Good afternoon, everyone, and welcome to the National Bank of Kuwait's Third Quarter 2025 Results Call. This is Ahmed El-Shazly from EFG Hermes. It is a pleasure to have with us on the call today from NBK, Mr. Salah Al-Fulaij, NBK-Kuwait CEO, Mr. Sujit Ronghe, Group CFO, and Mr. Amir Hanna, Group Chief Communications Officer. I will now hand the call over to Mr. Amir to start with the presentation. Thank you.
Thank you, Ahmed. Good afternoon, everyone, and thank you for joining us for today's webcast. We will start the call with our usual disclaimer, as I would like to bring to your attention that certain comments in this presentation may constitute forward-looking statements. These comments reflect the bank's expectation and are subject to risks and uncertainties that may cause actual results to differ materially and may adversely affect the outcome and financial effects of the plans described herein. The bank does not assume any obligation to update its disclosure of such risks and uncertainties or to publicly announce the results of any revisions to the forward-looking statements made herein. Please also refer to the full disclaimer in the presentation of today's call.
Today's call will follow our usual agenda. Our Kuwait CEO, Mr. Salah Al-Fulaij, will start the call by giving some opening remarks on the operating environment and the highlights of the reporting period. Then, Mr. Sujit Ronghe, our Group CFO, will discuss the period's financials in more details. Following our presentation, there will be a Q&A session through the Webex platform. If you have any 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 presentation is also available on our website for your convenience. Now let me hand over the call to Mr. Salah for his opening remarks.
Thank you, Amir, and good afternoon, everyone. Good morning, if you are still morning. I am glad to join you today for NBK's third quarter and nine months of 2025, the earning call. I want to start by thanking you all for joining us.
In its latest World Economic Outlook update, the IMF slightly raised its global growth forecast as the economic landscape in the first half of the year has shown signs of resilience, supported by softer effective tariff rates, better financial conditions, and fiscal expansion in some key markets. While easing supply bottlenecks and tariff relief have provided some support, low inflation pressures and policy debates will continue to shape sentiments for the coming period.
Coming closer to home, as for the GCC region, the outlook remains broadly positive, underpinned by strong fiscal buffers, ongoing structural reforms, and steady global oil demand growth in 2025-2026. Supported by resilient non-oil activities, solid investments, and winding of OPEC production cuts. GCC economies are expected to maintain solid growth momentum through the rest of the year.
Coming to Kuwait, domestic activities have strengthened through 2025, supported by solid credit expansion with healthy gains mainly in the business lending segment. Policy measures, ongoing reforms, and progress on legislative initiatives are expected to sustain non-oil growth and lending momentum through the remainder of the year. While easing of oil production cuts in line with OPEC in a further booster to overall growth. Looking ahead, total GDP growth this year is forecasted at around 2.4%, with oil-related activities projected to expand by 2.6% and non-oil activity by 2.2%.
As far as Kuwait's projects market activity, it remained positive with year-to-date awards of KWD 2.10 billion and an estimated KWD 9.15 billion of projects in the pipeline. The government's continued commitment to advancing its development agenda and legislative reforms are key catalysts in shaping and supporting investment momentum going forward. Moving to our performance, NBK reported net profit of KWD 467.4 million for the first nine months of 2025, compared to KWD 457 million in the corresponding period 2024. That represents a growth of 2.3%. The continued impact of the new tax regime is affecting profitability, with the effective tax rate increasing to almost 16% in nine months 2025 from 8.7% in nine months 2024.
Excluding this impact, our operating profits before taxation grew at 11.3% year-on-year, reaching KWD 592.5 million for the first nine months period of 2025 on higher business volumes, core non-interest income, balanced operational costs, and lower provisioning and impairment losses. Our return remains strong, with return on average assets for the period reaching 1.47%, while our return on average equity reached 14.5%. At NBK, we remain confident of our ability to lead the domestic market. As Kuwait's economic landscape presents a dynamic environment for growth. We foresee significant opportunities to capitalize on improving business sentiment by providing tailored solutions to both corporates and consumer, leveraging our deep domestic roots and extensive client relationship.
