turki Al-Faisal
Chairman, King Faisal Centre for Research and Islamic Studies, Saudi Arabia
3 Abdlatif Al-Hamad
Chairman and Director General, Arab Fund, Kuwait
4 Mukesh Ambani
Chairman and Managing Director, Reliance Industries Limited, India
5 Matthew Barrett
Former Chairman and CEO, Barclays Bank, UK
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6 Anthony Cordesman
Arleigh A. Burke Chair in Strategy, CSIS, US
7 Tom De Swaan
Chairman, Van Lanschot Bankiers, Netherlands
8 Suzan Sabancı Dinçer
Chairman and Executive Board Member, Akbank, Turkey
9 Mohamed El-Erian
CEO and co-CIO, PIMCO, US
10 Martin Feldstein
President Emeritus of NBER and Professor of Economics, Harvard University, US
11 Goh Chok Tong
Emeritus Senior Minister and Senior Advisor, Monetary Authority of Singapore
12 Toyoo Gyohten
President, Institute for International Monetary Affairs, Japan
13 Steve H. Hanke
Professor of Applied Economics, Johns Hopkins University, US
14 Mustafa V. Koç
Chairman, KOC Holding A.S., Turkey
15 Cees Maas
Senior Advisor Cerberus Global Investment Advisors,
Honorary Vice-Chairman and former CFO ING Group, Netherlands
16 Lubna Olayan
CEO, Olayan Financing Company, Saudi Arabia
17 William Rhodes
Senior Advisor and Former Vice Chairman, CitiGroup, US
18 Naguib Sawiris
Chairman and CEO, Orascom Telecom Holding S.A.E., Egypt
19 Klaus Schwab
Founder and Executive Chairman, World Economic Forum, Switzerland
20 Sir David Walker
Senior Advisor, Morgan Stanley International, UK
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Executive
Management
1
1 Ibrahim S. Dabdoub
Group Chief Executive Officer
2 Isam J. Al-Sager
Deputy Group Chief Executive Officer
3 Shaikha K. Al- Bahar
Chief Executive Officer for Kuwait
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4 George Y. Nasra
Managing Director - International Bank of Qatar
5 Salah Y. Al- Fulaij
CEO- NBK Capital
6 Omar Bouhadiba
Acting General Manager - International Banking Group
7 Jim Murphy
Group Chief Financial Officer
8 Georges Richani
Group Chief Investment Officer and Treasurer
9 Mazin Al-Nahedh
Group General Manager - Consumer Banking Group
10 Parkson Cheong
Group Chief Risk Officer
11 Fadi Chehayeb
Group Chief Information Officer
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Consumer Banking
Review
of
Activities
2011
In 2011, NBK maintained it leadership position in retail
banking in Kuwait. Focusing on customer service, the Bank
maintained high levels of customer satisfaction and loyalty
and improved customer communication and enhanced
the customer complaints unit to act promptly on queries,
in addition to adding new communication channels where
customers can reach support at any time. The introduction
of the new technology also helped the Bank obtain greater
efficiency and productivity from staff.
NBK’s leading position in bringing innovative marketing
customer promotions continued throughout 2011 with the
successful launch of the “Why NBK?” positioning campaign,
reflecting NBK’s unique banking experience.
Segments
Consumer Banking completed a creative facelift of NBK’s
award winning premium service Thahabi in early 2011,
maintaining Thahabi’s position in the Kuwaiti market as a
solid and leading affluent banking proposition with unique
personalized banking services.
Consumer Banking also expanded the focus on expatriate
segment, especially during the second half of the year by
building up a personalized banking service targeting both
Arab and non-Arab expatriates residing in Kuwait. NBK
is set to play a major role in expatriate banking in Kuwait
through its unique and wide branch network across the
region and the globe.
In 2011 NBK delivered success at every level.
The Bank maintained the highest ratings of any
bank in the region and was again named ‘Best
Bank in the Middle East’. The international
recognition serves as testimony to NBK’s
successful strategic direction, high asset
quality as well as its strong financial and capital
positions. Additionally, NBK focused during
the year on developing and upgrading its IT
capabilities across the Group. This enabled
the Bank to advance its product and service
innovation to better serve its growing customer
base – both in retail and in corporate banking.
Throughout the year, NBK maintained its
unrivalled franchise, leveraging it to strengthen
its domestic and regional market presence.
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To engage the strategic and growing Youth segment, a wide
range of creative and engaging promotions were executed
and resulted in growth in market share in this specific area.
Deposits and Insurance
NBK witnessed considerable growth in its consumer banking
deposits base in 2011 mainly driven by the continued trust
of our customers in one of the world’s safest banks. During
the year, NBK continued its focus on understanding and
addressing the needs of customers and was successful in
developing and launching a flexible term deposit, providing
customers with the opportunity to earn higher interest
rates, while receiving regular cash payments on their fixed
deposit.
On the insurance side, NBK continued to grow its premiums
through the sale of the travel insurance product “Travel
Safe” and the newly launched “Family Income Protection
(FIP)” product, which provides protection of income in the
event of accidental death or permanent disability.
Consumer Lending
In 2011, the Bank sustained its consumer lending market
share. NBK provided best-in-class products and processes
suitable to our customers’ lifestyles through the introduction
of a range of products and services, year-round promotions
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and offers including auto-loan promotions with car dealers.
NBK established Credit Life Insurance on instalment
loans and created innovative sales programs utilizing a
telemarketing channel. Consumer Banking introduced
loan kiosks at several malls and ministries to transform
“expressions of interest” into applications. NBK’s consumer
lending product benefits focused on fast tracking customer
finances through convenience, flexibility, 30 minute
approvals, accessibility and minimising the number of
documents required.
Later in the year, NBK introduced the “no rejection” policy
at branches, an amendment of credit policies to increase
the Bank’s market share of the private sector for Kuwaitis
and expatriates in addition to revisions of credit policies to
increase market share of the ladies’ segment.
Consumer Banking successfully rolled-out the “My App”
process across all channels to enable tracking of loan
applications, costs reductions due to less paperwork
and speeding up the receipt of applications from sales
channels.
Cards
NBK cards reigned supreme in the credit card market
through partnerships with Visa, MasterCard and DinersClub.
More and more of NBK’s high-net-worth Thahabi customers
have applied for the Bank’s Thahabi World MasterCard with
its broad range of exclusive services and loyalty rewards.
Possession of the Thahabi card opens doors that no other
card can.
In mid-2011, NBK introduced a second Titanium card
providing customers with unmatched benefits and
launched a special promotion for credit card use, offering
customers the chance to win valuable prizes. NBK cards
offer customers a raft of benefits and services including
concierge service, limousine service, accessibility to major
airport lounges and valet parking in key locations.
E-channels
In 2011, NBK Call Center continued to attract young,
talented Kuwaitis to join the No. 1 professional workforce in
Kuwait, to provide the highest level of customer service 24
hours a day, seven days a week.
NBK promoted and achieved customer acquisitions for its
wide range of electronic channels with the largest customer
base of internet banking and SMS in Kuwait. In mid-2011,
the Bank launched a NBK mobile banking application for
smart phones completing the electronic channel family and
will continue to invest in this area as NBK recognizes its
importance to the future of banking.
NBK continued to increase its spread and modernize
the ATM and CDM network across Kuwait to serve the
increasing demand on its network. NBK is constantly
working on innovative solutions to streamline its electronic
channel network and ensure consistent and satisfied
customer experience.
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Private Banking Group
As NBK’s wealth management division responsible for highnet-worth individuals (HNWI), the Private Banking Group
strengthened its leading position in this market segment
through a wide portfolio of innovative private banking
products and services tailored for its client base. Private
Banking saw a steady increase in its AUMs in 2011 despite
a turbulent year in the regional and international markets.
Adhering to the Bank’s conservative strategy, Private
Banking continued to advise clients to maintain safe and
secure investments and built on these strong and trusted
relationships.
The Private Banking Group continued to leverage NBK’s
international network extending its services to clients in
Beirut, Cairo, Dubai, Geneva, London, Manama, New
York and Paris. NBK continued to implement industry best
practices in asset allocation and risk profiling. The Bank’s
product line includes enhanced regional and international
brokerage capabilities and regional (MENA) discretionary
portfolio management mandates.
In 2011, Private Banking expanded advisory bonds
capabilities, assisted clients in locating and investing in
prime properties in the United Kingdom and the United
States and actively promoted Trust and other offshore
services.
Corporate Banking Group
NBK Corporate Banking performed well in 2011 solidifying its
leading market position in light of the challenging operating
environment, globally and locally, which continued to be
a difficult one for banks and their corporate customers.
This strong performance has been achieved on the back
of a conservative strategy, strong management, and a mix
of strengthening the Bank’s credit positions and creating
opportunities to cross sell and attract new customers.
Being a chief contributor to NBK’s profitability and future
growth, Corporate Banking sustained the growth of its
profitability in 2011, growing operating profit by over 5%,
while offering excellent customer service and supporting
the development of the country.
Corporate Banking continued to focus on a strategy of
growing business, broadening the scope of services and
expanding new relationships. These initiatives maintained
our leading stance in the corporate market in all segments.
Early in the year NBK was mandated lead arranger (MLA)
and book runner for the USD 1.3 billion revolving credit
facility that was assembled for strategic partner, Zain.
2011 witnessed a major shift in the business landscape,
with the identification under the wider development plan
for Kuwait of several projects to be tendered on a Public
Private Partnership (PPP) basis. This is the first time in the
history of Kuwait that the private sector will be involved on a
very large scale, in developing the infrastructure and utilities
of the State of Kuwait. Given NBK’s preeminent position in
Kuwait, we expect to play a major role in the financing of
these projects. This is expected, over a period of time, to
significantly increase our asset base as well as profitability.
