Annual Report 2020
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years Annual Report 2020 Arab Bank Group TABLE OF CONTENTS CHAIRMAN’S MESSAGE 4 CEO’S MESSAGE 5 BOARD OF DIRECTORS’ REPORT - MAIN BUSINESS ACTIVITIES OF ARAB BANK 7 - GEOGRAPHICAL COVERAGE 8 - BRANCHES & STAFF DISTRIBUTION ACCORDING TO GOVERNORATES 8 - ADDRESSES OF ARAB BANK BRANCHES AND OFFICES ABROAD 9 - TOTAL EMPLOYEES OF ARAB BANK GROUP 11 - CAPITAL INVESTMENT OF ARAB BANK 12 - SUBSIDIARIES & SISTER COMPANY 12 - DETAILED INFORMATION ON THE BANK’S SUBSIDIARIES & SISTER COMPANY 18 - MEMBERS OF THE BOARD OF DIRECTORS 23 - RESIGNED MEMBERS OF THE BOARD OF DIRECTORS DURING 2020 34 - SENIOR EXECUTIVES 35 - RESIGNED SENIOR EXECUTIVES DURING 2020 43 - SUMMARY OF PERFORMANCE APPRAISAL AND PERFORMANCE INCENTIVES POLICIES 44 - COMPETITIVENESS AND MARKET SHARE 45 - PATENTS & GOVERNMENT PROTECTION 46 - MAJOR SUPPLIERS AND CLIENTS 46 - GOVERNMENT OR INTERNATIONAL ORGANIZATIONS REGULATIONS 46 - ARAB BANK ORGANIZATION CHART / HEAD OFFICE 47 - NUMBER OF STAFF AND ACADEMIC QUALIFCATIONS 48 - TRAINING COURSES VS. TRAINEES IN JORDAN & ARAB AREAS IN 2020 50 - RISK MANAGEMENT 52 - ACCOMPLISHMENTS 2020 59 - FINANCIAL IMPACT OF NON-RECURRING OPERATIONS 60 - TIME SERIES DATA FOR MAJOR FINANCIAL INDICATORS (2016 – 2020) 61 2 - FINANCIAL PERFORMANCE 62 - FUTURE OUTLOOK AND PLANS FOR 2021 68 - EXTERNAL AUDITORS’ COMPENSATION IN JORDAN AND ABROAD 70 - NUMBER OF ARAB BANK SHARES OWNED BY MEMBERS OF THE BOARD 71 - NUMBER OF ARAB BANK SHARES OWNED BY SENIOR EXECUTIVES 72 - NUMBER OF ARAB BANK SHARES OWNED BY THE RELATIVES OF THE BOARD MEMBERS 73 - NUMBER OF ARAB BANK SHARES OWNED BY THE RELATIVES OF THE SENIOR EXECUTIVES 74 - BOARD OF DIRECTORS COMPENSATIONS AND BENEFITS PAID IN 2020 75 - NAMES OF MAJOR SHAREHOLDERS OF 5% AND MORE AND SHAREHOLDERS WHO OWN 1% OR MORE OF THE SHARE CAPITAL OF THE BANK, THE ULTIMATE BENEFICIAL OWNER 76 AND NUMBER OF PLEDGED SHARES - EXECUTIVE MANAGEMENT COMPENSATION AND BENEFITS IN 2020 78 - ARAB BANK’S DONATIONS DURING YEAR 2020 79 - TRANSACTIONS WITH RELATED PARTIES 80 - ENVIRONMENTAL PROTECTION 82 - CORPORATE SOCIAL RESPONSIBILITY 83 ARAB BANK GROUP - CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR 2020 95 - INDEPENDENT AUDITOR’S REPORT 181 ARAB BANK PLC - FINANCIAL STATEMENTS FOR THE YEAR 2020 187 - INDEPENDENT AUDITOR’S REPORT 271 ATTESTATION STATEMENTS 277 CORPORATE GOVERNANCE CODE 281 GOVERNANCE REPORT 295 DISCLOSURE ABOUT CORPORATE GOVERNANCE 305 AGENDAS OF THE 91ST ORDINARY GENERAL ASSEMBLY MEETING 306 ADDRESSES OF ARAB BANK’S MAIN BRANCHES AND SUBSIDIARIES, 307 AFFILIATES AND SISTER COMPANIES 3 , CHAIRMAN S MESSAGE The Arab banking sector was severely affected by the unprecedented global and regional economic contraction. Banking profitability dropped regionally and globally, due to lower interest rates and commission fees, a large increase in provisions to meet the expected rise in non-performing loans, weak lending opportunities, along with a retreat in portfolio quality and increased cost of risk. In response to the challenges the COVID-19 pandemic presented, Arab Bank was careful to support corporate and consumer customers, both of whom were affected by the pandemic. In line with government and regulator initiatives, Arab Bank supported community programs aimed at alleviating the burden on customers by restructuring, deferring, or reducing instalments and lowering interest rates for the most exposed sectors, Distinguished Shareholders, particularly small and medium enterprises. Arab Bank The global economy in 2020 had an unprecedented Group also donated US$25 million to support national contraction in its geographic coverage and intensity. The efforts aimed at mitigating COVID-19’s health, economic, COVID-19 crisis, with its worldwide lockdowns and social and social repercussions on citizens in Jordan and the distancing, disrupted the production process and led to other countries in which the bank operates. a significant fall in private investment and consumption, Since the beginning of the pandemic, we have prioritized particularly of services, including travel and tourism. The our employees and customers by harnessing our extensive global trade had a large drop as well. The harsh economic expertise across various levels to protect the bank’s impact of the pandemic was particularly evident during interests and ensure the continuity of its operations. I the first half of the year, as global economies adapted would like to reaffirm Arab Bank’s solid financial position the production and consumption processes to minimize and our immense belief in the ability of the local and economic disruptions while safeguarding people’s global economy to recover, enabling the Bank to achieve health and livelihood, ensuring a resilient economy, and higher future growth rates. mitigating