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Kuwait International Bank (KIBK.KW)

CMP KWD 0.202 Target KWD 0.217 Potential Upside 7.4%

MSCI GCC Index 304.88 Kuwait Stock Exchange 6,822.20

Key Stock Data Sector Islamic Banking Reuters Code KIBK.KW Bloomberg Code KIB KK Equity Net shares outstanding (mn) 848.80 Market Cap (KWD bn) 0.171 Market Cap (USD bn) 0.590 Avg.12m Volume (mn) 3.382 Volatility (30 day) 40.079 Volatility (180 day) 59.058

Stock Performance (%) 52 week high / low (KWD) 0.620 / 0.164

1M 3M 12M Absolute (%) 26.3 -0.8 -64.2 Relative (%) 18.3 13.2 -24.3

Shareholding Pattern (%)

Al Hoda for Hotels & Tourism 9.01 Matrook Trading & Contracting Company 7.00

Al Baraka Kuwaiti Trading Company 6.28 Public 77.71

KIB and KWSE Index Movement

Executive Summary Kuwait International Bank (KIB), formerly known as the Kuwait Real Estate Bank, was established on May 13, 1973 as a specialised bank to meet the financial requirements of the real estate sector. It converted into a pure Islamic Bank effective July 1, 2007. With a network of 10 domestic branches, the bank provides a full range of Islamic banking products including Tawaruk, Wakala, Murabaha and Istisna’a. It also provides property management and appraisal through two specialised divisions. Profit improves 10% YoY in 2008 KIB reported a healthy 42.3% YoY rise in operating income to KWD 42.31 million in 2008, mainly on account of a rise in net financing income and investment income. Net financing income increased 25.1% to KWD 29.46 million in 2008 due to a nearly three-fold increase in Murabaha and other Islamic financing income partially offset by rise in distribution to depositors. Investment income also increased five-fold YoY to KWD 11.02 million in 2008. The bank’s total expenses increased 15.7% YoY to KWD 16.65 million in 2008 primarily on account of higher staff costs and depreciation charges. Despite this, higher rise in operating income led to a 905 bps YoY improvement in cost to income ratio to 39.3% in 2008. Impairment and other provisions charges accumulated to KWD 9.44 million in 2008. The bank’s net profit improved 10.1% YoY to KWD 19.80 million and adjusted earnings per share was reported at KWD 0.023 compared to KWD 0.021 in 2007. Outlook and Valuation The economic growth of Kuwait, which has witnessed strong growth in the past, seems to be slowing down under the wrath of the current global economic downturn. While soft demand for crude oil has triggered its prices on a downward path, weak financial markets and liquidity crunch have slowed the pace of the overall economic activity. The solid historical growth figures for GDP seems to stabilise and slowdown to 2.7% in 2009. As growth of the banking sector depends on the performance of the economy, recessionary forces are expected to halt the healthy growth in the business volumes of the banks. However, the government’s initiatives to boost liquidity and promote Shariah-compliant products aim to restore confidence and limit the negative impact of the slowdown. KIB’s growth initiatives keep its long-term growth drivers intact, however at the same time, exposure to real estate and investment income remains key causes for concern. Currently, KIB’s stock is trading at a P/E multiple of 10.54x and 9.40x on 2009E and 2010E earnings, and at a P/B multiple of 1.08x and 1.01x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has lost 0.8% since the beginning of this year as against a drop of 12.3% in the Kuwait Stock Exchange Index. Considering the above factors, we revise downwards our earlier price target of KWD 0.677 (April 09, 2008) to KWD 0.217, which exhibits an upside of 7.0% from its closing price of KWD 0.202 (as on April 01, 2009). Therefore, we revise our earlier opinion of OVERWEIGHT to NEUTRAL on Kuwait International Bank.

KWD Million 2007A 2008A 2009E 2010E 2011E

Total Op. Income 29.73 42.31 38.75 42.56 46.59

% Change YoY -18.9 42.3 -8.4 9.8 9.5

Net Profit 17.98 19.80 18.08 20.27 22.19

% Change YoY 89.5 10.1 -8.7 12.1 9.5

Net Spread (%) NA 4.3 3.1 3.2 3.3

Net Financing Margin NA 4.7 4.0 4.2 4.2

Adj. EPS (KWD) 0.021 0.023 0.019 0.021 0.024

RoAE (%) 12.0 12.3 10.6 11.1 11.3

NEUTRAL

Background KIB formerly known as the Kuwait Real Estate Bank was established on May 13, 1973 in Kuwait to provide financial solutions to the real estate sector. However, as its operations were restricted only to real estate activities, the bank faced stiff competition from local commercial banks. In order to compete effectively, the bank revamped itself and on December 25, 2006, the shareholders of the bank amended the Articles of Association and changed its name. Subsequently, in June 2007, the bank received approval from the Central Bank of Kuwait (CBK) to operate as an Islamic bank, effective July 1, 2007. This enabled it to offer the full-range of Islamic banking products. With more than three decades in the business, the bank provides a host of banking services including acceptance of deposits, exercising various Islamic financing transactions, carrying out direct investment transactions, issuing letters of credit, letters of guarantee, incorporation of companies, management of properties to the account of third parties and the purchase of lands and real properties. The various Islamic banking products offered include Tawaruk, Wakala in Investment, Murabaha (auto, real properties and commodities) Lease-to-Own (Ijarah, Muntahia and Bittamleek) and Istisna’a. The bank provides these services through a network of 10 branches and a staff size of 487.

KIB started operating as an Islamic bank from July 1, 2007 Network of 10 branches and staff size of 487 KIB also provides property management and appraisal services

KUWAIT INTERNATIONAL BANK (Operating Segments)

Commercial, Consumer & International Banking • Commodity and real

estate Murabaha finance • Ijara and Wakala

facilities to corporate and individual customers

Treasury, Fund Management & Institutional Banking • Liquidity Management • Murabaha investments &

clearing • Correspondent banking • Exchange of deposits

with banks and financial institutions

Investment Management • Investments in associates • Other investments

Source: Kuwait International Bank KIB has two specialised divisions, namely Property Management and Appraisal Department. The Property Management division provides services such as marketing and renting of units under management, collection of rents, study and evaluation of real estate property and maintenance services. The Appraisal Department of the bank performs appraisal for all types of properties in Kuwait and the Gulf region including vacant lands, homes, villas, residential buildings, commercial complexes and other types of real estates such as hotels, hospitals, and private schools. It also carries out cost studies of construction projects and determines their feasibility. These assessments are used as reference prices by government institutions, local banking institutions and real estate investment companies. Recently, the bank won the award for “Best Investment Product 2009” for its unique Al-Joud Deposit given by “Banker Middle East Magazine”. In April 2009, Fitch Ratings affirmed Long-term Issuer Default Rating (IDR) of 'A-', Short-term IDR of 'F2', Individual 'C/D', Support of '1' and Support Rating Floor 'A-' with a ‘Stable’ outlook on the long term IDR. These ratings reflect successful conversion of KIB into an Islamic Bank, structural improvements, support from Kuwaiti authorities, small size, modest financial profile and adequate capitalisation.

