GIB announces 2008 financial results

At the same time, GIB announced that it had sold a significant portion of its non-core international securities portfolio.

GIB recorded a pre-provision operating profit of $179.8m for 2008. This was 11% lower than in the previous year despite the unprecedented market turmoil and deteriorating global economic environment witnessed during the year. Total income at $322.7m was 6% down on 2007 while total expenses were at much the same level as in the prior year.

Net interest income at $288.3m was 6% lower than in the prior year largely reflecting reduced investment security volumes resulting from ongoing maturities.

Fee and commission income at $73.3m was 17% down on the prior year. This was nevertheless the second highest level of fee income in the Bank's history, reflecting fees derived from a diversified range of business activities including asset and fund management, letters of credit and guarantee, and corporate advisory.

In keeping with GIB's traditional conservative approach to provisioning, the Bank made a significant addition to its non-specific loan provision in 2008. In view of the prevailing economic conditions, the Bank increased its non-specific loan provision to a level consistent with probabilities of default equating to the previous highest ever corporate default levels that were witnessed in 1991.

As a result, the non-specific loan provision was increased by $120m to $180m at the end of 2008. This high provisioning level will provide a conservative buffer as the Bank could face a challenging environment in 2009.

After taking account of the exceptional loan loss provision charge, and provisions for investment securities that have subsequently been sold, as referred to in a later section, the Bank recorded a net loss of $396.2m. This was a marked improvement over the net loss of $757.3m recorded in 2007. The net loss for the fourth quarter was $248.0m being largely attributable to the exceptional loan provision charge.

GIB's Chairman, H.E. Jammaz Bin Abdullah Al-Suhaimi commented, "The last two years have been a turbulent time for all banks that are active at an international level. GIB has not been immune from the adverse impact of the global credit crisis and the sharp deterioration in the markets following the collapse of Lehman Brothers in September 2008. Without doubt, 2008 proved to be one of the most challenging in the Group's history."

H.E. Al-Suhaimi continued, "Accordingly, the Bank implemented a number of important initiatives during 2008, designed to strengthen its ability to meet current and future challenges, and protect the interests of its stakeholders. The most important of these was the sale of a significant portion of its non-core international securities portfolio, effective 31st December 2008."

"The sold securities comprised the Bank's entire exposure to collateralized debt obligations and other asset backed securities, investments in financial institution subordinated debt, and certain financial institution senior debt. Following the sale, GIB had no exposure to collateralized debt obligations or other asset backed securities," Al-Suhaimi said.

"This transaction protects the Bank from any future losses from these securities, materially delevers and de-risks the balance sheet, reduces risk-weighted assets resulting in a significant enhancement of the Bank's regulatory capital adequacy ratios, and eliminates the funding risks of the assets," Al-Suhaimi added.

He added, "in conjunction with the action taken in relation to the non-core securities portfolio, the Bank is reviewing and enhancing its business model and strategy. As a consequence, it will be upgrading its operations and processes in order to deepen relationships with its clients, allowing them to access the full suite of products and services provided by the Bank. A key objective of the new strategy will be to access a broader customer base. Accordingly, GIB will be looking to expand regionally in new business lines and activities. In parallel, the Bank is also undertaking initiatives to optimise resources and align its cost base commensurate with the new business model and environment."

Dr. Yahya Bin Abdullah Alyahya, GIB's Chief Executive Officer said, "This proactive and bold action will enable the Bank to focus on its successful core business activities, continue to strengthen its GCC merchant banking franchise, and further enhance its professional reputation as one of the region's leading financial institutions."

"I am pleased to report that despite the unprecedented financial pressures, GIB has proven to be able to meet challenging circumstances and provide first class customer service regardless of the market and economic conditions. With the de-risking of its balance sheet, GIB is now in a stronger position to resume its market leadership and support clients in the most effective way," said Dr. Alyahya.

He added, "GIB has strengthened its capital ratios and as a result is highly capitalised. The Bank's Basel 2 Total and Tier 1 capital adequacy ratios at 31st December 2008 were 17.3% and 12.5% respectively. These are both exceptionally high by international comparison, underscoring the Bank's intrinsic financial strength."

GIB also took other steps in 2008 to strengthen the Bank's position. The Bank's UK subsidiary, GIBUK, implemented a strategy of focusing on client asset management and treasury services. In this context, GIBUK's proprietary trading activities were discontinued thereby insulating GIBUK from the severe market volatility witnessed in the latter part of the year.

Consolidated total assets at 31st December 2008 were $25.0bn being $4.9bn lower than at the end of 2007. The year-on-year decrease was largely due to decreases in trading securities, largely resulting from the closure of proprietary trading positions in the first quarter of the year, and investment securities due to maturities and redemptions during the year.

Loans and advances at the 2008 year end were at much the same level as at the end of 2007 reflecting a more cautious approach to the extension of credit in the prevailing economic environment.

Gulf International Bank (GIB) is a leading merchant bank in the Middle East with its principal focus on the Gulf Cooperation Council (GCC) states. The Bank is owned by the six GCC governments, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, and the Saudi Arabian Monetary Agency (SAMA).

In addition to its main subsidiary Gulf International Bank (UK) Ltd., the Bank has branches in London, New York, Riyadh and Jeddah, in addition to representative offices in Beirut and Abu Dhabi.