Kuwait Finance House K.S.C.P. ($KFH)

Good afternoon and good morning, ladies and gentlemen, and welcome to the Kuwait Finance House 1Q 2026 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. Abdulkarim Al-Samdan, Group CFO; and Mr. Fahad Al-Mukhaizeem, Group Chief Strategy Officer. As usual, we'll start with the management presentation, and then we'll open the floor for questions. If you would like to ask a question, you can type it in the chat box at any time during the presentation, and we'll address it during the Q&A session. I'd also 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 and 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. Welcome to KFH's Q1 2020 Earnings Call. I'm I'm Fahad Al-Mukhaizeem, Group Chief Strategy Officer. With the ongoing regional tensions and market volatility and FH has maintained its position as Kuwait's large listed company, representing 28.6% of total market cap, reflecting the strength of our fundamentals and sustained investor confidence. The global economy enters 2026 with a higher degree of volatility with the IMF projecting growth of 3.1% and inflation of 4.4%. We rising geopolitical tensions, trade disruptions and higher energy and logistics costs are weighing on the outlook. While markets remain broadly orderly, global financial stability risks are elevated. Kuwait economy, like others in the GCC is facing pressure from regional tensions, reflected in shipping disruptions in the stators and higher transport and insurance costs. The impact includes the risk of production disruption and capacity utilization constraints. Kuwait is navigating geopolitical volatility within our long-term physical vision, supported by public financial management and continued structural reforms. The sensor Bank of Kuwait maintained a prudent monetary stance in Q1 2026, keeping the discrete unchanged at 3.5% to preserve monetary and financial stability. Inflation moderated 2.4% and 2025 and ease further to less than 2.1% in March of 2026. It is 1 of the lowest levels reached since mid-2020. I However, it's expected to rise mainly due to higher import costs and other factors. The CBK introduced supportive measures to reinforce banking sector resilience, including easing liquidity requirements and increasing lending capacity to support stability, credit growth and broader economic activities. KFH delivered solid performance in Q1 2016, supported by a strong balance sheet, disciplined risk management, and a diversified business model. This reflects the resilience of our core business and our ability to sustain quality growth in a complex operating environment. KFH continued advancing its digital transformation by expanding data-driven tools to improve decision-making, customer journeys and personalization. We also strengthened digital onboarding and expanded mobile and online banking capabilities to deliver greater accessibility, speed and convenience and 24/7 availability of digital services, positioning KFH at the forefront of digital innovation in Islamic finance and supporting a more scalable operating model. Even during the recent geopolitical disruptions, all digital services remain fully available to our clients. KFH continues to strengthen its regional presence by deepening operation and service integration across core markets, including Turkey, Bajaria Egypt and U.K., offering seamless communication channels for customers. The group is enhancing services and platforms through investments in banking, technology and digital solutions while supporting sustainable growth through Sharia-compliant financing for major projects. Looking ahead, KF remains focused on sustaining a strong financial position, prudent risk management and sustainable growth. We support Kuwait development through project and infrastructure financing and regional integration. Our diversified model positions us well for resilience and long-term opportunity. Amid the current region of tensions, KF continues to operate from a position of strength, supported by a resilient business model, disciplined execution within its business continuity framework and clear strategic priorities. We remain focused on preserving resilience delivering sustainable growth and creating long-term value. With that, I will now hand it back over to our Group Chief Executive Officer, Mr. Khaled Al-Shamlan.