Business Model Board of Directors • Chaired by Mr. Abdulwahab Mohammed Al-Wazzan

• Mr. Sheikh Mohammed Jarrah Al-Sabah - Vice Chairman

• Mr. Hameed Ahmad Al-Rasheed

• Mr. Tawfeeq Shamlan Al-Bahar

• Mr. Anwar Jawad Bukhamsin

• Dr. Haider Hassan Al-Jummaa

• Mr. Jassem Hassan Zainal • Mr. Jaffar Sadeq Al-Qallaf • Mr. Essam Qasem Abul Source: Kuwait International Bank

Appraisal Department provides feasibility and cost studies of construction projects amongst appraisal of all type of properties

KIB

KIB through its network of 10 branches provides Islamic banking products and services

Utilising its rich experience as a real estate bank, it provides property management and maintenance services

Focus on organic as well as inorganic growth initiatives aimed at expanding its local as well as global presence along with introduction of innovative products

Affiliates of Kuwait International Bank KIB has a number of subsidiaries, affiliates and strategic investments. SUBSIDIARIES/ASSOCIATES/AFFILIATES COUNTRY % SHARE The Financial Group of Kuwait Kuwait 50 Kuwait Projects Company for Contracting and Building Kuwait 50 INVESTMENTS Warba Takaful Insurance Kuwait 40 Pearl Holding Company Luxembourg Luxembourg 20 Source: Kuwait International Bank

Industry Scenario The world economies are witnessing an economic slowdown triggered by the US subprime crisis. The International Monetary Fund (IMF) has projected that the world growth might fall to 0.5% in 2009, its lowest since World War II. The global economic growth would slow from 5.2% in 2007 to 3.4% in 2008 and to 3.0% in 2010. The Middle East region’s GDP, which registered healthy real growth rate of 5.7% and 6.4% in 2006 and 2007, is anticipated to slow from 6.1% in 2008 to 3.9% in 2009. Within the region, GCC countries in 2009 are expected to grow at 3.5%. Kuwait’s real GDP grew at a CAGR of 7.4% during 2004-2007 and is estimated to grow at nearly 8.6% to KWD 20.85 billion in 2008, led by crude surplus backed robust economic development. Kuwait’s economy is highly dependent on hydrocarbon-related activities (oil & natural gas sector and refined petroleum products industry), which accounted for 56.8% of the nominal GDP and 94.9% of total export earnings in 2007. Higher oil revenues for most part of 2008, generated substantial fiscal and external current account surpluses, thereby enabling the country to build up its net foreign assets to as high as KWD 3.10 billion in 2008. However, with the impending global economic crisis and fall in export volumes, the growth in the country’s real GDP is expected to be limited to 2.7% in 2009 before moving on the recovery path with 4.8% rise in 2010.

Nominal GDP (KWD Billion) and Growth (%)

-45

-30

-15

0

15

30

45

2006A 2007A 2008Est 2009Exp 2010Exp 2011Exp-45%

-30%

-15%

0%

15%

30%

45%

Nominal GDP Nominal GDP Grow th (%)

Sectoral Contribution to GDP (2007)

0.6%

42.6%

56.8%

Crude Oil & Natural Gas Sector (incld. Petroleum Products) Non-oil Sectors Import Duties

Source: Economic Intelligence Unit Source: Central Bank of Kuwait Oil is likely to account for around half of Kuwait's nominal GDP in 2009-10 and remain a significant driver of economic growth through increased government consumption. However, oil output, which increased 6.4% in 2008, is expected to contract in 2009 following an agreement by OPEC to cut oil production, before expanding by approximately 5% in 2010. Growth in the services sector including financial services, logistics, telecommunications and retail, which account for around 40% of nominal GDP, is expected to be modest in 2009-10. Slowdown in economic growth, strengthening of the US dollar and government’s commitment to extend its subsidies is likely to reduce inflation from 11% in 2008 to 7.5% and 6.0% in 2009 and 2010, respectively. Further, with a dip in oil price, export earnings are expected to fall leading to a current account deficit in 2009.

Curretn Account Surplus/Deficit (KWD Billion) & As a Proportion of Nominal GDP

-1

3

7

11

15

19

2006A 2007A 2008Est 2009Exp 2010Exp 2011Exp-2%

11%

23%

36%

48%

61%

Current Account Surplus % of Nominal GDP

Consumer Price Index & Inflation

0

36

72

108

144

180

2006A 2007A 2008Est 2009Exp 2010Exp 2011Exp0%

2%

5%

7%

10%

12%

Consumer Price Index (CPI) Inf lation Source: Economic Intelligence Unit Source: Economic Intelligence Unit

Global growth to slowdown to half-a-percent in 2009 Weak crude prices to limit Kuwait’s growth to 2.7% in 2009 Oil expected to account for approximately 50% of the nominal GDP in 2009-10

Assets base expand on healthy growth in foreign assets and claims on private sector

Source: Central Bank of Kuwait The consolidated balance sheet of the local banks (including specialised, Islamic and commercial) in Kuwait grew at a healthy 5-year CAGR of 15.8% to reach KWD 39.25 billion in 2008 on the back of impressive growth in foreign assets and claims on the private sector. Claims on the private sector, which accounted for approximately 65% of the total assets, grew at a CAGR of 22.1% over 2003-08 to KWD 25.46 billion, as credit facilities extended to residents increased. Foreign assets, which comprised 22.4% of the total assets, expanded at a CAGR of 29.4% to KWD 8.80 billion in 2008 led by increases in deposits with foreign banks, credit facilities to non-residents and foreign investments. While deposits with foreign banks increased nearly five-folds rising at a CAGR of 35.7% over 2003-08 to KWD 5.36 billion, foreign investments went up at a CAGR of 25.7% over the same period to KWD 1.98 billion in 2008.

