In the name of

Allah
The most gracious
The most merciful
 H.H. Shiekh/ Nawaf AlAhmad AlJaber AlSabah
The Amir of the State of Kuwait

5
 H.H. Shiekh/ Meshal AlAhmad AlJaber AlSabah
Crown Prince

7
 H.H. Shiekh/ Sabah Alkhalid Alhamad AlSabah
Prime Minister

9
Table of Contents

Financial Highlights 13

Chairman‘s Message 19

Board of Directors 22

Protection of Shareholders’
28
and Stakeholders’ Rights Policy

Corporate Governance Report 33

Executive Summary 40

Risk Management Disclosures 51

Consolidated Financial Statements

and Independent Auditor’s Report
81

Bank Directory 128

11
 About the bank

Objectives of the Bank

The Industrial Bank of Kuwait («IBK», or the «Bank») was established in late 1973 by the initiative of
the Government of Kuwait, as a joint venture between the Ministry of Finance, the Central Bank of Kuwait,
commercial banks, insurance companies, and some large industrial establishments.

The primary goal of IBK is to promote industrial development in Kuwait by pursuing the following objectives:

• To participate in developing a long-term strategy for industrial growth in Kuwait and identifying those
sectors and activities which would best suit local conditions and constraints.
• To initiate industrial projects and investments in promising sectors.
• To provide financing whether in the form of equity, medium or long-term credits for new projects, or
the expansion of existing ones.
• To finance projects outside Kuwait with an emphasis on the Gulf region, especially where Kuwaiti
interests are involved.
• To bring new technologies to Kuwait and identify foreign partners with the necessary expertise.
• To support the development of domestic money and capital markets in co-operation with other major
financial institutions. Such a development will facilitate the channeling of private savings into industrial
areas, whether in or outside Kuwait.

12
Financial Highlights

13
 Kuwait Economic developments in 2021

In 2021, Kuwait’s economy went through several volatile phases, started with a state of stability as the country
succeeded in adapting to the consequences of the Corona pandemic, then the return of instability due to the occur-
rence of Covid variances and the imbalance economic situation globally. Finally, the rise and spread of “Omicron”
virus and return to the state of caution at the beginning of the year 2022.

Standard & Poor’s (S&P’s) downgraded Kuwait’s long-term sovereign credit rating from (AA-) to (A+) with a
negative outlook at the beginning of July 2021, due to the failure to implement an integrated financing strategy. It
also downgraded its short-term credit rating from (A-1+) to (A-1).

The agency noted that the outlook for Kuwait’s sovereign credit rating could be reviewed from negative to stable,
if the authorities promptly addressed the financial pressures and funding constraints in parallel with the imple-
mentation of structural reform programs that would enhance the institutional effectiveness and improve long-term
economic prospects. However, Kuwait’s credit rating remains supported by high levels of accumulated financial
and external reserves, thereby reducing the ongoing lack of diversification in the Kuwaiti economy and its heavy
dependence on the oil sector.

According to the IMF’s latest Global Economic Outlook report which was released in October 2021, non-oil GDP
is expected to register 3% in 2021, with a gradual recovery in economic activity, growth is expected to reach 3.5%
in the medium term. OPEC’s decision to raise oil production will boost the oil sector’s GDP for an average growth
of 4.4% per annum during 2022-2024.

In addition, reaching the full production capacity of both Clean Fuel and Al-Zoor projects will effectively double
Kuwait’s refining capacity and increase the production of high-value-added refined derivatives in the medium
term. GDP is expected to grow by about 2.7% in the medium term.

After the significant negative impact of the Corona pandemic on the global economy during 2020, the world econ-
omy recovered as the price of oil increased to about $29 per barrel in 2021, from the average price per barrel for
2020, bringing the domestic economy back to growth and the fiscal deficit outlook declined.

The Kuwait Stock Exchange also increased in its liquidity level as well as a rise in the general market index, this
brings the total liquidity of the stock exchange during 2021, to about KD 13.615 billion, which represent 26.6%
higher than year 2020 of about KD 10.75 billion. The premier market recorded about 59.4% of the total liquidity
of the stock exchange for 2021, and the main market recorded about 40.6%.

As for the position of the export price of Kuwaiti oil barrel, the actual data shown on the chart indicate fluctuating
oil prices during 2021, where the price of a barrel of oil reached its highest level of the year in October at $82.74/
barrel, confirming the expectations of the Secretary-General of OPEC in January 2021, that the year is witnessing
a recovery in prices. In early November, a new wave of concerns began over the impacts of the Corona pandemic
and its variants, ending the year with a drop in the price of a barrel of crude oil to 75.38 dollars a barrel.

14
 Chart 1 - Crude Oil Price in 2021

Source: OPEC monthly oil market

The State Budget for fiscal year (2021/2022) was approved with an estimated revenue to reach KD 11 bn, of
which KD 9 bn is from oil revenues at oil price of 45 $/barrel and production volume of 2.4 mn barrels/day,
and estimated expenditure at KD 23 bn. Thus, the budget deficit was estimated at about (KD 12 bn). While total
revenues amounted to about KD 13 billion according to actual budget data as of December 2021, oil revenues
amounted to about KD 11 billion, with total actual expenses of about KD 14 billion. Thus, the budget deficit
was about (KD 682 million) at the end of December 2021. The Ministry of Finance assumed a fiscal deficit
of about KD 12 bn, achieving an 87% reduction in Kuwait’s deficit during the first 9 months of this year. The
decline in the deficit is supported significantly by the rise in oil prices during 2021, described in chart 1 and the
marginal increase in Kuwaiti oil production.

Estimated & Actual Budget for the year 2020/2021 (KD mn)

* Oil revenues were estimated at oil price of 45 $/barrel and production volume of 2.425 mn barrels/day.

The annual development plan 21/22 included a number of projects aimed at achieving economic diversification,
increasing the contribution of the private sector, developing infrastructure and increasing the efficiency of public
finances. The number of projects that contributes to economic development reached 24 projects at a total cost of
KD 9.893 million, and the annual follow-up report of the annual plan 21/22 in August 2021 showed that the rate of
expenditure on these projects was 2.89%. With regard the strategic projects which have reach a total of 17 projects,
and an annual allocation of KD 1,140.6 million, while 7.04% of them were spent, two of which were carried out in
partnership between the public and private sectors.

15
 Reviewing what has been spent to achieve the economic development goals in terms of diversifying the production
base and increasing private sector contribution at the end of the first quarter of the 21/22 annual plan, there are three
related ongoing projects with an investment of about KD 250,000 not yet spent until the end of the first quarter of
the plan. As for infrastructure development, which had 42 projects with an estimated investment of KD 5,771 mil-
lion, of which 11.74% were spent. In addition to one development project which raise public financial efficiency at
an estimated cost of KD 2 million, 5.8% of which was spent during the same period.

With regard to the manufacturing sector, which is one of the main pillars of the diversification of Kuwait’s produc-
tion base, the Public Authority for Industry participated in one project of the annual plan 21/22 for the construction,
completion, operation and maintenance of the infrastructure of the Industrial Shedadiah region and until the end of
the first quarter of the plan did not make any progress to keep its completion rate at 60%, because of the technical
obstacles which faces the projects related to delaying water delivery as well as connecting to major roads and the
percentage of spending in it reached 0.14%, which is considered to be Very low.
The Central Bank of Kuwait credit facilities data which are provided by local banks on the total economic sectors
of the country indicates on the balance of the cash portion used in the credit facility that reached about KD 42,125
million by the end of November 2021, as described in the following table:

Credit facilities amount

Under the current economic conditions, the Central Bank of Kuwait has taken some measures to address the
COV crisis.

Since March 2020, the discount rate has remained at 1.5% instead of 2.5%, which is historically the lowest
level, in order to enhance cash flows between the banking sector and the non-oil national economy sectors, as
lowering the discount rate also contributes to reducing the cost of borrowing in Kuwaiti dinars, thereby encour-
aging demand for loans by the economic sectors and providing a supportive environment for investment and
GDP growth for non-oil sectors.

16
Kuwait’s Manufacturing Sector

With regard to the manufacturing sector, it continues suffering from multiple marketing problems and intense
competition in the domestic market, as well as the negative effects of the COV-19 outbreak from the beginning
of 2020 to the present.

The manufacturing sector GDP records registered a decrease in their results in 2018 and 2019, as the activities
has falling by about 7% in 2019 from 2018.

The manufacturing sector witnessed structural changes during the period 2000-2019, this is due to the differ-
ence in annual growth rates in the GDP of various industrial activities because of the concentration of the private
sector on the promising industries with high value added. The relative weight of industrial activities has been
changed, such as the decline in the activity of the Food and Beverage industries, decreased from 23% to 10%,
while the activity of the Chemical Products sector increased from 12.3% to 53% during the same period, as
shown in the following table:

Manufacturing Sector GDP

* Revised data
**Preliminary data

IBK’s Contribution in developing the Industrial Sector

By the end of 2021, IBK has completed forty-eight years in lending activities, the Bank has provided industrial
loans for (1,155) industrial projects. These loans were utilized and made available to (520) industrial establish-
ments in different kinds of manufacturing sectors in the state of Kuwait.

The accumulative industrial loans commitments of the Industrial Bank of Kuwait, since the start of its opera-
tions in 1974 until the end of 2021, reached about KD 1.37 billion, provided to 1,155 projects, whose total cost
stood at about KD 2.36 billion. The rate of IBK’s financing to the cost of the project was an average 58% of the
project cost, and the average cost of the project reached KD 2 million, while the average loan size is KD 1.19
million.

17
 The pattern of the accumulative industrial loan financing during the period 1974 – 2021. As indicated in the pre-
vious table, shows that the Manufacture of other non-metallic mineral product (construction materials) ranked
at the top, with about 21.8% of the total industrial loans. Extraction of crude petroleum and natural gas ranked
second for about 10.24%.

The third rank was occupied by Manufacture of food products whose relative share reached about 10.21% of
industrial loans during the period. The aforementioned three industries together accounted for 42.25% of indus-
trial loans commitments during 1974 – 2021.

The following table shows the Industrial loans activities during the last five years:

On the other hand, the Industrial Portfolio for Small Enterprises conducted a comprehensive field survey to find
out the repercussions of the Corona pandemic and the effects on its customers, and saw the need to postpone
the installments of the portfolio’s clients who wish to do so for an additional 6 months, starting from April 2021
until the end of April 2022 to support them fulfilling their financial obligations that occurred as a result of impo-
sition the closures that the country witnessed, following the health requirements imposed by the state to prevent
the spread of the pandemic from spreading.

18
Chairmans Message
 On my behalf and on behalf of the members of the Board of Directors, I am honored to present to you The Indus-
trial Bank of Kuwait’s 2021 Annual Report, which sheds light on the performance of mean business segments
during the reporting period.

The repercussions of the Corona pandemic have dominated the course of events since 2020, and its impact
extended until the end of 2021 on all global economies as a result of stressed supply chain, wide spread short-
ages, high inflation, rise in commodity prices and decline in industrial production. These require immediate
intervention to support vital Industrial sectors, including the development of appropriate legislation to protect
local products from competition.

Further, The Industrial Bank of Kuwait (IBK) adopted new measures to limit the negative effects of the pan-
demic on the Bank’s operational activities through adoption of a new strategic plan that is in alignment with
Kuwait’s 2035 vision. This was approved during the last quarter of 2021 and will commence implementation in
early 2022 and run for the next five years.

Despite the effects of the pandemic on economic and banking conditions, The Bank recorded an unprecedent-
ed profit of KD 38.4 million, an increase of 280% over the comparable period of 2020, along with marked
improvements in the bank’s asset quality and overall operational effectiveness, supported by strong financial
soundness indicators that weathered severe conditions.
The Fitch Rating Agency has affirmed Industrial Bank of Kuwait (IBK) Long-Term Issuer Default Rating (IDR)
at ‘A+’ for 2021 with a Stable Outlook driven by high capitalization and extremely high probability of support
from the Kuwaiti Government. Fitch has also affirmed the bank’s Short-Term Foreign Currency IDR affirmed
at F1.

