BANKING SECTOR STABILITY

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Leonard Jacob Matthews
5 years ago
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1 BANKING SECTOR STABILITY W H Y I T M AT T E R S A N D W H E R E W E S TA N D Nizamuddin Arshad Advisor to the Governor on Banking Affairs Central Bank of Kuwait

2 DISCLAIMER: VIEWS EXPRESSED HERE ARE PERSONAL

3 OUTLINE Banking Sector Stability Why it matters Banking Sector in Kuwait Broader Trends Banking Sector Stability; An Assessment Asset Quality Liquidity Profitability Solvency & Resilience

4 BANKING STABILITY W hy S h o u l d We C a re?

5 BANKING CRISES ARE COMMON, COSTLY, AND PROTRACTED 151 Banking Crises since 1970 Average cost to a country, in terms of GDP 23% Recovery Takes Years Protracted and painful

6 BANKS ARE CENTRAL TO MANY CRISIS

7 BANKING CRISES ARE CO$TLY: HIGH FISCAL COST Gross Fiscal Costs Increase in Public Debt Source: Laeven & Valencia (2018)

8 BANKING CRISES ARE CO$TLY : OUTPUT LOSS AROUND THE BANKING CRISIS Source: Laeven & Valencia (2018)

9 BANKING SECTOR IN KUWAIT

10 FINANCIAL STABILITY REPORT (FSR)

11 FINANCIAL STABILITY REPORT (FSR) Banking Sector Financial Intermediation Risk Analysis Profitability, Solvency and Resilience Domestic Markets Money Market FX Market Boursa Kuwait Real Estate Market Payment System Retail Payment System Large Scale Payment System

12 BANKING SYSTEM IS SIZEABLE IN TERMS OF GDP Banks' Financial Intermediation 19 KD, billions Assets-rhs Assets/NGDP Loans/NGDP Deposits/NGDP

13 WITH HIGH DEGREE OF FINANCIAL INCLUSION Have Accounts/Debit Card/Saved/Borrowed at a FI (% of population age 15+) Have Accounts Have Debit Cards Saved Borrowed Kuwait MENA High Income

14 KUWAIT HAS A DUAL BANKING SYSTEM, TRADITIONAL IN STRUCTURE KD, billion Assets of the Banking System Trends in key components of Assets KD, billion % % % % Special Islamic Conventional Share of Conventional-rhs Cash Due from CBK Due from FI Investment Loans Growth in TA 8% 4%

15 HOUSEHOLDS AND REAL ESTATE : MAJOR RECIPIENTS OF BANK LENDING Gross Loans by borrowers' type Oil/Gas Invest Comps Other Construction Equity purchase Banks Industry Services Trade Real Estate Households KD, billions

16 HOUSEHOLDS AND REAL ESTATE : MAJOR RECIPIENTS OF BANK LENDING Share of key sectors in loan portfolio Oil/Gas Invest Comps Other Construction Equity purchase Banks Industry Services Trade Real Estate Households 5% 1 15% 2 25% 3

17 LENDING TO HOUSEHOLDS: INSTALLMENT LOANS CONSTITUTE THE BULK KD, billion Breakup of Household Loans % % Installment Consumer Credit Card Growth in Household Loans

18 BANKS EXPOSURE TO REAL ESTATE IS SIGNIFICANT Banks' Lending to RE/Construction Sector KD, billion Conventional Islamic Growth in Lending to RE 18% 15% 12% 9% 6% 3% -3% -6%

19 BANKS EXPOSURE TO REAL ESTATE IS SIGNIFICANT KD, millions Banks' exposure to Real Estate, With varying degrees of risk KD, billions Collaterals held by Banks % % % Construction Real Estate Installment Loans RE share in Loans RE share in Collaterals Cash Collateral Real estate Equities Others Equities Share-rhs RE Share-rhs

20 BANKS INVESTMENTS: FLIGHT TO QUALITY Banks' Investments in Stock Markets KD, billions Within Kuwait Outside Kuwait Equity Inv/T. Inv-rhs Eq Inv/T-1 Capital-rhs Banks Investments- by type KD, billion Govt Securities Equity Invts Other Fixed Income Real Estate Growth in Investments-rhs 15% 12% 9% 6% 3%

21 BANKING SECTOR STABILITY IN KUWAIT An Assessment

22 NPLR HAS DROPPED TO A HISTORICALLY LOW LEVEL Trends in Non-Performing Loans NPLR by Sector 12% 1 1 9% 8% 8% 7% 6% 6% 5% 4% 4% 3% 2% 2% 1% NPLR Net NPLR RE & Cons. Equity Purchase Households Trade & Industry

23 WITH ROBUST COVERAGE RATIO KD, billions Provisions against NPLs Available Provisions Available Prov. to NPLs

24 BANKS HAVE CONTINUED TO MAINTAIN AMPLE LIQUIDITY 25 KD, billions Banks' Liquid Assets (of less than 3 months) 4 Key Liquidity Indicators 35% % % 1 5 5% Core Rest Liq. Assets/TA Core LA/ST Liabilities

25 .EVEN WHEN VIEWED IN TERMS OF LCR AND NFSR Liquidity Coverage Ratio Net Stable Funding Ratio % % % B1 B2 B3 B4 B5 B6 B7 B8 B9 B10 Conventional Islamic Banks

26 BANKS NET INCOME HAVE POSTED HEALTHY GROWTH KD, millions Net Income of the banking industry Return on Equity & Assets % % 8% 7% 6% 5% 4% 1.2% % 0.6% % 2% 1% % 0.2% 0. Conventional Banks Specialized Banks Islamic Banks Growth in Net Profits ROAE ROAA-rhs

27 CAPITAL ADEQUACY REMAINS ROBUST KD, billions Banks' Capital & CAR Banks' Net NPLs to Capital % 18% 17% 35% 3 25% % 15% 14% 2 15% % 12% 11% 1 1 5% Tier 1 Capital Tier 2 Capital CAR-rhs ALL Conventional Islamic

28 BANKS ARE WELL ABOVE THE LEVERAGE RATIO REQUIREMENT 12% Banks' Leverage Ratio 1 8% 6% 4% 2% Levarage Ratio Minimum Required Level

29 AND ARE RESILIENT AGAINST MAJOR SHOCKS Impact of credit, market and liquidity shocks 35% B1 B % B2 2 B9 15% 1 B3 5% B8 B4 After Shock CBK Req. Basel III Min B7 B5 B6

30 THANK YOU

Gulf Bank Investor Presentation Year- End 2018

Gulf Bank Investor Presentation Year- End 2018 February 2019 Disclaimer THE INFORMATION SET OUT IN THIS PRESENTATION AND PROVIDED IN THE DISCUSSION SUBSEQUENT THERETO DOES NOT CONSTITUTE AN OFFER OR SOLICITATION