Kuwait Finance House (KFH) held its annual general Assembly meeting (AGM) with a 79.843% quorum and approved the Board of Directors’ recommendation of distributing cash dividends of 10% and bonus shares of 10% to shareholders.

 

Chairman’s Message- Hamad Abdulmohsin Almarzouq

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 and 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 the year 2020.

During the year 2020, the world has undergone severe and unprecedented conditions, facing two unusual challenges: The first was the COVID-19 Pandemic which has caused a worldwide health catastrophe, volume and impact wise. The second challenge comprised the economic recession resulting from the major lockdown imposed on economic activities, thus causing a severe and a major impact on the lives of millions of people worldwide.

Once the threat and the impact of the virus have become evident and clear in early March 2020, KFH has immediately taken necessary procedures to protect the health of its employees who, in their turn, worked relentlessly to secure the comfort of our customers and the society where we operate.

KFH has maintained its continuous presence as a front liner, playing a fundamental role in the lives of those whom we serve by providing support and advice to our customers. KFH was the main contributor to the Government Effort Support Fund which was announced by the Central Bank of Kuwait (CBK). KFH played a vital role as a trusted financial institution in retrieving stability following this major economic catastrophe. The sudden spread of the pandemic has led to the rise of unprecedented challenges for the economy and society. KFH has successfully and professionally observed and implemented all instructions issued by the government and regulatory authorities and assumed its responsibilities as a leading Islamic bank in a proactive manner. We have endeavored to encounter these unusual challenges with great persistence. We have provided liquidity to markets and customers, postponed installments for retail and corporate customers for a 6 months period as per CBK and Kuwait Banking Association instructions, set new finance lines to support companies, namely Small and Medium Sized Enterprises (SMEs) and provided support to the Kuwait Red Crescent Society and the Ministry of Interior efforts while performing their duties for the state and society.

The pandemic was a general stress test for KFH's comprehensive and proactive risk management. The activation of the well-studied and proactive procedures to deal with the crisis and emergency cases in a timely manner had a direct positive impact on KFH's management of the crisis. Several scenarios were tested consecutively pre-crisis by drawing and executing a hypothetical mechanism to encounter such crisis at various levels of the crisis’ management process, thus mitigating the impact of resulting risks and ensuring business continuity in a manner that would ensure continuity of a strong asset quality and improvement in other indicators. We shall continue to enhance and reinforce our capabilities to manage credit, compliance, operational and cross-border risks.

The test has proved the prudence of the Group fintech digital strategy, thus enabling us to work during the full lockdown periods. On this occasion, we would like to praise and pay tribute to the efforts extended by the IT Department which has enabled us to work remotely from home through highly advanced systems and applications. We shall proceed actively to achieve our ambitious goals, enhance the benefits of digital services, focus on accommodating the most modern and highly sophisticated technologies in the field of internet and artificial intelligence that would enable us to avail all open applications at any time or place, in order to provide our services in a continuous, fast and secured manner.

Despite the negative impacts of the crisis, our main indicators have maintained stability and balance, thus reflecting the results of high-quality development. We have upheld the distinguished position which the Group occupies locally, regionally and globally. Total assets increased by 10.9% to exceed KD 21.5 Billion. Finance portfolio grew as at the end of 2020 by 13.4% compared to 2019. Investment Sukuks portfolio achieved a remarkable growth by 19.6%. Depositors’ accounts increased to reach KD 15.3 Billion; i.e., an increase of 13.0% compared to last year.

As a result of the negative impacts of the pandemic, the uncertainty surrounding the crisis and the difficulty of foreseeing future developments, KFH has increased total credit provisions and impairments by KD 87.2 Million or 44.3% to reach KD 284.1 Million. Profit ratios were affected during the year 2020 where net profit declined to reach KD 148.4 Million for KFH shareholders, due to difficult operational environment which the pandemic has caused and the additional precautionary finance and investment provisions which KFH has made to maintain the finance quality and build strong buffers against the crisis.

The Board of Directors, Board committees and executive management continued to hold their meetings remotely by using safe and secured programs, thus expanding the circle of activities and exchange of opinions to improve and develop the Group efficiency and vision, strengthening shareholders and customers trust and applying the highest levels of prudent governance. Despite the halt imposed on aviation activity during Q2 2020, KFH sectors and Group subsidiaries continued their outstanding performance during the total and partial lockdown imposed in Kuwait. The Board has actively participated in reviewing the Bank business environment and ensured the capability of its officials to process all issues that may affect KFH's business reputation and continuity.

It was necessary to communicate with customers and listen to their concerns about financial difficulties. After 6 years of continuous dedication, the membership of KFH's former Board of Directors term has come to an end, and a new Board of Directors has been elected, including two independent members for the first time as per CBK's instructions. The new Board of Directors aims to continue its strategic vision to enhance KFH profitability, position and continue the efforts in expanding its optimal economic size by updating the acquisition studies of AUB – Bahrain which has been delayed due to the pandemic.

