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

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Q1 2024 Boubyan Bank K.S.C.P - Earnings Call

Edited transcript of the Boubyan Bank earnings conference call that took place on Sunday, 28th April 2024 at 13:00 Kuwait Time

Corporate Participants:

Mr. Abdulsalam Al Saleh - Chief Executive Officer

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

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Fawaz Tawfiqi:	Good afternoon everyone, and thank you for joining us today. This
	is Fawaz Tawfiqi from Investor Relations. I am pleased to welcome
	you all to Boubyan Bank's earnings webcast covering the results
	for the first quarter of 2024.
	Joining me today is Mr. Abdulsalam Al Saleh - Chief Executive
	Officer, and Mr. Mohamed Ibrahim - Group General Manager -
	Financial Control. I'd like to commence our call today by reading
	out a brief disclaimer which you can also find on page 2 of our
	presentation:
	"Certain statements in this presentation may constitute forward
	looking statements reflecting the banks expectations. Accordingly,
	these are subject to risk and uncertainty, which may cause actual
	results to differ materially from the plans reflected within today's
	presentation. You are cautioned not to rely on such forward looking
	statements and the Bank does not assume any obligation to update
	its views of such risks and uncertainties or to publicly announce any
	revisions to the forward looking statements made herein"
	In addition to the disclaimer I have just read, I urge you all to read
	the full text of our disclaimer on page 2 of the presentation pack.
	Our format for today's call will include:
	An overview of Boubyan's performance by Mr. Abdulsalam Al
	Saleh followed by a presentation on the Bank's financial
	performance by Mr. Mohamed Ibrahim.
	Following this, we will have time for a Q&A session with attendees
	today. We will be receiving your questions through the webcast
	platform, and we will endeavour to answer all of your questions
	today, however, if any questions are left unanswered due to time
	constraints, or you have any further questions you wish to pose,
	please feel free to contact us through the Boubyan Investor
	relations email address, which you can find on our website.
	With that said, I would like to now hand you over to Mr. Abdulsalam
	Al Saleh to take you through a brief update on Boubyan's
	performance during the first quarter of 2024.

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Abdulsalam Al Saleh: 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 first quarter of 2024 continued to witness geopolitical tensions in Europe and the Middle East along with supply chain disruptions. However, the global economy proved to be more resilient than expected as the world seemingly avoided a recession. The US, Eurozone, China, and Emerging Markets economies showed signs of stability. The global banking system also showed signs of flexibility and resilience even in the midst of high interest rates. According to the IMF, the global economy is expected to grow by 3.2% during 2024 and inflation is expected to moderate to 5.9% down from 2023's 6.9%.

Inflation data are encouraging around the world and the market expects some rate cuts in 2024.

Kuwait's inflation has eased to 3.0% in March 2024 and the economy recorded a sharp rise in non-oil business activity as per S&P.

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

Our net profit grew by 21% YoY to reach KD 25 million with an earnings per share of 5.2 fils. This reflects a 15% growth in operating profit and reduction in cost of risk by 25 bps.

Our operating income grew 17% to KD 62 million driven mainly by the growth in net financing income and fees & commission. Total assets grew 8% year-on-year to reach KD 8.7 billion and total financing portfolio also grew by 8% to KD 6.5 billion. Customer deposits grew by 10% to reach KD 6.8 billion. Our market share of financing remained stable at around the 11.5% mark, while maintaining the Non-performing loans at a very low level of 1.0%.

Moving on now to discuss our strategy.

Boubyan Bank continued its growth journey and built a leading retail franchise in Kuwait with the highest market share within the youth segment, ranked as #1 in terms of mobile app rating, and is the leading bank in terms of customer service and innovation.

Boubyan has successfully concluded its third strategic journey "Boubyan 2023" which saw the bank deliver on its strategic objectives. The bank is now focused on its new 5-year strategy plan, "Boubyan

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2028" which will align with the bank's vision and mission and be integrated within its ESG direction. Boubyan 2028 aims to grow and strengthen its existing local and international presence, and diversify its products and services, all while operating efficiently.

The Bank's aspiration for 2028 is to be a leading Islamic full-fledged bank for individuals and companies, focused on innovation and digital excellence. Execution of the bank's strategy will result in continued customer centricity, with the aim of growing its market share, continuing to be innovative on its existing and new business lines, operating efficiently and resulting in a significant shareholder value and growth by the end of 2028.

With steady steps, Boubyan Bank managed to be among the top Islamic financial institutions 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 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. The Bank last week issued its 2023 Sustainability Report titled: "Integration into Corporate Strategy"

With that, I will conclude my briefing and now, Mohamed will take you through the Bank's financial performance with more details.

