KUWAIT: Kuwait Finance House (KFH) held its annual general Assembly meeting (AGM) and approved the Board of Directors' recommendation of distributing 20 percent cash dividends and 10 percent bonus shares to shareholders. Chairman of Kuwait Finance House (KFH) Hamad Abdulmohsen Al-Marzouq said: On behalf of myself, my colleagues, and members of the Board of Directors of Kuwait Finance House "KFH", I would like to present to you KFH Group Annual Report for the year 2019.

The world economy witnessed several developments in 2019, following the sharp decline witnessed during the last three quarters of 2018. Global growth has lost its momentum, recording the lowest growth ratio since the global financial crises. This is mainly attributed to USA - China trade tensions, feared Brexit impacts, weakening global industrial production indicators and the lackluster growth in China. These factors have created a state of uncertainty which has impacted investment decisions, contributed to the deterioration of the world growth, instability of global conditions, increase in economic slowdown and geopolitical tensions in the Middle East.

Amid this financial and economic uncertainty, KFH has endeavored to encounter new challenges and deals efficiently and diligently with the economic fluctuations in the regions and countries in which it operates. KFH has adopted conservative policies to enhance its reserves and contribute to the effective management of increasing risks, strengthen its leading position in various markets, explore new promising horizons, develop KFH capabilities to overcome all challenges and avail all opportunities to ensure viability and achieve sustainable growth.

Several years ago, KFH has designed a framework to access several markets and studied several acquisition opportunities. We have intensified our endeavor to adopt financial technologies, digital economy and information security to open new horizons. We continue to enhance our management capabilities and accommodate and develop our human resources.

KFH has witnessed, during the last 5 years, a major transformation in activities, efficiency and reputation as well as a highly remarkable and sustainable financial performance. We were able to translate KFH vision into reality and reap the harvest of the board approved long term strategy, which aimed to diversify sources of profit, mitigate risks, optimize costs and increase operating income from banking activities.

Also, we have managed to execute several successful exits from non-strategic investments and achieve harmony and alignment among group subsidiaries to ensure sustainable growth and profitability. These results were evidenced through positive indicators, adequacy of financial position and well-balanced sustainable growth.

Positive results
The year 2019 witnessed remarkable achievements, where KFH Group accomplished positive results and significant returns for shareholders. KFH group has maintained a distinguished position for its operations regionally and internationally, thus increasing shareholders' profit to KD 251 million i.e. an increase of 10.4 percent compared to last year. We have also achieved tangible progress regarding the rate of return on shareholders' equity.

Group financial indicators continued their escalating trajectory through enhancement of profit and increase in capital adequacy ratio to 17.67 percent i.e. higher than regulatory ratio of 15 percent. We have observed Basel standards and fixed liquidity ratios, which enable us to face market challenges, fluctuations and future regulatory requirements.

In a historical step, we received the consent of the Central Bank of Kuwait and the Central Bank of Bahrain to proceed with KFH acquisition of Al-Ahli United Bank - Bahrain, subject to the fulfillment of certain conditions and the completion of the due diligence process of the acquisition project. Should the acquisition be achieved, by the Grace of Allah, KFH would be taking the leading position locally and regionally, with assets approximating $101 billion, thus becoming the largest Islamic bank worldwide.

In addition, KFH shall achieve positive advantages from this acquisition as it shall be a significant driver for growth and prosperity in the future of KFH Group. The acquisition shall introduce KFH to several new markets e.g. United Kingdom and Egypt, and create a regional market for the bank comprising more than 430 million people with average annual income approximating $42,000 per capita according to the purchasing power parity concept. The acquisition shall enable the bank to optimize costs in the markets where it operates and shall enhance allocation of its resources.

Strategic planning
The Group strategic planning is not limited to the near future only, as we endeavor to redesign our products and services using various tools to adapt with advanced technological developments. This approach shall contribute to the amendment of traditional methods in banking business. We have upgraded IT infrastructure and maintained the security and stability of the operating environment and expanded the banking solutions circle using modern technology.

