Kuwaiti bank profits surged in the second quarter due to the booming economy in the Gulf, shrugging off stricter lending restrictions imposed by the central bank to fight record inflation, according to analysts.
The Kuwaiti central bank this year toughened consumer lending rules and risk weightings for banks to discourage them from lending too much as inflation spiralled to a record 10.14 per cent in February.
Shares of National Bank of Kuwait (NBK), the country's biggest bank, which is expected to kick off the results season by next week, have fallen seven per cent since the new rules were unveiled in March compared to a nine per cent rise by the main Kuwait benchmark.
But as oil prices have soared seven-fold in the last six years, and more than doubled in the past year, banks in the world's seventh-biggest oil exporter still have plenty of business to feast on, analysts said.
"The rules will affect banks, but only slightly as many have other growing operations, especially outside Kuwait," said Naser Al Nafisi, General Manager at the Al Joman Center for Economic Consultancy.
In a Reuters net profit survey last month, Kuwaiti investment bank Global Investment House said it expected NBK's net profit to rise 11.2 per cent, while Commercial Bank of Kuwait's earnings should grow 22.2 per cent.
Shares of Commercial Bank, Kuwait's fourth-largest publicly traded lender, have fallen 14 per cent since the new lending rules, while Kuwait Finance House, the second-biggest Islamic lender in the Gulf region, dropped almost 12 per cent.
"There is much liquidity, money supply is rising. The lending rules will affect banks only slightly," said Faisal Hasan, head of research at Global.
Any impact from tighter lending restrictions, which apply only to new loans, would likely begin appearing in the fourth quarter, Hasan said. Kuwaiti banks have also managed to diversify their income streams, focusing increasingly on investment banking as the industry gains momentum regionally, Nafisi said.
Awash with cash from the oil boom, Kuwaiti banks are jumpstarting expansion plans in the Middle East and Asia to offset rising competition at home.
In the past year, NBK has taken over Al Watany Bank of Egypt and bought a 40 per cent stake of unlisted Istanbul-based Turkish Bank.
NBK Chief Executive Ibrahim Dabdoub said in June the bank expected to boost net profit by more than 20 per cent in the first half after a 28 per cent jump in the first three months.
Kuwait Finance, whose profit is set to soar 34.4 per cent in the second quarter according to Global, has moved into Malaysia, and plans to expand in Turkey and the Gulf to tap a boom in Islamic finance, Chief Executive Mohammad Al Omar told last month.