ShareKUWAIT: Salah Al-Fulaij, the CEO of National Bank of Kuwait (NBK) - Kuwait, said that the record financial results reported by the bank during the first half of 2023 are a continuation of the solid performance during the past year, as NBK succeeded in achieving exceptional performance thanks to the improvement in the Group’s income from core business activities. In an interview with CNBC Arabia, Al-Fulaij stated: “the growth in net profit is mainly driven by the increase in net operating income, which boosted by 18.8 percent in the first half of 2023, reaching KD 565.9 million, combined with substantial growth in net interest income and net fees and commissions.”
Al-Fulaij indicated that higher interest rates and the bank’s solid balance-sheet contributed to the increase in margins, expecting this trend to continue moving forward. “Our endeavors to strengthen our balance-sheet, both locally and internationally, across different business sectors, including corporate, retail and Islamic finance, have enabled us to maintain our leadership in the markets where we operate,” he added. “We succeeded in maintaining exceptional levels of credit quality and comfortable liquidity ratios, which paved the way for an increase in earnings per share. We also proceeded with our strategy to maximize returns for shareholders, in line with our long-term goals, as return on average assets and return on average equity recorded 1.53 percent and 15.2 percent, respectively,” he continued.
Al-Fulaij expected strong performance to continue during the second half of the year, despite some headwinds, with continued benefitting from a robust and diverse balance sheet and the group’s ability to seize opportunities in the different markets where it operates. Resilience and diversification As far as the operating environment in Kuwait is concerned, Al-Fulaij said that it has recently received some support after the election of a new parliament, expressing his hope that this would lead to a stable political scene in Kuwait. Al-Fulaij stressed that any stability would reflect on the operational environment gaining further momentum during the second half of the year, and that cooperation between the executive and legislative branches is crucial to driving financial and economic reforms and stimulating the private sector.
Speaking on the impact of changes in the operating environment on operating income, Al-Fulaij said that more than a third of the balance-sheet comes from outside Kuwait, which makes future growth and income streams geographically well-distributed, thus ensuring sustainable profitability. We also operate across diversified business sectors, which is one of the buffers protecting the Group’s growth and profitability. “We will continue to strengthen our business activities and profitability across all markets and business sectors, while being well-prepared to seize growth opportunities resulting from the expected recovery of the non-oil sector activity in Kuwait,” he emphasized.
“NBK will continue its historical precautionary approach, as the Group will continue to follow a conservative policy in managing its credit exposures, taking into account the extended impact of a number of factors, including the impact on the operating environment as a result of the geopolitical developments, the crisis faced by European and American banks, as well as the uncertainty of the global economic outlook, with a possible downturn in global economy,” he mentioned. Improving margins On a question about NBK’s vision of interest rates, Al-Fulaij said that interest rate raising cycle is nearing its end, noting that higher interest rates are generally viewed as a positive factor, considering the strong and diversified funding structure of the Group’s deposits.
“Around 40 percent of our non-bank deposits are CASA deposits, which are low-cost deposits that are not sensitive to interest rates, which is favorable for us when the interest rate is raised. Also, around a third of the loan portfolio is retail loans with fixed rates that are not re-priced, whereas the remainder is floating rate loans which are re-priced within a short period of time.” “As we grow and strengthen our loan portfolio, we book new loans at higher interest rates, allowing average return on assets to improve regularly. This reflected positively on margins, which grew by 34 bps year-on-year to 2.52 percent in 1H 2023,” he added. Growth markets Al-Fulaij went on to talk about NBK’s geographical footprint in regional markets saying: “NBK is operating in 13 countries across 4 continents.
At the present time, we are focusing on strengthening our presence in the key growth markets, especially Saudi Arabia and Egypt. Saudi Arabia is one of the key growth markets that the Group is focusing on as we are expanding our business in all sectors there, in view of the continued improvement of the operating environment and the various emerging opportunities that are in line with our strategic objectives.” “We are laser-focused on expanding our recently launched global wealth management platform and benefiting from the NBK brand in growing assets under management there, as the Group’s AUM in Saudi Arabia have exceeded $1 billion since its inception, thanks to our highly professional wealth management and private banking team there,” he continued.
“We are greatly benefitting from the tremendous developments taking place in the Saudi market in light of Saudi Vision 2030, as we provide financing to projects that are witnessing a boom across all sectors. We also benefit from the influx of investments into the Kingdom from most of the main regional markets in which we operate,” he elaborated. Speaking on the Group’s vulnerability to economic changes in Egypt, Al-Fulaij explained that the Egyptian economy is going through a difficult year, like other emerging markets, which were suffered successive external shocks over the past period.
However, he expressed his hope for improvement in these conditions going forward, in light of the current economic reforms, and the potential resulting influx of foreign investments, and the normalization of inflation, starting next year. “EGP devaluation against the USD has adversely affected NBK-Egypt’s dollar-denominated profits in our consolidated balance sheet, but its contribution to the Group’s profits is marginal, in view of the geographical diversity of our income sources, and that the Egyptian market represents only a small percentage – less than 5 percent – of our total assets,” he highlighted.
Al-Fulaij mentioned that NBK has a long-term strategy towards the Egyptian market. “Domestically, the bank’s operations are performing very well, it is reporting decent profits, and has a very healthy balance sheet as well.” “We have plans for further expansion in Egypt, especially in the retail sector, in which we see growth opportunities given the large population and increasing financial inclusion, based on increasing our investments in digital banking,” he concluded.
