“Al-Khalij”... High Asset Quality in the First Half of 2026
- Sami Mahfouz:
- Kuwait maintains the resilience of its economy thanks to the strength of its financial position
- The integration with “Warba” is proceeding in an orderly manner, and we will announce any developments in accordance with disclosure requirements
- David Challinor:
- 7.6 percent loan growth in the first half, driven by growth in the corporate services sector
- Operating expenses reflected continued investment in strategic initiatives and support for long-term growth
Gulf Bank held its investor conference yesterday, Monday, to review and discuss the bank’s financial performance for the first half of 2026. The conference was organized by EFG Hermes and presented by Gulf Bank’s Acting Chief Executive Officer, Sami Mahfouz, and Chief Financial Officer, David Challinor. The dialogue was moderated by Deputy General Manager of Investor Relations, Dalal Al-Dosari.
Mahfouz outlined key points regarding the operating environment and provided a brief overview of the bank’s overall position. He stated, “The first half was characterized by heightened geopolitical tensions and increased uncertainty at the regional level. Despite the impact of these developments on investor confidence in some regional markets, Kuwait has continued to maintain 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 sustained access to local and international funding sources has reinforced confidence in its financial flexibility and its ability to meet its financing needs.”
He added, “From a banking sector perspective, conditions have remained generally favorable. The stability of reference interest rates has contributed to greater stability for the business community, 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, the bank delivered strong performance, 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 tangible progress in our transformation to Islamic banking, encompassing governance, products, systems, policies, and procedures, thereby enhancing our operational readiness for the transition. This has proceeded in parallel with the completion of requirements for obtaining approvals from regulatory authorities and shareholders.”
Commenting on the latest developments regarding the transformation into an Islamic bank and the potential merger with Warba Bank, Mahfouz said, “We continue to make tangible progress in line with regulatory frameworks, following the initial approval from the Central Bank of Kuwait. Efforts have been intensified across all key workstreams, with dedicated teams overseeing the transformation across all 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. Regarding the potential merger with Warba Bank, it is also proceeding in an orderly manner, and any future developments will be announced in accordance with disclosure requirements.”
For his part, Chalinoor, commenting on loan portfolio growth, stated: “We once again achieved a strong quarterly result, with net loans reaching $118 million in the second quarter, representing 1.9 percent growth. This contributed to raising first-half growth to 7.6 percent. Once again, the corporate banking sector was the primary driver of this growth, driven by a mix of high-quality local and international deals. Notably, market growth in the retail segment was only 1.6 percent, reflecting the continued weakness in economic activity and intensifying price competition. Nevertheless, our strategy remains unchanged, adhering to a conservative credit granting policy that prioritizes portfolio quality over growth. This approach has resulted in a more diversified loan portfolio. Looking ahead, we expect loan portfolio growth to moderate in the second half of the year.”
Regarding operating expenses, Chalinoor said: “Operating expenses grew by 8 percent, representing an absolute increase of $3.8 million. Most of this increase was attributed to the ‘other expenses’ line item, while the overall 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, I previously stated 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 option has become the most likely scenario.”
Commenting on the net interest margin, Chalinoor clarified that the bank witnessed an increase in profitability margin during the second quarter by 8 basis points compared to the first quarter. This rise resulted from a decline in funding costs, alongside higher yields 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 forward, it is clear that the main driver of margin changes is the movement in benchmark interest rates. There is a general consensus that the likelihood of interest rate cuts has declined significantly from earlier in the year, which supports a positive outlook for future margin levels. We also expect current and savings deposit levels to begin rising, which would help reduce funding costs.
Addressing credit costs, he noted that “net credit loss provisions in the second quarter amounted to $2.5 million, equivalent to a risk cost of only 16 basis points during the quarter. Notably, we have not recorded such a low level of risk and quarterly credit costs in many years. This is an outstanding result and was indeed the key factor supporting net profit growth. In the second quarter, we recorded a decrease in specific provisions, alongside higher debt recovery levels compared to previous periods, which is a highly encouraging development. In the corporate sector, several provisions were released and multiple loan recoveries were achieved, further reducing the bank’s credit costs.”
He added, “Given the proportion of loans classified in Stage Two, it now stands at just 2.3 percent, likely representing one of the lowest levels in the Kuwaiti banking sector. Consequently, our general balance sheet enjoys a relatively strong position compared to competitors, enabling the bank to withstand any future shocks that may arise from the current geopolitical situation. Regarding our outlook, we had initially projected that risk costs for the fiscal year 2026 would range between 50 and 60 basis points; however, we now see justification for lowering this forecast to below 50 basis points.”
