National Bank of Kuwait has had a good recession, says group chief economist Dr Randa Azar. A cautious investment approach and a reluctance to diverge from the basics are the secrets to its success.
Dr Randa Azar, group chief economist at the National Bank of Kuwait (NBK), is not a flustered woman. She talks cheerfully, patiently explaining why her bank is doing rather well, economic crash or not.
In mid-April NBK posted a Q1 net profit of $264m, 20 percent up on 2009's figure, far outstripping analysts' estimates, and said that total assets had grown some six percent to $44.1bn. Given that any growth over the last twelve months is good news, especially in the banking sector, 20 percent growth is surely the stuff of wild celebration.
"We are pleased," Dr Azar says. "The results are indeed good because they are consistent - that is the most important thing. Consistent and resilient."
NBK is the biggest bank in Kuwait. Founded in 1952 by a handful of powerful Kuwaitis, it has branches throughout the Gulf, and a handful in Europe and United States. The bank is consistently one of the best rated banks in the Middle East by the various international ratings agencies.
So what is the secret to its performance over the last twelve months?
Dr Azar says: "We do not speculate, we do not take unmeasured risks. Actually the bank has a very conservative and disciplined risk management strategy. We can credit this strategy with our resilience and success over the years. But that is not enough - you also have to have focus and a reading of the markets so you know the appropriate markets and segments to follow. It is not like we have a flavour of the month or year."
That is of course not to say that the bank does not have an investment portfolio, she is quick to point out, but rather that that portfolio is defined by its caution and as near-as-guaranteed-returns as possible.
"We do not invest in property and real estate - and there are restrictions on us to stop us doing that from the central bank. We do have an investment portfolio, but it is mostly to manage the liquidity. It is primarily and predominantly government bonds. We have foreign sources of funding and obviously we don't want to take the foreign currency risk, so we do invest in foreign currency instruments, but these tend to be money market government bonds, very safe. We don't buy high rises, or shares in Madame Tussauds, because we are a commercial bank," she says.
And what of the institutions that have made headlines over the last year around the world... has the National Bank of Kuwait been exposed to any of these? Certainly most banks in the Gulf, and beyond for that matter, have taken a hit when previously ‘A' rated institutions have proved to be anything but. NBK, to hear Dr Azar tell it, has got off remarkably lightly.
"We don't have exposure to most of the entities that you hear have had problems. To investment companies in Kuwait we have virtually no exposure. To the Algosaibi and Saad groups we have no exposure. We don't have exposure to the Dubai corporates."In the sense that the financial crisis affected the regional economy, we were affected. We are part of this region, so business volumes were affected. Do we have any direct losses? Well, we didn't have any exposure to subprime mortgages, or the derivates and credit instruments," she says.
Interestingly, there was some exposure to Bernie Madoff's amazing Ponzi scheme, but the bank made good the losses its customers took, and Dr Azar, who says she does not know the exact amount involved, certainly doesn't sound as if she has lost sleep about it. She says: "We did not have a direct exposure to the Madoff scandal, however we had some customers who - indirectly through feeder funds - had exposure through our subsidiary NBK Banque Prive in Geneva, and we decided to reimburse them their losses. It was a reputational issue, and we felt it was our fiduciary responsibility to understand the risks."
Dr Azar will concede that the financial crisis struck a blow, but only a glancing one, and one for which she says the bank continues to be more than prepared.
"We were affected to the extent that corporates and investors across the region were affected by the crisis. The business needs have gone down. And of course interest rates have fallen, and that has affected us.
"In general, the environment has affected us, because it is a slow growing or no growth environment. We have taken precautionary provisions though. These were judgmental, they were not related to anything, because we felt it is better, not knowing the scale of the problems globally - today you are seeing new problems emerge - so we took about $300m in judgmental provisions. These were not taken this year, these were taken in the first half of 2009," she says.
Dr Azar talks about NBK's expansion plans, about how the bank is growing, particularly through the Gulf and beyond, markets she attests that the bank knows and "understands." She points out, for example, that NBK is neither in nor has any plans to be in places like Thailand or India.
Given this growth mode, it would seem she believes the financial crisis is over? She nods. "We think it is over. We think the situation has stabilised, barring any fresh surprises. We think we are starting to emerge from the crisis, based on the indicators coming from the advanced economies. Emerging economies have actually done quite well in this crisis, the Gulf included.
"In Kuwait we are starting to see some movement on the part of the government to implement a new four year development plan. This should see investment thrive. The investment calls for about $100bn in projects to be implemented over the next four years.
"About 50 percent of that is expected to come from the private sector and this is what interests us."For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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