As a first step in this direction NBK played a major role in
Stage I of the Az Zour North Independent Water and Power
Project (IWPP) by supporting most of the consortia bidding
for this project. The estimated value of this project is USD 3
billion and the plant, once completed, will generate a power
of 1500 MW and water of 102 MIGPD.
With the planned expenditure over the next few years,
exceeding USD 100 billion, a number of international
companies and institutions are closely following business
developments in Kuwait. NBK has been hosting a number
of business delegations visiting Kuwait and apprising
them of business opportunities and the overall economic
landscape.
During 2011, our Trade Finance Division launched a new
web-based Trade Finance system designed to fully automate
trade finance tools and increase the efficiency of the bank’s
trade finance activities. The tools will be integrated into
our Watani Online Corporate (WOLC) service and once
fully implemented, the upgrade will further strengthen the
competitive edge of the Group.
Our Trade Finance products have commanding market
share. The products provide sophisticated service quality
and complete support backed by NBK’s in-depth market
knowledge and international presence.
In 2011, we won two prestigious awards for best servicing
the needs of corporations in Kuwait: Banker Middle East’s
“Best Corporate Online Banking Services” and Global
Finance’s “Best Trade Finance Bank”. Customer service,
initiatives technologies and scope of coverage were among
the many criteria the selections were based on.
Corporate customers, more than ever, needed superior
competence from their banking partner. NBK Corporate
Banking remains the most outstanding bank in Kuwait
in providing that competency through its dedication to
customer service excellence, quality, productivity, and
overall customer experience. Our customer service quality
indicators were very strong, as revealed by the Customer
Satisfaction Survey (CSS) conducted in 2011.
Our outlook for 2012 is to remain the premier banking
partner for companies in Kuwait. We will strengthen our
key business relationships to better understand and
satisfy customer needs, without compromising quality
or undertaking uncalculated risk. We will continue to be
proactive to benefit from any momentum that will flow from
the implementation of Kuwait’s development plan.
In 2012, we will also continue to develop our capabilities by
executing our growth strategy, generating higher revenues
and profitability and investing in our people through
the initiatives we already have in place. We have also
employed a number of young energetic Kuwaiti employees
and enrolled several candidates from our top performers
to attend development programs to strengthen their
managerial, relationship and financial analysis skills, in line
with the overall Bank strategy to prepare the future leaders
at NBK.
Treasury Group
Treasury maintained a tight focus on ensuring liquidity and
providing prudent risk management for the Group during
2011, especially given current developments in the world
economy. Banking books continued healthy growth with
solid, comfortable and low-cost funding while maintaining
high levels of liquidity in all major currencies, taking into
consideration all regulatory and internal guidelines.
Though client activity remained subdued in line with the
status of the economy, some signs of recovery have been
witnessed. Treasury helped maintain NBK’s position as the
bank of choice for mega foreign exchange transactions as
well as continuing our role as a market maker in Kuwaiti
Dinars for both on and offshore clients.
An upgrade to Treasury’s state-of-the-art system was
implemented, helping us to better manage bank positions
and liquidity and advance training in leading-edge
technology further enhanced our capabilities.
NBK Capital
In 2011, NBK Capital’s four lines of business – investment
banking, alternative investments, brokerage and
research and asset management – leveraged the group’s
conservative strategy, risk management capabilities and indepth knowledge and experience to maintain its position as
a leading local and regional investment bank.
The Investment Banking Group maintained its position at
the top of the league tables providing advisory services to
leading corporates, family offices and institutional investors
on mergers and acquisitions, listings, equity raising, debt
and restructuring. For example, NBK Capital has been
appointed as joint book runner advising Zain Iraq's IPO,
which is expected to be the largest in Iraq's history. NBK
is working alongside a best-in-class team of advisors
advising the Kuwait Government on the design, planning
and procurement of the rail network in Kuwait, which is
strong testament to NBK Capital's value-add in government
projects. NBK Capital is also advising on several bond issues
in Kuwait including the Commercial Facilities Company's
KD 50 million four year amortizing bond and another local
bond for KD 80 million. NBK Capital is also working on
restructuring mandates that are in various stages of the
transaction process.
Within the Alternative Investments Group, NBK Capital has
performed with above-average returns and companies
within the portfolio remained stable in spite of slow growth
impacted by the difficult global financial conditions. A
21
focus on margins and operating profit helped maintain the
steady performance, which is reflected in the consistent
valuations of the companies in the portfolio. In 2011, the
Group completed the aquisition of a 42% stake in Taiba, a
leading Kuwait healthcare provider, adding to the existing
portfolio of investments and completed a successful exit
of its investment is Aras Cargo, a leading CEP (Courier,
Express, Parcel) provider in Turkey. The Group also
invested approximately 50% of the c. USD 550 million
under management and continues to seek appropriate
investment opportunities in the Middle East, North Africa
and Turkey. The transaction pipeline is robust reflecting
improved economic activity in the region and increased
recognition of our capability to add significant value to
growth companies.
NBK Capital’s Research division continued providing high
quality research and analysis for clients, including the 2011
Strategy research reports that provide analysis of banking,
telecom and the industrial sectors across the MENA region.
Research reports and team members were often featured
in local and international media including TV, newspapers
and magazines reflecting the value and respect our analysis
enjoys.
The Brokerage division’s NBK Capital Securities-Egypt, a
joint-venture with Al Watany Bank of Egypt (AWB), started
operations to extend the brokerage offering of NBK Capital
to Egypt and provide the same offerings to AWB’s clients in
Egypt that are provided to NBK’s clients in Kuwait. Overall,
Brokerage Assets under Management were up 18% in
2011 vs. a decline of over 16% in the overall market cap.
Brokerage’s three platforms – Online, HNW and Watani
Financial Brokerage – maintained their leading market
positions while market volumes witnessed a third year
of declines, down 50% year-on-year on the back of two
consecutive years of declines of over 40%.
Watani Financial Brokerage was at the forefront of floor
brokerage companies in its readiness to implement the
Kuwait Stock Exchange’s new trading system NASDAQ/
OMX and in its compliance with the new requirements of
the Capital Markets Authority. Online retail clients can now
access eight markets, while institutional clients can access
14 markets.
NBK Capital’s Asset Management division continues to
provide conservative, income-producing funds to clients
despite the turbulent global economic climate. The division
launched two Shariah-compliant Leasing Funds, raising
USD 160 million during 1Q2011 and now have assets
under management for NBK Group worth USD 10 billion.
NBK Capital grew the MENA Equities’ Assets Under
Management by more than 100%. The Bank attracted
several new high-net-worth and institutional clients. MENA
Equities has taken on various portfolios containing listed
securities, as opposed to cash, and has restructured
those into regional portfolios that it manages. We have also
outperformed the respective benchmark for the majority of
mandates.
22
NBK Capital also provides an investment advisory service,
updating clients on their investment portfolios through
comprehensive performance reports as well as regular
client meetings. The Bank issues quarterly Asset Allocation
reports that reflect NBK’s views on the latest economic
and financial developments, offer conservative, tailor-made
fixed income portfolios in response to clients’ demand for
low risk, income generating investments and concluded,
in cooperation with NBK Private Banking and Research
Groups, phase III of the Wealth Management survey with
the objective of understanding our clients’ investment
needs and requirements.
International Banking Group
2011 was a dramatic year strongly influenced by financial
and political developments in the region and globally but
on the other hand it has accentuated the strength of NBK’s
regional expansion and income diversification strategy.
Despite the challenging environment, customer-related
business continued to grow supported by NBK’s solid
commercial and deposit franchise outside Kuwait. The
negative impact from the market turmoil was further offset
by the quality of our credit portfolio, which remained stable
with no direct exposure to troubled European countries and
limited impact on our operations in countries experiencing
unrest.
The quality of customer service along with the confidence
and security aligned with the name of NBK helped the
Bank retain and capture a growing customer base. NBK
has a cutting-edge technological and operational platform
in international banking, which enables it to achieve high
productivity and know the overall financial needs of its
customers. Moreover, its products and services all comply
with the highest industry standards in efficiency and
security.
In 2011, NBK continued to progress in the technological
and operational integration of all units, which creates value
via synergies and cost savings. All of the Bank’s businesses
outside Kuwait are today successfully integrated and most
of the networks of branches outside Kuwait operate under
the same brand and IT systems. NBK’s technology drive
led, during 2011, to rolling out internet banking to retail
customers in four new locations: Bahrain, Dubai, Egypt and
Jordan.
Activities towards the household segments supported
income development and a number of successful product
launches and marketing campaigns were done during the
year. For example, the ‘You Choose, We Finance’ campaign,
launched in Qatar and Kuwait in 2011, successfully targeted
high income households who wanted to purchase a
property in their country of choice (Egypt, France, Lebanon,
UAE, UK and USA).
In Egypt, in a very difficult year for the economy, while
business activity dipped overall, our subsidiary AWB’s
commercial network was very busy, capturing new deposits
and customers mainly as flight-to-safety on account of the
Bank’s affiliation with NBK. As a result, whilst profits were
down year-on-year, they were much better than expected.
AWB is the subsidiary NBK acquired in Egypt in 2007. Under
NBK management, the bank has introduced new products
and distribution channels. The bank today operates 41
branches, including three Islamic, 77 ATMs as well as SMS
banking and a round-the-clock call center.
AWB in cooperation with NBK has launched a number of
products including the Thahabi or Premier service, the nonresident Egyptian service, and the ‘Zeina’ i.e. children-to-14
banking proposition, three trademark NBK retail programs.
