Q2 2026 Gulf Bank KSCP Earnings Call
Speaker #1: Good afternoon, everyone, and welcome to Gulf Bank's Q2 earnings call. This is Ahmed Elshazli from EFGMS, and it's a pleasure to have with us on the call today members of Gulf Bank's management.
Speaker #1: Mr. Sami Mahfouz, Acting CEO; Mr. David Shalinoor, CFO; and Ms. Dalala Dosari, Head of Investor Relations. I will now hand the call over to Dalala.
Speaker #1: Thank you.
Speaker #2: Thank you, Ahmed. Good afternoon, and welcome to Gulf Bank's first half 2026 earnings call. We will start our call today with the key highlights and updates on the operating environment of Gulf Bank during the second quarter of 2026, presented by Acting CEO, Mr. Sami Mahfouz.
Speaker #2: Followed by a detailed presentation of our financial results by the CFO Mr. David in millions of Kuwaiti dinars, and have been rounded to simplify the charts.
Speaker #2: During our presentation, we will try not to repeat the currency when discussing specific amounts, unless that amount is in another currency other than Kuwaiti dinars.
Speaker #2: After the presentation, we will open the floor for Q&A, received through the webcast platform. Questions can be posted in the chat box and will be visible to all participants.
Speaker #2: Feel free to type your questions at any time during the call, and we will address them once we open the Q&A session. Please note that we can only comment on questions and information that are publicly disclosed.
Speaker #2: I would also like to draw your attention to the disclosure on page 10 of the presentation with respect to forward-looking statements and confidential information.
Speaker #2: Please feel free to reach out to our Investor Relations team if you have any questions. Now, I would like to hand over the call to Mr. Sami Mahfouz.
Speaker #2: Sami?
Speaker #1: Thank you, Dalala and Ahmed. Good morning and good afternoon, everyone, and thank you for joining us today to discuss Gulf Bank's results for the first half of 2026.
Speaker #1: I will begin with a brief overview of the operating environment and our business priorities during the first half of the year, before handing over to David for a detailed review of our financial performance.
Speaker #1: The first half of 2026 was marked by elevated geopolitical tensions and heightened regional uncertainty. While these developments have weighed on sentiment across parts of the region, Kuwait has continued to demonstrate resilience, supported by strong sovereign fundamentals and the stability of the financial sector.
Speaker #1: The country's credit profile remains robust, while continued access to both domestic and international funding markets reinforces confidence in Kuwait's financial position and funding flexibility.
Speaker #1: At the same time, the announced state budget for fiscal year 2026–2027 reaffirmed the government's commitment to infrastructure development and capital investment, with significant allocations directed toward strategic projects.
Speaker #1: These investments are expected to support credit demand and economic activity, creating opportunities across multiple sectors. As implementation of the development agenda progresses, we believe the banking sector will continue to play an important role in financing these projects and facilitating broader economic growth.
Speaker #1: From a banking sector perspective, conditions remain broadly favorable during the first half of the year. The unchanged benchmark interest rates provided greater stability for businesses and better visibility for borrowers.
Speaker #1: Moreover, the sector continued to benefit from strong capitalization, healthy liquidity levels, and sound regulatory oversight. Against this backdrop, Gulf Bank delivered a strong performance during the first half of the year.
Speaker #1: We achieved growth in profitability, expanded our lending portfolio, and maintained robust asset quality. These results underscore the resilience of our business model, the strength of our risk management framework, and the disciplined execution of our strategic priorities.
Speaker #1: Beyond our financial performance, a key area of focus during the first half was advancing our planned transition to Islamic banking. We continued to make progress across multiple workstreams, including governance, products, systems, policies, and processes—further strengthening our operational readiness for the transition as we moved through the necessary regulatory and shareholder approval process.
Speaker #1: Equally important, we invested significantly in human capital development through specialized training and capability-building programs to ensure that our employees are well prepared for the transition and equipped with the knowledge and skills required to support the bank's future operating model.
Speaker #1: The conversion remains one of the most important strategic initiatives in the bank's history, and we are committed to executing it in a disciplined and well-managed manner.
Speaker #1: Now, turning to page 2 of the presentation, allow me to summarize our financial results with six key messages. First, we recorded a net profit of KD 27.4 million for the first half of 2026, an increase of 14.1% compared to the first half of 2025 net profit of KD 24 million.
Speaker #1: Second, our operating income reached 94.3 million Kuwaiti dinars, an increase of 2.5 million Kuwaiti dinars, or 2.7%, compared to the first half of 2025.
