Waleed Khaled Mandani:

• I am delighted to announce that during the first half of the year 2023, Gulf Bank achieved a strong financial performance as net profit grew by 18% to reach KD 35.8 million.
• We are witnessing a relative stability in the political landscape, which will lay the foundation for potential government reforms, and further enhancement of the operating environment and outlook of the country.
• We acknowledge the banking industry-wide challenges and have proactively taken steps to navigate this environment effectively.
• Our focus on prudent risk management and strategic initiatives ensures that we maintain stability and drive sustainable growth.
• A notable accomplishment during the first half of the year was the launch of phase I of our new Core Banking system, which will enhance our operational efficiency and improve the overall customer experience.

David Challinor:

• The relatively low level of cost of risk is a result of the excellent quality of our loan book that continues to remain resilient in the higher rate environment.
• We will aim to continue executing our strategy of increasing market share in retail and growing selectively with high quality transactions in corporate.
• We’ve seen a meaningful drop of almost 2% in the Cost to Income ratio from last year, as income has grown faster than expenses.
• The second quarter of 2023 represents the 8th consecutive quarter of profit expansion.
• We continue to see very strong asset quality metrics which are indicative of the high quality of the book as our NPL percentage is only 1%.

Gulf Bank held its investors webcast on Tuesday, August 01, 2023, to present and discuss the Bank's financial performance for H1-2023. 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

Mr. Waleed Mandani commenced the webcast with key updates regarding Gulf Bank’s operating environment for the first half of 2023. Mandani stated: “We remain optimistic about the opportunities presented by Kuwait's economy as it continues to be generally healthy. We are also witnessing a relative stability in the political landscape, which will lay the foundation for potential government reforms, and further enhancement of the operating environment and outlook of the country.” He added: “We have closely monitored the banking sector performance, which has experienced a slowdown in loan growth in recent months, especially with the rising interest rate environment and inflation. We acknowledge these industry-wide challenges and have proactively taken steps to navigate this environment effectively. Our focus on prudent risk management and strategic initiatives ensures that we maintain stability and drive sustainable growth.”

On Major milestones achieved by Gulf Bank during the first half of the year, Waleed Mandani commented: “I am delighted to announce that during the first half of the year 2023, Gulf Bank achieved a strong financial performance. Our focus on operational excellence and customer-centricity has been instrumental in this achievement. One significant highlight of this period has been our relentless pursuit of our digital transformation strategy. I am proud to share that we have achieved a major milestone in our digital transformation journey. A notable accomplishment was the launch of phase I of our new Core Banking system, which will enhance our operational efficiency and improve the overall customer experience.”

Waleed Mandani also mentioned that the Bank held an Extraordinary Annual General Assembly Meeting in May 2023 related to the increase of the Gulf Bank’s authorized capital, by stating: “Shareholders of Gulf Bank approved the increase of its authorized capital by KD 150 million. This is an authorized increase only, that will provide the Bank with optionality in the future. The approval received reflects the trust and confidence of shareholders in Gulf Bank's growth prospects and long-term success.”

Solid Financial Performance

Waleed Mandani summarized Gulf Bank’s first half of 2023 financial performance with six key messages:

1. Net profit grew by 18% for the first half of 2023, to reach KD 35.8 million in comparison to KD 30.3 million reported in the first half of 2022.
2. Return on average equity increased to 10.1% for the first half of 2023 up from 9.1% at the same period last year.
3. Gross loans and advances reached KD 5.5 billion, which is relatively flat when compared to the first half of 2022.
4. The quality of our loan book remains resilient, as our non-performing loan ratio (NPL) for the first half of 2023 is at 1.0%, together with a strong NPL coverage ratio of 546% including total provisions and collaterals.
5. At the end of the first half of 2023, our Tier 1 Ratio was 13.9% achieving a buffer of 187 basis points above regulatory minimums of 12%, and our Capital Adequacy Ratio was 16.1% achieving a buffer of 208 basis points above regulatory minimums of 14%. These buffers will support the Bank in pursuing growth opportunities in line with its strategy.
6. Gulf Bank remains an ‘A’ rated bank by major credit rating agencies. Our current position stands as follows:

• Moody’s Investors Service maintained the Long-Term Deposits Rating of the Bank at “A3” with a “Stable” outlook.
• Capital Intelligence affirmed the Bank’s Long-Term Foreign Currency Rating of “A+” with a “Stable” outlook.
• Fitch Ratings affirmed the Bank’s Long-Term Issuer Default Rating at “A” with a “Stable” outlook, and a Viability Rating of ‘bbb-‘.

