National Bank of Kuwait (NBK) has reported 3Q16 net income of KWD68.6mn, up 6% Y-o-Y and down 4% Q-o-Q, coming in 7% below our forecast of KWD73.7mn. Drivers of the earnings miss relative to our estimate were: i) lower-than-expected fee income; ii) lower-than-expected investment gains; and iii) higher-than-expected impairment charges for investments. Net interest income, however, surprised positively, and loan loss provisioning charges were in line with our forecast.   Main positives: i) Strong net interest income; ii) Improving credit quality; iii) In line loan loss provisioning costs   Main negative: Lower-than-expected fee income   Our take on the results: Trends are broadly in line with what we had expected: i) loan growth has improved slightly; ii) there is no margin pressure, and there was actually a Q-o-Q NIM increase; and iii) credit quality remains strong.     Loan growth accelerated slightly this quarter to 1.3% Q-o-Q (5% Y-o-Y), following a sluggish 1H16, which was affected negatively by a high level of corporate repayments. The slowdown in loan growth during 2016, compared to 2015 (9M15 loan growth was 14% Y-o-Y), also comes as a result of NBK slowing down its international lending (in MENA and Europe) as it sees a good pipeline for lending in Kuwait, as well as EGP depreciation in March 16 (it has a subsidiary in Egypt). The key strength this quarter was the net interest spread, up by 5bps Q-o-Q on stronger asset yields, which continue to benefit from the upward re-pricing linked to the December 2015 interest rate hike. Net interest income increased 6% Y-o-Y and 3% Q-o-Q, ahead of loan growth. Fee income came as a negative surprise, but fee income can be volatile on a quarterly basis depending on whether fees are booked upfront or over the life of the loan. Credit quality improved Q-o-Q, with the NPL ratio improving 1.2% and NPL coverage to 371%. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   National Bank of Kuwait: KWD0.58 as of 16 October 2016, Rating: Buy, FV: KWD0.77 per share, MCap: USD10,896mn, NBK KK / NBKK.KW