Ahmed AlKharji, Acting Group Chief Executive Officer at Kuwait Finance House (KFH) highlighted the financial performance for H1 2020.
He added during the Earnings Webcast T1H2020 that KFH has, by the grace of Allah, reported net profit of KD 56.9 Million for the first half of 2020 for KFH shareholders; which represents a decrease of 47.1% compared to the same period last year. Yet and despite COVID-19 pandemic, KFH Group achieved an 18% increase in the Net financing income for the same period where the same reached KD 295.7 Million.
AlKharji said that net operating income for the first half of the year reached KD 267.6 Million which represent a growth of 11.2% compared to the same period last year. Total assets rose by KD 1.2 Billion to reach KD 20.6 Billion, representing a growth of 6.1% compared to end of last year 2019.
He pointed out that financing portfolio grew by 5.7% which is actually KD 528 million as an amount which will bring our financing portfolio to KD 9.9 Billion for the first half of this year. Investment in Sukuk for the first half of 2020 reached KD 3.4 Billion; an increase of KD 1.1 Billion representing a growth of 49.3% compared to end of last year 2019.
AlKharji indicated depositors accounts reached KD 14.6 Billion i.e., increasing by KD 1.0 Billion or 7.6% compared to the end of last year.
He said: “Needless to say, KFH enjoys a robust capital based reflected in capital adequacy ratio of 16.53% which is above the minimum required limit.”
Fahad Al-Mukhaizeem, Group Chief Strategy Officer
Meanwhile, Eng. Fahad Al-Mukhaizeem, Group Chief Strategy Officer, highlighted the Kuwait operating environment with an overview on KFH.
Al-Mukhaizeem pointed out that the Central Bank of Kuwait lowered the discount rate to 1.5% as a stimulus for the economy against the COVID-19 effect. On the other hand, the IMF expects around 1% decrease in GDP in 2020.
He added that KFH has supported the local economy during the coronavirus pandemic which included contributions to the dedicated government fund to combat the spread of COVID-19. KFH also postponed customer installments for six months providing further support for the corporates and SMEs. This comes in line with the KFH’s commitment to its social and national responsibility.
Al-Mukhaizeem indicated that KFH benefitted from its digital strategy & FinTech innovations which allowed for a smooth customer experience during lockdowns, and the successful activation of the business continuity plan in emergency cases.
He boasted KFH’s online services proved their efficiency to meet customer needs, indicating customers benefited from Swift GPI, online gold purchasing and selling, Kuwait Clearing Co. dividend subscriptions, cardless withdrawals using QR code through mobile, in addition to many other high-quality digital banking services online.
As an overview of KFH’s awards and ratings, Al-Mukhaizeem said that KFH won many prestigious awards. Fitch and Moody’s have affirmed long term ratings for KFH at A+ and A1 respectively. Moody’s have recently changed their outlook from Stable to Positive and put the rating under review.
Furthermore, Al-Mukhaizeem said that KFH, through its more than 521 branches, continues to participate locally and regionally in key mega projects in such vital sectors as energy, water, infrastructure, and construction.
Shadi Zahran, Group Chief Financial Officer
Shadi Zahran, Group Chief Financial Officer said: “Given that Kuwaiti banks including KFH didn’t publish financials for the first quarter of this year due to COVID 19 pandemic and local regulations, we will cover in this call In Sha’ Allah the financial performance for KFH group for first quarter 2020, and first half 2020. However, we will cover first the full period H1-2020 then move to the first quarter results separately at the end.”
Zahran added that KFH Group has achieved Net Profit After Tax (NPAT) attributable to Shareholders for the period ended 30th June 2020 of KD 56.9mn lower by KD (50.7) mn or (47.1%) compared to same period last year of KD 107.7mn.
The lower profits is mainly due to higher provisions including precautionary provisions on potential COVID-19 consequences considering the uncertainty from current unprecedented regional and global situation.
He added that the net financing income (NFI) has increased by KD 45.1mn or 18.0% compared to last year mainly on account of lower COF with significant improvement in Kuwait and Turkey.
The decrease in COF is due to decrease in benchmark rates, lower distributable profits impacting distribution to depositors, and the improvement in CASA deposits at group level.
Net Operating income at KD 267.6mn increased by KD 26.9mn or 11.2% compared to H1-19; the increase is mainly from Net Financing Income by KD 45.1mn and Net gain from Foreign currency transactions by KD 18.3mn offset by the decrease in Investment income by KD (24.2) mn and fees and commissions by KD (9.5)mn as a result of lower business and investment activities due to COVID 19 lockdown.
He went on to say that the decrease in investment income by KD (24.2) mn is mainly attributable to prior year’s gains, which led to drop in the contribution from investment income to total operating income to reach 9% compared to 15% last year. However, the other non-yielding income contribution remained at 21% of total operating income.
Total Operating Expenses at KD 152.1mn has increased slightly by KD 0.5mn or 0.3% compared to prior year same period.
Cost to income ratio improved further by 241bps to reach 36.24% compared to H1-19, due to increase in operating income while maintaining the group expenses at the same level.
Furthermore, at KFH-Kuwait, C/I ratio at 32.6% which is significantly below the local Islamic Banks average of 43.6% and lower than local conventional Banks average of 36.6% (this calculated from published financials for 2019)
Average Yielding Assets is up by 9.1% compared to 2019 and 10.3% compared to H1-19, resulted from the growth in Financing receivables and Sukuk. (avg. YoY financing receivables is up by KD 0.5bn and avg. Sukuk is up by KD 1.0bn)
Zahran indicated that the Group Net Financing Margin NFM at 3.22% shows a 19bps increase over H1-19 of average 3.03%.
