www.kfh.bh 0080528_KFH80528_KFH AAnnualnnual Report_extra.i1Report_extra.i1 1 55/29/08/29/08 33:13:30:13:30 PPMM Kuwait Finance House - Bahrain Annual Report 2007 0080528_KFH80528_KFH AAnnualnnual Report_extra.i2Report_extra.i2 2 55/29/08/29/08 33:13:30:13:30 PPMM CONTENTS 02 Vision & Mission 04 3 Year Highlights 06 Chairman & Managing Director’s Statement 10 General Manager’s Statement 12 Board of Directors 14 Management Team 20 Investment Portfolio 34 Consumer Finance & Corporate Finance 36 Asset & Liabilities Management 38 Risk Management 40 Corporate Social Responsibility 42 Shari’a Board Statement 43 Auditor’s Report 44 Financial Statements HH Shaikh Khalifa bin HM Shaikh Hamad bin HH Shaikh Salman bin Salman Al Khalifa Isa Al Khalifa Hamad Al Khalifa Prime Minister King of The Kingdom of Bahrain Crown Prince, Deputy Supreme Commander Our Vision & Mission 2 KFH-Bahrain - Annual Report 2007 Bringing Banking to Life VISION At KFH-Bahrain we believe that banking is not just about money. For us it’s something that can improve people’s lives. Whether we’re providing commercial and investment banking services or financial products for consumers, we start by understanding our customers. Then, by focusing on innovation, we provide leading edge Islamic banking solutions that truly enhance their lives whilst staying faithful to Shari’a principles. MISSION It is our mission to Bring Banking to Life by focusing on innovation and insisting on excellence in everything we do – including the development and provision of a wide range of integrated products and services in perfect harmony with Shari’a principles. Our mission and our commitment are backed by a robust financial position and a long and proven heritage of ingenuity, innovation and integrity. 49% 135% 52% Net Income Customer Deposits Operating Income 3 Year Highlights 4 KFH-Bahrain - Annual Report 2007 82% PROFILE Kuwait Finance House-Bahrain (KFH-Bahrain) is a leading provider of Islamic commercial and investment banking services. Established in 2002 as a wholly owned subsidiary of Kuwait Finance House-Kuwait, a global industry leader, KFH-Bahrain specialises in conceptualising the development and introduction of innovative, Shari’a compliant banking and investment products. KFH-Bahrain enjoys a reputation as a performance-driven, results orientated organisation, combining global investment strategies with the provision of popular retail products and services. The bank has made major advances and experienced considerable growth Total Assets in the last few years, allowing it to further develop its products and services, providing outstanding investment opportunities for its clients. KFH-Bahrain is at the forefront of the investment and finance sectors and has developed a series of successful projects and made further investments in diverse sectors of the economy. KFH-Bahrain is continuing its strategy of innovation and change and is committed to setting a new standard for Islamic banking and finance. It is a strategy that will confirm the bank’s status as a market leader and help it to continue contributing significantly to economic growth and social development in the Kingdom of Bahrain. Bader A. M. Mukhaizeem Chairman and Managing Director Chairman & Managing Director’s Statement On behalf of the Board of Directors, it is my privilege to present the annual report of Kuwait Finance House-Bahrain for the year ended 31st December 2007. 6 KFH-Bahrain - Annual Report 2007 Dear Stakeholders, In the name of Allah, the Beneficent, the Merciful, Prayers and Peace Be Upon the Last Prophet and Messenger Muhammed. In 2007 KFH-Bahrain’s performance strengthened markedly with a significant increase in net income of 49%, reaching BD 31.4 million for 2007 against the previous year’s net income of BD 21.1 million. At the end of 2007, total customer deposits increased by 135% to a total amount of BD 447.5 million from BD 190.3 million at year end 2006. This resulted in a 26% return on average equity for 2007. Operating income increased by 52% from BD 47.4 million in 2006 to BD 72.0 million in 2007. Total assets increased by 82% to BD 735.3 million at the end of 2007 versus BD 403 million in 2006. This strong performance came despite many challenges and difficulties engulfing the financial services sector following the US sub-prime crisis and the fear of recession in the US. The implementation of the core banking application and the establishment of a risk management framework providved further impetus and the bank is now fully equipped to meet the requirements of Basel II, which is expected to be implemented by the Central Bank of Bahrain during 2008. In 2006 KFH-Bahrain focused its strategy on “Building a better Bahrain” with exceptional and ambitious plans for the future. In 2007 the concept of “Bringing Banking to Life” was introduced, a concept that aims to provide products and services that truly make a positive difference to the lives of our customers. Last year KFH-Bahrain accomplished many operational