Commercial Bank of Kuwait

Commercial Bank Of Kuwait His Highness Sheikh His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Nawaf Al-Ahmad Al-Jaber Al-Sabah Amir of the State of Kuwait Crown Prince TABLE OF CONTENTS Board Of Directors 4 Introduction 6 Chairman’s Message 8 Executive Management 12 Economic Background 14 Review of Operations 16 Corporate Governance Rules and Systems 32 Financial Review 48 Financial Information 50 Branch Network 130 2 Commercial Bank Of Kuwait المؤشرات المالية FINANCIAL TRENDS 49,122 46,185 1.12 1.21 23,534 0.62 1,119 0.03 810 0.02 2015 2014 2013 2012 2011 2015 2014 2013 2012 2011 Net proﬁt Attributable to Shareholders Return on Average Assets % of the Bank KD 000's 9.09 34.9 8.52 32.7 4.26 16.7 0.21 0.16 0.9 0.6 2015 2014 2013 2012 2011 2015 2014 2013 2012 2011 Return on Shareholders’ Equity Earning Per Share Attributable to (Average)% Shareholders of the Parent Bank Fils Per Share 4,212,763 557,418 4,037,351 552,960 552,056 3,929,472 530,476 527,293 3,668,096 3,714,292 2015 2014 2013 2012 2011 2015 2014 2013 2012 2011 Total Assets Equity Attributable to Shareholders KD 000's of the Bank KD 000's Annual Report 2015 3 BOARD OF DIRECTORS Mr. Ali Mousa M. Al Mousa Chairman Sheikh. Ahmed Duaij Al Sabah Mr. Abdulrazzak A. Al Kandari Mr. Abdulrahman Abdullah Al Ali Vice Chairman Member Member Dr. Arshid Abdulhadi Al Houri Mr. Bader Sulaiman Al Ahmad Mr. Musaed Nuri Al Saleh Member Member Member Rasha Y. H. Al Awadhi Hazem Meshari Al Khaled Mona Mousa Al Sarraf Member Member Member Annual Report 2015 5 INTRODUCTION INTRODUCTION Commercial Bank of Kuwait, the second oldest incorporated Bank in Kuwait has set focused objectives to become among the leading banks in Kuwait by providing innovative banking services & unrivalled investment solutions which meet all needs & requirements of its retail and corporate customers and demonstrate its well-established and profound franchise in Kuwait banking industry. The global economy saw many challenges & difficulties represented in the unfavorable geopolitical conditions and the volatile growth rates of the world’s largest economies that took its toll on Kuwait’s economy which was adversely affected by the tumbling oil prices. However, and through its well-defined strategy, prudent vision & conservative approach of its Management that remain on course for addressing all variables & conditions posed by the operating environment, Commercial Bank of Kuwait managed to realize the aspired objectives amidst vulnerable and difficult economic conditions. The Bank will endeavor to enhance and reinforce the confidence it has built with its customers over the past 5 decades by providing superior banking products and services that meet customers’ requirements and cater for their aspirations to remain the Bank of choice for customers. The Bank will strive to maintain its significant role in corporate social responsibility as a socially responsible financial institution that seeks to underpin principles of corporate social responsibility initiatives. Annual Report 2015 7 Ali Mousa M. Al Mousa Chairman 8 Commercial Bank Of Kuwait CHAIRMAN’S MESSAGE In the name of Allah the Most Gracious, the Most Merciful Our valued shareholders, On behalf of myself and the Board of Directors, I am pleased to present an overview on the Bank’s business results. The attached financial statements contained all details, information, statements and disclosures required by the law and the regulatory instructions. We hope to shed light on the issues of concern for our valued shareholders and the Bank’s stakeholders. First: Highlights on the Main Items as Contained in Financial Statements The Bank’s financial statements reveal clearly the contracting trend adopted by the Bank’s Management in mid 2014 and onward until 2015. This trend covers the Bank’s operations and assets with the objective of improving asset classes and enhancing the Bank’s ability to avert and overcome any risks that may arise in the future. Unfortunately, certain risks materialized as a reflection of the economic variables Kuwait economy has witnessed as a result of downfall in oil prices and resultant decline in the State’s revenues. Cognizant reader of the Bank’s financial statements will obviously realize that the Bank’s shareholders’ equity and Return on Equity showed an improvement. This was coupled by healthier retained earnings & provisions. The Bank managed to deal with the sudden state of instability suffered by some of its customers without any impact on the Bank’s position except for the contracting trend that prevailed in its activities. Total Assets & Growth The total assets decreased by 4.2% to reach KD 4,037 million at the end of December 2015 compared with KD 4,213 million at the end of December 2014. This contracting trend was triggered by the Bank’s Senior Management’s decision to