Good afternoon and good morning, everyone. This is Elena Sanchez-Cabezudo from EFG Hermes, and I would like to welcome you all to National Bank of Kuwait's second quarter 2023 results call. It is a pleasure to have with us in the call, the following speakers from National Bank of Kuwait: Ms. Shaikha Al-Bahar, Deputy Group Chief Exceutive Officer; Mr. Sujit Ronghe, Group Chief Financial Officer; and Mr. Amir Hanna, Head of Investor Relations and Communications. I would like to hand over the call now to Amir Hanna so that he can begin with the presentation. Thank you.
Thank you, Elena, for the introduction. Good afternoon, everyone. Thank you for joining us for today's webcast to cover the financial results of NBK Group for the second quarter and first half of 2023. Like we always do, we will start today's call with the presentation disclaimer. I would like to bring your attention that 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 outcome and financial effects of the plans 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 the forward-looking statements made herein. Please refer to the full disclaimer in our presentation for today's call.
Our Deputy Group Chief Executive Officer, Ms. Shaikha Al-Bahar, will start the presentation by giving some opening remarks on the operating environment and the highlights of the second quarter and first half. This will be followed by a detailed presentation on the interim financials by Mr. Sujit Ronghe, our Group Chief Financial Officer. Following the management presentation, we will answer any questions received through the webcast platform. Always feel free to send any follow-up questions to our investor relations email address. Today's presentation is already available on our investor relation website for your convenience. Now let me hand over the call to Ms. Al-Bahar for her opening remarks.
Thank you, Amir. Good afternoon, everyone. I am pleased to join you today for our second quarter earnings call and to update you on NBK's performance during the period, and the outlook for the rest of the year. Globally, economic indicators have been gradually improving in most economies, refining the outlook and narrowing recession risks. Furthermore, the fallout from the recent banking crisis has dissipated with no major deterioration seen so far in credit conditions following bank failures. The growth outlook for most advanced economies has improved in the last few months, while in China, post-COVID economic recovery has been disappointingly uneven, influencing external balances for many countries, including the GCC, and arguably putting some pressure on oil prices, too. As for the GCC region, economic growth is set to moderate after a solid year in 2022.
The IMF revised down its GCC growth outlook for 2023 from 3.58% to 2.86%, citing lower oil and gas output after the OPEC+ production cut and the effect of global economic slowdown. Non-oil GDP growth will continue to deliver decent figures. In Kuwait, economic conditions, although solid, are expected to soften in 2023 as post-pandemic bounce fades alongside lower oil output, in compliance with OPEC+ cuts. As for the consumer activity, the underlying drivers remain strong, including sustained job gains, supportive economic government measures, and favorable demographics. On the other hand, corporate activity started gaining some traction after the period of stagnation on the back of improved sentiment, which is supported by some revival of the project market. We forecast GDP in Kuwait to be flat in 2023 before rebounding by 3.3% in 2024.
The proposed expansionary draft budget, by the government, is likely to support domestic consumption and economic activity despite cuts to budget CapEx. That said, if execution rates pick up on the back of some political stability, we can see year-on-year growth in CapEx figures, even on budgeted reduction. Project activity has been a strong leading indicator with year-to-date project awards reaching around KWD 900 million , signaling a significant recovery compared to 2022 levels. Looking ahead to the rest of 2023, positive momentum could continue as the newly appointed government comes to prioritize an acceleration in the development plan execution. As for NBK, we continue to deliver very strong profitability trends, both for the quarter and year-to-date figures. We delivered solid performance during the six months ending June of 2023, with net profits of KWD 275.3 million , growing by 15.8% year-on-year.