In 2020, we reviewed and developed the four strategy components to face the challenges of the crisis and adapt therewith. We have also focused on customers’ needs, analyzed their behavior, coped with their future needs, and presented them in the best possible manner. We have endeavored to achieve distinct financial indicators to reflect positively on shareholders and depositors. Concerning digitalization, we have adopted modern technology solutions in partnership with Fintech companies to accommodate the continuing digital developments and provide innovative banking services in Kuwait and the regions where the Group operates. Information security was the third pivot in our strategy. Priority is given to encountering the cyber security threats and regulatory compliance. Innovation remains as the fourth pivot in our strategy where we achieved interconnection among our business objectives and merged them with customers’ requirements. We have translated KFH strategic pivots comprising a set of goals and internal initiatives at the Group level to improve their executive capabilities.

KFH's wheel of development and innovation did not stop at this end. KFH has managed to achieve several qualitative accomplishments in customer service, continue its digitalization strategy, adopt most modern financial technology services, and deepen digital culture. KFH has launched an online account opening service for new customers without the need to visit the branch. We have also developed "Al-Nuwair" US$ Deposit together with "Al-Nuwair" KD Deposit using KFH digital platforms.

Aiming to introduce a new generation of smooth banking services, equipped with the best financial technology tools, KFH has inaugurated the new airport branch at the departures’ hall and Hiteen branch with modern designs, high technology, effective services and utmost privacy. Hiteen branch comprises a special section for ladies which stands as a competitive advantage for the Bank. We have ensured to provide highly efficient and professional staff to provide the best banking services to customers. KFH has continued the expansion and spread of its smart branches "KFH Go" which has reached 9 branches located in various Kuwait governorates.

The year 2020 was the inauguration year of several projects despite the prevailing circumstances and conditions, thus contributing to the completion of the digital infrastructure construction process e.g. Jazeel Digitalization Project in Kuwait and Bahrain and E-Form Digitalization Project. We added a new dimension to provide digital facilities in SWIFT service, using most modern technologies SWIFT-GPI. These services enable KFH customers to track their funds transfer process. Also, we have applied KFH IT Technology DevOps that enable IT staff to make the necessary changes and amend the system instantly. This process is one of the main pivots that aim to complete the construction of the digitalization matrix.

In continuation of its leading role in financing mega governmental projects, KFH played a key role being the underwriter and mandated lead arranger of a syndicated financing facility amounting KD 1 Billion for Kuwait Petroleum Corporation. KFH has led and acted as a facility agent for the Islamic tranche amounting KD 400 Million. The Corporate Service Center at the Operations Sector has added corporate centers in 3 branches to supervise and monitor all services rendered to KFH corporate customers and ensure that high quality service is provided and match our interest in the corporate sector.

KFH Treasury Sector has put an exceptional and outstanding effort during the pandemic, thus providing various distinguished services to KFH local and global customers continuously during the total lockdown periods. The Treasury Sector and Financial Institutions group played an outstanding and leading role in 2020 as fully integrated central management of KFH Group. Treasury is considered as the cornerstone of the Group money market activities and the main hub for sukuk trading in the secondary market as a main market maker and an effective player. Considering the increase in government and companies demand on sukuks, the Money Market Department was active during the pandemic in providing liquidity to cover the Group demands, volume and cost wise, and invest surplus liquidity efficiently through the Group.

Financial Institutions Department at the Group Treasury Sector continued its outstanding performance, thus achieving an extraordinary and unprecedented number of deals. The Department has successfully participated in several bilateral transactions with local and international banks during the pandemic, thus exhibiting unique and exceptional performance during the difficult times, bearing in mind that the value of its deals exceeded US$ 1 Billion.

On the foreign currency side, Treasury has provided foreign currency (FC) rates to retail customers directly online. FC and precious metals transactions volume has multiplied significantly. Gold sale and buy transactions have increased by 269% in 2020 compared to last year.

KFH Group continues to maintain its leading position as a trusted arranger of Sukuk worldwide. KFH subsidiary “KFH Capital” has led arranged in 2020 more than US$ 4.5 Billion sukuk deals for governments and banks. KFH Capital played as a syndicate placement manager and the issue manager of the sukuks of the following entities; Islamic Corporation for the Development of Private Sector (US$ 600 Million), Dubai Islamic Bank (US$ 1 Billion), Boubyan Bank (US$ 750 Million) Abu Dhabi First Bank (US$ 500 Million) after obtaining all regulatory approvals last year. In the field of asset management and in an unprecedented accomplishment, the Company has succeeded in listing REIT Real estate Fund, first of its kind, in Boursa Kuwait in 2020, thus adding new tools to activate the Stock Exchange.

