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Edited Transcript of NBK.KW earnings conference call or presentation 23-Jan-20 12:00pm GMT

Q4 2019 National Bank of Kuwait SAKP Earnings Call

Jan 27, 2020 (Thomson StreetEvents) -- Edited Transcript of National Bank of Kuwait SAKP earnings conference call or presentation Thursday, January 23, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amir Hanna

National Bank of Kuwait S.A.K.P. - Head of IR

* Isam Jassem Al-Sager

National Bank of Kuwait S.A.K.P. - Group CEO

* Jim Murphy

National Bank of Kuwait S.A.K.P. - Group CFO

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Conference Call Participants

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* Ahmed El-Shazly

EFG Hermes Holding S.A.E., Research Division - Analyst of Banking

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Presentation

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Operator [1]

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Good day, and welcome to the NBK FY 2019 Results and Webcast Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ahmed El-Shazly. Please go ahead.

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Ahmed El-Shazly, EFG Hermes Holding S.A.E., Research Division - Analyst of Banking [2]

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Yes. Thank you. Good afternoon and good morning, everyone. This is Ahmed El-Shazly from EFG Hermes. Welcome to the National Bank of Kuwait Full Year 2019 Results Conference Call and Webcast. It's a pleasure to have with us on the call today: Mr. Isam Al-Sager, Group CEO of NBK; Mr. Jim Murphy, Group CFO of NBK; and Mr. Amir Hanna, Head of Investor Relations and Corporate Communications of NBK.

I would like to hand over the call now to Mr. Amir Hanna.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [3]

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Thank you, Ahmed. Good afternoon, everyone. We are glad to have you with us today for our full year 2019 earnings webcast.

Before we start, 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 that 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. You are cautioned not to rely on such forward-looking statements. The bank does not assume any obligation to update its views on such risks and uncertainties or to publicly announce the results of any revisions to these forward-looking statements made herein.

Also, I would like to refer you to the full disclaimer in our presentation for today's call.

After concluding our presentation, we will start addressing all your questions, but feel free to type them in anytime during the call. You can also send any follow-up questions to our Investor Relations e-mail address.

Finally, and for your convenience, today's presentation is already available in our Investor Relation website.

Now let me hand over the call to Mr. Isam Al-Sager, our group CEO, for his opening remarks.

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Isam Jassem Al-Sager, National Bank of Kuwait S.A.K.P. - Group CEO [4]

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Thank you, Amir. Good morning and good afternoon, everyone. Thank you all for joining us today in our fourth quarter and full year 2019 earnings conference call and webcast.

2019 was another good strong year, as we delivered a healthy profitability, while maintaining a robust balance sheet, demonstrating the quality and diversity of both the operational model and earning capacity.

The bank delivered a net profit of KWD 401.3 million for the year 2019, growing by 8.2% over 2018, while for the fourth quarter 2019 results, we achieved a net profit of KWD 99.1 million, marginally higher than our comparable quarter in 2018. Although 2019 saw some subdued activity in tendering and award of projects, we still believe that the operational environment in Kuwait will continue to drive our growth outlook for the bank. Given the strong financial position of the government, we expect acceleration in the place of project tendering and awarding in 2020.

Non-oil GDP growing -- growth is projected to reach 2.5% in 2020, and the pipeline of the scheduled project award is very healthy. We remain optimistic with our project outlook and stand committed to supporting the delivery of the national development plan, New Kuwait 2035, as NBK is the most active player in financing flagship projects, delivering and partnership with the government. The group's strategy is that based on diversifying has served us very well over the years and through different economic and political cycles. Our effort to diversify our assets and income sources by business segment and by geography proven our ability to record consistent profitability and confirm the successful risk management strategy that we have in place. Our diversification strategy continued to play an important role in mitigating risk and diversification income from across geographies. In 2019, our international operation continued 28 -- contributed 28% of group's net profit. Similarly, we also saw continued growth at our Islamic banking subsidiary, Boubyan Bank, which delivered a healthy 11.7% year-to-year, increasing in profit, further boosting our diversified profitability trend.