Loan Book Growth Outlook

in response to questions raised by participants on the call related to loan book and the expectations for the second half of the year, David Challinor commented: “We continued the trend of strong growth in retail during the quarter and grew KD 34 million which was 1.6%. This was the highest growth in retail since Q3 last year and represents yet another quarter of market share gains which is in line with our strategy. In fact, we have grown market share in retail in 5 out of the last 6 quarters. In particular, this quarter, we grew very strongly in the Kuwaiti private banking segment. The growth in the system has basically been flat for the first 6 months of the year according to the latest data released by CBK. So, against this backdrop of zero industry growth, we managed to grow 2.4%, which is a great outcome.”

David Challinor added: “On the corporate side, despite some customers paying down debt early because of the high rates, the book returned to growth in Q2, and we booked some very high quality and capital efficient deals. In fact, the total bank RWA’s were flat from Q1 to Q2 despite the total customer loan book growing almost 1% for the quarter so our capital adequacy ratios were unchanged from Q1.” He also Added: “We will aim to continue executing our strategy of increasing market share in retail and growing selectively with high quality transactions in corporate.”

Development in Margins

David Challinor commented on the outlook of profit margins of the Bank by saying: “Earlier, we expected an improvement in the Banks margin, and we saw this materialize in the form of an 8 basis point increase from Q1 to Q2. This brings the banks margin to 215 for the quarter as compared to 207 for the first quarter.” DavidChallinor added: “Clearly, we’ve seen very large increases in the cost of funds throughout this entire rate rise cycle. But what we saw in Q2 was a significant slowdown in the quarterly increase. What we’ve also seen, which is very encouraging, is that the growth in interest expense from Q1 was lower than the growth in interest income. And this was the first quarter that showed this dynamic, effectively positive interest jaws since the rate hikes began.” David Challinor added: “However, last week we did see a 25-basis point rise in Kuwait following the Fed increase. This is the first one in Kuwait since January. So, this will place some upward pressure on the cost of funds. But on the asset side, we repriced our corporate book and also, we have ongoing repricing of the retail book so we believe this will be positive for margin.”

Strong Asset Quality

Regarding the credit cost of the Bank David Challinor stated: “We continue to see very strong asset quality metrics which are indicative of the high quality of the book. The NPL percentage is only 1. The stage 2 percentage is only 4.7, which is actually the lowest it’s been since June 2022. So both these indicators are not only very low historically but also much lower than where the system average is. The loan book is proving very resilient in this higher rate environment. And for most of the first half rates were at 4%, which gives me some optimism that maybe the positive trends can continue for some time. In fact, on the corporate side the new NPL generation for first half was almost zero out of a book of circa 3 billion”. He also continued: “In terms of our provisioning, this continues to be exceptionally high. We currently have total coverage including collaterals of almost 550%. And in terms of credit costs, they were around 5 million for Q2 which was lower than Q1 and the lowest we’ve seen since Q2 of last year. And the cost of risk was only 45 points for the first half which is very low. So, we’re very happy with the way everything is holding up and trending.”

Improvement in cost to income ratio

On the topic of operating expense and cost to income ratio trends, David Challinor commented: “Operating expenses have been stable this year as we saw no growth from Q1 to Q2. In fact, the Q2 level of 21.5m is the same as a year ago. For the first half we are up 4% versus last year. However, even though we’ve had some expense growth, we’ve still seen a meaningful drop of almost 2% in the Cost to Income ratio from last year as income has grown faster than expenses. So, the cost to income ratio for the first half now stands at 46.5%.” He added: “I think in the second half we may see a moderate increase in costs from current levels, but we should still be able to improve the overall cost to income ratio.”