Annual Review 2014

Transcription

Annual Review 2014

Annual Review 2014
driven by you
2
The KIPCO Group is one of the biggest
holding companies in the Middle East
and North Africa, with consolidated assets
of US$ 32 billion as at 31 December 2014.
The Group has significant ownership
interests in over 60 companies operating
across 24 countries. The group’s main
business sectors are financial services,
media, real estate and manufacturing.
Through its core companies, subsidiaries
and affiliates, KIPCO also has interests
in the education and medical sectors.
Dar al-Athar al-Islamiyyah, one of Kuwait’s leading
cultural organizations, was created to manage activities
related to The al-Sabah Collection. The collection
includes one of the world’s finest assemblages
of arts from the Islamic world. The collection consists
of over 30,000 priceless objects, including manuscripts,
scientific instruments, carpets, fabrics, jewelry,
ceramics, ivory, metalwork and glass from countries
such as Spain, India, China and Iran.
This year, the annual reports of KIPCO Group companies
each feature a different key ivory artifact from
The al-Sabah Collection. The images used within the
reports reflect KIPCO’s commitment to protecting and
promoting Kuwait’s heritage, while helping to build
the nation’s future.
The item pictured here (LNS 7 I) is a lathe-turned and
carved elephant ivory box with silver mounts, probably
made in Granada, Spain during the 8th century
AH /14th century CE. The image is reproduced with
the kind permission of The al-Sabah Collection,
Dar al-Athar al-Islamiyyah.
Contents
Burgan Bank S.A.K
P.O. Box 5389 Safat 12170
State of Kuwait
Telephone: +965 2298 8000
Fax: +965 2298 8419
www.burgan.com
3
Welcome Message
4
Executive Summary
6
Financial Highlights
8
Chairman’s Statement
10
GCEO’s Statement
14
Review of the Year – Kuwait Operation
16
Corporate Social Responsibility Report
22
Corporate Governance and Disclosures
34
Management Team
40
Financial Review
1
H.H. Sheikh Sabah
Al-Ahmad Al-Jaber Al-Sabah
Amir of the State of Kuwait
H.H. Sheikh Nawaf
Al-Ahmad Al-Jaber Al-Sabah
Crown Prince of the State of Kuwait
2
Welcome to our Annual Review
for the year 2014
Welcome to our Annual Review for the year 2014, a year
which solidified our position as a diverse group with
a clear cut strategic advantage and sound vision; traits
that enabled the Group to continue to build on its previous
performances and to further advance its reach in terms
of network, services, products, and most importantly in
reputation. 2014 has been closed as another ribbon of
solid performance despite a complex and less favorable
operating environment.
Throughout the year, we had to adapt to severely changing
conditions that resulted from political pressures, economic
reform or stagnation, and social unrest. As the world
changes and powers shift, the business environments are
the first to be affected. The resilient model of the Group
allowed it to absorb global and regional pressures and to
maintain its growing position as a diverse and solid rising
financial powerhouse in the Middle East, North Africa
and Turkey (MENAT).
The Group delivered on its promises a growth of 207%
net profit year on year with an increase of 9% in operating
profit before provisions were registered in 2014. As the
board and executive management increase their support
and push for smart execution of different initiatives
across the spectrum of operations and regions, the
Group manages to swiftly adapt and further grow in size,
operations, and performance.
During 2014, the Group’s performance was recognized
both on a regional and international level by highly
regarded organizations. On a Group level the bank was
awarded MENA Bank of the Year by “ACQ” and Best
Banking Group in Kuwait by World Finance while its
operations nailed the International Diamond award for
Quality from Business initiatives Directions. The Bank
largest division, Corporate Banking was awarded Best Cash
Management by Asia Banking and Finance Magazine,
while its growing Retail Banking arm was awarded Best
Domestic Retail Bank of the year by the same entity.
Our strong Private Banking division which recently started
its international offices was awarded Best Private Bank in
Kuwait for the fourth consecutive year by Capital Finance
International. In addition, our young team of Investor
Relations won Best Investor Relations award by World
Finance; a first in Kuwait. In line with our commitment to
high standards in corporate governance and transparency,
the Group was awarded the Governance Excellence award
by GCC Governance Conference.
Burgan Bank Group’s performance reflects its high
commitment to all its stakeholders; shareholders,
customers, communities, and employees. The Group
aims at achieving calculated and smart growth through
excellence, high standards of achievements, and sound
flexible strategies. Supported by a strong talented team
of banking professionals, Burgan Bank Group is well poised
for future success and growth.
We assure the explanations in the report are approved by
the board of directors and are comprehensive and based
on the published financial statements of the bank and the
management’s vision.
Burgan Bank Group
Members of the Burgan Bank Group
driven by you
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Executive Summary 2014
Key Highlights in 2014
Burgan Bank
• Solid Operating performance
with high adaptability to
external pressures.
Established in 1977, Burgan Bank is the youngest
commercial Bank and second largest by assets in Kuwait.
The Banking Group is known for its leading position and
distinct offering in the corporate, private and financial
institutions sectors, as well as having a growing retail
bank customer base.
• Enhanced Risk Position; both asset quality and coverage ratio
improving year on year.
• Optimal capital levels under Basel III, supporting calculated growth plans.
Burgan Bank has five majority owned subsidiaries,
which include Gulf Bank Algeria - AGB (Algeria), Bank of
Baghdad - BOB (Iraq and Lebanon), Jordan Kuwait Bank
- JKB (Jordan, Palestine and Cyprus), Tunis International
Bank - TIB (Tunisia), and Burgan Bank - Turkey, (collectively
known as the “Burgan Bank Group”).
• Sustained operating performance with healthy future indication
of sound growth.
• Internationalization of businesses under an ongoing Group
synergies plan.
• All business lines continue to grow within trajectory beating market and acquiring more market
share with profitability.
Burgan Bank 2014 ratings
4
Rating agency
Rating highlights
Standard & Poor’s
BBB+ / A2 (Long / Short Term)
Moody’s
Bank Deposit Rating
A3 / P-2
Capital Intelligence
Foreign Currency
A- / A2 (Long / Short Term)
Stemming from its resilient business model, Burgan Bank
Group developed a flexible strategic approach to deal
with increasingly unstable operating environments.
As the need for adaptability and resilience to shocks
arises, the Group took it upon itself to continue increasing
its shareholder value despite whatever comes along the
way. 2014, counts as another milestone in this strategic
approach, proving that sound execution of strategies
pays off with returns for all stakeholders; Shareholders,
customers, communities and employees. In 2014, the
Group managed to grow consistently within its promises;
smartly, tactically, and in most beating competition.
Yet again, we fulfilled on our promises generating
tangible results and enabling us to draw a yet clearer
trajectory resulting from a track record of consistent and
solid performance. The Group was able to enhance its
international position during 2014, building on synergies,
creating innovative solutions, adding on capabilities and
definitely building a performance culture.
During 2014 the Group implemented an optimized new
capital plan that puts the Group in compliance with
Basel III requirements and to support its further growth
plan; a plan that yielded more than KD300 million in
proceeds. The plan included the issuance of AT1 bonds in
3Q-2014 -the first of its kind in Kuwait and worth USD500
million; closed through a robust demand from local and
international investors which reflected their trust in the
Group’s performance and prospects. In addition to the
AT1bond issuance, Burgan Bank Grouphas successfully
raised capital through a rights issue with the total
proceeds of KD102.6 million. The Group has adequate
+ 9.1%
Operating
Profit Growth
+ 19.3%
and efficient capitalization levels combined with
improved asset quality and liquidity and the risk to return
architecture has played an efficient role in managing and
shaping its growth; its balance sheet remains healthy with
sound liquidity levels at 30% and with Capital Adequacy
ratio at 13.5% as the end of December 31, 2014.
The Group’s performance remains solid with operating
income surging to KD 275.7 million registering a
growth of 9% while operating profits before provisions
soared to register KD 153.5 million also reflecting a
growth of 9% year on year. Sustainable growth inertia
and diversification of revenue streams are the main
characteristics that describe the Group’s performance
and direction in the upcoming period.
Burgan Bank Group remains on the right trajectory with
all leading indicators pointing in the right direction.
During 2015, the Group will continue to push for smart
growth, eyeing opportunities and unleashing potential,
and focusing on business growth and synchronization
within its members whilst operating under sound and
heightened levels of international governance and
transparency principles.
The 2014 Annual Report provides shareholders with
an overview of the Group’s financial and business
performance highlights as well as financials
and disclosures.
A copy of the annual report can be obtained from
www.burgan.com, or also, if you would prefer to receive
a printed copy of the annual report, please contact us on
+965 2298 8000 or send an email to [email protected]
+ 28.5%
+ 18.2%
Adjusted
Net Profit
Return on
Tangible Equity
Return on
Opening Equity
(Excluding additional
provisions)
(Excluding additional
provisions)
(before additional
provisions, excluding
perpetual debt cost)
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Financial Highlights
During 2014, a solid operating and financial performance
continues reflecting a faster than market growth almost
in all indicators and mirroring the soundness of Burgan
Bank’s resilient business model.
Compared to last year, Operating income grew by 9%
from KD253.6 million to KD 275.7 million while Operating
Profits before provisions soared to register KD 153.5
million also reflecting a growth of 9%. The Group’s net
profit for the year 2014 reported at KD 61.8 million while
earning per share (EPS) reported at 37.6 Fils.
The strong operating performance during the financial
year 2014 amid the complexity in the regional and global
operating environment, delivered a continuous solid
growth in all business lines translated in profitable market
share gains in core market, quality top line earnings and
faster than market credit growth. Net interest income
grew by 12% while net fees and commission grew by 9%
compared to last year. Loans and Advances were
up to KD4.4 billion while customers deposits grew to
KD4.7 billion registering annual growth of 11%
and one percent respectively.
Consolidated balance sheet KD 000’s Cash and cash equivalents
Treasury bills and bonds with CBK and others
Investment securities
Total assets
Total liabilities
Shareholders’ Equity
Asset quality improved in 2014 as our non- performing
assets (net of collaterals) to gross facilities reduced to
1.5% while coverage ratio (net of collateral) increased to
reach 278%. In 2014 we initiated our capital optimization
plan that yielded more than KD300 million in proceeds
to adjust for Basel 3 requirements and to further support
our growth plans. Our Capital Adequacy ratio stands at
13.5% at the end of December 2014 under Basel 3.
The consolidated financials encompass the results of
the Group’s operations in Kuwait, and its share from its
regional subsidiaries, namely Jordan Kuwait Bank,
Gulf Bank Algeria, Burgan Bank – Turkey, Bank of
Baghdad, Tunis International Bank, in which Burgan Bank
owns a majority stake. Burgan Bank Group has grown in
2014 and has one of the largest regional branch networks
with 235 branches across Kuwait, Turkey, Jordan, Algeria,
Iraq, Tunis, Lebanon and Palestine.
2010
2011
2012
2013
2014
624,939
466,969
132,578
4,147,461
3,608,837
420,427
567,352
419,079
148,585
4,551,772
3,986,063
447,288
787,468
483,588
311,021
5,972,938
5,353,107
490,725
1,004,290
583,647
421,402
7,154,751
6,534,924
475,458
1,040,563
629,819
484,942
7,751,424
6,795,537
660,841
Consolidated Income Statement KD 000’s
Net interest income
Net fee and commission income
Operating income
Operating profit before provision
Net profit attributable to shareholders
Earnings per share (in fils)
6
106,849
32,623
164,873
99,614
4,655
104,577
38,114
163,381
101,962
50,562
118,940
38,143
190,116
118,934
55,600
165,435
44,623
253,559
140,723
20,102
185,538
48,589
275,711
153,537
61,758
3.4 33.7
36.0
12.0
37.6
+ 12%
102
119
141
154
10
11
12
13
420
447
491
10
11
12
Loans and
advances
(Year on year growth)
(Year on year growth)
163
190
254
276
14
10
11
12
13
14
475
661
4.1
4.6
6
7.2
7.7
13
14
10
11
12
13
14
Total revenues – KD millions
Assets – KD billions
(Before provisions)
Shareholders’ equity – KD millions
Net interest
income
165
Operating profit – KD millions
100
+ 11%
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Chairman’s Statement
Dear shareholder,
As the year comes to an end, Burgan Bank Group proudly folds
another successful chapter of the Group’s journey. The year 2014,
has been registered in the records as yet another celebrated year
where the Group has not only met the objectives but also grown in
performance, and as culture that nurtures knowledge, innovation,
professionalism, and sustainability.
In 2014, Burgan Bank Group maintained a pioneering
position in the way it operates across all levels.
The group continues to apply innovative solutions across
all operations ensuring that high performance is not just
a target but a way of life, a culture, and an instilled belief.
The group managed to consistently grow, registering a
9% growth in revenues year on year.
Our loans and deposits grew by 11% and 1% year on year.
We have also managed to continue improving our asset
quality reflected by improving NPA and NPA coverage
ratios. Our market position has also improved with a high
operating performance against peers translated into an
increased market share in Kuwait that stands at 14% in
loans, 15% in revenues, and 19% in net income.
The 2014 Annual Report includes the following disclosure
clause as they are considered inclusive to this Report:
8
Financial year and performance
Executive Summary - Pages 4 - 6
Summary on new/halted activities
at end of year
Review of the Year Kuwait Operations. Pages 14 - 15
Summary of events following
financial year
Group Chief Executive Officer
Statement - Pages 10 -12
Summary of financial indicators
Financial Highlights - Pages 6 - 7
Recommended Dividends payout
as per the agenda of Annual
General Assembly
Consolidated Financial Statements
- Note 18 in Page 92
Board of Directors Remuneration
Governance & Disclosure Report Page 28
Summary on Stock Option Scheme
N/A
The group solid performance was also recognizable by
international bodies. During 2014, Burgan Bank Group
won “Best Banking Group in Kuwait” by World Finance,
“Best Investor relations in GCC” by World Finance,
“Best Cash Management” by Asian Banking and Finance,
“Best Domestic Retail bank” by Asian Banking and
Finance magazine, “Best Private Bank in Kuwait” by CFI
Capital Finance International, and “The Eurostar for
Quality” by Business Initiative Directions.
We are continuing to reap the benefits of diversifying into
faster growing markets; our international operations now
contribute to 53% of group’s revenue. Our Brand position
continues to be on the rise and now is regarded as one of
the strongest banking brands in the region.
To sustain this high performance and to comply with
the new Basel 3 requirements, we have opted for an
innovative capital optimization plan that yielded more
than KD300 million in proceeds. The plan included beside
other activities, the issuance of AT1 bonds in 3Q-2014 -the
first of its kind in Kuwait- worth USD500 million; closed
through a robust demand from local and international
investors which reflected their trust in our performance
and prospects. In addition to the AT1bond issuance, we
have successfully raised capital through a rights issue with
the total proceeds of KD102.6 million. The process was
oversubscribed by our existing shareholders which
is also considered as a reflection of their trust in
Burgan Bank Group.
“We are continuing to reap the
benefits of diversifying into faster
growing markets.”
Corporate Social Responsibility Burgan Bank Group
focuses and believes in its Corporate Social Responsibility
as form of giving back, not just to its communities
but to all stakeholders. The diligent, consistent, and
continuous efforts that we put collectively definitely
reflect this commitment. We take pride in our programs
and activities and we ensure that high standards of social
responsibility are applied across all spectrums. Corporate
Social responsibility is a commitment which we reaffirm
every year as we consider our community an important
part of our existence and a reflection of ourselves and
thus we celebrate our success through giving back.
Board of Directors
Our support and high commitment to giving back to our
communities stems from our corporate values of trust,
progression, excellence, and commitment; values which
are reflected in the way we conduct business as well.
Mr Masaud M. J. Hayat
Board Member
I am proud of our efforts during 2014 and in general.
Our aim of contributing to our social, economic, and
educational development and to that of being an active
member of our communities is achieved year on year
as we continue to build on our work and achieve our
ultimate aim of sustainable development.
On behalf of the board, I would like to extend my
warmest gratitude to you, our shareholders, and to the
hard work and contribution exerted by our employees
as well as to the executive management team for their
leadership and prudent execution of our strategy.
We expect nothing less from a body of talented,
experienced, and dedicated professionals.
Mr Majed E. Al Ajeel
Chairman
Mr Mohammed A. Al Bisher
Vice Chairman
H.E. Abdul Kareem A. Al Kabariti
Board Member
Mr Faisal M. Al Radwan
Board Member
Mr Samer S. Khanachet
Board Member
Mr Sadoun Abdulla Ali
Board Member
Mr Pinak P. Maitra
Board Member
Mr Abdul Salam M. Al Bahar
Board Member
Best Regards,
Majed E. al-Ajeel
Chairman of the Board
9
GCEO’s Statement
Dear Shareholders,
The financial year 2014 can be described as a year of optimization and
alignment to new regulations. Burgan Bank group continued to reap
the benefits of its resilient business model, its performance culture
and its focused execution. The Group managed to achieve projections
and aims set at the end of 2013 despite the escalation of numerous
unfavorable operating conditions that 2014 witnessed.
Burgan Bank Group’s solid performance delivered a
faster than market growth almost on all indicators amid
a backdrop of markets volatility, regulation changes and
geopolitical pressures. With oil prices plummeting,
EU zone at risk of deflation and the intensifying
geopolitical turmoil in the region, all casting its shadow
on GCC economies and resulting in a growth slowdown,
Burgan Bank Group’s resilient business model has been
put into a test and has proven successful.
For the 2014 financial year, the Group’s operating
income grew faster than the market as it registered
a 9% year-on-year growth reaching KD 275.7 million
versus an average growth of local conventional peers
of 3% whilst operating profit before provisions grew as
well by 9% year-on-year reaching KD153.5 million with
peers averaging a growth of 3% as well. Reported net
income reached KD 61.8 million and earning per share
reached Fils 37.6.
Having said that, I would like as the CEO of the group
to share with you some reflections that I believe it
will give you as a shareholder a better picture of the
underlying results of our resilient business model and
performance levers:
• Profitability: The group’s underlying earnings
(earnings excluding provisions adjustments) for the
past three years have been growing steadily and
consistently year-on-year. This growth was mainly
realized through a smart growth in balance sheet
leading to high quality top line earnings, pragmatic
focus on efficiencies across the board and our
genuine care of customers. The Group’s underlying
net income stood at KD 72.9 million in 2012, KD 72.7
million in 2013 and KD 86.7 million before perpetual
cost in 2014. This solid performance translated in
improved underlying returns to shareholders. Return
on opening equity (before additional provisions), stood
at 16.3% in 2012, 14.8% in 2013 and 18.2% in 2014
(excluding perpetual debt cost). While returns on tangible
equity, also excluding precautionary provisions,
reached 26.5% in 2012, 23.3% in 2013, 28.5% in 2014.
10
”Tapping the capital markets locally and internationally with innovative instruments that were well received by the investment community”.
• Asset Quality: The asset quality and since the
beginning of our turnaround in 2011 has significantly
improved reflecting a sound risk management culture
that is fully integrated within our growth strategy
and that enables us to strike the risk/reward balance.
Our Non-performing Assets, net of collateral, to gross
facilities stands at 1.5% while our coverage ratio
stands at 131% and at 278% net of collateral.
• Capital Optimization: By December 31, 2014, the
new regulations regarding capital requirements
became effective. The impact to adapting to the new
regulatory requirements led us to reconfigure our
funding structure. The group’s continuous capital
optimization planning has enabled us to support
regulations especially those under Basel 3. Our capital
plan to deal with the regulations affecting us in 2015
went into action since 2012 as the Group introduced
the first local currency debt instrument (subordinated
debt) and the biggest in terms of tenor and size.
In 2014, the group also introduced the first hybrid
instrument (AT1 bonds) in the Gulf to be issued by
a commercial bank. In addition, the Group sold
treasury shares in 2014, had rights issuance in 2014,
as well as risk-weighted assets optimization. Tapping
the capital markets locally and internationally with
innovative instruments that were well received by
the investment community.
• Diversifications: The group’s diversification benefits
are evident through the increasing contribution of
the international operations to the group’s earnings
and balance sheet growth. International operations
contribute 51.7% as reported to the group’s net
interest income, 52.6% to the group’s non-interest
income and 44.4% as reported of group’s assets.
All of our subsidiaries are profitable despite the
regional challenges making Burgan Bank as the most
international Kuwaiti Bank.
• Management: We enjoy the benefits of one of the
most stable management teams. The diversified pool
of talents in the Group has enabled us to institute a
performance culture that is delivering such consistent
and solid growth through a focused execution and
simple organization structure yielding agility and speed.
With this reflection that sets the context of our resilient
business model and what it offers as a strong foundation
for future growth, I would like to share with you the 2014
highlights of each operation:
Kuwait Operations:
In 2013, we have aimed to grow our market share in the
core market with profitability. In 2014, we have managed
to do that as we grew by 6% in loans in line with our
strategy of optimizing our funding sources while we
maintained a high liquidity ratio of 30.4%. In addition,
our market share grew to 15% in revenues and 19%
in net income despite the stagnant local economy due
to the slow implementation of development plans and
the drop in oil prices. This growth has been achieved by
enhancing our existing product suite, the introduction
of new products, packages and services, the focus on a
rigorous sales culture and the continuous improvement
in customer experience across all touch points.
All business lines of Kuwait’s operations are profitable
and continue receiving international recognition by
renowned organizations such as “Best Corporate Bank”
by World Finance, “Best Private Bank” by CFI, “Best Retail
Bank by Asian Banking and finance review, “Best Cash
Management” by “Asian Banking & Finance”.
International Operations:
As the most diversified commercial bank in Kuwait,
Burgan Bank Group with a network distributed over
7 countries through five subsidiaries and a branch
network of 235 branches, our franchises are on track
and are steadily growing despite geopolitical, economic
and regulatory pressures.
In Turkey, the turnaround of the franchise that we
have aimed for once we acquired our subsidiarity has
been achieved and Burgan Bank Turkey now is on right
trajectory. During 2014, The Turkish operation grew its
revenue and operating profit by 21.4% to reach
KD 45.4 million and by 120.5% to reach KD12.6 million
respectively. Loans grew by 31.7% to KD889 million and
total deposits grew by 35.5% to KD 841 million.
Burgan Bank Turkey is considered as one of the main
growth engines of the group going forward.
11
“During 2014, the Bank grew at a rate that is faster than
the market and faster than the bank’s expenses.
In Jordan, Jordan Kuwait Bank managed to achieve
positive milestones during 2014 despite the increased
instability in neighboring countries and the influx of
refugees that cast its shadow on the local economy.
Jordan Kuwait Bank managed to increase its loan book
by 2.2% to reach KD 538 million while growing its total
deposits by 6.1% to reach KD778 million and increasing
revenue by 6.7% reaching KD 53.8 million. Also, Jordan
Kuwait Bank has managed to introduce significant
improvements to its technology and operations
infrastructure such as the successful launch of its new
Core Banking System, the renovation of branches and
the expansion of its ATM network.
As the financial year 2014 has ended, I would like to close
my letter with the following considerations that may help
anticipate the way forward:
In Algeria, Gulf Bank Algeria was able to maintain a
steady growth despite slowing economic performance
due to lower FDIs and falling energy prices. During 2014,
the Bank grew at a rate that is faster than the market and
faster than the bank’s expenses despite, in addition to
the economic conditions, the KD10.7 million in forgone
revenues in 2014 that resulted from regulatory changes.
Gulf Bank Algeria grew its loans by 15% reaching KD 332
million and its total deposits by 19.6% reaching KD 451
million. Revenues grew by 36.4% after regulatory change
adjustment in FY 2013 reaching KD37.2 million and
operating profit grew by 48.6% after regulatory
change adjustment in FY 2013 reaching KD21.3 million.
Leading indicators suggest that Gulf Bank Algeria
together with Kuwait and Turkish operations remains as
the group’s main growth engines.
• Our improved customer acquisition, geographic
diversification and Burgan Bank Kuwait capabilities
are our levers for future growth.
In Iraq, during 2014, Bank of Baghdad has opted for a
defensive strategy amid the security turmoil that Iraq
is witnessing clubbed with the declining oil output and
prices. With a balance sheet that is mainly placed in
government securities and a small loan portfolio, asset
quality remains in comfortable position. During 2014,
Bank of Baghdad Revenues stood at KD14.3 million and
operating profit stood at KD 7.6 million.
In Tunisia, Tunis International bank managed during 2014
to grow its loan book to KD 8.4 Million and total deposits
to KD 123 million. Revenues stood at KD 6 million while
operating profit reached KD3.8 million.
12
• The strong foundation of Burgan Bank Group
has delivered consistent financial performance,
attractive returns to shareholders and improved
market position. A foundation that is led by a stable,
experienced and diverse management team.
• A prudent, sound risk/return balance approach has
enabled us to pursue a selective growth focus, apply
a disciplined credit approval process, and continue
improve our asset quality.
Sincerely,
Eduardo Eguren
13
Review of the Year – Kuwait Operations
Kuwait operations remained on a growth momentum, acquiring
higher market share with profitability, outperforming previous
years, and utilizing opportunities both locally in Kuwait
and within the Group.
Corporate Banking Group
Corporate Banking, the biggest contributor to Kuwait’s
operations, remains a powerful driving force in Kuwait
operations. During 2014, the Corporate Banking team
continued to expand its performance during stagnant
local operating conditions and in an already saturated
and highly competitive market. A high focus on sales
and services culture has enabled the Corporate Banking
Group to expand its client base earning a strong credit
growth of 13% compared to 2013 with asset quality
improving as Corporate NPAs were reduced by
3% year on year.
Corporate Banking has financed projects worth KD 900
million during the year. These projects are under various
sectors and activities such as construction, maintenance,
infrastructure, services, oil, marine and real
estate development.
Corporate Banking continues to remain the largest
contributor achieving 78% in performance of Kuwait
for 2014. In addition, the Corporate Banking group has
engaged locally and internationally across all sectors.
Cash Management under Corporate Banking Group won
the ‘Best Domestic Cash Management bank of the year’
award from Asian Banking and Finance’s Wholesale
Banking Awards 2014.
Financial Institutions: The Financial Institution Division
activities during 2014 continued to focus on increasing
and enhancing core business portfolios in syndicated
loan participation and trading, trade finance, banking
and other financial institutions transactions. Underlying
net profit from Financial Institution Division grew by 32%
year on year through better risk appetite management.
Loan Syndications and Trading: Additional assets
sourced in primary and secondary of nearly US$50 million
were added to the loan portfolio and included new
markets such as Azerbaijan, Panama and a Trans-national
African Institution, where Burgan Bank participated
as a mandated lead arranger in primary syndication.
Bilateral Loans amounting to US$140M were extended
for a further period.
14
Banking: Additional unfunded trade risk participations
of over US$600 million were added to the portfolio on
South East Asia, Indian Sub-continent, GCC and Turkey.
Financial Institution Division also assisted subsidiary
banks in Iraq and Turkey with Trade issuances and
supported secondary risk of Group Banks in addition to
providing leads for Guarantee issuances into network
countries. During the year, the Division arranged facilities
for more than 250 Banks globally thus enhancing Burgan
Bank’s transactional abilities in Treasury, Trade Finance
and Correspondence Banking.
Non-Banking Financial Institutions: Participated in
syndications favoring the Oil & Gas sector, both locally
and abroad, in addition to granting new facilities for the
Investment and Insurance sectors in Kuwait. the division
is also concentrating on new liabilities to improve liquidity
profile of Burgan Bank.
Private Banking Group
Our highly successful award-winning Private
Banking Group, under its new management, is being
internationalized with a vision. As the division launched
its international arm with the launch of the International
Desk initially for Turkey and then across the Group,
its services become more integrated within the Group
members and grow not just in its offering but also
to adhere to an international standard of wealth
management and Private banking services. As its services
grow in complexity, the team’s capability has also been
elevated to include specialized relationship managers and
investment consultants, a high added value to the already
diverse and professional team of driven relationship
managers. In 2014, Private Banking’s combined asset/
liability book has reached almost KD 1 Billion, with a net
contribution of KD14.7m in net profits. Loans grew by
27%. Achievements across the Private Banking operations
were recognized as they were awarded the Best Private
Banking in Kuwait for the fourth consecutive year by
Capital Finance International.
Treasury
Retail Banking Group
The Treasury Group has performed well during 2014,
working through subsidiary syndication and inter-group
initiatives providing interest rate, currency and liquidity
management. Treasury is enhancing its products and
services line to provide competitive edge to its clients.
The Treasury Group has launched a new FX platform
which elevated the level of services offered to clients and
opened a doorway of potential opportunities within the
Group and to its client base as well. With reference to its
Money Market, the Group has managed to add clients in
both local and international markets through providing
attractive products and services.
One cannot exclude the noticeability rising Retail
Banking Group. The Group’s 2013 revamp has paid
off during 2014, as the business grew by 10% in terms
of credit growth, contributing 17% of revenues to
Kuwait’s operations. 2014 was a year of concentrated
activities for Retail banking which led to growth in
customer acquisition at over 10%. The group has been
awarded as “the best domestic retail bank of the year”
by Asian banking and Finance magazine for the second
consecutive year. The brand has been also shortlisted and
recognized as a top retail banking brand for customer
satisfaction by the annual “service hero survey” in
recognition of its efforts in delivering exceptional services
to our customers. Some of our product offerings went
through enhancements in 2014 to provide our clients
with competitive and attractive packages. The credit cards
product line witnessed a new addition to its portfolio
through the launch of the Qatar airways cobranded card
which was marked as another milestone for retail banking
due to its innovative features and the competitiveness
of its benefits in comparison to other cobranded cards in
the market. Retail banking has also gone through many
process enhancements to its services in terms of efficiency
of processes, speed, and delivery to customers and
exclusive service offerings. In terms of services, the call
center, Customer Relationship management CRM systems
have also witnessed massive technological and process
improvements with an elevated customer service focus
in mind. The Retail Banking group continued to grow its
asset book sensibly by forging new connection with new
segments such as the SME which is growing steadily as
well as the expansion of its presence in retail outlets.
Investments
In the Investments Group, Burgan Equity Fund has
generated a 3.63% alpha over the KSE Weighted Index
in 2014. The Burgan Equity Fund was recognised by
Zawya Reuters as a top performer among local equity
funds. The success of the fund is attributable to its
successful asset management strategy combined with
efficient liquidity management. In addition to the Asset
Management function, the Investment Group also
contributes to Burgan Bank Group by continuing
to generate good performance from managing
a diversified proprietary investment portfolio consisting
of various asset classes and defined sub portfolios with
acceptable risk/reward targets in line with the Bank’s
investment philosophy.
15
Corporate Social Responsibility – 2014 Report
Burgan Bank’s overall approach to Corporate Social Responsibility
(CSR) begins with a key element; that, as a Kuwaiti company, its
brand name, values and work ethics should be on par with the
necessities of the Kuwaiti society and with those of
the people who rely on the bank.
Solid Governance
Awards - ‘Translating Goals into Global Achievements’
Burgan Bank’s resilient execution of the group strategy
and successful business model has continued to yield
good performance across the markets in which it
operates from. Backed by a committed workforce, leading
financial indicators still point to the right direction and
continue to position the Group for smart growth.
Excellence is one of the Bank’s four key values and
Burgan Bank continually strives to maintain the highest
standards in the industry.
Investor Relations - Shafafiya 2014 – ‘Promoting
Corporate Fairness, Transparency and Accountability’
Burgan Bank held its annual Al Shafafiya Investor’s forum
following the bank’s annual general assembly meetings,
in which members of the board presented Burgan Bank’s
financial earnings report for the year ended December
31, 2013 and agreed to a payout of 7 fils as cash dividends
while also distributing bonus shares of 7%
to registered shareholders .
The strong operating performance during the financial
year 2013 delivered a continuous solid underlying growth
in all business lines. Given 2013’s financial and economic
uncertainty, the group managed to maintain its strength
and significantly improve underlying profitability, asset
quality, liquidity and market position.
The Shafafiya Forum is an annual event that is held
amongst Kuwait Projects Company’s (KIPCO) subsidiaries,
and reflects a strong corporate governance practice,
which promotes corporate fairness, transparency and
accountability. The forum provides an ideal gate to
discuss financial reports and outlook as well as market
predictions openly with shareholders.
2014 was a fruitful year of accomplishments for the
bank as a group on both a local and regional front.
The bank won several prominent awards such as the
“Best Domestic Retail Bank of the Year” award from the
Asian Banking and Finance Magazine, for the second
consecutive year, “Best Private Bank in Kuwait” award by
Capital Finance International, for the third consecutive
year, the prestigious “International Diamond Star for
Quality” award from Business Initiative Directions (BID),
for the second consecutive year. The bank also won
the coveted ‘Best Domestic Cash Management Bank of
the Year” award from the Asian Banking and Finance
Magazine’s Wholesale Banking Awards 2014.
Furthermore, Brand Finance, an affiliate of the prestigious
international financial publication “The Banker” had
re-affirmed Burgan Bank brand rating as AA with a
positive outlook and declared Burgan Bank has the
highest rated banking brand in Kuwait. The bank
witnessed an increase in its total brand value which stood
at USD 234 million compared to $199 million in 2013.
Burgan Bank’s brand ranking has jumped 43 positions in
the top 500 banking brands worldwide.
Investor Relations Award - ‘A Sound Corporate
Governance Philosophy’
Portraying Burgan Bank’s transparency strategy is a
crucial element to continue its significant performance.
In 2014, Burgan Bank won the ‘Best Investor Relations
in GCC’ award from World Finance, one of the world’s
leading financial publications. The recognition paid
tribute to the bank’s role within the Gulf realm for
its excellence and contribution to accelerate the
development of the region. The award resembles the
bank’s healthy and evolving investor relations discipline
and its continuous efforts to advocating efficient capital
markets and best practices.
16
Awards Ceremony
The Annual Al Shafafiya Investors forum
Town Hall Gathering
Burgan Bank is strongly committed to the maintenance
of a solid Corporate Governance structure practice
and framework.
Town Hall Gathering ‘Acknowledging Success within’
The Bank’s Board has a responsibility to protect and
enhance the value of the Group in the interests of both
shareholders and the Group. The Board is the overall
and final body for all decision-making within the Bank.
The governance practice at Burgan Bank has been
designed to ensure that the bank is effectively managed
and that financial industry standards and the Kuwait
Stock Exchange and Central Bank statutory
obligations are met.
Highlighting the bank’s efforts in maintaining a solid
Corporate Governance strategy and strong capabilities
in adhering to modernized governance systems, Burgan
Bank won the first “Excellence in Governance” award
during the 2014 GCC Governance Conference. The award
signified the bank’s implementation of and compliance
with corporate governance principles throughout its
operations and among its subsidiaries.
Since 2007, Burgan Bank has been recognized by the
Hawkamah Institute for Corporate Governance as
one of the leading banks in the MENA region for the
implementation of best practice corporate
governance methodologies.
Performance Culture - ‘Human Capital.
Our Most Valuable Asset’
Burgan Bank strives to create a culture that not only
nourishes employee’s expertise, but is also customer
focused, collaborative and growth oriented. This culture
is an integral part of daily work and a key component in
recruitment, selection, learning and development and
the performance evaluation of our employees.
Burgan Bank’s human capital is its most valuable asset.
The bank aims to build a competitive advantage by
enabling employees to realize their potential and that
of their teams and to nurture and aid the growth of
potential leaders. For that, the bank offers a range
of initiatives to develop employees and strengthen
its workforce capability.
Maintaining a solid internal communication strategy is
crucial to the bank’s growth plans. The bank’s overall
approach in investing in its internal audiences is backed
by the aim of nurturing a culture of open dialogue,
harnessing skills, and creating credible proud
brand ambassadors.
Burgan Bank held its yearly gathering event at the Salwa
Sabah Al Ahmad Al Sabah hall and was attended by
Burgan Bank’s Chairman, Mr. Majed Essa Al-Ajeel, Group
CEO, Mr. Eduardo Eguren, staff members, senior executive
management, as well as representatives from the Bank’s
regional subsidiaries.
Employees were engaged by receiving latest updates
on the key highlights of the bank’s performance over
the course of the year 2013 from the Group CEO along
with key highlights on the way forward. Burgan Bank’s
Chairman commended the employees on transforming
the youngest local commercial bank to an active
overseas operator.
