x Abu Dhabi, UAEMonday 24 July 2017

Kuwait Finance House provides little to go on

Kuwait Finance House reports dismal earnings with little explanation, sending investors and their capital fleeing.

In a statement to the local bourse, Kuwait Finance House (KFH) yesterday reported first-quarter profit alongside figures for its total assets, liabilities and equity. But not much else.

With little to go on but a 26.8 per cent decrease in profits for this year's first quarter, to 22.6 million Kuwaiti dinars, investors dumped KFH shares yesterday, pushing the bank's stock down 1.82 per cent to 1.08dinars. Further confusing matters, the company yesterday released further details of its earnings to its website that gave a different revenue figure to the one posted to the Kuwait Stock Exchange.

"It's very difficult to say what's happened at the moment," said one analyst, who asked not to be named. "They had a low coverage ratio of around 50 per cent … they have a relatively high non-performing loan ratio and they're probably providing for that." The fall in profit was most likely the result of higher provisioning for bad debts disclosed but not provided for in the company's last annual report, he added.

Asset sales and cancelled leases at Alafco, an aircraft leasing company owned by KFH, had buoyed the bank's profit in the short term, but that would be hard to repeat in the months ahead, the analyst said.

"They have a large exposure to the real estate sector, which is another problem sector for the Kuwait economy," he said. Baytak Real Estate, a KFHsubsidiary in Saudi Arabia, also sold a number of property investments in the kingdom for 196m Saudi riyals, Reuters reported last month.

Despite a relatively stable economic backdrop in Kuwait, with Brent futures trading at US$124.21 on Thursday and bolstering the country's revenue, its positive macro outlook was not yet filtering through to new lending growth, the analyst said.

Moody's Investors Service and Fitch Ratings have a "stable" outlook on the bank.