Kuwait Finance House (KFH) held the H1-2022 earnings webcast. During the webcast, Acting Group Chief Executive Officer (AGCEO), Group Chief Financial Officer (GCFO), Shadi Zahran, highlighted the Bank’s financial performance during H1-2022.
Zahran said: “By the grace of Allah, KFH has reported net profit attributable to shareholders of KD 138.1 million for the first half of 2022; with an increase of 35.1% compared to same period of last year.
He added that earnings per share for the first half of 2022 reached 14.55 fils; with an increase of 31.1% compared to same period of last year.
Net financing income for the first half of the year reached KD 320.2 million; with an increase of 9.7% compared to same period of last year.
Zahran confirmed that KFH delivered strong performance during the six months ended 30th June 2022 despite highly competitive domestic environment and challenging global environment with concerns around prolonged adverse impact of Russia Ukraine war on global economic forecast, high inflation rates, supply chain disruptions and rising fuel prices.
Zahran added: “Our success is based on customer centric approach which focuses on providing high-quality services, products, and financial solutions to our customers at par with the highest industry standards. KFH overall strategy and prudent policies have played an instrumental role in enhancing KFH market share while ensuring sustainability of earnings and improvement in assets quality. KFH is well placed to future challenges and capitalize on any potential opportunities.”
He reiterated that KFH continues to invest in technology by adopting the latest innovations in FinTech, using AI, and providing unique and wide range of mobile banking services. This supports the digital development in the industry and successfully activate business continuity plan.
Zahran pointed out that KFH seeks to deepen its role in SMEs sector and in supporting youth, as they are main contributors to sustainability and among the most prominent pillars of KFH strategy during the coming period.
He said that KFH is well recognised for its contribution to Islamic Banking industry and continues to win many prestigious awards and prizes. Recently, KFH was voted as World’s Best Islamic Financial Institution by Global Finance. Also, KFH was ranked first in Kuwait in terms of market capitalization on MEED`s list of the MENA`s top 100 listed companies.
Zahran added: “A key development for this quarter was the classification of Turkish economy as hyperinflationary. Turkey annualized increase in inflation was 78.62% as of end of June 2022 while the forecast for average annual inflation as per Fitch for 2022 is expected to reduce to 71.4%.
With regards to Acquisition of Ahli United Bank, he said: “as recently disclosed, KFH shareholders AGM with representation of 83% has approved the acquisition. KFH also obtained the regulatory approvals including CBK, CBB, and CMA. For more details regarding this subject, you may refer to our recent disclosures which were published via the official website of Boursa Kuwait. As usual, we will share any future development as and when it becomes available.
Group Chief Strategy Officer- Fahad Al-Mukhaizeem:
Meanwhile, Group Chief Strategy Officer- Fahad Khaled Al-Mukhaizeem, covered highlights of the Kuwait operating environment with an overview on KFH. He also shared KFH's strategy.
Al-Mukhaizeem added:” A period of high global oil prices will support higher fiscal spending in Kuwait and allow the budget to return to substantial surpluses after the previous years of deficits. This may alleviate pressure on the government with regards to subsidy cuts and the reduction of the public-sector payroll. The current account is expected to register sizable surpluses in the coming years according to EIU. Significant opportunities will remain in a number of business sectors in the Kuwaiti market, due to the sustained oil prices which are expected to drive real growth.
Al-Mukhaizeem indicated that the Central Bank of Kuwait raised its key discount rate by 25bps to 2.5% on July 27th 2022, after the US Federal Reserve hiked its fed funds rate by 75bps on the same day to stem inflation pressures.
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.
Al-Mukhaizeem explained 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.
He added that KFH is moving forward with digital transformation efforts and offering unique digital financial solutions that exceed customers’ expectations. This is a major pillar of the bank’s strategy which is being implemented across the group and represented by the continued double digit increase in the growth rate of online users.
Deputy General Manager Group Financial Control- Yameen Abdulsattar
Meanwhile, Deputy General Manager Group Financial Control- Yameen Abdulsattar presented the financial performance of KFH group for the first half of 2022.
He explained that the Group has achieved Net Profit After Tax attributable to Shareholders for the first six months ended 30th June 2022 of KD 138.1mn higher by KD 35.9mn or 35% compared to H1-21 of KD 102.2mn.
Abdulsattar said that the higher profits is 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).
He added that financing income has witnessed an increase by KD 45.4mn or 10.4% compared to same period last year mainly due to increase in yield and average profit earning assets.
Net financing income at KD 320.2mn increased by KD 28.4mn or 9.7% compared to same period last year mainly due to increase in financing income by KD 45.4mn offset by increase in finance cost and distribution to depositors by 17mn.
