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Lloyds Bk. 43 | LSE:89YE | London | Medium Term Loan |
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TIDM89YE RNS Number : 4323P BBK (B.S.C.) 25 March 2009 Annual Report 2008 www.bbkonline.com - Financial Highlights - Chairman's Statement - Board of Directors - Management Review - Executive Management - Financial Review - Risk Management - Corporate Governance and Additional Disclosures - Independent Auditors' Report to the Shareholders - Consolidated Balance Sheet - Consolidated Statement of Income - Consolidated Statement of Changes in Equity - Consolidated Statement of Cash Flows - Notes to the Consolidated Financial Statements - Basel II Pillar III Disclosure - Minutes of the Annual General Ordinary and Extraordinary Meetings Our Vision BBK will be the premier regional financial services enterprise in providing superior products and services of high quality through innovation, technology and life-long client relationships. The Bank will expand its overseas presence in more locations in which it chooses to operate in order to satisfy the diversified needs of clients. We believe clients are the driving force in everything we do. We will not compromise on our absolute commitment to providing the very best in client service. We believe our people are our number one asset with the highest degree of competence, integrity and professionalism. We instill in our people the principles of entrepreneurship, decision-making and ownership through our commitment to training, development, delegation and performance based reward systems. We are determined to utilise cutting-edge technology which we recognise as most critical in supporting our short, medium and long-term business objectives. Our shareholders are the source of our financial strength and can expect continued growth and profitability. They are supportive and are confident of our vision of the future. Financial Highlights +------------------------------------------+---------+---------+---------+---------+---------+ | | 2004 | 2005 | 2006 | 2007 | 2008 | +------------------------------------------+---------+---------+---------+---------+---------+ | Income statement highlights (BD | | | | | | | millions) | | | | | | +------------------------------------------+---------+---------+---------+---------+---------+ | Net interest income | 29.5 | 35.7 | 42.2 | 50.6 | 57.0 | +------------------------------------------+---------+---------+---------+---------+---------+ | Other income | 23.6 | 20.2 | 22.2 | 37.0 | 57.7 | +------------------------------------------+---------+---------+---------+---------+---------+ | Operating expenses | 23.2 | 23.8 | 26.7 | 30.6 | 35.1 | +------------------------------------------+---------+---------+---------+---------+---------+ | Net profit for the year | 25.7 | 29.3 | 32.8 | 30.0 | 27.1 | +------------------------------------------+---------+---------+---------+---------+---------+ | Dividend | 35% | 35% | 40% | 27% | 20% | +------------------------------------------+---------+---------+---------+---------+---------+ | | | | | | | +------------------------------------------+---------+---------+---------+---------+---------+ | Financial statement highlights (BD | | | | | | | millions) | | | | | | +------------------------------------------+---------+---------+---------+---------+---------+ | Total assets | 1,421 | 1,499 | 1,694 | 2,093 | 2,166 | +------------------------------------------+---------+---------+---------+---------+---------+ | Net loans | 765 | 795 | 938 | 1,128 | 1,352 | +------------------------------------------+---------+---------+---------+---------+---------+ | Investments | 407 | 491 | 495 | 499 | 318 | +------------------------------------------+---------+---------+---------+---------+---------+ | Deposits | 890 | 917 | 1,018 | 1,269 | 1,372 | +------------------------------------------+---------+---------+---------+---------+---------+ | Term borrowings | 94 | 94 | 236 | 339 | 329 | +------------------------------------------+---------+---------+---------+---------+---------+ | Equity | 158 | 173 | 188 | 237 | 209 | +------------------------------------------+---------+---------+---------+---------+---------+ Financial Highlights +-------------------------------------------+----------+----------+----------+----------+----------+ | | 2004 | 2005 | 2006 | 2007 | 2008 | +-------------------------------------------+----------+----------+----------+----------+----------+ | Profitability | | | | | | +-------------------------------------------+----------+----------+----------+----------+----------+ | Earnings per share (fils) | 45 | 46 | 47 | 41 | 34 | +-------------------------------------------+----------+----------+----------+----------+----------+ | Cost / income | 43.70% | 42.57% | 41.41% | 34.97% | 30.62% | +-------------------------------------------+----------+----------+----------+----------+----------+ | Return on average assets | 1.83% | 1.86% | 1.86% | 1.51% | 1.22% | +-------------------------------------------+----------+----------+----------+----------+----------+ | Return on average equity | 17.80% | 18.15% | 19.13% | 16.02% | 12.14% | +-------------------------------------------+----------+----------+----------+----------+----------+ | Profit per employee (BD) | 36,610 | 41,797 | 43,115 | 34,405 | 27,919 | +-------------------------------------------+----------+----------+----------+----------+----------+ | | | | | | | +-------------------------------------------+----------+----------+----------+----------+----------+ | Capital | | | | | | +-------------------------------------------+----------+----------+----------+----------+----------+ | Capital adequacy | 18.82% | 19.57% | 16.20% | 23.29% | 20.06% | +-------------------------------------------+----------+----------+----------+----------+----------+ | Equity / total assets | 11.11% | 11.55% | 11.08% | 11.33% | 9.66% | +-------------------------------------------+----------+----------+----------+----------+----------+ | Debt / equity | 59.73% | 56.46% | 125.54% | 143.09% | 157.53% | +-------------------------------------------+----------+----------+----------+----------+----------+ | | | | | | | +-------------------------------------------+----------+----------+----------+----------+----------+ | Liquidity and business indicators | | | | | | +-------------------------------------------+----------+----------+----------+----------+----------+ | Loans and advances / total assets | 53.82% | 53.04% | 55.38% | 53.89% | 62.44% | +-------------------------------------------+----------+----------+----------+----------+----------+ | Investments excluding treasury bills / | 26.47% | 31.14% | 26.87% | 22.62% | 14.51% | | total assets | | | | | | +-------------------------------------------+----------+----------+----------+----------+----------+ | Liquid assets / total assets | 29.42% | 33.84% | 30.58% | 35.46% | 25.16% | +-------------------------------------------+----------+----------+----------+----------+----------+ | Non inter-bank deposits / loans and | 82.29% | 76.46% | 86.69% | 98.85% | 101.83% | | investments | | | | | | +-------------------------------------------+----------+----------+----------+----------+----------+ | Net yield ratio | 2.29% | 2.48% | 2.58% | 2.60% | 2.74% | +-------------------------------------------+----------+----------+----------+----------+----------+ | Number of employees | 702 | 701 | 761 | 873 | 970 | +-------------------------------------------+----------+----------+----------+----------+----------+ Chairman's Statement Dear Shareholders, On behalf of the Board of Directors, I am honoured to present BBK's 37th annual report, covering the year ended 31 December 2008. The year marked the conclusion of our three-year strategic period, which has seen consistently strong growth in all our core business areas. The past 12 months have been dominated by the greatest crisis to beset the global economy for many decades. Some commentators have gone so far as to define it as the worst in history, and few would argue that this is an exaggerated observation. We have seen the collapse of venerable institutions and many more have had to be rescued by government intervention - in the USA, Europe, and across the world. The turmoil has been so traumatic that a restructuring of global finance has been mooted, along the lines of the Bretton Woods conference that in 1944 established the rules for commercial and financial relations among the world's major industrial states. The Middle East and the Gulf region have not been immune from the crisis. Here, too, government and central banks in some countries have had to inject fresh capital and extend other financial support to the banking system so as to ease the prevailing shortage of liquidity. Against this international and regional background, BBK's 2008 results are highly creditable. Despite making provision of BD 44.7 million for impairment of certain investments, all other core activities reported a positive trend compared to last year, while cost-to-income ratio has been reduced. Because the impairment provision has been set off against earnings for the year, the Bank's balance sheet is unaffected and maintained a strong base of assets, shareholders' equity, and liquidity. At a time when liquidity is of utmost priority for the entire banking sector - regionally and internationally - this puts BBK in a position of solid strength as the global financial turmoil continues. Against the trend in the industry, ratings agencies have maintained the main rating elements of the Bank. Fitch Ratings has maintained the Long Term IDR at A-, and the Short Term IDR at F2. Moody's has also maintained the Bank Deposit Obligation rating (FC & LC) at A2/P-1, with a Bank Financial Strength Rating of C-, and a Long Term Senior rating of A2. Our performance over such a difficult period underlines the value of our core strengths and our core areas of business. Operational efficiency, consistent emphasis on the highest standards of customer service, and a sound corporate strategy have all contributed to our ability to weather the storm, and therefore look to the future with confidence, irrespective of whatever further crises may emerge. Financial performance In 2008, BBK recorded a net profit of BD 27.1 million, compared to BD 30.0 million last year. Total revenues rose 31.0 per cent to BD 114.7 million, while the cost-to-income ratio improved from 35.0 per cent to 30.6 per cent, despite the increase in operating cost of 14.5 per cent over 2007. Net provisions for the year increased from BD 27.4 million to BD 52.2 million, in line with the Bank's strategy of making conservative valuations in response to adverse global market conditions. It should be noted that the current impairment provisions must not be treated as a write-off: there may well be at least partial recovery at a future date. Total assets grew by BD 73 million to BD 2,166 million. The increase resulted from underlying business growth, driven by net loans and advances increasing by 19.9 per cent to reach BD 1,352 million. Customer deposits also grew by 19.6 per cent to reach BD 1,337 million, reflecting customers' confidence in the Bank. The Bank's market capitalisation stood at BD 370 million (or 460 fils per share) at the close of business on 31 December 2008. Economic and market background Despite the shock waves emanating from global market turmoil, especially during the third and fourth quarters of 2008, market conditions were still relatively favourable for Bahrain. The peak in oil prices sustained growth patterns, coupled with the stimulus of government spending on infrastructural projects, although there are justified doubts about how long this will continue. The international financial crisis and the related slowdown in the world's leading economies pose new challenges. Surveys show a decline in business confidence, and GDP growth is expected to be slightly lower in 2008. While hydrocarbons continue to be by far the biggest source of government revenues, preparations are being made for a post-oil future. The major challenge now lies in plotting a steady course towards growth in the years ahead without stimulating further inflation. The latest comparative study by the World Economic Forum (WEF) on the competitiveness of 134 national economies has upgraded Bahrain's ranking by six places to 37th overall, although the report also identifies some areas where the Kingdom needs to improve its performance. Infrastructure and macroeconomic stability are seen as key strengths, and continued investment in education will significantly contribute to stronger economic growth by raising the productivity and competitiveness of the local labour force. In a banking context, it is significant that the WEF ranks Bahrain very highly in the category of financial market sophistication, being placed first in the Gulf region and 14th overall. Financial markets are a cornerstone of Bahrain's economy. The WEF's endorsement should be reassuring to authorities and investors alike, suggesting that Bahrain is well placed to weather the global crisis. Although the real estate sector is showing distinct signs of overheating, BBK's involvement has been carefully managed to focus on prime projects. In total, exposure to the real estate sector is conservative and proportionate to the Bank's activities across the diverse spectrum of commerce and industry. Strategic developments 2008 marked the culmination of our three-year strategic cycle, in which we formulated and implemented policies that have proved to be fundamentally sound. Their effectiveness is reflected in the outstanding performance we have sustained over the period. While adhering to the core principles that have been so successful in the period now ended, we plan to build on these achievements by further diversifying our activities - both geographically and by nature of business. We are in the process of adopting new business models, mainly in investment areas, corporate business, and the consumer/retail sector. Geographically, our decision to strengthen our presence in India has shown the expected benefits during 2008. Enhancing our market reach, combined with an improved range of product