Burgan Bank reported 2Q16 net income of KWD17.1 mn, up 20% Q-o-Q and 16% above our estimate of KWD14.7 mn on lower-than-expected provisioning expenses. Net income fell 14% Y-o-Y, but we note that Burgan Bank deconsolidated Jordan Kuwait Bank at the end of 2015 as it was sold to another entity of the KIPCO group to boost Burgan’s capital adequacy ratios, and hence Y-o-Y comparisons of the income statement and balance sheet are not like-for-like. Revenue fell 1% Q-o-Q on lower net interest income, and missed our estimate by 6%.   Our view on the numbers: There were a couple of positive surprises in the results: i) loan growth, up 3% Q-o-Q, which is better than what other Kuwait banks have reported so far; and ii) provisioning costs, which came in lower than expected and fell Y-o-Y and Q-o-Q, we assume due to lower precautionary provisioning requirements by the central bank this quarter. On the negative side, however, spread compression was large this quarter, down 23bps Q-o-Q on lower asset yields and higher funding costs. Lower spreads drove net interest income down 7% Q-o-Q. Fee income was strong this quarter, up 15% Q-o-Q. Overall, a mixed set of results. We note that despite a lower-than-expected cost of risk in 2Q16, provisioning costs continue to be an area of potential negative surprises, as the central bank could ask for further precautionary provisions in coming quarters. We reiterate our Neutral rating on the stock.   Positives: i)  loan growth; ii) Q-o-Q and Y-o-Y decline in provisioning costs; iii) fee income. Negatives: spreads and net interest income (Elena Sanchez-Cabezudo, CFA, Rajae Aadel)   Burgan Bank: KWD0.33 as of 2 August 2016, Rating: Neutral, FV: KWD0.37 per share, MCap: USD2,254mn, BURG KK / BURG.KW