ANNUAL REPORT The artworks pictured on the cover and section dividers are created by the late artist Mohammad Ghani Hekmat Nicknamed “Sheikh of Sculptors”, Mohammad Ghani Hekmat is an Iraqi sculptor born in Al Kadhimiyah neighborhood of Baghdad in 1929 and died in 2011. His passion for art began at the age of four, and later he joined the Institute of Fine Arts in Baghdad and graduated in 1953, then travelled to Rome to pursue his studies and received a diploma in sculpture in 1955 and a diploma in medal making from Lazka Institute in 1956. He then moved to Florence to specialize in bronze casting, and received a degree in this field in 1961. Mohammad joined the Institute of Fine Arts in 1962 to be the first professor of sculpture in the history of Iraq. Muhammad Ghani Hekmat was creative in all fields of fine art in general, but his creativity was particularly evident in sculpture, and his sculptures are seen in the squares of Iraq and many Arab and other capital cities. Looking closely at his sculptures, we notice how he was clearly influenced by Sumerian sculptures, and how, in his own way, he managed to incorporate Assyrian, Babylonian and Acadian styles into his works. Mohammad Ghani Hekmat designed many statues and murals in Baghdad. His main works include the statue of Shahryar and Scheherazade and Kahramana monument in central Baghdad. He also made the Statue of Ishtar Sheraton, the Statue of Hammurabi, the Statue of Ali Baba and the Forty Thieves, the mural of the City of Medicine, the statue of the poet Abu Tayyeb Al Mutanabbi and many other distinctive works of art, for which he received many national and international awards. Establishment An Iraqi private joint stock company established in 1992 as the first private Iraqi bank under registration No. M Sh / 4512; with a paid-up capital of IQD 250 billion as at the end of 2019. Baghdad – Al Karrada District – Next to the National Theatre / Mahalla 903– 17 str. – Building 12 – B. O. Box 3192 Alawiyya Tel.: 009647802841905 | 009647739283002 E-mail: [email protected] Web Site: www.bankofbaghdad.com.iq www.facebook.com/baghdadBank Our Vision To be the leading provider of financial services in Iraq, and to consistently meet and exceed customer expectations. Our Mission To provide leading financial service solutions that contribute to and support the long term wellbeing and success of all our customers, our country and our worldwide partners. Our Values Guide everything we do: Trust and Integrity; Mutual Respect; Teamwork and Commitment; Excellence and Innovation. Contents Page Number Board of Directors 4 Chairman’s Statement 6 Directors’ Report 2019 10 Consolidated Financial Statements for the Year Ended 31 December 2019 21 Financial Statements and Auditor’s Report 34 Additional Information as Required by the Iraqi Securities Commission 2019 96 Governance Report 124 Board of Directors Chairman Mr. Usam Ismail Sharif Vice Chairman Mr. Masoud Mahmoud Jawhar Board Members Mr. Adel Mohammad Al-Hassoon Mr. Saadon Abdullah Hussein Mr. Naman Shakir Naman Mr. Ghassan Ahmad Saleem (as of 20/7/2019) Mr. Tawfiq Al-Dajani (until 19/7/2019) Managing Director Mr. Basil Hossam Al Din Shakir Auditors Mr. Zuhair Mahmoud Hussein Al-Bahrani Mr. Saad Rasheed Jassim 4 Bank of Baghdad Annual Report 2019 Bank of Baghdad 5 Annual Report 2019 Chairman's Statement In the name of Allah the Most Beneficent, the Most Merciful Dear shareholders of the Bank of Baghdad, On behalf of the board of Directors of the Bank of Baghdad, I am pleased to present to our valued shareholders the annual report of Bank of Bagdad Group, in which we reviewed the Group’s key results and achievements in 2019, looking forward to more progress toward a brighter future in which we succeed in turning challenges into opportunities and difficulties into success stories. In 2019, the Bank continued more than 25 years of success in which the Group was able to provide its shareholders and customers with the best services. You are all aware of the challenges that the Iraqi economy has experienced during the third quarter of 2019, and the economic challenges faced by the economies of the various countries where Bank of Baghdad Group operates, which affected the performance of all economic sectors. However, the improved security and political conditions by the end of the third quarter, and the growth in the energy sector, namely oil, had a positive impact on Iraq’s economy. Economically, this stability and growth of the energy sector affected economic growth which, according the IMF’s statistics, exceeded it expected (3.9%) in 2019, in addition to the expected decrease in budget deficit by (2.1%) and decrease in indebtedness to (47.4%) of GDP. Nonetheless, the unemployment rate was still very high and was expected to reach (14%) by the end of 2019. Furthermore, the government