KUWAIT: Gulf Bank held its investors webcast on Oct 25, 2023, to present and discuss the Bank’s financial performance for the third quarter of 2023. The webcast was organized by EFG Hermes and presented by Waleed Mandani, Deputy Chief Executive Officer & Acting Chief Executive Officer of Gulf Bank, and David Challinor, Chief Financial Officer of Gulf Bank. The discussion was moderated by Dalal Al-Dousari, Head of Investor Relations at Gulf Bank.
Operating environment
Waleed Mandani commenced the webcast with key updates regarding Gulf Bank’s operating environment during the third quarter of 2023. Mandani stated: "We continue to closely monitor the global, regional, and local economic and geopolitical environment. Although global economic growth has proved more resilient than expected so far in 2023, the outlook for next year could be weaker as the impact of tighter global monetary policy feeds through. Locally, core inflation stabilized at 3.4 percent year-on-year, still trending above the 2014-2019 annual averages, supported by solid consumer spending and expansionary fiscal policy. This has positively impacted the household lending, that continues to increase modestly during 2023. We acknowledge these industry-wide challenges and have proactively taken steps to navigate this environment effectively.”
On Major milestones achieved by Gulf Bank during the third quarter of the year, Mandani commented: "In addition to our strong financial performance, I would like to announce the successful launch of our brand-new mobile banking application. The application offers a seamless and user-friendly experience, enabling our customers to manage their accounts, conduct transactions, and access a wide range of financial services conveniently from their smartphones”.
Solid financial performance
Mandani summarized Gulf Bank’s third quarter 2023 financial performance with six key messages:
1. Net profit grew by 18 percent for the first nine months of 2023, to reach KD 53.8 million in comparison to KD 45.7 million reported for the same period in 2022.
2. Return on average equity increased to 10.0 percent for the first nine months of 2023 up from 9.0 percent at the same period last year.
3. Gross loans and advances reached KD 5.5 billion, slightly contracted when compared to the same period of last year.
4. The quality of our loan book remains resilient, as our non-performing loan ratio (NPL) as of 30 September 2023 is at 1.2 percent, coupled with a strong NPL coverage ratio of 470 percent including total provisions and collaterals.
5. As of 30 September, 2023, our Tier 1 Ratio was 13.6 percent achieving a buffer of 160 basis points above regulatory minimums of 12 percent, and our Capital Adequacy Ratio was 15.8 percent achieving a buffer of 180 basis points above regulatory minimums of 14 percent.
6. Gulf Bank remains an ‘A’ rated bank by major credit rating agencies.
Loan growth mix
David Challinor responded to questions raised by participants on the call related to loan growth mix between retail and corporate banking segments, Challinor commented: "I think it’s fair to say that customer loan growth in the system this year has been much lower than we all anticipated at the beginning of the year. When we look at the CBK data to the end of September the total loans have only grown 1.4 percent. Last year this number was 7.7 percent. So, we’re operating in a market that’s very slow. Interest rates have curtailed some of the growth, but I also think the excess growth we saw in 2022, when the system grew 9 percent, has maybe caused an overhang for growth this year. In terms of the business mix, we continued to see good growth in retail as we’ve grown three times faster than the market this year in retail albeit in a market that’s very slow. We’re aiming to continue this outperformance in retail for the remainder of the year. In terms of corporate, we booked some high-quality transactions in the quarter, but we continued to see customers repaying debt which offset the new deals and caused a small net contraction in growth of around 10 million. Looking ahead for next year, we expect the growth to improve from 2023 but likely to be much less than what we witnessed in 2022.”
Profit margins
Challinor commented on the outlook of profit margins of the Bank by saying: "We saw another quarter of margin expansion as it now stands at 221 basis points. If we look at the cost of funds first, it’s significantly slowing. On the asset side, we saw yields continue to expand. Particularly in the corporate business which effectively reprices straight away, and we had a rate rise in July, but also in retail where new loans are priced at the new higher rates and loans crossing 5 years also reprice higher. Going forward, and in the absence of any further rate rises, the margin will most likely be relatively stable in the short term but given all the moving parts it’s very difficult to predict longer term at this stage.”
Resilient asset quality
Regarding the credit cost and asset quality of the Bank, Challinor stated: "Credit costs continued to be relatively low at 7.2 million for Q3. This is a cost of risk of 52 basis points. For the full year 2022 it was 49 points, and a year earlier it was 95 points. So, I’m happy with the way the portfolio is performing so far this year and in fact the underlying NPL generation, which I think is a key metric to look at, for the first 9 months this year, is actually lower than what we saw for the first 9 months of last year. So even though interest rates are much higher from one period to the next, the underlying NPL generation is less. When we look at Stage 2, the percentage is only 4.4 percent, which is the lowest it’s ever been since the introduction of IFRS 9 in Kuwait back in 2019, and much lower than where the system is at. The NPL ratio is still very low at 1.2 percent, which was where it was a year ago. Total provisioning continues to be very high. Our total coverage including collaterals is running at around 470 percent so we’re happy the way the metrics are trending around asset quality.”
Operating expenses
On the topic of operating expense and expected efficiencies, Challinor commented: "Total operating expenses was up 3 percent year to date versus last year. At the first half we were up 4 percent and last year for the full year it was 10 percent. So clearly the cost growth has slowed down significantly. We’ve also seen income grow at 6 percent, which is double the cost growth, so that’s led to a further drop in the cost to income ratio. For Q3 its 45.8 percent which is the lowest it’s been in the last 7 quarters. And this is despite ongoing costs relating to our transformation program. On the other side, we’ve obviously had lower volume related costs than last year given the market we’re currently in, but nonetheless the slowdown in costs is positive. I’ve said before we’ll be looking to extract further cost efficiencies when the transformation is complete some point next year, so we’d be looking to drive the cost to income lower.”