Likewise, our strategic focus on innovation and digital banking is a catalyst in positioning the bank to actively capture the growth potential offered by Kuwait's young population. Our footprint across regional and international markets will remain the cornerstone in mitigating risk, sustaining steady return, and enhancing operational efficiency. We will continue to leverage the benefits of cross-selling our services across geographies. While our wealth management group builds on its expertise to provide comprehensive portfolio management, advisory, and investment solutions. In parallel, our Islamic banking arm, Boubyan Bank, will further consolidate its strong domestic presence and support the diversification of our profitability streams. NBK remains committed to sustainability and advancing its sustainable finance agenda, underscoring the bank's unwavering commitment to environmental responsibility, social impact, and robust governance.
Sustainalytics revised NBK's ESG risk rating from medium to low risk, while MSCI upgraded NBK's ESG rating to A, which reinforces NBK's position among the top regional banks in ESG rating. Furthermore, through the publication of the Green Bond Allocation and Impact Report, the inaugural TCFD disclosures, and 2024 Sustainability Report, the bank has demonstrated strong progress in ESG integration across all its operations. These commitments and disclosures strengthened NBK's position as a responsible financial institution focused on long-term value creation. With that, I will conclude my comments and leave you with my colleague, Sujit Ronghe, our group CFO, to cover quarterly and nine months results in more details. Please go ahead, Sujit.
Thank you, Mr. Salah. Hello, everyone, and welcome. I am very pleased for the opportunity to take you through financial results for nine months of 2025. We have announced a net profit of KWD 467 million for nine months 2025, an increase of 2.3% over the corresponding profit of 2024. The operating engine of the group remains solid with strong growth in business volumes, particularly loans and investments. Before going on to details of our financial results, I would first like to say a few words regarding the overall operating environment. General operating environment in Kuwait and GCC has been relatively stable, even though global and regional geopolitical situation remain unstable. Microeconomic uncertainties and concerns regarding fuller implications of tariffs are affecting the global operating environment adversely. NBK has demonstrated resilience and a strong business model, and continues to navigate competently through the uncertain situation.
Now turning to the financial results for nine months 2025. As shown at the top left of this slide, net profit at KWD 467 million reflects a year-on-year increase of KWD 10 million, that is 2.3%. The bottom line profit, although negatively affected by the 15% Domestic Minimum Top-Up Tax, DMTT, effective 1st January 2025, has been benefited from lower provisions on credit facilities as a result of recoveries during this nine-month period. Profit before tax at KWD 593 million reflected a year-on-year growth of 11.3%, benefiting from significantly lower provisions and operating surplus growth of KWD 15.9 million. The effective tax rate has increased to 15.9% in the current period from 8.7% in 9M 2024 due to changes in tax laws.
The pie chart at the bottom left reflects strong contributions to nine months 2025 net profit from NBK's key business segments, which serve as main pillars of diversification and provide a significant degree of resilience to the group. NBK Group continues to benefit from its unique position amongst Kuwaiti banks in terms of geographical spread and the ability to conduct business in both conventional and Islamic banking. The chart at the bottom right shows that the net operating income at KWD 969 million is 4.1% higher than the previous year, boosted by a sound contribution from both non-interest income and net interest income. You would note that net interest income and non-interest income mix has remained stable overall during the year. I will discuss the main drivers behind movements in income statement on the next slide. We will now look at the net interest income and drivers behind its performance.
The chart at the top left reflects that net interest income and net income from Islamic financing of KWD 749 million was 2.1% higher than 9M 20 24. Current year's net interest income benefited from 12.1% year-on-year growth in average interest earning assets, particularly loans and investments across the group. However, an unfavorable change in the mix of different categories of assets maintained with Central Bank of Kuwait, year-on-year effect of last year's Egyptian pound devaluation, and relatively lower benchmark interest rates adversely impacted net interest income and NIM in 2025. Following the passage of Public Debt Law in Kuwait, CBK recently started issuing KWD Kuwait government treasury bonds with KWD 2 billion issued since June 2025. Although the CBK asset mix remains unchanged, we are cautiously hopeful that continued debt issuances will allow the bank to deploy KWD liquidity more profitably.