issued a set of legislations and regulations enhancing the investment environment, and the regulatory authorities implemented appropriate measures to increase job opportunities and economic growth; as the Central Bank launched a number of initiatives to support SMEs and, consequently, create jobs, in addition to supporting the housing and industrial sectors and directing the banking sector to increase its credit offerings by setting investment limits. As for the monetary policy, the Central Bank managed to maintain the IQD to USD exchange rate. As for the leading role of the Central Bank of Iraq, it promoted investment in developing electronic payment methods by directing banks to activate mobile electronic services, automate all payment processes and enhance corporate governance and IT governance. 6 Bank of Baghdad Annual Report 2019 On the technical front, the Central Bank of Iraq issued its regulations on implementing IFRS 9, which will have a material impact on the quality of assets in the Iraqi banking sector, in addition to the regulations regarding capital adequacy in accordance with Basel III; which will be adopted and fully implemented in 2020. In terms of economic outlook, Iraq is facing two challenges in 2020; namely: Security stability depending on the political events in the country, and the COVID-19 pandemic. These events affect the Iraqi economy which is expected to encounter a decline in economic growth in 2020 due to the negative impact on macroeconomic factors and state budget deficit. Dear Shareholders, When reviewing the Bank’s performance in 2019, based on Bank of Baghdad Group’s understanding of the challenges and effects of certain measures enforced by regulatory authorities on sources of funds and revenue, as well as our understanding of the surrounding environment and economic conditions in Iraq, we made it our priority to maintain the Bank’s positive results within acceptable risk levels; as the Bank was able to achieve a positive growth in all financial indicators, under these circumstances, compared to the previous period and proved its strength and ability to benefit from challenges and turn them into opportunities. In 2019, Bank of Baghdad Group achieved a strong financial position and was able to grow and demonstrate outstanding performance levels compared to the rest of the sector and the same period of the previous year. Total assets at the end of the year increased by IQD (1,132,744,205) thousand with a (1.7%) increase compared to the end of 2018, shareholders’ equity increased by IQD (6,898,705) thousand to IQD (273,641,424) thousand, with a (2.6%) increase, and the return on equity reached (2.7%). In terms of utilization of sources of funds, the Bank maintained a high liquidity ratio to meet the changing conditions in the Iraqi market, as its statutory liquidity ratio reached (76.4%), while LCR and NSFR which reached (217%) and (211%), respectively, in addition to seeking to improve the quality of these assets by collecting and structuring the Bank’s credit portfolio and continuing to offer credit Bank of Baghdad 7 Annual Report 2019 facilities to low-risk sectors and collecting non-accrual loans. In terms of assets, and in order to invest the Bank’s cash surplus, practical steps were taken to implement the Board’s directions to enhance low-risk investments with an acceptable return by depositing USD (100) million for future investment purposes, in addition to continuing to cover (100%) of other doubtful assets by provisions. As for sources of funds, customer deposits reached IQD (801,174,857) thousand with an increase of IQD (19,001,318) thousand (2.4%) compared to the end of the previous year; thus meeting customers’ financing requirement and the Bank’s liquidity needs. As for net shareholders’ profit, the Bank’s financial results show a net profit of IQD (7,298,604) thousand compared to IQD (4,152,102) thousand in the previous year, increasing by IQD (3,146,502) thousand (75.8%); as a result of the increase in the Bank’s total revenue by (9.1%) due to the increase in net commission and profit from foreign currency exchange by IQD (4,038,258) thousand and IQD (2,168,681) thousand respectively (19,6% and 26.6% respectively), in addition to the decrease in the Bank’s total expenses by IQD (2,464,520) thousand (8%) to IQD (28,493,566) thousand. Dear Shareholders, The Banks is fully aware of the rapid changes in the banking business environment driven by the fourth industrial revolution, particularly in technology, as confirmed by the early events of the current year, as well as the outbreak of the COVID-19 pandemic; which resulted in the emergence of new business models that drove the banking sector towards digital investment to deal with the new unconventional forms of competition and meet the requirements of the new generation of customers.