Burgan Bank Group. Investor Presentation. September Burgan Bank Group. Kuwait - Turkey - Algeria - Iraq - Tunisia - Lebanon

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1 Burgan Bank Group Investor Presentation September 2016 Burgan Bank Group Kuwait - Turkey - Algeria - Iraq - Tunisia - Lebanon

2 AGENDA OPERATING ENVIRONMENT BUSINESS PERFORMANCE SUMMARY 2

3 OPERATING ENVIRONMENT 3

4 DESPITE RECENT DEVELOPMENTS, WE ARE NOT EXPECTING MAJOR CHANGES IN THE OPERATING ENVIRONMENT MENAT Below potential growth; political tensions will continue; Turkey s economy is resilient.. Tunisia Fresh coalition government under new PM Chahed has to accelerate policy reforms needed to deal with pressing security and economic problems. Social discontent. Reduction in energy subsidies and control of the public wage bill is helping to save gains from lower oil prices and enhancing growth prospects Turkey Political instability post coup d état attempt. AKP is pursuing reforms to switch to a Presidential system. Public and private consumption will lead growth; fall in tourism income. Geopolitical tensions are having an impact on GDP growth. 2.8% Iraq Territorial gains against IS are boosting confidence. Growth is led by rebuilding efforts, increase in oil production, improved business confidence, and increase in trade. 3.0% 2.0% 2.3% Kuwait Parliamentary elections on November 26 The new development plan is making more progress than its predecessors. The country aims to maintain capital spending despite sustained lower oil prices. and fiscal deficit. GCC Lower growth, due to the decline in oil prices; subsidy cuts might trigger social discontent Algeria Uncertainty about President Bouteflika s potential succession. 2.9% Declining oil and natural gas prices, high youth unemployment and lower FDI are hindering growth. Fiscal deficit will remain high due to the lower hydrocarbon revenue, the rise in capital spending, and the continued high current spending. Egypt Expected IMF deal of USD 12bn is likely to result in economic stabilization. CBE's floating the EGP and banking reforms will bolster financial stability. Growth will pick up in the near-term, led by structural reforms to raise investment and improve productivity, and favourable demographics. 4.0% Saudi Arabia Lower oil prices are hindering growth and impacting public spending and reserves. Diversification efforts will continue. 2.0% 2.3% 2.5% UAE Diversification to increase non-oil sector's contribution to GDP. Fiscal constraints will delay some infrastructure projects Burgan Bank countries of operation Other MENAT countries Source: Burgan Bank, Note: Figures represent Burgan Bank forecast real GDP growth (annual, %) for 2017 (as of October 2016). 4

5 BUSINESS PERFORMANCE 5

6 RESILIENT BUSINESS MODEL TRUE PERFORMANCE Resilient amidst persistent operating challenges Core revenue grew by 3% (1) reaching KD166m for 9m 16, with 40% contribution from International Operations, Cost of credit reached 1.0% in 9m 16 despite booking CBK additional precautionary provisions of KD15m and well below last year levels of 1.2%, Underline net income KD60m in 9m 16, with 14% (1)(2) YoY growth And true earnings reached KD52m growing 18% (1) YoY after AT1 cost, Prudent and selective originations, with customer loans growing by 10% YoY in 9m 16, Stable risk profile with NPA ratio net of collateral 1.2% in 9m 16 vs. 1.6% in 9m 15, and coverage ratio net of collateral at 385% in 9m 16. PROACTIVE APPROACH To re-organize to next phase Well diversified and actively managed funding mix to utilize alternative funding, During 2016, Burgan Bank issued KD100m subordinated bonds due in 2026 and USD500m senior unsecured bonds due in 2021 under the EMTN program, Successfully extended the duration of liabilities with 54% of liabilities funded by Customer Deposits vs. 51% in local peers (4), and high weight in time deposits reaching 67% in Sep 16 vs. 61% in local peers (4), Maintain good capital base, through optimizing of resources, CAR reaching 15.8% and CET1 10.2% in 9m 16, Smart risk optimization with robust risk management architecture integrated across subsidiaries, Focus on human capital. MANAGED BY RETURNS Lower valuation with double digit returns Burgan Bank is well established commercial bank, focused on enhancing its competitive position and is ranked in the top tier amongst its local peers, Underlying ROTE reaching 12% (1)(3) and vs. local peers average of 8%, Efficient allocation of resources with positive JAWS at 2% (1) vs. peers average of (4%) for 9m 16, Attractive amongst peers with PB at 1.1x and PE at 12.4x, Maintained Market Share in Kuwait (4), with loans at 14.4% and liabilities at 16.0%. (1) Excluding one-offs; (2) before AT1 cost; (3) after AT1 cost (4) Figures based out Central Bank of Kuwait monthly statistic for September