During FY2021, the Bank continued its role in supporting the industrial sector, through financing 20 projects
with a total cost of KD 67.5 million, compared to financing 16 industrial projects with a total cost of KD 33.8
million in FY2020. Further, the Bank continued managing three portfolios on behalf of the government to fund
and promote agriculture in the state of Kuwait, extend finance to handicrafts and small industries and provide
industrial finance to establishments in accordance with Islamic Sharia. During FY2021, Al-Sanai portfolio for
small enterprises financed 83 projects at a total cost of KD 11 Million. While, The Agriculture Finance Portfolio

20
promoted and financed 38 projects at a total cost of KD 5.9 Million, compared to KD 3.8 million in 2020 for 25
projects for agricultural, livestock and fish production activities. It also provided a portfolio of industry finance
in accordance with the provisions of Islamic Sharia. A total of 4 projects, at a cost of 5.8 million Kuwaiti dinars.

Finally, in my name and on behalf of members of the Board of Directors, I would like to tender my sincere
thanks to His Highness the Amir, His Highness the Crown Prince and His Highness the Prime Minister for their
gracious patronage and guidance which had a significant impact on IBK success.

Last but not least, I would like to offer my sincere thanks to His Excellency the Minister of Finance and His
Excellency the Governor of the Central Bank of Kuwait for their guidance which has always stood the Bank in
good stead. I also extend my sincere thanks to the colleagues of the Board of Directors for their cooperation and
contribution in achieving the goals of the bank, as well as to all the bank employees for their efforts and sincerity
in the performance of their responsibilities, which enabled the bank to achieve its mission.

May Almighty Allah bless all our efforts

Musab Salem Al Nisf

21
 Board of Director Members

Mr. / Musab S. Al Nisf

Chairman (started 10/5/2018) Member of Board of Trustees -Kuwait Institute for Scientific Research –
A representative of Kuwait Investment Authority Board of Trustees.
* Head of General Managers: Member -Public Authority for Industry
- Al-Nisf Electrical Co. Board Member - Kuwait Banking Association
- Salem M. Al-Nisf General Building Contracting Co. (2002) Kuwait Foundation for the advancement of sciences – IED Advisory Council
The Founder & Partner of KMEDIX General Trading Co. (2000) Has a Bachelor degree in accounting – Kuwait University (1998)
Board Member- Kuwait Chamber of Commerce & Industry

Mr. / Salah M. Al-Kulaib

Vice chairman (started 2/5/1995)
A representative of the Kuwait Flour Mills & Bakeries Co.
Chairman – Kuwait Supply Co.
Vice Chairman – Bahrain Flour Mills Co.
Has a Bachelor of Mechanical Engineering – University of New Haven-USA (1977)

Mrs. / Aljazi Ali Al-Mishwat

Board Member (started 12/9/2018)
A representative of the Kuwait Investment Authority
Chief specialist Custodian - Investment Accounts Dept. Kuwait Investment Authority (2020)
Has a Bachelor degree in Mechanical Engineering – USA (2001)

Shaikha / AlAnoud Athbi Al-Sabah

A representative of Commercial Bank of Kuwait
VP Operations – Securities Group Co. (2018)
AL Jazeera Real Estate Development Co.
Gulf Friend Real Estate Co.
Mowasat Health Care Co.
Has Bachelor of Business Administration – Finance
American University of Kuwait (2011)

Mrs. / Basma A. Al-Farsi

Board Member (started 10/5/2018)
A representative of the Kuwait Investment Authority
Investment Manager – Equities Dept. Kuwait Investment Authority (2018)
Has a Bachelor of Information Management Systems (2003)
Harvard Business School - Has GMP

Mr. / Khaled H. Al Shatti

Board Member (started 6/6/2017)
A representative of Al Ahli Bank
CEO - Fair Real Estate Co. (2011)
Board Member -Ahli Capital Investment Co.
Has a Bachelor of Business Administration – Finance – California State University – USA (1988)

22
Mr. / Khalid A. Al-Fadhalah
Board Member (started 23/12/2014)
A representative of Wafra International Investment Co.
Deputy Director General for Social Security Affairs - The Public Institution for Social Security (2014)
Fujairah Cement Industries – Abu Dhabi
Board of Trustees-Insurance Fund for Kuwaiti employees in the Petroleum Sector
Public Authority for Disability Affairs
Agility Logistics Co.
Has a Bachelor of Business Administration- Marketing – Kuwait University (1982)

Mrs. / Rasha F. Al- Amir

Board Member (started 10/5/2018)
A representative of the Kuwait Investment Authority
Unit Manager Portfolio Monitoring & Reporting division (2017)
Acting Division Manager – Corporate Development & Reporting Division (2021)
Vice Chairman – Ekuity Holding Co. (Egypt)
Has a Bachelor of Computer Science (1994)

Mr / Abbas A. Radhi
Independent Board Member (started 27/07/2021) Master of Science in Business (MSB) majoring in accounting -
Responsible Partner - Awael Public Accountants and Management Consultants – Husson University, Maine - USA. (1983)
Bahrain (2016) Bachelor of Accounting (BSc) - Kuwait University (1977)
Certified Public Accountant (CPA) - USA (1996) “Insiad” certification for qualification as a board member.
Certified Arab Accountant (CAA), International Arab Society of Certified Accountants. (1988) Independent Board Member at:
Master of Business Administration (MBA) majoring in commercial law and finance - - Solidarity Group Holding - Bahrain
Maine State University - USA. (1984) - BMMI Co. - Bahrain - Shaheen Holding Gr

Mr. / Meshal A. Al Othman

Board Member (started 6/6/2017) Kuwait Medical City Co.
A representative of Wafra International Investment Co. Board Member:
Director Manager – The public Institution for Social Security (2019) Puplic Institution for Social Security.
Chairman: Kuwait Awqaf puplic foundation.
Ahli United Bank (Bahrain & UK). Has a Bachelor degree in Science- Major in Marketing -
Wafra Intervest Co. (Bermuda). Minor International Studies (1996) University of South Florida - USA

Mrs. / Hana A. Razzouqi

Independent Board Member (started 27/07/2021)
Master Degree – Computer Science, George Washington University – USA (1984)
Bachelor: Bio Engineering – Syracuse University – USA (1978)

Mrs. / Haya B. Al-Humaidi

Board Member (started 16/02/2021)
A representative of Central Bank of Kuwait
Manager – Financial Stability Office – Central Bank of Kuwait
Bachelor of accounting - Kuwait University (2011)

23
 Capitalization & Ownership

24
 Board of Directors and Committees

General Responsibilities

• The Board has the overall responsibility for the Bank, including approving and overseeing the implementation of the
Bank’s strategic plans, risk strategy, corporate governance and corporate values. The Board is responsible for providing
oversight of the Bank’s senior management, including the CEO.

• The Board assumes ultimate responsibility for the Bank’s business and its financial soundness, fulfilment of the Cen-
tral Bank of Kuwait requirements, protecting the legitimate interests of shareholders, depositors, creditors, staff and
stakeholders, and ensuring that the Bank is managed in a prudent manner and within the applicable laws and regula-
tions and the internal policies and procedures.

Board Meetings

Board Committees

Governance Committee

The role of the Governance Committee is to assist the Board of Directors in fulfilling its supervisory
responsibilities relating to the application of proper governance of the Bank; including establishing a set
of guiding principles for corporate governance, the preparation and updating the Bank’s governance guide
and follow-up on the adherence with the parties involved, and provide the board of Directors reports on this
subject.

25
 Audit Committee

The role of the Audit Committee is to assist the Board of Directors to fulfill its auditing responsibility, related
to the following:
• The integrity of the financial statements of the Bank.
• Oversight of the financial reporting process and disclosures.
• Internal control systems and financial accounting.
• The internal audit function (including the responsibilities and the estimated Budget).
• The independent annual audit of the financial statements.
• Evaluate the performance of the external and internal auditors.
• Ensuring Bank’s compliance to relevant policies, rules, regulations and instructions.

Nominations and Remuneration Committee

The role of the Nomination and Remuneration Committee is to assist the Board of Directors in fulfilling its
oversight on the identification of persons eligible for membership of the Board of Directors; the Committee will
submit its recommendations to the Board regarding candidates to different committees. The committee is also
responsible for the draft, review and update of the Remuneration policy, and assist the board in evaluating the
effectiveness and fairness of the policy, and to ensure that the policy is appropriate with the strategic objectives
of the Bank.

26
Risk Committee:

The role of the Risk Committee is to provide advice to the Board of Directors to meet its supervisory responsi-
bilities related to current and emerging risks, strategies and limits of risks associated with the activities of the
Bank’s banking and credit activities, including investment portfolio. The Risk Committee is responsible for
monitoring the implementing of the risk management policies and strategies.

Finance and Investment Committee:

The role of the Finance and Investment Committee is to assist the Board of Directors of the Bank to fulfill its
responsibilities relating to industrial and commercial lending, and investment activity of the Bank.

27
 Protection of Shareholders’ and Stakeholders’ Rights Policy

Preamble

The Law No. 32 of 1968 concerning Currency, the Central Bank of Kuwait (CBK) and the Organization of
Banking Business, the rules and regulations issued to banks concerning practicing their various activities in-
cluding the Corporate Governance instructions issued by the CBK in June 2012, as well as the banks’ Articles
and Memorandum of Association and internal policies, include the controls and basis for protecting stakehold-
ers’ rights, particularly, depositors, borrowers, and shareholders. This aims at safeguarding the banks’ financial
positions, and triggering their roles in serving community and economic development process. A bank’s final
success is the outcome of the joint efforts of many parties including depositors, borrowers, staff, investors and
other parties having business relationships with the bank.

Objective of the Policy

The objective of this policy is to ensure that The Industrial Bank of Kuwait (“IBK” / the “Bank”):
• Protects the rights of its shareholders including minority shareholders as well as the Bank’s various stakeholders.
• Provides timely and accurate information regarding the Bank including the Bank’s financial position and
major shareholders.
• Encourages the effective participation of shareholders at General Assembly meetings and respect their
rights in line with the Bank’s Articles and By-Laws and the prevailing laws including the Companies Law.
• Makes timely disclosures to the shareholders, regulatory bodies and the general public as per the require-
ments of the various regulatory bodies and relevant laws.
• Provides appropriate means for shareholders and stakeholders to report any matters where their rights may
have been violated by the Bank and takes the necessary corrective actions where required.
• Puts in place the required controls, policies and processes to effectively implement this Policy.

Effective Date
The policy shall be effective from the date it is approved by the Board of Directors.

Definitions

Shareholders
The owner of one or more shares of stock in the Bank, commonly also called a “stockholder”. A shareholder
should have his/her name registered with the Bank, and may hold a stock certificate which has been signed over
to him/her.

Stakeholders
Any person or entity that has a relation with the Bank is its stakeholder. Stakeholders of the Bank include the
Bank’s depositors, shareholders, creditors, customers, suppliers, employees, the society and the environment,
and other related parties.

28
Basic Rights of Shareholders and Stakeholders

Shareholders
• Rights to review and participate in the decisions related to amending the Bank’s Article and Memorandum
of Association, as well as the decisions related to non-ordinary transactions which might affect the Bank’s
future or activity, like mergers, sale of a substantial portion of its assets, or winding up of subsidiaries.
• Rights of meeting participation, comments and recommendations (if any) on any improvements required.
• Rights of contributing in the decision-making of any significant changes being made in the Bank.
• Rights of expressing an opinion on the appointment of members of the Board of Directors.
• Rights to have accurate, comprehensive, detailed, sufficient, and timely essential information in order to
evaluate investments and make informed decisions.
• Rights for receiving dividends and for participating and voting at the General Assembly meetings.

Stakeholders
• Right to be treated on a just and equitable basis.
• Rights to open and clear disclosures of the relevant information.

Roles & Responsibilities

Board of Directors
• The Board of Directors are accountable to the shareholders and stakeholders of the Bank.
• The Board of Directors must emphases on the equitable and fair treatment of all shareholders, including
minority, and give them the opportunity to question the Board and rectify any violations preventing them
for exercising their rights.
• The Board ensures that the Bank’s bylaws, policies and practices accentuate the importance of respecting
stakeholders’ rights as per relevant laws, bylaws and instructions, and confirm their rights to rectify any
violations of their rights in line with the relevant laws.
• The Board of Directors oversee the Chief Executive Officer and other Senior Management in the competent
and ethical operation of the Bank on a day-to-day basis and assure that the long-term interests of sharehold-
ers and the stakeholders are being served.
• The Board of Directors have the ultimate responsibility to protect the legitimate interests of the share-
holders and the stakeholders by ensuring that the Bank’s business is managed in a prudent manner and is
financially sound.
• The Board ensures that all risks which might affect the Bank’s business, particularly its shareholders and the
stakeholders, are properly managed.
• The Board provides an assurance that the role of the Board is not restricted only to profitability but also
considers the risk impacts on the interests of depositors and the Bank’s financial stability.
• The Board encourages the shareholders to actively participate at General Assembly meetings and vote for
or against any proposal put forward in such meetings. This includes, but is not limited to:
- Notifying the shareholders of the General Assembly’s date and time and agenda sufficiently before
the meeting and apprising them of voting rules and procedures. Furthermore, the location and timing of
the meeting should be announced for the public as per related laws, rules and regulations.
- Disclosing the capital structure or any arrangements which might result in certain shareholders controlling the Bank.