Thank you, Fai. Good afternoon, everyone. Thank you for joining our Q1 2026 analyst call. Today, I'm pleased to share the financial highlights and major development of Kuwait Finance Hats for the first quarter 2. Care reported this quarter a net profit of KWD 176.5 million, reflecting a growth of 5% compared to Q1 2025. The earnings per share reached 9.59, representing an increase of 5% compared to the same period last year. Net financing income reached KWD 332 million, up 4.1% compared to the same period last year. Total operating income for Q1 2020 tax increased to KWD 496.4 million supported by growth across all core business activities, representing an increase compared to the same period last year. Our cost-to-income ratio is 31.4% during the first quarter of 20 focusing our commitment to operational estimate. The net operating income for this quarter stands at KWD 34.6 million, reflecting an increase of 10.3% compared to the same period last year. The growth in financial indicators during the first quarter of this year reflects the group's sustained ability to achieve balanced growth amidst the rapidly evolving and challenging operating environment at regional and global levels. Cafe also held its ordinary and extraordinary general assembly meeting on March 30, 2026, where the shareholder reaffirmed their confidence and endorsed the Board of Director for the next year's term 2026 to 2028. In Q1 2026, KFH continued to strengthen its financial positions with the total assets growing from KWD 43.6 billion, a 1.9% increase from year-end 2025. Our capital adequacy ratio stands at 19.23% exceeding regulatory requirements which underscores our robust capital base. We have diversified our funding sources, particularly in infrastructure and productive sector. This reflects our dedication to driving sustainability growth and maximizing shareholder value. KFX remain the largest listed company onboarded with a market capitalization of approximately KWD 14.4 billion we are proud to be recognized as the fifth largest bank in the Middle East and only Citi banks listed among the top 5 in SMP top 20 Middle East and Africa banks. Our commitment to empowering the local economy is evident as we provide sufficient efficient financing solutions to support the corporate sector while delivering financial services to the retail and SME sector. This dual focus not only drives commercial growth, but also reinforces our economic is content. Our CapEx recognized the importance of our role in the community, and we are dedicated to making positive impact. This quarter, we contributed KWD 2 million national debt relief initiative, bringing our total contributions toward debt to delever to approximately KWD 61 million. Our effort in corporate social responsibility were recognized with the world's best Islamic bank for CSR from Global Finance, highlighting our leadership and sustainable practices. KFH operational efficiency remains a core cornerstones of our strategy, our commitment to enhance customer experience through the competitive digital solutions has resulted in increased market share. we have invested in technology and showing seamless services, continuity and high efficiency in delivering all banking services. Additionally, Cafe recently sent its positions in the international market, successfully issuing USD 1 billion and the senior unsecured Sukuk under our USD 4 billion to cook program. This issuance reinforces the bank's financing capacity, enabling it to support infrastructure projects and at clients regional and international expansion. As we move forward, despite recent geopolitical challenges, KFH will continue to focus on strategic priorities, enhancing asset quality, improving financial performance advancing our luteal infrastructure and elevating the customer experience all within a solid risk management framework. We are committed to maintaining our strong financial acquisitions while sizing is in margin opportunities to drive future growth. Our strong financial performance in Q1 2020 reflects the effectiveness of our strategies and our ability to navigate challenges in our -- in the revolving the banking and the original landscape. Thank you for your time, and I look forward to rising your questions. With that, I will now hand the mic to our Group Chief Financial Officer, Abdulkarim Al-Samdan.

