National Bank of Kuwait 2018 ANNUAL REPORT & FINANCIAL STATEMENTS Diversifying for the Future 2018 AT A GLANCE global USD billion 4 continents 6,318 employees 90.4 total assets return on capital average adequacy 12.0% equity % NPL ratio % ratio 1.38 17.2 Total Assets Loans, Advances and Islamic Financing 2018 90,432 2018 51,116 2017 85,838 2017 47,816 2016 79,917 2016 44,878 70,000 75,000 80,000 85,000 90,000 95,000 40,000 42,000 44,000 46,000 48,000 50,000 52,000 USD million USD million Total Equity Customer Deposits 2018 12,203 2018 47,441 2017 11,741 2017 45,432 2016 11,226 2016 41,570 9,000 10,000 11,000 12,000 13,000 38,000 40,000 42,000 44,000 46,000 48,000 USD million USD million Net Profit Attributable to Shareholders Net Operating Income 2018 1,222 2018 2,912 2017 1,063 2017 2,712 2016 973 2016 2,457 0 500 1,000 1,500 2,200 2,400 2,600 2,800 3,000 USD million USD million DIVERSIFYING FOR THE FUTURE In 2018, NBK realised considerable progress in pursuit of its diversification strategy. Our diversification as a bank extends to our product and service offering, our growing reach in all existing geographies, our pursuit of new business avenues, and our commitment to a digital transformation that will form the foundation for our growth in the future. Learn more in this report. P. 12 VISION MISSION VALUES To deliver world class products and the highest service quality to our customers To attract, develop and retain the best banking talent in the region Passion The trusted Bank of choice, To support the communities in Integrity building on our core values, which we operate people and expertise Conservatism To adhere to our core values of passion, Knowledge integrity, conservatism and knowledge By doing so, we believe that we will be able to achieve consistently superior returns to our shareholders ABOUT NBK Founded in Kuwait City in 1952, the National Bank of Kuwait Ownership S.A.K.P. (‘NBK’ or the ‘Bank’) is the country’s longest-serving Established by a group of leading Kuwaiti merchants, NBK has local bank – and the first shareholding company in Kuwait retained its core shareholder base since inception. Its shares and the Gulf Cooperation Council (‘GCC’). Over 65 years, NBK have been listed on the Kuwait Stock Exchange since 1984, has established itself as Kuwait’s leading financial institution, with a single shareholder (the Public Institution for Social extending its franchise across the Middle East and beyond, to Security) owning more than 5% of the share capital (5.53% global markets. Today, NBK has more than 140 branches in as at 31 December 2018). NBK’s market capitalisation as at 15 countries across 4 continents. 31 December 2018 was USD 16.8 billion. The Bank has a reputation for experienced and stable Operations management, with a clear strategy for strengthening its core With a truly international footprint, NBK’s main operational business and expanding into new segments and markets. focus is on the Middle East and North Africa (‘MENA’) region. It has consistently achieved a highly competitive level of The Group also has presence in China, France, Singapore, profitability, leading to robust shareholder returns, supported Switzerland, Turkey, the United Kingdom and the United by high quality assets and a strong level of capitalisation. NBK States. The Bank’s core business segments are: offers customers a comprehensive range of financial products and investment services, with solutions for individuals, 1. Consumer and private banking corporates and financial institutions. NBK is Kuwait’s leading 2. Corporate banking banking group in terms of assets, customer deposits, and 3. Islamic banking (through subsidiary Boubyan Bank) customer loans and advances. 4. Investment banking and asset management (through subsidiary NBK Capital) HH Sheikh HH Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Nawaf Al-Ahmad Al-Jaber Al-Sabah Emir of the State of Kuwait Crown Prince of the State of Kuwait CONTENTS STRATEGIC REVIEW GOVERNANCE FINANCIAL STATEMENTS Chairman’s statement 04 Board of Directors 44 Board of director’s report 114 Business model 06 Executive Management 48 Independent auditor’s report 116 Institutional strength 08 Corporate governance 56 Consolidated statement of 122 framework income GCEO’s message 10 60 Consolidated statement of 123 Board of Directors and comprehensive income Committee meetings Diversifying for the future 12 Effective Implementation 61 Consolidated statement of 124 of the Corporate financial position Governance Framework GCFO’s review 14 Remuneration policy 65 Consolidated statement of 125 and framework cash flows Economic environment 16 Internal control 67 Consolidated statement of 126 adequacy report changes in equity Strategy & KPIs 22 Internal Control Review 68 Notes to the consolidated 128 by External Party financial statements Operating review 26 Ethics & professional 70 Group Directory 187 conduct People 37 Stakeholders’ rights 71 Local Branches 188 Sustainability 39 Group Risk 72 International Branches 189 Management 1 National Bank of Kuwait Annual Report 2018 STRATEGIC REVIEW The objective of our strategy is to achieve consistently superior returns for shareholders. The strategy is built on three cornerstones that guide the priorities we set for our business units and internal functions. They are to defend our leadership in core businesses, to grow outside the core, and to improve profitability. 