KFH has released today more details on its FY16 and 4Q16 results. Net income in 4Q16 of KWD42.1mn increased 5% Y-o-Y, missing our estimate of KWD46.2mn by 9%, due mainly to weak non-interest income. FY16 net income of KWD165mn increased 13% Y-o-Y (2% below our forecast). Earnings growth in FY16 was driven by: i) net interest income growth, up 11% Y-o-Y; ii) lower operating expenses (-17% Y-o-Y); and iii) lower provisioning costs (-19% Y-o-Y). Despite the earnings miss, the quality of earnings was better than expected, with both net interest income and provisioning surprising positively. Loan growth and deposit growth were weak.   Key highlights:   Weak loan growth due to the depreciation of the Turkish Lira during 4Q16: KFH does not publish a country breakdown of its balance sheet or its income statement, but out of its international operations (which include Turkey, Malaysia and Bahrain), the Turkish subsidiary is the largest entity, representing 25-30% of total assets. Weak loan growth reported in 4Q16 (-3% Q-o-Q and +1% Y-o-Y) is mainly the result of the c20% depreciation of the Turkish Lira vs. the USD during the last quarter of last year Strong spreads: The net interest spread rose c50bps during FY16 to 356bps, with net interest income up 11% Y-o-Y despite weak loan growth. Spreads improved because of higher asset yields. It is worth noting that 3Q16 net interest income figure was unusually high and most likely boosted by the reversal of interest in suspense Credit quality trends seem to be improving: Gross NPLs should be available in the Annual Report (a few weeks away). For now, the only figure that we have is the combined number for past due and NPLs (which, for 2015, has been once more restated). The ratio of past due and NPLs to gross loans fell to 7.3% in 2016 from 8.2% in 2015 (quarterly credit quality indicators are not disclosed). Unlike other Kuwait banks, the bulk of KFH’s provisioning charge was specific, as opposed to general (judgmental provisions). (Company disclosure, Elena Sanchez-Cabezudo)   Kuwait Finance House: KWD0.62 as of 6 Feb. 2017, Rating: Neutral, TP: KWD0.56/share, MCap: USD10,833mn, KFIN KK/KFIN.KW