Thank you, r. Al-Shamlan. Good afternoon, and thank you for joining KFH's First Quarter 2026 Analyst Conference. I will cover 5 areas today, 1 headline performance for the quarter 2 main year-on-year earnings drivers, the revenue mix, including margin and fees and market-related income; four, balance sheet liquidity and capital five, asset quality provisioning and management priorities and last 2 expectations. Across these areas, I will focus not only on the reported numbers, but also on the main relevant drivers. Turning to the year-on-year range. Profit for the period increased from KWD 189.4 million in Q1 2021 to KWD 219.1 million in Q1 2026, an increase of 15.7%. The main positive contributors were higher net financing income and higher fees and commission. Net financing income increased by $13.1 million year-on-year, and fees and commission income increased by KWD 8.7 million. Together, these 2 items added KWD 21.8 million in incremental income. In addition, market-related income was positive on the balance, but with a different composition from last year. Net gain from foreign currencies increased materially, adding KWD 43.1 million year-on-year, while investment income declined by KWD 36.7 million. On a net basis, these 2 items added KWD 6.4 million year-on-year. Operating expenses, on the other hand, declined by $3.5 million or 2.2% and providing further support to earnings and resulting in a positive operating leverage for the quarter. Other income was broadly stable. These positives were partly offset by modestly higher impairment charges, higher taxation and a larger share of profit attributable to noncontrolling interest. The difference between profit for the period growth of 15.7% and and profit attributable to shareholder growth of 5% reflects the higher share of profit attributable to noncontrolling interest, which increased from KWD 21.3 million in Q1 2025 and to KWD 42.6 million in Q1 2026. For comparability purposes, it is important to note that Q1 2025 included a gain of $23.8 million on the sale of every bank amount that created higher comparison base and should, therefore, be taken into account when assessing the year-on-year performance. Let me now turn to the core income. The total operating income reached KWD 496.4 million, up 6% year-on-year. Within that, net financing income remained the largest component, representing 66.9% of the total operating income in Q1 2026. The net financing income, as stated previously, reached KWD 332 million, up 4.1% year-on-year despite a more challenging margin environment. At the group level, net financing margin for the quarter was 2.94% compared with 3.01% in Q4 2025 and 3.44% in Q1 2021. The sequential decline in margin was mainly driven by liability side pressure, particularly in quite in our funding. Asset repricing is being managed selectively with a lag while origination remains focused on transactions that meet our risk-adjusted return threshold. As a result, NFM declined sequentially a but net financing income increased year-on-year, supported by disciplined pricing, active funding mix management and selective origination, despite remaining broadly stable, our full year expectation for financing receivables remained for a low double-digit financing growth. On fees, Net fees and commission increased to KWD 58.5 million, up 17.5% year-on-year from KWD 49.8 million. This reflects stronger customer activity and better contribution from cards, trade finance and capital markets activity. The Q1 performance. The Q1 fee performance is consistent with full year expectation of fees and commission growth above 15%. Moving to the other operating income. Net gain from foreign currencies was KWD 59.7 million, materially above the $16.7 million in Q1 2021. We -- of the current quarter's net gain, 72.5% was driven mainly by higher transaction volume and better margins in Turkey, including precious metal trading. KHF income was a positive contributor in the quarter, but it remains more volatile than financing income and recurring fee income. We do not assume that Q1 level will repeat each quarter. Investment income was $18.1 million compared with KWD 54.8 million in the corresponding quarter last year. This mainly reflected the absence of larger gains recognized in Q1 2025, as mentioned previously. The year-on-year comparison on this line is, therefore, primarily a function of a prior period normalization. Taken together, the income mix in Q1 reflected higher core banking income, continued fee growth, elevated FX income lower investment income due to a prior period comparison base and stable other income. Moreover, turning to the cost and operating leverage. The total operating expenses for the quarter were KWD 155.7 million, down 2.2% year-on-year, contributing to the improvement in the reported cost-to-income ratio to 31.4%. Within the cost base, Kuwait Turk represented 48% of the total group expenses and increased by 8.7% year-on-year, mainly reflecting inflationary pressure. Excluding Kuwait Turkey, the rest of the group reduced expenses by 10.4%. The cost outcome reflects continued expense discipline across the group while preserving investment in controls, technology and selected capabilities. The result was positive operating leverage despite inflationary pressure in Turkey. Turning to the asset quality and provisioning now. At the quarter end, the group NPL ratio stood at 1.9% and up 39 basis points from December 2025. While higher sequentially, the ratio remains manageable in absolute terms with a provision coverage of 23.9%. Under the IFRS 9, the Stage 3 was 2.4%, and the Stage 2 was 12.73%. -- provision and impairment charges totaled $34.1 million for the quarter net of recoveries amounting to $23.7 million and including precautionary provision of KWD 20 million at the group level above CVK requirement. In addition, the group consolidated provision balance remained $526.2 million above CBK IFRS 9 year. That provides a material buffer and is consistent with the conservative provisioning stance, we continue to review our lays sector exposures, stress assumptions regularly, particularly in light of macroeconomic geopolitical uncertainty. On Turkey and IAS 29 on the next page, IAS 29 hyperinflation effect in Turkey remains part of the group earnings profile. For Q1 2026 net monetary loss was KWD 32.2 million compared with CNY 42.1 million in the prior year quarter. This is an accounting consequence of the inflation environment and the monetary position of the balance sheet. Our approach is unchanged, apply the standard consistently represent the impact transparently and manage the underlying business conservatively. Turkey remains a significant component of the group earnings and diversification profile. As it constitutes 48.7% of net financing income, 55.8% of the total operating income and 32.1% of net profit attributable to the shareholders -- the business continues to be managed with a close attention to capital, liquidity and risk parameters. Turning to capital and liquidity. At the quarter end, the group's capital adequacy ratio was 19.23%. -- relative to 2025 year-end, the movement reflected growth in risk-weighted assets including Sukuk and financing receivable as well as movements in the fair value reserve and foreign currency translation reserves. Even after these movements, the group remains well capitalized relative to regulatory requirements and retains capacity to support major throat. On liquidity, I and liquidity, the LCR was 250.55% and the NSFR was 123.03%. These metrics indicate a conservative liquidity position and a stable funding base in the current environment. On defunding depository accounts remained the largest funding source, representing 62% of the funding mix Key management focus is to balance funding stability, turn up cost and regulatory liquidity. Given the current rate environment, funding cost remains an important variable for the margin particularly in the ADN. In summary, Q1 2026 to disciplined execution across earnings -- we showed disciplined execution across earnings generation, cost efficiency, asset quality, capital strength and liquidity. Net profit attributable to shareholders increased by 5% year-on-year, supported by a 10.3% increase in net operating income. Cost efficiency improved Capital and liquidity position remained comfortably above regulatory minimum requirements and the provisioning remained conservative. There are, however, 3 points to keep in mind. First, margin pressure persist and NFM is expected to remain under pressure during 2026. Second, FX income was elevated in Q1 and remains inherently variable Third, the operating environment continues to warrant prudence, particularly with respect to funding costs, T-related volatility and asset quality monitoring. Before we open the line for questions, let me briefly address the 2026 expectations included in the presentation. Our expectation for the main operating drivers for 2026 is that financing growth to be within low-double digits fees and commission income to be at least 15%, NFM present to be contracting cost-to-income ratio to be below 34% and cost of risk to be between 40 to 50 basis points. Against that backdrop, our priority remains unchanged, protecting risk-adjusted margins, delivering diversified income growth, preserving operating leverage, managing cost of risk conservatively and maintaining strong capital and liquidity buffer. Thank you. I will turn it now back to Bashayer for the questions.

