chairman’s letter 3 · chairman’s letter board of directors, management, shareholders...

Chairman’s Letter

Board of Directors, Management, Shareholders

Independent Auditors’ Report

Throughout The Year

Balance Sheet

Income Statement

Financial Highlights

Financial Ratios

Charts

Correspondent Banks

Head Office & Branches

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bkaw maquette 05 11/15/06 11:43 AM

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The year 2005 was a turning point in Lebanon's post war era. A dramatic chain of events occurredplacing Lebanon in the spotlight worldwide. The most critical event was the assassination of Ex-PrimeMinister Rafic Hariri. The assassination that was condemned at all levels locally and internationally hadsignificant negative influences on the community as well as on the economy, especially that the deceasedEx-Prime Minister played a major constructive role in the Lebanese economy since the end of the civil war.

The tension created in the economy after the assassination accompanied with the political turbulencewere overcome mainly due to the Lebanese people solidarity on one hand and the wise policies adopted bythe central bank in coordination with the banking sector on the other hand. The core aim of the proceduresimplemented by the banking sector was assuring a solid monetary standing and maintaining the stability ofthe Lebanese Pound. Nonetheless, the instability and stagnation that prevailed throughout the year did notdeter the banking sector from achieving positive results.

As for Bank of Kuwait and the Arab World, we registered a profitable year with our financial indicatorssurpassing those of the average banking sector. The growth in our balance sheet of 11.1% compared to3.7% in the banking sector was mainly initiated by a deposit rise of 11.6% versus 4.1% achieved by thewhole sector. Although our loan portfolio marked a slight increase by 8.8% relative to a 17.6% in 2004 asa result of the unfavorable conditions throughout 2005, we still managed to have high growth rates in thisdomain if measured against the average 6.6% of all banks. This persistent progress was translated at theend of the year by a rise of 7.1% in our net profits.

Since our management was cognizant of the economic influences that followed the assassination, we wereable to smoothly absorb the drastic increase in demand for US Dollars especially during the first couple ofmonths of 2005. Our dollarization rate at the end of the year was 66.13% in comparison to 73.13% averagerate in the sector. Furthermore, we scored an adequacy ratio of 32.14% along with solid liquidity figures.

In an attempt to anchor our foundation and the relations with our clients in the Bekaa region, the pastyear witnessed the opening of our new branch in Chtaura, in addition to extending our ATM services toreach distant areas. Internally, we leveraged our staff skills and competencies in various domains keepingin mind the contentment of our customers as the ultimate objective. Within the same context, we focusedon nurturing the human and technological resources in our new Risk Department in coherence with therequirements of Basle II and the Banking Control Commission.

As a final notion, we are grateful to all those with stakes in our bank. We hope that the crisis that ourcountry faced during 2005 strengthens the will of the Lebanese to unite and build our country on a firmbasis. And we remain at Bank of Kuwait and the Arab World committed to our role in serving ourcommunity in every possible way.

ABDEL RAZZAK ACHOUR

Chairman – General Manager


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LEGAL ADVISORS

Me. Charles GHAFARI

Me. Waddah EL-CHAER

AUDITORS

Grant ThorntonMr. Youssef MERHIMember

BOARD of directors

MANAGEMENT

Mr. Abdel Razzak ACHOURChairman - General Manager

Mr. Mohsen NAAMANIAssistant General Manager

Mr. Asaad KHOSHEISHAssistant General Manager

Dr. Ibrahim HAMMOUDCredit Dept. Manager

Mr. Muhieddine ARNAOUTLegal Dept. Manager

Mrs. Hala Achour SAFIEDDINEAdministration & H.R. Manager

Dr. Habib KOBEISSYI.T. Dept. Manager

Mr. Izzat MsheikRisk Manager

Mr. Emile KATTANInspection & Internal Audit Manager

Mr. Hachem FADLALLAHInternational Trade Dept. Manager

Mrs. Nada KARAKIOperation & Treasury Dept. Manager

Mrs. Samar HAMDANAccounting Dept. Manager

Mr. Ghassan HAIDARHead of Foreign Exchange Dept.

Achour Group

Maacaron Group

Merhi Group

Dr. Mohamad Cheaib

Others

SHAREHOLDERS NATIONALITY SHARES IN CAPITAL

Lebanese

Lebanese

Lebanese

Lebanese

–

73.98%

14.99%

10.00%

01.00%

00.03%

Mr. Abdel Razzak ACHOURChairman - General Manager

Mr. Aziz MAACARONMember

Dr. Mohamad CHEAIBMember

Mr. Abdallah ACHOURMember


Independent Auditors’ Report

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BOARD of directorsThroughout the year

During the year 2005, Lebanon witnessed several tragic events of which at the top was the assassinationof Ex-Prime Minister Rafic Hariri. The overall economy including the banking sector was confronted with bigchallenges especially in the couple of months following the assassination. Nevertheless, the whole year wasmarked with several positive achievements, and we at Bank of Kuwait and the Arab World had our own rolein these accomplishments at many levels.

