Boubyan Bank K S C P : Transcript of the Analysts Conference

Classification: Public

Q3 2023 Boubyan Bank K.S.C.P - Earnings Call

Edited transcript of the Boubyan Bank earnings conference call that took place on Monday, 23rd October 2023 at 13:00 Kuwait Time

Corporate participants:

Mr. Abdullah Al Tuwaijri - Chief Executive Officer

Mr. Mohamed Ibrahim - Group General Manager, Financial Control Group Mr. Fawaz Tawfiqi - Investor Relations

Classification: Public

Classification: Public

Classification: Public

Abdullah Al Tuwaijri: Thank you Fawaz.

Good afternoon everyone and thanks for joining us.

I will give a quick update on our operating environment before my highlights on the overall financial performance and strategic initiatives.

The Federal Reserve affirms its position despite inflation figures surpassing estimates. In their latest meeting, the FOMC maintained their statement on "holding for longer" rather than an indication of a hike or cut.

Federal Reserve policymakers agreed last month that policy should remain restrictive for some time, while noting that the risks of overtightening now had to be balanced against keeping inflation on a downward path toward 2%.

The IMF sees that there is a higher probability for central banks to tame inflation without causing a recession in the global economy, and is now expecting global economic growth to slow down from 3.5% in 2022, to 3% in 2023, and to 2.9% in 2024. Meanwhile, global inflation is forecast to decline to 6.9% this year from 8.7% in 2022, and down to 5.85% in 2024.

Regarding Kuwait's economy, the Central Bank of Kuwait has raised its benchmark discount rate by another 25bps to 4.25% during late July. Kuwait's GDP growth is expected to see a minor contraction for the year due to negative oil GDP growth. In addition, there was a noticeable surge in government projects awarded during the year. Inflation stood at 3.7% y/y in September, edging slightly down from 3.8% in August.

Regarding Boubyan's performance, we continued to achieve positive results across all business lines.

Our net profit for the period grew by 26% YoY to reach KD 61.1 million with an earnings per share of 13.9 fils. This reflects a 5% growth in operating profit and reduction in cost of risk by 18%.

Our operating income grew 7% to KD 163 million driven by the improved performance of our investment portfolio and fees and commissions income. Total assets grew 6% year-on-year to reach KD

8.2 billion and the total financing portfolio also grew by 5% to KD 6.1 billion. Our customer deposits grew by 8% to reach KD 6.3 billion. Our market share of financings also increased to 11.6% while maintaining the Non-performing loans at a very low level of 1.1%.

Moving on now to discuss our strategy. We are continuing with the current journey of scaling up the core business both domestically and

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Classification: Public

internationally.

During the period, we completed the roll out of the new premium segment to provide affluent clients with a distinctive dedicated set of services and products that suit their needs inside and outside Kuwait. This was complemented by our continued investment in digital proposition by launching many new services offered for the first time in the local market.

In addition to this and as part of the continued focus on the segment of local entrepreneurs, we also enhanced our offerings by providing them with integrated financial solutions and exceptional benefits that allows them to manage their banking transactions smoothly and conveniently.

Regarding Nomo Bank, it continues growing its business base through partnerships to offer unique digital property finance solutions to customers in the UK to meet the requirements of the real estate market for those willing to purchase investment or residential units; this, in fact, makes Nomo their best Sharia-compliant property finance option in the United Kingdom. Despite the relatively short span of Nomo in the market, its recent launch of many products and services puts it on par with top financial institutions to offer a unique digital banking experience to customers that meets their expectations and needs while ensuring the highest levels of protection and security.

With steady steps, Boubyan Bank managed to be among the top Islamic financial institutions as it concluded Q3 with many awards and international rankings received by the bank from a group of prestigious institutions, among which are Euromoney, Global Finance, and Service Hero. The bank received more than 10 international awards and rankings in various business areas such as digital transformation, consumer banking, corporate finance, CSR, and SMEs support, whether locally or internationally, thus, reinforcing its leadership and status as a leading Islamic and digital financial institution.

