Over the past few years, Afghanistan International Bank has engaged in institutional building initiatives that focus on four areas: corporate governance, operational excellence, customer satisfaction, and financial stability. The objectives are twofold: to build the leading financial institution in Afghanistan; and to ensure that AIB has the fundamental structure and competence to meet the challenges that Afghanistan and the Bank might well face over the next several years.

The Board has instituted a number of governance improvements, including defining clear responsibilities for shareholders, the Board of Supervisors, and management. The Board has been expanded to nine members, five of whom are independent directors. To further provide clarity, the Articles of Association are being modified to define what constitutes an independent director. The Board has also created four committees that are responsible for detailed analysis of compensation and succession, strategy and planning, investments, and risk. All four committees are headed by Board members with in-depth experience in these fields.

The Bank has strengthened its planning process, which now includes specific business objectives with corresponding assignment of responsibilities to individual executives through a goal-setting mechanism, as well as preparation of financial budgets. Bonuses paid to executives are closely linked to the Bank’s overall performance and each executive meeting his own goals. I am pleased to report that many of the key initiatives in the 2013 business plan were met by management. These included pilot programmes for small business loans, treasury products, and expansion of our consumer-related payroll products. The Board and management have also taken steps to strengthen the management team which will be joined by an experienced Deputy Chief Executive Officer early in 2014.

In 2013, management developed a three-year strategic plan to guide the Bank through a period that might prove to be volatile. This plan calls for a relatively conservative outcome for 2014 with growth improving in 2015 and 2016. A contingency plan is also in place, to be triggered if the macro situation in the country deteriorates materially.

AIB is also devoted to improving operational performance and customer service. To this end, the Bank undertook several initiatives in 2013 and plans to engage an outside consultancy in 2014 to re-engineer its customer-facing and back-office processes. Integration of the Standard Chartered Bank’s business in Afghanistan into AIB continues to exceed expectations, with customers expressing satisfaction with the quality of the transition.

To ensure that the Bank has sufficient capacity to meet business growth expected by management over the next decade, a project to build a new head office in central Kabul began in 2011. Development of the new building progressed during 2013 but has been delayed due to changes in design and delays in receiving approvals. However, preparatory site-works have been completed and we are optimistic that construction will begin during 2014.

AIB’s financial performance has been exceptional over the past few years, having realised considerable growth in assets, deposits, profits, and capital. The Bank’s capital adequacy ratio has also been significantly above regulatory requirements.

In 2013, AIB experienced modest growth in revenues, deposits, assets, and capital. However, profitability was affected by two unexpected events. One of these involved a customer who is accused by the US Department of Justice of an alleged fraud on a contract in Afghanistan; the second was the default of a relatively significant loan. Both cases required AIB to make provisions to offset the potential losses. As a result, bottom line results were negatively impacted. Management believes that some, if not all, of the funds owed to the Bank will be recovered in the future.

In recognition of our institution-building initiatives, AIB was named Afghanistan Bank of the Year by The Banker magazine for the second successive year. Just before going to press, AIB learned that Corporate Finance International, the prestigious London based organization, awarded AIB Best Corporate Governance – Afghanistan, 2014 in recognition of our successful governance structure. Naturally, we are very proud of these awards and I thank the Bank’s staff for making such recognition possible. Likewise, AIB has been proud of its corporate governance model, especially for a bank operating in a frontier economy.

I stress that the Bank’s shareholders, Board, and management are mindful of the challenges facing Afghanistan in the next few years. A number of scenarios have been developed and a plan has been formulated around what we believe to be the most likely outcome. Security, political, and economic factors were considered during this exercise and a set of early warning indicators have been developed as a monitoring mechanism. All these actions have been undertaken to ensure that the Bank is in a strong position to address any potential issues that might arise over the near future.

As 2013 came to a close, the Asian Development Bank (ADB) sold 20 percent of its shares to Wilton Holdings and Horizon Associates, leaving ADB with a 20 percent ownership stake. A further sale of 20 percent of its share to Wilton Holdings and Horizon Associates is planned for early 2014, reducing ADB’s shareholding to 15 percent.

A third transaction is in process and will likely close early in 2014. Wilton Holdings and Horizon Associates are purchasing the 25 percent shareholding of Afghan Investment Partners Corporation. When these transactions are finalised, Wilton and Horizon’s shareholdings in AIB will increase to 42.5 percent each. These transactions reflect corporate priorities and investment decisions of the respective shareholders.

In closing, I extend my thanks to the shareholders, Board members, management, and staff of AIB for your effort and dedication over the past year.

Ronald Stride

Chairman