National Bank of Kuwait: Banking

NBK price & index relative performance NBK market ratios THE COMPANY: A leader in the local banking industry, the National Bank of Kuwait (NBK) was established in 1952 as the first local and national bank. NBK is the largest financial institution in Kuwait with total assets of KD16.4bn ($58.5bn) and enjoys the status of having the largest market share (over 30%) of banking services. NBK has always been recognised for its stable performance, consistent profitability, high asset quality and strong capitalisation. NBK has regularly earned the highest credit ratings among all Middle Eastern banks from international rating agencies. Moody’s, Fitch Ratings and Standard & Poor’s have assigned NBK long-term ratings of Aa3, AA- and A+, respectively. NBK is the only Kuwaiti bank to have access to both conventional and Islamic banking markets after acquiring a more than 58.4% stake in Boubyan Bank.

The global economic downturn has put the banking sector in Kuwait to the test over the past five years. A drop in profitability and rising nonperforming loans (NPLs) and provisions have reflected unfavourable economic conditions. Lower business volumes, asset quality deterioration and subsequent provisioning needs have been affecting the creditworthiness of Kuwaiti banks since the fourth quarter of 2008. However, NBK displayed strong resilience in the face of a deteriorating operating environment and maintained a high level of asset quality, adequate liquidity position, solid financial profile and low provisions relative to its peers. Since 2008, NBK has generated an accumulated net profit totalling KD1.43bn ($5.10bn) and return on average equity of 14.25%, while also distributing cash dividends and bonus shares of KD663m ($2.36bn) and KD154m ($550m), respectively.

NBK’s NPLs to gross loans ratio remains among the lowest in Kuwait at 2.8% compared to an industry average of 5.5% as of December 2012; NBK also enjoys a comfortable NPLs coverage ratio at 152% versus an industry average of 99%. This indicates the bank’s solid position and ability to deliver healthy profits despite market uncertainties. Moreover, NBK maintained its leading position as Kuwait’s most profitable bank with a net profit of KD305m ($1.09bn) in 2012, accounting for 53% of the sector’s 2012 consolidated net profit.

Despite the improvement in operating profits that grew by 23% to record KD466m ($1.66bn), 2012 bottom line results remained stagnant due to rising provisions that more than doubled to KD139m ($1.26bn) compared to KD57.3m ($204.6m) in 2011. NBK booked provision of KD353m ($1.26bn) from 2008 to 2012 accompanied by an increase in NPLs to KD283.5m ($1.01bn).

During 2012, NBK’s loan portfolio grew at 20.7% to KD9.87bn ($35.25bn), showing improvement compared to the annual growth rates of 4.2% and 0.5% in 2011 and 2010, respectively, grabbing the lion’s share in the local credit market with 30% of aggregate loans. This increase is mainly attributed to the impact of consolidating Boubyan Bank after NBK successfully acquired an owning stake in the bank. Boubyan Bank’s net loan portfolio recorded KD1.27bn ($4.5bn) versus a customer deposit base of KD1.4bn ($5bn) in 2012.

Total deposits increased 23% during 2012 to reach KD13.7bn ($48.9bn), whereas it witnessed growth rates of 6.2% and a drop of 3.8% in 2011 and 2010, respectively. NBK managed to maintain its rank as the largest bank by deposits in Kuwait with a market share of 30.5%.

The bank’s capital adequacy ratio stood at 17% as of December 12 compared with 18.3% in 2011, well above the 12% mandated by the Central Bank of Kuwait.

DEVELOPMENT STRATEGY: NBK’s diversification-focused strategy is based on four pillars: defending and growing domestic leadership; establishing an Islamic franchise by building Boubyan Bank’s capabilities; expanding globally and regionally; and building a leading regional investment bank by expanding NBK Capital’s strength. Going forward, NBK’s performance is forecasted to stay strong, as it maintains its same core shareholder base since foundation, coupled with stable management with a long-serving executive team and unrivalled track record. Likewise, we envision that NBK will maintain its solid position in the local market.