Kuwaiti Banking Sector Review

Al Joman Center for Economic Consulting has issued a report on the Kuwaiti banking sector through the first three quarters of 2009.

Here's the text, which I found, on one of their interactive blogs. Note that the bank labels in the penultimate chart appear to be wrong. I'm presuming this is an early draft.

First, a summary of the data from the report. All amounts in the below tables are KD millions.

A market share summary.  Net loans are after provisions, which are discussed in the next table.

Bank	Gross Loans	Market Share	Net Loans	Net Market Share
Natl Bk Kuwait	7,823	28.4%	7,532	29.3%
Gulf Bank	3,877	14.0%	3,418	13.3%
Commercial Bank	2,676	9.7%	2.402	9.4%
Ahli	2,149	7.8%	2,003	7.8%
BKME	1,637	5.9%	1,544	6.0%
KIB	821	3.0%	761	3.0%
Burgan	2,388	8.7%	2,276	8.9%
KFH	5,472	19.9%	5,036	19.6%
Boubyan	715	2.6%	690	2.7%
TOTAL	27,558	100%	25,662	100%

Analysis of loan loss provisions for total provisions as of 30 September 2009.

Bank	Total Provisions	% of Gross Loans	% of Total Provisions
Natl Bk Kuwait	291	3.7%	15.3%
Gulf Bank	459	11.8%	24.2%
Commercial Bank	274	10.2%	14.5%
Ahli	146	6.8%	7.7%
BKME	93	5.7%	4.9%
KIB	60	7.3%	3.2%
Burgan	112	4.7%	5.9%
KFH	436	8.0%	23.0%
Boubyan	25	3.5%	1.3%
TOTAL	1,896	6.9%	100%

Analysis of loan loss provisions taken during the first three Quarters of 2009.

Bank	2009 Provisions	% Gross Loans	% of Total
Natl Bk Kuwait	35	.5%	7.1%
Gulf Bank	101	2.6%	20.4%
Commercial Bank	74	2.8%	14.9%
Ahli	30	1.4%	6.1%
BKME	34	2.1%	6.9%
KIB	19	2.3%	3.8%
Burgan	50	2.1%	10.1%
KFH	137	2.5%	27.7%
Boubyan	15	2.1%	3.0%
TOTAL	495	1.8%	100%

Now for some introductory comments:

First, individual banks' portfolios differ and therefore the level of provisioning should as well. A bank with a higher percentage of consumer loans would on average by expected to have a lower loan loss reserve than one dealing with below investment grade companies. For example, National Bank of Kuwait has a more international portfolio than the other Kuwaiti banks, though that is only one factor affecting NBK's loan loss reserve.

Second, the management of each institution makes a determination as to the appropriate level of provisions using a variety of assumptions and estimates. Conceivably banks could rate the same loan as requiring different provision levels.

Third, while external auditors review financials including provisions, they have to rely on their assessment of a management's estimates and assumptions and how these are applied to the loan portfolio. It's likely that two different audit firms might hold different views on the required provisions for the same loans. Additionally, in Kuwait the Central Bank must approve the financials of each firm it regulates before publication. Often the Central Bank requires changes as a condition for approval.  You will recall that in November the KSE had warned Burgan and Commercial Bank that they would be suspended from trading if they did not provide their financials by the next Monday.  Both banks made the deadline. But it's a reasonable guess that the financials were delayed due to discussions with the Central Bank about the adequacy of provisions, though this is not the only possible explanation. If provisions were an issue, the discussion was probably not a criticism of excessive provisions.

And now some conclusions:

1. On a macro level, the deterioration in loan portfolios is clear.  As Al Joman notes, 26% percent of the aggregate outstanding provisions were taken in the first 9 months of 2009.  Problematical sectors are real estate and investment firms as well as specific exposure to AlGosaibi and Saad.  Kuwait banks do not seem to have any significant exposure to Dubai Inc.
   
2. Among Kuwaiti banks, NBK appears to have the "best" portfolio. This is no surprise to anyone who knows NBK and Abu Shukry. They've dodged  previous lending problems (e.g., the Suq Al Manakh) due to their generally sound underwriting standards and business prudence.
   
3. Gulf Bank  and Commercial Bank have the highest ratio of provisions to gross loans which is probably a good indication of the riskiness of their portfolios.
   
4. KFH and KIB (the old Kuwat Real Estate Bank), and Boubyan are "Islamic" banks representing some 22.5% of the financing market. BKME sees a growth opportunity here as that is the reason for its decision to switch to Shari'ah compliant banking. NBK, the clear market leader, also is interested in this segment as evidenced by its acquisition of 40% of Boubyan.