While we are committed to achieving remarkable returns for our shareholders in the long run, the Board of Directors would like to recommend to the General Assembly the distribution of cash dividends of 10% and bonus shares of 10% to shareholders in light of the distributed returns on investment deposits and saving accounts as specified hereunder:

Depositors’ Profit

Account Type	2020	2019
“Khumasiya” Investment Deposit	1.700%	3.120%
“Mustamera” Investment Deposit	1.450%	2.620%
“Sidra” Investment Deposit	1.100%	2.075 %
Dima Investment Deposit (12 months)	1.275%	2.475 %
Dima Investment Deposit (6 months)	1.150%	2.150 %
Long Term Investment Plans	1.225%	2.100 %
Investment Saving Account	0.200%	0.800 %

We received during the year more than 10 distinguished banking awards in 2020, including, the World Best Islamic Institution from EMEA Finance, Safest Islamic Bank in the GCC from Global Finance, Best Domestic Bank in Kuwait by Asiamoney and Bank of the Year Kuwait 2020 award from The Banker.

KFH's share has been listed in the MSCI Index for emerging markets, the third global index that made sure to list KFH therein after FTSE Russell Index and S&P Dow Jones Index for emerging markets, along with upgrading Boursa Kuwait in both indices. KFH enjoys high creditworthiness worldwide year after year. Fitch Ratings agency has affirmed KFH Long-Term Issuer Default Rating at “A+” with a stable outlook, while Moody’s has downgraded the Long-Term Deposits rating to “A2” with a stable outlook. This action comes after the downgrading of the sovereign rating of Kuwait to “A1” with a stable outlook.

It is important to firstly recognize the extremely difficult year that the entire world has gone through in 2020, but I can say with pride that the unprecedented times have shown clearly how capable and keen KFH team members are in continuing to provide excellent customer service for our clients. To foster that environment for our Human Capital, Group Human Resources have taken the lead in transforming the work environment through fully implementing a complete set of protocols designed to provide a safe and healthy environment for our clients and KFH team members.

During 2020 we have increased our focus on our Nationalization agenda where we continue to maintain a healthy Kuwaitization ratio and demonstrate our role in the Kuwaiti economy where KFH continues to be amongst the largest employers of Kuwaitis in the Private Sector. In addition to that, KFH Kuwait has ensured that employee morale is improved during these times by rolling out industry leading practices designed to ensure our Human Capital is treated fairly and properly thus allowing KFH to continue being the employer of choice.

Going through these extraordinary times did not stop Group Human Resources from achieving its strategic initiatives where we have continued supporting the organization by working with business areas in streamlining internal processes to make remote working possible and hybrid attendance models practical to ensure we continue to contribute to KFH’s overall business objectives.

Employee Wellness continued to be front and center in our Human Resources workflow where we have launched the second version of our employee wellness program which has been received enthusiastically from our employees. The program has been tailored to help our Human Capital achieve their wellness goals through interacting and using a personal coach to guide and push them. With that, we expect to have a positive effect from the program on our work environment and corporate wellness.

Looking back at 2020, we are grateful for all the hard work and courage that our KFH family members have demonstrated this year and look forward to having this upward trajectory in performance to continue in the years to come.

In an initiative, reiterating CBK commitment to maintain financial stability, control governance support and Sharia’ compliance in Islamic banks and financial institutions, CBK has announced the formation of the Higher Sharia' Control Committee in September 2020. KFH Sharia' Department has fulfilled all CBK requirements and all department employees have obtained the Sharia Auditor Certificate as per the Central Bank of Kuwait requirements. The Group Internal Sharia' Audit Department has conducted sharia audit procedures on all KFH sectors and departments as per the approved plan for the year 2020.

The pandemic is not over yet. We are still in the middle of the crisis. However, we are fully confident of KFH's capability to absorb the crisis considering our strong financial position which we have built over the years. The flexibility of our business model and our strategy that aims to achieve growth and distinction have also contributed to this success. On this occasion, I would like to avail this opportunity to extend my sincere thanks to our shareholders and customers for their continuous support. We have the confidence, by the grace of Allah, to achieve rewarding returns for shareholders and depositors. We also avail this opportunity to thank all Group employees and the members of the Fatwa & Sharia Supervisory Board for their intensified continuous effort and constructive work.

We will not forget the tragic and sad incident which Kuwait witnessed at the end of Q3 represented in the demise of His Highness, Former Amir, Sheikh/ Sabah Al-Ahmed Al-Jaber Al-Sabah (May Allah Have Mercy On his Soul). His death was a tragic loss for the Kuwaiti people, regional and international communities. The smooth transfer of powers has enhanced investors trust and confidence in the Kuwaiti market, where His Highness Sheikh/ Nawaf Al-Ahmed Al Jaber Al-Sabah (May Allah Safeguard) had the accession to the throne of Kuwait while His Highness Sheikh/ Mishal Al Ahmed Al-Jaber Al-Sabah (May Allah Safeguard) was named as the Crown Prince. We pray to Allah Almighty to lead our leaders to the right path and bless their efforts to achieve prosperity and growth for our beloved country Kuwait.

