Financial Analysis of Al Ahli Bank of Kuwait

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Table of Contents

Introduction
Bank Performance Analysis
Banking Risk Analysis
Bank Strategy and Innovations
Conclusion
Reference List

Introduction

Al Ahli Bank of Kuwait KSCP (ABK) is a public shareholding company based in Kuwait that operates in the banking sector. The company offers its products and services via Treasury and Investment and Commercial Banking. The segments provide treasury bonds, deposit and credit banking services, investment securities, money market, and foreign exchange. The company also offers investment management and advisory services and short message service (SMS) banking. Al Ahli Bank of Kuwait’s main competitors include Commercial Bank of Kuwait SAK, Gulf Bank KSCP, Burgan Bank SAK, and the National Bank of Kuwait. These banks offer a range of products and services similar to those of this company but have a significantly larger market cap in Kuwait ($9 billion average compared to Al Ahli’s $1.6 billion) (Finbox, n.d.). All banks use strategies that feature offers like premier services, pre-approved products, community marketing, and product bundling. This information is summarized in Table 1 that can be found below.

Table 1: Al Ahli Bank of Kuwait KSCP (ABK) Competitor Analysis

	Market Cap (KWd)	Bank Structure	Products and Services
Al Ahli Bank of Kuwait	497.43	Retail and Commercial banking	Accounts, deposits, cards, loans, mortgages, private, corporate and elite banking, etc.
National Bank of Kuwait	7937.5	Corporate, Islamic, retail banking, and investment solutions	Loans, mortgages, investment funds, treasury services, etc.
Burgan Bank SAK	972.32	Banking and financial solutions	Current, savings and youth accounts, mobile banking, telephone banking, etc.
Gulf Bank KSCP	1011.74	Personal, private, corporate and wholesale banking services	Current, savings and salary accounts, credit, debit and prepaid cards, loans, investment funds, etc,
Commercial Bank of Kuwait SAK	2633.52	Banking, Brokerage, Investment Banking	Checking, demand, and savings accounts, online banking, financing, etc.

Bank Performance Analysis

CAMELS Rating Analysis

The capital adequacy ratio of Al Ahli Bank of Kuwait KSCP (ABK) has always hovered above 17% over the last five years (Reuters Editorial, n.d.). Financial year 2020’s value is in a series of values that have been on a downward trend since 2018, which hints at a probable cause for concern. With that, the banking industry averages a ratio of 10%, so the company should be in good standing in the near future. Further, the bank’s main competitors averaged a similar adequacy ratio, around 17.5% over the last 5 years (Puri-Mirza, 2021), meaning it performs well relative to its competition. Al Ahli Bank of Kuwait KSCP (ABK) has had a strong asset quality over the last five years, whose NPL ratio hovered around 1.5%. The bank’s competitors reported similar values (1.35%), meaning it is on par with the strongest players in the region. The bank also exhibited steady growth over the last five years that was only checked by the COVID-19 pandemic, but they show positive signs of recovery, unlike most of the main competitors. With that, the company’s earnings are still well below most of its competitors, but the future seems bright. Together, these factors earn the company a rate of 3.5 as it is on a steady incline and only falls short in terms of volume.

Table 2: Al Ahli Bank of Kuwait KSCP (ABK) Ratios

	2017	2018	2019	2020	2021
Capital Adequacy Ratio	17.2	19.2	18.6	17.3	_
Asset Quality (NPL)	1.67%	1.78%	1.46%	1.57%	_
Liquidity Coverage Ratio	175	289	315	298	_
Total Risk-Based Capital Ratio	17.23	19.15	18.69	17.26	18.27

Efficiency Ratio

The company has had efficiency ratios under 50% over the period under analysis, which is good according to banking standards. A ratio below this figure shows that the management controls overhead expenses well (Finbox, n.d.). However, the ratio has been on a steady incline and is currently very close to the 50% threshold, which shows that either its revenues are decreasing or expenses are increasing, neither of which is ideal.

Banking Risk Analysis

Overall Risk – The company’s overall risk is small as its IDRs point to probable help from the Kuwaiti government in case of any financial difficulties (FitchRatings, 2022b). Having government backing significantly reduces the risk of failure because of access to substantial public resources.

Liquidity Risk – The bank has had an average liquidity coverage ratio of around 270%, which meets Basel III requirements. This means that Al Ahli Bank of Kuwait KSCP (ABK) has an adequate cushion against short-term market shocks and can meet its obligations without incurring catastrophic losses.

