Burgan Bank K.P.S.C. (BURG.KW) Earnings Call Transcript & Summary

Good afternoon, everyone. This is Ahmed El-Shazly from EFG Hermes, and it's a pleasure to have with us today Burgan's Bank management for the full year 2025 earnings call. I'd like to inform you that today's call is being recorded. I'd like to hand the call over to Mr. Hamad Al Bader from Burgan Bank to kick off the call.

Thank you, Ahmed. Good afternoon, everyone, and welcome to the FY '25 call. Thank you very much for taking the time to attend this call. Joining from our side are Mr. Khalid Zouman, the Group Chief Financial Officer; Mr. Gaurav Handa, AGM within the Finance Group; Mr. Animesh Aseem, Executive Manager and Strategic Solutions, Sustainability and IR; and myself, Senior Manager of Investor Relations. We shall cover the slides over the next 20 minutes or so, and we welcome any questions at the end of the presentation once it has been covered. Again, as with our recent quarterly presentations, Slide 7 provide an overview of Burgan, including an introduction to the bank and strategy. So we won't be covering it during the presentation, but we'll start directly with Slide #9, highlighting our key business and operating achievements. In 2025, we have navigated a challenging operating environment that tested us and sharpened our focus. The bank continued to perform in line with strategic pillars, delivering resilient results, strengthening the foundations and achieving key milestones. Some of the highlights of the year are summarized on the slide. Firstly, the bank continued the growth momentum, delivering business excellence, both in Kuwait and internationally. In Kuwait, the growth was driven by corporate banking through sector-focused diversification, while private and retail banking picked up pace through strategic innovation and improved services. Financial performance remained strong, supported by steady operational progress and consistent results across 3 areas. Internationally, the bank achieved disciplined well-calibrated growth complementing domestic progress, while maintaining healthy diversification. As part of our strategy to focus on the Kuwait and GCC market, we formally completed the acquisition of UGB, United Gulf Bank in Bahrain on February 2025. UGB, which also holds a 60% stake in the regional nonbanking financial power of KAMCO, has not only [ maintained ] regional presence, but also unlocked various synergies due to complementary business model. The collaboration with KAMCO is already starting to yield results. Additionally, Burgan is leveraging UGB Islamic banking window to enhance its overall product portfolio with some early successes already evident. In 2025, we also became successful with [ global markets ] issuing a USD 500 million in senior unsecured bonds at spread of 115 basis points over U.S. treasuries. The issue was clearly 4x oversubscribed, reflecting the strong investor confidence in the bank's performance and strategy. Earlier this year, we also launched a USD 500 million certificate of deposit program to optimize [funding source] and diversify our investor base. By year-end the program had an outstanding balance of around $200 million, complementing Burgan's deposit base and strengthening the overall funding profile. Also another key milestone in 2025 was the digital platform in Turkey which is called ON, which has grown to around 1.5 million customers in just 4 years since its launch in 2021. And this shows that Burgan's investment in digital capabilities is being well recognized. In Kuwait, we made strong progress upgrading our core banking platform with TCS. And also have enhanced the Kuwait mobile app to improve usability and functionality. The bank's app continued to receive high ratings on both app and Android. Also to further engage investors, we have launched in 2025 the IR app, providing real-time access to financial and corporate information through a user-friendly interactive platform. We encourage you to explore and download the app. The bank also made strong progress on its sustainability journey in '25. We enhanced our GHG inventory and began work on decarbonization strategy. We also made significant progress integrating ESG Risk Assessments into our credit framework, covering nearly 70% of our loan portfolio. Employee engagement and CSR programs were strengthened, ESG governance and cyber resilience were further improved. Our ESG efforts international recognitions with Burgan being included in the FTSE4Good Index series, reflecting the ongoing commitment to sustainability. Finally, our crowning, our achievements, Burgan Bank received strong industry recognition in 2025. We have secured multiple local and international awards for innovation, service and operational excellence. Burgan Bank Kuwait was also recognized for progress in Kuwaitisation, national talent development, reflecting our commitment to building a strong and locally empowered workforce. I will now turn to Slide 11, walk you through the 2025 financial performance highlights. As you can see on the slide, briefly, so Burgan delivered strong performance for the year. Our total assets reached KWD 9 billion 12% year-on-year supported by solid loan growth. Net loans approaching around KWD 5 billion, rising 8% year-on-year and this is backed by a strong balance sheet and a stable net interest margin of 2.3%. Top line income remained robust at around KWD 268 million, representing a 17% year-on-year increase. Liquidity remains solid with regulatory ratios well above the requirements and a stable deposit base of around KWD 5.5 billion. Capital levels also remained optimal at 16.8%. In light of the aforementioned robust financial performance, the Board of Directors has proposed a cash dividend of KWD 0.006 and stock dividend of 5% [over] the investors for continued support [indiscernible] bank. However, this is also subject to the shareholders' approval in the upcoming AGM. And with that, I hand over to Gaurav to walk us through the financial performance in more details.