29
 - Enabling the shareholders to read and review the minutes of meetings of the General Assembly meetings.
- Preparing a statement of financial and non-financial penalties imposed on the Bank during the financial
year according to Article (85) of Law No. 32 of 1968. Such statement will be read by the Board
Chairperson at the Annual General Assembly meetings.
• The Board ensures that there is an effective and efficient disclosure system in place within the Bank to
enable the shareholders and stakeholders to monitor the performance of the Bank and its management and
exercise their rights.

Chairman
• The Chairman of the Board acts as the primary spokesperson for the Board and as a representative of the
Board to shareholders and stakeholders.
• The Chairman presides over all shareholders’ meetings and ensures that shareholders and stakeholders
are adequately and sufficiently informed of the performance of the Bank and provided with the relevant
information in a timely manner.
• The Chairman ensures that the Bank has sound corporate governance standards in place in order to protect
shareholders’ and the stakeholders’ rights.
• The Chairman ensures that shareholders meetings are efficiently and effectively organised with the assistance
of the Board Secretary.
• The Chairman ensures that the Bank’s management is aware of any concerns of either the Board or other
stakeholders.

Chief Executive Officer (CEO)

• The CEO fosters a high performance corporate culture within the Bank that promotes ethical practices,
encourages individual integrity/accountability, and social responsibility.
• The CEO ensures that all operations and activities of the Bank are conducted in accordance with the appli-
cable laws, regulations, the Bank’s Articles of Association, sound business practice and in accordance with
the policies and practices approved by the Board.
• The CEO ensures that the Bank’s assets are adequately safeguarded and optimized in the best interests of
the shareholders.
• The CEO establishes a transparent and comprehensive management reporting mechanism to the Board of
Directors on all activities and performance results of the Bank.

External Auditor
The External Auditor helps the shareholders by assuring the accuracy of the financial statements of the Bank.

30
Disclosures
The Bank must make all disclosures as stated within the Bank’s Disclosure Policy.

Policy Review
The Board of Directors shall review its policy on the protection of shareholders’ and stakeholders’ rights annu-
ally and shall make amendments, if deemed necessary.

31
32
Corporate Governance Report
 Corporate Governance Report

Introduction
The Bank has a Corporate Governance Framework in place to ensure that the Bank is appropriately governed as
per best practice. The Board of Directors sets the corporate governance policies and directs the process frame-
work and is responsible for ensuring good corporate governance for the Bank while adhering with the guidelines
of the Central Bank of Kuwait in letter and spirit.

Board’s certificate on adequacy of Internal Control Systems

The Board is responsible for the establishment and review of the Bank’s system of internal control, which is
designed to ensure effective and efficient operations; quality of internal and external reporting; internal control;
and compliance with laws and regulations. It should be noted, however, that such a system is designed to man-
age, rather than eliminate, the risk of failure to achieve business objectives. The system of internal control can
only provide reasonable but not absolute assurance against the risk of material loss. Management is responsible
for establishing and maintaining the system of internal controls.

The effectiveness of the internal control system is reviewed regularly by the Board and the Audit Committee,
which also receives reports of reviews undertaken by Internal Audit Department.
Risk Management Department reviews all policies and procedures that underpin the internal control framework.
It also reviews risks at the departmental and enterprise level. The Risk Committee reviews all identified risks
and their mitigation.

The Audit Committee evaluates reports received from the external auditors, and discusses the issues with them
over periodical meetings. The Audit Committee is further responsible for overseeing financial and Internal
Control Review (ICR) reports.

The Board has assessed the effectiveness of the internal control system and the Bank’s risk and financial reports
for the year 2021, and concluded that there are no significant deficiencies, confirming effective operation and
design of the Bank’s internal control system.

Corporate Governance compliance assessment

The Bank has complied with all applicable requirements as per the corporate governance manual as well as with
the Code of Conduct and Ethics, which are accessible through the Bank’s website through the following link
OR scan the QR Code:

https://www.ibkuwt.com/en/about-ibk/corporate-governance-2

34
Bank’s Financial Remuneration Policies

Remuneration Policy
The Bank’s Remuneration Policy is designed to attract and retain highly qualified, skilled, and knowledgeable
professionals and incorporates all the requirements of the CBK as mentioned within its corporate governance
instructions. The Policy includes all necessary aspects and components of financial remuneration considering
reinforcing the Bank’s performance objectives and effective risk management.

The Bank’s Board, based on the Board Nominations and Remuneration Committee (NRC) recommendations,
approves and modifies the Bank’s remuneration policy and its design (if any), and reviews the process of its
implementation to ensure that it is operating as intended.

Remuneration components:
The various remuneration components are combined to ensure an appropriate and balanced remuneration
package that reflects the characteristics of the business, the employee’s grade in the Bank and the job function as
well as market practice concerning the prevailing remunerations level. The employee remuneration consists of
fixed remuneration like salary and other benefits, in addition to variable yearly performance-based remuneration.

The fixed remuneration is determined on the basis of the role of the individual employee, including job respon-
sibility, job complexity, grade, performance and local market conditions and the applicable laws.

The performance-based incentives (STI for all employees and LTI for senior management) are designed to motivate
and reward the employees to achieve the goals and objectives of the Bank as per the strategy and annual plans
of the Bank.

Performance based incentives are disbursed as an annual cash bonus for employees. The incentive schemes are
linked with a balanced mix of performance indicators at the corporate level and the employee level. The primary
goal of the STI is to align the incentive with the Bank’s annual performance and individual contributions. The
LTI for the senior staff is designed to encourage sustainable and risk adjusted long term performance of the
Bank.

The Bank implements a formal performance management process for evaluating and measuring staff performance
at all levels. In the beginning of the year, the staff and their performance managers plan and document the annual
performance goals (KPIs), required competencies and personal development plans for the staff. At the annual per-
formance appraisal, the performance managers and the reviewers evaluate and document performance against the
KPIs/performance objectives. Decisions on adjustment of the employee’s fixed salary and on performance-based
incentives are made on the basis of the annual performance review.

Other benefits like annual leave, medical leave and other leaves, medical insurance, annual tickets, and allowances
are provided on the basis of approved policy, and local market practice subject to the applicable laws.

The CEO oversees the implementation of the remuneration system of the employees as per the approved policy,
including the design and related procedures. The Board NRC periodically evaluates the sufficiency and effective-
ness of the Remuneration Policy to ensure its alignment with the Bank’s objectives. The NRC assists the Board to
conduct an independent annual review of the Bank’s compliance with the Remuneration Policy.

35
 Complying with the Corporate Governance Requirement, the financial remunerations paid to the following
groups of employees are disclosed hereunder:

First category:
Include CEO, his deputies and /or the other Senior Executives whose appointment is subject to the approval of
the regulatory and supervisory authorities.

Second category:
Include the Financial and Risk Control Staff.

Third category:
Include material risk takers.

Financial remuneration paid for the above categories are:

36
The yearly remunerations (including salaries, yearly bonus, tickets, insurance benefits, social security and
special bonus) paid for the five senior executives who have received the highest remuneration packages and for
the Chief Internal Auditor (7 persons) amounted to 706,482 KD. The financial remuneration package paid to the
Board of Directors amounted to 298,000 KD.

37
38
39
 Executive Summary

This Executive Report highlights the progress and results achieved during FY 2021 and provides an overview
of achievements made by the main core business activities and some of its support departments. The report also
explores the progress made to enhance the quality of assets portfolio.

Our financial results this year demonstrated the underlying strengths of our business in light of coronavirus
pandemic. Net profit increased by 280% comparable with FY20, led by strong operational investment’s
performance, which offset the impact of lower net interest income resulted from reduced discount rate to a
historic low of 1.5 percent.

The strength of our balance sheet is a key highlight as it underpins our ability to deliver return for shareholders.
As the return on average equity for shareholders of the Bank increase by 251% to reach 14.48% comparable
with 4.12% for FY20.

In respect of quality of asset portfolio, our continuous efforts focused towards enhancing the quality of assets
have resulted in the continued decline of non-performing debts to their lowest ratio in eleven years to 0.3%,
thanks to the identification of priorities and close monitoring and follow up of customers financial conditions
by the provisions committee in the Bank and taking appropriate measures by executive management in a timely
manner.

Our main theme for this year to continue our path in supporting the industrial sector recovery from the effects
of the Corona pandemic, and support its infrastructure despite the heavy challenges in 2022, and we remain
optimistic about credit growth despite the decline in interest income that calls for. We focus more on the efficiency
of performance and the distribution of capital assets.

40
During the year 2021, the Bank contracted with one of the global consulting offices to prepare a comprehensive
5 years strategic plan that covers all The Bank’s activities.

This plan was approved during the last quarter of 2021 and will be implemented in early 2022. We look forward
to the future in parallel with the implementation of the strategy to open the way for good opportunities, to expand
the range of our products as well as increase the base of our customers and diversify the Bank’s operating model.

Ali A Khajah
Chief Executive Officer

41
 Achievements of Main Operational Activities:

Industrial loans

During year 2021, the bank has completed studying 20 industrial loan requests, which were approved to be
granted long-term industrial loans, consisting of 17 expansion projects & 3 new projects.

The total industrial loans commitments reached KD 61 million in year 2021, with total projects cost of about
KD 68 million. The total industrial loans commitments represented 90% of total projects cost.

Loan Commitments During 2021

The table indicates that the manufacturing of coke and refined petroleum products ranked first, accounting for
65.17% of industrial loans commitments in year 2021, this is due to financing 1 industrial project for a financ-
ing amount of KD 40 million, while manufacturing basic metals came second representing 9.41% of industrial
loans commitments in year 2021.

42
Industrial Loan Commitments during 2015-2021

Cumulative industrial loans commitments since the bank commenced lending operations in year 1974 until the
end of year 2021 reached KD 1.374 bn, representing 58.17% of the aggregate project costs of KD 2.362 bn for
1,155 projects financed by IBK.

Corporate Finance

The Commercial Banking Relationship Management Department continued, during 2021, to offer a full range
of commercial banking facilities to the industrial sector clients in Kuwait by providing working capital facility,
project finance facility, short/medium term loans, etc. The department also provided bridge financing to indus-
trial clients pending approval / disbursement of long term industrial loans. The banking facilities granted by the
department are priced at market rates. In addition, the department is also responsible for the establishment and
monitoring of treasury lines to domestic and international banks and financial institutions.

During 2021, the portfolio total outstanding witnessed an increase to KD 174.744 Million by end of 2021 com-
paring with KD 173.601 Million by end of 2020, which represent an increase by 0.66%. This increase (in cash
facilities) was mainly due to normal life resuming in 2021, where new projects and contracts were tendered by
the government. Therefore, our clients utilized the granted facility in this regard.

The portfolio also witnessed an increase in the non-cash facilities by 6.62% compared to last year, increasing
from KD 73.527 Million as of end 2020 to KD 78.398 Million, as a result of utilizing non-cash facilities to
execute the projects and contracts.

On the other hand, the department continued granting some facility packages to existing as well as new custom-
ers, particularly in the steel, construction, metal, food products.

Continuing its policy of primary focus on the domestic market, the department’s activity on the international
side was low-key.

43
 Direct Investment

The Direct Investment & Promotion Department (DIP) continued investing cautiously in promising opportuni-
ties within the Private Equity space (including Venture Capital & Infrastructure) primarily through existing fund
managers who have performed well for the bank which has been amply demonstrated through their successful
track record. These managers have stuck to their core strategies and investment discipline even during the
unprecedented times of a global Pandemic that spread across the globe, in addition to utilizing the bull equity
market to divest from some of their mature assets achieving very attractive returns for IBK.

