Mahfooz: "Al-Khalij" achieved distinguished financial results and maintained high asset quality

Gulf Bank held an investor conference to review and discuss the bank’s financial performance for the first half of 2026. The event was organized by EFG Hermes and presented by Sami Al-Mahrouq, Acting Chief Executive Officer of Gulf Bank, and David Challinor, Chief Financial Officer, with the discussion moderated by Dalal Al-Dosari, Deputy General Manager of Investor Relations at Gulf Bank.

During the conference, which the bank hosted for its investors, Acting CEO Sami Al-Mahrouq outlined key points regarding the operating environment and provided a brief overview of Gulf Bank’s overall position for the first half of 2026. He stated, “The first half of 2026 was characterized by heightened geopolitical tensions and increased uncertainty at the regional level. Despite the impact of these developments on investor confidence in some markets in the region, Kuwait has maintained the resilience of its economy, thanks to the strength of its financial position and the stability of its banking sector. The country’s credit rating has remained strong, while its continued access to local and international funding sources has bolstered confidence in its financial flexibility and ability to meet its financing needs.”

Al-Mahrouq added, “From a banking sector perspective, conditions remained generally favorable during the first half of the year. The stability of reference interest rates has contributed to greater stability for the business sector, providing borrowers with clearer visibility when making financing decisions. The sector has also continued to benefit from strong capital levels, ample liquidity, and an effective regulatory framework.”

He further noted, “Against this backdrop, Gulf Bank delivered strong performance in the first half of the year, recording growth in both profitability and the loan portfolio, while maintaining high asset quality. These results reflect the resilience of our business model, the strength of our risk management, and our discipline in executing our strategic priorities. We have continued to make progress in our transition to Islamic banking, which has encompassed governance, products, systems, policies, and procedures, thereby enhancing our operational readiness for the transition. This has been pursued in parallel with completing the requirements for obtaining approvals from regulatory authorities and shareholders.”

**Loan Growth**

Commenting on loan portfolio growth, Chief Financial Officer David Challinor said, “We have once again achieved a strong quarterly result, with net loan growth in the second quarter reaching KD 118 million, or 1.9%, contributing to a first-half growth rate of 7.6%. Corporate banking remained the primary driver of this growth, driven by a mix of high-quality local and international deals. Notably, retail market growth was only 1.6%, reflecting continued weakness in economic activity and intensifying price competition. However, our strategy remains unchanged: we maintain a conservative credit granting policy, prioritizing portfolio quality over growth. This approach has resulted in a more balanced loan portfolio. Looking ahead, we expect loan portfolio growth to moderate in the second half of the year.”

**Operating Expenses**

Regarding operating expenses, Challinor stated, “Operating expenses grew by 8% in the first half of the year, representing an absolute increase of KD 3.8 million. Most of this increase was attributed to ‘other expenses,’ while the growth was primarily driven by progress in implementing our strategic projects, including the transition to an Islamic bank and the merger project, alongside provisions for operational risk. Regarding our outlook, we previously indicated that cost growth for fiscal year 2026 would fall within the mid-to-high single-digit range, but I now believe the higher end of that range is more likely.”

**Net Interest Margin**

Commenting on net interest margin, Challinor clarified, “The bank saw an increase in net interest margin in the second quarter by 8 basis points compared to the first quarter. This improvement resulted from a decline in funding costs, alongside higher returns from interest income. Funding costs decreased by 6 basis points in the second quarter, following a 5 basis point drop in the first quarter. This primarily reflects repricing that followed multiple interest rate cuts in December. Looking to the future, the key driver of margin changes is clearly the movement in reference interest rates. There is a general consensus that the likelihood of further interest rate cuts has declined significantly compared to the beginning of the year, which supports a positive outlook for margin levels. We also expect current account and savings deposit levels to rise, which would help reduce funding costs.”

**Credit Costs**

Addressing credit costs, Challinor remarked, “Net credit loss provisions in the second quarter amounted to KD 2.5 million, equivalent to a risk cost of only 16 basis points for the quarter. Notably, we have not seen such a low level of risk and quarterly credit costs in many years, making it a standout result and the primary factor supporting net profit growth. In the second quarter, we recorded a decrease in specific provisions, alongside higher debt recovery rates compared to previous periods, which is a highly encouraging development. In the corporate sector, the release of several provisions and multiple loan recoveries further reduced the bank’s credit costs. Regarding Stage 2 classified loans, the ratio now stands at just 2.3%, likely among the lowest in the Kuwaiti banking sector. Consequently, our overall balance sheet remains relatively strong compared to competitors, enabling the bank to handle any future shocks arising from current geopolitical conditions. Regarding our outlook, we initially expected risk costs for fiscal year 2026 to range between 50 and 60 basis points, but we now see justification for lowering this forecast to below 50 basis points.”

**Transition to Islamic Bank**

Sami Al-Mahrouq, Acting CEO of Gulf Bank, commented on the latest developments regarding the transition to an Islamic bank and the potential merger with Warba Bank: “Regarding Gulf Bank’s plan to transition to a Sharia-compliant bank, we continue to make tangible progress in line with regulatory frameworks, following our receipt of preliminary approval from the Central Bank of Kuwait. Efforts have been intensified across all core workstreams, with dedicated teams overseeing the transition across all business, operations, and technology segments. The focus remains on ensuring the bank is fully prepared, while simultaneously maintaining the quality of service provided to customers. As for the potential merger project with Warba Bank, it is also proceeding regularly, and any future developments will be announced in accordance with disclosure requirements.”