Kuwait Finance House held its Q1-2021 earnings webcast.

AbdulWahab Al-Roshood, Acting Group Chief Executive Officer at KFH highlighted the Bank’s financial performance during Q1-2021 earnings webcast.

He said that KFH has, by the grace of Allah, reported net profit of KD 50.0 Million for the first quarter of 2021 for KFH shareholders; an increase of 12.9% compared to the same period last year.

Earnings per share for the first quarter of 2021 reached 5.97 fils; an increase of 12.6% compared to the same period last year.

 Net financing income for the first quarter of the year reached KD 153.6 Million; an increase of 5.3% compared to the same period last year.

Total operating expenses for the first quarter of the year dropped by 6.5% compared to the same period last year.

In addition, the capital adequacy ratio reached 16.98% which is above the minimum limit required by regulators.  This ratio confirms the solid financial position of KFH.

Al-Roshood pointed out that the Q1 results are positive and reflect the strong foundations of KFH to maintain a solid financial position, high quality assets, strong capital base and sustainable growth, offering shareholders and customers good profitability ratios despite the economic consequences of the pandemic.

He indicated that KFH`s healthy financial indicators are reflected in the growth of net operating income, financing portfolio, and stability of total assets and depositors’ accounts. This demonstrates the balanced and solid performance of KFH and emphasizes prudence in managing risks and the ability to deal with variables.

Al-Roshood said “Along with supporting small and medium enterprises, financing mega projects in different vital sectors and contributing to the development plans and projects in Kuwait and the region, KFH continues its leading national role in the economy and society as part of its sustainable development strategy.”

He added that in addition to its track record of contributions to the growth of Islamic finance industry where it operates, KFH has a wide experience in Sukuk issuances for banks, corporates and governments as well as financing mega infrastructure development projects, which contribute to economic progress and development of many financial products.

Shadi Zahran, Group Chief Financial Officer

Meanwhile, Shadi Zahran, Group Chief Financial Officer at KFH, highlighted the financial performance of Q1-2021, indicating the Group has achieved Net Profit After Tax attributable to Shareholders for the period ended 31st March 2021 of KD 50.0mn higher by KD 5.7mn or 12.9% compared to Q1-20 of KD 44.3mn.

Zahran said the higher profits are mainly from higher Net Financing income, lower provisions together with lower operating expenses offset by lower investment income.

He added that the net financing income has increased by KD 7.8mn or 5.3% compared to same period last year primarily due to lower cost of funds in Kuwait. That is mainly due to decrease in benchmark rates across the globe, and the improvement in CASA deposits at Kuwait and group level.

Net Operating income at KD 127.6mn decreased by KD (11.5)mn or 8.2% compared to same period last year; the decrease is mainly from Investment income by KD (22.5)mn offset by the increase in Net Financing Income by KD 7.8mn and lower operating expenses by KD (5.3)mn.

The decrease in investment income by KD (22.5)mn is mainly due loss on Islamic derivative transactions (mainly currency & commodity swaps entered by our subsidiary Kuwait Turk) partly offset by increase in other investment income.

As a result of the increase in net financing income and lower investment income, contribution of net financing income to operating income increased from 66% to 76%.

Zahran pointed out that non-financing income dropped from KD 74.3mn last year to KD 49.8mn lower by 33% mainly due to lower investment income by KD (22.5)mn.

He said: “Total Operating Expenses at KD 75.8mn has decreased by KD (5.3) mn or (6.5)% compared to prior year. The decrease is due to both; lower staff cost by KD 1.2mn, and lower G&A expenses by KD 4.5mn as the Group has managed to rationalize certain expenses on account of COVID-19 enforced changes to normal business activities.”

The reduction in operating income which was partly off-set by the reduction in operating cost resulted in slight increase in Cost to income ratio to reach 37.26% compared to 36.82% for Q1 - 2020 (However, full year 2020 was at the same level of 37.21%).

Zahran indicated that at KFH-Kuwait, C/I ratio at 30.3% is still below both the local Islamic Banks average of 43% and local conventional Banks average of 40.3% (calculated from published financials for full year 2020)

Average Yielding Assets is up by 2.7% compared to 2020 and 5.2% compared to first quarter 2020, resulted from the growth in both; Financing receivables and Sukuk. (avg. financing receivables is up by KD 0.5bn and avg. Sukuk is up by KD 0.3bn)

Group NFM at 3.15% shows (9) bps decrease compared to Q1-20 average of 3.24%.

Average Yield decreased by (45) bps due to the drop in DR by CBK and Fed rates. However, average COF decline by 36bps due to increase in CASA deposits in the major entities of the group and lower benchmark rates compared to Q1- 20.