This outstanding bottom line growth was mainly driven by higher core banking income. As for the three months ended June 2023, NBK posted year-on-year growth of 16.4% in net profit to reach KWD 141.1 million , the highest quarterly profit on record for the bank. Moreover, NBK's board of directors has approved its second semi-annual dividend distribution of KWD 0.10 per share. More importantly, we continue to deliver very strong trends operationally. Our revenue growth surpassing the increase in our operating expenses, and hence delivering very solid growth in our pre-provision income to reach KWD 359.2 million , growing by 23.1% year-on-year. Our focus remains on creating shareholders' value, as evident in the constant and fundamental improvement in our profitability ratios, with return on average assets of 1.53% and return on average equity of 15.2%.
On the strategy front, NBK continued to deliver on its key strategic pillars, focusing on diversification and defending our market share. We continue to be competitive in the local market and the bank of choice, whether for retail or high-net-worth clients, as well as domestic and foreign corporate clients. Internationally, we remained focused on establishing a network for our clients in key priority markets, working on growing the business in the Egyptian, UAE, and Saudi markets, while consolidating a leading position as a regional player in the area of wealth management. Moreover, the bank looks forward to continue building and investing in technology and digital platforms. This will help us operate more efficiently and grow in key areas and markets in order to achieve all stakeholders' aspirations. NBK is putting significant emphasis on innovation as a key driver for future growth.
On another front, NBK continues to integrate critical ESG issues into the bank's business, culture, and operations, creating meaningful change and driving continuous improvement to our ESG policies and disclosure to secure a more sustainable future. The bank focuses on four key pillars that shape its updated sustainability strategy: responsible banking, capitalizing on our capabilities, investing in our communities, and governance for resilience. We view our ongoing sustainability journey as integral to our improving business performance and increasing our positive impact on the world. We have just released our 2022 sustainability report, which focuses on these four pillars of our sustainability strategy. Additionally, for the first, the report has received third-party assurance on aligning with global GHG protocol, as well aligning with GRI reporting principles.
With that, I will conclude my comments and leave you with my colleague, Sujit Ronghe, our Group Chief Financial Officer, to cover the quarterly and half-year results in more detail. Please go ahead, Sujit.
Thank you, Ms. Al-Bahar. Hello, everyone, and welcome. I am very pleased to have this opportunity to take you through the financial results in respect of first half of 2023. We have announced a net profit of KWD 275.3 million for the first half 2023. This is a 15.8% increase in bottom line profit over the comparable period of 2022. These results reflect a solid operating performance by the group and demonstrate the continued growth in our businesses. NBK's strong operating performance has resulted in the bank reporting the highest quarterly profit to date. Before going into details of our financial results, I would first like to say a few words regarding the overall operating environment during the current year. The higher interest rate regime and an overall stable operating environment in Kuwait have benefited the bank during 1H 2023.
Inflationary conditions in U.S.A. and some other advanced economies have started to wane, and with that, the risk of a possible recession. We are cautiously optimistic that overall operating environment will remain stable during upcoming quarters. Now turning to financial results for first half 2023. As profiled on the top left of this slide, the KWD 37.5 million, that is 15.8% increase in the net profit compared to 1H 2022, reflects a robust performance by the group, benefiting from increased interest rates, growth in business volumes, and a strong operating performance. Group loans grew 7.1% year-on-year across business lines and geographies. The investment securities contributed strongly to group assets and with a growth of 19.7% vis-à-vis June 2022.
At the top right, which reflects operating surplus, that is, profit before provisions and tax for the current six months is at KWD 359.2 million, a growth of KWD 67.4 million, 23.1% over the first half of 2022. Net operating income increased by KWD 89.5 million, 18.8%, whilst cost grew by KWD 22.1 million, 12% over the first half of 2022. Similarly, the second quarter 2023 operating surplus exceeded that of the previous quarter by 3.6% on the back of a stronger operating income, mainly driven by net interest income. Lower credit provisioning charge in the current quarter has resulted in a net profit increase of 5.2% vis-à-vis the first quarter of 2023. I will go into the main drivers behind movements in income margins and costs shortly. The operating income mix profiled at the bottom right-hand continues to show a healthy mix, with 24% coming from non-interest income sources.
