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NBK Profit Tops Estimate as Stagnant Market Crimps Growth

National Bank of Kuwait SAK, the country’s biggest lender, repeated its criticism of the government for failing to boost spending on construction and speed up the tendering of projects.

“The operating environment continues to pose some barriers to our potential for growth,” Group Chief Executive Officer Ibrahim Dabdoub said in a statement announcing the bank’s third-quarter results. “Government spending continues to be insufficient and the tendering of new projects has significantly lagged, leading to a stagnant stock market performance and dormancy in economic activity.”

Kuwaiti private-sector borrowing grew at the slowest pace in at least 17 years in 2011 as OPEC’s third-biggest exporter couldn’t meet spending pledges and stimulate investment. The Central Bank of Kuwait on Oct. 4 cut the key interest rate by 50 basis points to 2 percent to spur growth.

Net income surged to 108.1 million dinars ($384.5 million) from 78.9 million dinars a year earlier, NBK said in an e-mailed statement today, without providing a reason for the increase. The median estimate of three analysts was for profit of 66 million dinars, according to data compiled by Bloomberg.

Development Plan

Repeated cabinet resignations and political clashes between the government and lawmakers have hindered Kuwait’s $110 billion development plan to modernize and diversify away from oil. The government had planned to have private investors contribute almost half the cost for projects including a metro and rail network, expanding the airport, and constructing new power stations, hospitals, roads and a port.

National Bank of Kuwait in July acquired a controlling stake in Boubyan Bank as it seeks to diversify its income. The lender said the same month that Josef Ackermann, the former chief executive officer of Deutsche Bank AG, joined its International Advisory Board. Mohamed El-Erian, CEO of Pacific Investment Management Co., and former Citigroup Inc. Senior Vice Chairman William Rhodes are also on the board.

“NBK’s results were driven by one-off investment gains amounting to 82 million dinars which came about due to re-measurement of its existing stake in Boubyan Bank on the consolidation of the Islamic lender into its books,” Naveed Ahmed, a banking analyst at Kuwait-based Global Investment House KSCC, said in an emailed statement. “The bank’s top-line from conventional operations dropped by 5 percent year-on-year and any positive movement in the total is a result of the consolidation.”

Heavy Provisions

NBK continued taking “heavy provisions” in the third quarter, “higher than our expectations,” Ahmed said. The nation’s three biggest banks set aside more provisions to guard against non-performing loans in the first half of this year than they did in the same period last year. NBK more than doubled provisions in the second quarter.

National Bank of Kuwait shares were unchanged at 990 fils at the close in Kuwait City before the results were announced. The stock has fallen 2.8 percent this year compared with a 2.7 percent increase for the benchmark KSE Index.

“The improvement in the local operating environment now depends on developing a more dynamic fiscal policy, most importantly accelerating spending on mega projects,” Dabdoub said in the statement. “We hope this will materialize in the near future considering recent directions from the highest authority and the proposed measures to boost economic activity and spur growth.”

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