Excellent performance far outstrips the market
Reflecting on 2012, I am gratified to state that Afghanistan International Bank continued its positive trajectory.
The Bank’s financial performance was excellent even though there was softness in commercial lending, as customers in Afghanistan are becoming more conservative – reflecting political, security, and economic uncertainties.
That said, the Bank’s pretax profit grew by 31 percent to $11.6 million and total assets by 43 percent to just below $900 million at year-end. Based on this growth, we aspire to become a $1 billion bank in assets within the next one to two years.
Compared to the overall banking sector in Afghanistan, AIB’s performance was outstanding. To put this in perspective, total assets stood at $4.19 billion in 2012, up 10.52 percent from $4.01 billion a year earlier. As noted above, AIB’s assets grew by 43 percent and we now have about 22 percent of total assets in the banking sector. AIB’s loans remained stable in 2012 and stood at $87 million at year-end.
Undoubtedly, the highlight of the year was the successful acquisition and integration of Standard Chartered Bank’s Afghanistan business into AIB. This project has resulted in a new and significant group of international agencies and companies becoming customers of our Bank. We worked with different units of SCB around the globe to ensure a seamless customer transition. I extend my sincere thanks and appreciation to the staff, especially in Information Technology, Operations, and Finance, who helped achieve this milestone for AIB.
As you may recall from my message in 2011, our shareholders approved the expansion of the Board of Supervisors from six to nine members. This was undertaken to meet the Central Bank of Afghanistan’s regulation stipulating that the Board of Supervisors of a bank must have a majority of independent directors, and to comply with generally accepted standards of good governance. I am pleased to announce the addition of Aditya Srivastava, Salman Shoaib, and Brian Dickie to the Board. This brings the number of independent directors to five. (Please refer to a later section of this report for profiles of the new directors.)
Coincident with the expansion of the Board, we have established two new Board committees: Strategy and Planning, and Investment.
- Strategy and Planning Committee will focus on annual plans and longer-term strategies. Thinking through scenarios post 2014 is especially important due to the announced reduction in coalition military forces at that time. The committee has hired outside experts to define scenarios and perform stress tests on the Bank’s balance sheet and profit and loss statement to measure the effect of different emerging circumstances.
- AIB has a relatively significant investment portfolio stemming from the Bank’s large deposit base. Hence the Board believed it prudent to establish an Investment Committee to ensure effective policies and oversight. Management has been requested to build a fixed income monitoring capability within the Bank.
More detailed description of these committees and their activities is given in a later section of this report.
AIB has made significant progress with building a new head office. The Bank has outgrown the current head office premises, and the Board, shareholders, and management concluded that the best course of action was to build a standalone facility in Kabul. Architectural drawings have been submitted for approval to the Kabul municipal government and site preparation is under way. Plans call for construction to begin in the summer of 2013. The Board has formed a temporary committee to provide oversight and guidance to management during the construction of the building.
Another critical role of the Board is to monitor the performance of the Bank’s senior managers to ensure that their performance achieves overall objectives as well as each individual’s goals. This monitoring is done through a formal goal-setting mechanism.
An important objective in this regard is the development of Afghan staff within AIB to take leadership positions and to eventually replace expatriate managers. I am therefore pleased to report that two Afghan staff were promoted to senior management positions in Information Technology/Operations and Retail Banking during the year. This is the first time that individuals who began their careers at AIB have been promoted to such senior positions.
What does the future hold for Afghanistan and AIB? There will clearly be a period of readjustment as foreign military forces leave the country. We are optimistic that foreign aid will continue with the aim of developing the economy and infrastructure but at what level is uncertain. In 2012, an estimated 97 percent of Afghanistan’s roughly $15.7 billion gross domestic product came from international, military, and development aid sources and spending in the country by foreign troops. Much also depends on the presidential election in early 2014 and an orderly hand-over of government. In particular for the banking sector, the challenge will be to generate adequate returns in a low interest environment without taking on undue risk. As I indicated earlier, we are monitoring developments closely to ensure we are prepared for any contingency.
I extend my thanks to our shareholders for their continuing support of the Board and management. I also take this opportunity to express my heartfelt gratitude to the management and staff of AIB for their hard work and dedication to the success of the institution.
Ronald Stride
Chairman