offerings, contributed to increased returns from Indian operations and the potential for further growth. Our new shareholding structure also creates growth potential, especially through new investment opportunities, domestically and internationally. In the course of the year, Bahrain based Ithmaar Bank increased its interest in BBK to 25.34 per cent and Global Investment House (Global) acquired 15.76 per cent. Towards the end of the year, Global divested a major part of its holding. The Government of Kuwait - Kuwait Investment Authority - holds directly and indirectly an interest of 18.70 per cent. The biggest single shareholder is now the recently formed Social Insurance Organisation of Bahrain (SIO) with 32.16 per cent. The SIO was created through the merger of the General Organisation for Social Insurance (GOSI) and the Pension Fund Commission, combining the stakes previously held by each of the individual entities. Bahrain citizens collectively own shares amounting to 17.70 per cent of the Bank's issued capital, with the balance held by a variety of individuals and institutions. The close links with Ithmaar give us many opportunities to work together and exploit the synergies arising from our respective strengths, through entry to the investment market and other sources of new business. For example, we have taken around a 14 per cent interest in the BD 180 million capital of Naseej Company, that will service the real estate and construction industry in the Kingdom. The reintroduction of Al Khaleej Islamic Investment was also completed during the year. With a relaunch under the name of Capinnova, it now operates as an Islamic wholesale investment bank, complementing BBK's conventional activities by offering Sharia'a-compliant finance using approved Islamic instruments. Paid-up capital has been increased tenfold to $125 million, and authorised capital from $35 million to $500 million. Capinnova will operate locally and regionally, concentrating initially on private equity, asset management, and corporate business. In the longer term, the focus will widen to include the debt capital market and the equity capital market. We have taken a 10 per cent founding shareholding in a new Bahrain bank, Al Osra, which is being launched by the Ministry of Social Development and modelled on the highly-successful Grameen Bank of Bangladesh. Al Osra will concentrate on providing banking facilities to micro-enterprises, creating opportunities for self-employment. Quite apart from the social responsibility obligations inherent in such a venture, Al Osra also represents a customer base that could potentially grow to become mainstream BBK clients. Corporate governance The quality of BBK's stringent corporate governance policies and procedures is evident in the consistently satisfactory audits conducted by independent external authorities. The Bank's dedicated corporate governance unit ensures strict compliance with Basel and Central Bank of Bahrain requirements, covering domestic operations and cross-border branches in India and Kuwait as well as the Bank's CrediMax subsidiary. Best practice principles are standard in implementing money-laundering counter-measures, disclosure stipulations, insider trading, and conflict of interest. Operational achievements The conclusion of the three-year strategic period saw continued strong growth in core business, increased customer numbers, high levels of customer satisfaction and loyalty, expansion of our product range, a very comfortable liquidity position, and capital adequacy well above the regulatory requirements. 2009 plans have been developed to sustain these core strengths, while consolidating the business growth and operational efficiencies which have been so evident in the preceding cycle. Organisational developments BBK has long stressed the value of people as a vital element in business success. We are fortunate to have a highly skilled team of professionals at all levels, and we recognise the importance of retaining their services. To help secure our goal of being the 'Employees' Bank of Choice', we have revised our benefits structure, which has to a large extent mitigated staff turnover and helped the Bank retain those who are critical to the future of the business. Corporate social responsibility During 2008, BBK maintained its long-standing tradition of contributing to the well-being of the communities in which we operate. Extensive financial support was made available to a diverse number of organisations involved in a wide range of humanitarian, medical, social and educational initiatives. Prominent among these is the donation of a health centre to the Ministry of Health. This is being built at Hidd at a cost of more than BD 3 million, and is due for completion in the latter part of 2010. Appreciation In February 2008, following the election of a new Board of Directors, six members of the outgoing Board ended their terms: Yacoub Yousef Al Fulaij, Mohammed Salahuddin Ahmed, Abdul Majeed Haji Al Shatti, Hamad Ahmed Al Busairi, Abdulla Mohammed Al Sumait and Ali Hassan Meshari Al Bader. The tenor of these directors included one who served for more than 17 years. On behalf of the Board, I convey my deep appreciation for their long and faithful service to BBK. During their tenures, the Bank grew significantly, building its reputation as a leading financial institution in the region and offering a broader range of services to clients. We wish them good health and continued achievement in their future endeavours. I also take this opportunity to welcome the new Directors and wish them success during their service to BBK. On behalf of the Board, I would like to extend our appreciation and gratitude to His Majesty King Hamad bin Isa Al Khalifa, the King of Bahrain, and His Highness Sheikh Sabah Al Ahmed Al Jaber Al Sabah, the Amir of the State of Kuwait. I also thank their respective governments and regulatory authorities for their guidance and support during the year. Finally, I would like to take this opportunity to express sincere thanks to our shareholders for their continued confidence; to our loyal customers for their patronage; and to BBK's management and employees for their dedication and hard work throughout 2008. Murad Ali Murad Chairman Board of Directors Murad Ali MuradChairman Maha Khalid Al GhunaimDeputy Chairman Khalid Abdulla Janahi Jamal Ali Al Hazeem Sh Mohammed bin Isa Al Khalifa Sh Khalifa bin Daij Al Khalifa Sh Abdulla bin Khalifa bin Salman Al Khalifa Mohamed Abdulrahman Hussain Bucheery Omar Mahmood El Quqa Aref Saleh Khamis Ziad Hasan Rawashdeh Jassem Hasan Ali Zainal Management Review Global economic upheaval resulted in an exceptionally difficult period for the banking sector, yet BBK achieved highly commendable results. Although we were affected by the turmoil in international markets, the Bank enjoyed strong growth in its core business - coupled with taking good and timely advantage of business opportunities. Impairment provisions were necessary because of the prevailing external circumstances, which were beyond the Bank's control. Nevertheless, BBK was able to absorb the impact and it is a tribute to the Bank's strategic policies and internal controls that the damage was so well contained. The lessons of previous financial crises in the 1980s and 1990s have been learned well. As a result, we are now in a position of strong liquidity, which gives us a powerful market advantage and enables us to seek prime new business in the months to come, and at more attractive margins. We have read the market well. Our debtors' book is of excellent quality and our ratio of non-performing advances is consistently improving. Exposure is protected by sound collateral, giving a very safe coverage multiple. Yields from advances are rising and margins are growing. Our people With the aim of attracting and retaining the cream of the industry's talent, the Bank carried out a comprehensive study of salaries and benefits offered to its employees. As a result, a number of allowances were enhanced and new benefits were introduced. These include an additional fixed salary for all staff members and educational allowances for the Bahraini employees. The Management Trainees Development Programme, which aims to identify potential future leaders in the Bank, is also proceeding successfully. Now in its fifth year, it has grown to 87 graduate members, with a new intake of 18 people in 2008 alone. Many entrants from earlier intakes are now occupying increasingly senior posts. In collaboration with Tamkeen (previously known as the Labour Fund), BBK has agreed to take 100 retail banking trainees in batches of 20 over five years. This will enable the youth of the Kingdom to enter the banking sector, training them to specialise in retail customer relations through an eight-week intensive skills development programme, before being deployed at the BBK branches. Our clients Retail Banking has been one of the most important businesses contributing to growth during 2008. Branch expansion continued with a new Financial Mall opening in Muharraq. A full service branch was also opened in the Bahrain City Centre Mall, quickly capturing new customers and providing a complete range of banking services as well as ATM facilities. A Cash Management Centre was opened in the GOSI Complex to cater to our corporate and SME customers, and to alleviate the pressure on other branches. In total, our branch network reached 17 outlets and our total number of ATMs reached 45. These have all been upgraded with additional security features; they are now all EMV-compliant and accept smart chip cards. The year 2008 saw the successful introduction of the Al Mustaqbal Savings Account, encouraging people to save on a recurring regular basis so as to meet future expenses or obligations. The Al Hayrat savings portfolio saw a marked increase and the Bank introduced a number of marketing campaigns to spur the demand. After successfully introducing mortgage and car loans in 2007, we aggressively expanded our portfolio in both types of loans and introduced a car loan promotion to support our expansion plans. The increase in car and mortgage loans was substantial. A consumer loan marketing campaign was also successfully introduced. Despite the volume increases, the ratio of non-performing loans to total loans has been kept at low levels, reflecting the sound health of the portfolio. A number of improvements to our eBanking platform were introduced, as well as new services catering to the diverse needs of our customers. A marketing campaign was launched to increase the usage of the eBanking service, and the results have exceeded targets. Customer Service continued to be an important focus area for Retail Banking and a number of initiatives were introduced to continuously improve the level of customer satisfaction. Among those is the customer feedback system installed in major branches, which played an important role in helping to monitor our customers' feedback and to respond accordingly. This was backed by customer service research that helped us increase our understanding of our customers' requirements. Priority Banking continued its strong growth in assets and customer deposits, leading to a considerable contribution to Retail Banking's net profit. Transactional Banking Expansion of trade finance was a highlight of 2008, based on system upgrading and the design of new products to be introduced to the market. Export letters of credit, export bill discounting, and factoring of domestic invoices were the main focus of effort. The most important investment made during 2008 was the commencement of developing and implementing a new Cash Management platform to serve corporate needs as well as financial institutions and SME customers. The platform will comprise a complete set of functions such as payments, receivables, corporate electronic banking, liquidity solutions, and billing systems. Cash Management also re-packaged existing solutions and started the commercialisation of payroll services, wire transfers, and pick-up services to some of our major clients. Activities in the enterprise sector were also expanded, with functions and services tailored to suit the broad spectrum of clients, from micro businesses to corporates. In SME business, new credit policies and procedures were approved for the Tier I portfolio, and implementation is in progress. We expect to launch the initiative during the first quarter of 2009. This will serve the lending needs of small companies in our portfolio and will also represent a new source of good prospects for our Tier II portfolio, which comprises the largest SME companies. In partnership with the Crown Prince International Scholarship Programme, a full review of cash management operational procedures was undertaken. The outcome was the identification and mapping of best practice procedures, highlighting 30 processes as being high-impact priority. More aggressive marketing of Transactional Banking functions has been pursued. We adopted a corporate image and advertising programme to inform the market of the benefits of the Division's resources and services. Corporate Banking During the year the Bank was actively involved in many corporate projects, ranging from Government and infrastructural undertakings to trade and manufacturing, real estate, and other sectors. Corporate business grew considerably in 2008, well balanced across all areas of activity. Real estate involvement has been scrutinised particularly closely, with ultimate commitment being made to as few as one in 10 of the requests received. Chief among these was City Centre, Bahrain's newest and biggest retail mall, with which BBK has had a long-standing association. The Bank also participated in the $500 million syndication by Mumtalakat, the Bahrain Government's asset fund, which concentrates on local investments and economic diversification. In service administration, relationship management has now been devolved into specialist areas of responsibility, so that the staff concerned can bring specialist skills and knowledge to bear on their respective categories. These are: contractors and building materials, manufacturing and trade, real estate and allied services, Government and Islamic deposits, and remedial management. International Banking The contagion of 2008 eroded confidence from the banking system and cast doubts on all dealings with correspondent banks, irrespective of status or history. What began with the sub-prime crisis expanded into the normal market, with the result that all transactions were conducted with extreme sensitivity to potential risks. An immediate outcome has been a trend to more realistic credit pricing. Regional banks were previously outpriced by French and Japanese competitors, but there has been a significant rise in Libor margins as the global crisis has unfolded. BBK's policy was to be very circumspect in dealing with Wall Street banks facing liquidity and credit problems; to avoid transactions involving certain countries; and to seek opportunities to acquire assets with high credit ratings. 