The bank’s carefully constructed and diversified portfolio of international investments has successfully led the
bank to achieve the fifth year of consecutive record returns on its investment portfolio. On the local front, DIP
slightly and gradually increased local investment exposure in companies with unique business models that serve
the local industrial content.
As a result of the aforementioned, the investment book of the bank including its subsidiaries has increased by
12.89% reaching KWD 161.444 Million in 2021 compared to 142.998 Million in 2020, while assets under Man-
agement reached KWD 134.107 Million for the same period.

The positive performance of the Private Equity Funds portfolio led to exceptional returns for five consecutive
years on the overall investment book of the bank. DIP will continue to carefully explore lucrative local and
international investment opportunities in the industrial and industrial related sectors, supporting Kuwait’s stra-
tegic development plans and pursue the Bank’s objective of actively participating in new industrial projects and
activities.

Treasury

The Treasury Department is responsible for efficiently managing the daily cash flow and liquidity by utilizing
the foreign exchange, money markets and debt capital markets.

Despite the current economic circumstances and the low interest rate environment during 2021, The Treasury
Department was able to overcome the challenges through prudent management. The department managed to
successfully secure foreign currency financing through bilateral loans in both Euros and US dollars with GCC
and European banks.

Moreover, the department continued to develop and maintain activities in Kuwaiti dinars and foreign currencies
as well as investing in Kuwaiti dinar denominated Central Bank bonds to maintain high quality liquid assets,
good growth and to avoid any price decline.

Treasury Department sought to maximize returns by seizing market opportunities and continued to diversify its
activities, achieve expected profits and reduce the cost of funds. It also sustained good relationships with local
and international banks while continuing to serve the bank’s customers and meet their foreign exchange needs
at competitive exchange rates along with providing technical guidance.

Furthermore, By the constant efforts of the ALCO committee, the bank managed to implement CBK’s instruc-
tions to its operations, which guided the bank to control market risk and liquidity risk beside predicting future
trends of foreign exchange prices and interest rates in the financial market.

44
Portfolio Management

Al-Senai portfolio for small enterprises continued on supporting activities of Kuwaiti youth in the field of small
business by providing funds in accordance to Islamic finance which in turn seeks to support the aspirations of
the state through national manpower restructuring, and directing youth for self-employment, which contribute
in diversification of production and service activities in Kuwaiti economy.

It is observed during this year that the performance of the portfolio is significantly higher than year 2020, as a
result of the country being affected by the emerging coronavirus (COVID-19).

In 2021, the portfolio financed total of 83 projects, with 11.016 million Kuwaiti dinar investment cost. While
Al-Senai portfolio funding amount reached 7.848 million Kuwaiti dinar equivalent to 71.24 % of total cost of
project.

First: Project financing:

The following table indicates the number of funding projects, according to top three sectors as following:

45
 The following table indicates investment cost and portfolio finance share, according to top three sectors with
63 % of Al-Senai portfolio share:

Second: Facilitated Finance:

With reference to Cabinet of Ministers No. (455) issued on 31/3/2020 regarding providing concessional financing
to clients affected by the Coronavirus crisis, and the Central Bank’s instructions regarding the controls of this
financing provided to affected clients on 22/4/2020, the portfolio has provided concessional financing to cover
the deficit of flows operating cash (salaries - leases - suppliers’ claims) for 2 projects from the portfolio clients,
as the value of these funds amounted to KD 86,450, and the following table shows details of the portfolio
financing during the year 2021:

The Islamic Industrial Financing Portfolio

has an objective to support the industrial development through providing medium to long term financing to
industrial projects and services in compliance with Islamic Shari’a such as Murabaha, Istisna’a, and Ijara. Thus,
4 new Industrial projects were financed in accordance to Islamic Shari’a during year 2021.

Cumulative industrial financing commitments since the portfolio commenced its financing operations in year
2009 until the end of year 2021 reached KD 69 mm, presented to 37 Industrial projects.

46
Cumulative Finance Commitments during 2009 – 2021

Agricultural Projects Loan approved during the period:

The agricultural loans committee approved to grant (38) agricultural loans during 2021. The total project cost is
estimated at KD (5,909,320) however, the agricultural portfolio’s contribution was KD (3,535,000) this repre-
sent 60% of the cost of the projects distributed as below:

As is evident from the above table, the planting sector has the highest agricultural financing to the total financing
around (50%). The dairy Farm comes second with (20%).

Loans signed during the period from 01.01.2020 – 31.12.2021

Total of (34) loans were signed during this period divided amongst the following sectors:

47
 Site Visits:
The agricultural portfolio made a total of (346) visits during the period to different agricultural sectors to eval-
uate new projects (follow-up the projects financed and for loan disbursements).

Repayments
The total repayments (installments) during the period from 01.01.2021 till 31.12.2021 totaled (KD 4,054,669)
of the total expected repayment of (KD 4,639,963) repayment rate of (87%), this percentage is more than what
it was in 2021, the reason for the higher repayment rate is because some of the clients paid their loans in full.

Loan Applications for financing agricultural projects:

There is a total of (14) loan application for financing agricultural projects amounting cost of (KD 3,205,000)
expected financing (KD 1,877,000).

Research
During the year 2021, the department conducted several market research studies on various industrial products
in Kuwait to determine the viability of producing these industrial products locally, through the current and pro-
jected supply and demand in the local market, the level of competition between local and imported products,
marketing mix elements, and estimating the market share of the new products.

During this year, the department completed a sectoral study about “Aluminum Profiles & Fabrication industries
in Kuwait”, which was presented at the Finance & Investment Committee. A special Study was also submitted
on “Evaluating the impact of raising the prices of the Basic Raw Materials”, and also presented at the Finance
& Investment Committee.

Also, during the year, the Department presented the 8th edition of the Guide to the Industrial Establishments
approved for financing by the Industrial bank of Kuwait during 1974-2021”. In additional to the” IBK Industrial
Loans Commitments History” Report (1974 - 2021). Moreover, finished “The Economic report to be included in
the IBK Annual Report for 2021. Also submitted two periodical reports of “The Bi-Annual Economic Review”.

Currently, the department is preparing a sectoral study on “Dairy Products in Kuwait”, in addition to the preparation
of the “Plastic bags & rolls” sectoral study.

48
The department works continuously on updating and expanding its industrial database on markets and industry
in Kuwait, through field visits to factories and participation in conferences, seminars, workshops and exhibitions.
The Department also continuously builds its updated archive with latest market research studies, statistical data
and new industrial guides to be utilized for the bank’s studies.

Information Technology
In the Year 2021, the Information Technology Department’s main focus was to strengthen the Governance and
continue with projects related to Compliance and implementing critical technical upgrades.

During 2021, ISO 27001 Certification was completed successfully and was certified. Based on ISO 27001,
the IT procedures were drafted and approved. Cyber Security Framework (CSF) assessment was completed.
The IT Project Management Framework was drafted and approved.

The new AML system (OMNI Enterprise) project’s objective is to implement a new application with enhanced
functionalities that would meet business and CBK’s requirements. This went live in January 2021.

Kuwait National Payment System (KNPS) project’s objective is to implement a suite of modern payment and
settlement systems in Kuwait. Phase 1 includes implementation of Real Time Gross Settlement (RTGS) which
would facilitate local (KWD) payments. This project went live in July 2021 as directed by CBK and accordingly
TMS/X system for facilitating KNPS-RTGS was implemented.

Alerts (Puffin system) project with the objective to send SMS and Email Alerts to bank’s customers regarding
expiry of KYC documents went live in September 2021.

SWIFT 2021 enhancements were implemented in November 2021.

During 2021, All IBK Workstations were upgraded to Windows 10, out of date desktops were replaced with
state-of-the-art desktops and outdate firewalls were replaced. ETL redesign was completed resulting in opera-
tional efficiency of the Data Warehouse. Fixed Assets system (HardCat) was upgraded. TBS Tableau Dashboard
and reporting tool were enhanced.

Human Resources and Corporate Social Responsibility

The Human Resources Department is always keen to fulfil its commitment towards its employees. During
2021, the department utilized all tools and resources in its power to provide their employees with the highest
level of training in alignment with IBK’s succession plans. Which ensures the availability of highly trained and
experienced staff readily available for transfer to other departments’ enabling them to face all challenges in
co-ordination with reputable training organizations.

On the other hand, the number of Kuwaiti employees reached 146 employees at the end of 2021 which represent
78.9% of total workforce in the bank.

The Bank is always keen on its commitment to its employees to participate in media seminars and awareness
lectures on the importance of the industry as an essential source of the country’s economic tributaries. During
2021, the Bank has arranged (69) different training courses for 92 employees that will raise the technical, leadership
and administrative capabilities of the Bank’s employees, including:

49
 1) Sponsoring the industrial platform to promote local content B2B- Federation of Kuwaiti Industries.

2) Participating in the “Let’s Be Aware” campaign conducted by the Central Bank of Kuwait and Kuwait Banking
Association to raise awareness among customers.

3) Preparing a vaccination campaign to receive the vaccine against Corona virus.

4) Honoring the medical staff who contributed to the vaccination campaign against Corona virus for the bank’s
employees.

5) The bank continues to provide the necessary masks, gloves and sterilizers for the bank’s employees and
customers.

6) The bank continues to assist its clients, and, in accordance with the directives of the government and the Central
Bank of Kuwait during the repercussions of the Corona virus crisis, the financing installments due from the
clients of the Industrial portfolio for small projects have been postponed for an additional six months, starting
from 1/11/2021 until 30/04/2022. Postponement has been announced on social media.

7) Participating in a documentary program prepared by Al-Qabas newspaper, in cooperation with Kuwait Banking
Association, regarding 80 years of Kuwaiti banking career.

8) Participating in the electronic banking magazine issued by Kuwait Banking Association in the context of the
interest of the Industrial Bank of Kuwait in initiatives that would contribute to achieving progress and prosperity
for the State of Kuwait.

9) The Bank’s contribution to the activities of the Red Crescent Society for social responsibility projects within
the State of Kuwait.

10) The Bank’s participation in publishing electronic “banking illuminations” publications in cooperation with
the Institute of Banking Studies in order to spread banking and financial awareness among members of society.

11) The Industrial Bank of Kuwait was keen to make an awareness video that carries the message of how to
provide a healthy environment for employees, customers and visitors to the bank during the Corona virus crisis,
in addition to providing awareness posters to avoid the spread of the virus and adhere to all health requirements
and measures.

50
Risk Management Disclosures
 Risk Management Objectives:

The Industrial Bank of Kuwait has clear risk management objectives and a well-established strategy to deliver
them through core risk management processes under the guidelines of the Central Bank of Kuwait. The Risk
management Department’s objectives, in coordination with business lines are:

• To identify the Bank’s material risks, financial and non-financial.

• To formulate the Bank’s risk appetite and ensure that business profile and plans are consistent with it.
• To optimize risk/return decisions by dialogue with business, while establishing a strong and independent
review process and structure.
• To adhere to regulatory guidelines relating to risk management.
• To ensure that business growth and strategic plans are properly supported by effective risk assessment.
• To monitor risk profile to ensure that specific financial deliverables remain possible under a range of ad-
verse business conditions.
• To assist business and support functions improve the control and co-ordination of risk taking across the
Bank and transfer through the insurance risks that cannot be managed internally.
• To manage security and cyber risks.
• To promote a culture of risk awareness throughout the organization.

Risk Management Structure:

The responsibility for risk management resides at all levels within the Bank, from the Board and the executive
level down through the organization to each business manager and risk specialist documented in detail through
policies and procedures and available to all staff through an online shared system. In a three-eye approach, the
responsibilities for effective review and challenge reside with managers of departments as the primary risk
holders, an independent risk management department and, internal audit.

For effective corporate governance, the Chief Risk Officer assists the Board Risk Committee to guide and oversee
effective risk management across the Bank. Risk Management also assists the Board of Directors in tasks
required by the Board Committees.

The Board is responsible for approving risk appetite, which is the level of risk tolerance that the Bank chooses to
accept in pursuit of its business objectives. The risk appetite is reviewed annually by the Board Risk Committee
so that it is in synchrony with the economic environment and internal strategic objectives.

The Board is also responsible for the internal control and assurance framework. To enhance corporate governance
and the management of risk, the following committees have been set up to perform specific roles - the Board
Audit Committee, the Board Risk Committee, the Board Nomination and Remuneration Committee and the
Board Governance Committee.

