Kuwait deficit figure expected to touch KD 4.5bn to KD 5bn: Report

KD 420.5 million collected from non-oil revenues in five months

KUWAIT: In its monthly follow-up report for the State’s Financial Administration until August 2017 (published on its website), the Ministry of Finance indicates a continued drop in its revenues. Until 31/08/2017, the first 5 months of the current fiscal year 2017/2018, total collected revenues amounted to approximately KD 5.725 billion, about 42.9 percent of the total estimated revenues for the entire current fiscal year in the amount of approximately KD 13.344 billion.

In detail, actual oil revenues until 31/08/2017 scored about KD 5.304 billion, i.e. 45.3 percent of estimated oil revenues for the entire current fiscal year in the amount of KD 11.711 billion, or about 92.7 percent of total collected revenues. The average Kuwaiti oil price for the 5 months scored $47.5 per barrel. An amount of KD 420.5 million was collected from non-oil revenues during the same period, a monthly average by KD 84.1 million, while the total estimated amount for the entire current fiscal year was about KD 1.643 billion. This means the realized amount will be less for the entire fiscal year by about KD -624.3 million than the estimated.

Expenditures allocations for the current fiscal year were estimated at about KD 19.9 billion, of which an amount of KD 5.236 billion was actually spent according to the bulletinuntil 31/08/2017, a monthly spending average by KD 1.047 billion. We, however, do not recommend relying on this figure because there are expenses which have become due but have not been actually spent. Spending in the last month of the fiscal year will be much higher when settlements are made and then in the final account. Although the bulletin concludes that the budget in end of the first five months of the current fiscal year scored a surplus by about KD 488.938 million before deducting the 10 percent of revenues for the Future Generations Reserves, we publish it without recommending its endorsement as we believe that the surplus figure will revert into deficit in the end of these five months and with the issuance of the final account. Deficit figure depends mainly on oil price and its production in the remaining 7 months of the current fiscal year. We anticipate it to be between KD 4.5 billion to KD 5 billion.

Performance of Boursa Kuwait

Boursa Kuwait performance during the third quarter of the current year was more better due to the rise in most important of its indexes; Al-Shall index and the Boursa weighted and Kuwait 15 indexes, due to the high rise in its liquidity, the most important index, coupled with mature trends. First, its rise maintained the escalating pace in the quarter’s end contrary to the second quarter and it is biased towards operational companies.

AlShall index rose by 46.7 points or by 12.3 percent vis‡-vis the end of second quarter, likewise the Boursa indexes rose between the two quarters by 7.9 percent for the weighted index, 9.6 percent for Kuwait 15 index, while the price index declined by -1.2 percent. The excellence of weighted indexes performance over price index is a correct and healthy development if it continues.

Liquidity during the quarter was rising. Daily trading value for July scored KD 13.7 million (KD 8.4 million for June). It rose to KD 14.6 million in August and increased slightly to KD 25.1 million in September. Gains of both August and September increased value of listed companies since the beginning of the year investors’ wealth- by KD 4.721 billion.

Gains of indexes since the beginning of the year scored 13.3 percent for the Boursa weighted index, 12.7 percent for Kuwait 15 index, and about 16.2 percent for the price index. Despite some recent healthy trends in Boursa trading, about half of listed companies are still non-liquid and secured 3.9 percent only of the Boursa liquidity in the past part of the year. About 50 listed companies secured 0.5 percent of Boursa liquidity and one company remained without trading in its shares. Some speculating companies remained active.

15 companies whose market capitalization value is not more than 1.7 percent only of listed companies’ value got 20.1 percent of the Boursa liquidity. What calls for concern is the sharp fluctuation in the Boursa liquidity. While daily trading value during last January 2017 scored KD 53.9 million tilted sharply towards speculation, it dropped sharply to KD 8.4 million in June and then it rose again to KD 25.1 million in September with some maturity.