Going forward, our focus outside Kuwait will remain to organically grow our key markets, mainly Egypt and Saudi Arabia. In Egypt, the retail market is an area of high potential for our operational, whereas the country continued to deliver improving macroeconomic trends. While in Saudi, we started operating from our new branches and concurrently continued to grow our assets under management through our newly established wealth management company.

In 2019, we continued pursuing our digital transformation effort to put significant emphasis on digitization as a key driver for future growth. Digitization is becoming vital for growth to remain relevant to its clientele and secure a successful future. Advanced technologies, system enhancement and smart banking are being pushed to the front of other banks strategic pathway and through all strategic pillars. NBK's strategy for 2020 will not divert from its current trajectory as a group. The group will continue to increase the diversity of its across the -- of its income across geographies and segments, with the primary objective of achieving superior return on offering exceptional service to our customers.

We finished 2019 with a landmark transaction as we managed to issue USD 750 million perpetual Tier 1 securities. The issuance marked a huge success, generating significant demand from a very well-diversified investor base across the globe. This was translated in an oversubscription of more than 3x as well as issuing at a remarkable pricing. We see this as a real reflection of global investor confidence in NBK.

Finally, our institutional strength was reaffirmed in 2019 by the world's 3 top credit rating agencies: Moody's, Standard & Poor’s and Fitch FCAs Rating, as they all reaffirmed their rating for the group with a stable long-term outlook. This remained the highest in Kuwait and one of the top ratings in the region.

Now let me hand over the call to Jim Murphy, our group CFO, to run you through the quarterly and full year's results in more detail and address your questions. Jim?

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [5]

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Thank you, Isam. Hello, everyone, and welcome.

I'm very pleased to have this opportunity to take you through our results in respect of the 12-month period ended December 2019.

As Isam mentioned, we've announced a net profit of KWD 401.3 million for the year, that's an 8.2% increase in bottom line profit over 2018. Profit for quarter 4 was KWD 99.1 million. This compares with a quarter 3 profit of KWD 93.1 million, an increase of 6.5%. The profit for the quarter was slightly ahead of its corresponding quarter in 2018.

Now before going into the details behind our results, allow me to say a few words as to the general operating environment last year.

Conditions overall were broadly favorable. That said, whilst good business opportunities were to be had, competition was strong and keenness in pricing was the feature of the market. The general trend, however, was encouraging, and positive momentum was clearly evident in many parts of our business. Progress did continue with regards to the implementation of the government's multiyear development plan. Although the pace of project awards was below expectations for the year, as Isam said, we are optimistic that the year ahead will be more active. The implication for the banking sector remains therefore, that the direct financing and the cascade or ripple-through effect associated with the execution of the development plan will continue to offer solid business opportunities going forward.

We're turning now to the operating performance and financial results for the period.

Growth in business activity was solid, with the group's lending book increasing by 6.8% year-on-year. As always, the benefits of a well-diversified base of banking operations was an important feature in our results.

Our international businesses continued to perform strongly, with solid performances across many geographies. We also saw continued strong growth at our Islamic banking subsidiary, Boubyan Bank. Boubyan delivered an impressive 11.7% year-on-year increase in profits, rising to KWD 62.6 million. We will see later in this presentation the materiality and importance of our fuller diversification agenda when looking at the contributions to total group earnings made by the various banking footprints enjoyed by the group.

The group's operating surplus, that is the pre-provision pretax earnings, was KWD 591.2 million, that's a 2.6% reduction on 2018. Income growth during the period was 1.4%, whilst growth in costs was 10.1%. The 8.2% growth in net profit therefore was driven essentially by a lowered cost of risk, with loan provisions totaling KWD 122.6 million as compared to KWD 169.3 million in 2018.

As regards quarterly performance, the operating surplus for the final quarter of 2019 was KWD 140.3 million. That was lower than Q3 '19's operating surplus, primarily due to lower FX income and higher costs. Q4 19's operating surplus was similarly down on the comparable quarter in 2018, this time, essentially due to tighter margins and higher costs.

Moving now to operating income.

Operating income for 2019 was KWD 895.5 million. This compared to KWD 883.2 million in 2018, a 1.4% increase. The main driver behind the growth in operating income was increased noninterest income, which was 7% ahead year-on-year. The operating income in respect of the December '19 quarter was KWD 222.8 million. This was just ahead of both the previous quarter and the comparable quarter in 2018.

