Kuwait Finance House K.S.C.P. (KFH) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Kuwait Finance House 3Q 2025 Earnings Call. This is Ahmed El-Shazly from EFG Hermes, and it's a pleasure to have with us on the call today from KFH, Mr. Khaled Al-Shamlan, Group CEO; Mr. Yameen Abdul Sattar, Group CFO; and Mr. Fahad Al-Mukhaizeem, Group Chief Strategy Officer. As usual, we'll start the call with a quick management presentation, and then we'll open the floor for Q&A. [Operator Instructions] I'd like to mention that some of the statements that might be made today may be forward-looking. Such statements are based on the company's current expectations, predictions, and estimates. There are no guarantees of future performance, achievements, or results. And now I'll hand the mic over to Mr. Fahad to start with the presentation. Thank you.

Thank you, Ahmed, and good afternoon, everyone. Welcome to Kuwait Finance House's Q3 2025 Earnings Call. I'm Fahad Al-Mukhaizeem, Group Chief Strategy Officer. Today, I'll provide insights into Kuwait's economic landscape and KFH's strategic progress during the first 9 months of the year. Global economic growth is expected to ease from 3.3% in 2024 to 3.2% in 2025, with advanced economies growing at nearly 1.5% and emerging markets above 4%. This inflation continues unevenly, requiring cautious monetary policy amid risks, including mid-2025 tariff shocks and policy uncertainty. Kuwait's economy shows clear recovery signs where economic activity turned positive in Q1 2025, expanding 1% year-on-year. Full year 2025 real GDP is projected to grow 2.6%, supported by stronger private domestic demand. Kuwait's projects market rebounded in Q3 with awards up almost 33% year-on-year to USD 4.3 billion. Cumulative awards in the first 9 months were up more than 25% from 2024, indicating stronger execution momentum. Kuwait government returned to global debt markets, pricing at among the tightest emerging market spreads in 2025. This issuance strengthens the sovereign yield curve, deepens global capital markets integration, diversifies Vision 2035 project funding, sets improved pricing benchmarks for banks and corporates, and supports credit growth and financial sector debt. Annual inflation eased to 2.39% in July 2025, projected to moderate 2.2% by year-end from 2.9% average in 2024, reflecting the Central Bank of Kuwait's prudent monetary policy. The CBK cut its discount rate by 25 basis points in September of 2025 from 4% to 3.75%, reflecting a cautious approach to support sustainable growth while maintaining macroeconomic stability. KFH delivered strong Q3 results with growth in financing deposits and fee income, reflecting our diversified model and leadership in retail, corporate and investment banking. Our liquidity coverage and capital adequacy ratios exceed regulatory requirements, ensuring resilience. KFH preserved its position as Kuwait's largest listed company with market cap increasing to KWD 14.3 billion, 27% of all listed companies totaling KWD 52.6 billion as of the end of Q3 2025. This is up 19.9%, almost 20% compared to Q3 2024, reflecting sustained investor confidence. Innovation remains central to KFH's strategy. In Q3, we expanded our AI-driven virtual assistant Fahad across digital and brand channels while introducing AI speech analytics tools and contact centers to enhance service quality and efficiency. The KFH online app added real-time gold trading, seamless digital onboarding and advanced Sharia-compliant financing features, reinforcing our customer-centric approach. KFH continues strengthening its regional footprint following successful rebranding of KFH Bahrain and full integration of KFH Egypt. These milestones established unified governance and digital frameworks, enhancing cross-market connectivity and reinforcing KFH's standing as a leading international Islamic financial institution. KFH underscores its sustainability commitment by embedding ESG considerations across strategy, risk and product design, expanding Sharia-compliant financing, supporting renewable energy, energy efficiency, and low-carbon infrastructure. Entering Q4, KFH is well-positioned to capitalize on Kuwait's government projects pipeline, particularly in project and infrastructure financing. Our priorities include advancing our digital ecosystem and AI capabilities, deepening regional synergies, and promoting sustainable and inclusive finance aligned with the Kuwait Vision 2035. Our Q3 2025 results demonstrate exceptional resilience and consistent performance through a robust business model and prudent funding strategy. We remain committed to being a trusted financial partner and key enabler for Kuwait's economic transformation. With that, I'll now hand over the mic to our Group Chief Executive Officer, Mr. Khaled Al-Shamlan.

