Al Ahli Bank of Kuwait (ABK) recently held its analyst conference call pertaining to the financial results of quarter 1 of 2023. The digital meeting was organized by Arqaam Capital and presented by Mr. Abdulla Al Sumait, Acting Group CEO, Mr. Shiamak Soonawalla, Group Chief Finance Officer, and Mr. Abdulaziz Jawad, Chief Strategy Officer. The discussion was moderated by Mr. Yaaqoub Al Mulla, Senior Manager of Investor Relations in Kuwait.
The call involved an extensive presentation of the Group’s performance and financial indicators during the first quarter of the year and shed light on ABK’s most prominent strategic plans.
Commenting on ABK’s performance, Al Sumait said, “We have, once again, delivered noteworthy growth for our shareholders in quarter 1 of 2023. Our strong performance is a direct result of the hard work and dedication of our employees combined with our focus on delivering value to our customers and shareholders. We have continued to see growth in our key markets and are confident in our ability to keep momentum for the remainder of the year.”
ABK has successfully persisted its sustainable approach in achieving growth and profits in most key performance indicators across its operations as well as demonstrated a continuous improvement in asset quality. Al Sumait shared that ABK has also maintained positive ratios in terms of profitability, Return on Average Assets (ROAA), Return on Average Equity (ROAE), improving asset quality ratios as well as coverage ratio.
Al Sumait said, “We are well above both our current 9.5% minimum CET1 and 13% minimum Capital Adequacy Ratio (CAR) – Central Bank of Kuwait (CBK) requirement. Furthermore, the CAR was about 15.6% at the end of the first quarter of 2023.”
He explained that the results of the first quarter demonstrate ABK’s success in promoting operational growth, stressing his confidence in maintaining the same momentum for the remainder of 2023.
The Acting GCEO stated, “We have also continued to make significant progress in our digital transformation efforts which have enabled us to streamline our operations and provide a better customer experience. Looking ahead, we remain committed to driving innovation and growth in our business through the launch of an array of new services which contribute to strengthening our position amongst competing banks in Kuwait.”
Corporate Social Responsibility
Al Sumait concluded his participation in the call with an affirmation of the Group’s ongoing dedication to corporate social responsibility where he emphasized that ABK continues to play a leading role in partaking in a series of social and humanitarian initiatives in both Kuwait and abroad.
Soonawalla moved on to highlight that the results of the first quarter of 2023 reflect the success of the Group in achieving continued business growth. He pointed out, “The Group continues to benefit from its unique position amongst Kuwaiti banks in terms of geographical spread of operations. This diversification provides a strong competitive advantage and gives a significant degree of resilience to Group earnings.”
He added, “The Group’s geographical footprint supports revenue generation, loan distribution, and deposit collection. Our international operations, comprising the United Arab Emirates and our ABK-Egypt subsidiary contributes about 39% of operating income and 35% of total assets.”
Soonawalla continued, “The Group has achieved a net profit of KD 10.8 million for the first quarter of the year, a 30% increase in the bottom line profit over the comparable quarter of 2022. Earnings per share for quarter 1 of 2023 reached 4 fils, an increase of 33% compared to 3 fils in the previous year.”
The Group Chief Finance Officer shared that net operating profit increased by 5% to total KD 22.3 million. Furthermore, there was a 4% improvement in operating income to KD 43.2 million broken down to 50% in commercial banking, 43% in retail banking, and 7% in treasury. The Non-Performing Loan (NPL) ratio stood at 1.45%, NPL coverage at 365% while loan provisions recorded KD 192 million.
Soonawalla stated that the Group continues to enjoy high liquidity levels at the end of the first quarter of this year with a Net Stable Funding Ratio of 108% and a liquidity ratio of 336%.
Net loans and advances exceeded that of the corresponding quarter in the previous period by 11.6% and witnessed a total assets increase of 4.1%. As a result, customer deposits in quarter 1 of 2023 remained strong at KD 4.1 billion.
