Kuwait's CBK sees profit drop amid bad-asset cleanup

Lender to focus on home market; puts on hold expansion for three years due to credit crisis
Kuwait's CBK sees profit drop amid bad-asset cleanup
Commercial Bank of Kuwait reported a profit of KD1.33m ($4.83m) in the first quarter after a loss of KD1.45m ($5.27m) in the year-earlier period
By Bloomberg
Thu 02 Jun 2011 05:17 PM

Commercial Bank of Kuwait expects profit to drop this year as the country’s third-largest lender “cleans up” its balance-sheet after setting aside money to cover bad assets, the acting chief executive officer said.

“I would expect our full-year profit to be less” than the KD40.5m ($147m) in 2010, Elham Mahfouz said in an interview at the bank’s headquarters in Kuwait City on Wednesday. “We expect a reasonable profit in the second quarter as we have just finalised a settlement agreement with a write- off on the spot, and that will affect our figures.” She declined to provide further details of the settlement.

Kuwait was forced to guarantee all deposits at local banks in 2008 after Gulf Bank lost $1.3bn in derivatives trading and Global Investment House KSCC, the country’s biggest investment bank, defaulted on $2.8bn of debt. The global credit crisis weakened lending and investment banking in the Middle East, pushing up provisions for loan defaults and a decline in the value of banks’ investments.

Commercial Bank reported a profit of KD1.33m ($4.83m) in the first quarter after a loss of KD1.45m ($5.27m) in the year-earlier period. The bank's shares have lost 1 percent this year compared with an 8.3 percent decline in Kuwait’s benchmark index and a 1.9 percent gain in the banking index.

Provisions peaked in 2009 and the lender may set aside less money to cover bad loans this year, according to Mahfouz. Commercial Bank’s impairment and other provisions dropped to KD51.2m ($186.17m) last year from KD130.8m ($475.61m) a year earlier, according to its financial statement posted on Bloomberg. The lender booked a first-quarter provision of KD23.3m ($84.72m), the same as in the year-earlier period.

Commercial Bank plans to focus on its home market and has put on hold expansion for at least three years due to the credit crisis, Mahfouz said. The lender holds 19.2 percent of Kuwait’s Boubyan Bank and 32.7 percent in Syria’s Islamic Cham Bank.

“Before the crisis, we had expansion plans and looked at certain countries like Egypt, Turkey, Pakistan and Yemen,” she said. “Then we felt it would be better for us to concentrate, as a strategy, in Kuwait and we stopped looking outside.”

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