In 2011, AWB introduced a new bill payment service and
long-term savings products such as CDs and fixed-income
funds managed by NBK Capital, NBK’s investment arm. It
also rolled out internet banking service to retail customers
and completed the technological integration of its 41
branches.
NBK’s presence in the Egyptian market is a long term
strategic commitment. Notwithstanding the current political
and economic turmoil, the Egyptian market remains to offer
a significant growth opportunity beyond this transitional
phase and NBK is well-positioned to benefit from the
expected growth in this large market.
In Bahrain, despite market disruptions which naturally
affected economic activity, the branch successfully
managed to maintain its high level of profitability and the
large assets size and booked different mega deals in
multiple currencies worth over USD 1.0 billion to finance its
corporate customers, financial institutions and government
bond/Sukuk.
International Banking Group operations in Jordan and
Lebanon showed resilience following unrest in neighboring
countries. On the other hand, IBG put on hold plans to open
a bank in Syria as a result of the ongoing unrest. Business
development in these markets was thus affected in spite of
newly-introduced products and services. In Lebanon, IBG
introduced a new housing loan program for non-resident
Lebanese living in Kuwait and other GCC countries. The
program is very competitive and is complemented by
existing real estate services as well as legal advice to ensure
customers are legally well protected when they purchase or
sell real estate. In Jordan, in addition to a 24/7 call center,
IBG rolled out internet banking and established a Direct
Sales department for broad offering, while maintaining a
sound and low-risk targeting strategy.
Meanwhile, IBG units in the GCC continued to generate
very good results, reflecting the strong economic conditions
in the countries where the NBK Group operates. In Qatar,
the most dynamic economy in the Gulf at present, NBK’s
associate International Bank of Qatar had another excellent
year, gaining market share in retail banking. It was recognized
as “Best Retail Bank in Qatar 2011” from Arabian Business
and for the fourth year in a row IBQ won the “Best Customer
Service Award” from The Banker Middle East magazine.
NBK has a 30% stake in IBQ and has led the Bank’s
transformation from a single branch to a full service
commercial bank through a management agreement signed
in 2004. IBQ continued to develop and expand. It added
new branches. Now, in addition to direct sales, internet
banking, SMS and a 24/7 call center, it has 10 branches
and service centers and 32 ATMs in strategic locations
throughout the country.
In Saudi Arabia, NBK’s Jeddah branch’s performance was
linked to the drive in government-led projects and spending
initiatives in an environment of low inflation and interest
rates. Our results were thus very satisfactory with record
profits since the branch was established in 2005. Against
this backdrop, IBG continued to invest in developing this
one-branch operation, recruiting and training staff to focus
more on executing the Bank’s relationship strategy. NBK in
Saudi Arabia also moved to new premises and launched
personal loans and our Premier Thahabi offering. NBK
received “Platinum” certification for Saudization from the
Saudi Labor Ministry.
In Dubai, NBK’s one-branch operation had a very busy year
and recorded excellent results. The Arab Spring overall
was a boom for the UAE which witnessed a large inflow of
deposits and other foreign inflows on account of its status
as a safe haven. NBK benefitted from these inflows thanks
to having a presence in the market since 2008, the high
quality of service and a diverse product offering including
the newly launched Murabaha Deposits and corporate FX
hedging solutions. The Bank received regulatory approval
to open a second branch in the UAE and have made plans
to establish one in Abu Dhabi in 2012.
NBK’s positioning in Gulf markets will be a very significant
driver of growth for the Group in the next few years. Very
few international banks have such high quality presence in
these growth markets similar to that of NBK.
Iraq will be another important contributor where NBK
expects enormous potential despite the ongoing political
and security situation. The Bank operates in Iraq through
a subsidiary Credit Bank of Iraq (CBI), in which NBK now
owns a controlling 81% stake. CBI offers transfers and trade
finance to Kuwaiti corporate clients and foreign contractors
as well as basic retail products for Iraqi customers. It
operates 14 branches throughout the country and is the
third largest private bank in Iraq by capital.
Outside the region, in Geneva, London, New York, Paris
and Singapore where NBK offers a full suite of wholesale
and private banking solutions to customers with some basic
retail offerings, the Bank continued to see a sizeable inflow
of deposits as a result of the flight-to-quality. The Bank also
saw during the year a pickup in demand for tailor-made
solutions to HNWIs especially for financing acquisitions of
properties.
23
In Turkey, NBK’s associate bank, Turkish Bank, a full commercial bank with a network of 20 branches, continued to
offer NBK customers a window to one of the largest and most developed economies in the region.
Risk Management and Governance
NBK has consistently maintained a strict, low-risk strategy towards the types of activities in which it engages and
the types of exposures it takes on. This strategy of focusing on high–quality customers and banking products and
services has served the bank well historically and continues to protect the bank even in times of unprecedented
crisis in the global financial system. In 2011 the bank continued its ongoing efforts to improve its risk management
function.
NBK plans to gain greater value from its competent risk management strategy. In particular, the bank is seeking
further improvements in the development and refinement of rating models; more collection and analysis of historical
loss data; the implementation of an Asset/Liability management system to improve interest rate and liquidity risk
management. In addition to the use of economic capital for capital adequacy assessment purposes, the bank
is also exploring other potential uses for the risk measures such as performance measurement and risk-based
pricing.
NBK highly values the role of corporate governance in improving the overall performance especially in the current
environment. Corporate governance in NBK is a combination of internal and external practices aimed at reducing
risk exposures while protecting and maximizing shareholders’ value.
NBK’s international advisory board, an unprecedented regional initiative, comprises a number of the world’s most
prominent leaders in the fields of politics, economics, and business. The board’s main role is to provide the bank
with the expertise and consultation needed in assessing the bank’s future strategy. The board’s role also expands
to enforcing the founding principles of governance in NBK.
Human Resources
NBK’s Human Resources worked in 2011 continuing the Bank’s deep commitment to Kuwaiti employment and
developing the professional skills and talents of employees. Key initiatives for the year included the High Fliers
Program, with 73 staff enrolled or in the pipeline for training and a special bridge program preparing NBK staff for
High Fliers training.
Human Resources organized mentoring workshops to facilitate knowledge transfer from experienced leaders to
future leaders. Middle management development programs focused on providing a vehicle for middle managers to
share best practices and challenges with each other and refresh leadership skills, change management techniques,
mentoring experiences, performance management and measurement tools and effective communication skills.
Human Resources Group enrolled several participants in the NBK Academy aimed at indoctrinating fresh graduates
in consumer lending, financial accounting, ethical issues, marketing and assertiveness. NBK organized customer
service and investment workshops for more than 1,000 employees to update them on the latest in financial planning
and management and service excellence techniques. Human Resources provided Group-wide training and
professional development for a range of soft skills, financial analysis, product understanding and computer skills.
Complying with the government’s Kuwaitization requirements of 60%, NBK recruited across the group more than
200 Kuwaiti senior and junior staff. The Bank also reviewed succession plans, focusing on group strategy and filling
gaps.
Human Resources initiated a program to export NBK culture, professionalism and standards to NBK Group
branches and affiliates across the region, most notably launching a pilot HR Global System within AWB in Egypt.
HR refocused standardization efforts across all channels and processes, maximizing synergies and communication,
initiated pay-for-performance protocols including all staff KPIs and talent management procedures. HR continued
its commitment to making NBK a learning organization, arranging an array of in-house training and workshops and
talent motivation and retention policies.
24
25
NBK and the community
NBK reinforced its position as a lead contributor to the development of the Kuwaiti society through its commitment
to corporate social responsibility. This commitment became evident in the numerous cultural, community and social
activities and charities the bank supported throughout 2011.
NBK’s efforts were evident through its social care and philanthropic initiatives including the Somalia famine relief
campaign, supporting the international conference of difficulties of learning, hyperactivity and attention deficit along
with its support to the Dar Al-Athar Al-Islamiyyah project. NBK also maintained its 20-year ongoing campaign “Do
Good Deeds in Ramadan”
In line with its national and social responsibilities, NBK continued its distinctive professional development programs,
which aim to develop Kuwait’s national youth cadres and contribute to building a productive society. The professional
development programs focus on extending opportunities to competent young candidates to enrich their knowledge
and improve their skills through theoretical and practical workshops in the private sector, in business and in the
banking industry. Such initiatives included the NBK Academy which graduated two classes of young nationals in
2011 as well as the summer training program with more than 400 trainees undergoing intensive summer training.
Additionally, NBK gives top priority to healthcare in Kuwait. Over a period of several years, NBK has engaged in
numerous activities and initiatives to support the healthcare sector in Kuwait based on the belief in its mission toward
society. NBK Children’s Hospital represents the most remarkable initiative launched by NBK. The hospital provides
medical care for children suffering from chronic diseases. NBK hosted a British medical team from the UK's Great
Ormond Street Hospital, which included several specialists in blood diseases, cancers and pediatric neurosurgery to
visit the NBK Children’s Hospital. In 2011, NBK also launched a breast cancer awareness and prevention campaign
for its female staff and organized several successful blood donation drives for its employees; hundreds of whom
donated blood.
In the field of education, NBK continued its support for Kuwait’s youth honoring outstanding high school graduates
of Kuwaiti schools for the school year 2010-2011. Also during the year, NBK sponsored the 28th Annual Congress
of the National Union of Kuwaiti Students (NUKS) in the United States under the theme ‘Generation returning to a
promising homeland’ and hosted several groups of visiting school and university students.
