Kuwait Finance House’s profit falls as impairment costs rise
Kuwait Finance House, the biggest Sharia-compliant lender in the Gulf state, reported a 77.5 per cent decline in its second-quarter net profit as impairment charges for potential loan losses increased due to the Covid-19-driven slowdown.
Net profit for the three months through to June 30 slipped to 12.6 million Kuwaiti dinars (Dh151 m) year on year, the lender said in a statement to Boursa Kuwait, where its shares trade.
KFH’s quarterly income fell short of analysts’ expectations. Arqaam Capital had projected a net profit of 29.1m dinars while EFG Hermes had forecast a 44m dinar net profit.
Precautionary provisions for expected loan losses climbed to 11.26m dinars at the end of
June, from 59.94m dinars in the second quarter of last year.
The bank, however, reported a rise in its quarterly operating profit to 128.56m, compared to 122.58m dinars a year ago.
KFH’s first-half net profit also declined to 56.92m dinars, from 107.6m dinars reported at the end of the same period last year, it said in the bourse filing.
Lenders across the world face tough operating conditions, taking on provisions for expected bad loans and an increase in defaults as the global economy slides into its deepest recession.
JP Morgan, America’s largest bank, set aside $10.47bn (Dh38.4bn) to cover bad loans, which halved its second-quarter profit.
HSBC, Europe’s largest lender, reported a 57 per cent decline in its second-quarter profit this week and issued a warning that loan losses could climb to as much as $13bn.
The International Monetary Fund projects that the world economy will shrink by 4.9 per cent this year, followed by a sluggish recovery next year.
Economies in the Gulf are slowly reopening as governments ease movement restrictions. However, much like their global peers, the profitability of regional lenders is expected to remain under pressure, as the pace of loan growth slows and interest rates remain low.
Earlier in the year, KFH, which holds a significant share of the Kuwaiti banking market, postponed its merger with Bahrain’s Ahli United Bank due to “the prevailing unprecedented circumstances relating to the Covid-19 pandemic”.
Last year, the boards of KFH and Ahli United Bank agreed on a share swap ratio to create a combined Islamic banking entity with assets worth $96.7 billion.
The merger was expected to create the world’s largest Islamic bank, surpassing Al Rajhi Bank in Saudi Arabia, according to Moody’s Investors Service.
KFH’s precautionary provisions for expected loan losses climbed to 11.26m dinars at the end of June