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Sun 12 Apr 2009 08:38 PM

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'Worst over' for Kuwaiti banking sector

Q1 profits expected to decline year on year, but improve from losses in prior quarter.

First-quarter profits at Kuwaiti banks are expected to decline year on year, but improve from losses in the prior three months even as a global recession hits, analysts said on Sunday.Shares in the OPEC producer's banks have risen since it approved a $5 billion stimulus aimed at helping the financial sector, mainly by giving state guarantees for new loans. It also allows the state to buy into banks unable to raise fresh funds.

Analysts said the worst appeared to be over for now at Kuwaiti banks after several major players, such as Kuwait Finance House (KFH) and Commercial Bank of Kuwait (CBK), plunged into the red in the fourth quarter after taking provisions.

Banks' first-quarter profits would fall on average 30-35 percent from the year ago period, but that might still boost shares, said Naser al-Nafisi, general manager at the al-Joman Center for Economic Consultancy.

"The situation has improved compared to the fourth quarter, provided there are no more provisions we don't know about," he said. "Despite a profit fall the shares, which have fallen 50 percent in some cases, might benefit." Gulf Bank has already said it is expecting to post a profit in the first quarter, after diving deep into the red in the fourth quarter due to losses with derivatives.

Under a revamp ordered by the central bank the lender secured fresh funds from shareholders and the state's sovereign wealth fund.

"Earnings will be under pressure. For National Bank of Kuwait and CBK, profit will be subdued but I don't expect they will be making losses," said Naveed Ahmed, a financial analyst at Kuwaiti investment bank Global Investment House.

"I am a bit sceptical regarding KFH and Gulf Bank due to their low non-performing loans coverage ratio."

In a Reuters survey, EFG-Hermes expected net profit at NBK to fall by 26 percent, KFH to fall by 51 percent and CBK by 30 percent.

Both KFH and CBK have warned of a tough first quarter but said profit would be good given the current economic situation.

Kuwaiti banks have also managed to diversify their income streams by expanding abroad - although to a much lesser extent than rivals in the United Arab Emirates - which has left them less exposed to international real estate or stock markets.

But local banks are exposed to the troubled investment sector, where several major players like Global Investment House or Investment Dar are struggling to raise new loans.

Fitch Ratings has cut its rating on KFH over risks in its loans to Kuwaiti investment firms, warning it may further downgrade the major Islamic lender after its first-half results.

"Further provisioning and equity mark-to-market losses will also be seen this quarter, though to a lower extent," said Global Investment House's Ahmed. (Reuters)

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