Finally, I would like to convey our sincere thanks, gratitude and appreciation to His Highness the Amir of Kuwait Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah, may Allah safeguard him, His Highness the Crown Prince Sheikh Mishal 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 the Central Bank of Kuwait 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

 

Group CEO Message

Key Achievements for the year

The year 2020 comprised most exceptional and unusual conditions due to COVID19 pandemic which has exhausted the world economy and caused a major transformation to online platforms which have enabled us to work, study, shop and pay remotely. A new economic model was born, that does not resemble any other form we have experienced earlier. The world is facing a new era of a tremendous change.

For more than 40 years, KFH has experienced magnificent changes. Despite the negative impacts resulting from the crisis, challenges which we have encountered e.g. the spread of COVID19 pandemic and business challenges in light of the lock down periods, yet we have managed to fulfill all our customers’ needs successfully during that period. KFH has exhibited unique operational flexibility during all pandemic stages, thus exploiting all our capabilities and various IT channels to enhance effective cooperation between employees and customers e.g. call center, digital branches, and traditional or interactive ATMs, using an effective appointment system (SKIPLINO) to visit branches. All social distancing and precautionary medical steps have been applied to preserve the health of our employees and customers.

KFH has actively responded to the instructions of the Ministry of Health and applied their guidelines during the pandemic e.g., glass shields, social distancing floor signs in branches and sanitization protocols. All KFH branches were open all over Kuwait with the beginning of July. KFH has worked closely with government authorities, Central Bank of Kuwait (CBK) and Kuwait Banking Association. KFH supported all rescue plans and support programs to mitigate the financial difficulties caused by the pandemic, i.e., postponement of installments, injecting liquidity and providing finance facilities designed to assist retail and corporate customers to bear pressures and regain financial wellness.

On the other hand, KFH has managed to realize a net profit of KD 148.4 Million for shareholders during the year 2020, as net finance income increased by 15.8% while operating income declined by 2.3% compared to last year. The Group efforts have succeeded in optimizing costs as operating expenses declined by 2.7% compared to last year. Other indicators have also recorded a remarkable performance where total assets and finance portfolio increased by 10.9% and 13.4% respectively compared to last year.

KFH has allocated KD 284 Million provisions for credit and impairment losses, i.e., an annual increase approximating 44.3% including precautionary provisions, as a hedging step to encounter any possible pandemic impacts. Customers deposits approximated KD 15.3 Billion as the group succeeded in attracting deposits approximating KD 1.8 Billion during the year 2020 i.e., an increase by 13.0% compared to its volume as at the end of 2019. These results indicate clearly that KFH indicators have not been affected by the negative impacts imposed by the COVID19 pandemic on economic sectors including the Kuwait banking sector.

We have controlled and optimized total expenses reasonably although we incurred additional costs as a result of the pandemic e.g. providing risk allowance to the front line employees, sanitization and personal protection equipment to ensure the safety of our employees and customers, postponement of payments and installments for 6 months, waiving any penalties imposed on affected persons and continuation of corporate banking services namely those connected to the supply of basic commodities and needs. Some of the costs were also lower due to the spread of the pandemic e.g. decline in the costs of official business trips and business development. Our investments were considered as a priority in IT development including cyber security and data privacy. We shall continue to focus thoroughly on increasing efficiency and better management of our costs in the future.

Diversification and Risk Management

Today, KFH stands as the largest Islamic bank in Kuwait with fully diversified services e.g. deposits, profitability, and No. of branches. It also stands as the second largest and reputable Islamic bank in the GCC zone. Our presence in Germany, Saudi Arabia, Turkey, Malaysia and Bahrain has covered more than 516 branches and 1,558 ATMs. KFH enjoys a leading global position with an outstanding performance which caused KFH to be listed in the Premier Market at Boursa Kuwait. The year 2020 witnessed the listing of Boursa Kuwait in the MSCI Index for Emerging Markets. KFH share was one of the 7 securities listed in the index. This listing comes after the listing of KFH in the S&P Dow Jones Index for Emerging Markets in 2019 and the FTSE Russell for Emerging Markets in September 2018. Transformation and innovation have remained as part of our identity for more than 4 decades. Now and more than ever, we need to continue our strong performance and maintain our highly admired and impressive leadership position.

