Al-Bahar: We are optimistic about Kuwait’s economic growth, driving banking sector performance
KUWAIT: Shaikha Al-Bahar, NBK Group Deputy CEO said the strong growth in the bank’s profitability for 9M2021 is attributed to many factors, mainly the growth of total loans and advances by 8.3 percent YTD to reach KD 19 billion by end of September.
In an interview with Bloomberg TV, Al-Bahar indicated that the growth in the loan portfolio during the period reflects NBK’s focus on core banking activities, and its well-diversified strategy. Loan growth was from both Islamic and conventional banking with business volumes increasing in Kuwaiti as well as from our international operations. “Despite the low interest rate environment, we managed to marginally improve net interest margin during the 9-month period, in addition to a strong growth in our fee and commission income by 12.8 percent YoY,” she added.
Al-Bahar noted that the strong growth trends in most business sectors reflect the significant improvement in the operating environment, supported by the high vaccination rates in Kuwait, the easing of restrictions and the return to normalcy.
Historically conservative
Commenting on the improving NPL ratio and lower provisions, Al-Bahar said: “At the peak of the pandemic in 2020, we opted for the most conservative scenarios in line with our historically conservative approach and risk management strategy, which was reflected in the classification of some of our weaker exposures as NPLs.”
“Today, with the noticeable improvement in the operating environment and the gradual return to normalcy, we have decreased provisioning, and some loans were reclassified to regular, in addition to writing off some exposures during Q3, which was reflected positively on the improved NPL ratio,” she continued. Al-Bahar stated: “We maintained strong asset quality metrics, as NPL ratio decreased from 1.72 percent by end of 2020 to 1.43 percent by end of September 2021, and loan coverage ratio increased from 220 percent by end of 2020 to 230 percent at the end of September 2021.”
New financing mechanism
Al-Bahar stressed the importance of passing the mortgage law, as Kuwait is one of the few countries that does not have a mortgage law. The existing subsidized structure to finance housing by Kuwait Credit Bank has worked historically but is becoming a bottleneck in today’s efforts to resolve the growing residential housing demand in Kuwait, she noted.
“With the growing size of the young population and as the government continues to develop new housing cities to clear the backlog of eligible applicants, a proper financing mechanism should be in place,” she explained. Al-Bahar affirmed that the banks will be a major beneficiary of passing the law, which is on the government’s agenda for the new legislative term, expecting that there will be a large demand in the Kuwaiti market for new banking products that the banking sector will offer, once the law gets passed similar to what we have seen in other GCC countries.
Optimistic outlook
On her expectations for the performance of the Kuwaiti economy and its impacts on the banking sector, Al-Bahar said: “We are optimistic about the growth of the Kuwaiti economy during the coming period.”
• Strong loan growth reflects our diversification strategy and reliance on core banking activities
• We managed to improve net interest margin during 9M2021 despite the low interest rate environment
• At the peak of the pandemic, we opted for the most conservative scenarios in classifying NPLs and building provisions
• Proposed Mortgage law should be approved to meet the increasing demand of Kuwaiti young people for residential housing
• Egypt is a strategic market for us and we are focusing on digital banking services for retail and SME customers as key drivers of the growth
IMF expects the Kuwait’s economy to expand with a real GDP growth of 4.3 percent for 2022. So, this will necessarily be reflected on all business sectors, AlBahar noted. Al-Bahar expected that the last quarter of the year will witness an improvement in the performance of the banking sector, especially with regard to individuals’ regular payment of loan installments after the end of the second 6-month deferral program, whose cost will be fully borne by the government.
International expansion
Regarding the expansion of NBK’s international operations, especially in the Egyptian market, Al-Bahar indicated that Egypt is our second home market and we are doing great. “In Egypt, the focus is basically to expand and promote our digital banking services focusing on retail and SMEs, in line with the Central Bank of Egypt’s directions towards digital transformation,” she mentioned.
We are growing our Global Wealth Management business across the group and it brings private banking and NBK Capital under one leadership to better serve our private banking customer needs. This proposition will serve our customer in Egypt as well as other location and will be one of the key growth drivers for the group,” she concluded.