I will go into the main drivers behind the movements in income margins and costs in later charts.

On the bottom right-hand side here, we can see that the operating mix show 77% of total operating income being in respect of net interest income, 23% from noninterest income. This compares with a mix of 78% and 22% last year.

Now on the next chart, here, we will look at net interest income and the drivers behind its performance.

Net interest income of KWD 689.2 million in 2019 was slightly down on the prior year. Net interest income in 2018 was KWD 690.5 million. Whilst the business delivered strong growth in lending and investment volumes through the course of 2019, the offset of margin attrition served to stall any growth in net interest income that was otherwise possible.

Net interest income for the December '19 quarter of KWD 172.2 million was broadly in line with the preceding quarter booked down on Q4 '18.

Interest-earning assets averaged KWD 26.9 billion during 2019. This was a 5% increase on the prior year. The growth in interest-earning assets essentially reflected a strong growth in the lending and investment portfolios, the details of which we will look at shortly.

As just mentioned, we experienced a contraction in our net interest margin vis-à-vis 2018. This was in part due to the timing effect on our book in respect of the increase in the local discount rate that occurred in the earlier part of 2018. Our margins typically boost relatively quickly in a rising interest rate cycle due to the repricing characteristics of our book, whilst awaiting the lag impact of -- on funding cost to take full effect.

If you look at the bottom left-hand side of this chart, you will see that the net interest margin during the full year of 2019 averaged 2.56%. This compares to an average margin of 2.69% in 2018.

The group's funding costs averaged 2.14% during 2019 as compared to 1.72% in 2018. The group's yield averaged 4.45%. This compares to a yield of 4.23% in 2018.

On the bottom right-hand side of this slide, we can see the constituent drivers that moved the average NIM downwards by 13 basis points from 2.69% in 2018 to 2.56% in 2019. The NIM was impacted favorably by 22 basis points due to the combined movements attaching to loans and other assets, whilst the higher cost of funding impacted the NIM to the extent of 36 basis points.

On this next chart, we will look at the group's noninterest income first.

Total noninterest income in 2019 was KWD 206.3 million, that was 7% ahead of 2018. The composition of the KWD 206.3 million total noninterest income was KWD 157.2 million in respect to fees and commissions income, KWD 39.3 million in respect to foreign exchange activities and a net KWD 9.8 million from other noninterest income sources.

Fees and commissions were 4.6 ahead -- 4.6% ahead of 2018. Total noninterest income for Q4 '19 was KWD 50.5 million. This is 4.6% ahead of Q3 '19 and 9.8% ahead of the comparable quarter in 2018. The primary driver behind the year-on-year Q4 growth was strong fee income, which was 12.8% higher.

I would like to mention here that the sources of fees and commissions income remain well spread across our various business lines and various geographies. Business lines, including lending, credit cards, trade finance, asset management and brokerage, continued to produce strong fee income on the back of solid operating performances. As always, the bulk of our noninterest income comes from what we regard as core banking activities. The group's noninterest income is sourced primarily from fees and commissions and from foreign exchange activities. Earnings in respect of trading and investment income remains very small at less than 1% of total income.

Turning now to operating expenses.

Total operating expenses in 2019 was KWD 304.3 million. This compares with KWD 276.3 million in 2018, a 10.1% increase. There are a number of factors at play explaining the increase in costs, and I would like to take some time here to elaborate on some of these.

One such reason is the selective additional investments into a number of our businesses and geographies. As Isam has mentioned earlier, we commenced a new wealth management operation in KSA at the end of 2019, with a carryforward impact on costs through 2019. We also embarked upon a modest enlargement of our commercial banking footprint in that country. In addition, we continued to press ahead with a moderate expansion in our operations at Boubyan Bank and our operations at NBK Egypt.

During 2019, we also incurred Brexit-related costs on foot of converting our former branch in France to a full subsidiary of the group as a means of safeguarding business continuity post-Brexit. Some of the Brexit costs were once-off, whilst others will endure given the no-change status of our presence in that country.

