Tuesday, October 19, 2010

Gulf Bank Kuwait - On the Mend. No More Loans to Saudis.

A banker's memory is a wonderful thing.  
Even the most painful experiences can be forgotten. 

Michel Accad gave an interview at the Reuters Middle East Investment Summit in which he made the following points:
  1. 3Q10 is the turning point in GB's two year strategy to rebuild.  
  2. Each subsequent quarter will be a relative improvement over the previous.  
  3. By 3Q11 the rebuilding will be done (apparently one quarter ahead of time) and the bank will move to strengthen its income generation or its geographic coverage.
  4. The goal is to increase local market share from today's 12% to some 16% in five years.
  5. After 3Q10, the Bank will not need to provision as much but will continue to do so for precautionary reasons (rather than need).
  6. The Bank has decided not to make any loans to Saudi clients for at least 3 years.  No doubt a reaction to its troubles with AlGosaibi and Saad Groups.  
  7. Instead it will, however, make loans to foreign investors for their projects in Kuwait. And no doubt concentrate on its high quality Kuwaiti clients.
  8. As of 3Q10, the Bank has successfully reduced its non performing loans below 20% of the total portfolio.  That's a lot of "Saudi" clients, it appears.

8 comments:

Advocatus said...

NPLS will be down due to write off of related party NPLS. Check the June 2010 financials RP note and you will see the 12/2009 balance of KD 200 million has gone. Have not seen any release of specific provision so must assume write off.

3Q2010 interest income significantly down on 1Q and 2Q - high interest in suspense charge?

Abu 'Arqala said...

Advocatus

Thanks for the good ideas.

I'll take a look.

Laocowboy2 said...

"No more loans to Saudis". No need - GB has proved its ability to generate all needed NPLs much closer to home.

Abu 'Arqala said...

Advocatus

As to the apparent write off agree. Don't know Kuwaiti law. In some countries one doesn't write off a debt until one has exhausted all remedies (assuming one has provided 100%). This amount relates to a single related party and is GB's famous foray into the world of derivatives. They had another KD62 million or so for unrelated parties which they also provisioned.

A very interesting question is whether they would have to count these balances among NPLs as strictly speaking they weren't loans. Any ideas?

In any case, I'm sure they were getting comments on the fact they had KD400 million or so out to related parties and only a fraction of that in collateral. When you strip out the receivable the collateral for RPs is not too bad, but much less than at Abu Shukri's.

As to the decline in interest, they shouldn't have been accruing interest on the receivable without putting it into suspense so there shouldn't be an income statement effect from that. In Fiscal 2009, their KD10 million down quarter for interest income was the Second not the Third. Could this be due to mismatching on pricing between loans and deposits? It's coming out of the gross interest revenue line. Or it could be an interest reversal.

Maybe some more loans hit NPL and they "cleaned" up the RP receivable in order to show continued progress? That would only work if the receivable were counted in NPLs.

One other thing: Despite have net income of KD10.4 million for the first nine months of the year, Shareholders' Equity is down roughly KD15 million. Comprehensive income a negative of KD12.3 million along with a KD2.8 million loss on sale of Treasury Shares (sold at 44% of cost).

Sadly, the CBB imposed standards for bank financial reporting are rather weak. One would have thought (if one didn't know Kuwait) that a KD200 million change would require a word or two of explanation.

Abu 'Arqala said...

LC2

Maybe he was speaking about some of the current residents. Many prominent names in Kuwait, Bahrain, and Qatar left the Nejd at the same time on their way to fame, glory and eventually riches.

That would make them of Saudi origin!

No wonder Brother Saadun has a bee in his kaffiya.

Advocatus said...

I would say the related party receivables were treated as loans and therefore as NPLs - there was no large balance under "Other Assets" where it could have been posted as a receivable.

For quarterly interest income GB had growth in 1Q and 2Q 2010 as follows:
4Q2010 42,908
1Q2010 46,627 +3,719
2Q2010 47,916 +1,289
3Q2010 37,197 -10,719

Could be repricing but unusual to have the effect concentrated in one quarter

Abu 'Arqala said...

Advocatus

Thanks.

However, I still have a hunch that the receivable was not in Loans but in receivables - netted against the provision.

Since the RP provision was equal to the receivable, the receivable in Other Assets would have been netted against it to show zero. Notes 6 & 27 in the 2008 Annual Report for the RP provision.

Just as the KD62mm receivable from the non related parties was reduced by KD56mm (Notes 6 & 16 in GB's 2008 annual report). Only KD 7 mm was shown.

Also in the RP Note you will notice the gross amount shown is for loans, receivables and advances - though the KD200 mm amount did not show up as an "asset" in the RP note until the 2009 Annual Report. Either that or GB dramatically increased RP lending in 2009. "Receivables" being added starting in 2008's AR. In prior years this category was not there.

Abu 'Arqala said...

Advocatus

Good point on the interest.

Too bad there isn't more disclosure in Kuwaiti banks' financials. Or in the press releases.

The CBB has apparently made Bahrain Islamic redo its press release as it had buried its net income figure (actually a BD 10 million loss) in its usual longish press release. The revised press release has it in the second paragraph.

Not the first time that BIsB has been required to revise its release. And probably not the last time - unless they get on a path of positive net income forever. And with the real estate market in Bahrain starting to hit the skids as all that bright and shiny new capacity comes on line ...