"The Gulf": Distinctive financial results with preservation of asset quality
Gulf Bank held an investor conference yesterday to review and discuss the bank’s financial performance for the first half of 2026. The conference was organized by EFG Hermes, presented by Sami Mahfouz, Acting Chief Executive Officer of Gulf Bank, and David Challinor, Chief Financial Officer, with the dialogue moderated by Dalal Al-Dosari, Deputy General Manager of Investor Relations at Gulf Bank.
During the investor conference, Sami Mahfouz, Acting CEO of Gulf Bank, outlined key points regarding the operating environment and provided a brief overview of the 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.”
Mahfouz noted that “despite the impact of these developments on investor confidence in some regional markets, 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 resilience and ability to meet its financing needs.”
He added, “From a banking sector perspective, conditions remained generally favorable during the first half of the year. The stability of reference interest rates contributed to greater stability for the business community and provided borrowers with clearer visibility when making financing decisions. The sector also continued to benefit from strong capital levels, ample liquidity, and an effective regulatory framework.”
He continued, “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 strategic priorities. We have continued to make progress in our transition to Islamic banking, encompassing governance, products, systems, policies, and procedures, thereby enhancing our operational readiness for the transition, while simultaneously completing the requirements for obtaining approvals from regulatory authorities and shareholders.”
Commenting on loan portfolio growth, Chief Financial Officer David Challinor said, “We have once again achieved a strong quarterly result, with net loans reaching KD 118 million in the second quarter, representing a 1.9% increase. This contributed to raising first-half growth to 7.6%. Once again, the corporate banking segment was the primary driver of this growth, driven by a mix of high-quality local and international transactions.”
He added, “Growth in the retail market was limited to just 1.6%, reflecting the ongoing weakness in economic activity and intensifying competition on pricing. However, our strategy remains unchanged: we continue to adopt a conservative approach to credit policy, prioritizing portfolio quality over growth. This has resulted in a more balanced loan portfolio. Looking ahead, we expect loan portfolio growth to moderate in the second half of the year.”
Regarding operating expenses, Challinor stated, “Operating expenses grew by 8% during the first half of the year, representing an absolute increase of KD 3.8 million. Most of this increase was attributable to other expense items, 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.”
He added: “As for our forecasts, I previously noted that cost growth for fiscal year 2026 would fall within the mid-to-high single-digit range; however, I now believe the high single-digit outcome has become the most likely scenario.”
Commenting on the net interest margin, Chalainor stated: “The bank saw its net interest margin rise by 8 basis points in the second quarter compared to the first quarter. This increase was driven by lower funding costs, alongside higher returns from interest income. Funding costs declined by 6 basis points in the second quarter, following a 5-basis-point drop in the first quarter, primarily reflecting repricing that followed multiple interest rate cuts in December.”
He continued: “Looking ahead, it is clear that the main driver of margin changes is the movement in benchmark interest rates. There is a broad consensus that the likelihood of further rate cuts has diminished significantly since the beginning of the year, which supports a positive outlook for margin levels. We also expect current and savings deposit levels to rise, which should help reduce funding costs.”
Chalainor also commented on credit costs, saying: “Net credit loss provisions in the second quarter amounted to 2.5 million dinars, equivalent to a risk cost of just 16 basis points for the quarter. Notably, we have not seen such a low level of quarterly risk and credit costs in many years, representing an outstanding result and indeed the key factor supporting net profit growth. In the second quarter, we recorded a decline in specific provisions, alongside higher debt recovery levels compared to previous periods, which is a very encouraging development.”
He elaborated: “In the corporate sector, several provisions were released and multiple loan recoveries were achieved, further reducing the bank’s credit costs. The ratio of loans classified in stage two now stands at just 2.3%, likely the lowest in the Kuwaiti banking sector.”
He added: “Consequently, our overall balance sheet remains relatively strong compared to competitors, enabling the bank to withstand any future shocks arising from current geopolitical conditions. Regarding our forecasts, 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.”
Mahfouz, commenting on the latest developments regarding the transition to an Islamic bank and the potential merger with Warba Bank, stated: “Regarding the Gulf Bank’s transformation into a Sharia-compliant financial institution, we continue to make tangible progress in line with regulatory frameworks, following our receipt of preliminary approval from the Central Bank of Kuwait.”
He noted: “Efforts have been intensified across all core workstreams, with dedicated teams overseeing the transformation process across business lines, operations, and technology. 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 with Warba Bank, it is also proceeding as planned, and any future developments will be announced in accordance with disclosure requirements.”