In addition to driving forward with the normal business of the bank, we, of course, remain committed to maintaining appropriate and additional investment into those areas of operation that drive long-term and sustained value to the group. We continued our ongoing program of investment into IT and into advancing the group's digital banking agenda. The global banking model is facing significant challenges, not least from digital advancements by established industry players, but also from the rapidly evolving fintech sector. NBK must respond appropriately to these challenges, and such responses, needless to say, require elevated levels of investment. In this regard, the group invests heavily in selectively developing and deploying the latest business-enabling technology solutions, into refreshing its IT platforms and infrastructures and finally, into ensuring first-class cybersecurity resilience and capabilities. We are focused on directing investments equally towards technologies that serve to improve the banking services that customers experience and also to technologies that improve the long-term efficiency and effectiveness of back-office operations. In this regard, we are investing heavily into robotic process automation, focused on improving efficiency and customer service levels, leading in time, we believe, to cost-saving opportunities. We recently reinforced the bank's executive bandwidth by way of onboarding a number of additional senior technology personnel. With this comes a commitment to ramping up the associated investment into additional manpower resources and the related IT expenditures. And now stand subject of IT, I can advise that, in 2019, we commissioned the group's new modular data center in Kuwait City. The data center is a state-of-the-art building, complete with full Tier 3 certification.

Staying on the subject of costs. A new accounting standard took effect on the 1st of January 2019, IFRS 16. The standard impacts on the accounting treatment for leases. This new standard requires an entity to recognize leases on balance sheet at amounts that recognize or value the right-of-use to an asset for the term of each lease, together with the associated liability in respect of future lease payments. The salient part of the standard as regards its impact on our income statement is the recognition of depreciation and interest expense associated with the relevant stock of leases in lieu of rental expenses being included in other administrative expenses. The substantive impact has been an increase in depreciation and a reduction in our administrative expenses of approximately KWD 9.7 million. So therefore, what we have here essentially is a reclassification between expense categories.

So to conclude on the subject of costs. I can say that whilst our cost-to-income ratio of 34% has trended upward of late, partly in response to various costs and investment programs that add to the long-term health and resilience of the group, we nonetheless remain satisfied at what is still a very low ratio by international industry standards.

Moving now to provisions and impairments.

Total provisions and impairments in 2019 amounted to KWD 129.7 million. This compares to a total charge of KWD 179.7 million in 2018. The charge for the December '19 quarter was KWD 25.1 million. This compares to a charge of KWD 37.5 million in quarter 3 2019 and to KWD 34.3 million in quarter 4 2018. Further provisions in 2019 therefore amounted to 20.7% of the group's operating surplus, significantly below the comparable ratio in 2018. This is naturally a very welcome development and is in keeping with the expected evolution of our provision charges.

I will take this opportunity, if I may, to remind you that the Central Bank of Kuwait had earlier determined that the provisioning regime applicable to banks in Kuwait is such that the provision for losses on credit facilities be determined as the higher-than-expected credit losses under IFRS 9 as per CBK guidelines and provisions as computed in accordance with CBK rules and instructions. As the latter instance prevailed, we therefore computed an ECL charge in respect of noncredit financial assets only. The income statement impact of which was KWD 4.3 million.

And finally, on the subject of provisions. You can note that as at year-end 2019, the expected credit losses on credit facilities determined in accordance with IFRS 9 was KWD 395 million, whereas the existing pool of provisions for credit losses totaled KWD 541 million. So a very comfortable headroom.

Moving now to Chart #4. I would like on this next chart to expand on the matter of the contributions made to the group's earnings by international and Islamic banking.

NBK is unique amongst Kuwaiti banks in terms of its geographical spread of operations and also because of its ability to conduct business in both conventional banking and Islamic banking. This diversification gives a degree of resilience to group earnings and provides what we consider to be a strong competitive advantage to the group.

On the international side, and as mentioned earlier, we established a new CMA-regulated wealth management company in KSA in 2018. And in 2019, we opened 2 additional commercial banking branches in that country. This is significant as it now gives NBK a presence and enhanced reach in 3 cities: Jeddah, Riyadh and Al-Khobar. We've also recently reinforced our private banking capabilities by creating an overarching group level private banking structure that is tasked to grow and optimally coordinate our private banking businesses across our international network.

