Good afternoon, everyone. This is Elena Sanchez from EFG Hermes, and I would like to welcome you all to National Bank of Kuwait's second quarter 2026 results call. We have with us in the call from National Bank of Kuwait, Isam Al-Sager, Vice Chairman and Group CEO; Sujit Ronghe, Group CFO; and Amir Hanna, Group Chief Communications Officer. I would like to hand over the call now to Amir Hanna. Please go ahead.
Thank you, Elena. Good afternoon, everyone, and thank you for joining us for today's earnings call. First, let me start with our usual disclaimer. Certain comments in this presentation may constitute forward-looking statements. These comments reflect the bank's expectations and are subject to risks and uncertainties that may cause actual results to differ materially and may adversely affect the outcomes and financial effects of the plan described herein. The bank does not assume any obligation to update its view of such risks and uncertainties or to publicly announce the results of any revisions to these forward-looking statements. Please refer to the full disclaimer in today's call presentation. As usual, for today's call agenda, our Vice Chairman and Group CEO, Mr. Isam Al-Sager, will start the call by giving some opening remarks. Mr. Sujit Ronghe, our Group CFO, will discuss the period's financials in details, followed by a Q&A session.
If you have any additional or follow-up questions after the call, please direct them all to our investor relations email address, and we will answer them at the earliest. Today's slides are already available on the National Bank of Kuwait's website for your convenience. Now let me hand over the call to Mr. Isam for his opening remarks.
Thank you, Amir. Good afternoon, everyone. Thank you for joining us today for our earnings call for the first half of 2026. In recent months, the Middle East has experienced recurring period of heated tension and instability, a geopolitical scenario that has long been a drag on our regional markets. Although there was some progress earlier towards a peace resolution, tension has recently escalated, creating more instability around global economic growth prospects. While geopolitical risks remain because of the ongoing turbulence, the GCC economies proved their resilience and are well-positioned to navigate external shocks, supported by robust sovereign balance sheets, ample liquidity, and strong financial buffers. In Kuwait, and while economic activity temporarily moderated following a partial resolution of geopolitical tension, the recent escalation continues to represent a drag on economic recovery.
Following a strong start to the year, project award activity has recently slowed down during the second quarter, with total awards reaching approximately KWD 2.3 billion during the first half of 2026. While execution timelines for certain projects are expected to shift into the second half of 2026 and 2027, Kuwait's ongoing commitment to infrastructure development is expected to underpin a gradual recovery in project activity as conditions normalize. Moving on to our performance, NBK reported net profits of KWD 324.8 million in the first half of the year, compared to KWD 315.3 million in the corresponding period of 2025. Furthermore, net operating income grew by 4.8% year-on-year to reach KWD 662 million for the same period. The results demonstrate the strength of our diversified business model, broad geo-footprint, which helped sustain performance and enhance resilience in recent regional developments.
Our returns also remain strong, with return on average assets reaching 1.42%, while the return on average equity reached 14.4%. Strategically, we remain focused on advancing our digital platform agenda and strengthening our innovation capabilities through continued enhancement of our digital channels, expanded mobile offering, and a broader range of customer solutions. Looking ahead, we maintain our position to build on our momentum and strengthen our domestic market leadership, supported by strong fundamentals, robust balance sheet, and diversified operational model. Our trusted relationship across the public and private sector continues to provide opportunities to play a leading role in Kuwait's investment, infrastructure, and economic transformation plans. Our focus on diversification remains a priority, supported by a strong regional and international presence, while our wealth management division and Islamic banking subsidiary, Boubyan Bank, continued to drive the NBK Group's diversification efforts.
During the year, we updated our ESG strategy further in line with the evolving market expectation and leading industry practices. We continued to book sustainable assets, achieving 60% of our 2030 $ 10 billion sustainable finance target. Moreover, we have published a new sustainable finance framework, strengthening our capability to support our clients in their sustainability journey. With that, I will conclude my comments and leave you with my colleague, Sujit Ronghe, our Group CFO, to cover our quarter and half year results in more details. Please go ahead, Sujit.
Thank you, Isam. Hello, everyone, and welcome. I am very pleased for the opportunity to take you through financial results for the first half of 2026. As you know, NBK has announced a group net profit of KWD 324.8 million for 1H 2026, which is a 3% year-on-year increase. Before going into details of our financial results, I would like to say a few words regarding the overall operating environment. 2026 began with a lot of optimism and business growth expectations, both in Kuwait and internationally. However, sudden and sharp escalation in geopolitical tensions since end February has resulted in an unstable regional operating environment and increased macroeconomic uncertainty, fuller implications of which are yet to unravel. Despite these unexpected challenges, NBK Group has demonstrated operational and financial strength, benefiting from its well-diversified business model.
