BURGAN Bank: Banking

THE COMPANY: BURGAN Bank, a subsidiary of Kuwait Projects Company (KIPCO), is a Kuwaiti-based commercial bank with a regional presence in eight countries, which was incorporated on December 27, 1975. The bank is engaged in the provision of banking and investment services to individuals and corporations. BURGAN was listed on the Kuwaiti bourse in 1984. It currently has a market capitalisation of $2.5bn. Despite the fact that BURGAN is considered the youngest commercial bank in Kuwait, it ranks among the country’s top banks, having the fourth-largest asset base, standing at $15.1bn as of June 2011. BURGAN’s presence in the domestic market, as well as the MENA region through its subsidiaries in Algeria (Algeria Gulf Bank), Iraq (Bank of Baghdad), Jordan (Jordan Kuwait Bank) and Tunisia (Tunis International Bank), assures the bank’s commitment to its diversification and expansion strategy. In 2010 BURGAN’s financial performance was reaffirmed by S&P Ratings Agency with BBB+ long-term and A2 short-term counterparty credit ratings.

BURGAN’s total assets grew at a strong pace in the 2005-10 period, posting a five-year compounded annual growth rate (CAGR) of 17% to KD4.15bn ($14.96bn) in 2010, up from KD1.89bn ($6.81bn) in 2005. With the intensifying financial crisis and tight credit markets, however, the bank’s asset base witnessed a marginal 1.1% growth in 2010, on the back of a drop in its loan portfolio to KD2.1bn ($7.57bn) from KD2.2bn ($7.93bn). Nevertheless, BURGAN’s loan portfolio posted a five-year CAGR of 22%. During the first half of 2011, total assets and net loans remained steady at KD4.15bn ($14.96bn) and KD2.15bn ($7.75bn), respectively. BURGAN’s non-performing loans (NPLs) to gross loans ratio remains among the lowest in Kuwait, improving to 6.1% in 2010 down from 10% in 2009. The NPL coverage ratio (with collaterals) also improved to 157% in 2010 compared to 87% in 2009, to stand at 180% as of June 2011. Asset quality improvement is supported by BURGAN’s healthy and diversified loan portfolio, where personal facilities constitute the main component of around 30%, while loans to the real estate sector constitute around 28.6% of the total. The remaining 41.4% is distributed among the real economic sectors including manufacturing, oil and gas and others.

The bank’s total deposit base grew at a five-year CAGR of 17% to KD3.5bn ($12.62bn) from KD1.6bn ($5.77bn) with customer deposits constituting around 74% of the total. Over the last three years, the bank further strengthened its shareholders’ equity base to KD434m ($1.56bn) as of June 2011, up from KD310m ($1.11bn) in December 2008, reflecting the strong and continued support from the bank’s shareholders and the implementation of its expansionary plan. The capital adequacy ratio improved to 21% as of 2010 compared to 16.9% in 2009, yet stood at 20% in June 2011 to stay well above the minimum level of 12% mandated by the central bank, therefore indicating that BURGAN remains well-capitalised and poised for growth.

BURGAN was able to remain profitable during the global economic downturn. Difficulties were evident, however, when in 2008 the bank’s net profit slumped 50% to KD37m ($133.38m) from KD74.8m ($269.65n), followed by drops of 83% ($22.35m) and 25% ($16.94m) in 2009 and 2010, respectively. This fall was mainly due to high provisions booked by BURGAN, amounting to KD83m ($299.21m) in 2009 and KD72m ($259.56m) in 2010. BURGAN recovered in the first half of 2011, reporting net profits of KD25.3m ($91.2m).

DEVELOPMENT STRATEGY: BURGAN was able to transform from a local bank engaged in the Kuwaiti market to a banking group with operations spread across the GCC and MENA regions. With the recent acquisitions of a controlling interest in several key banks, it has provided its shareholder’s with the highest return in the second quarter of 2011 among other local banks.

Looking forward, BURGAN is expected to strengthen its top-line performance, having witnessed a growth in its loan portfolio in the commercial and private financial services segments. BURGAN has an edge to expand its loan portfolio, therefore increasing its market share.