The Board of Directors is honoured to present the 49th annual report and consolidated financial statements of Bank of Bahrain and Kuwait (BBK) and its subsidiaries for the year ended 31 December 2020.

Unique operating environment and BBK’s response

The events of 2020 have been truly unprecedented, not only for Bahrain and the region, but for every country. The full impact of COVID-19 on humanity at large remains to be seen, but as we enter 2021, we are able to reflect on its impact on the Bank and our stakeholders.

BBK began the year with a relatively strong first quarter. However, as a result of the Central Bank of Bahrain (CBB) waiver on announcing interim financial results due to the pandemic, the Bank did not formally publish those figures until the six-month interim announcement in July. We see from these results that BBK began to feel the strain of the pandemic from April onwards, when uncertainty deepened across the world.

Our highest priority from the end of March onwards was to keep employees as healthy and well protected as possible. Some COVID cases were reported in the Bank, but thankfully, numbers remained very low. We worked hard to support the staff who were working from home or remotely, particularly women and those with responsibility for looking after elderly or vulnerable family members.

BBK’s duty of care meant that we had to carefully balance the critical health situation with operational obligations. We were determined to protect employees and customers and try to stop the spread in the community, while at the same time providing much-needed banking and finance services. Indeed, we are proud to say that there was not a single day over the past year when we did not have full services available for our customers.

Although the Bahrain government, with thanks, launched a comprehensive package of stimulus measures designed to mitigate the economic impacts – including paying 100 percent of the salaries of private sector Bahraini employees for three months, followed by paying 50% of the salaries of the most affected private sector companies and exempting companies from various Government services including electricity, water and municipality fees – other factors continued to exert downward pressures on BBK.

First, all banks had to postpone customers’ loan instalments for six months with no interest and no additional fees, impacting shareholders’ equity and delaying cash inflows. This has impacted most banks’ financial performance and liquidity positions. In BBK’s case, there was no material impact on operations due to our comfortable liquidity and funding buffers.

Second, while liquidity in the Bahraini Dinar remained stable, liquidity in other currencies was affected – predominantly the US dollar – which was in very short supply, affecting our ability to market new loans in the US currency. To avoid putting further pressure on our US dollar liquidity, we restructured our funding and loan portfolio in USD.

Third, the Bank suffered a major impact on its results from the global market turmoil in April. Our fair value investments fell considerably, to the extent that our capital adequacy ratio dropped from 20 percent to just under 14 percent. This depletion has since recovered and we have now restored to pre-April 2020 levels.

Fourth, new CBB regulations capping fees and charges on retail services, in addition to regulatory directives and measures taken in response to COVID-19, affected BBK income negatively. Under normal circumstances, the shortfall would have been absorbed by other revenue-generating activities.

Strategic cycle

Any positive outcome from the pandemic is hard to imagine, but the crisis led to accelerated implementation of our 2019-21 FinTech strategy. The Bank’s IT and project management teams were able to spend more time on delivery and implementation, partly driven by exponential customer demand for digital services in the period when people preferred not to venture outside to visit branches and automated machines.

We were able to meet this demand by fast-tracking several technology projects to 2020, rather than 2021-22, including the development and launch of our BBKPLUS mobile onboarding application and the introduction of open banking services.

Other initiatives in 2020 included the September signing of a memorandum of understanding for BBK’s potential acquisition of Ithmaar Bank Bahrain and specific assets of IB Capital – both wholly owned subsidiaries of Ithmaar Holding BSC.

Ithmaar Bank Bahrain is a Bahrain-based Islamic retail bank providing retail, commercial, treasury and financial institutions, and other banking services. It provides a range of Sharia-compliant products and services catering to the financing and investment needs of consumers and institutions.

These plans, subject to shareholder and regulatory approvals, are still in the discussion phase (as at the end of 2020) and are subject to completion of due diligence by both parties.