Mohamed Ibrahim: Good afternoon everyone. It is my pleasure to take you through our financial results for the first quarter of 2024.

The bank has reported a net profit of KD 25 million, a growth of 21% compared to the same period last year, with an earnings per share of

5.2 fils. This growth reflects the growth in operating profit and a reduction in the cost of risk.

Operating profit grew by 15% to reach KD 31.7 million. This will be discussed in more details throughout the next slides.

The bank's RoAE and RoAA increased compared to last year to 11.1% and 1.2% respectively which reflects the growth in net profit.

Now moving on to the operating income components, The operating income increased by 17% to reach around KD 61.6 million. This was mainly driven by the increase in core businesses and investment

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income.

Regarding net financing income, the growth of 18% YoY reflecting the growth in average profit earning assets by 7% as well as the growth in our NPM by around 20bps (i.e. from 2.21% during 2023 to 2.41% during 2024) as a result of our assets being repriced with all the rate increases that happened since 2022.

Investment income increased by 9% to KD 3.7 million due to the growth in portfolio as well as improvements of our investment portfolio's performance.

Fees and commissions income grew by 25% year on year reaching KD 11 million reflecting the growth in business activities across retail, corporate, wealth management, and insurance segments.

Now, we will move to slide 9 and discuss operating expenses. Operating expenses grew by 20% compared to last year mainly due to the scaling of our operations, inflationary factors, and also due to certain new regulatory requirements. This has resulted into a cost to income ratio of 48.5% and the cost to average assets of 1.4%.

We will now move onto provisions on slide 10, we can see that the total impairment provision was KD 6 million which was lower than the first quarter of 2023 by 42% and resulted into the reduction in the bank's loss ratio and provisions as a percentage of operating profit to 0.28% and 18.7% respectively.

As a result of the conservative provisioning policy during the last three years, the bank accumulated a sizable buffer which resulted into total provisions in excess of IFRS 9 provision requirements by over KD 133 million. This has strengthened the bank balance sheet and increased its ability to absorb shocks that might result from the challenges in the overall economic environment.

Now moving on to slide 12 regarding our Balance sheet.

Overall, our total assets grew by 8% during the year which was mainly driven by the growth in the Bank's financing portfolio, fixed income and investment portfolio.

Looking into the composition of total assets, we can see the financing portfolio represents 74% of total assets and liquid assets to total assets maintained at a comfortable level of 20%.

Customer deposits grew 10% year on year and now represents 79% of our sources of funding. The loan to deposit ratio was maintained at a comfortable 86% threshold.

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We now move on to slide 13 to discuss the performance of our financing portfolio. Our net financing portfolio grew by KD 494 million or 8% which was mainly driven by the growth in the corporate segment by 15% YoY. The growth in retail financing was also around 3% reflecting the limited growth in the market.

Non-performing loans was maintained at 1.0% and lower than the industry average which reflects our strict underwriting standards and the quality of our assets. Coverage ratio was also maintained at a very comfortable level of 319%.

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

Our capital adequacy ratio stands at 17.9% against a minimum requirement of 14% (including D-SIB of 1%).

Risk Weighted Assets reported a year-on-year growth of 6% to reach KD 5.6 billion, which was driven mainly by asset growth.

The leverage ratio at 10.2% is in line with the market and well above the regulatory minimum.

Before I hand over for the Q&A session, I would like to make some remarks on our guidance for the remainder of 2024.

Regarding the expected credit growth in Kuwait, with an expectation of a potential reduction in interest rates along with an anticipated increase in government-led capital investments and corporate projects, we forecast a likely acceleration in credit growth, possibly around mid- single digit.

With regard to loan growth for Boubyan, we expect to achieve mid to high single digit growth at the group level considering our expectation for the overall growth in credit market in Kuwait.

With regards to margins - we expect this to be maintained at current levels of 2.4%.

Our cost-to-income and loss ratios are expected to be at the current levels for the rest of 2024.

With this, I would like to conclude my briefing on the financial performance. Now, I would like to handover to Fawaz for the Q&A session.

