Hamad Abdulmohsen Al-Marzouq

Praise be to Allah the Almighty, and Peace and Blessings be upon our Prophet Muhammad (PBUH), his family and companions.

Dear esteemed shareholders, Assalamu Alaikum Warahmatu Allah Wabarakatuh...

On behalf of myself, my fellow colleagues and members of the Board of Directors of Kuwait Finance House ("KFH" / the "Bank"), I would like to present to you KFH Group Annual Report for the year 2016.

Considering the unprecedented economic, oil and geopolitical developments which have prevailed worldwide, year 2016 may be considered as the year of challenges for the region in general and the banking sector in particular. These challenges were reflected clearly on capital market performances, subdued local and global economic growth drives, lack of confidence in the European Economy especially after Brexit and the sluggish growth in China. These factors have led to an increase in raw material prices and continued tightening of Federal monetary policy.

Despite the economic challenges, with a clear commitment to our valued customers and stakeholders, KFH has attained a remarkable and well balanced performance during 2016, through its prudent and flexible business model and efficient risk management methods.

KFH Group has maintained the distinguished leading position of its operations locally, regionally and internationally, thus enhancing shareholders profit to reach KD 165.2 million i.e. an increase of 13.3% y-o-y in 2016. Also, we have achieved remarkable and tangible progress on the rate of return on shareholders' equity.

Group's main financial indicators continued their ascending trend including increase in profitability and enhancement of capital adequacy ratio to reach 17.88 percent, well above the required 15 percent. We have also observed and adhered to Basel regulations on fixed liquidity ratios, which has enabled us to face market challenges, and future potential regulatory requirements.

Our well balanced performance is attributed to the positive group synergy, professional and efficient execution of our integrated strategy, proper well bonded relations and coordination among all parties whether at head office or in various countries where the group operates including Turkey, Bahrain, Malaysia, Germany, Saudi Arabia and others. This remarkable performance is achieved through a set of successful strategic initiatives which were the cornerstone in reinforcing and supporting governance and banking services at the group level.

We have implemented a set of policies and procedures during the year to improve efficiency of daily communications, ensure smooth inflow of information at the group level, provide new and innovative solutions to customers and offer several investment funds inside and outside Kuwait. Also, we have managed to offer a Sukuk Fund with variable US$ returns as well as a real estate fund in USA.

Financing Income increased in 2016 to reach KD 718 million. By the grace of Allah, we have achieved net shareholders profit of KD 165.2 million while earnings per share reached fils 32.01. Total assets approximated to KD 16.5 billion. KFH customers' deposits reached KD 10.7 billion. Meanwhile, total operating expenses declined for the second consecutive year by KD 35.5 million i.e. 11 percent, (KD 31.5 million or 8 percent in 2015 compared to 2014). These figures reflect the robust financial position that KFH is occupying which led the group to achieve the results even during the hard times encountered by local and global economy. KFH Group endeavoured to preserve KFH assets and achieve best financial results.

Asset management

With regards to asset management by the Grace of Allah, KFH Group has managed to strengthen returns on investments following extensive 3-years efforts through KFH Capital Company, restructuring of investments and improvement of assets quality, thus improving capital adequacy ratios. All these activities are in line with our strategy to focus on and develop core banking business.

While we are committed to achieve remarkable and rewarding long term returns for shareholders, the board proposes to the general assembly to distribute cash dividends by 17 percent, bonus shares by 10 percent and distribute profit on investment deposits and saving accounts as shown in table No (1).

Market share

We have successfully managed to lead the Islamic bank's market share by financing major projects in Kuwait including participation in the Kuwait Government Debt Program of KD 700 Million. We have also financed the clean fuel project for Kuwait National Petroleum Company which is the largest banking syndication transaction in the history of Kuwait where KFH contributed KD 275 million of the total KD 490 million.

Kuwait Finance House - Turkey has successfully issued the largest Ijara Sukuk transaction to the private sector in Turkish market amounting TL 300 Million. Other Sukuks were also issued to enhance and support its capital position amounting to a US$ 350 Million (Second Tier) for a 10-year term with 7.9 percent returns.

KFH - Bahrain has financed several projects, namely Bahrain Marasi project amounting $3 Billion in addition to Deerat Al-Oyoun project, value of which exceeded $730 million which aimed to build more than 3 thousand residential units in Bahrain. We have also completed construction of Wadi Al-Sail Mall which is the first development project among 3 other projects initiated by a group subsidiary.

KFH group received, during the year, highly distinguished banking awards namely, the Best Islamic Financial Institution in the Gulf and Best Islamic Project Finance Provider from Global Finance Magazine. KFH has also won several other remarkable and significant awards from Islamic Finance News (IFN) both as the "Best Islamic Bank in Kuwait" as well as "Best Global Islamic Bank" for the year 2016, as part of Global Islamic Finance Awards (GIFA) and Best SME Customer Service Award by Banker Middle East in addition to several other awards received during the year in appreciation of its multiple activities and services.

Local society activities

We have, during 2016, expanded our programs to participate in local society activities. In this respect, KFH has paid KD 7.5 million to Zakat House in recognition of the importance of projects that would serve society and accentuate the humane side of our business. Our focus covers other projects and activities aiming to achieve social growth and development at the educational and health sectors, provide environmental care and support youth initiatives and other vital sectors.

In recognition of the importance of technology and innovation, we have developed and upgraded IT infrastructure, expanded banking solutions by using modern technology introduced new digital banking services to customers along with other direct services provided through our extensive branch network covering 480 branches, In addition to ATMs network spread worldwide. This comes as part of customer centric, service oriented innovative program.

On the banking innovation and development aspects, KFH group has enhanced its accomplishments by implementing several initiatives, such as, the launch of its website (kfh.com) which comprises several modifications and characteristics to appear as a new brand. KFH innovation centre has also participated in reinforcing innovation and development at the group level by launching employees' competition which has resulted in adopting several new ideas and products. The best ten innovative ideas received from various staff members including our subsidiaries operating in Kuwait, Turkey, Malaysia and Bahrain were honoured.

KFH enhanced its effective communication channels with society through its social media where followers exceeded 600 Thousand Followers. KFH's social media has efficiently promoted customer service and banking products awarness, round the clock, in a unique and modern touch to cope up with  the new-gen life style requirements.

We would like to avail this opportunity to convey our sincere gratitude and appreciation to our shareholders and customers for their continuous and valuable support. We are confident by the grace of Allah that we will continue to achieve rewarding returns for our shareholders and depositors. Also, I would like to avail this opportunity to convey sincere gratitude and appreciation to all our employees at the group levels, as well as, the members of the honourable Fatwa & Sharia Supervisory Board for their distinguished and outstanding efforts in accrediting our functions and activities.

Finally, I would like to convey our sincere thanks, gratitude and appreciation to His Highness the Amir of Kuwait Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah, may Allah safeguard, His Highness the Crown Prince Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah, may Allah safeguard, and His Highness The Prime Minister Sheikh Jaber Al-Mubarak Al-Sabah, may Allah safeguard. Our thanks and appreciation are also extended to Dr Mohammed Al-Hashel, Central Bank of Kuwait Governor and all regulatory authorities for their ongoing support to the banking sector in the State of Kuwait.

May Allah grant us Success.

Hamad Abdulmohsen Al-Marzouq

Chairman