Liquidity distribution among the 4 categories of companies during the first 9 months of the year was as follows: The Highest 10 percent In Liquidity: 18 listed companies contributed by 53.3 percent to Boursa market capitilization value while they captured about 58.9 percent of the Boursa liquidity, including 13 large companies which contributed by about 52.7 percent of the Boursa market capitilisation value of that category and took about 86 percent of the liquidity of that category, and 5 small companies which took 14 percent of the liquidity of that category while their market capitalization value did not exceed 0.6 percent only of all Boursa companies value. While some big companies obtained high deserved liquidity, deviation is still significant towards small companies, though it started to improve during the months of August and September.

The lowest 10 percent in Market Capitalization Value: that category contributed by about 72.4 percent of the Boursa capitalization value and acquired 40.6 percent of its liquidity. However, there was obvious liquidity deviation in favor of 11 companies which captured about 95.6 percent of that category liquidity leaving approximately 4.4 percent only of the liquidity of that category for 7 other large companies.

The Lowest 10 percent in Market Capitalizaion Value: that category contributed by 0.3 percent to the Boursa companies’ value but they took 4.5 percent of the Boursa liquidity. 14 companies within this category captured 97.9 percent liquidity of this category, while 4 other small companies got only 2.1 percent of that category’s liquidity. This liquidity deviation in this category suggests a very high dose of speculation on some of its companies. But with the healthy bias of operational companies, some adjustment may occur during the fourth quarter of the current year.

Liquidity of Boursa Sectors: There are 5 active sectors in the Boursa that contribute 88.2 percent to its value. They acquired 92.8 percent of liquidity suggesting consistence between liquidity and the weight of those sectors in the Boursa value. But there was deviation within those sectors in liquidity trends. The banking sector for instance got 28.1 percent of Boursa liquidity which accounts for 49.5 percent only of its contribution to its value.

This means its share of liquidity is more than half of its contribution to value. The financial services sector got 24.5 percent of Boursa liquidity, which equals 2.8 times its contribution to its value. The real estate sector got 18.5 percent of Boursa liquidity which equals 2.5 times its contribution to its value, and both sectors are speculative ones. The remaining 7 sectors, liquid and non-liquid, acquired liquidity ratios close to their contribution to the Boursa value.

Warba Bank financial results

Warba Bank announced results of its operations for the first half of the current year, which indicate that the bank’s net profits -after tax deduction- scored about KD 2.5 million, compared with KD 455 thousand for the same period of 2016, showing that the bank continued its positive performance achieving growth in its profits by KD 2.1 million. This is due to the rise in total operational incomes by higher value than the rise in total operational expenses. Therefore, the bank’s operational profit rose by about KD 5.9 million and scored KD 8.5 million, compared with KD 2.6 million in the same period of last year.

In details, total operational incomes of the bank increased by about KD 6.7 million and scored KD 16.8 million, compared with KD 10.1 million for the same period of 2016. This resulted from the rise in most operational incomes items, especially the item of net financing incomes increased by KD 5.8 million and scored KD 13 million (representing 77.5 percent of total incomes) vis-‡-vis KD 7.2 million (71.6 percent of the total). The item of net investment incomes increased by KD 549 thousand and scored KD 2.3 million, compared with KD 1.7 million. Likewise, item of net fees and commissions rose by KD 346 thousand and scored KD 1.1 million, compared with KD 802 thousand.

