The Bank’s 2016 results reflect its influence as a positive force within the domestic economy and its virtually exclusive role in providing the international services that are so vital to trade finance.

Despite the continuation of a depressed market environment, budget targets for the year were exceeded by 20 percent, even though loan recovery was negatively affected by the arduous and very lengthy process for foreclosure and obtaining vacant possession. Commercial lending was subdued at the beginning of the year but the last quarter saw an increase of 12.5 percent in outstanding credits.

Revenue increased by 5 percent to AFN 2.06 billion (2015: AFN 1.96 billion). Non-interest income accounted for 48 percent of total revenue, underlining the value of strong correspondent partnerships and sound regulatory compliance. Compound annual revenue growth since 2010 now stands at 13.2 percent.

With expenses being contained at forecast levels, the 25 percent net profit margin equates to earnings per share of AFN 17.30 (2015: AFN 16.26), and 13.31 percent return on equity.

Assets declined by 6 percent to AFN 58.19 billion (2015: AFN 61.92 billion), bringing compound annual asset growth since 2010 to 19.82 percent. Deposits also declined by 6.76 percent, from AFN 58.00 billion to AFN 54.00 billion. The decline in assets and deposits is largely attributable to the appreciation of the Afghani, resulting in a fall in dollar deposits in Afghani terms.

Total capital increased from AFN 3.6 billion to AFN 3.9 billion. Our capital adequacy ratio of 14.72 percent and 67.01 percent liquidity are very satisfactory by domestic and international standards. AIB believes it retains the highest score of all private sector Afghan banks in its ‘CAMEL’ rating – the acronym for five key components of a bank’s health: capital adequacy, asset quality, management, earnings, and liquidity.

AIB recognises the importance of Islamic finance, both as a service to customers and as a contributor to the national economy. The Bank therefore continues to expand its activities in this sector, supporting core services with Islamic options. Four more Shariah-compliant windows were opened during 2016 – two in Kabul at Mirwais Maidan and Khairkhana branches, and one each in the cities of Jalalabad and Herat. Seminars to explain AIB Shariah banking products were conducted in Mazar, Jalalabad and Herat provinces. Expansion of the branch network was limited, opening new outlets at Sinafar in Mazar and Kandahar, bringing the total to 36.

AIB’s commitment to support small and medium enterprises, clearly under-served by Afghanistan’s banking sector as a whole, continues to gather momentum. Our drive into this market gives priority to servicing established businesses involved in strategic economic sectors – such as manufacturing and import substitution – and reinforces our role as a growth engine for national development.

During the year, we intensified efforts to increase our loans to small businesses borrowing between $50,000 and $600,000. We work with the Afghan Credit Guarantee Foundation, an initiative of the German Investment and Development Corporation, which guarantees up to 72 percent of credit facilities up to $600,000. Through TV advertising and the branch network, we have almost doubled the number of such loans from 26 to 46. The total outstanding grew by 60 percent from $5.38 million to $8.65 million. By virtue of rigorous cash flow-based analysis and close monitoring, arrears are virtually non-existent – also indicative of borrowers’ appreciation of this much-valued service. A dedicated unit has been established to serve this market segment, effective from January, 2017.

As the only private commercial bank in Afghanistan to have major clearing banks as correspondents – Standard Chartered Bank and Commerzbank – AIB provides customers with much-needed safe and speedy international transfers, greatly facilitating trade finance.

Commerzbank now restricts payments to Germany, but the arrangement with Standard Chartered is unchanged. We have also opened an account with State Commercial Bank of Turkmenistan to ensure smooth and fast payments for oil imports. Again, at time of writing, AIB is the only Afghan bank to have an account with a Turkmenistan bank, a very significant asset as it enables fuel imports for Afghan and NATO military needs as well as United Nations agencies, NGOs, and general use.

Although we were unable to secure more correspondent arrangements in 2016, this remains a priority objective, supported by continuing efforts to ensure that our ‘know your customer’ and anti-money laundering procedures and processes comply with the highest international standards. We invested more than $1.25 million in 2016 to upgrade our compliance-related procedures, working with consultants to develop human resources and technical capabilities such as installation of Oracle’s Financial Crime and Compliance Management.

We have set a high benchmark for this entire exercise to ensure that we are in line with the requirements of US banking regulators. Our correspondent banks recognise AIB as the only Afghan bank to achieve this, a crucially important factor that underpins their relationships with us. AIB engaged specialist international consultants to undertake quarterly reviews in 2016 and this will be repeated in 2017.

Such commitment to international standards enhances our role as a vital intermediary in enabling Afghanistan trade flows, stimulating the domestic economy, and in turn making a vital contribution to the Bank’s substantial growth in foreign exchange business.

In developing our services for individual customers, several new card products were launched during 2016: pre-paid Youth and Haj cards and the Classic credit card. The Haj card is MasterCard branded and does not need an AIB account. It is designed for Haj pilgrims to Saudi Arabia. The Youth card is also MasterCard branded and is designed for users aged between 18 and 30. Both are secured by chip and PIN and can be used for ATM cash withdrawals and point-of-sale payments. The Classic card has a minimum limit and gives customers the benefits of credit card ownership. It is 3-D secure with PIN feature.

ATM functionality has been enhanced with the introduction of a talking machine that guides customers through their transactions, saving the need to call the helpline if they are unfamiliar with the process.

In closing, I again thank the staff of the Bank as well as my fellow Board members for their support and their dedication to the institution.

A new Teacher Loan targets school and university personnel, providing a welcome facility for buying home appliances or meeting other funding needs. The loan portfolio has already reached more than AFN 2.75 million.

Product bundling initiated in 2016 is designed for the sale of two or more products or services as a single offering, usually at a price advantage.

On the IT front, penetration testing by two external specialist firms found no weaknesses in the Bank’s system. In addition to the domestic disaster recovery sites, an off-shore disaster recovery site has been established in Europe.

The Chief Operating Officer attended a SWIFT course in Europe and, by implementing recommendations made there, was able to ensure that AIB is compliant with SWIFT requirements. To further improve governance, we physically separated departmental functions and introduced one-time password logins for online transactions. Reconciliation of ATM transactions, now numbering more than 1.25 million a year, has been automated.

Ensuring that services to customers continue uninterrupted is a vitally important resource, so the Bank’s Business Continuity Plan was again successfully tested twice and upgraded.

In human relations, and in line with the Bank’s commitment to excellence and helping promising employees with further education, professional training was maintained at all levels and reached a record number of employees through courses ranging from basic banking induction to specialist areas such as accounting, electronic banking, risk management, information technology, and communications skills. We appointed a Head of Human Resources at the beginning of 2017 who brings extensive international experience to the training and development of Afghan staff for executive management positions.

In keeping with the Bank’s commitment to good corporate citizenship, AIB continued to support projects that have a beneficial impact on the communities where we operate. To benefit female students, we again contributed to the Women of Afghanistan Organisation and the American University of Afghanistan, as well as donating to Save the Children, Shamsa Orphanage, and Amiri Medical Complex.

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 2016.

Anthony Barned
Chief Executive Officer