2009 will be particularly challenging for local and regional banks, especially when large numbers of re-financing requirements fall due in February. Our Kuwait operations contributed positively to BBK's performance in 2008, mainly attributable to increased corporate lending and the wholesale nature of the Bank's business there. Strategic investments have performed well, along with good growth in the total corporate portfolio. Close attention to each individual transaction has resulted in excellent cost control in Kuwait. Expansion of our Indian operations is now a main thrust, especially in view of the Bank's strong liquidity and a corresponding increase in demand from corporate customers seeking to overcome the liquidity shortage that now prevails in the Indian market. Treasury & Investment High uncertainty typified the market during 2008, particularly in the latter part of the year. The failure of seemingly impregnable institutions made it very difficult to determine the scale of the problem and those potentially at risk. BBK wisely adopted a policy to stay liquid and to be very selective in lending and in the choice of counter-parties. As a result, treasury activities were successful in creating and maintaining liquidity, although, in terms of corporate debt business, the year proved to be excellent. Brokerage, direct advisory services, and treasury operations all performed exceptionally well, especially in the prevailing market conditions. Our subsidiaries CrediMax CrediMax, BBK's wholly-owned subsidiary specialising in credit card business, now dominates the card business market including credit card issuance and usage in the Kingdom. During the year, CrediMax capabilities were further enhanced, especially with card acceptance facilities. New and improved electronic links were established between merchants' cash register systems and CrediMax point of sale, using a single swipe system that simultaneously reconciles merchants' internal accounting. A similar system was introduced especially for hotels, interacting directly with their own accounting records and back-end. New state-of the art wireless terminals, the first in Bahrain, give cardholders added security as the card does not leave their possession at any time. The introduction of EMV - the international standard for the inter-operation of 'smart cards' with point-of-sale terminals and ATMs - was largely completed by the end of the year, and will be fully operational by the end of the first quarter of 2009. Being the leader in credit card issuing, CrediMax continued to offer the largest and the best rewards programmes for its customers. The full-year campaign was named the 'Power of RED', enabling customers to win luxury cars. Invita The Invita call centre operation, another wholly-owned subsidiary, enjoyed satisfactory growth across its full range of activities, most notably in its advisory services and in the overall volume of business handled. Sakana This 50-50 joint venture with Shamil Bank of Bahrain made excellent progress during the year, strengthening BBK's share of the growing demand for Islamic finance in the real estate sector. Secura Secura, the partnership between BBK and Bahrain & Kuwait Insurance Company, continued to achieve very creditable performance - especially in the cross-selling of auto loan and insurance business. Internal processes Information Technology Several critical projects were concluded during the year, most significantly the upgrade of the branch automation system. This enhances the performance of the Bank's distribution network, while adding certain critical functionality identified as part of the Bank's programme of process improvement. BBK is now certified as an EMV acquirer across its ATM network, ensuring that it can accept and process chip-based cards. The year also saw the selection of the supplier for the technology component of the cash management platform, to support the business initiatives of the Transactional Banking Division. This will eventually provide unprecedented online services to corporate customers. Several dashboards and business performance indicators were also introduced to enable business users to have a closer look at their performance in terms of processes as well as assets and liabilities. The Business Continuity Management (BCM) unit established during the year is part of an effective programme to protect the welfare of people, identify possible causes of service disruption, minimise the impact of business interruption, protect the Bank's assets, and meet the regulatory and legislative requirements of the Central Bank of Bahrain and Basel II. Since its inception, BCM has developed plans for major critical business areas, including critical systems, processes, resources, and key staff. It has also established a 'road map' to ensure completion of BCM effectiveness and advancing BBK's resource status from 'disaster recovery' to 'business continuity', and ultimately 'business resilience'. Risk Management The prevailing crisis in the global banking system meant a particularly active year for the Risk Management Division. Tight control and careful management of risk shielded BBK from the more severe impacts experienced by so many banks in recent times. BBK's core emphasis on corporate and retail business, along with stringent management systems, meant that the Bank was far less vulnerable. About 135 standard policies and procedures are in place to cover every aspect of risk assessment and management, as well as periodic guidelines to cope with changing circumstances. Such tight control and management enabled the Bank to absorb the shocks and emerge relatively unscathed. Credit Management BBK's approval processes have proved invaluable in the management and control of credit, and the Bank can take pride in the quality of business that has been effected during the year. Apart from external factors beyond the Bank's influence, the system in place has demonstrated robust effectiveness in monitoring credit decisions as affected by various kinds of risks. Adherence to the Basel regulations - some of which have been applied since 2001 - has been followed at all levels, as has strict observance of due diligence requirements. Apart from the stringency of the approval process itself, the Bank adheres to a series of measures and procedural guidelines designed to ensure credit quality. At the same time, the Bank is committed to a speedy approval process, so that there is no undue delay in disbursing funds in response to satisfactory applications. Our community Support of social development and the communities we serve is fundamental to the Bank's guiding principles. During 2008, the Bank gave support and financial assistance to a wide range of humanitarian, medical, scientific, sporting, and cultural societies. Such support reflects our awareness of our wider responsibilities to the society and our commitment to aiding the diversity of charitable, welfare, and environmental organisations, which perform such invaluable service to the people of our nation. Conclusion In summary, 2008 was arguably the most traumatic year in global banking history, but we can look back on the period with quiet satisfaction. While many banks struggled for survival, BBK is in the enviable position of having achieved a good performance on behalf of shareholders. The Bank made substantial provision for impairments arising from the global financial crisis, without which 2008 results would have been far better. Our core strengths withstood the tests of the year. Internal systems and procedures have demonstrated the value of the thought and care that went into their design and implementation. The professionalism of employees at all levels and across every area of operations has shone through at all times, when their skills and resources were examined as never before. Above all, we have shown a resilient capability to sustain the quality of service that is so essential to customer satisfaction. These accomplishments derive directly from the heart of the Bank's business culture and corporate philosophy, enabling us to go forward without trepidation, despite the uncertainties that still lie ahead. Finally, we would like to convey our sincere thanks to all who have helped us in achieving our targets, and particularly all the members of our Board of Directors, the Central Bank of Bahrain, the Central Bank of Kuwait, the Reserve Bank of India, Bahrain Stock Exchange and Kuwait Stock Exchange, our loyal customers and, last but not least, all our dedicated staff members. Abdulkarim Bucheery Chief Executive Executive Management Abdulkarim Ahmed Bucheery Chief Executive (since 1 April 2008) Rashed Salman Al Khalifa Deputy Chief Executive Banking Group (since 17 August 2008) Reyadh Yousif Sater Deputy Chief Executive Support Services Group Mahmood Abdul Aziz Assistant General Manager Operations Adnan A. Wahab Al Arayyed Head of Credit Management Khalil Al Meer Assistant General Manager Corporate Banking Jamal Al Sabbagh Assistant General Manager (Acting) Information Technology Abdul Hussain Bustani Assistant General Manager Human Resources and Administration Axel Hofmann Assistant General Manager (Acting) Retail Banking Mohammed Abdulla Isa Assistant General Manager (Acting) Financial Control and Planning Amit Kumar Assistant General Manager Risk, Compliance and Legal Affairs Hugo Perez Assistant General Manager Transactional Banking Abdulrahman Saif (PhD) Assistant General Manager Treasury and Investment Ashish Sarkar Assistant General Manager International Banking Financial Review This review incorporates the consolidated operating results and the consolidated balance sheet of BBK including its overseas branches, its principal subsidiaries, CrediMax, Capinnova, Invita, the joint venture Sakana Holistic Housing Solutions, and the associated company Bahrain Commercial Facilities Company. The consolidated financial statements have been prepared and presented in accordance with International Financial Reporting Standards, and are in conformity with Bahrain Commercial Companies Law and Central Bank of Bahrain and Financial Institutions law. Operating results The Bank made a net profit, attributable to the shareholders of the parent, of BD 27.08 million for the year ended 31 December 2008. Whilst the core operating performance of the Bank improved significantly during the year, the net results were impacted by exceptional provisions of BD 44.9 million made against certain financial assets which were impacted by turmoil in the global financial markets. Besides those provisions, all other core activities reported a positive trend compared to the previous year, resulting in profits from core business performance of BD 69.2 million, a growth of 46.8 per cent if compared to 2007, driven by the growth in net interest income, investment income, share of profit from associated companies, foreign exchange income, and income from fees and commissions. Operating income Total core operating income increased to BD 111.9 million from BD 81.4 million, representing an increase of BD 30.5 million or 37.4 per cent over 2007. The improvement in total income was driven by growth in all core business income streams, as mentioned above. Net interest income Net interest income for the year showed growth of 12.7 per cent, and increased from BD 50.6 million to BD 57.0 million as the underlying volumes increased. The net interest margins improved marginally to 2.74 per cent from 2.60 per cent in 2007, despite competitive pressure and the Bank's prudent policies on credit, interest and liquidity risk. Interest income for the year ended 31 December 2008 includes gain on the redemption of subordinated debt of BD 3.4 million (31 December 2007: nil). Other income Other operating income consists of non-interest income, which is earned from business activities such as dealing in foreign currencies, investment in funds (other than fixed-income funds), the sale of corporate banking and retail banking services, investment trading, and share of profit/loss in associated companies and joint venture. The total income generated during the year from these core activities was BD 54.9 million, a sharp increase of BD 24.1 million, or 78.1 per cent compared to the previous year. Income from foreign exchange dealings was up sharply by 53.4 per cent, while fees and commission grew by BD 4.6 million, or 26.1 per cent, mainly due to higher income from the Bank's credit card business, commercial services fees, and corporate and retail banking fees. Other operating income for the year ended 31 December 2008 includes one-off exceptional income of BD 2.8 million relating to the partial mandatory redemption of the Bank's (Group's) membership interest in VISA, consequent to VISA's global restructuring and IPO, and gain on sale of equity investments of BD 20.6 million (31 December 2007: gain on sale of equity investments of BD 3.5 million, and gain on sale of fixed assets of BD 6.2 million). Operating expenses Operating expenses, which include staff, premises, equipment depreciation and other administrative costs, increased by BD 4.5 million (14.5 per cent), mainly on account of investments being made under the strategic plan in building capabilities, developing new businesses, and on development of the Bank's human resources. However, the underlying cost to income ratio, adjusted for the income received on the