Thank you, Fahad. And good day, ladies and gentlemen. It's my pleasure to welcome you all to Kuwait Finance House Q4 -- Q3, sorry, 2025 earnings call. Let me begin by highlighting the bank's financial performance during Q3 of 2025. By the grace of Allah, KFH achieved a net profit for shareholders of KWD 492.7 million up to the end of the third quarter of 2025, an increase of 2% compared to the same period last year. These profit results are the highest in the Kuwaiti banking sector and the local market. Earnings per share up to the end of Q3 2025 reached 27.98 fils, an increase of 2% compared to the same period last year. Net financing income up to the end of Q3 2025 reached KWD 944.3 million, an increase of 13.1% compared to the same period last year. Total operating income up to the end of Q3 2025 increased, supported by an increase in all core activities to reach KWD 1.3 billion, an increase of 10% compared to the same period last year. Net operating income up to the end of Q3 2025 increased to reach KWD 850.2 million, an increase of 12.8% compared to the same period last year. Financing receivables as of end Q3 2025 reached about KWD 21.2 billion, an increase of 11.3% compared to the end of last year. As of end of Q3 2025, total assets amounted to KWD 40.8 billion, an increase of 11% compared to the end of the last year. Shareholders' equities amounted to KWD 5.6 billion, an increase of 1.5% compared to the end of last year. Deposit accounts amounted to KWD 20.1 billion as of the end of Q3 2025, an increase of 4.7% compared to the end of last year. The capital adequacy ratio reached 17.68%, which is above the limit required by the regulators. This ratio confirms the solid capital base of KFH. The strong Q3 results achieved by KFH confirm our ongoing commitment to shareholders and customers. This performance has created new opportunities for sustaining and increasing record profits. KFH continued to maintain its market leadership as the largest company on Boursa Kuwait, the most profitable and best performance bank and the bank with the highest dividend distribution. This commitment is underscored by KFH recent recognition as a top-performing bank in Kuwait in the Banker's 2025 Top 1000 World Banks ranking. The digital and sustainable achievements of recent years provide a solid foundation for future growth. This success confirms KFH's ability to meet its strategic goals, mainly sustainable growth and industry leadership, and paves the way for its ambition to join the world's top 100 banks in the coming years. KFH continues to provide the necessary financials to Kuwaiti corporates to enhance their business and support their expansion. In addition, KFH participates in financing major development projects in a way that serves the state's development plan and stimulates the national economy. The launch of AUB Bahrain new visual identity, rebranding it as KFH Bahrain under the umbrella of KFH Group represents a strategic shift. This change strengthens the banking positions as an influential banking group with a geographic presence in 10 countries worldwide, most notably Kuwait, Bahrain, Turkey, Egypt, Germany and the United Kingdom. The group offers innovative services and products that keep pace with customers' aspirations and global developments in the financial and banking sector. The importance of KFH unifying services and products across KFH Group lies in enhancing operations efficiency and delivering consistent customer experience across the extensive global network, which spans over 600 branches. This strategic approach not only allows us to take advantage of the unique strengthening of individual markets but also reinforces KFH's leadership as the most valuable and trusted Islamic banking brand worldwide. Furthermore, KFH launched the KFH Group Service Center. This center serves both KFH-Turkey and KFH-Egypt aiming to better meet customer needs and deliver an integrated banking experience. Additionally, our digital transformation strategy focuses on enhancing operational efficiency. This is achieved by employing digital technologies in operations supporting structural transformation programs across all business sectors. KFH launched comprehensive updates to its KFHOnline app, introducing modern design and smart banking features along with KFH Go smart branches and their e-channels that provide innovative solutions collectively showcasing KFH's readiness to deliver unlimited, high-efficiency digital services with exceptional flexibility. The bank is also focused on supporting and financing small and medium-sized enterprises, acknowledging their crucial role in driving economic growth. Additionally, the successful launch of our sustainable business program for SMEs aims to provide them with a competitive edge while showcasing KFH's dedication to sustainable development and leadership. KFH financing efforts have been recognized by major international institutions. The bank received the World's Best Islamic Financial Institution award for 2025 from Global Finance magazine, along with the Best Islamic Private Bank -- Digital Innovation award from Global Private Banking Magazine. Furthermore, KFH was honored with the Kuwait's Best Bank for SMEs awarded from Euromoney. The most sustainable project in the Middle East award from Forbes Magazine and the World's Best Islamic Retail Bank award also from Global Finance. Additionally, KFH maintained its position as the largest listed company in Kuwait on Forbes 2025 Global 2000 list. As we look ahead, our focus remains on sustainable growth through synergies and AI-driven digital innovation, emphasizing value for our stakeholders, especially our customers by consistently achieving top profits in the banking sector and pioneering digital transformation. We are well-positioned to seize emerging opportunities. Our strong financial positions and diverse business model enable us to navigate potential challenges in the economy effectively. With this, let me pass the mic to my colleague, Mr. Yameen Abdul Sattar, Group Chief Financial Officer. Thank you.

