Bank sector Q1 profit up 6.9% y-o-y
Boursa Kuwait performance during week more active
OInterest Rates
ver one and a half year (since 16 December 2015 until June 14, 2017), the Federal Reserve Bank raised the base interest rate on the US dollar four times at an average of 0.25% point each time to become 1.25%. The base interest rate was fixed and close to zero (0.25%) since the global financial crisis in 2008 until December 2015 because the concern of the US Federal Reserve Bank was about stimulating the fragile growth and not fear of inflation. Even when it raised the interest for the first time on December 16, 2015 with a promise to raise it three times in 2016, it did only once at the end of 2016 due to continued weak inflation rates, weak labor market, and fragility of global economy, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
The Central Bank of Kuwait has raised the discount rate on the Kuwaiti Dinar by 0.25% point on December 17, 2015, December 15, 2016 and March 16, 2017 simultaneous with the three US Federal increases. CBK decided not to raise the discount rate this June to act against its subordination to the US dollar interest rate movement since December 2015. That is not a precedent in modern history as since the start of the current millennium, the US Federal Reserve Bank raised or lowered the base interest rates on the US dollar 47 times and the Central Bank of Kuwait disagreed 10 times on increase and disagreed 11 times in case of decrease, and the Central Bank of Kuwait moved unilaterally once in case of increase, 5 times in case of decrease. In our last report about interest rate movement in December 2016, we mentioned that the Central Bank of Kuwait’s choice is between bad and worse; the bad is to raise the interest rate similar to the US dollar to sacrifice the concern with the weak growth of the Kuwaiti economy against repatriation of the Kuwaiti Dinar. The worse is to allow reducing the attractiveness of the Kuwaiti Dinar by not raising its interest rates on the Kuwaiti Dinar against the US dollar which could endanger its repatriation, i.e. shifting to dollar deposits thus adversely affecting growth.
This time it seems that the fragile domestic economic growth and the unexpected drop in oil prices, despite extending production cuts agreement, and difficult operation environment at banks because of weak economic growth and the negative geopolitical events the latest of which was the rift among GCC states drove the Central Bank of Kuwait to fix the discount rate on Kuwaiti dinars. To compensate depositors, it raised the interest rate on Government securities-bondsdiscount by a 0.25%, to compensate banks all allow them to raise the return on deposits by the same amount. This action represents the attempt of the Central Bank of Kuwait to keep the difference margin on deposits in favor of the Kuwaiti dinar against the American dollar as is while keeping interest rate on loans unchanged to encourage borrowing and it bears the increase cost of the (repo) rate or securities discount. That is a complex process of conciliation between the goal of repatriation of the Kuwaiti dinar and the goal of supporting the credit market, which is not without cost, but it represents the lowest possible cost at the present juncture. The biggest anomalies that threaten Kuwait’s Central Bank’s policies are that the most influencing variables in the movement of interest rates have become beyond its control. The US Federal Reserve Bank may re-lift the interest rates in any future quarter, the domestic financial policy is still dominating, and the geopolitical events are beyond anyone’s control.
Some Energy Statistics 2016
Volume 2017 titled “BP Statistical Review of World Energy — June 2017” issued by British Petroleum (BP), and published on its website, indicates that the growth in global primary energy consumption remained low in 2016, at 1%. The increase in the growth rates of consumption of global energy vis-à-vis 2015 scored 2.8% for hydroelectricity, 1.6% for oil, 1.5% for natural gas, 1.3% for nuclear energy, and -1.7% for coal — most polluting—.
Global proved oil reserves in the end of 2016 scored about 1706.7 billion barrels, a rise by about 15.2 billion barrels from 2015. The Middle East region contributes about 813.5 billion barrels, i.e., about 47.7% of global oil reserves, and about 99.3% (of the 47.7%) of which is in the Gulf region (GCC excluding Bahrain and including Iran and Iraq). South and Central America contribute about 19.2% (about 327.9 billion barrels), and North America contributes about 13.3% (about 227.5 billion barrels), while Europe and Central Asia contribute 9.5% (about 161.5 billion barrels), Africa by about 7.5% (about 128 billion barrels), and finally Asia Pacific by 2.8% (about 48.4 billion barrels).