partial redemption of interest in VISA in 2008, and for the income on sale of property in 2007, improved sharply to 31.5 per cent from 37.8 per cent. Net provisions The Bank follows the International Accounting Standard (IAS) 39 with regard to accounting for impairment of financial assets. The provisions for impairment of the Bank's loans and advances and assets carried at cost or amortised cost is arrived at after calculating the net present value of the anticipated future cash flows from these financial assets, discounted at original effective interest rates. For assets carried at fair value, impairment is the difference between carrying cost and the fair value. This approach of provisioning for impairment of the Bank's financial assets is aimed at providing more realistic estimates of the impairment in the values of the assets. The net provision for the year for impairment on loans and advances to customers increased from BD 3.4 million in 2007 to BD 7.6 million in 2008. Similarly, net provision charge for impairment of non-trading investment securities increased from BD 23.9 million to BD 44.7 million, mainly to account for the exceptional provisions made against securities impacted by the global financial crisis. The provisions made reflect the Bank's conservative and prudent assumptions to provide against certain assets, to respond to the adverse global market conditions. Financial position The balance sheet of the Bank at the year-end increased to BD 2,166 million from BD 2,093 million, a growth of BD 73 million over year-end 2007. The growth was mainly driven by the increase in customer deposits and loans. At year-end, 9.7 per cent of the balance sheet was funded by equity, with the rest coming from customer and medium-term deposits. Assets The year-end loans and advances to customers, at BD 1,352 million, were 19.9 per cent higher than the previous year. The growth in loans and advances was mainly in Bahrain, both in corporate and retail lending, as well as in Kuwait branch. The investment portfolio of the Bank is classified into the following three categories: 'Financial assets at fair value through profit or loss' (FVTPL), 'Available for sale', and 'Investments stated at amortised costs'. The FVTPL category consists of investments held for trading and structured notes having embedded derivatives. The other two categories consist of quoted bonds and equities, and unquoted securities that are mainly acquired with the intention of being retained for the long term. At the end of 2008, 32.1 per cent of these investments were in the form of quoted bonds and equities (38.4 per cent at the end of 2007). Non-trading investment securities reduced from BD 455.2 million in 2007 to BD 286.3 million, mainly due to the provisions which have been taken on certain investments to respond to the fall in the global financial market. Investment in associated companies and joint venture represents the Bank's interest in the equity of Bahrain Commercial Facilities Company, a public shareholding company, which has been increased from 20.25 per cent in 2007 to 23.0 per cent in 2008, and its investment in Sakana Holistic Housing Solutions. The carrying value of these investments represents the Bank's share of the net assets of both of these companies. Treasury bills and inter-bank deposits are money market instruments held essentially for managing liquidity. Other assets mainly include accrued interest receivable, fixed assets net of accumulated depreciation, and prepaid expenses. Liabilities Current, saving and other deposits include balance of interest-bearing and non interest-bearing accounts due to customers on demand, and term deposits taken with different maturity dates, in various currencies and at varying rates of interest. As at year-end, customer deposits increased to BD 1,337 million from BD 1,118 million at the end of 2007, a growth of 19.6 per cent, despite the global financial turmoil and liquidity crises, which reflects customer confidence in the Bank. During the year, the Bank partially redeemed US$ 26 million out of its US$ 275 million subordinated debt. Interest payable and other liabilities consist of accrued interest payable on interest-bearing deposits, accrued expenses, and provisions. Capital adequacy In 2008, the Bank implemented the Basel II framework for the calculation of its capital adequacy, as the Central Bank of Bahrain guidelines became effective on 1 January 2008. Equity before appropriations stands at BD 209.3 million at the end of 2008. While there was aggressive growth in customer advances and other risk-weighted assets, the Bank has maintained its capital adequacy ratio at 20.06 per cent as of 31 December 2008, well above the 12 per cent minimum regulatory requirement of the Central Bank of Bahrain. Summary Income Statement +-----------------------------------------------+----------+----------+----------+----------+ | | +-----------------------------------------------+ | | | | | | +-----------------------------------------------+----------+----------+----------+----------+ | | | | | | +-----------------------------------------------+----------+----------+----------+----------+ | Net interest income | 57.0 | 50.6 | 6.4 | 12.68% | +-----------------------------------------------+----------+----------+----------+----------+ | Other income | 57.7 | 37.0 | 20.7 | 55.99% | +-----------------------------------------------+----------+----------+----------+----------+ | Total income | 114.7 | 87.6 | 27.1 | 30.97% | +-----------------------------------------------+----------+----------+----------+----------+ | Operating expenses | 35.1 | 30.6 | 4.5 | 14.75% | +-----------------------------------------------+----------+----------+----------+----------+ | Provisions | 52.2 | 27.4 | 24.9 | 90.83% | +-----------------------------------------------+----------+----------+----------+----------+ | Profit before taxation | 27.4 | 29.6 | -2.2 | -7.29% | +-----------------------------------------------+----------+----------+----------+----------+ | Taxation | -0.3 | 0.4 | -0.7 | -179.50% | +-----------------------------------------------+----------+----------+----------+----------+ | Net profit for the year | 27.1 | 30.0 | -2.9 | -9.59% | +-----------------------------------------------+----------+----------+----------+----------+ Consolidated Balance Sheet +----------------------------------------------+----------+----------+----------+----------+ | | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Assets | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Cash and balances with central banks | 201.5 | 256.9 | (55.4) | -21.57% | +----------------------------------------------+----------+----------+----------+----------+ | Treasury bills | 4.1 | 25.2 | (21.2) | -83.96% | +----------------------------------------------+----------+----------+----------+----------+ | Financial assets at fair value through | 0.9 | 4.5 | (3.6) | -80.85% | | profit or loss | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Deposits and due from banks and other | 257.1 | 169.2 | 87.9 | 51.93% | | financial institutions | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Loans and advances to customers | 1,352.3 | 1,127.6 | 224.6 | 19.92% | +----------------------------------------------+----------+----------+----------+----------+ | Non-trading investment securities | 286.3 | 455.2 | (168.9) | -37.10% | +----------------------------------------------+----------+----------+----------+----------+ | Investment in associated company and joint | 27.0 | 13.6 | 13.4 | 98.10% | | venture | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Interest receivable and other assets | 15.6 | 20.3 | (4.7) | -23.24% | +----------------------------------------------+----------+----------+----------+----------+ | Premises and equipment | 21.1 | 19.9 | 1.2 | 6.26% | +----------------------------------------------+----------+----------+----------+----------+ | Total Assets | 2,165.8 | 2,092.5 | 73.3 | 3.50% | +----------------------------------------------+----------+----------+----------+----------+ | Liabilities and Equity | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Liabilities | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Deposits and due to banks and other | 250.6 | 354.2 | (103.7) | -29.26% | | financial institutions | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Borrowings under repurchase agreements | 0.0 | 12.6 | (12.6) | N/A | +----------------------------------------------+----------+----------+----------+----------+ | Term borrowings | 329.5 | 339.3 | (9.8) | -2.89% | +----------------------------------------------+----------+----------+----------+----------+ | Customers' current, savings and other | 1,336.6 | 1,117.6 | 219.0 | 19.59% | | deposits | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Interest payable and other liabilities | 39.9 | 31.5 | 8.4 | 26.60% | +----------------------------------------------+----------+----------+----------+----------+ | Total Liabilities | 1,956.5 | 1,855.2 | 101.3 | 5.46% | +----------------------------------------------+----------+----------+----------+----------+ | Equity attributable to shareholders of the | 209.2 | 237.1 | (28.0) | -11.79% | | parent | | | | | +----------------------------------------------+----------+----------+----------+----------+ | Minority Interest | 0.1 | 0.2 | (0.1) | -39.89% | +----------------------------------------------+----------+----------+----------+----------+ | Total equity | 209.3 | 237.3 | (28.0) | -11.81% | +----------------------------------------------+----------+----------+----------+----------+ | Total Liabilities and Equity | 2,165.8 | 2,092.5 | 73.3 | 3.50% | +----------------------------------------------+----------+----------+----------+----------+ Risk Management Efficient and timely management of risks in the Bank's activities is critical for the financial soundness and profitability of the Bank. Risk management involves identifying, measuring, monitoring, and managing risks on a regular basis. The objective of risk management is to increase shareholder value and achieve a return on equity commensurate with the risks assumed. To achieve this objective, BBK uses the best risk management practices and skilled, experienced people. In common with other financial institutions, the Bank faces a range of risks in its business and operations. These include: (i) credit risk; (ii) market risk (including interest rate risk, currency risk and equity price risk); (iii) liquidity risk; (iv) legal and operational risk; (v) reputational risk and (vi) strategic risk, as detailed below. The Board of Directors has overall responsibility for managing risk. The Board approves and periodically reviews risk management policies and strategies, and management establishes procedures to implement these policies and strategies. The Risk Management Committee (RMC) and Asset and Liability Management Committee (ALMC), comprising executive and senior management, are responsible for overall management of the Bank's balance sheet and risk profile. The RMC discusses important risk-related issues, new policies and procedures and subsequent amendments, and reviews the implementation of its decisions. The ALMC reviews issues relating to the balance sheet at micro level. The Risk Management Department (RMD) is responsible for identifying risk characteristics inherent in new and existing products, activities, countries, regions and industries, as well as establishing or developing relevant policies, procedures and exposure limits to mitigate such risks. The RMD also sets up systems and processes for monitoring market risk and operational risk. The Credit Management Department (CMD) processes credit applications and ensures compliance with credit policy provisions. The CMD generates regular reports on credit risk exposures, credit rating reviews, and credit limit monitoring. RMD and CMD functions report directly to the Chief Executive, in order to ensure the independence of the risk management process. Routine internal audits assess whether the policies and procedures are complied with and, if necessary, suggest ways of further improving internal procedures. Basel II and Capital Management The Bank has adopted the new Basel II Capital Adequacy Framework (Basel II) with effect from 1 January 2008 as per the guidelines issued by Central Bank of Bahrain. The Basel II implementation is expected to further improve the Bank's risk management process, supervisory review, disclosure standards, and capital management. The Bank has adopted the Standardized Approach in the case of Credit Risk; the Internal Model Approach for Market Risk; and the Basic Indicator Approach for Operational Risk. The Bank has established its Internal Capital Adequacy Assessment Process (ICAAP) to provide policy guidance in Capital Planning and Capital Management. The Bank also uses the Risk Adjusted Return on Capital (RAROC) model in its decision-making process. The various risks to which the Bank is exposed and how the Bank manages them individually are explained below: +---------------+-------------------------------------------------------------------------+ | Credit risk | Credit risk is defined as the risk of the Bank's borrowers or | | | counterparties failing to meet their obligations in accordance with the | | | agreed terms. The goal of credit risk management is to maximise the | | | Bank's risk-adjusted rate of return by maintaining credit risk | | | exposures within acceptable parameters. | | | The Bank has well-defined policies and procedures for identifying, | | | measuring, monitoring and controlling credit risk in all of its | | | activities, at the level of individual credit and portfolio. Credit | | | limits are approved after thorough assessment of the creditworthiness | | | of the borrower or counterparty, including the purpose and structure of | | | credit, and its source of repayment. Credit proposals are reviewed by | | | the Credit Management Department (CMD) before obtaining approval by the | | | appropriate authority. Such reviews are conducted by CMD, which is | | | independent of Business Units and reports directly to the Chief | | | Executive. | | | The Bank devises specific business and risk