Monday, October 4, 2010

Department of No Surprises: Leaked Results of Booz Study - One Bank is Strong the Rest at Lower Levels


5 October's  Al Qabas contains a supposed "leak" of the study Booz did for the Central Bank of Kuwait.  The results one bank is strong and the remainder satisfactory and partially satisfactory.

Since no names were given, I suppose it's a big mystery who the one strong bank is.  That is, of course, if you don't know anything about Kuwait and Kuwaiti banking history.  

Al Qabas' sources tell it the report was given to the Central Bank last week and that the CBK is studying Booz's conclusions to determine which banks need to raise additional equity and which can strengthen their balance sheets by issuing bonds.

8 comments:

laocowboy2 said...

Issuing bonds will not really strengthen a balance sheet (unless they are mandatory convertibles)but rather instead improve liquidity and the funding profile. There is no substitute for equity - and most of "the rest" need to bolster theirs.

Abu 'Arqala said...

LC2

Perhaps the goal is strengthening by increasing the average life of debt so that liquidity is not strained? And diversification of funding sources and instruments?

Anonymous said...

In the 2009 annual reports the banks disclose their capital adequacy ratios:

Total CAR
NBK 15.03%
Gulf Bank 15.9%
ABK 17.23%
Commercial 18.22%

Tier 1 CAR
Gulf Bank 11.5%
NBK 14.53%
ABK 15.55%
Commercial 16.54%

I was very surprised to see NBK at the bottom for Total CAR - perhaps they are not the strongest bank?

Abu 'Arqala said...

Anonymous

CAR is one measure of financial strength.

Other key factors would be
(1) the quality of assets
(2) diversification of business - both in terms of location, industry and other sectors served, lines of business (product range)
(3) corporate governance and underwriting standards

When measured by these metrics and others, there is no comparison between Abu Shukri's bank and all the others in Kuwait.

Anonymous said...

This may explain why NBK is doing rights issue to improve CAR.

Agree with you on 1. asset quality comes into it but look at Gulf and Commercial who have been taking significant provisions but still have better CAR than NBK.

On 2 and 3 these do not require additional capital.

There is a big question mark over NBK exposure to Kharafi - they must be desperate for the Zain sale to go through so that funds can be used to reduce facilities at NBK. Story is that NBK have been extending the term of Kharafi facilities for up to 5 years to avoid having to recognise NPLs.

Interesting that NBK are advising the UAE bidder - I would have thought there would be conflict of interest concerns.

Anonymous said...

Kuwaiti Banks are over capitalized?? yes , no. may be .

Kuwaiti Banks are over capitalized A Car of more than 12 is way too high. NBK is a great bank, then its is CBK ,Ahli and Gulf. NBK is run like an institution, while CbK and ahli have family backing. And of course all have government backing.

Abu 'Arqala said...

Anonymous

I'll be responding in a day or two.

One thing though, I don't know if I'm responding to just one poster or several who choose to remain Anonymous.

It would be helpful if you could choose a unique identified - while still maintaining your cover. How about something like "Observer", Anonymous in Kuwait, etc.

Advocatus said...

Sorry Anonymous one & two are me - I could not post under normal name as I was at work!