Zahran: KFH is on track in promoting synergy among the Group’s banks Q3 2019 earnings conference call

Shadi Zahran

KUWAIT: Shadi Zahran, Acting Group Chief Executive Officer(GCEO) & Group Chief Financial Officer (GCFO)at Kuwait Finance House(KFH) said that KFH Group reported net profit of KD 190.5 million until end of Q3 2019 for KFH Shareholders compared to KD 169.1 million for the same period last year represent an increase of 12.7 percent.

He added in the third quarter 2019 earnings conference call for Kuwait Finance House Group that total Financing Income for Q3 this year reached KD 701.2 million an increase of 10.2 percent and Net Operating Income for Q3 this year reached KD 393.0 million with a growth of 7.0 percent compared to the same period last year. Cost to Income Ratio dropped to reach 36.1 percent for as at the end of Q3-2019, compared to 37.7 percent for the same period last year.

Earnings per Share for the third quarter of 2019 reached 27.67 fils, compared to 24.58 fils for the same period last year i.e. an increase of 12.6 percent.

Zahran said that: “Our double-digit growth in net profits and the bank’s positive financial indicators are results of the successful sustainability strategy of focusing on core banking activities, exiting non-strategic investments, and improved assets quality. Also, the ongoing increase in net operating income backed by the increased operating income and controlled costs had a positive impact on net profit.”
“We are on track in promoting synergy among the Group’s banks in line with the strategies aimed to utilize the strength of the markets we operate in.” He confirmed.

Zahran pointed out that “KFH is a major player in financing mega projects and supporting the National Development Plan, Kuwait Vision 2035 to transform the country into a regional and global financial and commercial hub. We financed many projects including energy, water, power, infrastructure and construction. We also have a global leading role in Sukuk issuances for local and international companies and governments. “

Meanwhile, he said that KFH Capital launched the first REIT Fund to be listed in Boursa Kuwait with a capital of up to KD 100 million with monthly distributions to diversify investment opportunities for its customers, by providing new tools that contribute to achieving profitable returns and take advantage of market developments locally and regionally.

Regarding the financial performance, Zahran said that Net Operating income at KD 393.0 million increased by KD 25.6 million or 7.0 percent compared to Sept-18, and the increase is mainly from the Investment Income by KD 43.1 million offset by the decrease in NFI by KD 9.2 million. The increase in investment income by KD 43.1 million is mainly attributable to finalization of projects and divestments which led to increase in investment income to total operating income to reach 15.6 percent compared to 9.0 percent last year.
He added that cost to income ratio improved by a further 157bps to reach 36.11 percent. Displaying an improved efficiency and optimized operating expenses.

Qualitative move
On his part, Fahad Al-Mukhaizeem, Group Chief Strategy Officer (GCSO) said that GDP growth in Kuwait is expected to pick up in 2020 to reach 3.1 percent after a bit of a slowdown expected in 2019. The Consumer Price Index (CPI) is expected to reach 1.8 percent in 2019 as the IMF expects inflation to increase to 3 percent in 2020. He added that Fitch recently affirmed Kuwait Finance House’s (KFH) Long-Term Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook. Fitch has also affirmed the bank’s Viability Rating (VR) at ‘bb+’.

“KFH won Best Islamic Financial Institution in the world for 2019 from Global Finance which confirms KFH’s leadership and success globally,” Al-Mukhaizeem mentioned.

He continued:” Currently KFH’s branch network exceeded 509 branches around the world, thus continuing our key strengths which include Strategic distribution channels in addition to our robust financial performance.”

Al-Mukhaizeem explained that:” The success of the digital transformation strategy in the Group, pointing to a qualitative move in rolling out digital financial solutions, such as the self-service banking services and AI-enabled robotics. KFH launched the first ever Mobile Deposit of Cheques service to customers where they can simply log into their KFH mobile app, go to the cheque deposit menu and take a picture of both sides of the cheque using their smart phone camera. The funds will then be deposited directly into their accounts through the KFH Online app. “

“KFH also succeeded in enhancing security and data analysis, upgrading the infrastructure and e-service platforms in order to improve customer experience which becomes a strategic factor in continuing or actually in confronting the challenges of digitalization and adapting to fast-paced and competitive environments in the banking sector in accordance with the highest standards. KFH aims to expand its operations in the Middle East and Europe through the services of the “digital bank” in Turkey and the “Jazeel” platform in Bahrain, in addition to the modern, sophisticated and highly efficient online services,” he added.
Sustainability & growth

Shadi Zahran answered a question about the driver behind the growth in investment income:” The divestment, the group made is around KD 75 million and that brought profit of gain of almost KD 25 million versus last year for the same period only KD 6 million, so mainly coming from the divestment. 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 main reasons for increase in cash and other asset:” Reason for increase in cash as you know reflecting the balance sheet development increase when we had increase in deposits by KD 1.5 billion for the nine months compared to December, as you see the development in the financing receivable is 1.8 percent, and if you exclude the Turkish Lira devaluation it is 2.9 percent, and then the Sukuk, so KFH always is at healthy liquidity position.”

Answering a question if the decrease in funding cost achieved in 3Q19 sustainable, Zahran said: “The net financing margin is sustainable and started actually to improve as compared to first and second quarter, and I explained the reasons behind the decrease cost of funds.”

Zahran answered a question about the reason behind the increase in deposits, saying that “the increase in deposits KFH witnessed in the first half and continued in the 3rd quarter, it came from all subsidiaries with no exception… all banking and as I said the largest portion is just reflecting the confidence from our depositors and that’s what we used to have a growth in our deposits. However, this year the additional incremental on that came from our investments in the… or reflecting the results in investments of digitalization mainly in Turkey we have very successful -digital- experience in digital banking in Turkey and as well in Bahrain (Jazeel).”

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