Consolidated Balance Sheet of Local Banks in Kuwait (in KWD Millions) 2003 2004 2005 2006 2007 2008 2009 (Feb) Assets: Cash 91 75 106 149 115 161 140 Sight Deposits with CBK 108 175 112 50 484 371 914 Time Deposits with CBK 348 126 440 926 813 97 136 CBK Bonds 0 0 124 356 591 375 308 Claims on Government: Public Debt Instruments 2,232 2,146 2,085 1,989 1,912 1,985 2,012 Debt Purchase Bonds 818 604 378 176 0 0 0 Total 3,050 2,750 2,463 2,165 1,912 1,985 2,012 Claims on Private Sector: Other Local Investments 959 1,019 1,109 1,215 1,683 1799 1,788 Credit Facilities to Residents 8,419 9,867 11,827 14,934 20,139 23,660 23,993 Total 9,379 10,886 12,937 16,148 21,822 25,459 25,781 Foreign Assets 2,425 3,192 3,794 5,246 7,633 8,798 8,302 Local Interbank Deposits 2,914 1,405 1,014 1,291 1,390 679 722 Other Assets 498 535 622 659 797 1,322 1,083 Total Assets 18,814 19,144 21,612 26,990 35,555 39,248 39,396 Source: Central Bank of Kuwait

Central Bank of Kuwait

Kuwaiti Banking Structure

Local • National Bank of Kuwait • Commercial Bank of Kuwait • Gulf Bank • Al-Ahli Bank of Kuwait • The Bank of Kuwait &

Middle East • Burgan Bank

Foreign • Bank of BNP Paribas • National Bank of Abu Dhabi • Qatar National Bank • Bank of Bahrain and Kuwait • Bank of HSBC Middle East • Citibank • Doha Bank

Islamic Banks • Kuwait Finance House • Boubyan Bank • International Bank of

Kuwait

Specialised Banks • Industrial Bank of Kuwait

Commercial Banks

Total private sector deposits (both sight deposits and quasi-money deposits), which accounted for 54.1% of total liabilities witnessed a CAGR of 16.5% over 2003-08 to KWD 21.24 billion led by increases in quasi money and sight deposits. In addition to this, liabilities increased on account of rise in government deposits, foreign liabilities and own funds over the period. However, foreign liabilities have witnessed a declining trend towards 2008 with a fall in deposits from non-residents. Own funds that contribute 11.3% to total liabilities, rose at a CAGR of 17.1% to KWD 4.43 billion during 2008. Credit to personal facilities (mainly instalment loans and purchase of securities), real estate, construction, industry sectors, and non-banking financial institutions contributed to the growth in total credit facilities to residents. Together they constituted 83.1% of total credit facilities to residents in 2008, a decline from 84.1% in 2007, reflecting the weak market trends towards the end of 2008. In particular, credit extended to real estate and personal facilities as a percentage of total credit facilities to residents witnessed a dip during the year. Amongst credit to personal facilities, consumer loans and personal loans as a percentage of total credit dipped significantly to 2.6% and 33.3% as against 3.1% and 35.2%, respectively in 2007. These declines were a result of fundamental changes in consumer loans disbursal instructions by the Central Bank of Kuwait (CBK) in March 2008.

Sectoral Distribution of Credit Facilities to Residents 2008

10%6%

7%

12%

33%

24%

7%

Trade IndustryConstruction Non-Bank Financial InstitutionsPersonal Facilities Real EstateOthers

Source: Central Bank of Kuwait Kuwait has been looking for Islamic financial services as an alternative to conventional financial institutions, which have been struggling with high debt levels and falling profits in a period of global recession. Shariah-compliant financial services have depicted healthy growth in Kuwait over the past few years, emerging as a competitive force for conventional banks and investment houses. The Kuwaiti Islamic finance sector was dominated by KFH until 2004 as it was the only Islamic bank, post which, necessary amendments paved way for other Islamic institutions to commence operations. Further, in 2008, a legal framework to govern the sector was designed. The Islamic finance sector has been enjoying healthy growth rate since its inception. According to the Central Bank of Kuwait, there were 54 registered Shariah-compliant investment companies in the country as of February 2009. There has been 31.7% rise in the number of Islamic finance firms setting up their operations since February 2008.

Net Profit Comparision of Kuwaiti Banks (KWD Million)

-

160

320

480

640

800

2006 2007 2008

Local commercial banks Islamic banks (excld. Boubyan Bank)

Total Assets Growth of Local Commercial & Islamic Banks

0%

8%

16%

24%

32%

40%

2006 2007 20080%

8%

16%

24%

32%

40%

Local commercial banks Islamic banks (excld. Boubyan Bank)

Source: Zawya and Company reports Source: Zawya and Company reports

Personal facilities accounted for maximum credit share in 2008 Islamic investment companies emerge favourites as troubled conventional financial institutions fight dwindling profitability

Islamic investment companies registered assets growth of 16.8% to KWD 7.77 billion compared to KWD 6.65 billion in 2007, led by a rise in foreign assets and customer financing operations. While foreign assets, comprising 32.3% of the total assets, increased at a healthy 67.2% YoY to KWD 2.51 billion in 2008 customers financing operations (accounting for 11.7% of the total assets base in 2008) went up 16.7% to KWD 0.91 billion compared to KWD 0.78 billion a year ago. On the liabilities side, foreign liabilities accounting for around 20.8% in 2008, increased more than two-fold to KWD 1.62 billion as against KWD 0.65 billion in 2007. Own funds, accounting for almost 34.0% in the liabilities, grew 29.7% to KWD 2.64 billion from KWD 2.04 billion in 2007.

Total Assets (KWD Billion) of Islamic Investment Companies

0.00

2.00

4.00

6.00

8.00

10.00

2004 2005 2006 2007 200810.0%

26.0%

42.0%

58.0%

74.0%

90.0%

Total Assets Grow th

Source: Central Bank of Kuwait On a positive note, Islamic banks are perceived to have less exposure to assets of lower credit rating compared to their conventional counterparts. Despite this, the ongoing economic recession, which has led to a severe liquidity crunch across sectors, specially the construction and real estate, is likely to significantly impact the performance of the sector. At the same time, competition is likely to intensify with commercial banks, attracted by Islamic finance are venturing into the same. The year 2008 has been very eventful and according to McKinsey, the value of issues collapsed 60% to USD 15.2 billion between January and October 2008, compared to the same period in 2007. In another development, Investment Dar, an Islamic finance and investment company, announced in mid-December that it was looking to borrow up to USD 1.1 billion to refinance its short-term debt and was also considering selling part of its 50% stake in British carmaker Aston Martin, which it acquired in 2007. There has also been an increase in the provisions made by the Islamic as well as commercial banks towards the end of 2008, clearly raising doubts on the quality of the assets. However, on a brighter note, the government announced in January 2009, its plans to issue Sukuks or other Islamic financing instruments to assist investment firms having difficulties raising funds. The assets of the companies would be used as collateral for the bonds. Such a move would particularly benefit firms operating in the Islamic finance sector, allowing them to access funds that meet the requirements of the Shariah laws. Further, the central bank’s initiative to boost liquidity in the system is also expected to positively impact the banking sector. The long awaited economic stimulus package of KWD 1.50 billion to encourage lending was approved on March 26, 2009. Apart from this, the government would guarantee up to 50% of the fresh loans by banks to investment companies. Additionally, the government would also support banks in need of fresh capital, by buying any unsubscribed stock.