NBK launched several initiatives for preservation and conservation of Kuwait’s environment including its 5-years
ongoing campaign “Think Twice” to raise the awareness of environmental issues like energy conservation. Other
initiatives included a desert cleanup campaign and awareness drive, ‘Put your energy into saving energy’ campaign
as well as the nationwide campaign for beach cleanup and preservation.
26
27
Economic
and
Financial
Developments
MENA and GCC:
2011 was a year of mixed fortunes for MENA economies.
Across North Africa and the Mashreq – notably Egypt,
Libya, Syria and Tunisia – economies were negatively
affected by the social and political unrest that began early in
the year. These countries are expected to have seen either
weak growth or recession, with the path back to economic
health complicated by an uncertain political environment.
Meanwhile GCC economies continued to grow at an
impressive pace with real GDP estimated to have grown by
7% in the GCC overall.
in the MENA
The oil sector was the key to the GCC’s resilient performance,
where production is estimated to have risen by 11%. Much
of this was due to the increase in output by the three main
Gulf OPEC members – Kuwait, Saudi Arabia and the UAE
– to replace the large drop in Libyan oil supplies seen since
February 2011. In addition, oil prices remained elevated on
account of strong demand from emerging economies, tight
supply and spare capacity, and market concerns over the
regional unrest, with Brent averaging USD 111 pb during
2011, up 40% on 2010. Aside from contributing to national
output, higher oil revenues helped to shore up the already
impressive fiscal positions of GCC governments, providing
a further layer of support amidst unsettled regional and
world conditions.
and Kuwait in 2011
2011 was a year of mixed fortunes for MENA
economies. On one hand, the North African
economies were negatively affected by the
social and political unrest that began early in the
year. On the other hand, the GCC economies
continued to record impressive growth rates
mainly driven by the oil sector which was the key
to the GCC resilient performance. The region
remains at large shielded from the European
sovereign debt crisis, while the impact of the
global financial crisis was lessened by the
enacted spending programs launched by the
GCC governments. The economic recovery in
Kuwait was sustained in 2011 but the private
sector development remains dependant on
an acceleration in the execution pace of the
Government’s development plan.
28
Since the onset of the global financial crisis, GCC
governments have launched ambitious national development
plans to provide the necessary fiscal stimulus to offset the
contractionary effects of weaker credit conditions brought
about by excessive leverage. At the same time, GCC
governments have adopted various spending measures
aimed at boosting nationals’ living standards and delivering
welcome improvements in housing and infrastructure.
The year 2011 saw a ratcheting up of such measures as
governments across the region remained sensitive to the
need to support household incomes and guarantee job
opportunities for nationals. The largest measures came in
Saudi Arabia where an additional USD 125 billion, or 21%
of GDP, will be allocated to wages, bonuses, new jobs,
housing programs and other social infrastructure over
five years. Such measures and programs, along with the
generally better economic conditions in GCC countries,
shielded most GCC countries from popular protests that
changed the political landscape in other Arab countries.
Despite the stimulus measures, non-oil growth in the GCC
remained moderate in 2011, at around 5.5%. Progress was
made on financial crisis debt legacy issues, particularly in
the UAE, where government-owned Dubai World secured
a restructuring agreement on a USD 25 billion involving
29
maturity extensions and lower interest rates. Monetary conditions also steadily improved, with credit growth reaching at least
high single digits in most GCC countries (Kuwait and the UAE are exceptions). But much of this growth has come from the
consumer sector, where steady employment growth and government subsidies have helped offset the squeeze on incomes
from rising food prices. Large parts of the corporate sector, by contrast, remain in consolidation mode, with those faring best
being in the consumer goods sector or involved in the execution of government projects. As a result, governments across
the region shoulder a greater responsibility for generating growth through the execution of large oil-related or infrastructure
projects in their multi-year development plans.
The region remains somewhat shielded from the unfolding sovereign debt crisis in Europe. Regional banks are well capitalized
and believed to have little direct exposure to peripheral European countries where default is a possibility. Most GCC
governments have a minimal amount of outstanding sovereign debt and little need to rely on external financing. Nevertheless,
weak and cautious sentiment has contributed to a sluggish performance by regional stock markets, tighter international
funding conditions, an appetite for liquid safe investments and the likely delays in key spending decisions.
Outside of the energy sector, while the consumer-related and real estate sectors performed well, activity in other sectors
remained sluggish awaiting the launch of large projects under the government’s development plan. The plan to spend or inject
over USD 105 billion (KWD 31 billion) into the Kuwaiti economy by 2014 is on its way but has yet to achieve strong momentum.
The formation of the PPP (Public Private Partnership) companies, large and small which are supposed to undertake almost
half of the projects envisioned in the plan, is still in the initial stages, though the first such companies are expected to come
into existence by the first part of 2012.
Kuwait: Demand Impacting Spending
Demand Impacting Expenditure (LHS)
Growth in demand Impacting Spending (RHS)
KD bn
%
20
45
40
The recovery in regional stock markets which began in 2010 was short lived as social and political instability across the
region weighed down on financial markets’ performance. Meanwhile weakening fundamentals in international markets, most
notably peripheral Europe also contributed to the deterioration in investor sentiment. The S&P Pan Arab Composite declined
13% in 2011. Most regional markets were down on the year with Egypt’s being the worst performer, declining 49%, followed
by Lebanon and Kuwait at -22% and -21%, respectively. Qatar fared the best and was the only market to record a positive
performance for the year, rising by 3%.
15
35
30
10
25
20
5
15
10
0
5
0
-5
2002
2003
2004
2005
2006
2007
2008
2009
2010
GCC Markets
105
2011 was another year of soft overall credit growth, also affected by the timid progress in implementing the development plan.
However credit growth varied among different sectors, reflecting the different fundamentals of each sector. The consumer
sector in Kuwait continued to do well and benefitted from an Amiri grant in February (KWD 1000 per national) and, later on, by
a series of salary hikes granted to employees working in the public sector, hence the 9.5% growth in credit to the consumer/
household sector. Real estate recovered further in 2011 especially in the residential and investment sectors and this was partly
reflected in a 4.5% growth rate in credit to real estate. Credit to productive sectors such as industry, trade and construction
grew a modest 1.3%, reflecting activity likely related to project implementation, especially toward the second half of the year.
These business sectors should grow gradually faster as further development plan projects are awarded and implemented.
100
95
90
85
80
De
c
No 11
v
-1
1
O
ct
-1
Se 1
p
Au 11
g
-1
Ju 1
l1
ju 1
n
M 11
ay
-1
Ap 1
rM 11
ar
Fe 11
b
-1
Ja 1
n
De 11
c
-1
1
75
UAE
KSA
Qatar
Oman
Kuwait
Bahrain
Kuwait: Total Credit
KD bn
KUWAIT:
The economic recovery in Kuwait was sustained in 2011 after posting a 17% nominal growth in GDP in 2010. Oil prices
remained well supported above USD 100 per barrel, shoring up the oil sector and the government’s finances. The latter posted
its 12th consecutive surplus in FY 2010/11, at over KWD 5 billion.
The consumer sector continued to do well in 2011, helped by a steady employment situation and by salary raises, especially
for the Kuwaiti national population. There was further good interest and activity in both residential and investment properties
in the real estate market, where even the overextended commercial sector saw a bounce in sales activity. Total sales volume
in real estate was KWD 2.7 billion in 2011, up 35% from a year ago. Tight residential conditions and the search for investment
yield provide support to that sector.
30
25.6
25.5
25.4
25.3
25.2
25.1
25.0
24.9
24.8
24.7
Credit (LHS)
Nov
2009
Feb
2010
May
2010
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
Growth in credit (RHS)
Aug
2010
Nov
2010
Feb
2011
May
2011
Aug
2011
31
Despite a relatively weak operating environment and despite
slow credit growth, Kuwaiti banks have recovered further in
2011 and came out with cleaned up balance sheets and
better asset quality. Total bank profits for the nine months
ending September 2011 were up 5.8% year-on-year.
Growth in profits came primarily from lower provisions but
also from healthy net-interest margins, as banks continued
to benefit from low interest rates and cheaper funding.
Inflation averaged 4.8% in 2011, up from 4.0% in 2010. It is
poised for a slower 4.0% performance in 2012. The current
pace is off the highs brought on by higher food prices in
early 2011. The inflation rate should remain moderate (if not
lower); steady enough that it should not affect monetary
policy in the medium-term.
Government spending and the
development plan
The government’s development plan which was adopted in
2010 calls for KWD 31 billion to be spent over a four year
period. The planned projects will be split equally between
the private sector and the government. According to the
first annual review of the development plan, at least KWD
2.5 billion was spent in FY 10/11 which is 50% of the
planned amount. Preliminary estimates of the execution
rate for the full year are around 62%, suggesting a pickup
in momentum. The execution rate of these projects should
improve in the current and following years of the plan. In
FY11/12, planned spending is KWD 5.4 billion. The current
and upcoming government spending should contribute to
faster GDP growth ahead, 4-5% real GDP growth 20112012, and should support stronger credit growth in the
years ahead as well, especially if projects and newly formed
PPP ventures proceed apace.
Capital Markets Authority
In 2011, the oversight and regulatory authority of the
Kuwait Stock Exchange was finally transferred to the
newly established Capital Market Authority (CMA). Kuwait’s
parliament passed in 2010 new legislation for the formation
of an independent authority to supervise and regulate
the country’s securities exchange and financial markets.
The executive bylaws were issued in 1Q2011. The CMA
law called for the establishment of an independent, fivemember capital market authority whose role is to oversee
and regulate the securities market, to ensure transparency
and efficient functioning of financial markets. The law also
calls for setting up a special tribunal whose task it is to solve
securities-related disputes. The CMA was long awaited, and
may be currently going through some teething problems.