Burgan Bank Group currently boasts of a wide network
that spans over eight countries with 235 branches, all of
which are the driving force of the bank’s business.
Driven From Within Leadership Certificate Program
In efforts of leading, supporting, and inspiring teams
to achieve business goals, Burgan Bank launched the
‘Driven from Within’ Leadership for Supervisors
Certificate training program specially customized
to meet Burgan Bank employees’ requirements in
cooperation with American University of Kuwait’s
Center of Continuing Education. The 2 –week leadership
development program catered to 40 Burgan Bank
mid-level managers and supervisors.
17
Driven From Within Leadership Certificate Program
Employees Induction Program ‘Engraving in - depth Banking Knowledge’
As part of its corporate strategy, Burgan Bank has forever
been committed to hone new recruits’ skills through
several training programs to continue building excellent
service quality. The bank organized an induction program
for a new batch of recruits, which was designed by the
bank’s Human Resources and Development department
to help new employees gain valuable insights of the
functionality of each division in the bank. The training
program underlined some of the important topics in
relation with the banking industry like risk management,
selling skills, Burgan Bank’s products and services, Burgan
Loans (Credit Policy), Foreign Exchange and Money
Market in addition to developing interpersonal skills
when dealing with the general public.
As a leading financial institution, Burgan Bank will
continue attracting and retaining national cadre in the
private sector, by investing to develop employees’ skills.
Stakeholders Affairs
Burgan Bank’s support to the wider community is of
utmost importance across its daily work. As one of the
leading local as well as regional financial institutions,
the Bank caters for different segments in the society
to be able to tell their unheard stories and showcase
their creative talents.
International Women’s Day ‘Honoring National talent’
As part of Burgan Bank’s long standing social
responsibility framework, every year, the bank looks
forward to honoring women from different fields who
have invested in the overall development of Kuwait
and forged the way for others to join in the country’s
economic and cultural efforts. To that effect, Burgan Bank
celebrated International Women’s day at the Chairman’s
Club to honor women of different statures for their
unique contributions as a whole.
Representing this special occasion amongst the Burgan
Bank staff and Kuwait Projects Company (KIPCO)
personnel were Al-Sheikha Shaikha Al-Abdallah Al-Sabah,
Chairperson/Honorary President of Kuwaiti Handicapped
Sports Club for the Disabled and Mrs. Dalal Al-Ghanim,
General Manager of the Chairman’s Club.
18
International Women’s Day
‘BuBa kids account Girgean Celebration ‘Sharing the blissful spirits of a Holy Month’
This year, Burgan Bank celebrated the joyful mood of
Girgean with its young BuBa kids account during a one
day Girgean celebration which was held at the Discovery.
The event witnessed a large turnout by children and their
families who enjoyed a wide array of fun-filled activities.
As an integral part of Ramadan and Kuwaiti culture,
Burgan Bank was keen to organize its Girgean event to
keep children entertained. During the event, the bank
distributed sweets and chocolates, while children
enjoyed interactive activities, entertainment
shows and competitions.
‘BuBa National Day Photography competition ‘Encouraging creativity within young talents’
In celebration of Kuwait’s National and Liberation days,
Burgan Bank held a nationwide photography competition
to showcase creativity and originality in spirit of the joyful
days. The competition gathered all the BuBa kids account
holders to take pictures that express the celebration of
the National and Liberation days.
KIPCO Media Dinner - ‘Demonstration of gratitude
to an integral stakeholder’
As part of its Media Relations activities and by its belief
in the importance of the Media role in Society, KIPCO
hosted a media gathering and dinner in 2014 on behalf
of its operating companies to thank the media and
acknowledge their efforts, support and role in the society.
KIPCO Media Dinner
Supporting the Kuwait Association for the Care of Children in Hospitals
The media event was attended by the local media.
Burgan Bank as a subsidiary of KIPCO was represented
by its Corporate Communications team and maintains an
on-going dialogue with both local and regional media.
Apart from which the bank conducted periodical visits
to publication houses to gain an in-depth understanding
and thank the local media landscape.
Corporate Citizenship program, Burgan Bank is proud to
be a benefactor towards such leading medical projects,
and KAACH’s humane initiatives.
Corporate Citizenship
Burgan Bank’s overall approach to social responsibility
begins with a key element; that, as a Kuwaiti company,
its brand name, values, and work ethics should be on par
with the necessities of the Kuwaiti society and with those
of the people who rely on the Bank.
Kuwait Cancer Control Center Contribution ‘Making a lasting difference in people’s lives’
Due to the alarming number of cancer patients in Kuwait
and corresponding demand for high quality information
about varied cancer illnesses, Burgan Bank financed the
production of 41 cancer brochures developed by KCCC
experts in collaboration with the Princess Margaret
Cancer Centre, Toronto, for KCCC patients. With an
ongoing objective to make a lasting difference in people’s
lives, the bank provided descriptive and educational
brochures for its visitors and patients that contain
treatment phases and therapies for the different types of
cancers, diets to follow, doctor’s appointment reviews,
details about the center and its operations and other
information. The bank visited the KCCC premises to view
the brochure displays. The displays have been set up in
KCC buildings, including Hussain Makki Juma Center for
Specialized Surgery, Sheikha Badriya Al Sabah Medical
Oncology Building, Faisal Sultan Ibn Issa Diagnostic
Imaging Center, and Yacoub Behbehani Laboratory
Building and Bone Marrow Transplantation Center.
Supporting the Kuwait Association for the Care of
Children in Hospital’s activities - ‘A long-standing
Humanitarian Commitment’
Burgan Bank is a firm believer of creating a lasting
difference, thus, over the past 12 years; Burgan Bank
maintained its contributions to support the development
of healthcare within pediatric facilities at various health
institutions. By doing so, Burgan Bank is assuring that
children and their families are receiving fundamental
treatments to recover from fatal and terminal illnesses.
Blood Donation Drive - ‘A philanthropic obligation’
Burgan Bank organized a Blood Donation drive at its
headquarters for its own employees. The Blood Donation
drive in partnership with the Blood Bank in Kuwait took
place under the theme of “You too can save a life”, and
was aimed at raising awareness on the need for blood
and the difference it can make in people’s lives plus shed
the light on the importance of donating blood all year
long to support the Blood Bank.
The Great British Week ‘Strengthening multicultural and economic ties’
With an overall objective of highlighting the bilateral
relationship between Kuwait and the United Kingdom,
Burgan Bank provided a silver sponsorship of the Great
British Week campaign and golden sponsorship of the
campaign’s British Lecture series that took place at
in Kuwait. The event aimed at attracting high profile
business leaders, high-net worth Kuwaitis to invest and
do business in the UK as well as encourage potential
students to study there.
The Great British Week sought to bring the essence
of trade and culture to the Kuwaiti public by featuring
events from fashion, celebrations of food, sport, British
film, business networking lectures and a showcase of
British technology.
Burgan Bank reiterated its commitment to the community
by rendering its support to the Kuwait Association for
Care of Children in Hospitals (KACCH). This is an ongoing
commitment which is now in its 13th year. Supporting
healthcare initiatives has been an integral part of Burgan
Bank’s Corporate Social Responsibility framework and
19
Blood Donation Drive
Ramadan Girgean visits
Indian Doctors Forum - ‘Supporting Innovation
to find Creative and Sustainable Solutions’
12th International Jewelry Exhibition
For the third year running, Burgan Bank provided its main
sponsorship of the annual Indian Doctors Forum Mega
Cultural Event in launching their new IDF Health Guide.
The bank’s support reflected its mission to educate the
public on the rising progress in the field of advanced
medicine. Additionally, the health guide was published
with a fundamental theme entitled ‘Imaging – The Eye of
Medicine’. The event was held under the patronage of
His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber
Al-Sabah, and was attended by Deputy Minister of Amiri
Diwan Affairs Sheikh Ali Al-Jarrah Al-Sabah as well as
the Indian Ambassador, Burgan Bank received a token
of appreciation during the event for the bank’s annual
support of in publishing the annual health guide.
Burgan Bank is constantly committed to providing
support to associations which continuously promote
trade and commerce activities across the country while
also drawing attention to local, regional and international
culture and business tourism. For this reason, the bank
sponsored the 12th Jewelry Exhibition for the sixth
year has shown great success. As part of its continued
commitment to provide ease and convenience, the
bank facilitated various financial services for visitors
at the exhibition to ease the shopping process for the
visitors. The bank also worked closely with the General
Administration of Customs to process customs collection
to provide convenience to international exhibitors.
The Nelson Mandela Cricket Cup ‘Empowering National Pride’
As part of its social responsibility towards a wholesome
development of its youth, Burgan Bank sponsored the
Nelson Mandela Cricket Cup for youth development,
which was hosted by the South African Embassy, in
collaboration with Kuwait Cricket, the official governing
body of cricket in the State of Kuwait. This initiative was
taken to further develop cricket in Kuwait among Kuwaiti
youth, and to provide a rewarding avenue for the youth
to develop individually and collectively, through this
sport. Since cricket is one of the fastest developing sports
in Kuwait, Kuwait’s participation at the Asian Games is a
historic event, given the fact that Kuwait is the first Arab
nation to achieve this milestone.
Burgan Bank honorary ceremony by the Indian Doctors Forum 2013
Ramadan Girgean visits ‘Encouraging the Spirit of Giving’
Every year Burgan Bank hosts community events during
the Holy Month of Ramadan that aim at nurturing a spirit
of peace while giving back to the community as well as to
those in need. During Ramadan 2014 the bank focused
on hosting a range of Girgean themed events for Kuwaiti
children and their families in a number of venues.
20
The 8th annual Kuwait Times photography competition
Burgan Bank’s representatives took part in the visits by
distributing Girgean gift bags to young patients and their
families while providing a fun-packed day of activities.
The bank’s visits covered the Kuwait Disabled Sports Club,
Kuwait Center of Mental Health, The Kuwaiti Society for
Guardians of the Disabled, Palliative Care Center, Ministry
of Social Affairs and Labor, Abeer 2 Center, and the
Kuwait Cancer Control Center.
‘The 8th annual Kuwait Times photography
competition - ‘Magnifying the rising creative talents’
Reflecting its keenness in supporting local talents,
Burgan Bank sponsored the 8th annual Kuwait Times
photography competition themed ‘Action in Kuwait’,
aimed at capturing movement through photography.
Universities Art Competition
The nationwide competition united all the professionals
and aspiring photographers who submitted their
innovative works on the country’s environment, natural
landscapes and everyday tasks. The initiative that was
open for all ages and races and not restricted to only
professional photographers provided a mutual
platform that enabled an equal opportunity to
exhibit individual talent.
‘Universities Art Competition ‘Enriching the Kuwaiti arts culture’
Organized by Al Argana Hotel and Resorts and in
collaboration with the UNDP, Burgan Bank sponsored
the ‘Universities Art Competition’ exhibition which was
themed ‘The Power of Life’. The bank’s participation
came in line with its corporate social responsibility
strategy to support the local youth’s advancements
as well as to shed light on their gifted skills. The art
competition allowed students to showcase their
creative masterpieces and gave them the opportunity
to be recognized for their outstanding illustrations
and capabilities. It gives Burgan Bank great pride in
supporting similar initiatives which shed the light on
youth’s creative demonstration. The bank will continue
to foster national capabilities through similar events
to reinforce its leading position as a strong ally for the
development of the Kuwaiti youth.
21
Corporate Governance and Disclosures
Good corporate governance remains integral to the way the group
operates. We are committed to operating in a correct, principled
and commercially astute manner and staying accountable to
our stakeholders. We hold the view that transparency and
accountability are essential for our group to thrive and succeed
in the short, medium and long term.
The following outlines the key aspects of the Bank’s
corporate governance framework. The Board has
consistently placed great importance on good corporate
governance practices of the Bank, which it believes is vital
to the Bank’s well-being.
The Board has adopted a comprehensive framework of
Corporate Governance Guidelines, designed to properly
balance performance and conformance. This enables the
Bank to undertake, in an effective manner, the prudent
risk-taking activities which are the basis of its business.
Board of Directors
The Bank is steered by an effective and unitary Board
which assumes responsibility for its leadership and
control and is collectively responsible for promoting
Bank’s long-term success by directing and supervising its
affairs. The Directors are responsible for ensuring that the
Board makes decisions objectively in fulfilling the Bank’s
public and corporate responsibilities.
The Board shall have overall responsibility for the Bank,
including approving and overseeing the implementation
of the Bank’s strategic objectives, risk strategy, corporate
governance and corporate values. The Board shall also
be responsible for providing oversight of the Executive
Management. The board understands that sound
governance practices are fundamental to earning the
trust of stakeholders, which is critical to sustaining
performance and preserving shareholder value.
The board members’ collective experience and expertise
provide a balanced mix of attributes for it to fulfill its
duties and responsibilities.
Separation of roles of the Chairman and
The roles of chairman and Group Chief Executive Officer
continue to be substantively different and separated.
The chairman is a non-executive director charged with
leading the board, ensuring its effective functioning and
setting its agenda, in consultation with the Group Chief
Executive Officer and the directors. His duties include
facilitating dialogue at board meetings, ensuring proper
functioning of the executive management, and setting
the board’s annual work plan.
22
Board Composition
The Board comprises of non-executive Directors,
as elected by the General Assembly, and will ensure
independence in actions and decisions at all times.
The Board shall comprise of sufficient number of
members to allow it to form the required number
of Board Sub-Committees.
Election and renewal of the Board membership shall
be done in compliance with the applicable rules and
regulations. The changes related to the number of
Board members of the Bank shall be suitably reflected
through amendments in the Articles of Association to
correspond to the implementation of the rules,
regulations and instructions.
Each member of the Board shall serve a term of three
years, at the end of which the Board shall be formed
again and it shall be permissible to appoint the members
whose term has expired.
The Board is structured to ensure that the directors
provide the Group with the appropriate balance of skills,
experience and knowledge as well as independence.
Induction and professional development
The Board adopts a formal induction program to
familiarise with the Bank’s operations and activities.
The Board is conscious of its obligations to regulators
and shareholders and is committed to ongoing training,
professional development and attendance at relevant
conferences and seminars. Only by continuing to keep
abreast of issues that have an impact on the business can
the Board fulfill its responsibilities.
Board Meetings
The Board holds at least (6) meetings annually with one
meeting at least on quarterly basis upon an invitation
from the Chairman, the Board also holds meetings if
requested by at least three of its members, the Board
meeting shall be valid only if attended by the majority of
the Board members, board meetings could be held using
the modern communication means, during 2014, Board
held (12*) meetings. The following table shows the Board
Members attendance of the Board of Directors meetings,
the table shows a high degree of commitment of each
member in attending the Board of Directors’ meetings:
Information presented in this Corporate Governance Report is shown as of Dec. 31, 2014.
Board Members
No. of meetings
attended (2014)
1 Mr. Majed E. Al Ajeel
12
2 Mr. Mohammed A. Al Bisher 11
3 H.E. Abdul Kareem A. Al Kabariti
9
4 Mr. Faisal M. Al Radwan
12
5 Mr. Masaud M. J. Hayat
11
6 Mr. Samer S. Khanachet
12
7 Mr. Sadoun Abdulla Ali
12
8 Mr. Pinak P. Maitra
11
9 Mr. AbdulSalam M. Al Bahar12
Burgan Bank Board comprises of (9) Non-Executive
members, the following paragraphs show information
on the current members of the Board for the current term
(2013 - 2015) who were elected members of the
Board for this term with effect from April 1, 2013.
The information includes the year in which they were
born, the year in which their term as Board Members
expires, their qualifications and their principal business
activities outside our Bank.
1 Mr. Majed E. Al Ajeel (Chairman)
Year of Birth1953
Appointed2013
Term expires2015
Has been with Burgan Bank since 2007
Studied in
The United States of America
University
Catholic University of America
Graduated in 2 Mr. Mohammed A. Al Bisher (Vice Chairman)
Year of Birth1948
* out of which (4) by circulation.
Degree
• Board Member - Kuwait Real Estate Investment
Consortium (1985 - 1992)
• Board Member - International Leasing and
Investment Co. (1999 - 2003)
• Managing Director - Kuwait Finance and Investment
Company (KFIC) (2002 - 2004)
• Board Member - Burgan Bank (1998 - 2004)
Current Positions • Board Member - Burgan Bank (2007 - present)
• Deputy Chairman - Kuwait Banking Association
• Board Member - Institute of Banking Studies
• Board Member - Burgan Bank Turkey
• Board Member - FIM Bank - Malta
• Board Member - United Projects Co.
Bachelors - Science in Architecture
Masters in Planning
Bachelors - 1977 Masters - 1978
Past Positions (date and details)
• Vice Chairman and CEO - United Projects Co.
(from 12/04/2010 - 03/07/2012)
• Chairman and CEO - United Projects Co.
(27/10/2004 - 12/04/2010)
• Board Member - Kuwait and Middle East Financial
Investment Company (1984 - 1986)
Appointed 2013
Term expires2015
Studied inKuwait
University
Degree
Kuwait University
Bachelors - Economics and Political Science
Graduated in 1971
• Board Member - Jordan Kuwait Bank
(1981 - 1989).
• Board Member - Kuwait International Investment
Company (1983-2000)
• Board Member - Kuwait Clearing Company
(1986 - 1992)
Current Positions
• Board Member - Burgan Bank (2010 - present)
• Director and Partner of Abdulrahman Al-Bisher and
Zaid Al- Kazemi Group
• Director of Al-Bisher Son›s Group for General
Trading and Contracting
• Director of Etemadco Exchange Company .
• Director and Partner of International Optics Kuwait
• Chairman of Leo Witter GmbH (Jewellery
and Precious Mineral Kuwait).
• Serves as a Representative for ATA Investment
Company ( Turkey) and Partner of a group of Saudi
Arabia Companies.
23
3 H.E. Abdul Kareem A. Al Kabariti
Year of Birth1949
Appointed 2013
Term expires2015
Studied in
University
St. Edwards University
Degree Bachelors - Business and Finance
Graduated in 1973
• Member of the Jordanian Senate, Head of the
Economics and Finance Committee (2005 - 2007)
• Member of the Jordanian Senate, First Deputy to the
Speaker (2000 - 2002)
• Chief of the Royal Court, (1999 - 2000)
• Member of the Eleventh and the Twelfth Jordanian
Parliaments (1989 - 1993) and (1993 - 1997) / Head of
the Economics and Finance Committee (1993 - 1995)
• Prime Minister, Minister of Foreign Affairs and
Minister of Defense (1996 - 1997)
• Minister of Foreign Affairs (1995 - 1996)
• Minister of Labor (1991 - 1993)
• Minister of Tourism (1989 - 1991)
Current Positions
• Board Member - Burgan Bank - (2004 - Present)
• Chairman of the Board of Trustees, Al-Ahliyya
Amman University
• Chairman, United Financial Investments Company.
• Chairman, Algeria Gulf Bank - Algeria
• Board Member, Jordan Dairy Company
• Chairman, Jordan Kuwait Bank - Jordan
4 Mr. Faisal M. Al Radwan
Year of Birth1944
Appointed 2013
Term expires2015
Studied in
University
Degree
Egypt - Cairo
Cairo University
Bachelors - Commerce and
Business Administration
Graduated in 1970
• Deputy General Manager - National Bank
of Kuwait (1978 - 1980)
• General Manager -National Bank of Kuwait (1980 - 1983)
• Deputy Chief Executive Officer - National
Bank of Kuwait (1983 - 1993)
• Board Member - Bank of Bahrain and Kuwait
(1986 to march 1994)
• Vice Chairman - Bank of Bahrain and Kuwait
(1991-1994)
• Board Member - Bank of Oman Bahrain and Kuwait
(1990 - 1994)
24
• Board Member - Burgan Bank (2001-2003)
• Vice Chairman and Managing Director - Burgan Bank
(2003 - 2004)
Current Positions
• Board Member - Burgan Bank (2010 - present)
• Vice Chairman - Burgan Bank Turkey
5 Mr. Masaud M. J. Hayat
Year of Birth1953
Appointed 2013
Term expires2015
Studied inKuwait
University
Degree
Graduated in
Kuwait University
Bachelors - Commerce and
Business Administration
Diploma - Institute of Banking Studies
Bachelors - 1973 Diploma - 1975
• Al-Ahli Bank of Kuwait - (April 1974 - Dec. 1996)
I. Operation and Local / International Credit 1974
II. Deputy Chief General Manager 1992
III.Advisor to the Board of Director 1993
• Board Member (BIAT) Tunis (1989 - 1995)
• Board Member - Bank of Bahrain and Kuwait
(1986 - 1988 and from 1991 to 1995)
• Board Member Industrial Investment Co.
(1993 - 2001)
• Board Member Gulf Insurance Co. (1997 - 2001)
• Board Member United Fisheries Co. (1997 - 2001)
• Board Member The International Investor
(2005 - 2009)
• Chairman KAMCO (1998 - 2010)
• Managing Director United Gulf Bank
(1997 - 2009)
• Board Member Wataniya Algeria (1997 - 2009)
• Chairman United Gulf Financial Services Co.
(1997 - 2009)
• Board Member and Board Secretary Union
of Investment Companies (1997 - 2009)
• Managing Director - Burgan Bank - (2009 - 2010)
Current Positions
• Board Member - Burgan Bank (2013 - Present)
• CEO - Banking Sector - Kuwait Projects Co. “Holding”
• Chairman United Gulf Bank - Bahrain
• Chairman - Tunis International Bank - Tunis
• Board Member Jordan Kuwait Bank - Jordan
• Deputy Chairman - Algeria Gulf Bank - Algeria
• Deputy Chairman - Bank of Baghdad
• Deputy Chairman - FIM Bank - Malta
• Vice Chairman - North Africa Holding Co.
• Vice Chairman - The Royal Capital Group
- Abu Dhabi
• Chairman Syria Gulf Bank - Syria
• Board Member - KAMCO
• Board Member - Masharea AlKhair
6 Mr. Samer S. Khanachet
Year of Birth1951
Appointed 2013
Term expires2015
Studied in
University
Massachusetts Institute of Technology
Harvard University
Current Positions
• Board Member - Bank of Baghdad
• Vice Chairman and Chief Executive Officer - Qurain
Petrochemical Company
• Board Member - United Industries Company
• Board Member - Advanced Technology Company
• Chairman - United Oil Projects Company
8 Mr. Pinak P. Maitra
Degree
Masters - Business Administration
(Harvard)
Year of Birth1958
Bachelors - Science - Chemical
Engineering and Science Management
Term expires2015
Bachelors - 1973 Masters - 1975
Studied inIndia
Graduated in 2013
University
• 1975 - 1980 The Industrial Bank of Kuwait
i. Financial Analyst
ii. Senior Financial Analyst
iii.Assistant Manager
• Deputy CEO - Sharjah Group (1980 - 1990)
• General Manager - KIPCO (1990 - 1995)
• CEO - United Gulf Management (1991 - 2007)
• GCOO - KIPCO (2008 - Present)
Degree Osmania University
Bachelors - Commerce
Graduated in 1979
Current Positions
• Board Member - United Gulf Bank - Bahrain
• Chairman of the Board - TAKAUD Saving and Pensions
• Board Member - United Real Estate Co.
• Member of Corporation Development Committee
- Massachusetts Institute of Technology
7 Mr. Sadoun Abdulla Ali
Year of Birth1961
Appointed Appointed Past Positions (date and details)
• Vice President - Financial Control and Planning
- United Gulf Bank - Bahrain,
(June - 1988 - October 1988)
• Assistant Vice President of Planning and Financial
Control - KIPCO (1988 - 1990)
• Vice President, Financial Controller - United
Gulf Management Inc. (1991 - 1996)
Current Positions
• Group Chief Financial Officer - KIPCO (1996 - Present)
• Board Member - OSN (Panther Media Group Limited)
(2009 - Present)
• Board Member - Pulsar Knowledge Center (2003 - Present)
2013
Term expires2015
Studied in
University
Ashland University
Degree Graduated in Bachelors - Management of Financial
and Accounting Services
1988
• Board Member - Bank of Kuwait and the
Middle East (2003 - 2004)
• Executive Management - Head of Accounting and
Financial Group - KIPCO (1997 - 2006)
• General Manager - KAMCO (2006 - 2008)
• Chief Executive Officer - KAMCO (2008 - 2010)
• Managing Director and Chief Executive Officer
- KAMCO (2010 - 2012)
25
9 Mr. AbdulSalam M. Al Bahar
Delegation of authority
Year of Birth1965
The board retains effective control through its
governance framework that provides for delegation of
authority. In discharging its duties, the Board delegates
some authorities to relevant Board Sub-Committees with
clearly defined mandates and authorities, although the
board retains its accountability.
Appointed in Burgan2013
Term expires2015
Studied in
University
Fairleigh Dickinson University
Degree
Graduated in Bachelors - Science Electrical Engineering
1988
• Board Member - Tunis International Bank
(1997 - 1999)
• Board Member - Bahrain Middle East Bank
(1998 - 1999)
• Board Member - Wataniya Telecom
(1998 - 2007)
• Board Member - Kuwait Catering Company
(1997 - 1999)
• Chairman of the Board - Kuwait Catering Co.
(1999 - 2001)
• Board Member - Kuwait Catering Company
(2001 - 2003)
• Board Member - Tamdeen Group (2003 - 2006)
• Board Member - Wataniya Airways
(2006 -2007)
• Chairman and Managing Director - Wataniya Airways
(2007 - 2011)
• Executive Management - Companies
Financing - KIPCO -(1995 - 2007)
• General Manager - OverLand Real Estate Company
(2012 - 2014)
Current Positions
• Board Member - Burgan Bank - (2004 - Present)
• Board Member - United Industries Company
(2012 - Present)
• Board Member - United Networks Co.
(2014 - Present)
• Financial Advisor - OverLand Real Estate Company
(2014 - Present)
Board Sub-Committees facilitate the discharge of Board
responsibilities and provide in-depth focus on specific
areas. Each Committee has a mandate, which the board
reviews at least annually. Each mandate sets out the role,
responsibilities, scope of authority, composition, terms of
reference and procedures.
Board Sub-Committees
The Board has established the following Board
Sub-Committees in order to enhance its supervision
effectiveness over operations of the Bank, each
committee member’s expertise, skills and background
was considered while forming the committees to assure
the best supervision of the committee over the bank’s
operation according to each committee responsibilities.
Board Corporate Governance Committee (BCGC):
The BCGC shall essentially be responsible for assisting the
Board in setting the Bank’s corporate governance policies
and following-up on its execution and periodic review to
ensure its effectiveness.
BCGC held (5*) meetings during 2014.
BCGC Members
No. of meetings
attended (2014)
Mr. Majed E. Al Ajeel
5
Mr. Mohammed A. Al Bisher
5
Mr. Faisal M. Al Radwan
5
Mr. Masaud M. J. Hayat
5
* out of which (1) by circulation
Board Nomination and Remuneration
Committee (BNRC)
The BNRC shall be responsible for presenting
recommendations to the Board regarding nomination to
the Board’s membership, review of Board structure on an
annual basis, undertake performance evaluation of the
overall Board and the performance of each member on
annual basis, and developing Bank-wide reward policy
in line with applicable laws and regulations. In addition,
BNRC shall be responsible for appointment of the senior
positions of the Executive Management, ensuring that
these positions are occupied by qualified employees
along with setting performance standards
and succession plans.
BNRC held (4) meetings during 2014.
26
BNRC Members
No. of meetings
attended (2014)
4
Mr. Samer S. Khanachet
4
Mr. AbdulSalam M. Al Bahar
4
Board Audit Committee (BAC)
The BAC shall be responsible for setting and overseeing
the sufficiency of internal control and audit functions of
the Bank, along with ensuring compliance with applicable
laws, policies, instructions and code of business
conduct and ethics.
BAC held (9*) meetings during 2014.
BAC Members
attended (2014)
No. of meetings
Board and Management
Investment Committee (BMIC)
The (BIMC) a sub-committee of BEXCO, shall provide an
oversight on the Bank’s investment activities and make
decisions within its delegated authorities.
BEXCO held (11*) meetings during 2014.
BEXCO Members
No. of meetings
attended (2014)
10
11
9
9
9
H.E. Abdul Kareem A. Al Kabariti
9
Mr. Sadoun Abdulla Ali
9
Mr. Pinak P. Maitra
9
Mr. Mazen Essam Hawa (Advisor)
6
Board Risk Committee (BRC)
Board Credit Committee (BCC)
The BCC shall act as the focal point in the credit activity of
the Bank and shall consider and grant approval on behalf
of the Board.
Board Credit Recovery Committee (BCRC),
a subcommittee of the BCC, shall provide an oversight on
the Bank’s credit recovery and make decisions within its
delegated authorities.
The BRC shall be responsible for providing review and
report to the Board on the current and future risk strategy
and tolerance along with supervising implementation of
this strategy by the Executive Management. The BRC shall
ensure existence of effective systems for risk management
and independence of these functions.
BCC Members
attended (2014)
43
BRC held (6) meetings during 2014.
44
44
44
38
BRC Members
attended (2014)
No. of meetings
BCC held (50*) meetings during 2014.
Mr. Sadoun Abdulla Ali
6
Mr. Mohammed A. Al Bisher
6
Mr. Pinak P. Maitra 6
Board Executive Committee (BEXCO)
The BEXCO shall be responsible for directing and
monitoring the Executive Management of the Bank in
execution of the strategic plan as approved by the Board
of Directors and other daily operations of the Bank.
No. of meetings
Accomplished tasks
During the year 2014 and in light of each committee’s
responsibilities and authorities, Board Committees supported by respective committee members’ skills and
background- have handled all assigned tasks effectively
which helped the Board enhancing the control and
supervision effectiveness over operations of the Bank.
Board Secretary
The board secretary ensures the flow of information
to enable the board to be aware of its duties and helps
the board on discharging its responsibilities effectively
and continuously, the Board Secretary keeps the board
abreast of relevant changes in legislation and
governance best practices.
27
The Board Secretary verifies that the new board members
have obtained the required induction program and
follow-up with the concerned department in the bank to
verify that it has provided the required training programs
to the board members.
The current version of Burgan Bank’s Code of Business
Conduct and Ethics is available on our website
www.burgan.com
To enable the board to function effectively, all directors
have full and timely access to information that may be
relevant in the proper discharge of their duties. This includes
information such as corporate announcements, investor
communications and other developments that may affect
the Bank and its operations.
In accordance with the CBK corporate governance
instructions and the Meeting Guidelines for Board and
Committees, Directors are required to disclose to the
Board any interest they may have that might cause a
conflict of interest. Any Director with a material personal
interest in a matter being considered by the Board shall
not attend nor vote on the matter being considered.
Ms. Madiha Bouftain was appointed Board Secretary on
Apr. 2013, Ms. Madiha spent 14 years at Burgan in various
roles. In her last role, she served as a Manager - Board
Affairs responsible for:
1. Ensuring the effective functioning of the board by
providing support to the Chairman, the Vice Chairman
and the Board Members.
2. Being focal point for all communication related
to Board and Board Committee meetings,
and coordinates between Board of Directors
and Bank Management.
3. The custody of all Board related records.
Ms. Madiha served as Manager - Board Affairs
from Jan. 2005 and is, therefore, well experienced.
Board Members Remuneration
Information on Board Members Remuneration is
disclosed in the “Income Statement” as well as in the
notes to the financial statement “ Note 20 - Transactions
with related parties” in the Annual Financials.
The Proposed Board of Directors’ remuneration for 2014
amounted KD 390,000. The remuneration amount for
the Board membership in addition to the Committees’
services remuneration were disclosed in the Financial
Statements.
Related Party Transactions
For information on related party transactions please
refer to Note 20 “Related Party Transactions” in the
Annual Financials.
Code of Conduct
Burgan Bank’s Code of Conduct describes the values and
minimum standards for ethical business conduct that
we expect all of our employees to follow. These values
and standards govern employee interactions with our
clients, competitors, business partners, government and
regulatory authorities, and shareholders, as well as with
other employees. In addition, it forms the cornerstone of
our policies, which provide guidance on compliance with
applicable laws and regulations. Burgan Bank’s directors,
executive management and employees are committed
to the highest degree of adherence to the code
of conduct policies.
28
Conflicts of Interest
Bank’s Code of Conduct listed some cases that represent
examples of potential conflicts of interest.
Relations with investors
The Chairman is responsible for ensuring effective
communication with shareholders. The Bank
communicates with shareholders through the Annual
Report and Accounts and by providing information in
advance of the Annual General Meeting.
Compliance with the CBK instructions on the Rules
and Regulations of Corporate Governance
in Kuwaiti Banks
(Declaration of Conformity 2014)
The Declaration of Conformity is pursuant to CBK
instructions No. (2/RB/RBA/284/2012) on the Rules and
Regulations of Corporate Governance in Kuwaiti Banks
issued on June 20, 2012. The Board of Directors stated that
Burgan Bank has complied and will continue to comply
with the CBK instructions on the Rules and Regulations
of Corporate Governance in Kuwaiti Banks. Since then,
Burgan Bank has complied with the recommendations
of the “Corporate Governance Instructions” in its version
dated June 20, 2012.
Burgan Bank has done all the necessary amendments to
its policies to be in line with the CBK instructions aiming
for implementing sound corporate governance practices,
the Bank has formed the required Board Committees to
enhance its supervision effectiveness over operations of
the Bank, and updated the Corporate Governance manual
to reflect the governance measures adopted by the Bank.
The current version of the manual is available on the Bank’s
website www.burgan.com.
Furthermore, as disclosure is considered an effective
tool to influence companies’ behaviour and protect
investors, the Bank has adopted a disclosure and
transparency policy that serves shareholders, depositors,
and stakeholders. By the disclosure and transparency
policy, the bank commits itself to an accurate and timely
disclosure for any critical information related to the Bank.
Compliance Group
Report on Internal Control Systems
Compliance Group rehearses the employed
independence decisively, to carry out a road map of
functions to ensure the bank’s integrity and emphasize
corporate standards of transparency before all regulators.
It is of high Compliance duties to ensure guidance on the
appropriate implementation of compliance laws, rules
and regulations through policies and procedures.
The steadily performance is customary to avoid any legal
or regulatory sanctions, financial or reputational losses,
due to any abrupt compliance failure to all pertinent laws,
regulations and banking standards of good practice.
The Compliance Group has been successful in bringing
up stringent Compliance Culture within BB Group and
proactively plays a significant role in implementing and
monitoring the bank’s compliance program in a healthy
system. Exercising independent judgments accurately
and equally to avoid any emerging conflict of interests
in opposition to bank’s objectives and goals, without
compromising on core business ethics and values.
A system of effective internal controls is a critical
component of bank management which ensures
availability of sound banking operations. It allows the
objectives of the Bank to be met, whilst maintaining
reliable financial and managerial reporting, compliance
with laws and regulations and reduce the risk of
unexpected losses or damage to the Bank’s reputation.
Compliance group is outfitted with a qualified and
empowered team that are trained to complete the
assigned tasks. The Compliance Team will benchmark
and endeavor to adhere to best practices in all areas.
Internal Audit
Group Internal audit provides an independent, objective
assurance and consulting activity designed to add
value and improve the Bank’s operations. It helps the
Bank accomplish its objectives by bringing a systematic,
disciplined risk based approach to evaluate and improve
the effectiveness of risk management, control,
and governance processes.
The Group Chief Internal Auditor reports functionally
to the Board Audit Committee and administratively
to the Group Chief Executive Officer.
Audit reports are produced summarizing the results
from each performed audit which are distributed to the
responsible heads of the auditable departments/units.
These reports provide evidence to support the annual
evaluation of the overall operating effectiveness of the
internal control environment.
The Executive Management is responsible for ensuring
that recommendations made by the Internal Audit
department are implemented within appropriate and
agreed time lines.
However, any internal control system can only provide
reasonable, but not absolute assurance that the
objectives of that control system are met. Further, the
design of a control system must reflect the fact that
there are resources constraints, and that the benefits of
controls must be considered relative to their costs.
However, there may be some inherent limitations of
internal control variable components (people, systems,
methods and processes etc). Hence, no institution can
ever provide an absolute assurance.
