Kuwait’s biggest bank sees growth in the industry quickening this year as the government boosts spending to counter the effects of oil’s slump and a lack of investment during the past decade.
The banking sector will expand by about 7% this year, with National Bank of Kuwait growing by mid-to-high single digits, Isam al-Sager, group chief executive officer, said last week in Kuwait City, the capital.
“Kuwait has lagged behind the rest of the region for the last 10 years in terms of infrastructure development, so needs to start investing now,” al-Sager said in an interview. “NBK is a major player in financing these mega-projects and we benefit so much from government spending. We’re ahead of other banks to lead the financing on these projects.”
Kuwait is responding to the oil-price shock by “spending as much as possible” to bolster economic growth, Anas al-Saleh, Kuwait’s deputy premier, said last month in an interview. That’s in contrast to neighbouring oil exporters including Saudi Arabia and Abu Dhabi, where governments have slashed spending in response to the drop in oil receipts. It’s also a change from previous years in Kuwait when investment spending was held up by political squabbling and parliaments that sought to bail out indebted citizens.
Signs are already emerging that government-linked companies in Kuwait are starting to borrow to fund new infrastructure projects. Kuwait National Petroleum Co is seeking to borrow $10bn to upgrade two refineries. Kuwait Oil Tanker Co, a unit of state-owned refiner Kuwait Petroleum Corp, has invited banks to pitch for arranger roles on a loan of about 1bn dinars ($3.3bn), people with knowledge of the matter said last month.
Despite the slump in oil, banks in Kuwait have not suffered from the withdrawal of government deposits and liquidity is good, al-Sager said. Liquidity has tightened in the UAE and Saudi Arabia as the government has withdrawn deposits.
Government spending will help Kuwait’s economy expand 1.9% this year, up from 1% in 2015, according to estimates compiled by Bloomberg. Banks will also be competing to advise on a planned government bond and the potential privatisation of state-owned entities including the stock exchange, airport, ports and some parts of state oil company Kuwait Petroleum Corp. “Kuwait’s economy is still doing quite well simply because the government will not stop spending,” al-Sager said. More than $30bn of infrastructure projects were awarded last year, a record for the country he said.
The bank is increasing its capital by 6.5% through a rights issue that ends on June 16, after issuing Tier 1 and Tier 2 debt last year. Capital increases last year boosted the banks capital adequacy ratio to 16.4%. Those, coupled with the rights issue, will give NBK the funding base it needs to have a capital buffer above the regulatory requirements and play a large role in funding infrastructure projects, al-Sager said.
Profit at NBK is expected to increase more than 16% in 2016, according to the mean estimate of six analysts surveyed by Bloomberg. Al-Sager declined to comment on profit forecasts.