Geographical Expansion ... New Branches

The beginning was in Beirut, moving to Mount Lebanon then reinforcing our foundation in Southern Lebanon

especially after opening our branch in Bint-Jbeil, and lately, during 2005, setting in the Bekaa area and

specifically in Chtaura, the welcome gate of the green valley.

On August 12 was the grand opening. The celebration took place

in the branch front yard and was the noteworthy event in the whole

region. Chtaura branch was a step in our strategy of broadening

our customer base to cover the whole country. We recruited a

promising team at the new branch that succeeded, in coordination

with the existing team at the bank, in attaining significant

outcomes and reaching out for new clients all over the area.

Services Extension ... More ATMs

The satisfaction of our clients has always been of great importance to our management in terms of providing

them with accessible services at their convenience. That was what induced us, during 2005, to widen our

ATM network by installing new ones in Chtaura, Khaldeh and Ashrafieh branches. Moreover, we ventured

in the domain of off-premise services through installing a new outdoor ATM at Dar Al-Amal Hospital in

Douris - Baalbeck. This ATM was intended to facilitate the banking transactions of our remote clients on one

hand and to have a role in promoting the banking and technological progress in distant areas on the other

hand.

Moving Our Heart to the Heart ... The Groundwork

In conformity with the management decision of moving our

headquarters to Beirut Central District, the year 2005 witnessed

the launching of real on-site work. We signed an agreement with

an international company to perform the excavation and shoring

at the site. The process began in January and was accomplished

within its time frame. Keeping the work at the same pace, we

would be able to move to the new headquarters by the beginning

of the year 2008.


Our Human Resources ...

Boosting their Potentials

The key success factor in any institution

lies in the potentials of its staff. We at bank

of Kuwait and the Arab World are aware of

the importance of improving the skills and

know-how of our employees and keeping

them updated with banking practices and

technological advancements. Accordingly

and throughout 2005, our employees attended a variety of external courses in addition to in-house organized

training sessions covering several topics in managerial proficiency, credit analysis, marketing skills, money

laundry, risk management, business language, documentary credit, advanced accounting and others.

On the other hand and as a further step to reveal the team spirit among our employees, we provided our

staff with a uniform outfit. This decision had a positive feedback from our clients especially that it helped in

enhancing the ambiance of intimacy and portraying an image of professionalism at our branches.

Branch Renovation ... Modern Images

During 2005, we continued in our branch renovation plan; Ghazieh branch was redecorated and refurnished

in a way that coheres with our aim of providing comfortable atmosphere to our clients and our strategy of

providing modern banking services such as retail banking, tailored products and others in a friendly and

skillful setting.

Social Involvement ... a Solid Cornerstone

Since our mission is the general guideline

in setting our strategies, we persisted,

during 2005, in promoting our social and

humanitarian interaction. It is this social

commitment that makes our management

and staff proud of our relations with many

institutions such as Children Cancer

Center - Beirut, “Espoir de Vie” - Congo, Relief Fund for Earthquake Victims - Pakistan. The last year also

witnessed our involvement in cultural events such as theater performances and education promoting

activities.

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(Figures in thousands LBP)Balance Sheet as on December 31st

Assets 2005 2004

Cash & Central Bank 226,874,764 179,245,502Lebanese Treasury Bills 191,091,166 192,749,895

Banks & Financial Institutions 116,237,127 102,299,639• Current Accounts 21,906,960 18,530,439• Time Deposits 84,633,157 72,913,798• Securities Purchased under Resale Agreements 9,697,010 10,855,402

Loans & Advances to Customers* 120,400,087 110,694,886• Commercial Loans 45,305,685 30,732,160• Current Debtor Accounts 66,382,667 66,653,468• Loans & Advances to Related Parties 4,085,605 7,107,577• Doubtful Loans 4,626,130 6,201,681

Customers Acceptances Liability 14,536,892 16,705,177Investments & Loans to Related Parties 497,656 497,656Tangible Fixed Assets 18,695,576 16,673,774Intangible Fixed Assets 92,680 92,680Other Assets 19,187 19,224Regularization Accounts & Miscellaneous Debtors 2,976,703 3,553,433

Total Assets 691,421,838 622,531,866

* After deduction of:

• Provisions for doubtful debts 11,870,471 9,398,282

• Unrealized interest 6,603,167 5,426,596

* Of which non-performing loans 4,909,348 6,715,360

• Unrealized interest on non-performing loans 1,384,168 1,258,998

Off-Balance Sheet AccountsEngagements by Signature Received 2,243,028 1,319,120• From Financial Intermediaries 2,243,028 1,319,120