Thank you for the presentation. So if you have any questions, you can send them through the question box on the chart box on this scheme, and we'll read them.

Good afternoon, ladies and gentlemen. This is Bashayer Alotaibi Investor Relations. Thank you all for joining us. I'll be taking your questions. The question is, please confirm the CASA issue end of 2025 and end of 2026 Q1. SP-5 The CASA ratio for Q1 2026 was 48.3%. And as was disclosed, the year-end 2025 CASA ratio was 46.8%.

The second question is for the call. Can you please comment on the split of OpEx by geography? much of OpEx is from Turkey operations? What is the guidance on OpEx growth in 2026 and 2027. Thank you, Pasha. I think I have addressed this in my notes. What is the

Expectation for nonfunded income growth in 2026?

I think it was covered. We said the FX income was variable and should not be taken as repeated income. However, it is selective. The fees and commission income is at least 15%.

Next question is what is the guidance on net interest margins in 2026, 2027 versus 2025.

We acknowledge that NFM is contracting remains under pressure. However, we also mentioned that we will protect net financing income.

The next question is what is driving the growth in fee income and FX income? How much of this growth is due to Turkey operations?

We have disclosed the Turkey contribution. The FX income was also disclosed. 72.5% of the FX was related to Turkey.

Can you provide some comments on the liquidity environment in the banking sectors of our Kuwait and, both in terms of local currency and FX.

We have mentioned the liquidity decision in the notes. But further, we comment that the liquidity conditions in Kuwait and Bahrain remain stable and comfortable in the local currency and the foreign currency. There have been no material or extraordinary deposit injection by government or any other institution. And also, there was no ordinary with troubles as well.

As rate cuts in Turkey may be delayed due to higher oil prices and changes in the inflation outlook, how should we think about your margins in Turkey and for the group level for the rest of the year?

Central Bank of Republic of Turkey, April 2026 survey market participants expect a gradual reduction in benchmark rates from 38% to be between 32% and 34% at the end of 2026, broadly aligned with moderation in inflation. However, we do not expect this to materially impact the margins.

Since similar questions were already answered. Thank you so much for attending. If you have any further questions, you're more than welcome to reach out to us at Investor Relations at KFH and we'd be more than happy to address your concerns and questions. Thank you so much. I have the mic to end now.

Thank you so much to KFH management for taking the time end. I'd like to thank everyone for joining -- and this ends our call for today. So have a good day over. Thank you.