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

Good afternoon, everyone, and welcome to GFH's 2Q '26 Results Call. This is Ahmed El-Shazly from EFG Hermes, and it's a pleasure to have with us on the call today from management, Mr. Hisham Al Rayes, group CEO and Board member; Mr. Rajeev Gogia, Group CFO; and Ms. Eman Mohamed, Executive Director of Strategy and Shareholder Relations. I will now hand the call over to Ms. Eman to start with the presentation.

Good afternoon, everyone, and thank you for joining GFH Bank earnings call for the first half of 2026. We will take you through the key highlights, financial performance and business updates for the period. Following which, we will open the floor for questions. The Q&A session will be addressed directly by our CEO. You are welcome to submit your questions at any time during the presentation through the chat function. I'm pleased to share that GFH delivered a resilient first half performance, reflecting the strength of our diversified business model, disciplined execution and the effectiveness of our strategy. The first half was marked by a challenging regional environment. At the same time, the performance we have delivered this half under these circumstances validates our strategic direction and the strategy we have pursued over recent years. Our diversification across geographies, business lines and income streams also provided us with the stability and the flexibility to absorb these external pressures while also positioning us to benefit from the shift in the market. In fact, the geopolitical situation has created opportunities in certain areas, and our agile strategy has enabled us to respond quickly and selectively to capture these opportunities and continue creating value for our shareholders. Further positive validation of our performance and financial resilience came from the credit rating agencies. Fitch Ratings affirmed GFH ratings at B and maintained a stable outlook on our long-term IDR. We believe this affirmation, particularly under the current market conditions further reflects the resilience of our diversified business model and the strength of our financial position. With that, I would like now to hand over to my colleague, Rajeev, who has recently joined the GFH family. Rajeev will take you through the key financial results and provide further details on our performance during the first half of the year. After which, I'll take you through the performance details and latest updates across business lines. Over to you, Rajeev.

Thank you, Eman, and good afternoon, everyone. It is a pleasure to be joining GFH, and I'm delighted to be with you today for my first earnings call with the group. I'll take you through the key financial highlights for the first half of the year, including the key drivers behind our results. We are pleased to report another period of strong and positive performance with GFH continuing to deliver a consistent and upward profit trajectory. Net profit attributable to shareholders reached approximately USD 76.2 million, representing a 13.3% year-on-year increase. Consolidated net profit for the 6 months stood at approximately $76.6 million, up 9.8% year-on-year. This performance was supported by continued growth in total income, which increased by 4.4% year-on-year reflecting, solid contributions across our business lines. In particular, wealth and investment management delivered a strong 48.4% year-on-year increase in income and contributing around 42.9%, reaching $132.8 million in H1 '26, driven by higher management and performance fees. This reflects the continued growth of the platform and the strength of our underlying asset management activities while remaining firmly aligned with our business model and strategic focus on growing recurring and performance-based fee income. Now turning to our credit and financing business line. The segment also delivered a strong performance during the period, with total income increasing by around 15.1% and contributing approximately 22.6% of the total income. The performance was primarily driven by higher financing income, reflecting the continued growth of our financing activities with underwriting income providing additional support. Treasury and proprietary investments remained a significant contributor, accounting for approximately 34.5% of total income supported by solid contributions from fixed income, asset liability management and trading activities. Performance in proprietary investments was further supported by gains realized from selected portfolio exits during the period, reflecting our disciplined approach to actively managing and optimizing the investment portfolio. At the same time, total expenses increased by a modest 2.2% year-on-year, broadly in line with the growth of the bank's business. Beyond the profit and loss, our balance sheet remains a key source of strength. We continue to maintain significant liquidity, a diversified asset base and a strong capital position, giving us both resilience and the capacity to selectively deploy capital into attractive opportunities. Balance sheet remains strong and resilient, with total assets reaching $12.4 billion at H1 '26, broadly stable versus end of '25, reflecting disciplined balance sheet management. Assets and AUM reached $23.9 billion, up 3% from December '25, keeping the bank on track to achieve its AUM target and reinforcing the scale, diversification and continued growth of our investment management platform. Liquidity remains a key strength with $5.4 billion of cash and treasury portfolio, equivalent to approximately 43.4% of total assets. The asset base continued to be actively rebalanced with cash and bank balances increased by 19.5% versus December '25. Financing contracts increasing to $2.6 billion, while proprietary assets grew to $3.3 billion, supporting a diversified balance sheet across financing, investment and treasury activities. Shareholders' equity remained resilient at approximately $1.01 billion, broadly in line with year-end levels, providing a solid capital base to support the group's continued growth. Return on equity reached a record 15% in H1 '26, increasing by 3.3 points from December '25, reflecting stronger profitability and improved efficiency in deploying shareholders' capital. This represents a meaningful improvement in the bank's ability to generate returns from its capital base. Overall, the balance sheet continues to provide a strong foundation for growth, combining meaningful liquidity, a diversified asset mix and a stable shareholder capital base while maintaining flexibility to deploy capital selectively across the bank's core businesses. Robust capitalization, liquidity and funding levels, we remain well capitalized. Our capital adequacy ratio at 14.04%, Tier 1 capital ratio at 13.34%. Liquidity coverage ratio at 139%, and net stable funding ratio at 102%. All our regulatory ratios are above the regulatory thresholds. These are the key financial highlights for the period. I will now hand over to Eman to walk us through the key highlights across our 3 core business lines.

