Annual Report 2012 In the Name of Allah, Most Gracious, Most Merciful “Verily, Allah is the All-Provider, Possessor of Power, The Mighty” (Adh-Dhariyat 51;58) Boubyan Bank Annual Report 2012 1 Contents Board of Directors 4 Fatwa & Shari’a Supervisory Board 5 Executive Management 5 Chairman’s Message 6 Financial Highlights 2009 - 2012 9 Corporate Governance Report 10 Risk Management 20 Report of Fatwa & Shari’a Supervisory Board 36 Consolidated Financial Statements and Independent Auditors’ Report 37 2 Boubyan Bank Annual Report 2012 H.H. Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Emir of the State of Kuwait H.H. Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah Crown Prince H.H. Sheikh Jaber Mubarak Al-Hamad Al-Sabah Prime Minister Boubyan Bank Annual Report 2012 3 Board of Directors Mr. Adel Abdul Wahab Al-Majed Chairman & Managing Director Mr. Mahmoud Y. Al-Fulaij Vice Chairman Mr. Ahmad K. Al-Humaidhi Board Member Mr. Ahmed Yousef Al-Saqer Board Member Mr. Hazim Ali Al-Mutairi Board Member Mr. Abdulaziz Abdullah Al-Shaya Board Member Mr. Farid Soud Al-Fowzan Board Member Mr. Waleed Mishari Al-Hamad Board Member Mr. Yousef Abdullah Al-Qatami Board Member 4 Boubyan Bank Annual Report 2012 Fatwa & Shari’a Supervisory Board Sheikh Dr. Ajeel Jassim Al-Nashmi Chairman Board Sheikh Dr. Esame Khalaf Al-Enezi Member/Reporter Sheikh Dr. Mohammed Al-Fuzaie Member Sheikh Dr. Ali Al-Rashid Member Executive Management Adel Abdul Wahab Al-Majed Chairman & Managing Director Abdulla Al-Najran Al-Tuwaijri Deputy Chief Executive Officer - Consumer Banking and Banking Operations Group Abdul-Salam Mohammed Al-Saleh Deputy Chief Executive Officer - Corporate Banking & Treasury Group, Financial Control and Legal Affairs Adel Abdullah Al-Hammad General Manager - Human Resources Group Waleed Khalid Al-Yaqout General Manager - Administration Group Dr. Waleed Eisa Al-Hasawi General Manager - Information Technology Group Talal Abdullah Al-Wegayyan General Manager - Corporate Banking Group Leslie James Rice General Manager - Risk Management Abdul Rahman Hamza Mansour General Manager - Internal Audit Mohamed Ibrahim Ismail Deputy General Manager - Financial Control Group Fahad Ahmad Al-Fouzan Deputy General Manager - Banking Operation Group Mukkulam Jamal Jaffar Deputy General Manager - Treasury Services Boubyan Bank Annual Report 2012 5 Chairman’s Message Valued Shareholders, And in order to maintain excellence, the Bank offered For myself and on behalf of Board members and a variety of products and services targeting the executive team, I would like to extend to you deepest different sections of society, which really represented a thanks for the support you provided to us throughout the distinguished package some of which were introduced for past period, and I find pleasure in presenting to you the the first time in Kuwait and others are still solely provided Annual Report for year 2012, which includes all figures by our Bank. In addition, we adopted a distinguished and financial statements highlighting the achievements approach in rewarding our customers by changing the crowned, thanks be to Allah, by the realization of profits concepts of promotion campaigns, placing the slogan despite the hard operational environment encompassing “With Boubyan.. All Are Winners” instead of the common the different economic sectors. draws on prizes. Successful Strategy As part of its strategy, Boubyan Bank continued to focus By the end of year 2012, we have completed the first on products and services targeting affluent customers with 3 years of our Five-Year Strategy (2010-2014), which high net worth (platinum banking); as we noticed, through certainly realized many of its objectives, as mainly our marketing studies about the local market, that there represented in returning to profitability starting from year is a dire need to provide a package of these special, elite 2012, and even returning to profit distribution to our services that cater to this section of customers looking for esteemed shareholders, with the Help of Allah. banking services fulfilling their needs and matching their business and lifestyle; therefore, we launched platinum A set of key factors, mainly represented in the NBK’s banking for them. entry as a major shareholder in Boubyan Bank, have contributed to the realization of many of our strategic Meanwhile, the Bank continued to develop its services objectives, key among which is returning to the core provided to private banking customers by offering them banking activities, expansion in the local market through more of the privacy they always seek, in addition to quick our retail and corporate products and services, and execution of all their transactions, and fulfilling all their provision of the same in a different and