We are aware that there is a lot to be done to honor our promise to our shareholders and customers. The group risk department has made a remarkable contribution, through prospective thinking and pre-set contingency plans, to bypass the pandemic successfully. The risk sector has reviewed the 2020 plan since the beginning of pandemic to switch from risk management to protection from risk in a swift and flexible manner. Several tests were conducted right from the beginning of the pandemic, thus establishing a reference point in an uncertain and ambiguous environment. We have maintained continuous and uninterrupted communications with the Central Bank of Kuwait and all regulatory authorities to face the pandemic challenges and provide appropriate solutions. We have also conducted a comprehensive review of the risk ratio at the group level and coordinated the swift and immediate application of appropriate solutions based on recent variations. In addition, we conducted a close monitoring to encounter the rising FC and market risks, namely in Turkey.

Transformation to Digital Banking

 In 2020, and for the first time ever, our customers were given the facility to open bank accounts online including all KD deposits e.g. Mudarabah or Wakala deposits. We have launched “Baiti Online” service to manage the accounts of customers children (Under 15) through KFH website as well as KFH mobile application and e-signature facility in cooperation with the Public Authority for Civil Information through Hawiyati Application. KFH customers will be able to benefit from our several digital services in the future without the need to visit branches. We have also launched new operational lease services in two new packages i.e. golden and platinum to offer our best services to customers.

Customers have performed, through KFH Online, 139.6 Million transactions during the period Jan. – Dec. 2020 through 50.9 Million access to this service. Development efforts have resulted in attracting 103.5 Thousand new users and 49.9 Thousand with full access privilege to KFH Online services. Accordingly, E-services have increased daily transaction limits to KD 20,000 considering the users increasing demand in this service.

Our digital services have increased the number of accounts on the e-service by 24% compared to January, opening time deposits have increased by 169% and cheque deposit transactions through E-service have increased by 38%. KFH Pay service in December, has reached 3 times its size in January as 709.7 thousand banking transfers were performed in favor of other banks’ customers till December i.e. an increase by 35% compared to January. Banking card activation requests increased by 46% while applications to obtain new banking cards increased by 23% compared to January along with an 9% increase in reloading transactions in these card accounts. Considering these difficult conditions and our feeling of responsibility towards our society, our applications have contributed to the increase in the transfer transactions to charity societies and committees by 6% for the same period.

Swift transactions increased by 35% and transfers made by parents to their children’ accounts increased significantly, which indicates increased trust in KFH's secured e-banking applications. Due to the limited investment opportunities, transfers to KFH Capital for investment purposes in the bourse increased remarkably by 144% and applications to open gold account online had increased by 66% along with an increase in the volume of purchasing gold by 136% and its sales volume increased by 18%. Also, applications to obtain online finance increased by 84%.

Despite the total and partial lockdown procedures, our services continued to flow through our branches during the year. Our investment continued in automation, aiming to transform our business to digital systems. We are more efficient in management due to the unification of standards. Due to the uncertainty which has befallen all activities this year, the branches department has responded instantly and worked remotely by using IT platforms to communicate with the management team.

Business has been taken to new horizons of perfection e.g. wealth management section provides valuable banking services to the private banking customers. Asset management services benefit from the products such as management of money and foreign exchange, precious metals, investment funds, Sukuks and other financial securities. Many other opportunities are also available to fulfill ambitions, serve our customers, increase income, and build distinguished competitive advantages. Management continued to provide highly advanced services to the private banking customers during the pandemic while ensuring the implementation of all health regulations.

KFH has implemented a new banking experience by supporting 28 thousand new families planning to build the life time house at Mutlaa area, by providing finance and consultation to our valuable customers through Istisnaa facility which is only provided by KFH. This contract is based on three parties KFH, customer and the contractor. KFH finances the construction according to completion stages, thus giving the related parties the trust and confidence to honor their obligations towards the contractor who shall get his remunerations in an orderly manner. KFH controls and follows up the construction process till final completion in a timely manner by cooperating with more than 20 architectural engineering offices to support the design stage, provide construction materials, air-conditioning, elevators, furniture and decoration, at lowest prices to increase demand on our products for the youth category. KFH aims to play this role to best serve all family categories and Kuwait society.

Motivating Growth and Development

As a leading Islamic financial institution, we are determined to serve our customers and achieve the best for them. We have a pressing need to motivate early execution and accelerate our transformation process. We have strong and flexible business model that matches our digital aspirations, achieves distinguished income and more capital adequacy to enhance growth. We are in a strong position concerning business. We are focusing thoroughly on proceeding with confidence to improve our performance and achieve our goals as we invest time and capital in various aspects of our business as follows:

IT based Digital Culture

We have invested thoroughly in technology and internal digital system through simple but highly significant goals i.e., increase flexibility and security, enhance operational efficiency, and provide higher value to our customers. We strongly believe that our digital policy and the open applications and platforms methodology represent our strong competitive advantages, especially through our IT sector which was the life nerve of KFH during the pandemic. IT showed outstanding distinction, flexibility and innovation, thus reflecting positively on all business sector and taking our services to a new higher level. Thanks to our heroes who worked relentlessly during the crisis and achieved magnificent results despite the dangers they have encountered.

