Sami Mahfouz:

Kuwait's economy is benefiting from the relative stability in oil prices at current levels, bolstered by ongoing government initiatives aimed at diversifying the economy and fostering sustainable growth.

Gulf Bank continuously explore opportunities for growth, both organic and inorganic, to diversify its offerings, cater to a broader market segment, and enhance its competitive position.

The anticipation of interest rate movements by the Federal Reserve is a key factor with implications on borrowing costs, investment decisions, and the global economic growth trajectories

David Challinor:

The cost income ratio has come down from the first half of 2023, and it’s now sitting at 45.7% versus last year at 46.5%.

In Q2 we saw yet another very strong quarter for loan growth and this brings year to date loan growth for the first half to 5.8%.

The local market continues to enjoy healthy liquidity levels and we may see a further fall in cost of funds in Q3.

Kuwait: Gulf Bank held its investors webcast on Wednesday 31, July 2024, to present and discuss the Bank's financial performance for H1 - 2024. The webcast was organized by EFG Hermes and presented by Sami Mahfouz, Deputy Chief Executive Officer of Gulf Bank, and David Challinor, Chief Financial Officer of Gulf Bank. The discussion was moderated by Youssef Dib, Investor Relations Team at Gulf Bank.

Operating Environment

Mr. Sami Mahfouz, Deputy Chief Executive Officer of Gulf Bank, commenced the webcast with key updates regarding Gulf Bank’s operating environment during the first half of 2024. Mr. Sami Mahfouz stated: “As we navigate through 2024, we are witnessing significant economic developments both globally and locally. On the global front, the world economy is showing signs of resilience with increased stability in financial markets, improved consumer confidence, and a gradual rise in international trade activities. Additionally, the anticipation of interest rate movements by the Federal Reserve is a key factor with implications on borrowing costs, investment decisions, and the global economic growth trajectories.  Locally in Kuwait, the economy is benefiting from the relative stability in oil prices at current levels, bolstered by ongoing government initiatives aimed at diversifying the economy and fostering sustainable growth.”

Mr. Sami Mahfouz added “We continued to exhibit a robust operational performance, reinforced by strong top-line growth and sound financial position metrics. We continue to face headwinds with our credit costs which resulted in a drop of our net profit growth during the first half of the year compared to the same period of last year, however, we remain confident in the Bank’s future potential. Having said that, we have seen our loan book expand during the first half of the year, reflecting the success of our strategic initiatives in meeting our clients' evolving needs. This growth in loans displays our capacity to navigate and excel in dynamic market conditions, reinforcing our prominent position in the Kuwaiti banking sector.”

He added: “I am pleased to announce the successful completion of Phase II of our core banking system, a significant milestone in our journey towards advancing customer centricity. This achievement strengthens our operational capabilities and reaffirms our focus to meet the evolving needs of our clients in a digitally driven era. We are ready to leverage these technological foundational changes to drive operational efficiencies and transform our branches into relationship and experience centers aiming to provide a personalized and seamless banking experiences to our clients.”

Margins

Regarding margins and their sensitivity towards the benchmark rates Mr. David Challinor remarked: “We disclosed in the full year 2023 financials for every 25 basis points its 2.2 million KD assuming a parallel shift on both sides of the balance sheet. For Q2 the net interest margin was 215 basis points which was a 1-point increase sequentially from Q1. And for the first half the margin was 214 basis points which is 3 points higher than last year.” He added: “In terms of the outlook, the local market continues to enjoy healthy liquidity levels so we may see a further fall in cost of funds in Q3 although I’d still expect the overall margin to remain broadly around the current levels in the short term.”

Operating Expenses

In terms of operating expense Mr. David Challinor mentioned: “For the first half we’ve managed to keep a tight lid on operating expense growth to just 3%, which is very low when compared to other banks in the system.”  He added: “When we look at the cost income ratio, this has come down from the first half of 2023, and it’s now sitting at 45.7% versus last year at 46.5%.”

Loan Growth

When questioned about the drivers for loan book growth during Q2 2024, Mr. David Challinor noted: “In Q2 we saw yet another very strong quarter for loan growth. Total Gross Loans and Advances grew KD 142m in the quarter which followed a very strong Q1 where we grew KD 177m. So, this brings year to date loan growth for the first half to 5.8%. And this compares very favorably to the full year 2023 loan growth which was 1.2%.” He added: “Looking forward, I would expect the second half loan growth to be slower than the first, but still dominated by corporate and with the focus being more on local resident lending.”

Potential Merger with Boubyan Bank & Conversion to Sharia’a Compliant Bank

Regarding the latest disclosures made related to the potential merger with Boubyan Bank and to the potential conversion into a Shariaa compliant Bank, Mr. Sami Mahfouz stated: “As far as the conversion to Islamic, let me take you back to what we have announced on June 11th, 2024, that our Board of Directors requested for the engagement of an international consultant to undertake a feasibility study regarding the potential conversion of Gulf Bank to operate in accordance with Islamic Shariaa principles. The Central Bank of Kuwait has granted their no-objection for the commencement of this study. We as a Bank, we are continuously exploring opportunities for growth, both organic and inorganic, to diversify our offerings, cater to a broader market segment, and enhance our competitive position.” He added: “More recently we had disclosed on 31st July 2024 that Gulf Bank and Boubyan Bank have presented a proposal for a strategic opportunity for growth and expansion through the merger of the two banks, whereby creating one entity compliant with the provisions of Islamic Sharia. This proposal was presented to Gulf Bank’s Board of Directors at its meeting held on 30th July 2024 and was approved. Moreover, the Board issued its directives and recommendations to move forward to carry out the needful actions to commence the initial feasibility study and necessary due diligence for the merger, after obtaining the necessary approvals in this regard. Accordingly, Gulf Bank informed the Central Bank of Kuwait (CBK) on 30th July 2024 with the above, and in return received from CBK the necessary guidelines to be followed for the merger process. Based on that, Gulf Bank will commence communications with Boubyan Bank to sign a Memorandum of Understanding and a Confidentiality Agreement in preparation for the initial Feasibility Study. I would like to reconfirm Gulf Bank’s compliance with relevant laws and instructions of the Central Bank of Kuwait and the relevant regulatory authorities, and we will be disclosing any material developments in this respect in due course.”