Burgan Bank, the second largest bank in Kuwait by assets, signed an agreement to sell its majority stake in Bank of Baghdad to a Bahraini financial services company as it looks to reduce group-wide non-performing loans, exit riskier assets and consolidate position in the domestic market.
Burgan Bank sold its 51.8 per cent stake to United Gulf Holding, the lender said in a statement to Boursa Kuwait, where its shares trade, without disclosing the value of the transaction. Bahrain-listed United Gulf is a sister company of Burgan Bank and conducts merchant banking through its regional network of subsidiaries and associates.
The sale of its ownership in the Iraqi lender is in line with Burgan Bank's strategy to improve its risk-adjusted returns for shareholders, the lender said on Sunday.
“The sale will enable Burgan to focus on its core market in Kuwait and develop stronger synergies with its subsidiaries in Turkey, Algeria and Tunisia,” the bank said in the bourse filing.
The transaction is likely to have a one-off negative impact of around 9 million Kuwaiti dinars (Dh108.8m) on Burgan Bank's 2019 net income, the lender said. Part of this impact of around 4m dinars is expected to be reversed after completion of the transaction, it added.
“Despite this negative impact, Burgan Group is expected to maintain its healthy level of profitability for the year 2019,” it said.
The deal is also expected to have a positive impact on Burgan's asset quality with a reduction in non-performing loans by around 34m dinars, it added, without giving specifying total group-wide bad loans.
The completion of the transaction is subject to approval from the relevant regulatory authorities in Iraq.
Banks in the GCC are looking to exit riskier assets and are trying to maintain profitability amid tightening margins and softer lending growth. Bank mergers in the region have also picked up pace in recent years as lenders try to gain scale and drive efficiencies to face tough market conditions against a weaker global economic backdrop.
During the third quarter, Burgan Bank, reported a 10.7 per cent year-on-year increase in net profit to 22.6m dinars due to lower credit provisions as well as higher net investment income.
Net investment income during the third quarter jumped to 6.3m dinars, from 1.6m dinars during the same period last year. On the other hand, provision for credit losses dropped to 9.9m dinars, from 17.6m dinars during the third quarter last year.
