Acting Group Chief Executive Officer (AGCEO), Group Chief Financial Officer (GCFO), at Kuwait Finance House (KFH), Shadi Zahran, highlighted the Bank’s financial performance during 9M-2022.

Zahran explained, during KFH earnings webcast of Q3-2022, that by the grace of Allah, KFH has reported net profit attributable to shareholders of KD 205.8 million for 9M 2022; with an increase of 22.4% compared to same period of last year.

He said that earnings per share for 9M 2022 reached 21.9 fils; with an increase of 19.9% compared to same period of last year.

Net financing income for the 9M of the year reached KD 508.5 million; with an increase of 14.8% compared to same period of last year.

Zahran added that KFH achieved strong financial results despite of challenging macro-economic environment with high inflation, economic slow-down and fear of recession. Our strong results are driven by our customer centric approach with focus on high quality products and services, diversification, and sustainability of earnings.

Zahran pointed out that KFH achieved growth in all key performance indicators including earnings, liquidity, capitalization, besides the continuous improvement in asset quality.

KFH achieved a key milestone and successfully completed acquisition of Ahli United Bank B.S.C. transaction effective date was 2nd of Oct 2022. The acquisition of AUB is a transformational transaction for KFH and brings significant benefits to all stakeholders, including:

• Strengthen KFH’s leadership position in two home markets and Islamic banking industry
• Earnings accretion for KFH shareholders
• Propels KFH’s regional footprint with access to new markets (including UK and Egypt),
• Enhancement of business segments mix and geographic distribution
• Significant operational efficiencies

Zahran said that KFH’s focus remains on automation and digitalization including use of Robotics Process Automation (RPA) and Artificial Intelligence (AI) in banking operations to enhance performance and efficiency.

To achieve this KFH has entered into strategic partnerships and agreements with several innovative digital solutions providers and Fintech companies.

KFH has proven its commitment and leadership in Corporate Social Responsibility (CSR) by participating in various community, relief, and humanitarian initiatives inside and outside Kuwait. These include:

• Restoration of the damaged parts of Al-Mubarakiya to rehabilitate the market in a manner that befits Kuwait and its ancient heritage,
• Paying off the debts to release defaulting debtors,
• In addition to community initiatives in various fields such as health, education, environment, persons with special needs, and more.
• KFH also participated in various social campaigns in collaboration with the Kuwaiti Red Crescent, with whom we have a strategic partnership to implement relief and community initiatives.

Zahran indicated that KFH continues its role and endeavor in supporting national economy by participating in major development projects in the GCC and international markets in various fields. KFH also plays the role of lead arranger of major syndicated facilities for institutions and governments.

With this, let me ask my colleague Mr. Jamal Alhumiari – Deputy General Manager Group Financial Control.

Group Chief Strategy Officer, Fahad Al-Mukhaizeem

Meanwhile, Group Chief Strategy Officer (GCSO) at KFH, Eng. Fahad Khaled Al-Mukhaizeem, covered highlights of the Kuwait operating environment with an overview on KFH. He also shared KFH's strategy, as well as Q3-2022 results.

Al-Mukhaizeem added that the latest International Monetary Fund (IMF) October 2022 forecasts Kuwait to register 8.7% GDP growth in 2022, the highest growth among all the GCC countries, and better than their forecast in April 2022 which was 8.2%. The notable expected growth is supported by the high oil prices and large reserve funds. Despite the high inflation period Globally, Kuwait inflation registered a slowing down for the fourth straight month to 4.15% in August of 2022 from 4.24% in the previous month.

He pointed out that the Central Bank of Kuwait raised its key discount rate by 25 bps to 3.0% on September 21, 2022, bringing borrowing costs to the highest since September 2019.

Al-Mukhaizeem indicated that Standard & Poor's credit rating for Kuwait stands at A+ with stable outlook. Moody's credit rating for Kuwait was last set at A1 with stable outlook. Fitch's credit rating for Kuwait was last reported at AA- with stable outlook.

He said that KFH’s long term credit rating stands at “A” by Fitch with Stable Outlook, and at A2 by Moody’s with Stable outlook. In addition, KFH Group was recently named as the Best Islamic Financial Institution in the World and in the Middle East by Global Finance Magazine, and Best Treasury & Cash Management Bank in Kuwait by Global Finance Magazine. 

Al-Mukhaizeem explained that KFH ranked first among the largest listed companies on Boursa Kuwait in terms of a market capitalization exceeding KD 11 billion. KFH shares listed on Bahrain Bourse as part of the successful completion of KFH's acquisition of AUB-Bahrain which represented a historic chapter and the beginning of the journey for KFH as the largest Kuwaiti bank and the world`s second largest Islamic bank in terms of assets.

Deputy General Manager Group Financial Control, Jamal Alhumiari

Deputy General Manager Group Financial Control at KFH, Jamal Alhumiari presented the financial performance of KFH group for the nine months period ended 30 September 2022.

Alhumiari said that the Group has achieved Net Profit After Tax attributable to Shareholders for the period ended 30th September 2022 of KD 205.8mn higher by KD 37.7mn or 22.4% compared to 9M-21 of KD 168.1mn.

The higher profits are mainly from increase in total operating income and lower provisions partly offset by net monetary loss resulting from application of IAS-29 “Financial reporting in Hyperinflationary Economies” on the financial statements of Kuwait Turkish Participation Bank (KTPB).

Alhumiari said that the financing income has witnessed an increase by KD 128.4mn or 19.3% compared to same period last year mainly due to increase in yield and average profit earning assets.

