Audit Bureau report stresses need for fiscal reform
KUWAIT: A few institutions in the country still address minds and feel its pain while analyzing its conditions. The Audit Bureau is one of them and it recently issued a report on financial indicators derived from figures of FY 2015/2016. Whoever is concerned can infer how much -the Audit Bureau- is concerned with the future. Here we shall not review its report, but shall present some of its indicators. It states that the actual deficit for the FY 2015/2016 scored KD 5.975 billion up by about 119.6 percent from the actual deficit for the FY 2014/2015. The deficit will drop to KD 4.612 billion if the transferred amount to the Future Generations Fund is not deducted from the revenues, or it equals 11.4 percent of GDP with fixed prices for 2015, which is among the highest rates in the world.
The financial deficit is known and sustainable. According to the report, oil revenues for FY 2015/2016 declined by 58.8 percent and 46.3 percent below their levels for FY 2013/2014 and 2014/2015. Oil revenues represent 88.6 percent of the general budget revenues. Not only that, the supporting revenues, ie non-oil revenues, also dropped for the same period by about 38.1 percent and 35.7 percent.
Development of non-oil revenues was the goal of financial reform policies. The salary and wage bill within Chapters 2 and 5 amounted to KD 9.237 billion and would score KD 9.695 billion, if we added to them expenses of supporting indigenous labor in non-government entities. The cadres’ policy during the oil market boom attracted national labor to transfer from the private sector to the public sector contrary to reform policy. The report also states that the cuts in expenses during the period came at the expense of economic activities which lost 29.3 percent and 38.2 percent respectively from the previous two fiscal years levels, while community services expenses rose by 11.2 percent and 10.3 percent, respectively. Defense expenses increased by about 3.4 percent and 9.5 percent respectively contrary to the objectives of economic reform as well. The report states that the five-year development plan projects (2015/20162019/2020) adopt 368 projects: 106 developmental projects and 262 construction projects. The Audit Bureau follows them from expenses angle. But their relationship to development, ie creating sustainable job opportunities for the native manpower or their role in developing tax pot might be counterproductive.
In summary, the Audit Bureau records a lot of comments on that uncontrolled fiscal policy and its wrong composition and alludes to the impossibility of sustaining it. It hopes to have a proactive role in addressing its risks but unfortunately it cannot. Reform requires public administration very different from the recent government formation which though some of its characters changed and some 37.5 percent (60 percent for the National Assembly) but its core with the leadership key positions remained unchanged. There is no relationship between its recent formation and the results of the election; it is the same content which failed during the boom of oil market and failed during the beginning of its weakness era. It will repeat the same errors in the future besides being a fertile incubator for corruption. It is important to know that the financial and economic indicators mentioned by the Audit Bureau are real and sustainable deficit indicators and its gaps will expand and deepen if the public administration continues its old approach, which will inevitably occur, when treatment may not be available by time.
Local Real Estate Market
The latest released data by the Ministry of Justice -Real Estate Registration and Authentications Department- indicate rise in the real estate market liquidity during November 2016 vis-a-vis October liquidity. Total value of contracts and agencies trading scored KD 232.1 million which is higher in value by 40.8 percent than its counterpart value in October 2016 which was worth KD 164.8 million. But it dropped by -24 percent compared with November 2015 trading.
Trading during this month was distributed between KD 214.7 million for contracts and about KD 17.4 million for agencies. Number of real estate deals struck in this month was 384 deals distributed between 367 contracts and 17 agencies. The highest share percentage from deals went to Ahmadi Governorate with 125 deals representing about 32.6 percent of the total real estate deals. Hawalli Governorate came next by 72 deals representing about 18.8 percent. The lowest share went to Al Jahra Governorate by 23 deals representing about 6 percent of the total.
Value of private residential trading scored KD 74.8 million, down by about 14.3 percent compared with KD 87.3 million for October, representing 32.2 percent, of total real estate trading vis-a-vis 53 percent in October 2016. The monthly average value for private residence trading in the last 12 months scored about KD 88.4 million. This means that trading value in this month is lower by -15.4 percent compared with the average. The number of deals for this activity dropped to 257 deals (277 deals in October 2016). Therefore, the average value per deal of private residence activity scored about KD 291 thousand.