The Board of Directors has the ultimate responsibility for
the Bank’s Internal Control System, and it discharges its
duties in this area by:
• Providing oversight activities through the board and management committees; and
• Ensuring that executive management implements
effective systems of controls identification,
assessment and implementation, through the
Internal Control Department (ICD). This is achieved
through assurance that,
• Bank’s business is managed efficiently
and profitably;
• Bank’s financial reporting is accurate, transparent and reliable; and
• Bank complies with laws and regulations and all internal principles.
Internal Controls at the Bank are integrated into
operating processes, either automated or manual.
Automated controls are embedded in the IT systems
employed and are often complemented by the manual
controls. Data quality on initial entry into systems is
ensured by control measures such as the dual-control
principle, authority matrices, segregation of duties and
by certain measures taken by the Management.
Governance measures have been implemented to ensure
sufficient controls over all. The Bank’s Quality Assurance
team (Organization and Methods (O&M)) under the
umbrella of Operations Strategic Development (OSD)
effectively monitors the system processes. It also ensure
the maintenance and update of the Bank’s ISO:9001:2008
Quality Assurance certification.
ICD supports the Bank’s key internal control activities,
some of these are highlighted below:
• Liaise with O&M as custodian of the Bank wide
relevant policies and procedures, and ensure
respective function’s update these documents.
As a result of the above evaluation, it can be concluded that
the internal control environment is appropriately designed
and operating effectively as of 31st December 2014.
29
• All major banking decisions are discussed, approved
and supervised through management and Board
committees, created for the respective purposes
and to protect the safety and quality of the Bank’s
interest. The purpose, composition, operations
and the responsibilities for each of these individual
management and board committees are documented
in their respective charters and approved by the
Board of Directors.
• The Bank established Business Continuity Program
which develops effective recovery strategies for the
identified threats to the Bank. It provides assurance
to the Bank that key operations would continue in
case of any major disruption to banking operations
(as per approved triggers).
The Bank has set up a Risk Management Group headed
by the Group Chief Risk Officer who reports directly
to the Board Risk Committee, in order to ensure the
independence of the function. The Risk Management
Group does not have any business targets in terms of
either levels of business or income/profits to be achieved,
with a view to ensuring its objectivity in analysing the
various risks. The mission of the Group is to identify,
measure and control various risks and report to the top
management of the Bank on the effects and, where
possible, mitigations. The board reviews and provides
guidance regarding the alignment of banks strategy with
risk appetite and the internal risk-management structure.
The Bank has a well-documented Risk and Disclosure
Policy that classifies the risks faced by it in its day-to-day
activities into certain families of risks and accordingly
specific responsibilities have been given to various
officers for the identification, measurement, control
and reporting of these identified families of risks using
appropriate metrics to analyse and evaluate the extracted
data. Among the families of risks are:
• The Bank established Branch Control Unit for effective and efficient monitoring of the branch operations.
i. Credit Risk which includes default risk of clients and
counterparties
• The Bank ensures strict compliance and reporting
according to the applicable Anti Money Laundering
and Counter Terrorism Financing rules and
regulations, as applicable by CBK rules and
regulations. Findings and mitigating actions are
reported to the Chairman on a quarterly basis.
ii. Market Risk which includes interest rate, foreign
exchange and equity risks
• ICD prepare consolidated reports to the Senior
Executive Management, as provided by both internal
and external assurance providers. As mandated by
GCEO, ICD reviews, assesses, monitors execution
by management and guide management to enhance
the overall internal control environment.
• Great attention is paid to the reports issued by the
internal and external assurance providers, where the
identified issues are taken into consideration and
mitigating actions are taken at the earliest possible
time. Appropriate follow up is conducted in order
to ensure the commencement of action plan and
mitigation of risks.
• In accordance with CBK requirements on evaluation of
internal controls system within the Bank, the Bank has
conducted an annual review of the internal control
systems by an independent external audit firm.
The opinion furnished by the external auditor in the
Internal Control Review (ICR) for December 2013, does
not refer to any significant control deficiency.
The ICR report was discussed and reviewed by the
Board of Directors. A copy of ICR opinion letter is
attached in Appendix 1 at the end of this Report.
Based on the evaluations conducted by the Executive
Management and Board of Directors during the year,
there are no critical control deficiencies identified
which may need to be reported in the Annual Financial
Statements for the year ended 31 December 2014.
30
Risk Management
iii. Operational Risk which includes risks due to
operational failures
The Risk Management Group is organised into, among
others, three departments each responsible for one of the
above three families, viz. the Credit Risk, Market Risk and
Operational Risk departments who together ensures the
effectiveness of managing banks risk portfolio taking into
consideration all internal and external economic
changes that might affect bank’s stability and growth.
In addition to that, Risk Management Group confirms
that each director and group head is aware of the size
of risks faced by the bank through timely distribution of
reports to the board and to the related committees in
order to disseminate risk management culture within the
bank and across subsidiaries.
Majority of the subsidiaries, have an independent risk
management function reporting directly to the respective
CEOs, as per their respective regulatory guidelines, with
a dotted line reporting to GCRO. These Risk functions are
organised into, among others, three sections responsible
for the three families of risks stated above. Among the
subsidiaries, JKB and BBT have already put in place an
independent Risk Management function and developed
an ICAAP process with the due approval of its Board of
Directors, taking into account the applicable rules of their
respective central banks. Since the regulations in other
jurisdictions do not mandate this as yet, the Bank will,
in due course, assist the subsidiaries to develop their
own ICAAP policies, suited to their requirements.
In the meanwhile, the ICAAP is applied by the Bank
at the consolidated as well at the subsidiary wise
level of assets and liabilities.
Human Resources and Development
Remuneration Policy
The remuneration policy aims at enabling the Group to
attract, retain, motivate and reward qualified workforce
while ensuring fairness and consistency as well as being
appropriately risk balanced. The policy reflects the
Groups objectives for good corporate governance as
well as sustained and long term value creation for all
stakeholders. The Remuneration policies and practices
form part of the Group’s overall obligation to have robust
governance arrangements in place.
Employees are entitled to different remuneration
components targeting appropriate and balanced
remuneration package based on the employee job grade
taking into consideration the employees skills, experience,
and his role in the Bank as well as market practice.
The remuneration components consist of all forms
of payments or benefits in exchange for the services
provided by the employee and can be divided into:
• Fixed remuneration based on employee job
role and market
• Variable remuneration depending on
employee performance
Variable remuneration may be paid in cash and may be
subject to a vesting or deferral period. Remuneration
amounts are based on the bonus pools approved by
the Board for the purpose of rewarding employee
performance. The total amount of performance
related remuneration is based on a combination of the
assessment of the overall results of the Bank, of the
performance of the business unit and of the individual
concerned. When assessing individual performance,
financial and non‐financial targets and metrics are
taken into account.
The payout of the variable remuneration may be deferred
-as approved by the Board annually in line with the
approved policy over a period of time not exceeding
three years. The variable remuneration, including the
deferred portion, is paid or vests only if it is sustainable
according to the financial situation of the Bank as a
whole, and justified according to the performance of the
Bank, the business unit and the individual concerned.
The Board Nominations and Remuneration Committee
(BNRC) is responsible for presenting recommendations
to the Board on the Bank-wide reward policy in line with
applicable laws and regulations. The composition and
responsibility of BNRC is further detailed under the
Board Sub-Committees section of the Corporate
Governance Report.
***Shareholder Composition
Main shareholders who own 5% or more of the Bank’s shares (2014 and 2013)
Shareholder Nationality No. of Shares
%
No. of Shares %
31/12/201431/12/2013
Kuwait Projects Company
Holding K.S.C. (Closed)
Kuwaiti
821,772,773 42.10
663,022,819 40.87
United Gulf Bank B.S.C.
Bahraini
331,855,114 17.00
275,821,614 17.00
Public Institution for Social Security Kuwaiti
143,334,553 7.34
116,587,451 7.19
31
Appendix 1
Tel: +965 2242 6999
Fax: +965 2240 1666
www.bdo.com.kw
Al Johara Tower, 6th Floor
Khaled Ben Al Waleed Street, Sharq
P.O. Box 25578, Safat 13116
Kuwait
The Board of Directors
Burgan Bank S.A.K.P
P.O. Box 5389, Safat 12170
State of Kuwait
19 June, 2014
Dear Sirs,
Report on Accounting and other Records and Internal Control Systems
In accordance with our letter of engagement dated 20 February 2014, we have
examined the accounting and other records and internal control systems of Burgan
Bank S.A.K.P (‘the Bank’) and the following subsidiaries of the Bank (hereafter
collectively referred to as the “Group”) fot the year ended 31 December 2013:
• Jordan Kuwait Bank
• Tunis International Bank
• Burgan Bank A.S – Turkey
• Bank of Baghdad
• Gulf Bank Algeria
We covered the following areas of the Bank:
• Corporate Governance
• Anti-money Laundering
• General Control Environment
• Group Risk Management
• Group Investment Banking and
Treasury
• Clients’ Complaints Unit
• Retail Banking Group
• Internal Control Unit
• Private Banking Group
• Group Strategic Business
Development
• Group Corporate Communication
• Information Technology Group
• Banking Group
• Group strategic Financial Planning
and Control Group
• Operations Group
• Group Human Resources and
Development
• Legal Division
• Group Compliance Department
• International Operations Office
• Financial Securities Activities
• Confidentiality of Customer’s
Information
• Marketing Management
• Group Internal Audit
BDO Al Nisf & Partners is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
32
Our examination has been carried out as per the requirement of the Central Bank of Kuwait (CBK)
circular dated 11 February 2014 considering the requirements contained in the Manual of General
Directives issues by the CBK on 14m November 1996, Pillar IV of the corporate governance instructions
in respect of risk management and internal controls issues by the CBK on 20 June 2012. Instructions
dated 23 July 2013 concerning anti money laundering and combating financing of terrorism,
instructions dated 9 February 2012 regarding confidentiality of customer’s information and financial
securities activities of the Group.
As members of the Board of Directors of the Bank, you are responsible for establishing and maintain
adequate accounting and other records and internal control systems, taking into consideration the
expected benefits and relative costs of establishing such systems. The objective of this report is to
provide reasonable, but not absolute, assurance on the extent to which the adopted procedures and
systems are adequate to safeguard the assets against loss from unauthorized use or disposition; the
key risks are properly monitored and evaluated; that transactions are executed in accordance with
established authorization procedures and are recorded properly; and to enable you to conduct the
business in a prudent manner.
Because of inherent limitations and internal control system, errors or irregularities may nevertheless
occur and not be detected. Also, projection of any evaluation of the systems to the future periods in
subject to the risk that management information and control procedure may become inadequate
because of changes in conditions or that the degree of compliance with those procedures may
deteriorate.
With the exception of the matters set out in the report submitter to the Board of Directors of the Bank,
and having regard to the nature of volumes of the Group’s operations, during the year ended
31 December 2013, and the materiality and risk ration of our findings, in our opinion:
a) the accounting and other records and internal control systems of the Group were established and
maintained in accordance with the requirements of the Manual of General Directives issues by the
CBK on 11 November 1996 and letter issued by the CBK on 11 February 2014,
b) the findings raised in the examination and assessment of the internal controls do not have an
impact on the fair presentation of the financial statements of the Group for the year ended 31
December 2013, and
c) the actions agreed by the Group to address the findings referred in the report, including previous
years’ findings, are satisfactory.
Yours faithfully,
Qais M. Al Nisf
Licence No. 38 “A”
BDO Al Nisf & Partners
BDO Al Nisf & Partners is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
33
Management Team
Qualifications and Experience of the Bank’s CEO, his Deputies and Assistants
Eduardo Eguren
Mr. Eguren was appointed as the Group Chief Executive Officer of Burgan Bank
in September 2010. Mr. Eguren has over 30 years’ experience in global corporate,
retail and commercial banking across five continents. Prior to joining Burgan
Bank, Mr. Eguren was the CEO for the Global Commercial Banking Operations for
Barclays Bank in the United Kingdom. From 1984-2007, Mr. Eguren held senior
management positions at Citigroup, Citibank, Citi including Chief Financial
Officer and Chief Operating Officer covering the businesses including corporate
and retail banking, asset management, insurance and pension funds in Latin
America, Europe, Asia, North America and Africa. He has extensive experience in
developing, implementing and driving forward strategies for a number of global
banks and initiating inorganic growth opportunities in Emerging Markets.
Mr. Eguren is a Chartered Accountant-Bachelor of Administration from
Montevideo University, Uruguay.
CEO’s Deputies and Assistants
Adrian Gostuski
Group Chief Operating Officer
Mr. Gostuski joined Burgan Bank in 2011. As the Group
Chief Operating Officer, Mr. Gostuski is responsible for
leading the group’s operational areas of finance, legal,
banking operations and technology. Mr. Adrian Gostuski is
a banking professional with over 36 years of experience. He
has solid international experience, both in Developed
Economies and Emerging Markets, with expertise in
Finance, Investment Management and M&A. He has diverse
experiences as CFO and in Senior Executive positions for
Operations, Technology, Treasury and Equity Funds. Prior to
joining Burgan Bank, Mr. Gostuski has worked at Barclays London, and Citigroup for over 23 years in various capacities
of which the last seven years were in the capacity of CFO in
Mexico and Singapore.
Mr. Gostuski is a Certified Public Accountant (CPA) from
Buenos Aires University, Argentina and also holds a Masters
in Business Administration in Strategic Planning from
ESEADE, Buenos Aires, Argentina.
34
Raed Al Haqhaq
Chief Banking Officer
Mr. Raed Al Haqhaq joined Burgan Bank in 2000 and held
senior roles in Corporate Banking. He was General
Manager- Corporate Banking from 2005 before moving
into the role of Chief Banking Officer in 2008. Mr. Al Haqhaq
is presently heading the Banking Group with direct
responsibility for the development and growth of the
bank’s corporate banking portfolio, development of new
and expansion of existing business relationships. He is also
responsible for managing the Bank’s relationship with
Financial Institutions across a wide range of geographical
regions. Mr. Al Haqhaq has over 20 years’ local and
international experience in corporate and investment
banking. Mr. Al Haqhaq began his career at the Kuwait
Investment Authority and then moved to the International
Investment Group.
Mr. Al Haqhaq is a graduate of California State University,
Sacramento, USA with a Bachelor of Science degree
majoring in Strategic Management.
Khalid Fahad Al Zouman
Group Chief Financial Officer
Mr. Al Zouman joined Burgan Bank in 2000 as Head of Risk
Management, before moving into the role of Chief Financial
Officer in 2003. He is mainly responsible for the strategic
planning of the finance activities for the Group to support
the Bank corporate strategy and to ensure the development
and implementation of financial guidelines, controls and
reporting procedures to support management in the
achievement of profitable business plans.
Mr. Al Zouman has over 26 years’ experience working in
Kuwait and international markets in financial management
- with a particular emphasis on accounting and auditing.
Prior to joining Burgan Bank, Mr. Al-Zouman held senior
financial management roles with Ernst & Young in Kuwait
and in the United States.
Mr. Al Zouman is a Certified Public Accountant (CPA) from
the State of New Hampshire, USA, and also holds a
Bachelor’s degree in Computer Science from Kuwait
University.
Venkatakrishnan Menon
Chief Retail Banking Officer
Mr. Menon joined Burgan Bank in 2005. Mr. Menon is
responsible for development and delivery of the retail
banking strategy ensuring that operational, customer
service, business development, risk management and profit
targets are met. He manages the overall retail branch
network as well as Alternative delivery channels, Marketing
and Retail Credit. Mr. Menon has over 29 years of experience
in Banking. Prior to his current role, he has lead the
Operations function at the bank in the capacity of Chief
Operations Officer for 9 years. He has also held senior
management roles at Qatar National Bank prior to joining
Burgan bank and worked in organisations such as BNP
Paribas, Standard Chartered Bank and HDFC Bank.
Mr. Menon holds a Master’s degree in Business Management
and Bachelor of Science from University of Bombay, India.
Robbert Johannes Rijik Voogt
Group Chief Private Banking Officer
Mr. Voogt has been assigned to this role since 2014.
He will be responsible for the growth of the Private Banking
business and portfolio for Burgan bank at the Group level
covering Kuwait as well as the subsidiaries. Mr. Voogt has
solid experience of over 23 years , of which 20 years are in
Private Banking. He has held senior level positions in
reputed Private Banking organizations like EmiratesNBD,
Mees Pierson and Merrill Lynch in Europe, Middle East and
Far East regions. Prior to joining Burgan Bank, he was Group
Head at CIMB Private Banking, Malaysia.
Mr. Voogt holds a Bachelor’s degree in Business from
Nyenride Business University, Netherland.
Robert James Frost
Group Chief Investment Banking
and Treasury Officer
Mr. Frost joined the bank in 2014. Mr. Frost will be providing
strategic leadership and financial expertise within the
Treasury and Investment Banking functions. He will be
responsible for developing a unified and robust strategy to
achieve the financial goals objectives across all the Burgan
Bank Group subsidiaries.
Mr. Frost has acquired over 20 years of experience in global
financial markets with Macquarie Bank Ltd. where he held
the position of Executive Director and Global Head of
Capital Management for the Macquarie Securities Group. In
this role, he was responsible for the development,
implementation and management of all of the Group’s
treasury requirements, which included FX and interest rate
risk management and trading, liquidity and funding, repo
refinancing and collateral management. Mr. Frost’s area of
accountability spanned more than 20 financial markets
across the globe.
Mr. Frost holds a Bachelor’s Degree in Economics and a
Bachelor’s degree in Science (Mathematics) from the
University of Queensland, Australia.
35
Steven Lee Reece
Group Chief Risk Officer
Mr. Reece joined the bank in 2013 as Group Chief Risk
Officer, Mr. Reece is responsible for leading Burgan Groups
risk strategy and policy, identifying appropriate risk limits
and necessary control areas for products, services and
procedures to meet the Bank’s business objectives. He will
direct the planning, implementation and administration of
the Bank’s risk management and loss prevention programs,
policies and procedures. Mr. Reece has 34 years of experience
of which 25 years were with Citibank. He is an experienced
banking professional with strong technical understanding
of overall risk functions. He has global experience working
in UK, Europe, Asia and also the Middle East.
Mr. Reece holds a Bachelor’s degree in Philosophy from the
East Carolina University, USA
Amr El-Kasaby
Group Chief Internal Auditor
Mr. El Kasaby joined Burgan Bank in 2007. As the Group
Chief Internal Auditor, Mr. El Kasaby is responsible for
leading the internal audit function for the Burgan Bank
Group. Mr. El Kasaby has over 26 years’ experience in
auditing and accounting, and he has led audit engagements
across a broad cross section of industries including banking,
trading,
investment
management,
manufacturing,
automotive and oil and gas while in Ernst & Young. Prior to
joining Burgan Bank, Mr. El Kasaby was Deputy Manager of
Internal Audit, Acting Chief Internal Auditor for Kuwait
Finance House.
Mr. El Kasaby is a Certified Public Accountant (CPA) from
State of Oregon, USA, in addition to holding a Bachelor’s
degree of Commerce in Accounting and Auditing from
Kuwait University. Mr. El Kasaby is also a Certified Fraud
Examiner (CFE) and Certified Internal Control Auditor (CICA).
Mahmoud Ezzat
Chief Legal Counsel
Hanan Mohamed Metwalli
Group Head of Compliance
Mr. Ezzat joined the bank in the year 2000 as a Legal Advisor
and was subsequently assigned as Chief Legal Counsel.
Mr. Ezzat’s team is responsible for providing comprehensive
legal support for the bank’s wide range of corporate and
commercial activities as well as legal matters concerning
business development, contract management, litigation,
employment law, collection and debt recovery.
Mr. Ezzat has over 23 years’ of experience as a Lawyer,
having played a pivotal role within the sector, both within
financial institutions and law firms. He was chosen as one of
the key individuals to further develop the economic and
commercial legislations in Kuwait with his most recent
contribution being the drafting of the Companies Law in
Kuwait which aimed at developing the country’s business
environment, and encouraging robust investment
opportunities by providing more flexible legislations.
Mr. Ezzat holds a Bachelor’s degree of Law from University
of Cairo, Egypt.
36
Mrs. Metwalli joined Burgan Bank in 1988 and has been
with the Bank for over 24 years holding a number of
positions for 16 years in the credit department, Corporate
banking and Risk Management Groups. Mrs. Metwalli has
been assigned as the Head of Compliance since 2006 and is
responsible for monitoring the implementation and
application of strategies, action plans and policies in
accordance with the principles and guidelines issued by the
Basel Committee and different regulators to ensure
regulatory compliance of the group represented by the
Central Bank of Kuwait, Kuwait Stock Exchange, Capital
Markets Authority and other regulatory bodies. Prior to
joining Burgan Bank, Mrs. Metwalli has 11 years of
experience in various roles at Al Ahli Bank of Kuwait,
Commercial Bank of Kuwait and Gulf Bank.
Mrs. Metwalli holds a Bachelor’s degree of Commerce
(Accounting) from the University of Alexandria - Egypt, and
holds the degree of a Certified Compliance Officer (CCO)
from American Academy of Financial Management (AAFM).
Halah El-Sherbini
Group Chief Human Resources
and Development Officer
Ms. El Sherbini joined Burgan Bank in 2011. Ms. El Sherbini is
responsible for leading the development of group strategies
to build the capabilities and skills of Burgan Bank group
staff, so that the Bank can deliver its business objectives and
aspirations. Ms. El Sherbini has over 19 years’ experience and
prior to joining Burgan Bank, Ms. El Sherbini was the Head
of Human Resources at Ahli United Bank and Citibank
Kuwait and also held various leadership roles at Gulf Bank
and National Bank of Kuwait.
Ms. El Sherbini is a graduate of Alexandria University, Egypt
with a Bachelor’s degree in English Literature and holds a
Professional in Human Resources (PHR) Certificate from
Society for Human Resource Management (SHRM) Ms. El
Sherbini is a Certified Professional Trainer from Arab Bankers
Association and a Certified Assessor from SHL.
Fahad Mohammed
Al Menayes
Chief Information
Technology Officer
Mr. Al Menayes joined Burgan Bank in 2012 as Head of IT
Operations. Mr. Al Menayes is handling the responsibility of
the Bank’s Information Technology department. He will lead
and reinforce the bank’s strategic direction and leadership in
terms of technology functions. Mr. Al Menayes has over 18
years of experience in Information Technology field mainly
at Al Ahli Bank of Kuwait and Burgan Bank.
Mr. Al Menayes holds a Master’s degree of Science in
Software Engineering and a Bachelor’s degree in Computer
Science and Math from MonmouthUniversity, USA.
Ghassan Bani Al Marjeh
Chief Operations Officer
Bashir Jaber
Group Head of Corporate
Communications
Mr. Jaber joined Burgan Bank in 2006. As the Group Head of
Corporate Communications, Mr. Jaber is responsible for
managing Burgan Bank’s corporate marketing which
includes investor relations, brand management, relationship
management, external communications and corporate
social responsibility. Mr. Jaber has over 13 years of experience
and prior to joining Burgan Bank, Mr. Jaber held various
positions globally at Ogilvy and Mather Worldwide - an
international advertising, marketing and public relations
group.
Mr. Jaber holds a Bachelor’s degree in Advertising and
Marketing from Notre Dame University, Lebanon, plus a
post graduate diploma in Business Administration from
University of Leicester in the United Kingdom.
Mr. Al Marjeh joined the bank in 2014. Mr. Al Marjeh is
responsible for the planning, implementation and
administration of the Bank’s operational and support
functions such as Operations Strategic Development,
General Services, Branch Operations and Centralized
Banking Operations to achieve the Bank’s strategic business
objectives. Mr. Al Marjeh has over 32 years of experience in
Banking. His career spans various positions in the operations
arena in organisations like National Bank of Kuwait, Gulf
Bank, Burgan Bank and Commercial Bank of Qatar.
Prior to re-joining Burgan bank, Ghassan had moved to
Warba Bank to handle the role of Deputy Chief Operations
Officer.
Mr. Al Marjeh holds Bachelor of Arts from University of
Damascus, Syria in addition to a Diploma in Banking
Operations and Information Technology, Vanderbilt
University, USA.
37
Elyas Naser
Group Head of Strategic Business
Department and Chief of Staff
Anil Sunal
Head of International
Operations Office
Mr. Naser joined Burgan Bank in 2011 as Head of Group
Special Projects with the Group Operations Office and then
moved to Head of Strategic Business Department and Chief
of Staff in 2013. Mr. Naser is responsible for maximising
value of assets, through strategic planning of investment
activities and managing post acquisition activities.
These entail leading the process of evaluating and
structuring of mergers and acquisitions, investments and
financing-related opportunities and focusing on synergies
across the group. Prior to joining Burgan Bank, Mr. Naser
worked with various financial organisations in the region
including HSBC, Central Bank of Bahrain and United Gulf
Bank for over 10 years.
Mr. Sunal has been with Burgan Bank since 1993 having
worked for 9 years in Corporate Banking Group and then
moving to Strategic Financial Planning Group where he was
appointed as Head- Management Information in 2004.
Mr. Sunal is handling the role of Head of International
Operations Office since 2012. Prior to joining Burgan Bank
Mr. Sunal has 19 years of experience. Mr. Sunal is responsible
for monitoring the performance of the Bank’s subsidiaries
on Financial, Risk, Regulatory, Control and other critical
aspects and issues. He also coordinates with the Banks
Board Members in the Subsidiaries for alignment with the
Banks group wide policies and strategies.
Mr. Sunal holds a Bachelor’s degree in Science and a degree
in Law from Karnataka University, India.
Mr. Naser holds a Bachelor’s degree in Banking and Finance
from the University of Bahrain.
Remuneration disclosure by Employee Category
Category
No. of
employees
Annual Remuneration Packages
Fixed
Variable **
Total Remuneration
Group – 1: CEO and his deputies and assistants and
the main executive managers whose appointment
is subject to the approval of supervisory parties
(Senior Management)
17
2,253,335
1,074,810
3,328,145
Group – 2: Financial Risk and Control responsibilities
4
241,430
82,125
323,555
Group – 3: Material Risk Takers
8
513,453
159,165
672,618
29
3,008,218
1,316,100
4,324,318
Grand Total
**Notes: All remunerations are paid in cash. Variable remuneration is on estimate basis for 2014.
Remuneration for five of the major executives who received the highest remuneration
from the Bank, in addition to all the functions as required by the Corporate Governance
guidelines (as a group): KD 2,394,851
38
Corporate Governance structure
Shareholder’s
Assembly
Burgan Bank, Kuwait
Board Committee
Group Level
Subsidiaries
Board of Directors
Board Corporate
Governance
Committee
(BCGC)
Group Compliance
Department
(GCD)
Board Risk
Committee
(BRC)
Group Risk
Management
(GRM)
Board Nomination
& Remuneration
Committee
(BNRC)
Board Secretariat
Board Executive
Committee
(BEXCO)
Board Credit
Committee
(BCC)
Chairman of
the Board
Board &
Management
Investment
Committee (BMIC)
Board Credit
Recovery
Committee
(BCRC)
Anti Money
Laundering
(AML)
Board Audit
Committee
(BAC)
Group Internal
Audit (GIA)
External Audit
(GCEO)
Jordan
Kuwait Bank
(Jordan)
Group Strategic
Business
Development
(GSBD)
Group Human
Resources &
Development
(GHRD)
Group Corporate
Communication
(GCCD)
Group Operations
Office
(GOO)
Legal
Department
(LD)
Group Strategic
Financial Planning
& Control
(GSFP&C)
Group
Information
Technology
(GIT)
Group Private
Banking (GPB)
Operations
Office
(OO)
Algeria
Gulf Bank
(Algeria)
Group
International
Operations
Office
(GIOO)
Tunis
International
Bank
(Tunisia)
Client
Complaints Unit
(CCU)
Bank of
Baghdad
(Iraq)
Banking Group
(BG)
Burgan Bank
(Turkey)
Retail Banking
Group
(RBG)
Group Investment
Banking
& Treasury
(GIBT)
Financial
Institution
Department
(FID)
39
Burgan Bank S.A.K.P.
Basel III - Pillar III qualitative and
quantitative disclosures
Pillar 3 disclosures for the full 2014 year
1. Introduction
In June 2014, Central Bank of Kuwait (CBK) issued
directives on the adoption of the Capital Adequacy
Standards (Basel III) under the Basel Committee framework
applicable to licensed banks in Kuwait, effectively
replacing and superseding the earlier requirements under
the circular issued in 2005 Basel framework (Basel II).
These instructions cover comprehensively the calculation
of the Capital to Risk Assets Ratio (CRAR) under Pillar 1
of Basel III, the supervisory oversight under Pillar 2, the
disclosure of information under Pillar 3, and additional
liquidity and leverage controls. Given below are the
necessary disclosures pertaining to the Bank’s Capital
Structure, Risk Management objectives and policies,
information relating to the Credit Exposure, Credit Risk
Mitigation, Market Risk, Operational Risk, and additional
Capital Disclosure Requirements as required under the CBK
Basel 3 regulations. In arriving at the CRAR, in accordance
with the regulations, the standardised approach has been
used for the computation of the Risk Weighted Assets (RWA).
iii. Restriction/Impediments on Fund Transfer
i. The CBK regulations apply to:
Transfer of funds or regulatory capital within the group
entities is subject to the applicable rules and regulations
in the respective jurisdictions. While some of the countries
of incorporation of the subsidiaries have liberalized
foreign exchange regimes others have exchange control
regulations governing cross-border transfer of funds.
Any transfer of regulatory capital among the group entities
is subject to the applicable laws and regulations and
the receipt of necessary approvals from the respective
authorities.
3. Capital Structure
2. Subsidiaries And Significant Investments
Burgan Bank S.A.K
ii. Basis of Consolidation
i. Main features of Capital Instruments
The Bank has five subsidiaries as on 31st Dec. 2014.
These are the following commercial banking entities
acquired during the years 2008 – 2012 whose financials
are consolidated in the Bank’s financial statements.
The Bank’s paid up capital entirely consists of ordinary
shares which have proportionate voting rights. These are
listed on the Kuwait Stock Exchange and are actively
traded thereon.
Burgan Bank Subsidiaries
Name
Country of
Paid-up
incorporation Capital
Effective
Date of
holding % becoming a
subsidiary
51.19%
10 Jul 2008
Jordan Kuwait Jordan
Bank (JKB)
Jordanian
Dinars 100
million
Gulf Bank
Algeria (GBA)
Algerian Dinars 91.13%
10 billion
30 Apr 2009
Iraqi Dinars
250 billion
51.79%
10 Jan 2010
Algeria
Bank of
Iraq
Baghdad (BOB)
40
Comments have been made, where appropriate,
in regard to the approach and process in these subsidiaries.
The practices in all the group entities are not uniform
due to banking practices and regulatory requirements in
the respective countries of operation. However, a level
of harmonization has already been put in place for the
purpose of meaningful consolidation of the financial
position and performance and reporting in accordance
with Basel III. Also, under an ongoing process of postacquisition integration, international best practices as are
applicable and practical in the region have been identified
and are being implemented in all the entities.
Tunis
International
Bank (TIB)
Tunisia
United States
Dollars 50
million
86.70%
27 Jun 2010
Burgan Bank
– Turkey
Turkey
Turkish Lira
900 million
99.26%
21 Dec 2012
As at 31 December 2014, the share capital comprised of
1,951,770,627 issued and fully paid equity shares of 100 fils
each and the bank’s capital structure was as follows:
Capital Structure Of The Bank
KD’000s
Share capital
195,177
Share premium
210,559
Statutory reserve
59,916
Voluntary reserve
60,294
Treasury shares reserve
45,082
Investments revaluation reserve
Foreign currency translation reserve
Other disclosed reserves
Retained earnings
Eligible minority interest in
consolidated subsidiaries
4,912
(19,043)
1,118
112,401
43,211
Less: Regulatory adjustments
- Treasury shares
- Goodwill
- Other intangibles
- Proposed dividends
(9,575)
(90,455)
(78,036)
(28,983)
COMMON EQUITY TIER 1 (CET1) CAPITAL
506,578
7,626
Perpetual Tier 1 capital securities
144,025
ADDITIONAL TIER 1 (AT1) CAPITAL
151,651
T I E R 1 CAPITAL (CET1 + AT1)
658,229
10,167
General provision subject to
1.25% of the credit RWA’s
62,251
T I E R 2 Capital
72,418
Total Eligible Capital
730,647
4. Capital Adequacy
i. Bank’s Approach to Capital Adequacy Assessment
The Bank has in place a system under which the capital
adequacy of the Bank as well as the CRAR are being
calculated at regular intervals, based on the CBK circular
instructions dated 24/06/2014. Based on this system, the
CRAR of the Bank has been above the required threshold
of 12% during the year 2014.
The Bank also has in place a policy for Internal Capital
Adequacy Assessment Process (ICAAP) that is compliant
with the CBK instructions in regard to Pillar 2 of
Basel III and has been duly approved by its Board of
Directors during the year. The ICAAP policy covers
additional risks apart from the three risks viz. Credit Market
and Operational risks covered under Pillar 1 and assesses
additional capital requirements for these additional risks
over and above the minimum level stipulated by the CBK.
A copy of this policy document has also been sent to CBK
for their information and records. Additionally, the Bank
also conducts a stress test which calculates the effect
on its profits and CRAR in cases of stress, based on
certain scenarios.
The Bank takes into account the CRAR calculations in
respect of all its future business plans so as to ensure that,
at all times, the level of its eligible capital is sufficient to
meet the expected increase in business and particularly
the level of RWAs. The Bank takes into consideration
developments locally and in the region, the expected
changes in the banking environment and the fact that
the CRAR prescribed by the regulators is considerably
above the international norm of 8% as recommended by
the Basel Committee while examining the level of capital
that it would like to maintain. The Board also takes into
consideration other relevant factors such as the Bank’s
future business plans, the new areas of business under
examination and the nature of the attendant risks etc.
The Bank has in place a well-documented Internal Capital
Adequacy Assessment Process (ICAAP) Policy which takes
into consideration additional risks beyond the three risks
covered under Pillar 1 of Basel III. This policy has been
developed to fully comply with the CBK regulations on
Pillar 2 of Basel III. The internal assessment process for
capital requirements is carried out periodically by the bank
taking into account not only its position for the time being
but also the future business plans.
The Bank has put in place a system that will enable it to
compute the CRAR under the applicable CBK instructions
at such periodic intervals as may be deemed necessary,
taking into account all the necessary details of its
asset portfolio including Credit Risk Mitigation (CRM)
techniques, the factors that give rise to market risk as also
the capital necessary for operational risks. The internal
budgetary and performance measurement systems of the
Bank take into account the impact of the future growth
and performance of its various business groups on the
capital allocated to each such business group. It is the
intention of the Bank, in due course, to develop a system
that will allocate an economic capital to each business
group based on its risk profile such that performance
measurement is related to the return on the economic
capital deployed in the concerned business group.
As regards the subsidiaries, the respective banking
regulations in regard to capital adequacy are different
in each of the jurisdictions. While the authorities in
Turkey have mandated the application of the Basel III
recommendations as adapted to suit the respective local
requirements, others, viz., Iraq and Tunisia are yet to
finalize the regulations in this regard. Where Basel III rules
have been applied in any of the subsidiaries, this has been
done using the standardised Approach.
The relevant CBK regulations on Basel III have however
been applied for the consolidated financial position of the
Bank and its subsidiaries.
41
driven by you
The CET1, Tier1 and total capital ratio of the banking
subsidiaries were as follows:
to various officers for the identification, measurement,
control and reporting of these identified families of risks.