The Middle East region produced 34.5% of global oil production in 2016, which amounted to about 92.150 million barrels/day (Saudi Arabia 13.4%, Iran 5%, Iraq 4.8%, UAE 4.4% and Kuwait 3.4%), and ME contributes (as mentioned earlier) about 47.7% of global oil reserves. North America produced 20.9% of global oil production (USA 13.4%), Europe and Central Asia 19.2% (Russian Federation 12.2%), Asia Pacific 8.7% (China 4.3%) Africa 8.6%, South and Central America 8.1%. Asia Pacific consumed about 34.8% of global oil consumption (China 12.8%, India 4.6%, Japan 4.2%, and South Korea 2.9%), North America consumed about 24.7% (USA 20.3%), Europe and Central Asia consumed about 19.5% (Russian Federation 3.3%). This means oil is consumed beyond where its reserves are concentrated, which attaches high strategicimportance to the Gulf region. The magnitude of consumption started to tilt eastwards and will increase with time, for China, India and Japan now consume collectively more than the USA.
The Middle East region’s contribution to the natural gas reserves is about 42.5% of global reserves, where Iran contributes about 18% of global reserves, Qatar about 13%, Saudi Arabia about 4.5% and UAE about 3.3%. Europe and Central Asia account for about 30.4% of global reserves (Russian Federation 17.3% and Turkmenistan 9.4%) and produce about 28.2% of global natural gas production (Russian Federation 16.3%), and Europe and Central Asia consumed about 29.1% of global natural gas consumption (Russian Federation 11%), and North America produces about 26.7% of global production, though it owns 6% of global natural gas reserves only. North America consumes slightly more natural gas than it produces, i.e. about 27.3% of global consumption (USA 22%); Asia Pacific consumes about 20.4%, and has 9.4% of global reserves and produces 16.3% of global production. This means natural gas consumption is concentrated more in its production sites.
Coal reserve is distributed differently, with Asia Pacific accounting for about 46.5% of global reserves, (China 21.4%, Australia 12.7% and India 8.3%). While Europe and Central Asia accounts for 28.3% (Russian Federation 14.1%). North America has about 22.8% (USA 22.1%). In terms of production, also Asia Pacific surpasses all others by a production rate of 71.6% of global production (China 46.1%). Europe and Central Asia produces 11.5% of global production (Russian Federation 5.3%), while North America accounted for 11% (USA 10%). Asia Pacific consumes about 73.8% of global consumption (China 50.6%), Europe and Central Asia consumes about 12.1%, while North America consume about 10.4%. From the foregoing, it is obvious that the characteristic concentration of coal reserves in consuming countries justifies the growing demand on it, and the growth in its consumption rates, although it is being the most pollutant energy source.
In conclusion, oil still tops consumption of energy components as it captures about 33.3% of the total leaving 28.1% for coal, 24.1% for natural gas, about 6.9% for water energy, 4.5% for nuclear energy and 3.2% for renewable energy.
Aggregated Performance for Banks’ Sector – First Quarter 2017
The banking sector contains 10 Kuwaiti banks achieved noticeable growth in its net profits in the first three months of the current year visà-vis the same period of 2016. First quarter 2017 profits scored KD 196 million, after deducting taxes and minority equities, rising by KD 12.6 million or by 6.9%, compared with KD 183.4 million in the same period of 2016. The 10 banks’ operational profits prior to discounting provisions increased by KD 75.1 million, or by 23.9%, and scored about KD 388.7 million compared with KD 313.6 million. Therefore, due to rise in operational incomes of the banks by 8.8%, versus a reduction in total expenditures by 1.1%. The impact was reflected directly on the rise in net banks’ profits. Despite the rise in incomes, the Kuwaiti banks continued to implement blocking provisions against non-performing loans. Total provisions blocked scored KD 162.6 million in the first quarter compared with KD 132.9 million, rising by 22.3% while it decreased by 2% of the last quarter of 2016, when it scored KD 166 million. Therefore, the rise in total provisions might affect negatively the rise in banks’ net profits unless improvement in operation environment continues, which is highly doubtful.