He continued, the total interest income stood at KD 95.8 million in the first quarter of 2023, reflecting a strong growth of KD 40.3 million to 73% over the first quarter of 2022. Fees and commissions income contributed KD 7.9 million while other non-interest income sources contributed 8% (mainly investment and foreign exchange income).
Soonawalla said, “The Group’s operating expenses reflect continued investments in key business initiatives, digital technologies and processes. This enables the Group to offer the best-in-class services to its customers and optimize resources to improve operational efficiency.”
He claimed that the Group remains committed to its conservative approach in managing credit exposures and provisioning and continues to benefit from its unique position amongst Kuwaiti banks.
He added, “The Group total assets reached KD 6.1 billion in March 2023, a 4.1% increase compared to March 2022. Loans and advances and investment securities increased by 11.6% and 12.7% respectively compared to March 2022. The ROAE for the current quarter improved to 6.1% from 3.9% in the comparable quarter of 2022. Also, 15.6% the total CAR remained strong and stable where interim profits are not factored in the computation of the 2023 quarter 1 CAR.”
A Strong Brand
The Group Chief Finance Officer mentioned that the increase in retail deposits reflects the Group’s sustained focus on the deposit-gathering aspects of the business thus leveraging ABK’s longstanding ability to capitalize on the Group’s strong brand, customer appeal and credit ratings.
Soonawalla expressed his optimism with regards to the continued improvement in ABK’s operating environment for the remainder of the year. He said, “ABK’s net interest income has generally benefitted in the rising interest rate scenario. That said, the timing and extent to which increases in local interest rates would follow international benchmarks remains to be seen.”
Jawad continued the meeting by providing updates on the overall global and regional macroeconomic and operating environment. He said, “So far this year, we have witnessed the failure of three American banks as well as a Swiss bank. This makes the global banking industry outlook slightly indefinite. This, accompanied by the ongoing war between Russia and Ukraine and high inflation rates, have together declined demand and inclined the risk of a recession.”
On the monetary policy front, Jawad stated that the Federal Reserve (Fed), along with other central banks around the world, were trying to defeat inflation by rapidly raising the interest rates. The Fed raised the target range for the Fed funds rate by 25 bps to 4.75%-5.00% in its March 2023 meeting. This has resulted in pushing borrowing costs to the highest level since 2007 whilst the Central Bank of Kuwait has raised its key discount rate by 50 bps to 4% in January 2023, bringing borrowing costs in Kuwait to the highest rate for the past decade.
The Chief Strategy Officer shared, “The impact of the sudden and unprecedented hike in interest rate, especially an increase of over 400 bps in a matter of less than a year, has not yet been fully priced into the markets as it is causing a shift in the funding mix, borrowers as well as depositors’ behavior and appetite.”
Potential Gulf Bank Combination
On the non-organic growth side, Jawad claimed that ABK is contemplating a potential combination with Gulf Bank Kuwait (GBK), in which either ABK or GBK will acquire the other, or the acquired entity will be converted into a Sharia compliant bank.
He said, “The transaction could unlock significant value and synergies through strengthening our position in the Kuwaiti market and entering into the Islamic segment. So far, a MOU was signed between the two banks and advisors are appointed and approved by the Central Bank of Kuwait in order to start working on the pre-feasibility study.”
Five-year Plan and High Ratings
On the organic growth side, the Chief Strategy Officer stated that ABK’s five-year plan is still in action. This is based on three pillars: (1) scale and create value; (2) sustain and de-risk; and (3) innovate and enable. These efforts have been translated into around 137 initiatives which are monitored on a monthly basis to ensure the successful execution of ABK’s strategy.
He concluded that the Bank also continues to demonstrate strength through its credit ratings where, “Fitch has rated the Group an A grade with a stable outlook while Moody’s granted the rating of A2.”