NBK's 1H 2026 performance also reflects the group's resilience and adaptability for ensuring uninterrupted operations in the most challenging and unpredictable circumstances. Turning to the financial results for first half of 2026. As shown at the top left of this slide, net profit at KWD 324.8 million reflects a year-on-year increase of KWD 9.5 million, that is 3%. Second quarter 2026 net profit exceeds the second quarter 2025 by 4.5%, driven by a stronger operating performance, lower tax cost, mitigating the relatively higher net provisions and impairment losses charge. At KWD 409 million, first half 2026 operating surplus remained solid and reflected a growth of 4.6%, benefiting from the strong business volumes, particularly loans and investments. Net operating income at KWD 662 million exceeded the previous year by KWD 30.6 million, that is 4.8%, due to a healthy growth in both net interest income and non-interest income.
The operating income mix shows a continued healthy mix of 24% contributed by non-interest income sources. Similarly, the pie chart at the bottom right reflects a well-diversified net profit contribution by key lines of business. You will note that international and Islamic banking, our two key pillars of diversification, together contribute 38% of group profit. I will go into the main drivers behind movements in income, margins, and cost shortly. Moving to the next slide. We will now look at net interest income and drivers behind its performance. Net interest income and net income from Islamic financing of KWD 500.5 million, as shown in the chart at top left, increased by KWD 10.8 million, that is 2.2%, compared to 1H 2025. Current year net interest income benefited from a 10.2% year-on-year growth in average earning assets, namely loans and investment securities across the group.
However, relatively lower benchmark interest rates and the mix of asset growth affected the net interest income and 1H 2026 NIM unfavorably. Continued issuance of KWD-denominated Kuwait Government Treasury bonds has progressively increased the proportion of interest- earning reserves with the CBK, positively affecting net interest income and NIM. We hope that issuances will continue, allowing the bank to deploy liquidity into better-yielding CBK assets. We see in the top right chart that average NIM for 1H 2026 dropped to 2.29%, driven by a higher decrease in yield compared to the funding cost. NBK Group yield and funding cost for the current six months were at 5.32% and 3.42%, respectively. 2Q 2026 NIM at 2.28% was broadly on par with the previous quarter. At the bottom left of this slide, we can see drivers behind the 17 basis points year-on-year decrease in NIM to 2.29% in 1H 2026.
Loans and other interest-earning assets affected by lower interest rates and less favorable asset mix contributed a net decrease of 30 basis points and nine basis points to the NIM, respectively. Lower funding costs positively affected the NIM by 22 basis points. The chart at bottom right reflects that non-interest income at KWD 161.5 million was KWD 19.8 million, that is 13.9% higher than the comparable period in 2025. Fee income was strong at KWD 114.9 million, that is 7.8%, reflecting robust contributions across different lines of business and geographies. FX contributed KWD 27.6 million, benefiting from favorable currency movements. Other non-interest income sources, mainly investment income, contributed KWD 19 million, benefiting from improved valuations. Moving to the next slide. Turning now to operating expenses at the top left of this slide. Total operating expenses for 1H 2026 at KWD 252.9 million were 5.3% higher than 1H 2025.
Growth in staff costs stemmed from the year-on-year increase in headcount and annual increments, et cetera, to support business activities. Non-staff costs reflect the NBK Group's continued investment in key business initiatives, digital technologies, and processes, which enable us to offer best-in-class service to customers and optimize resources to improve operational efficiency. 1H 2026 cost-to-income ratio was 38.2%, similar to 38% one year ago. Moving on to provisions and impairments profiled at the top right of the slide. Total credit provisions and impairment losses for 1H 2026 amounted to KWD 6.4 million, an increase of KWD 16.7 million over 1H 2025, which reported a net recovery of KWD 10.3 million. KWD 17.2 million of the current six-month charge was for provisions for credit facilities. In 1H 2025, specific provisions were a net release of KWD 35.9 million due to significant recoveries of amounts provided towards credit losses during prior years.
