Kuwait Finance House (KFH) held the Q1-2023 Earnings Webcast.

KFH Acting Group CEO, Abdulwahab Iesa Al Rushood started his speech by highlighting the Bank’s financial performance during Q1-2023. He said that, by the grace of Allah, KFH reported historic net profit of KD 162.1 million for the first quarter of 2023 for KFH shareholders; an increase of 133.2% compared to the same period last year, taking into consideration the benefits of the acquisition. Earnings per share reached 11.06 fils; an increase of 67.6% compared to the same period last year.

He affirmed that KFH positive financial indicators across the board during the first quarter of 2023 confirms the successful and efficient strategy of the Bank, adding that KFH successfully maintained key ratios in terms of profitability, ROA, ROE, improving asset quality, the coverage ratio of provisions for non-performing debt, cost-to-income ratio as well as all key financial indicators. He emphasized the solid capital base and high liquidity ratios which KFH enjoys that support its business growth and enhances its credit strength.

Al Rushood also said that KFH is continuing its strategy to improve the role of core banking activities in achieving profitability and sustainable growth, keeping pace with developments in digitalization, artificial intelligence, innovation in financing and investment products and technology solutions, increasing investment in green Sukuk in the total financing portfolio, and linking investments to sustainable development goals.  In addition to KFH’s investment in human resources, supporting entrepreneurship and youth, and supporting SMEs, while the harmony between the Group's banking subsidiaries continues to boost KFH's leading position globally.

“The growth resulting from the successful acquisition of Ahli United Bank constitutes a driving force for KFH to achieve its ambitions, not to mention moving forward in its regional and international expansion to record significant growth ratios in profits and in customer service levels,” said Al Rushood.

He went on saying that KFH plays a prominent societal role characterized by diversity and inclusiveness, in a way that reinforces the implementation of sustainability criteria. KFH has implemented strategic social initiatives with added value and a real positive impact on society. The initiatives, for example, include KD 20 million debt settlement of defaulting debtors, KD 8 million reconstruction of Al Mubarakiya, and support for the "Kuwait is by your side" campaign to relief those affected by the earthquake in Turkiye and Syria with an amount of US$20 million, in addition to signing various agreements to support social and relief efforts. Moreover, KFH signed a Memorandum of Understanding with the United Nations Development Program (UNDP) to support sustainability efforts, and launched the (Keep it Green) program, which implements several sustainability initiatives under its umbrella, as well as KFH is the first bank in Kuwait to receive the GSAS-Gold Level certificate.

He indicated that KFH continues to lead in digital transformation, achieving a remarkable growth in the customers' use of digital banking services through KFHOnline on mobile and website, where the rate of increase in usage in Q1 2023 compared to the same period of the previous year reached about 43%. KFH will continue to lead the competition and be unique in offering innovative financial solutions that meet customers' aspirations and add to KFH's leadership locally and globally.

Further, Al Rushood noted that KFH has qualified talent and personnel that are able to implement the strategic goals of the bank. Indeed, the successful talent acquisition and development strategy of KFH resulted in having the largest number of Kuwaiti employees at the level of Kuwaiti banks and all private sector institutions, while the percentage of attracting Kuwaitis for new appointments reached nearly 100% in recent years.

He concluded by saying that KFH received global recognition for its outstanding innovative products and services, reliability, broad geographical outreach, digital development, solid financial position, and its strong brand. Accordingly, KFH won various awards, most notably: “Best Islamic Bank in the Middle East”, “Best Bank in Kuwait” and the Sustainability award in the Middle East from EMEA Finance magazine, as well as “Best Digital Offering in Kuwait” award from Islamic Finance News (IFN), in addition to many prestigious awards.

Group Chief Financial Officer – Shadi Zahran

Presenting the financial performance of KFH group for the first quarter of 2023, KFH Group Chief Financial Officer, Shadi Zahran said that the Group has achieved Net Profit After Tax attributable to Shareholders for the quarter ended 31st March 2023 of KD 162.1mn higher by KD 92.6mn or 133% compared to Q1-22 of KD 69.5mn. He explained that the higher profits are mainly from increase in total operating income and lower provisions partly offset by an increase in operating expenses, taxation and net monetary loss that resulted from the application of IAS-29 “Financial reporting in Hyperinflationary Economies” on the financial statements of Kuwait Turkish Participation Bank (KTPB).