2 National Bank of Kuwait Annual Report 2018 3 National Bank of Kuwait Annual Report 2018 CHAIRMAN‘S STATEMENT “Our diversification extends to the product and service offering, growth in existing geographies, pursuit of new business opportunities, and our commitment to a digital transformation that will position the Bank for future growth.” On behalf of the Board of Directors, I am pleased to introduce National Bank of Kuwait’s 2018 Annual Report. Diversifying for the future As this report shows, we enjoyed another robust year As you will discover in greater detail on later pages, 2018 of performance, increasing the scale and contribution was a year for diversification of our business, as well of our international operations while consolidating as for a focus on a digital transformation programme our leadership position in Kuwait. With an eye to the that will assure our future growth. Diversification can future, we achieved considerable progress in pursuit of mean many things for a bank of our size. In this context, our diversification strategy. Our diversification extends it extended to our products; our sources of income – to the product and service offering, growth in existing particularly in international markets; and to our people, geographies, our approach to new business opportunities, with important new senior hires made in 2018. All will and our commitment to a digital transformation that will be vital as we look to grasp the immense range of position the Bank for future growth. opportunities that are available to us. In technology and digitisation, we are already making considerable strides Our operating environment – particularly in terms of our internal operations, but also While the wider MENA region was characterised by in the platforms and services that we are developing for geopolitical challenges, creating headwinds for economic our customers. Both will be essential as, in the future, we growth, Kuwait was resilient to the volatility around it. seek to compete with the world’s most advanced banks. As global oil prices improved in the first half of the year, they retreated just as quickly in the final quarter. The Governance first uplift gave a major boost to GCC sovereign balance We believe that good Corporate Governance is the key to sheets – with improved fiscal positions, although these maintaining the trust that our stakeholders place in us. were somewhat dented by bearish market conditions In our view, solid governance is the cornerstone of a later in the year. successful and sustainable bank. Throughout the year, we continued to develop and enhance our practices, Wherever prices go, Kuwait’s lower fiscal break-even oil completing periodic review and enhancement of our price gives much protection from future volatility, and Board Charter and Corporate Governance policies, in this is borne out by the strong sovereign credit ratings addition to a periodic independent Board Effectiveness that it has maintained. GDP growth is projected to reach Evaluation. 2.9% in 2018, with non-oil growth reaching 2.8%. The pipeline of scheduled project awards remains robust – One of my own priorities is to foster the right dynamic on and this will continue to be an important growth driver the Board, by having Directors with the appropriate range for the country. In that regard, the role that NBK will and balance of skills, expertise and attributes – to ensure play in supporting economic growth and the agenda of constructive challenge and support of the executive ‘New Kuwait 2035’ is assured – we are the no.1 Bank for team, led by our Group Chief Executive Officer. financing public and private projects, a status that we intend to maintain. 4 National Bank of Kuwait Annual Report 2018 “We enjoyed another robust year of performance, increasing the scale REVIEW STRATEGIC and contribution of our international operations while consolidating our leadership position in Kuwait.” GOVERNANCE who have endeavoured to maintain the Bank’s strategic The Board of Directors continued to perform its duties path while exploring new avenues for growth. The during the year, providing wise counsel and expert diversification success that was realised in 2018 owes guidance to management. NBK’s Ordinary (AGM) and a great deal to their leadership. I would like to thank Extraordinary (EGM) General Assembly Meeting for our customers, across markets, who continue to place STATEMENTS FINANCIAL FY2017 was held in March 2018, at which there was their trust in the Bank; and our employees – who a quorum of 78.1%.