However, investors do hope that once the CMA is fully
organized and staffed that its benefits will flow to better run
markets, and to rising investor confidence.
32
Risk Management
1
Group Structure
2
Capital Structure
3
Capital Adequacy Ratios
4
Profile of Risk - Weighted Assets and Capital Charge
5
Risk Management
33
Risk Management
In December 2005 the Central Bank of Kuwait (CBK) issued directives on the early adoption of
the Capital Adequacy Standards under the Basel II framework applicable to licensed banks in
Kuwait. These directives set out the new capital adequacy rules for calculating and maintaining the
minimum capital required for credit, operational and market risks under the “Standardised
Approach”. The CBK Basel II framework is intended to strengthen risk management and
market discipline and to enhance the safety and soundness of the banking industry in Kuwait.
Furthermore, in June 2009, CBK issued its circular amending & replacing the section covering “Capital
Adequacy Assessment Process”. The new amendments related mainly to Pillar two of Capital Adequacy
Standard pertaining to the Supervisory Review Process and emphasised the importance of Internal
Capital Adequacy Assessment Process (ICAAP) performed by banks. As such, and in compliance
with the aforementioned instructions, National Bank of Kuwait S.A.K. (NBK) has developed an ICAAP
and Stress Test framework along with its underlying models, policies and procedures. NBK continually enhances its ICAAP and Stress Test framework to maintain its capital commensurate with the
overall risks to which the Bank is exposed.
2. CAPITAL STRUCTURE
The Group’s regulatory capital comprises (a) Tier 1 capital which is considered as the core measure of the Group’s financial
strength and includes share capital, reserves, retained earnings and minority interests (net of treasury shares and goodwill)
and (b) Tier 2 capital which consists of the allowed portions of revaluation reserves and general provisions.
The Bank’s share capital as at 31 December 2011 comprised 3,957,725,114 issued and fully-paid up equity shares
(2010: 3,597,931,922). The total regulatory capital for the Group was KD 1,570,414 thousand (2010: KD 1,484,054 thousand).
Tier 1 and Tier 2 capital were KD 1,570,414 thousand and KD nil respectively (2010: KD 1,474,288 thousand and KD 9,766
thousand respectively) as detailed below:
KD 000’s
Tier 1 capital
31 December 2011
Share capital
Proposed bonus shares
395,772
359,793
39,577
35,979
Reserves:
Statutory reserve
197,886
179,897
Share premium account
699,840
699,840
Treasury share reserve
20,403
22,316
117,058
117,058
General reserve
1,035,187
1,019,111
Retained earnings
729,601
644,377
Foreign currency translation reserve
(33,032)
(11,578)
1.GROUP STRUCTURE
The core activities of NBK and its subsidiaries (collectively the “Group”) are retail, corporate and private banking,
investment banking and asset management services.
31 December 2010
Share-based payment reserve
10,469
8,297
The consolidated financial statements and capital adequacy regulatory reports of the Group have been prepared and consolidated on a consistent basis, save as otherwise disclosed. For additional information on the basis of preparation and basis of
consolidation please refer to notes 2.1 and 2.3 of the Group’s consolidated financial statements.
Minority interest in the equity of subsidiaries
11,965
12,868
A brief description of the Bank’s principal subsidiaries is as follows:
Treasury shares
• NBK (International) plc (United Kingdom) is a wholly owned subsidiary of the Bank with two offices in London and
one in Paris which provides retail, private and corporate banking, treasury and trade finance related services.
• NBK (Lebanon) S.A.L. (Lebanon) is 85.5% (2010: 85.5%) owned by the Bank and provides retail, commercial and private
banking and real estate related services through a network of ten branches.
Deductions from Tier 1 capital:
(33,415)
Significant minority investments (50%)
(110,146)
(95,799)
Goodwill
(473,559)
(486,350)
Shortfall transferred from Tier 2 capital
(2,005)
Total Tier 1 capital
• NBK Banque Privee (Suisse) S.A. (Switzerland) is a wholly owned subsidiary of the Bank headquartered in
Geneva. In addition to traditional banking services it provides portfolio management services, family trust, advisory and
custody services to individuals with high net worth and to institutions.
• Credit Bank of Iraq S.A. (Iraq) is 80.1% (2010: 75%) owned by the Bank and provides retail and commercial banking
services through a network of fourteen branches in Iraq.
• NBK Investment Management Limited (United Kingdom) is a wholly owned subsidiary of the Bank and provides asset
management services to Kuwaiti government agencies, companies and high net worth customers.
(12,410)
(619,125)
(594,559)
1,570,414
1,474,288
Tier 2 capital
Revaluation reserves
General provisions
Significant minority investments (50%)
Shortfall transferred to Tier 1 capital
Total Tier 2 capital
Total eligible capital base
10,511
13,752
97,630
91,813
(110,146)
(95,799)
2,005
0
9,766
1,570,414
1,484,054
• National Investors Group Holdings Limited (Cayman Islands) is a wholly owned subsidiary of the Bank and was
established as an investment company.
• Watani Investment Company K.S.C (Closed) (Kuwait) is 99.9% (2010: 99.9%) owned by the Bank and provides corporate finance, private equity and debt capital markets services.
• Al Watany Bank of Egypt S.A.E is 98.5% (2010: 98.5%) owned by the Bank and provides retail, private and
corporate banking, treasury and trade finance related services.
• Watani Financial Brokerage Company (Closed) is 86.7% (2010: 86.7%) owned by the Bank and provides
brokerage services.
34
35
Risk Management Continued
Other exposures above includes an amount of KD 100,960 thousand (2010: KD 98,108 thousand) representing the amount
of general provision in excess of the 1.25% allowed as a contribution towards Tier 2 capital.
3. CAPITAL ADEQUACY RATIOS
4.2. Market risk:
The total capital charge in respect of market risk was KD 30,666 thousand (2010: KD 28,656 thousand) as detailed below:
The Group’s total capital adequacy ratio as at 31 December 2011 was 18.29% and Tier 1 ratio was 18.29 % (2010: total
capital adequacy ratio was 18.35% and Tier 1 ratio was 18.23%) against regulatory requirements of 12%. The Group ensures
adherence to CBK’s requirements by monitoring its capital adequacy against higher internal limits. This process is supported
by the use of proprietary capital-planning methodology.
KD 000’s
31
December
2011
31
December
2010
Capital
charge
Capital
charge
2,977
2,528
-
-
Foreign exchange risk
27,689
26,127
Total
30,666
28,656
Each banking subsidiary is directly regulated by its local banking supervisor which sets and monitors its capital
adequacy requirements. In addition, CBK monitors capital adequacy at the Group level.
Interest rate risk
The Tier 1 and total capital ratio of the banking subsidiaries were as follows:
Equity position risk
31 December 2011
31 December 2010
Tier 1
ratio
Total
capital
ratio
Tier 1
ratio
Total
capital
ratio
NBK (International) plc (United Kingdom)
30.78%
31.58%
30.58%
31.73%
NBK (Lebanon) S.A.L. (Lebanon)
25.68%
27.44%
17.71%
18.76%
NBK Banque Privee (Suisse) S.A. (Switzerland)
78.22%
79.74%
58.48%
60.13%
132.49%
133.95%
77.77%
78.72%
16.39%
17.13%
18.45%
19.36%
Subsidiary Banks
Credit Bank of Iraq S.A. (Iraq)
Al Watany Bank of Egypt S.A.E. (Egypt)
Other than restrictions over transfers to ensure minimum regulatory capital requirements are met there are no further impediments on the transfer of funds or regulatory capital within the Group.
4. PROFILE OF RISK-WEIGHTED ASSETS AND CAPITAL CHARGE
4.1. Credit risk:
The total capital charge in respect of credit risk as at 31st December 2011 was KD 925,132 thousand (2010: KD 869,632
thousand) as detailed below:
31 December 2010
Gross
credit
exposure
Riskweighted
assets
Capital
charge
Gross
credit
exposure
Riskweighted
assets
Capital
charge
105,588
-
-
97,193
-
-
2,490,898
76,809
9,217
2,426,904
114,592
13,751
297,985
39,310
4,717
238,217
26,396
3,168
-
-
-
-
-
-
Claims on banks
2,262,399
534,528
64,143
1,907,883
416,922
50,031
Claims on corporates
7,155,864
4,370,791
524,495
7,042,404
4,135,103
496,212
Regulatory retail exposure
2,312,545
2,230,477
267,657
2,244,393
2,137,874
256,545
72,561
60,267
7,232
39,138
32,316
3,878
498,211
397,251
47,670
481,838
383,730
46,048
15,196,051
7,709,443
925,132
14,477,970
7,246,933
869,632
Cash
Claims on sovereigns
Claims on public sector
entities
Claims on multilateral
development banks
Past due exposures
Other exposures
Total
5.
RISK MANAGEMENT
The complexity in the Group’s business operations and diversity of geographical locations require identification,
measurement, aggregation and effective management of risks and efficient allocation of capital to derive an optimal risk and
return ratio. The Group manages its risks in a structured, systematic and transparent manner through a global risk policy
which embeds comprehensive risk management into the organisational structure and risk measurement and monitoring
processes.
•
•
•
•
•
KD 000’s
31 December 2011
4.3. Operational risk:
The total capital charge in respect of operational risk was KD 74,470 thousand (2010 : KD 72,326 thousand)
This capital charge was computed by categorising the Group’s activities into 8 business lines (as defined by the Basel II
framework) and multiplying the business line’s three-year average gross income by a pre-defined beta factor.