Internal Audit is responsible for the independent review of the effectiveness of risk management and the internal
control environment in the bank. Its objective is to provide reliable, valued and timely assurance to the Board
and Executive Management over the effectiveness of controls, mitigating current and evolving high risks and in
so doing enhancing the controls culture within the Bank.

The Board Risk Committee monitors through the risk management department, the Bank’s risk profile against
the risk appetite documented quantitatively and qualitatively in the risk appetite policy, providing benchmarks

52
for high-level oversight and supervision of the management of risks. The Risk Committee reviews the constituents
of the detailed risk appetite statement annually. Where actual performance differs from expectations, the actions
being taken by management are reviewed to ensure that the Committee is comfortable with them.

The Committee receives regular and comprehensive reports on the Bank’s risk profile, an assessment on all risk
factors, key issues affecting each business portfolio, risk measurement methodologies and future risk trends.

The Board Risk Committee ensures that appropriate policies and procedures exist to manage risks in
a professional and pro-active manner, reviewing the independence and integrity of the Bank’s risk management
department and critically assessing business and strategic risks within established risk management policies and
procedures.

The Chief Risk Officer reports directly to the Chairman of the Board Risk Committee. The risk management
department is responsible for independently assessing and managing credit risks, market risks, liquidity risks,
and all types of operational risks. Additionally, the IT risk management function (operating independently of the
IT department), reports to the CRO.

While primary risks are managed by line managers, the risk management department provides a structured and
independent assessment of credit, liquidity, market and all types of operational risks by proactively working
with line management in identifying, documenting, quantifying, tracking and monitoring Key Risk Indicators
and providing solutions whenever KRI’s tend to go beyond acceptable levels.

It facilitates implementation of risk initiatives and continuously tracks portfolio risks as well as individual
credit, investment, new projects and product proposals. It ensures that risks are categorized into groups of low,
medium and high risks and that significant risk that are outliers in the boundary provided by the risk appetite
policy and those that have potential operational loss impacts, are highlighted, reported and mitigated.

In the collaborative spirit of risk accountability, there are specific committees set up to monitor specific areas of
risk. There is an Assets and Liabilities Management Committee (ALCO) that monitors liquidity risks, investment
risks and asset projections, in which the CRO participates as an active member. The Credit Committee and
Provisions Committees deal with corporate credit and project finance proposals and impairment and provisions
issues. Risk management coordinates the Bank’s business continuity plans and off-site disaster recovery activities.

Stress Testing: A fundamental duty of the risk management department is to ensure that the Bank does not
neglect to prepare for the worst event as they plan for growth. Stress testing helps the Bank understand how its
portfolios would react if business conditions became significantly more challenging.

Risk Management generates specific forward-looking scenarios and analysis how well liquidity and profitability
would hold up, whether the levels of capital would be adequate to meet significant shocks and what managers
could do ahead of time to mitigate risk. Stress tests capture a wide range of variables that are relevant to the
current environment.

The Risk Management department co-ordinates the process of stress testing, using bottom-up analysis on
expected and unexpected loss. The results of the stress tests are presented to the Executive Committee, the
Board Risk Committee, the Board of Directors and to the regulatory authority – The Central Bank of Kuwait for
its assessment of the Bank’s resilience to stressed credit risk, market risk and economic conditions.

53
 The stress scenarios take into account a wide range of factors, including: the Bank’s revenue generation potential,
loan loss provisions and the probability of default and possible losses given default within its loan book; and
possible declines in the market value of investment assets and effects on capital adequacy.

The results of the stress testing also serve as reference points for triggering action on the Bank’s capital planning
policy and decisions on whether it requires a change of strategy or additional capital. Presently, the Bank is
highly capitalized and the capital support risk is low.

The Financial Environment and regulation: The year 2021 was still far from usual with the fears of pandemic
still looming in the banking industry. The oil prices regained the lost momentum with certain gains and financial
markets around the world transpired to signs of revival.

However, the manufacturing and supply chains were still under the pressure of pandemic. The CBK guidelines
which were issued for maintaining the lower levels of capital and liquidity ratios, were allowed to continue even
during FY2021 & FY2022 with marginal increase in the minimum ratios. The CBK continued the discount rate
at 1.50% for FY21, expecting an early economic recovery.

The investment portfolio was adversely affected during the early pandemic period but retraced itself as markets
recovered. As per IFRS9 rules, as investment valuation losses are booked straight into Profit and Loss (P&L)
account, P&L was affected but recovered later as the market valuations improved. The measures which were
taken in FY20 with respect to business continuity and resilience were kept on stand-by during FY21, since the
fears of pandemic were far from over.

54
Risk Rating by External Rating Agencies:

During 2021, the international rating agency Fitch reaffirmed the rating of the Industrial Bank of Kuwait
as shown below:

Fitch comments that IBK’s IDRs and Support rating reflect the extremely high probability of support from the
government of Kuwait, in case of need.

This is based on the government of Kuwait’s 49% direct ownership and 12% indirect ownership of IBK, as well
as the long-term government funding provided for the bank’s development activities.

The ratings also take into account the Kuwaiti authorities’ long history of strong support for Kuwaiti banks.

The rating agency ‘Capital Intelligence’ reaffirmed their existing rating of IBK at AA- for 2021 with a ‘Stable’
outlook. Their summary rating is as follows:

55
 Basel III Pillar 3 Consolidated Disclosures:

Overview of Basel III and Pillar 3:

Since December 2005, The Industrial Bank of Kuwait has applied the Basel framework as part of its risk and
capital management strategy. The accord is made up of three pillars:

• Pillar 1 covers the calculation of risk-weighted assets for credit risk, market risk and operational risk.
• Pillar 2 allows firms and supervisors to take a view on whether the firm should hold additional capital to
cover the three Pillar 1 risk types, or to cover other risks. A firm’ own internal models and assessments
support this process which is interactive between the Bank and its regulator, the Central Bank of Kuwait.
• Pillar 3 covers external communication of risk and capital information by banks.

The Basel guidelines provides for different approaches to calculating capital requirements.

• The first is the Standardized approach, where risk weights used to assess requirements against credit
exposures are consistent across the industry.
• The second approach is the Internal Ratings Based approach (IRB) which relies on the bank’s internal
models to derive the risk weights.
• The third approach is the advanced approach suitable for very large and complex structures.

As per the guidelines of the Central Bank of Kuwait, the Bank’s Pillar I capital adequacy calculations are based
on the Standardized approach. For stress testing purposes, however the Bank uses an internal modeling method-
ology, which is specifically designed for large credit exposures, which constitutes the main business line of the
Bank, as under its mandate it cannot have retail or real estate exposures.

Stress tests are simultaneously carried out as per parameters and scenarios provided by the Central Bank of
Kuwait. Stress test submissions are made based on both internal and regulatory methodologies.

Stress tests are conducted twice a year, in accordance with the Bank’s Basel Pillar 3 Policy and as per the guide-
lines of the Central Bank of Kuwait. A full report (qualitative and quantitative) is prepared based on December
year-end results and a quantitative-only report is prepared based on June mid-year results and projections.

Capital Risk Management:

Capital adequacy is the degree to which capital resources on the Bank’s balance sheet are sufficient to cover the
businesses’ capital requirements now and in the foreseeable future.
The Group’s permission to operate as a bank is dependent upon the maintenance of adequate capital resources.
Capital risk management is the process for reviewing capital requirements to enable the Bank to:
• Meet minimum regulatory requirements in Kuwait where its business is focused and where itis solely
located.
• Support its credit rating and maintain cost of funds;
• Support business growth and the ability to withstand and tide over shocks.

The Bank ensures that it is sufficiently capitalized by continually assessing its capital resources and require-
ments given current financial projections. This takes into account material risks to the projections as well as
strategies employed to manage those risks.

56
The Bank’s capital management considers both economic and regulatory capital. Regulatory capital require-
ments are calculated on the basis of Pillar 1 risks of the Basel framework. Pillar 1 capital covers credit, market
and operational risks.

The calculation methods and risk weights are specified by Basel III rules. Pillar 2 capital can also be held against
the three risk types above, but mainly covers other types of risk. Being an industrial bank with a focused but
restricted mandate, a significant weight is given to Concentration Risk.

The Bank uses its own internal capital framework and stress testing processes to help determine its capital
requirements under stressed scenarios. The Bank ensures that it maintains sufficient buffers above regulatory
minima at all times.

The adequacy of these buffers is assessed by Risk Management and presented periodically to the Board Audit
and Risk Management Committee as part of the Capital Management Policy, the risk governance process, the
risk appetite review process and the stress testing process.

The Bank’s stress testing process forecasts the projected capital requirements and resources in a range of stress
scenarios.

This enables the Bank to ensure it can meet its minimum regulatory capital requirements in a stressed envi-
ronment, and to assess that there is adequate buffer above regulatory capital to meet economic capital needs if
trigger points are approached. The stress testing process forms a key component of the internal capital adequacy
assessment process (ICAAP).

For Pillar I regulatory capital adequacy calculations, the Bank has adopted the Standardized approach of Basel
III, as recommended by the Central Bank of Kuwait in determining the capital required for each component of
credit, market and operational risk. As the Bank is a specialized development bank which also offers commercial
banking facilities to its customers, it has long term support from the Government of Kuwait.

This, together with its significant disclosed reserves, makes its available capital substantially in excess of the
minimum requirements of Basel III even after taking into account the additional requirements of ICAAP under
the new Pillar II and buffers determining economic capital.

With the planned expansion of the asset portfolio as per the Bank’s three year strategic plan, the capital adequa-
cy ratio is expected to remain substantially above minimum regulatory requirements and economic capital estimates
in the foreseeable future.

This strong capitalization provides a cushion against low diversification opportunities due to the government
mandate to service and develop the industrial sector in Kuwait. The overall capital adequacy ratio based on
Basel III, was 48.58% as on December 31 2021.

Capital Structure and Adequacy:

In addition to the paid-up capital of KD 20 million and significant disclosed voluntary reserves, the principal
corpus of long-term funds for the Bank is a renewable long-term loan of Kuwaiti Dinars ( KD ) 300 Million
(USD 990 Million approx.) from the Government of Kuwait first given through an Amiri decree in 1973, from
which the Bank’s Projects Division provides medium and long term project finance to its industrial borrowers
at concessionary pricing.

57
 Subsidiaries:

The top corporate entity is The Industrial Bank of Kuwait K.S.C. The Bank has two wholly owned subsidiaries,
Kuwait Industrial Projects Company (KIPCO), a Kuwaiti closed shareholding company, and Senaey Enterprises
Ltd, a limited liability company incorporated in George Town, Grand Cayman, the British West Indies (together
“the Group”).

KIPCO is the Group’s vehicle for domestic investments and for holding and managing assets taken over by the
Bank because of domestic loan defaults; it accounts for some 6% of the total Group assets.

Senaey Enterprises is insignificant and not a material element of the Group statement of financial position.

Capital adequacy data submitted to the Central Bank of Kuwait includes relevant data from both subsidiaries
on a fully consolidated basis.

Capital Structure – 31st December, 2021 (All figures in KD’000)

58
59
 Financial Leverage Ratio:

The Basel III framework introduced a simple, transparent, non-risk based leverage ratio to act as a credible
supplementary measure to the risk-based capital requirements.

The leverage ratio is intended to (1) restrict the build-up of leverage in the banking sector to avoid destabilizing
deleveraging processes that can damage the broader financial system and the economy; and (2) reinforce the
risk-based requirements with a simple, non-risk based “backstop” measure.

The Basel Committee is of the view that a simple leverage ratio framework is critical and complementary to the
risk-based capital framework; and a credible leverage ratio is one that ensures broad and adequate capture of
both the on- and off-balance sheet sources of banks’ leverage.

The Basel III leverage ratio is defined as the capital measure (the numerator, Tier I capital) divided by the ex-
posure measure (the denominator), with this ratio expressed as a percentage: Leverage ratio = Capital measure/
Exposure measure (%). For Kuwait the minimum regulatory leverage ratio is 3%.

IBK Leverage Ratio December 31, 2021 –Consolidated

60
Credit Risk Management:

Credit risk is the risk of suffering financial loss should any of the Bank’s customers or market counterparties
fail to fulfill their contractual obligations to the Bank. The granting of credit is one of the Bank’s major sources
of income and, as the most significant risk; the Bank dedicates considerable resources and energy to control it.
The credit risk that the Bank faces arises mainly from project finance and working capital finance. The Bank is
also exposed to other credit risks arising from its treasury activities, including debt securities, settlement bal-
ances with market counterparties and available for sale assets.