Among the families of risks are:
Capital Requirement For Each Standard Portfolio
KD’000s
Claims on sovereigns
9,393
Claims on public sector entities
12,795
Claims on banks
46,775
Claims on corporates
310,210
Regulatory retail exposures
68,180
RHL Eligible for 35% RW
504
Past due exposures
5,886
Other exposures
143,867
Total
597,610
Less: General provision in excess of
1.25% of RWA’s
(15,072)
Total Credit risk weighted exposure
582,538
Market risk exposure under
Standardised approach
5,752
Operational risk exposure
61,104
Total Capital Requirement
649,394
Capital Adequacy Ratio (%)
13.50%
T I E R 1 Capital Ratio (%)
12.16%
Common Equity Tier 1 Ratio (%)
9.36%
Subsidiary
Banks
CET 1*
TIER 1*
Total Capital
ratio*
Jordan Kuwait
Bank (JKB)
19.04%
19.04%
19.85%
Gulf Bank
Algeria (GBA)
12.02%
12.02%
13.08%
Bank of
47.35%
Baghdad (BOB)
47.35%
48.00%
Tunis
International
Bank (TIB)
19.91%
19.91%
20.75%
Burgan Bank
– Turkey
15.90%
15.90%
17.03%
ii. Market Risk which includes interest rate, foreign
exchange and equity risks
iii. Operational Risk which includes risks due to operational
failures
The Risk Management Group is organised into, among
others, three departments each responsible for one of the
above three families, viz. the Credit Risk, Market Risk and
Operational Risk departments.
Majority of the subsidiaries, have an independent risk
management function reporting directly to the respective
Board Risk Committees, as per CBK corporate governance
requirements, with a dotted line reporting to GCRO.
These Risk functions are organised into, among others,
three sections responsible for the three families of risks
stated above. Among the subsidiaries, JKB and BBT have
already put in place an ICAAP process with the due
approval of its Board of Directors, taking into account the
applicable rules of their respective central banks. Since
the regulations in other jurisdictions do not mandate this
as yet, the Bank will, in due course, assist the subsidiaries
to develop their own ICAAP processes, suited to their
requirements. In the meanwhile, the ICAAP is applied by
the Bank at the consolidated as well at the subsidiary wise
level of assets and liabilities.
A. Credit risk
i. Strategies and Processes
* Ratios computed under Basel III regulations as adopted in the state of Kuwait.
5. Risk Management
The Bank has set up a Risk Management Group headed
by the Group Chief Risk Officer who reports directly
to the Board Risk Committee, in order to ensure the
independence of the function. The Risk Management
Group does not have any business targets in terms of
either levels of business or income/profits to be achieved,
with a view to ensuring its objectivity in analyzing the
various risks. The mission of the Group is to identify,
measure and control various risks and report to the top
management of the Bank on the effects and, where
possible, mitigations. The Bank has a well-documented
Risk and Disclosure Policy that classifies the risks faced by
it in its day-to-day activities into certain families of risks
and accordingly specific responsibilities have been given
42
i. Credit Risk which includes default risk of
clients and counterparties
The Bank has a well-documented Credit Policy that
complies with CBK regulations and describes the appetite
of the Bank for assumption of risks in its various business
groups viz. the Corporate Banking, Private Banking, Retail
Banking and Financial Institutions groups. The Credit
Policy has been developed by the Risk Management Group
in consultation with the business groups and under the
guidance and approval of the Board.
All the business groups are required to market for business
and present credit proposals in accordance with the
general and specific guidelines stated in the Credit Policy.
Subject to the guidelines of the Policy, each business
group may draw up its own business strategy, which is
deliberated at the Executive Committee of the Bank and
approved by the Board Executive Committee. The Policy
also defines the types of products that the various business
groups can market to their clients and counterparties.
Any new product is required to undergo a specific
validation process before its launch.
The Bank’s subsidiaries also have their respective credit
policies that govern the grant of credit facilities to
clients segmented suitably, based on the market in their
respective business areas. Subject to the respective local
business environments and the specific requirements
applicable in each jurisdiction, the policies of the
subsidiaries have a similar coverage.
Since the Bank is at present required to follow the
Standardised Approach for calculation of the RWAs, the
internal ratings ascribed by the Bank for the obligors are
not used in the process. However, bearing in mind the
future needs of the Bank in the event of application of the
more advanced methods, the Bank has in place an internal
credit rating system, Burgan Credit Rating (BCR).
ii. Structure and Organisation
It is perceived that BCR has reached the end of its product
life cycle and hence to keep pace with the changing
business environment BB has initiated the process of
implementing Moody’s Obligor Risk Rating system.
It is expected to be fully functional by Q4-2015.
The Credit Risk Department is headed by Head of Credit
Risk and has independent teams that are respectively
responsible for Credit Risk Analysis and Credit Control.
The Credit Risk Analysis function is responsible for making
independent risk analysis and appraisal of credit proposals
that are marketed by the business groups. This department
gives its independent views/recommendations on credit
proposals brought to it by the Relationship Managers of
the various business groups. These proposals are then
further processed in accordance with the delegation of
powers approved by the Board. The Bank’s structure of
delegation of powers envisages that a credit approval
requires, in addition to the recommendation of the
concerned business group, an independent enabling
opinion of an official of the Risk Management Group at an
appropriate level. This ensures that the approval process
has an in-built mechanism of checks and balances with
the concurrence of an independent functionary before a
credit proposal can be approved. To be noted that under
the new Corporate Governance Code, Risk Management
personnel do not have any signing power or approving
authority, but can give their independent opinion
on the proposal.
The subsidiaries are in the process of setting up similar
structures and organisations, subject of course to their
respective local conditions and business environments.
While JKB, TIB and BBT already have similar organisations
in place, as regards the other two subsidiaries, in view
of their business environment with less number of large
corporate exposures and higher exposures to retail and
small and medium business entities, the organisation is
being made to adapt to the local requirements.
iii. Scope and Nature of Reporting Systems
After the approval of the credit proposal, the Credit
Control unit of the Credit department is entrusted with the
responsibility of checking that the conditions precedent
for the draw-down of the credit facilities as approved
are fulfilled before the facilities are made available to the
client/counterparty. This unit, which is independent of the
Credit Risk Analysis unit of the Department, also follows up
on the conduct of the accounts by the client/counterparty
in accordance with the terms of approval and reports any
irregularities for necessary corrective action. This unit is
also responsible to ensure that the relevant details for
measurement of the risk and allocation of the appropriate
risk weights to the exposures are made available in the
system or otherwise, so that the computation of the RWAs
can be made appropriately.
All the credit proposals approved under delegated
authorities are reported with relevant details to the Board
Credit Committee at regular intervals.
The subsidiaries will also have similar set up for the credit
process after credit approval.
iv. Hedges and Mitigants
The Credit Policy of the Bank, while outlining the risk
appetite as regards credit risk, has also laid down
guidelines for mitigating risks in terms of availability of
credit enhancements and/or collaterals to support the
exposure, the coverage ratio of collateral value to the loan
to be granted, the threshold levels for top-up of security
and liquidation. The policy and procedures of the Bank also
lay down the required methods and intervals for valuation
of the different collaterals so as to determine the necessity
for top-up by the client and/or procedure for liquidation.
Since there are limited avenues for other types of hedges
such as Credit Default Swaps etc. in the Kuwaiti banking
environment, the chief mitigants considered are eligible
collaterals and/or guarantee of acceptable third parties.
The collaterals accepted by the bank normally consist of
cash in the form of deposits with the Bank, shares, bonds
and units of mutual funds, various forms of real estate
such as vacant lands, residential and commercial buildings,
projects under construction etc. The scope to obtain any
other type of collateral such as movables etc. is limited
since the law does not recognize a hypothecation charge
or a chattel mortgage. For the purposes of credit risk
mitigation, only such of the collaterals that are permitted
by the CBK and where the conditions stipulated are fully
met are considered.
As regards shares, bonds etc., the Bank fulfills the
stipulated regulatory requirements for their periodic
valuation, application of haircuts etc. In regard to real
estate assets, the Bank has employed independent,
professional and govt. recognized evaluators who are
required to assess the value of the collateral before
they are accepted as security. As per the CBK rules, the
Bank seeks two valuation reports. The periodicity of the
valuation is again in line with the regulatory requirements.
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The amount of a secured facility that a borrower can avail
of is based on the valuation of security, after applying
the necessary ratios on the same, in terms of the
conditions of approval.
The respective credit policies of the subsidiaries also
define the collaterals acceptable for their respective
credit facilities with the ratios for coverage, top-up and
liquidation. However, unlike the laws of Kuwait, the laws in
the jurisdictions of the subsidiaries permit hypothecation
of immovable properties of clients in favor of a bank and
where this is permitted, such collateral is also obtained,
subject to the conditions stipulated in the respective legal
provisions. Based on their respective local regulatory
requirements and banking practices, the collaterals are
valued by independent sources.
B. Market Risk
The primary objective of Burgan Bank‘s market risk
management function is to provide a coherent policy and
operating framework for a strong Bank-wide management
of market risk and liquidity risk.
i. Strategies and Processes
The operations of the Bank’s Treasury and Investment
Banking Group give rise to the market risks assumed by
the Bank. The Bank has a well-defined and CBK compliant
Treasury, liquidity and investment Policies that outlines
its risk appetite in regard to undertaking transactions
that result in exposures to market risk. Being a specialized
area that requires particular knowledge of the market
and various products and players therein, these policy
documents are prepared by the Treasury and Investment
Banking Group with inputs/concurrence from the Risk
Management, under the guidance and approval of the
Board. These Policies covers rules concerning the positions
that the Bank assumes in the course of its trading in
foreign exchange, equities and fixed-income securities as
also the interest rate risk positions of its banking book in
terms of mismatches in maturity and/or re-pricing periods.
The strategies that the Treasury Group plans to adopt
during the coming year are decided on the basis of market
forecasts that are made at the time of preparation of the
annual budget. These are, on an ongoing basis, discussed
at the Asset Liability Committee (ALCO) meetings and
corrective actions, if any, are decided at these meetings.
These meetings are chaired by the Chief Executive Officer
and are convened by the Market Risk Controller in the Risk
Management Group. The ALCO discusses and deliberates
on all aspects of market and liquidity risks.
Liquidity management policy and limits ensure that
liquidity is maintained at sufficient levels to support
operations and meet payment demands even under
stressed conditions that might arise with a sudden
change in the market environment. The Bank has also in
place a comprehensive stress testing policy and liquidity
contingency funding plan.
44
The subsidiaries have their respective well defined ALCO
and Market Risk policies with a similar content of topics,
but suited to their respective business environments.
These policies have been framed with due consideration
for the respective local regulations that have an effect on
the market and liquidity risks assumed by each of them.
The respective Board of Directors of each subsidiary
approves the market risk appetite, in terms of limits, for
market risks including foreign currency risk, interest rate
risk and equity risk. These limits are based on notional
amount, stop-loss, sensitivity and/or VaR (Value at Risk).
The Treasury group, in consultation with the Risk
Management, lays down the various limits and rules under
which the members of the Treasury Dealing Room are
allowed to take up positions. These limits are approved
by the Board Executive Committee and where so required
under the regulations, also by CBK. These limits relate
to intra-day and overnight positions as well as positions
under different maturity buckets, counterparty exposure
limits, stop-loss levels etc. While the adherence of these
limits is monitored by the Head- Investment Banking and
Treasury (“IBT”), they are also independently monitored by
Middle Office and the Market Risk unit whose reporting
lines are independent of Treasury and Investment Banking
Group. The Market Risk unit’s office is located in the
dealing room but reports to the Group Chief Risk Officer.
The Market Risk Controller reports relevant information
on the treasury and investment activities of the Bank
including the various positions taken by the Treasury and
Investment Banking Group to the Group Chief Risk Officer
on a daily basis or more frequently if necessary.
While quantifying market risks, the Bank considers risks
arising out of movements in interest rates (for each of the
currencies in which it holds positions), foreign exchange
and price of trading investments. As stated earlier, the
Bank does not assume positions in commodities.
Based on the composition of the risk assets that give rise
to these risks, the bank applies internal rules to determine
the value at risk. These are in line with the applicable
regulatory guidelines and are considered commensurate
with the positions assumed by the bank from time to time.
These positions are marked to market at regular intervals
as prescribed by the regulatory guidelines and these
valuations are independently computed/ verified by the
Middle Office of the Bank. Middle Office has no reporting
relationship to the Front Office that assumes and
manages these positions.
As regards the subsidiaries, as stated above, the operations
in the area of foreign exchange trading are governed by
the applicable local regulations for each of them.
These banks also have various regulatory limits on their
dealing activities and open positions. These banks
however have their back office/middle office functions
with reporting lines outside the front office. The Market
Risk section under the Risk Management monitors the
market risks arising from all treasury activities including
investments.
ii.Structure and Organisation
a. Scope and Nature of Reporting Systems
The Bank has in place systems that allow independent,
on-line monitoring of the intra-day positions from outside
the dealing room. This system also enables the Market
Risk Controller to monitor the activities of the various
members of the Treasury Dealing Room simultaneously
as the dealing transactions are made. Daily Risk Report is
provided to Senior Management that covers the trading
activity and liquidity ratios. Stress testing for interest rate
risk, foreign exchange risk and liquidity risk is conducted
on a regular basis and results are presented to ALCO for
review. Detailed market risk reviews are submitted to the
Board Risk Committee on a quarterly basis. The reviews
highlight major changes in the Bank‘s market and
liquidity risk profiles as well as compositions of the
investments portfolio.
b. Hedges and Mitigants
A major part of the banking and trading books of the Bank
is in Kuwaiti Dinars (KD’s), the other important currencies
being the internationally actively traded currencies. Due to
the limited scope for hedging interest rate positions in
KD’s arising from a limited range of hedging products,
the Bank enters into, where reasonably possible, variable
interest rate transactions structured to enable it to
minimize maturity/re-pricing mismatches. As regards the
other currencies, the open positions taken by the Bank are
within pre-set limits and tenors for the respective currency.
The Bank also makes use of interest rate and currency
swaps to hedge its interest rate and currency positions
in foreign currencies. The Bank normally makes use of
derivatives for hedging purposes and also meets the
requests of its clients for derivative products on a fully
matched basis. However, the Bank only deals in or offers
to its clients, simple derivatives such as forward foreign
exchange contracts and does not handle the more
sophisticated derivatives including structured derivatives.
of weakness in the operating procedures and processes
of the various operating departments of the Bank and
correcting them from time to time. The Risk and Disclosure
Policy of the Bank classifies the various areas of operational
risks and identifies specific officers who are primarily
responsible for rectifying these risks. Thus, for example, the
rectification of legal risks falls under the direct responsibility
of the Chief Legal Officer whereas the rectification
of Information Technology (IT) risks falls under the
responsibility of the Chief Information Technology Officer.
The specific procedural guidelines for all departments
under the Operations Group are overseen by the
Head of Operational Risk who also collates various
incidents that give rise to operational risks, an actual or
potential loss situation.
For the purpose of separation of the functions of IT
development/operations from IT Security, Head of
Operational Risk is also responsible to independently
ensure the adequacy and effectiveness of IT security
systems and procedures. These include both internal and
external IT security measures. While a similar organisation
is available in some of the subsidiaries, others are in the
process of setting up such an organisation. However, the
IT Security function is separate from the IT development/
operations.
BBT deals in foreign exchange derivatives and interest rate
derivatives to cover client needs on a back to back basis as
well as for proprietary activities. BBT also uses Interest rate
swaps mainly with an aim to keep the interest rate risks
in its banking book within limits. All derivatives activities
are regulated through limits approved by the BOD and
monitored through bank systems.
The Bank has a robust and well defined Business Continuity
Program, which comprises of policies and procedures
with clearly defined roles, responsibilities and ownership
for Crisis Management, Emergency Response, Business
Recovery and IT Disaster Recovery Planning. The Bank’s BCP
steering committee, represented by the senior executive
Management of the Bank, approves and oversees the
annual BCP strategy and road map. Burgan Bank’s Business
Continuity Management Program is designed to ensure
the continuity of bank’s critical businesses at a minimum
loss, in case of a disaster and a emergency that may impact
the bank or a national event and may shutdown the whole
country or part of it in case of any eventuality. Burgan Bank
has a dedicated Disaster Recovery and Business Continuity
Recovery site within Kuwait, which would be active in case
some parts and specific areas in Kuwait are impacted.
To respond to a country wide shut down a fully operational
data back-up site and a Crisis Command Centre outside
Kuwait is functional. Should any contingency arises, the
key pre-identified bank staff would relocate locally or
internationally to render crucial services to the esteemed
clients and partners during a crisis/disaster. Regular drills
and tests are conducted to cover all aspects of the Business
Continuity Plan. Some of the subsidiaries have documented
their business continuity and recovery plans; others are in
the process of formulating and implementing the same.
C. Operational Risk
b. Structure and Organisation
a. Strategies and Processes
The various operational functions of the Bank come
under the Operations Group headed by the Chief
Operating Officer (COO) who oversees the day-to-day
operational and support functions. In order to ensure the
As regards the subsidiaries, with the exception of BBT
other entities do not actively take proprietary trading
positions The range of products offered by them to their
clients is also limited, due to the market environment and
where applicable, exchange control regulations.
The Operational Risk Department is controlled by the
Head of Operational Risk , who reports to the Group Chief
Risk Officer. This department oversees the operational
procedures and controls with a view to identifying the areas
45
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independence of the various operating departments, the
COO reports to the Group Chief Operating Officer (GCOO)
who in turn directly reports to the Chief Executive Officer.
Also, the processing of the various transactions is governed
by Standard Operating Procedures (SOPs) laid down for
each of the operating departments with the necessary
inputs/concurrence from, among others,
Head of Operational Risk.
As regards the scope and nature of risk reporting in this
area, the Bank has laid down a Risk and Control Selfassessment program as well as Internal Control Charts
(ICCs) that are required to be submitted by the various
functionaries with differing periodicities. These are
required to be submitted to specified supervisors who
conduct the necessary follow up in regard to exceptions
and ensure corrective action. The ICCs cover all the
branches and operating departments in the head office.
value of the asset or the exposure is less than the value
at which it is carried in the books of the Bank before
it considers the necessity of making a specific provision
for the same. As defined under the regulations of CBK,
a past due exposure is considered to be one where the
client or counterparty has failed to meet his contractual
obligation to the Bank towards payment of the interest
or the principal or a part thereof on the date on which
such payment is due. Thus, if a client is required to pay
interest at monthly rests and if the interest is not paid upon
its debit to the account on the first day of the following
month, the loan is considered to be past due. Similarly,
if the principal amount of the loan or an installment
thereof is not paid on the day it falls due for payment
under the contract entered into by the client with the Bank,
such loan is considered as past due from the next day.
However, as is the international practice in the banking
industry and as laid down under the CBK regulations, an
exposure is considered as non-performing if it continues to
remain past due for more than 90 days. In respect of retail
banking loans, an asset is considered as non-performing
if more than 3 installments remain unpaid. In all such cases,
the exposure will be considered to be impaired.
The subsidiaries are in the process of introducing ICCs with
suitable modifications to suit their respective local needs.
Also, some of the subsidiaries have in place a Risk and
Control Self-assessment covering several functions.
The subsidiaries also apply such prudent policies which
are in line with the relevant regulations in their respective
jurisdictions. Additionally, the subsidiaries also follow the
rules laid down by their respective regulatory authorities.
d. Hedges and Mitigants
ii. Approaches for Specific and General Provisions
The Bank has set up an Incident Management System
(IMS) under which various incidents of operational risks
are noted and registered with all the relevant details.
These incidents may relate to either actual or potential
loss resulting from an operational failure or dysfunction,
either due to external or internal causes. These incidents
are analyzed to effect necessary changes in the SOPs so
as to enhance the operational controls and to eliminate
or minimize the operational loss. These incidents are, at
appropriate intervals, reported to the top management
of the Bank and the appropriate Board Committee.
As required under the CBK regulations, the Bank maintains
two types of loan loss reserves. On the Bank’s exposure to
non-bank clients and counterparties which are not covered
by collateral in the form of cash or demand/term deposits
with the Bank, the Bank was required to maintain a general
provision of 2% of the outstanding exposure, both on
and off-balance sheet. If the exposure to a third party is
covered by the guarantee of a bank that is rated below
‘A’, in such cases also, the Bank was required to maintain a
general provision of 2% of the outstanding exposure.
Such an organisation with an independent head of
operations reporting to the respective chief executive
officers is in place in the subsidiaries also.
c. Scope and Nature of Reporting Systems
The Bank has also developed Risk Dashboards in some of
its operational areas which serve to provide a snapshot
of the concerned units in regard to the operational risks
in these operating units.
These tools, viz. the Risk Dashboards and IMS are also in
the process of being implemented in the subsidiaries.
6. Credit Exposures
i. Definition of Past Due and Impaired Assets
In regard to income recognition, asset classification and
provisioning requirements, the Bank, as a matter of policy,
follows the relevant regulations of CBK. Where considered
appropriate for reasons of prudence, a more conservative
policy is followed in regard to the amounts of loan loss
provisions than those calculated by using the norms laid
down in these regulations. The Bank considers an asset or
an exposure to be impaired if, in its opinion, the realizable
46
However, with effect from 12.03.07, the CBK amended
these rules and banks in Kuwait are, after that date,
required to maintain only 1% (instead of 2%) general
reserve in respect of cash exposures and 0.5% for non-cash
exposures. The past level of general provisions as
of 31.12.2006 however cannot be reversed unless, under
special circumstances, CBK approval is obtained for the
same. The Bank has not reversed any past provision in this
regard. Out of the general provision so maintained, a sum
equal to 1.25% of the RWA in the case of on-balance sheet
exposures and after the application of Credit Conversion
Factors and Risk Weights for off-balance sheet exposures is
considered to be part of the Tier 2 capital of the Bank and
the remaining amount is given the same treatment for the
purpose of CRAR as if it was a specific provision, i.e., it is
reduced from the RWA of the Bank.
In regard to impaired assets, the Bank determines the
necessary level of specific provision in terms of the norms
laid down under the CBK regulations. These regulations
require the Bank to make a provision of at least 20% of the
value of the exposure (net of the value of eligible collateral
as defined therein) if it remains past due for more than
90 days but less than 180 days, 50% if the period of past
due is more than 180 days but less than 1 year and 100%
if the past due period exceeds 1 year. However, based on
the circumstances of a particular exposure, if and when the
Bank considers it necessary, a higher level of provisioning
is made even if these default periods are not attained.
In all cases of non-performing exposures, the Bank does
not recognize any accrued income. Interest/commission
on such exposure is recognized as income only on actual
receipt.
The Loan Review and Provisioning Committee of the Bank
examines, at monthly intervals, all the delinquent accounts
to determine if a specific provision needs to be made for
any particular account. The Committee is chaired by the
Chief Executive Officer or in his absence, by the GCOO to
ensure an objective assessment of the concerned exposure
without taking into consideration the performance of the
Bank or its profits/profitability.
The subsidiaries follow their respective applicable
regulations in regard to impaired assets and provisioning
requirements. However, at the time of consolidation of
the accounts, The Bank applies the CBK rules in regard to
provisioning on the consolidated basis. Any shortfall arising
on account of the difference between the respective
regulatory requirements of a subsidiary and the CBK
regulatory requirements are covered by the Bank at the
consolidated level.
Since the Bank is at present required to follow the
Standardised Approach for credit risk, it does not follow
any statistical methods to estimate either the probability of
default or exposure at default or loss given default.
Based on the public ratings given to the clients/
counterparties by recognized and approved External
Credit Assessment Institutions (ECAIs), the exposures are
risk weighted in accordance with the CBK regulations.
iv. ECAIs and Mapping Process
An exercise to map these ratings to the exposure of the
Bank where applicable is carried out. Where a general
issuer rating is available, the same is used for the relevant
exposure of the rated client/counterparty. Where only an
issue rating is available, if the rated issue has comparable
characteristics to the Bank’s exposure both in terms of
the tenor and other features such as availability of credit
enhancement etc. such rating is considered. CBK at present
considers Moody’s, Standard and Poor’s and Fitch as the
Approved ECAIs and only those clients/counterparties who
have a solicited rating from one or more of these ECAIs,
are considered to be rated. Based on the rating systems
as declared by the ECAIs, the ratings are classified into
Investment Grade and Non-Investment Grade ratings.
Those who are not rated by any of these three ECAIs are
considered to be unrated. In order to ensure that the
ratings are not considered selectively, if a current rating
from one of these ECAIs available in respect of any client/
counterparty, it is always taken into account and in such
cases, the client/counterparty is not considered as unrated.
Credit Risk Exposure
KD’000s
iii. Credit Risk Management Policy
In regard to the credit portfolio of the Bank, the Credit
Policy, as stated earlier, defines the risk appetite of the
Bank. The Bank gives, in addition to the financial position
of the client/counterparty, due consideration to the sector
of activity of the client/counterparty, the exposure of
the Bank to the group to which the client/counterparty
belongs, the quantum of exposure vis-à-vis the capital
funds of the Bank, the country of origin of the main cash
flow of the client/counterparty, the nature of credit
facilities, their purpose and the source of repayment and
any other considerations that are essential for the credit
assessment. The availability or otherwise of acceptable
collateral, the standing and reputation of the client/
counterparty, market reports, the exposures assumed by
other banks on the same client/counterparty etc. are some
of the considerations that are examined before approving
credit facilities. As a rule, all credit exposures are reviewed
at least once in a year. In the case of locally incorporated
unlisted companies and partnerships with limited liability,
the personal guarantees of the main promoters of the
enterprise are normally also required.
Gross credit
exposure
Gross average credit
exposure*
Funded
Unfunded
Funded
Unfunded
1,305,347
18,599
1,208,032
9,340
Claims on public
sector entities
130,617
16,239
116,617
21,825
Claims on banks
1,080,254
801,436
1,155,411
320,688
Claims on
corporates
2,721,516
2,059,229
2,216,596
1,834,706
Cash items
188,710
-
164,342
-
Regulatory retail
exposures
612,317
56,774
584,479
53,344
19,715
–
15,243
–
117,475
3,045
129,359
2,390
Claims on
sovereigns
RHL Eligible for
35% RW
Past due
exposures
Other exposures
1,580,405
19,202
1,572,318
22,639
Total
7,756,356
2,974,524
7,162,397
2,273,932
* Average exposure represents daily average outstanding except in the case
of past due exposures, which show quarterly averages since the
classification of past due exposures is done quarterly.
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Geographic Distribution Of Gross Credit Exposures
KD’000s
Kuwait
Claims on public sector
entities
Claims on banks
Cash items
Regulatory retail
exposures
Jordan
Algeria
Iraq
417,089
365,977
150,176
20,205
112,840
–
Turkey
Other
Middle East
Europe
186,685
–
–
–
Rest of the
world
Total
175,310
27,344
–
13,811
1,365
–
1,323,946
–
–
146,856
241,921
14,501
281
48,865
25,108
66,003
626,436
556,283
302,292
1,881,690
2,279,943
476,882
543,279
111,605
9,492
1,256,004
47,206
25,321
31,013
4,780,745
70,223
16,076
50,451
42,426
312
3,444
1,363
500
3,915
188,710
394,476
54,541
37,656
27,548
184
154,635
–
50
1
669,091
–
19,715
–
–
–
–
–
–
–
19,715
71,030
12,350
9,079
13,152
418
9,315
5,176
–
–
120,520
Past due exposures
Tunisia
Other exposures
1,184,098
93,101
50,979
41,015
1,888
75,176
37,718
16,960
98,672
1,599,607
Total
4,678,985
1,165,983
841,901
471,296
37,402
1,739,887
759,054
600,479
435,893
10,730,880
Gross Credit Risk Exposures
By Residual Contractual Maturity
Impaired Loans And Provisions By Standard Portfolio
KD’000s
Up to 3
months
3 to 6
months
6 to 12
months
Over 12
months
570,105
133,221
133,388
487,232 1,323,946
48,734
–
–
Claims on
banks
1,137,514
220,856
221,330
Claims on
corporates
1,123,548
553,046
842,873 2,261,278 4,780,745
Cash items
188,710
–
–
–
188,710
Regulatory
retail
exposures
72,323
35,513
48,200
513,055
669,091
–
–
–
19,715
19,715
Past due
exposures
120,520
–
–
–
120,520
Other
exposures
234,361
76,506
Claims on
sovereigns
Impaired loans
(net of suspended
interest and collateral)
Claims on banks
Claims on
public sector
entities
98,122
146,856
301,990 1,881,690
Total
Specific provision
provision charge / charge off
(-)
1,903
6,141
431
Claims on
corporates
53,105
209,830
34,747
Regulatory
retail exposures
19,912
24,190
4,764
Other exposures
RHL Eligible
for 35% RW
Total
KD’000s
Total
Total
-
14,136
3,971
74,920
254,297
43,913
218,473 1,070,267 1,599,607
3,495,815 1,019,142 1,464,264 4,751,659 10,730,880
Geographic Distribution Of Impaired Loans (Net)
KD’000s
Kuwait
Claims on banks
Jordan
Algeria
Iraq
Tunisia
Turkey
Other
Middle East
Europe
Rest of the
world
Total
–
–
–
–
–
–
1,903
–
–
1,903
6,692
25,301
5,100
2,615
342
12,710
345
–
–
53,105
Regulatory retail
exposures
14,479
1,913
576
2,761
–
183
–
–
–
19,912
Total
21,171
27,214
5,676
5,376
342
12,893
2,248
–
–
74,920
Reconciliation Of Changes In Provisions
KD’000s
Funded
Provisions as on 1 January 2014
Exchange adjustment
Amounts written off
Charge to statement of income
Provisions as on 31 December 2014
48
Unfunded
Total
216,073
16,413
232,486
(957)
(115)
(1,072)
(38,419)
–
(38,419)
59,981
1,321
61,302
236,678
17,619
254,297
7. Counterparty Credit Risk
i. Objective and Policies
The primary objective of counterparty credit risk
management function is to effectively identify, measure
and manage all derivatives related counterparty exposures
through regular review of counterparty limits and daily
monitoring of exposures vs. limits.
ii. Strategies and Process
All derivative limits for counterparties are approved
by Board Credit Committee or its delegated authority.
With regard to non-banking customers, derivative
products are mainly offered only to selective large
corporate customers with a demonstrated need to
employ these products to manage the financial risks
in their businesses.
iii. Structure and Organisation
Treasury Group manages day-to-day counterparty
exposures for derivatives within the limits set by the Board
Credit Committee. Middle Office monitors and controls
the exposures independently so that the exposures remain
within the approved limits.
iv.Scope and Nature of Risk Measurement
and Reporting Systems
Capital charge for Over the Counter (OTC) derivative
products is calculated using the current exposure method
(“CEM”). Under this method exposure is calculated,
applying CBK recommended add-on factors and positive
mark-to-market of the transactions.
As regards the subsidiaries, with the exception of
BBT, other entities do not actively deal in derivative
transactions. BBT also has similar objectives, policies,
strategies, processes, structure and organisation but
customized to local market environment and regulations.
Starting from November 2014, BBT also uses CEM to
calculate capital charge on its OTC derivative products.
8. Credit Securitization
The Bank does not conduct any securitization activities.
9. Credit Risk Mitigation (CRM)
The main CRM techniques applied by the Bank are based
on eligible collaterals. Cases where the guarantee of a
better-rated client/counterparty is obtained for exposures
to a lower rated client/counterparty are few, mainly due
to the limited number of Kuwaiti and other regional
corporates for which ratings by approved ECAIs are
available. In cases where specific pledge or blocking of
deposits is available, on and off- balance sheet netting
is also used to mitigate client risks.
i. On and Off-Balance Sheet Netting
The generic legal documents that the Bank obtains from
its clients normally include a clause that permits the Bank
to offset the client’s dues to the Bank against the Bank’s
dues to the client. Thus, if the same legal entity that has
obtained credit facilities from the Bank also maintains
credit balances in its accounts, the Bank would normally
have the legal right to set off the credit balances against
its dues. In respect of some counterparty banks, there are
specific agreements that provide for netting on and/or
off-balance sheet exposures. Additionally, in specific
cases, the Bank approves credit facilities to a client against
pledge/block of his deposits to cover the whole or part
of his dues.
For the purposes of computation of CRAR (also for
calculation of general provisions), as a prudential measure,
the Bank does not take into account the general lien
available to it under the generic documentation but
only considers cases where specific pledge/block of
deposits is in place.
ii. Collateral Policy
It is the Bank’s endeavour to obtain acceptable collateral
cover for its exposures as far as commercially practicable.
The collateral normally consists of real estate properties,
shares listed in Kuwait and other leading stock exchanges,
other traded and untraded securities such as bonds,
mutual funds etc. In some cases, in order to ensure the
promoter’s commitment, the Bank also obtains other forms
of collateral such as unlisted shares/securities etc. but these
securities of course are not considered for CRM purposes.
While the Bank will be willing to accept other eligible
collaterals as defined by the CBK such as gold, eligible
debt instruments etc. these are not generally offered by
clients/counterparties to the Bank. Accordingly, the eligible
collateral predominantly consists of shares listed and
traded on the recognized stock exchanges which form
part of their respective main indices and eligible real
estates as per CBK rules.
Under Kuwaiti laws, the repossession and enforcement of
a mortgage on the primary residence of a borrower is not
permitted except under specific conditions. The bulk of the
residential mortgage loans of the Bank in its Retail Banking
Group are therefore not considered to be collateralized by
the primary residence, even though mortgage documents
are obtained from some of the clients.
Only in some cases, where the legal conditions for
enforcement are fulfilled, these are considered to be retail
exposures collateralized by residential mortgages and are
applied the relevant weight.
However, as regards the subsidiaries, the respective local
laws do not pose any constraints on enforcement of the
mortgage on the primary residence and hence these
constraints do not apply in their cases.
iii. Main Types of Collateral
The Credit Policy of the Bank defines the types of collateral
that are acceptable and the collateral coverage ratio, which
is the ratio of the value of the collateral to the exposure,
for each type of acceptable collateral. The policy also
stipulates that the terms of credit facilities should stipulate
49
driven by you
a top-up level. If the value of collateral falls to a level where
the actual coverage available breaches the top-up level,
the client is required to either lodge additional collateral or
reduce his outstanding dues accordingly. If the client fails
to do either of these and the value of collateral falls further,
the terms also stipulate a liquidation threshold, which is
the level of coverage at which the Bank may proceed to
liquidate the collateral to realize its dues. These various
ratios, after approval, are monitored independently by the
Credit Control unit and reported to the concerned business
group for follow up with the client.
Net Credit Exposure After Risk Mitigation
And Credit Conversion Factor
Cash items
iv. Collateral Valuation and Management
Regulatory retail exposures
The Bank follows a system under which the collateral
valuation is independently verified. In respect of real
estate accepted as collateral, the valuation is done on an
annual basis by two independent valuers, one by a valuer
approved by Central Bank of Kuwait and another by a
registered valuer approved by the Bank and the average of
two values being considered for risk mitigation.
In respect of shares and other securities listed on the
Kuwait Stock Exchange, the valuation is computed daily,
based on the prices declared by the Stock Exchange at the
end of the day. The valuation of other collateral such as
unlisted shares is done on such bases as may be considered
appropriate, on a case-by-case basis. The valuation process
is handled by the Credit Control unit of the Bank with no
involvement of the concerned business group who are
kept informed of the value of client collateral.
v. Guarantees for Credit Enhancement
As stated earlier, there are very few cases where guarantee
of a better-rated entity is obtained for the exposure to a
lower rated entity. In these cases, where the rating is given
by an approved ECAI, the guarantor’s rating is substituted
in place of the rating of the borrower, for the purpose of
computation of RWAs. Where the guarantor and/or the
borrower are/is not rated by an approved ECAI, the Bank
uses its internal assessment to determine the acceptability
of the guarantee but for the purpose of computation of
RWA, this has no effect.
vi. Concentration
The Bank makes an endeavor to avoid concentration of
collateral as far as possible. To this intent, when collateral in
the form of listed shares is accepted, the year-to-date daily
traded volumes of the concerned share and the average
number of trades are examined and these are, among
other points, taken into consideration in making a decision
to accept the collateral and stipulating the concerned
threshold ratios stated above, viz. coverage ratio, top-up
ratio and liquidation ratio. The Bank classifies listed shares
into various categories based on the liquidity and volatility
of the concerned share, derived from the data available
with the Kuwait Stock Exchange. The ratios stated above
would vary depending on the classification of the shares.