achievements in all fields, particularly in retail services. For example, KFH Automall, the largest car showroom in the Kingdom of Bahrain, was officially opened. Besides housing Bahrain’s largest selection of car brands it also offers finance and insurance, making it a complete automotive package under one roof. In association with Visa, the bank also launched the first Islamic chipped credit card, a Shari’a compliant financing tool developed by KFH-Bahrain offering a wide range of advantages to customers. The weakening of the US dollar in 2007 against major currencies, along with market views on the future of Bahraini dinar’s peg to the dollar posed further challenges to the management, besides the task of raising interbank lines and managing liquidity. This demonstrated that the management had been prudent in managing its US dollar positions in order to minimise the impact of any potential revaluation of the Bahraini dinar against the US dollar. The Board and the management are both focused on sourcing attractive private equity deals with an emphasis on real estate development, aerospace, telecommunications, sportswear, pharmaceuticals, and healthcare sectors. The structured product development is also at the forefront, as seen in the bank’s collaboration with the Fortis Real Estate team. KFH-Bahrain and Fortis have partnered in the development of the Shari’a Compliant Overnight Fund. The US$ 1 billion fund was launched, registered and listed in Luxembourg, and enabled Islamic institutions to place excess liquidity with the flexibility of retrieving their investments on a daily basis. KFH-Bahrain established a US$ 50 million investment bank in Jordan. The investment bank Kuwait Finance House-Jordan (KFH-Jordan) is a wholly owned subsidiary of KFH-Bahrain. The bank will conduct investment banking activities including investment advisory, acquisitions and the development of opportunistic investments. Mr. Abdul Hakeem Al Khayyat was chosen as the Chairman of the new bank. Bahrain’s banking sector witnessed unprecedented growth with total assets reaching record levels of BD 89.8 billion as of 30 November 2007. From a human capital perspective this situation has presented numerous challenges in recruitment. The bank has successfully overcome this challenge and recruited several highly qualified professionals with relevant skills during 2007. 8 KFH-Bahrain - Annual Report 2007 With gratitude from our bank, our Board of Directors and all of our stakeholders, I conclude by paying tribute to the vision, support and confidence inspired in the Kingdom of Bahrain and its future by His Majesty King Hamad Bin Isa Al Khalifa, King of Bahrain, His Highness Shaikh Khalifa Bin Salman Al Khalifa, the Prime Minister, and His Highness Shaikh Salman Bin Hamad Al Khalifa, the Crown Prince, Deputy Supreme Commander. Further thanks are also due to the Government of Bahrain and the Central Bank of Bahrain, which have continued to set the highest standards and provided enormous support for the elevation of the Islamic banking industry in the region and internationally. I extend my gratitude to our employees and customers for their continued loyalty and confidence in KFH-Bahrain. With the blessings of Almighty God we will continue to sustain our momentum in our programme of transformation and usher in the next stage for growth, to “Bring Banking to Life” in the new financial year. Bader A. M. Mukhaizeem Chairman and Managing Director Abdulhakeem Y. Alkhayyat General Manager General Manager’s Statement Two great achievements defined our bank’s efforts in 2007. First, we accelerated the execution of our organic growth strategy, creating value for stakeholders by building and expanding our customer and client relationships across the country and regionally. This greatly increased our opportunities for value creation and future growth in the local and regional markets. 10 KFH-Bahrain - Annual Report 2007 The second is that we continued the momentum we created in 2002. In our banking operations, we made more improvements to products, services and the banking experience to drive both customer satisfaction and revenue to all-time highs. In investment banking, our team worked hard to bring a range of innovative investment products and services to more of our clients than ever before. And in asset management, we fulfilled our customers’ needs with Shari’a compliant products never before seen in the local market. While our staff members are working within their lines of business to build customer relationships, they are also reaching out to work with teammates throughout the bank to create new opportunities to deliver the full resources of KFH-Bahrain to our customers. In 2007, KFH-Bahrain’s net profit reached BD 31.4 million. Our results exceeded our expectations in the most important financial categories, including earnings per share, net income, revenue and credit quality. We are proud that we have achieved steady growth in our financial performance since our inception in 2002.