the health, economic and social repercussions of the pandemic. To conclude, I would like to take the opportunity to thank the Central Bank of Jordan and the local authorities To various degrees, governments responded to the crisis for their pivotal role and efforts in overcoming the by raising public spending on healthcare and social exceptional circumstances we currently face. welfare, and supporting the most affected sectors and households. Also, global and Arab central banks adopted I would also like to extend our sincere appreciation and timely and solid policy measures, including reducing gratitude to our shareholders and valued customers interest rates, quantitative easing, and liquidity injections. for their loyalty and trust. Our thanks also go to all These measures ensured that the health and economic our employees across the different markets for their crisis does not turn into a financial and monetary relentless efforts and dedication, especially during this crisis, thus helping various sectors in coping with the crisis. As always, we are confident in Arab Bank’s ability to pandemic’s implications. overcome all challenges and continue to achieve the best results across all levels. The global economic contraction included the Arab region. Oil-exporting countries were affected by the sharp drop in the global demand for oil and in oil prices, particularly in the first half of the year. Also, the large drop in tourism, workers’ remittances and trade had a severe impact on Arab oil-importing economies, especially Sabih Taher Masri those that are more reliant on these economic flows. Chairman of the Board of Directors 4 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER Arab Bank Group has also worked hard to achieve sustainable growth by adopting prudent policies in diversifying revenue streams, managing expenditures, and building adequate allocations for risk management. In the period ahead, Arab Bank will continue to support vital industrial and economic sectors across the various markets in which we operate, direct our branch network to serve our valued customers across the various sectors, continue to provide comprehensive, technologically advanced, financing and banking solutions to our corporate and consumer customers, and strive for growth across our global branch network. In conclusion, I would like to thank our valued customers for their continued trust and our loyal employees across the network for their loyalty and dedication under all circumstances. Distinguished shareholders, Arab Bank Group ended 2020 with net income after tax of US$195.3 million, compared to US$846.5 million in 2019, a drop of 77%. The Group’s equity grew to US$9.4 billion in 2020, despite the unprecedented circumstances, Nemeh Elias Sabbagh compared to US$9.1 billion in 2019. In view of the global economic conditions during 2020, the bank has Chief Executive Officer maintained its prudent policy of applying precautionary measures to offset the economic challenges affecting the region and the world. The Group’s net operating income stood at US$1,007 million, 25% lower than the prior period due to the decrease in net interest and commission income, and the drop in the contribution of the bank’s associates. Customer deposits grew by 7% to reach US$38.7 billion, compared to US$36.2 billion in 2019, while loans grew by 1% to reach US$26.5 billion, compared US$26.1 billion in the previous year. The Group maintained its strong and robust capital base with a capital adequacy ratio of 16.8%. The Group also enjoyed high liquidity with a loan-to-deposit ratio of 68.4%, while credit provisions held against non-performing loans continue to exceed 100%. Arab Bank Group was able to deal with the COVID-19 crisis effectively by applying several measures to safeguard its healthy liquidity and capital ratios, maintain its resilient asset quality metrics, and scale up digital banking initiatives and channels for corporate and consumer clients across the group. These measures helped to ensure that the bank continued to be able to provide vital banking services to customers across the various sectors. Arab Bank’s solid position has enabled it to overcome the challenges faced during the crisis and enhance growth rates. The increased provisions taken across the group are in line with International Financial Reporting Standard #9 and the bank’s internal projected credit loss model. These provisions also include general provisions built due to the current economic situation in Lebanon. 5 , CHAIRMAN S MESSAGE MAIN BUSINESS ACTIVITIES OF ARAB BANK Corporate and Institutional Banking We closely monitor and measure the level of service we Arab Bank’s Corporate and Institutional Banking (CIB) offer our customers. Providing a high level of service division manages the group’s corporate and