As mentioned earlier, the group did not escape the headaches and costs associated with Brexit. In order to best protect our business presence in Europe, we converted our operation in France into a fully-fledged subsidiary of the group from its earlier status as a branch of our U.K. subsidiary, NBK International.

But turning now to the chart. The purpose of this chart is to demonstrate the impact of this diversification on the group's financial results.

Looking firstly at diversification by geography.

Operating income at our international operations grew by 5.5% to KWD 220.7 million as compared to 2018. The profit contribution from our international operations, however, at KWD 112.2 million remained broadly in line with the prior year. A large part of this disconnect is due to the increased investments and associated costs into our international business, as mentioned previously.

You will see from the pie chart on the top right-hand side of this chart that the contribution to total group operating income from our international operations was 25%, slightly up on the 24% of 2018. The contribution to group profits, however, in respect of our international operations reduced to 28% from 30% in 2018. This decline however was essentially due to the falling cost of risk at Kuwait.

NBK is currently present in 14 countries outside of Kuwait, including, of course, Egypt. NBK Egypt increased its number of branches during the course of 2019 from 49 to 51.

Moving on now to the group's Islamic banking arm, Boubyan Bank. Boubyan Bank continues to perform strongly, delivering a net profit of KWD 62.6 million in 2019. This compares favorably to a KWD 56.1 million net profit in 2018, representing a 11.7% year-on-year increase.

And finally, on this chart, you can see that the profile of assets was such that [34%]of group assets are at our conventional banking operations in Kuwait, 38% at our international operations and 18% at Boubyan Bank.

Next chart. Here, we look at some of the movements in key volumes during the period.

Total assets reached KWD 29.3 billion at year-end 2019. This is a 6.7% increase on December 2018. As mentioned previously, the increase was driven primarily by strong growth in lending and investments. Group lending increased to KWD 16.6 billion. That's an increase of over KWD 1 billion in the 12-month period to December 2019. This reflects a solid year-on-year growth of 6.8% in challenging conditions.

Customer deposits at KWD 15.9 billion were 10.7% ahead of December '18. And just for purposes of clarity, please note that customer deposits as defined here do not include deposits taken by the group from financial institutions. This is in keeping with the presentation of customer deposits in our published financial statements.

An important underlying message here is that, within the headline numbers, we continued to see a favorable movement in the group's overall funding mix. We experienced very strong growth in core franchise deposits, noting in particular excellent growth in deposits at the retail banking arms of the group in Kuwait, both conventional and Islamic. The growth in retail deposits reflects a sustained focus around the deposit-gathering aspects of our business in recent times, leveraging NBK's long-standing ability to capitalize on the group's brand, customer appeal and credit ratings.

The group's overall funding mix is profiled on the bottom right-hand side of this chart.

Customer deposits comprised 56 -- 65% of total mix, which is higher than 2018's 62%.

On this next chart, we will look at the impact that the 2019 financial results had on certain performance metrics.

The return on average equity in 2019 was 12.3%. This compares to 12% in 2018. The return on average assets was 1.42%. The comparable returns being 1.38% in 2018. The total capital adequacy ratio at year-end 2019 was 17.8%. This compares to 17.2% at year-end December '18.

As mentioned by Isam, and you will know that 2019's capital position benefited from NBK's issuance of $750 million RegS/144A perpetual Non-Call 6-year Tier 1 capital securities with a 4.5% coupon. This was the lowest rate for any GCC bank issuance, and clearly, a testament to the group's strong position in the international marketplace.

The Tier 1 capital ratio at December '19 was 15.9% whilst the CET1 ratio was 13.5%. As regards asset quality ratios, the NPL ratio at year-end, 1.1%, with coverage at 272.2%. These ratios show a notable improvement on earlier periods.

Now before concluding, allow me to quickly summarize the events that characterized our financial performance in '19 and then to comment on how 2020 might be expected to unfold.

The overall levels of business activity through 2019 were satisfactory. A strong growth was recorded in assets, most notably, a healthy 6.8% increase in London, accounted to weather for contracting margins. Coupled with the timing of the resultant headwind to operating income is the fact that the group is currently going through a period of elevated spending, especially in respect of its digital banking agenda, with a consequent impact on our income statements.