The role of the risk management department is to provide bank-wide direction, independent risk assessment,
oversight and challenge of credit risk-taking. The Bank has dedicated departmental credit policies reviewed by
a committee for policies and procedures (where the CRO is a member). The Board of Directors approves the
credit risk control framework, which provides a structure within which credit risk is managed together with
supporting risk management departmental policies.

Loans and advances to customers provide the principal source of credit risk to the Group although the Bank
can also be exposed to other forms of credit risk through, for example, loans to banks, loan commitments and
debt securities. The Bank’s risk management policies and procedures are designed to identify and analyze risk,
to set appropriate risk appetite, limits and controls, and to monitor the risks, delinquency, adequacy of follow
up and rating assessments.

The risk management department independently reviews and rates all individual credit proposals generated
by the two credit granting departments, relating to project finance and commercial, working capital and trade
finance. It also quantifies reviews and monitors the quality and movement of the overall credit portfolio of the
Bank.

One area of particular review is concentration risk. A concentration of credit risk exists when a number of cus-
tomers belong to the same group, or are engaged in similar activities and have similar economic characteristics
that would cause their ability to meet contractual obligations to be similarly affected by changes in economic
and other business conditions. As a result, the Bank constantly reviews its concentration in a number of areas
including, for example, geography, maturity, industrial sector and group control.

Diversification is achieved through setting maximum exposure guidelines to individual counterparties not ex-
ceeding 15% of capital. However, given the specific mandate to operate within the industrial sectors, concen-
tration risk is on the higher side.
The Bank has in place a system for internal credit risk rating of all exposures on a scale of 1 to 10. Risk Man-
agement recommends credit ratings for new clients and periodically reviews all existing borrower ratings in the
Bank using well defined internal rating parameters. Risk Management tracks the weighted average rating of the
credit portfolio and each risk category within the portfolio.

In order to mitigate credit risk, exposures are usually secured by acceptable collateral. The existing portfolio of
loans and advances reflects the Bank’s emphasis on lending inside Kuwait and in particular to industrial units in
Kuwait - a country whose dynamics the Bank comprehends well and where the Bank has a better understanding
of the inherent risks. The Bank has credit concentration to the industrial sector due to the terms of its constitu-
tion. The Bank manages the risk by avoiding concentration by obligor, by a particular industry and, in the case
of cross border exposures, by geographical area.

61
 Special attention is paid to overdue accounts by committees especially set up for this purpose. Follow up mea-
sures are discussed and remedial action taken. If required, appropriate provisioning levels are determined.
At both the departmental level as well as the overall bank level, disciplined credit processes are in place. The
processes are intended to ensure that risks are accurately assessed, properly approved and continuously moni-
tored. The primary tool for managing credit risk is a set of credit policies and procedures that are periodically
reviewed and updated.

A stringent approval framework exists in the Bank which mandates a rigorous and thorough evaluation of the
creditworthiness of every obligor. All credit and investment proposals and their extensions and renewals of
existing credits are assessed by Risk Management.

Credit limits are established for all customers after careful assessment of the relevant credit application. As per
procedure, the approval of the Board of Directors is necessary for credit limits above a certain level. Manage-
ment’s appetite is conveyed by limits for country, industry, borrower and product. Excesses above approved
limits require approval by appropriate credit authorities in the Bank.

Concentrations by size, industry, business and industry sectors are monitored and limited. Central Bank of
Kuwait defines concentration as 15 percent of a bank’s total eligible capital base as defined under Basel III/
CBK; all concentrations in the portfolio by industry are monitored closely for adverse financial or economic
conditions.

Risk Management tracks delinquencies at the company and portfolio level and is in constant dialogue with the
Business departments so that action on irregularities can be taken in time and slippage down the past-due time
buckets are controlled as far as possible.

Information related to credit exposures

Past Due / Impaired Assets and Provisioning

IBK follows the Central Bank of Kuwait definitions of irregular assets and guidelines for impairment provision.
Classification of credit exposures and computation of provisions are as below:

A. Credit Facilities to Customers (Resident & Non-Resident):

(i) Exposure is classified as Irregular if:

• the debit balance in the current account has been constantly showing an excess of over 10% of the approved
Overdraft limit;
• the current account is in debit, without an approved Overdraft limit;
• credit facilities have expired, outstanding’s have not been settled and the Bank has decided not to renew the
facilities on credit grounds;
• loan installments are defaulted;
• Interest is in arrears.

62
(ii) Irregular exposures are classified as below:

• Sub-Standard: Where any of the irregularities as above has been existing for a period exceeding 90 days
but less than 180 days, or if, in the Bank’s judgment, there is noticeable deterioration in the customer’s
financial condition.
• Doubtful Debts: Where any of the irregularities as above has been existing for a period exceeding 180 days
but less than 365 days, or if, in the Bank’s judgment, there is noticeable deterioration in the customer’s
financial condition.
• Bad Debts: Where any of the irregularities as above has existed for a period exceeding 365 days, or if, in the
Bank’s judgment, there is noticeable deterioration in the customer’s financial condition.

(iii) Provision requirements:

Specific provisions are made as below:

• Sub-Standard exposures : 20%

• Doubtful Debts : 50%
• Bad Debts : 100%

1% General Provisions are made on all exposures not subject to a specific provision after deducting certain
allowed collaterals as per the guidelines of The Central Bank of Kuwait. The Bank successfully implemented
IFRS 9 system for provisioning approach. The Bank calculates expected credit losses based on CBK – IFRS9
methodology and the existing CBK methodology and applies the higher of the two.
This section discusses the part of the credit portfolio where customers have been delinquent in their repayments.

The ratio of Non-Performing Loans (NPL) to credit exposure stood at 0.027% as on 31.12.2021.

(iv) loan Loss Provisions as per International Financial Reporting Standards (IFRS-9):

According to CBK guidelines credit loss provisions are calculated based on IFRS9-CBK criteria, as well as
CBK’s existing criteria as explained above. The higher of the two applies.

According to the IFRS9 method, the Bank is required to maintain provisions for performing credits in Stage 1
where credits are not impaired. However, there are three staging levels/criteria in the process. The placement in

63
 a stage classification depends on multiple factors, i.e. the credit rating, class probability of default, delinquency
record and other information of significant rise in credit risk.

The objective is to have a forward-looking statistical estimate of loan loss provisions. The Bank uses its internal
credit rating system and classification system to model credit risk to and calculate the probabilities of default.

This is then used in the model with the Loss Given Default rate (1 minus the recovery rate) and the Exposure
at Default.

IFRS-9 Stage 1 is for performing and regular credits. Stage 2 is for credits where the risk levels have risen and
as per CBK, the company is at least 30 days of delinquent.
Stage 3 is where there is significant rise in credit risk and as per CBK at least 90 days delinquent. Customer lists
classified as per IFRS9 Staging criteria are submitted to the Bank’s Provisions Committee and IFRS-9 data is
reported to the Central Bank of Kuwait.

As the Bank has maintained more provisions as per the traditional CBK method, and as the higher of the two
methods applies, the Bank has continued to make provisions based on the CBK method as described above.

B. Sovereign Exposures:

The Bank has a minimal sovereign exposure and the capital charge for that exposure is computed based on the
guidelines issued by CBK from time to time.

C. Information on Credit Exposures as on 31.12.2021 (All figures in KD’000)

64
65
 Credit risk mitigation

Netting: In cases where the Bank’s claims against customers are not settled, the Bank exercises set-off rights
and pursues its claim on a net basis. During the course of any legal action, the Bank preserves its claim at the
original net level, disregarding any partial payment(s) in order to avoid inadvertently triggering any legal issues
that could otherwise arise.

Collateral Valuation and Management: In cases where collateral is to be taken, the Bank accepts standard
collateral types such as cash, chattel mortgage over movable assets, mortgage over fixed assets, personal / cor-
porate/ bank guarantees etc. In the case of mortgages, the Bank insists on being named the loss-payee in the
related insurance policy.

Where guarantees are taken, the Bank satisfies itself of the creditworthiness of the guarantor by obtaining full
financial information about the guarantor, on the rationale that the Bank views the guarantor as though he were
himself the primary obligor who would himself have to be eligible for the size of the commitment. In respect of
bank guarantees, a formal guarantor line for the bank concerned is a pre-requisite.

Given its status as a specialized industrial finance institution, the Bank has sufficient skills and means in-house
to evaluate projects, factories and other types of fixed assets under mortgage to the Bank.

Credit Risk Concentration: The Bank’s charter limits its customer-base to manufacturing industries specifi-
cally to entities holding industrial license. Accordingly, there is a credit concentration in the industrial sector.
Within that class, the Bank’s portfolio is composed of customers spanning a wide variety of activity. Addition-
ally, the Bank participates in syndicated loans to non-resident banks. The Bank’s customer-base is not subject
to any significant degree of cyclicality.

66
Market Risk Management:

Market Risk is the risk that the Bank’s earnings or capital, or its ability to meet business objectives, will be
adversely affected by changes in the level or volatility of market rates or prices such as interest rates, credit
spreads, commodity prices, equity prices and foreign exchange rates. This risk is inherent in the financial in-
struments associated with our operations and/or activities including loans granted at commercial rates, deposits,
securities and trading account assets, and derivatives. The majority of market risk exposure resides in the Bank’s
treasury and investment departments and market risk through the local equity holdings of the Bank’s subsidiary
KIPCO which are passive AFS holdings. IBK Risk Management’s market risk objectives are to:

• Understand and control market risk by robust measurement and the setting of limits and monitoring of the
same.
• Ensuring accuracy in the deal/settlement process
• Facilitate business growth within a controlled and transparent risk management framework.
• Measure and report non-traded market risk.

Market risk for the Bank is relatively limited as, except for managing an FX book for its own account and its
local industrial customers, and in rare cases using derivatives for hedging purposes, the Bank does not expose
itself significantly to market risks. Appropriate limits have been established and treasury and investment activ-
ities are constantly monitored.

The focus at IBK is on industrial lending and on corporate banking. The Bank has a long term investment in
its wholly owned subsidiary (KIPCO) which invests in the local market and has a non-traded Kuwaiti equity
portfolio.

There is also an international component in the Bank’s equity book which is invested in start-up ventures
through reputed international managers. These investments are of long term nature and are exposed to the
downside risk of direct equity investments.

These investments are diversified and individual investments are capped within limits. The Bank is not actively
involved in equity or bond trading, trading in derivative products, options, commodities or most of the other
market risk generating activities that commercial/investment banks usually engage in.

Market risk is monitored taking into consideration market analysis, market liquidity, and business strategy and
dealer experience. The Bank has limits on investment size, country, and counterparty exposure as well as on
open positions by dealers and for the Bank as a whole.

These limits help to reduce the absolute amounts of market risk. In addition, the Bank has established stop-loss
limits for certain activities involving market risk.

67
 Market risk for trading portfolio and foreign exchange exposures:

The Bank currently does not have a proprietary trading portfolio of any significance in foreign exchange or
money market instruments. It does not have derivative trading exposures or exposures in commodities.

However, all forward foreign exchange swap positions, used for hedging Bank’s position have been considered
as part of derivative exposures.

Market Risk

Equity position in the banking book:

Equity Position in the Banking Book:

Given the specialized nature of the Bank and under its constitution, the Bank invests in equity of companies
both for strategic and relationship reasons as well as to generate capital gains. The Direct Investments and
Promotions department manages the equities portfolio which has local and international dimensions. It makes
investments in new ventures and funds with the objective of making capital gains in the international private
equity markets.

The equities portfolio for investments within Kuwait is managed by “Kuwait Industrial Projects Company
(KIPCO), a wholly owned subsidiary of the Industrial Bank of Kuwait, whose financial statements are consol-
idated with those of the Bank.

Strategic investments are those that fit in with the Bank’s objectives of long term industrial development and
expected to benefit the Bank in terms of reach and network presence.

Strategic investments in equities may be made to ensure growth and development of existing companies, invest-
ment in new ventures as well as to exercise control over companies which have turned severely delinquent and
are underperforming and thus have to be taken over. Equity investments may be made by KIPCO as pre-IPO
placements or may be made directly through the stock exchange for listed companies.

