Board of Directors' report

The Board of Directors is honoured to present the 45th annual report and consolidated financial statements of BBK and its subsidiaries (the Group) for the year ended 31 December 2016.

Our plan to establish a joint-venture wholesale investment firm in London is at an advanced stage of implementation.

The Bank delivered consistent underlying performance in its core business, demonstrating the soundness of its strategy and management team.

Total assets BD millions


Long Term Issuer Default Rating



Long Term Bank Deposits


Operating environment

Both regionally and worldwide, economic conditions have been uncertain to say the least, and there are few prospects of immediate improvement. Nevertheless, BBK has performed well, particularly considering the prevailing circumstances.

The current macro-economic cycle could last another two to three years, and with it will come structural changes in the economy of Bahrain and the rest of the Gulf. We are already seeing reductions in subsidies and will begin to pay more for services provided by governments in the region. For example, value added tax is expected to be introduced in 2018 and other taxes may also be levied – a further illustration of the structural changes that are taking place.

Bahrain’s government will also continue to rely on national debt. A considerable number of various kinds and tenors of bonds have been issued, all very successful even though Bahrain no longer has an investment-grade rating. Low interest rates globally have helped to contain yield, other than at the short end of the market such as three to six-month treasury bills, so overall costs have been at an acceptable level.

The GCC contribution to Bahrain has helped to keep economic activity at a reasonable level, with much of the funds going to infrastructural projects such as roads, housing, hospitals and airport expansion. We believe that GDP growth will be lower than last year’s 3.0 percent, still a fair achievement in the circumstances, but with the GCC contribution now having largely run its course, next year could be very different.

In an international context, Bahrain has fared relatively well, avoiding the drastic action that other countries have had to take. We are fortunate to have been able to manage reasonably well with limited resources. This does not mean it hasn’t been difficult – and will continue to be. Oil prices, the slowdown in the Chinese economy and Brexit are all factors that have not been conducive to growth or expansion.

Oil producers have been increasing output, and falling demand adds to the pressure on price. The expected 6.0-6.5 percent growth rate in China almost looks like a recession after a protracted period of double-digit growth. In time, we will also feel the effects of Brexit, as will the UK, the EU, and many other countries, depending on what kind of agreement they can arrange. This all adds to uncertainties, locally and globally.

As for our own planned new venture, an investment company in the UK, we believe London will continue as a major financial centre, regardless of the outcome.

A year of achievement

Against this domestic and global background of difficulty and uncertainty, BBK returned a very commendable across-the-board performance.

From an internal perspective, our transition of management leadership has been smooth. Abdulkarim Bucheery retired as Chief Executive in March 2016, succeeded by Reyadh Sater, a highly experienced member of BBK’s executive team with many years of distinguished service. And close to the year-end, we reorganised and refined BBK’s structure, establishing two main business groups – Wholesale and Retail – and appointing two Deputy Chief Executives.

The success of the transition is evident from our results for the year, and is probably the number one highlight of our performance and achievements over the period.

The second highlight is our very successful perpetual bond issue. We tapped difficult market conditions and raised a BD 86 million addition to our Tier 1 capital, improving our capital adequacy ratio from 14.87 percent to around 18.48 percent. This was a very satisfactory result as the increase in capital helps us fund the Bank’s ambitious strategy of expansion and diversification, while also boosting capital adequacy as per Basel III requirements.

Capital adequacy ratio


The BD 86 million addition to BBK’s Tier 1 capital improved the Bank’s capital adequacy ratio from 14.87 percent to around 18.48 percent.

Shareholders’ equity


Shareholders’ equity rose from BD 360.7 million in 2015 to BD 474.2 million in 2016.

The third highlight is our focus on the first year of our new three-year strategic cycle for 2016-18. We established a representative office in Turkey and built on our existing branches in India, focusing on quality rather than quantity and making our activities there more profitable. In Bahrain we have been able to join in various government financing requirements by participating in new bond issues. The increased yield from these issues has contributed to significant growth in interest income, reinforced by deposit interest rates not moving higher at the same pace, thus containing our cost of funding.

We are also diversifying our sources of funding, as deposits continue to be very important. We have negotiated with customers to extend the duration of their deposits, in some cases by up to three years. We have also tapped the repo market. As a result, our balance sheet profile is stronger, with a spread of maturity dates. This has enabled us to maintain a very comfortable level of liquidity, a factor which we closely monitor – not only our own situation, but overall market conditions such as US Dollar liquidity.

In such a difficult environment, some of the Bank’s customer relationships have been under pressure, needing restructuring or more financing to help them trade through the uncertain times. Customers need time to restructure and assistance to manage in an uncertain economic climate. Our provisions reinforce our responsibilities in this area, as a bank and to our region.