50
KD’000s
Before CRM
CRM
Net Exposure
1,320,789
299
1,320,490
entities
133,876
43
133,833
Claims on banks – Rated
726,710
17
726,693
Claims on banks – Unrated
390,338
–
390,338
3,193,211
601,401
2,591,810
188,710
–
188,710
633,393
32,331
601,062
19,715
7,721
11,994
118,699
61,519
57,180
Other exposures
1,590,343
623,854
966,489
Total
8,315,784
1,327,185
6,988,599
Past due exposures
Exposure covered by eligible
collateral and guarantee
KD’000s
Covered by:
Exposure after CCF,
net of Suspended
Interest
Financial collateral
after application of
haircuts as stipulated
by CBK
1,320,789
299
133,876
43
entities
Claims on banks
1,117,048
17
3,193,211
601,401
Cash items
188,710
–
Regulatory retail
exposures
633,393
32,331
19,715
7,721
118,699
61,519
Other exposures
1,590,343
623,854
Total
8,315,784
1,327,185
Past due exposures
10. Market Risk For Trading Portfolio, Foreign Exchange And Commodities Exposures
The Bank applies the Standardised Approach for
computing the market risk on its trading portfolio and at
present does not use the Internal Model Approach (IMA).
Under the Standardised Approach, the risk exposure is
quantified according to the levels stipulated by CBK.
Capital Requirement for Market Risk
KD’000s
Equity position risk
Foreign exchange risk
Interest rate position risk
Options
Total
550
2,493
713
79
3,835
11. Operational Risk
As stipulated by CBK, the Bank uses the Standardised
Approach for computation of Operational Risk and the
capital required for the same. Out of the eight business
lines defined by CBK, the Bank’s operations are confined
only to five, and the Bank does not presently operate in
Corporate Finance, Agency Services and Retail Brokerage.
For the remaining business lines, the Bank uses the
stipulated beta factors. Additionally, as stated earlier, the
Bank has put in place an Incident Management System to
track operational risk incidents and eventually, the system
is expected to assist the Bank develop a more advanced
approach for operational risk, if and when this is approved
or mandated by the authorities. Also, the Bank uses ICCs
as a control tool in respect of operational risks. The risk
dashboards give a view of the areas of operational risk to
the senior management of the Bank and the Board.
The subsidiaries which are under Basel II apply the Basic
Indicator Approach for computing operational risk under
their respective local regulations. However, during the
consolidation process, the operational risks are considered
under the Standardised Approach where the activities of
the subsidiaries are considered under the various business
lines as stipulated under the CBK regulations on Basel II
calculations.
As regards the subsidiaries, they also have their respective
investment policies on the above lines, which of course, are
in line with their applicable regulatory requirements.
Investments
KD’000s
Fixed income instruments
Total
15,796
19,783
68,505
298,468
186,474
Realised gains/(losses) recorded in the income
statement
4,686
Unrealised gains/(losses) recognised in the
shareholder’s equity
4,912
Capital requirement by equity groupings
KD’000s
Investments available for sale
40,185
Investments held to maturity
Investments designated through profit and loss
6,368
12,061
Investments held for trading
i. Classification of Investments
The Bank’s Investment Committee examines proposals
for investments that come from the Investment
Department which is under the Head- IBT. The Committee
deliberates on these proposals before sending them for
the final decision of the Board Executive Committee.
The Investment Committee also takes a view on
appropriate classification of the concerned investment,
based on the Bank’s objective in making the investment.
102,173
*The Bank does not have any publicly traded investments whose fair value as
disclosed in the financial statements is materially different from publicly
quoted values.
Total
The accounting policies concerning investments and their
valuation methodologies are described in detail under the
“Summary of Significant Accounting Policies” elsewhere in
this Annual Report. During the year 2014, there has been
no significant change in these policies and methodologies.
84,333
194,352
Any other investments
Investment in associates
ii. Accounting Policy and Valuation Methodology
Privately held
Equities
12. Equity Position In The Banking Book
The Bank consolidates the assets and liabilities of its five
subsidiaries, viz. Bank of Baghdad, Gulf Algeria Bank,
Jordan Kuwait Bank, Tunis International Bank and Burgan
Bank Turkey. The Bank’s investments are classified as either
‘Available for Sale’, ‘Held to Maturity’, ‘At fair value through
income statement’ or ‘Held for Trading’. Investments in
equities that are acquired principally for the purpose of
selling in the short term or, if they are managed and their
performance is evaluated on reliable fair value basis in
accordance with the documented investment strategy,
are classified as at fair value through income statement
and all other investments are classified as available for
sale. The Bank has an Investment Policy that outlines the
type of investments, the accounting requirements, the risk
appetite for investments etc.
Publicly traded*
1,431
4,631
64,676
13. Interest Rate Risk In The Banking Book (IRRBB)
The interest rate risk on the banking book arises due to
maturity/re-pricing mismatches of the assets and liabilities
in the banking book. For the purpose of monitoring such
interest rate risk, the Bank has in place a system that tracks
the residual contractual maturities of all its interest bearing
assets and liabilities as also their re-pricing periods.
From such data, a cash flow is prepared showing the
relevant mismatches in re-pricing periods, classified into
various maturity buckets. The interest rate cash flow
disregards any non-interest bearing assets and liabilities
since they do not affect the IRRBB.
All non-maturity deposits are considered repayable on
demand and are accordingly placed in the overnight
maturity bucket as required under CBK regulations.
Due to this prescription in the CBK rules that the banks
must follow, all non-maturity deposits are assumed to
be re-priced the next day, instead of their placement in
buckets based on a behavioral/trend analysis of such
deposits. Certain details related to IRRBB are prepared and
presented at the monthly meetings of the ALCO, which
also deliberates in the matter.
51
driven by you
For an even 25/50/100 basis point shock along the yield
curve, net interest income for one year (from Jan. to Dec.
2014) including derivatives is affected as shown below:
Impact of interest rate change on earnings
95,000
55%
90,000
85,000
50%
80,000
75,000
45%
40%
70,000
65,000
35%
KD 000
60,000
55,000
30%
50,000
25%
45,000
40,000
20%
35,000
30,000
15%
25,000
20,000
10%
5%
15,000
10,000
0%
5,000
-5%
–
(5,000)
-10%
(10,000)
-15%
(15,000)
Down 100
Down 50
Down 25
BB Consolidated
Up 25
Up 50
Up 100
68,745
73,677
75,944
79,515
83,289
87,056
94,737
(10,770)
(5,838)
(3,571)
–
3,774
7,541
15,222
-14%
-7%
-4%
0%
5%
9%
19%
Net Int. Inc. Forecast
Earnings at Risk
Earnings at Risk %
The mid-year interest rate sensitivity analysis conducted
by the Bank indicated that for an even increase in interest
rates by 100 basis points (1%) the annual interest income
of the Bank would have gone up by 14% whereas an even
reduction in interest rates by the same level would have
resulted in a reduction of net interest income by 14%.
Since the banking book is predominantly in KD’s, this
exercise is conducted on the consolidated book.
This analysis is now being conducted at monthly intervals.
As of 30 September, the Group’s net interest income for
next 1 year would reduce by USD 2.13M 100 bps parallel
increase in interest rates in JOD and USD 4M for increase in
TRY rates. Corresponding increase in net interest income
for the Group is expected for 100 Bps parallel decline in
interest rates both for JOD and TRY currencies. This impact
is mainly emanating from the respective subsidiaries which
use these currencies as their operating currency.
As regards the subsidiaries, with the exception of
BBT, other entities do not actively deal in derivative
transactions. Starting from November 2014, BBT also
uses CEM to calculate capital charge on its OTC
derivative products.
As regards the subsidiaries, with the exception of BOB
other entities calculate IRRBB with similar methodology
and concepts but with different assumptions due to
prevailing market environment at subsidiary level and
where applicable, respective regulations governing IRRBB.
14. Remuneration Practices
Remuneration Governance
The Board Nominations and Remuneration Committee
(BNRC) is responsible for presenting recommendations
to the Board regarding nomination to the Board’s
membership, review of Board structure on an annual basis,
undertake performance evaluation of the overall Board
and the performance of each member on annual basis, and
52
developing Bank-wide reward policy in line with applicable
laws and regulations. In addition, BNRC is responsible
for appointment of the senior positions of the Executive
Management, ensuring that these positions are occupied
by qualified employees along with setting performance
standards and succession plans.
There were 4 meetings held during the year by the BNRC.
The Committee comprises of 3 Board members and
operates as per the guidelines provided under the CG
manual and the ‘Board/ Committee Meeting Guidelines.
In addition, specifically for the BNRC composition, the
Chairman of the Board is not be a member of the BNRC.
Board members are compensated for overall committee
services as disclosed on the notes to the
financial statements.
The Bank has engaged during the year consultants such as
Hay and Mclagan. Hay consultants were engaged to review
and update the grade andcompensation structure of the
Bank. Mclagan were engaged to provide and survey the
market compensation within the Kuwait banking sector.
The scope of this policy covers Burgan bank and its
subsidiaries where the regulatory requirements of the
subsidiaries in the countries they operate are not in conflict
with the remuneration policy.
For the purposes of the disclosures the Bank has identified
the CEO and his deputies who directly responsible for
the governance and management of the Bank, and
the Material risk takers- are all the roles (not covered
in the above category) whose activities, individually
or collectively, have a significant impact on the Banks
financial performance and stability/soundness.
Remuneration Policy
The remuneration policy aims at enabling the Group to
attract, retain, motivate and reward qualified workforce
while ensuring fairness and consistency as well as being
appropriately risk balanced. The policy reflects the Groups
objectives for good corporate governance as well as
sustained and long term value creation for all stakeholders.
The Remuneration policies and practices form part of
the Group’s overall obligation to have robust governance
arrangements in place.
Employees are entitled to different remuneration
components targeting appropriate and balanced
remuneration package based on the employee job grade
taking into consideration the employees skills, experience,
his role in the Bank as well as market practice.
The remuneration components consist of all forms of
payments or benefits in exchange for the services provided
by the employee and can be divided into:
• Fixed remuneration based on employee job
role and market
• Variable remuneration depending on employee
performance- mainly in the form of cash bonuses, both
deferred and non-deferred
Employees are eligible to variable remuneration applicable
to their position. Variable remuneration is in the form
of cash bonus for Variable remuneration may be paid in
cash and may be subject to a vesting or deferral period.
Remuneration amounts are based on the bonus pools
approved by the Board for the purpose of rewarding
employee performance. The total amount of performance
related remuneration is based on a combination of the
assessment of the overall results of the Bank and of the
performance of the business unit and of the individual
concerned. When assessing individual performance,
key financial and non‐financial targets and metrics are
taken into account.
account the outstanding risks associated with the
performance. Variable remuneration is decided based
on the individual performance against KPI’s set at the
beginning of the performance year and the risk appetite.
The payout of the variable remuneration is paid in cash
for most of our employees. The variable remuneration is
deferred for the CEO and Group Executives-as approved
by the Board annually in line with the approved policy over
a period of time not exceeding three years.
Linking performance and remuneration
The variable remuneration, including the deferred portion,
is paid or vests only if it is sustainable according to the
financial situation of the Bank as a whole, and justified
according to the performance of the Bank, the business
unit and the individual concerned.
Employees engaged in control functions are independent
from the business units they oversee, have appropriate
authority, and are remunerated in accordance with the
achievement of the objectives linked to their functions,
independent of the performance of the business areas
they control. The remuneration of the senior officers in
the Internal Audit Risk management, and Compliance
functions is directly overseen by the respective committees
to whom they report (i.e. BAC, BRC and BCGC respectively).
The Remuneration policy was approved in June 2013 and is
scheduled for review in early 2015.
Remuneration and risk management
The general remuneration policy is aimed at the alignment
of remuneration with prudent risk taking. The long-term
strategy will include the overall business strategy and
quantified risk tolerance levels with a multi-year horizon,
as well as other values such as compliance culture, ethics,
behavior towards customers, measures to mitigate
conflicts of interest.
The remuneration practices are carefully managed
within our risk appetite as laid out by the Board taking
into account all key risks-financial, operational as well as
compliance. The Bank ensures that the remuneration is
designed and implemented to include, in particular,
1. a proper balance of variable to fixed remuneration,
In order to minimize incentives for excessive risk-taking,
variable remuneration will constitute a balanced
proportion of total remuneration. Having a fully-flexible
policy on variable remuneration provides that all rewards
may be reduced as a result of negative performance or
even adjusted to zero in cases of risk management issues.
There are no material changes in these measures
over the past year.
The banks remuneration practices are linked to both short
term and long term performance goals. Key financial and
non-financial performance measures are aligned to the
Bank’s business strategy. Performance based remuneration
is based on the bonus pools allocated by the BNRC/Board
for the purpose of rewarding employee performance.
The rewards are based on the bank’s overall performance,
department/group performance and individual
contribution thereof. The senior management team’s
performance is measured through balanced scorecard
which reviews the key performance areas of Customer
focus, financial performance, process improvement and
people management. All other employees in the bank
have annual performance appraisals assessing financial
and non-financial objectives based on their roles.
Risk being a key factor in determining the sustainability
of long term performance the deferral of remuneration is
essential to improving risk alignment in the remuneration
package. The deferral of remuneration currently
applies to identified staff such as the CEO and Executive
management team.
1. Deferral Amount: a portion of the variable
remuneration component not exceeding 40%, should be deferred over an appropriate period of time as defined in point 2 below.
2. Deferral Period: the deferred portion of the variable
remuneration should be spread over a period not
exceeding three years, and is to be aligned with the
nature of the business, its risks and the activities of the
member of staff in question. The actual payment of
variable remuneration is spread over a period which
takes account of the underlying business cycle of the
Bank and its business risks
3. The deferral portion and percentage may be
adjusted in accordance with the level of seniority or
responsibility of the person remunerated.
2. the measurement of performance as well as the
structure and,
3. the risk adjustment of the variable remuneration.
The assessment of the performance-based components
of remuneration are based on longer-term performance
as outlined in the Long Range Plan (LRP) and take into
53
driven by you
The deferral schedule is defined by different components:
a) the time horizon of the deferral,
b) the proportion of the variable remuneration
that is being deferred,
c) the speed at which the deferred remuneration vests
(vesting process) and
d) the time span from accrual until the payment of the
first deferred amount;
e) the form of the deferred variable remuneration
In each such instance, the Bank will, to the extent
practicable, seek to recover from the individual executive
the amount by which the individual executive’s incentive
payments for the relevant period exceeded the lower
payment that would have been made based on the
restated financial results.
Total number of Senior management for 2014 is 17.
Total number of Material risk takers for 2014 is 12.
A) Awards for senior managers and material risk-takers
paid during the year (related to performance of 2013)
The Bank will differentiate the deferral schedules by
varying these five components.
Claw back
The variable remuneration, including the deferred portion,
is paid or vests only if it is sustainable according to the
financial situation of the Bank as a whole, and justified
according to the performance of the Bank, the business
unit and the individual concerned.
The claw-back applies to identified staff such as the CEO
and Executive management team.
Clawback would necessitate that the executive pays back
an amount already received under a cash bonus award
following receipt of the cash either due to the fact that the
performance of the business had been overstated at the
time the payment was made; or the recipient was,
at the time the payment was made, in serious breach of
his employment contract and/ or bank’s policy or breach
of regulatory issues, which resulted in declining financial
performance of the Bank.
The clawback will be applicable even after the severance of
the employment relationship for a period of one year from
the award of the variable remuneration and the Bank will
follow the legal recourse available to it for the recovery.
The Board shall, in all appropriate circumstances, require
reimbursement of any annual incentive payment or longterm incentive payment to an executive officer where:
1) the payment was predicated upon achieving certain
financial results that were subsequently the subject
of a substantial restatement of the Bank’s published
financial statements;
54
Material Risk Takers
Number of Total
Employees amount in
KD
Variable Awards
paid during the
year*:
Cash
17
559,610
12
3
212,400
-
136,063
Fixed Awards
granted during
the year:
Cash
772,010
Total awards paid
during the
year(variable and
fixed)
136,063
Employees who
received Sign on
Awards during
the year
1
120,000
-
-
End of Service
termination
benefits paid
during the year
-
-
-
-
* represents 3.8% of total employees
Variable and Fixed awards are only in the form of Cash awards
B) Deferred cash remuneration outstanding as of end of
the year (Salary and Bonus) relating to performance of
2013 amounted to KD 519,302.
C) Deferred remuneration paid during the year amounted
to KD 169,575.
D) Summary of remunerations (salary and awards) for senior
managers and material risk-takers for the 2014 financial year
Senior Management
2) the Board determines the executive engaged in
intentional misconduct that caused or substantially
caused the need for the substantial restatement; and
3) a lower payment would have been made to the
executive based upon the restated financial results.
Senior Management
Number of Total
Employees amount in
KD
Material Risk Takers
Total amount in KD
Unrestricted Deferred
Unrestricted Deferred
Variable cash
remuneration
740,329
334,481
217,161
24,129
Fixed cash
remuneration
2,253,335
-
754,883
-
15. Overview And Conclusion
It is considered by the Board and Management of the Bank
that, as at the end of 2014, the institution has in place a
management, control and evaluation system that is:
• Responsive to present business environment, the
bank’s growth plans and the attendant risks,
• Compliant both with historic regulatory instructions
and in conformity with Basel III driven requirements
detailed by CBK in their June 2014 instruction
document and further enhancements to the same
issued from time to time including the detailed
additions on Pillar 2 matters, and
• Meets generally accepted international risk
management standards for a financial institution of
the size and complexity of the Bank.
The Bank also appoints an independent audit firm other
than its external auditors, to examine the internal control
systems in the Bank and its subsidiaries and to point out
any deficiencies that may give rise to risks. This is being
done in fulfilment of the CBK regulations and a copy of
these reports along with the steps taken to correct any
deficiencies is presented to the Board Audit Committee
and also to CBK. This provides additional comfort
regarding the checks and balances in place in the Bank
and its subsidiaries.
• Internal Control Charts of different periodicities are
in place in all its major functions that enable the
respective supervisory employees to follow and
exercise control over the aspects covered by
these charts.
• The Bank’s IT security and control structure has been
effectively functioning and is certified under an
international information security certification.
• An independent internal audit function has regular
board approved audit plans to audit the various
areas of the bank and present their findings and the
responses of the audited departments including the
steps taken to address audit observations.
The Bank Management will continue to review the policies
and procedures on an ongoing basis periodically for
necessary and appropriate enhancements, and present
them for approval by Board Committees and/or the Board
itself as required by the Bank’s Governance structure and,
where applicable, CBK guidance.
The Bank now has in place relevant policies and detailed
procedures for all its major departments/functions aimed
to achieve full operational conformity with the policies
set out in this section in an integrated and cost efficient
manner. In this regard,
• Detailed operating procedures are in place in respect
of all major functions and the concerned staff members
may refer to them as and when necessary so as to
ensure their compliance.
55
driven by you
16. Additional Capital Disclosure Requirements
1. Common Disclosure Template - Composition of Regulatory Capital
All amounts are in KD’000s
1. Common Disclosure Template - Composition of Regulatory Capital
Common Equity Tier 1 capital: instruments and reserves
1
Directly issued qualifying common share capital plus related stock surplus
2
Retained earnings
3
Accumulated other comprehensive income (and other reserves)
4
Directly issued capital subject to phase out from CET1 (only applicable to non-joint stock companies)
5
Common share capital issued by subsidiaries and held by third parties (minority interest)
6
Common Equity Tier 1 capital before regulatory adjustments
405,736
83,418
152,279
43,211
684,644
Common Equity Tier 1 capital: regulatory adjustments
7
Prudential valuation adjustments
8
Goodwill (net of related tax liability)
90,455
9
Other intangibles other than mortgage-servicing rights (net of related tax liability)
78,036
10
Deferred tax assets excluding those arising from temporary differences (net of related tax liability)
-
11
Cash flow hedge reserve
-
12
Shortfall of provisions to expected losses (based on Internal Models Approach, if applied)
-
13
Securitisation gain on sale
-
14
Gains and losses due to changes in own credit risk on fair valued liabilities
15
Defined benefit pension fund net assets
16
Investments in own shares (if not already netted off paid-in capital on reported balance sheet)
-
9,575
17
Reciprocal cross holdings in common equity of banks, Fis and insurance entities
-
18
Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of
eligible short positions , where the bank does not own more than 10% of the issued capital
(amount above 10% threshold of bank’s CET1 capital)
-
19
Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory
consolidation, net of eligible short positions (amount above 10% threshold)
-
20
Mortgage servicing rights (amount above 10% threshold of bank’s CET1 capital)
-
21
Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability)
-
22
Amount exceeding the 15% threshold
-
23
of which: significant investments in the common stock of financials
-
24
of which: mortgage servicing rights
-
25
of which: deferred tax assets arising from temporary differences
-
26
National specific regulatory adjustments
-
27
Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions
-
28
Total regulatory adjustments to Common Equity Tier 1
178,066
29
Common Equity Tier 1 capital (CET1)
506,578
Additional Tier 1 capital: instruments
30
Directly issued qualifying Additional Tier 1 instruments plus related stock surplus
144,025
31
of which: classified as equity under applicable accounting standards
144,025
32
of which: classified as liabilities under applicable accounting standards
33
Directly issued capital instruments subject to phase out from Additional Tier 1
34
Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties
(amount allowed in group AT1)
35
of which: instruments issued by subsidiaries subject to phase out
36
Additional Tier 1 capital before regulatory adjustments
7,626
151,651
Additional Tier 1 capital: regulatory adjustments
56
37
Investments in own Additional Tier 1 instruments
-
38
Reciprocal cross holdings in Additional Tier 1 instruments
-
39
eligible short positions , where the bank does not own more than 10% of the issued capital
(amount above 10% threshold of bank’s CET1 capital)
-
40
Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory
consolidation, net of eligible short positions
-
1. Common Disclosure Template - Composition of Regulatory Capital (continue)
41
42
Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions
-
43
Total regulatory adjustments to Additional Tier 1 capital
-
44
Additional Tier 1 capital (AT1)
151,651
45
Tier 1 capital (T1 = CET1 + AT1)
658,229
Tier 2 capital: instruments and provisions
46
Directly issued qualifying Tier 2 instruments plus related stock surplus
-
47
Directly issued capital instruments subject to phase out from Tier 2
-
48
Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties
(amount allowed in group Tier 2)
10,167
49
of which: instruments issued by subsidiaries subject to phase out
50
General provisions included in Tier 2 capital
62,251
-
51
Tier 2 capital before regulatory adjustments
72,418
Tier 2 capital: regulatory adjustments
52
Investments in own Tier 2 instruments
-
53
Reciprocal cross holdings in Tier 2 instruments
-
54
eligible short positions , where the bank does not own more than 10% of the issued capital (amount above 10% threshold of bank’s
CET1 capital)
-
55
Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory
consolidation, net of eligible short positions
-
56
57
Total regulatory adjustments to Tier 2 capital
58
Tier 2 capital (T2)
59
Total capital (TC = T1 + T2)
730,647
60
Total risk-weighted assets
5,411,616
72,418
Capital ratios and buffers
61
Common Equity Tier 1 (as percentage of risk-weighted assets)
62
Tier 1 (as percentage of risk-weighted assets)
12.2%
9.4%
63
Total capital (as percentage of risk-weighted assets)
13.5%
64
Institution specific buffer requirement (minimum CET1 requirement plus capital conservation buffer plus countercyclical buffer
requirements plus D-SIB buffer requirement, expressed as a percentage of risk-weighted assets)
65
of which: capital conservation buffer requirement
66
of which: bank specific countercyclical buffer requirement
67
of which: DSIB buffer requirement
68
Common Equity Tier 1 available to meet buffers (as percentage of risk-weighted assets)
2.5%
3.4%
National minima
69
Kuwait Common Equity Tier 1 minimum ratio
70
National Tier 1 minimum ratio
10.0%
8.5%
71
National total capital minimum ratio excluding CCY and DSIB buffers
12.0%
Amounts below the thresholds for deduction (before risk weighting)
72
Non-significant investments in the capital of other financials
-
73
Significant investments in the common stock of financials
-
74
Mortgage servicing rights (net of related tax liability)
-
75
Deferred tax assets arising from temporary differences (net of related tax liability)
-
Applicable caps on the inclusion of allowances in Tier 2
76
Provision eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach (prior to application of cap)
77
Cap on inclusion of allowances in Tier 2 under standardised approach
78
Provision eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap)
79
Cap on inclusion of allowances in Tier 2 under internal ratings-based approach
187,853
62,251
-
57
driven by you
2. Reconciliations requirement:
Reference
Under
regulatory
scope of
consolidation
31-Dec-14
31-Dec-14
Item
Share capital
195,177
195,177
Below table provides the comparison (Step1) of the
balance sheet published in the consolidated financial
statement and the balance sheet under the regulatory
scope of consolidation. Lines have been expanded and
referenced with letters (Step 2) to display the relevant
items of the regulatory capital.
Share premium
210,559
210,559
f
Treasury shares
(9,575)
(9,575)
g
Shareholders’ Equity
Item
Balance
sheet as in
published
financial
statements
Reference
Under
regulatory
scope of
consolidation
31-Dec-14
31-Dec-14
Cash and cash equivalents
1,040,563
1,040,563
Treasury bills and bonds
with CBK and others
629,819
629,819
Due from banks and other
financial institutions
689,819
689,819
Loans and advances to
customers
4,386,466
62,251
62,251
484,942
484,942
1,737
1,737
259,495
259,495
93,566
93,566
Intangible assets
166,754
166,754
of which goodwill
88,718
88,718
c
d
of which General Provisions
(netted above) capped for
Tier 2 inclusion
of which goodwill in
investment in associate
Other assets
Property and equipment
of which other intangibles
78,036
78,036
7,751,424
7,751,424
Due to banks
801,178
801,178
Due to other financial
institutions
825,250
825,250
Total assets
Liabilities
4,708,331
4,708,331
Other borrowed funds
Customers deposits
226,644
226,644
Other liabilities
234,134
234,134
Total liabilities
6,795,537
6,795,537
Statutory reserve
59,916
59,916
h
60,294
60,294
i
45,082
45,082
j
Investment revaluation
reserve
4,912
4,912
k
564
564
l
(19,043)
(19,043)
m
Share based compensation
reserve
Other reserves
4,386,466
a
b
e
Voluntary reserve
Foreign currency
translation reserve
Assets
58
Balance
sheet as in
published
financial
statements
The basis for the scope of consolidation for accounting
and regulatory purposes is consistent for the Group.
In order to provide a full reconciliation of all regulatory
capital elements to the balance sheet in the audited
financial statements, a three step approach has been
mandated under the Pillar 3 disclosures section of the
CBK Basel III framework.
554
554
n
Retained earnings
112,401
112,401
o
of which proposed
dividend
(28,983)
(28,983)
p
Equity attributable to
shareholders of the Bank
660,841
660,841
Perpetual Tier 1 capital
securities
144,025
144,025
Non-controlling interests
151,021
151,021
43,211
43,211
r
of which Limited
Recognition eligible as AT1
Capital
7,626
7,626
s
of which Limited
Recognition eligible as Tier
2 Capital
10,167
10,167
t
955,887
955,887
7,751,424
7,751,424
of which Limited
Recognition eligible as
CET1 Capital
Total equity
Total liabilities and equity
q
Below table provides the relevant lines under Common
Disclosure Template - Composition of Regulatory Capital
with cross references to the letters in above table, thereby
reconciling (Step 3) the components of regulatory capital
to the published balance sheet.
Relevant Row
Number in
Common
Disclosure
Template
Common Equity Tier 1 capital: instruments and reserves
1
Directly issued qualifying common share capital plus related stock surplus
2
Retained earnings
3
Accumulated other comprehensive income (and other reserves)
5
Common share capital issued by subsidiaries and held by third parties (minority interest)
6
Common Equity Tier 1 capital before regulatory adjustments
Component
of regulatory
capital
Source based on
reference letters of
the balance sheet
from step 2
405,736
e+f
83,418
o+p
152,279
h+i+j+k+l+m+n
43,211
r
684,644
Common Equity Tier 1 capital : regulatory adjustments
8
Goodwill (net of related tax liability)
90,455
b+c
9
Other intangibles other than mortgage-servicing rights (net of related tax liability)
78,036
d
16
Investments in own shares (if not already netted off paid-in capital on reported balance
sheet)
9,575
g
28
Total regulatory adjustments to Common Equity Tier 1
178,066
29
Common Equity Tier 1 capital (CET1)
506,578
Additional Tier 1 capital : instruments
30
Directly issued qualifying Additional Tier 1 instruments plus related stock surplus
144,025
q
31
of which: classified as equity under applicable accounting standards
144,025
q
34
Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by
subsidiaries and held by third parties (amount allowed in group AT1)
7,626
s
36
Additional Tier 1 capital before regulatory adjustments
151,651
Additional Tier 1 capital : regulatory adjustments
44
Additional Tier 1 capital (AT1)
151,651
45
Tier 1 capital (T1 = CET1 + AT1)
658,229
Tier 2 capital : instruments and provisions
48
Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by
subsidiaries and held by third parties (amount allowed in group Tier 2)
10,167
t
a
50
General Provisions included in Tier 2 Capital
62,251
51
Tier 2 capital before regulatory adjustments
72,418
Tier 2 capital: regulatory adjustments
58
Tier 2 capital (T2)
59
Total capital (TC = T1 + T2)
72,418
730,647
59
driven by you
3. Disclosure for main features of regulatory
capital instruments:
1
Issuer
BURGAN TIER 1 FINANCING LIMITED
2
Unique identifier (eg CUSIP, ISIN or Bloomberg identifier for private placement)
XS1106874198
3
Governing law(s) of the instrument
WHOLE INSTRUMENT- ENGLISH LAW;
SUBORDINATION PROVISION - DIFC LAW
Regulatory treatment
4
Type of Capital (CET1, AT1 or T2)
AT1
5
Eligible at solo/group/group and solo
Group and Solo
6
Instrument type (types to be specified by each jurisdiction)
Sub-ordinated debt
7
Amount recognised in regulatory capital
USD 500,000 thousand
8
Par value of instrument
100
9
Accounting classification
Equity
10
Original date of issuance
30/09/2014
11
Perpetual or dated
Perpetual
12
Original maturity date
No Maturity
13
Issuer call subject to prior supervisory approval
Yes
14
Optional call date, contingent call dates and redemption amount
Optional Call Date: 30/09/2019 ; Regulatory event
(full or partial disqualification) or tax event call:
principal + accrued interest
15
Subsequent call dates, if applicable
Quarterly
Coupons / dividends
16
Fixed or floating dividend/coupon
Fixed for every 5-year period; at the end of every 5
year period, resets to the prevailing 5 year mid-swap
rate plus margin
17
Coupon rate and any related index
7.25%; 5-year USD mid-swap
18
Existence of a dividend stopper
Yes
19
Fully discretionary, partially discretionary or mandatory
Mandatory
20
Existence of step up or other incentive to redeem
No
21
Noncumulative or cumulative
Non-cumulative
22
Non-convertible
23
If convertible, conversion trigger (s)
N/A
24
If convertible, fully or partially
N/A
25
If convertible, conversion rate
N/A
26
If convertible, mandatory or optional conversion
N/A
27
If convertible, specify instrument type convertible into
N/A
28
If convertible, specify issuer of instrument it converts into
N/A
29
60
Convertible or non-convertible
Write-down feature
Yes
30
If write-down, write-down trigger(s)
Determination by regulator that the bank will be
non-viable without a write-down
31
If write-down, full or partial
Can be partial or full
32
If write-down, permanent or temporary
Permanent
33
If temporary write-down, description of write-up mechanism
N/A
34
Position in subordination hierarchy in liquidation (specify instrument type immediately
senior to instrument)
Perpetual Tier 1 securities are immediately junior
to subordinated notes and subordinated bonds
which are not considered eligible capital securities
in accordance with Basel III guidelines issued by the
CBK.
35
Non-compliant transitioned features
None
36
If yes, specify non-compliant features
N/A
4. Financial leverage ratio:
Below table provides the reconciliation of the balance
sheet assets from the published financial statement with
total exposure amount in the calculation of leverage ratio.
Summary comparison of accounting assets vs leverage ratio exposure measure:
Item
KD’000s
1
Total consolidated assets as per published financial statements
7,751,424
2
Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes
but outside the scope of regulatory consolidation
(168,491)
3
Adjustment for fiduciary assets recognized on the balance sheet pursuant to the operative accounting framework but excluded
from the leverage ratio exposure measure
4
Adjustments for derivative financial instruments
5
Adjustment for securities financing transactions (i.e. repos and similar secured lending)
6
Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures)
7
Other adjustments
Leverage ratio exposure
28,742
530,684
8,142,360
Leverage ratio common disclosure template:
Item
KD’000s
On-balance sheet exposures
1
On-balance sheet items (excluding derivatives and SFTs, but including collateral)
2
(Asset amounts deducted in determining Basel III Tier 1 capital)
7,751,424
(168,491)
3
Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2)
7,582,933
Derivative exposures
4
Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin)
12,144
5
Add-on amounts for PFE associated with all derivatives transactions
16,598
6
Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative accounting
framework
-
7
(Deductions of receivables assets for cash variation margin provided in derivatives transactions)
-
8
(Exempted CCP leg of client-cleared trade exposures)
-
9
Adjusted effective notional amount of written credit derivatives
10
(Adjusted effective notional offsets and add-on deductions for written credit derivatives)
11
Total derivative exposures (sum of lines 4 to 10)
28,742
Securities financing transaction exposures
12
Gross SFT assets (with no recognition of netting), after adjusting for sale accounting transactions
-
13
(Netted amounts of cash payables and cash receivables of gross SFT assets)
-
14
CCR exposure for SFT assets
-
15
Agent transaction exposures
-
16
Total securities financing transaction exposures (sum of lines 12 to 15)
-
Other off-balance sheet exposures
17
Off-balance sheet exposure at gross notional amount
18
(Adjustments for conversion to credit equivalent amounts)
19
Off-balance sheet items (sum of lines 17 and 18)
1,956,222
(1,425,538)
530,684
Capital and total exposures
20
Tier 1 capital
21
Total exposures (sum of lines 3, 11, 16 and 19)
658,229
8,142,260
Leverage ratio
22
Basel III leverage ratio
8.1%
61
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF BURGAN BANK S.A.K.P.
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial
statements of Burgan Bank S.A.K.P. (the “Bank”) and its
subsidiaries (collectively “the Group”), which comprise
the consolidated statement of financial position as at 31
December 2014 and the consolidated income statement,
consolidated statement of comprehensive income,
consolidated statement of changes in shareholders’ equity
and consolidated statement of cash flows for the year then
ended, and a summary of significant accounting policies and
other explanatory information.
Management’s responsibility for the consolidated
financial statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards
as adopted for use by the State of Kuwait, and for such
internal control as management determines is necessary to
enable the preparation of consolidated financial statements
that are free from material misstatement, whether
due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures
selected depend on the auditors’ judgement, including
the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider
internal controls relevant to the entity’s preparation and
fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of
accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the
Group as at 31 December 2014, and its financial performance
and cash flows for the year then ended in accordance with
International Financial Reporting Standards as
adopted for use by the State of Kuwait.
Report on Other Legal and Regulatory Requirements
Furthermore, in our opinion proper books of account
have been kept by the Bank and the consolidated financial
statements, together with the contents of the report of the
Bank’s Board of Directors relating to these consolidated
financial statements, are in accordance therewith. We
further report that we obtained all the information and
explanations that we required for the purpose of our audit
and that the consolidated financial statements incorporate
all information that is required by the Capital Adequacy
Regulations and Financial Leverage Ratio Regulations issued
by the Central Bank of Kuwait (“CBK”) as stipulated in CBK
Circular Nos. 2/RB, RBA/336/2014 dated 24 June 2014 and
2/BS/342/2014 dated 21 October 2014 respectively, the
Companies Law No 25 of 2012, as amended and its executive
regulation, and by the Bank’s Memorandum of Incorporation
and Articles of Association, as amended, that an inventory
was duly carried out and that, to the best of our knowledge
and belief, no violations of the Capital Adequacy Regulations
and Financial Leverage Ratio Regulations issued by the CBK
as stipulated in CBK Circular Nos. 2/RB, RBA /336/2014 dated
24 June 2014 and 2/BS/342/2014 dated 21 October 2014
respectively, the Companies Law No 25 of 2012, as amended
and its executive regulation, or of the Bank’s Memorandum
of Incorporation and Articles of Association, as amended,
have occurred during the year ended 31 December 2014 that
might have had a material effect on the business of the Bank
or on its financial position.
