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CBK records net profit of KD 1.2 mln in 2012 NPLs at 169%; retail loans up 8.25%

The following is a message by Ali Mousa Al Mousa, Chairman and Managing Director of Commercial Bank of Kuwait on the bank’s financial statement and information pertaining to its business activities.               — Editor

Dear Shareholders,
On behalf of the Board of Directors and the Executive Management Team, I have the pleasure to welcome you in this meeting and present the bank’s financial statements and certain information and statements pertaining to its business activities.
The banking sector in Kuwait saw a new phase in terms of its management and operational environment with the implementation of a new Corporate Governance system where regulators represented in the Central Bank of Kuwait laid down the features of such system and are now monitoring implementation and compliance thereof consistent with the international standards and best banking practices. Furthermore the banking sector should also get ready to meet the requirements of Capital Market Authority and Ministry of Commerce & Industry under the new companies law No. 25/2012 and related amendments and its Executive Regulation due to be issued shortly. Transparency is considered the cornerstone of the new rules and requirements of Corporate Governance and reflected in disclosures made by banks for related parties and others.

Commercial Bank of Kuwait endeavoured to meet Corporate Governance requirements where the Bank implemented many requirements thereof before the mandatory date set by the Central Bank of Kuwait. The Bank has embarked on reviewing and updating its organizational structure and policies and business mechanisms so that the Board of Directors and all the Bank’s departments can adjust and fine-tune their business mechanisms to be in line with Corporate Governance requirements.
As such, and not as usually followed, my message and the brief report presented to the General Assembly will be different this year along with  the annual report that will  be  shortly released which will hopefully meet the highest disclosure and transparency standards.    

Financial Highlights
The Bank’s Management endeavoured to improve quality of assets through two directions: first by seeking final settlement for non-performing loans by either amicable or judicial ways where our Bank considerably reduced the percentage of its Non Performing Loans, (NPLs) which stood at 2.76% compared to the average percentage of 4.95% for the banking sector in Kuwait.
Secondly, we have opted on strengthening the Bank’s provisioning base where provisions coverage for NPLs stood at 169% at the end of 2012 compared to 94.8% for the Kuwait banking sector. We denote that the measures taken by the Bank’s Management led to high capital adequacy ratio which reached 19.95%.

Business Growth
This year saw slight decline in corporate loans by 5.48% i.e. from KD 1,899 million to KD 1,795 million due to the selective approach the Bank has adopted in extending credit facilities targeting the good customers and promising and yielding projects. Additionally, the Bank changed the terms and conditions covering the granting of new loan and facilities.  Nevertheless, the Bank may not ignore the general credit restraints in Kuwait, particularly with the scarcity of vital projects that require credit facilities and finance. As for the retail loans, they increased by 8.25% i.e. from KD 403 million to KD 436 million.
As regard operating income, it decreased from KD 129.9 million to KD 123.2 million and shareholders’ funds increased from KD 531.4 million up to KD 553 million. The Bank has declared net profits of only KD 1.2 million.

International Activity
Commercial Bank of Kuwait is proud for being a local bank with the full meaning of word, placing thereby great emphasis on providing its services and products to its local customers and will continue in adopting this approach for the future. However, this does not prevent the Bank from expansion in certain international operations, especially in the area of international trade finance and the international projects between Kuwait and brotherly countries.

We have a positive outlook for domestic economic activity on the short term and this is generated mainly from the strong public finance and relies on public expenditure, particularly capital expenditure where published statements indicate that a number of government projects are in the pipeline.
However, we will adopt a prudent approach in 2013 where competition among local banks is expected to become more fierce, specifically in pricing the banking services offered by banks. Though this fierce competition shall be for the benefit of consumers and borrowers, it will constitute a mounting concern and shall impose further challenges for the Bank and all other local banks.

As for our vision to the Bank’s profitability, it is inevitable to disclose that the mechanism of determining net profit and dividends in Kuwaiti banks and declare the same is not a matter to be decided only by Kuwaiti banks’ managements but it is a decision taken jointly by banks’ managements and the regulatory authorities. It is irrational and unprofessional to forecast the decisions of the regulatory authorities as such decisions are discretionary for them and the final say for local banks to declare net profits lies in the hands of the regulatory authorities.

As for credit growth, the Bank will continue its selective approach in extending credit facilities with more focus on profitability and less risky activities regardless of the negative effect this may leave on credit expansion. Thus, we do not foresee significant growth to be achieved in credit activity in 2013.
On the other hand, and despite the Bank’s endeavours to focus on retail loans expansion, there exists a new factor that may have adverse impact on this, namely the State purchasing some of banks’ consumer and instalment loan portfolios within the so called  “Family Fund”  currently discussed in the National Assembly, where the  size of this portfolio and its returns can significantly drop, but until the date of preparing this speech, there are no clarifications on the nature of this other Family relief Fund that may come into existence.

The Bank proceeded with focus on upgrading and improving its services targeting development of technologies used in providing services to our customers.
The Bank shall, among its general trends for 2013, expand its domestic branches network within the narrowest limits where development in the process of providing services via information technology methods is more effective at present and is regarded as the future of the banking industry. The Bank already operates a large domestic branch network with 52 branches. The Bank persistently endeavours to assess performance of these branches and their business activities throughout Kuwait with due observation of feasibility of exchanging the locations of these branches if so required.

In conclusion, I wish to express sincere gratitude and appreciation to His Highness the Amir Sheikh Sabah Al-Ahmed Al-Sabah, His Highness the Crown Prince Sheik Nawaf Al-Ahmed Al-Sabah, and His Highness the Prime Minister Sheikh Jaber Mubarak Al-Hamad Al-Sabah for their support towards banking sector. The Board of Directors would also like to extend thanks to the Central Bank of Kuwait’s Governor and all regulatory agencies for their continuous support to the Banking sector in Kuwait.
I would also like to take this opportunity to express gratitude to our valued shareholders for their continued support of Commercial Bank of Kuwait and all our customers for their trust and confidence in our services and the Executive Management Team and our employees for their dedication and loyalty at work.

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