Islamic investment company’s assets grew 17% in 2008 Recessionary forces remain strong; economic stimulus package provides a ray of hope

Financial Performance - FY 2008 Operating income KIB reported a healthy 42.3% rise in operating income to KWD 42.31 million from KWD 29.73 million in 2007, mainly on account of a rise in net financing income and investment income. The bank’s Murabaha and other Islamic financing income increased nearly three-fold to KWD 78.94 million compared to KWD 29.66 million a year ago. This can be attributed to an increase in financing receivables which benefited from higher level of economic activity during the first half of 2008 and yield of 12.5% on the average financing receivables during the same period. With an increase in depositor’s accounts, distribution to depositors rose nearly three-fold YoY to KWD 49.48 million during the same period. The bank reported a profit sharing rate of 8.2% on average depositor’s accounts in 2008. As the bank has fully transformed into an Islamic entity with the conversion of its assets into Shariah-compliant products, no interest income or expenses were recognised during the year. Including the results from commercial banking for 2007, net financing income increased 25.1% to KWD 29.46 million in 2008 compared to KWD 23.54 million, a year ago. In addition to this, the bank witnessed a five-fold rise in investment income to KWD 11.02 million in 2008. Gains in net financing income and investment income were partially offset by a 22.7% decline in net fees and commission income to KWD 2.02 million in 2008. Expenses KIB’s total expenses increased 15.7% YoY to KWD 16.65 million in 2008, on account of higher staff costs and depreciation charges. Staff costs increased 18.7% to KWD 11.53 million compared to KWD 9.72 million. Depreciation charges also rose 56.8% to KWD 1.55 million in 2008 compared to KWD 0.99 million a year ago. Depreciation charges as a percentage of plant, property and equipment rose to 10.4% from 6.5% in 2007. However, rising staff costs and depreciation charges were partially offset by a 3.2% YoY decline in general and administrative expenses to KWD 3.56 million in 2008. As the increase in operating income was higher compared to the rise in expenses, cost to income ratio improved 905 bps to 39.3% in 2008 compared to 48.4% in 2007. Further, in line with the global economic downturn, which has raised serious doubts on the quality of assets and future of investments, the bank provided higher impairment and other provisions, which increased from a recovery of KWD 3.51 million to an expense of KWD 9.44 million in 2008. The rise in expenses and provisions was partially offset by a recovery of impairment loss of KWD 4.53 million in 2008. Profitability Rise in operating income partially offset by higher operating expenses and impairment and provisions translated into a 10.1% increase in operating profit to KWD 20.76 million compared to KWD 18.85 million in 2007. Net profit for the year also improved 10.1% to KWD 19.80 million in 2008 as against KWD 17.98 million a year ago. Consequently, the bank’s adjusted EPS was reported at KWD 0.023 compared to KWD 0.021 in 2007. Further, the bank’s capital adequacy ratio stood at 14.71% for 2008, well above the stipulated norm of 12% by the CBK.

Higher net financing income and investment income propels operating income by 42% Expenses increase on higher staff costs and depreciation charge Profitability improves 10% taking cue from healthy rise in operating income

Chart Gallery

0

160

320

480

640

800

2007 2008

Overall Business Volume (KWD Million)

Gross Financing receivables Depositor's accounts

0

9

18

27

36

45

2006 2007 2008

Total Operating Income (KWD Million)

0

5

10

15

20

25

2006 2007 2008

Net Profit (KWD Million)

Return on Average Assets

1.0%

1.3%

1.6%

1.9%

2.2%

2.5%

2006 2007 2008

0

220

440

660

880

1,100

2006 2007 2008

Total Assets (KWD Million)

Return on Average Equity

6.0%

7.6%

9.2%

10.8%

12.4%

14.0%

2006 2007 2008

Size of the Company The salient features of the balance sheet are as follows:

Financing receivables increased 31.3% to KWD 717.55 million from KWD 546.47 million in 2007 reflecting the bank’s endeavour to expand its asset base along with conversion of remaining loans & advances to Shariah-compliant instruments. It accounted for 66.3% of the total assets in 2008 up from contribution of 57.7% in 2007. Further, cash and balances with banks and financial institutions increased over two-fold to KWD 26.20 million from KWD 11.29 million in 2007 as its share in total assets improved to 2.4% from 1.2% during the same period.

Due from banks and other financial institutions decreased 11.9% to KWD 235.63 million in 2008

compared to KWD 267.38 million, a year ago. This can be attributed to an 83.8% decline in Tawarruq transactions with CBK to KWD 17.02 million from KWD 105.27 million in 2007. Accordingly, its share in the total assets declined to 21.8% in 2008 from 28.2% in the last year.

Property, plant and equipment also decreased 2.5% YoY to KWD 14.88 million in 2008. Its share

in the total assets also declined to 1.4% from 1.6% in 2007. However, increase in receivables translated into a 14.2% YoY rise in total assets to KWD 1,082.85 million in 2008.

Depositors’ accounts grew 11.3% to KWD 636.27 million compared to KWD 571.83 million in

2007. However, its share in the total balance sheet decreased to 58.8% in 2008 from 60.3% last year. Furthermore, due to banks and other financial institutions also increased 32.8% to KWD 263.13 million from KWD 198.17 million, increasing its share in total liabilities (including total liabilities and shareholder’s equity) to 24.3% in 2008 from 20.9% in prior year.

KIB’s shareholders’ equity rose 4.4% to KWD 164.82 million from KWD 157.85 million in 2007 led

by an increase in share capital statutory and voluntary reserves partially offset by declines in retained earnings and fair valuation reserve. Consequently, share of shareholder’s equity declined to 15.2% from 16.7% in 2007. Share capital rose 10.0% YoY to KWD 94.30 million on account of issue of bonus shares worth KWD 8.57 million. In 2008, the bank contributed 47.9% of its net profit to the voluntary reserve as a result of which it increased more than two-fold to KWD 16.55 million and its share in total liabilities improved to 1.5% from 0.7% in 2007.

Assets base expand 14% YoY in 2008 on higher Financing receivables

Peer Comparison In order to do a peer comparison, we have considered comparable Islamic banks operating in the country; Boubyan Bank, Kuwait Finance House (KFH) and KIB.