Moving to the next slide. Here, we will look at the net interest income and drivers behind each performance. The chart at the top left reflects the net interest income of KWD 432.1 million for 1H 2023, a growth of 24.1% over 1H 2022, largely benefiting from higher interest rates and year-on-year growth in loans and other interest earning assets across segments and geographies. You would also note from the chart at the top right that average earning assets grew by 7.2% from June 2022 to reach KWD 54.5 billion. As can be seen from the chart at the bottom left, average NIM for first half 2023 at 2.52% reflects an improvement of 34 basis points over 1H 2022, driven by higher yield despite increased funding cost. Group yield and funding cost for 1H 2023 were 5.53% and 3.36% respectively.
The higher funding cost primarily results from repricing of deposits at increased market rates and longer tenor deposits sourced by the Group. At the same time, an overall base of stable and low-cost deposits continues to benefit the Group. 2Q 2023 NIM for the Group was at 2.56%. Group yield for the current quarter was 5.73% compared to 5.31% in 1Q 2023. At the same time, the Group's funding cost increased to 3.55% during the current quarter from 3.16% in 1Q 2023. At the bottom right of this slide, we can see drivers behind 34 basis points increase in NIM from 2.18% in 1H 2022 to 2.52%. Loans and other assets backed by a strong year-on-year growth in interest rates and volumes contributed a net increase of 128 basis points and 111 basis points to the NIM respectively. Higher funding costs negatively affected the NIM by 205 basis points.
Moving to the next slide. As we can see on the top left of this slide, total non-interest income at KWD 133.8 million for 1H 2023 was 4.5% higher than first half of 2022. Fees and commissions income contributed KWD 99.6 million, foreign exchange activities KWD 17.4 million, while other non-interest income sources, mainly investment income, contributed KWD 16.8 million. Fees and commissions income reported a strong growth of KWD 7.2 million, +7.8% on 1H 2022, reflecting strong contributions across business lines and geographies. FX income for the first half year was KWD 6.7 million, lower than first half 2022, mainly due to the impact of unfavorable currency movements on our AT1 bond issuances. Other non-interest income increased by KWD 5.3 million compared to 1H 2022. Included herein is the net investment income favorably affected by higher market valuations.
Our fees and commissions have been strong and are from a well-diversified pool of geographies and lines of business. Major sources of non-interest income are core banking activities in respect of business-related factors, as opposed to more volatile income from trading activities. Turning now to the operating expenses reflected in the top right-hand chart. Total operating expenses for 1H 2023 at KWD 206.6 million were 12% higher than 1H 2022. The cost growth reflects increased business activity levels at Kuwait and across the group's network. Other administrative expenses also included group's CSR donation of KWD 1 million for earthquake victims in Turkey and Syria. The group's operating expenses reflect continued investments in key business initiatives, digital technologies and processes. This enables the group to offer best-in-class service to its customers and optimize resources to improve operational efficiency.
Our digital channels and products continue to play a vital role in servicing customers, with electronic transactions reaching record highs. We also continue to press ahead with selective product offerings in certain geographies. For example, our global wealth management business, expansion of our Islamic banking operations through Boubyan Bank and our operations at NBK Egypt. As a result of the marked growth in operating income, 1H 2023 cost-to-income ratio was at 36.5% compared to 38.7% in 1H 2022 and 38.2% for the full year 2022. Moving on to provisions and impairments, which are profiled at the bottom right hand of this slide. Total provisions and impairments for the six-month period amounted to KWD 48 million, an increase of KWD 26.9 million on 1H 2022. You would recollect that 1H 2022 and the fuller year of 2022 was characterized by significant specific provision recoveries.
KWD 48.4 million of 1H 2023 charge was for provisions of credit facilities with a small release towards ECL and other financial assets. Specific provision was KWD 12.2 million, whereas KWD 36.2 million was towards general provisions, including a significant component of precautionary general provisions. The group remains committed to its conservative approach in managing credit exposures. The cost of risk for 1H 2023 was at 44 basis points, compared to 8 basis points for 1H 2022, which benefited from provision recoveries as explained earlier. It is worth noting that the group's balance sheet remains strong and 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. Moving on to the next slide. On this slide, I would like to expand on the matter of earnings diversification through international and Islamic banking arms of the group.