The other salient feature of the year's results, of course, was the earnings relief that was helped by the falling cost of risk. This therefore is very much the prevailing context as we turn to expectations for 2020. All things considered, we broadly expect the year ahead to be characterized by these same dynamics. Business growth momentum remains solid. At this stage, we would expect to see similar levels of loan growth through the course of the coming year, i.e., in the mid- to high single-digit range.

The net interest margin next year is expected to be tighter than 2019 and broadly in keeping with the NIM that we saw in the final quarter out here in 2019. Underpinning this margin expectation is a working assumption that interest rates will remain broadly unchanged through the year ahead, with no change to key benchmark rates.

Our cost-to-income ratio is expected to rise slightly this year relative to 2019. Tighter interest margins, influenced by a challenging rate environment and an increasingly competitive landscape, together with the continuation of our investment program in support of various group initiatives, will work to move the ratio upwards. The group will continue with its strategy of investing in people and into emerging technologies and also selectively into reinforcing its geographic footprint in order to best protect the earning power of the group into the future.

As regards to group's cost of risk, we are assuming at this stage a similar cost of risk for 2020 as in 2019, with -- it has to be said, with perhaps some potential for improvement. The positive news, certainly, is that the directional decline from earlier periods is not expected to reverse.

Therefore, aggregating all relevant factors and assuming the reasonableness of the above assumptions, we currently expect 2020 earnings growth rate to be not too dissimilar to that of 2019, that is in the mid- to high single-digit range.

Finally, turning to the capital adequacy ratio. The total capital adequacy ratio at year-end was 17.8%. Looking forward to the current year, we expect to maintain the ratio above 17%, and that's a level that is comfortably in excess of our regulatory minimum requirement and is in keeping with the risk appetite of the group.

So that's it. That's the end of the presentation. Thank you very much for your time. I'll hand back at this stage to Amir.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [6]

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Thank you everyone. And now it's time for questions. So we'll pause for a couple of minutes, and we'll come back to answer any questions you have. So please, if you have any questions, just start entering the webcast.

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Questions and Answers

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [1]

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Okay. So we've got some questions here, so we'll start taking them one by one.

The first question is mainly focused on liquidity funding and the trends in NIM in 2020. Jim, do you want to take that?

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [2]

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Yes. Okay. Liquidity is good. And I suppose the real question here is NIMs. Last year was characterized by a falling NIM. And obviously, looking forward into next year, the key thing is how will NIM perform because we're in a situation where we are writing very, very good business volumes, but it is very difficult to move forward with the needle on net interest income. We expect the NIM to have broadly stabilized now. So the NIM that was in existence in Q4, we don't foresee any change to that. The NIM that we went into last year, will fall through the course of last year primarily because funding costs began to correct. There's always a lag impact when an earlier rate change happens. So NIM, we think -- if you look at the Q4 which reported, 2.40%, 2.45%, should broadly hold through the course of next year. To offset the impact of that attrition year-on-year, we're obviously going to perform -- have to perform quite well on the business volume side, but the pipelines are quite good and we're optimistic that we can perform quite well on that front.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [3]

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Okay. A few questions on asset quality trends, the outlook and the trends in 2019, and also on the difference between IFRS 9 and the existing provisions in terms of last year -- do we have a few words on it as well?

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [4]

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Yes. A key sort of performance feature of the group over the years has obviously been our cost of risk. We've been navigating our way out of the regime, whereby we were carrying elevated levels of judgmental provisions, but we think we're working our way out of that quite well. We saw a good fall in the ratio through the course of last year. In terms of going forward, we're -- as I mentioned earlier, we're assuming a cost of risk now that is much more in keeping with our current ratios than in earlier periods. So we usually don't expect to see any deterioration in asset quality. If anything, we could see an improvement as regards cost of risk. There's no guarantees, of course, but we are assuming internally a steady cost of risk as we go forward through the course of the next couple of quarters support, it is potential for improvements, but we can't be sure.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [5]

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IFRS 9.

