Oil prices continues to decline – ALSHALL WEEKLY ECONOMIC REPORT

ALSHALL-WEEKLYKUWAIT: By the end of October 2015, the seventh month of the current fiscal year 2015/2016 ended. Average oil price for most of October scored $43.3 per barrel, which is $ -0.7 per barrel (-1.6%) less than the average of September at $44 per barrel. It is also lower by $ -1.7 per barrel, -3.8%, than the new hypothetical price per barrel estimated for the current budget at $45 per barrel. It is however lower by US$ -31.7 than the hypothetical price for the past fiscal year which was at $75 per barrel. The average price for the Kuwaiti oil price in October 2014 scored $83.9 per barrel. The last fiscal year 2014/2015 which ended by the end of last March scored $81.3 per Kuwaiti oil barrel. This means the average price for October 2015 lost about -46.7% of the average price of the barrel of oil for the past fiscal year and lost -48.4% of the average price for October 2014.

According to figures published in the monthly follow up report of the State’s financial accounts for September 2015, issued by Ministry of Finance, Kuwait is supposed to have achieved oil revenues until the end of last September -6 months- about KD 7.782 billion. Kuwait is supposed to have achieved about KD 1 billion in oil revenues in October.

Therefore, anticipated oil revenues will increase during the period of 7 months to about KD 8.8 billion, 82% of estimated oil revenues for the entire current fiscal year in the amount of KD 10.7575 billion. Kuwait also achieved an amount of KD 551.2 million in non-oil revenues during the first half of the current fiscal year and will increase to KD 643 million in the 7 months period. Therefore, the projected total revenues will score KD 9.44 billion during the period.

Assuming production and prices would continue at their present levels -an assumption which may not be realized- it is expected that value of potential oil revenues for the entire current fiscal year would score about KD 15.6 billion, which is about KD 4.8 billion higher than the oil revenues estimated for the budget. But the rise in oil revenues for the current fiscal year is conditioned by the rise in the average price of oil barrel to exceed the 7 months average of the current fiscal year at $51.6 per barrel. Adding some KD 1.5 billion in non-oil revenues, which actually exceeded the two billion dinars for the past two fiscal years, total budget revenues for the current fiscal year would score KD 17.1 billion. Comparing this figure with the expenditures allocations of about KD 19.2 billion, the general budget for the fiscal year 2015/2016 would likely score a deficit by about KD 2 billion without deducting the transfers to the Future Generations Reserve. However, this deficit figure depends mainly on the average oil price and its production in the remaining part of the fiscal year (5 months). Oil prices are continuing their decline which will raise the deficit. But any saving from the estimated expenditures would reduce the deficit level.

Monthly Report of the State

In its monthly follow-up report for the State’s Financial Administration Accounts until September 2015 (published on its website), the Ministry of Finance indicates a substantial drop in revenues. Until 30/09/2015, the first half of the current fiscal year 2015/2016, total collected revenues amounted to approximately KD 8.333 billion, about 68.2% of the total estimated revenues for the entire current fiscal year in the amount of approximately KD 12.2106 billion, with a noticeable decline by -44.8% below the total collected revenues during the same period of last fiscal year (2014/2015) in the amount of KD 15.085 billion.

In detail, the bulletin estimates actual oil revenues until 30/09/2015 by about KD 7.782 billion, i.e. 72.3% of estimated oil revenues for the entire current fiscal year in the amount of KD 10.7575 billion, or about 93.4% of total collected revenues. The collected amounts from oil revenues during the first half of the current fiscal year at an average price of a Kuwaiti oil at US$ 53 per barrel were less by KD -6.416 billion, -45.2%, than its counterpart value last fiscal year. KD 551.2 million was collected from non-oil revenues during the same period, a monthly average by KD 91.867 million. The total estimated amount for the entire year was about KD 1.453 billion. This means the realized amount will be less for the entire fiscal year by about KD 351 million than the estimated amount.

Expenditures allocations for the current fiscal year were estimated at about KD 19.171 billion, of which an amount of KD 4.781 billion was actually spent -according to the bulletin- until 30/09/2015, a monthly spending average at KD 796.889 million. We, however, do not recommend relying on this figure because there are expenses which have become due but have not been actually paid. Spending in the last month of the fiscal year will be higher when settlements are made and then in the final account. Although the bulletin concludes that the budget surplus in end of the first half of the current fiscal year scored about KD 3.552 billion, we publish it without recommending its endorsement as we believe that the surplus figure will change into deficit in the end of the these six months and with the issuance of the final account.

