National Bank of Kuwait (NBK): Banking

THE COMPANY: Acknowledged as the leader in the local banking industry, NBK was established in 1952 as the first national bank and first joint stock company in Kuwait and the Gulf region. NBK is the largest financial institution in the country with total assets of KD13.7bn ($49.39bn) and enjoys the status of having the largest market share of banking services.

NBK has long been recognised for its stable performance, as well as its clear strategy, consistent profitability, high asset quality and strong capitalisation. NBK has consistently earned the highest credit ratings among Middle Eastern banks from international ratings agencies in recognition of its high quality of assets, strong financial performance and solid capital base. Moody’s, Fitch Ratings and Standard & Poor’s have assigned NBK long-term ratings of Aa3, AA- and A+ respectively. Additionally, NBK was also twice been listed as one of the top-50 safest banks in the world.

The global economic downturn and financial turmoil have put the Kuwaiti banking sector to the test over the past three years. A drop in profitability, rising nonperforming loans (NPLs) and provisions have reflected the consequences of the unfavourable economic conditions. Lower business volumes, asset-quality deterioration and provisioning needs, along with scarce liquidity, have affected the creditworthiness of Kuwaiti banks since the fourth quarter of 2008. However, NBK displayed a strong resilience to the deterioration of the operating environment and maintained a high level of asset quality, adequate liquidity position, solid financial profile and low provisions relative to its peers.

NBK NPLs to gross loans ratio is the lowest in Kuwait at 1.7% compared to an industry average of 8.1% as of December 10, 2011; NBK also enjoys the highest NPL coverage ratio at 209% against an industry average of 68%. This indicates the solid position of NBK and its continuing ability to deliver healthy profits despite market uncertainties. NBK maintained its position as the most profitable bank in Kuwait with a net profit of KD302m ($1.09bn) for 2010, an increase of 14% over 2009.

Despite the improvement in operating profits, which grew by 10%, the bottom line results from the first half of 2011 showed a marginal growth of 1% to KD147m (529.93m), compared with KD145m ($522.72m) in 2010 due to rising provisions that more than doubled to KD28.5m ($102.74m) in the first half of 2011.

During 2010, NBK’s loan portfolio grew 0.5% to KD7.85bn ($28.29bn), lagging behind the annual growth rates of 12.4% and 17.5% in 2009 and 2008, respectively. This drop is mainly attributed to the adverse impact of the economic slowdown on corporate and retail customers, as well as the conservative lending policy pursued by the bank’s management. Growth in the credit market remained stagnant in the first half of 2011, which was reflected in the loan portfolio growth of a marginal 0.2% to KD7.87bn ($28.37bn).

In line with the liquidity squeeze, total deposits fell 3.8% during 2010 to reach KD10.5bn ($37.85bn), whereas it witnessed growth rates of 5.7% and 6.9% in 2008 and 2009, respectively. Nevertheless, the deposit base rose by 7.5% to reach KD11.3bn ($40.74bn) in the first half of 2011. NBK maintained its rank as the largest bank by deposits in Kuwait with a market share of 29%.

DEVELOPMENT STRATEGY: Recognised as the fastest growing segment in the Kuwaiti banking industry, Islamic banking is spurring domestic growth. To capitalise on the rising demand for Islamic banking services, NBK gained a foothold in this segment by acquiring a controlling stake in Boubyan Bank. Additionally, to further broaden the horizon of its operations, NBK strengthened its presence in several Middle Eastern countries.

Going forward, NBK’s performance is forecast to stay strong. Improvement was seen in asset quality as the ratio of NPLs to gross loans fell to 1.61%. It is expected that NBK will maintain its solid position in the market as one of the leading banks having the largest loan portfolio and deposit base. NBK’s vision remains focused on developing its brand regionally and will continue to pursue its selective approach to making acquisitions and to identify further opportunities in the region.