Total Off-Balance Sheet Accounts 2,243,028 1,319,120

Bad debts written-off 17,320,400 16,052,300


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(Figures in thousands LBP)Balance Sheet as on December 31st

Liabilities 2005 2004

Banks & Financial Institutions 7,539,204 6,318,515• Current Accounts 35,094 12,645• Time Deposits 7,504,110 6,305,870

Customers’ Deposits 596,888,306 534,788,651• Sight Deposits 61,970,926 42,127,551• Time Deposits 85,592,430 81,729,088• Saving Accounts 444,508,419 400,728,270• Related Parties Accounts 4,816,531 10,203,742

Engagements by Acceptances 14,536,892 16,705,177Miscellaneous Creditor Accounts 5,540,350 5,906,532Order & Regularization Accounts 1,942,403 291,674Provisions for Contingencies & Charges 2,090,089 2,011,524

Capital** 38,000,000 38,000,000Reserves for General Banking Risks 1,825,537 828,935Reserves & Premiums 16,237,587 11,281,851Net Results of the Year 6,374,898 5,952,435Variation in Revaluation of Fixed Assets 446,572 446,572

Total Liabilities 691,421,838 622,531,866

**Capital Increase to LBP 50 billion during 2006 as per General Assembly dated June 26,2006.

Off-Balance Sheet AccountsEngagements by Signature Issued 56,123,989 47,878,156• To Financial Intermediaries 40,148,739 28,128,715• To Clients 15,975,250 19,749,441

Total Off-Balance Sheet Accounts 56,123,989 47,878,156


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(Figures in thousands LBP)Income Statement for the year ended December 31st

2005 2004Interest & similar income 41,387,240 41,490,119

Lebanese treasury bills 14,816,025 21,123,283

Deposits & similar accounts in banks & financial institutions 15,194,051 9,446,300

Loans & advances to customers 10,849,889 10,466,745

Loans & advances to related parties 527,275 453,791

Interest & similar charges -25,232,932 -26,911,278

Deposits & similar accounts from banks & financial institutions -170,617 -142,117

Deposits from customers & other creditor accounts -24,543,783 -25,983,872

Deposits from related parties -518,532 -785,289

Net provisions less recoveries on loans & advances -3,226,337 -2,085,283

Provisions on loans & advances -3,830,857 -2,712,545

Write-back of provisions on loans & advances 604,520 627,262

Net interest received 12,927,971 12,493,558Income from marketable securities & financial instruments

with variable income 20,144 25,037

Net income from commissions 3,800,337 3,388,522

Commissions received 4,163,222 3,645,812

Commissions paid -362,885 -257,290

Profit from financial operations 543,735 573,594

Positive balance from foreign exchange operations 543,735 573,594

Loss from financial operations -148,809 -187,203

Negative balance from foreign exchange operations -148,809 -187,203

Net profit or loss from financial operations 394,926 386,391Other operating revenues 27,622 22,619

Other operating expenses -40,955 -27,971

Administrative & general expenses -9,518,773 -8,840,765

Salaries, wages & staff expenses -5,707,615 -5,429,551

General operating expenses -3,811,158 -3,411,214

Allocations to depreciation & provision of tangible &

intangible fixed assets -537,241 -602,930

Ordinary results before taxes 7,074,031 6,844,461Extraordinary results before taxes -45,000 -25,800

Extraordinary revenues 13,154 31,503

Extraordinary expenses -58,154 -57,303

Income tax -654,133 -866,226

Net results after taxes 6,374,898 5,952,435


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(Figures in millions LBP)Financial Highlights

