King Abdulaziz bin Abdulrahman Al Faisal Al Report...¢  2020-04-07¢  King Abdulaziz bin Abdulrahman

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  • King Abdulaziz bin Abdulrahman Al Faisal Al Saud The Founder

    King Salman Bin Abdulaziz Al Saud The Custodian of the Two Holy Mosques

    Prince Muhammad Bin Salman Bin Abdulaziz Al Saud His Royal Highness, Crown Prince, Deputy Prime Minister,

    Minister of Defense of the Kingdom of Saudi Arabia

  • 01 02 03

    04 05 06

    07 08

    Business HighlightsFinancial Results

    01 Economic Update

    Board Of Directors And Board’s Committees

    Directors’ And Top Five Executives’

    Remuneration

    The Company’s Main Business Activities

    Any Business Or Contracts In Which The Authorized Person Is A Party Thereto And A Director, The Chief

    Executive Officer, Or Head Of Finance, Or Any Related Person Has An

    Interest Therein

    Any Contractual Interest, Securities And Warrants

    That Are Beneficially Owned By The Directors

    Or Executive Management And Their Families In Any Of The Company’s Stocks Or

    Debt Instruments

    CONTENTS

    BOARD OF DIRECTOR’S REPORT 2019

  • CONTENTS

    09

    10 11 12

    13 14 15

    Bank Borrowings

    Results Of The Annual Audit For The Effectiveness

    Of The Internal Control Procedures Of The

    Company

    SubsidiariesRelated Party Transactions And

    Balances

    Fines And PenaltiesStaffNcb Capital Risk Management

    BOARD OF DIRECTOR’S REPORT 2019

  • 5

    BOARD OF DIRECTOR’S REPORT 2019

    01 Economic Update

  • 6

    BOARD OF DIRECTOR’S REPORT 2019

    Global review ---------

    After a sharp correction at the end of 2018, which helped ease concerns about stretched valuations, global equity markets started 2019 on a strong note, albeit from a lower base. However, concerns on US-China trade relations continued to hold investor attention in H1 2019, resulting in higher volatility and sideways trading. Markets restarted to gain momentum into H2 2019 as the US and China agreed terms on a Phase 1 of a trade deal, and the US went from neutral on interest rates to following an expansionary policy, lowering rates 3 times, with the combined effect of alleviating investor concerns of a global recession. This resulted in double digit returns across most benchmarks, with the MSCI World index increasing +25.2%. G7 markets (MSCI G7 +26.0%), as developed markets fared better than Emerging markets (MSCI EM +15.5%), whilst Frontier markets also saw positive returns (MSCI FM +13.5%).

    Saudi Macro ---------

    Vision 2030 remains the key long term driver of the Saudi economy. In 2019, the non-oil sector expanded by 3.0%, supported by the private sector stimulus package, an extension of the cost of living allowance, and structural reforms, providing new opportunities for investments and development of the non-oil private sector. The overall Saudi economy grew 0.4%, despite the contraction in oil sector GDP on lower crude oil prices and lower production.

    The progress on different Vision Realization Program (VRPs), together with spending of Aramco IPO receipts domestically should contribute to growth in the non-oil segment. Promisingly, Government initiatives continue to gain traction. Many sectors – such as housing, tourism and entertainment – are expected to benefit from Vision 2030 initiatives. Looking to 2020, the Ministry of Finance projects that the Saudi economy will expand by 2.3%, supported by the non-oil sector. The inflation rate is projected at 2.0%, and monetary policy is expected to continue to be accommodative until the end of 2020. Over the medium term, GDP growth is expected to maintain the same pace of growth, largely supported by growth in the non-oil sector.

    ECONOMIC UPDATE

    Global Growth (%) Year over year Q4 over Q4

    Est. Projections Difference from Oct 2019 Est. Projections

    2018 2019 2020 2021 2020 2021 2019 2020 2021

    World Output 3.6 2.9 3.3 3.4 –0.1 –0.2 2.9 3.5 3.3

    Advanced Economies 2.2 1.7 1.6 1.6 –0.1 - 1.5 1.9 1.4

    United States 2.9 2.3 2.0 1.7 –0.1 - 2.3 2.0 1.6

    Euro Area 1.9 1.2 1.3 1.4 –0.1 - 1.0 1.7 1.2

    Other Advanced Economies 2.6 1.5 1.9 2.4 –0.1 0.1 1.4 2.4 2.3

    Emerging Markets 4.5 3.7 4.4 4.6 –0.2 –0.2 4.0 4.8 4.8

    China 6.6 6.1 6.0 5.8 0.2 –0.1 5.9 5.9 5.8

    India 6.8 4.8 5.8 6.5 –1.2 –0.9 4.3 6.9 6.1

    Middle East and Central Asia 1.9 0.8 2.8 3.2 –0.1 -

    Saudi Arabia 2.4 0.2 1.9 2.2 –0.3 - –0.9 2.7 2.2

    Source: IMF

  • 7

    BOARD OF DIRECTOR’S REPORT 2019

    Oil ---------

    Oil prices were volatile in 2019, ranging between US$53.8 and US$74.6. The Phase One trade agreement between the US and China, production compliance by OPEC+ and the decline in supply from Libya and Iran supported oil prices in the second half of 2019, with Brent closing the year with a gain of 22.7% at US$66. Oil prices averaged US$64.2 in 2019.