Thank you, Hamad. Good afternoon, everyone. Let's move to Slide 12, which outlines our P&L metrics in more details. In 2025, Burgan delivered robust top line growth of 17% year-on-year, reaching KWD 268 million in revenues, reflecting solid results across both net interest income and noninterest income. Net interest income grew 13% year-on-year to KWD 178 million, supported by continued loan growth and stable net interest margins of 2.3%, highlighting disciplined balance sheet management amid evolving interest rate environment. Noninterest income recorded impressive growth, rising 25% year-on-year to KWD 90 million, supported by higher fee income, gain from securities and positive contribution from UGB, including its key subsidiary, KAMCO. While expenses and net provisions were higher compared to last year, they remain well managed and contained. Consequently, net income for the year reached KWD 47 million, broadly in line with last year, underscoring the stability of our earnings and resilience of Burgan's business model. Let's now move to Slide 13 to review our balance sheet metrics. Our total assets grew 12% year-on-year, driven by 8% increase in our loan portfolio, which reached around KWD 4.8 billion. This growth was primarily supported by operations in Kuwait with additional contribution from our international business, helping to ensure adequate diversification across regions and sectors. Our balance sheet remains very liquid with liquid assets representing 28% of total assets, reflecting prudent management. The sectoral composition largely stable compared to previous quarters, reflecting Burgan's balanced and well-diversified credit portfolio. In terms of loan staging, we continue to see year-on-year improvement in Stage 1 and Stage 2, while Stage 3 remains stable at around 2%. Let's now move to Slide #14 to review group's asset quality metrics. Our NPL ratio remains well within our target of less than 2%. When adjusted for collaterals, our NPL dropped to just 40 basis points, highlighting the actual credit risk is significantly lower and demonstrating strong coverage of nonperforming loans. The NPL coverage stands at 239%, further underscoring the strength of our credit protection. Additionally, our provision buffers against expected credit losses remain robust at KWD 75 million, representing an exceptionally strong cushion. I will now hand over to Animesh to walk through the further slides.

Thank you, Gaurav, and good afternoon, everyone. Let's now move to Slide 15, which provides an overview of the group's deposit and liquidity metrics. Our deposit base remains strong at around KWD 5.5 billion, up 11% year-over-year, reflecting continued growth in liquidity. This increase was primarily driven by robust volumes in Kuwait, supported by our international subsidiaries, particularly UGB. The deposit mix has -- largely stable with CASA balances holding steady at nearly 27%. Burgan's loan-to-deposit ratio stands at 78%, well below the 90% regulatory cap, showing a careful balance between lending and funding, supported by a strong and stable deposit base. Under Basel III regulatory liquidity requirements, the bank continues to be well-positioned with a liquidity coverage ratio of 186% and a net stable funding ratio of 112%, both comfortably above the 100% regulatory minimum. Now let's turn to Slide 16 for a closer look at our regulatory capital position. As of December '25,our risk weighted assets grew almost KWD 800 million representing and 11% increase. This growth reflects strong business momentum during the year and also includes the impact of our acquisition of UGB in February '25. Despite this increase, our capital position remained robust, prudent and well-balanced. Our CET1 Tier 1 and capital adequacy ratio stood at 11.2%, 13.3% and 16.8% respectively. These provides comfortable buffer of [70, 130 and 280] points above the regulatory minimums of 10.5%, 12%, and 14% respectively. Please note that these ratio also takes into account the proposed dividend of KWD 0.006 as approved by the Board in line with the CBK basel III regulations. Let's now proceed to Slide 17 for the brief overview of the KPIs of our subsidiaries. After Kuwait operations continues to be the backbone of the group, representing 72% of the total assets. Key performance indicator remains strong with cross-sell improving significantly to 38% in '25, up from 25% last year. Margins remained healthy and the NPL ratio was well contained at 2%. The cost of credit stayed low at just 30 basis points reflecting the inherent strength of our credit portfolio and overall asset quality. Looking at our International operations, starting with BBT. The bank continues to face challenges from the countries macroeconomic situation and persistent hyperinflation. But despite this headwinds BBT still contributes about 13% to our total assets, margins are holding strong at 7%, asset quality remains solid with NPL ratio of 30 basis points and the cost of credit is low at 20 basis points. Our [GBA] operation contributed around 11% to the group's total asset base. [AGB's] performance remains solid with high margin of 5.5%, supported by a decent cross-sell ratio and stable asset quality metrics. Moving to our new subsidiary UGB. As mentioned previously, it remains primarily an investment focused entity with no significant client lending activity at the moment. So credit metrics are not meaningful at this stage. Cross-sell performance is healthy, largely driven by contributions from KAMCO. Finally, our operations in Tunisia, which represents 2% of our group assets continue to operate smoothly with stable KPIs and no surprises. I will now hand it over to Hamad for the closing remarks.

