Building our Digital Future Annual Report 2019 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 At a glance 4 96,587 54,620 Continents 51,158 90,506 47,855 85,909 6,970 2017 2018 2019 2017 2018 2019 Global Employees Total Assets (USD million) Loans, Advances and Islamic Financing (USD million) 1.10% 10,584 52,567 NPL Ratio 9,731 47,480 9,421 45,470 12.3% Return on Average 2017 2018 2019 2017 2018 2019 Equity Total Equity (USD million) Customer Deposits (USD million) 1,324 2,955 96.6 1,223 2,914 USD Billion Total 1,064 Assets 2,715 17.8% 2017 2018 2019 2017 2018 2019 Capital Adequacy Ratio Net Profit Attributable Net Operating Income (USD million) to Shareholders (USD million) About NBK Founded in Kuwait City in 1952, the Ownership France, Singapore, Switzerland, Turkey, the National Bank of Kuwait S.A.K.P. (‘NBK’ United Kingdom and the United States. or the ‘Bank’) is the country’s longest Established by a group of leading Kuwaiti NBK’s main business segments are: serving local bank – and the first merchants, NBK has retained its core shareholding company in Kuwait and the shareholder base since inception. Its 1. Consumer and private banking Gulf Cooperation Council (‘GCC’). Over shares have been listed on the Kuwait 2. Corporate banking 67 years, NBK has established itself as Stock Exchange since 1984, with a 3. Islamic banking (through subsidiary Kuwait’s leading financial institution, single shareholder (the Public Institution Boubyan Bank) extending its franchise across the Middle for Social Security) owning more than 4. Investment banking and asset East and beyond, to global markets. Today, 5% of the share capital (5.53% as at management (through subsidiary NBK NBK has more than 150 branches in 15 31 December 2019). NBK’s market Capital) countries across 4 continents. capitalisation as at 31 December 2019 was USD 22.8 billion. The Bank has a reputation for experienced and stable management, with a clear Operations strategy for strengthening its core business and expanding into new segments and With an international footprint, NBK’s markets. It has consistently achieved a operational focus is on the Middle East highly competitive level of profitability, and North Africa (‘MENA’) region. The leading to robust shareholder returns, Group also has a presence in China, supported by high quality assets and a strong level of capitalisation. NBK offers customers a comprehensive range Values of financial products and investment services, with solutions for individuals, corporates and financial institutions. NBK is Kuwait’s leading banking group in terms of assets, customer deposits, and Passion customer loans and advances. Mission Integrity Conservatism Knowledge To deliver world class products and the highest service quality to our customers To attract, develop and retain the best Vision banking talent in the region To support the communities in which we operate The trusted bank of To adhere to our core values of passion, integrity, conservatism and choice, building on our knowledge core values, people By doing so, we believe that we will be able to achieve consistently superior and expertise returns to our shareholders Contents 3 Financial Statements Board of Directors’ Report P 96 2 Independent Auditors’ Report Governance P 98 Consolidated Statement of Income P 104 Board of Directors Consolidated Statement P 26 of Comprehensive Income P 105 1 Executive Management P 30 Consolidated Statement of Financial Position Strategic Review Corporate Governance P 106 Framework P 38 Consolidated Statement of Cash Flows Board of Directors and P 107 Chairman’s statement Committee meetings P 04 P 41 Consolidated Statement of Changes in Equity Year in review Effective Implementation of P 108 P 06 the Corporate Governance Notes to the Consolidated Institutional strength Framework Financial Statements P 07 P 42 P 110 Group CEO’s message Remuneration policy and P 08 framework P 47 Building our digital future P 10 Internal control adequacy report Business model P 48 P 12 Internal control review by Strategy external party P 14 P 49 Key performance indicators Ethics and professional Building our P 16 conduct International scene and outlook P 50 digital future P 18 Stakeholder’s rights NBK’s priorities simultaneously shift with Group CFO’s review P 51 P 22 market forces. The Bank has established a Group risk management 5-year digital road map that will solidify its P 52 leadership position for innovative financial services in Kuwait and across the Middle East, better meeting the changing needs of customers. The journey to achieving this leadership is already underway, with the road map built on 3 execution streams: customer facing initiatives, internal initiatives to transform processes, and digital culture and execution capacity. More information on how we are ‘building our digital future’ can be found on p. 10. NBK Annual Report 2019 Strategic Review The objective of our strategy is to achieve consistently superior returns for shareholders. The strategy is built on 3 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. 