We expect our new twelve-storey head office building to be ready for occupancy in late 2016, an event to which we are all looking forward.

For the fourth consecutive year, AIB received The Banker magazine’s ‘Best Bank in Afghanistan’ award.

For the second successive year, AIB was recipient of the prestigious ‘Best Corporate Governance – Afghanistan’ award from the London-based Capital Finance International organisation.

CHAIRMAN'S REPORT

In 2015, AIB continued to fulfil its vision of being a modern, international, and high-quality institution. Underlying this vision is the Bank’s dedication to integrity, high service standards, achieving world-class financial performance, and attention to the financing needs of our customers, as reflected in our tagline ‘Your Partner for Growth’.

Some examples of this dedication to high standards are:

• We are well into implementation of a year-long project to bring our anti-money laundering and financial crimes compliance processes and systems up to world standards.

• AIB is the only private commercial bank in Afghanistan to have correspondent banking relationships with two major international banks, Commerzbank and Standard Chartered Bank, allowing quick and reliable foreign currency clearing services.

• We have asset management and placement relationships with a number of international financial institutions, demonstrating their trust in AIB.

• We remain the bank of choice for Afghanistan companies and individuals: AIB holds one-third (circa $850 million) of all deposits in the Afghanistan banking system, reflecting the general community’s high esteem for our Bank.

• AIB is also the bank of choice for the international community in Afghanistan, including the United Nations, embassies, aid agencies, and the like.

• The Bank continues to win awards for excellence in governance and banking performance, as mentioned below.

• KPMG, our auditors for financial year 2015, have given AIB a clean opinion without reservations, as highlighted in this document.

AIB remains committed to building the banking system and developing the economy in Afghanistan. Notwithstanding this objective, business sentiment was relatively subdued during the year, due to continued political uncertainties and security concerns. The Taliban insurgency situation has not improved and there has been no meaningful progress in peace talks. Security concerns were further exacerbated by the Taliban’s attack on the city of Kunduz late in the year.

The significant drop in the value of the Afghani currency further accelerated the trend to a dollar-based economy. The exchange rate lost about 18 percent in 2015, putting upward pressure on prices. This devaluation, coupled with the ongoing government stalemate regarding cabinet appointments and parliamentary elections, has eroded confidence in the economy.

Growth in gross domestic product in 2015 is expected to be 1.9 percent, which is an improvement from slightly more than 1.0 percent in 2014. A rise to 2.8 percent is forecast for 2016 before settling at around 5.0 percent in 2018.

However, even with this backdrop of political and security difficulty, AIB performed well financially. The Bank achieved a return on equity of 15.28 percent and met its profit before tax objective of AFN 589 million. Profit performance was driven by strong fee income revenue from transfers and foreign exchange, which increased significantly year on year.

2015 was marked by several significant milestones:

• For the fourth consecutive year, AIB received The Banker magazine’s ‘Best Bank in Afghanistan’ award.

• For the second successive year, AIB was recipient of the prestigious ‘Best Corporate Governance – Afghanistan’ award from the London-based Capital Finance International organisation.

• In May, Mr Khalil Sediq, the Chief Executive Officer of AIB, retired and subsequently joined the Central Bank of Afghanistan as Governor. Mr Sediq was instrumental in building AIB into the highly respected institution that it is today (see tribute highlighting his many contributions to AIB). Needless to say, the AIB community of shareholders, Board directors, management, and staff are proud of Mr Sediq’s appointment to the Central Bank, and we wish him every success in his new position. Mr Guy Mallett, the Deputy Chief Executive Officer of AIB, took over the position of CEO after Mr Sediq’s departure.

• AIB’s new twelve-storey head office building had reached the ninth floor by December. Another key milestone was the awarding of the mechanical, electrical, and plumbing contract. We expect the building to be ready for occupancy in late 2016, an event to which we are all looking forward.

• AIB took a stand at the SWIFT International Banking Operations Seminar (Sibos), the world’s premier financial services conference, exhibition, and networking event. AIB’s presence drew much attention as this was the first time an individual Afghan bank had its own stand.

• A new Law of Banking was put into effect in mid-2015. This contains a major shift in governance duties and responsibilities from shareholders to the Board of Supervisors. Many other changes include lending limits and board of supervisor composition. In my view these changes are positive for the banking sector in Afghanistan, strengthening the role of boards in governance.

The Board of Supervisors continued to provide significant oversight to management of the Bank. The Board held twelve regular meetings during the year: four in person and eight by conference call. The committees of the Board (Risk, Compensation, Investment, and Strategy and Planning) also met regularly to discuss major issues in greater detail. A report from each committee is contained in this Annual Report.

The Board approved revisions to the Articles of Association of the Bank, as well as numerous policies and procedures and senior management compensation matters. In addition to the anti-money laundering and compliance improvements mentioned earlier, IT security was also upgraded and the Board reviewed and approved changes in the organisation structure.

Mr Dickie, an independent director since 2012 and chair of the Strategy and Planning Committee, stepped down from the Board during 2015. I thank Brian for his contributions to the Board and the Bank, and wish him well.

As 2015 came to a close, the International Finance Corporation is in final negotiation to purchase 15 percent of AIB: 7.5 percent from the Bank’s two major shareholders, Wilton Holdings and Horizon Associates, and 7.5 percent through the issuing of new shares by the Bank. This investment will take place in two tranches over a two-year period.

The Asian Development Bank (ADB) continued to hold a 7.5 percent stake in AIB at the year-end; however, I anticipate that ADB will sell its shareholding to Wilton and Horizon in the very near future. Accordingly, Hasib Ahmed, the shareholder-representative director for ADB, will resign from the Board.

Mr Ahmed has been a director since 2005, and has been a major contributor to the Board and the Bank due to his extensive knowledge and understanding of banking.

He will be missed, and I join the shareholders and other Board members in wishing him well in his future endeavours. I also note that ADB was a founding shareholder of AIB and has actively participated in the governance of the Bank since its inception. ADB’s exit has been planned for some time.

At this time it is difficult to forecast what will happen in the Afghan economy in 2016. The release of donor funds by the International Monetary Fund and the World Bank will enable aid agency funds to flow into Afghanistan, greatly helping the economy.

Another potential bright spot could be the positive impact of the United Nations lifting economic sanctions on Iran. This action could bring about renewed trade between Iran and Afghanistan; however, it will take some time before there is clarity on when and what types of transactions and payments can be accepted through the international payment mechanisms.

For 2016, the Board and management have decided to remain rather conservative in the financial outlook for the Bank, and in the annual planning process we have anticipated sustaining a return on equity of around 13 percent for the 2016 fiscal year. To safeguard against any unforeseen adverse conditions that might affect the Bank’s financial integrity, management has developed two fallback scenarios in the 2016 plan, to be used only if conditions in the country deteriorate.

As in the past, I extend my personal thanks and gratitude to my fellow Board members and to the management and staff of AIB for their hard work, diligence, and dedication to making the Bank the successful institution it has become over the past 12 years.

Ronald Stride
Chairman