Kuwait Finance House reports 19% rise in second quarter profit

The Islamic lender is considering a merger with Bahrain's Ahi United Bank

Board of KFH and AUB have approved final share exchange ratio. Andrew Henderson / The National

Kuwait Finance House, the Sharia-compliant lender mulling a merger with its Bahraini counterpart Ahli United Bank, reported a 19 per cent rise in the second quarter net profit as income from financing and investments climbed.

Net profit attributable to equity holders for the three-month period to June 30 rose to 51.3 million Kuwaiti dinars (Dh622m), KFH said on Monday in a regulatory filing to Boursa Kuwait, where its shares are traded.

KHF attributed the rise in profitability to a 17.7 per cent year-on-year increase in operating income to 235.8m dinars, which was due to “the increase in net financing income by 31.8 per cent as a result in growth in financing portfolio."

Net income for the first six months of 2018 advanced 16.6 per cent to 95.2m dinars, up from 81.6m dinars reported at the end of the first half of 2017, it said.

Ahli United Bank, whose potential merger with KFH could create a Sharia-compliant financial institution with $92 billion (Dh337.6bn) in combined assets, also reported a 20.3 per cent increase in its second-quarter net income to $182.7m.

The lender said on Sunday its first-half net profit also climbed to $357.4m, a 14.8 per cent year-on-year rise.

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KFH last week said it is seeking a potential merger with the Bahraini lender, reviving earlier talks for a deal. The Kuwaiti bank has invited AUB to sign a memorandum of understanding and a non-disclosure agreement to begin valuations to explore the possibility of unifying the businesses and assessing the feasibility of creating a new bank.

The move is in line with KFH's aim "to seek strategic opportunities for regional and international growth and expansion," it said in a statement to Kuwait bourse at the time.

The proposal to merge balance sheets comes six months after KFH's talks with AUB stalled over a difference in valuation between the two financial institutions, according to Bloomberg. A three-year slump in oil prices has resulted in several bank mergers in the Arabian Gulf as the lenders try to build scale and compete better in tougher market conditions.

In May, Saudi British Bank and Alawwal Bank agreed to  a $5bn merger deal to create the kingdom's third-largest bank. Last year, First Abu Dhabi Bank, the largest bank in the UAE, was created after merging National Bank of Abu Dhabi and First Gulf Bank.

The valuation studies by KFH and AUB may not necessarily lead to a merger agreement and any potential deal is subject to regulatory approval by authorities in both countries, KFH noted last week.

The Kuwaiti bank holds 17.36bn dinars in assets as of end of 2017 and Al Ahli United Bank had $33.24bn.