Nevertheless, due to difficult market conditions, most industries have encountered stressed financial performance, which impacts most financial institutions. In light of this, we aim to maintain an acceptable level of non-performing loans. This is another challenge that we monitor constantly.

Financial highlights

BBK achieved a net profit of BD 56.4 million for 2016, surpassing the previous year by BD 3.2 million, a 6.0 percent improvement. Net interest income rose to BD 85.8 million, up by 18.08 percent from the previous year’s BD 72.7 million, and shareholders’ equity rose by 31.5 percent to BD 474.2 million.

The Bank delivered consistent underlying performance in its core business, demonstrating the soundness of its strategy and management team. The total balance sheet strengthened to BD 3,702.6 million by the end of 2016, an increase of 1.5 percent.

As a result of the successful perpetual bond issue, BBK’s capital was boosted by BD 86 million, raising the capital adequacy ratio substantially above the minimum regulatory requirement. The ratio of liquid assets to total assets strengthened to 32.6 percent, from 32.0 percent. The Board has recommended a cash dividend of 30 fils per share.

Compliance leadership

The Board of Directors has resolved to implement International Financial Reporting Standard 9 (IFRS 9), following the approval of the Central Bank of Bahrain. The new standard has been promulgated by the International Accounting Standards Board and sets out requirements for recognising and measuring risks on various financial assets. It does not become effective until 2018, so BBK is one of the first banks in the region, if not the first, to implement it. BBK is also among the first banks in the world to adopt IFRS 9.

We are also focusing on further improvements to our corporate governance practice. One of the key advances in this area during 2016 was to have our risk management function reporting directly to the Board Risk Committee, rather than within the Bank’s internal executive management structures. This is another first for BBK, after applying the same practice several years ago to audit reporting.


The Board of Directors recommends appropriations of the Bank’s net profit for approval by shareholders:

Backing Bahrain

BBK continues to provide opportunities to qualified and accomplished Bahraini employees. Our organisational structure relies on Bahrainis to take additional responsibility and assume management positions for more functional areas. This is not only to recognise their skills, but is crucial to succession planning. We are developing people who can grow with the Bank, essential as we have some very good managers approaching retirement age. In managing succession and planning ahead, we look first to talent within the Bank.

As detailed in the CSR section of this report, we also continue to invest heavily in our community, further demonstrating our commitment to supporting Bahrain and its people.

BBK received the Distinguished Projects Award at the 33rd GCC Social Affairs and Development Conference in Saudi Arabia. The BBK Health Centre in Hidd was a significant contributory project in this achievement. Financed and equipped by the Bank at a cost of BD 4 million, the Hidd centre is a unique model of advanced healthcare services and the latest medical technology.

Looking ahead

Overall, we are confident that the Bank is in a very strong position to manage its various resources – human and financial – to be able to achieve its strategy and the growth we seek, despite extremely uncertain conditions and a difficult environment.

There are no signs that this environment is going to change soon, but we are well diversified as far as risk is concerned. We are also very diversified in revenue streams – and virtually every stream is doing well, whether CrediMax, Invita, Kuwait, India, or other cross-border operations. All are generating acceptable bottom-line results, and we have every reason to expect this to continue as our 2016-18 strategic cycle advances.

Appointment of auditors

At the Annual General Meeting held on 28 March 2016, Ernst & Young were re-appointed as external auditors to BBK for the financial year ending 31 December 2016.


On 15 November 2016, Fitch affirmed BBK’s long-term issuer default rating (IDR) at BB+ with a ‘stable’ outlook. The agency says this rating is driven by the Bank’s standalone strength and supported by its satisfactory and resilient financial performance, as reflected in BBK’s viability ratings, support ratings, and support rating floors.

Despite the weakening operating environment in Bahrain, BBK has maintained solid margins and consistent profitability through its well-established franchise. Funding and liquidity indicators remain satisfactory and are important rating drivers. Asset quality metrics are sound.

On 11 November 2016, Moody’s reported that its Ba2 (Negative)/Not-Prime ratings of BBK’s local currency deposit and senior unsecured debt capture the Bank’s stand- alone credit strength as reflected in a baseline credit assessment (BCA) of ba2, which is at the same level as the Ba2 (Negative) Bahraini sovereign rating.

The ba2 BCA captures BBK’s strong domestic franchise, which, in addition to recent efficiency improvements, supports profitability; solid liquidity buffers and a resilient funding profile; and improved capital levels.


Report issue date: 15 November 2016


Report issue date: 11 November 2016


The Board acknowledges the long-term contribution of our outgoing Chief Executive, Abdulkarim Bucheery, and we wish him well in his retirement.

We also extend gratitude to BBK’s shareholders for their continued confidence, to our clients for their loyalty and patronage, and to BBK’s management and employees for the hard work and commitment that underpins another year of excellent results for the Bank.

On behalf of the Board of Directors

Murad Ali Murad