Our focus, in 2019, was on direct digital transformation to achieve the best customer experience, thus providing brand new digital services side by side with our 12 electronic branches in addition to ATMs and POS spread worldwide. Digital transformation shall fulfill customers' needs. Customer classification programs would be developed in a new innovative manner and technology would be the key to success and outstanding customer service and not only a cost optimization tool.

Major steps were considered to adopt Fintech and Blockchain technologies as fast as possible to take advantage of modern technologies. E-Payment methods were activated by making transfers through Ripple technology alongside Swift services, using SWIFT - GPI System.

We have applied major initiatives on the internal operations front, applying artificial intelligence solutions and applications. Robotics were activated to perform highly complicated functions, thus minimizing FX buy/ sell transaction time and enabling better management of liquidity and daily operations at better prices, higher productivity and efficiency without any human interference, using FX platform "KFH-Global". This platform shall fulfill retail and corporate customers' FX needs, decrease transaction processing time and pricing and enable our employees to focus on enhancing the sales front.

KFH Group has taken certain initiatives comprising financial technology and e-banking channels. KFH digital channels indicators have increased to record 142 million transactions during the year. Mobile bank transactions increased by 4.9 percent for the same period while KFH Online transactions, ATM and SMS service, made an exceptional increase of 13.7 percent compared to 2018.

KFH continues to finance mega projects and transactions through its Corporate Banking sector and expand its trade relations with core corporate clients in all sectors in a highly competitive environment. Locally, KFH has played the role of Mandated Lead Arranger to a finance transaction for the benefit of Kuwait Petroleum Corporation, which amounted to KD 350 million. On both regional and international fronts, Kuwait-Turk has participated in the financing of Marmara Highway Project in Turkey, amounting to KD 60 million, as part of a syndicated finance provided by several banks and financial institutions.

Sukuk market
KFH enjoys a leading position as a market maker in the secondary sukuk market. Also, it participated in several initial sukuk offerings issued by GCC governments and other creditworthy financial institutions. KFH participated in qualitative offerings of green sukuks, thus reflecting global tendency towards sustainable growth and maintained its leading position for the fifth year respectively as a main dealer in the primary market for the issuance of the International Liquidity Management Corporation Sukuks among 11 main international and regional dealers.

On the asset management front, we have managed, after 5 years of intensive efforts, to enhance returns on investments, through KFH Capital, restructure our investments, improve asset quality, offer several investment funds e.g. KASB Financial Technology Fund and RIET Fund which has been listed in the Boursa Kuwait for the first time. These achievements have improved capital adequacy ratios and coped with our strategy to focus on core banking business and develop basic Islamic banking business.

KFH Trade launched a new application comprising further advanced advantages which would help users to make trading decisions. Globally, KFH Group continued to play its leading role as a trustworthy arranger of sukuk for governments and corporates. KFH is currently ranked 6th globally, on the Bloomberg Global Sukuk Issuers Index. KFH Capital has led arrangement of sovereign sukuk transactions, in 2019, for countries, banks and corporates. Also, it has participated in the issuance of a $2billion sukuk for the Turkish government and $1 billion sukuks for the government of Sharjah.

On the regional level, KFH Capital has played the role of the main arranger for a first time Sukuk issuance transaction, for the Saudi Telecomunication Company, amounting $1.3 billion. Also, it has led and arranged Sukuk transactions for First Abu-Dhabi Bank, Kuwait International Bank and Sharjah Islamic Bank. The company has also agreed on a major financial advisory mandate transaction worth SR 6 Billion for a major real estate project in the Kingdom of Saudi Arabia.

While we are committed to achieve remarkable returns for our shareholders on the long run, the Board of Directors would like to recommend to the General Assembly the distribution of cash dividends of 20 percent and bonus shares of 10 percent in light of the distributed returns on investment deposits and saving accounts.