Peer Analysis (in KWD Million) Boubyan Bank KFH KIB

2007 9M08 2007 2008 2007 2008 Net Financing Income 18.65 16.15 224.37 344.47 23.54 29.46 % YoY Growth 32.7 15.4 48.4 53.5 -9.2 25.1 Total Operating Income 54.30 48.88 588.62 668.05 29.73 42.31 % YoY Growth 63.5 24.1 46.2 13.5 -18.9 42.3 Net Profit 18.56 19.17 275.27 156.96 17.98 19.80 % YoY Growth 80.9 39.7 69.9 -43.0 89.5 10.1 Receivables (Net) 197.70 363.91 3,988.13 4,779.79 546.47 717.55 % YoY Growth 70.9 109.8 43.6 19.9 NA 31.3 Total Assets 745.93 931.51 8,797.92 10,544.14 947.86 1,082.85 % YoY Growth 47.9 44.4 39.3 19.8 18.0 14.2 Customers' Deposits 307.46 619.01 5,361.16 6,611.56 571.83 636.27 % YoY Growth 16.3 74.1 43.7 23.3 NA 11.3 Shareholders' Equity 137.19 155.16 1,210.00 1,240.28 157.85 164.82 % YoY Growth 16.1 17.9 72.2 2.5 10.7 4.4 Financing Income /Profit Sharing Income Earning Assets 6.3% 5.4%* 8.3% 7.9% NA 12.5% Depositors' Profit Sharing Expenses/ Depositors' Profit Sharing Liabilities 2.9% 2.1%* 4.3% 2.9% NA 8.2% Net Spread 3.48% 3.21% 4.1% 5.0% NA 4.3% Net Financing/Profit Sharing Margin 3.64% 2.40% 4.0% 4.9% NA 4.7% Operating expenses to income ratio 27.0% 27.0% 25.5% 29.3% 48.4% 39.3% Credit-Deposit (C/D) Ratio 65% 59% 77.2% 76.8% 98.4% 118.5% Loan Loss Reserve to Gross Loans & Advances Ratio 1.3% 0.7% 3.7% 5.9% 1.7% 3.1% Equity to Total Assets Ratio 18.4% 16.7% 13.8% 11.8% 16.7% 15.2% Capital Adequacy Ratio 28% NA 23% 22% 17.2% 14.7% RoAA (%) 3.0 3.0* 3.6 1.6 2.1 2.0 RoAE (%) 14.5 17.5* 28.8 12.8 12.0 12.3 Sources: Boubyan Bank, KFH & KIB *Annualised

Product innovations and enhanced customer satisfaction outlines long-term growth strategy Expansion of number of branches to 25 over a period of next three years

New Projects and Strategies KIB continues to focus on organic as well as inorganic growth initiatives as a part of its long-term growth drivers in order to increase its presence and customer base. The bank endeavours to expand its network of branches and at the same time look for strategic acquisitions in a bid to increase its geographical reach and extend product offerings. Recently, the bank opened its tenth branch in Farwaniya, in sync with its branch expansion program. It also remains focused on ensuring enhanced customer satisfaction, and accordingly launched new innovative products and services such as 24/7 call centre services and launch of ’AL Dawli On-Line’ banking services. Additionally, the bank is also committed at better aligning its existing products and in an effort to realise the same, it re-launched the kids account ’Habboub’ and its award winning ’Al-Joud Deposit’. The bank with its belief of attainment of optimum level of customer satisfaction as a route to success, initiated the most up-to-date methods in surveying during the whole year to ascertain the level of customer satisfaction. Further, in order to extend utmost excellence in service quality to its customers, the bank started comprehensive training to its employees in Retail Banking department. In an effort to compete effectively and increase its customer base, the bank is looking to expand its business geographically. The bank had earlier announced its intention to expand its presence in foreign locations. It also plans to increase the number of branches to 25 over the next three years. KIB also became the first Islamic Bank in the Middle East to provide Islamic Instrument Murabaha Profit Rates for KWD and other major currencies on the Bloomberg. This is expected to enable the bank to become a more active player locally as well as internationally, with respect to Murabaha Market for the Kuwaiti dinar and other major currencies. SWOT Analysis

THREATS

Intense competition from local and foreign banks with Islamic window Political instability in Kuwait

OPPORTUNITIES

Focus on diversifying to a non-oil economy to provide opportunities of credit growth Government’s initiatives to inject liquidity in the economy - recently announced economic stimulus package to act as catalyst for growth

WEAKNESS

Real estate exposure, which is witnessing a period of downturn and liquidity crunch Significant exposure to investment income

STRENGTHS

Rich experience of over three decades Innovative product portfolio and impetus on customer satisfaction Conversion to a pure Islamic entity, which has been less exposed to the current economic recession, compared to its conventional counterparts

Cost of Equity: 11.37%

Risks and Concerns:

KIB has a significant exposure in the real estate and construction sector, which is witnessing a period of downturn. The ongoing global economic crisis has tightened the liquidity position across economies with declining oil prices further reducing the large budget surpluses enjoyed by the GCC countries. As a result, the overall economic activity has slowed down resulting in high unemployment rate thereby negatively impacting the demand in the property market. Additionally, the current crisis has driven away investments from big infrastructure projects with most of them either being postponed or put on hold. This is likely to negatively impact the returns from these projects putting a question mark on the fate of bankers and investors involved.

The rather negative outlook on the banking sector by credit agencies, in the wake of

exposure to real estate sector, illiquid assets and distressed investment companies pose a potent threat.

Over exposure to investment in securities and financial instruments in a weak financial

market present credit risks. Valuation Methodology: We have used two valuation methods for arriving at the fair value of KIB, as explained below:

I. Target P/BV approach based on the Gordon Growth Model (GGM), and II. TTM P/E valuation approach.

Target P/BV Multiple Approach using the Gordon Growth Model (GGM) The model uses the sustainable return on average equity (RoAE), cost of equity (Ke) and expected growth in earnings (g) to arrive at the target P/BV of the bank under review using the formula:

Target P/BV = (RoAE - g) / (Ke - g) Subsequently, we have multiplied the target P/BV multiple for 2009E with the 2009E BVPS to arrive at the fair value of the bank over a medium-term investment horizon. We have made the following assumptions to arrive at the target P/B multiple for 2009 of the bank:

i. For sustainable RoAE, we have considered the 5-year average return on average equity (RoAE) of the bank over 2009E-2013E.

ii. We have estimated the cost of equity (Ke) using Capital Asset Pricing Model (CAPM):

a. Risk free rate of return (Rf) of 3.43%, which is 12 months average yield on 10 year US T-bill

b. Cost of Equity – 11.37%

iii. We have assumed a terminal growth rate (g) of 2.00%.

