Boursa to receive new indirect investments up to $3.5b

Banking sector achieves noticeable growth in net profits during first 9 months

Upgrading Boursa Kuwait to MSCI Index

Efforts of the “Capital Markets Authority”, “Boursa Kuwait”, and “Kuwait Clearing Company” continued to achieve continuing success in reconciling their conditions in accordance with the requirements of emerging markets. Boursa Kuwait was promoted to the ranks of those markets, previously on FTSE Russell and Standard & Poor’s, and currently on MSCI. Between May 2019 and December 2019, Boursa Kuwait along with its partners managed to fulfill the last two requirements of the MSCI Index before the deadline as they promised. By May 2020, Boursa will receive new indirect investments up to US$ 3.5 billion. The importance is not for the amount which would be invested in Boursa as it does not exceed 2.94% of its current market capitalization. Besides, Kuwait does not suffer from investors’ scarcity having excess liquidity. The importance rather comes from raising the level of regulation and transparency, and comes from supporting the confidence level that has been missing since the 2008 crisis and to the first Boursa upgrade, says Al-Shall Economic Report prepared by AlShall Consulting Co headed by Jassem Al-Saadoun.

The need for confidence is not for the Premier Market companies that enjoy a high level of confidence as evidenced by obtaining about 80.9% of all Boursa liquidity from the beginning of this year until the end of last week and they achieved high gains for their prices. The Premier Market index gained about 31.5%. The need for trust is in its potential to extend to include the Main Market companies that, since the beginning of this year until December 26th, have only obtained 19.1% of the Boursa liquidity. That scarce liquidity assigned about 50% of the listed companies by about 1.1% of the Boursa liquidity. It is not required to call for pumping artificial liquidity to any company which raises the risk level but because more than half of the listed companies are sold by discount on their book value ranging between 30%-80% compared to their market values. Much is considered a promising investment opportunity. We believe that the three entities responsible for the Boursa need to complete their efforts to continue the filtering process for the listed companies. We believe that there are three due steps for further upgrading. The first is more audit for these companies’ financial statements in order to verify whether their shares’ book value is close to their fair value. The second step is not to be afraid of listed companies’ withdrawal; the purpose of listing is to achieve an acceptable level of the liquidity per share’ and unless that is achieved listing turns into a financial burden on the company and an unwanted surplus supply to the Boursa. What is needed here is to encourage the companies contemplating withdrawal to proceed with their decision. The third step is to encourage the establishment of public or private funds for the purpose of benefiting from the pressure on listed companies by buying controlling shares in them and restructure them financially and administratively to the interest of the Boursa in limiting the supply and improving the quality, and to the interest of the investor because they are profitable investments that need some money, patience, and some effort.

World Bank – Some Statistics

The World Bank report reviews some information and figures about the state of the world in 2019. These figures contain some hopes and some failures. We selected some of those numbers that we believe are important for us to know if the goal is a more human world. The report states that some progress has been made in reducing the level of severe poverty in the world. About 30 years ago, onethird of the world’s population lived under poverty line; today only about 10% live with an income below US$ 1.9 per day. Between 2000 and 2015, 15 countries managed to lift 802.1 million people to above the poverty line, 7 countries of them are in Sub-Saharan Africa. Half of the 736 million people living in extreme poverty live in 5 countries in South Asia and some African countries, and about 85% or 629 million who are extremely poor live in South Asia and Sub-Saharan Africa. According to a 2015 report, 23.88% of the world’s poor were in India and about 11.76% in Nigeria, meaning that it is much worse than India taking the difference in the total population into consideration. Then comes the Democratic Republic of the Congo by 7.49%, then Ethiopia by 3.67% then Bangladesh by about 3.32%, which represents about 50% of the world’s poor as defined by the World Bank. Another issue affecting the stability of the global economy’s performance is what the report mentions about the temptations of continued interest rates falling for over a decade that led to a rise in loans of emerging and developing economies of the world by 54% between 2010 and 2018. With this thrust for borrowing, the size of loans for these economies – public and private – are at a historical record level as a percentage of the gross domestic product of their economies, within the limits of 170%.

Repercussions of a severe crisis are going to happen unless these countries adopt policies to reduce their loan levels. A third painful issue, which is perhaps the product of poverty and economic and political crises, is that of refugees. The report states that the number of those who had to leave their homes – internal and external migration – scored 70.8 million people in 2018. Five countries top the list of the deportees and migrants: the highest is Syria with just less than 7 million people, or about 10% of the total, then Afghanistan by just under 3 million people and the South Sudan and then Myanmar and Somalia. In conclusion, all of the issues we mentioned are the result of the failure of public administrations is not only in adopting the wrong policies but also in the timing of being aware of these problems in advance which renders even good policies and decisions useless. This wrong timing which our regional states suffer from. Most suffering countries do not notice the absence of justice until it ends in violence. Most suffering countries do not pay attention to the risk of excessive borrowing until they fall into an inescapable trap, and most suffering countries are torn apart and push their people to migrate because they neglected building the foundations or rules of the state’s being.

The Aggregated Performance of the Banking

Sector – 30 September 2019

The banking sector, which includes 10 Kuwaiti banks, achieved noticeable growth in net profits during the first nine months of the current year compared to the same period in 2018, as the profits of the first nine months of 2019 (after deduction of taxes and minority rights) amounted to KD 744.7 million, an increase by KD 40.3 million or by 5.7%, compared to KD 704.4 million for the same period in 2018. This was achieved despite the drop in the operating profit (before deduction of provisions) by KD 4.8 million or by 0.4%, to reach KD 1.354 billion versus KD 1.359 billion, as a result of the rise in operating expenses for banks by 17.9% or by KD 311.5 million, i.e. a value slightly higher than the rise in total operating income, which increased by KD 306.7 million or by 9.9%. It is worth noting that the rise in the profits’ level is not comprehensive as figures indicate that 4 banks achieved a decline in their profits during that period. However, the rise in the level of net profits of 6 other banks compensated for the decrease and increased the total outcome for the entire sector. Profits for the third quarter of this year in the amount of KD 251.1 million have increased by 0.8% above the profits for the third quarter of 2018 in the amount of about KD 249 million. They increased by 1.4% from the profits for the second quarter of the current year in the amount of KD 247.7 million, and also increased by 2.1% from the first quarter profits in the amount of about KD 245.9 million. Banks continued, though at a slower pace, the policy of reserving provisions against irregular loans. Total provisions reserved in the first nine months of this year scored about KD 491.7 million versus KD 548.3 million, i.e. decreased by KD 56.6 million or by 10.3%. This means that part of the increase in net profits is due to the decrease in total provisions. Profits of the five conventional banks were at KD 438.8 million and represented 58.9% of the total net profits of the ten banks, rising by 2.4% compared with the same period of last year. While the profits of Islamic banks were at KD 305.9 million, representing 41.1% of the net profits of the ten banks, higher by 10.8% than their level in the same period last year. This means that the performance of the Islamic part of the banks during the first nine months continued to grow at higher rates. The (P/E) multiplier for the ten banks’ sector calculated on an annual basis was 17.1 times versus 15.1 times for the same period last year. The return on total assets (ROA) calculated on an annual basis decreased slightly to 1.17% versus 1.20%. Also, the annualized return on equity (ROE) decreased to 9.1% compared to 9.5%. When comparing the performance of the ten banks, the National Bank of Kuwait (NBK) continued to achieve the highest value in profits among the ten banks by scoring KD 302.2 million (46 Fils EPS), or 40.6% of the net profits of the banking sector, increasing by 10.9% compared to the same period in 2018, due to the increase in net interest income in addition to the decrease in total provisions. Kuwait Finance House (KFH) achieved the second highest profit level by KD 190.5 million (27.67 Fils EPS), or 25.6% of the net profits of the ten banks, an increase by 12.7% compared to the same period of last year as a result of higher investment income. Warba Bank achieved the highest relative growth in profits by 49.4%, as its profits amounted to KD 12.1 million compared to KD 8.1 million, as a result of the rise in all items of operating income. While Al-Ahli Bank of Kuwait (ABK) achieved KD 15.4 million profits compared to KD 27.1 million, i.e. a decrease by 43% due to an increase in the total provisions by a value higher than the increase in the operating profit. Therefore, it was the bank with the highest drop in profits. Profit levels of Kuwait International Bank (KIB), Gulf Bank and Burgan Bank decreased by 17.3%, 13% and 4.9% respectively.