Specific provisions for 1H 2026 at KWD 1.5 million also included a similar benefit, but to a much lesser extent compared to the previous year. The NBK Group has continued to take provisions in ordinary course of business for retail and corporate customers in Kuwait and overseas locations. KWD 15.7 million was towards general provisions, which included an element of precautionary provisions. ECL on non-credit facilities for 1H 2026 was a net release of KWD 12.4 million, mainly due to improvements in macroeconomic inputs at the beginning of the year, the benefit of which was not considered in 1Q 2026. ECL charge of 1Q 2026 reflected the conservative position taken by the National Bank of Kuwait, given significant uncertainty caused by the regional conflict, which moderated during second quarter of 2026. 1H 2026 cost of risk was 12 basis points due to recovery of fully provided debts, as mentioned earlier. The NBK Group's balance sheet remains strong with a stable credit quality.
NBK's capital base, along with the ability to generate healthy operating profits, provides a strong credit loss absorption capacity. The NBK Group remains committed to its conservative approach in managing credit exposures. I would now like to discuss ECL on credit facilities as per IFRS 9. You would note that the stage-wise ECL composition has remained stable during the year. As we know, the provision for credit facilities in the balance sheet is based on the higher of IFRS 9 ECL and that as per CBK rules. It is important to note that CBK guidelines for calculating ECL on credit facilities as per IFRS 9 are on a more conservative basis compared to the original accounting standard. The key chart on this slide at the bottom right reflects that the National Bank of Kuwait holds credit provisions of KWD 950 million as per CBK rules against an ECL requirement of KWD 676 million.
Balance sheet provision as per CBK rules thus exceeds the ECL requirement by KWD 274 million, providing an ample cushion for the NBK Group to withstand any possible effect of the prevailing situation. Moving on to the next slide. Here, we will look at some of the movements in key balance sheet items. As profiled on the chart at top left, NBK Group total assets reached KWD 46.2 billion as at June 2026, a 5.9% increase over June 2025. NBK Group loans and advances at KWD 27.8 billion registered a year-on-year growth of KWD 2.3 billion, that is, 8.9% and 3.6% during the current half year, reflecting adverse geopolitical developments in the region since end of February. Investment securities at KWD 9.2 billion reflected a year-on-year growth of 6.4%. The overall balance sheet composition has remained largely stable during the year.
Also, NBK's total asset composition is well-diversified between Kuwait and international, and conventional and Islamic banking. Similarly, the chart for loan exposure by sector reflects a well-diversified portfolio with personal loans at 28% as the largest segment. A significantly high portion of personal loans are extended to a large number of Kuwaiti individuals, predominantly employed with the government, backed by salary, and with low default rates. Customer deposits, that is, non-bank and non-FI deposits at KWD 27 billion, comprise a healthy 67% of total liabilities. Customer deposits reflect a year-on-year growth of 13.1% and were largely stable during the current half year. At KWD 4.2 billion, deposits from other non-bank FI comprise 10% of total liabilities. The group continues to benefit from its strong base of core franchise retail deposits.
CASA deposit levels remained stable during the first half of 2026, with volumes exceeding that of June 2025 and December 2025. The stability of NBK's funding base during the recent turbulent period reflects confidence of customers resulting from deep-longstanding relationships, a solid brand, and strong credit ratings. In response to the ongoing crisis, CBK implemented various measures to reinforce Kuwaiti banking sector, details of which are mentioned in Note 14 to the first half 2026 financial statements. NBK Group continues to maintain healthy liquidity levels with Basel III ratios, LCR at 154% and NSFR at 108%, exceeding the original requirements. Moving to the next slide. We will now look at the impact 1H financial results had on certain performance metrics. The return on average equity for the current half year was 14.4%, and return on average assets stands at 1.42%.
Cost income ratio for 1H 2026 stood at 38.2%, similar to 38.4% for the full year 2025. At 17.0%, the total capital adequacy ratio remains strong and stable, with CET1 and Tier 1 ratios at 13% and 14.9%, respectively. Kindly note that interim profit is not included in the regulatory capital for calculating interim capital adequacy ratios. During 1Q 2026, CBK released 1% of risk-weighted assets from the capital conservation buffer included in CET1, thereby reducing NBK Group's total CAR requirement to 14%. NBK's capital ratios as at June 2026 continue to be healthy and in excess of original minimum requirements. NBK's asset quality has improved with NPL ratio at 1.22% versus 1.36% as at December 2025. Loan loss coverage ratio is at 256%, reflecting conservative provisioning policy of the NBK Group. Now to the final slide of this section.