Profits of the five traditional banks scored about KD 121.8 million, which is 62.2% of total net profits of the 10 banks, rising by 3.7% compared with the same period of last year. While share of the Islamic banks scored KD 74.1 million, which is 37.8% of the 10 bank’s net profits, rising by 12.6% from its level of the same period last year. This means the performance of Islamic banks continued to grow at higher rates. (P/E) for the banking sector on annual basis scored 14 times compared to 13.9 times for the same period last year. The average return on total assets rose slightly to 1.1% compared with 1%. While the average return on equities (ROE) remained at 8.5% for both periods.
When comparing the performance of the 10 banks, “NBK” continued to achieve the highest value in profits which scored KD 85.4 million (15 fils earnings per share), about 43.6% of the banking sector net profits, a rise by 8.1% vis-à-vis the same period of 2016, due to the rise in interests returns and net incomes from Islamic financing. “KFH” achieved the second
highest profits by KD 38.6 million (6.8 fils profit per share) or by 19.7% of the ten banks’ net profits and by growth rate of 13.1% compared with the same period last year, due to the increase in net financing incomes, commissions fees, and investment incomes. “Warba Bank” achieved the highest growth in profits by 297.6% and scored KD 1.3 million compared with KD 328 thousand, due to the rise of the financing portfolio by 66% compared with the first quarter in 2016, addition to the rise in net incomes of commissions and fees. While “Commercial Bank of Kuwait” achieved KD 795 thousand profits compared with KD 7.8 million, retreating by 89.8%, due to rise in provisions by 36.7% during the first quarter, which is the highest quarterly blocked provisions since 2013. Therefore, it is the only bank among others whose profits dropped in the first quarter of 2017.
Warba Bank Financial Results –
First Quarter 2017
Warba Bank announced results of its operations for the first quarter of the current year, which indicate that the Bank’s net profits -after tax deduction- scored about KD 1.3 million, compared with KD 328 thousand for the same period of 2016, showing that the bank continues its positive performance achieving growth in its profits by KD 976 thousand. This is due to the rise in total operational incomes by higher value than the rise in total operational expenses. Therefore, the operational profit rose by about KD 2.6 million, scored KD 3.8 million, compared with KD 1.1 million.
In details, total operational incomes of the bank increased by about KD 2.9 million and scored KD 7.7 million, compared with KD 4.8 million for the same period 2016. This resulted from the rise in all operational incomes components, including the item of net financing incomes, by KD 2.3 million and scored KD 5.7 million (74.5% of total incomes) vis-àvis KD 3.5 million (72.4% of the total). Likewise, item of net fees and
commissions incomes rose by KD 448 thousand and scored KD 650 thousand, compared with KD 202 thousand. Further, the item of investment incomes increased by KD 169 thousand and scored KD 1.1 million, compared with KD 928 thousand.
Total operational expenses increased by less value than the rise in total operational incomes by KD 318 thousand and scored KD 3.9 million, compared with KD 3.6 million. All items of operational expenses increased except for the item of depreciation dropped by about KD 41 thousand. Percentage of total operational expenses to total operational incomes scored 51.3%, compared with 76%. Item of provision for impairment increased by KD 1.6 million and scored KD 2.4 million, compared with KD 800 thousand for the same period of last year. This explains the rise in the net profit margin to 16.9% in the first three months of the current year, compared with 6.9% for the same period of last year.
The bank’s financial statements indicate that total assets increased by about KD 188.4 million, or by 16.7%, and scored KD 1.315 billion, versus KD 1.127 billion in the end of 2016. While total assets increased by about KD 485.8 million, or by 58.6%, in comparison with the same period 2016, when it scored KD 829.6 million. Item of financing receivables rose by KD 142.7 million, or by 17.2%, and scored KD 970.5 million (73.8% of total assets) vis-à-vis KD 827.9 million (73.5% of total assets) in the end of 2016. It rose by KD 378.3 million, or by 63.9% compared with KD 592.2 million (71.4% of total assets) in the same period 2016. Percentage of total financing receivables to total deposits scored 85.6%, compared with 81.1%. Item of placements with banks rose by KD 22 million, or by 13.2%, and scored KD 188.9 million (14.4% of total assets) vis-à-vis KD 166.9 million (14.8% of total assets) in the end of 2016. It rose by 39.7%, or by KD 53.7 million compared with KD 135.2 million (16.3% of total assets) in the same period of 2016.
Figures indicate that the bank’s liabilities (without calculating total equity) increased by KD 110.8 million, or by 10.7%, to about KD 1.143 billion, compared with KD 1.032 billion in the end of 2016. It also increased by KD 406.3 million, or by 55.2%, if compared with the total in the same period of last year. Percentage of total liabilities to total assets scored about 86.9% compared with 88.8%.
Results of analyzing financial statements calculated on annual basis indicate that all the bank’s profitability indexes rose compared with the same period of 2016. The average return on equities relevant to the banks shareholders’ (ROE) increased to 5.5% compared with 1.4%. The average return on bank capital (ROC) increased and scored 5.2% versus 1.3%. Likewise, the average return on bank assets (ROA) increased to 0.4% compared with 0.2%. (EPS) scored 1.3 fils compared with 0.3 fils. (P/B) scored 1.5 times compared with 1.9 times.
The Weekly Performance of
Boursa Kuwait
The performance of Boursa Kuwait for last week was more active compared to the previous one, where all indexes showed an increase, the traded value index, the traded volume index, number of transactions index, and general index, AlShall Index (value weighted) closed at 385.7 points at the closing of last Thursday, showing an increase of about 8.4 points or about 2.2% compared with its level last week, and it increased by 22.7 points or about 6.3% compared with the end of 2016.
KUWAIT CITY, June 22: Kuwait stocks swung higher on Thursday to wind up the week on a firm footing. The price index rose 7.08 points in volatile session to 6,772.1 pts helped by bargain buying in select counters even as the overall mood remained dull ahead of the Id-Al-Fitr holidays.
The KSX 15 gauge added 1.29 pts to close at 920.21 pts while weighted index closed 0.53 points lower. The volume turnover meanwhile dipped further to hit the week’s lowest. 35.8 million shares changed hands — a 20.9 percent drop from the day before.
The sectors closed mixed. Consumer goods outpaced the rest with 1.86 pct gain whereas technology tumbled 7.8 percent, the biggest loser of the day. In terms of volume, financial services accounted for the highest market share of 36.9 pct and financial services trailed with 27 percent contribution.
In the individual shares, Burgan Bank rose 5 fils to 330 fils while Kuwait Finance House took in 2 fils partly recouping Wednesday’s losses. Humansoft Holding soared 100 fils to KD 4.200 and KIPCO dialed up 2 fils to settle at 338 fils.
Zain fell 2 fils to 425 fils and Ooredoo was down 10 fils at KD 1.090 extending steep losses in the previous session. Kuwait Telecommunications Co (VIVA) slipped 8 fils and logistics major Agility gave up 9 fils before winding up at 825 fils.
National Bank of Kuwait was flat at 695 fils after vacillating in a tight range while Gulf Bank took in 2 fils. The bank has posted a 6.7 pct increase in first quarter profit to KD 9.36 million from KD 8.77 million in Q1 of 2016.
The market opened slightly weak and headed north in early trade. The main index however failed to keep the momentum and reversed course half way into the session. It plumbed the day’s lowest level of 6,747.35 pts and rebounded thereafter to peak at 6,786.23 points in the final minutes before giving up most of the gains at close.
Top gainer of the day, Madar Finance and Investment Co rallied 15.59 pct to 21.5 fils while NICBM climbed 15.15 percent to stand next. Burgan Well Drilling Co tanked 19.32 pct, the steepest decliner of the day and Abyaar topped the volume with 4.7 million shares.
Reflecting the day’s uptick, the winners outnumbered the losers. 57 stocks advanced whereas 43 closed lower. Of the 123 counters active on Thursday, 23 closed flat. 1930 deals worth KD 7.2 million were transacted — a 41.8 pct dip in value from the day before.
National Industries Group rose 3 fils to 115 fils recouping almost all of last session’s losses while Metal and Recycling Co paused at 89 fils. Contracting and Marine Services Co climbed 9.8 fils and Heavy Engineering Industries and Shipbuilding Co dipped 5 fils.
Jazeera Airways added 3 fils while ALAFCO extended Wednesday’s losses with a 3 fils drop to 307 fils. Eyas Technical and Higher Education Co jumped 40 fils. Educational Holding Group was up 9 fils at 369 fils. NAPESCO tumbled 100 fils to KD 1.350.
Climbed
Kuwait Foundry Co gained 11 fil and Acico Industries climbed 7 fils to 262 fils. Combined Group Contracting Co inched 1 fil up at 620 fils and Al Rai Media Group added 3 fils The company has posted 66.7% drop in profits in the first quarter of 2017 to KD 449,760.
Automated Systems Co took in 1 fil while OSOS dipped 15 fils to 122 fils. Gulf Finance Co rose 8.9 fils to 84 fils and Shuiba Industrial Co gained 30 fils. AWJ Holding dialed up 1 fil.
Mezzan Holding Co slid 29 fils to 911 fil while Zimah Holding dialed up 2.5 fils. Equipment Holding eased 0.8 fils and KPPC edged 1.1 fil into green.
In the banking sector, Commercial Bank partly erased Wednesday’s gain with a 5 fils drop to 315 fils and Al Ahli Bank was down 8 fils at 327 fils extending last session’s fall. Al Mutahed was not traded during the session.
Kuwait International Bank was unchanged at 246 fils and Boubyan Bank was not traded during the session. Warba Bank clipped 2 fils before closing at 255 fils.
National Investment Co was unchanged at 102 fils and Kuwait Investment Co took in 0.5 fils. International Financial Advisors took in 1.3 fils whereas Securities House Co clipped 2.1 fil. Alola fell 1 fil to 48 fils and Arzan gave up 3 fils.
KMEFIC and KFIC were unchanged at 30 fils and 46.5 fils respectively and Sokouk Holding too did not budge from its earlier close of 47.5 fils. Bayan Investment Co edged 0.2 fils up and Aayan Investment paused at 43 fils after trading 1.2 million shares.
KAMCO and Al Deera Holding were flat at 80.5 fils and 32 fils respectively whereas Noor Financial Investment Co and Amwal Investment Co gave up 0.5 fils each. Warba Insurance Co closed 1.3 fils in red.
Salhiya Real Estate Co and United Real Estate Co stalled at 385 fils and 84.5 fils respectively whereas National Real Estate Co added 2 fils on back of 1.2 million shares. Mabanee Co dialed up 1 fil and Abyaar clipped 0.2 fils after trading 4.7 million shares.
The market was largely downbeat during the week. The main index closed lower in three of the five session and shed 38 pts week-on-week. It has slipped 13 points from start of the month and is trading 17.8 pct higher year-to-date. KSE, with 188 listed companies, is the second largest bourse in the region.
In the bourse related news, Kuwait Finance and Investment (KFIC) rebounded to post a net profit of KD 146,350 in the first three months of 2017, from KWD 255,510 loss in first quarter of 2016. Operating income grew 76% year-on-year to reach KD 1.65 million.
Aayan Real Estate has recorded a 164.7 percent jump in its profits to KD 536,890 for the first quarter of 2017 from same period in the year before.
During 2016, the profit saw a 1.5% uptick to KD 2.75 million in 2016 from the previous year.
Ooredoo Kuwait has posted 26.6 pct jump in profits during the first quarter of 2017 to KD 12.93 million from KD 10.21 million in same period last year. It had recorded a growth of 75% in profits to KD 46.67 million during 2016.
Mowasat Healthcare has registered a a 40.2% increase in net profits in the first quarter of 2017, to reach KD 1.92 million as compared to KD 1.37 million in the year before period.
Al Ahleia Insurance ‘s first quarter net profit dropped by 14.5% in the first to KD 2.88 million from KD 3.37 million in Q1 of 2016. Operational income dipped 39.6 pct to KD 1.58 million.
National Ranges Company’s (Mayadeen) losses shrank by 18.2 pct in the first quarter of 2017 to KD 642,620 from about KWD 785,610 in same period of 2016.