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

A very good afternoon, and warm welcome to GFH Financial Group's Results Presentation for the first half of 2023. My name is Surya Hariharan, and today, I'm joined by my colleagues from senior management team on the call. We are pleased to announce another quarter of enhanced performance and results, including continued growth in the Group's income and profitability. Again, a less certain market and ongoing volatility across global markets, the diversity of our business lines and the expertise of our teams ensure that we are working well in such economic cycles. Let me provide you with the key milestones achieved by the Group during the first half of 2023. Net profit attributable to shareholders of $54.6 million, up by 29.4%. Consolidated net profit for the period of USD 57.2 million, an increase of 26%, a rise in total income for the period by 42.3% to $173.8 million, growth in total assets by 5.9% to USD 10.3 billion, increase in operating expenses by 31.4% during the period to USD 78.3 million, increase in finance expenses in line with the rising rate environment to USD 31.4 million during the first half of 2023 from USD 20 million during first half of 2022. Capital adequacy ratio stood at 15.2%. Our total assets and assets under management increased to USD 18.8 billion. Key highlights of our performance for the second quarter of 2023 compared to similar period in 2022 were as follows. Net profit attributable to shareholders of USD 30.6 million, up by 32.5%. Consolidated net profit for the period of USD 32.8 million, an increase of 26%, rise in total income for the period by 54.7% to USD 86.8 million, increase in operating expenses by 47.1% during the period to USD 37.2 million, increase in finance expenses to USD 10.6 million during the second quarter of 2023 from USD 9.1 million during second quarter of 2022. Our strength was reflected across verticals, including our investment banking, commercial banking and treasury and proprietary in -- business lines. Highlights of contribution by each of the business line were as follows. Investment Banking, which remains our core business line contributed roughly half of the total income of the Group for the period. GFH was successful in placing 4 private equity and real estate deals during first half of 2023, generating an income of USD 45.4 million for second quarter and USD 90.5 million for the first half of the year. Investment banking income grew by more than 100% during the first half of 2023. Our diverse investment portfolio which spans the GCC, U.K., Europe and the U.S. continue to perform robustly with our strategy of targeting defensive recession-proof sectors, once again proving its effectiveness in creating value for investors and shareholders in the face of significant headwinds. We have also built a strong pipeline of exciting deals for the rest of the year. Commercial Banking. We realized growth in contribution from our Commercial Banking subsidiary, Khaleeji Bank, which recorded a net profit of USD 18.44 million during the first half of 2023. Our stake in Khaleeji Bank has enhanced our diversity of results. Khaleeji Bank's gross income contributed roughly 24% of the total income of the Group. Treasury and Proprietary investments. Contribution from Treasury and Proprietary investments increased during the first half of 2023 compared to first half of 2022 by 4.6%. This business line contributed 24% of the total income of the Group. All our investments within this portfolio continue to perform in line with our strategy. However, the rising finance costs, in line with the growing rate environment has impacted the net spread of the treasury performance. We continue to monitor the markets closely and accordingly evaluate our strategy relating to this business line. The Group's total assets at the end of first half of 2023 stood at USD 10.3 billion compared with USD 9.8 billion on 31 December, 2022, an increase of 6%. The primary increase is due to the increase in treasury portfolio of the Group. The Group's liabilities declined from $7.5 billion at 2022 year-end to $7.1 billion at 30 June, 2023. The liabilities raised through money market funds have been actively deployed the liquid asset portfolio of the bank. Total equity attributable to shareholders dropped from USD 997 million at 31 December, 2022 to USD 974 million at the end of first half of 2023. The primary movement in shareholders' equity was the current period's profitability, dividends approved by the shareholders for 2022 and changes in treasury shares. Our performance translates into an annualized return on equity of 11.2% and return on assets of 1.2%. Turning to regulatory ratios. Our capital adequacy ratio was 15.2%, the liquidity coverage ratio at 237% and net stable funding ratio at 105%, all our regulatory ratios are above the prescribed thresholds. We entered 2023 from a position of strength, and we continue to show our strategy performs well across the cycle. We have been able to undertake key investments during 2023 and successfully placed core real estate and private equity products with investors during this period. Our commercial banking subsidiary was able to successfully adapt to high interest rates during the period and achieve growth. Similarly, our treasury business rebalanced its portfolio and achieved good performance during the first half of the year. We aim to further build our portfolio of income-generating assets in the GCC, where economic growth is expected to continue in the coming periods. Having entered the year with good momentum, we look forward to building on these results and generating even greater value for our investors and shareholders in the forthcoming periods. I would like to thank you for your time this afternoon and open the floor for any questions you may have.

We have one question about, the performance of Khaleeji Bank during Q2 of 2023. As I mentioned in my webcast, Khaleeji Bank's results were impacted by the rising interest rate environment. However, they have been able to rebalance and reprice their portfolio during the first half of 2023 and have been able to report growth compared to last year. This continues to remain a challenge for Khaleeji Bank as with other banks in the region, but hopefully, we should be able to see them perform better in the coming periods. We have another question which says, "When we will see the impact of the good results into the market share price?" Well, as you know, we are trying our best to perform as well as we can as the Group and market dynamics are something that we have no control over. But Insha Allah, we should be seeing this reflecting into the share price soon. We have one more question on, the deal pipelines for the rest of the year. As I mentioned in my webcast, we have a very strong deal pipeline in terms of the Investment banking deals for the rest of the year, and we should be able to continue to perform, Insha Allah, in a better way going forward. Thank you very much. We do not have any more questions. Thank you very much for your time this afternoon. And hopefully, you all continue to enjoy your summer time off. Thank you very much and see you for the next quarter [ net ] results. Thank you very much.