CEO’s Management Review
Despite the difficult business environment, AIB again performed very commendably on behalf of customers and stakeholders. At the end of 2014, the Bank emerges strengthened and ready to face the opportunities ahead as the new Afghan administration takes office.
Business conditions during the year were affected by the presidential elections in April, which were followed in June by a run-off between the two leading candidates, with the outcome further delayed while the results were verified under international supervision.
The Independent Election Commission finally named the winner in September, and although the process was protracted, this was the first time in Afghanistan’s history that power was democratically transferred. Business sentiment was understandably subdued while the establishment of the new government was awaited.
After a 13-year presence, NATO withdrew combat troops, being replaced at the end of 2014 by a ‘training and support’ mission, another indicator of the ongoing transition in Afghanistan.
Yet despite the exceptionally difficult market environment, AIB continued to record improvements across virtually all key metrics:
- Assets grew by 17 percent to AFN 56.23 billion (2013: AFN 48.11 billion), bringing compound annual asset growth since 2008 to 27 percent.
- Deposits also grew by 17 percent, from AFN 45.12 billion to AFN 52.90 billion. In dollar terms, assets briefly topped $1 billion towards the end of 2014, closing the year at just under $1 billion.
- Revenue was unchanged at AFN 1.96 billion, driven by 7 percent growth in fee and foreign exchange business to AFN 817 million (AFN 761 million) that accounted for 41 percent of total revenue. Compound annual revenue growth since 2008 now stands at 16 percent.
- AIB is also the only financial institution in Afghanistan to have two major international clearing banks (Standard Chartered Bank and Commerzbank) as correspondents, providing our customers with speedy international transfers and making a vital contribution to the Bank’s substantial growth in forex business.
- The Bank’s bond portfolio of AFN 8.56 billion is all rated investment grade, with 73 percent maturing in three years or less.
Budget targets for the year were met, with the exception of loan recoveries, negatively affected by the poor real estate market, and interest income, which suffered from the generally depressed economy. Non-interest income contributed 45 percent of total income and was substantially above budget. Commercial lending was very subdued, indicative of the increasingly conservative market attitude to political, economic, and security concerns.
Expenses were contained at forecast levels, and the 24.8 percent net profit margin (12.2 percent) equates to earnings per share of AFN 16.16 (AFN 7.99) and 15.90 percent return on equity (8.64 percent). The Bank’s net asset value per share now stands at AFN 102.59 (AFN 93.00).
Total capital increased from AFN 2.77 billion to AFN 3.07 billion. Our capital adequacy ratio of 14.94 percent and our 90 percent liquidity are still very satisfactory, by domestic and international standards. AIB believes it scores highest of all Afghan banks in its ‘CAMEL’ rating – the acronym for the five key components of a bank’s condition: Capital adequacy, Asset quality, Management, Earnings, and Liquidity.
As the Chairman mentioned, AIB achieved prominent international recognition in the form of major awards. The Banker magazine again ranked AIB ‘Best Afghan Bank’ during its annual awards ceremony in London, while our commitment to strong corporate governance earned us the Corporate Governance Award, Afghanistan, 2014 from Capital Finance International (CFI.co) as part of its worldwide awards programme for the financial services industry. The Banker is the world’s premier banking and finance resource publication. Read in more than 180 countries, it has been providing global financial intelligence since 1926 and has built a reputation for objective and incisive reporting on major events. CFI.co’s global panel of judges reported that they were impressed by our conduct and commitment to healthy and far-reaching corporate governance programmes.
Operationally, we received approval from the Central Bank regulators to create a Shariah-compliant window for Islamic banking and introduced this service in Kabul, offering customers the choice of Shariah or conventional products. We plan to expand the product range in 2015.
Our payroll lending product, launched in 2013, continued to be well accepted and showed sustained customer demand. The facility includes fast access to general-purpose personal loans at competitive rates for payroll account holders.
Our ‘Home Equity’ loan for retail customers enables them to realise equity value from their wholly owned properties or, in some cases, to acquire a secondary property. A pilot scheme was successfully introduced in 2014 and will be followed up with full-scale advertising and marketing early in 2015.
AIB’s Platinum and Titanium credit cards, first introduced for VIP customers early in 2013, were later made available to the open market and showed steady growth in 2014, with total issuance by year-end in line with targets. Further product improvement is planned for 2015.
Prepaid MasterCard and China Union Pay (CUP) cards also showed steady demand, particularly from business travellers. Used as charge cards, they are readily available to business users and consumers without having to undergo credit checks. More than 60,000 debit cards have also been issued.
Our new call centre and phone banking services became fully operational during 2014, giving customers a range of functions such as balance checking, accessing an account mini statement, requesting a chequebook, stopping a cheque, changing PIN code, and obtaining the latest foreign exchange rates.
As well as automated response services, two call centre agents are available to provide general product information, deal with lost debit and credit cards, and handle complaints.
The number of ATMs increased from 43 to 55, in response to the increasing demand for automated banking. This is reflected in the volume of ATM transactions for the year, now totalling more than one million.
Our core banking IT system was successfully upgraded, and we maintained our emphasis on business continuity as a vital resource that will enable us to cope with adverse contingencies. We already have an overseas-based disaster recovery site (DRS) that backs up the domestic DRS, protecting against potential vulnerabilities at the domestic site and head office. Business contingency plan testing continues to show that the Bank could operate effectively from its domestic DRS, with the cross-border back-up site providing an extra level of security.
Staff training has always been a priority, and in this respect 2014 was no exception. As well as in-house training at head office and branch level, a total of 24 employees undertook Pakistan’s National Institute of Banking and Finance (NIBAF) courses such as Business Communication, Accounting, Commercial Banking, Know Your Customer, Electronic Banking, Islamic Banking, Basel Capital Accord, and Risk Management in Banks.
The Bank sponsored two employees – one male and one female – who graduated from the MBA course conducted by the American University in Afghanistan, which has accepted a new AIB-sponsored participant for the next MBA course.
In keeping with the Bank’s commitment to good corporate citizenship, AIB is committed to the support of projects that have a beneficial impact on the communities where we operate.
We again contributed to the restoration of the Blue Mosque in Mazar-e-Sharif, sponsored the Afghanistan national football team in the South Asia Championship, sponsored the Asia Society Luncheon Programme, and donated to the development of Ghazni province.
Looking ahead, we expect a slow start to 2015 but a return of confidence during the second half of the year.
In closing, I take this opportunity to express sincere thanks to our shareholders and Board for their continued confidence and support, to our loyal customers for their patronage, and to our management and employees for their dedication and hard work throughout 2014.
Khalilullah Sediq
Chief Executive Officer