Kuwait expected to log KD 9.24b surplus in ‘18
Consumer prices down 0.35 pct in first quarter
In a commendable and appreciated effort, the Audit Bureau issued last July a report about high risk issues which it summed up in 6 subjects within its authority and jurisdiction. This is quite rare to happen by an authority which financially and administratively is under the command of other authorities and yet criticizes them sincerely. We shall review them in two paragraphs in two weeks with three risks for each one. We believe in the good quality of diagnosis but the response and treatment are far behind, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
The first dangerous topic is the expenses of (medical) treatment abroad. After the issuing of the Council of Ministers decision No. (7852) in 2014 to address the shortcomings and gaps in health services, allocations for medical treatment abroad scored in 4 years (2013/2014 to 2016/2017) approximately KD 718 million while actual expenses for same scored KD 1,373 million, a 91.3% deviation between the estimated and the spent amount. This deviation peaked at 185.1% in the financial year 2016/2017. In our opinion, this means that in addition to inflated trusts account, which denotes financial unaccountability, is a striking example of corruption and bribery in the medical service and tourism. It thrives simultaneous completely with deterioration in oil prices despite all declarations of financial reform. Together with that huge waste abroad, the report states that there are five health projects with a contractual value of about KD 900 million with 38% for the lowest and 87% for the highest time spent for their completion, while their completion rates ranged between 8% and 24% only. This means weak commitment and failure of health service projects management both in the inside and also contradicts the decision of the Council of Ministers previously mentioned.
The second dangerous topic lies in the weak control over construction projects. This delays projects and completion of the development plan. The waste in public funds is caused by too many variation orders which delays utilization of projects as a result of delayed completion and issuing numerous timeline extensions, and lack of advanced readiness to run some of the completed projects.
The Audit Bureau gave examples of projects of 6 government agencies. The percentage of variation orders ranged from 3.45% for the Housing Care Institution and 29% for the Amiri Diwan. As for compliance with the original contract term, the best was Ministry of Electricity & Water at 71.11% and the lowest was for Ministry of Health at about 6.25%. The Audit Bureau’s disapproval of contracts in the research period, the minimum was 5 years for the Housing Care Institution and the maximum was at 45 years for the Ministry of Public Works. One striking example cited by the Audit Bureau is the University City Project. The original allocations for the project were about KD 475 million but implementation costs rose to KD 1,597 million -more than three times- and they may rise. Just for the record, the project will take from its idea in 1982 and its completion will take about 40 years by the year 2022.
The third dangerous topic is that most government agencies are not ready to deal with disasters’ impact on IT systems and provided services. The Audit Bureaus conducted research on 69 government entities classifying their readiness from high, good, acceptable and low readiness. It concluded in its report that there are 4 Government agencies with “high” readiness, namely, the Central Bank of Kuwait, Kuwait Oil Company, Ports Institution and the Housing Care Institution. 8 government agencies got “good” readiness rating. Thus 12 governmental bodies out of 69, i.e. 17.4%, enjoy high to good readiness, while 29 others got acceptable rating, and 28 others are with “low” readiness.
The above are just half of the dangers contained in the Audit Bureau’s report. The Audit Bureaus is struggling to develop its monitoring to include revealing errors and flaws and provide recommendations and advice for containing them. More importantly perhaps is to develop the monitoring approach which now includes advance warning against errors that may occur if the financial policy continues to adopt short-term solutions to counter come bottlenecks at the expense of weakening opportunities of public finance sustainability.
Monetary & Economic Indicators – (January-March 2018)
The quarterly statistical bulletin of the Central Bank of Kuwait (January to March 2018) published on its web page mentions some economic and monetary indicators whose developments deserve follow up and documentation. For example, the total population in Kuwait has reached 4.525 million as of the end of the first quarter of this year, which is about 25,000 more than the figure recorded at the end of last year. This means that the quarterly annual growth rate of the population has reached about 0.55%, which will reach about 2.2%, if calculated on an annual basis.