strategies relating to | | | Corporate, Retail, Investments and Treasury areas, within the ambit of | | | Group risk policies and procedures. Any additional risks associated | | | with such strategies are discussed in the RMC meetings and necessary | | | risk control measures are applied through amendments to policies, | | | procedures and circulars. The Bank also draws up a comprehensive Risk | | | Management Strategy every year and monitors progress. | | | Credit growth, quality and portfolio composition are monitored | | | continuously to maximise risk-adjusted return and reduce the incidence | | | of impairment and accretion of marginal credits. The Bank monitors | | | concentration risk by setting up limits for the maximum exposure to | | | individual borrower or counterparty, country, bank, and industry. The | | | Bank reviews the impact on risk concentration at the time of each | | | credit approval. Such limits are also stipulated for each product. | | | These limits are approved after detailed analysis and are reviewed and | | | monitored regularly. | | | Day to day monitoring of individual borrower or counterparty exposure | | | is the responsibility of the respective Business Units. The Bank's | | | Credit Administration Unit, part of the CMD, ensures that credit | | | facilities are released after proper approval and against proper | | | documentation. It also monitors excesses over limits, past dues, | | | expired credits, and highlights exceptions for corrective action | | | immediately. | | | The Bank has a risk asset rating policy which defines criteria for | | | rating of risk assets. All credits are assigned a rating in accordance | | | with the defined criteria. All lending relationships are reviewed at | | | least once a year, and more frequently for non-performing assets | | | (NPAs). The Bank has employed scoring models and risk asset criteria in | | | the retail/SME segment for assessing underlying risks. The Internal | | | Audit Department conducts independent reviews of risk assets | | | periodically and submits its report to senior management/Audit | | | Committee. The Bank endeavours to continuously improve on internal | | | credit risk rating methodologies and credit risk management policies | | | and practices, to reflect the true credit risk and testify to the | | | Bank's credit culture. | | | The Bank has adequate internal risk processes to manage its books | | | effectively in times of unforeseen crisis. The business and strategic | | | plans are reviewed continuously and redrawn if necessary, in order to | | | minimise fresh exposures in high-risk areas. | | | It is the Bank's policy to ensure that provisions for credit loss are | | | maintained at adequate levels. For loans and advances considered by the | | | management as individually significant, specific provision is made for | | | the impairment loss, worked out on the basis of estimated discounted | | | value of future cash flows in line with IAS-39 guidelines. For the | | | remaining accounts, which are not individually significant, general | | | provision is made on a portfolio basis based on criteria applied | | | consistently over time. Additionally, the Bank makes provision for its | | | standard assets portfolio, based on certain assumptions. | | | The Bank has put in place mechanisms for reviewing strategic risk and | | | reputational risk. The Bank has also laid out a mechanism for stress | | | testing portfolio credit risk. | | | Experienced and skilled staff members manage the recovery of | | | non-performing loans, under separate recovery/loan work-out sections | | | within the Retail, Corporate, and International Banking Divisions. | +---------------+-------------------------------------------------------------------------+ | Liquidity | Liquidity Risk is defined as the potential inability of the Bank to | | risk | meet its financial obligations (liquidity needs) due to funding | | | mismatch. Management of liquidity risk requires the Bank to be prepared | | | to meet its cash financial obligations as and when they fall due. | | | The Bank has a liquidity risk policy in place, which describes the | | | roles and responsibilities of ALMC and Treasury. It also stipulates the | | | broad guidelines with regard to minimum liquid assets to be maintained | | | by the Bank; gap limits under each time bucket of the maturity ladder; | | | cumulative outflow of cash limits for each time bucket; and various | | | liquidity ratios to be maintained, which are approved by the ALMC based | | | on the Annual Liquidity Strategy. | | | It is the Bank's policy to keep its assets in high-quality liquid | | | assets such as inter-bank placements, Treasury Bills and Government | | | Bonds, to ensure that funds are available to meet maturing liabilities, | | | un-drawn facilities and deposit withdrawals as they fall due for | | | payment. A substantial proportion of the Bank's deposits is made up of | | | retail current, savings and fixed deposit accounts which, though | | | payable on demand or at short notice, have traditionally formed part of | | | a stable deposit base and a source of core funding. | | | The day to day management of liquidity risk is the responsibility of | | | the Global Treasurer. He monitors the sources and maturities of assets | | | and liabilities closely, and ensures that limits stipulated by the ALMC | | | are complied with, and that funding is not concentrated from any one | | | source. | | | The Bank also draws up contingency plans to deal with extraordinary | | | conditions of liquidity risk after comprehensive scenario analysis. | +---------------+-------------------------------------------------------------------------+ | Interest rate | Interest rate risk is the exposure of the Bank's financial condition to | | risk | adverse movements of interest rates. The Bank is exposed to this risk | | | as a result of mismatches or gaps in the amounts of assets and | | | liabilities and off balance sheet instruments that mature or re-price | | | in a given period. Excessive interest rate risk can pose a significant | | | threat to the Bank's earnings and capital base. Accordingly, an | | | effective risk management process that maintains interest rate risk | | | within prudent levels is essential for the safety and soundness of the | | | Bank. | | | It is the Bank's policy to keep its assets and liabilities mismatches | | | at stable and acceptable levels to maintain steady net interest income. | | | The Bank monitors interest rate risk based on gap/duration limits. The | | | Bank also uses 'what if' scenarios for changes, if any, in interest | | | rates by applying standardised rate shocks, for projecting Net Interest | | | Income and Economic Value of Equity of the Bank. The Bank uses | | | derivative instruments such as interest rate swaps, floating rate | | | agreements and bond futures to manage interest rate risk. Whilst day to | | | day management of interest rate risk is the Global Treasurer's | | | responsibility, ALMC also reviews the interest rate risk reports | | | periodically. | +---------------+-------------------------------------------------------------------------+ | Market risk | Market risk is defined as the risk of losses in on or off balance sheet | | | positions of the Bank arising from movements in market prices of | | | interest rate-related instruments, equities in the trading book, and | | | foreign exchange and commodity risk throughout the Bank. | | | The Bank has clearly defined policies for conducting investment | | | (including trading investments) and foreign exchange business, which | | | stipulate the limits for these activities. Investments are made | | | strictly in accordance with investment acceptance criteria, which | | | ensure that investments are marketable and liquid. The Bank does not | | | undertake any commodity trading activity. | | | The Bank uses an internal Value-at-Risk (VaR) model for measuring | | | general market risk in trading positions. The internal model has been | | | approved by the Central Bank of Bahrain. VaR is calculated using a 99 | | | per cent confidence level for a 10-day holding period. This implies a 1 | | | per cent possibility of the loss exceeding the VaR amount calculated by | | | the model. As at 31 December 2008, VaR calculated based on the above | | | parameters was BD 283,677 (US$ 752,460). A graph of VaR for the year | | | 2008 is given above. The graph depicts the 10-day horizon VaR movement | | | for each day. | | | The Risk Management Department conducts backtesting in accordance with | | | the Market Risk Capital Adequacy Regulations issued by the Central Bank | | | of Bahrain. Backtesting involves comparing the one-day daily VaR with | | | the average daily profit and loss | | | (i.e. average of that day's and the next day's profit and loss). The | | | objective is to ensure that the assumptions used for computing VaR are | | | reasonable and provide a VaR number that is a good indicator of worst | | | possible losses. | | | During the year the backtesting produced satisfactory results, | | | indicating that the assumptions used in computing VaR have been | | | reasonable. The Bank also regularly conducts stress testing to identify | | | events or scenarios that could greatly impact material trading | | | positions taken by the Bank. As per Central Bank of Bahrain | | | requirements, validation of the internal model is conducted by the | | | Internal Audit Department of the Bank as well as by the external | | | auditors. | +---------------+-------------------------------------------------------------------------+ | Legal risk | Legal risk is the risk that contracts are not legally enforceable or | | | documented correctly. It is the Bank's policy to use standard documents | | | for the majority of its lending. The Bank's standard documents are | | | prepared in consultation with the Bank's in-house Legal Department | | | and/or external legal counsel. All non-standard documents are approved | | | by the Bank's in-house Legal Department and/or external legal counsel. | | | The policies and procedures of the Bank ensure that credit facilities | | | are released after obtaining proper documents. | +---------------+-------------------------------------------------------------------------+ | Operational | Operational risk is the exposure to loss resulting from inadequate or | | risk | failed internal processes, people and systems, or from external events. | | | The Bank has clearly defined operations procedures for each of its | | | products and services. It also has advanced computer systems that | | | enable it to run operations with speed and accuracy. | | | All computer systems and operations procedures are approved by the | | | Internal Audit Department. This department operates independently from | | | other units of the Bank and reports directly to the Audit Committee, | | | which consists of members of the Board. It conducts regular reviews of | | | all business areas of the Bank and reports control deficiencies and | | | exceptions to the Bank's policies and procedures. It also recommends | | | measures to improve operational risk, which are implemented by | | | management immediately. | | | The Bank also has a contingency plan to take care of any failure of its | | | computer systems. Regular back-ups are made for all important datasets, | | | and stored outside the Bank's premises. This ensures that in case of | | | any system failure, the Bank will be able to continue its operations | | | without losing critical data or business transactions. As part of its | | | disaster recovery plan, the Bank has established a back-up site to | | | stand in and operate during an emergency. | | | The Business Continuity Planning function has been centralised in BBK | | | to coordinate with all departments. This ensures their capability to | | | provide essential and/or critical services to customers in the event of | | | full or partial disaster, and to minimise any adverse effects on the | | | Bank's business. The essential components of the BCM lifecycle are: | | | Conducting Business Impact Analysis (BIA); Developing Business Recovery | | | Plans (Emergency Evacuation Plans, Business Continuity Plans & Crisis | | | Management & Communication Plans); Exercising and Maintenance (change | | | management) of recovery plans; and increasing the awareness of Business | | | Continuity Planning. | | | The Bank has implemented an operational risk management solution for | | | monitoring operational risk, conducting Risk and Control Self | | | Assessments and Capturing Operational Loss data in accordance with | | | Basel II/Central Bank of Bahrain guidelines. | +---------------+-------------------------------------------------------------------------+ Corporate governance philosophy High standards in corporate governance are fundamental in maintaining BBK's leading position within the local and regional banking sector and the community. Continuous review and adherence to strong corporate governance practices help enhance compliance levels according to international standards and best practice. As the direct responsibility of the Board of Directors, this endeavour is in line with the policies of regulatory authorities and statutory requirements in the Kingdom of Bahrain and other countries where BBK operates. A Shareholder information BBK's shares are listed on the Bahrain and Kuwait stock exchanges. The Bank has issued 810,815,355 equity shares with a face value of 100 fils. All shares are fully paid. 1 Annual General Meeting The Annual General Ordinary and Extraordinary Meetings were held on 2nd March 2008. The Extraordinary Meeting resolved to approve increasing the issued and paid up capital by granting bonus shares to the shareholders by 5% i.e. 1:20 share at a nominal value 100 fils. 2 Shareholders +---------------------------------------------------------+-----------+-------------+-----------+ | | +---------------------------------------------------------+ | | | | | +---------------------------------------------------------+-----------+-------------+-----------+ | | | | | +---------------------------------------------------------+-----------+-------------+-----------+ | Citizens