Speaker #1: Third, our gross loans and advances reached KD 6.5 billion, a year-to-date increase of KD 444 million, or 7.3%, compared to 31 December 2025. This growth came mainly from our Corporate Banking segment.
Speaker #1: Fourth, our asset quality metrics remained strong, underpinned by disciplined risk management and prudent underwriting practices. The non-performing loan ratio stood at 1.2% as of 30 June 2026, while our NPL coverage ratio remained robust at 312%.
Speaker #1: Inclusive of total provisions and collateral. These metrics underscore the soundness of our credit profile and the resilience of our balance sheet. Fifth, as of 30 June 2026, our Tier 1 ratio was 13.8%, achieving a buffer of 277 basis points above the new regulatory minimums of 11%, and our capital adequacy ratio was 15.8%, achieving also a buffer of 280 basis points above the new regulatory minimums of 13%.
Speaker #1: Lastly, the bank continues as an A-rated bank by major credit rating agencies. Our current position stands as follows: an A3 long-term deposit rating for Gulf Bank with a stable outlook by Moody's Investor Services; a long-term issuer default rating of A with a stable outlook and a viability rating of BBB- by Fitch Ratings; and a long-term foreign currency rating of A+ with a stable outlook by Capital Intelligence.
Speaker #1: Overall, we are pleased with our performance during the first half of the year. Looking ahead, we remain focused on executing our strategic priorities and advancing the initiatives that will position Gulf Bank for its next phase of growth, while delivering sustainable, long-term value for all stakeholders.
Speaker #1: With that, I'll turn it over to the CFO, Mr. David Chalinor, who will cover the financials for the first half of 2026 and discuss our debts.
Speaker #1: Thank you, David. Over to you.
Speaker #2: Thanks, Samir. Turning to page 3, we can see the movement in net profit from $20.24 million to $27.4 million, representing an increase of $3.4 million or 14%, and a sequential improvement in net profit of $8.6 million compared with Q1 2026.
Speaker #2: Looking at the underlying components, the net profit growth was driven by a KD 6.1 million increase in interest income, a KD 1.8 million increase in non-interest income, and a KD 5.7 million reduction in credit costs.
Speaker #2: And these positives were partially offset by a $5.4 million increase in interest expense, higher operating expenses, and a $3.8 million and a $1.1 million increase in general provisions, which reflects the impact of very strong loan growth for the first half compared to last year.
Speaker #2: Turning to page 4, we've got a detailed breakdown of our income statement. On line 1, interest income increased by $6.1 million, or 3%, in the first half of 2026 compared to the same period last year.
Speaker #2: And by $4.1 million, or 4%, sequentially from Q1 2026. The growth was driven by strong loan book expansion and higher interest income from recent government issuances.
Speaker #2: Line 2, interest expense increased by $5.4 million, or 5%, in the first half of 2026 compared to the same period last year. On line 3, net interest income reached $73.4 million, up 1% in H1 2026 compared to the same period last year, and up 8% sequentially versus Q1 2026.
Speaker #2: And the increase was primarily driven by strong growth in interest-earning assets. Line 4, non-interest income rose to $20.8 million in the first half of 2026, up 10% year-on-year and 13% sequentially.
Speaker #2: Growth was mainly driven by strong fees and commission income, which was up 13% year-on-year, underscoring solid business momentum. Line five, operating income for the first half of 2026 reached 94.3 million, an increase of 2.5 million, or 3% year-on-year, and a growth of 9% when compared to Q1 2026.
Speaker #2: On line 6, operating expenses increased by KD 3.8 million, or 8% year-on-year in the first half of 2026, and this growth was mainly driven by higher other expenses.
Speaker #2: On line 7, operating profit before total provisions and impairments declined by KD 1.3 million, or 3%, reaching KD 43.6 million in the first half of 2026.
Speaker #2: However, Q2 operating profit improved by 0.3 million, or 1%, from Q1. On line 8, credit costs were 11.9 million in the first half of 2026, declining by 5.7 million, or 32%, compared to the same period last year.
Speaker #2: And decreased by KD 6.8 million, or 73%, sequentially versus Q1. On line 9, general provisions were KD 2.9 million in the first half of 2026 and KD 2 million in the same period last year, reflecting stronger loan growth during the first half of 2026.
Speaker #2: And as per CBK regulations, a 1% general provision is required, mainly against non-government loans booked during the year. So, turning to page 5, we can see the balance sheet. On line 7, net loans and advances at KD 6.3 billion increased by 11% year-on-year and 8% year-to-date. Growth was driven by the corporate segment.
