Al-Sager: Kuwait is on the right track to boost economic growth

KUWAIT CITY, October 26: Mr Isam Al-Sager, Vice President and CEO of the National Bank of Kuwait (NBK) said the group’s net profit growth remains driven mainly by core banking activities.

In his interview with Al Arabiya TV, on the sidelines of the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) in Washington, DC which were joined by NBK, Al-Sager noted: “NBK has shown an interest net strong. Revenue growth for 9M2024 on the back of volume growth, relatively higher interest rates and efficient operation to control operating costs and cost of risk.”

“Our net interest income for the nine-month period reached KD 733.7 million, up 10.2% from 2023, while net operating income reached KD 931.0 million, up 7, 8% compared to the previous year.”

“The cost of risk was 34bp during 9M2024, mainly resulting from lower provisions for credit losses and impairment, while remaining committed to our conservative approach to managing credit exposures,” he noted.

“In terms of asset quality, the non-performing loan ratio improved overall, reaching 1.39% of the total loan portfolio at the end of December 2024, while the loan loss coverage ratio increased to 263%,” he added.

Lower interest rates

On the impact of the rate cut cycle on banks’ net margins in 4Q2024 and next year, Al Sager said: “It is true that margins are under pressure with low interest rates, but we must bear in mind that increased volume of business activity resulting from the low interest rate environment may offset these pressures as lower rates will encourage lending, particularly by large corporations.”

“NBK hedges against interest rate movements through its diversified business model and increased focus on fee businesses, and we expect net margins for 2024 to be largely flat, likely a few basis points higher than last year’s levels” , he explained.

“Looking to 2025, the frequency and size of rate cuts globally remains uncertain, and its impact will be felt more clearly in the coming quarters,” he added.

When asked about the possibility of a change in credit demand due to the decrease in the cost of credit, Al-Sager replied: “For corporate loans, lower interest rates are expected to support credit growth, but this is also conditional on macroeconomic growth and favorable. business environment and accelerated project awards, which combined will provide a greater boost to private sector lending. On the retail side, we expect to see a gradual increase in demand for retail loans with each rate cut.”

Saudi market

Regarding NBK’s operations in Saudi Arabia, Al-Sager emphasized that Saudi Arabia is a key and strategic market for the Group’s international operations, where we offer our services to a diverse clientele that includes GREs, large corporations and family businesses.

“The group aims to increase its presence in the wealth management business through NBK Wealth, in addition to expanding its offerings to clients through funds and other wealth management services.

Regarding NBK’s growth goals and expectations in Saudi Arabia, Al-Sager said they would be in line with the bank’s conservative approach, noting that NBK has been present in the Saudi market for a long time and serves large corporates and GREs, which line up. with the Group’s conservative approach and risk management practices.”

“We currently operate in KSA through 3 branches, in Riyadh, Jeddah and Eastern Province and aim to further expand into the Saudi market.”

To a question on whether NBK-KSA plans to expand into the Saudi market through acquisitions, Al-Sager said: “Whenever we have a suitable acquisition opportunity, we will seriously consider it. We are not looking for acquisitions for the sake of acquisitions, but we are looking for opportunities that will maximize the return for our shareholders.”

Egyptian Market

Regarding the Egyptian market, Al-Sager said it is currently stable, which demonstrates NBK’s optimism about the market’s huge potential and promising opportunities.

“The Egyptian economy has recently benefited from reforms aimed at attracting more foreign inflows and the government’s conclusion of several foreign investment agreements, which have restored confidence in the economy and the Egyptian currency,” he explained.

Regarding NBK-Egypt, Al-Sager said: “We maintain a very healthy loan portfolio in terms of asset quality, while the cost of risk at the end of the first half of 2024 in Egypt was below 1% (exactly 0, 56%), and the total NPL lending rate was 1%. So at this stage we are not concerned about the credit quality of our loan portfolio in Egypt.”

“Our operational performance in Egypt remains among the most profitable locations for the group, with promising profits, while NBK-Egypt looks for opportunities to increase its contribution to the group, which represents approximately 5% of total assets and profits,” he pointed out he.

Boubyan and Gulf Bank merger negotiations

Regarding the merger negotiations between Boubyan Bank and Gulf Bank, Al-Sager said: “As the majority shareholder of Boubyan Bank, we support the talks. But our support is not unconditional, as with all our previous transactions historically, we should find shareholder value creation in this transaction.”

“So far, the potential transaction makes strategic sense as it is in line with NBK Group’s diversification agenda and strengthens its position in the local market by expanding into the Islamic banking sector through Boubyan Bank.”

“There are steps that have recently started, such as the due diligence process, and there is a long list of regulatory and market requirements, and once these are completed, we will be able to reach a final assessment of the feasibility of the transaction.” he continued.

Project awards

Al-Sager said he was optimistic about the business environment and project award market in Kuwait, especially in light of the strong activity the project market had in the third quarter of this year compared to recent years, expecting this momentum to continue. in the rest of 2024 as well as in 2025.

He pointed out that the suspension of parliament has so far led to a simplification of the decision-making process, as the decision is now exclusively in the hands of the government. Therefore, we no longer have that confusion of decision-making, which will reflect positively on the long-awaited economic reforms.

“Several projects have been delayed for years and now we can say that we are breaking the deadlock and Kuwait is on the right track to boost economic growth with a government-backed consensus to prioritize major development projects and promote Kuwait as an attractive investment center. by passing a long-awaited set of key laws to support economic reforms. We remain optimistic to witness serious steps in promoting the role of the private sector in driving development,” he said.

“We believe that our optimistic outlook on the start of economic reforms and the improvement of the business environment in Kuwait in the coming period will be supported by effective steps on the ground,” he stressed.

Fiscal reforms

On whether the fiscal reforms that the government may undertake, especially those related to current expenditure, will impact consumer spending and credit in Kuwait, Al-Sager said: “We have to look at the big picture , as Kuwait needs reforms to support the transition to a dynamic and diversified economy and to achieve this goal, significant reforms are needed to address fiscal imbalances on the public expenditure side.”

“Kuwait has seen modest growth in the non-oil economy since the pandemic, which requires changes in the composition of public spending, with an increased focus on capital investment, to narrow the performance gap with neighboring economies,” he explained.

Al-Sager expected that the impact, if any, of the implementation of the current consumer credit spending reforms would be temporary and that momentum would be quickly restored, as Kuwait’s consumer credit sector is strong, resilient and very dynamic.