Al-Sager: Posting highest interim profits in our history proves our prudent policies
NBK Group Vice-Chairman and CEO in an interview with Al-Arabiya Channel
● The political standoff leaves the government with very limited solutions
● We are optimistic about improving business activities with the rise in oil prices and the diminishing of the pandemic.
● The Kuwaiti dinar tracks the value of a basket of currencies, giving flexibility to take decisions based on the economic conditions
● Every 25 bps hike adds KD 13 million to the Group’s net profit
● The devaluation of the Egyptian pound has a limited and temporary impact on our profits
● Our creditworthiness enables it to access debt markets whenever we need to diversify the financing base or to seize better pricing opportunities
● The accumulated provisions were more than enough to face a crisis of the pandemic’s size, and we are now bearing the fruits of our conservative approach
KUWAIT: Isam Al-Sager, NBK Group Vice-Chairman and Chief Executive Officer said that the Bank recorded strong profits for the first quarter of 2022, which are considered the highest interim profits in its history, reflecting our prudent and resilient business model.
In his interview with Al-Arabiya Channel, Al-Sager stated that Egypt represents a key growth market for the Group, and we are seeking further expansion there, noting that the impact of the devaluation of the Egyptian Pound on NBK’s profits will be limited and temporary. Al-Sager expressed his optimism that despite the political standoff, business activities may see improvement going forward, on the back of the rise in oil prices, and the diminishing of the pandemic. He also affirmed that the profits of the first quarter prove that NBK is bearing the fruits of its conservative approach in building provisions over the past period.
Optimistic despite the political standoff
Al-Sager mentioned: “The political standoff between the National Assembly and the government will have an adverse impact on the chances of financial reform, leaving the government with very limited solutions, as it will have only one choice, which is to pass important bills such as public debt and mortgage laws.”
“On the other hand, that the pace of government spending, project awarding and implementation will not be affected by the government’s resignation, as it continues to running its business and complete existing projects,” he indicated. Al-Sager expected a rebound in the pace of projects in the coming period from the stagnation witnessed over the last period on the backdrop of the pandemic. He also noted that business activities may see improvement going forward, which will necessarily reflect on credit growth in light of the improving operational environment and public finance conditions, on the back of the rise in oil prices, and the diminishing of the pandemic.
Monetary tightening
Al-Sager highlighted that the monetary tightening cycle initiated by the US Federal Reserve and most of the major central banks globally will in turn reflect on the monetary policy of the Central Bank of Kuwait, which followed the Fed in raising interest rate during the first quarter of this year, a trend that he expects to continue going forward.
“On the long term, the Central Bank of Kuwait enjoys high flexibility as the Kuwaiti Dinar tracks the value of a basket of currencies, allowing for great capability to assess the economic conditions and emerging changes and take the appropriate decisions,” he explained.
On the impact of interest rate hikes on NBK’s performance, Al-Sager said: “The rate hike will have a positive impact represented in improving NIM, and the extent of this improvement depends on the Central Bank’s decisions to raise the discount rate, in terms of the number and timing of these hikes in 2022.” Al-Sager elaborated: “Every 25 bps hike, equivalent to 0.25 percent, adds an amount ranging between KD 12-13 million to the Group’s net profit.”
Egyptian market
On a question about the impact of the devaluation of the Egyptian pound on NBK’s profits, Al-Sager mentioned that the devaluation of the Egyptian Pound will lead to a decline in NBK-Egypt’s profits denominated in US Dollar, thus reducing its contribution to the Group’s bottomline, but the decline will be limited to this year only, with the change of the comparison year.
Regarding the impact of this devaluation on the operating environment, Al-Sager said: “The events happening in Egypt are part of what emerging markets are witnessing of increasing inflation and the global supply chain crisis. The Egyptian economy is resilient enough to overcome these challenges thanks to the financial reforms successfully implemented by the government over the past years.”
Diversified funding sources
Regarding the Bank’s funding mix, and whether it will depend on higher deposit growth or it is possible to issue other bonds going forward, Al-Sager indicated that deposits will remain the main funding source, especially in light of the growth of retail deposits at good rates, capitalizing on the Group’s strong brand. “NBK focuses on increasing deposits to maintain good and diversified funding sources both sectorally and geographically, which helps reduce financing costs,” he mentioned.
Al-Sager stated that the National Bank of Kuwait enjoys a strong position and creditworthiness locally and globally, and great confidence among investors of fixed income instruments around the world, which enables the bank to access debt markets whenever it needs to diversify the financing base or if better pricing opportunities are available.
Al-Sager accentuated that NBK enjoys a strong financial position and creditworthiness locally and globally, and is highly trusted by fixed-income investors worldwide, which enables it to access the debt markets whenever it needs to diversify the financing base or when better pricing opportunities are available.
Bearing the fruits of conservative policy
Answering a question about the significant increase in provisions and the Central Bank’s provision taking policy going forward, Al-Sager stated that NBK has always followed a conservative approach with regard to provision taking, and adhered to the same approach during the two years of the COVID-19 crisis, which contributed to increasing provisions; mostly precautionary.
“We are now reaping the benefits of our conservative approach, since as we move to normal risk level and with the improving operating environment, provisioning was decreased and the requirements have become less, in accordance with IFRS 9,” Al-Sager noted. “With no deterioration in asset quality over the last period and the improvement in the credit quality of some exposures, some provisions set aside earlier were no longer required, which supported the continuous improvement in the cost of risk during 2021 to be sustained in 2022,” he added.
As for the future outlook, Al-Sager expected continued improvement in provisioning, while stressing that the Bank will continue its conservative approach in building provisions going forward.
Concluding his statements, Al-Sager noted: “Thanks to the historically conservative approach and strategy of the Central Bank of Kuwait, the accumulated provisions were more than enough to face a crisis of the size of the COVID-19 pandemic. Therefore, with the improving operating conditions, I expect the pace of provisioning will somehow stabilize.”