The bulletin also indicates that balance of trade — Commodity exports minus commodity imports — achieved KD 2.310 billion surplus in the first quarter of 2018, a 19.2% rise compared to the surplus in the 4th quarter of last year. Kuwait commodity exports during this quarter scored about KD 4.936 billion of which 89.3% were oil exports. The value of commodity imports — excluding the military — scored about KD 2.626 billion. Kuwait achieved surplus in the first quarter of last year (2017) by about KD 1.625 billion; it dropped to about KD 1.472 billion in the second quarter, KD 1.433 billion in the third quarter and about KD 1.938 billion in the fourth quarter due to the rise in oil prices. This means that the balance of trade in 2017 achieved a surplus of about KD 6.468 billion, of which about 89.7% was oil exports. This surplus is higher by 38.4% than its counterpart in 2016 which was in the amount of KD 4.672 billion. The value of commodity imports in 2017 scored about KD 10.191 billion. This year’s surplus is expected to score KD 9.240 billion if the first quarter surplus is repeated and oil prices remain higher than US$ 60 per barrel. Therefore, trade surplus may range from 30 to 40%.
Consumers’ prices during the first quarter of this year decreased by about -0.35%. Their average scored 112.7 (2013=100) down from 113.1 in the fourth quarter of last year. This is due to the impact of the drop in the prices of clothing and footwear from 106.8 to 105.6 (-1.1%).
The bulletin indicates a drop in the weighted interest rates of balances on deposits from about 1.621% in the fourth quarter of last year to 1.607% in the first quarter of this year, a quarterly drop rate by -0.9%. While the weighted interest rates of balances on loans continued to rise from about 4.748% to about 4.850% for the same period, i.e. a quarterly rise by 2.1%.
Private banks’ deposits with local banks reached about KD 35.371 billion, with a slight drop from KD 35.401 billion at the end of 2017, or -0.1% quarterly drop. Finally, domestic banks’ demands on the private sector rose to KD 37.366 billion up from KD 37.199 billion at the end of last year, a quarterly rise rate by 0.4%.
Comparative Performance of Selected Stock Markets – July 2018
July’s performance was active for most sample markets. 12 markets out of 14 achieved gains while only 2 markets achieved losses, of which one of them had very slight losses. This positive performance has moved 3 new markets to the positive zone in their gains since the beginning of this year. Thus, the number of winning markets became 9 markets since the beginning of 2018. Five markets remained in the negative zone.
The biggest gainer in July was Qatar Stock Exchange whose index gained 8.9% raising its gains to 15.3% since the beginning of the year, leading the gainers in what appears to be the beginning of adaptation to continued Gulf crisis. The second biggest gainer in July was Kuwait Bourse according to Al-Shall index which gained about 7.2% in one month while All-Share index of Kuwait Bourse gained about 5.7%. The beginning of adaptation to the new Kuwait Bourse regulations aligned with the big rise in its liquidity played a main role for those gains. The third biggest gainer was Abu Dhabi Securities Exchange whose index added 6.6% in July to boost its gains which scored 10.5% since the beginning of the year. This dynamic performance placed four GCC markets in the leading markets since the beginning of the year: led by Qatari market with 15.3%, Saudi market 14.8%, Kuwaiti market 11.6% according to Al-Shall index, and Abu Dhabi market with 10.5% as we mentioned earlier. Unexpectedly, all other developing and emerging markets achieved gains during July despite the trade war that has become reality. This means those gains are either temporary and driven by speculation contrary to expectations or they no longer take the US threats seriously.
The biggest loser in July was the Muscat Securities Market (MSM) whose index lost -5.1% in one month. This was enough to drop it to the bottom of losing markets, with about -15% losses since the beginning of the year. The second and last loser in July was the Saudi market with a slight loss by about -0.2%. Nevertheless, it remained second in the top performing markets since the beginning of the year.
The disparity among stock markets in the Gulf region remained present. While the top four gainers were Gulf markets, two out of three markets settled at the bottom of the losing zone with double-digit losses, 10% or more, according to their performance since the beginning of the year, including Shanghai Stock Exchange. The performance of the Bahrain Bourse improved and its index gained about 3.6% in July which moved it from the negative zone in its performance since the beginning of the year to the positive zone with 2% gains, thus, becoming the fifth stock market in the Gulf region in the positive zone.