Having embarked on the sustainability reporting journey and transparently disclosing our ESG metrics, we have gradually evolved to ingrain and integrate sustainability elements across our overall corporate strategy and business practices. This has enabled us to review, evaluate our ESG maturity and establish and prioritize our ESG agenda and roadmap. Our investments and efforts in innovation, digital transformation, commitment towards our employees and communities and the surrounding environment would enable us to lead ESG towards a cleaner and brighter future.

Now, Mohamed will take you through the Bank's financial performance with more details.

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Classification: Public

Mohamed Ibrahim: Good afternoon everyone. It is my pleasure to take you through our financial results for the third quarter of 2023.

The bank has reported a net profit of KD 61.1 million, a growth of 26% compared to the corresponding quarter of prior year, with an earnings per share of 13.9 fils. This growth reflects the growth in operating profit and a reduction in the cost of risk.

Operating profit grew by 5% to reach KD 82.7 million. This will be discussed in more details throughout the next slides.

The bank's RoAE and RoAA increased compared to the same period last year to 9.3% and 1.0% respectively which reflects the growth in net profit.

Now moving on to the operating income components, The operating income increased by 7% to reach around KD 163 million. This was mainly driven by the increase in fee and investment income.

Regarding net financing income, it has been almost flat compared to the first 9 months of last year reflecting the growth in volume by 5% and a decrease in net profit margin. Net profit margin decreased from 2.4% last year to 2.3% this year due to the lag impact of the increase in deposit rate and discount rates during the second half of last year in addition to the behaviour elements which impacted our CASA ratio. However, net financing income for Q3 2023 increased by 4% compared to Q2 2023 and 12% compared to Q1 2023. This was mainly driven by the improvement in net profit margin by almost 6bps between Q2 and Q3 and 14bps between Q1 and Q3 as a result of gradual repricing of assets to reflect the recent change in the discount rate.

Fees and commissions income grew by 13% year on year reaching KD

24.4 million reflecting the growth in business activities across retail, corporate and wealth management segments.

Investment income increased by KD 7.8 million to reach KD 11.6 million due to the growth in our investment portfolio and the improvement of its performance.

Now, we will move to slide 9 and discuss operating expenses. Operating expenses grew by 9% compared to the same period last year. This growth is in line with inflation, the scaling of operations and the continued investments in technology and products offering to continue providing the desired level of customer experience. This has resulted into a cost to income ratio of 49.3% and the cost to average assets of 1.3%.

Classification: Public

Classification: Public

We will now move onto provisions on slide 10, we can see that the total impairment provision was KD 31.2 million with the majority being precautionary provisions which improves our ability to witness any unforeseen adverse condition.

The bank's loss ratio and provisions as a percentage of operating profit has dropped to 0.4% and 31% respectively.

I would like to highlight that IFRS 9 provision was lower than the provision as per CBK by over KD 139 million and accordingly we have reported the CBK provision in our financials being higher of the two.

Now moving on to slide 12 regarding our Balance sheet.

Overall, our total assets grew by 6% compared to Q3 2022. This increase was mainly driven by the growth in the Bank's financing portfolio, fixed income and investment portfolio.

In general, the composition of total assets has been broadly consistent with prior year, with the financing portfolio represents 74% of total assets, while liquid assets to total assets was maintained at a comfortable level of 20%.

Customer deposits grew 8% year on year with its composition in sources of funding increased to 77%. The bank has maintained its domestic loan to deposit ratio at a comfortable level of 87%.

We now move on to slide 13 to discuss the performance of our financing portfolio. Our net financing portfolio grew by KD 274 million year on year or 5% which driven mainly by the growth in corporate segment. On the other hand, the retail segment started to gain momentum during the last few months and is expected to increase its participation in the overall growth throughout the final quarter of the year.

Non-performing loans remains fairly stable at 1.1% which reflects our strict underwriting standards and prove the quality of our assets. Coverage ratio was also maintained at a very comfortable level of 298%.

We now move on to our last section on Capital Ratios on page 15.

Our capital adequacy ratio stands at 17.8% against a minimum requirement of 14% (including D-SIB of 1%).

Risk Weighted Assets reported a year-on-year growth of 7% to reach KD 5.4 billion, which was driven mainly by asset growth.

Classification: Public

Classification: Public