KUWAIT CITY: Government spending is likely to drive loan growth in Kuwait, but valuations already seem to reflect the strong outlook, said Goldman Sachs, starting coverage of four Kuwaiti banks.
Kuwaiti banks have outperformed GCC peers over the last year due to positive sentiment on the implementation of the development spending plan, Goldman said.
Media reports suggest that half of the project — a four-year, 30 billion-dinar plan aimed at diversifying the crude-reliant economy and increasing the role of the private sector — will be financed by banks, Goldman said.
“Despite forecasting double-digit loan growth on average (2011-14), we believe top-line expansion will be capped by margin compression as a result of deposit competition and loan mix deterioration,” the brokerage said in a note.
Goldman started National Bank of Kuwait, Burgan Bank and Kuwait Finance House with “neutral” ratings.
It started Commercial Bank of Kuwait with a “sell” rating and said the stock trades at a premium to its peers despite having the most challenging asset quality trends.
Goldman named NBK, Kuwait’s biggest lender, as its preferred stock for its dominant market share and conservative management, while it expects KFH’s leadership position in Islamic retail to face more competition.
Burgan, the commercial banking arm of Kuwait Projects Co (KIPCO), generates 30 percent of its revenue from North Africa, which limits growth visibility, the brokerage said.