Zahran said that looking at the provisions and impairments, group total impairment charge decreased by KD 18.8mn or 25.1% to reach KD 56.1mn for Q1-21.

Credit provisions charge net of recoveries for Q1- 21 amounted to KD 47.9mn a decrease of KD 4.9mn from KD 52.8mn in Q1 - 2020. The lower provision compared to Q1 - 2020 is due to improvement in economic activity during the current period.

Zahran pointed out that impairment related to investments and others reduced by KD 13.9mn with net charge of KD 8.2mn recorded in Q1 - 2021 compared to charge of KD 22.1mn in Q1- 20. This decline is mainly due to reversal of ECL expected credit losses on Sukuk portfolio of KD 10.3mn during the current period reflecting improvement in macro-economic factors.

He explained that the Group has continued to adopt cautious approach towards provisioning and recorded precautionary general provisions to address the COVID -19 related uncertainties.

He highlighted that the current credit provisions level in KFH group books exceeds ECL required as per CBK IFRS 9 by KD 245.8 million as of March 2021.

Total Assets at KD 21.2bn decreased by KD (0.3) bn or (1.3)% in Q1-21.

Financing receivables at KD 10.9bn increased by 1.1%

Growth in financing receivables mainly in Kuwait from both segments; Corporate and Retail, while decline in Turkey was mainly due to the devaluation of Turkish Lira. Overall group growth in financing receivable for first quarter excluding impact of TL devaluation was around 2.3%.

Investments in Sukuk at KD 2.7bn is maintained at same level of Dec 2020.

Deposits for Q1-21 at KD 15.3bn remained at 2020 level. Growth in Deposits for first quarter 2021 excluding the impact of Turkish Lira devaluation was 0.5%.

Zahran said that the group was able to maintain favorable deposits mix with healthy contribution from CASA deposits at 53.4% of total group deposits as at the end of Q1-21 – Same level of Dec 2020.

KFH Kuwait dominates the saving accounts with market share of 40.7% (as per CBK latest published reports, February-21).

Customer deposits as a percentage of total funding at 83.6% reflects healthy funding mix and shows robust liquidity.

In the last slide, looking at the key performance ratios which reflects improvement in profitability are as follows.

• ROAE from 8.79% to 10.67%
• ROAA from 1.07% to 1.17%
• C/I increased slightly from 36.82% to 37.26%, however full year 2020 was same level of 37.21%
• EPS from 5.3 fils to 5.97 fils

Fahad Al-Mukhaizeem, Group Chief Strategy Officer

Meanwhile, Fahad Al-Mukhaizeem, Group Chief Strategy Officer covered highlights of the Kuwait operating environment with an overview on KFH. He also shared KFH's strategy. Al-Mukhaizeem said that in the first months of 2021, the International Monetary Fund predicted a global economic recovery driven by increased government spending and vaccination rates. The number of vaccinated people in the State of Kuwait has reached more than one million, approximately 25% of the total population, which will accelerate the return of normal life in the foreseeable future. As a stimulus step for the Kuwaiti economy and to reduce the burden on citizens, banks have postponed the repayment of loans for a period of 6 months.

He added that with the government referring a bill to open an additional appropriation in the budget for the fiscal year 2020-2021 at an amount of 600 million dinars to cover front-line bonuses, in addition to expenses for facing the outbreak of the epidemic (500 million dinars), spending this year has become the largest in the history of Kuwait (24.1 billion Kuwaiti dinars).

Al-Mukhaizeem pointed out that for interest rates, the Central Bank of Kuwait kept interest rate at 1.5% after the last cut of 100 basis points on 16th of March 2020.

He added that “KFH” enjoys a high creditworthiness, Fitch Ratings affirmed Kuwait Finance House Long-Term Issuer Default Rating at 'A+' with a Negative Outlook as a result of revising the outlooks on 11 Kuwaiti banks to Negative from Stable, following a similar action on Kuwait's sovereign rating on 2 February 2021, and Moody’s assigned A2 long-term deposit rating with a Stable Outlook.  In addition, KFH Group has recently been named as the Best Islamic Financial Institution in the World by Global Finance Magazine.

Al-Mukhaizeem noted that KFH keeps focusing on developing the products and services provided to its customers and is keen to continue adopting banking digitization in collaboration with FinTechs, employing Artifactual Intelligence and robotics, and keeping pace with developments in the global banking industry.

He added that the digital services offered by KFH accelerated through launching a series of innovative digital banking solutions. These solutions include for example and not limited to: “opening bank account online” service for citizens and residents, digital signature service in personal financing products that includes the electronic handling of all paper documents for personal finance transactions, instant transfer using "RippleNet" network and Swift GPI service through KFHOnline. In addition, KFH was the first bank in the world to use NCR Hybrid Solution to instantly issue banking cards without a prior request.