We see in the top right chart that average NIM for 9M 2025 dropped to 2.45%, reflecting a year-on-year decline of 24 basis points, driven by a steeper decrease in yields, for reasons explained earlier, compared to the funding cost. Group yield and funding cost for the current Tier 1 period were 5.7% and 3.66%, respectively. The group continues to source deposits efficiently, balancing cost and regulatory requirements while diversifying the funding base. Also, an overall sticky and stable base of retail customer deposits continue to benefit the group. At the bottom left, we can see drivers behind the 24 basis points year-on-year decrease in NIM to 2.45% in 9M 2025. Loans and other interest-earning assets affected by lower interest rates and the unfavorable asset mix contributed to a net decrease of 15 basis points and 37 basis points to the NIM, respectively.
Lower funding cost affected the NIM positively by 28 basis points. As we can see at the bottom right of this slide, the total non-interest income at KWD 220 million for 9M 2025 was 11.6% higher than the comparable period in 2024. Fees and commission income grew by 6.9% to reach KWD 162 million, reflecting robust contributions across different lines of business and geographies. FX contributed KWD 31 million, 25.3% higher than previous year, benefiting from strong transaction volumes. Other non-interest income sources, mainly investment income, contributed KWD 27 million, supported by improved valuations. On to the next slide. Turning now to operating expenses reflected in the top left chart. Total operating expenses during nine months 2025 at KWD 365 million are 6.5% higher than 9M 2024. The moderate cost growth reflects, in part, group's efforts to harness efficiencies, the favorable effect of EGP devaluation, and certain timing differences.
The group continues to invest in key business initiatives, digital technologies and processes, which enable us to offer best-in-class service to our customers and optimize resources to improve operational efficiency. Moving on to provisions and impairment, which are profiled on the top right of this slide. Total credit provisions and impairment losses for the current year are KWD 12 million versus 56 million in nine months 2024. KWD 3 million of this charge was towards provisions for credit losses, whereas ECL on non-credit facilities and other impairment losses amounted to KWD 9 million. Current year's net release of KWD 19 million in specific provision results from recoveries of amounts provided towards credit losses during prior years. At the same time, the group has taken provisions in ordinary course of business for retail and corporate customers in Kuwait and at overseas locations.
The group remains committed to its conservative approach in managing credit exposures. The very low level of provision on credit losses resulted in an almost nil cost of risk percentage for nine months 2025. It is worth noting that the 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. I will now discuss expected credit losses, that is ECL, on credit facilities as per IFRS 9, calculated in accordance with CBK guidelines. As per the regime adopted by CBK, banks calculate credit provisions required, that is the amount in the balance sheet, as per CBK instructions and compare it with ECL on credit facilities as per IFRS 9. Consequently, the charge to income statement is based on the higher of the two balance sheet amounts.
It is important to note here 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 chart at the bottom left shows that stage 2 and stage 3 loans are 6% and 1% of NBK's gross loans and have remained stable during the year. The key chart on this slide at the bottom right reflects that ECL provision required as of September 2025 was KWD 694 million. Although IFRS 9 ECL and CBK provisions are two different regimes and should not be compared as such, the balance sheet provision as per CBK instruction exceeds ECL by KWD 242 million. This provides ample cushion for the group to withstand any possible adverse effect of prevailing uncertainties on ECL provision requirements. Moving on to the next slide.
