ShareKUWAIT: Al-Ahli Bank of Kuwait (ABK) recently held its analyst conference for the first half of 2023. Attended by Shiamak Soonawalla, Group Chief Finance Officer Abdulaziz Jawad, Chief Strategy Officer and Yaqoub Almulla, Senior Manager of Investor Relations, the call involved a discussion of ABK’s first-half financial results. Hosted by EFG Hermes, an extensive presentation was conducted on the Group’s performance and financial indicators during the first half of the year. Furthermore, the speakers also shared insights on ABK’s upcoming strategic plans.
Shiamak SoonawallaOngoing growth Soonawalla expressed his delight in delivering yet another successful half-year performance. He said, “ABK’s results demonstrate good progress and delivered responsible growth for our shareholders with an achieved Net Profit of KD 23.9 million for the first half of 2023, representing a 30 percent increase over the comparable half of 2022. Furthermore, Earnings per Share reached 11 fils, an increase of 38 percent compared to 8 fils in the previous year.” The Group CFO affirmed that the financial performance in the first half of 2023 reflects continued improvement in underlying operating drivers, strong loan growth, lower provisions and impairments, a healthy balance-sheet, comfortable liquidity levels, and as olid capital base.
Furthermore, he highlighted that the Bank continues to benefit from a competitive advantage due to the distribution of ABK’s operations across the UAE and Egypt. He said, “The Group’s geographical footprint supports revenue generation, loan distribution, and deposit collection. The Group’s international operations comprise the operations of its UAE branches and ABK-Egypt subsidiary, contributing about 39 percent of operating income and 35 percent of assets.” Soonawalla also announced that net operating profit totaled KD 44.3 million, which was led by a 2 percent improvement in Operating Income to KD 88.3 million in comparison to KD 86.3 million in the first half of 2022.
Meanwhile, the non-performing loan ratio was at 1.36 percent with a loan loss coverage ratio for the group of 376 percent in 2023, and excess provisions of KD 195 million over IFRS requirements according to Central Bank of Kuwait guidelines. Stable performance Soonawalla highlighted that the Group maintained stable operating performance with a net interest margin of 2.1 percent and operating profit to average assets of 1.4 percent. These results once again reflect solid performance by the Group and demonstrate the continued growth in its businesses. He said, “The Group also has high liquidity levels with a net stable funding ratio of 110 percent, a Liquidity Coverage Ratio of 245 percent, and a self-funded balance sheet with a Customer Deposit of KD 4 billion with customer deposits accounting for 71 percent of total liabilities.”
Soonawalla stated that the Group has shown stable total equity during the last three years and a strong capital position with a Tier 1 ratio of 12.7 percent, and a total Capital Adequacy Ratio of 15.1 percent in the first half of 2023. The Group’s Operating Income of KD 88.3 million breaks down to 44 percent in commercial banking, 44 percent in retail banking, and 12 percent in treasury. As for the Group’s breakdown in assets, 59 percent is in commercial banking, 13 percent in retail, and 28 percent in treasury. Total Interest Income at KD 195 million for the first half of 2023 reflected a strong growth of KD 79.5 million (69 percent) over the first half of 2022, led mainly by strong asset growth and improved interest rate environment. Fees and commissions income contributed KD 16.7 million.
He continued, “The Group’s operating expenses reflect continued investments in key business initiatives, digital technologies and processes. This enables the Group to offer best-in-class service to customers and optimize resources to improve operational efficiency.” Furthermore, Soonawalla mentioned that the Group has taken provisions in ordinary course of business for retail and corporate customers in Kuwait and overseas locations. The Group remains committed to its conservative approach in managing credit exposures and provisioning. Strategic success In his part, Jawad noted that during the first half of 2023, the macroeconomic global landscape experienced gradual improvements.
Various economic indicators and key factors played a pivotal role in shaping the overall performance of the economy and a decline in global bank credit failures. He said, “As central banks continue their campaigns to slow inflation, both the US and Europe are likely to avoid recessions by Federal Reserve (Fed) along with other central banks around the globe trying to defeat inflation by rapidly raising interest rates. The Fed raised the target range for the Fed funds rate by 25bps to 5.25 percent-5.5 percent in its July 2023 meeting, which continues to push borrowing costs to the highest level for the past 22 years. Subsequently, the Central Bank of Kuwait increased the discount rate by 25bps to reach 4.25 percent following the Fed increase.”