NBK Group continues to benefit from its unique position amongst Kuwaiti banks in terms of geographical spread of operations and ability to conduct business in both conventional and Islamic banking. This diversification provides a strong competitive advantage to the group and gives a significant degree of resilience to group earnings. As you can see from the charts at the left-hand side, operating income from the group's international operations reflected a strong year-on-year growth of 19.6% in 1H 2023. Net profit at KWD 72.4 million has increased by KWD 26.5 million, benefiting largely from a strong operating performance and lower credit provisions and ECL. International operations continue to contribute a healthy 25% and 26% to the group's operating income and net profit respectively. The group's Islamic banking subsidiary, Boubyan Bank, delivered a net profit of KWD 41.3 million, up 24.8% on 1H 2022 due to strong operating income and lower provisions.
Finally, on the chart at the bottom right corner, you would note that international operations and Boubyan Bank contributed 40% and 22% respectively to group's assets, enforcing the diversification agenda of the group. On to the next slide. Here we will look at some of the movements in key volumes during the period. As profiled on the chart at the top left, the group total assets reached KWD 36.1 billion at June 2023, a 5.3% increase on June 2022. Group loans and advances at KWD 21.6 billion registered a strong year-on-year growth of KWD 1.4 billion, that is 7.1% and 2.7% in the first half of this year. EGP devaluation against the US dollar has adversely affected the carry value of loan growth since 1H 2022. Loan growth was achieved at Kuwait, both in conventional and Islamic sectors and at international operations.
Customer deposits, that is non-bank and non-FI deposits at KWD 20.3 billion reflect a strong year-on-year growth of 7.1% and remains stable vis-à-vis December 2022. Non-bank FI deposits remained at KWD 3.7 billion, dropped slightly during the first half of 2023 and since June 2022. The group has continued to benefit from its strong base of core franchise retail deposits. As can be expected in a rising interest rate scenario, we noted a limited migration from lower cost deposits to time deposits. However, the migration rate has slowed down in recent months and the overall funding mix remains stable and favorable to the group. The growth in retail deposits has reflected a sustained focus on deposit gathering aspects of our business, leveraging NBK's long-standing ability to capitalize on the group's strong brand, customer appeal and credit ratings. Customer deposits comprise a healthy 66% of total funding mix of the group.
I want to highlight that the group continues to maintain very healthy liquidity levels and comfortably exceeds minimum requirements of Basel III ratios. Moving to the next slide. We will now look at the impact 1H 2023 financial results had on certain key performance metrics. The return on average equity for the current six-month period improved to 15.2% from 13.6% in June 2022. Similarly, return on average assets now stands at 1.53% compared to 1.42% for 1H 2022.
At 16.4%, total capital adequacy ratio remains strong, though adversely affected by non-inclusion of interim profits and interim dividend of 10 fils per share in the group's regulatory capital. CET1 and Tier one ratios were 12.1% and 14.2% respectively. As regards asset quality, you would note that NPL ratio was at 1.75% compared to 1.42% as at December 2022. Loan loss coverage ratio stands at 218%, reflecting the conservative provisioning policy of the group.
I would now like to discuss expected credit losses, ECL, on credit facilities as per IFRS 9, calculated in accordance with CBK guidelines. As per the regime adopted by the CBK, banks calculate the credit provisions required, that is, the amount in the balance sheet as per the CBK instructions and compare it with the ECL on credit facilities as per IFRS 9 in accordance with CBK guidelines. 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 standard.
The key chart on this slide at bottom right reflects that the ECL provision required as at June 2023 was KWD 610 million, slightly higher than December 2022 levels, resulting from volume growth of assets coupled with increased NPL. Although IFRS 9 ECL and CBK provisions are two different regimes and should not be compared as such, as at June 2023, the balance sheet provision as per CBK instructions exceeds the ECL by KWD 283 million. This provides ample cushion for the group to withstand any possible adverse effect of prevailing uncertainties on ECL provision requirements. Moving to the final slide in this section.