Here, we will look at NBK's balance sheet profile and key movements during the year. As shown at the chart at top left, group total assets reached KWD 44.9 billion as of September 2025, a 14.7% increase over September 2024. Group loans and advances at KWD 26.1 billion registered a strong growth of KWD 2.9 billion, that is 12.5% year-on-year and 9.9% during the current nine-month period. Loan growth was achieved at Kuwait in both conventional and Islamic sectors and at international operations. Similarly, investment securities grew 21.1% year-on-year to reach KWD 9 billion. The overall composition of the balance sheet has remained stable during the year. You would note from the pie chart at the bottom left that NBK's total assets composition is very 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 as the largest segment, comprising 30% of gross loans. It is important to note here that a significantly high portion of personal loans is to a large number of Kuwait individuals who are predominantly employed with the government. These are essentially salary-backed loans with low default rates. With respect to liabilities, customer deposits, that is non-bank and non-FI deposits, at KWD 24.6 billion comprise 62% of total liabilities and reflect a year-on-year growth of 9.7%. Deposits from other FI comprise 9% of total liabilities and have grown year-on-year by 18.8%. NBK's funding sources are well diversified across customer segments and geographies. The group continues to benefit from its strong base of core franchise retail deposits. CASA levels have been stable during the year, with current volumes in excess of September 2024 and December 2024.
Commercial papers and certificates of deposit at KWD 2.2 billion are another source of funding diversification and have been resilient during the year. NBK's stable deposit and funding base reflects a continued focus on deposit gathering aspects of our business, leveraging our long-outstanding ability to capitalize on the group's strong brand, customer appeal, and credit ratings. As shown in the chart at the bottom right, NBK continues to maintain healthy liquidity levels and comfortably exceeds minimum ratio requirement for Basel III. Moving to the next slide, we will now look at the impact nine months 2025 financial results had on key financial performance metrics. Although the increased tax charge in Kuwait, Bahrain, and in part at U.A.E. has adversely affected net profit, the group bottom line has benefited from a release in loan provisions.
Consequently, return on average assets and average equity for the current year are at 1.47% and 14.5% respectively. The chart at the top right reflects that despite moderate cost growth of 6.5%, 9M 2025 cost-to-income ratio was 37.6%, mainly resulting from pressure on net interest income in the current year. At 16.4%, the total capital adequacy ratio remains strong and stable, well above the regulatory minimum. CET1 and Tier 1 ratios at 12.4% and 14.3% respectively. Interim capital ratios tend to be lower than the year-end ratios as they are negatively affected by the growth in risk-weighted assets, whereas interim profit is not included in regulatory capital. As regards asset quality, NPL ratio remains stable at 1.37%. Loan loss coverage is at 241%, reflecting conservative provisioning policy of the group. Now to the final slide in this section.
Before concluding, allow me to summarize our financial performance for the nine months 2025. Although a change in composition of interest-earning asset mix and the implementation of new tax laws had a negative effect, the bottom line benefited from a release of provisions for credit and impairment losses. 9M 2025 financial performance also reflected a healthy balance sheet growth, comfortable funding, and liquidity levels, together with a strong capital base. Looking forward, the ongoing geopolitical concerns, implications of tariffs levied by U.S.A. and response from affected countries, and an uncertain interest rate scenario, are likely to result in an uncertain macroeconomic environment. Turning to the guidance for the year ahead.
As regards to loan growth, the group continues to enjoy a strong pipeline of approved credits, and given the strong performance in the current nine months, we are upgrading the full year 2025 growth guidance to be in the low double-digit range. Turning to the NIM, given the uncertainty with the macroeconomic situation, interest rate outlook, the changed CBK asset mix mentioned earlier, and increased competition, we are expecting the NIM to continue to remain under pressure compared to 2024, part of which is reflected in the nine-month 2025 NIM of 2.45%. With regards to operating expenses, we are expecting a full year cost growth to be in the range similar to 6.5% reported for nine months 2025, and the cost-income ratio to remain in high 30s.
