EUR 242.27 For Business Accounts Only

Kuwait banks | Selectivity mode on; NBK – sole OW

Medium-term optimism holds. Pickup in GDP growth, policy rate hikes, and moderating CBK provisioning requirements are among the main factors shaping the outlook for Kuwait banks through end-2023e – together these translate into favourable growth and profitability prospects for banks. That said, Kuwait banks trade at, or close to, their all-time-high levels, implying these upside risks are already largely captured, rendering selectivity as the preferred approach.

Single out NBK. We flag NBK as the best play on the ongoing Kuwaiti economic recovery and policy rate hikes, given its market leadership, favourable funding structure, and reasonable valuations (2023e P/BV of 2.4x, at an unjustified c32% discount to KFH). We downgrade GBK and Burgan Bank to N, and KFH to UW, following their recent stock rallies. Both KFH and Boubyan offer solid prospects, yet valuations are demanding in both Kuwait and GCC contexts.

Mortgage law: Quite a splash, yet timing remains uncertain. The law’s introduction presents an effective solution to Kuwait’s escalating housing issue – a win-win resolution for all stakeholders involved. It offers shorter queues for beneficiaries, a lighter burden on the gov’t, and a growth opportunity for banks. It potentially doubles up annual system loans’ growth, on our estimates, and adds up to c6pp p.a. to our coverage’s aggregate earnings. However, the prevailing political instability stands as an impediment against the introduction of the law.

Compromised on NIMs, valuations vis-à-vis peers. The CBK’s efforts to create an upward sloping yield curve, as well as Kuwait’s relatively lower CASA levels, both potentially eat up from banks’ NIM expansion capacity vs. GCC peers. On valuation, UAE and Egypt banks fare better vs. their Kuwaiti peers, with 2023e P/BV at 2.7x vs. 1.5x and 0.6x for the UAE and Egypt banks, respectively. Kuwait is also arguably more vulnerable to oil price volatility vs. peers, in our view.