Commercial Bank of Kuwait (CBK) reported 2Q16 net income of KWD3.7 mn, down 68% Y-o-Y and 52% Q-o-Q, and missing our estimate of KWD12.7 mn by 71%. Provisioning costs were high again this quarter, and were the key reason behind the large earnings miss relative to our estimate for the second consecutive quarter. Unlike 1Q16, the large provisioning charge was not related to precautionary/central bank provisions, as it is included in the “other provisions” line, suggesting that it could be a one-off.   Our view on the results: Loan growth has picked up slightly to 4% Y-o-Y in June 2016, after a 1% decline in 2015, although 2Q16 was slow in terms of loan growth, down 1% Q-o-Q.  The net interest spread was lower Q-o-Q, but only marginally down 8bps on higher funding costs. Revenue fell 8% Y-o-Y as 2Q15 included one-off gains. Net interest income and fee income increased on a Y-o-Y basis, but growth remains in low single digits. The slight acceleration in loan growth is encouraging; however, provisioning remains a key area of negative surprises, even if this quarter’s large provisioning was a one-off. ROE has worsened so far to 4% in 1H16 compared to 8.5% in 2015. The weakening in profitability, and the low visibility on loan growth and provisioning cost trends continue to underpin our Neutral stance on the stock.   No main positives but a few main negatives: i) Q-o-Q decline in net interest spread; ii) Higher than expected “other” provisioning costs; iii) Q-o-Q decline in loans and deposits; and iv) Costs growth ahead of loan growth. (Company, Elena Sanchez-Cabezudo, CFA, Rajae Aadel)   Commercial Bank of Kuwait: KWD0.32 as of 22 August, Rating: Neutral, FV: KWD0.49/share, MCap: USD1,571mn, CBK KK/ CBKK.KW