• Earnings miss on one-off impairment charge of KWD15 million NBK reported 4Q2015 net income of KWD54.3 million, down 6% Y-o-Y (-16% Q-o-Q), coming in 22% below our forecast of KWD69.4 million. The earnings miss is primarily due to a one-off impairment loss for its associate in Turkey of KWD15.2 million. FY2015 net income was KWD282.2 million, up 8% Y-o-Y. The Board of Directors has recommended a 5% bonus share and a cash DPS of KWD0.030, (flat Y-o-Y before bonus shares adjustments), implying a pay-out ratio of 54%, (broadly unchanged compared to 2014) and a dividend yield of 4.5%. We reiterate our Buy rating on NBK, which is the best placed in Kuwait, in our view, to benefit from government infrastructure spending, due to its size and market positioning.
• Loan growth ends the year at a strong 14% Y-o-Y Loan growth slowed in 4Q2015 to 2% Q-o-Q, but it was solid throughout 2015 at 14% Y-o-Y (ahead of 6% for the system). There were several drivers, including retail and corporate in Kuwait, Boubyan Bank, Egypt and corporate in the GCC. Our loan growth estimate for 2016 of 11% takes into account the strong project awards of last year, as well as a continuation in awards, which we expect in 2016, with Kuwait’s government focused on increasing capex expenditures. Kuwait banking system has not experienced, for now, a liquidity squeeze similar to that of other GCC countries, and NIMs are broadly flat Y-o-Y in FY2015.
• Credit quality improves, but precautionary provisions remain high NBK’s NPL ratio fell from 1.5% in 214 to 1.34% in 2015, and specific provisioning costs declined Y-o-Y in FY2015. General provisioning, however, increased Y-o-Y, due to loan growth and to precautionary provisions requested by the CBK, although they came in roughly in line with our estimate. This type of provisions will continue to be large in 2016, in our view, and more so bearing in mind the performance of equity markets year-to-date and its negative impact on collateral.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel