|21 January, 2020

Al Sager: NBK's consistent profitability is driven by solid fundamentals

NBK Group Chief Executive Officer, in interview with Al Arabiya TV

Al Sager: NBK's consistent profitability is driven by solid fundamentals
  • Strong core banking income and lower provision charges drove profit growth in 2019
  • NBK is a market leader in financing Kuwait’s infrastructure projects -, thanks to its sizeable balance sheet and proven track record
  • We reached an advanced stage in the implementation of our digital transformation strategy; which will make us a more competitive and dynamic bank
  • We have started a diversification strategy, and now it is paying off
  • Our expansion strategy is focused on our key growth markets while integrating our operations across all locations to increase the contribution to the group
  • Our strategy outside Kuwait focuses on increasing retail operations in Egypt, and growing AUMs for our wealth management business in Saudi Arabia
  • NBK’s risk-management prudent policy helps eliminate risks in markets
  • NBK “optimistic” about government plans to continue with its infrastructure spending and a positive view on credit growth in 2020

National Bank of Kuwait (NBK) has attributed the sustainable profitability growth to solid fundamentals, based on a strategy implemented over the years and aimed at diversification of income and operations, Al Arabiya TV has reported, citing Isam Al Sager, Group Chief Executive Officer of NBK.

“Our international operations accounted for around 30% of the Group’s net profit in 2019, while our Islamic banking arm, Boubyan Bank, dominated nearly 10% of earnings,” stated Al Sager.

Digital Transformation

NBK has reached an advanced stage in the implementation of the digital transformation strategy, and hence, it introduced its customers with continuously outstanding banking products and services.

“This boosted NBK’s competitiveness to be more dynamic bank,” Al Sager said.

NBK’s strategy of diversification and digital transformation boosted FY19 financial results. NBK reported net profit of KWD 401.3 million, up 8.2% year-on-year (YoY), despite operating slowdown in Kuwait; the bank’s main market.

FY19 higher profitability was driven by revenue from core banking business portfolio and the gradual decline in provisions’ allocation. Net operating revenue stood at KWD 895.5 million last year. Loans and advances grew 6.8% YoY to KWD 16.6 billion by 2019-end, while client deposits rose 10.7% YoY to KWD 15.9 billion for the same year.

FY19 profit growth and the healthy balance sheet coincided with the bank maintaining criteria for asset quality as well as capitalization, with the capital adequacy ratio (CAR) at 17.8%, exceeding the regulatory requirements. The non-performing loans (NPLs) to total loans ratio reached 1.1%, with a coverage ratio of 272.2%. 

Healthy Balance Sheet

NBK’s net interest margin (NIM) was impacted by the Central Bank of Kuwait's (CBK) decision to cut the discount rate.

“The banking sector capitalized on higher discount rates in 2017 and 2018, improving the banks’ NIMs. The CBK cut the discount rate - once last year - in Q4 2019; compared to three consecutive cuts by the US Federal Reserve throughout the year. This allowed the CBK to cut its benchmark rates while maintaining the local currency’s strength and resilience against the US dollar,” Al Sager added.

“NIMs were pressured by CBK’s decision to cut discount rate by 0.25% in 2019, compared to flat rates in 2018. However, we seek to offset this through cutting interest cost,” Al Sager noted.

NBK has abundant liquidity and a massive deposit base, thanks to its well-established position, healthy balance sheet, large market share and its competitive advantage. 

Credit Growth

Al Sager expressed optimism about improved operating environment in 2020, amid the government’s commitment to stimulate the economic activities, which in a way will accelerate the pace of the projects’ execution and increase the appetite for credit. The gross domestic product (GDP) of the Kuwaiti non-oil sector is forecast to grow at 2.5% in 2020, compared to a significant depression in 2019. 

Kuwait’s estimated budget for 2020/2021, announced last week, unveiled the government’s plans to maintain the investment expenditure levels unchanged despite widened budget deficit. Investment spending accounts for 16% of total public expenditure; a positive indicator as the state investment spending is the key driver of the economic activities and the credit growth.

NBK maintains a leading position among the local banks, as the key play on the financing arranged for the government projects, thanks to its solid balance sheet, market dominance and its proven track record, thus positioning it as a top financier for public and private sector projects.

“There is still a dire need to approve the new debt law in 2020 amid the mounting pressures on the state revenue, due to volatile oil prices, and the depletion of the General Reserve Fund (GRF).

“In case of approval, the debt law will significantly boost the credit growth rates,” Al Sager said.

International Operations

NBK currently focuses on bolstering presence in main markets and increasing market share, mainly, in Saudi Arabia and Egypt, where the bank made a remarkable progress, capitalizing on the growth of the international operations, the bank’s strategy of income diversification and its position as a top provider of digital services.

“We seek to increase our retail operations in the Egyptian market - the biggest regional market in terms of population- and boost our services for corporates,” Al Sager said, adding that NBK will continue to pursue expansions in the Saudi market, operate new branches, and expand its assets-under-management base, in the light of launching Al-Watani Wealth Management Company (NBK Wealth Management).

NBK had took the lead in overseas expansions, relying on a well-defined strategy aimed at adding value to our shareholders through evaluating the target market and its impact on target integration. This represents the main pillar of NBK’s strategy, which will be further applied in case of any available investments going forward.

Prudent Policies

NBK’s operations in Lebanon record an outstanding performance and play a key role in eliminating risks amid a diversification strategy on geographical and sector levels.

NBK-Lebanon, which is 85%-owned by the Group, has a little contribution to the Group’s assets and net profit.

“NBK adopts prudent risk-management policies in line with international criteria, which eliminates operating risks in its markets,” Al-Sager concluded.


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