Al-Sager: Spearheading the financing of national mega projects is NBK’s top priority

  • We continue implementing our diversification strategy and utilizing our adaptable business model against the volatile macroeconomic environment
  • We continued to leverage our strong fundamentals and strategic investments in technology and innovation to maximize returns and optimize costs
  • We strengthened our market position in key sectors, expanding our customer base with digital products, and offering excellent customer service
  • Boubyan Bank, along with our international operations both continue to support our diversification strategy with their growing contributions to the Group
  • Our leadership in the ESG space was further strengthened with the recently issued USD 500 million green bonds
  • We are tapping GCC markets, especially the Saudi market as we complement our growing operations with the opportunities that align with our strategic goals
  • Improvement in consumer spending, business credit, real estate and project activity may provide grounds for optimism to non-oil growth ahead
  • We believe that the rebound in project awards will continue in 2024 and 2025, as the decision is now in the hands of the government
  • The government acknowledges the importance of public debt law but focuses more on reforming the budget as a step to adjust imbalances
  • We see more chances for passing mortgage law with outstanding housing applications approaching 100k

Ronghe:

  • Growth in business volumes, relatively higher interest rates, and a stronger operating performance are the underlying drivers for the robust bottom-line performance
  • International Banking contributed 24% to net operating income and 23% to the Group’s profit, enforcing the diversification agenda of the Group
  • International Banking and Boubyan Bank contributed 40% and 24% respectively to Group’s total assets by end of June 2024
  • Our presence in the region and worldwide serves as an important franchise for collection of deposits and diversifying our funding sources
  • We expect the overall loan growth for 2024 to be in the mid-single digit range

Mr. Isam Al-Sager, the Vice Chairman and Group CEO of National Bank of Kuwait (NBK), said, “We continue implementing our diversification strategy and utilizing our adaptable business model against the volatile macroeconomic environment to maintain our strong performance.”

On the sidelines of the Analyst Conference for the results of 1H2024, Al-Sager added, “We reported net profits of KD 292.4 million in the first half of the year, growing by 6.2%. As for the three months ended-June 2024; NBK posted year-on-year growth of 3.3% in net profits to reach KD 145.8 million. Moreover, NBK’s Board of Directors has approved its third semi-annual cash dividend distribution of 10 fils per share.”

“Growth in core banking income continues to boost our performance and is well diversified across our business segments. Our diversification strategy continues to prove its success and effectiveness in mitigating risks and maximizing efficiency. We achieved a growth of 8.2% year on year in net operating income to reach KD 612.4 million,” Al-Sager highlighted

“As we continue to steadfast our commitment towards long-term value creation for stakeholders and tailored customer experience to our clients, we continued to leverage our strong fundamentals and strategic investments in technology and innovation to maximize returns and optimize costs. Our return on average assets for the reporting period reached 1.55% whereas our return on average equity reached 15.0%,” he remarked.

Local market

Speaking on NBK’s performance in the local market, Al-Sager stated, “In Kuwait, we continue to focus on optimizing our market position in key sectors, expanding our customer base with digital products, and offering excellent customer service. Spearheading Kuwait’s infrastructure program is our top priority as we expect financing national mega-projects.”

“Moreover, our Islamic banking arm, Boubyan Bank, along with our international operations both continue to support our diversification strategy with their growing contributions to the Group. Additionally, our wealth management business continued expanding globally to position itself as a major player in the wealth management industry.”

“Our leadership in the ESG space was further strengthened with the recently issued USD 500 million green bonds, the first green bond issuance from a Kuwaiti financial institution. We will continue contributing to the sustainable development of our communities and providing the support for our clients’ sustainable and transition finance initiatives,” he emphasized.

International expansion

On foreseeing more active international expansion, Al-Sager mentioned, “NBK will continue to be competitive in the domestic market. On the international scene outside Kuwait, MENA and specifically the GCC remain our focus markets, especially Saudi Arabia. We are tapping the Saudi market at all fronts as we complement our growing operations with the opportunities that align with our strategic goals.

“Similarly, the wealth management business is of great importance for our strategic ambitions as we continue to expand with the launch of ‘NBK Wealth’ brand.”

Inflation and project awards

Commenting on the conditions of local economy, Al-Sager stated, “In Kuwait, inflation remains stable as consumer spending, business credit and project activity recorded moderate growth. We forecast a modest deceleration of inflation to 3.0% on average for the year as inflexibility in some price areas persists. GDP growth on the other hand is to witness muted growth on the back of oil production cut mandates by OPEC+ members while improvement thus far in consumer spending, business credit, real estate and project activity may provide grounds for optimism to non-oil growth ahead,”

“Furthermore, project activity rebounded significantly in the second quarter, growing at 5-fold quarter-on-quarter. This is driven mainly by activity related to infrastructure works in the construction, transport and power & water sectors.”