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [6]

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Yes. In terms of IFRS 9, I think we mentioned it was 300 -- KWD 395 million was the computation per IFRS 9, whereas we're carrying provision pools of KWD 530 million -- or KWD 520 million, KWD 530 million, something like that. So very comfortable headroom built up over the years through the judgmental provisioning times.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [7]

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Okay. I think that addresses 4 or 5 questions on NPL trends and IFRS 9. Other question on capital generation in Q4 and why it was strong. I think that's more of the technical part.

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [8]

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Yes. Yes.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [9]

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First -- retained earnings part.

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [10]

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Yes, yes. That's right. Well, we had -- the main feature in capital was the issuance at the end -- the Tier 1 issuance at the end of the year. Just the normal technicalities that happen with retained earnings. But we don't -- in terms of CapEx, we don't include retained earnings through the course of the year when doing the computation, so there's always a pickup in the fourth quarter anyway, but supported in this instance by the issuance of our $750 million bond.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [11]

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Again, questions on guidance, which is very clearly stated in the presentation, expectations on loan growth in 2020, expectation on cost to income, and that's on the Guidance slide in the presentation, that is already on the website. So we'll pass you through.

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Isam Jassem Al-Sager, National Bank of Kuwait S.A.K.P. - Group CEO [12]

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We consistently went along. Yes?

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [13]

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What was the CASA ratio at year-end 2019?

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [14]

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Yes. Well, CASA, typically, for the group, our group level CASA is typically around 35%, give or take. We've got higher levels of CASA here in our home market in Kuwait. But overall, at group level, approximately 35% to 40%, depending on how one defines CASA, would be our typical base.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [15]

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Okay. Another question on fee trends in 2019, and what's the outlook forward in 2020.

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [16]

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Yes. We had -- we've good fee income last year. The business activity levels have been very good. Many lines of our business performed strongly. Like typically, we see good income streams in respect of our trade finance business, our cards business. Last year, we had very good activity on our asset management business. And in fact, asset management contributed a significant amount to our fee growth year-on-year. We are investing in that line of business. I think I mentioned earlier that we're reinforcing our bandwidth around the wealth management and private banking side of our business. And we're optimistic that, going forward, we will see incremental improvements to our fee line because of that focus.

Next year?

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Isam Jassem Al-Sager, National Bank of Kuwait S.A.K.P. - Group CEO [17]

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We expect next year the same scenario, something similar -- the trend will continue, more optimistic and I'm positive for the fee income to continue generating good income.

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [18]

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Yes. Our comfort from the fee line stems from the fact that we've got many lines of business, I mean, from many geographies. So the diversification gives comfort to the momentum that's there. And we're confident next year it will be quite similar to the year we've just put behind us.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [19]

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Okay. We'll just wait a couple of more minutes for any more questions, and without anything else, we'll just conclude the call.

Okay. Well, we'll take a final question that came in on cost-to-income ratio. It says that it has risen recently. And what are we expecting for 2020? I think we addressed it, but again just a couple of comments.

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Jim Murphy, National Bank of Kuwait S.A.K.P. - Group CFO [20]

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Yes. Yes, just to summarize. As you know, there's definitely a headwind to be had on the income side. Margins are tight. And NBK and banks globally are operating at a troubled margin backdrop. So we're struggling to grow the top line with these margins, despite the fact that we're writing very good business and the margin attrition just take its toll. However, the easy thing to do with is cut back on costs. We've decided not to. We're investing in the business, for the long-term health of the business. And we're investing very heavily in IT, and I think that's a very wise thing to do. So the arithmetic simply is that we will see an increase in the cost-to-income ratio. We do believe it's temporary, but we also believe it's the right thing to do. We're guiding the mid-30s. I think that's realistic at this stage. And we will, hopefully, in time, see a reduction in that number. But for now we'll be prudent and as I said, we believe it's right to run the business in such a way that we'll see the cost-to-income ratio follows around the mid-30s.

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Amir Hanna, National Bank of Kuwait S.A.K.P. - Head of IR [21]

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For the sake of time, at this point, we'll just conclude presentation. We'll keep answering questions, follow-up questions as we receive them on our website, on the Investor Relation e-mail. So please feel free to do that. At this point, I would just return the call to the operator for conclusion.

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Operator [22]

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This concludes today's call. Thank you for your participation. You may now disconnect.