During 2009 the Group augmented its overall framework for governance and capital planning and management by undertaking an ICAAP, which includes “scenario testing” at periodic, regular intervals. In line with guidelines from the Basel Committee
and Central Bank of Kuwait, key principles of the Group’s ICAAP include:
The Group’s risk-weighted capital requirement for credit, market and operational risks was as follows:
36
Responsibilities of the Board and Senior Management.
Sound capital management.
Comprehensive assessment of risks.
Monitoring and reporting.
Control and review of the process.
The key features of the Group’s comprehensive risk management policy are:
• The Board of Directors provides overall risk management direction and oversight.
• The Group’s risk appetite is determined by the Executive Committee and approved by the Board of Directors.
• Risk management is embedded in the Group as an intrinsic process and is a core competency of all its
employees.
• The Group manages its credit, market, operational and liquidity risks in a co-ordinated manner within the
organisation.
• The Group’s risk management function is independent of the business divisions.
• The Group’s internal audit function reports to the Board Audit Committee and provides independent validation of the
business units’ compliance with risk policies and procedures and the adequacy and effectiveness of the risk management framework on a Group-wide basis.
The risk management function assists senior management in controlling and actively managing the Group’s overall risk. The
function also ensures that:
•
•
•
•
The Group’s overall business strategy is consistent with its risk appetite approved by the Board of Directors and allocated by the Executive Committee.
Risk policies, procedures and methodologies are consistent with the Group’s risk appetite.
Appropriate risk management architecture and systems are developed and implemented.
Risks and limits of the portfolio are monitored throughout the Group, including at appropriate “regional” levels.
37
5- RISK MANAGEMENT (continued)
5.1. Scope and nature of risk reporting tools
The comprehensive risk management framework enables the Group to identify, assess, limit and monitor risks using a comprehensive range of quantitative and qualitative tools. Some of these tools are common to a number of risk
categories, while others are tailored to the particular features of specific risk categories and enable generation of
information such as:
Credit risk in commercial and consumer lending and other asset exposures, such as collateral coverage ratio, limit utilisation, past-due alerts, etc.
• Quantification of the susceptibility of the market value of single positions or portfolios to changes in market
parameters (commonly referred to as sensitivity analysis).
• Quantification of exposure to losses due to extreme movements in market prices or rates.
The Group regularly assesses the adequacy and effectiveness of its reporting tools and metrics in light of the changing risk
environment.
•
5.2. Risk management processes
Through the comprehensive risk management framework, transactions and outstanding risk exposures are quantified and compared against authorised limits, whereas non-quantifiable risks are monitored against policy guidelines and key risk and control indicators. Any discrepancies, excesses or deviations are escalated to management for
appropriate action.
• Internal credit-rating models are regularly reviewed by the Group risk management function in co-ordination
with line management and the Executive Committee and continually enhanced in line with industry credit risk
management “best practices”.
• All new proposals and / or material changes to existing credit facilities are reviewed and approved by the
appropriate credit committee outlined below: 1. Board Credit Committee
5.2.2. Credit risk management strategy
The approach to credit risk management is based on the foundation to preserve the independence and integrity of the credit
risk assessment, management and reporting processes combined with clear policies, limits and approval structures which
guide the day-to-day initiation and management of the Group’s credit risk exposure. This approach comprises credit limits
which are established for all customers after a careful assessment of their creditworthiness.
The Group’s Executive Committee, chaired by the Group CEO and comprising senior executives from the business divisions,
meets regularly to review the Group’s corporate and consumer credit portfolios and advises the Board appropriately.
5.2.4. Key features of corporate credit risk management
• Credit facilities are granted based on detailed credit risk assessments which consider the purpose of the facility and
source of re-payment, prevailing and potential macro-economic factors, industry trends and the customer’s positioning
within its industry peer-group.
• In compliance with CBK regulations, lending to individual Board Members and related parties is fully secured and monitored by the Senior Credit Committee. Such transactions are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties. All such facilities
are approved by the Board of Directors in line with the relative authorities from the Shareholders’ General Assembly.
3.
International Credit Committee
4.
Management Credit Committee (for small and medium-sized enterprises).
• Country limits are determined based on the outlook of economic and political factors, along with the review of reports by rating
agencies on the country (where available) and application of local business and market knowledge.
• Cross-border exposures are controlled by senior management in charge of relevant branches or subsidiaries and monitored by the central credit risk management function.
5.2.5 Key features of consumer credit risk management
• Credit risk management overseeing the “consumer” segment functions as an independent unit directly reporting to Group Risk Management but working in partnership with the Consumer Banking business. Within this
framework, limits and approval authorities are exercised by the officers with defined approval authorities. •
Consumer Credit Risk Management functional areas are aligned with key concepts of Risk Management, namely, Governance, Control, Measurement and Reporting.
•
Consumer credit risk is managed with three lines of defence. As the first line of defence, the consumer
business lending group (i.e. underwriting) is responsible for adherence to the credit policies, controls and
processes. As second line of defence, the consumer risk management team, working independently of the business unit,
assesses and ensures implementation of credit risk management discipline. The third line of defence, the Internal Audit
function, independently tests, verifies and evaluates controls for effective credit risk management.
•
All credit policies, new credit programmes and portfolio asset quality standards are reviewed and approved by Consumer
Risk Committee consisting of senior members of the business line and Group Risk Management. The Committee is
chaired by the Group Chief Risk Officer. In addition, significant consumer credit policy changes are reviewed for approval
by the Executive Committee.
•
Credit risk “scorecard” models (such as Installment Loan “Applicant” models) have been used to facilitate
underwriting and monitoring of credit facilities to customers and certain small businesses. Applicant “scoring” models
are customer-centric models which incorporate CBK regulatory guidelines and Group policies related to consumer credit
facilities, such as debt-to-income ratio, minimum qualifying income and limits on advances by product type. Additional
inputs utilised include applicant characteristics obtained from credit bureaus, particularly Kuwait Credit Bureau statistics,
to assist in assessing an applicant’s ability to repay and the probability of credit default risk. This model is under review
and new credit scoring model is expected to be in place in 2012 along with automation of underwriting loans / card applications.
•
In 2008, the State of Kuwait established a Debt Relief Fund (i.e. DRF) dedicated to alleviate financial stress
facing certain Kuwaiti Citizens. In that connection the Bank set up a special unit to assist customers who wished to
participate in that process; for this DRF programme the application period ended March 2009 and applications were
processed until 1st quarter 2011. The second Debt Relief Fund programme commenced on September 19th 2010 and
applications were accepted until March 2011; some of these applications are still under processing for approval. These
official initiatives have been beneficial to customers concerned, who are better able to manage within their financial
circumstance, and to the Bank in terms of reduced “past due” amounts.
Standing procedures, outlined in the Group’s Credit Policy Manual, require that all credit proposals be subjected to detailed
screening by the domestic or international credit management divisions pending submission to the appropriate credit committee. Whenever necessary, credit facilities are secured by acceptable forms of collateral to mitigate the related credit risks.
The Board of Directors defines the Group’s credit risk management strategy and approves significant credit risk policies to
ensure alignment of the Group’s exposure with its risk appetite.
5.2.3. Credit risk management structure
Senior management implements the Board of Directors’ credit risk strategy and develops policies and procedures for identifying, assessing, monitoring and controlling credit risk.
Senior Credit Committee
• The credit facility administration process is undertaken by a segregated function to ensure proper execution of all credit
approvals and maintenance of documentation, and proactive control over maturities, expiry of limits, collateral valuation
and contractual covenants.
The key risks assumed by the Group in its daily operations are outlined below:
5.2.1. Credit risk
Credit risk is defined as the likelihood that a customer or counterparty is unable to meet the contracted financial
obligations resulting in a default situation and/or financial loss. Credit risk arises in the Group’s normal course of
business.
2.
5.2.6. Group credit risk monitoring
The Group’s exposures are continuously monitored through a system of triggers and early-warning signals aimed at detecting adverse symptoms which could result in deterioration of credit risk quality. The triggers and early-warning systems are
supplemented by facility utilisation and collateral valuation monitoring together with a review of upcoming credit facility expiration and market intelligence to enable timely corrective action by management. The results of the monitoring process are
reflected in the internal rating process.
Credit risk is monitored on an ongoing basis with formal monthly and quarterly reporting to ensure senior management
awareness of shifts in credit quality and portfolio performance along with changing external factors such as economic and
business cycles.
38
39
5.2.9.Gross, average and net credit exposures
The Group’s gross credit exposures, average credit exposures and the former adjusted for credit risk mitigation factors, respectively, are detailed below:
5.2.6. Group credit risk monitoring (continued)
Consumer credit risk reporting also includes a “dashboard” for consumer and small-business lending, classification and
delinquency monitoring.
Gross credit exposures
31 December 2011
Gross credit
Funded
exposure
exposure
A specialised and focused problem loan “workout” team handles the management and collection of problem credit facilities.
5.2.7. Group credit risk mitigation strategy
Portfolio diversification is the cornerstone of the Group’s credit risk mitigation strategy which is implemented through customer, industry and geographical limit structures.
To ensure diversification at the portfolio level, interrelated companies with the same management or ownership
structure are classified and treated as one entity. The Group limits its credit concentration per entity to 15% of the Bank’s
regulatory capital.
Credit risk mitigants such as collateral and guarantees are effective mitigating factors within the Group’s portfolio
and collateral quality is continuously monitored and assessed. Risk transfer in the form of syndicated loans, risk
participation arrangements with other banks and sale of loans are common practices to manage the Group’s exposures.