Investment housing activity dropped to about KD 57.9 million, -7.1 percent, vis‡-vis KD 62.3 million in October 2016. Its percentage out of total liquidity dropped to about 24.9 percent (37.8 percent in October 2016). Trading average value of investment housing during 12 months scored KD 75.7 million. This means that trading value in this month was lower by 23.5 percent than the 12 months’ average. Likewise, its deals rose to 112 (109 deals in October 2016). As such, the average deal value for investment housing scored KD 516.9 thousand.
Likewise, commercial activity trading value rose to about KD 96.5 million, a rise by 861.9 percent compared with October 2016 when it scored KD 10 million. The rise is exceptional and none recurrent. A main reason for this big rise is due to the selling of two commercial pieces of land of 20,294 square meters at Sabah Al Ahmad marine area. Its percentage out of total real estate trading value rose to 41.6 percent compared with 6.1 percent in October, 2016. Average value of commercial activity trading in 12 months scored KD 41.7 million. This makes this month’s trading value higher by 131.4 percent compared with 12 months average. Its deals scored 13 deals (6 deals in October 2016). As such, the average value per one deal for the commercial activity scored about KD 7.4 million. There were only two deals on warehousing trading activity in November and were worth KD 2.9 million vis-a-vis 5 deals worth KD 5.2 million in October 2016. When we compare November 2016 trading with its counterpart period in November 2015, we note a drop in the real estate market liquidity from about KD 305.4 million to KD 232.1 million, i.e. -24 percent. The drop involved the investment housing activity by -53.1 percent. Likewise, the private housing activity dropped by -24.8 percent while the commercial activity liquidity rose by 18.8 percent, i.e. from KD 81.2 million in November 2015 to KD 96.5 million in November 2016. If we compare total trading value since the beginning of 2016 until November 2016 with its counterpart period in 2015 we notice a drop in the total real estate market’s liquidity from KD 3.027 billion to about KD 2.194 billion, 27.5 percent. Assuming market liquidity would continue in the remaining one months of the year at the same level, market trading -contracts and agencies-value would score KD 2.393 billion which is lower by KD 924.9 million than last year’s total, i.e. -27.9 percent than 2015 amount which scored KD 3.318 billion.
Trading Features at Boursa Kuwait
Kuwait Clearing Company issued its report titled “Trading Volume According to Nationality” for the period of 01/01/2016 to 30/11/2016, which was published on Boursa Kuwait official website. The report indicated that individual investors are still the prevailing group though their share is declining; they captured 45.7 percent of total value of sold shares (49.3 percent for the same period 2015) and 41.5 percent of total value of purchased shares (45.9 percent for the same period 2015). Individual investors sold shares worth KD 1.170 billion and purchased shares worth KD 1.061 billion with a net trading, more selling, by KD 108.973 million.
Corporations and companies sector captured 33.3 percent of total value of purchased shares (29.7 percent for the same period 2015) and 26.8 percent of the same period 2015). As such, their net trading, purchasing, by KD 19.934 million.
Other investors share, out of total value of sold shares scored 11.3 percent, (10.3 percent for the same period 2015), worth KD 288.903 million and they purchased shares worth KD 247.390 million, or by 9.7 percent of total value of purchased shares (10.7 percent for the same period 2015); thus, their net trading value, the only one selling, by KD 41.513 million.
GCC Investors’ share, out of total value of purchased shares scored 3.9 percent (4.4 percent for the same period 2015), worth KD 100.991 million, while their total value of sold shares scored 3.1 percent (3.7 percent for the same period 2015), worth KD 79.411 million. Their net trading was, more purchasing, by KD 21.579 million. Relative distribution among nationalities changed slightly from the previous period 86 percent for Kuwaitis, 10.5 percent for traders from other nationalities, and 3.5 percent for GCC traders versus 85.5 percent for Kuwaitis, 10.5 percent for other nationalities and 4 percent for GCC traders, for the same period of 2015. This means Boursa Kuwait remained domestic though with more trading by foreign and investors from outside the GCC than from the GCC with trading prevalence to individuals. Number of active accounts between the end of December 2015 and the end of November 2016 dropped by -41.1 percent, (dropped by -56.7 percent between the end of December 2014 and the end of November 2015). Number of active accounts in the end of November 2016 scored 15,222 or 4.1 percent of total accounts, versus 15,458 accounts in the end of October 2016, i.e. about 4.2 percent of total accounts for the same month, dropped by -1.5 percent during November 2016.