Thanks, Animesh. As we conclude the presentation, let's turn to Slide 19. In summary, the bank delivered stable growth at [observations led by] strong performance in Kuwait, disciplined risk management, prudent international expansion, while creating long-term shareholder value. We focused on building asset-light revenue streams, reflecting in the higher cross-sell ratio, supported by expanding our regional operations and leveraging new capabilities for scalable growth. Digital innovation and transformation remains a key priority, enhancing customer experience, operational agility and service delivery across our markets. We continue to strengthen ESG leadership embedding sustainability and responsible practices across our strategy, operations and long-term growth. With that, we conclude the presentation. But before we move to the Q&A, we would like to highlight the launch of our dedicated Investor Relations app, which is available on both iOS and Android devices. We highly encourage you all to download the app. By downloading it, you will gain instant and 3 type access to Burgan financial disclosures, updates and performance data. The app is user-friendly and offers several insightful features. We would greatly appreciate your feedback as it will help us further improve the engagement and make the app even more useful. I'll be happy to -- [indiscernible] download. With that, I will now hand it over to Ahmed to facilitate and lead the Q&A session.

[Operator Instructions] We already have a couple of questions from the chat. So I'll start with those. Can you please comment on the UGB's strategy? Are there any key milestones you can comment on?

This is Khalid. As we stated earlier, that is for the UGB, it has the License of Islamic window. What happened during '25 we have changed the Board. We now -- our CEO is there, Group CEO is board member, another 2 seniors, one, the Head of Investment and one -- as we think of our senior management. So we are there containing. There obviously we started in the last few months, we started to set the deals, whether they are related to GCC or related to customers in Kuwait. So it's an ongoing. So we continue. Plus UGB, that also has window, it's also currently [same] into high individual...

We'll take another question from the chat. What is the internal buffer on the minimum regulatory CET1 requirement?

Yes. So the bank historically has been maintaining about 50 basis points of buffer. That's a level that we feel comfortable with. So that's the internal target.

Right. There's another question asking on guidance on NIMs, cost-to-income ratio, cost of risk, loans and deposit growth for '26 and '27.

Yes. So on NIMs, we are pleased to report that our NIMs for 2023 was steady at 2.3%, although we faced some headwinds where -- but the international operations supported the NIMs and filled the gap. For 2026, we expect as the easing cycle continues, especially in Turkey, we expect some long-term assets [indiscernible] as and when they mature. And this could result some in a contraction in the NIMs, especially in the international operations. So overall, at the group level, we are guiding a 5 to 10 bps contraction in NIMs in 2026.

And on the cost-to-income ratio, cost of risk and loans and deposit growth?

So I'll start with the loan and deposit growth. This year, we reported a growth of around 8% in the loan portfolio, which is coming from Kuwait as well as equally contributed by international operations. For 2026, we do also expect high single-digit growth for our loan portfolio. In terms of cost-to-income ratio, our cost-to-income ratio did increase this year from 57% to 60%. And the main reason -- there were a couple of reasons here. One is especially in international operation, Turkish operations, where we are facing inflationary pressures, where we have to increase both staff and general operating expenses. In addition, we are also investing in the digital brand there on where we noticed we experienced around 50% increase in our digital customers from 1 million to 1.5 million in 1 year. So hence, this is going to bring operational efficiency in future. For now, we consider it as a front-loaded investment, and we expect to keep our cost-to-income ratio stable at 60% levels in 2026.

And the cost of risk?

Cost of risk optically, you would see that our cost of risk has increased from 10 basis points to 60 basis points in 2025. However, I want to comment that last year was an exceptional year where we saw some reversal in provisions in 2024 in Turkish operations. This year, we had a nominal charge, which is -- so 50 basis points is more of a normalized cost of credit. 2024 was an exceptional year. Although it's very difficult to forecast what would be your cost of risk, but we would give a guidance of around 50 to 60 basis points for 2026 in line with the normalized number of 2025.

Take another question from the chat. And it's asking whether you see the current CET1 buffer as adequate to support your loan growth for next year?

Yes. So like I said, historically, the bank has maintained about 50 basis points of buffer, and that's our comfort zone. But right now, our ratios are about 11.2%, which is not of enough cushion. So what -- so right now, we are in the process of financing our capital plans right now, which includes looking at various range of tactical and strategic options to optimize our RWAs as well as strengthen our capital position. So as it would be finalized and further decisions are being taken, we will inform everyone through our disclosures.

