Having 10 local banks and 11 branches of foreign operators serving a population of around 3m might appear to make for a fragmented market, but the distribution of assets is concentrated in a relatively small number of institutions. At the beginning of 2011 the nation’s two leading banks accounted for about 55.7% of the sector’s total asset base of KD45.7bn ($165bn), while Kuwait’s “big five” banks, both conventional and Islamic, represent 82.8% of total assets. These banks, in particular, are leading an incipient recovery that saw aggregate asset growth in 2010 rise to 3.9%, compared to the 2.5% seen in 2009. However, while Kuwait’s top five lenders have shown considerable progress in restructuring their balance sheets and improving asset quality in the wake of the global financial crisis, the slow growth of net profits in 2010 and 2011 underlines the challenge still faced by some of them.
NATIONAL BANK OF KUWAIT: With assets of KD12.9bn (some 28.2% of the sector total) at the start of 2011, National Bank of Kuwait (NBK) remains the largest bank in the local market. Founded in 1952 by a group of shareholders who represented the major trading families of Kuwait, the publicly listed company has since expanded on its domestic base (which currently includes a network of more than 70 branches) to establish operations in 16 foreign locations in the Middle East and beyond, including London, Paris, Singapore, New York, Geneva, China and Vietnam. Its most notable investment in the MENA region came in 2007, with the acquisition of almost 94% of Al Watany Bank. It operates the Egyptian institution’s 39 branches as a subsidiary.
With substantial NBK branch networks, subsidiaries or affiliates in Lebanon (10), Iraq (15), Qatar (14) and Turkey (25), the bank’s regional presence is unrivalled by any other MENA lender. NBK was the only local bank to remain solvent during Kuwait’s 1982 Manakh crisis, when the unofficial stock market collapsed, and its record of good governance since has earned it the highest regional ratings (long-term AA2 from Moody’s, AA- from Fitch and A+ from Standard and Poor’s) and rankings – such as its 38th place in Global Finance’s list of the 50 safest banks in the world in 2009-10.
In Kuwait, it retains a dominant position in the retail segment, claiming a 30% market share and 50% of the local credit card market. On the corporate side it remains the primary banker for most local blue chip companies and a leader in trade finance, with a market share of over 40%. Its private banking operations, meanwhile, benefit from NBK’s established brand, international network and cooperation with its NBK Capital subsidiary. In 2011 the company’s net profits were KD302.4m ($1.1bn), with total assets of KD13.6bn ($49bn), a 5.6% increase on 2010. Though fourth quarter earnings for 2011were down 78%, the bank overall remains in competitive shape.
KUWAIT FINANCE HOUSE: The position of Kuwait Finance House (KFH) as the nation’s second-largest bank by total assets reflects the prominent role played by Islamic lenders in the local market. The sharia-compliant operator increased its assets by 11.1% in 2010 to give it a 27.5% market share in 2011. Since its inception 35 years ago its activities have expanded to include real estate and trade finance, corporate and investment banking, treasury operations and an ever-expanding range of products and services. Its international reputation rests not only on its success at home, but also on the export of its business model to international markets.
It has established operations in Bahrain, Turkey, Jordan, Saudi Arabia, Malaysia, Singapore and Australia, and has affiliates in the UAE, Oman and Bangladesh – an international footprint of such influence in the development of global sharia-compliant financing that Forbes magazine dubbed it the “Harvard of Islamic banking” in 2007. In 2011, the firm’s chairman and managing director, Bader Al Mukhaizeem, announced that the bank will continue to expand its international operations, which now include 220 branches worldwide and account for some 46% of total revenue.
Nevertheless, the policy during 2010 remained one described in KFH’s annual report as “consolidation and cohesion”. It was a year in which KFH rearranged the elements of its investment portfolio and supported its subsidiaries with a unified strategy – continuing a history of corporate prudence that has earned it a long-term rating of A- from Standard and Poor’s, A+ from Fitch and AA3 from Moody’s. The bank’s major shareholders include the Kuwait Investment Authority (24.05%), the Public Authority for Minors Affairs (10.48%) and the Kuwait Awqaf Public Foundation (8.23%). It posted a decline in net profit in 2010 to KD106m ($382m) from the KD118.7m ($428m) of 2009 – a trend that continued into 2011 with a second-quarter year-on-year decline in net profit of 43% and posted losses of $219m in the fourth quarter, all of which were ascribed to needed provisioning.
