BBK Annual Report 2011

Board of Directors' reportThe Board of Directors is honoured to present BBK’s 40th annualreport, covering the year ended 31 December 2011.Economic and market backgroundThe global economic crisis continued to dominate the financiallandscape during 2011. The sovereign debt crisis in the Eurozoneand concerns about the slowing economy in the United Stateshave been felt in the local economy and in the wake of the regionaluprisings. Bahrain itself has also had some internal disturbances.Bahrain’s economy showed considerable resilience in 2011 witha relatively good growth level in GDP. This growth was achieveddespite the wave of social unrest in the first quarter. Investment,trade and consumption were all affected by global economicdeteriorations, high uncertainty as well as regional and local unrest.The Government of the Kingdom of Bahrain has responded to theeconomic slowdown by increasing domestic spending. With somebenefit deriving from higher oil prices and external aid committedfrom other GCC states this should result in a budget surplus forthe coming year and a bounce back for the local economy.The wider GCC region has also been affected by the situationin the Eurozone and by US economic stagnation. However, it isour belief that the economic fundamentals of the GCC regionremain strong and we are therefore confident that once sentimentimproves in the West, growth in our region will resume.Business reviewBBK turned in a highly satisfactory financial performance during2011 despite the challenging conditions in the local market as wellas regionally and internationally. The comprehensive three yearStrategic Plan (2010-2012) which commenced last year continuesto serve as a highly effective roadmap for the Bank. We are pleasedto report that the implementation of this plan is proceeding well andthe Bank remains on course to achieve its key plan objectives.Having successfully issued a USD 500 million five year bond in October2010 it is unlikely that the Bank will have a requirement to return tothe capital markets for new issuance during the Strategic Plan period.Over the course of 2011 the Bank’s liquidity position improved furtherand is at a level that the Board of Directors is entirely comfortable with.In November, the Bank completed an exchange offer onBBK’s 2017 Lower Tier 2 Bond issue with a participationrate of 85.2 per cent, exchanging investors’ holding for anew 2018 Senior Bond with an uplift in the coupon.The Bank’s prudential risk management initiatives have continued– while BBK has avoided the problems of concentration-risk in realestate lending which have hurt a number of other financial institutionsin the region, actions aimed at further improving the quality of theBank’s corporate assets and seeking to “de-risk” the portfolioare ongoing and are progressing to the Board’s satisfaction.The corporate banking market in Bahrain has seen a slowdown thisyear but BBK has continued to perform well in this sector and evenexceeded the previous year’s results. This was achieved by stayingvery close to our clients to monitor asset quality, ensuring that anyrequests for restructuring have been handled expeditiously and throughdiligent control of costs. With the launch of BBKCashlink platformthe Bank now has a payments and cash management service whichis on a par with the offerings of large global banks and will enableBBK to compete strongly for this type of business in the corporateand Small to Medium-sized Enterprises (SMEs) banking sectors.The retail banking business again contributed positively to theBank’s overall results and has achieved a steady increase in marketshare in both loans and deposits. In recent years we have madea considerable investment in the expansion of BBK’s physicalnetwork of Financial Malls, branches and ATMs. This network is nowthe most extensive in Bahrain and our focus has shifted towardsincreasing the volumes of customers and transactions handled byour network. In order to broaden our range of services, importantnew partnerships have been entered into this year with leadingcompanies in Bahrain, such as Batelco. Other retail initiatives,such as the new eStatement, not only offer added convenienceto our customers but also help to protect the environment aspaper consumption by BBK customers will be reduced.International banking, and in particular our business in India, alsoperformed very well and we remain hopeful that we will soon beable to expand our branch presence there. The Indian economycontinues to show robust growth and BBK is well-positioned tobenefit from this growth. There have also been some notablebusiness wins for BBK in GCC countries during 2011.The Bank’s investment portfolio has been strategically re-positionedover the last three years to focus on opportunities in the GCCregion and this portfolio continues to contribute strongly to ourbottom-line. CrediMax moved into attractive new premises inSeef during the year and we are confident that this business,already dominant as a credit card issuer in the local market, willcontinue to identify new opportunities for profitable growth.Taking all of the above factors into account, BBK was ableto achieve net profits of BD 31.79 million in 2011, down18.79 per cent on the previous year’s profit of BD 39.14 million.Net interest income rose 9.64 per cent to BD 58.91 million.BBK Annual Report 201111