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Fawaz Tawfiqi	Thank you Mr. Mohamed.
	We will now start our Q&A session. Ladies and gentlemen, if you wish to
	participate in our Q&A, please type your question using the question box
	on screen. Then click the submit button. Thank you for holding.
Fawaz Tawfiqi	Thank you for holding. Our first question asks: could you please share
	your guidance for FY'24 on credit growth, net financing margin, cost of
	risk, operating expense growth and cost-to-income ratio?
Mohamed Ibrahim	As I mentioned, the credit portfolio is expected to grow mid to high single
	digit. In other words, we expect to maintain the same 7 to 8 percent that
	we experienced in Q1. As for the net financing margin, we expect to close
	2024 between 2.40 to 2.45 percent. For the cost of risk, we aspire to
	maintain it at the current level or I can say between 20 to 30 bps for the
	full year to allow for the uncertainties related to this item. As for operating
	expenses and the cost income ratio, we are expecting to close the year
	at the current level of 48 to 49 percent as this will reflect a growth in
	expenses by a high single digit.
Fawaz Tawfiqi	Next question: could you please give some colour on margin outlook for
	2024e? Do you still have re-pricing benefits from rate hikes versus CoF
	pressures? What is your rate path assumption for 2024e?
Mohamed Ibrahim	Regarding margins, I believe we covered this in the previous question.
	This reflects the repricing benefits that we still expect throughout 2024 by
	repricing our assets while most of our liabilities have already repriced with
	all the previous increases. Regarding rate path assumption for 2024,
	everyone is expecting two to three rate cuts during the second half of
	2024. This reflects US Dollars or foreign currencies in general and the
	impact on Boubyan should be immaterial. However, for the KWD, we are
	still unable to give any guidance for 2024 but we are expecting the KWD,
	on a medium and a long term, to reflect the reduction on the Dollar as
	well.
Fawaz Tawfiqi	Were there any non-recurrent items in the first quarter of 2024 in fees &
	commissions income?
Mohamed Ibrahim	All our fees & commissions income reflects operational activities, so we
	do have a kind of a seasonality between the quarters. For Q1, we had
	some income which was not part of the last year's Q1 of around KD 1M
	reflecting an income from our insurance business which was booked
	during Q1 2024.
Fawaz Tawfiqi	Which sectors are driving growth? And how do you see it trending in the
	coming quarters?
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Mohamed Ibrahim	Most of our growth during Q1 was from Corporate which grew
	approximately by 15 percent versus Retail which grew by 3 percent. For
	Corporate, the growth was well diversified across many sectors, mainly
	Real Estate, Services, and Financial Institutions lending.
Fawaz Tawfiqi	With regards to the new strategic plan, are there any targets for financial
	metrics for 2029 that you could communicate such as return on equity,
	cost-to-income, and market share?
Mohamed Ibrahim	So far, I can share two major targets that represent part of our new
	strategy. We aspire to grow at least x1.5 times the market growth in terms
	of our financing portfolio and overall business growth. Also, as Mr.
	Abdulsalam mentioned that one of the key pillars of our strategy is
	increasing efficiency. Our aspiration for the cost-to-income ratio is to
	reduce it throughout the strategy period to the low forties.
Fawaz Tawfiqi	Do you anticipate a recovery in retail credit growth in 2024? Or do you
	expect corporate to continue being the main driver of growth for the Bank?
Mohamed Ibrahim	Yes, we are still expecting some recoveries to happen but this will not
	impact the overall growth in terms of the Corporate contribution. To
	summarize, Corporate will continue to represent a major part of our
	growth forecast for 2024. So, we expect some pick up from Retail during
	Q2 and Q3.
Fawaz Tawfiqi	What is the expected corporate tax ratio for Boubyan bank in 2025?
Mohamed Ibrahim	As I mentioned last time, it is still uncertain as to the timing of
	implementation of the Pillar 2.0 requirement but it is very likely that we are
	going to be subject to taxes during 2025. We expect that during 2024, it
	will be clearer as to how it will be executed.
Fawaz Tawfiqi	What is your expectation for fee growth in 2024? Also, any update on the
	impact from the Pillar 2.0 tax? Kuwaiti banks already pay some tax in the
	form of KFAS, NLST and Zakat. Will the 15 percent be on top of these?
Mohamed Ibrahim	I think we already covered the tax part. For fee income growth, we are
	expecting low double digit growth for the full 2024 year. But, throughout
	the quarters, we still expect some seasonality. We might see some
	quarters lower than this level and some quarters higher but overall in
	2024, we forecast a low double digit growth.
Fawaz Tawfiqi	What was the ratio of CASA to total deposits in March 2024 versus
	December 2023? Are you seeing customers continuing to migrate to
	CASA?

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Mohamed Ibrahim	For Kuwait operations, the CASA was in the range of 30 percent and for
	the overall consolidated numbers, it is approximately 28 percent. During
	the last few months, we didn't see major migrations in or out of CASA. It
	was almost stable as most of the migration already happened in 2022 and
	2023.
Fawaz Tawfiqi	Ladies and gentlemen, we'd like to thank you all for your attendance today
	and remind you that should you wish to ask any follow up questions you
	may do so through the investor relations email address listed on our
	website.
	A reminder that the presentation slides and transcripts of this call will be
	published on both the Boubyan and the Kuwait Boursa Websites within
	the coming days.
	Thank you.

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