Speaker #2: Line 12, total assets increased by 11% year-on-year to reach $8.1 billion, and this increase reflects continued growth in net loans and advances, coupled with an increase in exposure to Kuwait government bonds.
Speaker #2: On lines 14 and 15, total deposits were $6 billion as of 30 June 2026, and this represents an increase of $616 million, or 11% year-on-year.
Speaker #2: And 273 million, or 5%, year-to-date. And the CASA ratio stood at 23.4% at the end of Q2 2026. It was lower than the same period last year, at 28.5%, but the declining CASA reflects a broader market trend, with the market ratio decreasing from 30.1% at the end of June 2025 to 27.2% by the end of June 2026.
Speaker #2: This has been primarily driven by a shift in the deposit mix from current accounts to time deposits during the period. Looking ahead, we expect this trend to gradually improve through expanding and diversifying our funding sources.
Speaker #2: On line 16, other borrowed funds increased by 13% year-on-year and 10% year-to-date. Moving on to asset quality, our non-performing loan ratio, shown on line 23, stood at 1.2% at the end of Q2 2026, down 0.2% from the same period last year.
Speaker #2: And we continue to maintain a significant total coverage ratio of 312%, which includes both total provisions and collaterals. Now, turning to page 6, you can see in the chart on the left that as of 30 June 2026, we have KD 74 million excess of total provisions over IFRS 9, representing 30% of total provisions.
Speaker #2: And as shown in the pie charts on the top right of the page, Stage 1 loans increased to 96.5%; Stage 2 loans have declined to 2.3%, and Stage 3 loans increased to 1.3% when compared to 31 December 2025.
Speaker #2: And the majority of stage 3 loans comprise retail accounts. The charts on the bottom right of the page show the evolution of stage 2 and stage 3 loans.
Speaker #2: Stage 2 loans are at one of their lowest levels historically, and Stage 3 loans remain stable and very low. So, turning to page 7, on the top left, our Tier 1 capital ratio was 13.8%, which is well above the current regulatory minimum of 11%. It's worth noting that all of our Tier 1 is common equity Tier 1.
Speaker #2: On the bottom left, our capital adequacy ratio at 15.8% was well above our current regulatory minimum of 13%. Both ratios don't include first-half 2026 profits.
Speaker #2: On 26 March 2026, the Central Bank of Kuwait announced a stimulus package for local banks, reducing the capital conservation buffer by 1%, resulting in lower minimum regulatory capital requirements.
Speaker #2: On the top right, our risk-weighted assets have increased by 3% year-to-date, primarily driven by strong loan growth. And on the bottom right, our leverage ratio as at 30 June 2026 was 9%, lower than the 9.7% reported on 31 December 2025, but still well above the 3% regulatory minimum.
Speaker #2: So, turning to page 8, we can see our key liquidity metrics. The chart on the left shows our quarterly average daily Liquidity Coverage Ratio at 217%, while the chart on the right shows our Net Stable Funding Ratio at 104%.
Speaker #2: And both key ratios remain well above the regulatory minimum of 80%, reflecting our strong liquidity and funding profile. As previously noted, in line with the stimulus package announced by the Central Bank of Kuwait in March, the regulatory minimums for the liquidity coverage ratio and net stable funding ratio were reduced from 100% to 80%, supporting liquidity and stability in the local banking sector.
Speaker #2: So now I'll turn it back to Dalal for the Q&A session.
Speaker #1: Thank you, David. We are now ready for Q&A. If you wish to ask a question, please submit your question into the chat box. We will wait for a few minutes to receive most of your questions, and we'll try to group them by topic.
Speaker #1: Credit recorded and summarized.
Dalal AlDousari: Being recorded and summarized.
Dalal Al-Dousari: Being recorded and summarized.
David Challinor: Which is to continue a disciplined approach in our credit appetite and to prioritize credit quality over volume, which has resulted in a better performing loan book. Looking forward, we anticipate that loan growth in H2 will develop at a more moderate pace. This shift represents a deliberate management decision to prioritize balance sheet optimization. By increasing our focus on margin enhancement and capital efficiency, we'll ensure our lending activity delivers maximum value to shareholders, rather than pursuing growth for its own sake. In terms of guidance, at the start of the year, I said high single digit, which we've achieved primarily because we've front-loaded the growth. I'd expect the full year to consolidate around these levels as we continue to optimize the balance sheet for enhanced margin and capital efficiency.