Our strategic plan aims to establish a huge new data center as one of the most significant steps that would carry Information Technology to new horizons of digital capabilities i.e. reaching a 100% system availability by using Active/Active system which works continuously without any interruption, and ensuring flexibility of business using the private cloud option that enables our systems to work and operate anywhere while ensuring speed of business and recovery from any disasters as well as the optimization of cost by using technologies for KFH group and subsidiaries.

The year 2020 witnessed the completion of several projects despite the difficult operating conditions. This has contributed to the completion of the digital infrastructure e.g. Jazeel Digitalization project in Kuwait and Bahrain, e-model digitalization project and swift digitalization. We have also launched KFH IT DevOps which is another digitalization process that enables IT staff to make necessary changes instantly. It is one of the main pivots for completing the structure of the digitalization process in KFH.

Information technology support services were evidently present during the pandemic and lock down periods as they worked 24/7 non-stop. IT service has provided all operational environments with their needs of technology, carried forward all required files and monthly closures, provided timely data for users from various department in KFH, executed all new requirements based on the instructions of regulatory and official authorities during the said period, provided more than 700 personal laptops with all special programs and applications to help employees work remotely and provided all social media communication means to ensure proper convening of meetings remotely. IT support has enabled the call center staff to receive from their homes customer's calls and had continued to provide IT support to all KFH sectors during the full and temporary lockdown periods.

Enhancing Operational Models

Operations sector works on the automation of all our comprehensive operations, thus improving quality, minimizing cost, increasing productivity and enhancing operational discipline and quality of operational performance. We have conducted structural changes to improve control and accountability in our operations by employing an innovative digital strategy.

We use digitalization, automated learning, and artificial intelligence to increase operational efficiency, reinforce customer’s experience and cope with other FinTech companies and other financial institutions to accelerate our progress. In the year 2020 and despite the COVID19 pandemic and the lockdown procedures, KFH operations sector has launched and participated in several transformation projects which adopt the FinTech concept e.g. online cheque deposit systems which are considered as leading systems for technological channels to enable customers to check and deposit cheques through their smart phones. This process has led to a significant improvement in the quality of service provided to the customers while using the innovative clearance platform. This initiative will cover the main payment functions e.g. the automatic clearing room, the protection of the release of wages, salaries, centralized bills payments and the payments through smart phones and digital currency.

Group operations department has added a new dimension in providing digital techniques such as SWIFT through the most modern technique SWIFT-GPI which enables KFH customers to track and follow up money transfer right from the beginning till the amount is received by the beneficiary through internet channels and smart phones.

Our investments have allowed us to upgrade data centers and infrastructure, improve performance, and establish a more flexible basic system. We are in the process of upgrading several applications by using highly advanced technologies to benefit from this new environment. We have used artificial intelligence to develop and process our back office operations in a swift and timely manner, thus giving the best experience to the customer with low cost and high efficiency. We believe that these investments in technology and the merge between the unique customer experience and the digital back office operations shall be the source of competitive distinction.

Collaterals management during and pre-pandemic is considered as one of our outstanding advantages and distinction. We focused in 2020 on enabling market players to register their collaterals more efficiently and achieve finance and operational efficiencies. Our new collaterals platform is intended to largely enhance our ability to attract new subscribers, support all types of new collaterals and increase speed through the platform which we have launched earlier in coordination with Group Corporate Banking. This step aims to activate a strong system to establish and manage collaterals. We have managed to automate collaterals in various systems (real-estate, shares, cash, funds …etc.) based on a new sharia compliant credit limit and a new finance facility swiftly with less effort and no errors. Meanwhile, the new platform shall enable us to extract plenty of smart reports and provide information in advance to the concerned employees to conduct immediate intervention and accurate follow up.

The management has developed the real estate appraisal department by expanding its control and supervision on the accredited real estate appraisal offices, reviewing appraisals accurately, setting standards for the evaluation and development of such offices. This process aims to achieve fair and honest appraisal of real estate assets whether for KFH or customers, improve mechanisms and procedures to complete transactions swiftly and accurately, provide reliable real estate reports highlighting prices and follow up market developments, namely studies determining the impacts of the pandemic on the economic sector and ensure its stability in coordination with regulatory authorities, CBK, decision makers and related parties.

Centralization stands as an operational model that enables KFH to unify all operations at the group level, add a new dimension to quality control, and improve the fields of training and support. KFH has managed to complete several central initiatives in 2020 by shifting operational tasks from business and adapting them with the special operations platform. Accordingly, all ATM renewal operations and money market transaction processing operations have been consolidated in a joint service center. Operations sector has started to facilitate and process finance transactions and issuance of centralized liability certificates to KFH group banks abroad. We are working on improving and unifying finance channel tools to add a new dimension to the vital operational distinction.