1 Strategic Review Chairman’s statement Nasser Musaed Abdulla Al–Sayer Chairman of the Board of Directors On behalf of the Board of Directors, it is my pleasure to introduce National Bank of Kuwait’s 2019 Annual Report. Navigating market headwinds, NBK delivered another set of healthy results, “NBK delivered another strengthening profitability while investing in business growth in various geographies, and executing against an ambitious set of healthy results, digitisation roadmap. We remain a highly diverse banking group, and this plays a significant role in protecting and enhancing the strengthening profitability quality of our income. The Bank is on the right path to future growth, and the pages that follow will offer in-depth analysis of our while investing in activities and performance for the year, with an informative view on the years to come. business growth in Operating environment various geographies, Geopolitical tensions and the ongoing US-China trade war have and executing against an proved disruptive to global growth and in MENA the continuation of a low oil price environment and political instability has put ambitious digitisation pressure on oil exporting economies. GDP growth in Kuwait was below expectation in 2019, due to lower oil output resulting from roadmap.” compliance with OPEC-imposed production cuts. Although Kuwait’s near-term growth outlook remains modest, there has been a good deal of positive news concerning structural reforms and business conditions. Kuwait jumped 8 places to 46th (out of 141 countries) in global competitiveness rankings compiled by the World Economic Forum, thanks to significant improvements in sub-categories including ICT, health and labour markets. Perhaps most pleasingly, Kuwait ranked joint first in the world for ‘macro stability’, thanks to low inflation and healthy debt dynamics. NBK Annual Report 2019 NBK still benefits from a stable macroeconomic the Board of Directors’ recommendation to operating environment and will continue to distribute a cash dividend of 35 fils per share, No. 1 contribute to its growth and stability during the representing 35.0% of the nominal share value in Kuwait’s ranking for coming years. addition to 5% bonus shares. The Board and its macroeconomic Committees held a total of 54 meetings during stability (World Institutional strength 2019. The Board of Directors will recommend Economic Forum). a dividend distribution of KD 226.4 million for With a 67-year history as a national champion 2019 equivalent to 35 fils per share at the Annual in Kuwait, the strength of the foundations of our General Meeting that will be held in March 2020. institution are what provide us with such a solid The proposed cash dividend represents 56.4% of platform for growth. Having expanded our franchise NBK Group’s Net Profit for 2019. The Board will also More than to over 150 branches in 15 countries across 4 recommend the distribution of 5% bonus shares. continents, we have a truly diverse global presence; As at 31 December 2019, the Bank’s total market 150 and with operations across consumer and private capitalisation was KD 6.9 billion. branches banking, corporate banking, Islamic banking and investment banking and asset management, A robust and comprehensive Corporate 15 we have a genuinely wide-reaching portfolio of Governance framework is essential for establishing countries services. This diversity further supports the robust and maintaining the trust we seek from character of our institution. stakeholders. Healthy governance is, as such, the cornerstone of a sustainable bank. We continue to In 2019, our institutional strength was confirmed by build on our governance processes and practices, the world’s 3 top credit rating agencies – Moody’s, with scheduled review and enhancement of the Standard & Poor’s and Fitch Ratings – who reaffirmed Board Charter and Corporate Governance policies, their strong credit ratings for NBK with stable long- in addition to Board Effectiveness Evaluation. term outlooks. The assurance provided by these agencies is further demonstrated by the trust that We are of the belief that our Board is staffed by customers and shareholders place in the Bank, and members possessing the correct range and balance we have made it our mission to continue earning it. of expertise and professional qualities – challenging and supporting executive management in the Commitment to stakeholders appropriate manner. The Board of Directors continued to perform its Gratitude duties in 2019, providing advice and feedback to Management. NBK’s General Assembly meeting On behalf of the Board of Directors, our thanks for 2018 was held in March 2019, at which there are due to NBK’s Executive Management, as they was a quorum of 79.97%.