2005 2004 % of Change

Total Assets

LBP 260,499 276,436

USD 430,923 346,096

Customer Deposits

LBP 203,093 233,971

USD 393,795 300,817

Total Net Liquidity

LBP 213,166 234,537

USD 313,497 233,439

Shareholders’ Equity

LBP 61,781 55,693

USD 1,103 817

Total Loans & Advances

LBP 20,401 22,904

USD 99,999 87,791

Net Income

LBP 6,375 5,952

11,07%

11,61%

12,54%

11,28%

8,77%

7,11%


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Financial Ratios

2005 2004

Liquidity Ratios

Net Liquidity in LBP 104.11% 100.55%

Net Liquidity in Foreign Currencies 76.01% 72.56%

Total Net Liquidity 85.51% 84.12%

Liquid Assets / Total Assets 77.26% 76.18%

Loans / Deposits in LBP 10.05% 9.78%

Loans / Deposits in USD 25.39% 29.18%

Loans / Deposits (Total) 20.17% 20.69%

Asset Quality Ratios

Doubtful Loans / Total Loans 16.47% 16.59%

Loan Provisions / Doubtful Loans 79.97% 70.51%

Loan Provisions / Total Loans 13.17% 12.69%

Capital Adequacy Ratio 32.14% 30.80%

Profitability Ratios

Return on Average Equity 11.28% 11.77%

Return on Average Assets 0.92% 0.96%

Number of Shares Outstanding (in millions) 380.00 380.00

Earnings per Share in LBP (after tax) 16.78 15.66

Net Asset Value per Share in LBP 1,819.53 1,638.24

Management Efficiency Ratios

Interest Paid / Interest Received 60.97% 64.86%

Total Commissions / Financial Income 8.90% 7.86%

Cost / Income 86.37% 87.18%

Cost per Average Branch (in millions LBP) 3,033 3,113

N.B. All of our financial securities are classified as held to maturity according to the IAS #39.During 2005 they were purchased at a discount of USD 1,144 thousands representing only 0.9% of the totalportfolio.The discount is being amortized using the straight line method over the life of the securities instead of theamortized cost method.


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378,093

444,382483,525

547,469622,532

691,422

40,94045,328

51,22656,510

62,884

408,463

103,837 84,395 94,128 110,695 120,400

Deposits

Loans

472,647

534.789

596,888• Customer Loans & Deposits Growth in millions of LBP

• Balance Sheet Growth in millions of LBP

• Shareholders’ Equity Growth in millions of LBP

2001 2002 2003 2004 2005

Deposits

Loans

Bal. Sht.

Equity

378,093

103,837

444,382

40,940

408,463

84,395

483,525

45,328

472,647

94,128

547,469

51,226

534,789

110,695

622,532

56,510

596,888

120,400

691,422

62,884


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American Express Bank LTD

Bank of New York

HSBC

The British Arab Commercial Bank

Bank of Beirut (U.K.) LTD.

ABN - Amro Bank N.V.

Bank of New York

Dresdner Bank AG

ABC Internatinal Bank

HSBC

Banca Fideuram

Capitalia Gruppo Bancario

Société Générale

Banque Banorabe

Banque Audi Saradar France

Belgolaise Bank s.a.

Fortis Bank

Byblos Bank Belgium SA

Bank of New York - Tokyo

Bank of Kuwait & the Middle East

H.O.K.S.C

The Netherlands

Germany

Italy

France

Belgium

Japan

Kuwait

United Kingdom

USA New York

New York

New York

London

London

Amsterdam

Frankfurt

Frankfurt

Frankfurt

Milano

Milano

Rome

Paris

Paris

Paris

Brussels

Brussels

Brussels

Tokyo

Kuwait

Correspondent Banks


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Verdun Ain El Tineh, Belle Vue Bldg., Telefax: (01) 866306 (ATM outdoor)

(Main Branch)

Hamra Makdessi Str., Chouman Bldg., Telefax: (01) 346348 - 739925 - (03) 310051

Achrafieh Sassine Square, Dr. Maalouf Bldg., Telefax: (01) 338635 - 219030 - (03) 722664 (ATM outdoor)

Haret Hreik Bir El Abed, Roueiss Str., Fawaz Bldg., Telefax: (01) 559928 -543510 - (03) 310053

Mouawad Chiah, Mouawad Str., Sheaito Center, Telefax: (01) 549700/1 - (03) 310064 (ATM outdoor)

Zalka Autostrade Zalka, Elysée Center, Telefax: (01) 884450/1 - 896650/1 - (03) 310052

Khaldeh Autostrade Khaldeh, Zebian Bldg., Telefax: (05) 801241 - (03) 310055 (ATM outdoor)

Bickfaya Autostrade Bickfaya, Massoud Bldg., Telefax: (04) 983221 - 982320/2 - (03) 310054 (ATM outdoor)

Ghazieh Main Road, Saleh Center, Telefax: (07) 221958 - (03) 310062

Nabatieh Main Road, Sabbagh Center, Telefax: (07) 762546 - (03) 370123

Tyre Zein Bldg., facing Banque du Liban, Telefax: (07) 740522 - (03) 274131

Abbassieh Jal Albaher, Main Road, Belle Vue Bldg., Telefax: (07) 742710/722 - (03) 310057 (ATM outdoor)

Bent Jbeil Main Road, Al Shamy Bldg., Telefax: (07) 450051 - (03) 790191

Chtaura Main Road, Telefax: (08) 546630/1 - (03) 310056 (ATM outdoor)

Verdun, Ain El Tineh, Belle Vue Bldg.Telefax: (00 961 1) 866306, Fax: (00 961 1) 865299,Tlx: 23776 - 23778 LE BANKUT, P.O.Box: 113-6248

E-mail: [email protected] Code: 1103-2110 Beirut Lebanon, SWIFT: BKAWLBBE

website: www.bkawbank.com

Head Office

Branches


... providing first-rate services, and contributing

to economy by building a solid corner stone.

Our future headquarters in Downtown – Beirut

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