Thank you, Rajeev, for covering the financial details. I'll start with wealth and investment management. This segment remained a key growth engine for GFH, delivering income of USD 132.8 million this half, up 48.4% year-on-year with continued growth in management and performance fees up 63.1% and 93.1% year-on-year, respectively, supported by the resilience of our investment platforms, recurring income and sustained demand for high-quality income-generating assets. GFH Partners, our Dubai-based global investment platform, continued to make strong progress during this period. The platform remains diversified across the GCC, MENA, United States, Europe and the United Kingdom with investments in resilient and essential sectors, including logistics, student and multifamily housing and health care. In the GCC, we continue to scale our logistics and industrial real estate platform, particularly across Saudi Arabia and the UAE. In the first half, we launched the KSA Logistics Fund, the fifth fund in our GCC logistics series and continue to build out the [indiscernible] logistics platform. We also expanded our Saudi logistics footprint through a strategic partnership with Mawten Real Estate, further strengthening our presence across key markets in the kingdom. Importantly, we are seeing strong demand from partners and investors for our logistics strategy, which is creating opportunities to scale the platform further. In line with this demand, GFH signed an MOU with OCTO Management to develop USD 300 million logistics and industrial real estate platform across Saudi Arabia and the UAE. This is a strong validation of our strategy and the growing institutional appetite for high-quality logistics and industrial assets in the region. The current regional environment has further reinforced the importance of resilient logistics and supply chain infrastructure supporting both the long-term investment thesis and institutional demand for these assets. In the United States, we remain highly confident in the long-term fundamentals of the market and continue to expand our portfolio in this market. The U.S. remains the anchor of GFH Partners platform and represent the majority of its AUM, with a strong focus on income-generating logistics, living and health care assets. We also continue to bring new investment opportunities in these sectors to our investors during the period. Importantly, despite the more challenging exit environment during this period, we remain focused on actively managing portfolio and crystallizing value for our investors. During the period, GFH Partners agreed the sale of its majority stake in Student Quarters to The Scion Group, demonstrating our ability to execute selective exits and realized value even under challenging market conditions. Our private equity portfolio also continued to contribute positively to recurring asset management fees. The portfolio has remained relatively resilient, reflecting its exposure to defensive and mission-critical businesses with limited impact from the current market environment to date. We believe this combination of diversification, recurring management and performance income, active portfolio management and selective deployment position wealth and investment management to continue contributing meaningfully to GFH's growth trajectory. Turning now to credit and financing. Credit and financing segment delivered double-digit growth with income reaching USD 69.9 million in H1 2026, up 15.1% year-on-year, supported by the continued expansion of our financing activity. Finance income increased 45.3% to USD 76.6 million, with the gross financing contracts reaching approximately USD 2.6 billion compared with USD 2.5 billion at year-end 2025. Underwriting income also remained a meaningful contributing at USD 27.1 million. Khaleeji Bank continued to strengthen its underlying performance with net profit attributable to shareholders before impairment allowance increased 4.6% to USD 18.9 million compared with USD 18.1 million in H1 2025. Total income grew 14.2% to USD 84.7 million, supported by balance sheet expansion and the improved funding efficiency as the cost of funding declined. The increase in the provision at a group level was largely attributable to Khaleeji Bank, which reported USD 17.9 million in provisions and impairment during the period. This approach is part of our prudent risk management support and to continue to maintain strong focus on asset quality and protecting the quality of the balance sheet. Khaleeji Bank has also appointed Mr. Razi Almerbati as Chief Executive Officer. Razi brings extensive experience across financial services and a strong understanding of the group, having previously served as Chief Wealth Management Officer at GFH. We believe his experience and knowledge of the financial services landscape will be valuable as Khaleeji Bank continues to repositioning and focuses on strengthening its platform and delivering its next phase of the growth. Looking ahead, our focus in this segment remains on disciplined growth and continued improvement in funding and operating efficiency, while positioning Khaleeji Bank and the broader credit and financing platform as increasingly important contributor to recurring bank earnings. A key strength of the balance sheet continues to be our treasury portfolio, which stood at USD 5.1 billion at H1 2026, representing around 41% of total assets. The portfolio remains predominantly invested in high-quality Sukuk, including approximately USD 3.9 billion in quoted Sukuk, providing a strong combination of liquidity, capital preservation and recurring income. This is complemented by approximately USD 802 million in placement with financial institution alongside diversified investment in funds. Cash and bank balances also increased by 19.5% year-on-year, further strengthening our liquidity position and providing the flexibility to support the growth and capitalize on opportunities as they arise. With the proprietary investment, the year-on-year performance reflects a normalization from the particularly strong gain recorded in the prior year. During H1, we continue to actively manage and rebalance the portfolio, including realizing gains from selected asset disposal. At the same time, we continue to selectively pursue high-quality strategic investment opportunity, including participating as anchor investor in the dual IPO of Pershing Square and Pershing Square USA on the New York Stock Exchange, as well as securing strategic exposure to SpaceX through a structured transaction. Overall, our focus remains on maintaining a high quality and liquid treasury portfolio while selectively optimizing the mix between liquidity, recurring income, and attractive investment opportunities to support sustainable earnings. Turning to our share price performance. The stock like many markets and financial stocks across the region was impacted by the broader geopolitical environment and the resulting market volatility. Importantly, however, the share price has held up well and remains 22.9% above its Q1 closing level and 68.5% higher year-on-year. This performance is also supported by the continued improvement in our underlying earnings. H1 2026 earnings per share increased by 14.5% to USD 0.0221 compared with USD 0.0193 in H1 2025, reflecting the continued growth in the profitability. Looking at the broader market, GFH has also significantly outperformed the DFM index over the past 12 months by approximately 52.5%, demonstrating the market's continued recognition of the group's earnings growth and underlying fundamentals despite the wider market volatility. On ESG and community impact, we continue to focus on initiatives across health, wellbeing, employee development, education, entrepreneurship and community welfare. Key highlights, including the GFH XLR8 Night Run attracting nearly 1,000 participants, continued employee development through our Minds at Work program, supporting 91 student-led project through the StartUp Bahrain and the University of Bahrain, partnering with Alia National School to develop a new campus GFH Alia National School, and through the GFH Foundation. And through the GFH Foundation, we have furnished more than 20 homes for widows, orphan and underprivileged families. All in all, these initiatives reflect our continued commitment to creating tangible and measurable impact across the communities we serve in GFH.