Moving to Kuwait, Jawad elaborated that the economy is forecasted to be solid with numerous drivers to consider, including a newly elected cabinet and clear government plan of progression on large-scale projects. He mentioned a 2 percent projected rise in the country’s oil and gas GDP, leaving the non-oil sector as the primary driver of overall GDP growth. Kuwait’s 2022-2023 budget reported a surplus of KD 6.4 billion, the first surplus achieved in the past 9 years. Moreover, Kuwait’s government intends to undertake 107 projects in its 4-year program as part of the recently published Kuwait Development Plan. Jawad continued, “ABK’s profitability ratios also increased as ROAA and ROAE reached 0.65 percent and 8.3 percent respectively in tandem with improving asset quality ratios as well as coverage ratio.
We are well above both our current 9.5 percent minimum CET1 and 13.5 percent minimum CAR including D-SIB.” It is worth noting that ABK’s long credit rating by Fitch stands with an (A) with a stable outlook and (A2) from Moody’s with continued observed growth in many of the key markets ABK operates in. Digital transformation Jawad shared ABK’s significant progress in its digital transformation efforts through the opening of its first fully digitized branch in Al-Khiran Mall in Kuwait. He commented, “This has enabled us to streamline our operations, provide better customer experience, and expand our customer base. Looking ahead, we remain committed to driving innovation and growth in our business. We are capable in our strategy and our ability to execute, and will continue to make investments in the areas that will drive long-term value for our stakeholders.”
On the strategy side, ABK continues to deliver on its three major pillars, namely (1) Scaling & Creating Value, (2) Sustaining & De-Risking, and (3) Innovation and Enablement, which were translated to almost 100+ key initiatives. He said, “These are monitored on a monthly basis in order to ensure the successful execution of our strategy, which is in line with our first half 2023 financial results.” Credit facilities Continuing his discussion on ABK’s strategy, Jawad stated that, in line with the goal of becoming the international banking hub for the Group, the ABK DIFC branch successfully closed a 37-month (with a 12-month extension option) USD 600 million Asian focused syndicated term loan facility. This inaugural transaction will register ABK with the largest facility by volume from a Kuwaiti borrower targeting the Asian market to date.
The deal was well received in Asian markets and, on the back of excessive demand, was upsized to USD 600 million from the initial launch target of $500 million. The landmark financing closed with a total of 11 Asian lenders. Capital increase Commenting on the bank’s capital increase, Jawad said, “ABK is also currently increasing its capital and has obtained the approval of the Capital Markets Authority (CMA) and Central Bank of Kuwait for the request to increase the bank’s capital. The approval is to increase the share capital by KD 50 million (without the share premium), offering a rights issue of 500 million new shares for subscription with the right of preemption for the bank’s shareholders.
Additionally, an EGM was held on 17 July 2023 and the approval to increase capital was obtained. We are currently in the final stages for the CMA approval to commence the subscription process.” ESG and sustainable finance He continued, “ABK achieved growth in all key performance indicators and has proven its commitment and leadership in Corporate Social Responsibility (CSR) by participating in various community, relief, and humanitarian initiatives inside and outside Kuwait. Our commitment to sustainability goes beyond merely complying with regulations; it’s a fundamental part of our strategic vision. We believe that ESG is crucial for the future success of our bank and the wellbeing of the communities we serve.”
That being said, ABK is finalizing a comprehensive, updated ESG strategy that aligns with its core business objectives along with internationally renowned sustainability frameworks, such as the United Nations Sustainable Development Goals, United Nations Principles for Responsible Banking and the recently introduced International Sustainability Standards Board (ISSB) standards. Jawad highlighted that this strategy will act as a roadmap to integrate ESG elements into every aspect of ABK’s operations, ensuring the proactive management of ESG risks and capitalization on the presented opportunities. He continued, “We are also implementing an ESG policy that sets clear guidelines for responsible practices across all our business activities.
Not only will this policy guide our internal operations, but it will also extend to our interactions with clients, partners, and suppliers, promoting sustainable practices throughout our entire value chain.” Jawad concluded his statement by highlighting one of the significant milestones in ABK’s sustainability journey – the imminent implementation of a Sustainable Finance Framework. He said, “This framework will facilitate the funding of projects that positively contribute to society and the environment. By directing capital towards sustainable initiatives, we aim to accelerate the transition to a more inclusive and low-carbon economy, while maximizing value for our stakeholders.”
