KFH General Assembly approves cash dividend of 17%, bonus shares of 10% – KFH major player in national development and growth of Kuwait’s economy: Al-Marzouq
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Following is the KFH Group Annual Report for 2017 presented by the Chairman, Hamad Abdul Mohsen Al-Marzouq
Praise be to Allah Almighty, and Peace and Blessings be upon our Prophet Muhammad (PBUH), his Family and Companions.
Esteemed Shareholders,
Assalamu Alaikum Warahmatu Allah Wabarakatuh
On behalf of myself, my fellow colleagues, members of the Board of Directors of Kuwait Finance House (“KFH”), I would like to present to you KFH Group Annual Report for 2017. We have managed this year to achieve positive results despite various difficult challenges, continued weak economic growth in several countries and geopolitical tensions.
However, it can be said that 2017 was a unique year in KFH’s journey of success as it was crowned by celebrating its 40th Anniversary as the first and pioneer Islamic bank in Kuwait. KFH has completed four decades of significant achievements that contributed effectively to the national development and growth of Kuwait’s economy. Started as an ordinary small bank in late 1970s, KFH has succeeded in becoming one of the largest, most prominent, credible and secured Islamic banks in the world where it also attained high credit ratings amongst the local and international peers with distinguished geographical diversity worldwide in Bahrain, Saudi Arabia, Turkey, Malaysia and Germany.
With steadiness and absolute confidence, KFH has managed during the past 40 years to enhance the value of its depositors and shareholders’ equity, increase returns on their investments and maintain steady profitability despite crises and major challenges encountered at both local and international levels. Starting from a limited capital not exceeding two million Kuwaiti Dinars upon incorporation, its total shareholders equity grew to reach approximately two billion Kuwaiti Dinars as at the end of 2017.
This long march has reflected several competitive advantages rendering KFH as a model, being a leading development bank with a prestigious Islamic trademark. KFH provides a large variable package of banking and investment products to motivate saving, meet finance and investment needs, attract more capital and acquire depositors and shareholders trust in light of its high quality assets, growth in profits and prudent risk management policy. All such factors have ranked KFH as one of the pioneer leading Islamic banks both at local and international levels.
We have started 2017 with a much stronger base where we reaped the harvest of our efforts during the past three years. These results are attributed, by the grace of Allah, to the loyalty of our customers, the outstanding efforts of our employees, our strict compliance with Islamic Shari’a principles and rules, the efficiency of our control systems and our good resources and risks management, where cost optimization outcomes have become obvious. We have executed prudent exits from certain investments to determine the ideal volume of investments after consolidating “KFH Investment Portfolio” through KFH Capital, overcoming certain duplicated activities, focusing on core banking business and expanding the strategic supervision circle so as to enable KFH to seize income generating investment opportunities and become the most sustainable in terms of profitability and the most trusted Islamic bank worldwide.
In a strategic level, KFH managed to set its 3-year strategy ending in 2020. The strategy is focused on three main pillars including the development of current customers’ base, innovation based on the new digital financial technology (FINTECH) and achievement of operational excellence.
We have set our ambitious strategy trend for the following years to counter challenges in the organizational, economic and operational environment and respond to regulatory requirements. Our aim is to make customers the main focus, exceed their expectations, maintain a constant leadership, and achieve distinct performance and sustainable growth.
In regards to banking services and private banking, we have maintained our leading position among Kuwaiti banks, especially in the field of expanding the new innovative Shari’a compliant solutions circle, increasing the focus on services through digital media that enhance customers’ self-service, whereas we provided XTM machines in some of our branch locations.
Corporate banking continued its growth benefiting from the strong and well established links and coordination with the Group’s subsidiaries and associates, which had the greatest effect on providing distinct financial solutions both at local and global levels. At the local level, KFH has arranged several major transactions to finance infrastructure projects including financing a company entering into contract with the Ministry of Electricity and Water with total value amounting 120 million Kuwaiti Dinars. Further, it has also financed a transaction for purchasing three aircrafts with value amounting 124 million Kuwaiti Dinars in favor of ALAFCO Aviation Lease and Finance Company. On the global level, KFH played the role of the main organizer and subscription manager of a transaction in US dollar syndication finance amounting 180 million Kuwaiti Dinars in favor of a wholly owned company of Omani Investment Fund. Further, KFH continued its focus on Small and Medium Enterprises.
At another level, Group Treasury’s contribution to the financial results achieved by KFH this year was strong and outstanding. The main focus was placed on the development and improvement of treasury and Sukuk investment activities. This fact is confirmed through the rating given by International Islamic Liquidity Management Corporation (IILM) where KFH has taken the leading position amongst main traders in the premier Sukuk issuances, thus representing a share of 30% of its value amounting 10 billion US dollars whereas KFH’s trade volume reached more than 15 billion US dollars in coordination with KFH Capital, which has excelled in the issuance and management of Sukuk through several major transactions including that of the Omani Mazoon Electricity Company in value of 500 million US dollars for a term of 10 years, and 500 million US dollars for APICORP Sukuk for a term of 5 years. The Group has also arranged for the first time sovereign Sukuk for Hong Kong amounting one billion US dollars for a term of 10 years in addition to other Sukuk transactions worldwide.