A clear and comprehensive strategy focusing on Big Data Management

Open and neutral partnership models of our operations aim to increase flexibility, quality, transparency and efficiency which our customers seek, as per a clear strategy. Also, it enables us to develop and enhance group products, improve customer service to be the leading Islamic bank in banking industry, expand our creditworthiness, lead growth across main geographies, business sectors and customers. We aim to increase our presence and impact in the banking industry by interconnecting and bonding the group banks. We continue to strengthen our presence in international and main markets as we have long term investments in the Middle East and other regions of the world. We manage banks in Bahrain, Saudi Arabia and Turkey and have been working for more than 40 years. Our investments in Asia have expanded via KFH Malaysia while our branch in Germany is remarkably growing fast.

The strategy sector has exhibited an outstanding and remarkable performance during the pandemic through accurate follow up of all the Group activities and sectors. Strategy sector has provided the executive management with daily and weekly economic reports highlighting economy enhancement plans by using mega databases and the group subscriptions in the largest and most famous global data and research centers. Reports aimed to determine the impact of the pandemic on various business sectors and markets and focus on the strategic value of information and how to manage and protect them. Strategy sector has conducted a thorough review and an accelerated development of the strategic trajectory of the Group and determined its priority projects considering the pandemic in coordination with other Group sectors and parties. The sector has managed to convene regular meetings with analysts and investors remotely despite the difficult conditions encountered, provided accurate information to investors and maintained all positive ratings of KFH in coordination with international rating agencies. The social media follow up process was one of our success stories.

Treasury Sector – we continue to expand our capabilities locally and globally

We are very proud of the services and technical solutions rendered by the Treasury & Financial Institutions Sector which helped KFH Group to adapt with the variable and changing economic environment in 2020 due to the COVID 19 Pandemic. Treasury sector has developed tremendous digital services to manage various operations, thus improving liquidity management efficiency, cost optimization, increased rates of return, finance diversification and rendered continuous and uninterrupted services. We have, through local and international partnerships during 2020, worked with leading banks, financial institutions and governments worldwide to magnify the value of KFH and the institutions it deals with, thus aiming to enhance and reinforce mutual finance and credit channels.

The Financial Institutions Department at the Treasury sector continued its outstanding and remarkable functions as the size and number of deals reached an unprecedented level. The Department has participated successfully in several bilateral transactions with international and local banks during the pandemic, thus representing a unique and outstanding performance during the crisis. The value of concluded deals approximated US$ 1 Billion. The department participated in facilitating a syndicated commercial Murabaha deal amounting US$ 300 Million and arranged Murabaha finance with one of the major international banks to diversify the Group finance sources and improve liquidity. Also, the department has, through its branch in Germany KT Bank AG, expanded Euro clearing services (Vostro) covering 15 countries worldwide including China.

During the COVID-19 pandemic, several new and unprecedented challenges emerged on the local and international levels. These challenges comprise provision of liquidity and maintaining the deposits level in the banking sector. However, the liquidity management has coped with the event, managed, provided liquidity, and achieved remarkable levels of profit and regulatory compliance. The management has maintained the group growth trend and carried it to new horizons.

FC activities at the treasury sector were enhanced on a larger scale by providing FC rates directly to retail customers online. Customers can deal and receive competitive FC rates in the FC market. Sharia compliant FC Promise buy and sell products continued to attract more customers to achieve hedging against FC fluctuation risks. The management has developed the corporate FC trading platform (KFH Global) which has improved the difference between transaction execution time and the real time, thus attracting more customers to its services. FC and Precious metals transaction volumes increased compared to 2019, thus making an added value to the bank profitability. This was achieved through the remarkable increase in the number of customers by 48% because of the increase in high-tech digital services and products along with the prices of multiple channels live broadcast supported by high-tech solutions.

Considering our endeavor to achieve the group integration, we would say that the performance of Kuwait Turk treasury department was highly efficient and effective during the year. The department has managed to diversify treasury products by adding sukuks to the application TradePlus which is a new sharia compliant platform providing investment funds, Borsa Istanbul shares, foreign currency, precious metals, all in one application.

Investment Through KFH Capital

KFH owns a market share in main Sukuk products through a package of diverse. We operate strongly in main markets with an increasing demand on Sukuk products. KFH Group has maintained its leading position as a trusted arranger of Sukuks by governments and companies worldwide. Our Investment arm “KFH Capital” has led arranged more than US$ 4.5 Billion of sukuks for governments and banks, namely, KFH Capital acting as syndicate placement manager and the sukuk offering manager of the Islamic Corporation for the Development of the Private Sector (ICD). KFH Capital also acted as a Global Coordinator, JLM & Bookrunner of Warba Bank's KD 150 Million sukuk which was the first Kuwaiti Dinar denominated sukuk in the market. In addition, it has also led arranged Sukuk for Sharjah Islamic Bank and Kuveyt Turk Katilim A.S.