Credit Risk – The company is one of the safest banks in the country, shown by its positive Fitch rating. Fitch awarded the company a Stable Outlook and Viability Rating (VR) rating of ‘bb+’ and a Long-Term Issuer Default Rating (IDR) rating of ‘A’ (FitchRatings, 2022a). The company was also rated positively by Moody’s that saw the company unlikely to default on its credits (Moody’s, 2021). These ratings are to those of its main competitors, who received the same, Only the National Bank of Kuwait performed better with a rating of ‘A+’ (GlobalData, n.d.).

Off-Balance Risk – The company has leased various premises and ATMs, which exposes it to extra risk, but that is mitigated by the bank’s size.

Capital Risk – The company’s total risk-based capital ratio has consistently stayed above 17% over the last five years, a threshold way above the 8% requirement. This means the bank can sustain operating losses while maintaining a safe and efficient market.

Bank Strategy and Innovations

Al Ahli Bank of Kuwait’s primary strategy is introducing simpler banking by providing differentiated products and services, a simpler banking model, and significantly transforming internal systems and processes. This strategy allows the bank to deliver at a different level and set itself apart from its competitors. The soundness of the company’s strategy is seen in the numerous awards it has received over the last five years, including the ‘Best Retail Bank in Kuwait,’ ‘Best Retail Bank of the Year,’ and ‘Best Customer Loyalty Program in Kuwait’ among others (Zawya, 2018). The company has put forth several important technological innovations that have contributed to its success.

One of the main innovations the bank has introduced is mobile banking with its ABK mobile app. This innovation allows consumers to check their account balances, transfer funds locally and internationally, make payments, and find branches and ATMs (Al Ahli Bank of Kuwait, n.d. a). This innovation ties in with the company’s overall strategy of making banking easier and more convenient and has had a positive impact on profitability since customers transact more as their location is no longer a constraint. Important financial innovations from the company include discounts, online banking services, weekly draws, collaborations with other institutions, and awareness campaigns like ‘Let’s be aware’ and ‘Experience the change’ (Reuters Editorial, n.d.). Together, these innovations strengthen the bank’s strategy and ensure constant improvement, shown by how well it rebounded after the pandemic compared to its peers.

Al Ahli Bank of Kuwait KSCP (ABK) is only one of two companies that experienced a positive change in revenue post-COVID-19 — the other one is the Burgan Bank SAK. This ability to recover promptly is a testament to the profitability of the company’s technological and financial innovations (Al Ahli Bank of Kuwait, n.d. b). The other competitors have their line of innovations in products and services, but Al Ahli Bank of Kuwait seems more active in this regard.

Conclusion

Al Ahli Bank of Kuwait is one of the leading players in the Kuwaiti banking industry because of its differentiating approach and strategy. The bank is in good financial standing and in a position that sets it up for future success. The analysis above shows that the bank does well compared to competitors and should maintain the same for the foreseeable future.

Reference List

Al Ahli Bank of Kuwait (n.d. a). Mobile Banking | Services | Al Ahli Bank of Kuwait K.S.C.P. [online] abk.eahli.com. Web.

Al Ahli Bank of Kuwait (n.d. b). News & Promotions | Al Ahli Bank of Kuwait K.S.C.P. [online] abk.eahli.com. Web.

Finbox (n.d.). The Complete Toolbox For Investors | finbox.com. [online] finbox.com. Web.

FitchRatings (2022a). Fitch Affirms Al Ahli Bank of Kuwait at ‘A’; Outlook Stable. [online] Fitchratings.com. Web.

FitchRatings (2022b). Rating Report: Al Ahli Bank of Kuwait. [online] Fitchratings.com. Web.

GlobalData (n.d.). National Bank of Kuwait: Overview. [online] www.globaldata.com. Web.

Moody’s (2021). Al Ahli Bank of Kuwait K.S.C.P. | Reports | Moody’s. [online] www.moodys.com. Web.

Puri-Mirza, A. (2021). Kuwait: capital adequacy ratio by commercial bank 2020. [online] Statista. Web.

Reuters Editorial (n.d.). ABKK.KW – Al Ahli Bank of Kuwait KSCP Financials | Reuters. [online] www.reuters.comundefined. Web.

Zawya (2018). Al Ahli Bank of Kuwait (ABK) prices its highly successful US$300 million Tier 1 perpetual bond. [online] Web.

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