In fact, the current fiscal year will witness a fundamental and negative difference with the budget deficit scoring about KD 2 billion. The deficit figure will be affected positively, i.e. will increase if oil prices continue their decline but will be affected negatively i.e. will decrease by the amount of actual saving in the expenses below the estimated.

KSE Performance

KSE performance during last October was mixed vis-à-vis the performance in September. Where the indexes of traded value, number of transactions, the general index (AlShall), Kuwait 15 Index and the weighted index, show a decrease. While the traded volume index and the price index achieved slight rise, as a result of speculative excess movement. AlShall index reading on Thursday, 29/10/2015 scored about 378.8 points, down by 4 points, or by 1.1%, compared with its closure in September 2015, which scored 382.4 points, when we compare with it closure in October 2014, down by 111.2 points, or by 22.7%.

The highest reading during the month was at 383.4 points on October 25, 2015 and the lowest reading was at 376.2 points on October 13, 2015. Kuwait 15 index decreased by 1.2% which scored about 924.3 points, compared with 935.1 points in the end of September 2015. The weighted index slightly decreased by 0.01% which scored about 388.37 points, compared with 388.40 points. While the price index of the stock exchange increased to 5,757.4 points (5,726 points in September 2015), 0.9% rise, because of the most trading was on small shares. When we compare performance of the main indexes (price, weighted, and Kuwait 15) with their performance in the end of 2014, we note they dropped all by about (-11.6%, -11.5% and -12.8%) respectively.

Total market value for traded shares (19 working days) scored about KD 230.4 million (US$ 756.3 million), a drop by KD 17.3 million, or by 7%, below September’s 2015 figure (KD 247.7 million). It remained lower by -39% than its level in October 2014. The highest trading value in one day during the month was at KD 17.3 million on October 19, 2015 while the lowest value was on October 27, 2015 at KD 9.5 million. The daily average value of traded shares was KD 12.1 million (KD 13 million in September 2015), a drop by (0.6%). The banking sector took the lead in liquidity and captured KD 839.3 million, i.e. 24.6%, of total market trading the financial services sector came next by 22.3% and the real estate sector by 16.9%.

Number of transaction decreased to 64.1 thousand deals, a daily average of 3,374 deals (3,438 deals in September 2015), with 1.9% drop. While total volume of traded shares scored 2.812 billion shares, increased by 1% from the end of September 2015 (2.784 billion shares). The daily average was close to 148 million shares down by 1.5 million shares, or by 1%.

Market capitalization value of all listed companies -192- during October 2015 scored about KD 26.616 billion, decreased by 0.03% compared with the preceding month. Comparing their value with that in December 2014 (191 companies), we note they retreated by KD 3.424 billion in value, i.e. from KD 29.708 billion to KD 26.283 billion, with 11.5% drop.

It is worth noting that the number of companies whose value increased vis-a-vis the end of 2014 was 43 companies (out of common 191 companies) while 144 companies scored varying drops while 4 companies retained their value without change. After excluding the companies whose capital was either increased or reduced, the “National Slaughter House Co” recorded the highest drop in value by about 58.7% followed by “Burgan Co For Drilling Trading and Maintenance” by 54.8% drop. “HumanSoft Holding Co” scored the highest rise in its value by 175.3%. The “Kuwait Syrian Holding Co” came next by 96.6% rise in value.

All sectors (12 sectors) achieved drops in their value, with the oil and gas sector achieving the highest drop by -33.1%. The telecommunications sector scored the second highest drop in value by -22.4%. The financial services sector scored the third highest loss by -19.4%. The market performance will remain weak unless the market liquidity rises in the next two months.

NBK’s Financial Results

NBK announced results of its operations for the first nine months of 2015 ending in September, which indicate that the bank’s net profits, after due deductions, scored an amount of KD 238.2 million, a rise by KD 26 million or by 12.3%, vis-a-vis KD 212.2 million on September 30, 2014. If we deduct the non-controlling interest, we note that the bank achieved net profit for the bank shareholders in the amount of about KD 227.9 million (KD 203.9 million in the same period 2014), a rise by KD 24 million. The reason for this rise in the bank profit is due to the rise in the total operations incomes by a higher value than the increase in total expenditures.