Okay. Next question. The NPL ratio improvement seems to have been supported by write-offs in Q4, while Kuwait NPL ratio is higher compared to 2024. What is the outlook for 2026? And should we expect another spike in the NPL ratio in the first half of this year?

I can take this answer. So if you look at it in general, in the last 2 years, whatever recoveries we get, we build our provisions. Still we have certain concentration in certain accounts. We want to bring them at the minimum level. So I think the practice is we are dealing with certain customer accounts where, whenever we have -- we see none compliance with the covenants or there are some difficulty dealing with, we try to push them to make a legal action. But usually, by year-end, we normalize it. So I expect the same in '26. We're going to maintain the same level of NPL ratio.

We have a question from Rakesh Tripathi.

Yes. This is Rakesh from Franklin Templeton. I think you were just answering the question on asset quality. And unfortunately, I had some line disturbances. I did not get the response. It would be very helpful if you could just elaborate a little more. My question was more around, one, the write-offs that we saw. I think much of the NPL ratio decline happened in the last quarter itself and -- good portion of it was attributable to the write-offs. So that was the first part. The second part was on the expectations for 2026. Should we look at some actions from the management like we've seen in the last few years, typically, wherein some accounts are reviewed more stringently and wherein you potentially move them to Stage 3 with some regularization happening by the end of the year.

I think -- I think what you said is what I said just now. In the last 2 years, we have this approach where any recoveries, we are building our provision. And even my colleague Mr. Gaurav was asked about the cost of credit because, currently you might see it is a little bit high because whatever recovery we are building from provisions. Yes, there are certain accounts, we want to bring them, due to consideration or due to some behavioral, we'd like to bring them in the normal banking practices, let's put it this way. So if they are not cooperating, then we can follow what we did in the previous years, where we're going to take legal action. That's why in last year, and even year ago, you'll see our NPL little bit go up. But by inherent it will be normalized.

Very clear. And the other question was just a follow-up on the CET1. So if I heard this correctly, you mentioned, I think a couple of times on the call that 50 bps is the kind of standard buffer that you are comfortable with internally on CET1. Right now, it is 70 bps and appears higher than that 50 bps kind of threshold. But assuming a high single-digit kind of growth, you would want to be a little more comfortable. And I think you mentioned 2 potential avenues, RWA optimization at one end and looking at capital optimization at the other end as well. So when we talk about -- my question was more around the capital optimization portion. What could be some of the potential options that you might consider? And what kind of time lines might we expect to see some announcements on regarding this? Would rights issue be one of the options that you would consider if it came -- if your internal analysis indicated that increasing capital was something that would be beneficial to growth?

4 Yes. Thanks, Rakesh. Yes, as you mentioned, in terms of the critical actions for us, if we talk about capital enhancement, would be an option of rights issue. But any further guidance on this matter is very difficult for us to provide at the moment. As I initially answered, right now, we are in the process of our capital planning phase and which obviously, as I said, is looking at all the options, including RWA optimization as well as, as we mentioned, capital enhancement through rights issue. All the options are on the table at this stage. And as you know, we have a very supportive shareholder. So if any additional capital is needed in the future, we are well positioned to address that, subject, of course, to the internal, external as well as the regulatory approvals. So if we do decide to move in this direction, we will -- like I mentioned before, we will keep everyone informed through the appropriate disclosures.

Very clear. I just had one more question, and that was on the overall breakdown of the loan growth that I came across in the financial statements. The corporate book increased by about 6.5%, while retail book was up, I believe, 21% or so. So if you could just shed a bit of light on where this retail growth came from? How much of it was in Kuwait versus international?

Yes, sure. So as per our previous guidance, we are seeing around 12% to 14% growth in retail portfolio every year in Kuwait operations. Since we have changed our strategy and we started focusing on retail. The remaining growth is coming from the digital business in Turkey, where we are growing digitally, which is supporting the retail growth overall for the group.

[Operator Instructions] So we'll pause for a moment just to make sure there are no further questions. So we have another question in the chat. Can you comment on the profitability of the subsidiaries in Turkey, Algeria and Tunisia? How much do these subsidiaries contribute to the group net profit pool?

Yes, usually we disclose the asset composition in our slide, one of the slides in the investor presentation. But the profitability contribution is more or less in line with the asset contribution. We don't specifically disclose the profits of each and every entity.

We'll just pause for a moment to make sure there are no final questions. So we -- since we don't have any more questions, I'd like to hand the call over back to management for any closing remarks.

Thank you, and thanks for everybody who attended the call at Burgan. As my colleague saying about our new IR app, we encourage you to use it, and we are here available for any future questions.

Thank you very much.

Thank you, Ahmed.

Thank you, very much. This ends our call. Thanks. Have a good day, everyone.

Thank you.