Acting Group Chief Executive Officer (GCEO) at Kuwait Finance House (KFH), AbdulWahab Al-Roshood, highlighted the Bank’s financial performance indicating KFH has, by the grace of Allah, reported net profit attributable to the shareholders of the bank of KD 148.40 million for the year ended 2020; a decrease of 40.9% compared to last year.

Al-Roshood said during KFH Earnings Webcast FY-2020 that was held on February 11 at 14:00 (Kuwait), that the net financing income for the year ended 2020 reached KD 614.22 million; an increase of 15.8% compared to last year.

Total operating expenses for the year ended 2020 reached KD 296.04 million; a decrease of 2.7% compared to last year.

He explained that due to the negative economic consequences resulted from the Corona virus pandemic, investment income for the year decreased by 105% compared to last year. Consequently, net operating income decreased to KD 499.56 million for the year ended 2020; a decrease of 2.1% compared to last year.

Cost to income ratio improved to reach 37.2% for the year ended 2020, compared to 37.4% for last year. Also, earnings per share for the year ended 2020 reached 19.52 fils; a decrease of 41.1% compared to last year.

Al-Roshood pointed out that the Board of Directors has proposed 10% cash dividends to shareholders and 10% bonus shares subject to general assembly and concerned authorities’ approval. Shareholders’ equity reached KD 1.936 billion at the end of year 2020.

Total assets increased to reach KD 21.502 billion, i.e., an increase of KD 2.111 billion or 10.9% compared to the end of last year.

Financing portfolio reached KD 10.748 billion, i.e., an increase of KD 1.274 billion or 13.4% compared to end of last year.

Investment in Sukuk reached KD 2.742 billion; an increase of KD 450 million i.e., a growth of 19.6 % compared to end of last year.

Depositors’ accounts reached KD 15.317 billion i.e., an increase of KD 1.765 billion or 13.0% compared to the end of last year.

In addition, the capital adequacy ratio reached 17.53% which is above the minimum required limit. This percentage confirms the solid financial position of KFH.

Al-Roshood said that despite the negative economic consequences of Coronavirus, the recent financial results confirm the successful strategy of KFH, its solid financial position, high creditworthiness, and efficient capability to handle the exceptional conditions.

He added that profit rates fell in 2020 because of the additional precautionary provisions taken by KFH in the face of Corona virus repercussions and to maintain good levels of asset quality and strong capital base.

Al-Roshood pointed out that KFH led the arrangement and marketing of the KD 400 million Islamic tranche in a mega KD 1 billion syndicated credit facility for KPC, in cooperation with Kuwaiti banks, where KFH contributed KD 304 million in financing.

He said that KFH succeeded in arranging several Sukuk issuances for many local and international banks as well as governments, noting that KFH Group led USD 500 million Sukuk for First Abu Dhabi Bank, KD 150 million Sukuk to Warba bank, the first Kuwaiti Dinar- denominated Sukuk issuance.

He added that KFH was involved in arranging deals including USD 750 million Sukuk for Boubyan, USD 500 million Sukuk for Bahrain Mumtalakat Holding Company ("Mumtalakat"), USD one billion Sukuk for Dubai Islamic Bank, USD 500 million Sukuk for Sharjah Islamic Bank and USD 50 million Sukuk for (KFH-Turkey).

For more details regarding the Acquisition, Al-Roshood explained that KFH has disclosed to the regulatory authorities and the market the latest developments in this regard, indicating all these disclosures were published via the official website of Boursa Kuwait and any new development will be updated as and when it comes available.

Shadi Zahran, Group Chief Financial Officer (GCFO)

Meanwhile, Group Chief Financial Officer (GCFO) at KFH, Shadi Zahran said that KFH Group has achieved Net Profit After Tax attributable to Shareholders for the year ended 31st December 2020 of KD 148.4mn lower by KD (102.6)mn or (40.9)% compared to LY 2019 of KD 251mn.

The lower profits are mainly due to lower investment income and higher provisions and impairments.

He added that net financing income has increased by KD 84mn or 15.8% compared to last year mainly due to lower Finance Cost in Kuwait and Turkey.

The decrease in Finance Cost is mainly due to decrease in benchmark rates across the globe, improvement in CASA deposits at Kuwait and group level, and lower distributable profits impacting distribution to depositors mainly Mudaraba depositors.