of the Kingdom of Bahrain & Others | - | 143,491,855 | 17.70% | +---------------------------------------------------------+-----------+-------------+-----------+ | Ithmaar Bank | Bahrain | 205,463,036 | 25.34% | +---------------------------------------------------------+-----------+-------------+-----------+ | Pension Fund Commission | Bahrain | 152,536,920 | 18.81% | +---------------------------------------------------------+-----------+-------------+-----------+ | Al-Tijari Investment Co. | Kuwait | 119,000,000 | 14.68% | +---------------------------------------------------------+-----------+-------------+-----------+ | Social Insurance Organization | Bahrain | 108,271,545 | 13.35% | +---------------------------------------------------------+-----------+-------------+-----------+ | Kuwait Investment Authority | Kuwait | 32,593,855 | 4.02% | +---------------------------------------------------------+-----------+-------------+-----------+ | Zumorodah Investment | Kuwait | 25,649,837 | 3.16% | +---------------------------------------------------------+-----------+-------------+-----------+ | Emerging Markets Middle East Fund | Ireland | 15,056,538 | 1.86% | +---------------------------------------------------------+-----------+-------------+-----------+ | Global Investment House | Kuwait | 8,751,769 | 1.08% | +---------------------------------------------------------+-----------+-------------+-----------+ 3 Distribution schedule of each class of equity (as at 31 December 2008) +----------------------+----------------------+----------------------+----------------------+ | | | | | +----------------------+----------------------+----------------------+----------------------+ | Less than 1% | 143,491,855 | 2363 | 17.70% | +----------------------+----------------------+----------------------+----------------------+ | 1% to less than 5% | 82,051,999 | 4 | 15.12% | +----------------------+----------------------+----------------------+----------------------+ | 5% to less than 10% | - | - | - | +----------------------+----------------------+----------------------+----------------------+ | 10% up to less than | 379,808,465 | 3 | 46.84% | | 20% | | | | +----------------------+----------------------+----------------------+----------------------+ | 20% to less than 50% | 205,463,036 | 1 | 25.34% | +----------------------+----------------------+----------------------+----------------------+ | 50% and above | - | - | - | +----------------------+----------------------+----------------------+----------------------+ B Board of Directors information 1 Board composition The composition of the Board was reviewed and reconstituted during 2008. Six new members were appointed to replace the retiring members, whose term ended on 2nd March 2008. The retiring members were: Yacoub Yousef Al Fulaij, Mohammed Salahuddin Ahmed, Abdul Majeed Haji Al Shatti, Hamad Ahmed Al Busairi, Abdulla Mohammed Al Sumait and Ali Hassan Meshari Al Bader. The Board continues to have twelve members including the Chairman. The composition and membership of the Board committees were also reviewed. This included reviewing the terms of reference of the Executive Committee, and also redefining the terms of reference of the Compensation Committee, which was subsequently reconstituted into a new Nomination and Remuneration Committee. Furthermore, in compliance with the Corporate Governance requirement, the Board committees continue to consist of members with the adequate professional background and experience. 2 Directors' roles and responsibilities The principal role of the Board of Directors (the Board) is to oversee the implementation of the Group's strategic initiatives and its functioning within the agreed framework, in accordance with relevant statutory and regulatory structures. The Board ensures the adequacy of financial and operational systems and internal control, as well as the implementation of corporate ethics and the code of conduct. The Board has delegated responsibility for overall management of the Bank to the Chief Executive. The Board of Directors meets not less than four times a year. Each Director holds the position for three years, after which he must present himself to the Annual General Meeting of shareholders for re-appointment. The majority of BBK Directors (including the Chairman and/or Deputy Chairman) are required to attend the Board meetings in order to ensure a quorum. 3 Directors' remuneration The Directors' remuneration, allowances and expenses for attendance at Board meetings and its Committees for 2008 were BD 634,804 (2007: BD 639,440). 4 Directors' profiles +-----------+---------------------------------+--------------+ | Murad Ali Murad | +------------------------------------------------------------+ | Chairman | | Director since 21 March 1999 (Independent and | | non-executive) | +------------------------------------------------------------+ | Board | Bahrain Telecommunications Co. | Kingdom of | | Member | (Batelco) | Bahrain | +-----------+---------------------------------+--------------+ | Board | Bahraini Kuwaiti Insurance Co. | Kingdom of | | Member | | Bahrain | +-----------+---------------------------------+--------------+ | Deputy | Al-Banader Hotel Co. | Kingdom of | | Chairman | | Bahrain | +-----------+---------------------------------+--------------+ | Board | Bahrain Mumtalakat Holding Co. | Kingdom of | | Member | | Bahrain | +-----------+---------------------------------+--------------+ | Board | Umniah Mobile Co. | Jordan | | Member | | | +-----------+---------------------------------+--------------+ | Member | Council of Vocational Training | Kingdom of | | | in Banking Sector | Bahrain | +-----------+---------------------------------+--------------+ | Chairman | Human Resources Development | Kingdom of | | | Fund in Banking Sector | Bahrain | +-----------+---------------------------------+--------------+ | Maha Khalid Al Ghunaim | +------------------------------------------------------------+ | Deputy Chairman | | Director since 2 March 2008 (Non-executive) | | Nominated by Global Investment House | | Chairperson and Managing Director of Global Investment | | House | +------------------------------------------------------------+ | Vice | Shurooq Investment Services Co. | Oman | | Chairman | (SISCO) | | +-----------+---------------------------------+--------------+ | Board | Union of Investment Companies | State of | | Member | | Kuwait | +-----------+---------------------------------+--------------+ | Board | Depa United Group | UAE | | Member | | | +-----------+---------------------------------+--------------+ | Board | Barings Private Equity Asia | Hong Kong | | Member | Ltd. | | +-----------+---------------------------------+--------------+ | Board | Kinan International Real Estate | Kingdom of | | Member | Development Co. (Spin of Savola | Saudi Arabia | | | Group) | | +-----------+---------------------------------+--------------+ | Board | Bank Muscat International | Kingdom of | | Member | | Bahrain | +-----------+---------------------------------+--------------+ | Board | National Industries Group (NIG) | State of | | Member | | Kuwait | +-----------+---------------------------------+--------------+ | Board | Dubai International Financial | UAE | | Member | Exchange (DIFX) | | +-----------+---------------------------------+--------------+ | Board | CNBC | Pakistan | | Member | | | +-----------+---------------------------------+--------------+ | Board | Jehangir Siddiqui Capital | Pakistan | | Member | Markets Co. | | +-----------+---------------------------------+--------------+ | Board | World Union of Arab Bankers | Lebanon | | Member | | | +-----------+---------------------------------+--------------+ | Board | Kuwait University - College of | State of | | Member | Business Administration | Kuwait | +-----------+---------------------------------+--------------+ | Member | Financial & Investment | State of | | | Committee at Kuwait Chamber of | Kuwait | | | Commerce & Industry | | +-----------+---------------------------------+--------------+ | Khalid Abdulla Janahi | +------------------------------------------------------------+ | Director since 2 March 2008 (Non-independent and | | non-executive) | +------------------------------------------------------------+ | Chairman | Ithmaar Bank BSC | Kingdom of | | | | Bahrain | +-----------+---------------------------------+--------------+ | Chief | Dar Al-Maal Al-Islami Trust | Switzerland | | Executive | (DMI Trust) | | +-----------+---------------------------------+--------------+ | Chairman | Faisal Private Bank | Switzerland | +-----------+---------------------------------+--------------+ | Chairman | DMI Administrative Services and | Bahamas | | | IICG | | +-----------+---------------------------------+--------------+ | Chairman | Solidarity Company BSC (c) | Kingdom of | | | | Bahrain | +-----------+---------------------------------+--------------+ | Chairman | Faisal Islamic Bank | Egypt | +-----------+---------------------------------+--------------+ | Board | Centre for International | UK | | Member | Business and Management (CIBAM) | | | | - University of Cambridge | | +-----------+---------------------------------+--------------+ | Fellow | Institute of Chartered | England and | | | Accountants | Wales | +-----------+---------------------------------+--------------+ +------------+---------------------------------+--------------+ | Jamal Ali Al Hazeem | +-------------------------------------------------------------+ | Director since 27 February 2005 (Independent and | | non-executive) | +-------------------------------------------------------------+ | Chief | First Investment Bank | Kingdom of | | Executive | | Bahrain | | Officer | | | +------------+---------------------------------+--------------+ | Board | Nass Corporation | Kingdom of | | member | | Bahrain | +------------+---------------------------------+--------------+ | Board | Taameer Real Estate Investment | State of | | member | Co. | Kuwait | +------------+---------------------------------+--------------+ | Board | The Malls | Kingdom of | | member | | Bahrain | +------------+---------------------------------+--------------+ | Chairman | Tashgheel | Kingdom of | | | | Bahrain | +------------+---------------------------------+--------------+ | Sh Mohammed bin Isa Al Khalifa | +-------------------------------------------------------------+ | Director since 4 December 2002 (Non-executive) | | Nominated by Social Insurance Organization | +-------------------------------------------------------------+ | CEO | Social Insurance Organization | Kingdom of | | | | Bahrain | +------------+---------------------------------+--------------+ | Chairman | Securities and Investment Co. | Kingdom of | | | | Bahrain | +------------+---------------------------------+--------------+ | Chairman | Oasis Capital Bank | Kingdom of | | | | Bahrain | +------------+---------------------------------+--------------+ | First | Bahrain Telecommunication Co. | Kingdom of | | Deputy | (Batelco) | Bahrain | | Chairman | | | +------------+---------------------------------+--------------+ | Deputy | National Motor Co. | Kingdom of | | Chairman | | Bahrain | +------------+---------------------------------+--------------+ | Deputy | Bahrain International Golf | Kingdom of | | Chairman | Course Company | Bahrain | +------------+---------------------------------+--------------+ | Board | Bahrain Commercial Facilities | Kingdom of | | Member | Co. | Bahrain | +------------+---------------------------------+--------------+ | Sh Khalifa bin Daij Al Khalifa | +-------------------------------------------------------------+ | Director since 27 February 2005 (Independent and | | non-executive) | +-------------------------------------------------------------+ | President | Court of the Crown Prince | Kingdom of | | | | Bahrain | +------------+---------------------------------+--------------+ | Board | Crown Prince's International | Kingdom of | | Member | Scholarship Program | Bahrain | +------------+---------------------------------+--------------+ | Sh Abdulla bin Khalifa bin Salman Al Khalifa | +-------------------------------------------------------------+ | Director since 2 March 2008 (Non-independent and | | non-executive) | +-------------------------------------------------------------+ | Director | Bahrain International Golf | Kingdom of | | | Course Co. B.S.C. (c) | Bahrain | +------------+---------------------------------+--------------+ | Director | Strategic Acquisition Fund Co. | Kingdom of | | | B.S.C. (c) | Bahrain | +------------+---------------------------------+--------------+ | Assistant | Social Insurance Organization | Kingdom of | | Director, | | Bahrain | | Investment | | | +------------+---------------------------------+--------------+ +-----------+---------------------------------+--------------+ | Mohamed Abdulrahman Hussain Bucheery | +------------------------------------------------------------+ | Director since 2 March 2008 (Non-independent and | | non-executive) | +------------------------------------------------------------+ | Co-Chief | Ithmaar Bank BSC | Kingdom of | | Executive | | Bahrain | | Officer | | | | & Board | | | | Member | | | +-----------+---------------------------------+--------------+ | Board | First Leasing Bank BSC (c) | Kingdom of | | Member | | Bahrain | +-----------+---------------------------------+--------------+ | Board | Faisal Private Bank | Switzerland | | Member | (Switzerland) SA | | +-----------+---------------------------------+--------------+ | Board | Faysal Bank Limited | Pakistan | | Member | | | +-----------+---------------------------------+--------------+ | Board | Ithraa Capital | Kingdom of | | Member | | Saudi Arabia | +-----------+---------------------------------+--------------+ | Board | Citic International Assets | Hong Kong | | Member | Management Ltd. (CIAM) | | +-----------+---------------------------------+--------------+ | Board | Solidarity Company BSC (c) | Kingdom of | | Member | | Bahrain | +-----------+---------------------------------+--------------+ | Board | Emerging Markets Partnership | Kingdom of | | Member | BSC (c) | Bahrain | +-----------+---------------------------------+--------------+ | Board | Human Resources Development | Kingdom of | | Member | Fund | Bahrain | +-----------+---------------------------------+--------------+ +----------------+---------------------------------+--------------+ | Omar Mahmood El Quqa | +-----------------------------------------------------------------+ | Director since 2 March 2008 (Non-independent and | | non-executive) | +-----------------------------------------------------------------+ | Chairman | Jordanian Trade Facilities Co. | Jordan | | | (JTFC) | | +----------------+---------------------------------+--------------+ | Chairman | First Jordan Investment Co. | Jordan | +----------------+---------------------------------+--------------+ | Vice | Real Estate Finance Co. (Reef) | Kingdom of | | Chairman | | Bahrain | +----------------+---------------------------------+--------------+ | Vice | Real Estate Development Co. | Jordan | | Chairman | (REDV) | | +----------------+---------------------------------+--------------+ | Vice | Syria and Gulf Bank | Syria | | Chairman | | | +----------------+---------------------------------+--------------+ | Board | Al Manar Financing and Leasing | State of | | Member | Co. | Kuwait | +----------------+---------------------------------+--------------+ | Board | Mazaya Holding Co. | State of | | Member | | Kuwait | +----------------+---------------------------------+--------------+ | Board | Shurooq Investment Services Co. | Oman | | Member | (SISCO) | | +----------------+---------------------------------+--------------+ | Board | Bank of Baghdad | Iraq | | Member | | | +----------------+---------------------------------+--------------+ | Board | Amwal Invest | Jordan | | Member | | | +----------------+---------------------------------+--------------+ | Board | United Arab Investors Co. | Jordan | | Member | (UAIC) | | +----------------+---------------------------------+--------------+ | Board | Taameer | Jordan | | Member | | | +----------------+---------------------------------+--------------+ | Board | Palestine Real Estate | Jordan | | Member | Investment Co. (PRICO) | | +----------------+---------------------------------+--------------+ | Board | Al Salam Bank | Sudan | | Member | | | +----------------+---------------------------------+--------------+ | Board | Dar Al-Tamleek | KSA | | Member | | | +----------------+---------------------------------+--------------+ | Board | Al-Jazeera Steel Products Co. | Oman | | Member | | | +----------------+---------------------------------+--------------+ | Board | Gulf Healthcare International | UAE | | Member | (GHI) | | +----------------+---------------------------------+--------------+ | Board | Global MENA Financial Asset | Cayman | | Member | | Island | +----------------+---------------------------------+--------------+ | Deputy | Global Investment House | State of | | Chief | | Kuwait | | Executive | | | +----------------+---------------------------------+--------------+ | Aref Saleh Khamis | +-----------------------------------------------------------------+ | Director since 1 April 2003 (Non-executive) | | Nominated by Social Insurance Organization | | | +-----------------------------------------------------------------+ | Undersecretary | Ministry of Finance | Kingdom of | | | | Bahrain | +----------------+---------------------------------+--------------+ | Chairman | Gulf Aluminium Rolling Mills | Kingdom of | | | Co. (GARMCO) | Bahrain | +----------------+---------------------------------+--------------+ | Deputy | Qatar-Bahrain Causeway | Kingdom of | | Chairman | Foundation | Bahrain | +----------------+---------------------------------+--------------+ | Director | Arab Ship Building & Repair | Kingdom of | | | Yard Co. (ASRY) | Bahrain | +----------------+---------------------------------+--------------+ | Member | Bahrain institute of Public | Kingdom of | | | Administration | Bahrain | +----------------+---------------------------------+--------------+ | Director | Sh Mohd. bin Khalifa bin Salman | Kingdom of | | | | Bahrain | | | Al Khalifa Cardiac Centre | | +----------------+---------------------------------+--------------+ | Member | Supreme Council for Traffic | Kingdom of | | | | Bahrain | +----------------+---------------------------------+--------------+ | Member | Zakat Fund | Kingdom of | | | | Bahrain | +----------------+---------------------------------+--------------+ | Ziad Hasan Rawashdeh | +-----------------------------------------------------------------+ | Director since 2 March 2008 (Non-executive) | | Nominated by Ithmaar Bank | +-----------------------------------------------------------------+ | Board | Ithmaar Bank BSC | Kingdom of | | Member | | Bahrain | +----------------+---------------------------------+--------------+ | Board | Shamil Bank BSC | Kingdom of | | Member | | Bahrain | +----------------+---------------------------------+--------------+ | Board | Solidarity Company BSC (c) | Kingdom of | | Member | | Bahrain | +----------------+---------------------------------+--------------+ | Board | First Leasing Bank BSC (c) | Kingdom of | | Member | | Bahrain | +----------------+---------------------------------+--------------+ | Group | Dar Al-Maal Al-Islami Trust | Switzerland | | Chief | (DMITrust) | | | Operation | | | | Officer | | | +----------------+---------------------------------+--------------+ +-----------+---------------------------------+--------------+ | Jassem Hasan Ali Zainal | | | +------------------------------------------------------------+ | Director since 22 November 1994 (Independent and | | non-executive) | | | +------------------------------------------------------------+ | Chairman | Automated Systems Co. | State of | | & | | Kuwait | | Managing | | | | Director | | | +-----------+---------------------------------+--------------+ | Deputy | Al Razi Holding Co. | State of | | Chairman | | Kuwait | +-----------+---------------------------------+--------------+ | Deputy | Addax Investment Bank | Kingdom of | | Chairman | | Bahrain | +-----------+---------------------------------+--------------+ | Board | Kuwait International Bank | State of | | Member | | Kuwait | +-----------+---------------------------------+--------------+ | Board | Kuwait Airways Co. | State of | | Member | | Kuwait | +-----------+---------------------------------+--------------+ | Board Secretary: Saad Mohammed Al Hooti | +-----------+---------------------------------+--------------+ Note: The qualifying criteria for 'Independent' Directors are as per the Corporate Governance guidelines of the Central Bank of Bahrain. 5 Code of conduct The Board has approved a code of conduct for the Directors, Executive Management, and members of staff of the Bank. The code binds signatories to the highest standard of professionalism and due diligence in discharging their duties. The code outlines areas of conflict of interest, confidentiality, and responsibilities of signatories to adhere to best practices. 6 Insider trading The Bank has established Insider Trading Procedures to ensure that insiders are aware of the legal and administrative requirements regarding holding and trading in the Bank's securities, with the primary objective of preventing abuse of inside information. Insiders are defined to include the Directors, management, staff and any person or firm connected to the identified insiders. The responsibility for ensuring compliance with Insider Trading procedure is entrusted to the Insider committee of the Board. 7 Board meetings and attendances During 2008, seven Board meetings were held in Bahrain. The quarterly meetings were attended as follows: +------------------+-----------------------+-----------------------+-----------------------+ | | +------------------+ | | | | | +------------------+-----------------------+-----------------------+-----------------------+ | | | | | +------------------+-----------------------+-----------------------+-----------------------+ | Murad Ali Murad | Murad Ali Murad | Murad Ali Murad | Murad Ali Murad | | Jassem Hasan Ali | Maha Khalid Al | Jamal Ali Al Hazeem | Maha Khalid Al | | Zainal | Ghunaim | Sh Mohammed bin Isa | Ghunaim | | Yacoub Yousef Al | Khalid Abdulla Janahi | Al Khalifa | Khalid Abdulla Janahi | | Fulaij | Jamal Ali Al Hazeem | Sh Abdulla bin | Jamal Ali Al Hazeem | | Hamad Ahmed Al | Sh Mohammed bin Isa | Khalifa bin Salman Al | Sh Mohammed bin Isa | | Busairi | Al Khalifa | Khalifa | Al Khalifa | | Abdulla Mohammed | Sh Khalifa bin Daij | Mohamed Abdulrahman | Sh Khalifa bin Daij | | Al Sumait | Al Khalifa | Hussain Bucheery | Al Khalifa | | Sh Mohammed bin | Sh Abdulla bin | Aref Saleh Khamis | Sh Abdulla bin | | Isa Al Khalifa | Khalifa bin Salman Al | Ziad Hasan Rawashdeh | Khalifa bin Salman Al | | Aref Saleh | Khalifa | Jassem Hasan Ali | Khalifa | | Khamis | Mohamed Abdulrahman | Zainal | Mohamed Abdulrahman | | Abdul Majeed | Hussain Bucheery | | Hussain Bucheery | | Haji Al Shatti | Omar Mahmood El Quqa | | Omar Mahmood El Quqa | | Jamal Ali Al | Aref Saleh Khamis | | Aref Saleh Khamis | | Hazeem | Ziad Hasan Rawashdeh | | Ziad Hasan Rawashdeh | | Ali Hassan | | | Jassem Hasan Ali | | Meshari Al Bader | | | Zainal | | Sh Khalifa bin | | | | | Daij Al Khalifa | | | | +------------------+-----------------------+-----------------------+-----------------------+ 8 Directors' interests The number of shares held by Directors and related parties as at 31 December 2008 is as follows: +-------------------------------------------+----------------+----------------+-------------+ | | +-------------------------------------------+ | | | | | +-------------------------------------------+----------------+----------------+-------------+ | | | | | +-------------------------------------------+----------------+----------------+-------------+ | Murad Ali Murad | Ordinary | 640,148 | 609,677 | +-------------------------------------------+----------------+----------------+-------------+ | Global / Maha Khalid Al Ghunaim | Ordinary | 100,000 | Nil | +-------------------------------------------+----------------+----------------+-------------+ | Khalid Abdulla Janahi | Ordinary | 100,000 | Nil | +-------------------------------------------+----------------+----------------+-------------+ | Jamal Ali Al Hazeem | Ordinary | 152,661 | 145,392 | +-------------------------------------------+----------------+----------------+-------------+ | GOSI / Sh Mohammed bin Isa Al Khalifa | Ordinary | 126,793 | 120,755 | +-------------------------------------------+----------------+----------------+-------------+ | Sh Khalifa bin Daij Al Khalifa | Ordinary | Nil | Nil | +-------------------------------------------+----------------+----------------+-------------+ | Sh Abdulla bin Khalifa bin Salman Al | Ordinary | Nil | Nil | | Khalifa | | | | +-------------------------------------------+----------------+----------------+-------------+ | Mohamed Abdulrahman Hussain Bucheery | Ordinary | 100,000 | Nil | +-------------------------------------------+----------------+----------------+-------------+ | Omar Mahmood El Quqa | Ordinary | 100,000 | NIl | +-------------------------------------------+----------------+----------------+-------------+ | Pension Fund Commission / Aref Saleh | Ordinary | 100,000 | 105,000 | | Khamis (*) | | | | +-------------------------------------------+----------------+----------------+-------------+ | Ziad Hasan Rawashdeh | Ordinary | 100,000 | Nil | +-------------------------------------------+----------------+----------------+-------------+ | Jassem Hasan Ali Zainal | Ordinary | 142,641 | 135,849 | +-------------------------------------------+----------------+----------------+-------------+ (*) Qualifying shares related to Aref Saleh Khamis are part of the whole shares of the Pension Fund Commission ownership. 9 Related parties Al Janabeya Co. WLL owns 22,856 shares. 10 Material contracts involving Directors Provision of consultancy services by Mohammed Salahuddin Consultancy Engineering Bureau (MSCEB) for the Financial Malls project. Contract value: BD 193,500 (as at 31 December 2008). 11 Board committees +--------------+---------------------------------+------------------------------------------+ | | +--------------+ | | | | +--------------+---------------------------------+------------------------------------------+ | | | | +--------------+---------------------------------+------------------------------------------+ | Executive | Khalid Abdulla Janahi | - Five members are appointed for a 1 | | Committee | (Chairman) | year term. | | | Sh Mohammed bin Isa Al Khalifa | -Minimum number of meetings required | | | (Deputy Chairman) | each year: 10 | | | Mohamed Abdulrahman Hussain | (actual meetings in 2008: 12). | | | Bucheery | - Role: reviews, approves and directs | | | Omar Mahmood El Quqa | the Executive Management on | | | Aref Saleh Khamis | matters raised to the Board of | | | | Directors. | +--------------+---------------------------------+------------------------------------------+ | Audit | Jamal Ali Al Hazeem (Chairman) | - Three members are appointed for 1 | | Committee | Sh Khalifa bin Daij Al Khalifa | year term. | | | Jassem Hasan Ali Zainal | - Minimum number of meetings required | | | | each year: 4 | | | | (actual meetings in 2008: 4). | | | | -Role: reviews the internal audit | | | | programme and internal control system, | | | | considers the major findings of: | | | | internal audit review, investigations | | | | and management's response, as well as | | | | ensuring coordination among internal and | | | | external auditors. | +--------------+---------------------------------+------------------------------------------+ | Insider | Jamal Ali Al Hazeem (Chairman) | - Three members are appointed for a 1 | | Committee | Sh Khalifa bin Daij Al Khalifa | year term. | | | Jassem Hasan Ali Zainal | - | | | | Minimum number of meetings required each | | | | year: 4 | | | | (actual meetings in 2008: 4). | | | | - | | | | Role: tracks, monitors and reports | | | | trading activities of insiders in | | | | accordance with stipulation of CBB on | | | | Insiders. | | | | | +--------------+---------------------------------+------------------------------------------+ | Nomination | Murad Ali Murad (Chairman) | - Four members are