Since these are long term investments, this is a passive investment portfolio with valuations subject to the
movements of the market. Following world and regional trends, the Kuwait Stock Exchange index continues
to witness high volatility.
Impaired investments form a small component of the equities portfolio. This is retained to exercise remedial
control over companies which have turned severely delinquent, are underperforming and thus have to be taken
over. These are under management of KIPCO and relate to domestic exposures only.

68
Differentiation is made between the component of the portfolio which has been made with the objective of
making capital gains and those that have been made for strategic reasons mentioned above. It is recognized that
equity investments carry considerable downside risk as well as expectation of high returns.
Risk Management rates all investments made by the Direct Investments and Promotions department using a
rating methodology for private equity developed internally by the risk management department.

Interest Rate Risk Management:

The overall goal is to manage interest rate sensitivity so that movements in interest rates do not adversely affect
net Interest Income. Interest rate risk is measured as the potential volatility in Net Interest Income caused by
changes in market interest rates.

The Bank uses interest rate gap analysis to measure the interest rate sensitivity of its earnings caused by re-pric-
ing mismatches between rate sensitive assets, liabilities and off balance sheet positions.

The Bank has received a 20 year loan from the Government of Kuwait (initiated in 1973 and rolled over) which
is partly priced at the fixed rate of 1/2 % per annum to the extent of the total industrial loans and commitments
made by the Bank. In 2007, this was extended by another KD 100 million by the Government. This low-cost
source is a very important component of the Bank’s total cost base.

The Bank engages in subsidized fixed rate lending to the industrial sector. To that extent, fixed cost sources and
applications of funds are outside the framework of interest rate risk calculations.

Substantially all remaining KD loans are floating and priced at the Central Bank discount rate plus margin and
are re-priced when the Central Bank changes the discount rate.

Around 90% of the Bank’s assets are denominated in Kuwaiti Dinars. Among other currencies, the US Dollar
is significant. As to all other currencies, the exposure, though not significant, is nonetheless generally matched
in each of the maturity buckets.

From time to time, stress tests are conducted to gauge the impact on income under stress conditions e.g. sensi-
tivity to a 1% reduction in the discount rate of the Central Bank.

Counterparty Credit Risk

Since the Bank may deal with other banks and financial institutions in foreign exchange forward contracts /
swaps used for hedging bank’s exposure, the Bank computes the capital charge for the notional exposure and
the mark to market positions of those derivatives, using the Current Exposure Method (CEM) guidelines issued
by CBK in this regard. The total capital charge for such exposures is Nil.

69
 Interest rate risk in the banking book

Interest rate risk in the banking book arises from the mismatches between assets and liabilities, in the various
maturity buckets. These are however kept within prescribed limits set for each maturity bucket.

There is a downside risk in providing hedging as the Kuwaiti Dinar market lacks depth, with limited number of
players in the interbank Kuwaiti Dinar market. Interbank activity is sporadic beyond short maturities.

Central Bank of Kuwait intervention bonds, direct one month intervention and treasury bonds are the only
available instruments for deploying excess liquidity. As a result, CBK interventions can have a major impact
on KIBOR rates.

The lack of interest rate hedging instruments in the KD market is a concern. However, the Bank›s overall
exposure to interest rate risk is mitigated by the following factors: (i) active and effective management of the
Treasury investments portfolio; (ii) commercial loans are priced on floating rate basis; and (iii) project loans are
funded by the Government loan and are thus market-independent.

70
Liquidity Risk Management:

Liquidity risk is the risk to earnings or capital arising from a bank’s inability to meet its obligations or commit-
ments to a customer, creditor, or investor as they fall due without incurring unacceptable losses. It generally
arises from a failure to recognize or address changes in market conditions that affect the ability to liquidate
assets (i.e. convert them to cash) quickly and with minimal loss in value.

The primary objective for IBK is to ensure that the Bank has sufficient liquidity to meet its obligations in both
normal and stressed conditions without having to make emergency and unplanned sales of assets or be forced
to borrow expensive funds under emergency conditions.

The Board has established an appropriate liquidity policy for the management of the Bank’s funding and li-
quidity management requirements. The Bank’s Assets and Liability Committee (ALCO) oversees the imple-
mentation of the liquidity policy and risk management plays an active role with the CRO being a part of the
Committee and the risk management department performing a risk-monitoring role.

The Bank’s senior management manages liquidity risk effectively in the context of the Bank’s business plan
and long-term funding strategy, taking into account prevailing economic and financial conditions and currency
needs. To this end, the Board has set limit and tolerance levels for its liquidity risk appetite which is monitored
by risk management and reported regularly to the Board Risk Committee.

The Bank through its Treasury Department manages liquidity risk on a continuous basis within established li-
quidity risk management policies and limits. This involves monitoring and managing several liquidity metrics, a
portfolio of high quality liquid assets, reserves, and the continuous monitoring of forecast and actual cash flows
together with institutional relationships as funding sources.

In addition, the Bank uses liquidity ratios (LCR, NSFR) and liquidity scenarios, regular and stressed together
with volatility tracking, as key metrics to establish its liquidity risk tolerance levels, which are built into the risk
appetite statement. These metrics measures the Bank’s ability to fulfill all its payment obligation stemming from
ongoing business operations under various scenarios.

The Bank’s Treasury Department is responsible for maintaining effective communication channels within the
Bank’s operational and business areas to alert the funding desks of imminent funding requirements including
loan drawdowns, deposit withdrawals and off balance sheet commitments. Business departments provide Trea-
sury with their forecasts and actual trends within ALCO.

The Risk Management function periodically reviews liquidity risk policies and procedures and the adequacy
of these policies and the overall liquidity management process. It also monitors and reports adherence to the
various liquidity ratios and limits, both internal and regulatory on a regular basis. It also monitors asset liability
gaps and adherence to limits.

A strong plus in the term structure of funding is the long-term loan from the government available on a roll
over basis that funds the long-term developmental finance provided by the bank, which obviates the need to use
short-term liabilities to fund long tern assets, thus covering risks. The Bank maintains excess liquidity in the
form of cash and unencumbered high-quality liquid securities that together serve as the Bank’s primary means
of liquidity risk mitigation.

71
 Stress Testing

The Bank’s Liquidity management policies and limits ensure that liquidity is maintained at sufficiently comfort-
able levels to support operations and meet payment demands even under stressed market conditions. Stress test-
ing is integrated into the Bank’s liquidity risk management and assesses the Bank’s ability to generate sufficient
liquidity under extreme conditions and is a key input when defining liquidity targets and limits.

Other Qualitative Information

The Liquidity Coverage Ratio (LCR) is a Basel III metric that measures the sufficiency of High-Quality Liquid
Assets (HQLA) available to meet net short-term financial obligations over a thirty-day period in an acute stress
scenario. HQLA are assets which can be easily and immediately converted into cash at little or no loss of value.
In December 2014, CBK released the final guideline on “Liquidity Coverage Ratio Disclosure Standards”, re-
quiring banks to disclose the LCR ratio beginning in Q1, 2016. LCR is disclosed using CBK’s template and is
calculated using the average of daily positions during the quarter.

The LCR report for the Bank is prepared in accordance with the public/market disclosure requirements and
guidelines in respect of the Liquidity Coverage Ratio Disclosure Standards as published by Central Bank of
Kuwait (CBK) in December 2014.

The Net stable funding ratio (NSFR) is designed to promote medium and long-term stable funding of the assets
and off-balance-sheet activities over a one-year time horizon. Effective January 2022, Central Bank of Kuwait
(CBK) has increased minimum LCR and NSFR levels from 80% to 90% for both the ratios.

As at 31 December 2021, the Industrial Bank of Kuwait’s short term Liquidity Coverage Ratio (LCR) and the
longer term Net Stable Funding Ratio (NSFR) stood at well above 80%, at 346.34% and 146.09% respectively.
Thus, the Bank is in a good position to manage any short-term funding stress should they arise.

Accounting policies: Financial assets which are intended to be held for an indefinite period of time and which
are not classified as at fair value through statement of income, loans and receivables and Held to Maturity assets
are classified as Available for Sale investments.
Such investments are reported at fair value, determined on a quarterly basis and marked to market where market
valuations are available. Unlisted equity participations or private investments in Funds whose fair value cannot
be reliably determined are carried at cost less impairment.

Other Available-for-Sale investments are initially recognized at cost and subsequently re-measured at fair value
with unrealized gains or losses recognized directly in Other Comprehensive Income. The fair value investments
listed on the stock exchange are based on their quoted market price (bid price) at the balance sheet date without
any deduction for transaction cost. All classifications of investments are based on International Financial Re-
porting Standards.

Disclosure on Liquidity Coverage Ratio (LCR):

Based on the CBK guidelines on Liquidity Coverage Ratio, the LCR disclosure for the period ended 31.12.2021
is as under:

72
73
 Disclosure on Net Stable Funding Ratio (NSFR):

Based on the guidelines received from Central Bank of Kuwait, on Net Stable Funding Ratio, the disclosure
details are as under:

74
Operational Risk Management:

Operational risk is the risk of direct or indirect losses resulting from human factors, external events, and inad-
equate or failed internal processes and systems. Operational risks are inherent in the Bank’s operations. Major
sources of operational risk include: operational process reliability, IT security, outsourcing of operations, de-
pendence on key suppliers, implementation of strategic change, integration of acquisitions, fraud, human error,
customer service quality, regulatory compliance, recruitment, training and retention of staff, and social and
environmental impacts.

The Bank is committed to the identification, measurement and management of operational risks. Such risks are
managed through bank-wide or line of business specific policies and procedures, controls, and monitoring tools.
A critical element is the identification of business specific Key Risk Indicators (KRIs) and their monitoring
across business lines. In particular, Risk Management has worked closely with business units and implemented
improved management approaches for operational risk, including self-assessment formats and surveys, to focus
on critical risk areas, to strengthen control, and minimize operating losses.

The Bank’s operational risk management framework aims to:

• Understand and report the operational risks being taken by the Bank.
• Capture and report KRIs and operational errors made.
• Understand and minimize the frequency and impact, on a cost benefit basis, of Operational risk events.
• Manage residual exposures using insurance.

75
 An operational risk self-assessment process is in place with focus on Key Risk Indicators that are specific to
the operational area. Risk Management and Internal Audit departments play a vital role in reviewing and main-
taining the integrity of the control environment. Additionally, the Bank has covered certain specific areas of
operational risk that cannot be controlled internally, through insurance policies.

Information Technology Management

Procedures are in place to safeguard the confidentiality and integrity of stored data and information. These
include:
• The installation of firewall systems to protect the network from external interference
• Access controls over application systems
• Compliance with the principle of dual control in operating procedures
• Various monitoring and internal control processes.
• Online data replication process on independent servers.
• Onsite contingency planning.
• Offsite business continuity and disaster recovery programs.

The Bank is in the process of substantially upgrading the IT infrastructure including transactional, data ware-
housing and risk management solutions in order to form the base for future growth opportunities.

Information Security:
To improve the efficiency and service delivery to customers, adoption of newer technology in banking is in-
creasing. This has brought with it Information security risks that are on the rise in Gulf Region. Information
security risks such as Cyber – attacks using malwares, ransomware and internal threats may affect the banking
operations and lead to monitory and reputational loss.

To mitigate these information security risks, IBK has established a dedicated Information Security Unit report-
ing to the Chief Risk Officer. The Information Security Unit monitors and assesses the Bank’s Technology and
Information related risks and ensures controls and adherence to Industry standards and Central Bank of Kuwait
guidance to mitigate these risks related to Information Security.

Capital allocation for Operational Risk:

For the purpose of capital adequacy under Basel III, the Bank presently follows the Standardized Approach of
measurement for calculating its operational risk capital charge based on three years’ gross income. This is cal-
culated as per the CBK guidelines. The Bank maintains a database of its operational losses. The total amount
of capital charge for operational risk for FY2021 is: KD 6.725 Million.

76
Anti-Money Laundering Policies:

The Bank is subject to the rules and regulations of its regulator, the CBK, in the conduct of banking business.
The Bank is bound by CBK Instruction No. (2/RB/RBA/432/2019) and Law No. 106 of 2013 and subsequent
amendments which have been designed to combat money laundering.

The Bank has internal written policies and procedures authorized by its Board of Directors, designed to prevent,
detect and combat money laundering. Its anti-money laundering systems include processes, policies, personnel
and training, documentation, reporting, and control systems. In 2013, based on new guidelines of the Central
Bank of Kuwait the AML policy and procedure was updated to cover the latest developments.

