Kuwait: Banking on growth

The banking sector in Kuwait maintained solid fundamentals in the face of a number of difficulties in 2012, including continued regional unrest, a volatile euro and global economic uncertainty. In line with the conservative approach the sector has followed for years, many banks continued to practice prudent lending policies and to transfer funds to provisions. In light of recent solid growth, however, some in the sector are looking for a shift away from conservative policies to those that could spur lending and accelerate growth.

The National Bank of Kuwait (NBK), the largest Kuwaiti bank by total assets, posted a slight decrease in net profit for the fourth quarter of 2012, down to KD76.2m ($268.59m) from KD76.8m ($270.71m) the previous year. However, this was well above predictions, with forecasts anticipating fourth-quarter profits at around KD62m ($218.54m). Yearly net profits, meanwhile, increased to $1.09bn for 2012, up from $1.08bn in 2011, and total assets reached $58.4bn at the end of 2012, up from $48.5bn the previous year.

NBK has kept its profits stable in the face of local and regional challenges, maintaining high ratings from major international agencies. The bank maintained its “As3” from Moody’s, “AA-” from Fitch and “A+” from Standard & Poor’s.

“2012 was a turbulent year for the banking sector in Kuwait, as the operating environment remained stagnant,” Ibrahim Dabdoub, CEO of NBK, said in a statement at the end of January. “Government spending was insufficient and the tendering of new projects remained behind schedule, leading to slower economic activity and an underperforming stock market.”

Kuwait Finance House, the second-largest bank by market capitalisation and the largest Islamic lender, also closed 2012 on a positive note, reporting a 24% increase in fourth-quarter net profits. According to Reuters, net profits rose from KD9.54m ($33.63m) in the fourth quarter of 2011 to KD11.8m ($41.59m) in the fourth quarter of 2012.

Mohammad Al Khudairi, the bank’s chairman, told Reuters the increase was largely due to the bank’s Transformation Programme, which was put in place to address the fall in profits recorded in 2011. This involves the reorganisation of the bank’s management and plans to sell or restructure its less profitable subsidiaries.

Burgan Bank, the fourth-largest bank by capitalisation, posted KD55.6m ($195.98m) in net profits, a 10% increase over the KD50.6m ($178.36m) recorded in 2011. Operating profit before provisions amounted to KD119m ($419.46m), a 17% year-on-year (y-o-y) increase, while loans and advances grew 50%, reaching KD3.4bn ($11.98bn), and deposits grew 39% to KD3.9bn ($13.75bn).

Gulf Bank closed out 2012 with net profit of KD30.9m ($108.92m), up from KD30.6m ($107. 86m) in 2011. Income before provisions stood at KD121.4m ($427.92m), up 13% y-o-y. The bank had total assets of KD4.85bn ($17.09bn), while deposits reached KD4.09m ($14.41m) and loans grew by 4.9%.

According to Mahmoud Abdul Khaleq Al Nouri, the chairman of Gulf Bank, a number of factors contributed to the profits. These included a two-year turnaround plan, which the bank completed in 2012, that focused on promoting sustainable growth.

Many of the country’s financial institutions in the sector are now looking to further solidify gains and accelerate growth. “The Central Bank’s stance now is conservative, which is good in such hazy global economic conditions,” Eduardo Eguren, CEO of Burgan Bank, told OBG. “I am optimistic that the new governor will work with the banks to put together a strategy that will be best for the country.”

Eguren said the economic climate presents a difficult operating environment for many of the financial institutions in the country, given that banks cannot issue mortgages or foreclose on property in the case of customer defaults.

“For the banking sector to progress banks must be adaptable, resilient, and focus on organic growth,” he said. “You cannot be successful in acquisitions if you are not effective at driving growth in the core market.”

With the sector having proven itself resilient to the effects of the global financial crisis and with many institutions having established themselves on a stable path, the country’s banks are in a good position to investigate their options for moving toward greater growth.

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