Net Operating income at KD 499.6mn decreased by KD (10.5)mn or 2.1% compared to last year; the decrease is mainly from Investment income by KD (136.7)mn and fees & commissions by KD (6)mn as a result of lower business and investment activities due to COVID 19 lockdown during 2020, offset by the increase in Net Financing Income by KD 84mn and Net Gain from Foreign Currencies by KD 35.9mn and lower operating expenses by KD (8.2)mn.

The decrease in investment income by KD (136.7)mn is mainly due to lower gains on sale of investments due to the adverse economic environment in 2020, in addition to loss on Islamic derivative transactions (mainly currency & commodity swaps entered by our subsidiary Kuwait Turk “KTPB”).

Zahran explained that KTPB enters into swaps in order to obtain TL funding while the associated cost is recorded under other investment income in accordance with the IFRS, however, for internal performance analysis and management reporting we consider this cost as part of financing cost.

He pointed out that the other non-yielding income contribution increased from 19% - 24%. With the impact of the COVID 19 related government support of KD 7.8mn reported under other income

As a result, the non-financing income dropped from KD 284.1mn last year to KD 181.4mn lower by 36.2%

Total Operating Expenses at KD 296mn has decreased by KD (8.2)mn or (2.7)% compared to prior year. The decrease is mainly due to lower staff cost by KD 10mn.

The reduction in operating income off-set by the reduction in operating cost leading to Cost to income ratio maintained at the same level of 37.21% (last year was 37.36%).

Zahran explained that Average Yielding Assets is up by 9% compared to 2019 and 16.3% compared to 2018, resulted from the growth in both Financing receivables and Sukuk. (avg. financing receivables is up by KD 0.8bn and avg. Sukuk is up by KD 0.6bn).

Group Net Financing Margin at 3.27% shows 17bps increase over 2019 average of 3.10%.

He added that Average Yield decreased by (80)bps due to the drop in Discount Rate by CBK and Fed rates. However, average Cost of Fund declined by 97bps due to increase in CASA deposits in the major entities of the group and drop in distributable profits for Mudaraba Deposits.

With regards to provisions, Zahran illustrated that the group total provisions and impairment charge increased by KD 87.2mn or 44.3% to reach KD 284.1mn for 2020.

He said that Credit provisions charge net of recoveries for the year at KD 159mn was at the same level as 2019, although last year KFH recorded KD60mn additional general provision against financing receivables of our subsidiary in Turkey, in view of adverse economic outlook. This provision still maintained in our books.

Zahran mentioned: “In 2020 the negative impact of COVID-19 was considered as part of KFH prudent approach towards provisioning. Also, in addition to recording specific provision against customer segments, the charge of the general provisions amounted to KD63mn includes significant precautionary general provisions charge over and above the minimum general provision requirement of CBK.”

He highlighted that the current credit provisions level in KFH group books exceeds ECL “Expected Credit Loss” required as per CBK IFRS 9 by KD 227.5 million as of Dec 2020.

With regards to Impairments against investments and others, he said that the charge at KD125mn was higher by KD86.9mn compared to 2019.

He said: “In the view of potential deterioration of banks assets quality and expected delay in economic recovery, prolonged adverse impact of COVID-19, The group investments and others impairment charge of KD125mn includes impairment on investments in associates and others of KD69.6mn whose operations were impacted in 2020 due to COVID-19 and government enforced lockdowns.”

Zahran added that the impairment charge also include: ECL “Expected Credit Loss” on Sukuk portfolio of KD 28.4 million; which is mainly due to the increase in portfolio and downgrade in sovereign ratings of Turkey and Bahrain during 2020 considering the majority of our investment in Sukuk is issued by sovereign.

And impairment of real estate of KD 27 million includes pre-cautionary impairment loss of KD 15 million over and above impairment losses recorded based on recent properties valuation.

Looking at the right side of the slide:

He pointed out that banking entities contribution to net operating income (before provisions) increased by 4% to form 99% and that reflects the higher impact of COVID 19 on the group non-banking entities operations.

Total Assets at KD 21.5bn increased by KD 2.1bn or 10.9% in 2020.