Boubyan Bank Financial Results
Boubyan Bank announced results of its operations for the first nine months of the current year, which indicate that the bank’s profits -after tax deductions- scored about KD 29.7 million, a rise by KD 4.5 million, or by 17.8 percent, compared with KD 25.2 million for the same period of 2015. The rise in net profits is attributed to the rise in total operating incomes by a higher value than the rise in total expenses.
In details, total operating incomes of the bank increased by KD 9.2 million, or by 13.7 percent, and scored about KD 76.3 million vis-a-vis KD 67.1 million for the same period of 2015. This resulted from the rise in net financing incomes by about KD 7.5 million, to KD 65.4 million (represent 85.7 percent of total operating incomes) compared with about KD 57.9 million (about 86.3 percent of total operating incomes). Item of net income from investment incomes rose by KD 1.6 million to KD 2.8 million compared with KD 1.2 million. Also, item of net incomes from fees and commissions rose by KD 1.4 million and scored KD 7.7 million versus KD 6.3 million. But the share of results of associates item achieved losses by KD 1.4 million versus KD 509 thousand profits.
Total operating expenses increased by less value than the rise in total operating incomes, i.e. by KD 2.3 million, to KD 31.8 million versus KD 29.5 million in the same period of 2015, or by 7.9 percent. The rise included all items of operating expenses. Percentage of total operational expenses to total operational incomes scored 41.7 percent versus 44 percent. Total provision for impairment increased by KD 2.2 million to KD 13.4 million versus KD 11.3 million, a rise by 19.4 percent. This explains the rise in the net profit margin to 38.9 percent compared with 37.5 percent in the same period of 2015.
The bank’s financial statements indicate that total assets increased by about KD 338.2 million, or by 10.8 percent, and scored KD 3.471 billion (KD 3.133 billion in the end of 2015). The rise in total assets scored about KD 492.4 million, or by 16.5 percent, when compared with the same period of 2015, when it scored KD 2.979 billion. Item of Islamic financing to customers increased by KD 271.7 million, or by 12.5 percent, to KD 2.443 billion (70.4 percent of total assets), compared with about KD 2.172 billion (69.3 percent of total assets) in the end of 2015. It increased by 15.9 percent, or by KD 335.9 million, compared with KD 2.108 billion (70.8 percent of total assets) in the same period of 2015. Percentage of Islamic financing to customers to total deposits and other balances scored 81 percent versus 79.9 percent.
Figures indicate that the Bank’s liabilities (without calculating total equity) increased by KD 244.3 million and scored about KD 3.056 billion (KD 2.812 billion in the end of 2015). These figures would be bigger if we compared total liabilities with the same period 2015 and would be around KD 390.1 million, or rise by 14.6 percent, when they scored KD 2.666 billion. Percentage of total liabilities to total assets scored about 88.1 percent versus 89.5 percent. Results of analyzing financial statements calculated on annual basis indicate that all the bank’s profitability indexes rose compared with the same period 2015. The return on average equity relevant to the bank’s shareholders (ROE) increased to 12.1 percent (11.1 percent). Likewise, the return on average capital (ROC) increased to 18.7 percent (16.7 percent). The return on average assets (ROA) scored 1.20 percent (1.19 percent). (EPS) scored 13.7 fils versus 11.6 fils. (P/E) scored 21.1 times, -improved- compared with 26.1 times, as a result of increase in earnings per share by about 17.7 percent above its level in September 2015 against a decrease in the market price by 4.9 percent below its price on September 30, 2015. (P/B) scored 2 times versus 2.7 times.
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, Al Shall Index (value weighted) closed at 363.6 points at the closing of last Thursday, showing an increase of about 5.9 points or about 1.6 percent compared with its level last week, while it decreased by 2.3 points or about 0.6 percent compared with the end of 2015.