First Quarter Profits For Kuwaiti Banks Will Be The Highest In The Gulf

According to EFG-Hermes Group's latest report, Kuwaiti banks are expected to achieve the highest growth in profits on an annual basis during the first quarter of 2022.

A Kuwaiti bank's profit growth for the first quarter is expected to be 33 percent on an annual basis, compared to 21 percent for banks in the UAE, 15 percent for Saudi banks, and 21 percent for banks in Qatar.

Kuwait's banks' allocations decreased in the second half of 2021 compared to the first half of the year, and credit quality improved, suggesting better risk costs in 2022. According to banking sources, consumer spending continues to propel the strong growth of individual loans, although the pace has slowed since 2021.

According to the report, revenue growth at Kuwaiti banks is expected to reach 5% on an annual basis during the first quarter of this year. Meanwhile, "Hermes" estimates loan growth at 10% and 84 basis points of risk during that period. Based on the same data as the first quarter of 2021, 131 basis points.

A decrease in total revenue of 5 percent, in combination with a slight increase in provisioning costs on a quarterly basis, will result in a 10 percent decline in gross profit for Hermes on a quarterly basis.

Results of the first quarter of 2022 are projected to show the following trends:

1 – Kuwaiti banks recorded a 10 percent credit growth on an annual basis, driven by double-digit growth in individual loans and a slight improvement in the credit demand from companies due to improved business conditions.

2 – Net interest margins are generally stable on an annual and quarterly basis, since "Hermes" anticipates an increase of 25 basis points in the discount rate by the Central Bank of Kuwait in the second quarter of this year will boost margins.

3 - Annual provisions decreased from a high base. Kuwaiti banks continue applying strict rules of the Central Bank of Kuwait (Kuwaiti banks continue to apply NPL coverage rates that have increased in 2021). NPL ratios have decreased across the sector.

As for Gulf bank stock prices, the report indicates that they have been performing well since the beginning of the year following the possibility of several rate hikes in 2022, and the periodic recovery in demand for loans as well as the high oil prices, as well as the fact that the economies of the Gulf countries generally are not as vulnerable to the repercussions of the conflict between Russia and Ukraine as those of other emerging markets.

EFG Hermes anticipates strong double-digit increases year-over-year in first quarter bank profit for most countries in Middle East and North Africa.

For many of the banks they cover (particularly Kuwaiti banks), the macro fundamentals are generally supportive, especially in the Gulf countries.

A forecast for the first quarter of 2021 indicates that companies will demand more credit as a result of improved business activity, which in turn will lead to a recovery of bank revenues.

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