(MENAFN- Arab Times) The following is a message from Ali Mousa Al-Mousa Chairman of Commercial Bank on Kuwait (CBK).
In the name of Allah the Most Gracious the Most Merciful Our valued shareholders our respectable attendees The term of the present Board of Directors will expire with the end of the Ordinary General Assembly Meeting held for discussing the Bank's business results for the year ending 31/12/2014. On this occasion the Board of Directors has the pleasure to highlight through this message the major issues related to the Bank's business results throughout the term of the Board of Directors (2012 - 2014) and also present an overview of the Board's approach and strategy in dealing with the developments the banking industry has seen on the local and international fronts. The Bank's financial statements disclose all the mandatory information and details as required by the regulatory and statutory bodies through related resolutions. This message will shed light on the issues of concern of our valued shareholders and will also elaborate the details of these issues in a coherent manner. Assets The total assets grew by 7.2% to reach KD 4213 million at the end of December 2014 compared with KD 3929 million at the end of December 2013 and KD 3668 million at the end of December 2012. The loans grew at a very limited pace during 2012-2014. The Bank offered KD 2320 million loans to customers as at the end of 2014 compared to KD 2317 million in 2013 vs. KD 2127 million in 2012. The limited growth was a natural outcome of the Bank's policy aiming at improvement of assets quality strengthening of profitability level over the growth in volume of loan portfolio. To achieve this objective the Bank adopted stringent procedures in establishing provisions and applied risk-focused selective criteria in extending the credit facilities to the customers. These issues will be illustrated in the following narratives. Assets Quality A positive and steady development in the Bank's credit portfolio quality is clearly evident and is reflected by the NPL ratio (ratio of the non-performing loans to total loans portfolio). This ratio was 2.76% at the end of December 2012 and reached 1.35% at the end of December 2013 and stood at only 0.80% at the end of December 2014 the best NPL ratio among all the banks in Kuwait. Provisions Over the past years the Bank adopted a conservative approach for building up the required provision base (general or specific). As a result the provision coverage ratio for NPL was 168.90% at the end of December 2012 that increased to 367.16% at the end of December 2013 and jumped to 751.62% at the end of December 2014 i.e. more than twice the ratio achieved in 2013. Provision coverage is one of the methods adopted for solidifying the balance sheet to avert any risks. It is important to refer to the 'Off-loading of doubtful debts' an item which is not included in financial statements but it is rather related to the provisions charged to income statement in the respective financial year. As a consequence debts amounting to approximately KD 112.2 million were off-loaded in 2012 and debts of KD 58 million & KD 20.1 million were off-loaded in 2013 and 2014 respectively. It is to be noted that the accumulated balance of off-loaded debts during the last five years amounted to KD 505 million. Profitability * The Bank's profitability has steadily increased over the past three years. The operating income grew by 7.6% to KD 144 million in 2014 compared with KD 134 million in 2013 achieving thereby a growth of 8.8% over the operating income amounting to KD 123 million achieved for 2012. Similarly the operating profit has progressively increased and grew by 7.9% to KD 109.7 million in 2014 compared with KD 101.7 million or 7.8% for 2013 over the operating profit amounting to KD 93.8 million for 2012. * The net profit after provisions & tax grew by 108.7% to KD 49.1 million for 2014 compared with KD 23.5 million for 2013 while the net profit for 2012 was marginal. As such Earning per Share (EPS) increased from 17 fils in 2013 up to 35 fils in 2014 and cash dividends grew from 7% in 2013 up to 18% in 2014. * Return on Assets (ROA) increased from 0.03% at the end of 2012 to 0.62% at the end of 2013 and stood at 1.21% at the end of 2014 whereas an increase in Return on Equity (ROE) from 0.21% in 2012 up to 4.26% at the end of 2013 and stood at 9.09% in 2014. Other Important Indicators * The capital adequacy ratio was 19.95% in 2012 under Basel 2 requirements and stood at 18.15% in 2014 under the more strict Basel 3 requirements prescribed by the Central Bank of Kuwait and this ratio comfortably exceeds the ratio mandated by the regulatory authority in Kuwait under Basel 3 which is 12%. * The results of the regular stress test as required by the regulators proved that the Bank is well positioned to withstand any sever or stress situations under the applicable scenarios and assumptions. * As for the Bank's credit ratings Moody's has rated the Bank Deposit (A3/P-2) and Fitch Ratings has rated the Bank Long Term IDR (A+) while Capital Intelligence has rated the Bank's Financial Strength (A-) with a stable future outlook from the above three rating agencies. The aforementioned financial results and indicators were the culmination of the conservative policy adopted by the Bank over the past years to improve its assets quality and create a reasonable margin of safety against any risks the Bank may be exposed to. Future Outlook for 2015 At the economic level oil prices remain the dominant issue of concern at domestic regional and international levels. The oil prices started tumbling at the end of 2014. The importance of oil in Kuwait economy and growth is a profound and eminent fact. The oil price trends as seen in the market portray negative indications for 2015; however the international ratings of Kuwait's financial potentials strength and its economic and financial resilience to confront this crisis is positive. Several economic analysts believe that this crisis will not continue beyond 2016 as the price per oil barrel is estimated at approximately USD 50 in 2015 and will progressively increase to USD 70 by the end of 2016. Although it is not expected that oil prices will bounce back to USD 90 or KD 100 in the foreseeable future and we do agree with it and reject any pessimistic view. CBK rrecords Some economists believe that prices are not only determined by supply and demand of oil but they are also affected by the volume of reserves held with the oil consuming countries either strategic reserves under governments dominance or commercial reserves held with major oil companies. For instance the volume of USA commercial oil reserve posted the highest level over the past 80 years. Other economists believe that the oil prices are mainly affected as a result of using oil as a tool for financial speculations and derivatives in commodities forward markets. While the volume of the world oil production does not exceed 90 million barrels per day the volume of trading and speculations in oil forward markets reach more than 10 times this figure i.e. approximately 1 billion barrel per day. Future Challenges The anticipated impact of the lower oil prices on the government spending is the main challenge for the banking sector in 2015as the government spending plays a significant role to drive the local economy. The banking sector places high importance on development spending and the development projects for which amounts have been already allocated in the State's public finance. As such we expect that there will be intense competition among banks particularly at such time when there will be mismatch between the overbanking against limited available development projects. However the bright spot is in the development spending in oil sector where implementation of development projects continued in all diverse oil activities related to production capacity upgrading and development of refinery industry & infrastructure for oil transport and related products in addition to the continued explorations and oil well renovations. Commercial Bank of Kuwait is well positioned to cope with the challenges posed by economic variables and to avail the available opportunities. Conclusion In conclusion and on behalf of the Board of Directors I would like to extend my thanks and appreciation to the Bank's shareholders customers employees and all stakeholders for their support and cooperation. Wishing them all success and progress.
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