Coming to cost of risk, 9M 2025 reflected almost a nil cost of risk percentage due to significant amount of recoveries towards credit provisions taken in earlier years. The magnitude of such recoveries is generally non-recurring. Given the current global macroeconomic uncertainty, we are cautiously optimistic of the underlying cost of risk for 2025 to be closer to 40 basis points, which we consider as normal. As regards to the recently introduced DMTT, we estimate the effective tax rate charged for 2025 to range between 16%-17% of pre-tax profit. However, it would not be prudent to give a specific guidance on earnings and capital adequacy in the current environment. We are hopeful of maintaining capital adequacy ratios in line with our internal targets above the regulatory minimum. That ends my presentation. Back to Amir. Thank you.
Thank you, Sujit. Thank you, Mr. Salah. Thank you all for listening. We have started getting some questions. I am sure you all know that you have to type your questions in the chat box in the Webex platform. Till we get more questions, we will pause for around 20 seconds and then come back with the responses to the questions that we have received.
Thank you everyone again for holding on while we are on mute. I will start with the questions as we have received them. The first question is on CASA ratio as of September 2025.
Yeah. So the CASA ratio has been pretty stable during this year and also the second half of last year. We are seeing the ratio to be more towards mid-30s, and that has been more or less consistent during the current year.
Next question on loan growth, and what was the driver of the 10% loan growth in the nine months period?
The loan growth has been very strong, very well diversified across the countries that we operate. In Kuwait, the loan growth was mainly focused on corporate lending, with the consumer demand for loans being muted as we have seen in the last several quarters. The main growth came from conventional Islamic demand from corporate banking.
A question on Stage 3 exposure. What has led to the sharp increase year- to- date?
The Stage 3 exposures have increased year- to- date, a few names moving into the Stage 3 bucket. These have been across within Kuwait and overseas as well. These have been well provided for as per the requirements of Central Bank of Kuwait and even under the IFRS 9 requirements.
Capital, what is your capital outlook? What is your regulated CET1 level, and how much minimum buffer would you like to keep?
From a capital point of view, our CET1 minimum is at 11.5%. As we have said earlier, the group targets to maintain the total CapAd at the year-end at 1.5% over and above the minimum requirement. At a total level, the minimum requirement is 15%.
Year-to- cost to income ratio is still higher than regional peers. Realistically, to what level would you be able to lower it over the medium term?
There are two aspects to the cost to income ratio. One is the cost growth and the other is the income side. The income side is also impacted not only by our volume growth in business, but also the interest rate scenario. In a lowering interest rate scenario, you could expect the net interest income to be challenged in the coming years. While the bank continues to invest in digital technologies and processes, we would expect to have a high single-digit cost growth, thereby challenging the cost-income ratio. However, we would target to maintain our overall cost income ratio a bit below 40%.
NIM sensitivity for every 25 basis point rate cut?
In terms of impact on NIM, it is an annualized impact of what 25 basis points parallel shift in assets and liabilities would affect the NIM by 3- 4 basis points.
How is the borrowing demand within the Kuwaiti market? Which sectors are driving the demand?
Okay. I'll take this. If we look at retail has been really quiet in Kuwait, mainly because of relatively higher interest rates. But in terms of wholesale, there is demand for either the stock market or some real estate. We expect the demand to grow from both next year, especially with the passing of the mortgage law. When the citizens start thinking of borrowing, also the real estate developers would want to finance the development of the housing areas.
From the loan mix disclosure, there seems to have been strong growth in loans for the purchase of securities year-to-date in QoQ. How much has come from Kuwait following the introduction of margin lending, and can you comment more on the business strategy there, given your strong domestic brokerage asset management franchise?
We do not do margin lending. We avoid that, and we have always avoided that. It is still, in our opinion, kind of higher risk. So anything that you see is really not a huge growth in purchase of security year- to- date. It is when you say either through the stock market or sometimes for investments.
Year- to- date net interest margin is comparable to what we saw throughout most of 2010s when benchmark rates were lower. How confident are you in your ability to sustain this level going forward as we see additional rate cuts?
There is definitely going to be an impact of the rate cuts. It depends on the quantum and the pace at which rate cuts take place. Mind you, also is important by what degree does CBK follow the discount rate cuts compared to the Fed rate cuts. A part of this can be offset by volume growth, definitely. But yes, we have seen that in a lower interest rate scenario, the NIMs do get impacted.
