Q1 2019 earnings webcast says operating profits reflect success of KFH strategy

KUWAIT: Acting Group CEO, AbdulWahab Al-Roshood said that KFH achieved a net profit of KD 51.6 million for the first quarter of 2019 for KFH shareholders compared to KD 44 million for the same period last year with an increase of 17.4 percent.

He added during the first quarter 2019 - KFH Earnings Webcast, that the total finance Income for the first quarter of the year reached KD 228.4 million with a growth of 9.5 percent compared to the same period last year. Total Operating Income for the first quarter of the year reached KD 196.8 million with a growth of 4.1 percent. The net operating income reached KD 118.1 million an increase of 7.1 percent compared to the same period last year.

The earnings per share for the first quarter of 2019 reached 7.50 fils, compared to 6.39 fils for the same period last year with an increase of 17.4 percent.

The financing portfolio stabilized at KD 9.36 billion, Total Assets reached KD 18.38 billion with an increase of KD 612.4 million or 3.4 percent compared to the end of last year. Depositors Accounts reached KD 12.299 billion an increase of KD 518.6 million or 4.4 percent compared to the end of last year.

Al-Roshood continued: "KFH has achieved positive performance for the fifth consecutive year. Resulting from the core business, the operating profits reflected by the success of KFH's strategy set by the Board of Directors and skillfully followed up by the executive management. The profits came in line with KFH's plans and programs, economic developments and market movements. The results confirm KFH's feasible decisions to focus on its core business, exit of non-strategic investments, and deepen its global professional banking practices along with high commitment to regulations."

He added that to expand the customer base, KFH opened Al- Qairawan Branch, its 62nd branch in Kuwait, while the branches dedicated for ladies increased to 45 branches. The benefits of the products, the banking accounts, have been increased. KFH launched unprecedented campaign for Al-Rabeh account that offers a total of 54kg in gold to 23 clients over one year. KFH continued to provide value-added awards through "Hesabi" account and enhanced the services and rewards of bank cards by launching the largest campaigns and awards in the banking sector. These improvements have increased card usages, promoting the e-payment methods, facilitating the fund transfer and raising retail sales.

Sukuk issuances
With regards to KFH's sukuk issuances, he said that the bank through KFH Capital, has recently succeeded in arranging two issuances worth of $1.6 billion Sukuk for First Abu Dhabi Bank (FAB) and Dubai Islamic Bank (DIB), with a group of regional and international banks. This step confirms KFH Group's pioneering role in the Sukuk market and establishes Sukuk as a vital source of finance for governments, companies and major development projects. The extensive experience of KFH Group in the Sukuk issuance has positioned it as a trustworthy and highly recognized organization by major corporates and governments globally.

KFH is continuing with its priority of attracting the outstanding young national human resources elements and provide them with opportunities for the successful development of their professional capabilities and skills. KFH is presenting the best example in this national field affirming its continuous pursuit of supporting and strengthening the national manpower. KFH recently organized the largest Kuwaiti youth recruitment event where it hired 80 young Kuwaitis out of a total of 150 job applications.

KFH's ongoing prudential strategy boosted by its growth opportunities and its substantial market share requirements such national calibers in charge to become the consecutive generation to shoulder the responsibility in supporting the country's development process.

Regarding the potential Acquisition and Merger with AUB Bahrain, he said: "we have disclosed to the regulatory authorities and the market the latest developments in this regard, and there are no further updates at this time. All these disclosures were published through the official website of Kuwait Boursa and any new development will be updated as and when it comes available."

Profit growth
Group's Chief Financial Officer at KFH Shadi Zahran said: "The Group has achieved net profit after tax (NPAT) attributable to shareholders for the period ended 31st March 2019 of KD 51.6 million higher by 17.4 percent compared to Q1 2018 of KD 44 million. It is worth to highlight that the profit before tax for the first quarter 2019 at KD 78.1 million was significantly higher than same period last year "by 33.7 percent" and that due to one off tax charge recorded in Malaysia of KD 11 million in Q1 2019. The recent change in the tax law in Malaysia impacted the deferred tax asset and took that impact in full in Q1 2019."