GGM Valuation Summary Sustainable RoAE (%) 11.15Cost of Equity (Ke) (%) 11.37Perpetual Growth Rate (%) 2.00Target P/BV Multiple for 2009E (x) 0.982009E BVPS (KWD) 0.19Fair Value per Share using Target P/BV (KWD) 0.182CMP (KWD) 0.202Upside/(Downside) -9.7%

Sensitivity Analysis The tables below exhibit the sensitivity analysis for the estimated fair value per share based on various terminal growth rates, cost of equity and RoAE. The shaded area represents the most probable outcomes.

Sensitivity Analysis - GGM (Ke vs. g) Terminal/Perpetual Growth Rate (g)

Cost of Equity (Ke)

1.00% 1.50% 2.00% 2.50% 3.00% 9.37% 0.226 0.229 0.232 0.235 0.239

10.37% 0.202 0.203 0.204 0.205 0.207 11.37% 0.183 0.183 0.182 0.182 0.182 12.37% 0.167 0.166 0.165 0.164 0.162 13.37% 0.153 0.152 0.150 0.149 0.147

Sensitivity Analysis - GGM (Ke vs. RoAE)

Return on Average Equity (RoAE)

Cost of Equity (Ke)

9.15% 10.15% 11.15% 12.15% 13.15% 9.37% 0.181 0.207 0.232 0.257 0.283

10.37% 0.160 0.182 0.204 0.226 0.249 11.37% 0.142 0.162 0.182 0.202 0.222 12.37% 0.129 0.147 0.165 0.183 0.201 13.37% 0.117 0.134 0.150 0.167 0.183

Sensitivity Analysis - GGM (RoAE vs. g)

Terminal Growth Rate (g)

Return on Average Equity (RoAE)

1.00% 1.50% 2.00% 2.50% 3.00% 9.15% 0.147 0.145 0.142 0.140 0.137

10.15% 0.165 0.164 0.162 0.161 0.160 11.15% 0.183 0.183 0.182 0.182 0.182 12.15% 0.201 0.202 0.202 0.203 0.204 13.15% 0.219 0.220 0.222 0.224 0.226

TTM P/E Multiple Based Valuation

TTM P/E Multiple Based Valuation Summary KIB’s 2009E EPS (KWD) 0.019 Target P/E (x) 13.12 Fair Value per Share using Target P/E 0.251 CMP (KWD) 0.202 Upside/(Downside) 24.5%

Banks

Outstanding Shares

(million) CMP# (KWD)

Market Cap. # (KWD million)

EPS (TTM) (KWD)

P/E (TTM)

(x) Kuwait Finance House 2,305 1.180 2,720 0.08 17.33 Boubyan Bank 1,165 0.320 373 0.02 15.53 Kuwait International Bank 849 0.202 171 0.02 10.58 Bank of Kuwait and the Middle East 976 0.475 463 0.06 9.02 Average TTM P/E 13.12 Sources: Zawya Site and Banks' Financial Statements, # CMP as on April 01, 2009

Weighted Average Fair Value On an equal weight basis (GGM – 50% and P/BV – 50%), we have arrived at a final fair value or target price of KWD 0.217 for KIB, which provides an upside of 7.0% from its current market price of KWD 0.202 (as on April 01, 2009).

Weighted Average Fair Value

Valuation Method

Fair Value per Share

(KWD) Weight Weighted Value per Share (KWD)

Target P/BV Multiple Method 0.182 50% 0.091 TTM P/E Multiple Method 0.251 50% 0.126 Target Price 0.217 CMP (KWD) 0.202 Upside/(Downside) 7.4%

Investment Opinion The Kuwaiti banking sector has been the biggest beneficiary of the increased levels of economic activity as a result of the economic boom. The country’s real GDP grew at a CAGR of 7.4% during 2004-2007 and is estimated to grow at nearly 8.5% to KWD 20.85 billion in 2008 powered by high crude surplus. The consolidated balance sheet of the local banks in Kuwait grew at a 5-year CAGR of 15.8% to reach KWD 39.25 billion in 2008 on the back of impressive growth in foreign assets and claims on private sector. However, the strong growth story has been cut-short with the global economic crisis tightening its clutches on the economy. With falling export volumes, the growth in the country’s real GDP is expected to be limited to 2.7% in 2009 before moving on the recovery path with 4.8% rise in 2010. The entire banking sector including Islamic banks, which are seen as better shielded from the recessionary forces, are expected to be negatively impacted from decelerated growth in loan portfolio, slowdown in real estate sector and investment losses. With commercial banks extending their presence to Shariah-compliant products and services, competition is likely to intensify for Islamic banks. However, at the same time, the efforts by the central bank and the government to bail out the economy from the financial turmoil remain noteworthy. The government announced in January 2009, its plans to issue Sukuks or other Islamic financing instruments to assist investment firms facing difficulties in raising funds. The rescue plan which would use assets of the companies as collateral for the bonds is likely to benefit firms operating in the Islamic finance sector, allowing them to access funds that meet the requirements of the Shariah laws. Further, the government approved the economic stimulus package worth KWD 1.50 billion to encourage lending. As a part of this, the government would guarantee upto 50% of the fresh loans by banks to investment companies and also support banks in need of fresh capital, by buying any unsubscribed stock. KIB holds the advantage of operating as a fully Shariah-compliant bank in the current market scenario. It has a rich operating experience of more than three decades. The bank has a network of 10 branches and endeavours to increase the number of branches to 25 over a period of three years. The banks’ focus on organic and inorganic growth initiatives to expand its presence remains a key long-term growth driver. Further, the bank’s impetus on product innovation as a part of its customer satisfaction drive is a key positive. However, despite all these, the bank’s exposure to real estate, which is indeed in a bad shape given the liquidity problem and weak demand, remains a cause for concern. Furthermore, the bank’s significant exposure to investment income, which accounted for approximately 26.0% of the total operating income in 2008 presents the risk of incurring losses in a weak market scenario. Going forward, even though the long-term growth initiatives look intact, a cautious approach is recommended in the light of current economic downturn. Currently, KIB’s stock is trading at a P/E multiple of 10.54x and 9.40x on 2009E and 2010E earnings, and at a P/B multiple of 1.08x and 1.01x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has lost 0.8% since the beginning of this year as against a drop of 12.3% in the Kuwait Stock Exchange Index. Considering the above factors, we revise downwards our earlier price target of KWD 0.677 (April 09, 2008) to KWD 0.217, which exhibits an upside of 7.0% from its closing price of KWD 0.202 (as on April 01, 2009). Therefore, we revise our earlier opinion of OVERWEIGHT to NEUTRAL on Kuwait International Bank.