Before concluding, allow me to summarize our financial performance in first half 2023. As mentioned earlier, benefit of increased benchmark interest rates, a strong operating performance combined with a healthy balance sheet, comfortable liquidity levels, and a strong capital base were features of NBK's 1H 2023 results.
Looking forward, ongoing politics both locally and internationally, and the risk of a possible recession could result in a macroeconomic environment that is less conducive to growth. We, however, remain cautiously optimistic that the overall operating environment would be more or less stable during coming quarters. Now turning to the guidance for the remainder of 2023. As regards to loan growth, the group reported a loan growth of 2.7% during the first half 2023. Given the current local political and general macroeconomic situation, we are expecting a loan growth for 2023 to be in mid-single digit range. An improvement in overall operating environment would be positive to loan growth. Turning to the NIM. As mentioned earlier, 1H 2023 NIM has improved to 2.52%, benefiting from higher interest rates and stronger volumes compared to the last year.
The general expectation is that the U.S. benchmark interest rates will probably increase by 25 basis points before beginning to plateau. That said, the extent and the timing of changes to local interest rates remains uncertain. We should also expect increasing competition and the funding costs to remain high despite the group's overall funding mix being healthy. Our guidance is for an expansion in NIM compared to 2022, and we expect the full year 2023 NIM to remain broadly similar to 1H 2023 with a small potential for upside. The 1H 2023 cost to income ratio was at 36.5% compared to 38.2% for the full year of 2022. While benefiting from higher incomes and in continuation of our investment program in support of various group initiatives, we expect the cost to income ratio for 2023 to remain under 40%, closer to 2022 level.
Given the current macroeconomic uncertainties, it would not be prudent to give a specific guidance on cost of risk and consequently on earnings and capital adequacy. The cost of risk in first half 2023 was 44 basis points, given the sizable precautionary general provisions. We do not expect a repeat of significant credit recoveries like in 2022. Although the full year 2023 cost of risk will not be as low as 2022, we are cautiously optimistic that it will remain below 2021 level of 63 basis point. We are also hopeful of maintaining capital adequacy ratios in line with our internal targets above the regulatory minimum. That ends my presentation. Thank you for your time. Back to Amir Hanna.
Thank you everyone for listening to the presentation. We'll just break for one minute to get all the questions in the platform so we can start answering them, based on topics. Okay, so we're back. We've got a big list of questions. I'll take the questions in the order we received them. The first question is asking about the drop in loan for purchase of securities over the quarter. Shaikha Al-Bahar . Okay. Sujit.
From an absolute amount point of view, the loans for purchase of securities have not dropped significantly. However, when you look at it as a percentage of total gross loans, it used to be around 4% in Q4 or Q1 of this year as well, and it is around 3%. I don't think there's a major shift in the movement for this category of loans.
A question on NIMs. The NIM seems to be progressing better than your guidance of stable NIM for 2023 beyond Q1 in the previous quarter. What is the outlook for second half?
The NIM has benefited from higher yields due to the fuller impact of interest rate increases and volume growth in loans and investment securities, also resulting in a better asset mix. Although funding cost grew both in Kuwait and overseas, the group continued to benefit from sizable CASA deposits, in spite of the limited migration that we have seen in recent quarters. As regards the guidance, the CBK discount rate is currently at 4% and the Fed at around 5.25%. The general expectation is that the Fed rate hikes will pause after one increase this month and remain stable for a period of time. That said, we don't have clarity on whether CBK will follow the Fed as such.
When the first half 2023 NIM was at 2.52% and under such an interest rate scenario, with some increase in competition and high funding cost, we expect the full year 2023 NIM to expand compared to 2022, but remain broadly stable at current level with possibly a small upside. That said, the group continues to benefit from a significant portion of low-cost deposits in form of CASA, which help us manage our overall funding mix.
