Big Kuwait, Bahrain banks Q3 profits sag on Saudi loans

BAD LOANS: Kuwait's Gulf Bank says bad loans will weigh on profits until at least mid-2010. (Getty Images)

Major Kuwaiti and Bahraini banks reported a sharp decline in third-quarter profit on Sunday as they raised provisions to cover bad loans to Saudi firms.

One lender, Kuwait's Gulf Bank, said it expected bad loans would weigh on profits up to mid-2010. The bank, which did not publish a net profit or loss figure for the quarter ended Sept. 30, also used its entire operating profit of $147.1 million from the third quarter as provisions.

A debt implosion at Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Bros (AHAB) has sent shockwaves through the region and forced banks to book massive provisions against their exposure to the firms.

Standard & Poor's estimates that 30 Gulf Arab banks have a combined exposure of $9.6 billion.

Gulf Bank was rescued by the Kuwaiti central bank in 2008 after derivatives losses. Its troubles had prompted the government to guarantee all deposits in local banks to restore confidence.

"Further precautionary provisions may be required if the general economic situation fails to improve. This may necessitate utilizing our operating profits up to the first half of next year to cover our provisioning requirements," the lender's Chief Executive Michel Accad said in a statement.

Meanwhile, Al-Ahli Bank of Kuwait (ABK) also saw quarterly profit plunge, down 83.7 percent, although it did not explain the decline.

Ahli said its net profit in the three months to Sept. 30 was 4.09 million dinars ($14.32 million) compared to 25.16 million dinars, in the same period last year.

Last month, the bank sued Saudi Arabian conglomerate Saad Group and its billionaire owner Maan al-Sanea for $125 million, alleging breach of contract and fraud over a credit agreement.

Elsewhere, Kuwait Finance House (KFH), the country's biggest Islamic lender, said its net profit fell 46 percent to 34.3 million dinars, or 15.1 fils per share, compared with 63.23 million dinars or 27.4 fils per share in the same period a year ago.

Coast Investment had expected KFH to post third-quarter net profit of 48.07 million dinars.

KFH, in which the country's sovereign wealth fund owns a 24.1 percent stake, said nine-month profits were down 52 percent from the year-earlier period.

KFH said last month that it does not have big exposure to the debt of local investment firms and still has a strong financial position.

In Bahrain, where the central bank seized two lenders connected to Saad and AHAB last July, the country's biggest bank saw the fallout from the Saudi firms hit its results.

Ahli United Bank (AUB) said net profit slumped 44.9 percent in the quarter to $43.5 million.

AUB said it boosted provisions on its Saudi corporate loan portfolio to 75 percent in the third quarter, up from 65 percent during the second quarter.

The lender booked $68.14 million in provisions during the third quarter, up from only $10.2 million in the year-earlier quarter.

Banking analyst Suleman Soorani at Bahrain-based SICO Investment Bank, said the results were below his expectations.

"We were expecting a stronger slowdown in provisions from the second to the third quarter," he said.

Soorani said the bank likely booked higher provisions also on its Bahraini and Kuwaiti loan portfolios. (Reuters)

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