The Bank is required to obtain from its customers, copies of the license and registration at the time of opening
customer accounts. The Bank follows Know Your Customer (“KYC”) processes, and the identity of the Bank’s
customers is established ab initio through official documents as above. Customer records are preserved for a
period of 5 years after the termination of the banking relationship. Suspicious transactions are tracked. Staff
training and awareness programs are conducted from time to time. The Bank has implemented a state of the art
automated anti-money laundering system to track and analyze suspicious transactions. The Bank has initiated
the process of becoming FATCA compliant.

New guidelines of the Central Bank of Kuwait require all customers of the Bank to be rated for money launder-
ing and terrorist financing risks. An internal methodology for AML risk assessment for companies and business-
es has been developed by risk management and has been incorporated in Board approved policies of AML-TF.
Information related to the Bank’s remuneration policy:

Overview of the key features and objectives of the remuneration policy:

The Bank’s Remuneration Policy is designed to attract and retain highly qualified, skilled, and knowledgeable
professionals and incorporates all the requirements of the CBK as mentioned within its corporate governance
instructions. The Policy includes all necessary aspects and components of financial remuneration taking into ac-
count reinforcing the Bank’s performance objectives and effective risk management. The Bank’s Remuneration
Policy incorporates all the requirements of the CBK as mentioned within its corporate governance instructions.
The Bank’s Board, based on the Board Nominations and Remuneration Committee (NRC) recommendations,
approves and modifies the Bank’s remuneration policy and its design, and reviews the process of its implemen-
tation to ensure that it is operating as intended.

Remuneration components: The various remuneration components are combined to ensure an appropriate and
balanced remuneration package that reflects the characteristics of the business unit, the employee’s grade in the
Bank and the job function as well as market practice concerning the prevailing remunerations level.

The employee remuneration components are:

1. Fixed remuneration,
2. Performance based Annual Incentives for all staff (STI),
3. Risk and Return Based Long Term Incentives for Senior Staff (LTI),
4. Other benefits, and
5. End of service payments.

77
 The fixed remuneration is determined on the basis of the role of the individual employee, including job respon-
sibility, job complexity, grade, performance and local market conditions and the applicable laws.

The performance-based incentives (STI and LTI) are designed to motivate and reward the employees to achieve
the goals and objectives of the Bank as per the strategy and annual plans of the Bank. Performance based in-
centives are disbursed as an annual cash bonus for all staff (STI) and deferred cash bonus for the senior staff
(LTI). The incentive schemes are linked with a balanced mix of performance indicators at the corporate level,
department / unit level and the employee level.

The primary goal of the STI is to align the incentive with the Bank’s annual performance and individual con-
tributions. The LTI for the senior staff is designed to encourage sustainable and risk adjusted long term perfor-
mance of the Bank. The LTI scheme is applicable from 2015 onwards.

The Bank has introduced a formal performance management process for evaluating and measuring staff perfor-
mance at all levels. In the beginning of the year, the staff and their performance managers plan and document
the annual performance goals (KPIs), required competencies and personal development plans for the staff. At
the annual performance appraisal interview, the performance managers and the reviewers evaluate and docu-
ment performance against the documented goals. Decisions on adjustment of the employee’s fixed salary and
on performance based incentives are made on the basis of the annual performance review.
Other benefits like annual leave, medical leave and other leaves, medical insurance, annual tickets, and al-
lowances are provided on the basis of individual employment contracts, local market practice subject to the
applicable laws. End of service payments are payable in accordance with the employment contract subject to
the applicable laws.

The CEO oversees the implementation of the remuneration system of the employees as per the approved policy,
including the design and related procedures. The Board NRC periodically evaluates the sufficiency and effec-
tiveness of the Remuneration Policy to ensure its alignment with the Bank’s objectives. The NRC assists the
Board to conduct an independent annual review of the Bank’s compliance with the Remuneration Policy.

Nomination and Remuneration Committee (NRC): The role of the Nomination and Remuneration Committee is
to assist the Board of Directors in fulfilling its oversight on the identification of persons eligible for membership
of the Board of Directors; the Committee will submit its recommendations to the Board regarding candidates to
the different committees. The committee is also responsible for the draft, review and update of the Remunera-
tion policy, and assist the board in evaluating the effectiveness and fairness of the policy, and to ensure that the
policy is appropriate with the strategic objectives of the Bank.

The NRC conducts regular revision of Remuneration Policy and makes recommendations on any updates to the
Board. It carries out regular evaluation of the sufficiency and effectiveness of Remuneration Policy to ensure
alignment with Bank’s objectives. It makes recommendations to the Board regarding the level and components
of the remuneration of the CEO and his direct reports as well as the Bank’s executive staff. It works closely
with the Bank’s Risk Committee and the CRO in order to evaluate the incentives proposed by the remuneration
system.

The Bank consulted Ernest & Young during 2014 for structuring an incentive policy. The Bank follows a Board
approved Remuneration Committee Charter and Procedures, which was approved in 2014. Since FY2015, the
Bank has been implementing revised performance management system for all employees.

78
Risk Assessment:

The main business of the Bank is in the nature of a combination of development and commercial banking sup-
plemented by an investments portfolio. It also manages two government funded portfolios related to small scale
industry and handicrafts and agricultural financing. It is risk management department’s assessment that the re-
muneration policy of the bank evenly weights the long and the medium term results and this is well documented
and recorded in the new performance appraisal system (PMS) through a SMART process (Specific, Measurable,
Achievable, Relevant and Time based) through detailed and quantified KPIs (Key performance indicators),
continuous performance monitoring and coaching, periodic reviews and final performance based on financial
results as well as defined qualitative objectives. Senior management is judged by the Remuneration Committee
on a distribution and combination of return on investment, defined risk measures including CAMEL-BCOM
components, and business elements.

The Bank took measures to ensure that no material risk taker or the senior management approached areas for
short term gains such as financial market trading or areas subject to high risk and potential reward or indulged in
excessive risk taking. All proposals of the Bank and the overall portfolio of the Bank was assessed independent-
ly by risk management and reported to the Board Risk Committee.

The performance review and the remuneration for control departments such as Internal Audit and Risk Man-
agement is determined by the Board Audit Committee and the Board Risk Committee respectively. The perfor-
mance criteria for the control departments are recorded through specific Key Performance Indicators or KPIs
relevant for these departments and none of the KPIs are based on a business target such as revenue, profits or
related targets. As per corporate governance principles, the control departments do not report to the CEO and the
executive arm of the Bank but directly to the Board and the remuneration is determined accordingly.

With respect to the determination of relationship between performance and levels of remuneration, the Bank
has established adequate links and weights for individual performance, business unit performance and corporate
performance according to the different levels of bank staff with assistance of the external consultants. Corporate
performance in turn, takes measures relating to ROE, assets portfolio and defined risk measures.

Variable remuneration for senior staff has short term and long term components. The long term component is
vested after 3 years from the date of granting. The vesting amount may increase or decrease according to the 3
year average performance in terms of EPS and risk measures.

The Bank has only cash based variable remuneration and does not provide stock options or shares. Corporate
performance targets have a ROE weight of 40%, asset portfolio performance of 30% and risk rating measure of
30%, as designed by E & Y consultants. All staff of the Bank is eligible for performance based variable incen-
tives. Only senior management and staff are eligible for long term variable incentives. There were no sign-on
awards provided to any staff.

Senior Management is defined as the CEO and his executive team of DCEOs. Reporting to the CEO, is the
DCEO – Development Finance, the DCEO – Commercial Banking and Investments. Material risk takers in-
clude the heads of revenue generating business departments which are Project Finance, Commercial Banking,
Direct Investments, and Treasury. Included under the control departments is the Chief Risk Officer, Head of
Internal Audit, Head of Financial Control Unit, Head of AML, Head of Accounts and the Compliance officer.

79
 Remuneration paid in 2021 (in KD)

Category 1: 3 employees
Fixed

Variable

Category 2: 5 employees

Fixed

Variable

Category 3: 6 employees

Fixed

Variable

80
Consolidated Financial Statements
and Independent Auditor’s Report

For The Year Ended 31 December 2021

 Table of Contents

Independent auditor’s report 83

Consolidated statement of financial position 86

Consolidated statement of profit or loss 87

and other comprehensive income

Consolidated statement of changes in equity 88

Consolidated statement of cash flows 89

Consolidated Financial Statements 90

82
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF
THE INDUSTRIAL BANK OF KUWAIT K.S.C.C.

Report on the Audit of the Consolidated Financial Statements

Opinion
We have audited the consolidated financial statements of The Industrial Bank of Kuwait K.S.C.C. (the “Bank”)
and its subsidiaries (together, the “Group”), which comprise the consolidated statement of financial position as
at 31 December 2021, and the related consolidated statement of profit or loss and other comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended,
and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at 31 December 2021, and its consolidated financial performance
and its consolidated cash flows for the year then ended in accordance with International Financial Reporting
Standards (IFRSs), as adopted by the Central Bank of Kuwait for use by the State of Kuwait.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities un-
der those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Fi-
nancial Statements section of our report. We are independent of the Group in accordance with the International
Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including
International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in
accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appro-
priate to provide a basis for our opinion.

Other Matter
The financial statements of the Group for the year ended 31 December 2020 were audited by another auditor,
who expressed an unmodified opinion on those statements on 21 June 2021.

Other information included in the Annual Report of the Group for the year ended 31 December 2021
Management is responsible for the other information. Other information consists of the information included in
Annual Report of the Bank for the year ended 31 December 2021, other than the consolidated financial state-
ments and our auditors’ report thereon. We have obtained the report of the Bank’s Board of Directors, prior to
the date of our auditor’s report, and we expect to obtain the remaining sections of the Group’s Annual Report
for the year ended 31 December 2021 after the date of our auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we do not and
will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other infor-
mation identified above and, in doing so, consider whether the other information is materially inconsistent with
the consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be

83
 materially misstated. If, based on the work we have performed on the other information that we obtained prior
to the date of this auditor’s report, we conclude that there is a material misstatement in this other information;
we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRSs as adopted for use by the State of Kuwait, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or
has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes
our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in
accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skep-
ticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material mis-
statement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a ma-
terial uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures
in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future
events or conditions may cause the Group to cease to continue as a going concern.

84
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are responsi-
ble for the direction, supervision and performance of the group audit. We remain solely responsible for our
audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.

Report on Other Legal and Regulatory Requirements

Furthermore, in our opinion proper books of account have been kept by the Bank and the consolidated financial
statements, together with the contents of the report of the Bank’s Board of Directors relating to these consolidat-
ed financial statements, are in accordance therewith. We further report that we have obtained all the information
and explanations that we required for the purpose of our audit and that the consolidated financial statements
incorporate all information that is required by the Capital Adequacy Regulations and Financial Leverage Ra-
tio Regulations issued by the Central Bank of Kuwait (“CBK”) as stipulated in CBK Circular Nos. 2/RB,
RBA/336/2014 dated 24 June 2014, and its amendments, and 2/B.S. 342/2014 dated 21 October 2014, and its
amendments, the Companies Law No 1 of 2016, as amended, and its executive regulations, as amended, and by
the Bank’s Memorandum of Incorporation and Articles of Association, that an inventory was duly carried out
and that, to the best of our knowledge and belief, no violations of the Capital Adequacy Regulations and Finan-
cial Leverage Ratio Regulations issued by the CBK as stipulated in CBK Circular Nos. 2/RB, RBA /336/2014
dated 24 June 2014, and its amendments and 2/B.S. 342/2014 dated 21 October 2014, and its amendments,
respectively, the Companies Law No 1 of 2016, as amended, and its executive regulations, as amended, or of
the Bank’s Memorandum of Incorporation and Articles of Association, have occurred during the year ended 31
December 2021 that might have had a material effect on the business of the Bank or on its financial position.

We further report that, during the course of our audit, to the best of our knowledge and belief, we have not be-
come aware of any violations of the provisions of Law No. 32 of 1968, as amended, concerning currency, the
Central Bank of Kuwait and the organisation of banking business, and its related regulations during the year
ended 31 December 2021 that might have had a material effect on the business of the Bank or on its financial
position.

SHEIKHA AL FULAIJ
LICENCE NO. 289 A
EY
AL-AIBAN, AL-OSAIMI & PARTNERS

26 April 2022
Kuwait

85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
 BANK DIRECTORY

128
129
130