Management team changes and restructuring

A number of prominent BBK executives retired in 2020. In March, after 42 years of service, we bade farewell to Reyadh Yousif Sater, BBK’s Group Chief Executive. Mr. Sater was the Bank’s fourth Bahraini Chief Executive and, under his tenure, he helped to solidify BBK’s strategic position and supported its international expansion, diversification and digitisation strategies.

We were pleased to welcome his successor, Dr AbdulRahman Saif, who first joined the Bank in 2008. The Board looks forward to working with Dr Saif as he continues to lead our pioneering organisation into a new decade locally and regionally.

Our leadership was bolstered by the promotion of seven high-achieving Bahraini employees into senior positions, part of our ongoing commitment to attract and retain Bahraini talent. We are particularly proud of the strong presence of women in the promotions, which demonstrates our continued focus on supporting and empowering women into leadership roles.

The Board also welcomes Ahmed A. Seyadi as the new Chief Executive Officer of CrediMax during the year, following the retirement of Yousif Ali Mirza.

Coinciding with a restructuring of the Group’s key business functions, these transfers of management responsibilities were completed in early April. We thank every one of the outgoing executives for their outstanding and tireless contributions to the Bank. Under their leadership and guidance, BBK has grown from strength to strength.

Financial highlights

In 2020 BBK achieved a net profit of BD 52.0 million, 31.0 percent lower than 2019 and equating to basic earnings per share of 39 fils (2019: 56 fils). Net interest income was BD 80.8 million, while shareholders’ equity stood at BD 511.8 million, compared to BD 543.9 million at the end of 2019.

The overall decline in performance was mainly due to deep interest rate cuts by central banks around the world (impacting net interest income), lower net fees and commission income due to COVID-19 concessionary measures, and new regulations capping fees and charges. BBK’s share of profit from associated companies and joint ventures also declined, from BD 6.8 million in 2019 to a loss of BD 0.1 million in 2020, due to COVID-19 and the unfavourable market conditions.

Based on the positive financial results for the year, the Board of Directors recommended paying annual cash dividends of 20 fils per share and stock dividends of 10 percent per share – equivalent to one share for every 10 shares for shareholders registered on the record date, subject to the approval of regulatory authorities and the Bank’s upcoming AGM.

Sustainability

Environmental, social, and governance (ESG) issues have remained an important and integral part of discussions at Board level. Our philosophy is to expand our sustainability and social responsibility further, by seeing where society needs BBK to play a role and adapting accordingly.

In 2020, the Bank initiated the development of its ESG framework, which will be implemented in 2021. BBK will continue to develop an annual strategy focused on certain areas of support and ensuring we respond to the most pressing community needs.

The 2020 strategy involved BBK directing its support towards education and training through various programmes targeting hundreds of Bahrainis, in cooperation with leading international academies.

Health also remains a priority and the Bank committed to building a second BBK Health Centre, in the Galali area of Muharraq, in cooperation with the Ministry of Works, Municipality Affairs and Urban Planning, and the Ministry of Health.

During the pandemic, the Bank also put in place a range of measures to support people and businesses affected by the crisis, and donated BD 3.0 million to the Feena Khair national campaign.

BBK has been a pioneer in applying good corporate governance and our commitment to this remains unwavering. The Board addresses any relevant discussions through its Nomination, Remuneration & Governance Committee, and this forum has enabled us to deploy and implement our governance strategies over the past 10 years.

The corporate governance report and organisation information section of this annual report contain details of shares held by the Bank’s directors and executive management as well as conflict of interest and directors training hours.

Part of our corporate governance is a pledge to equal opportunities, and in 2020 we were proud to announce the appointment of five women leaders to the boards of BBK and its subsidiaries. The representation of women at board level can enrich our performance, diversify our perspectives, and improve our understanding of our clients and employees. With women representing more than 38% of group employees, we look forward to growing this even further in the future through BBK’s women’s empowerment policy.