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Kuwait's bad debt provisions may be highest in Gulf states



Kuwaiti City: Kuwaiti banks may put aside the most money for bad loans among Gulf lenders this year as companies restructure debt.


Provisions as a percentage of total loans at banks in the country will reach 5.6 per cent this year and 6.7 per cent in 2013, according to Dubai-based investment bank Arqaam Capital.
That compares to 5.5 per cent and 6.5 per cent respectively for lenders based in the United Arab Emirates, it said.

Some Kuwaiti companies, including Global Investment House, have defaulted since the onset of the global financial crisis after the value of their assets collapsed and frozen credit markets prevented them from raising new loans.

The average yield on Kuwaiti debt was 5.28 per cent on Monday, JPMorgan Chase's CEMBI Broad Kuwait Blended Yield index shows. That's above 1.92 per cent in Saudi Arabia, 3.75 per cent in the United Arab Emirates and 2.86 per cent in Qatar.

"The Kuwaiti banking sector is still grappling with the aftermath of the crisis," said Jaap Meijer, director of equity research at Arqaam by e-mail.

"Debt restructurings, excessive exposure to investment companies, high corporate leverage and a structural political gridlock are stifling growth and continue to cause delays in the implementation of economic policy, causing Kuwait to lag the region."

Total debt

Total debt for the 95 investment companies in Kuwait, the Organisation of Petroleum Exporting Countries' (Opec) fourth-biggest oil producer, amounted to 4.4 billion dinars ($15.6 billion) at the end of October, according to calculations based on central bank data.
National Bank of Kuwait, the country's biggest lender, increased money aside for loan losses almost fivefold in the third quarter from the year earlier to 54 million dinars, according to data.

That's the biggest increase among the five-biggest publicly traded banks by assets in the Middle East. The lender's shares have fallen 3.8 per cent this year, compared with a 1.6 per cent gain for the main index.

National Bank of Abu Dhabi increased provisions by $12.6 million to $99.9 million, while Al Rajhi Bank raised them by $112.3 million to $221.24 million. Qatar National Bank and Emirates NBD lowered them.

The ratio of bad debt to gross loans at Kuwaiti banks will remain at 7.5 per cent for the third consecutive year in 2013, HSBC Holdings, Europe's biggest bank, said in an October report. That compares to an estimated 3 per cent in Abu Dhabi, 1.5 per cent in Qatar and 1.6 per cent in Saudi Arabia.

Second plan
Global Investment House, a Kuwaiti investment bank, said in September its shareholders agreed to a second plan to restructure $1.7 billion of debt. Aref Investment Group said last year it planned to sell some of its assets to restructure 280 million dinars of loans. Investment Dar, the majority owner of Aston Martin Lagonda Ltd., in 2011 restructured the terms on about $5 billion of loans after defaulting in 2009.

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