5.2.8 Management of credit collateral and valuation
The main types of collateral accepted by the Group are:
1. Cash collateral
2. Quoted shares
3. Bank guarantees
4. Commercial real estate
5. Sovereign debt instruments
6. Bank debt instruments
7. Collective investment schemes
8. Residential real estate.
Unfunded
exposure
-
97,193
97,193
-
2,490,898
2,490,829
69
2,426,904
2,426,867
37
Claims on public sector entities
297,985
283,700
14,285
238,217
174,632
63,585
Claims on multilateral development banks
-
-
-
-
-
-
Claims on banks
2,262,399
1,579,771
682,628
1,907,883
1,245,961
661,922
7,155,864
5,746,241
1,409,623
7,042,404
5,672,160
1,370,244
2,312,545
2,271,891
40,654
2,244,393
2,196,340
48,053
72,561
72,561
-
39,138
39,138
-
498,211
498,211
-
481,838
481,838
-
15,196,051
13,048,792
2,147,258
14,477,970
12,334,129
2,143,841
Total
Average credit exposures
KD 000’s
The
Group’s credit exposures were covered by the following eligible financial collateral and guarantees:
KD 000’s
31 December 2011
Past due exposures
Other exposures
Total
31 December 2010
Gross credit
Funded
exposure
exposure
105,588
Other exposures
The custody and daily “mark to market” (revaluation) of financial collateral, inclusive of shares, are performed independent of
the business units. Real estate collateral except private residences is valued on an annual basis.
Cash
Claims on banks
Unfunded
exposure
105,588
Cash
Past due exposures
In accordance with the Group’s credit policies, banks and creditworthy companies and individuals with high net worth are
accepted as guarantor counterparties, subject to credit risk assessment. Furthermore, in accordance with the CBK Basel II
framework, only cash collateral, quoted shares, commercial real estate, debt instruments of sovereigns and banks and collective investment schemes are recognised as risk mitigation for capital adequacy purposes.
Gross
Eligible
credit Credit Risk
exposure Mitigation
105,588
2,490,898
7
297,985
3,713
KD 000’s
31 December 2010
Eligible
guarantees
-
Gross
Eligible
credit Credit Risk
exposure Mitigation
97,193
2,426,904
7
238,217
3,301
Eligible
guarantees
-
2,262,399
7,155,864
2,312,545
3,862
2,284,664
48,950
504,239*
-
1,907,883
7,042,404
2,244,393
4,492
2,394,743
63,561
476,759*
-
72,561
498,211
15,196,051
2,341,196
504,239
39,138
481,838
14,477,970
2,466,104
476,759
31 December 2011
*Average
credit
Funded
exposure
exposure
31 December 2010
Unfunded
exposure
*Average
credit
exposure
Funded
exposure
Unfunded
exposure
104,446
104,446
-
90,509
90,509
-
2,832,232
2,832,176
56
2,331,201
2,330,927
274
265,942
228,016
37,926
176,498
124,446
52,052
-
-
-
-
-
-
Claims on banks
2,072,025
1,387,856
684,169
1,912,687
1,223,914
688,773
7,069,400
5,645,025
1,424,375
6,990,000
5,672,233
1,317,767
2,263,366
2,214,136
49,230
2,235,586
2,183,523
52,063
58,351
58,351
-
32,809
32,809
-
499,422
499,422
-
501,727
501,727
-
15,165,185
12,969,429
2,195,756
14,271,016
12,160,087
2,110,929
Cash
development banks
Past due exposures
Other exposures
Total
* Based on monthly average balances
*“Memorandum” item where banks act as “guarantors”
40
41
The geographical distribution of the gross credit exposure is as detailed below:
KD 000’s
31 December 2011
31 December 2010
Net credit
exposure
Funded
exposure
Unfunded
exposure
Net credit
exposure
Funded
exposure
Unfunded
exposure
105,588
105,588
-
97,193
97,193
-
2,490,857
2,490,829
28
2,426,879
2,426,867
12
287,172
280,540
6,633
188,480
172,073
16,407
-
-
-
-
-
-
Claims on banks
1,903,995
1,575,909
328,086
1,548,778
1,241,469
307,310
4,142,171
3,489,012
653,159
3,916,571
3,311,712
604,859
2,242,671
2,223,944
18,727
2,155,617
2,133,895
21,723
72,561
72,561
-
39,138
39,138
-
498,211
498,211
-
481,838
481,838
-
11,743,225
10,736,594
1,006,631
10,854,495
9,904,185
950,309
Cash
development banks
Past due exposures
Other exposures
Total
The Group uses external ratings (where available) from Fitch, S&P and Moody’s to supplement internal ratings
during the process of determining credit limits. Unrated public issue instruments are risk-weighted at 100% for capital adequacy purposes.
As at 31 December 2011, 33% (2010: 31%) of the Group’s net credit risk exposure was rated by accredited External Credit
Assessment Institutions (ECAIs), as detailed below:
KD 000’s
31 December 2010
31 December 2011
Net credit
exposure
Rated
exposure
Unrated
exposure
Net credit
exposure
Rated
exposure
Unrated
exposure
105,588
-
105,588
97,193
-
97,193
2,490,857
2,045,899
444,958
2,426,879
1,905,734
521,145
287,172
-
287,172
188,480
-
188,480
-
-
-
-
-
-
Claims on banks
1,903,995
1,658,460
245,534
1,548,778
1,259,203
289,575
4,142,171
152,261
3,989,910
3,916,571
168,804
3,747,767
2,242,671
-
2,242,671
2,155,617
-
2,155,617
72,561
-
72,561
39,138
-
39,138
498,211
-
498,211
481,838
-
481,838
11,743,225
3,856,619
7,886,605
10,854,495
3,333,740
7,520,754
Cash
development banks
Past due exposures
Other exposures
Total
42
Middle East
and North
Africa
82,744
1,944,305
North
America
968
466,316
Europe
21,876
57,504
Asia
22,773
Others
-
Total
105,588
2,490,898
297,985
-
-
-
-
297,985
development banks
Claims on banks
1,254,991
6,447,445
72,353
186,667
363,634
354,151
536,849
129,062
34,571
38,539
2,262,399
7,155,864
Regulatory retail
exposure
Past due exposures
Other exposures
2,311,330
70,795
411,913
255
38,230
960
31,744
1,766
12,715
3,609
2,312,545
72561
498,211
12,821,509
764,789
829,869
703,165
76,719
15,196,051
31 December 2011
Cash
5.2.9. Gross, average and net credit exposures (continued)
Net credit exposures KD 000’s
entities
Total
31 December 2010
Cash
entities
development banks
Claims on banks
Regulatory retail
exposure
Past due exposures
Other exposures
Total
KD 000’s
Middle East
and North
Africa
91,804
1,914,232
North
America
1,319
444,206
Europe
4,070
40,823
Asia
27,643
Others
-
Total
97,193
2,426,904
238,217
-
-
-
-
238,217
966,945
6,340,887
69,314
43,452
424,656
419,651
446,611
206,204
357
32,211
1,907,883
7,042,405
2,243,376
37,211
379,440
12,212,112
254
44,161
602,706
763
40,506
930,469
1,927
13,809
696,194
3,921
36,489
2,244,393
39,138
481,837
14,477,970
43
Category
Criteria
Watchlist
Substandard
Doubtful
Bad
Irregular for a period up to 90 days (inclusive)
Irregular for a period between 91 and 180 days (inclusive)
Irregular for a period between 181 days and 365 days (inclusive)
Irregular for a period exceeding 365 days
5.2.10. Maturity profile of gross credit exposure
The Group’s gross credit exposure by residual contractual maturity is as detailed below:
KD 000’s
31 December 2011
Up to 3
months
3 to 12
months
Over 1 year
Total
Cash
105,588
-
-
105,588
1,642,263
510,248
338,387
2,490,898
7,517
121,432
169,036
297,985
-
-
-
-
Claims on banks
1,362,538
328,942
570,919
2,262,399
3,172,312
1,912,879
2,070,673
7,155,864
153,345
257,562
1,901,638
2,312,545
72,561
-
-
72,561
107,341
19,920
370,950
498,211
6,623,465
3,150,983
5,421,603
15,196,051
Past due exposures
Other exposures
Total
KD 000’s
31 December 2010
Up to 3
months
3 to 12
months
Over 1 year
Total
Cash
97,193
-
-
97,193
1,566,260
576,917
283,727
2,426,904
61,797
22,857
153,563
238,217
-
-
-
-
Claims on banks
1,267,281
237,513
403,089
1,907,883
3,355,538
1,378,720
2,308,146
7,042,404
177,171
211,601
1,855,621
2,244,393
Past due exposures
39,138
-
-
39,138
Other exposures
66,924
21,271
393,643
481,838
6,631,302
2,448,879
5,397,789
14,477,970
Total
5.2.11. “Past-due” and impairment provisions
Credit facilities are classified as “past due” when a payment has not been received on its contractual payment date, or if the
facility is in excess of pre-approved limits.
A credit facility is considered as “impaired” if the interest or a principal instalment is past due for more than 90 days, or if the
carrying amount of the facility is greater than its estimated recoverable value.
Past-due and impaired facilities are managed and monitored as “irregular facilities” and are classified into the following four
categories which are then used to guide the provisioning process:
44
The Group may also include a credit facility in one of the above categories based on management’s judgement of a customer’s financial and/or non-financial circumstances.
