National Kuwaiti bank results mirror malaise

The National Bank of Kuwait has reported a sharp drop in net profits and warned the country's persistent political gridlock posed significant threats for the Kuwaiti economy.

Kuwait's biggest lender reported net income of US$431.2 million for the first half of the year, a drop of 17.6 per cent on the same period a year earlier.

The profits reflect a 42 per cent drop in second-quarter income and a significant miss on analysts' estimates. NBK's shares fell 5.6 per cent to 1 Kuwaiti dinar each in trading yesterday on the Kuwait Stock Exchange. The bank had set aside $96.4m in judgemental provisions "in face of a further potential deterioration in our operating environment," said Ibrahim Dabdoub, NBK's chief executive.

"Domestically, a negative outlook is inevitable where government spending remains dormant, tendering of new projects significantly lags and asset values continue contracting as the local stock market considerably underperforms. Add to that the geopolitical developments that are putting further pressures on both the local and regional economic activity," he said. The bank has turned to operations outside Kuwait to support its profits.

Last month, a Kuwaiti court dissolved the country's legislature, overturning an election result in February that gave opposition politicians a majority in parliament. The previous parliament was reinstated, while the Kuwaiti cabinet resigned later that month.

Deadlock has persisted since then, threatening Kuwait's $125bn five-year plan for infrastructure development, which has been held up by the political bickering. That is creating significant economic risks for Kuwait.

Lending growth is expected to remain suppressed in Kuwait for some time as a result of government inaction, hampering the prospects for the Kuwaiti banking sector, analysts from Bank of America Merrill Lynch wrote in a research report. "Kuwait has noted no real credit growth in the last two years," the report said.

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