Kuwaiti banks a step ahead of GCC peers

Banking sector in the Gulf Co-operation Council (GCC) region is projected to benefit from the rising economic fortunes of the region better than any other economic sector, according to the National Bank of Kuwait (NBK).

It said in a recent report that energy prices are widely expected to remain elevated for some time and with per capita gross income in Kuwait exceeding $30,630 (Dh112,412), Kuwaiti businesses and consumers will have the financial resources to meet any prudently managed debt obligations in the coming years. "Despite the recent bad news on inflation, gross wage income in Kuwait after adjusting for inflation still managed to rise an estimated 14 per cent last year.

Over the past two years, credit growth has outstripped that of the economy at large, pushing the loans-to-GDP ratio from 50 per cent in 2005 to 65 per cent in 2007, while lifting loans-to-deposits at 100 per cent – the highest in the GCC.

"Moderating total annual credit growth from the current 32 per cent to a level approximately half would support a less inflationary pace of nominal GDP growth without derailing the current expansion and the recent gains made by the private sector," the NBK report said.

The bank highlighted the increasing net profits of the Kuwaiti banking sector, which surged 90 per cent from 2004 to 2007.

Return on average assets and average equity in 2007 ran at three per cent and 24 per cent respectively, the highest for the sector across the GCC.

"The sector's rapid growth, however, has not produced deterioration in the sector's asset quality. Non-performing loans as a share of total loans has fallen from 5.4 per cent in 2003 to 2.8 per cent in 2007. The industry's capital adequacy ratio stood at a comfortable 16.4 per cent in 2007, compared to a minimum requirement of 12 per cent by the Central Bank of Kuwait," the report said. It also showed Kuwaiti banking stocks look cheaper than their GCC peers based on a comparison of the trailing twelve months price-to-earnings ratio. The sector trades at a 16.1 price/earnings multiple compared to the GCC average of 18.6, reflecting higher profitability generated by Kuwaiti banks.

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