distinguished financial and investment needs in a highly professional manner; thus growing our market share and boosting our manner. competiveness. On the other hand, based on figures and statistics, we As far as local geographical expansion is concerned, we have an optimistic outlook, as we managed during a would say that our goals set starting from year 2010, short period to uplift our market share to decent ratios, which is reaching 30 branches by the end of year 2014 considering the circumstances we faced and the ardent has become within reach, as the number has already competition in the Kuwaiti market, especially Islamic recorded 22 branches by the end of year 2012, and in financial services; as we managed, thanks be to Allah, view of planning to open new 6 to 7 ones in year 2013, to boost our market share to 4.7% by the end of year all in residential areas with high population, in order to 2012, compared to 2.3% in year 2009, and raise personal always be closer to our customers, which means that by finance to 5.7% now, compared to 1.2% during the same the end of year 2014, we will have exceeded our preset period. goals. 6 Boubyan Bank Annual Report 2012 Our strategy focused on mid- and large-size companies to The Academy represents a qualitative leap in the area of render Boubyan the bank of choice for companies, as our professional training and development, not only on the Corporate Banking Group maintains strong relationships level of local banks, but also regional banks, as it shifts with many national companies operating in productive training and development concepts from the traditional economic sectors and provide them the best banking approach to a more advanced one as seen in granting the service. renowned academic certificates (bachelor’s and master’s degrees) in cooperation with the most prestigious Despite the hard economic circumstances, Boubyan Bank American and international universities. managed to realized excellent growth rates in the credit portfolio to 23% during year 2012, which is one of the Our Social Responsibility highest growth rates in the local market, by soliciting many Social responsibility and social service are considered productive companies known for economic and financial the corner stone of the Bank’s dealings with all sections solvency, whilst adhering to the highest standards of of society, in order to contribute to development and creditworthiness and risk study and diversification. building of a society that is able to confront all regional and international variables. Accordingly, Boubyan Bank During 2012, Corporate Banking Group arranged and had a pioneer role by launching many social responsibility managed syndicated finance transactions with local initiatives and supporting various activities and events and international banks for various companies, as for targeting the different sections of society, especially instance, the Bank managed and participated in a finance people with special needs and youth; and maybe the transaction for Mobile Telecommunication Company – best example here is “The Big Tree Society” initiative Kuwait “Zain” valuing USD 175 million. organized for Kuwait schools by the Bank in cooperation with UNESCO. Our Human Resources Since the early beginning of implementing the new International Awards and Certificates strategy stating from 2010, we have taken into account Boubyan Bank continued to receive regional and that no success can be attained without relying on our international appreciation by winning many awards and human resources and our ability to solicit distinguished certificates of appreciation, mainly including: Best Islamic cadre in the local market, and develop the capabilities of Bank in Kuwait for Customer Service for the second all our staff, while focusing on Kuwaiti youth, as we were year in a row from “Service Hero”, Best Islamic Bank in able to raise national labor ratio to above 64%, which is Elite Credit Card Services from “The Banker Middle East one of the highest ratios in the private sector in general Magazine”, Best Islamic Bank in Kuwait from “World and banks in specific. Finance”, Fastest Growing Bank in Kuwait from “The Banker Middle East Magazine” and Best Islamic Bank in To this end, year 2012 witnessed the launch of ITQAN Kuwait from “Arabian Business”. Academy, which is the first of its kind amongst local and regional banks, and represents an advanced and innovative model for training human resources and developing young Kuwaiti leaders in cooperation with Gulf University for Science and Technology (GUST), which acts as the “exclusive academic partner” for Boubyan Bank in Kuwait. Boubyan Bank Annual Report 2012 7 Chairman’s Message NBK Family To Conclude.. We all know that the acquisition of the National Bank of On this occasion,