Zahran presented details on key financial indicators saying that the Financing income has increased by KD 265.2mn or 115.2% compared to same period last year due to increase in yield and profit earning assets. Net financing income at KD 226mn increased by KD 66.9mn or 42.1% compared to same period last year mainly due to increase in financing income by KD 265.2mn offset by increase in finance cost and estimated distribution to depositors by KD 198.3mn.

Net Operating income at KD 251.2mn increased by KD 102.9mn or 69.5% compared to same period last year; mainly from increase in net financing income by KD 66.9mn, increase in Investment income by KD 62.5mn and increase in fees and commissions by KD 10.2mn offset by increase in operating expenses by KD 48mn.

Zahran noted that the Total Operating Expenses at KD 127.9mn is higher by KD 48mn primarily due to consolidation of AUB besides the impact of high inflation in Turkey.

Cost to income ratio for Q1-23 improved at 33.75% compared to 35.04% for Q1-22. The improvement in C/I ratio is mainly due to increase in operating income by KD 150.9mn. Group C/I ratio is one of the most improved among the Kuwaiti banks for Q-1 2023 and FY 2022 based on published results.

“Average Yielding Assets is up by 25.4% compared to FY2022 and 62.6% compared to Q1-22. The avg. financing receivables is up by KD 4.2bn and debt securities by KD 1.7bn compared to last year and by KD 7.9bn and KD 3.3bn respectively as compared to Q1-2022” said Zahran.

Looking at provisions and impairments, group total impairment charge decreased by KD 16.7mn or 41.4% to reach KD 23.7mn for Q1-23.

Gross credit provisions charge for Q1-23 amounted to KD 55.9mn higher by KD 31.1mn compared to Q1-22 of KD 24.8mn. This was mainly due to higher provisions recorded during the current period in line with group’s conservative approach towards provisioning in view of high recoveries from written-off financings receivables in Q1-23.

As for financial position, Zahran stated that Total Assets at KD 36.9bn marginally decreased by KD 115mn or 0.3% in Q1-23. 

Net financing receivables at KD 19.2bn increased by KD 319mn or 1.7%. Growth in financing receivables was achieved mainly in corporate banking segment, in our international operations, highlighting the importance of geographically diversified group.

Additionally, deposits for Q1-23 at KD 23.4bn are higher by KD 1bn or 4.3% compared to December 2022. Growth in deposits was achieved in all major group entities. The contribution from CASA deposits to total group deposits as at the end of Q1-23 is 44%.

Zahran said: “While we have noted some shift towards time deposits due to profit rate hikes, on overall basis this is not significant, and group continues to benefit from a large pool of low-cost deposits. Contribution of customer deposits to total funding reached 80.5% compared to 76.3% in 2022 due to increase in deposits during the current period.”

He added: “Looking at the key financial ratios which reflects improvement in all ratios due to increase profitability.”

• ROATE from 15.15% to 22.97%
• ROAA from 1.61% to 2.04%
• C/I ratio from 35.04% to 33.75%
• EPS from 6.60 fils to 11.06 fils

Group NPL ratio reached 1.49% (as per CBK calculation) in Q1-23, and Provisions Coverage ratio for the Group is 325% in Q1-23.

Group Chief Strategy Officer – Fahad Al-Mukhaizeem

KFH Group Chief Strategy Officer, Fahad Al-Mukhaizeem presented Kuwait operating environment with an overview on KFH performance and strategy during Q1-2023. He said that the International Monetary Fund (IMF) April 2023 forecasts Kuwait to register 8.2% GDP growth in 2022, and a positive growth in 2023. The annual inflation rate in Kuwait rose to 3.7% in March of 2023, from 3.2% in the previous month. This was the highest reading since August 2022.

He pointed out that the Central Bank of Kuwait Board of Directors decided to raise the discount rate by 50 bp from 3.5% to 4.0% effective January 26, 2023, bringing borrowing costs to the highest since September 2019.

Al-Mukhaizeem revealed that Standard & Poor's credit rating for Kuwait stands at A+ with stable outlook. Further, 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 stated 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, and Sustainability award in Middle east by EMEA Finance.

Al-Mukhaizeem pointed out that KFH ranked first among the largest listed companies on Boursa Kuwait in terms of a market capitalization approximately KD 11 billion at the end of Q1-2023.

The call was attended by:

• CI Capital
• HSBC
• EFG Hermes
• Moon Capital
• JP Morgan
• Abu Dhabi Investment Authority (ADIA)