Before concluding, allow me to summarize our financial performance in first half 2026. NBK has demonstrated operational resilience with a sound bottom line profit, a healthy balance sheet, stable liquidity, and strong capital base during this challenging period. Although hostilities from the regional conflict appeared to somewhat moderate during the latter part of second quarter 2026, recent developments have resulted in a volatile situation affecting the time required to return to normalcy and business growth potential. Going forward, we remain cautiously optimistic that overall operating environment, although challenging, will stabilize during the course of 2026. Now turning to guidance for the year ahead. As regards loan growth, given the current volatile situation and uncertainty, our guidance for 2026 loan growth continues to be in the mid to high single-digit range. We continue to monitor the ongoing situation and will update our guidance if improvement in operating conditions exceeds current expectations.
Turning to the NIM, you would have noted that NIM has declined since the second quarter of 2025. We expect the current year, 2026, NIM to be remaining under pressure closer to the second quarter NIM of 2.28%. Coming to operating expenses, the first half of 2026 year-on-year cost growth was 5.3%. The moderate cost growth has resulted from the group's efforts to curtail expenses and harness efficiencies while continuing to invest in human resources and digital technologies. Annual cost growth is anticipated to be in the mid to high single-digit range and cost income ratio to be below 40%. Now to the cost of risk. First half 2026 reflected a lower net cost of risk due to recoveries against which provisions were taken in earlier years. The currently evolving geopolitical scenario and uncertainty regarding the timeline to normalcy makes it difficult to provide a specific guidance regarding cost of risk.
The overall health of our credit portfolio remains strong, and we expect that 1 H 2026 recoveries will benefit the full-year provision charge. Hence, while normalized cost of risk remains closer to 40 basis points, reported cost of risk for 2026 will be materially lower. It would not be prudent to give a specific guidance on earnings or capital adequacy in the current environment. We are hopeful of maintaining capital adequacy ratios in line with our internal targets above the regulatory minimum. NBK continues to closely monitor the evolving situation and will continue to reassess implications and provide updates on a quarterly basis. That ends my presentation. Thank you for your time. Back to Amir.
Thank you, Sujit. Thank you, Isam. Thank you everyone for listening. We'll pause for 20, 30 seconds. All the questions come in, and we'll start taking the questions by topic. Please type your questions in the general chat section so it's visible to everyone for convenience and also so we don't have to go back and forth between private and public messaging. Yeah, 20 seconds and we'll be back. Okay, we'll start with the first question. Could you give us some color on NIM outlook for the rest of the year? Q2 margins held better than expected versus Q1. What is driving this? How is deposit pricing pressure?
All right, first with respect to the NIM. As benchmark interest rates are expected to be more or less stable during the year, we expect the full year 2026 NIM to average closer to the second quarter NIM, which was 2.28%.
What sectors drove loan growth in Q2, and how is the pipeline for it for second half given the recent developments?
The growth in the second quarter was majorly coming from corporate lending, and this was in Kuwait and across our international network.
Have you had any deferral requests so far? What is driving this strong recovery, in Q2? How should we think about NPL formation and cost of risk trends in the second half?
There have not been any unusual deferral requests since the war started. As a normal business activity, we do get a few requests now and then. Nothing unexpected has been experienced in the last few months. With respect to the NPLs, the NPLs have been improved because of conservative provisioning taken by the bank, allowing the bank to move them to off-balance sheet.
A question on fee income. Not much impact on fee income emanating from the conflict. Was there no impact on card travel spend and trade-related fees?
The fee income actually was reported a very sound growth during the first half. We see some impact at different points of time with respect to card income associated with travel, which has started improving now. Also some impact with respect to trade finance, which has remained stable, but not given the kind of growth that we were expecting during the year.
Then the question on the tax rate. Why was tax rate so much lower in Q2 versus Q1? What would be the annual tax rate?
The first half of 2026 benefited from some release of tax accruals resulting from closure of certain assessments. So we expect the benefit of these assessments to continue for the full year, resulting in a lower than usual effective tax rate for 2026. Thereafter, the underlying tax rate should continue to be in the 16%-17% range.
Is it prudent to release/reverse provisions in the current conflict environment?
The release of provisions is based on a bit of background with respect to the ability to benefit from the moderating inputs to the ECL model at the beginning of the year. We did not take that benefit given the situation of uncertainty in the first quarter. During the second quarter, as things started getting better, and we had more visibility into model inputs, we were able to release the provisions, and at the same time, have enough provisioning to cater for unexpected occurrences.
