Al-Sager: NBK is well-seasoned in weathering crises

NBK Group CEO, in an interview with Al Arabiya TV

• The 1Q profits reflect our resilient business model and prudent risk management approach
• Our priorities are to maintain a solid capital position and to build financial buffers that are consistent with our historical directions
• NBK has the strength, stability and operating resilience to face all the scenarios in 2021
• We will continue to focus on growing across all our business lines and to strengthen our position in key international markets
• We will maintain our conservative approach without deviating from our strategic plans or future growth targets
• Approving Public Debt Law will give Kuwait a low-cost solution to secure its financing needs

Mr. Isam Al-Sager, National Bank of Kuwait Group CEO, said that the bank continued to build on the good operational momentum witnessed since the end of last year, posting a KD 84.3 net profit for the first quarter of 2021, compared to KD 77.7 million for the same quarter of 2020, boosting by 8.5%.

Al-Sager added in an interview with Al Arabiya TV that the first quarter profits demonstrated the resilience of the bank’s well-diversified business model, prudent risk management, as well as the feasibility of its investments in technology over the past years.

Al-Sager noted that, in continuation of the signs of recovery seen by the end of 2020, provisioning has improved, starting from the fourth quarter of 2020, and the momentum of this improvement will continue into the first quarter of 2021, indicating that the continued reduction in provisioning will positively reflect on profitability in 2021.

Al-Sager stressed that the key driver of the bank’s profit growth is its strategy that focuses on growing income from core banking activities, as well as diversification in key growth markets, as well as continuing to invest in advanced technologies.

NBK takes into consideration that the pandemic is not yet over, and that its fallout is still weighing on the operating environment. Therefore, it will continue to embrace a conservative policy without deviating from its strategic plans or future growth track, he pointed out.

Throughout its history extending for seven decades, NBK has been able to weather many crises with finesse, and acted as a key contributor in the economic recovery in the markets in which it operates, Al-Sager explained.

Advice and support

Speaking on the corporate loan deferment program, Al-Sager emphasized that repayments are performing according to expectations over the past period, noting that the corporate loan deferment program was evaluated on a case-by-case basis, and the resulting interest was postponed for two quarters, the last of which is the first quarter of 2021.

He pointed out that the size of corporate loans deferrals was less than 5% of the total corporate loan portfolio, and it had no material impact on the revenue side during 2020, stressing that NBK works closely with its customers and provides them with the necessary advice and support to weather this crisis.

Solid financial position

Regarding the bank’s redemption of the USD 700 million perpetual bonds issued back in 2015, Al-Sager mentioned that these bonds were redeemable after 6 years, and the bank succeeded in repurchasing these securities in full in this month.

On the other side, last February, the bank issued additional Tier 1 capital bonds worth $ 700 million, which was used to finance the bank’s repurchase offer of its securities issued back in 2015.

Al-Sager added that NBK’s latest bond issuance captured strong demand from international investors, which is the third issuance within 6 months, giving the bank a significant advantage in pricing these bonds as one of the lowest regionally.

NBK Group CEO affirmed that the bank’s priorities will continue the course of preserving a solid capital position and providing financial buffers in line with its historic directions. The bank will also seek to diversify its financing base and enhance capital adequacy ratios in accordance with Basel III requirements and the directives of the Central Bank of Kuwait.

Net Interest Margin

On a question about how Net Interest Margin (NIM) is expected to evolve during this year in view of the record-low interest rate environment, Al-Sager stated that average NIM for 1Q 2021 was 2.26%, compared to 2.22% for 4Q 2020.

He explained that as interest rate environment is likely to remain unchanged on the medium term, we expect NIM indicators to remain within this range during the entire 2021, noting that, generally speaking, the bank recorded an improvement in NIM starting from the fourth quarter of last year, which was expected, thanks to our liability structure including term deposits that mature and get replaced by lower-cost deposits reflecting the current reduced discount rate.

Generating profits

In an answer to a question about dividend plans for 2021, Al-Sager mentioned that NBK has had a consistent dividend policy over the past years, noting that even in 2020, which was a challenging year amidst tough operating environment, the bank maintained the same dividend distribution ratio, underscoring the bank’s ability to generate profits and ensure sustained dividends for its shareholders.

Al-Sager indicated that in 2021, the bank will continue moving in the same direction while keeping a conservative policy of enhancing capital adequacy ratio and maintaining comfortable capitalization levels.

Operational resilience

Regarding the outlook for 2021, NBK Group CEO stated that the key challenges this year are the continued uncertainty regarding the end of this pandemic, which weighs on the operating environment.

Al-Sager emphasized that NBK has the strength, stability and operational resilience to face all possible scenarios, adding that on the other hand, over the past years, we have taken great steps to prepare our bank for the future through strategic investments in our people, operations and digital platforms.

Focus on digital transformation

Regarding the bank’s expansion plans, Al-Sager said: “We have a clear strategy that we are committed to implement, which is to focus on digital transformation and diversification, to continue focusing on growth in all our business lines, and to boost our competitiveness in our international markets.”

NBK seeks to expand in the retail and wholesale banking in the Egyptian market by investing in digital banking services as well as to strengthen its regional footprint in wealth management, added Al-Sager.

In Saudi Arabia, we will continue to strengthen our recently established wealth management proposition and link it to the Group’s global wealth management platform, he pointed out.

Good quarterly performance of loan portfolio

On loan portfolio performance during 1Q of 2021, Al-Sager commented: “Loan portfolio performance is compared with pre-pandemic levels. Therefore, we have to take into consideration that our loan portfolio recorded strong growth in the 1Q of 2020, before contracting for the rest of the year due to the consequences of the pandemic.”

When we compare loan portfolio performance on a quarterly basis, we are talking about a very good growth of 2% in the first quarter of 2021, compared to the fourth quarter of 2020, he noted.

Al-Sager said that during 2021, loan portfolio is expected to witness an average to high single-digit growth for the full twelve-month period, hoping that the increase in consumer spending recorded at the end of last year will continue, and that the decent pace of lending citizens will be sustained.

He also expected that the pace of awarding and implementing government projects in Kuwait will restore the momentum, which would be reflected on the private sector’s activity, thus contributing to create financing opportunities for banks.

Fintech

Al-Sager mentioned that the bank regards Fintech companies from a partnership perspective, as banks have the infrastructure that these companies can benefit from in providing their services.

On its part, and within its tireless efforts to prepare for the next generation of Fintech, NBK has established its Digital Factory to support our digital transformation agenda across the entire Group. The Digital Factory will act as a bridge to engage and partner with creative and innovative Fintech professionals, which will help the bank provide more advanced banking products, he added.

Financing challenges

Regarding the possibility of approving the public debt law, Al-Sager said that the efforts to pass the public debt law still face political divisions, but it is expected that, eventually, a consensus will be reached regarding this law, which will contribute to securing the State’s financing needs.

Al-Sager added that failure to pass the law will lead to depleting the liquidity available in the GRF soon, thus limiting the government’s ability to meet its obligations and exacerbate the financial and economic risks facing the Country.

Al-Sager warned of the possibility that Kuwait may undergo further downgrade of its credit rating in case economic reforms are not implemented and long-term financial challenges are not addressed, adding that according to the bank’s estimates, the general budget deficit for the fiscal year 2020-2021 is projected at KD 10 billion, which will lead to major financing challenges.

Al-Sager accentuated the need for Kuwait to benefit from the current globally low interest rates during and to have a presence in the debt market, indicating that in light of its very low public debt, Kuwait has room that can be utilized to secure the financing needs at a low cost.

- Ends –

© Press Release 2021