GFH Bank B.S.C. (GFH) Earnings Call Transcript & Summary

[Foreign Language] Good afternoon to all. I'm Surya Hariharan, Head of Financial Control. On behalf of the GFH management, I would like to welcome you all to GFH Financial Group's financial presentation for the 9 months ended 30th September 2020. Along with me today on the call are senior members of the management team. We are pleased to present to you the group's financial results for the 9 months of 2020, along with the third quarter, which have marked another period of profitability and contributions from all business lines. While net profit for the period was lower compared to the 2019 comparative period, which -- this was affected by the continuing global impact of the COVID-19 pandemic. The ability to -- of the group to deliver solid income and results is an important demonstration of the resilient nature of the group's diversified business lines. As the crisis continues, the economic disruption globally, the group has remained fully operational throughout this period, and the management team has been actively monitoring the situation as it evolves. The group continues to maintain liquidity, generate deal pipelines, provide access to investors and function smoothly under the recommended government protocols. GFH results for the 9 months of 2020 translate into an annualized return on equity of 3.5%, with the key performance highlights as follows. Total income of the group was USD 214.1 million for the 9 months of 2020 compared to USD 245 million, a decrease of 12.6%. The decrease is predominantly attributable to the worldwide pandemic, which had an impact across the group's business lines. Total operating expenses of the group was USD 80.5 million for the 9 months of 2020 compared to $70.2 million for the comparative period, an increase of 14.7%. Group financing expenses increased by 19.4% to $101.1 million for the 9 months of 2020 compared to $84.7 million for the comparative period, mainly on account of the sukuk that was issued during early 2020. Net profit attributable to shareholders was USD 23.17 million for the 9-month period of 2020 compared with $64.53 million in the 9 -- first 9 months of 2019, a decrease of 64.1%. The primary reason for this decrease was a lower contribution from the group's investment banking and real estate operations as well as the fair value movements in the group's treasury portfolio. Impairment provisions saw a significant drop during 2020. Impairment provisions for the group stood at $2.1 million for the current 9 months in 2020 compared to $28.4 million for the comparative period in 2019, primarily due to lower impairment provisions at the commercial bank subsidiary of the group. Earnings per share decreased in the 9 months of 2020 to USD 0.69 from the prior period level of USD 0.0191, in line with the earnings decrease. On the balance sheet, the key highlights were as follows. Total assets of the group have increased to $6.16 billion, at 30th September 2020 from $5.9 billion at 2019 year-end, primarily on account of increase in the liquid assets of the bank. Total liabilities of the group have increased to $3.8 billion at 30th September, from $3.4 billion at 2019 year-end, primarily due to the financing obtained by the group through the issuance of its landmark sukuk. Equity attributable to shareholders of the bank was $876 million at 30th September 2020 compared to $1 billion at 2019 year-end, a decrease of 12.8%. This is primarily due to the financial impact of COVID-19 resulting in modification losses, commercial banking restructuring activities and recognition of fair value losses and foreign currency translation differences at the group level. Despite the challenging environment, we are extremely proud to have continued to make progress across the business, in line with our plans and our focus on further building and diversifying our position in key defensive sectors and in core markets. Contribution by each of the business lines during the 9 months of 2020, they are as follows. Investment banking contributed 31% of the total income of the group, mainly from product placement activities to investors and structuring fees. Income from investment banking line has been lowered compared to the previous year due to the lower number of deals and smaller deal sizes. Group strategy for its treasury business line has shown significant improvement, with treasury contributing to 29% of the total income through income from sukuks and structured products. Treasury performance, excluding the mark-to-market losses of structured notes, has seen significant growth due to availability of fresh liquidity deployed in treasury activities. Proprietary investments held by the bank continue to contribute around 13% of the total income. The performance of proprietary investments has been better compared to the last year, except for the one-off transaction during the previous year. Real estate contributed 6% of the total income, primarily from the sale of development units in Bahrain. Compared to the previous year, real estate sales has been slow in 2020, and hence, there has been a very low contribution from this business line. In commercial banking, our subsidiary Khaleeji Commercial Bank, contributed 21% of the total income. The bank has returned to profitability during 2020. Despite the economic turmoil and unprecedented market conditions, we look forward to continue to create value and deliver growth through diversification. Although we expect current challenges to continue for the foreseeable future, we remain confident in our ability to, nevertheless, find and leverage opportunities, including those we see for organic and inorganic growth in the forthcoming periods. I would like to thank you for your time this afternoon and open the floor for any questions you might have.

Okay. We have a question. What is the next step of Kuwait's talk, I guess, delisting. When and can we close it? We are currently working with a regulator in Bahrain, the Central Bank of Bahrain. We're trying to look at what options can be provided to investors in Kuwait. And accordingly, we'll inform the market on our next steps. Okay. We have a question on how is the occupancy rate for real estate holdings in the U.S. during COVID? Currently, [ alhamdulillah ], we didn't have any issues with that in terms of our -- because it's long leases -- long-term leases and so we didn't have any issue with the occupancy. We hope that the U.S. markets returning to a bullish mood sometime soon. I think we should be okay with our occupancies in real estate. We have separate questions on the same topic, which is about the future transactions and Q4 performances. As you know, GFH, as an investment bank, is always on the lookout for opportunities. And we will update the market as and when we finalize out these things. We also have questions on what kind of numbers do you expect for Q4 and how Q4 performance would be at? And do we expect any dividends? Q4 performance, I mean, we always want to be better than what we did last year, but that's -- we are in the middle of Q4. So once we finalize that, we hopefully do better. In terms of dividends, the Board is aware of the dividends, and we will follow the policy that has been approved by the Central Bank of Bahrain for GFH in terms of our dividend distribution. And [Foreign Language], we should be able to share some good news to the market. We have a question on the treasury portfolio performance of GFH. We've been able to, alhamdulillah, The performance of treasury has been very good during this year, primarily because we were able to deploy our funds into buying cheaper assets at cheaper valuations given the current situation. So this has been a benefit for our treasury portfolio. We have taken some provisions, which are more conservative in nature. Having said that, the performance of treasury portfolio has been very good during this year. Thank you very much for your time this afternoon. You can drop in your questions to investors@gfh.com, if you have any specific questions for the team. Thank you very much.