“The project awards outlook for the remainder of 2024 is promising with projects valued at around KD 7 billion in the pipeline for the year. We believe that the rebound in project awards will continue in 2024 and 2025, as after dissolving the parliament, the decision making is in the hands of the government, which makes decision making much easier,” he clarified.

“This has driven implementing and pushing mega projects significantly, and we felt that recently in various sectors. There will be further awards in 2024 and 2025, but it is too early to give certain numbers at this point in time,” he continued

Public debt and mortgage laws

On the chances to pass public debt and mortgage laws, Al-Sager said, “Speaking of the debt law, no material development on the topic took place but the government acknowledges its importance while focusing more on reforming the budget as a step to adjust imbalances. On the mortgage law, the late parliament passed underlying laws and initiatives pertaining to housing, and we see more chances for this law to be passed with outstanding housing applications approaching 100k putting more pressure on the need for a housing finance mechanism.”

Global and regional economy

“In light of the recent divergence in economic performance globally, market expectations for the global economic outlook have varied. Higher than expected levels of inflation still exist while geopolitical tensions are escalating, indicating a cautious approach to monetary easing for the remainder of the year.”

“Regionally, growth in the GCC area is expected to remain solid as oil prices continue to feed fiscal positions of GCC governments and supporting strides in its diversification agendas and capital expenditure plans.”

Strong operating performance

On his part, Mr. Sujit Ronghe, Group CFO of National Bank of Kuwait commented, “In the first half of 2024, the continued higher interest rate regime and an overall stable operating environment in Kuwait have benefitted the Bank in general. Underlying drivers for the robust bottom-line performance are a combination of YoY growth in business volumes, relatively higher interest rates, and a stronger operating performance. NBK’s strong operating performance was driven by a healthy balance sheet, comfortable liquidity levels and a strong capital base.”

“In light of the ongoing regional and international geopolitical developments, we remain cautiously optimistic that the overall operating environment, although challenging, will remain generally stable during the remainder of 2024,” he noted.

“The Group’s balance sheet remains strong with a stable credit quality. NBK’s capital base along with the ability to generate healthy operating profits provides a strong credit loss-absorption capacity. Additionally, the Group continues to benefit from its unique position amongst Kuwaiti banks in terms of geographical spread through International Banking and the ability to conduct business in both Conventional and Islamic Banking,” he explained.

“In 1H2024, NBK’s net profit stood at KD 292.4m, reflecting a YoY growth of KD17.1m i.e. 6.2%. Group loans and advances grew year on year by 5.4%. Investment securities also contributed strongly to Group assets with a growth of 12.3% compared to June 2023.”

“Net operating income increased by KD46.5m, i.e. 8.2%, whilst operating income mix continues to show a healthy mix with 21% coming from non-interest income sources.”

“Average earning assets grew by KD1.6bn i.e. 4.5% from June 23, to reach KD36.1bn. Fees and commissions income was strong, reflecting robust contributions across different lines of business and geographies.”

“Total operating expenses for 1H2024 stood at KD226.6m, i.e. 9.6% higher than the previous year. The cost growth reflects increased activity levels at Kuwait and across the Group’s network as well as investments in key businesses initiatives, digital technologies, and processes. This enables the Group to offer best-in-class service to its customers and optimize resources to improve operational efficiency,” he highlighted.

Sectors contributions in income

Ronghe mentioned that in 1H2024, International Banking contributed 24% to net operating income and 23% to the Group’s profit, reflecting a strong operating performance. International Banking and Boubyan Bank contributed 40% and 24% respectively to Group’s total assets enforcing the diversification agenda of the Group.

“Overall, we see International operations as a growing contributor to Group’s assets and profits, and a very important pillar for the bank’s diversification strategy.”

“Our presence in the region or in UK, Europe, US etc. is a very important driver not only from the point of view of booking assets, but also serves as an important franchise for collection of deposits and diversifying our funding sources,” he confirmed.

Loans and income forecasts

As regards local loan growth, Ronghe said, “Given the current geo-political and the general macroeconomic situation, we continue to expect the overall loan growth for 2024 to be in the mid-single digit range.”

“Given the overall geopolitical and macroeconomic uncertainties, it would not be prudent to give specific guidance on earnings / capital adequacy. We are hopeful of maintaining capital adequacy ratios in line with our internal targets above the regulatory minimum,” he added.