    Saudi Banks ---------

    During 2019, the banking sector remained healthy and robust. Capitalisation remained strong, with healthy liquidity levels, high credit quality, adequate financing coverage and a prudent regulatory environment that sustained sector profitability. Financing activity has been underpinned by a rapid expansion in real estate lending as a result of the Government’s Housing Program initiatives under Vision 2030. The Housing Program has ambitious home ownership goals of 60% by 2020 and 70% by 2030, compared to the baseline of 50% in 2016. An increase in customers’ deposits in 2019 provided more capacity for banks to grasp these opportunities. An acceleration in mega projects such as NEOM, Qiddiyah, the Red Sea Project, and others adds to the positive outlook for the Saudi banking sector.

    Saudi and Regional Markets ---------

    TASI traded in a broad range in 2019 with the index trading between 7,481 and 9,362 points. It reached a high of 9,362 in May 2019, driven by the inclusion in benchmark emerging markets indices, while the lowest point of 7,481 points was recorded in October 2019, post major inclusion events. Overall the market ended the year with a gain of +7.2% in 2019 vs +8.3% in 2018. This compares to an average return of +3.2% in the last 10 years.

    TASI was the fourth best performing market in the region. Kuwait was the top performer in the GCC, gaining +32.4%, followed by Bahrain (+20.4%) and Dubai (+9.3%). Oman’s market recorded a decline of (-7.9%).

  • 8

    BOARD OF DIRECTOR’S REPORT 2019

    02 Financial Results

  • 9

    BOARD OF DIRECTOR’S REPORT 2019

    NCB Capital’s consolidated operating income, for the year ended 31 December 2019 increased by 8.7% from SAR 724 million in 2018 to SAR 787 million, mainly due to higher Investment Banking Revenue and income from investments. Overall expenses were in line with budgeted SAR 326 million. The company ended the year with a net income before zakat of SAR 457 million against a net income of SAR 376 million in 2018. Total equity increased from SAR 1,149 million in 2018 to SAR 1,520 million in the year 2019.

    Total assets for the year 2019 stood at SAR 1,914 million (SAR 1,476 million in 2018) with investments increasing to SAR 970 million (SAR 693 million in 2018) and balances at banks of SAR 97 million (SAR 126 million in 2018).

    FINANCIAL RESULTS

    Statement of Financial Position 2019 2018 2017 2016 2015

    Amount in SR ‘000

    Assets

    Balances with banks 97,215 126,471 150,030 113,032 516,754

    Investments 970,364 693,315 736,939 832,699 911,420

    Investment in an associate 18,101 29,605 31,825 25,196 25,221

    Property and equipment 117,947 188,294 170,383 172,990 171,966

    Investment properties 77,333 - - - -

    Right of use of asset 11,715

    Margin Receivables 378,552 246,765 78,577 - -

    Prepayments and other assets 242,967 191,600 133,606 120,019 99,505

    Total assets 1,914,194 1,476,050 1,301,360 1,263,936 1,724,866

    Liabilities

    Amount due to National Commercial Bank 31,125 37,185 8,261 17,336 488

    Lease liabilities 12,039

    Bank borrowings 32,123

    Employee benefits 97,158 51,651 64,156 52,984 60,987

    Account payable and accruals 222,244 238,453 222,474 174,457 564,167

    Total liabilities 394,689 327,289 294,891 244,777 625,642

    Equity

    Share capital 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

    NCBC Funded Shares (246,004) (222,870) (213,698) (202,904) (181,215)

    Statutory reserve 209,248 167,248 134,248 104,248 80,248

    Other reserves (211) (26,609) 6,859 15,058 11,953

    Share based payments 5,901 51,434 22,938 19,173 10,194

    Retained earnings 540,833 169,790 45,485 73,046 165,293

    Non- Controlling interest 9,738 9,768 10,637 10,538 12,751

    Total equity 1,519,505 1,148,761 1,006,469 1,019,159 1,099,224

  • 10

    BOARD OF DIRECTOR’S REPORT 2019

    Statement of Profit or Loss 2019 2018 2017 2016 2015

    Amount in SR '000

    Fee from services, net

    Asset Management 502,244 512,185 442,728 322,526 363,526

    Brokerage 123,431 136,769 149,921 197,776 274,446

    Investment Banking 88,886 48,709 32,272 43,275 39,541

    Other operating income 72,281 25,932 23,396 18,559 2,049

    Total operating income 786,842 723,595 648,317 582,136 679,562

    Salaries and employee related expenses 219,925 229,173 217,955 207,558 227,648

    Depreciation 19,085 15,955 19,894 34,825 24,072

    Provision for impairment in available-for- sale i