7 Board of Directors' Report 10 Chairman's Statement 12 Group CEO & Managing Director s Statement 14 Corporate Governance

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1 In Momentum

2 1 Introduction 3 Group Mission Statement 4 AUB Operating Divisions 5 Financial Highlights 7 Board of Directors' Report 10 Chairman's Statement 12 Group CEO & Managing Director s Statement 14 Corporate Governance 16 Group Business and Risk Review 35 Group Senior Management 37 Auditors' Report 38 Financial Statements

3 AUB in A merger of minds, a merger of markets Through prudent and calculated growth, AUB is gaining momentum towards realising the potential of becoming a regional force to service its expanding client base.

4 Hard work, pro-active thinking and total dedication to customer service have enabled AUB to maintain its momentum. At all times, the bank remains customer focused; it aspires to provide clients with an even greater guidance and range of solutions.

5 3 Group Mission Statement To create an unrivalled ability to meet customer needs, provide fulf illment and development for our staff and deliver outstanding shareholder value. Objectives To maximise shareholder value on a sustainable basis To maintain the highest international standards of corporate governance and regulatory compliance To maintain solid capital adequacy and liquidity ratios To entrench a disciplined risk and cost management culture To develop a cross-cultural meritocratic management structure To optimise staff development through business driven training and profit related incentive To contribute to the social and economic advancement of the communities in which the Bank operates

6 4 AUB Operating Divisions Commercial Banking & Treasury This division covers all the Bank s capital intensive activities in risk asset generation and funding regionally and internationally. A dynamic spectrum of growing entities Corporate & Trade Finance Treasury Property Finance Residential Lending Structured Finance Aviation Private Banking & Wealth Management This division includes all the non capitalintensive sectors of the business, offering wealth management services to individuals and institutions based on performance and a balanced product mix. Private Banking & Asset Management Real Estate (Fund Management) Islamic Banking Risk, Finance & Strategic Development This division is responsible for the identification, assessment and ongoing control of all Group material risk that could affect the Group s profitability and reputation. It also handles IT, Finance, Operations, Correspondent Banking and is responsible for the Group s expansion through mergers and acquisitions. Risk Management Finance Information Technology Operations Correspondent Banking Strategic Development

7 5 Financial Highlights US$ 000 US$ 000 US$ 000 Net Profit 59,726 48,360 40,126 Total Assets 5,135,896 4,102,719 3,512,348 Total Loans 2,168,275 1,882,699 1,766,304 Total Liabilities and Subordinated Liabilities 4,305,281 3,538,417 3,112,611 Shareholders Equity 830, , ,737 Return on Average Assets 1.29% 1.22% 1.18% Return on Average Equity 10.8% 10.4% 10.3% Cost Income 44.2% 48.7% 50.2% Financial Leverage Risk Asset Ratio 24.5% 20.9% 20.7% Earnings per Share (cents) US$ 59.7 million Net Profit for the Year 24% growth

8 6 Integrated

9 7 Board of Directors' Report Solid achievements, positive growth The Directors of Ahli United Bank (AUB) are pleased to submit the Annual Report and accompanying Financial Statements for the year ended 31st December The highlights of the year were the continued solid increase in profits and assets, the increase in the stake held in Bank of Kuwait and Middle East to more than 40% by year-end and the second very successful rights share issue in December 2002 which attracted US$243 million. Net Profit of US$59.7 million represented a 24 per cent increase over the comparable figure for At the year end, total assets stood at US$5,136 million ( US$4,103 million) and shareholders' equity amounted to US$831 million. Total income increased to US$163 million from US$155 million in 2001, notwithstanding downward pressure on interest rates, while total deposits amounted to US$3,820 million, a 21 per cent increase on In summary, during a period of consolidation and integration as well as difficult market conditions, 2002 was a year of solid achievement and positive growth. The Bank's cost-to-income ratio improved to 44.2 per cent from 48.8 per cent in Operating costs of US$72 million represented a reduction of 4.6 per cent from 2001, reflecting close control of expenditure and the synergies achieved from the successful merger of the two retail banking entities in Bahrain in The Bank's consolidated risk asset ratio of 24.5 per cent comfortably exceeded regulatory levels. These excellent results have built on those of last year and have enabled AUB to maintain a dividend of 2.3 cents per share. The strong financial performance was the continued product of the clear strategic direction provided by the Board of Directors and effectively implemented by a strong, dedicated management team. It is the Bank's stated intention to expand both through organic growth and acquisitions in order to act as a 'multifaceted financial bridge' between the international financial markets and our Gulf clients. The Bank is well placed to offer a comprehensive range of services to a wide customer base in the Gulf and beyond, while also focusing on diversified sources of low risk income and business flows with Gulf counterparties.