He added: "Total Operating income at KD 196.8 million increased by KD 7.7 million or 4.1 percent (as compared to same period last year) the increase is mainly from Investment Income by KD 14.2 million, Net gain from foreign currencies by KD 2.3 million and Fees and Commission Income by KD 0.8 million."

The increase in investment income is attributable to early closure of divestments compared to last year which increases the contribution of investment income to total operating income to reach 13 percent vs. 6 percent last year while keep the other non-financing income contribution at 21.9 percent compared to 20.9 percent last year.

With regards to total Financing Income, it has increased by 9.5 percent from KD 208.6 million to KD 228.4 million however due to increase in COF which started to reflect in the second half of 2018 the NFI decreased 7.3 percent as compared to Q1-18. However, improved by 4.7 percent as compared to last quarter in 2018.

Zahran continued: "Total Operating Expenses at KD 78.7 million has marginally decreased by KD (0.1) million or (0.1) percent. Group efforts towards cost optimization and rationalization has resulted in the containment of costs despite expansion of Banking Business and inflationary conditions seen in some jurisdictions where the group operates."

He added: "Net Operating income at KD 118.1 million increased by KD 7.8 million or 7.1 percent compared to March 2018 and cost to income ratio remained stable at 39.98 percent as compared to the full year 2018 and lower than same period last year first quarter 2018 which was at 41.67 percent."

Thus, displaying an improved efficiency in total operating income and optimized total operating expenses. Furthermore, at KFH-Kuwait, C/I ratio remains at 33.5 percent which is below both the local Islamic Banks average of 40.8 percent and local conventional Banks average of 35.2 percent (calculated from published financials for 2018). Average Profit Earning Assets is up by 5.4 percent compared to March 2018, maintaining the growth momentum of yielding assets for the past two years.

Zahran said: "Group NFM at 3.04 percent shows a 14bps decrease over 2018 of average 3.18 percent and marginally higher than Q4 2018. Group average yield improved in line with increase in local and international profit rates. However, as mentioned earlier the COF is higher as compared to Q118 on account of KFH increased profitability."

He added that total group provisions and impairment charge reduced to reach KD 40 million or 15.9 percent, the reduction is mainly from the decrease in the investments and others impairment charge from KD 31.9 million to KD 17.6 million on account of conservative impairment charges recorded last year for certain properties in GCC.

He indicated that operating Profit from banking activities is at 90.0 percent of total Operating income of the Group in Q1-19. However, if we were to remove the one-offs from non-core income and tax charge, the ratio would improve to 94 percent in line with overall Group Strategy focusing on banking operations.

Total Assets at KD 18.4 billion increased by KD1.0 billion or 5.8 percent over 12 months period (Mar-19 vs. Mar-18) despite TL devaluation. Similarly, on Deposits. Financing receivables at KD 9.4 billion remains at the same level of the year end. Growth without TRL devaluation is KD 0.7 billion or 7.7 percent as compared to March 2018 and 0.6 percent as compared to December 2018. Growth in financing receivables contributed from Kuwait and international banking entities and from both retail and corporate business.

He continued: "On the other side of the balance sheet we've achieved an outstanding growth in deposits during the first quarter of KD 518.6 million or 4.4 percent with high contribution from international banking operations reflecting the results of investments made in digitalization and depositors confidence in KFH group. Additionally, the favorable funding mix continues to show stickiness in CASA deposits which forms 45.2 percent of total group deposits as at the end of Q1 2019."

Customer deposits as a percentage of total deposits at 79.6 percent remains at a the same level of healthy funding mix and shows robust liquidity. It is worth to mention that KFH Kuwait dominates the market in saving accounts at 42.3 percent (as per CBK latest published reports, Feb-19).