David Challinor: Which is to continue a disciplined approach in our credit appetite and to prioritize credit quality over volume, which has resulted in a better performing loan book. Looking forward, we anticipate that loan growth in H2 will develop at a more moderate pace. This shift represents a deliberate management decision to prioritize balance sheet optimization. By increasing our focus on margin enhancement and capital efficiency, we'll ensure our lending activity delivers maximum value to shareholders, rather than pursuing growth for its own sake. In terms of guidance, at the start of the year, I said high single digit, which we've achieved primarily because we've front-loaded the growth. I'd expect the full year to consolidate around these levels as we continue to optimize the balance sheet for enhanced margin and capital efficiency.
Speaker #2: We continue to maintain a disciplined approach in our credit appetite and to prioritize credit quality over volume, which has resulted in a better-performing loan book, looking forward.
Speaker #2: We anticipate that loan growth in the second half will develop at a more moderate pace, and this shift represents a deliberate management decision to prioritize balance sheet optimization. By increasing our focus on margin enhancement and capital efficiency, we will ensure our lending activity delivers maximum value to shareholders, rather than pursuing growth for its own sake.
Speaker #2: So, in terms of guidance, at the start of the year I said high single-digit, which we've achieved primarily because we've front-loaded the growth. So, I'd expect the full year to consolidate around these levels, as we continue to optimize the balance sheet for enhanced margin and capital efficiency.
Speaker #3: Thanks, David. We also have a question on operating expenses and would like you to explain what drove other expenses higher. David?
Dalal Al-Dousari: Thanks, David. We also have a question on operating expenses and to explain what drove other expenses higher. David?
Dalal AlDousari: Thanks, David. We also have a question on operating expenses and to explain what drove other expenses higher. David?
Speaker #2: Yeah, thanks, Jalal. I mean, operating expense growth for the first half was 8%, which represented an absolute increase of $3.8 million. Now, three-quarters of that increase related to the other expense category, and the growth was mainly due to the advancement of our strategic projects.
David Challinor: Thanks, Dalal. Operating expense growth for H1 was 8%, which represented an absolute increase of KWD 3.8 million. Now, three quarters of that increase related to the other expense category, the growth was mainly due to the advancement of our strategic projects, the Islamic conversion and the merger, coupled with an operational risk provision. When we exclude the other expense category and look in total at staff, occupancy, and depreciation, which together make up approximately two thirds of our current cost base, we see growth of less than 3%. This clearly reflects our ongoing cost discipline. We've been very focused on keeping our core operating expenses in check whilst we've been advancing our strategic projects.
David Challinor: Thanks, Dalal. Operating expense growth for H1 was 8%, which represented an absolute increase of KWD 3.8 million. Now, three quarters of that increase related to the other expense category, the growth was mainly due to the advancement of our strategic projects, the Islamic conversion and the merger, coupled with an operational risk provision. When we exclude the other expense category and look in total at staff, occupancy, and depreciation, which together make up approximately two thirds of our current cost base, we see growth of less than 3%. This clearly reflects our ongoing cost discipline. We've been very focused on keeping our core operating expenses in check whilst we've been advancing our strategic projects.
Speaker #2: The Islamic conversion and the merger, coupled with an operational risk provision—but when we exclude the other expense category and look in total at staff, occupancy, and depreciation, which together make up approximately two-thirds of our current cost base—we see growth of less than 3%.
Speaker #2: So, this clearly reflects our ongoing cost discipline. We've been very focused on keeping our core operating expenses in check, while advancing our strategic projects.
Speaker #2: Now, in terms of guidance, I previously mentioned that the cost growth for FY26 would be around the mid- to high single-digit range. But I think the latter is now more likely.
David Challinor: In terms of guidance, I previously mentioned that the cost growth for FY2026 would be around the mid to high single digit range, I think the latter is now more likely.
David Challinor: In terms of guidance, I previously mentioned that the cost growth for FY2026 would be around the mid to high single digit range, I think the latter is now more likely.
Speaker #3: Thank you, David. We will pause for a few minutes to receive more questions. So, what is the expected cost of risk for 2026, and what are the asset quality trends?
Dalal Al-Dousari: Thank you, David. We will pause for a few minutes to receive more questions. What is the expected cost of risk for 2026 and asset quality trends? David?
Dalal AlDousari: Thank you, David. We will pause for a few minutes to receive more questions. What is the expected cost of risk for 2026 and asset quality trends? David?
Speaker #3: David?
Speaker #2: Yeah, thanks, Jalal. I mean, the net credit cost charge for Q2 was $2.5 million, which translates into a cost of risk of only 16 basis points for the quarter.