And we will now move to the Q&A session and open the floor for your questions. Please use the Q&A feature through the chat panel to send through your questions, and we will address as many as possible during the session. We will give everyone a few minutes to submit their questions before we begin.

[Foreign Language] This is Hisham Al Rayes, the CEO of GFH. We'll be attending now the questions. First, we have a few questions about some balance sheet movement and provisions, which Rajeev and Kapil, our Group CFO and CFO of Financial Services will be attending. In addition to the first question from [ Mr. Falah ] also will be attended from their side, and I'll be attending the remaining for the 3 questions, which are more of strategic and business and focused. Rajeev?

Yes, yes. In terms of the question, it's about provisions in the books, which have been taken in H1 '26, the total provision on the impairment allowance, which has been taken is $24.6 million. Out of this, almost 75% is coming from -- as an ECL at the commercial bank and rest from the rest of the entities, which is coming through. There is also the question, it's about what kind of financing growth, which is estimated, given the ongoing environment. We are taking a precautionary stance in terms of the growth and pursuing this growth. So the financing growth will be muted as we go into the H2. In terms of the H2, how the H2 provision should be considered. The bank has been proactive in taking the provisions upfront in Q1 of this year itself. If you look at it, our Q2 provisions are lower than the Q1 provisions, which are there. And that -- so we do not anticipate any significant change in the run rate of the Q2 kind of a thing, which is there. So it's not -- Q1, it's not a base, but more as the Q2 is the base, that's our expectation point of time in terms of how it will pan out in H2 of this year.

We can move now to the other questions.