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

A very good afternoon, and welcome to GFH Financial Group's First Half of 2022 Results Presentation. My name is Surya Hariharan. And today, we have our senior management team join us on the call. Globally, the second quarter of 2022 has been one of the most challenging periods for investors and most of the asset classes have felt the effects of this challenging global macroeconomic environment. We have remained focused on drawing on our core strength and strategy and executing our plans, helping us report a 10.2% increase in our quarter 2 shareholders' profit compared to quarter 2 of previous year. The resilient nature of our businesses reflect on the good results in a more challenging environment with higher volatility and increasing rates. In the first half of 2022, we continue to grow according to our business plan moving ahead with executing our robust pipeline of opportunities. Key highlights of our performance for the first half of the year were: Increase in net profit attributable to shareholders by 14% to USD 42.18 million compared with USD 37.07 -- USD 37.04 million in the first 6 months of 2021. Consolidated net profit for the first half of this year increased by 3% to USD 45.38 million compared with USD 44.15 million in the first 6 months of 2021. Total income for the first half of 2022 was USD 182.76 million versus USD 181.01 million for the 2021 period, an increase of 1%. Total expenses for the period were up 1% to USD 137.39 million from USD 136.87 million for the first 6 months of 2021. Earnings per share for the period was USD 1.22 compared to USD 1.21 for the first 6 months of 2021. Key highlights of our performance for the second quarter of 2022 were: Increase in net profit attributable to shareholders by 11% to USD 23.06 million compared with USD 20.92 million in the second quarter of 2021. Consolidated net profit for second quarter of this year increased by 5% to USD 26.03 million compared with USD 24.81 million in the comparative period of 2021. Total income for the second quarter of 2022 was USD 91.95 million versus USD 90.62 million for 2021 period, an increase of 1.5%. Total expenses for the current period remained stable at USD 66 million compared to same period of 2021. Earnings per share for the period was USD 0.67 compared to USD 0.68 for the second quarter. The growth and stability in our results reiterates diversity of our business model and the contribution from each of our business lines. At USD 42.18 million, net profit attributable to shareholders for the first half of 2022, the earnings translate into an annualized return on equity of 8.6%. Total expenses for the first half of 2022 were USD 137.4 million, up by 0.36% compared to the same period in 2021. The group's total assets on 30 June, 2022, were USD 8.52 billion compared with USD 8.08 billion on 31st December, 2021, an increase of 5.4%. Similarly, the group's liabilities grew from USD 5.6 billion as of 2021 year-end, to USD 6.2 billion at 30 June, 2022, an increase of 10.7%. The liabilities raised through money market funds have been deployed in the liquid asset portfolio of the bank. From a total asset and funds under management perspective, we have grown from USD 15 billion at year-end 2021 to USD 16.4 billion at 30th June, 2022, a growth of 9%. This was due to the organic growth from the new products launched by the bank and inorganic growth through the acquisition of Student Quarters, an asset manager based out of the United States of America. Total equity attributable to shareholders grew 1.6% to USD 0.98 billion on 30th June, 2022, compared to USD 0.96 billion at year 2021. The movement in shareholders' equity was due to the current period's profitability, changes in treasury shares, dividend appropriations and changes to fair value of investments. Looking at each of the business groups, some of the highlights for the first quarter -- for the second quarter of 2022 were as follows: Investment Banking, which is our core business line, contributed 25% of the total income of the group for the first half of 2022. Our investment ecosystem continue to provide our investors with unique opportunities and products in the different sectors to get through this volatility. GFH was successful in placing two deals in the real estate space during the second quarter of 2022, generating an income of circa USD 20.4 million for the second quarter and USD 45.1 million for the first half of the year. The Investment Banking income grew by 30% compared to the first half of 2021. The bank continues to look forward to keep the pace with the opportunities in this business line as well as continue to invest in key markets in the GCC and U.S. Commercial Banking. Our decision to support and grow our stake in Khaleeji Commercial Bank, our commercial banking business has enhanced our diversity of results. Khaleeji Commercial Bank performed better than the previous periods with its net financing margin improving quarter-on-quarter and its return on average equity improving to 9.4%. Its cost-to-income ratio at 45% is amongst the lower end within Bahrain. KCB has contributed roughly about $18 million towards GFH profitability. KCB's gross income contributed 20% of the total income of the group, which is in line with the contributions in the previous quarters. Proprietary and co-investments. During quarter 1 of 2022, one of the significant milestones for the group was the launch of Infracorp, which specializes in investing and managing sustainable infrastructure and real estate. The group has recognized an income of USD 10.5 million from its investment in Infracorp during the second quarter of 2022. Income from proprietary and co-investments were boosted by this performance from Infracorp, thereby recording a 68% growth in this business line compared to first half of 2021. Income from this business line contributed 26% to the total income of the group. Treasury. Treasury portfolio contribution dropped during the first half of 2022 compared to the first half of 2021 by 30%. The market [indiscernible] accelerated in the second quarter and that was the case in both equities as well as fixed income. Inflation continues to be high and along with other geopolitical factors have led to further declines in the economic growth outlook. Income from treasury portfolio would have been higher, but this was impacted by the mark-to-market losses in the portfolio. Treasury and other income contribution dropped around 30% of the total income of the group. Turning to our regulated ratios. Our capital adequacy ratio slightly dropped from first quarter levels to 13.62% at the end of June '22, primarily due to movement in the fair value of treasury portfolio and [indiscernible] corporations. This is still marginally better than 13.5% reported at year-end of 2021. Our liquidity coverage ratio is at 122%, and net stable funding ratio at 100%, both of which are about regulatory threshold. All our business lines have gained significant traction during the period. In Investment Banking, we acquired a majority stake in SQ Asset Management, a U.S.-based prudent housing specialist. Our Commercial Banking subsidiary, KCB, has continued to increase its contribution after a successful turnaround and Infracorp, which was launched in January of this year, has already announced good profit during its first reporting period. We expect further progress in each of these key areas of our business. Continued expansion of our investment activities, deal flow and global footprint remain a priority in the forthcoming periods, and we are actively pursuing organic and inorganic growth with an eye towards delivering even stronger results during the remainder of 2022. With positive momentum from the first half of the year, we look forward to maintaining our upward trajectory and creating even greater value for our investors and shareholders. I would like to thank you for your time this afternoon and open the floor for any questions you may have.

Sorry about it. We had some technical issues out here. We've got one question which says, what was the impact of current market volatility on treasury and equity portfolio? How much increase, decrease in provision compared to previous quarter? We roughly had a provision of $14 million during the current quarter on our treasury portfolio, which is routed through the P&L. And we've also had about $25 million of impact on the fixed income portfolio, which is routed through the equity statement. There's another question on GFH NPL ratio declining from 7.4% in Q1 to 6.2% in Q2. Typically, GFH does not have any NPL ratio on a stand-alone basis. So this is derived from our Commercial Banking subsidiary Khaleeji Commercial Bank. What we've noticed in the past 2 quarters is that the NPL ratio of Khaleeji Commercial Bank is fallIng, which is a good sign for us. And I think we will continue to have these kind of levels going forward. There's another question on what is the impact on the cost of funds in our balance sheet? And it also asked for the detail of the cheaper source of fund for the group? The cheapest source for the group is technically the leverage that we get on our treasury portfolio. These are from International Banks, and these tend to be the cheapest source of fund for the group. The cost of funds typically would be going higher, considering the interest rate environment that we are in, but we currently manage them to see how best we can control these costs. Thank you very much for your time today. Hope to catch up with you guys during the next quarter webcast. Thank you very much.