David Challinor: Thanks, Dalal. The net credit cost charge for Q2 was KWD 2.5 million, which translates into a cost of risk of only 16 basis points for the quarter. Clearly, we haven't seen such a low level of quarterly cost of risk and credit cost for many years. It's an outstanding result, and this was actually the biggest driver of the bottom line earnings growth. I've mentioned many times on previous earnings calls that we've experienced elevated levels of credit costs in our retail business. In response to this, we both tightened underwriting criteria, and we'd also commenced a transformation in relation to the collections process. We saw in Q2 both a lower specific provision and a higher level of recoveries than we'd usually seen in previous quarters, which is a very encouraging development.
David Challinor: Thanks, Dalal. The net credit cost charge for Q2 was KWD 2.5 million, which translates into a cost of risk of only 16 basis points for the quarter. Clearly, we haven't seen such a low level of quarterly cost of risk and credit cost for many years. It's an outstanding result, and this was actually the biggest driver of the bottom line earnings growth. I've mentioned many times on previous earnings calls that we've experienced elevated levels of credit costs in our retail business. In response to this, we both tightened underwriting criteria, and we'd also commenced a transformation in relation to the collections process. We saw in Q2 both a lower specific provision and a higher level of recoveries than we'd usually seen in previous quarters, which is a very encouraging development.
Speaker #2: Now, clearly, we haven't seen such a low level of quarterly cost of risk and credit cost for many years, so it's an outstanding result.
Speaker #2: And this was actually the biggest driver of the bottom-line earnings growth. I've mentioned many times on previous earnings calls that we've experienced elevated levels of credit cost in our retail business.
Speaker #2: And in response to this, we've both tightened underwriting criteria and we'd also commenced a transformation in relation to the collections process. And we saw in Q2 both a lower specific provision and a higher level of recoveries than we'd usually seen in previous quarters, which is a very encouraging development.
Speaker #2: On the corporate side, we had several provision releases coupled with recoveries, which together helped to lower the bank's credit cost even further. And if we look at the percentage of loans classified as stage two, it's now only at 2.3%, which is likely the lowest in the Kuwaiti banking system.
David Challinor: On the corporate side, we had several provision releases coupled with recoveries, which together helped to lower the bank's credit cost even further. If we look at the percentage of loans classified as Stage 2, it's now only at 2.3%, which is likely the lowest in the Kuwaiti banking system. Our balance sheet is in a relatively strong position versus our competitors to handle any future shocks arising due to the current geopolitical situation, we've been closely monitoring the portfolio for any potential stresses, and we'll take a proactive approach if and when necessary. In terms of guidance, at the start of the year, we expected the cost of risk to land in the 50 to 60-point range for FY2026. We're now lowering this to under 50 basis points.
David Challinor: On the corporate side, we had several provision releases coupled with recoveries, which together helped to lower the bank's credit cost even further. If we look at the percentage of loans classified as Stage 2, it's now only at 2.3%, which is likely the lowest in the Kuwaiti banking system. Our balance sheet is in a relatively strong position versus our competitors to handle any future shocks arising due to the current geopolitical situation, we've been closely monitoring the portfolio for any potential stresses, and we'll take a proactive approach if and when necessary. In terms of guidance, at the start of the year, we expected the cost of risk to land in the 50 to 60-point range for FY2026. We're now lowering this to under 50 basis points.
Speaker #2: So, our balance sheet is in a relatively strong position versus our competitors to handle any future shocks arising due to the current geopolitical situation.
Speaker #2: And we've been closely monitoring the portfolio for any potential stresses, and we'll take a proactive approach if and when necessary. Now, in terms of guidance, at the start of the year we expected the cost of risk to land in the 50 to 60 point range.
Speaker #2: For FY26, but we're now lowering this to under 50 basis points.
Speaker #3: Okay, thank you, David and Sami. I believe we have covered the majority of the topics and questions raised today during the call. With that, we would like to conclude our call for today.
Dalal Al-Dousari: Okay. Thank you, David and Sami. I believe we have covered the majority of the topics and questions raised today during the call. With that, we would like to conclude our call for today. If you have any further questions, you may visit our Investor Relations page at our website or reach us at our dedicated Investor Relations email. Thank you all very much for your participation today.
Dalal AlDousari: Okay. Thank you, David and Sami. I believe we have covered the majority of the topics and questions raised today during the call. With that, we would like to conclude our call for today. If you have any further questions, you may visit our Investor Relations page at our website or reach us at our dedicated Investor Relations email. Thank you all very much for your participation today.
Speaker #3: If you have any further questions, you may visit our Investor Relations page on our website or reach us at our dedicated Investor Relations email.
