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Sun 6 Jul 2008 03:34 PM

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Kuwaiti bank profits up despite lending restrictions

Q2 earnings surge as economy booms and as banks shrug off consumer lending rules.

Kuwaiti bank profits surged in the second quarter due to the booming economy in the Gulf Arab region, shrugging off stricter lending restrictions imposed by the central bank to fight record inflation, analysts said.The Kuwaiti central bank this year toughened consumer lending rules and risk weightings for banks to discourage them from lending too much as inflation in the Gulf state spiralled to a record 10.14 percent in February.

Shares of National Bank of Kuwait (NBK), the country's biggest bank which is expected to kick off the results season by next week, have fallen 7 percent since the new rules were unveiled in March compared to a 9 percent rise by the main Kuwait benchmark.

But as oil prices have soared seven-fold in the last six years, and more than doubled in the past year, banks in the world's seventh-biggest oil exporter still have plenty of business to feast on, analysts said.

"The rules will affect banks, but only slightly as many have other growing operations, especially outside Kuwait," said Naser Al-Nafisi, general manager at the Al Joman Centre for Economic Consultancy.

In a net profit survey by newswire Reuters last month, Kuwaiti investment bank Global Investment House said it expected NBK's profit to rise 11.2 percent, while Commercial Bank of Kuwait's earnings should grow 22.2 percent.

Shares of Commercial Bank, Kuwait's fourth-largest publicly traded lender, have fallen 14 percent since the new lending rules, while Kuwait Finance House, the second-biggest Islamic lender in the Gulf region, dropped almost 12 percent.

"There is much liquidity, money supply is rising. The lending rules will affect banks only slightly," said Faisal Hasan, head of research at Global.

Any impact from tighter lending restrictions, which apply only to new loans, would likely begin appearing in the fourth quarter, Hasan said.

Kuwaiti banks have also managed to diversify their income streams, focusing increasingly on investment banking as the industry gains momentum regionally, Al-Nafisi said.

Awash with cash from the oil boom, Kuwaiti banks are jumpstarting expansion plans in the Middle East and Asia to offset rising competition at home.

In the past year, NBK has taken over Al-Watany Bank of Egypt and bought a 40 percent stake of unlisted Istanbul-based Turkish Bank.

NBK Chief Executive Ibrahim Dabdoub said in June the bank expected to boost net profit by more than 20 percent in the first half after a 28 percent jump in the first three months.

Kuwait Finance, whose profit is set to soar 34.4 percent in the second quarter according to Global, has moved into Malaysia, and plans to expand in Turkey and the Gulf to tap a boom in Islamic finance, Chief Executive Mohammad Al-Omar told Reuters last month. (Reuters)