Net financing income at KD 508.5mn increased by KD 65.5mn or 14.8% compared to same period last year mainly due to increase in financing income by KD 128.4mn offset by increase in finance cost and distribution to depositors by 62.9mn.

Net Operating income at KD 463.4mn increased by KD 99.1mn or 27.2% compared to same period last year; mainly from increase in net financing income by KD 65.5mn, increase in Investment income by KD 26.1mn and increase in fees and commissions by KD 10.3mn

Looking at the operating income profile, Alhumiari explained that the contribution of net financing income slightly declined from 75% in 9M-2021 to 73% in 9M-2022. This is mainly due to the increase in contribution of investment income to total operating income.

Alhumiari pointed out that the non-financing income at KD 189.5mn is 28.2% higher compared to same period last year mainly due to increase in investment income and fees & commissions.

Increase in investment income by KD 26.1mn is mainly due to lower losses incurred on Islamic derivative transactions (mainly swaps) entered by our subsidiary Kuwait Turk to fund TL short position.

Increase in fees and commissions by KD 10.3mn is primarily related to core banking activities mainly due to increase in transaction volume.

Total Operating Expenses at KD 234.6mn are KD 8.1mn or 3.6% higher than same period last year mainly due to increase in Staff costs and G&A. Increase is mainly attributable to higher inflation in Turkey.

Cost to income ratio for 9M 2022 was 33.61% compared to 38.34% for 9M 2021. Reduction in C/I ratio is mainly due to increase in operating income by KD 107.2mn or 18.1%.

C/I ratio of KFH-Kuwait for 9M 2022 was 32.08% which is below both the local Islamic Banks average of 48.9% and local conventional Banks average of 42.8% (calculated from published financials for H1-2022)

Alhumiari indicated that the average Yielding Assets is up by 5.3% compared to FY2021 and 6.2% compared to 9M-2021, mainly from the growth in Financing receivables (avg. financing receivables are up by KD 0.8bn compared to 2021 and by KD 0.9bn compared to 9M-21)

Group NFM for 9M 2022 at 3.23% is higher by 30bps compared to 9M 2021. Average Yield improved by 72bps while average COF also increased by 42bps. Improvement in NFM is due to increase in local and international benchmark rates and higher yield from inflation linked Turkish Sukuk as a result of high inflation.

Looking at provisions and impairments, group total impairment charge decreased by KD 58.6mn or 49.6% to reach KD 59.6mn for 9M-2022.

Alhumiari pointed out that credit provisions charge net of recoveries for 9M-2022 amounted to KD 8.5mn lower by KD 104.7mn compared to KD 113.2mn in 9M-21. Reduction in provision on credit compared to same period last year is mainly reflecting the improvement in assets quality involving recoveries in addition to lower precautionary provisions in the view of continuous improvement in group asset quality and coverage ratio.

He added that impairment related to investments and others for 9M-2022 amounted to KD 51.1mn, an increase of KD 46.1mn compared to 9M-2021. This is mainly due to increase in ECL charge on investment in Sukuk by KD 41.3mn.

Alhumiari said that during the current period group has recorded ECL of KD 25.4 mn on Investments in Sukuk mainly on account of downgrade in sovereign rating of Turkey compared to ECL reversal of KD 15.9mn recorded during the 9 months period ended 30 Sept 2021 which was attributable to improvement in macro-economic factors.

Additionally in Q-1 2022, group recorded pre-cautionary provision of KD 10mn against group real estate exposure in view of potential negative impact of Russia-Ukraine Conflict.

Alhumiari emphasized that KFH adopts cautious approach towards provisioning. This has contributed to credit provision balance exceeding ECL required as per CBK IFRS 9 by KD 382mn as of 30 September 2022.

Moving to the Net Monetary Loss chart, Alhumiari explained that during the current period Turkish economy was classified as Hyperinflationary economy. Application of IAS-29 on the financial statements of KTPB resulted in recognition of net monetary loss of KD 85.2 million in the current period.

Alhumiari noted that the total assets at KD 22.7bn increased by KD 0.9bn or 4.0% in 9M-2022. Net financing receivables at KD 12.5bn increased by 9.8%. Growth in financing receivables is mainly in Kuwait in both; Corporate and Retail while growth in Turkey suffered from devaluation of Turkish Lira during the current period. Overall growth in financing receivable in 9M 2022 without impact of TL devaluation was around 14.5%. Investments in Sukuk at KD 3.1bn has increased by KD 0.35bn or 12.7%. Additionally, deposits for 9M-22 at KD 15.9bn are slightly lower by KD 9m or 0.1% compared to FY 2021 level. Growth in deposits without impact of decline in Turkish Lira was 3.3%. The group was able to maintain favorable deposits mix with healthy contribution from CASA deposits at 52.6% of total group deposits as at the end of 9M-22. Customer deposits as a percentage of total funding at 82.2% reflects healthy funding mix and shows robust liquidity.

Alhumiari said: “In the last slide looking at the key performance ratios which reflects improvement in profitability as explained earlier.

• ROAE from 11.82% to 14.29%
• ROAA from 1.31% to 1.49%
• C/I ratio from 38.34% to 33.61%
• EPS from 18.26 fils to 21.90 fils

Alhumiari pointed out that the NPL ratio improved to reach 1.35% (as per CBK calculation) in 9M-22 compared to 1.60% for 2021. Provisions Coverage ratio for Group is 382% in 9M-22 compared to 326% for 2021.