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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4
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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
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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.
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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
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... providing first-rate services, and contributing
to economy by building a solid corner stone.
Our future headquarters in Downtown – Beirut
Still
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