We further report that, during the course of our audit, we
have not become aware of any violations of the provisions
of Law No. 32 of 1968, as amended, concerning currency,
the CBK and the organisation of banking business, and its
related regulations during the year ended 31 December 2014
that might have had a material effect on the business of the
Bank or on its financial position.
Waleed A. Al Osaimi
Licence No. 68 A
Ernst & Young
(Al Aiban, Al Osaimi & Partners)
23 February 2015
Kuwait
62
Bader A. Al Wazzan
Licence No. 62 A
Deloitte & Touche
(Al-Wazzan & Co.)
BURGAN BANK GROUP
Consolidated Statement of Financial Position
As at 31 December 2014
Notes
ASSETS
Due from banks and other financial institutions
Loans and advances to customers
Other assets
Intangible assets
3
4
5
6
7
8
2014
KD 000’s
2013
KD 000’s
1,040,563
629,819
689,819
4,386,466
484,942
259,495
93,566
166,754
1,004,290
583,647
700,083
3,954,848
421,402
238,138
81,378
170,965
─────────
─────────
═════════
═════════
801,178
825,250
4,708,331
226,644
234,134
568,561
880,492
4,640,084
227,597
218,190
7,751,424
TOTAL ASSETS
7,154,751
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Due to banks
Due to other financial institutions
Deposits from customers
Other liabilities
10
11
─────────
─────────
─────────
─────────
6,795,537
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Treasury shares
Statutory reserve
Voluntary reserve
Investment revaluation reserve
Share based compensation reserve
Foreign currency translation reserve
Other reserves
Retained earnings
12
12
12
12
12
12
195,177
210,559
(9,575)
59,916
60,294
45,082
4,912
564
(19,043)
554
112,401
─────────
Total equity attributable to the equity holders of the Bank
Perpetual Tier 1 capital securities
12
660,841
144,025
151,021
─────────
475,458
-
144,369
─────────
─────────
─────────
═════════
═════════
7,751,424
TOTAL LIABILITIES AND EQUITY
162,222
129,559
(37,683)
53,480
53,858
36,554
7,047
564
(17,372)
554
86,675
─────────
955,887
TOTAL EQUITY
6,534,924
619,827
7,154,751
________________________
___________________________
Khalid Al Zouman
Group Chief Financial Officer
Eduardo Eguren Linsen
___________________________
Majed Essa Al Ajeel
Chairman of the Board
The
financial
statement.
The attached
attached notes
notes 11 to
to 24
27form
forman
anintegral
integralpart
partofofthese
theseconsolidated
consolidated
financial
statements.
3
63
BURGAN BANK GROUP
Consolidated Income Statement
For the year ended 31 December 2014
Notes
Interest income
Interest expense
13
14
Net interest income
2014
KD 000’s
305,056
(119,518)
─────────
185,538
Fee and commission income
Fee and commission expense
15
Net fee and comission income
53,784
(5,195)
16
5
Operating income
Staff expenses
Other expenses
5
Profit before taxation and board of directors' renumeration
Taxation
Board of directors' remuneration
Profit for the year
─────────
─────────
─────────
─────────
─────────
153,537
(61,302)
(2,079)
(17,361)
(90)
4
140,723
(89,913)
(2,963)
47,847
(15,692)
(90)
─────────
═════════
═════════
61,758
10,947
20,102
11,963
32,065
─────────
─────────
═════════
═════════
37.6
═════════
The attached
notes 1notes
to 241form
integral
part of these
financialfinancial
statement.
The attached
to 27anform
an integral
part ofconsolidated
these consolidated
statements.
64
253,559
(53,598)
(59,238)
─────────
Fils
18
44,623
─────────
72,705
Basic and diluted earnings per share - attributable to the equity
holders of the Bank
48,124
(3,501)
18,664
11,266
2,937
10,634
72,705
Attributable to:
Equity holders of the Bank
165,435
7,251
16,272
1,894
16,167
90,156
17
─────────
─────────
275,711
(58,538)
(63,636)
Provision for impairment of loans and advances
Impairment of investment securities
270,375
(104,940)
─────────
48,589
Net gain from foreign currencies
Net investment income
Dividend income
Other income
2013
KD 000’s
32,065
Fils
12.0
═════════
BURGAN BANK GROUP
Consolidated Statement of Comprehensive Income
2014
KD 000’s
Profit for the year
72,705
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in
subsequent periods:
Financial assets available for sale:
Net change in fair value
Net transfer to consolidated income statement
Foreign currency translation adjustment
Other comprehensive loss for the year
─────────
(2,053)
(1,373)
2,227
(1,582)
(1,773)
(15,117)
─────────
─────────
─────────
═════════
═════════
57,952
13,554
439
13,154
71,506
Attributable to:
Equity holders of the Bank
32,065
─────────
─────────
(1,199)
Total comprehensive income for the year
2013
KD 000’s
(18,472)
13,593
─────────
─────────
═════════
═════════
71,506
13,593
The
financial
statement.
The attached
attached notes 11 to
to 24
27form
forman
anintegral
integralpart
partofofthese
theseconsolidated
consolidated
financial
statements.
5
65
66
-
195,177
═══════
═══════
210,559
───────
-
───────
-
-
-
-
═══════
(9,575)
───────
(14,248)
42,356
-
-
-
-
-
───────
(37,683)
-
-
81,000
-
───────
129,559
-
-
11,355
21,600
───────
-
162,222
-
Treasury
shares
KD 000’s
═══════
59,916
-
───────
-
-
-
6,436
-
-
───────
53,480
-
Statutory
reserve
KD 000’s
═══════
60,294
-
───────
-
-
-
6,436
-
-
───────
53,858
-
The attached notes 1 to 27 form an integral part of these consolidated financial statements.
6
═══════
45,082
-
───────
-
8,528
-
-
-
36,554
───────
The attached notes 1 to 24 form an integral part of these consolidated financial statement.
Balance at 31 December 2014
Total comprehensive income
Transfer to reserves
Bonus shares issued (note 12)
Rights shares issued (note 12)
Share capital increase in a
subsidiary
Cash dividend paid (note 12)
Cash dividend paid to non
controlling interests
Purchase of treasury shares
Sale of treasury shares
Proceeds from issue of perpetual
Tier1 capital securities (note 12)
Perpetual Tier1 capital securities
issuance cost (note 12)
Balance at 1 January 2014
Profit for the year
Other comprehensive (loss)
income
Share
Share
capital
premium
KD 000’s KD 000’s
Attributable to equity holders of the Bank
═══════
4,912
-
───────
-
-
-
(2,135)
-
(2,135)
───────
7,047
-
═══════
564
-
───────
-
-
-
-
-
───────
564
-
═══════
(19,043)
-
───────
-
-
-
(1,671)
-
(1,671)
───────
(17,372)
-
═══════
554
-
───────
-
-
-
-
-
───────
554
-
Foreign
Treasury Investment Share based currency
Voluntary
Other
shares revaluation compensati translation
reserve on reserve reserve
reserve
reserves
reserve
KD 000’s KD 000’s KD 000’s KD 000’s KD 000’s KD 000’s
BURGAN BANK GROUP
Consolidated Statement of Changes in Shareholders’ Equity
═══════
112,401
(1,022)
───────
-
-
(10,783)
61,758
(12,872)
(11,355)
-
-
───────
86,675
61,758
Retained
earnings
KD 000’s
═══════
660,841
(1,022)
───────
-
(14,248)
50,884
(10,783)
57,952
102,600
(3,806)
───────
475,458
61,758
Total
KD 000’s
═══════
144,025
-
───────
144,025
-
-
-
-
───────
-
KD 000’s
═══════
151,021
-
───────
-
(7,214)
-
312
-
13,554
-
2,607
───────
144,369
10,947
KD 000’s
═══════
955,887
(1,022)
───────
144,025
(7,214)
(14,248)
50,884
312
(10,783)
71,506
102,600
(1,199)
───────
619,827
72,705
KD 000’s
Perpetual
Tier 1
Noncapital controlling
securities interests Total equity
67
═══════
162,222
═══════
129,559
───────
-
-
───────
-
-
-
───────
129,559
-
7,725
-
-
───────
-
154,497
-
Share
premium
KD 000’s
═══════
(37,683)
───────
(995)
-
-
-
───────
(36,688)
-
Treasury
shares
KD 000’s
═══════
53,480
───────
-
-
2,066
-
───────
51,414
-
Statutory
reserve
KD 000’s
═══════
53,858
───────
-
-
2,066
-
───────
51,792
-
Voluntary
reserve
KD 000’s
7
═══════
36,554
───────
-
-
-
-
36,554
───────
Theattached
attachednotes
notes11to
to24
27form
forman
anintegral
integralpart
partofofthese
theseconsolidated
consolidatedfinancial
financialstatement.
statements.
The
Balance at 31 December 2013
Transfer to reserves
Share capital increase in a
subsidiary
Bonus shares issued (note 12)
Cash dividend (note 12)
Cash dividend paid to noncontrolling interests
Balance at 1 January 2013
Profit for the year
Other comprehensive (loss)
income
Share
capital
KD 000’s
═══════
7,047
───────
-
-
(4,044)
-
(4,044)
───────
11,091
-
═══════
564
───────
-
-
-
-
───────
564
-
═══════
(17,372)
───────
-
-
(15,619)
-
(15,619)
───────
(1,753)
-
Foreign
Treasury Investment Share based currency
shares revaluation compensatio translation
reserve
reserve
reserve
n reserve
KD 000’s KD 000’s KD 000’s KD 000’s
Attributable to equity holders of the Bank
BURGAN BANK GROUP
Consolidated Statement of Changes in Shareholders’ Equity (Continued)
═══════
554
───────
-
-
-
-
───────
554
-
Other
reserves
KD 000’s
═══════
86,675
───────
-
(7,725)
(14,711)
20,102
(4,132)
-
───────
93,141
20,102
═══════
475,458
───────
(995)
(14,711)
439
-
(19,663)
───────
490,725
20,102
═══════
144,369
───────
(3,983)
-
6,092
-
13,154
-
1,191
───────
129,106
11,963
═══════
619,827
───────
(3,983)
(995)
6,092
(14,711)
13,593
-
(18,472)
───────
619,831
32,065
Noncontrolling
Retained
interests Total equity
earnings
Total
KD 000’s KD 000’s KD 000’s KD 000’s
BURGAN BANK GROUP
Consolidated Statement of Cash Flows
Year ended 31 December 2014
2014
KD 000’s
Notes
Operating activities
Profit before taxation and board of directors' remuneration
Adjustments:
Net investment income
Provision for impairment of investment securities
Dividend income
Depreciation and amortisation
16
90,156
47,847
(16,272)
61,302
2,079
(1,894)
15,134
(11,266)
89,913
2,963
(2,937)
13,857
─────────
Operating profit before changes in operating assets and liabilities
Changes in operating assets and liabilities:
Other assets
Due to banks
Other liabilities
Taxation paid
150,505
(46,172)
9,930
(492,586)
(21,357)
232,617
(55,242)
68,247
13,860
(15,367)
Net cash (used in) from operating activities
─────────
(71,271)
─────────
12
12
12
12
Net cash from (used in) financing activities
1
(953)
102,600
312
(14,248)
50,884
144,025
(1,022)
(10,783)
(7,214)
3
Additional cash flow information:
Interest received
Interest paid
(121,671)
─────────
(3,388)
6,092
(995)
(14,711)
(3,983)
─────────
─────────
─────────
═════════
═════════
309,020
131,175
258,415
93,277
1,040,563
═════════
8
─────────
─────────
The attached
notes 1
to 241form
integral
part of these
financialfinancial
statement.
The attached
notes
to 27anform
an integral
part ofconsolidated
these consolidated
statements.
68
(1,103,693)
998,260
(19,175)
2,937
─────────
36,765
(492)
1,004,290
Cash and cash equivalents at 31 December
369,505
─────────
263,601
Net increase in cash and cash equivalents
Effect of foreign currency translation
Cash and cash equivalents at 1 January
(100,059)
(112,204)
(647,024)
(81,008)
256,927
167,239
744,968
17,684
(17,395)
─────────
─────────
Financing activities
Proceeds from share capital increase
Proceeds from share capital increase in a subsidiary
Sale of treasury shares
Proceeds from issue of perpetual Tier 1 capital securities
Perpetual Tier 1 capital securities issuance cost
Cash dividend paid to equity holders of the Bank
Cash dividend paid to non-controlling interests
140,377
─────────
(791,670)
738,897
(20,392)
1,894
Net cash used in investing activities
─────────
─────────
(155,565)
Investing activities
Purchase of investment securities
Proceeds from sale of investment securities
Purchase of property and equipment
Dividends received
2013
KD 000’s
(16,985)
230,849
(14,027)
787,468
1,004,290
═════════
BURGAN BANK GROUP
Notes to the Consolidated Financial Statements
At 31 December 2014
1.
INCORPORATION AND PRINCIPAL ACTIVITIES
Burgan Bank S.A.K.P. ("the Bank”) is a public shareholding company incorporated in the State of Kuwait by
Amiri Decree dated 27 December 1975 listed on the Kuwait Stock Exchange and is registered as a bank with the
Central Bank of Kuwait (“CBK”). The Bank’s registered address is P.O. Box 5389, Safat 12170, State of Kuwait.
The consolidated financial statements of the Bank and its subsidiaries (collectively “the Group”) for the year
ended 31 December 2014 were authorised for issue in accordance with a resolution of the Board of Directors on
23 February 2015 and are issued subject to the approval of the Annual General Assembly of the shareholders of
the Bank. The Annual General Assembly of the Shareholders has the power to amend these consolidated financial
statements after issuance.
The principal activities of the Group are explained in note 19.
The Bank is a subsidiary of Kuwait Projects Company Holding K.S.C. ("the Parent Company”).
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements are prepared under the historical cost convention, except for financial assets
classified as fair value through profit or loss, certain financial assets classified as available for sale and derivative
financial instruments that are measured at fair value.
The consolidated financial statements are presented in Kuwaiti Dinars (KD), which is the Bank's functional
currency, rounded to the nearest thousand except when otherwise stated.
Statement of compliance
The consolidated financial statements of the Group have been prepared in accordance with the regulations of the
State of Kuwait for financial services institutions regulated by the CBK. These regulations require adoption of all
International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standards Board
(“IASB”) except for International Accounting Standards (“IAS”) 39: Financial Instruments: Recognition and
Measurement requirement for collective provision, which has been replaced by the CBK’s requirement for a
minimum general provision as described under the accounting policies for impairment of financial assets.
Changes in accounting policies and disclosures
The accounting policies used in the preparation of these consolidated financial statements are consistent with
those used in the previous financial year, except for the adoption of the following new standards and
interpretations effective as of 1 January 2014.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
These amendments are effective for annual periods beginning on or after 1 January 2014 provide an exception to
the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The
exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or
loss. This amendment is not relevant to the Group, since the Bank does not qualify to be an investment entity
under IFRS 10.
IAS 32: Financial Instruments: Presentation - Offsetting Financial Assets and Financial liabilities (Amendment)
These amendments are effective for annual periods beginning on or after 1 January 2014 and clarify the meaning
of “currently has a legally enforceable right to set-off” and also clarify the application of the IAS 32 offsetting
criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms
that are not simultaneous. The amendment has not resulted in any impact on the financial position or performance
of the Group.
IAS 36: Impairmentof Assets - Recoverable Amount Disclosures for Non-Financial Assets (Amendment)
These amendments remove the unintended consequences of IFRS 13 on the disclosures required under IAS 36.In
addition, these amendments require disclosure of the recoverable amounts for the assets or CGUs for which
impairment loss has been recognised or reversed during the period. These amendments are effective
retrospectively for annual periods beginning on or after 1 January 2014 with earlier application permitted,
provided IFRS 13 is also applied. Though these amendments have not resulted in any additional disclosures
currently, the same would continue to be considered for future disclosures.
9
69
BURGAN BANK GROUP
At 31 December 2014
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Changes in accounting policies and disclosures (continued)
IAS 39: Novation of Derivatives and Continuation of Hedge Accounting (Amendment)
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated
as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or
after 1 January 2014. These amendments have not resulted in any impact on the financial position or performance
of the Group.
IFRIC 21: Levies
IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as
identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the
interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached.
Retrospective application is required for IFRIC 21. This interpretation has no impact on the Group as it has
applied the recognition principles under IAS 37 Provisions, Contingent Liabilities and Contingent Assets
consistent with the requirements of IFRIC 21 in prior years.
Other amendments to IFRSs which are effective for annual accounting period starting from 1 January 2014 did not
have any material impact on the accounting policies, financial position or performance of the Group.
New and revised IASB Standards, but not yet effective
Standards issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements
are listed below. The Group intends to adopt those standards when they become effective.
IFRS 9: Financial Instruments:
The IASB issued IFRS 9 - Financial Instruments in its final form in July 2014 and is effective for annual periods
beginning on or after 1 January 2018 with a permission to early adopt. IFRS 9 sets out the requirements for
recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non- financial
assets. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The adoption of this
standard will have an effect on the classification and measurement of Group's financial assets but is not expected
to have a significant impact on the classification and measurement of financial liabilities. The Group is in the
process of quantifying the impact of this standard on the Group's financial statements, when adopted.
IFRS 15 – Revenue from Contracts with customers
IFRS 15 was issued by IASB on 28 May 2014 is effective for annual periods beginning on or after 1 January
2017. IFRS 15 supersedes IAS 11 – Construction Contracts and IAS 18 – Revenue along with related IFRIC 13,
IFRIC 18 and SIC 31 from the effective date. This new standard would remove inconsistencies and weaknesses in
previous revenue recognition requirements, provide a more robust framework for addressing revenue issues and
improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital
markets. The Group is in the process of evaluating the effect of IFRS 15 on the Group and do not expect any
significant impact on adoption of this standard.
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined
benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as
anegative benefit. These amendments clarify that, if the amount of the contributions is independent of thenumber
of years of service, an entity is permitted to recognise such contributions as a reduction in the servicecost in the
period in which the service is rendered, instead of allocating the contributions to the periods ofservice. This
amendment is effective for annual periods beginning on or after 1 July 2014. It is not expectedthat this amendment
would be relevant to the Group, since none of the entities within the Group has defined benefit plans with
contributions from employees or third parties.
Annual improvements for 2010-2012 and 2011-2013 cycle which are effective from 1 July 2014 are not expected
to have a material impact on the Group.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries (investees
which are controlled by the Bank). Control is achieved when the Group is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if and only if the Group has:
70
10
BURGAN BANK GROUP
At 31 December 2014
2.
Basis of consolidation (continued)
 Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the
investee)
 Exposure, or rights, to variable returns from its involvement with the investee, and
 The ability to use its power over the investee to affect its returns
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:



The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual arrangements
The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities,
income and expenses of a subsidiary acquired or disposed of during the year are included in the Group’s
consolidated financial statements from the date the Group gains control until the date the Group ceases to control
the subsidiary.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the
non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into
line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash
flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, noncontrolling interest and other components of equity while any resultant gain or loss is recognised in profit or loss.
Any investment retained is recognised at fair value.
The subsidiaries of the Group are as follows:
Effective
interest as at
31 December
2013
Name of company
Principal
activities
Country of
incorporation
Effective
interest as at
31 December
2014
Jordan Kuwait Bank P.S.C. (“JKB”)
Algeria Gulf Bank S.P.A. (“AGB”)
Bank of Baghdad P.J.S.C. (“BoB”)
Tunis International Bank S.A (“TIB”)
Burgan Bank A.S. (“BBT”)
Banking
Banking
Banking
Banking
Banking
Jordan
Algeria
Iraq
Tunisia
Turkey
51.19%
91.13%
51.79%
86.70%
99.26%
51.19%
91.13%
51.79%
86.70%
99.26%
Brokerage
Leasing
Jordan
Jordan
25.70%
51.19%
25.70%
51.19%
Banking
Iraq
51.79%
51.79%
Leasing
Brokerage
Asset Management
Turkey
Turkey
Turkey
99.26%
99.26%
99.26%
Held through JKB
United Financial Investments Company
Ejara Leasing Company
Held through BoB
Baghdad Brokerage Company
Held through BBT
Burgan Finansal Kiralama A.S
Burgan Yatirim Menkul Degerler A.S.
Burgan Portfoy Yonetimi A.S.
11
99.26%
99.26%
99.26%
71
BURGAN BANK GROUP
At 31 December 2014
2.
Basis of consolidation (continued)
Name of company
Structured entity (“SPVs”) treated as a
subsidiary
Burgan Tier 1 Financing Limited
Principal
activities
Country of
incorporation
Effective
interest as at
31 December
2014
Special purpose
entity
Dubai
100%
Effective
interest as at
31 December
2013
-
Financial instruments
Classification of financial instruments
The Group classifies financial instruments as at "fair value through profit or loss", "loans and receivables",
"available for sale", "held to maturity" and “financial liabilities at amortised cost”. Management determines the
appropriate classification of each instrument at initial recognition.
Recognition/de-recognition
A financial asset or a financial liability is recognised when the Group becomes a party to the contractual
provisions of the instrument. All regular way purchase and sale of financial assets are recognised using settlement
date accounting. Changes in fair value between the trade date and settlement date are recognised in the
consolidated income statement or in OCI in accordance with the policy applicable to the related instrument.
Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the
time frame generally established by regulations or conventions in the market place.
A financial asset (in whole or in part) is derecognised either when: the contractual rights to receive cash flows
from the asset have expired; or the Group has transferred its rights to receive cash flows from the assets or has
assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass
through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset,
or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset. Where the Group has transferred its right to receive cash flows from an asset and
has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the
asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset.
A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or
expired. When an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated
as the derecognition of the original liability and the recognition of a new liability. The difference in the respective
carrying amounts is recognised in the consolidated income statement.
Measurement
All financial assets or financial liabilities are initially measured at fair value. Transaction costs are added only for
those financial instruments not measured at fair value through profit or loss. Transaction costs on financial assets
at fair value through profit or loss are recognised in the consolidated income statement.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets
designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for
trading if they are acquired for the purpose of selling or buying in the near term. Changes in fair value are
recognised in net investment income. Interest earned is accrued in interest income, using the effective interest rate
(EIR), while dividend income is recorded under operating income, in the consolidated income statement, when the
right to receive the payment has been established.
Financial assets are designated as at fair value through profit or loss, if they are managed and their performance is
evaluated on reliable fair value basis in accordance with documented investment strategy.
After initial recognition financial assets at fair value through profit or loss are remeasured at fair value with all
changes in fair value recognised in the consolidated income statement.
Derivative instruments are categorised as held for trading unless they are designated as hedging instruments.
72
12
BURGAN BANK GROUP
At 31 December 2014
2.
Financial instruments (continued)
Financial assets held to maturity
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to
maturity when the Group has the positive intention and ability to hold to maturity.
After initial recognition, held to maturity financial assets are carried at amortised cost using the EIR method, less
impairment losses, if any. The calculation takes into account any premium or discount on acquisition and includes
transaction costs and fees that are an integral part of the effective interest rate.
Loans and receivables
These are non-derivative financial assets having fixed or determinable payments that are not quoted in an active
market. These are subsequently measured at amortised cost using the effective yield method adjusted for
impairment losses, if any.
Treasury bills and bonds with CBK and others, due from banks and OFIs, and loans and advances to customers
are classified as “loans and receivables”.
Financial assets available for sale
Financial assets available for sale include equity and debt securities. Equity investments classified as available for
sale are those that do not qualify to be classified as loans and receivables, held to maturity or at fair value through
profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of
time that may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity
prices.
These are subsequently measured at fair value with gains and losses being recognised as other comprehensive
income in the equity as "investment revaluation reserve" until the financial assets are derecognised or until the
financial assets are determined to be impaired at which time the cumulative gains and losses previously reported
as OCI in equity are transferred to the consolidated income statement. Financial assets whose fair value cannot be
reliably measured are carried at cost less impairment losses, if any.
Financial liabilities at amortised cost
These financial liabilities are subsequently measured at amortised cost using the EIR. “Due to banks”, “due to
other financial institutions (“OFI”)”, “deposit from customers”, “other borrowed funds”, and “other liabilities” are
classified as “financial liabilities at amortised cost”.
Financial guarantees
In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees
and acceptances. Financial guarantees are initially recognised in the financial statements at fair value, being the
premium received. The premium received is amortised in the consolidated income statement in 'fee and
commission income' on a straight line basis over the life of the guarantee. The guarantee liability is subsequently
measured as a higher of the amount initially recognised less amortisation or the value of any financial obligation
that may arise as a result of financial guarantee. Any increase in the liability relating to financial guarantees is
recorded in the consolidated income statement.
Derivative financial instruments
The Group makes use of derivative instruments to manage exposures to interest rate, foreign currency and credit
risks.
Where derivative contracts are entered into by specifically designating such contracts as a fair value hedge or a
cash flow hedge of a recognised asset or liability, the Group accounts for them using hedge accounting principles,
provided certain criteria are met. Derivatives are carried as financial assets when the fair value is positive and as
financial liabilities when the fair value is negative.
For derivative contracts that do not qualify for hedge accounting, any gains or losses arising from changes in fair
value of the derivative contract are taken directly to the consolidated income statement.
13
73
BURGAN BANK GROUP
At 31 December 2014
2.
Hedge accounting
For the purposes of hedge accounting, hedges are classified into two categories: (a) fair value hedges when
hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm
commitment; and (b) cash flow hedges, when hedging exposure to variability in cash flows that is either
attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast
transaction or a foreign currency risk in an unrecognised firm commitment.
When a financial instrument is designated as a hedge, the Group formally documents the relationship between the
hedging instrument and hedged item as well as its risk management objectives and its strategy for undertaking the
various hedging transactions. The Group also document its assessment, both at hedge inception and on an ongoing
basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in
fair values or cash flows attributable to the hedge risk.
The Group discontinues hedge accounting when the following criteria are met:
a) it is determined that the hedging instrument is not, or has ceased to be, highly effective as a hedge;
b) the hedging instrument expires, or is sold, terminated, or exercised;
c) the hedged item matures or is sold or repaid; or
d) a forecast transaction is no longer deemed highly probable.
Fair value hedges
The changes in fair value of the hedging instrument that qualify and is designated as fair value hedge is recorded
in the consolidated income statement, together with changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk.
If the hedge accounting is discontinued, the fair value adjustment to the hedged item is amortised to the
consolidated income statement over the period to maturity of the previously designated hedge relationship using
the EIR.
If the hedged item is derecognised, the unamortised fair value is recognised immediately in the consolidated
income statement.
When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the
fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a
corresponding gain or loss recognised in consolidated income statement.
Cash flow hedges
For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow
hedge is recognised initially in OCI, and transferred to the consolidated income statement in the periods when the
hedged transaction affects consolidated income statement. Any ineffective portion of the gain or loss on the
hedging instrument is recognised immediately in the consolidated income statement.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive
income and is recognised when the hedged forecast transaction is ulimately recognised in the consolidated income
statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
recognised in other comprehensive income is immediately transferred to the consolidated income statement.
Fair value measurement
The Group measures financial instruments, such as, derivatives, investment securities etc., at each balance sheet
date. Also, fair values of financial instruments measured atamortised cost are disclosed in note 23.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place either:


In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Group.
74
14
BURGAN BANK GROUP
At 31 December 2014
2.
Fair value measurement (continued)
The fair value of an asset or a liability is measured using the assumptions that market participants would usewhen
pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the
fairvalue measurement as a whole:



Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For financial instruments quoted in an active market, fair value is determined by reference to quoted market
prices. Bid prices are used for assets and offer prices are used for liabilities. The fair value of investments in
mutual funds, unit trusts or similar investment vehicles are based on the last published net assets value.
For unquoted financial instruments fair value is determined by reference to the market value of a similar
investment, discounted cash flows, other appropriate valuation models or brokers’ quotes.
For financial instruments carried at amortised cost, the fair value is estimated by discounting future cash flows at
the current market rate of return for similar financial instruments.
For investments in equity instruments, where a reasonable estimate of fair value cannot be determined, the
investment is carried at cost.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of
the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained
above.
Amortised cost
This is computed using the effective interest method less any allowance for impairment. The calculation takes into
account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of
the effective interest rate.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of
financial position, if there is a currently enforceable legal right to offset and intends to settle on a net basis, to
realise the asset and settle the liability simultaneously.
Assets pending sale
The Group occasionally acquires non-monetary assets in settlement of certain financing receivables and loans and
advances. Such assets are stated at the lower of the carrying value of the related financing receivables and loans
and advances and the current fair value. Gains or losses on disposal, and revaluation losses, are recognised in the
consolidated income statement.
15
75
BURGAN BANK GROUP
At 31 December 2014
2.
Impairment of financial assets
The Group assesses at each reporting date whether there is an objective evidence that a specific financial asset or a
group of financial assets are impaired. A financial asset or a group of financial assets is deemed to be impaired, if
and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the
initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash flows of
the financial asset or group of financial assets that can be reliably estimated.
Objective evidence that a specific financial asset or a group of financial assets classified as loans and receivables
are impaired includes whether any payment of principal or interest is overdue by more than 90 days or there are
any known difficulties in the cash flows including the sustainability of the counterparty’s business plan, credit
rating downgrades, breach of original terms of the contract, its ability to improve performance once a financial
difficulty has arisen, deterioration in the value of collateral etc. The Group assess whether objective evidence of
impairment exists on an individual basis for each individually significant asset and collectively for others not
deemed individually significant except for financial assets classified as due from banks and financial institutions
and loans and receivables where minimum general provision as per CBK’s instructions is followed.
The impairment loss for financial assets classified as loans and receivables is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows including amounts recoverable
from collateral and guarantees, discounted at the financial asset’s original effective interest rate. If the financial
asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate determined under the contract. The carrying amount of the asset is reduced through the use of an
allowance account and the amount of the loss is recognised in the consolidated income statement.
For debt instruments classified as available-for-sale, the Group assesses individually whether there is objective
evidence of impairment based on the same criteria as financial assets classified as loans and receivables. However,
the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost
and the current fair value, less any impairment loss on that investment previously recognised in the consolidated
income statement. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be
objectively related to a credit event occurring after the impairment loss was recognised in the consolidated income
statement, the impairment loss is reversed through the consolidated income statement.
In the case of equity instruments classified as ‘available for sale’, a significant or prolonged decline in the fair
value of the security below its cost is considered in determining whether the assets are impaired. If any evidence
of impairment exists, the cumulative loss measured as the difference between the acquisition cost and the current
fair value, less any impairment loss on that financial asset previously recognised in the consolidated income
statement, is recognised in the consolidated income statement. Subsequent increases in fair value of such available
for sale equity instruments are not reversed through the consolidated income statement.
For non-equity financial assets, the carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in the consolidated income statement. If, in a subsequent period,
the amount of the estimated impairment loss increases or decreases because of an event occurring after the
impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the
allowance account.
In addition, in accordance with CBK instructions, a minimum general provision is made on all applicable credit
facilities (net of certain categories of collateral) that are not provided for specifically.
Financial assets are written off when there is no realistic prospect of recovery.
Renegotiated loans
In the event of a default, the Group seeks to restructure loans rather than take possession of collateral. This may
involve extending the payment arrangements and the agreement of new loan conditions. When the terms and
conditions of these loans are renegotiated, the terms and conditions of the new contractual arrangement apply in
determining whether these loans remain past due. Management continually reviews renegotiated loans to ensure
that all criteria are met and that future payments are likely to occur.
76
16
BURGAN BANK GROUP
At 31 December 2014
2.
Repurchase and reverse repurchase agreements
Assets sold with a simultaneous commitment to repurchase at a specified future date at an agreed price (repos) are
not derecognised in the consolidated statement of financial position as the Group retains substaintially all the risks
and rewards of ownership. The corresponding cash received is recognised in the consolidated statement of
financial position as an asset with a corresponding obligation to return it, including the accrued interest as a
liability, reflecting the transaction’s economic substance as loan to the Group. The difference between the sale and
repurchase price is treated as interest expense using the effective interest rate method.
Conversely, assets purchased with a corresponding commitment to resell at a specified future date at an agreed
price (reverse repos) are not recognised in the consolidated statement of financial position. Amounts paid under
these agreements are treated as interest earning assets and the difference between the purchase and resale price
treated as interest income using the effective interest rate method.
Cash and cash equivalents comprises of cash in hand and in current account with banks and OFIs and balances
with CBK and due from banks and OFIs with original maturities not exceeding thirty days from acquisition date.
Investment in associate
The Group’s investment in its associate is accounted for using the equity method. An associate is an entity in
which the Group has significant influence. Significant influence is the power to participate in the financial and
operating policy decisions of the investee, but is not control or joint control over those policies.
Under the equity method, the investment in associate is carried in the consolidated statement of financial position
at cost plus post acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to the
associate is included in the carrying amount of the investment and is neither amortised nor individually tested for
impairment.
The consolidated income statement reflects the share of the results of operations of the associate. Where there has
been a change recognised directly in the other comprehensive income of the associate, the Group recognises its
share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains
and losses resulting from transactions between the Group and the associate are eliminated to the extent of the
interest in the associate.
The Group’s share of profit of an associate is shown on the face of the consolidated income statement. This is the
profit attributable to equity holders of the associate and therefore is profit after tax and non-controlling interest in
the subsidiaries of the associate.
The financial statements of the associate are prepared for the same reporting period as the Group. Where
necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an additional
impairment loss on the Group’s investment in its associate. The Group determines at each reporting date whether
there is any objective evidence that the investment in the associate is impaired. If this is the case the Group
calculates the amount of impairment as the difference between the recoverable amount of the associate and its
carrying value and recognises the amount in the consolidated income statement.
Upon loss of significant influence over the associate, the Group measures and recognises any retained investment
at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence
and the fair value of the retaining investment and proceeds from disposal is recognised in consolidated income
statement.
Property and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is
provided on all premises and equipment, other than freehold land, at rates calculated to write off the cost of each
asset on a straight line basis to their residual values over its estimated useful life. Freehold land is stated at cost
less impairment losses.
17
77
BURGAN BANK GROUP
At 31 December 2014
2.
Property and equipment (continued)
The estimated useful lives of the assets for the calculation of depreciation are as follows:
Buildings
Furniture and equipment
Motor vehicles
Computers
20 to 35 years
4 to 11 years
3 to 7 years
5 years
When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any
gain or loss resulting from their disposal is recognised in the consolidated income statement.
The carrying amounts of property and equipment are reviewed at each reporting date to determine whether there is
any indication of impairment. If any such indication exists, the assets are written down to their recoverable
amounts and the impairment loss is recognised in the consolidated income statement.
Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately
is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent
expenditure is capitalised only when it increases future economic benefits of the related item of property and
equipment. All other expenditure is recognised in the consolidated income statement as the expense is incurred.
Intangible assets
Intangible assets represent separately identifiable non-monetary assets without physical substance arising from
business combinations. Intangible assets are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
The useful lives of intangible assets are assessed as finite.
Intangible assets with finite lives are amortised over the useful economic life, as mentioned below, and assessed
for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period
and the amortisation method for an intangible asset with a finite useful economic life is reviewed at least at each
financial position date. Changes in the expected useful economic life or the expected pattern of consumption of
future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets
with finite lives is recognised in the consolidated income statement under “other expenses” consistent with the
function of the intangible asset.
Amortisation is calculated using the straight-line method to write down the cost of intangible assets over their
estimated useful economic lives as follows:
Banking license
Customer relationships and core deposits
10 to 30 years
5 to 10 years
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement
when the asset is derecognised. A previously recognisedimpairment loss is reversed only if there has been a
change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognised.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement
at inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset.