Our expectations for the month of August remain the same as it was for July, positive performances in majority for Gulf stock exchanges and negative performances in majority for developing and emerging markets. We should recall that our expectations for mature and emerging markets for July were incorrect.
Al-Ahli Bank of Kuwait Financial Results (ABK) – First Half
2018
Al-Ahli Bank of Kuwait announced results of its operations for the first half of the current year which showed that the bank’s net profits (after tax deduction) scored about KD 19.2 million, a rise by KD 2.9 million or by 17.8%, compared with KD 16.3 million. This rise in net profits is due to the absolute rise in total operating profit by a higher value than the rise in total operating expenses. Therefore, the bank’s operating profit increased by about KD 4.9 million or by 10.4%, and scored KD 51.7 million versus KD 46.8 million in the same period of last year.
In details, total operating income rose by KD 8.3 million or by about 11%, to KD 83.8 million versus KD 75.5 million. This resulted from the rise in the item of net interest income by KD 4.9 million or by 9.1%, to KD 58.7 million compared with KD 53.8 million for the same period of 2017. Item of net gain on investment securities rose by KD 3.5 million to KD 3.8 million versus KD 293 thousand.
On the other hand, total operating expenses rose by a lower value than the rise in total operating income by about KD 3.4 million or by 12%, and scored KD 32.2 million versus KD 28.7 million for the same period of 2017. This is due to the rise in all operating expenses items. Percentage of total operating expenses to total operating income scored 38.4% compared with 38%. Total provisions increased by KD 1.9 million or by 6.8%, and scored about KD 30.5 million versus KD 28.6 million. Therefore, the net profit margin rose and scored about 18.4% versus 18.1% for the same period of 2017.
Total bank assets scored KD 4.479 billion a rise by 2.7% increase or by KD 117.5 million compared with KD 4.362 billion in the end of 2017. Total assets rose by 3.5% or by KD 152.2 million if compared with total assets in the first half of 2017 when they scored KD 4.327 billion. Loans and advances portfolio, the largest contributor to the bank’s assets, increased by KD 24.8 million or by 0.8%, raising the total portfolio to KD 3.100 billion (69.2% of total assets) versus KD 3.075 billion (70.5% of total assets) in the end of 2017. Total portfolio rose by KD 28.5 million, or by 0.9%, if compared with the same period of 2017 when it scored then KD 3.071 billion (71% of total assets). Percentage of total loans and advances to total deposits scored 84.9% versus 87%. Item of cash and balances with banks increased by KD 144 million or by 29.1%, and scored KD 639.5 million (14.3% of total assets) compared to KD 495.5 million (11.4% of total assets) in the end of last year. It rose by KD 119.4 million or by 23%, from its amount in the end of the same period of 2017 when it reached KD 520 million (12% of total assets).
Figures indicate that the bank’s liabilities (excluding total equity) increased by KD 120.7 million or by 3.2%, and scored KD 3.910 billion compared with KD 3.789 billion in the end of 2017. Total liabilities increased by KD 138.5 million or by 3.7%, when compared with its value in the first half of 2017. Percentage of total liabilities to total assets scored 87.3% versus 87.2%.
Analysis of the bank’s financial statements calculated on annual basis indicates that all bank profitability indexes increased compared with the same period of 2017. Average return on equities (ROE) rose to 6.7% from 5.8%. Likewise, the average return on the bank’s capital (ROC) also increased to 23.7% versus 20.1%. The average return on the bank’s assets (ROA) increased slightly to 0.9% versus 0.8%. Earnings per share (EPS) increased to 12 fils versus 10 fils. (P/E) scored 13.9 times (improved) compared with 16.4 times due to the rise in the bank’s (EPS) by 20% and the rise in the share’s market value 2.1%, against its price on June 30th 2017. (P/B) scored 0.95 times in both periods.
The Weekly Performance of
Boursa Kuwait
The performance of Boursa Kuwait for last week was more active compared to the previous one where the traded value, traded volume and the number of transactions showed an increase, and the general index also showed an increase. AlShall Index (value weighted) closed at 441.1 points at the closing of last Thursday, showing an increase by 7.8 points or by 1.8% compared with its level last week, it also increased by 54.1 points or by 14.0% compared with the end of 2017.
The following tables summarize last week’s performance of Boursa Kuwait