Message from Chairman

On behalf of myself and the Board of Directors, I am pleased to address the Annual General Assembly of the shareholders' of Alubaf Arab International Bank B.S.C.(C) in Bahrain and present Alubaf's Annual Report and Audited Financial Statements for the financial year ended 31 December 2016.

The 2016 financial year was a challenging one for the banking industry as a whole, with diminishing economic growth both in the region and worldwide, which has impacted the quality of assets in these regions. Alubaf experienced an increase in non-performing assets in 2016, which required sizable provisioning during the aforementioned year.

As a result of provisioning for credit losses at US$ 37.5 million, Alubaf recorded a net loss of US$ 14.7 million for the financial year ended 31 December 2016, as opposed to a net profit of US$ 25 million in 2015.

Interest and similar income for 2016 amounted to US$ 39.6 million, compared with US$ 47.6 million for 2015, signifying a reduction of 17%. On the other hand, interest expenses for 2016 stood at US$ 8.6 million, signifying an increase of 184% compared to 2015. Thus, net interest income decreased by 30% in 2016 compared to 2015, mainly due to the increase in interest expenses.

Fee and commission income registered a sharp decline in 2016 to US$ 5.6 million when compared to the US$ 13.7 million achieved in 2015, which is a reduction of 59%. This reduction in fee and commission came consequent to the Bank's cautious strategy to avoid exposures to the high-risk markets which have caused losses to the Bank.

Gross operating income for 2016 was US$ 38 million, as opposed to US$ 59.3 million last year, signifying a decrease of 36%. In addition to decline in operating income, the Bank had lost a legal claim and paid a judgment sum amounting to US$ 5.7 million in 2016, which is currently under appeal.

During 2016, the Bank created substantial provisioning for non-performing loans in line with the relevant regulatory requirements and standards, thus increasing the accumulated provision for loan losses to US$ 69.5 million as at 31 December 2016, and ultimately increasing provision coverage ratio to 84% of these non-performing loans. Due to provisioning, net operating loss stood at US$ 5.2 million for 2016, as compared with the previous year's net operating income of US$ 37.7 million.

Total operating expenses were US$ 9.5 million, as compared to last year's US$ 12.6 million, which is a decrease of 25% resulting from significant saving on staff and other operating costs.

Total assets as at 31December 2016 declined by 18% from last year. The capital adequacy ratio continued to be strong at 40% and the ratio of liquid assets to total assets was sustained at the same level of 64%.

As the results for 2016 registered a net loss, the Board of Directors have accordingly not recommended the payment of any dividends for the 2016 financial year.

Looking ahead, the growth prospects for 2017 continue to be challenging given the current global and regional market uncertainties. We reaffirm our strong commitment to meet the challenges by focusing on taking preemptive measures to address potential issues in advance in order to sustain consistent growth in the years ahead.

In conclusion, I would like to sincerely thank our shareholders, the Central Bank of Bahrain, the Ministry of Industry, Commerce and Tourism in the Kingdom of Bahrain, all our correspondent banks and our customers for their continued support and cooperation.

Ialso extend my appreciation and thanks to the members of the Board, Executive Management and all the employees for their efforts and commitment to the Bank's continued growth and progress.

Mr. Moraja Gaith Solaiman
Chairman