Could you clarify whether any future capital increase would be through bonus shares, the rights issue for existing shareholders, or another method?
We haven't decided yet if there is any capital increase at this point of time.
What assumption for GDP growth and Strait of Hormuz opening timeline is backed into the guidance?
It is not possible to give any kind of a timeline on the opening of the Strait of Hormuz. But having said that, what we consider for our growth is the strong pipeline we have across the network, and with a view that stability would gradually resume in coming months, leading to more growth opportunities during the coming two quarters.
What percent of customers have seen their installments deferred? I think we answered that already. Were the low provisions supported by recoveries right back up? We also covered that.
Which we also covered.
We covered all the questions on tax.
What is it?
Is the mortgage law still top focus for the regulator?
Well, due to the recent geopolitical development, we have unfortunately not received any further updates regarding the mortgage law. Today, the latest draft submitted to the cabinet of ministers following the review by Fatwa legislation authorities is advancing toward the final stage of this law. The draft was sent to the Central Bank of Kuwait for review also as a regulator. Minister of State for Housing Affairs has recently affirmed the government's intention to translate this, being a very important step for approving the Housing Loan, the Mortgage Loan law . I would expect that to come into life within the next two to three months, I would say.
For the near term, one-year credit growth, could you provide insight by regional coverage, Kuwait, GCC, and other key regions?
NBK operates through 13 different locations, and we have a strong pipeline of loans regionally and in international locations as well. The overall loan growth is expected to be in mid to high single digit, and we expect this loan growth to take place across the network. With respect to the question on deposit outflow, especially the non-resident deposit outflow, we have not noted any significant outflow of deposits. In the first early weeks of the conflicts, there were some outflows, but over a period of time, we saw the deposits that were not renewed earlier coming back to us, and even for longer than earlier tenures.
Another question. Why interbank assets declined so sharply in second quarter versus Q1?
The assets maintain that interbank are mainly short-term placements, and this can be linked with the drop in certain lines of funding, which were temporarily parked with interbanks.
Question on project rollout. I think we answered that in the main presentation. There has definitely been a slowdown in projects in the second quarter.
Can you say it again?
Questions are just repeating on same topics. How is the government domestic bond issuance progressing?
There are two parts to the bond issuance. From a KWD issuance point of view, the government, through the Central Bank of Kuwait, has a cumulative total issuances amounting to KWD 3.2 billion, KWD 1.6 billion of it almost which was in the current period, and we see that continuing as well. In terms of international issuances, there was a sovereign bond issuance of $11.25 billion last year, followed by $2 billion private placements in the current year.
What is the strategy on dividend payout, especially interim dividends?
Well, on the dividends, we have the same policy as before. We have updated our dividend policy year after year. It all depends on our results going forward. For the past period, our dividend policy, it depends on the capital position, remains strong and continue to support the group's strategic objective and growth options. We have consistently maintained a discipline and rewarding dividend policy supported by prudent capital management approach that enhances a strong capital position in line with our long-term growth strategy and regulatory requirements.
There was a follow-up question on the bond issuance. When do you expect this to start showing meaningful impact on NIMs?
The NIM is impacted by two things. One is the benefit from the bond issuance allowing us to redeploy CBK assets into interest-earning ones, and also the impact of the funding cost. The benefit of having interest-bearing CBK assets to some extent set off the funding cost that had picked up slightly because of the war, and thereby resulting in stable NIMs. We expect the NIMs to be in the same region for the coming two quarters.
There is a question on the timeline for Central Bank of Kuwait support and lower capital requirements. There has not been any set.
There has not been any set. It all depends on the political scene and the outcome, how we go forward.
With an interbank borrowing, we notice a build-up for deposits from other FIs. Can you please share who such other FIs counterparties are? Are these government-linked entities?
The interbank does not include deposits from FIs. Other FIs are a mix of government and private corporate deposits. Corporate FI deposits, basically.
Okay, at this point, we do not have any other questions, so we conclude the call. If you request any further details, if you have any follow-up questions, just send it to investor relations email address, and we will get back to you as soon as we can. Thank you very much. Back to you, Elena.
Yes. Thank you very much, Amir, Sujit, and Mr. Isam, for the call and for the Q&A. Thank you everyone for joining the results call today. Have a good day.
Thank you.