In details, net operations income increased by KD 44.9 million, or by 9%, and scored KD 544.1 million (KD 499.2 million in the same period of 2014). Interest income (except for incomes from Islamic financing) increased by KD 49.2 million. Interest expenses (except for murabaha costs) increased by KD 15.8 million. As a result, net interests incomes increased by KD 33.4 million. The bank also achieved net incomes from Islamic financing by KD 61.6 million (KD 51.6 million in the same period of 2014). Interest incomes both traditional and Islamic achieved KD 390.7 million (KD 347.3 million in 2014), a rise by KD 43.3 million. Item of net income from fees and commissions rose by KD 6.3 million and scored KD 97.5 million (KD 91.1 million). But item of share in the results of associate dropped by KD 10 million to KD 368 thousand vis-à-vis KD 10.4 million in the same period last year.
Total operations expenditures increased by less value than the rise in total operations incomes and increased by KD 10.6 million, or by 6.5%, to KD 172.8 million (KD 162.2 million in September 2014). This resulted as a result of the rise in most items of operations expenses. However, ratio of total operations expenses to the total operational incomes scored 31.8% (32.5% in the first nine months in 2014). According to AlShall estimates, assuming the exclusion of the impact of consolidating Boubyan Bank’s results on the operations expenses, the increase in operational expenses from KD 135.8 million to KD 143.3 million, i.e. KD 7.5 million rise, or by 5.5%. Value of provisions decreased by about KD 201 thousand to KD 106.5 million (KD 106.7 million in the same period of last year).

Financial statements of the bank indicate the bank’s total assets increased by KD 1.992 billion, or by 9.1%, to KD 23.776 billion compared with the end of 2014. However, it increased by KD 2.046 billion, or by 9.4%, when compared with the end of September 2014. If we exclude the impact of consolidating Boubyan Bank, the growth rate will score about 8.2% compared with its level in the same period last year. As for clients’ loans, advances and Islamic financing portfolio, the largest component of the bank’s assets, it increased by 11.1%, or by KD 1.323 billion, bringing the total portfolio value to KD 13.232 billion (55.7% of total assets) versus KD 11.909 billion (54.7% of total assets) in December 2014. The portfolio increased by KD 1.649 billion, or by 14.2%, when compared with the end of September 2014. Likewise, if we exclude the impact of aggregating Boubyan Bank in the Islamic financing part, the growth rate will score bout 13.1% compared with its level in the same period last year. Ratio of non-performing loans to the total loans portfolio scored 1.41% in September 2015 (1.45% in September of last year). Covering ratio of non-performing loans scored 301% compared with 275% in the same period of last year.

Figures indicate that the bank liabilities (without including total equities) increased by KD 1.729 billion, or by 9.1%, to KD 20.643 billion compared with the end of 2014 but increased by KD 1.719 billion, or by 9.1%, if compared with the end of same period of last year. And if we exclude the impact of aggregating Boubyan Bank statements, the growth rate of these liabilities would score 7.6% compared with their rate in September 2014.

Results of analyzing financial statements calculated on annual basis indicate that most profitability indexes of the bank increased compared with the same period of 2014. The return on average equity relevant to the bank shareholder (ROE) increased to 11.4% (10.7%). The return on average bank capital (ROC) increased to 64.6% (60.4%). The return on average assets (ROA) decreased slightly to about 1.39% (1.40%). Likewise, (EPS) increased to 46 fils (41 fils for the same period in 2014). (P/E) scored 13.2 times, improved, (17.9 times) due to the increase in the EPS by 12.2% and a drop in the market price of the share by 17.3% compared with its price on September 30, 2014. (P/B) scored 1.3 times (1.7 times in September 2014).

Weekly Performance of KSE

The performance of Kuwait Stock Exchange (KSE) for the last week was mixed compared to the previous one, where the indices of the trade volume, show an increase, while the trade value, number of transactions and the general index show a decrease. AlShall Index (value index) closed at 378.8 points at the closing of last Thursday, showing a decrease of about 1.4 points or about 0.4% compared with its level last week and it decreased by 65.2 points or about 14.7% compared with the end of 2014.

This article was published on 31/10/2015