Thank you, Mr. Khaled. Good afternoon, everyone. I'll be presenting the financial performance of KFH Group for the 9 months period ended 30 September 2025. KFH Group achieved solid growth in its core banking activities during the year. Financial performance highlights are as follows. The group achieved net profit after tax attributable to the shareholders for the 9-month period ended 30th September 2025 of KWD 492.7 million, higher by KWD 9.8 million or 2% compared to the 9-month period of the prior year of KWD 482.9 million. Net financing income recorded was KWD 944.3 million, representing an increase by KWD 109.2 million or 13.1% compared to the same period last year. Net operating income recorded was KWD 850.2 million, representing an increase of KWD 96.2 million or 12.8% compared to the same period last year. Cost-to-income ratio for the 9-month period ended 30 September 2025 is 35.18% compared to 36.77% of the prior year period. Earnings per share up to the end of Q3 2025 reached 27.98 fils, an increase of 2% compared to the same period last year. Increase in net profit after tax attributable to the shareholders is mainly from the increase in total operating income and decrease in net monetary loss, which is offset by the increase in net operating expenses, the provision charge, taxes and increase in share of noncontrolling interest. We will cover the details later in this presentation. Moving to the next slide. Financing income increased by KWD 263.5 million or 12% compared to the same period last year due to the increase in both average balance of profit-earning assets and yields by 60 basis points. Net financing income recorded was KWD 944.3 million, representing an increase of KWD 109.2 million or 13.1% compared to the same period last year due to the increase in financing income by KWD 263.5 million, partly offset by the increase in finance cost and distribution to depositors by KWD 154.3 million. The increase in the finance cost and distribution to depositors in comparison to the same period last year. The increase between the -- sorry, the increase in finance costs and distribution to depositors in comparison to the same period last year is due to the increase in the average balance of profit-bearing liabilities and cost of funds by 48 basis points. Despite that increase, there is a net increase in NFM, net financing margin by 12 basis points, representing improvement in yield between the two. Net operating income stood at KWD 850.2 million, representing an increase of KWD 96.2 million or 12.8% compared to the same period last year, mainly from the increase in net financing income by KWD 109.2 million, fees and commission by KWD 42.2 million, investment income by KWD 19.4 million and other income by KWD 13.1 million, which is offset by the decrease in net gain from foreign currencies by KWD 64.9 million and increase in total operating expenses by KWD 23 million. The total operating income increased by KWD 119.1 million or 10%. Looking at the total operating income profile, there is an increased contribution of net financing income to the total operating income from 70% in the comparable period of prior year to 72% in 9-month period ended 30 September 2025. Further contribution of fee and commission income has increased from 10% to 13%. The enhanced contribution of net financing income and fees and commission income highlights the enhancement of KFH core banking activities. Moving to the next slide. Nonfinancing income recorded was KWD 367.4 million, representing an increase of KWD 9.9 million or 12.76% higher than the same period of prior year, mainly due to the increase in fees and commission income, investment income and other income, which is partly offset by the decrease in net gains from foreign currencies. The increase in fees and commission by KWD 42.3 million is mainly due to the increase in transaction fee income as there is an increase in volumes and margins during the period. Increase in investment income by KWD 19.5 million is mainly due to net losses incurred during the 9-month period ended 30 September 2024 on the Islamic derivative transactions entered by our subsidiary, Kuwait Turk to fund the Turkish lira short position, which was partly offset by the net gain on sale of KFH Bahrain amounting to KWD 70.1 million. While during the current period 30 September -- during the current period ended 30 September 2025, Kuwait Turk did not incur such losses on the Islamic derivative transactions as the bank did not need additional Turkish lira funding. Additionally, the group realized a gain of KWD 20.3 million net of estimated tax on sale of Ahli Bank, Oman. The decrease in net gains from foreign currencies by KWD 64.9 million is mainly due to lower FX trading income, mainly from Kuwait Turk and FX revaluation gain recorded in the comparative period from KFH-Egypt. The fees and commission income