Jordan Kuwait Bank rating was upgraded and assigned BBB- by Capital Intelligence, an international bank analysis and rating firm.
In its first published rating report on Jordanian banks for the year 2000, CI found JKB as one of Jordan’s best performing banks with financial profile consistently surpassed that of the majority of those banks.
The report, which praised the Bank’s performance and strengthening leading position during the past few years, highlighted some of the positive factors that constitute the foundations of its success. These factors are: proficient management, increasing profitability at both the operating and net income levels, rising liquidity due to growing customer deposit base, strong institutional shareholders and superior technological infrastructure.
After thorough examination and analysis of the Bank’s financial statements and performance ratios, Capital Intelligence upgraded JKB’s rating and assigned a rating of BBB-.
Below is a summary of the report:
Bank Profile: Jordan Kuwait Bank (JKB) was founded in 1976 as the country’s fifth national commercial bank. The Bank was the first example of improving and expanding economic relations between Jordan and Kuwait. JKB has evolved in recent years into a medium size player in the fragmented Jordanian banking system. A commercial bank in nature, JKB is also active in corporate finance, treasury and consumer lending. With the rationalisation programme successfully completed in 1999, JKB now operates on-line in real time. In July 2000, JKB became one of the first banks in Jordan to launch Internet banking. JKB underwent a change in ownership in 1998 when United Gulf Bank (UGB) increased its stake to 44.1% from 25.9% previously. UGB is the investment-banking subsidiary of Kuwait Projects Company Holding (KIPCO), a leading publicly quoted Kuwaiti investment-holding group with diversified global interests. At end 1999, KIPCO had a shareholder’s equity base of US$459mn and total assets of US$1.6 billion. JKB’s other major shareholder is the Social Security Corporation (21.3%).
Rating Rationale: Since taking over the helm at JKB in 1997, Mr Abdul Karim Kabariti has noticeably transformed JKB into one of Jordan’s best performing banks. Supported by clear business strategies, JKB’s financial profile in recent years has consistently surpassed that of the majority of Jordanian banks. While many banks saw their asset quality and profitability worsen amid difficult economic conditions, JKB has managed to build a stronger balance sheet and improve its performance. This is attributable in large part to the Bank’s innate conservatism and underlying selective credit policy. The lower than average problem loan ratio underscores the prime quality of JKB’s corporate customers. The balance sheet continues to exhibit solid capitalisation and liquidity is comfortable and still rising. Profitability was boosted in the year by higher net interest and non-interest earnings, producing better than average returns.
Asset Quality: JKB’s overall asset quality is better than the industry average, with lower problem loans and better provisioning cover. The asset base expanded by 44% in 2000 (1999: 9%), to reach US$769mn from US$535mn in the previous year, on the back of a corresponding increase in the customer deposit base. While most local banks have experienced a sharp rise in NPLs in recent years due to a difficult operating environment, JKB’s problem loans grew by 11% in 2000. The level of loan-loss reserves further improved NPL provisioning cover to 70% from 62% in 1999. JKB’s loan portfolio is quite well diversified by economic sector with the no undue concentrations.
Capital Adequacy: The risk asset ratio remained above CBJ’s minimum requirement of 12%. Total capital grew by 14% during the year, to reach US$58mn from US$51mn in 1999, from the retention of total earnings. In a public offering in 1997, JKB grew its capital base by 27% to US$45mn. There were no cash dividends paid to the shareholders in 2000 as the Bank sought to reinforce its capitalisation. Bonus shares were distributed from the transfer of reserves to paid-up capital. In 1999 the Bank paid out 63% of profit in cash dividends to its shareholders.
Liquidity: Jordanian banks as a group enjoy relative high liquidity. JKB’s liquidity position is stronger than the average, with the trend in recent years towards higher liquidity stemming from a growing customer deposit base. JKB enjoys a stable funding base with customer deposits forming 70% of total assets. In 2000 the Bank experienced a large increase in customer funds after being chosen to handle war reparations for Gulf war victims in Jordan. It is noteworthy that the majority of the recipients chose to keep their funds with JKB. An expanded branch network also contributed to the increase in customer deposits, which grew by a healthy 41% in 2000, to reach US$537mn from US$381mn a year earlier.
Profitability: In contrast to most banks in Jordan, JKB’s earnings have trended upward in recent years. Net income surged by 61% in 2000, after rising by 28% in the previous year, to reach US$7mn buoyed by higher net interest and non-interest earnings. This level of profitability produced a higher than average ROAA ratio of 1.11% compared to 0.84% in 1999. JKB placed increased emphasis on non-interest income generation in 2000 with non-interest earnings enjoying healthy growth due to higher volumes of contingent business. The Bank’s operating efficiency continued to improve in 2000 as the cost/income ratio reduced to 44% from 48% in the preceding year. The better operating performance in 2000 was underscored by an improved operating profit on average assets ratio of 2.5% (1999: 2.35%). Despite higher provisioning in order to reinforce loan-loss reserve cover, pre-tax profit increased by 29% to US$10.4mn from US$7.9mn in 1999. First-half 2001 interim accounts show net profit rising by 29% to US$6.3mn over the same period in the previous year on the back of higher net interest and non-interest income.
