Thursday, Jun 30, 2022
Finance | Middle East | Kuwait

Banking on Kuwait

Kuwait investing heavily in backlog of much-needed infrastructure projects

5 years ago

Shaikha Al-Bahar, Deputy Group CEO of NBK
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As the nation’s largest and first established bank, NBK is one of the leading financiers of Kuwait’s mega projects, and will play a pivotal role in supporting the New Kuwait Vision 2035 plan

While other oil-rich Gulf states have curbed spending due to the impact of lower oil prices, Kuwait is still investing heavily in a backlog of much-needed infrastructure projects. And high government spending is expected to continue, under the five-year Kuwait Development Plan (KDP) unveiled in 2015. The KDP will see around $115 billion invested in 500 projects, including a string of infrastructure mega-projects, many of which will be funded by the local banks.

The high level of government expenditure on infrastructure projects is one of the main reasons that Kuwaiti banks enjoy the highest banking profitability on average in the Gulf region. The banking system’s net profits increased 6.1 percent in 2016, compared to the 5.1 percent net profit increase in 2015.  Profitability is expected to remain strong due to sustained levels of government spending.

“The main drivers behind the high profitability of the Kuwaiti banks are the financing of the construction of the current mega-projects, the stable financial environment created by the Central Bank of Kuwait and the increase in efficiency of Kuwaiti banks, which have put a focus on rationalizing costs," says Shaikha Al-Bahar, Deputy Group CEO of NBK, the largest and first established bank in Kuwait, and one of the leading financiers of the nation’s mega projects.

“NBK is a dominant player in the project finance market and controls more than a 75-percent market share of foreign companies doing business in Kuwait,” says. Ms. Al-Bahar. “We have led most of the business activity related to the government’s infrastructure development plan, and have outperformed domestically when real banking business is the driver of profitability.”

Strong business activity has recently fueled balance sheet growth mainly on the back of the project finance business, leading NBK to record a healthy net profit increase of 8.1 percent in the first quarter of 2017, well above the 6.1 percent average of the Kuwaiti banking sector.

Ms. Al-Bahar says international operations and regional growth markets (Egypt and the GCC) have been a key driver of NBK’s performance. The bank is currently present in 15 countries, with branches in the international financial centers of New York, Geneva, Paris, Singapore and London. It also became the first bank from the Gulf to enter China.

Diversification has always been a key element in NBK’s strategy over the years, both geographically and by business sector.

“Geographically, our presence in some markets outside the GCC, in non-oil-dependent economies, is a strong demonstration of our diversified business model. By business segments, we focus on offering a diversified range of products targeting different markets and segments,” says Ms. Al-Bahar.

In 2005 NBK entered the investment banking sector by establishing its subsidiary NBK Capital, which offers asset management, advisory, brokerage and investment banking services. It is also active in the Islamic banking market as the major shareholder of Boubyan Bank, which is the only bank in Kuwait offering both conventional and Islamic banking.

In May, NBK successfully issued $750 million of five-year Senior Unsecured securities, in a bid to further boost liquidity, diversify funding sources and increase liability durations. This debut issuance falls under NBK’s new $3.0 billion Global Medium-Term Note (GMTN) Program. The issued notes came at a re-offer yield of 2.860% (mid-swap plus 100 bps).

This is the first issue since 2009 from a Middle East bank to target the U.S. market under the U.S. Securities Act. The transaction was very well received by both regional and international investors, with the order book closing at $2.2 billion, translating to around 2.9 times oversubscription for the deal.


U.S.-based investors dominated the deal with 57 percent share of the issuance, followed by MENA investors at 26 percent, European investors at 13 percent and 4 percent from Asia. The strong demand along with the diversified, high-quality investor base are testimony to NBK’s superior name in international markets and how it is perceived as being a top-quality bank by international investors.




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