Financing receivables at KD 10.7bn increased by 13.4%

Zahran explained that growth in financing receivables witnessed in both; Corporate and Retail Banking and was mainly contributed with double digit growth from Kuwait, Turkey, and Bahrain, while other demonstrated slower growth with focus on asset quality.

Investments in Sukuk at KD 2.7bn increased by KD 0.5bn or 19.6% compared to last year 2019 with major growth contribution from Kuwait Turk Participation Bank in Sovereign Sukuk.

The growth in Financing Receivables and Sukuk portfolios followed similar positive growth in deposits in all markets which we operate in.

The growth in deposits for 2020 was KD 1.8bn or 13% reflecting depositors’ confidence in KFH group.

Zahran added that the favorable deposits mix continues to show very healthy contribution from CASA deposits which now represents 53.3% of total group deposits as at the end of 2020 compared to 44.3% at the end of 2019.

It is also worth to mention that KFH Kuwait dominates the saving accounts with market share of 40.4% (as per CBK latest published reports, November-20).

Customer deposits as a percentage of total funding at 82.4% reflects healthy funding mix and shows robust liquidity.

In the last slide looking at the key performance ratios which reflects the lower profitability due to COVID 19 impact,

• ROAE from 13.00% to 7.63%
• ROAA from 1.40% to 0.90%
• C/I slightly improved from 37.36% to 37.21%, and
• EPS from 33.12 fils to 19.52 fils

NPL ratio increased to reach 2.20% (as per CBK calculation) in 2020 compared to 1.88% for 2019. Provisions Coverage ratio for Group is 223% in 2020 compared to 231.5% for 2019.

Fahad Al-Mukhaizeem, Group Chief Strategy Officer (GCSO)

Group Chief Strategy Officer (GCSO) at KFH, Fahad Al-Mukhaizeem, covered highlights of the Kuwait operating environment with an overview on KFH. He also shared KFH's strategy, as well as year-end 2020 results.

Al-Mukhaizeem said during KFH Earnings Webcast FY-2020, that in 2020, the world witnessed many events that our generation had not witnessed before, such as the repercussions of the Covid 19 virus from general lockdown, and negative oil prices. The State of Kuwait was not immune to the repercussions of the pandemic, as the lockdown was carried out from March to September, and Kuwaiti banks postponed loan payments a period of 6 months, as a contribution to revive the economy and reduce burdens on citizens and residents.

He added that the Central Bank of Kuwait kept interest rate at 1.5% after the last cut of 100 basis points on the 16th of March 2020. On the other hand, according to the IMF latest forecasts, GDP growth is expected to witness a decrease in 2020 compared to a slight growth in 2019.

Al-Mukhaizeem indicated that Boursa Kuwait completed the Kuwaiti capital market’s inclusion into the MSCI Emerging Markets Indices with the successful implementation of the first tranche of index inclusion at the end of November 2020. He added that Boursa Kuwait has received also approval from the Capital Markets Authority to restructure its promotion requirements for its “Premier Market”.  He clarified that the new parameters are expected to raise transparency and increase the issuer base in the “Premier Market” by potentially increasing the number of mid to large sized companies in it, all of which will reflect positively on the development of the Kuwaiti capital market and benefit its investors.

Further, Al-Mukhaizeem pointed out that “KFH” enjoys a high creditworthiness, indicating Fitch Ratings affirmed Kuwait Finance House Long-Term Issuer Default Rating at 'A+' with a Stable Outlook, and Moody’s assigned A2 long-term deposit rating with a Stable Outlook as well.  In addition, KFH Group has recently been named the number one safest Islamic Bank in the GCC by Global Finance Magazine.

He said that KFH announced the successful launch of the digital service “opening bank account online” for new customers, citizens and residents within minutes without having to visit the branch. KFH inaugurated revamped Hateen and Airport branches featuring digital platforms, display screens, tablets and self-service interactive solutions.

Al-Mukhaizeem expressed pride at the efficiency of KFH`s digital services as transactions completed by its customers through KFHonline on the website or the mobile app exceeded 140 million transactions in 2020. This emphasizes the successful digital transformation strategy of KFH and its keenness to provide innovative banking solutions via mobile and alternative channels to enable customers to complete their transactions around the clock, from anywhere, easily and safely.

He concluded by confirming that KFH continues supporting the national economy, financing mega-projects (such as Oil and Gas) and contributing to the development plans and projects in Kuwait and the region.