A question on rolling out of digital loans. If there is an update, and what kind of products do you plan to be offering, and do you have any long-term targets for adoption and P&L impact?
As far as digital loans, the second quarter of this year, our digital bank, Weyay, started offering digital loans. We believe the demand has been good, knowing that, as I mentioned earlier, retail loans have not really been that strong in the country. For NBK itself, we believe it is going to be soon, maybe early next year, is when it will be offered.
How much of loan growth was driven by domestic versus international operations?
The growth has been fairly widely split across most of the countries that we operate in. From a Kuwait point of view, NBK conventional loans and Boubyan's Islamic loans were a good contributor, but a higher proportion of the loan growth came from various countries that we operate under our international banking group.
When do you expect the positive NIM impact to come through from the issuance of government bonds? Also, if NBK were to invest in Kuwait government Eurobonds, would they be included as part of the Central Bank's liquidity reserve requirement?
I'll take the second question first. Any investment in Eurobonds is not eligible for Central Bank of Kuwait liquidity reserve requirements, which are based on KWD-denominated assets and liabilities. Coming to the first question. The issuances from the government bonds would positively impact the NIM and the net interest income if we are able to redeploy the balances that are lying in CBK current account into these bonds. For now, we have not seen that happen as our CBK current account levels remain more or less similar to what they were at the beginning of the year.
What is the impact of credit provision release in nine months?
Well, what we have said is that our underlying cost of risk, notwithstanding the release of credit provisions, would be closer to 40 basis points, so we can gauge the impact from the cost of risk.
Okay. Do you expect similar momentum and loan growth next year?
Yeah. Although there is a lot of optimism in terms of residential mortgage law, different projects getting awarded, there is always a time lag between the announcement of projects or implementation of a mortgage law. We do not expect a lot of activity, in terms of credit formation, to happen suddenly in the next year. It would eventually form during the next few years. Going by the current trend, we are hopeful that we would end up into a high single digit or a low double-digit growth to continue in the next year as well.
Okay. A bit of a repeated question. How do you expect NIMs to trend in Q4 and into 2026?
The NIM for the three quarters or nine months was 2.45%, and you would have seen that the NIM for the last quarter was 2.42%. So we see a small decreasing trend. On an overall basis for the fourth quarter, we are expecting a similar trend in NIMs. Beyond that, it would depend on what is the quantum of CBK rate cuts, more than the Fed rate cuts.
I think that answers the second part of the question on the assumptions on rate cuts. I think the last part of that question, when do you expect the mix of assets held with CBK to improve?
Well, that is a very difficult estimation to make. From June onwards till now, CBK has issued KWD 2 billion worth of treasury bonds. At what speed and at what quantum they would continue to issue this would depend on what the country requires. There was also a Eurobond of $11.5 billion, so it's a bit of a wait and watch situation for now.
Okay. The last question we have has three parts to it. I think we answered part one and two. Part one on the international versus domestic-driven loan growth, two on the domestic demand and growth acceleration. The last section of that question talks about the developments regarding the mortgage law. Salah.
Well, first of all, the mortgage law is not officially out yet. There is a lot of talks and some of the media have published things, but we will have to wait until it's in the official Gazette. With loan growth, as Sujit mentioned earlier, it's not going to be an overnight thing because when it comes to mortgages, until the developers start building the houses and then the citizens start buying, so it will take. But at the end, the developers will start borrowing, but it will be gradual. As far as the wholesale market and if rates moving lower will increase their borrowing, I think it's just they will increase borrowing depending on needs rather than a quarter percent cut or a half a percent cut.
Thank you very much. That was our last question. Thank you all for listening and for the questions. That concludes our call. Ahmed, back to you.
Thank you, gentlemen, for the presentation and for the Q&A. Thanks, everyone, for joining. Have a good day, everyone.
Thank you.
Thank you.