contribution to the total nonfinancing income increased from 34.6% in the comparable period to 45.2% in the current period ended 30 September 2025, whereas there is a decline in net gain from foreign currencies contribution from 32.6% to 14.1%. This indicates an improvement in the overall sustainable nonfinancing income. The total operating expenses stood at KWD 461.5 million, representing an increase of KWD 23 million or 5.2% higher than the same period of last year, mainly due to the impact of inflation in Turkey. The cost-to-income ratio for the current period ended 30 September 2025 is 35.18% compared to 36.77% for the same period of prior year. The decrease in cost-to-income ratio is mainly due to the increase in operating income by KWD 119.1 million, partly offset by the increase in operating expenses by KWD 23 million. Moving to the next slide. Average profit-yielding assets is higher by 4.1% compared to December 2024, and 4.9% compared to September 2024, mainly from the increase in average financing receivables and average investment in debt securities. The group net financing margin, NFM for the 9-month period ended 2025 stood at 3.16%, which is higher by 12 basis points of the same period of prior year, mainly due to the improvement in average yields by 60 basis points, while the average cost of fund increased by 48 basis points. Looking at the provisions and impairments. The group total impairment charge increased by KWD 30.6 million compared to 9-month period ended 30 September 2024. ECL and other impairment charge was KWD 18 million in the current period compared to the reversal of KWD 15.8 million in the comparative period 30 September 2024. This was mainly due to the increase in portfolio and impact of changes in macroeconomic variables. Net impairment charge on financing receivables for the 9-month period ended 30 September 2025 was KWD 18.8 million, lower by KWD 3.3 million in comparison to the same period of prior year due to higher reversals and recoveries from written-off debts. KFH's cautious approach towards provisioning has contributed to financing provision balance exceeding ECL required as per the Central Bank of Kuwait IFRS 9 guidelines by KWD 478 million as at 30 September 2025. Moving to the net monetary loss application of IAS 29 on the financial statement of our Turkish subsidiary, Kuwait Turk resulted in recognition of net monetary loss of KWD 103 million in the current period, lower by KWD 14.8 million in the comparable period of prior year due to the lower inflation rate in Turkey. Moving to the next slide. The total assets stood at KWD 40.8 billion, representing an increase of KWD 4 billion or 11% in September 2025 in comparison to December 2024. The net financing receivable stood at KWD 21.2 billion, representing an increase of KWD 2.2 billion or 11.3% compared to December 2024, mainly on account of increase in the corporate portfolio. Investment in debt securities stood at KWD 7.6 billion, representing an increase of KWD 735 million or 10.7% compared to December 2024. The deposits for September '25 stood at KWD 20.1 billion, representing an increase of KWD 900 million or 4.7% compared to December 2024. The contribution from CASA deposit to the total group customer deposits as of September 2025 is 44.6%. And on an overall basis, the group continues to benefit from a large pool of low-cost deposits. Looking at the funding mix, contribution of customer deposits to the total funding as of 30 September 2025 is 61.7%, followed by due to banks and financial institutions at 34%. Moving to the next slide. Return on average tangible equity declined from 21.7% in September 2024 to 20.51% in September 2025 due to the increase in the average tangible equity. Return on average equity decreased from 12.11% to 11.88% due to the increase in the average shareholders' equity. Return on average assets increased from 1.85% to 1.97%, mainly due to the increase in net profit. As mentioned earlier, the cost-to-income ratio improved from 36.77% to 35.8% due to the increase in operating income, as explained earlier. The EPS increased from 27.43 fils to 27.98 fils due to the increase in profit attributable to the shareholders. The group CAR ratio as of September 2025 is 17.68% compared to 19.89% as at December 2024, which is mainly due to the interim dividend payment and risk-weighted assets due to the asset growth as covered before. KFH is still above the limit required by the regulator and confirms the solid capital base of KFH. CET1 and Tier 1 ratio for the 9-month period ended 30 September 2025 were 13.96% and 15.88%, respectively. Again, this is still above the limit required by the regulators. The group nonperforming finance ratio as of September 2025 is 1.77% with the provision coverage of 251%. This concludes our presentation. We will wait for some time for your questions before we provide our response.