Fair Value: KWD 0.217 Investment Opinion: NEUTRAL

Financial Statements

Consolidated Balance Sheet (KWD '000) 2007A 2008A 2009E 2010E 2011E

ASSETS Cash and balances with banks and financial institutions 11,289 26,198 22,107 18,094 23,218 Treasury bonds 4,946 0 0 0 0 Due from banks and other financial institutions 267,379 235,633 246,651 268,120 299,292 Financing receivables 546,469 717,550 759,832 823,762 907,464 Loans and advances 27,325 2,396 0 0 0 Investment securities 61,875 61,952 56,396 64,211 74,905 Investments in associates 9,741 9,600 8,834 10,799 13,384 Investment property 0 5,589 4,674 5,678 7,002 Other assets 3,583 9,049 9,386 10,789 12,694 Property and equipment 15,255 14,878 15,275 16,689 18,722 Total assets 947,862 1,082,845 1,123,154 1,218,141 1,356,682 LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Due to banks and other financial institutions 198,173 263,128 256,680 278,510 310,321 Depositor's accounts 571,833 636,269 671,577 730,810 823,152 Customer deposits 1,504 0 0 0 0 Other liabilities 18,500 18,630 18,762 19,740 21,306 Total liabilities 790,010 918,027 947,019 1,029,060 1,154,779 Shareholder's equity Share capital 85,729 94,302 103,733 103,733 103,733 Share premium 49,480 49,480 49,480 49,480 49,480 Statutory reserve 20,558 22,633 24,527 26,652 28,977 Voluntary reserve 7,072 16,550 18,358 20,385 22,603 Fair valuation reserve 9,572 4,455 4,741 5,318 4,600 Revaluation surplus 8,356 8,356 8,356 8,356 8,356 Treasury shares reserve 4,846 4,846 4,846 4,846 4,846 Retained earnings 17,473 9,430 7,328 15,547 24,543 Treasury shares -45,234 -45,234 -45,234 -45,234 -45,234 Total shareholder's equity 157,852 164,818 176,135 189,082 201,903 Total liabilities and shareholder's equity 947,862 1,082,845 1,123,154 1,218,141 1,356,682

Consolidated Income Statement

(KWD '000) 2007A 2008A 2009E 2010E 2011E Income Murabaha and other Islamic financing income 29,658 78,940 78,230 88,605 101,193 Interest income 29,643 0 0 0 0 Interest expense -18,434 0 0 0 0 Distribution to distributors -17,326 -49,480 -48,661 -55,684 -65,266 Net financing income 23,541 29,460 29,569 32,920 35,927 Investment income 2,144 11,021 7,415 7,838 8,661 Net fees and commission income 2,617 2,023 1,766 1,807 2,006 Net (loss)/gain from foreign exchange 1,010 -262 0 0 0 Other income 416 67 0 0 0 Total operating income 29,728 42,309 38,750 42,565 46,593 Expenses Staff cost -9,719 -11,534 -10,176 -11,391 -12,842 General and administrative expenses -3,681 -3,564 -2,877 -3,373 -3,971 Depreciation -988 -1,549 -1,590 -1,738 -1,949 Impairment and other provisions 3,510 -9,438 -5,157 -4,813 -4,570 Reversal of impairment loss 0 4,534 0 0 0 Total expenses -10,878 -21,551 -19,800 -21,314 -23,332 Operating profit before deductions 18,850 20,758 18,950 21,251 23,261 Contribution to Kuwait Foundation for the Advancement of Sciences -170 -187 -171 -191 -210 National Labour Support Tax -463 -520 -475 -532 -583 Zakat -10 -116 -106 -119 -130 Director's remuneration -225 -135 -123 -138 -151 Net profit for the year 17,982 19,800 18,076 20,270 22,188 Adjusted EPS 0.021 0.023 0.019 0.021 0.024

Consolidated Statement of Cash Flow (KWD '000) 2007A 2008A 2009E 2010E 2011E

Cash flow from operating activities Net profit for the year 17,982 19,800 18,076 20,270 22,188 Adjustments for: Profit on treasury bonds -4,134 0 0 0 0 Dividend received -1,869 -9,269 -7,415 -7,838 -8,661 Unrealised foreign exchange (loss)/ gain -1,010 262 0 0 0 Net gain from investment in securities -275 -1,752 0 0 0 Depreciation 988 1,549 1,590 1,738 1,949 Impairment and other provisions 4,349 9,438 5,157 4,813 4,570 Reversal of impairment loss 0 -4,534 0 0 0 Operating profit before changes in operating assets and liabilities 16,031 15,494 17,407 18,983 20,045 Changes in operating assets and liabilities: Due from banks and other financial institutions -23,622 20,533 -11,018 -21,469 -31,172 Financing receivables -549,950 -171,081 -42,282 -63,930 -83,702 Loans and advances 456,105 20,891 2,396 0 0 Other assets -871 -5,466 -337 -1,403 -1,905 Due to banks and other financial institutions 119,000 64,955 -6,448 21,830 31,811 Depositor's accounts 571,833 64,436 35,308 59,233 92,342 Customer deposits -561,519 -1,504 0 0 0 Other liabilities -116 130 132 978 1,567 Net cash from operating activities 26,891 8,388 -4,840 14,221 28,985 Cash flow from investing activities Proceeds from treasury bonds 124,352 4,946 0 0 0 Net purchase/proceeds of investments in securities -13,024 -508 5,556 -7,815 -10,695 Net purchase/proceeds from investment in associate -9,600 141 766 -1,965 -2,585 Purchase of investment property -9,389 915 -1,004 -1,324 Purchase of property and equipment -2,400 -1,172 -1,987 -3,151 -3,983 Profit received on treasury bonds 4,134 Dividend received 1,869 9,269 7,415 7,838 8,661 Net cash from investing activities 105,331 3,287 12,665 -6,098 -9,926 Cash flow from financing activities Dividends paid -8,102 -7,717 -7,045 -7,900 -8,648 Net cash used in financing activities -8,102 -7,717 -7,045 -7,900 -8,648 Net increase in cash and cash equivalents 124,120 3,958 779 223 10,412 Cash and cash equivalents at the beginning of the year 130,926 255,046 259,004 259,783 260,007 Cash and cash equivalents at end of the year 255,046 259,004 259,783 260,007 270,419