GULF BANK: From its modest beginnings in 1961, when it opened for business in a rented apartment on Kuwait’s Fahad Al Salem Street, Gulf Bank has grown to become the third-largest lender in the country. Its total assets were valued in the third quarter of 2011 at KD4.8bn ($17.3bn) and it currently operates a domestic network of 51 branches.
However, despite establishing itself as a major local player in consumer, corporate, treasury and international banking, the bank suffered a difficult couple of years during and after the global financial crisis of 2008-09 as a result of loan losses. Forced to recapitalise, Gulf Bank is currently rated by Moody’s as D+, an improvement on the D- handed out in 2010.
The bank’s confidence in its ability to recover from the crisis appears to have been borne out: in 2010 it posted an operating profit of KD135.3m ($488m), which brought net profit for the year to KD19m ($68m), compared to the KD28.1m ($101m) loss of 2009. The return to form continued into 2011, with third-quarter total net profits of KD27.4m ($98.78m, largely attributable to reduced provisioning and overall improvements in the bank’s core business practices.
Going forward, Gulf Bank intends to concentrate on its retail and wholesale operations, reducing its investment and trading activity. This stance, combined with improved performance, resulted in a rating upgrade from Fitch in 2010 (moving from an individual rating of F to D/E and an affirmation of its long-term credit rating of A+) and its receipt of the Best Corporate Governance award from industry magazine Banker Middle East in 2011. The perceived stability has also been increased by the rights offer that enabled its recapitalisation, and the Kuwait Investment Authority taking a 16% stake in 2009.
BURGAN BANK: Founded in 1977, Burgan Bank is one of the youngest conventional operators in Kuwait. A subsidiary of Kuwait Projects Company (KIPCO), which retains a 55% stake, it operates a domestic network of 21 branches and a regional operation that includes subsidiaries in Algeria, Iraq and Jordan.
The focus of its activity in 2010 was restructuring its balance sheet, which resulted in a decrease in net profit to KD4.7m ($16.9m) from the KD6.2m ($22.4m) of 2009, despite an increase in operating profit, which has shown a positive trend throughout the financial crisis. In 2011 the bank showed a return to profit growth, announcing a year-on-year rise in net profit to KD16.1m ($58.04m) for the third quarter, with overall 9-month profits of KD41.4m ($149.2m).
Total assets were KD3.75bn ($13.52bn) at the end of September 2011. Numbers were down a bit due to the slowdown affecting the entire domestic sector at the end of 2011, but the bank looks to be continuing a solid performance, allowing it to retain its healthy long-term credit ratings of A2 from Standard and Poor’s and Moody’s, and A- from Capital Intelligence.
COMMERCIAL BANK OF KUWAIT: Established in 1960, Commercial Bank of Kuwait (CBK) is the second-oldest bank in the country, with total assets of KD3.62bn ($13.05bn) at the start of 2011. With 55 branches, it operates the second-largest domestic network, which it has been assiduously expanding since the introduction of a computerised banking system in the 1970s. Its international activity takes the form of reciprocal business with correspondent banks in regional and global markets, through which it has been able to establish a sizeable fee income.
The bank celebrated its 50th anniversary in 2010, after a difficult 2009 which saw its net profit decline to KD146,000 ($526,476). However, after widening its customer base and focusing on core business CBK was able to post a net profit of KD40m ($144m) in 2010.
While operating profit continued to increase in 2011, net profit took a 94.4% drop year-on-year in the second quarter to KD129,000 ($465,174) as a result of provisions against the banks investment and loan portfolio – a legacy of the deterioration of asset quality revealed in 2008. Although the issue of non-performing loans do remain a concern for the bank, (they were standing at 12.8% in June 2011), its efforts to rehabilitate its loan book have enabled it to retain its long-term rating of A2 from Moody’s, meaning it continues to remain a viable contender for the sector.
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