appointed for a 1 | | and | Maha Khalid Al Ghunaim (Deputy | year term. | | Remuneration | Chairman) | -Minimum number of meetings required | | Committee | Sh Abdulla bin Khalifa bin | each year: 2 | | | Salman Al Khalifa | (actual meetings in 2008: 3). | | | Ziad Hasan Rawashdeh | - Role: establishes a Board | | | | compensation policy for the Directors | | | | and | | | | Executive Management. | +--------------+---------------------------------+------------------------------------------+ The Board reserves the right to form temporary committees and discontinue them, from time to time and as it sees necessary. C Executive management information During the year, four members of the executive management team have left the services of the Bank to pursue other career opportunities. Those executive members were: Rodger Dunn, Abdulla Abdulrahman Hussain, Vinit Kohli and Ian Mackay. The vacancies were filled through appointments mostly within the Bank. 1 Executive management profiles +---------------------------------------------+------------------------------------------+ | Abdulkarim Ahmed Bucheery | Abdul Hussain Bustani | | Chief Executive | Assistant General Manager, Human | | BSc, University of Aleppo, Syria (1976). | Resources and Administration | | 31 years banking experience. Joined BBK in | Higher National Diploma, Civil | | 2002. | Engineering, Trent University, UK | | | (1978). | | | 33 years work experience, of which 21 | | | years in banking. Joined BBK in 1988. | +---------------------------------------------+------------------------------------------+ | Rashed Salman Al Khalifa | Axel Hofmann | | Deputy Chief Executive, Banking Group | Acting Assistant General Manager, Retail | | MBA, Arizona State University, US (1982). | Banking | | 26 years banking experience. Joined BBK in | Masters, Business Administration, | | 2008. | University of Texas, US (1991). | | | 18 years banking experience. Joined BBK | | | in 2007. | +---------------------------------------------+------------------------------------------+ | Reyadh Yousif Sater | Mohammed Abdulla Isa | | Deputy Chief Executive, Support Services | Acting Assistant General Manager, | | Group | Financial Control and Planning | | MBA, University of Glamorgan, UK (2001). | Certified Public Accountant, American | | 31 years banking experience. Joined BBK in | Institute of Certified Public | | 1978. | Accountants - Delaware State Board of | | | Accountancy (2001). | | | 8 years banking experience. Joined BBK | | | in 2001. | +---------------------------------------------+------------------------------------------+ | Mahmood Abdul Aziz | Amit Kumar | | Assistant General Manager, Operations | Assistant General Manager, Risk, | | Executive Management Diploma, University of | Compliance and Legal Affairs | | Bahrain. | MBA, India Institute of Management, | | Gulf Executive Management Program, | India (1983). | | University of Virginia, US. | 25 years banking experience. Joined BBK | | 37 years banking experience. Joined BBK in | in 1994. | | 1976. | | +---------------------------------------------+------------------------------------------+ | Adnan A. Wahab Al Arayyed | Hugo Perez | | Head of Credit Management | Assistant General Manager, Transactional | | BSc, Beirut Arab University, Lebanon | Banking | | (1984). | MBA, Idea - Wharton School, University | | 27 years banking experience. Joined BBK in | of Pennsylvania, US (1991). | | 1983. | 17 years experience. Joined BBK in 2007. | +---------------------------------------------+------------------------------------------+ | Khalil Al Meer | Abdulrahman Saif (PhD) | | Assistant General Manager, Corporate | Assistant General Manager, Treasury and | | Banking | Investment | | BSc, Business Administration, University of | PhD, Economics, University of Leicester, | | Bahrain (1985). | UK (1992). | | 23 years banking experience. Joined BBK in | 26 years banking experience. Joined BBK | | 1989. | in 2008. | +---------------------------------------------+------------------------------------------+ | Jamal Al Sabbagh | Ashish Sarkar | | Acting Assistant General Manager, | Assistant General Manager, International | | Information Technology | Banking | | BSc, Business Administration, University of | MBA, Indian Institute of Management | | Glamorgan, UK (2001). | (1990). | | 28 years banking experience. Joined BBK in | 18 years banking experience. Joined BBK | | 1980. | in 1997. | +---------------------------------------------+------------------------------------------+ 2 Executive Management's interests The number of shares held by members of the Executive Management team as at 31 December 2008 are as follows: +---------------------------------------------+--------------+--------------+--------------+ | | +---------------------------------------------+ | | | | | +---------------------------------------------+--------------+--------------+--------------+ | | | | | +---------------------------------------------+--------------+--------------+--------------+ | Mahmood Abdul Aziz | Ordinary | 7,596 | 7,234 | +---------------------------------------------+--------------+--------------+--------------+ | Jamal Al Sabbagh | Ordinary | 5,914 | 5,641 | +---------------------------------------------+--------------+--------------+--------------+ 3 Management committees Management Committees are chaired by the Chief Executive. Committee members are heads of the relevant divisions appointed by the committee Chairman. Each committee meets at least once a month, except the Senior Human Resources Committee and the Risk Management Committee that meet once every other month. +-----------------------+----------------------------------------------------------------+ | | +-----------------------+ | | | +-----------------------+----------------------------------------------------------------+ | | | +-----------------------+----------------------------------------------------------------+ | Asset & Liability | Establishes policies and guidelines for the overall management | | Management | of the balance sheet and its associated risks. | +-----------------------+----------------------------------------------------------------+ | Senior Human | Establishes appropriate policies, procedures and guidelines | | Resources | for the management of human resources. | +-----------------------+----------------------------------------------------------------+ | Provision | Reviews and establishes provisioning requirements for loans, | | | advances and investments. | +-----------------------+----------------------------------------------------------------+ | Risk Management | Identifies, measures, monitors and controls risk by | | | establishing risk policies and procedures. | +-----------------------+----------------------------------------------------------------+ | Strategy Review | Reviews and monitors progress on strategic initiatives. | +-----------------------+----------------------------------------------------------------+ D. Other information 1 Organisation structure 2 Compliance and anti-money laundering Compliance with regulatory and statutory requirements is an ongoing process. The Bank is conscious of its responsibilities in observing all regulatory provisions and best international practices in its functioning. The Bank has established Compliance Function in keeping with Basel and CBB guidelines. The unit acts as a focal point for all regulatory compliance and for adapting other best practice compliance principles. Anti-Money Laundering measures form an important area of the Compliance Function, in addition to areas of corporate governance, disclosure standards, insider's trading, conflict of interest, and adherence to best practices. The Bank has documented an Anti-Money Laundering and Combating Terrorist Financing Policy and Procedure, which contains sound Customer Due Diligence measures, procedure for identifying and reporting suspicious transactions, a programme for periodic awareness training to staff, record-keeping, and a designated Money Laundering Reporting Officer (MLRO). The Bank has deployed a risk based automated transaction monitoring system in keeping with Anti-Money Laundering Regulations of CBB. The Bank's Anti-Money Laundering measures are regularly audited by the internal auditors who report to the Audit committee of the Board. The Central Bank performs periodic inspections of the Bank's compliance with Anti-Money Laundering regulations. Additionally, the Bank's Anti-Money Laundering measures are audited by independent external auditors every year and their report is submitted to the CBB. The overseas branches in India and Kuwait and subsidiary (CrediMax) have designated compliance and MLRO functions to ensure implementation of local regulations, and also to meet CBB requirements as applicable. The Bank is committed to combating money laundering and, towards this end, implements all 'Prevention of Money Laundering Regulations' and other guidelines issued by the CBB. These regulations and guidelines are consistent with the revised FATF 49 recommendations, 'Customer Due Diligence for Banks' paper, and best international practices. 3 Employee stock option plan The BBK employee stock option plan is a share based reward scheme, under which the Bank allocates certain number of shares every year to executive and senior management employees based on their performance, at a grant price determined according to share price at the closing of the price on the fourteenth day after the Annual General Meeting. The option has a life cycle of five years and a vesting period of two years. The employee may exercise his option of the vested shares by either acquiring them at the grant price or selling them at the prevailing market price. The plan aims at promoting an 'owner-manager' culture and aligns employee interests with those of the shareholders of the Bank. It is a reward scheme to retain and motivate key employees and to foster their commitment towards a common goal of enhancing shareholder value. 4 Communication strategy The Bank has an open policy on communication with its stakeholders and has adopted a communication disclosure policy consistent with Basel II requirements. Shareholders are invited by the Chairman to attend the Annual General Meeting. The Chairman and other directors attend the Annual General Meeting and are available to answer any questions. The Bank is at all times mindful and conscious of its regulatory and statutory obligations regarding dissemination of information to its stakeholders. The Bank provides information on all events that merit announcement, either on its website - www.bbkonline.com - or through newspapers. The Bank's three-year financials are also posted on the website, as well as in annual reports. The Bank uses a bulletin board for communicating with its staff on general matters, and sharing information of common interest and concern. 5 Major BBK shareholdings +------------------------------+----------+----------+----------+----------+------------------------------+------------+ | | | | | | | + + + + + +-------------------------------------------+ | | | | | | | | +------------------------------+----------+----------+----------+----------+------------------------------+------------+ | The Company's ownership in | | | | | | | | other companies listed on | | | | | | | | the BSE (5% and above) | | | | | | | +------------------------------+----------+----------+----------+----------+------------------------------+------------+ | Bahrain Kuwait Insurance | Bahrain | BSC | July | 6.82% | 4,138,476 | 4,138,476 | | | | Company | 2006 | | | | +------------------------------+----------+----------+----------+----------+------------------------------+------------+ | Securities Investment | Bahrain | BSC | May 2006 | 9.89% | 13,750,000 | 41,250,000 | | Company | | Company | | | | | +------------------------------+----------+----------+----------+----------+------------------------------+------------+ | Bahrain Commercial | Bahrain | BSC | 1994 | 23.00% | 22,275,000 | 37,618,691 | | Facilities Company | | Company | | | | | +------------------------------+----------+----------+----------+----------+------------------------------+------------+ 6 Offices and international branches +---------------------------------------------+------------------------------------------+ | BBK - Headquarters | Subsidiaries | | 43 Government Avenue | CrediMax | | PO Box 597, Manama, Kingdom of Bahrain | Hidaya House No. 1 | | Telephone: +973 17 22 33 88 | 49 Government Avenue | | Fax: +973 17 22 98 22 | PO Box 5350, Manama 305, Kingdom of | | Cable: BAHKUBANK. Telex: 8919. SWIFT: | Bahrain | | BBKUBHBM | Telephone: +973 17 207 207 | | www.bbkonline.com | Fax: +973 17 214 193 | | BBK - Kuwait | www.credimax.com.bh | | Ahmed Al Jaber Avenue | Invita Company B.S.C. (c) | | PO Box 24396, 13104 Safat, Kuwait | Suite 107, Building 128 | | Telephone: +965 2241 7140 | Road 383, Block 316, Manama Center | | Fax: +965 2244 0937 | PO Box 1179, Manama, Kingdom of Bahrain | | BBK - Mumbai | Telephone: +973 17 506 000 | | PO Box 11692 | Fax: +973 17 500 202 | | Jolly Maker Chambers II, 225 Nariman Point | www.invita.com.bh | | Mumbai 400021, India | Capinnova | | Telephone: +9122 2282 3698 | Floor 38, West Tower | | Fax: +9122 2204 4458 / 2284 1416 | Bahrain Financial Harbour | | BBK - Hyderabad | PO Box 5507, Manama, Kingdom of Bahrain | | 6-3-550 L B Bhavan, Somajiguda | Telephone: +973 17 101 010 | | Hyderabad 500482, India | Fax: +973 17 100 131 | | Telephone: +9140 2339 8219 | www.capinnovabank.com | | Fax: +9140 2337 5977 | Sakana Holistic Housing Solutions B.S.C. | | BBK - Dubai Representative Office | (c) | | Creek Tower, Office No. 18A | Suite 209, Bahrain Car Parks Building | | PO Box 31115, Dubai, UAE | PO Box 21479, Manama, Kingdom of Bahrain | | Telephone: +9714 221 0560 / 221 0570 / 223 | Telephone: +973 17 201 900 | | 7156 | Fax: +973 17 214 663 | | Fax: +9714 221 0260 | Call centre: +973 17 201 920 | | | www.sakanaonline.com | +---------------------------------------------+------------------------------------------+ This information is provided by RNS The company news service from the London Stock Exchange END FR PUURPWUPBUQA
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