Average Yield decreased by (80) bps due to drop in DR by CBK and Fed rates. However average COF declined by 99 bps due to increase in CASA in the major entities and drop in distributable profits.
Net Operating Income contribution from banking activities improved by 3% to form 93% of Group Net Operating income
He added: “Now, with regards to provisions, the group total provisions and impairment charge for the period increased by KD 86.2mn or 86.2% to reach KD 186.2mn. Higher financing receivables and investments provisions are mainly on account of conservative provisions on potential consequences of COVID-19 Total Assets at KD 20.6bn increased by KD 1.2bn or 6.1% over 6 months period. (9.8% compared to Jun 19).
He said that financing receivables at KD 9.9bn increased by 5.7% from Dec 2019, (6.8% compared to Jun 19). Significant portion of the Growth in financing receivables was during the first quarter “pre-COVID-19” and contributed mainly from Kuwait and Turkey while other international banking entities demonstrated slower growth.
I would like to highlight here that Group financing receivable is affected by the KD 96m modification loss on consumer and installments financing receivables deferral of 6 months.
During the period, in response to COVID-19 pandemic Kuwaiti banks agreed to provide 6 months payments deferral for consumer and installments financing without charging the customers additional profits.
Based on the regulatory directive issued by CBK as concessionary measures to mitigate the impact of COVID-19, the one-off modification losses of KD 96 mn arising due to the 6-months payments holiday has been recognized directly in equity. However, for capital adequacy ratio, CBK allowed to phase out this charge equally over 4 years starting from 2021
Investments in Sukuk at KD 3.4bn increased by KD 1.1bn or 49.3% since Dec-19 (58.1% compared to Jun 19) with major growth contribution from KTPB, mainly in Sovereign Sukuk.
The growth in Sukuk portfolio was mainly in response to rapid growth in deposits with limited good quality financing opportunities available within the Group’s overall Risk appetite in view of COVID-19.
The group achieved significant growth in deposits in H1-20 of KD 1.0bn or 7.6% (13.6% compared to Jun 19) with contribution from all banking operations reflecting depositors confidence in KFH group.
Additionally, the favorable deposits mix continues to show very healthy contribution from CASA deposits which now represents 50.5% of total group deposits as at the end of H1-20 compared to 44.3% at the end of 2019.
It is also worth mentioning that KFH Kuwait dominates local market in saving accounts with share of 40.0% (as per CBK latest published reports, May-20).
Customer deposits as a percentage of total deposits at 82.2% reflecting healthy funding mix and shows robust liquidity.
Looking at the key performance ratios for H1-20 compared to last year same period are as follow:
ROAA decrease from 1.23% to 0.67%
ROAE decrease from 11.63% to 5.80%
C/I improved from 38.65% to 36.24%, and
EPS decrease from 28.68 fils to 15.06 fils
NPL ratio increased to reach 2.23% (as per CBK calculation) in Jun-20 compared to 1.90% at Jun-19 (2019: 1.88%).
Coverage ratio (provision) for Group is 209% in H1-20 (2019: 231%).
moving to first quarter performance, Zahran said: “For the period ended 31st March 2020, The Group achieved Net Profit After Tax attributable to Shareholders of KD 44.3mn lower by KD (7.3) mn or (14.2%) compared to Q1-19 of KD 51.6mn. The lower profits were mainly due to higher provisions.
Net financing income (NFI) increased by KD 17.6mn or 13.7% compared to last year mainly on account of lower COF.
Net Operating income at KD 139.1mn increased by KD 20.9mn or 17.7% compared to Q1-19; the increase is mainly from Net Financing Income by KD 17.6mn and Net gain from foreign currency transactions by KD 8.9mn offset by the decrease in fees and commissions by KD (4.7) mn.
Zahran added that there was a slight increase in investment income by KD 0.5mn as compared to Q1-19, however investment income and other non-yielding income contribution to total operating income both remained at same level of last year.
Total Assets by end of first quarter reached KD 20.0bn representing an increase of KD 0.6bn or 3.2% compared to Dec 2019
He pointed out that financing receivables at KD 9.8bn increased by 4.9% over 3 months period (Q1-20 vs. 2019). Growth in financing receivables contributed from Kuwait, Turkey and Bahrain despite market competition and challenges during first quarter while other international banking entities demonstrated slower growth focusing on asset quality.
Investments in Sukuk reached KD 2.6bn as of 31st March 2020 representing an increase of KD 0.3bn or 12.2% since Dec-19, again with a major growth contribution from KTPB and mainly in Sovereign Sukuk.
The group deposits increased by KD 0.7bn or 5.3% during the first quarter of this year reaching KD 14.3bn, with contribution from all banking entities in KFH Group.
He concluded: “Customer deposits as a percentage of total deposits at 84.0% as at the end of Q1-20 reflects healthy funding mix and robust liquidity.”
Now, In the last slide looking at the key performance ratios for the first quarter 2020, compared to last year same period are as follow:
ROAA decrease from 1.38% to 1.07%
ROAE decrease from 11.26% to 8.79%
C/I improved from 39.98% to 36.82%, and
EPS decrease from 27.62 fils to 23.45 fils.