Bank focuses on core banking business, growth in high quality assets

Mazin Saad Al-Nahedh

KUWAIT: Group Chief Executive Officer at Kuwait Finance House (KFH), Mazin Saad Al-Nahedh said that 91 percent of the total profits of the first half of 2018 came from core earnings compared to 83 percent over the same period last year. This reiterates the success in implementing the bank's strategy of focusing on core banking business and achieving sustainable profitability.

Al-Nahedh's statement was made during TV interviews to comment on the bank's H1 2018 financial results. He added that KFH has reported net profits to shareholders of KD 95.22 million for the first half of 2018, an increase of 16.6 percent over the same period last year.

He attributed the growth in net profits mainly to revenue items from the core banking business. Net financing income for H1 this year reached KD 278 million i.e. a growth of 31.8 percent compared to the same period last year. Total operating income for the first half of this year reached KD 390 million, i.e. an increase by 13.6 percent and net operating income reached KD 236 million, i.e. a growth of 17.7 percent compared to the same period last year. He pointed out that the rise in interest rates on the growth of profit margins has a positive impact on the growth in profits.

Al-Nahedh added that the total provisions for Group reached KD 717.5 million as of end of H1 2018, indicating the non-performing facilities for the Group remained constant at 2.83 percent with a slight deviation from the end of 2017. The total debt coverage is 283 percent and 168 percent for KFH solo and the Group respectively for the first half of 2018.

He explained that maintaining growth is by focusing on core banking business, growth in high quality assets, and optimizing cost in addition to focusing on financing government projects, which contributes to adding value to the national economy. The cost to income ratio decreased to 39.5 percent for the first half of 2018, compared to 41.6 percent for the same period last year, and over 50 percent in 2014.

Al-Nahedh said that KFH exited non-core assets of KD 120 million in 2017 and KD 17.2 million in H1 2018. KFH will continue its strategy of exiting non-core assets while focusing on core banking business. KFH targets the divestiture of non-core assets amounting to KD 140-150 million this year. He stressed that the goal of the exit is to preserve the rights of KFH at the appropriate value to the shareholders while improving asset quality.

As for the contribution of KFH subsidiaries in the profits, Al-Nahedh explained that their contribution in the net operating income amounted to about 37 percent. KFH-Turkey's contribution in the net operating income was 31.5 percent.

He added that despite the devaluation of the currency in Turkey, KFH-Turkey enjoys high quality assets and diversification in its financing portfolio. It is achieving excellent performance and remarkable growth compared to conventional banks or participation banks in Turkey. He noted that KFH-Turkey has 400 branches spread across Turkey.

He indicated KFH succeeded in closing several infrastructure and mega projects credit facilities deals during the first half of 2018. KFH signed a contract of credit facility with Kuwait Integrated Petroleum Industries Company (KIPIC) to participate in financing the company's $2.3 billion Liquefied Natural Gas (LNG) import. KFH was selected to lead the deal of the Islamic banks for their share in the $500 million. KFH financed different mega projects in Kuwait and the countries where it operates of which inking credit facility agreement of KD 124.6 million for financing terminal II building for Kuwait International Airport, and 200 million euros credit facility for the construction of Çanakkale Bridge in turkey. In addition, KFH and Kuwait Projects Company Holding (KIPCO), signed a Memorandum of Cooperation 'MOC' stating that KFH offers Sharia-compliant financing solutions for individual purchasers of residential or commercial property in Hessah Al-Mubarak District real estate development project. KFH inked credit facility of KD 120 million with Mena Homes Real estate Company.

With regards to growth opportunities, Al-Nahedh said that KFH is currently deliberating with Ahli United Bank - Bahrain (AUB), the possibility of creating one of the largest Islamic banks in the Middle East. He noted the expectation of having positive benefits with this strategic move be it at the level of improved profitability or asset quality or at the level of risk diversification and geographical distribution, which would be reflected on KFH and AUB along with their respective shareholders. Also, this would enable the Bank to play an active role in providing advanced Islamic banking services to its customers as well as the ability to provide the proper financing for mega projects both inside and outside Kuwait.

Al-Nahedh added that the study of this strategic option will be implemented in multiple stages. The first stage is the evaluation study by international consultants in this field in order to determine the initial fair trade price between the shares of AUB and the shares of KFH based on their published financial statements.

The second phase will be the due diligence assessment on the two banks in case they agreed on the initial exchange ratio. The Central Bank of Kuwait, Central Bank of Bahrain and other regulatory authorities will be contacted for the necessary approvals before the due diligence procedures begin.

In the event of completing the two phases and the agreement of the two banks on their results, the third and final phase requires preparation of the future business plan for the new banking entity and the executive procedures, whether in Kuwait or in the Kingdom of Bahrain or in any other country. The final approvals will be subject to the approval of the Central Bank of Kuwait and other regulatory authorities as well as the General Assemblies of the two banks.