Chairman’s Report

We foresee that the Bank will continue to be the leader in deposits (more than 40 percent of all deposits in the banking system), profitability (most profitable bank by far), and return on equity (more than 14 pecent). Our capital adequacy ratio is above regulatory requirements, significantly above most Afghanistan banks, and exceeds norms for banks worldwide.

However, reflecting the current economic realities, our loan book is below $50 million and about the same as the previous year. Customers are not borrowing and their overall sentiment is low. I do not see this changing very much over the next two years. Hence, the Bank will maintain a conservative posture, seeking business opportunities as they present themselves. Overall, AIB performed very well in 2018, despite these strong headwinds from a stagnant economy and continued political and security strife. And, more importantly, the Bank is well-positioned for the future.

Following is a summary of the progress the Bank has made during 2018 against strategic objectives:

Achieve world-class standards in anti-money laundering and financial crime compliance

In 2017, with the assistance of an external consultant, management continued to improve implementation of policies and procedures involving these compliance functions. Staff training continued during the year, as well as monitoring to ensure that procedures are followed. The Board received quarterly reports on key indicators regarding this programme from both outside experts and management.

The project team will continue into 2019 as there is more work to be done. As one can imagine, implementing world-class procedures in AML and FCC impacts not only AIB’s staff but also our customers.

In 2019 management will bolster the Compliance Department’s capabilities to act as a second line of defence for this important function. We will also concentrate on educating our customers on the need to comply with the information requirements of the compliance programme.

Complete the new head office building

The new head office building was completed in November and staff moved in during December. This achievement is a major milestone in the Bank’s development as the new head office will reflect the important position AIB holds in the banking system in Afghanistan.

Focus on organisation and human resource development

This initiative continues to be a key long-term priority for the Bank, with the objective of developing the capabilities and competencies of senior Afghan staff to replace expatriate management over the next five to 10 years and to generally build staff competencies across the Bank. To this end, senior Afghan staff have been placed in executive positions with increased responsibilities. Unfortunately, this development programme suffered a setback when one of our senior staff sought political asylum overseas.

During the year, we completed the programme to overhaul personnel administration, job descriptions and job grading, and to put in place comprehensive succession planning. To reinforce training and development, all senior managers had specific objectives in these areas added to their annual targets.

Position for the future in underserved markets and product offerings: Shariah banking, small business banking and electronic banking

This initiative is intended to position AIB in the small business and consumer segments over the long term. There has been uplift in business in these segments as a result of actions taken by management over the past year, which has seen an uptick in Afghani currency deposits but less so in Shariah loans. A lending programme for small businesses met with moderate success, mainly due to the reluctance of businesses to borrow. In the consumer segment, we plan to expand credit cards, deposit instruments, electronic branches, and eventually consumer loans. This is fundamentally an investment in the future, assuming that customers in these market segments will become increasingly bankable.

Maintain existing correspondent banking relationships and develop new relationships for US dollar clearing

AIB continued its correspondent banking relationship with Standard Chartered Bank for US dollar clearing. During 2018, the Bank opened a US dollar clearing account with Crown Agent Bank in the UK, and we are in discussions with another international bank to provide US dollar clearing services. Management has also opened three direct payment accounts with banks in major trading partner countries in the region to serve customers’ payment needs. Management has done an outstanding job in expanding our correspondent relationships, which are such a strategic advantage for AIB.

Maintain financial stability and satisfactory returns

AIB had a successful financial year and our forecast for the next two years shows slightly higher profitability, mainly stemming from our very strong fee-based business and foreign exchange activities, which generate 48 percent of revenues. We see profit margins remaining static, but we believe the Bank will be able to achieve above 15 percent return on equity before payment of dividends over this period. As an example of managing expenses, a branch rationalisation study has been undertaken to identify ways to reduce network costs.

During 2018, the Board and its committees had several changes in composition and membership.

Mansoor Tirmzi joined the Board of Supervisors. He has had a distinguished career at Citibank and Hong Kong Shanghai Bank in senior financial positions. Mr Tirmzi has joined the Planning and Strategy Committee and the Remuneration Committee.

The Afghanistan Central Bank issued a regulation that Board members cannot serve on the Audit Committee, effective from 2019. Accordingly, we are searching for Afghans who are qualified to sit on the Audit Committee.

Entering 2019, the Board will have seven members and five committees: Risk, Remuneration, Nominating, Planning and Strategy, and Audit. The 2018 activities of these committees are highlighted elsewhere in this report.

The Board met 12 times in 2018: four in person and eight by conference call. In particular, the Board focused on the strategic agenda mentioned above, as well as closely monitoring the financial condition of the Bank and the security situation in the country.

Other highlights of 2018 include:

For the seventh consecutive year The Banker magazine voted AIB ‘Best Bank in Afghanistan’. We are proud of this honour which reflects the professionalism of the Bank.

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

For the fourth year, AIB took a stand at the SWIFT International Banking Operations Seminar (SIBOS) held in Sydney, Australia. Two of the Bank’s Afghan staff, in addition to CEO Tony Barned, attended the conference where several international banks expressed interest in working with AIB in a variety of ways.

During the early part of 2018 our long-time director Veronica John passed away after a brief illness. Ms John was one of the original organisers of AIB in 2004 while she was with the Asian Development Bank. We will remember her with affection and for her many contributions to the Bank.

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