The Group’s impaired loan portfolio as at 31 December 2011 was KD 131,599 thousand (2010: KD 133,782 thousand) against
which a specific provision of KD 107,390 thousand (2010: KD 107,695 thousand) has been made, as detailed below :
KD 000’s
31 December 2011
Claims on banks
Total
Impaired
loans
61
68,583
62,955
131,599
Related
Specific
provision
61
57,284
50,045
107,390
Specific provision
written off net of
exchange movement
(697)
(10,840)
(135)
(11,672)
KD 000’s
31 December 2010
Claims on banks
Impaired
loans
70
701
68,794
64,217
Related
Specific
provision
70
701
55,786
51,138
Specific provision
written off net of
exchange movement
(12,040)
(7,489)
(8,154)
(534)
Total
133,782
107,695
(28,217)
During 2010, pre-invasion loans and advances along with the related provisions were transferred to off-balance sheet memorandum accounts with the approval of Central Bank of Kuwait. This has resulted in a reduction in non-performing loans and
advances and available provisions.
The geographical distribution of impaired loans and the related specific provision is as follows:
KD 000’s
31 December 2011
Middle East and
North Africa
Europe
Asia
Others
Total
Impaired loans
Specific provision
128,794
105,910
14
12
2,786
1,463
5
5
131,599
107,390
KD 000’s
31 December 2010
Middle East and
North Africa
Europe
Asia
Others
Total
Impaired loans
Specific provision
129,909
105,749
15
14
3,853
1,927
5
5
133,782
107,695
In accordance with CBK regulations, a general provision of 1% for cash facilities and 0.5% for non-cash facilities (2010: 1%
for cash facilities and 0.5% for non-cash facilities) is made on all applicable credit facilities (net of certain restricted categories
of collateral) which are not subject to specific provisioning.
45
The Group assumes market risk from financial claims and loans, position-taking, and trading and investment activities.
The strategy for controlling market risk involves:
• Stringent controls and limits.
• Strict segregation of “front” and “back” office duties.
• Regular reporting of positions.
• Regular independent review of all controls and limits.
• Rigorous testing of pricing, trading and risk management systems.
5.2.11. “Past-due” and impairment provisions (continued)
The adequacy of provisions are regularly evaluated and monitored by the Credit Provisions Committee.
The Group’s total provision as at 31st December 2011 was KD 343,288 thousand (2010: KD 302,635 thousand)
inclusive of a general provision of KD 198,590 thousand (2010: KD 189,921 thousand) as detailed below:
KD 000’s
31 December 2011
Claims on banks
Past due exposures
Total
General
provision
197
1,561
165,991
30,751
90
198,590
KD 000’s
31 December 2010
Claims on banks
Past due exposures
Total
General
provision
241
1,271
157,899
30,028
482
189,921
The total general provision above includes KD 22,008 thousand (2010: KD 21,652 thousand) relating to “non-cash” facilities
in accordance with CBK regulations.
The geographical distribution of the general provision on “cash” facilities is as follows:
31 December 2011
General provision
Middle East and
North Africa
171,456
North
America
1,176
Europe
2,835
KD 000’s
Asia
714
Others
401
31 December 2010
General provision
Total
176,582
KD 000’s
Middle East and
North Africa
North
America
Europe
Asia
Others
Total
163,591
641
3,001
727
309
168,269
The analysis of specific and general provisions is further detailed in note 11 of the Group’s consolidated financial
statements.
5.3 “Market” risk
“Market” risk is defined as the potential loss in value of financial instruments caused by adverse movements in market variables such as interest rates, foreign exchange rates and equity prices.
Market risk results from uncertainty in future earnings arising from changes in interest rates, exchange rates, market prices
and volatilities.
46
5.3.1. Market-risk management framework
The market-risk management framework governs the Group’s trading and non-trading related market risk. Market risk stemming from trading activities is managed by the Group Treasurer. The management and oversight of market risk inherent within the Group’s non-trading activities is the primary responsibility of the Group Asset and Liability
Executive Committee, supported by the regional Asset and Liability Committees. All activities giving rise to market risk are
conducted within a structure of approved credit and position limits.
5.3.2. Monitoring of “market” risk from “trading” activities
The Group risk management function independently monitors the regional and global trading market risk exposure through a
Value-at-Risk methodology (VaR) to derive quantitative measures specifically for market risk under normal market conditions.
This enables the Group to apply a constant and uniform measure across all of its trading activities and facilitates comparisons
of market risk estimates, both over time and against daily trading results. VaR is calculated using a 99% “confidence level”
and a holding period of ten days in line with Basel Committee guidelines.
On a daily basis, VaR is supplemented with stress-testing to quantify market risk under extreme stress scenarios based on observed historical worst-case and in-house developed scenarios. VaR computation allows for
diversification benefits at the Group level. Furthermore, the Group recognises and mitigates the correlation of other risks and
processes on its market-risk monitoring process. In addition to VaR, the Group uses a structure of limits to manage and
control its market risk associated with trading activities.
5.3.3. Monitoring of exposures under interest-rate swap transactions
The Group risk management function independently monitors risk exposures under “interest-rate swap” transactions using
the concept of Potential Future Exposure. Potential Future Exposure (PFE) is defined as the maximum exposures over a
specified period of time calculated at 99% confidence level. As such, the risk is an upper bound at the selected confidence
interval for future exposure and not the maximum risk exposure possible.
5.3.4. Monitoring of non-trading market risk in the banking book
The Group’s key non-trading market risk is the sensitivity of its net interest income to movements in interest rates.
The interest-rate risk in the “banking book” is managed through a “gap” limit structure which is supplemented by periodic
analysis of scenarios (instantaneous parallel shift of +/-5 bps and +/-10bps to the yield curve) to capture the extreme indicative measure of exposure to interest rate changes. The analysis of scenarios showed an impact in the banking book as
follows:
KD 000’s
31 December 2011
+ 5bp
-5bp
+10bp
-10bp
1,069
(1,069)
2,138
(2,138)
+ 5bp
-5bp
+10bp
-10bp
621
(621)
1,242
(1,242)
31 December 2010
KD 000's
The Group does not use the result of scenario analysis to predict changes in its earnings because of the
simplified assumptions inherent in the scenario analysis. Such assumptions includes that interest rates move by the same
percentage irrespective of maturity, that all positions run to maturity and that no management corrective action is taken to
mitigate the impact of interest-rate risk. In addition to interest rate risk, the Group is also exposed to market risk as a result of
changes in the “fair value” of its strategic equity and investment positions held without any intention of liquidation.
The Group’s total equity investment portfolio as at 31st December 2011 was KD 73,303 thousand (2010: KD 80,240
thousand), 52.0 % (2010: 50.4%) of which related to quoted investments. The cumulative realised gains arising from sale of equity
investments during 2011 were KD 149 thousand (2010: KD 36 thousand).
47
5.3.4. Monitoring of non-trading market risk in the banking book (continued)
All revaluation gains or losses during the year relating to equity investments were recorded in the balance sheet.
The cumulative net unrealised gain for equity investments recognised in the balance sheet were KD 16,780 thousand (2010
: KD 19,452 thousand) of which KD 7,551 thousand (2010: KD 8,753 thousand) is included in Tier 2 capital of the Group. For
additional details of the accounting policies related to the valuation of equity holdings, refer to notes 2.15 and 2.16 of the
Group’s consolidated financial statements.
5.4. Operational risk
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and
systems, or from external events.
5.4.1. Operational-risk management framework
The Group monitors its operational risks on a regional and global basis through an operational-risk management framework
which defines roles and responsibilities for managing and reporting operational risk. The key components of this framework
are comprehensive documented policies, procedures and internal controls.
Through the framework, line management is able to identify, assess and decide in what form and scale it can
accept, control and reduce operational risk, together with the form of risk-prevention measures which are necessary.
Furthermore, it embeds a culture of transparency of information, escalation of key issues and accountability for
issue resolution. Group risk management collates and reviews actual and potential loss data arising from the Group’s
day-to-day operations to continuously refine its control arrangements.
The operational-risk framework is supplemented by regular reviews from the Group internal audit function. The Group has a
business continuity plan together with a fully-equipped disaster recovery centre which is tested periodically.
The Group’s business processes are closely monitored to identify, assess, control and prevent potentially illicit use
of the Group’s services for laundering money and/or financing terrorism. The Group’s “anti-money laundering” and
“combating terrorism-financing” initiatives are regularly reviewed to ensure full compliance with local legal and
regulatory requirements and international best practices.
5.5.Liquidity risk
Liquidity risk is defined as the inability to generate sufficient financial resources to meet all obligations and
commitments as they fall due, or having to access funds to meet payment obligations at an excessive cost. It is the policy of
the Group to maintain adequate liquidity at all times, in all geographical locations.
The Group applies a prudent mix of liquidity controls which provide security of access to funds without undue
exposure to increased costs of funds from the liquidation of assets, or aggressive bidding for deposits. Liquidity risk is
monitored and evaluated daily to ensure that, over the short term and by major currency, the profile of projected future cash
inflows is adequately matched to the maturity of the liabilities.
5.6.Reputation and fiduciary risk
Reputation risk is defined as the current and prospective impact on earnings and capital arising from negative public opinion
that will impact the ability to establish new relationships or services or to continue servicing existing relationships.
Management of reputation risk is an inherent feature of the Group’s corporate culture which is embedded as an integral part
of the internal control systems. Besides identification and management of risks, the internal control system also incorporates
as an ethos the maintenance of business practices of the highest quality towards its customers, shareholders, regulators,
general public and fiduciary and non-fiduciary clients.
Through its policies and practices NBK ensures that proper screening of clients’ risk profiles and performance expectations is
conducted prior to making investment products or services available to them. Furthermore, once a product or service is sold,
appropriate risk and performance projections are clearly communicated, and funds placed under management are treated
with due care and professionalism.
During the year, Assets under Management at the Group decreased by 3% to reach KD 2,530 million on 31 December 2011
(2010: increased by 8 % to reach KD 2,604 million on 31 December 2010).
48

Annual Report 2011

Transcription

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