Looking at the performance ratios in the last slide looking at the key performance ratios, the group has improved in all aspects as compared to last year same period

• ROAE moved from 9.77 percent to 11.26 percent
• ROAA from 1.2 percent to 1.38 percent
• C/I from 41.67 percent to 39.98 percent, and
• EPS from 6.4 fils to 7.5 fils for Q119

Zahran explained: "Additionally, the NPL ratio (as per CBK calculation) stood at 1.88 percent in Mar-19 compared to 2.77 percent in Mar-18 and 1.99 in December 2018 and the significant improvement in cost of risk is actual reflection to the cost improvement, recoveries, and write-offs while maintaining very healthy coverage.

With regards to coverage ratio (provision) for Group is 199 percent in Mar-19 (2018: 191 percent) and coverage ratio (provision + collateral) for Group stood at 258 percent in Mar-19 as compared to the same level (2018: 247 percent).

High growth rates
Group Chief Strategy Officer at KFH, Fahad Al-Mukhaizeem said: "The operating environment in Kuwait witnessed a remarkable improvement with high growth rates and high oil prices. Kuwait GDP growth is expected to exceed 4 percent in 2019 compared to 2.3 percent in 2018 with a limited inflation rate of less than 1 percent. The real estate market witnessed a noticeable stability during the first quarter this year, recording a trade growth rate by 4 percent. Boursa Kuwait trade value recorded unprecedented levels KD 1.9 Billion driven by capital inflows following Boursa Kuwait's upgrade of on the FTSE Emerging Markets Index."

He added: "Fitch Ratings recently affirmed Kuwait's sovereign rating at AA. Standard & Poor's credit rating for Kuwait also stands at AA with Stable Outlook. As part of its strategy to support the development efforts, KFH continuously participates in financing major plans and infrastructure projects. In this regard, the bank funds several development projects in different sectors in Kuwait and outside. Also, KFH pays attention to supporting and developing the youth SMEs, opening new job areas, diversifying investment opportunities and attracting young people to the private sector as they represent important part of developing the national economy".

Al-Mukhaizeem continued: "KFH won Kuwait's Best Bank for Asia 2019 award from Asiamoney, a publication of the International Euromoney Group which confirm KFH's leadership and success in the Asian market also KFH won Best Trade Finance Provider in Kuwait 2019. This is another testimony to the quality of KFH products and services that strengthen its position as a world leading Islamic financial institution. Currently we have more than 500 branches in Kuwait and around the world."

KFH's has successfully launched digital transformation initiatives to suit the needs of key operational sectors to develop and manage their business efficiently as well as maximize its leadership and market share, in accordance with the best quality standards.

He said that KFH has continued its efforts in Banking Technology in Q1 by implementing a Robotic Process Automation program an Artificial Intelligence Technology that streamlined its internal processes for customer financing transactions, thus increasing efficiency and reducing the processing time. Also, KFH implemented SKIPLINO which is an electronic queuing/booking system to improve the branch visit experience. Available now also at KFH.com, and soon via KFH Online, this service makes the banking services more accessible for customers at their own convenient time in addition to finding the least busy branches at the time. Meanwhile, KFH started operating an instant cross-border remittance service using RippleNet technology. It also upgraded its automotive platform kfh.com/auto to encompass vehicles, marine equipment and motorcycles.

Q&As
Shadi Zahran answered a question about the AUB-merger and acquisition: "With regards to merger and acquisition, everything is disclosed in the market, as well as to the regulators and we don't have any other updates. Once we have updates it will be disclosed in the market."

Shadi Zahran answered a question on KFH-Turkey performance saying: "Turkey is still contributing the same level to the group… their performance is improving as well… the cost of risk we would witness some increase and that's in line with the market, however, we're still maintaining our position the 2nd lowest NPL in the market."

The first Quarter 2019 - KFH Earnings Webcast concluded. It witnessed the participation of attendees from different investment companies, financial analysts, financial institutions, media representatives and others.