Okay. Question on the macro environment. With an economic rebound expected in 2024, do you see NBK benefiting more than peers from any key growth drivers?
Well, basically this is a good question. For your information, or maybe as you know, the government submitted the four years plan to the parliament. The plan includes five main pillars, namely, ensuring public finance stability, economic development, job creation, welfare, sustainability, and productive government. Basically, this will create opportunities for banks to get involved in the mega projects, financing the projects, and NBK has the experience. We have a specialized group dealing with all kind of, or models of projects like PPP, BOT, and so on. Definitely we will benefit a lot from such, let us say, ambitious plan for the government. Creating jobs, this means that we will see more and more of Kuwaitis in the work market. This will create opportunities for our consumer business and for our, hopefully, when they will approve the mortgage law will create opportunities as well.
On the other side, I saw other questions related to the new sovereign investment fund proposal that the government wants to have on their agenda. They propose to create a new sovereign fund, Ciyada, they call it, with the objective of investing in the local economy, mainly to get involved in financing mega projects and other opportunities in the market. NBK definitely being with great relationship with different big quasi-government and the experience that we have and the qualified team that will be able to manage and place such projects in the market. I am very optimistic, and I believe NBK will benefit a lot from movement in the economy.
Thank you. On the funding cost, could you please share which specific segments have contributed the most to the increase in funding costs?
The funding cost increase that we see in the second quarter is because of two elements. One is, there is still some migration of CASA deposits to time deposits. These come from a very low cost base to higher cost of funding. Secondly, the wholesale deposits had to be renewed at a higher rate. Some of these deposits were sort of procured probably a year ago or even more than that. These factors have together resulted in an increase in funding cost.
Loan growth of 7% year-on-year is above system loan growth of 3%. Did the international operations drive loan growth in first half?
The loan growth in the first half was a mix of growth in Kuwait, both in NBK and Boubyan Bank, as well as some growth in international operations. It is important to note that after a few years, we are seeing corporate activity picking up in Kuwait and the demand for loan picking up from the corporate side in Kuwait, which has helped us during the first half.
There are a few questions on the increase in NPLs and the drop in coverage ratio, so we will just cover the topic in one response. Mostly asking about sector contribution and the reasons behind the increase in NPLs, and if there is a limit to the drop in coverage ratio.
Okay. The group NPLs have increased to KWD 391 million from KWD 310 million in December 2022. The increase mainly stems from a limited number of exposures across our network. We have seen a few of our customers impacted by cyclical factors like high inflation, higher interest rate environment, et cetera. Although such exposures are largely well collateralized, these have been classified as non-performing in accordance with local rules. The group has also conservatively set aside specific provisions in certain cases. We remain close to our customers and are continuously monitoring their situation. That said, the NPL ratio of 1.75%, although slightly elevated from December 2022 levels, is still at considerably lower level. This is within the 1.5%- 2%, which we consider as the normal level for our NPL.
As regards loan loss coverage, the loan loss coverage of 218%, it still reflects the conservative provisioning policy of the group. This number has been generally above 200%, at times 300%. While the group does not keep a specific target, we are comfortable with the overall provisioning coverage remaining above 200%.
Similarly, there are also a few questions on the trends in capital ratios, the drop that we have seen in the first half, and the impact of semiannual distribution.
Yeah. The drop that we have seen in capital adequacy ratio is stemming from two reasons. One is, of course, that on one side you have growth in risk-weight assets, but on the other side, we are not allowed to include interim profits in the regulatory capital base. Similarly, we declared a dividend of 10 fils a share as an interim dividend, and that was also not included in the regulatory capital. As a combined result of this, we are seeing our capital ratios drop when you compare them with December 2022. But as we progress towards the year-end and we see the retained earnings coming back into the regulatory capital, we are expecting back to be at the same levels or similar levels to December 2022. Anything else?
