KUWAIT: Isam J Al-Sager, Vice Chairman and Group CEO at National Bank of Kuwait (NBK), said that the bank achieved the highest quarterly profits to-date, as it continued to deliver solid profitability trends, while affirming the group’s ability to generate positive results in various economic conditions and cycles.

On the sidelines of an analysts’ conference for the results of 3Q2023, Al-Sager said that NBK’s profits remain founded on diverse and sustained revenue streams while witnessing growth momentum across our various business sectors.

“In pursuing our strategic objectives, the group continues leveraging its resilient business model, diversification strategy, healthy balance sheet, ample liquidity and strong capitalization to further solidify our position and reinforce prospects for future growth,” Al-Sager affirmed.

“NBK will remain opportunistic in all its key growth markets with special focus on GCC, mainly KSA; as we are approaching the market on all fronts through our reputable franchise, wealth management expertise and digital capabilities,” Al-Sager added.

A challenging year

In terms of his outlook for the Egyptian market in the near term, Al-Sager emphasized that this year was a very challenging year for the Egyptian economy as inflation and devaluations continues to pressure on the market while the recent sovereign rating downgrades added further challenges to the already deteriorated situations.

He further elaborated that the situation may lead to some pickup in defaults across the system, but NBK is not expecting anything material in its operations because of the Group’s risk appetite in Egypt and the diversity of the Group’s loan book.

“The Egyptian economy is one of the largest and the most diversified in the region and has a lot of potential in growth once back on track,” Al-Sager noted.

“As for NBK, I think the devaluation of the Egyptian pound will mainly impact the group in terms of contributions of Egypt which keeps getting smaller when we translate local accounts to KD for consolidation. Egypt representation remains small in the group context with less than 5 percent of total group assets, and I think it will continue to be that way for some time,” Al-Sager added.

When asked about the mortgage law, Al-Sager stressed the importance of passing that law to lift the burden on fiscal position on one hand and to clear the queue of the housing authority applications given the increasing demand to provide residential housing to citizens, adding that we have witnessed serious developments on the mortgage law throughout the year including the passing of a new law to establish Housing Cities companies recently, which should accelerate housing distributions with the participation of the private sector given the opportunity.

“The mortgage law is listed among the priorities of the government’s legislative agenda; and we maintain our optimistic view that both laws will be approved by the parliament, and we hope this will take place during this upcoming parliamentary cycle,” Al-Sager confirmed.

Positive momentum

Al-Sager provided an update on the projects market and the recent pickup witnessed recently, assuring that although we witnessed a lot of delays in awarding mega projects during the past few years, the current positive momentum dominates the scene with project awards reaching close to KD 2 billion year-to-date. He also explained that the recent hike in oil prices, if continues, will be positive for business sentiment as this will pave the way for the government to continue with its commitment to spend on infrastructure; reflecting positively on non-oil GDP growth and business credit activity, especially that there are promising signs for projects in queue to be awarded this year, given the positive circumstances.

Strong market leadership

Al-Sager highlighted that through benefitting from the substantial technological infrastructure, NBK’s strategic investments continues to strengthen the group’s position as a market leader, expanding its capabilities to attract a broader customer base and nurturing the capabilities of its digital banking services. He also confirmed that the Bank aims to enhance its reliance on data analytics, artificial intelligence and machine learning to enhance customer’s experience.

Sustainable path

“In line with our strategic approach to implement best ESG practices and initiatives, NBK advanced its responsible banking services to customers to support their efforts towards green transition initiatives. In order to be a trendsetter among the private sector institutions in prioritizing ESG, we remain committed to the significance of such endeavors in driving the journey of sustainable growth,” Al-Sager noted.

Solid performance

Group CFO at NBK Sujit Ronghe confirmed that NBK’s results in 9M2023 reflect a solid operating performance by the Group and demonstrate the continued growth in the Bank’s business on the back of higher interest rates, healthy balance sheet, ample liquidity, and strong capitalization.

“The Group reported a loan growth of 3.8 percent during 9M23. Given the current geo-political and the general macroeconomic situation, we continue to expect the overall loan growth for 2023 to be in mid-single digit range,” Ronghe stated.

He further confirmed that Net Interest Margin (NIM) improved to 2.57 percent in the first nine months of the year, benefiting from higher interest rates and stronger volumes compared to last year. In general, we expect that the current environment of higher interest rates will continue for a longer period than previously anticipated.

Speaking of some of the major challenges going forward, Ronghe mentioned that it appears that interest rates would remain high well into the next year. From that point of view, NBK has historically benefitted in terms of higher interest margins and net interest income when the interest rates remain high, explaining that, higher interest rates mean there will be tough competition for achieving business growth and deals. From a net interest income viewpoint, the challenge could actually come once interest rates start decreasing.

When asked about the growth trends of NIM in 3Q2023, the drivers of change, the outlook going forward and the repricing mechanism, Ronghe responded that the growth in NIM in the 3Q2023 was mainly driven by the 25bps hike in CBK discount rate as well as in international rates, confirming that NBK also had a more favorable asset mix, from the growth in loans and investment securities, helping the increase in yield.

“With respect to the yield forecast in the future, if the interest rate scenario remains constant for next few quarters, we would expect yields to remain stable. There is room for upside with respect to the repricing of consumer loans. Consumer loans in Kuwait reprice every 5 years; meaning that loans booked in 2018 or 2019 are subject to repricing during this year or in 2024. There is a positive gap between 2018-2019 interest rates and the current levels. This would benefit the Bank to an extent with respect to consumer loans portfolio,” Ronghe concluded.