Abdulsattar pointed out that net operating income at KD 308.3mn increased by KD 60.3mn or 24.3% compared to same period last year; mainly from increase in net financing income by KD 28.4mn, increase in net gain from foreign currencies by KD 13.6mn and increase in Investment income by KD 8.6mn
Abdulsattar explained that contribution of net financing income declined from 73% in H1-2021 to 70% in H1-2022. This is mainly due to the increase in contribution of investment income and other non-yielding income as compared to net financing income.
He added that non-financing income at KD 137.5mn is 27% higher compared to same period last year mainly due to higher net gains from foreign currencies and investment income.
Abdulsattar further elaborated that the increase in net gains from foreign currencies by KD 13.6mn is due to higher FX trading income mainly from Kuwait Turk due to increase in volume and margin as a result of volatility in Turkish Lira during the period. Increase in investment income by KD 8.6mn is mainly due to lower losses incurred on Islamic derivative transactions (mainly swaps) entered by our subsidiary Kuwait Turk to fund TL short position.
He added that the total Operating Expenses at KD 149.4mn are KD 2.7mn or 1.8% lower than same period last year mainly due to lower depreciation and amortization.
Cost to income ratio for H-1 2022 was 32.64% compared to 38.01% for H-1 2021. Reduction in C/I ratio is mainly due to increase in operating income by KD 57.7mn or 14.4%.
C/I ratio of KFH-Kuwait for H-1 2022 was 30.97% which is below both the local Islamic Banks average of 47.9% and local conventional Banks average of 42.4% (calculated from published financials for Q1-22)
Average Yielding Assets is up by 4.9% compared to FY2021 and 7.3% compared to H1-2021, mainly from the growth in Financing receivables (avg. financing receivables is up by KD 0.7bn compared to 2021 and by KD 1.1bn compared to H1-21)
Abdulsattar said that the Group NFM for H-1 2022 at 3.08% is higher by 14bps compared to H-1 2021. Average Yield improved by 27bps while average COF also increased by 13bps. 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.
Abdulsattar pointed out that the Group total impairment charge decreased by KD 44.7mn or 49.7% to reach KD 45.2mn for H1-22.
Credit provisions charge net of recoveries for H1-22 amounted to KD 16.5mn lower by KD 76mn compared to KD 92.5mn in H1-21. Reduction in provision on credit compared to same period last year is mainly due to lower precautionary provisions in view of continuous improvement in group asset quality and coverage ratio.
Impairment related to investments and others for H1-22 amounted to KD 28.8mn, an increase of KD 31.3mn compared to H1-21. This is mainly due reversal of ECL on investment in Sukuk of KD 22.1mn in H1-21 which was attributable to improvement in macroeconomic factors post Covid-19 recovery. Additionally, group recorded pre-cautionary provision of KD 10mn during the current period against group real estate exposure in view of potential negative impact of Russia-Ukraine Conflict.
Abdulsattar emphasized again that KFH adopts cautious approach towards provisioning. This has contributed to credit provision balance exceeding ECL required as per CBK IFRS 9 by KD 388mn as of 30 June 2022.
Abdulsattar said: 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 46.1 million in the current period.
He highlighted that Total Assets at KD 22.8bn increased by KD 1.0bn or 4.6% in H1-22 while Net financing receivables at KD 12.2bn increased by 7.6%.
Abdulsattar added that growth in financing receivables is mainly in Kuwait in both; Corporate and Retail while growth in Turkey suffered from 32.3% devaluation of Turkish Lira during the current period. Overall growth in financing receivable in H-1 2022 without impact of TL devaluation was around 11.9%.
Investments in Sukuk at KD 2.9bn has increased by KD 0.2bn or 7.5%.
Additionally, deposits for H1-22 at KD 16bn are higher by KD 0.1bn or 0.8% compared to FY 2021 level. Growth in deposits without impact of decline in Turkish Lira was 3.9%.
The group was able to maintain favorable deposits mix with healthy contribution from CASA deposits at 54.0% of total group deposits as at the end of H1-22.
Customer deposits as a percentage of total funding at 82% reflects healthy funding mix and shows robust liquidity.
He explained that key performance ratios reflect improvement in profitability.
- ROAE from 10.90% to 14.64%
- ROAA from 1.28% to 1.61%
- C/I ratio from 38.01% to 32.64%
- EPS from 11.10 fils to 14.55 fils
NPL ratio improved to reach 1.42% (as per CBK calculation) in H1-22 compared to 1.60% for 2021. Provisions Coverage ratio for Group is 370% in H1-22 compared to 326% for 2021.