7 PRODUCING HIGH QUALITY TOP LINE GROWTH Net Interest Income (1)(2) KD million Non-Interest Income (2) KD million % 2.4% 2.3% 65.9% 58.8% 53.4% % % m'14 9m'15 9m'16 Kuwait International Net Interest Income NIM's Revenues (2) KD million 9m'14 9m'15 9m'16 Non Interest Income International Kuwait Fees Income to Non Interest Income Key Highlights % % Net interest income grew +3% YoY primarily to higher business volumes which grew by +10% YoY. NIM s contracted by 10bps YoY to reach 2.3%, although gross assets yields improved by 31bps YoY, funding cost increased faster by 51bps YoY due to: i) Reprising of banks funding at higher rate, ii) Improving of the funding mix by raising long term structure, iii) Depreciation of Turkish Lira had a negative impact on spreads, iv) Introduction of new CBK liquidity ratios. 9m'14 9m'15 9m'16 CAGR growth Kuwait International Revenues 1 Off s (1) Net Interest Margin s figures calculated based on End Of Period Interest Earning Assets. (2) Excluding 1 off s and JKB. 3 Further restriction on certain import goods impacted trade services sector in Algeria that hindered LC volumes. 7

8 Asset Quality (1) KDm Customer Loans (1) KDm WITH SOLID SELECTIVE ORIGINATION 3,862 1,272 4,012 1,299 4,176 1,339 4,318 4,254 1,395 1,368 Kuwait Corporate/Private Business Origination KDmn Total Origination: KD855m Total Repayments: KD569m Pipeline 206 2,590 2,713 2,838 2,923 2, Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Kuwait International 283% 332% 328% 109% 120% 130% 125% % 385% 109% Q1'16 Q2'16 Q3'16 Q4'16f Originated Lines Repaid Lines NPA to Gross Facilities 4.2% 3.8% 3.6% 3.5% 4.1% 1.3% 2.9% 1.9% 1.9% 1.4% 2.2% 1.4% 2.1% 1.6% 2.5% Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Kuwait International NPA s net of collateral to Gross Facilities (1) Excluding JKB Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 NPA Kuwait NPA International Total NPAs Coverage Ratio 1.6% 1.4% 1.4% 1.0% 1.2% 0.6% 1.0% 0.6% 0.6% 0.7% 0.8% 1.5% 0.5% 0.6% 1.7% Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Kuwait International 8

9 KEY STRATEGIC FOCUS CAPTURING DIVERSIFICATION BENEFITS KD million Kuwait Turkey Algeria Iraq Tunisia (2) REVENUES (1) CUSTOMER 2,886 1, LOANS 2, % 15.3% 20.7% 56.3% 15.3% CAR (3) 12.7% 14.9% 21.3% 46.9% 19.1% NUMBER OF BRANCHES Focus on fee income businesses, to aid in generation of capital surplus. Participation in syndication deals, and leverage on relationships to diversify revenue. Expand customer base in Turkey. Increase customers wallet share. Improve risk architecture and streamline processes. Increase market share penetration in real estate leasing products. Expand trade finance and consumer credit portfolios subject to regulatory approval. Expand branch network across Algeria. (1) Excludes 1 offs items in Kuwait, Turkey and Iraq; (2) Tunisia s revenue and operating profit figures based on equity method; (3) Based on CBK reporting and Kuwait CAR is for the Group. Note: Subsidiaries figures before consolidation adjustments Expand retail network and upgrade existing infrastructure. Finance planned infrastructure projects in Iraq. 9m 15 Figures Increase offshore corporate loans, investment grade bonds and syndicated loans. Develop trade finance business with Tunisian groups in collaboration with Gulf Bank Algeria. 9m 16 Figures 9

AND AIMING TO DELIVER DOUBLE DIGIT RETURNS Earnings Evolution KDm 55 (20) 17 Net Profit 9m'15 1 off's Gross Additional Precautionary Provisions (8) AT1 cost 44 Normalised Net Profit 9m'15 (3) 15 49