Awards, recognitions
We received, during the year, more than 10 distinguished banking awards including Best Islamic Financial Institution Worldwide prize 2019, Best Islamic Financial Institution prize in the Middle East, Safest Islamic Financial Institution prize in GCC 2019 by Global Finance and Best Bank prize in Kuwait 2019 by Euromoney.

KFH share stands as one of the main components on FTSE Index for emerging markets in Boursa Kuwait since its inception last year. Also, it maintained its leading position in the premier market since its inception in Boursa Kuwait. The credit rating affirmed by global rating agencies in 2019 reflects KFH's leading position among Islamic Banks worldwide as evidenced in the ratings.

In 2019, we have focused intensively on developing our Human Resources. As a Group, KFH has continued to exceed Human Resources strategic initiative targets for 2019 and Nationalization remains a core focus in all our areas. In Kuwait specifically, we have reached a high Kuwaitization ratio, well above the mandated level and we employ the largest number of Kuwaiti employees in Financial Services in the country.

Our Talent Acquisition team remains focused on attracting and retaining young National Talents and for 2019, over 98 percent of our new joiners are Kuwaitis. Moreover, we have successfully launched two Forsah programs this year, the most recent one focusing specifically on IT graduates to be able to build additional capacity in the IT and Digital space for KFH.

KFH's exceptional relationships with our employees continues to grow and enhance as indicated by our 2019 Employee Engagement results. Over the past three years our results have grown from 73 percent to 81 percent, which is a good indicator of the success our staff are experiencing specifically in their individual and team performance and professional development.

This year, KFH Kuwait Human Resources lead the path for employee wellness, helping employees align their personal and work wellness goals which also had a significant impact on engagement and organizational health.

HR team
The Human Resources team continued to focus on the succession plan, identifying and developing highly talented employees. We, as a Group, have again invested significantly in our talent development this year. Harvard Business School, IMD, INSEAD and IE Business school are just some of the leading institutions that provided development for our Leaders in 2019.

As we continue to develop and build future leaders for KFH and the Financial Services industry we are thankful for another good performance year in 2019 and we are confident that we are preparing our staff to ensure sustainable performance for years to come. Reiterating its commitment to its social responsibilities, KFH has continued, in 2019, to effectively participate, sponsor, support and finance national, human, cultural, professional, economic and scientific initiatives.

KFH played as a distinguished partner in several events and activities e.g. supported all society segments namely youth, stratigic partnership with the College of Business Administration - Kuwait University and the Center of Excellence in Management and participated in the Job Fair by offering Forsa Program which is designed to support, attract and train fresh graduates.

Several initiatives were adopted in 2019 concerning Shari'a Research & Advisory Department and Group Shari'a Internal Audit Department to enhance shari'a control in the Bank, fulfil CBK shari'a governance guidelines and support the Bank's general strategy. Initiatives comprised the automation of certain shari'a review and audit procedures, development of shari'a approvals and remarks collection mechanism for easy reference and spreading shari'a awareness and culture among customers and employees. KFH continued its endeavor to spread economic awareness through the issuance of quarterly qualitative and specialized reports and analytical disclosures.

In 2019, we expanded our programs and participation to support and develop local community. KFH Group support to national labor scheme approximated KD 4 million during the year. Zakat spending approximated KD 8 million including KD 5.2 million as Zakat to Kuwaiti debtors (who are unable to settle their debts) and KD 476 thousand as Zakat on profit as per the law. KFH believes in the importance of performing Zakat obligation and placing it in right legislative channels that would serve society and highlight the human aspect of our business. Accordingly, total spending in this field reached KD 12 million of the Zakat and society service funds.

We would like to avail this opportunity to convey our sincere gratitude 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 depositors. I would like to avail this opportunity also to thank our group employees and members of the Fatwa & Shari'a Supervisory Board for their continuous endeavor and constructive contributions.

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 him, His Highness the Crown Prince Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah, may Allah safeguard him, and His Highness, the Prime Chief Minister Sheikh Sabah Al-Khaled Al-Hamad Al-Sabah. Our thanks and appreciation are also extended to His Excellency 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.