restructure the Bank’s assets & liabilities for improving assets quality and income on the same. This led to improvement of profitability across certain divisions at the Bank, particularly Treasury & Investment Division and International Banking & Syndication Loans Division. This contracting trend was also a by-product of the Bank’s policy targeting off-loading the doubtful debts and this issue will be illustrated in the coming lines. The Bank’s total loans portfolio of KD 2,297 as at the end of December 2015 was lower by 0.99% compared with KD 2,320 million at the end of December 2014. This decrease was driven from the Bank’s continued strategy targeting improvement of loans portfolio quality and off-loading non-performing loans from the Bank’s records without waiving any of the Bank’s legal rights. The accumulated balance of off-loaded debts amounted to KD 601.7 million and this figure is usually not published in the financial statements. The Bank continues initiating the required procedures towards the debtors who obtained such loans so that the Bank can get the largest possible amount of such loans. Undoubtedly, the off-loaded debts are one of the reasons behind the decrease in the Bank’s total assets. It is worthwhile to note that percentage of the non-performing loans to total loans portfolio stood at 0.9% at the end of December 2015 which is among the best NPL ratios at the level of banking sector in Kuwait if not the best. Annual Report 2015 9 Provisions Over the past years, the Bank adopted a conservative approach for building up the required provisioning base (general or specific). The Bank continues with this approach which primarily aims at hedging against customers’ defaults or impairment of the Bank’s investments, thus solidifying the Bank’s balance sheet to avert any potential risks that may arise in the future. The Bank’s provisions amounted to KD 125 million and the provision coverage ratio for NPL stood at 571.4%. Profitability & Shareholders’ Equity Total operating income of KD 136.2 million was lower by approximately 5.7% compared with KD 144.4 million for 2014. The net profit amounting to KD 46.2 million (32.7 fils per share) as at the end of December 2015 was 6.3% lower than KD 49.2 million (34.9 fils per share) at the end of December 2014. It is to be noted that the net profit declined as the Bank off-loaded some doubtful loans within its precautionary measures. Return of Assets (ROA) stood at 1.12% and Return on Equity (ROE) stood at 8.52% at the end of December 2015 compared with 1.21% and 9.09% respectively as at the end of December 2014. In this regard, the retained earnings carried forward to the coming year amounted to KD 152.1 million with an increase of KD 19.5 million (14.7%) in 2015 compared with KD 132.6 million at the end of 2014. This was the main reason of the increase in the Bank’s shareholders’ equity from KD 527.3 million at the end of December 2014 up to KD 557.4 million at the end of December 2015 with an increase of KD 30.1 million (5.7%). Capital Adequacy & Leverage Ratios The capital adequacy ratio stood at 18.39% at the end of December 2015 compared with 18.15% at the end of 2014 and this ratio comfortably exceeds the ratio mandated by the regulatory authorities represented in the Central Bank of Kuwait. Furthermore, leverage ratio stood at 11.5% and liquidity coverage ratio reached 138.5% and these ratios comfortably exceeds the minimum requirements set by the Central Bank of Kuwait. Second: Future Challenges All economists and financial experts were monitoring the economic conditions in 2015 with major concern. These worries and concerns were due to tumbling of oil prices which started at the end of 2014, not to mention the downward indicators and a state of disruption in managing China economy, the world’s second largest economy and one of the largest industrial products & commodities exporting countries and is amongst the largest importers of raw materials in all its forms. In addition, the European Union market is still struggling to establish mechanisms for driving an economic growth. 10 Commercial Bank Of Kuwait In view of the above, we have experienced and undergone a state of uncertainty and doubts that the global economy may slip into recession. All these negative signs were reflected on the domestic economy with the prices of quoted shares dramatically falling, apart from the real estate market which plummeted leaving huge drop on real estate prices. Despite the above negative indicators, government spending remains a main factor in enhancing the local economy drive and this is positively reflected on banks’ business results where the Bank endeavors to snap up the available investment opportunities besides its efforts exerted to develop the products and services provided to its customers.

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