10 AND AIMING TO DELIVER DOUBLE DIGIT RETURNS Earnings Evolution KDm 55 (20) 17 Net Profit 9m'15 1 off's Gross Additional Precautionary Provisions (8) AT1 cost 44 Normalised Net Profit 9m'15 (3) Net Profit 9m'16 1 off's Gross Additional Precautionary Provisions 9m 15 9m 16 (8) AT1 cost Normalised Net Profit 9m'16 Returns (1) % ROE ROTE RRWA 12.8% 13.9% 3.2% 3.5% 1.5% 0.4% 9.6% 11.1% 10.4% 12.0% 1.1% 1.3% AT1 Cost As reported adjusted for. 1 offs (1.7%) 9m'16 Additional Precautionary Provisions (1.9%) 9m'16 (0.2%) 9m'16 (1) ROE & ROTE computed on Opening Equity. 10

11 RE-ORGANIZE TO NEXT PHASE 11

12 DIVERSIFYING THE FUNDING MIX AND OPTIMIZING CAPITAL POSITION Customers Deposits Breakdown (1) Liability Mix Sep 15 Other 1% KD 3.85b Time 62% Deman d 32% Saving 5% Sep 16 Other 2% KD 3.86b Time 67% Deman d 26% Saving 5% 54% 25% 9% Sep 16 10% 0% 20% 40% 60% 80% 100% Cus. Deposits Banks & OFI's Other Liabilities Equity Perpetual Tier 1 2% Capital Position (3) KD million 4,828 5,150 5,251 5, % 16.4% 16.0% 15.8% 0.9% 2.9% 2.8% 2.8% 3.0% 2.8% 2.8% 2.7% 11.7% 10.7% 10.4% 10.2% Q4'15 Q1'16 Q2'16 Q3'16 CET1 AT1 Tier 2 CAR RWA Key Highlights Successfully extended the duration of liabilities with 54% funded by Customer Deposit vs. 51% in local peers (2), and high weight in time deposits reaching 67% in Sep 16 vs. 61% in local peers (2) after growing 9% YoY. During 2016, Burgan Bank took a strategic initiative to secure more long term funding by issuing KD100m subordinated bonds due in 2026 and USD500m senior unsecured bonds due in 2021 under the EMTN program. In trajectory to achieve 11% in CET1 by Dec 2016, by optimizing the allocation of capital to the business lines to support growth and diversification whilst meeting regulatory requirements. (1) Excluding JKB; (2) Figures based out Central Bank of Kuwait monthly statistic for September 2016; (3) Capital Position chart interim net profit results are not considered as part of capital calculations until end of year. 12

13 FOCUSING ON RISK MANAGEMENT AND HUMAN CAPITAL Risk Management Group Risk Appetite Framework develop framework with risk factors and thresholds kinked to the Risk Strategy of the Bank including periodic reporting. Human Resources Re-engineered Organization Structure simplify organization structure to avoid unnecessary layers and develop the agility to respond to market demands and changes effectively. Stress Testing Enhancement enhanced capability to assess developing global events, the bank already undertaken stress testing to assess impact of falling oil prices and Brexit. Group Operational Risk Alignment operational risk includes; strategy and appetite, policy, procedures and systems, capital assessment framework, scenario analysis framework, risk insurance framework and fraud risk control and outsourcing policy. Market Risk Models group automated dashboard of exposures, sensitivities and limit utilization, to support group treasury, middle office and subsidiary risk functions to improve accuracy and model run time. Internal Rating Model to more accurately assess of credit risk in corporate and retail exposures. Employer of Choice attract and retain talent, competitive conditions of employment, professional development, work life balance and family friendly living environment, leverage own brand and reward great initiatives and ideas. Reward & Retention Strategies pay for performance culture, flexible and competitive pay and benefits packages, rewarding right performance and behavior, focused training and development programs, career lifecycle planning. Effective Recruitment employer branding and value proposition, pipeline recruiting, targeted selection, invest time in relationships, meet with candidates proactively and build database of qualified individuals, company wide referral initiative and talent mobility. Leadership Development all executive management have gone through Gallup profiling assessing their leadership development inline with effective succession planning and talent management. BURGAN BANK CONTINUES EVOLVING AMID SHIFTING OPERATING ENVIRONMENT 13