I guess we'll start with all your questions. This is [ Vishal ], Senior Investor Specialist at Kuwait Finance House. I'll take the first question. Last quarter, the NIM was under pressure. The NIM looks strong in this quarter. Can you give some color on what drove the recovery?

Yes. The NFM for Q3 2025 3 months is 3.14% versus Q2 3 months 2.95%. Since the rate cuts were made towards the end of the quarter, their impact on NIM was not significant. Kuwait margin has remained largely stable. However, the increase in the group margin in Q3 was mainly due to the increase in NFM in the -- our subsidiary in Turkey, capitalizing on the market condition and efficient deployment of excess liquidity.

The bank's loan growth was solid in this quarter. What drove the loan growth as in which sectors and which geographies?

The Q3 credit growth came almost equally from Kuwait and the international operation with major contribution from corporate.

What is your NIM sensitivity for every 25 cut in interest rates?

The sensitivity of Kuwait and Bahrain operations to 25 basis points rate cuts with no major changes to the portfolio mix is contraction in NIM by around 4 to 5 basis points. For the Turkish operation, the market is expecting a decline in the benchmark rate from 40.2% to 27% by the end of 2026, in line with the reduction in inflation.

Can you please comment on the progress on passing of the mortgage law? And how quickly do you see the impact of this coming into loan growth for KFH?

The law has not been passed yet. However, we have expectations in the market for it to see the light by end of the year. Regarding its effect, this should -- depending on the bylaws, it should start to show its effect in the first half of next year.

Please comment on the positive trend in fee income growth. What are the drivers of this growth? How should we think about fee income growth in 2026 and 2027?

Overall increase in fee and commission income was mainly attributed to the growth in transaction volume and margin across the business lines and geographies, but it was particularly strong in Turkey. We foresee stable growth in the double digits in the fee and commission income.

What is the guidance on effective tax rate going forward? Is the Kuwait operations paying the new 15% tax? What is the effective tax rate for Turkey and Egypt operations?

The effective tax rate for 9 months 2025 was 20.6%. This includes tax on certain subsidiaries, which are not impacted by the domestic minimum tax -- domestic minimum top-up tax, assuming contribution from other entities remain like the current 9 months 2025, we expect the effective tax rate to be maintained at the same level. For Turkey, it was 25%. For Egypt, it was 22.5%.

Did you guide on Q4 2025 loan growth, NIM, and cost of risk?

Yes. Excluding the impact of currency fluctuation and group strategic initiative, financing receivables are expected to grow at a low double digit. For customer deposits, we are targeting mid-single-digit growth for 2025. As to the NFM, our expectation for NFM for 2025 depends on external factors, including reduction in the Fed or CBK discount rates, rate cuts by regulators and markets we operate in. NFM for the 9 months 2025 was 3.16%, representing an improvement of 4 basis points. Cost of risk for 9-month period ended 30 September 2025 was around 30 basis points. For the remaining of financial year 2025, we expect credit cost of risk to be in the range of 40 basis points to 50 basis points.

What is the percentage of CASA?

Around 45%.

What is the split in loan book in terms of Kuwait and international operations?

Yes. 57% is the local operation in Kuwait, the remaining international operation.

Most of the questions were already covered. Thank you all for attending. I will be handing the mic to Ahmed.

Thank you for taking the time for the call today. Thanks, everyone, for joining. This ends our call. So have a good day, everyone.