To enhance our commitment to a more open and cooperative environment and to cope with the highest possible code of ethics, we have established a new organizational structure for KFH Group Shari’a Department in 2017. The new structure is marked by consistency and absorbing the prudent governance standards issued by the Central Bank of Kuwait. Also, it aims to develop certain work mechanisms in the Shari’a sector, simplify procedures, enhance the Shari’a control efficiency and promote the Sharia performance quality level through intense training programs
to acquire accredited international certificates in the field of Sharia audit and control.
These factors have helped achieve a noticeable and clear improvement in most of the main sources of income at the Group level. Efforts exerted during the last three years with an aim of enhancing the profitability of the Group, optimizing its costs and achieving integration among its parties have led to several achievements as evidenced in 2017 financial results whereas we managed, thanks to Allah, to achieve a net profit for the shareholders reached 184.2 million Kuwaiti Dinars at a growth rate of 11.5% compared to the preceding year. Further, the earnings per share reached 32.41 fils at a growth rate of 11.4% whereas the total assets amounted 17.4 billion Kuwaiti Dinars at a growth rate of 5.2%. Further, total operating expenses share reached 42.76% in total operating income, thus continuing its decline for the third consecutive year. KFH customers’ deposits grew by 8.2% to reach 11.6 billion Kuwaiti Dinars. Such figures reflect a strong financial position amidst tough operational conditions.
We continued to focus primarily on serving our customers by taking care of our staff where 2017 was a busy year from a Human Resources perspective. For the second year in a row we have had record participation in our Employee Survey and this year our Group Engagement Score improved by 2% to remain above 70%, which compares favorably to our peers in the GCC and high performing organizations around the world.
We continued to attract national talent through developing their academic and professional knowledge in the field of Islamic Banking and Finance. Our Human Resources Strategy is closely linked to our Nationalization agenda where we maintain a healthy Kuwaitization ratio of 66%. This year, more than 90% of all recruitment in KFH Kuwait has been Kuwaiti Nationals, and we have relaunched our “Forssah Program” for talented Kuwaiti graduates to fast track their development into becoming the future banking leaders across KFH Group.
To cope with the latest technological developments in the banking industry, KFH has worked during the year on developing several IT systems according to a new strategy to accommodate the latest digital products. Many of our business channels and products have achieved leading positions in the market. Further, we continue to introduce highly integrated and diversified digital products to enable our customers to avail modern developed banking options.
Whereas KFH seeks to enhance and strengthen its communication with the components of the Kuwaiti society and react to the rapid developments witnessed by social media, KFH was keen on drafting and executing several social and humanitarian initiatives. To stress this mandatory role, we have launched ‘KFH Sustainability Report’ for the 4th consecutive year as per the sustainability instructions on the social responsibility. Further, KFH continued its efforts to spread financial and banking culture through its economic and real-estate publications, expanding the online publication base through our website and social media and cooperating in this field with Thomson Reuters Agency, which is reflected in the increased number of followers on social media accounts of the Group.
KFH has adopted several necessary, ambitious initiatives and programs in the field of social development to support the Kuwaiti “Zakat House” and educational, rehabilitation, cultural and humanitarian institutions. KFH has donated about 8.2 million Kuwaiti Dinars to support Zakat House’s charity activities and projects in addition to our vital role and participation in providing support and care to environment and supporting all activities and events organized by universities and educational institutions.
Prizes and awards received by KFH during the year from various prestigious global institutions reflect KFH’s success in providing highly distinguished services at both local and international levels, expressing its strong credit rating and highlighting its ability to maintain profitability based on its leading position in the market, capital adequacy, distinguished financial standards and available liquidity.
Owing to its continued efforts during the year, KFH has deserved the appreciation of global credit rating agencies. Fitch Rating Agency has increased KFH viability and growth rating from bb to bb+ and confirmed its long-term credit rating at A+ and the short-term credit rating at F1.
Meanwhile, Moody’s affirmed KFH long-term credit rating at A1 and short-term rating at P-1 at the time where it amended its future view of KFH from Negative to Stable. Further, Standard and Poor’s (S&P) raised KFH rating with no support from bb+ to bbb-. These indicators reflect an improvement in capital management, starting from high levels maintained by KFH through internal resources, integration of risk management functions at the Group level, the strong franchise of the Bank, its highly experienced management team in the local and regional banking business with effective governance standards, improved financing quality, and put potential improvement of profitability in light of lesser concentration elements compared to other banks, Fitch Rating Agency has a positive outlook on the Group’s strategy management despite the prevailing competitive environment.
As we are committed to realize significant returns for shareholders in the long run, the Board of Directors has made its recommendations to the general assembly to distribute cash dividends of 17%, bonus shares of 10% and returns on investment deposits and saving account as shown in the below table:
We would like to avail this opportunity to extend our sincere thanks and appreciation to all our shareholders and customers for their continuous support. We are confident that we will, by the grace of Allah, continue to achieve rewarding returns for the shareholders and the depositors. I would also like to thank our employees at Group level and the members of Fatwa and Shari’a Supervisory Board for their continuous efforts and constructive work.
In conclusion, I would like to extend our sincere thanks and appreciation to His Highness the Amir of Kuwait Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah, May Allah safeguard Him, His Highness the Crown Prince Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah, May Allah safeguard Him, and His Highness the Prime Minister Sheikh Jaber Al-Mubarak Al-Sabah, May Allah safeguard Him.
Our thanks and appreciation are also extended to His Excellency Dr Mohammed
Al-Hashel, the Central Bank of Kuwait’s Governor and all the regulatory authorities for their ongoing support to the banking sector in the State of Kuwait.
May Allah Grant us Success
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