Group as a lessee
Leases that do not transfer to the Group substantially all the risks and benefits incidental to ownership of the
leased items are operating leases. Operating lease payments are recognised as an expense in the consolidated
income statement on a straight-line basis over the lease term. Contingent rental payable is recognised as an
expense in the period in which they are incurred.
78
18
BURGAN BANK GROUP
At 31 December 2014
2.
Leases (continued)
Group as a lessor
Leases where the Group does not transfer substantially all of the risk and benefits of ownership of the asset are
classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying
amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents
are recognised as revenue in the period in which they are earned.
Business combinations and goodwill
A business combination is the bringing together of separate entities or businesses into one reporting entity as a
result of one entity, the acquirer, obtaining control of one or more other businesses. The acquisition method of
accounting is used to account for business combinations. Under this method, the acquirer recognises, separately
from goodwill, identifiable assets acquired, liabilities assumed and any non-controlling interests in the acquiree at
the acquisition date.
The identifiable assets acquired and the liabilities assumed at the acquisition date are measured at fair values. For
each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are
expensed in the period in which they are incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held
equity interest in the acquiree is remeasured to fair value at the acquisition date through the consolidated income
statement. It is then considered in the determination of goodwill.
Goodwill arising in a business combination is recognised as of the acquisition date as the excess of :
a)
the aggregate of the consideration transferred, the amount of any non-controlling interests in the acquiree
measured at fair value or at the non-controlling interest’s proportionate share of the acquiree’s
b) identifiable net assets and the acquisition-date fair value of the acquirer’s previously held equity interest
in the acquiree; over
c) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed
measured at their fair values.
If the aggregate consideration transferred is lower than the fair value of the net assets of the subsidiary acquired,
the difference is recognised in consolidated income statement.
Goodwill is allocated to each of the Group’s cash-generating units or for groups of cash-generating units and is
tested annually for impairment and is assesssed regularly whether there is any indication of impairment. Goodwill
impairment is determined by assessing the recoverable amount of cash-generating unit to which goodwill relates.
The recoverable value is the higher of the fair value less costs to sell and its value in use of the cash-generating
unit, which is the net present value of estimated future cash flows expected from such cash-generating unit. If the
recoverable amount of cash-generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of
the unit prorated on the basis of the carrying amount of each asset in the unit. Any impairment loss recognised for
goodwill is not reversed in the subsequent period.
Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operations
within that unit is disposed off, the goodwill associated with the operation disposed off is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation.
End of service indemnity
Provision is made for amounts payable to employees under the Kuwait Labour Law, employee contracts and
respective applicable laws in the countries where the subsidiaries operate. This liability, which is unfunded,
represents the amount payable to each employee as a result of involuntary termination on the reporting date. This
basis is considered to be a reliable approximation of the present value of the final obligation.
Treasury shares
The Bank’s holding in its own shares is stated at acquisition cost and is recognised in shareholders’ equity.
Treasury shares are accounted for using the cost method. Under this method, the weighted average cost of the
shares reacquired is charged to a contra account in the equity. When the treasury shares are reissued, gains are
credited to a separate account in equity, “treasury shares reserve”, which is not distributable.
19
79
BURGAN BANK GROUP
At 31 December 2014
2.
Treasury shares (continued)
Any realised losses are charged to the same account to the extent of the credit balance on that account. Any excess
losses are charged to retained earnings then to the voluntary reserve and statutory reserve. Gains realised
subsequently on the sale of treasury shares are first used to offset any previously recorded losses in the order of
reserves, retained earnings and the treasury shares reserve account. These shares are not entitled to any cash
dividend that the Bank may propose. The issue of bonus shares increases the number of shares proportionately and
reduces the average cost per share without affecting the total cost of treasury shares.
Share based compensation
The Group operates an equity settled share based compensation plan. The cost of share based compensation
transactions with employees is measured by reference to the fair value at the date on which they are granted. The
total amount to be expensed over the vesting period is determined by reference to the fair value of the options or
shares on the date of grant using the Black Scholes model. Measurement inputs include share price on grant date,
exercise price, volatility, risk free interest rate and expected dividend yield. At each reporting date, the Group
revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of
the revision of original estimates, if any, in the consolidated income statement, with a corresponding adjustment to
equity.
Other reserve
Other reserve is used to record the effect of changes in ownership interest in subsidiaries, without loss of control.
Revenue recognition
Interest and similar income and expense
Interest income and expense are recognised in the consolidated income statement for all financial instruments
measured at amortised cost, interest bearing assets classified as available-for-sale and financial instruments
designated at fair value through profit or loss using effective interest rate method. The effective interest rate is the
rate that exactly discounts estimated future cash flows through the expected life of the financial instrument or, a
shorter period, when appropriate, to the net carrying amount of the financial asset or financial liability. When
calculating the effective interest rate, all fees and points paid or received between parties to the contract,
transaction costs and all other premiums or discounts are considered, but not future credit losses.
Once a financial instrument is impaired, interest is thereafter recognised using the rate of interest used to discount
the future cash flows for the purpose of measuring the impairment loss.
When the Group enters into an interest rate swap to change interest from fixed to floating (or vice versa) the
amount of interest income or expense is adjusted by the net interest on the effective portion of the swap. All fees
paid or recieved are treated as an integral part of the effective interest rate of financial instruments and are
recognised over their lives, except when the underlying risk is sold to a third party, at which time it is recognised
immediately.
Fee and commission earned for the provision of services over a period of time are accrued over that period. These
fee include credit related fee and other management fees. Loan commitment fee and originating fee that are an
integral part of the effective interest rate of a loan are recognised (together with any incremental cost) as an
adjustment to the effective interest rate on loan.
Dividend income
Dividend income is recognised when the right to receive payment is established.
Foreign currency
Each entity in the Group determines its own functional currency and items included in the financial statements of
each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded at the spot rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate of exchange
ruling at the reporting date. Any resultant gains or losses are recognised in the consolidated income statement.
80
20
BURGAN BANK GROUP
At 31 December 2014
2.
Foreign currency (continued)
Non-monetary assets and liabilities in foreign currencies that are stated at fair value are translated to respective
entity’s functional currency at the foreign exchange rates ruling on the dates that the values were determined. In
case of non-monetary assets whose change in fair values are recognised directly in OCI, foreign exchange
differences are recognised directly in OCI and for non-monetary assets whose change in fair value are recognised
directly in the consolidated income statement, foreign exchange differences are recognised in the consolidated
income statement.
As at the reporting date, the assets and liabilities of subsidiaries are translated into the Bank’s presentation
currency (KD) at the rate of exchange ruling on the reporting date, and their income statements are translated at
the average exchange rates for the year. Exchange differences arising on translation are taken directly to OCI. On
disposal of a foreign subsidiary, the deferred cumulative amount recognised in OCI relating to that particular
subsidiary is recognised in the consolidated income statement.
Any goodwill or fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are
treated as assets and liabilities of the respective subsidiaries and translated at the rate of exchange ruling on the
reporting date.
Taxation
National Labour Support Tax (NLST)
The Bank calculates the NLST in accordance with Law No. 19 of 2000 and the Ministry of Finance Resolutions
No. 24 of 2006 at 2.5% of taxable profit for the year. As per law, cash dividends from listed companies which are
subjected to NLST have been deducted from the profit for the year.
Kuwait Foundation for the Advancement of Sciences (KFAS)
The Bank calculates the contribution to KFAS at 1% of profit for the year, in accordance with the modified
calculation based on the Foundation’s Board of Directors resolution, which states that the Board of Directors’
remuneration and transfer to statutory reserve should be excluded from profit for the year when determining the
contribution.
Zakat
Contribution to Zakat is calculated at 1% of the profit of the Bank in accordance with Law No. 46 of 2006 and the
Ministry of Finance resolution No. 58/2007 effective from 10 December 2007.
Taxation on overseas subsidiaries
Taxation on overseas subsidiaries is calculated on the basis of the tax rates applicable and prescribed according to
the prevailing laws, regulations and instructions of the countries where these subsidiaries operate. Income tax
payable on taxable profit (‘current tax’) is recognised as an expense in the period in which the profits arise in
accordance with the fiscal regulations of the respective countries in which the Group operates.
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits
and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, and the carry forward of unused tax credits
and unused tax losses can be utilised, except when the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be
utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent
that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax
assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same
taxation authority.
Deferred tax assets and liabilities are measured using tax rates and applicable legislation at the reporting date.
21
81
BURGAN BANK GROUP
At 31 December 2014
2.
Segment information
A segment is a distinguishable component of the Group that engages in business activities from which it earns
revenue and incurs costs. The operating segments are used by the management of the Bank to allocate resources
and assess performance. Operating segments exhibiting similar economic characteristics, product and services,
class of customers where appropriate are aggregated and reported as reportable segments.
Contingencies
Contingent assets are not recognised in the consolidated financial statements, but are disclosed when an inflow of
economic benefit is probable.
Contingent liabilities are not recognised in the consolidated financial statements, but are disclosed unless the
possibility of an outflow of resources embodying economic benefit is remote.
Fiduciary assets
Assets and related deposits held in trust or in a fiduciary capacity are not treated as assets or liabilities of the
Group and accordingly are not included in the consolidated statement of financial position.
Significant accounting judgments, estimates and assumptions
The preparation of the Group’s consolidated financial statements requires management to make judgements,
estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities, and the
accompanying disclosures, as well as the disclosure of contingent liabilities. Uncertainty about these assumptions
and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or
liabilities affected in future periods.
Judgments
In the process of applying the Group’s accounting policies, management has made the following judgements,
apart from those involving estimations, which have the most significant effect on the amounts recognised in the
consolidated financial statements:
Classification of financial assets
On acquisition of financial assets, management decides whether it should be classified as investments at fair value
through profit or loss or investments available for sale or loans and receivables or held to maturity.
Impairment of financial assets available for sale
The Group treats available for sale equity investments as impaired when there has been a significant or prolonged
decline in the fair value below its cost or where other objective evidence of impairment exists. The determination
of what is “significant” or “prolonged” requires considerable judgement. In making this judgement, the Group
evaluates, among other factors, historical share price movements and duration and extent to which the fair value of
an investment is less than its cost.
Deferred tax assets
Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that future taxable profits
will be available against which the losses can be utilised. Judgment is required to determine the amount of
deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together
with future tax planning strategies.
Estimation uncertainty and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below. The Group based its assumptions and estimates on parameters
available when the consolidated financial statements were prepared. Existing circumstances and assumptions
about future developments, however, may change due to market changes or circumstances beyond the control of
the Group. Such changes are reflected in the assumptions when they occur.
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the
value in use or fair value less cost to sell of the cash-generating units to which the goodwill is allocated.
Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the
cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash
flows.
82
22
BURGAN BANK GROUP
At 31 December 2014
2.
Estimation uncertainty and assumptions (continued)
Fair values of assets and liabilities including intangible assets
Considerable judgement by management is required in the estimation of the fair value of the assets including
intangible assets with finite useful life, liabilities and contingent liabilities acquired.
Impairment losses on loans and advances
The Group reviews its loans and advances on a quarterly basis to assess whether a provision for impairment
should be recorded in the consolidated income statement. In particular, considerable judgement by management is
required in the estimation of the amount and timing of future cash flows when determining the level of provisions
required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of
judgment and uncertainty, and actual results may differ resulting in future changes to such provisions.
Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the statement of financial position
cannot be measured based on quoted prices in active markets, their fair value is measured using valuation
techniques including the DCF model. The inputs to these models are taken from observable markets where
possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements
include considerations of inputs such as liquidity risk, credit risk and volatility.Any changes in these estimates and
assumptions as well as the use of different, but equally reasonable estimates and assumptions may have an impact
on carrying amounts of loans and receivables and investments available for sale.
3.
CASH AND CASH EQUIVALENTS
2014
KD 000’s
Cash on hand and in current account with banks and OFIs
Balances with the CBK
Due from banks and OFIs maturing within thirty days
688,052
372
352,139
DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
Loans and advances
- Banks
- OFIs
─────────
═════════
═════════
2014
KD 000’s
2013
KD 000’s
212,865
98,020
──────────
──────────
──────────
──────────
──────────
──────────
══════════
══════════
2014
KD 000’s
2013
KD 000’s
3,988,338
553,916
3,574,448
515,917
770,709
(80,890)
689,819
5.
a)
203,939
105,198
──────────
459,824
Gross due from banks and OFIs
Provision for impairment (note 5)
1,004,290
──────────
310,885
Placements with banks
556,136
144
448,010
─────────
1,040,563
4.
2013
KD 000’s
309,137
471,502
780,639
(80,556)
700,083
LOANS AND ADVANCES TO CUSTOMERS
Balances
Corporate
Retail
Gross loans and advances to customers
Provision for impairment
─────────
─────────
─────────
─────────
═════════
═════════
4,542,254
(155,788)
4,386,466
23
4,090,365
(135,517)
3,954,848
83
BURGAN BANK GROUP
At 31 December 2014
5.
b)
LOANS AND ADVANCES TO CUSTOMERS (continued)
Provision for impairment
Banks
and OFIs
KD 000's
At 1 January 2014
Exchange adjustment
Amounts written off
Charged to income statement
At 31 December 2014
At 1 January 2013
Exchange adjustment
Amounts written off
Charged to income statement
At 31 December 2013
80,792
(22)
120
Corporate
KD 000's
130,379
(1,123)
(38,239)
58,200
Retail
KD 000's
21,315
73
(180)
2,982
Total
KD 000's
232,486
(1,072)
(38,419)
61,302
─────────
─────────
─────────
─────────
═════════
═════════
═════════
═════════
80,890
58,548
(16,631)
38,875
149,217
122,986
(5,739)
(38,199)
51,331
24,190
22,226
(423)
(195)
(293)
254,297
203,760
(6,162)
(55,025)
89,913
─────────
─────────
─────────
─────────
═════════
═════════
═════════
═════════
80,792
130,379
21,315
232,486
The provision for impairment includes KD 17,619 thousand (31 December 2013: KD 16,413thousand), being
provision for non-cash facilities reported under other liabilities (note 11), of which KD Nil (31 December 2013:
KD 236thousand) relates to OFI’s.
The impairment provision for credit facilities complies in all material respects with the specific provision
requirements of the CBK and IFRS. In March 2007, the CBK issued a circular amending the basis of making
minimum general provisions on facilities changing the rate from 2% to 1% for cash facilities and 0.5% for non
cash facilities. The revised rates are applied effective from 1 January 2007 on the net increase in facilities, net of
certain restricted categories of collateral during the reporting period. The general provision as of 31 December
2006 in excess of the present 1% for cash facilities and 0.5% for non cash facilities amounts to KD 16,154
thousand and is retained as a general provision until further directive from the CBK. Interest income on impaired
loans and advances is immaterial.
During the year the Group recovered KD 8,532 thousand (2013: KD 2,055 thousand) from customers whose
balances were written off and recorded the same under Other income in the consolidated income statement.
The analysis of the provision for impairment based on specific and general provision is as follows:
2014
KD 000’s
Specific provision
General provision
66,444
187,853
Provisions
Collaterals
84
─────────
═════════
═════════
2014
KD 000’s
2013
KD 000’s
175,272
57,778
102,603
24
60,567
171,919
─────────
254,297
Non-performing loans to customers:
2013
KD 000’s
232,486
173,660
52,824
97,723
BURGAN BANK GROUP
At 31 December 2014
6.
INVESTMENT SECURITIES
2014
KD 000’s
Financial assets at fair value through profit or loss
Investments held for trading
Debt securities
- Quoted investments
Equity securities
- Quoted investments
Investments designated at fair value through profit or loss
Equity securities
- Quoted
- Unquoted
Managed funds
Total financial assetsat fair value through profit or loss
8,007
12,143
936
4,132
420
21,560
78,460
471
69,281
──────────
──────────
──────────
──────────
133,280
15,796
180,220
26,144
109,383
Financial assets available for sale
Debt securities
- Quoted
- Unquoted
──────────
──────────
──────────
76,378
79,868
18,812
81,100
──────────
──────────
──────────
──────────
──────────
53,065
-
20,923
8
305,322
Financial assets held to maturity
Debt securities
- Quoted
- Unquoted
Total financial assets held to maturity
Name of company
FIMBank P.L.C. (“FIMBank”)
Middle East Payment Services Co.
(“MEPS”)
First Real Estate Investment Company
K.S.C. (Closed) (“FREICO”)
──────────
──────────
Principal
activities
International
Trade Finance
Credit Card &
ATM Services
Investing in Real
Estate
20,931
8,168
──────────
──────────
══════════
══════════
484,942
Associates of the Group:
306,276
──────────
17,172
Total investment securities
99,912
──────────
53,065
Investment in associates
206,364
──────────
156,246
Total financial assets available for sale
86,027
──────────
149,076
Equity securities
- Quoted
- Unquoted
2013
KD 000’s
421,402
Country of
incorporation
Effective
interest as at
31 December
2014
Effective
interest as at
31 December
2013
Malta
19.7%
19.5%
Jordan
29.6%
-
Kuwait
19.8%
-
During the year, the Group acquired an additional equity interest in MEPSand accounted the same as investment
in an associate at the Group level.
The Group also participated in the rights issue of FIMBank p.l.c., which resulted in change in the Group’s
effective equity interest.
25
85
BURGAN BANK GROUP
At 31 December 2014
6.
INVESTMENT SECURITIES (continued)
Further, during the year, the Group commenced to exercise significant influence over FREICO and therefore
accounted the same as an investment in an associate. Carrying value of associates is as follows:
2014
KD 000’s
FIMBank
MEPS
FREICO
10,889
1,877
4,406
Summarised financial information of associates is as follows:
2014
KD 000’s
Net result
Other comprehensive income
7.
(1,396)
1,747
2013
KD 000’s
8,168
2013
KD 000’s
(1,006)
(651)
OTHER ASSETS
2014
KD 000’s
Accrued interest receivable
Prepaid expenses
Assets pending sale *
Deferred tax assets
Taxation paid in advance
Sundry debtors
Other balances
55,565
6,117
88,060
7,847
5,255
38,755
57,896
2013
KD 000’s
59,529
5,612
49,484
6,791
5,085
61,613
50,024
──────────
──────────
══════════
══════════
259,495
238,138
* The fair value of real estate assets included in assets pending for sale are based on valuations performed by an
accredited independent valuers by using market comparable method.As the significant valuation inputs used are
based on unobservable market data these are classified under level 3 fair value hierarchy.However, the impact on
the consolidated income statement would be immaterial if the relevant risk variables used to fair value were
altered by 5%.
8.
INTANGIBLE ASSETS
Goodwill
KD 000’s
Cost
At 1 January 2014
Exchange adjustment
At 31 December 2014
Amortisation
At 1 January 2014
Charge for the year
At 31 December 2014
Net book value
At 31 December 2013
At 31 December 2014
86
26
Other intangible
assets
KD 000’s
Total
KD 000’s
86,050
2,668
──────
88,718
══════
113,892
51
──────
113,943
══════
199,942
2,719
──────
202,661
══════
──────
══════
28,977
6,930
──────
35,907
══════
28,977
6,930
──────
35,907
══════
86,050
══════
88,718
══════
84,915
══════
78,036
══════
170,965
══════
166,754
══════
BURGAN BANK GROUP
At 31 December 2014
8.
INTANGIBLE ASSETS (continued)
The carrying amounts of goodwill and other intangible assets allocated to each CGU are as follows:
Goodwill
KD 000’s
JKB
AGB
BoB
TIB
BBT
At 31 December 2014
JKB
AGB
BoB
TIB
BBT
At 31 December 2013
Banking
license
Other intangible assets
KD 000’s
Core
Customer
customer
relationship
deposits
Total
Total
KD 000’s
72,748
4,340
6,592
5,038
──────
88,718
══════
37,313
12,714
6,140
8,965
──────
65,132
══════
4,023
810
6,257
──────
11,090
══════
920
97
7
790
──────
1,814
══════
42,256
13,621
6,140
8,972
7,047
──────
78,036
══════
115,004
17,961
12,732
14,010
7,047
──────
166,754
══════
70,132
4,709
6,357
4,852
──────
86,050
══════
38,303
14,644
6,972
9,123
──────
69,042
══════
5,094
1,093
142
7,223
──────
13,552
══════
1,164
132
93
21
911
──────
2,321
══════
44,561
15,869
7,207
9,144
8,134
──────
84,915
══════
114,693
20,578
13,564
13,996
8,134
──────
170,965
══════
Impairment testing of goodwill
The carrying value of goodwill is tested for impairment on an annual basis (or more frequently if evidence exists
that goodwill might be impaired) by estimating the recoverable amount of the cash-generating unit ("CGU") to
which these items are allocated using value-in-use calculations unless fair value based on active market price is
higher than the carrying value of the CGU. The value in use calculations use pre-tax cash flow projections based
on financial budgets approved by management over a five years period and a relevant terminal growth rate of 4%
to 7% (31 December 2013: 4% to 7%). These cash flows were then discounted using a pre-tax discount rate of
15% to 30% (31 December 2013: 15% to 30%) to derive a net present value which is compared to the carrying
value. The discount rate used is pre-tax and reflects specific risks relating to the relevant CGU. The recoverable
amounts are either higher or approximates the carrying value of goodwill. The Group has also performed a
sensitivity analysis by varying these input factors by a reasonable possible margin. Based on such analysis, there
are no indications that goodwill is impaired considering the level of judgments and estimations used.
9.
MATERIAL PARTLY-OWNED SUBSIDIARIES
The management of the Bank has concluded that JKB and BoBaresubsidiaries which have non-controlling
interests that are material to the Group.
The information relating to non-controlling interests to BB Group is as follows:
2014
KD 000’s
Accumulated balances
Profit attributable
Dividends
104,322
8,059
3,856
JKB
2013
KD 000’s
98,006
7,806
3,872
2014
KD 000’s
37,968
2,248
3,208
BoB
2013
KD 000’s
37,481
2,988
-
The summarised financial information of these subsidiaries as of 31 December 2014 is provided below. This
information is based on amounts before inter-company eliminations.
27
87
BURGAN BANK GROUP
At 31 December 2014
9.
MATERIAL PARTLY-OWNED SUBSIDIARIES (continued)
Summaried income statement:
Operating income
Operating expense
Profit for the year
JKB
2013
2014
KD 000’s
KD 000’s
2014
KD 000’s
50,422
(16,438)
33,984
18,802
20,300
14,341
(6,704)
7,637
6,121
6,293
53,776
(19,556)
34,220
19,194
17,141
BoB
2013
KD 000’s
15,630
(7,088)
8,542
6,779
6,827
Summarised statement of financial position:
JKB
2013
2014
KD 000’s
KD 000’s
Customer deposits
Total assets
Total liabilities
Total equity
BoB
2014
KD 000’s
2013
KD 000’s
537,711
723,757
526,253
664,837
61,991
354,633
52,510
351,016
1,074,024
902,763
171,261
1,009,982
853,747
156,235
435,713
363,104
72,609
433,782
364,126
69,656
Net cash flows(used) from
- operating activities
- investment activities
- financing activities
(37,660)
10,236
(8,260)
43,053
15,703
(8,074)
23,145
(339)
(6,930)
39,203
(1,517)
12,636
Net increase in cash and cash
equivalents during the year
(35,684)
50,682
15,876
50,322
2014
KD 000’s
2013
KD 000’s
114,161
40,747
58,394
13,342
109,692
40,703
58,331
18,871
10.
OTHER BORROWED FUNDS
Effective
interest rate
Subordinated notes*
Subordinated bonds (Fixed tranch)
Subordinated bonds (Floating tranch capped at 6.650%)**
Other borrowings – subsidiaries
8.125%
5.650%
CBK +3.9%
0.66% - 3.71%
──────────
──────────
══════════
══════════
226,644
227,597
* In 2010, Burgan Finance No. 1 (Jersey) Limited (incorporated with limited liability under the laws of the
Jersey), a special purpose entity established by the Bank, had issued US$ 400 million 7.875 per cent subordinated
notes due 2020 (the “Notes”) at a discounted price of 98.3 per cent of the principal amount.
** In 2012, the Bank issued KD 100 million bonds due 2022 (the “Subordinated bonds”) at the principal amount.
The Subordinated bonds and Notesare callable in whole, or, in part, at the option of the Bank after 5 years from
the date of the issuance (subject to certain conditions being satisfied and prior approval of the CBK).
88
28
BURGAN BANK GROUP
At 31 December 2014
11.
OTHER LIABILITIES
Accrued interest payable
Staff benefits
Provision for non-cash credit facilities (note 5)
Clearing cheques and balances
Income received in advance
Other payable and accruals
Deferred tax liabilities
Taxation payable
Other balances
2014
KD 000’s
2013
KD 000’s
34,116
15,054
17,619
53,668
11,332
43,039
1,271
17,494
40,541
45,773
13,448
16,413
38,472
7,238
29,929
1,045
16,795
49,077
──────────
──────────
══════════
══════════
234,134
12.
a)
218,190
EQUITY AND RESERVES
At the extra ordinary general meeting of the shareholders held on 31 March 2014, the shareholders approved
to amend article (6) of the Bank’s Memorandum of Incorporation and article (5) of the Articles of
Association, to increase the authorised share capital of the Bank to 2,500,000,000 shares of 100 fils each after
obtaining regulatory approvals. The issued and fully paid up share capital of the Bank comprises
1,951,770,627 shares (31 December 2013: 1,622,215,539) of 100 fils each.
b) On 31 March 2014, the annual general assembly approved the distribution of cash dividend of 7 fils per share
for the year ended 31 December 2013 (for the year ended 31 December 2012: 10 fils) to the Bank’s
shareholders on record at the date of general assembly and stock dividend of 7% for the year ended 31
December 2013(for the year ended 31 December 2012: 5%) to the Bank’s shareholders on record at the date of
regulatory approval for distribution of bonus shares. This resulted in an increase in the number of issued shares
by 113,555,088 shares and share capital by KD 11,355 thousand.
c)
Capital Increase
During the year, after obtaining necessary approvals, the bank increased its share capital through the issuance
of rights issue of 216,000,000 shares, each with a nominal value of 100 fils and share premium of 375 fils. The
rights issue has been fully subscribed resulting in an increase in share capital of KD 21,600 thousand and share
premium of KD 81,000 thousand.
d) The share premium and treasury shares reserve are not available for distribution. The Companies Law and the
Bank’s articles of association require that 10% of the profit for the year attributable to equity holders of the
Bank before Board of Directors remuneration, NLST, KFAS and Zakat be transferred annually to statutory
reserve. The Bank may resolve to discontinue such annual transfers when the reserve equals 50% of paid up
share capital. Distribution of statutory reserve is limited to the amount required to enable the payment of
dividend of 5% of share capital in years when accumulated profits are not sufficient for the payment of a
dividend of that amount.
e)
The articles of association of the Bank requires an amount of not less than 10% of the profit for the year
attributable to equity holders of the Bank before Board of Directors remuneration, NLST, KFAS and Zakat be
transferred annually to the voluntary reserve. There is no restriction on distribution of this reserve.
f)
Treasury shares
2013
2014
Number of shares held
19,586,964
Percentage of shares held
══════════
══════════
══════════
══════════
══════════
══════════
══════════
══════════
══════════
1.00%
Cost KD 000’s
9,575
Market value KD 000’s
9,402
Weighted average market value per share (fils)
538
29
79,392,917
══════════
4.89%
37,683
43,666
574
89
BURGAN BANK GROUP
At 31 December 2014
12.
EQUITY AND RESERVES (continued)
The balance in the treasury share reserve account is not available for distribution. An amount equal to the cost
of treasury shares is not available for distribution from general reserve throughout the holding period of these
treasury shares.
g) Proposed dividends
The Board of Directors has recommended to distribute cash dividend of 15 fils per share (2013: 7 fils) and
5% bonus shares (2013: 7%) for the financial year ended 31 December 2014. Subject to being approved at the
annual general assembly ("AGM") of the shareholders, the cash dividend and bonus shares shall be payable to
shareholders registered in the Bank's records as of the AGM date.
h) Perpetual Tier 1 Capital Securities
On 30 September, 2014, the Bank through Burgan Tier 1 Financing Limited (a newly incorporated special
purpose company with limited liability in the Dubai International Financial Centre) (“Issuer”) issued
Perpetual Tier 1 Capital Securities (the “Tier 1 securities”), amounting to USD 500,000 thousand.
The Tier 1securities are unconditionally and irrevocably guaranteed by the Bank and constitute direct,
unconditional, subordinated and unsecured obligations of the Issuer and are classified as equity in accordance
with IAS 32: Financial Instruments – Classification. The Tier 1 securities do not have a maturity date. They
are redeemable by the Bank at its discretion after 30 September 2019 (the “First Call Date”) or on any interest
payment date thereafter subject to the prior consent of the regulatory authority.
The Tier 1 securities bear interest on their nominal amount from the issue date to the first call date at a fixed
annual rate of 7.25%. Thereafter the interest rate will be reset at five year intervals. Interest will be payable
semi-annually in arrears and treated as a deduction from equity.
The Bank at its sole discretion may elect not to distribute interest and this is not considered an event of
default. If the Bank does not pay interest on the Tier 1 securities, on a scheduled interest payement date (for
whatever reason), then the Bank must not make any other distribution or payment on or with respect to its
other shares that rank equally with or junior to the Tier 1 securities (other than pro-rata distributions or
payments on shares that rank equally with Tier 1 securities) unless and until it has paid two consecutive
interest payments in full on the Tier 1 securities.
13.
INTEREST INCOME
Due from banks and other financial institutuions
Treasury bills and bonds
Others
2014
KD 000’s
255,341
22,723
20,832
6,032
128
──────────
──────────
══════════
══════════
2014
KD 000’s
78,591
7,672
15,803
16,150
1,302
2013
KD 000’s
70,837
3,440
14,428
15,319
916
305,056
14.
INTEREST EXPENSE
Due to banks
Due to other financial institutuions
Others
30
270,375
──────────
──────────
══════════
══════════
119,518
90
2013
KD 000’s
224,485
20,194
20,499
5,140
57
104,940
BURGAN BANK GROUP
At 31 December 2014
15.
FEE AND COMMISSION INCOME
Fee and commission income includes KD 1,085 thousand (31 December 2013: KD 1,090 thousand) being fee
income related to fiduciary activities.
16.
NET INVESTMENT INCOME
Financial assets at fair value through profit or loss:
– net gain on investments held for trading
– net gain on investments designated at fair value through profit or loss
2014
KD 000’s
2013
KD 000’s
2,879
10,332
662
6,451
─────────
─────────
─────────
─────────
═════════
═════════
2014
KD 000’s
2013
KD 000’s
13,211
3,297
(236)
Net gain from financial assets available for sale
Share of result from associates
16,272
17.
7,113
4,579
(426)
11,266
TAXATION
NLST
KFAS
Zakat
Taxation arising from overseas subidiaries
1,304
453
454
15,150
──────────
──────────
══════════
══════════
2014
KD 000’s
2013
KD 000’s
17,361
Components of taxation arising from overseas subsidiaries are as follows:
Current tax
Deferred tax
288
90
87
15,227
16,295
(1,145)
15,692
17,180
(1,953)
──────────
──────────
══════════
══════════
15,150
15,227
The tax rate applicable to the taxable subsidiary companies is in the range of 15% to 30%(2013: 15% to 30%)
whereas the effective income tax rate for the year ended 31 December 2014 is in the range of 15% to 30%(2013:
15% to 30%). For the purpose of determining the taxable results for the year, the accounting profit of the overseas
subsidiary companies were adjusted for tax purposes. Adjustments for tax purposes include items relating to both
income and expense. The adjustments are based on the current understanding of the existing laws, regulations and
practices of each overseas subsidiary companies jurisdiction.
Deferred tax assets / liabilities are part of other assets / liabilities in the consolidated statement of financial
position.
31
91
BURGAN BANK GROUP
At 31 December 2014
18.
EARNINGS PER SHARE
Basic and diluted earnings per share is computed by dividing the profit for the year attributable to equity holders
of the Bank by the weighted average number of shares outstanding during the year less treasury shares.
The computation of basic and diluted earnings per share is as follows:
Profit for the year attribuitable to equity holders of the Bank
2014
KD 000’s
61,758
Basic and diluted earnings per share (fils)
20,102
══════════
══════════
1,641,681,086
1,669,214,704
Shares
Weighted average number of outstanding shares, net of treasury shares
2013
KD 000’s
(Restated)
──────────
37.6
══════════
Shares
──────────
12.0
══════════
The basic and diluted earnings per share for the year ending 31 Decembe 2014 have been adjusted to take account
of the bonus shares and the rights shares issued in 2014.
19.
SEGMENT INFORMATION
For management purposes, the Group organises its operations by geographic territory in the first instance,
primarily Domestic and International. All operations outside Kuwait are classified as International. Within its
domestic operations, the Group is organised into the following business segments.

Corporate banking: provides comprehensive product and services to corporate customers and financial
institutions including lending, deposits, trade services, foreign exchange, advisory services and others.

Private and retail banking: provides wide range of products and services to retail and private bank
customers including loans, deposits, credit and debit cards, foreign exchange, and others.

Treasury, investment bankingand others: includes treasury asset liability and liquidity management,
investment services and management, fund management and any residual of transfer pricing. It also
provides products and services to banks including money markets, lending, deposits, foreign exchange
and others.
Executive Management monitors the operating results of its business units separately for the purpose of making
decisions about resource allocation and performance assessment. Segment performance is evaluated based on
segment result after provisions which in certain respects are measured differently from operating profit or loss in
the consolidated financial statements.
92
32
93
SEGMENT INFORMATION (continued)
(624)
(16,746)
-
44,915
Segment result after provisions
Total liabilities
Total assets
═════════
752,214
1,786,446
═════════
810,071
1,084,779
═════════
33
═════════
2,541,673
2,001,272
═════════
═════════
4,103,958
4,872,497
═════════
═════════
─────────
─────────
92,510
─────────
(25,404)
(352)
118,266
69,519
─────────
29,377
─────────
(1,161)
(352)
30,890
(2,502)
─────────
Profit for the year before taxation
─────────
18,218
─────────
(7,497)
-
25,715
(489)
─────────
─────────
146,964
89,666
─────────
Total
KD 000's
(7,991)
(15,000)
═════════
(1,389)
─────────
─────────
35,162
2,870
─────────
Treasury and
investment banking
KD 000’s
Unallocated expenses
Unallocated provisions
─────────
─────────
61,661
─────────
Segment result before provisions
41,479
─────────
70,323
─────────
Segment operating income
34,388
─────────
52,408
─────────
31 December 2014
Net interest income
Corporate banking
KD 000’s
Retail and Private
banking
KD 000’s
Kuwait Operations
The table below presents income and results and certain assets and liabilities information regarding the Group’s operating segments.
19.
BURGAN BANK GROUP
At 31 December 2014
═════════
2,977,553
3,440,436
═════════
═════════
44,197
─────────
─────────
44,197
─────────
(21,790)
(1,727)
67,714
─────────
(5,657)
─────────
146,224
95,872
─────────
KD 000's
International
Operations
═════════
(285,974)
(561,509)
═════════
═════════
(23,560)
─────────
─────────
(23,560)
─────────
892
-
(24,452)
─────────
(6,975)
─────────
(17,477)
-
─────────
KD 000's
Unallocated Intragroup
Transactions
═════════
6,795,537
7,751,424
═════════
═════════
90,156
─────────
(7,991)
(15,000)
─────────
113,147
─────────
(46,302)
(2,079)
161,528
─────────
(15,134)
─────────
275,711
─────────
185,538
Total
KD 000’s
Group
94
(411)
(17,906)
-
43,122
Segment result after provisions
Total liabilities
Total assets
═════════
697,800
1,761,368
═════════
829,587
1,050,716
═════════
34
═════════
2,653,966
1,812,663
═════════
═════════
4,181,353
4,624,747
═════════
═════════
─────────
─────────
53,686
─────────
(41,186)
(1,592)
96,464
16,010
─────────
11,882
─────────
(1,592)
13,474
(2,222)
─────────
Profit for the year before taxation
─────────
(1,318)
─────────
(23,280)
-
21,962
(278)
─────────
─────────
125,543
83,670
─────────
(6,345)
(31,331)
═════════
(1,533)
─────────
─────────
17,107
(3,792)
─────────
Total
KD 000's
Unallocated expenses
Unallocated provisions
─────────
─────────
61,028
─────────
Segment result before provisions
37,715
─────────
─────────
70,721
─────────
32,821
Kuwait Operations
Retail and Private
Treasury and
banking
investment banking
KD 000’s
KD 000’s
─────────
Segment operating income
Corporate banking
KD 000’s
54,641
SEGMENT INFORMATION (continued)
31 December 2013
Net interest income
19.