14 MARKET POSITIONING 14

15 WELL POSITIONED AMONG PEERS 9m 16 Customer Loans Growth % Total Liabilities (1) Growth % Revenues Growth % JAW s % ROTE % PE(x) (2) PB(x) (2) Dividend Yield% (2) 10% 6% 3% (3) 2% (3) 12% (3)(4) 12.4x 1.1x 5% Rankings #2 #2 #3 #1 #2 #2 #2 #1 5% 3% 5% (3) (2%) (3) 14% 11.9x 1.1x 4% 2% 4% (2%) (6%) 8% 16.0x 1.2x 2% 2% (0%) 2% (2%) 7% 16.7x 1.1x 3% 15% 18% 16% (33%) 5% 19.6x 0.9x 3% Kuwait Banking Sector Loans KD Bn (5) Burgan Bank Kuwait Market Share Evolution (5) 7% % 14.4% 15.5% 15.5% 16.0% 16.0% Sep'14 Sep'15 Sep'16 Conventional Islamic Total Customers Loans Total Assets Liabilities excl. Capital Sep'15 Sep'16 Note: ABK figures for 9m 16 impacted by Piraeus Bank Egypt acquisition that happened in Dec 15. (1) Total Liabilities exclude total equity and perpetual (2) Closing Prices of 30/09/2016; (3) Burgan Bank and NBK figures excludes 1 off items; (4) Burgan Bank ROTE Exclude Additional Precautionary Provisions and after AT1 Cost; (5) Central Bank of Kuwait Monthly figures Source: Companies Financials. Note: Additional precautionary provisions for local banks are not disclosed. 15

16 SUMMARY 16

17 LEADING INDICATORS generating resilient stream of earnings 2 nd largest commercial bank in Kuwait in loans; Reaching KD4.3bn, growing at 10% Y-o-Y and 6% since Dec 15. FINANCIAL PERFORMANCE solid amid challenging environment Diversified revenue sources, With 40% contribution from International Operations, reaching KD166m (1) and growing by 3% 9m 16 vs. 9m 15. Maintain to deliver double digit returns, With ROTE reaching 12% (2)(3) and true earnings growing by 18% (3) 9M 16 vs. 9M 15. ASSET QUALITY & CAPITAL in comfortable levels NPA net of collateral reaching 1.2%, With coverage net of collateral reaching 385% in 9M 16. Continue to optimize capital position, With CAR at 15.8% well above CBK requirements. (1) Adjusted for one-offs; (2) Excluding JKB; (3) excluding 1 offs and after AT1 cost. 17

18 THANK YOU 18

19 DISCLAIMER IMPORTANT NOTICE This presentation has been prepared by Burgan Bank and is subject to the applicable laws and regulations in the State of Kuwait. It is for information purposes only and it shall not be reproduced or redistributed to any other person without obtaining Burgan Bank s prior written consent. It does not and shall not constitute either an offer to purchase or buy or a solicitation to purchase or buy or an offer to sell or exchange or a solicitation to sell or exchange any securities of Burgan Bank. Neither this presentation nor anything contained herein shall form the basis of any contract, commitment or advice whatsoever. This Presentation must be read in conjunction with all other publicly available information. To the maximum extent permitted by law, Burgan Bank and its directors, employees, agents,consultants, affiliates and subsidiaries expressly exclude all liability and responsibility for any loss or damage arising from the use of, or reliance on, the information contained in this presentation or the website whether or not caused by any negligent act or omission. Neither Burgan Bank nor any of its directors, employees, agents, consultants, affiliates, or subsidiaries warrant or represent the correctness, accurateness or completeness of the information provided herein. This document is not to be relied upon in any manner as legal, tax or investment advice. Each recipient hereof shall be responsible for conducting its own investigation and analysis of the information contained herein and shall familiarize and acquaint itself with, and adhere to, the applicable local legislations. Except where otherwise expressly indicated herein, this presentation contains time-sensitive information which is based on currently available information to Burgan Bank as of the date stated or, if no date is stated, as of the date of this preparation and accordingly does not guarantee specific future results, performances or achievements. The information and the opinions contained herein are subject to change without notice. None of Burgan Bank or any of its subsidiaries or affiliates assume any obligation to update or otherwise revise any such information to reflect information that subsequently becomes available or circumstances existing or changes occurring after the date hereof. FORWARD-LOOKING STATEMENTS All statements included or incorporated by reference in this presentation, other than statements or characterizations of historical fact, are forward-looking statements. Such forward-looking statements are based on Burgan Bank s current expectations, predictions and estimates and are not guarantees of future performance, achievements or results. Forward-looking statements are subject to and involve risks and uncertainties and actual results, performance or achievements of Burgan Bank may differ materially or adversely from those expressed or implied in the forward-looking statements as a result of various factors. In addition, even if Burgan Bank s results of operations, financial condition and the development of the industry in which it operates are consistent with forward-looking statements contained herein, those results or developments may not be indicative of results or developments in subsequent periods. Burgan Bank does not undertake to update any forward-looking statements made herein. Past results are not indicative of future performance. 19

INVESTOR PRESENTATION. Financial Year 2012

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