Warba Bank Financial Results – 30 September

2019

Warba Bank announced results of its operations for the first nine months of the current year, indicating that the bank’s net profits (after tax deduction) scored KD 12.1 million compared with KD 8.1 million for the same period of 2018, showing a positive performance in achieving growth in its profits by KD 4 million or by 49.4%. This rise was due to the absolute rise in total operating income by a higher value than the rise in total operating expenses. Therefore, the operating profit increased by KD 4.1 million or by 18.7%, reaching KD 25.9 million compared with KD 21.8 million in the same period of last year. In details, the bank’s total operating income increased by KD 7 million or by 20.2%, and scored KD 41.9 million compared with KD 34.9 million for the same period of 2018. This resulted from the rise in all items of the operating income, most importantly item of net financing income that increased by KD 4.4 million, scoring KD 29.2 million versus KD 24.8 million. Also, item of net investment income increased by KD 1.6 million, to reach KD 8.8 million compared with KD 7.2 million. Total operating expenses increased by a lesser value than the increase in total operating income. It increased by KD 3 million or by 22.7%, reaching KD 16 million compared with KD 13 million, as a result of the total increase in items of staff costs and depreciation expenses by KD 3.7 million, while item of general & administrative expenses declined by KD 762 thousand. Percentage of total operating expenses to total operating income scored 38.2% compared with 37.4%. Item of provision for impairment dropped by KD 101 thousand and scored KD 13.22 million compared with KD 13.32 million. This explains the rise in the net profit margin to 28.9% compared with 23.3% in the same period of last year. The bank’s financial statements indicate that total assets increased by KD 890.2 million or by 40.6%, and scored KD 3.085 billion versus KD 2.194 billion in the end of 2018. While total assets increased by KD 1.113 billion or by 56.5%, if compared with the same period of 2018 when it scored KD 1.971 billion. Item of financing receivables rose by KD 462.2 million or by 28.7%, and scored KD 2.070 billion (67.1% of total assets) compared with KD 1.608 billion (73.3% of total assets) in the end of 2018. It rose by KD 617.8 million or by 42.5%, compared with KD 1.452 billion (73.7% of total assets) in the same period 2018. Percentage of total financing receivables to total deposits scored 79.6% versus 82.6%. Item of cash and balances with banks rose by KD 178.5 million, reaching KD 198.5 million (6.4% of total assets) compared with KD 20 million (0.9% of total assets) in the end of 2018. It rose by KD 142.9 million compared with KD 55.6 million (2.8% of total assets) in the same period of 2018. Figures indicate that the bank’s liabilities (excluding total equity) increased by KD 873.6 million or by 45.4%, to score KD 2.797 billion compared with KD 1.924 billion in the end of 2018. It also rose by KD 1.006 billion or by 56.2%, compared with a total of KD 1.791 billion in the same period of last year. Percentage of total liabilities to total assets scored about 90.7% compared with 90.8%. Results of analyzing financial statements calculated on annual basis indicate that the bank’s profitability ratios showed a mixed performance compared with the same period of 2018. The average return on equity relevant to bank’s shareholders (ROE) decreased to 8% compared with 10.6%. Likewise, average return on capital (ROC) dropped slightly to 10.79% versus 10.84%. The average return on bank’s assets (ROA) increased slightly to 0.61% compared with 0.58%. Earnings per share (EPS) scored 4.80 Fils versus 2.97 Fils. (P/E) scored 38.9 times (improved) versus 59.1 times, due to rise in EPS by 61.6% against a lower increase in the market share price by 6.4%. (P/B) scored 1.8 times compared with 2.3 times.

The Weekly Performance of Boursa Kuwait

The performance of Boursa Kuwait for last week was mixed, where the traded value, traded volume and number of transactions decreased, while the general index (Al Shall Index) showed an increase. Al Shall Index (value weighted) closed at 549.7 points as of last Thursday, showing an increase by 1.5 points or by 0.3% compared with its level last week. While it remained higher by 120.7 points or by 28.1% compared with the end of 2018.

The following tables summarize last week’s performance of Boursa Kuwait