Total operational expenses increased by less value than the rise in total operational incomes. It rose by KD 777 thousand and scored a total of KD 8.3 million, compared with KD 7.5 million. As all items of operational expenses increased except for the item of depreciation, which dropped by about KD 173 thousand. Percentage of total operational expenses to total operational incomes scored 49.2 percent, compared with 74.2 percent. Item of provision for impairment increased by KD 3.8 million and scored KD 5.9 million, compared with KD 2.2 million in the same period last year. This explains the rise in the net profit margin to 15 percent in the first six months of current year, compared with 4.5 percent in the same period last year. The bank’s financial statements indicate that total assets increased by about KD 371.1 million, or by 32.9 percent, and scored KD 1.498 billion, versus KD 1.127 billion in the end of 2016. Total assets increased by about KD 580.1 million, or by 63.2 percent, if compared with the same period of 2016, when it scored KD 918 million. Item of financing receivables rose by KD 304 million, or by 36.7 percent, and scored KD 1.132 billion (75.6 percent of total assets) vis-‡-vis KD 827.9 million (73.5 percent of total assets) in the end of 2016. It rose by KD 456.5 million, or by 67.6 percent, compared with KD 675.3 million (73.6 percent of total assets) in the same period 2016.

Percentage of total financing receivables to total deposits scored 86.1 percent versus 82.5 percent. Item of available-for-sale investments rose by KD 35.4 million, or by 35.4 percent and scored KD 135.2 million (9 percent of total assets) vis-a-vis KD 99.8 million (8.9 percent of total assets) in the end of 2016. It rose by 69.2 percent, or by about KD 55.3 million, compared with KD 79.9 million (8.7 percent of total assets) in the same period of 2016.

Figures indicate that the bank’s total liabilities (without calculating total equity) increased by KD 292.2 million, or by 28.3 percent, and scored about KD 1.324 billion, compared with KD 1.032 billion in the end of 2016. It increased by KD 499.5 million, or by 60.5 percent, compared with the total in the same period of last year.

Percentage of total liabilities to total assets scored about 88.4 percent, compared with 89.9 percent. Results of analyzing financial statements calculated on annual basis indicate that all bank’s profitability indexes rose compared with the same period of 2016. The average return on shareholders’ equity relevant to the bank shareholders (ROE) increased to 5.3 percent compared with 1 percent. Average return on capital (ROC) increased to 5 percent versus 0.9 percent. Likewise, the average return on bank’s assets (ROA) increased to 0.4 percent compared with 0.1 percent. (EPS) scored 2.5 fils versus 0.5 fils. (P/B) scored 1.5 times compared with 1.8 times.

The banking sector comprising 10 banks achieved noticeable growth in its net profits during the first six months of the current year vis-‡-vis the same period of 2016. Profits in the first half of 2017, after tax deductions and minority rights, scored KD 388 million, increased by KD 30.8 million or by 8.6 percent, compared with KD 357.1 million in the same period of 2016. Operational profits of the banks prior to deducting provisions rose by about KD 56.1 million, or by 3.3 percent, and scored KD 1.762 billion, compared with KD 1.706 billion, due to a rise in operational incomes of the banks by a higher value than the rise in total expenses. The impact was reflected directly on the rise in net banks’ profits value. When we compare second quarter profits with the first quarter, we note it dropped by -2 percent and scored KD 192 million, while it rose by 10.5 percent when compared with profits of the second quarter of 2016.

Despite the growth in incomes, Kuwaiti banks continued the policy of blocking provisions against non-performing loans. Total provisions blocked scored KD 342.4 million in the first half, compared with KD 272 million in the first half of last year, rose by 25.9 percent. Though the rise in total provisions might affect negatively the net banks’ profits value, there is much uncertainty of hedging in operations environment.

Profits of the five traditional banks scored about KD 244.5 million, representing 63 percent of total net profits of the 10 banks, rose by 6.6 percent compared with the same period of last year. While of the Islamic banks scored KD 143.4 million, representing 37 percent of the 10 bank’s net profits, rose by 12.2 percent from its level in the same period of last year.

This means the performance of Islamic banks continued to grow at higher rates in the first half. (P/E) for the banking sector on annual basis scored 14.8 times compared to 14.1 times for the same period last year. Return on total assets calculated on annual basis rose to 1.04 percent compared with 0.98 percent. Average return on equities (ROE) rose to 8.3 percent versus 7.9 percent in the same period of last year.

Oil price scenario remains volatile