Benprise Blog

KUWAIT, April 11 (KUNA) — Gulf BankGulf Bank

Chairman Kutayba AlghanimKutayba AlghanimLoading… assured all stakeholders on Saturday that the bank had been fully restored through recapitalization, and was “back on its feet, rapidly regaining its momentum in the marketplace, and has a bright and exciting future.” Addressing the bank’s General Assembly, he reflected on the crisis the bank witnessed, adding that after nine months of solid performance despite difficult market conditions, at the end of October 2008 the bank reported a massive loss due to exposure relating to a small number of highly volatile derivatives contracts. “With the support of the Central Bank of KuwaitCentral Bank of Kuwait , we responded decisively and rapidly to the crisis. The first priority was financial stabilization. The Central Bank of Kuwait immediately provided the Bank with emergency temporary funding, plus all deposits were guaranteed nationwide to avoid a loss of confidence in the banking system,” he said. “We also moved to isolate our exposure to these contracts, immediately and comprehensively providing for all potential losses,” he added. He said he joined the bank in the middle of this emergency as Chairman on October 28, 2008, and immediately assembled a core team of bank managers supported by a world-class team of consultants, lawyers, and investment bankers to help navigate the bank through this crisis. “We needed to know if there were any more ‘skeletons in the closet’, in other words, make sure there were no more surprise losses in our portfolio. We rapidly conducted a comprehensive and thorough ‘root and branch’ review of the bank’s trading book, corporate lending portfolio, the retail businesses, and the bank’s overall risk profile,” he said. He noted that the team found some additional losses that have now been provisioned but nothing of the magnitude of the derivatives loss. To ensure the review was exhaustive, the team asked its external auditors to conduct a Special Audit alongside a number of focused examinations from the Central Bank of Kuwait said that after the investigation was complete, the bank’s total annual net loss was KD 359.5 million, operating income KD 17.4 million, and total assets declined by 2.7 percent to KD 4.9 billion. “These are devastating results. However, I can say that Gulf Bank’s portfolio has been thoroughly ‘scrubbed’ and that, while some risks still remain, they are limited in size and very tightly managed. We must ensure that the bank never again faces crushing losses such as these,” he stressed. On December 2, 2008, with the support of the Central Bank of Kuwait, the bank’s board authorized a Rights Issue to recapitalize the bank, which ultimately raised KD 376 million, selling these new shares for 300 fils. 68 percent of these new shares were purchased by existing shareholders. Kuwait Investment Authority (KIA) acquired the remainder, with a resulting post-capitalization final equity stake of 16 percent in Gulf Bank said that as a result of this re-capitalization as of January 31, 2009, the bank now had a capital adequacy ratio of 13.82 percent. “By any measure, this is a strong balance sheet that will give us the financial strength and flexibility to weather the continuing turbulence and uncertainty of the global financial markets.” Moreover, he said that part of the bank’s crisis management team included a world-class team of advisors that were assembled from around the world. Part of their mandate had been to assess the potential of the bank and develop a business strategy that would lead the bank toward world-class standards of customer satisfaction, product innovation, and competitive value. “Our goal is to build the strongest banking franchise in Kuwait.” At a high-level, he said the plan consisted of three core elements: ensuring that the bank is secure; investing in the bank; and setting the highest standards for the bank by systematically embracing best practices from around the world.