BURGAN BANK GROUP
At 31 December 2014
═════════
2,659,422
3,062,465
═════════
═════════
48,641
─────────
─────────
48,641
─────────
(17,963)
(1,371)
67,975
─────────
(4,660)
─────────
138,412
81,765
─────────
KD 000's
International
Operations
═════════
(305,851)
(532,461)
═════════
═════════
(16,804)
─────────
─────────
(16,804)
─────────
567
-
(17,371)
─────────
(6,975)
─────────
(10,396)
-
─────────
KD 000's
Unallocated Intragroup
Transactions
═════════
6,534,924
7,154,751
═════════
═════════
47,847
─────────
(6,345)
(31,331)
─────────
85,523
─────────
(58,582)
(2,963)
147,068
─────────
(13,857)
─────────
253,559
165,435
─────────
Total
KD 000’s
Group
BURGAN BANK GROUP
At 31 December 2014
20.
TRANSACTIONS WITH RELATED PARTIES
The Group has entered into transactions with certain related parties (parent company, directors and key
management personnel of the Group and entities controlled, jointly controlled or significantly influenced by such
parties) who were customers of the Group during the year.The “Others” column in the table below mainly
represent transactions with other related parties that are either controlled or significantly influenced by the parent
company.The terms of these transactions are substantially on the same commercial basis as approved by the
Group’s management, including collateral. Lending to Board Members and their related parties is secured by
tangible collateral in accordance with regulations of Central Bank of Kuwait.The outstanding balances and
transactions are as follows:
Parent
company
KD 000's
Due from banks and OFIs
Investment securities managed by a
related party
Due to banks
Commitments, contingent liabilities
and derivatives
Letters of credit
Letters of guarantee
Derivative financial instruments
Transactions
Interest income
Interest expense
Fee and commission expense
Dividend income
Other expense
Others
KD 000's
52,844
45,384
-
150,998
775,636
24,907
196,382
775,636
77,751
183,260
635,178
41,152
9,357
7,117
-
62,966
13,665
23,015
27,356
62,966
20,782
23,015
36,713
61,055
23,681
26,282
50,529
-
-
36
14,369
35,996
36
14,369
35,996
97
11,185
12,175
382
7
192
-
976
-
24,401
112
949
712
559
2,798
25,377
494
956
712
751
2,798
19,126
713
1,024
255
565
1,100
No. of Board members
or executive staff
2014
KD 000’s
2013
KD 000’s
Board members
Executive staff
35
2014
KD 000s
2013
KD 000s
Associate
KD 000's
4
8
3,528
781
3,128
1,245
23
46
1
822
2,599
1
639
2,186
1
95
BURGAN BANK GROUP
At 31 December 2014
20.
TRANSACTIONS WITH RELATED PARTIES (continued)
Key management compensation
Remuneration paid or payable in relation to “key management” (deemed for this purpose to comprise Directors in
relation to their committee service, the Chief Executive Officer and other Senior Officers), was as follows:
Short term employee benefits – including salary and bonus
Accrual for end of service indemnity
Accrual for cost of long term incentive rights
Accrual for committee services
2014
KD 000’s
2013
KD 000’s
6,569
1,044
379
300
5,575
640
603
300
─────────
─────────
═════════
═════════
2014
KD 000’s
2013
KD 000’s
64,254
379,014
787,200
670,952
54,802
59,447
434,126
714,844
245,744
49,376
8,292
21.
COMMITMENTS AND CONTINGENT LIABILITIES
Acceptances
Letters of credit
Undrawn lines of credit
Other commitments
7,118
──────────
──────────
══════════
══════════
1,956,222
1,503,537
The primary purpose of these instruments is to ensure that funds are available to customers as required.
Acceptances, standby letters of credit and guarantees, which represent irrevocable assurances that the Group will
make payments in the event that the customer cannot meet its obligations to third parties, carry the same credit risk
as loans. Documentary and commercial letters of credit, which are undertaken by the Group on behalf of the
customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and
conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less
risk than a direct borrowing.
Undrawn lines of credit represent unused portions of authorisations to extend cash credit. With respect to credit
risk on undrawn lines of credit, the Group is potentially exposed to loss in an amount equal to the total unused
lines. However, the likely amount of loss is less than the total unused lines since most of these lines will expire or
terminate without being funded.
The Group makes available to its customers guarantees which may require that the Group makes payments on
their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Such payments are
collected from customers based on the terms of the letter of credit. They expose the Group to similar risks to loans
and these are mitigated by the same control processes and policies.
22.
DERIVATIVE FINANCIAL INSTRUMENTS
In the ordinary course of business the Group enters into various types of transactions that involve derivative
financial instruments.
Derivatives are carried at fair value. Positive fair value represents the cost of replacing all derivative transactions
with a fair value in the Groups’ favour had the rights and obligations arising from that derivative instrument been
closed in an orderly market transaction at the reporting date. Credit risk in respect of derivative financial
instruments is limited to the positive fair value of instruments. Negative fair value represents the cost to the
Groups’ counter parties of replacing all their transactions with the Group.
The Group deals in forward foreign exchange contracts, swaps and options for customers and to manage its
foreign currency positions and cash flows.
96
36
BURGAN BANK GROUP
At 31 December 2014
22.
DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The table below shows the fair value of derivative financial instruments, recorded as assets or liabilities, together
with their notional amounts analysed by the terms of maturity. The notional amount, recorded gross, is the amount
of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of
derivatives are measured. The notional amounts indicate the volume of transactions outstanding at the year end
and are indicative of neither the market risk nor the credit risk. The credit risk exposure is managed as part of the
overall borrowers lending limits, together with potential exposures from market movements.
Derivatives held for trading
Derivative transactions for customers and derivatives used for hedging purpose but which do not meet the
qualifying criteria for hedge accounting are classified as ‘Derivatives held for trading’. The risk exposures on
account of derivative transactions for customers are covered by entering in to similar transactions with counter
parties or by other risk mitigating transactions.
Forward foreign exchange contracts
Forward foreign exchange contracts are contractual agreements to either buy or sell a specified currency, at a
specific price and date in the future, and are customised contracts transacted in the over-the-counter market.
Options
Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or
sell a specified amount of a financial instrument at a fixed price, either at a fixed future date or at any time within
a specified period.
The Group purchases and sells options through regulated exchanges and in the over–the–counter markets. Options
purchased by the Group provide the Group with the opportunity to purchase (call options) or sell (put options) the
underlying asset at an agreed–upon value either on or before the expiration of the option. The Group is exposed to
credit risk on purchased options only to the extent of their carrying amount, which is their fair value.
Options written by the Group provide the purchaser the opportunity to purchase from or sell to the Group the
underlying asset at an agreed–upon value either on or before the expiration of the option.
Swaps
Swaps are contractual agreements between two parties to exchange streams of payments over time based on
specified notional amounts, in relation to movements in a specified underlying index such as an interest rate,
foreign currency rate or equity index.
Interest rate swaps relate to contracts taken out by the Bank with OFIs in which the Group either receives or pays
a floating rate of interest, respectively, in return for paying or receiving a fixed rate of interest. The payment flows
are usually netted against each other, with the difference being paid by one party to the other. In a currency swap,
the Group pays a specified amount in one currency and receives a specified amount in another currency. Currency
swaps are mostly gross–settled.
31 December 2014
Derivatives held for trading:
(non-qualifying hedges)
Forward swaps/ foreign exchange
contracts
Interest rate swaps
Options
Positive fair
value
KD 000’s
6,363
4,362
2,945
Negative fair
value
KD 000’s
(9,902)
(670)
(2,907)
Within 1
year
KD 000’s
Notional amount
Over 1
year
Total
KD 000’s
KD 000’s
705,533
33,079
139,791
197,212
36,875
705,533
230,291
176,666
──────────
──────────
──────────
──────────
──────────
──────────
──────────
──────────
──────────
──────────
13,670
(13,479)
37
878,403
234,087
1,112,490
97
BURGAN BANK GROUP
At 31 December 2014
22.
DERIVATIVE FINANCIAL INSTRUMENTS (continued)
31 December 2013
Derivatives held for trading:
(non-qualifying hedges)
Forward swaps/ foreign exchange
contracts
Interest rate swaps
Options
Positive fair
value
KD 000’s
Within 1
year
KD 000’s
Notional amount
Over 1
year
KD 000’s
Total
KD 000’s
8,019
2,032
14,172
(3,264)
(266)
(14,118)
375,950
14,673
423,858
389
93,766
20,163
376,339
108,439
444,021
──────────
──────────
──────────
──────────
──────────
──────────
──────────
──────────
──────────
──────────
24,223
23.
Negative fair
value
KD 000’s
(17,648)
814,481
114,318
928,799
FAIR VALUE MEASUREMENT
Fair value of all financial instruments is not materially different from their carrying values. For financial assets
and financial liabilities that are liquid or having a short-term maturity (less than three months) it is assumed that
the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, savings
accounts without a specific maturity and variable rate financial instruments.
The fair value of investment securities is categorised as per the policy on fair value measurement in Note 2.
Movement in level 3 is mainly on account of purchases and change in fair value. During the year, an increase of KD
4,441thousand (2013: increase KD 251 thousand) was recorded in the other comprehensive income representing
change in fair value. There were no material transfers between the levels during the year.
The impact on the consolidated statement of financial position or the consolidated statment of shareholders’ equity
would be immaterial if the relevant risk variables used to fair value the unquoted securities were altered by 5%.
Debt securities included under level 3 consists of unquoted corporate bonds issued by banks and financial
institutions. The fair values of these bonds are estimated using discounted cash flow method using credit spread
(ranging from 1% to 3%). Equities and other securities included in this category mainly include strategic equity
investments and managed funds which are not traded in an active market. The fair values of these investments are
estimated by using valuation techniques that are appropriate in the circumstances. Valuation techniques include
discounted cash flow models, observable market information of comparable companies, recent transaction
information and net asset values. Significant unobservable inputs used in valuation techniques mainly include
discount rate, terminal growth rate, revenue, profit estimates and market multiples such as price to book and price to
earnings. Given the diverse nature of these investments, it is not practical to disclose a range of significant
unobservable inputs.
Other financial assets and liabilities are carried at amortised cost and the carrying values are not materially different
from their fair values as most of these assets and liabilities are of short term maturities or are repriced immediately
based on market movement in interest rates. Fair values of remaining financial assets and liabilities carried at
amortised cost are estimated using valuation techniques incorporating certain assumptions such as credit spreads that
are appropriate in the circumstances.
The impact on the consolidated statement of financial position or the consolidated income statement or the
consolidated statment of shareholders’ equity would be immaterial if the relevant risk variables used for fair value
estimations to fair value the unquoted securities were altered by 5%.
98
38
99
FAIR VALUE MEASUREMENT (continued)
Forward swaps/foreign exchange contracts
Interest rate swaps
Options
Financial liabilities
Financial liabilities at fair value
through profit or loss:
Derivative financial instruments:
Financial assets available for sale:
Equity securities
Debt securities
-
76,378
133,280
9,902
670
2,907
-
-
39
79,868
15,796
9,902
670
2,907
156,246
149,076
Fair value measurement hierarchy for financial assets and financial liabilities that are carried at fair value is as follows:
31December 2014
Level 1
Level 2
Level 3
Total
KD 000’s
KD 000’s
KD 000’s
KD 000’s
Financial assets
Financial assets at fair value through profit or
loss:
Financial assets held for trading:
Equity securities
936
936
Debt securities
8,007
8,007
Derivative financial instruments:
- Forward swaps/foreign exchange contracts
6,363
6,363
- Interest rate swaps
4,362
4,362
- Options
2,945
2,945
Financial assets designated at fair value through
profit or loss:
Equity securities
420
21,560
21,980
Managed funds
15,494
62,966
78,460
23.
BURGAN BANK GROUP
At 31 December 2014
-
3,264
266
14,118
-
-
471
8,172
18,812
180,220
8,019
2,032
14,172
-
-
81,100
26,144
61,109
-
-
31 December 2013
Level 2
Level 3
KD 000’s
KD 000’s
-
4,132
12,143
Level 1
KD 000’s
3,264
266
14,118
99,912
206,364
471
69,281
8,019
2,032
14,172
4,132
12,143
Total
KD 000’s
BURGAN BANK GROUP
At 31 December 2014
24.
FIDUCIARY ASSETS
The Group manages investment funds on behalf of customers with net asset value of KD 76,801thousand (31
December 2013: KD 83,067 thousand).
25.
RISK MANAGEMENT
INTRODUCTION
Monitoring and controlling risks is primarily performed based on limits established by the Group. These limits
reflect the business strategy and market environment of the Group as well as the level of risk that the Group is
willing to accept, with additional emphasis on selected geographic and industrial sectors. In addition, the Group
monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risk
types and activities.
The operations of certain subsidiaries are also subject to regulatory requirements within the jurisdictions where it
operates. Such regulations not only prescribe approval and monitoring of activities, but also impose certain
restrictive provisions (e.g. capital adequacy) to minimise the risk of default and insolvency on the part of the
banking and insurance companies to meet unforeseen liabilities as these arise.
As part of its overall risk management, the Group uses derivatives and other instruments to manage exposures
resulting from changes in interest rates and foreign currency transactions.
The risk profile is assessed before entering into hedge transactions, which are authorised by the appropriate level
of seniority within the Group.
The Group classifies the risks faced as part of its day to day activities into certain categories of risks and
accordingly specific responsibilities have been given to various officers for the identification, measurement,
control and reporting of these identified families of risks. The categories of risks are:
A. Risks arising from financial instruments:
i.
Credit risk which includes default risk of clients and counterparties
ii. Market risk which includes interest rate, foreign exchange and equity price risks and
iii. Liquidity risk
B. Other risks
i.
Operational risk which includes risks due to operational failures
A.
CREDIT RISK
Credit risk is the risk that a counterparty will be unable to pay amounts in full when due. The Group structures the
levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or
group of borrowers, and to geographical and industry segments. Such risks are monitored on a regular basis and
are subject to regular review. Limits on the level of credit risk by product, industry sector and by country are
approved by the Board or each subsidiary board.
The exposure to any one borrower, including Banks and OFIs is further restricted by sub limits covering items on
statement of financial position and commitments and contingent liabilities exposures and daily delivery risk limits
in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are
monitored daily. The Group has a well-documented credit policy that complies with CBK regulations and defines
the appetite of the Group for assumption of risks in its various business groups.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to
meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to
credit risk is also managed in part by obtaining collateral and corporate and personal guarantees.
Credit risk arising from derivative financial instruments is limited to those with positive fair values, recorded in
the consolidated statement of financial position.
100
40
BURGAN BANK GROUP
At 31 December 2014
25.
RISK MANAGEMENT (continued)
A.
CREDIT RISK (continued)
Maximum exposure to credit risk:
The table below shows the maximum exposure to credit risk across financial assets before taking into
consideration the effect of any collateral and other credit enhancements i.e. credit risk mitigation.
Investments securities
Other assets
Total
2014
KD 000’s
2013
KD 000’s
873,665
629,819
689,819
4,386,466
210,148
55,565
887,935
583,647
700,083
3,954,848
239,438
59,529
─────────
─────────
─────────
─────────
─────────
─────────
═════════
═════════
6,845,482
Commitments and contingent liabilities
1,956,222
Maximum credit risk exposure before consideration of credit risk mitigation
8,801,704
6,425,480
1,503,537
7,929,017
The exposures set above, are based on net carrying amounts as reported in the consolidated statement of financial
position, except for commitments and contingent liabilities.
Collateral and Credit risk mitigation techniques
The amount, type and valuation of collateral are based on guidelines specified in the risk management framework.
The main types of collaterals accepted include real estate and marketable securities. The revaluation and custody
of collaterals are performed independent of the business units.
The main credit risk mitigation techniques applied by the Group are based on eligible collaterals. The Group’s
management monitors the market value of collateral, requests additional collateral in accordance with the
underlying agreement, and monitors the market value of the collateral at regular intervals in line with regulatory
guidelines.
For further details regarding the Group’s use of credit risk mitigation techniques, and collateral policy, refer to
Basel III – Pillar 3 Disclosures under the risk management section of the annual report.
Credit risk concentration
The top 10 largest exposures outstanding as a percentage of gross loans and advances to customers at 31
December 2014 is 18% (31 December 2013: 18%).
The concentration across classes within loans and advances to customers, which form part of the significant
portion of assets subject to credit risk, is given in note 5.
41
101
BURGAN BANK GROUP
At 31 December 2014
25.
A.
The Group’s financial assets and commitments and contingent liabilities, before taking into account any collateral
held or credit enhancements can be analysed by the following geographic regions:
Kuwait
Jordan
Algeria
Iraq
Tunisia
Turkey
Other middle east
Europe
Rest of the world
Assets
KD 000s
2014
Commitments
and contingent
liabilities
KD 000s
Total
KD 000s
3,068,093
765,878
480,500
283,468
39,324
1,178,431
497,024
224,989
307,775
───────
6,845,482
═══════
1,096,317
201,454
255,077
106,188
2,337
213,528
2,943
23,580
54,798
───────
1,956,222
═══════
4,164,410
967,332
735,577
389,656
41,661
1,391,959
499,967
248,569
362,573
───────
8,801,704
═══════
Assets
KD 000s
2013
Commitments
and contingent
liabilities
KD 000s
Total
KD 000s
3,080,854
719,527
427,327
292,794
33,005
966,336
477,816
222,993
204,828
───────
6,425,480
═══════
690,427
162,692
273,144
63,577
2,545
232,121
4,913
21,905
52,213
───────
1,503,537
═══════
3,771,281
882,219
700,471
356,371
35,550
1,198,457
482,729
244,898
257,041
───────
7,929,017
═══════
The Group’s financial assets and commitments and contingent liabilities, before taking into account any collateral
held or credit enhancements can be analysed by the following industry sectors:
2014
KD 000’s
Industry sector
Sovereign
Banking
Investment
Trade and commerce
Real estate
Personal
Manufacturing
Construction
Others
1,288,451
1,100,176
183,314
1,087,038
1,181,876
1,212,861
841,613
713,850
1,192,525
2013
KD 000’s
1,208,430
1,271,936
104,451
1,032,803
1,061,098
1,017,472
729,813
589,751
913,263
─────────
─────────
═════════
═════════
8,801,704
7,929,017
Credit quality per class of financial assets
The credit quality of financial assets are summarised by reference to public ratings given to the
clients/counterparties by recognised and approved External Credit Assessment Institutions (ECAIs) namely
Moody’s, Standard and Poor’s and Fitch. Based on the rating systems as declared by the ECAIs, the ratings are
classified into Investment Grade and Non-Investment Grade ratings. Those who are not rated by any of these
three ECAIs are considered to be unrated. In order to ensure that the ratings are not considered selectively, if a
current rating from one of these ECAIs available in respect of any client/counterparty, it is always taken into
account and in such cases, the client/counterparty is not considered as unrated.
For further details regarding the Group’s credit risk management policy please refer to Basel III – Pillar 3
Disclosures under the risk management section of the annual report.
102
42
BURGAN BANK GROUP
At 31 December 2014
25.
A.
a)
Financial assets neither past due nor impaired
2014
Rated
Unrated
Investment
Non investment
grade
grade
KD 000’s
KD 000’s
KD 000’s
Sovereigns
Banks and OFIs
Corporates
Retail
Other credit exposures
738,191
640,157
97,791
57,530
───────
1,533,669
═══════
23,102
1,931
18,569
───────
43,602
═══════
2013
Rated
Non investment
grade
Investment grade
KD 000’s
KD 000’s
Sovereigns
Banks and OFIs
Corporates
Retail
Other credit exposures
b)
847,308
816,725
43,026
───────
1,707,059
═══════
Total
KD 000’s
438,301
353,569
3,488,478
487,697
189,614
───────
4,957,659
═══════
1,176,492
1,016,828
3,588,200
487,697
265,713
───────
6,534,930
═══════
Unrated
Total
KD 000’s
KD 000’s
70,705
20,463
───────
91,168
═══════
222,879
335,764
3,223,405
462,825
114,004
───────
4,358,877
═══════
1,070,187
1,223,194
3,223,405
462,825
177,493
───────
6,157,104
═══════
Financial assets past due but not impaired
For credit risk related exposures, a past due exposure is considered to be one where the client or counterparty has
failed to meet his contractual obligation to the Group towards payment of the interest or the principal or a part
thereof on the date on which such payment is due.
Banks and OFIs
Corporates
Retail
1 to 45
days
KD000's
2014
45 to 90
days
KD 000's
Total
KD 000's
1 to 45
days
KD 000's
143,754
15,035
22,547
11,739
166,301
26,774
121,941
11,703
Total
KD 000's
4,659
9,479
126,600
21,182
───────
───────
───────
───────
───────
───────
═══════
═══════
═══════
═══════
═══════
═══════
158,789
Fair value of collateral held*
2013
45 to 90
days
KD 000's
101,752
34,286
2,181
193,075
103,933
133,644
116,392
14,138
5
147,782
116,397
*Fair value of collateral stated above is to the extent of the outstanding exposure.
43
103
BURGAN BANK GROUP
At 31 December 2014
25.
A.
c)
Impaired financial assets
The Group considers an asset to be impaired if the realisable value of the asset is less than the value at which it is
carried in the books of the Group before it considers the necessity of making a specific provision for the same.
2013
2014
Total
KD 000's
Banks and OFIs
Corporates
Retail
2,251
146,017
29,255
Fair value of
collateral
Provision
held*
KD 000's
KD 000's
2,268
45,011
12,767
93,257
9,346
Total
KD 000's
Provision
KD 000's
2,244
154,252
19,408
Fair value of
collateral
held*
KD 000's
2,486
44,986
7,838
91,124
6,599
───────
───────
───────
───────
───────
───────
═══════
═══════
═══════
═══════
═══════
═══════
177,523
60,046
102,603
175,904
55,310
97,723
*Fair value of collateral stated above is to the extent of the outstanding exposure.
B.
MARKET RISK
Market risk is the risk that the value of an asset will fluctuate as a result of changes in market variables such as
interest rates, foreign exchange rates, and equity prices, whether those changes are caused by factors specific to
the individual investment or its issuer or factors affecting all financial assets traded in the market.
Market risk is managed on the basis of pre-determined asset allocations across various asset categories,
diversification of assets in terms of geographical distribution and industry concentration, a continuous appraisal of
market conditions and trends and management’s estimate of long and short term changes in fair value.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the fair value or cash flows of
the financial instruments. The Group takes on exposure to the effects of fluctuations in the prevailing levels of
market interest rates on its financial position and cash flows. This arises as a result of mismatches or gaps in the
amounts of assets and liabilities and off balance sheet instruments that mature or reprice in a given period. The
Group manages this risk by matching the repricing of assets and liabilities through risk management strategies.
The Group is exposed to interest rate risk on its interest bearing assets and liabilities (treasury bills and bonds with
CBK and others, due from banks and OFIs, loans and advances to customers, due to banks, due to OFIs, deposits
from customers and other borrowed funds).
The table below summarises the effect on net interest income as a result of the changes in interest rate:
Increase in interest rate "Basis Points"
50
100
Decrease in interest rate “Basis Points”
50
100
2014
KD 000’s
2013
KD 000’s
5,594
11,328
5,576
11,163
(3,893)
(6,882)
(5,677)
(11,364)
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange
rates. The Group takes on exposure to effects of fluctuations in the prevailing currency exchange rates on its financial
position and cash flows. The Board of Directors sets limits on the level of exposure by currency and in total for both
overnight and intra-day positions, which are monitored daily.
104
44
BURGAN BANK GROUP
At 31 December 2014
25.
B.
MARKET RISK (continued)
Currency risk (continued)
The table below analyses the effect on profit and equity of an assumed 5% strengthening in value of the currency rate
against the Kuwaiti Dinar from levels applicable at the year end, with all other variables held constant. A negative
amount in the table reflects a potential net reduction in profit or equity, where as a positive amount reflects a net
potential increase.
Currency
1
Jordanian Dinar
Algerian Dinar
Iraqi Dinar
Turkish Lira
US Dollar
Others
% Change in
currency rate
Effect on
profit
KD 000’s
+5
+5
+5
+5
+5
+5
780
334
155
63
630
549
2014
Effect on
equity
KD 000’s
13,924
3,929
4,112
6,171
2,910
-
Effect on
profit
KD 000’s
471
460
169
(65)
1,624
186
2013
Effect on
equity
KD 000’s
13,829
3,899
4,283
4,354
2,311
-
Equity price risk
Equity price risk is the risk that the fair values of equities will fluctuate as a result of changes in the level of equity
indices or the value of individual share prices. Equity price risk arises from the change in fair values of equity
investments. The Group manages this risk through diversification of investments in terms of geographical
distribution and industry concentration. The majority of the Group’s quoted investments are listed on the regional
Stock Exchanges.
The Group conducts sensitivity analysis on regular intervals in order to assess the potential impact of any major
changes in fair value of equity instruments. Based on the results of the analysis conducted there are no material
implication over the Group’s profit or other comprehensive income for a 5% fluctuation in major stock exchanges.
Prepayment risk
Prepayment risk is the risk that the Group will incur a financial loss because its customers and counterparties
repay or request repayment earlier than expected, such as fixed rate mortgages when interest rate fall. The fixed
rate assets of the Group are not significant compared to the total assets. Moreover, other market conditions
causing prepayment is not significant in the markets in which the Group operates. Therefore the Group considers
the effect of prepayment on net interest income is not material after taking in to account the effect of any
prepayment penalties.
45
105
BURGAN BANK GROUP
At 31 December 2014
25.
C.
LIQUIDITY RISK
Liquidity risk is the risk that the Group will be unable to meet its liabilities when they fall due. The Group is
exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits,
loan draw downs, guarantees. To limit this risk, the Group manages assets with liquidity in mind and monitors
liquidity on a daily basis.
The table below shows an analysis of financial liabilities and contingent liabilities and commitments based on the
remaining undiscounted contractual maturities:
31 December 2014
Due to banks
Other liabilities*
Up to 3
months
KD 000’s
518,217
288,756
3,901,988
2,306
198,872
163,555
107,326
486,271
4,291
14,233
6 – 12
months
KD 000’s
More than
12 months
KD 000’s
129,902
216,613
293,846
9,819
19,032
8,755
222,988
47,905
314,914
1,997
Total
KD 000’s
820,429
835,683
4,730,010
331,330
234,134
─────────
─────────
─────────
─────────
─────────
═════════
═════════
═════════
═════════
═════════
4,910,139
Contingent liabilities and
commitments
3–6
months
KD 000’s
666,534
775,676
348,102
669,212
475,078
596,559
466,508
6,951,586
1,956,222
═════════
═════════
═════════
═════════
═════════
411,234
238,594
3,440,854
2,221
86,422
87,307
139,939
610,575
5,296
15,685
69,016
485,257
574,657
9,732
17,839
4,853
23,271
48,240
323,307
98,244
572,410
887,061
4,674,326
340,556
218,190
31 December 2013
Due to banks
Other liabilities*
─────────
─────────
─────────
─────────
─────────
═════════
═════════
═════════
═════════
═════════
4,179,325
Contingent liabilities and
commitments
704,639
═════════
858,802
309,211
═════════
1,156,501
218,942
═════════
497,915
270,745
═════════
6,692,543
1,503,537
═════════
* Other liabilities include negative fair value of derivative financial liabilities (note 22).
The table below summarises the maturity profile of the Group’s assets and liabilities. The maturities of assets and
liabilities have been determined according to when they are expected to be recovered or settled. The maturity
profile for financial assets at fair value through profit or loss and financial assets available for sale is determined
based on management's estimate of liquidation of those financial assets. The actual maturities may differ from the
maturities shown below since borrowers may have the right to prepay obligations with or without prepayment
penalties.
106
46
BURGAN BANK GROUP
At 31 December 2014
25.
C.
LIQUIDITY RISK (continued)
31 December 2014
ASSETS
Up to 3
months
KD 000s
Treasury bills and bonds with CBK and
others
Due from banks and other financial
institutions
Other assets
Intangible assets
1,040,563
Total assets
3,242,461
3–6
months
KD 000s
-
6 – 12
months
KD 000s
-
1,040,563
120,318
74,252
172,009
629,819
391,568
1,404,819
84,526
57,745
-
149,870
417,758
16,235
2,910
-
112,364
524,218
33,228
3,447
-
36,017
2,039,671
350,953
195,393
93,566
166,754
689,819
4,386,466
484,942
259,495
93,566
166,754
747,509
3,054,363
7,751,424
4,236
216,190
43,025
222,982
1,997
955,887
801,178
825,250
4,708,331
226,644
234,134
955,887
642,484
1,444,317
7,751,424
105,025
1,610,046
────────
────────
════════
════════
════════
Due to banks
Other liabilities
Equity
515,694
288,524
3,894,921
198,872
-
162,673
106,769
481,569
1,368
14,233
-
118,575
213,767
288,816
2,294
19,032
-
4,898,011
Net liquidity gap
-
Total
KD 000s
263,240
────────
LIABILITIES AND EQUITY
More than
12 months
KD 000s
707,091
────────
────────
────────
════════
════════
════════
════════
════════
════════
(1,655,550)
766,612
(59,521)
────────
════════
────────
════════
════════
────────
════════
────────
════════
-
════════
31 December 2013
ASSETS
Treasury bills and bonds with CBK and
others
Due from banks and other financial
institutions
Other assets
Intangible assets
1,004,290
Total assets
3,159,265
-
-
127,993
83,663
115,002
583,647
338,659
1,436,956
44,721
77,650
-
148,831
333,933
3,309
4,463
-
170,351
367,066
41,159
6,105
-
42,242
1,816,893
332,213
149,920
81,378
170,965
700,083
3,954,848
421,402
238,138
81,378
170,965
668,344
2,708,613
7,154,751
4,807
22,807
44,624
222,767
98,244
619,827
568,561
880,492
4,640,084
227,597
218,190
619,827
1,013,076
7,154,751
────────
────────
════════
════════
════════
Due to banks
Other liabilities
Equity
407,988
238,453
3,424,601
86,422
-
87,038
139,658
603,080
2,415
15,685
-
68,728
479,574
567,779
2,415
17,839
-
4,157,464
Net liquidity gap
1,004,290
256,989
────────
LIABILITIES AND EQUITY
-
618,529
────────
────────
════════
════════
════════
════════
(998,199)
47
847,876
(229,347)
────────
1,136,335
════════
(467,991)
════════
────────
════════
────────
════════
1,695,537
════════
────────
════════
────────
════════
-
════════
107
BURGAN BANK GROUP
At 31 December 2014
25.
D.
OPERATIONAL RISK
Operational risk is the risk of loss arising from the failures in operational process, people and system that supports
operational processes. The Group has a set of policies and procedures, which are approved by the Board of
Directors and are applied to identify, assess and supervise operational risk in addition to other types of
risks relating to the banking and financial activities of the Group. Operational risk is managed by Risk
management. Risk management ensures compliance with policies and procedures to identify, assess, supervise
and monitor operational risk as part of overall Global risk management.
26.
CAPITAL MANAGEMENT
The primary objectives of the Group's capital management policy are to ensure that the group complies with
regulatory capital requirements and that the group maintains strong credit ratings and health capital ratios in order
to support its business and maximize shareholder value.
Capital adequacy, financial leverage and the use of various levels of regulatory capital are monitored regularly by
the Group’s management and are governed by guidelines of Basel Committee on Banking Supervision as adopted
by the CBK.
The Group’s regulatory capital and capital adequacy ratios,calculated under Basel III in accordance with CBK
Circular number 2/RB, RBA/A336/2014 dated 24 June 2014, are as shown below:
2014
KD 000s
Risk weighted assets
5,411,616
═════════
Total capital required
649,394
═════════
Common Equity Tier 1 (CET1) capital
Additional Tier 1 (AT1) capital
Tier 2 capital
506,578
151,651
72,418
─────────
Total eligible capital
730,647
═════════
CET1 capital adequacy ratio
Tier 1 capital adequacy ratio
Total capital adequacy ratio
9.4%
12.2%
13.5%
For the year ended 31 December 2013, the Group’s regulatory capital and capital adequacy ratios shown below
were calculated in accordance with CBK Circular number 2/BS/184/2005 dated 21 December 2005, as amended.
2013
KD 000s
Risk weighted assets
4,806,916
═════════
Total capital required
576,830
═════════
Capital available
Tier 1 capital
Tier 2 capital
474,365
266,300
─────────
Total capital
740,665
═════════
Tier 1 capital adequacy ratio
Total capital adequacy ratio
108
9.9%
15.4%
48
BURGAN BANK GROUP
At 31 December 2014
26.
CAPITAL MANAGEMENT (continued)
The Group’s financial leverage ratio for the year ended 31 December 2014, is calculated in accordance with CBK
circular number 2/BS/ 342/2014 dated 21 October 2014, is shown below:
2014
KD 000s
Tier 1 capital
658,229
═════════
Total exposure
8,142,360
═════════
Leverage ratio
27.
8.1%
═════════
FAMILY SUPPORT FUND
During the previous year, CBK issued its Circular No. 2/RB,RBA,RS/306/2013 to all local banks and investment
companies regarding formation of Family Support Fund (the “Fund”) under Law No. 104/2013. The Fund has been
established to purchase outstanding balance of instalment and consumer loans (the ‘loans’) from the Bank as on 12
June 2013 for loans granted before 30 March 2008.
As at 31 December 2014, the Bank has recorded loans amounting to KD 29,253thousand in memorandum account
(off-balance sheet) as it continues to manage them on behalf of the Fund.
49
109
A member of the KIPCO Group
driven by you
110
How to obtain our 2014 Financial Statements:
•
Shareholders attending our General Assembly
meeting will be provided with a draft printed copy
of the Financial Statement for their approval.
•
Shareholders can request a printed copy of the
Financial Statement to be sent to them by courier
seven days before the advertised date of the
General Assembly. Please call +965 2298 8000 to
arrange this.
•
Shareholders can request a copy of the Financial
Statement to be sent to them by email seven days
before the advertised date of the General Assembly.
Please send an email request to [email protected] to
arrange this.
•
Shareholders can download a PDF copy of the
Financial Statements seven days before the
advertised date of the General Assembly from our
company website – www.burgan.com
For further information on our 2013 Financial
Statement, please telephone +965 2298 8000.
Burgan Bank S.A.K
P.O. Box 5389 Safat 12170
State of Kuwait
Telephone: +965 2298 8000
Fax: +965 2298 8419
www.burgan.com
111
driven by you
LNS 7 I, Copyright ©, The al-Sabah Collection, Dar al-Athar al-Islamiyyah, Kuwait
This year, the annual reports of KIPCO Group companies each feature a key ivory artifact from Dar al-Athar al-Islamiyyah - one of the world’s finest
collections of Islamic art. These images are reproduced with the kind permission of the Dar al-Athar al-Islamiyyah.
How to obtain our 2014 Financial Statements:
Shareholders attending our General Assembly
meeting will be provided with a draft printed
copy of the Financial Statements for their
approval. Shareholders can request a printed
copy of the Financial Statements to be sent
to them by courier seven days before the
advertised date of the General Assembly; please
call +965 2298 8000
to arrange this.
Shareholders can request a copy of the Financial
Statements to be sent to them by email seven
days before the advertised date of the General
Assembly; please contact [email protected] to
arrange this.
Shareholders can download a PDF copy of the
Financial Statements seven days before the
advertised date of the General Assembly from
our company website – www.burgan.com
For further information on our 2014 Financial Statements or for extra copies of this Review, please telephone +965 2298 8000
P.O. Box 5389, Safat 12170, Kuwait, Tel: +965 2298 8000 Fax: +965 2298 8419
www.burgan.com

Annual Review 2014

Transcription

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