Our investment performance as per a well-studied sharia compliant strategy of several asset categories inspires us to focus on new fields through our diverse products. After getting regulatory approvals last year, KFH Capital successfully listed first REIT fund on Boursa Kuwait in September of this year. Earlier, the fund had raised KD 23.6 million with record participation. It provides opportunity to invest in income-generating real estate in Kuwait and distributes no less than 90% of net collected income after deducting the expenses and provisions. The listing has provided the unit holders with more flexibility and liquidity, exit option via trading (buy and sell) opportunities as well as healthy returns through monthly distributions and has enhanced KFH Capital`s position as the most sought after investment destination in Kuwait.

Furthermore, KFH Capital catered to more than 2,000 new online trade clients and acquired "Market Maker" licence from the Capital Market Authority"CMA" this year. We believe that our multiple products model shall place us in a leading position in the future. We provide new products to serve several fields where increasing demand is noticed, including fixed income, environment, social and governance investment and using multiple assets solutions, and investment funds. We are fully aware that we have a lot to do, especially in the field of franchise which is facing a fluctuating wind.

Development of our leading capabilities

We have noticed a demand in finance by the business sector and companies following the long-term lockdown periods despite the negative impacts of the pandemic. Our finance sector has worked closely with corporates to postpone installments and provide credit to companies, namely, small and medium enterprises, thus enabling them to stand strong against the pandemic. KFH has played as the lead arranger of a syndicated finance deal in favor of Kuwait Petroleum Corporation, amounting KD 1 Billion. KFH has led the Islamic tranche of KD 400 Million and acted as the facility agent for Islamic banks. The corporate service center at the operations sector has added new centers for companies in 3 branches to supervise all services rendered to KFH corporate customers in such branches and to ensure that high quality services are rendered as expected by the corporate sector at KFH.

Human Resources

Group Human Resources demonstrated its leadership during these unprecedented times by taking lead in numerous initiatives needed to ensure we continue providing customer service excellence for our clients. Group Human Resources lead the effort to assure our Human Capital of the safety of our work environment through introducing conclusive protocols designed to foster a safe and healthy environment for our clients and employees. Above that, policies have been rolled out to allow for certain jobs to work remotely in line with directives from Health Authorities to maintain physical distancing.

In addition, new learning platforms have been utilized to ensure we equip our talent with the latest toolkits and frameworks required for them to achieve their job requirements. Our investment in development of our HiPos and Successors remained at 29% of our entire training spend, clearly making sure our future talent is being prepared.

Human Resources Development

Building on the diversity and inclusiveness, KFH continued to push for the additional participation of ladies within the manpower where we have recently promoted GM IT from within as the first woman as part of our executive leadership. Thanks to that and additional focus on filling jobs with talented ladies, we are gaining traction in increasing the representation of ladies within KFH workforce.

KFH continued during these times on its corporate commitments to support and foster nationals where the drive to push Kuwaitis to fill Middle Management positions has continued. In regards to the Executive Leadership, Kuwaitis now make up 67% thanks to the continued focus on promoting from within KFH talent. With all what we went through, KFH continued its responsibility in acquiring fresh talent from the market where we have recruited 176 Kuwaitis during the past year.

The Engagement of our employees during this year was key as all Human Capital have gone through a period of uncertainty. With that in mind, our Employee Engagement Score has also increased by 4% where KFH has taken this opportunity to increase the level of communications to keep our staff abreast of all change happening in addition to ensuring we proactively communicate in areas where the data has shown that staff need extra assurances.

To help our employees reset their wellness goals upon relaxing of COVID19 measures, we have worked with an industry leading partner to launch the second version of our wellness program. This program takes a different approach where tailoring the fitness program to the users’ needs is the key feature. We have continued driving our KFH family members to participate in the Program where we do believe that this will have a positive effect on their work life balance.

With 2021 ahead of us, we have learned a lot of good practices from 2020 which we will surely embed and institutionalize in the way we work as an organization. With the Grace of Allah, this will enable us to further attract and develop our talent in the future.

Our Remarkable Performance

We are experiencing a very exciting journey that would determine KFH trajectory for coming years. We were never more optimistic as we are today as to what KFH could achieve and the value that we could render. There are obstacles and challenges, but we must go on with more determination to ensure our continuity as a fully trusted leading bank by our customers and the global financial system.

Finally, I am extremely honored to be part of this group. I am proud of the performance of nearly 15,000 employees in our group worldwide and the support they render to our customers. I would like to thank them and thank our board of directors, members of Sharia board and my colleagues in the executive management for their commitment to build a stronger bank for our customers, shareholders and regulatory authorities. As we enter 2021, I feel optimistic and excited about what the future carries for KFH.

 

May Allah Grant us Success

 

Abdulwahab Issa Al-Rushood

Acting Group Chief Executive Officer