Common-Size Financial Statements

Common-Size Balance Sheet 2007A 2008A 2009E 2010E 2011E

ASSETS Cash and balances with banks and financial institutions 1.2% 2.4% 2.0% 1.5% 1.7% Treasury bonds 0.5% 0.0% 0.0% 0.0% 0.0% Due from banks and other financial institutions 28.2% 21.8% 22.0% 22.0% 22.1% Financing receivables 57.7% 66.3% 67.7% 67.6% 66.9% Loans and advances 2.9% 0.2% 0.0% 0.0% 0.0% Investment securities 6.5% 5.7% 5.0% 5.3% 5.5% Investments in associates 1.0% 0.9% 0.8% 0.9% 1.0% Investment property 0.0% 0.5% 0.4% 0.5% 0.5% Other assets 0.4% 0.8% 0.8% 0.9% 0.9% Property and equipment 1.6% 1.4% 1.4% 1.4% 1.4% Total assets 100.0% 100.0% 100.0% 100.0% 100.0% LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Due to banks and other financial institutions 20.9% 24.3% 22.9% 22.9% 22.9% Depositor's accounts 60.3% 58.8% 59.8% 60.0% 60.7% Customer deposits 0.2% 0.0% 0.0% 0.0% 0.0% Other liabilities 2.0% 1.7% 1.7% 1.6% 1.6% Total liabilities 83.3% 84.8% 84.3% 84.5% 85.1% Shareholder's equity Share capital 9.0% 8.7% 9.2% 8.5% 7.6% Share premium 5.2% 4.6% 4.4% 4.1% 3.6% Statutory reserve 2.2% 2.1% 2.2% 2.2% 2.1% Voluntary reserve 0.7% 1.5% 1.6% 1.7% 1.7% Fair valuation reserve 1.0% 0.4% 0.4% 0.4% 0.3% Revaluation surplus 0.9% 0.8% 0.7% 0.7% 0.6% Treasury shares reserve 0.5% 0.4% 0.4% 0.4% 0.4% Retained earnings 1.8% 0.9% 0.7% 1.3% 1.8% Treasury shares -4.8% -4.2% -4.0% -3.7% -3.3% Total shareholder's equity 16.7% 15.2% 15.7% 15.5% 14.9% Total liabilities and shareholder's equity 100.0% 100.0% 100.0% 100.0% 100.0%

Common-Size Income Statement 2007A 2008A 2009E 2010E 2011E

Income Murabaha and other Islamic financing income 99.8% 186.6% 201.9% 208.2% 217.2% Interest income 99.7% 0.0% 0.0% 0.0% 0.0% Interest expense -62.0% 0.0% 0.0% 0.0% 0.0% Distribution to distributors -58.3% -116.9% -125.6% -130.8% -140.1% Net financing income 79.2% 69.6% 76.3% 77.3% 77.1% Investment income 7.2% 26.0% 19.1% 18.4% 18.6% Net fees and commission income 8.8% 4.8% 4.6% 4.2% 4.3% Net (loss)/gain from foreign exchange 3.4% -0.6% 0.0% 0.0% 0.0% Other income 1.4% 0.2% 0.0% 0.0% 0.0% Total operating income 100.0% 100.0% 100.0% 100.0% 100.0% Expenses Staff cost -32.7% -27.3% -26.3% -26.8% -27.6% General and administrative expenses -12.4% -8.4% -7.4% -7.9% -8.5% Depreciation -3.3% -3.7% -4.1% -4.1% -4.2% Impairment and other provisions 11.8% -22.3% -13.3% -11.3% -9.8% Reversal of impairment loss 0.0% 10.7% 0.0% 0.0% 0.0% Total expenses -36.6% -50.9% -51.1% -50.1% -50.1% Operating profit before deductions 63.4% 49.1% 48.9% 49.9% 49.9% Contribution to Kuwait Foundation for the Advancement of Sciences -0.6% -0.4% -0.4% -0.4% -0.4% National Labour Support Tax -1.6% -1.2% -1.2% -1.3% -1.3% Zakat 0.0% -0.3% -0.3% -0.3% -0.3% Director's remuneration -0.8% -0.3% -0.3% -0.3% -0.3% Net profit for the year 60.5% 46.8% 46.6% 47.6% 47.6%

Financial Ratios

2007A 2008A 2009E 2010E 2011E Profitability Return on Average Assets (RoAA) 2.1% 2.0% 1.6% 1.7% 1.7% Return on Average Equity (RoAE) 12.0% 12.3% 10.6% 11.1% 11.3% Net Financing Income / Total Operating Income 79.2% 69.6% 76.3% 77.3% 77.1% Non-Financing Income / Total Operating Income 20.8% 30.4% 23.7% 22.7% 22.9% Dividend Payout Ratio 45.1% 39.0% 39.0% 39.0% 39.0% Margins Depositors' Profit Sharing Expenses / Financing Income 58.4% 62.7% 62.2% 62.8% 64.5% Financing Income /Average Profit Sharing Income Earning Assets NA 12.5% 10.6% 11.2% 11.7% Depositors' Profit Sharing Expenses/ Average Depositors' Profit Sharing Liabilities NA 8.2% 7.4% 7.9% 8.4% Net Spread NA 4.3% 3.1% 3.2% 3.3% Net Financing/Profit Sharing Margin NA 4.7% 4.0% 4.2% 4.2% Operating expenses (excluding provisions and impairment) to income ratio 48.4% 39.3% 37.8% 38.8% 40.3% General & Administrative Expenses to Total Operating Income Ratio 12.4% 8.4% 7.4% 7.9% 8.5% Loan Loss Provision to Gross Receivables 1.7% 3.1% 3.3% 3.1% 2.9% Liquidity & Assets Quality Credit to Deposit (C/D) Ratio 98.4% 118.5% 119.0% 118.2% 115.3% Customers' Deposits to Shareholders' Equity 362.3% 386.0% 381.3% 386.5% 407.7% Capital Adequacy Shareholders' Equity to Total Assets 16.7% 15.2% 15.7% 15.5% 14.9% Shareholders' Equity to Profit Sharing Income Earning Assets 28.9% 23.0% 23.2% 23.0% 22.2% Operating Performance % Change in Financing Income NA 166.2 -0.9 13.3 14.2 % Change in Net-Financing income -9.2 25.1 0.4 11.3 9.1 % Change in Non-Financing Income NA 107.7 -28.5 5.0 10.6 % Change in Total Operating Income -18.9 42.3 -8.4 9.8 9.5 % Change in Operating Profit 88.0 10.1 -8.7 12.1 9.5 % Change in Net Profit 89.5 10.1 -8.7 12.1 9.5 Valuation Ratios Adj. EPS (KWD) 0.021 0.023 0.019 0.021 0.024 Adj. BVPS (KWD) 0.186 0.194 0.187 0.200 0.214 P/E (x) 9.54 8.66 10.54 9.40 8.59 P/BV (x) 1.09 1.04 1.08 1.01 0.94 CMP (KWD) 0.202 0.202 0.202 0.202 0.202

DISCLAIMER: All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication, but we make no representation as to its accuracy or completeness. All information is for the private use of the person to whom it is provided without any liability whatsoever on the part of TAIB Securities WLL, any associated company or the employees thereof. Nothing contained herein should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. The value of any investment may fall as well as rise. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of the investment to increase or diminish. Consequently, investors may not get back the full value of their original investment

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