On our targeted buffers, in terms of capital and targeted buffers.
Yeah. The bank typically targets a buffer of 1.5% above the regulatory minimum level at a total CAR level. This is typically applied at the year-end when we have all the profits or all the retained profits included in the regulatory capital.
Okay. A few questions. How does the bank plan to maintain current levels of profitability when the interest rate cycle turns in 2024?
The bank has typically benefited in a high interest rate environment. It is quite natural that there could be some impact of lower interest rates when the interest rate cycle turns down, basically goes lower. At the same time, it depends on the pace at which interest rates are reduced. As long as the pace is gradual, we do not think any specific implication on the next year, given the fact that we have the volume growth for 2023 to be fully utilized when we are calculating the interest for the next year. The interest generating asset booked in this year would certainly help us sort of negate any impact that would come from lower interest rates.
There is a question on staff cost. What is the reason behind the increase in staff cost in Q2?
Q2 staff cost is a typical elevated number because of the annual promotions and increments that are affected from the second quarter. This has an impact of a catch up on certain end of service benefits which are provided for. You would not see such an increase from Q1 to Q2 going ahead from the second to the third quarter.
Many questions on CASA. What is CASA or non-interest bearing as a percent of deposits? Can you remind us of CASA percentages?
Yeah.
And also versus last year.
Yeah. The group, as I mentioned, continues to benefit from a favorable funding mix of a strong and sticky base of core deposits. We did experience migration, especially from the third quarter of last year, from CASA to time deposits. That said, the CASA deposit ratio as a percentage of the non-bank deposits is still at a very healthy level and close to 40%. This ratio has not changed a lot in the last two quarters. As I mentioned, the migration from CASA to time deposits, that rate also seems to have lowered a bit in recent months. Currently being at 40% or close to 40%, is what we feel is a very healthy funding mix for us.
We were seeing a lot of questions repeating on NIMs and NPLs. There is one question on Egypt. Asset quality trends in Egypt and how do you expect cost of risk trends in Egypt to look like?
The asset, like Egypt as an operation, has continued to deliver a very strong bottom line performance and asset growth in the local context. In the first quarter, they delivered a profit growth of 87% and 36% year-on-year growth in assets. The Egyptian book has been very stable across the years, and we have not seen any signs of credit quality deterioration in Egypt. The NPL ratio remain low and comparable to what they were in the last year or two. As such, from an Egyptian operation point of view, we are not having concerns with respect to the credit quality at this stage.
A question on the component of retail deposits and total deposits, and how that has been trending.
Retail customer deposits are typically in the range of 35%-40% of our book. These are across a large section of population, mainly in Kuwait. These have been very sticky across the years and probably across generations. A lot of these deposits are also our CASA deposits, and we depend on them for a favorable funding mix for the group.
Can you remind us on how much of the loan book is USD and if it is priced on LIBOR or SOFR?
Yes. As far as the foreign currency loan book, more than a third of our loan book is in foreign currency. The bank has embarked upon transition from LIBOR to SOFR. A large majority or a significantly large majority of our loans have already been transitioned to SOFR. The remaining are expected to be transited during the coming quarters.
I was screening through questions to make sure that we did not miss anything. There is a lot of repetition in questions. Something just came in on the deposit side. How much is from government institutions? How is the behavior of these deposits?
The bank enjoys very close and stable relationship with government institutions, not only in Kuwait but also regionally. We have historically benefited from stable deposits from these institutions. I think about 20% of our total funding comes from government institutions, and it has been in this range, 10%-22% over the last two, three years. So pretty stable deposit from the government.
I think that is it for today. We are not seeing any other questions. If we missed anything or if you have any follow-up, please send it to the investor relation email address, and we will get back to you as soon as we can. Thank you all for listening and for attending the call today. Elena, back to you.
Thank you, Amir. Thank you to the whole management team for their presentation today and the answers to all the questions. Thank you, everyone, for joining the call. Have a good day.
Thank you. Have a good day.
Thank you.
Thank you.