Introduction
The National Bank of Kuwait is a financial institution founded in 1952. The bank’s activity extends to several regions and provides private and corporate client services. Successful leadership over the years has led the company to expand geographically, diversify services and increase investment attractiveness through growing shareholder returns. The accounting policies used by the bank adopt IFRS standards adapted to the requirements of the Central Bank of Kuwait, which is reflected in the company’s statements, which are published annually in the form of reports (NBK, 2022). The Bank also pursues a social and environmental responsibility policy, in line with modern requirements for every large organization (Latapí Agudelo et al., 2019). The organization is quite successfully improving its financial performance from year to year; however, for a reliable analysis, it is necessary to resort to fundamental ratios that more clearly reflect liquidity, efficiency, and long-term success. In this paper, an overview of the most critical financial relationships is given and a conclusion is made about the current position of this organization.
Financial Ratios
The assessment of bank financial indicators from the statements is particular compared to business in other areas. The gross profit ratio of this bank has decreased over the two years, which indicates a corresponding decrease in efficiency in operating activities. However, 2020 was accompanied by a severe global crisis due to the pandemic; therefore, the indicators of this period were subject to greater volatility (Ҫolak, G., & Öztekin, 2021). In general, the organization’s revenue has grown, including net income, which is reflected in the net profit ratio. The bank actually received more money for further development, and it can be considered that last year’s crisis was successfully overcome. At the same time, the net interest margin remains reasonably low, typical for banks. Although the indicator is decreasing, its dynamics are insignificant; nevertheless, the financial institution can be considered stable for several other reasons.
First, the efficiency ratio is growing and is at a fairly high level. This fact suggests that NBK improves non-operational processes while optimizing costs and increasing assets. The current availability of cash and its equivalents is quite good compared to this indicator for many banks after the crisis year (Ҫolak, G., & Öztekin, 2021). Secondly, the cash ratio reflects this fact and has a positive trend of stable growth over a decade. In addition, it is growing in dynamics, demonstrating the company’s liquidity and moderate ability to deal with its short-term obligations. The ROA indicator is consistently low for banks and amounts to just over 0.01. Although NBK’s efficiency in this regard is declining, the decline is insignificant and is mainly due to an increase in the total number of assets. It is worth noting that in the cash flow statement, expenses on plant, property, and equipment, as well as intangible savings, began to grow systematically, which indicates the company’s investments in development both in terms of expansion and in the field of digital banking, as the most promising area in this area. (NBK, 2022). As a result, the company looks relatively stable and attractive to investors despite some negative dynamics in some indicators.
It is worth noting that cash flow leverage increased by almost five times, which can be explained both by the recovery after the crisis year of 2020 and by maintaining long-term growth rates. Operating activities, which can be improved according to gross margin evidence, are currently being optimized, proving the company’s sound capital structure. At the same time, the share of borrowed capital from shareholders is quite large and growing simultaneously. This fact shows that NBK is almost equally dependent on investments, as well as on lending and financing in other ways, which, on the one hand, can create risks for investor attractiveness in the event of a decrease in key indicators, but on the other hand, makes it less dependent on government contracts and other macroeconomic indicators. This fact demonstrates the debt-to-equity ratio, which reflects the ratio of land capital, which, as a rule, is much lower in banks (Ҫolak, G., & Öztekin, 2021). Finally, the company’s debt ratio is stable at the same level with a corresponding increase in assets, which indicates reliable management and control of operations. In addition, this indicator is well below one, given the scale, which indicates the bank’s long-term liquidity and vast development opportunities despite, for example, falling share prices.
Conclusion
This review of financial performance has demonstrated NBK’s long-term stability, focus on innovation, and horizontal expansion, and several areas where the potential for efficiency has yet to be exhausted. First, the company can improve its operational business processes to increase its gross profit ratio. Secondly, the bank has the best possible way to put into circulation existing assets in order to improve the return on assets. Finally, a long-term development course can activate or diversify existing services to gradually reduce the debt ratio, optimizing operating and non-operating costs. Consequently, the bank retains both growth potential and investment attractiveness, which, together with the ability to survive global external factors and crises, indicates the reliability of this organization.
References
Ҫolak, G., & Öztekin, Ö. (2021). The impact of the COVID-19 pandemic on bank lending around the world. Journal of Banking & Finance, 133, 106207. Web.
Latapí Agudelo, M. A., Jóhannsdóttir, L., & Davídsdóttir, B. (2019). A literature review of the history and evolution of corporate social responsibility. International Journal of Corporate Social Responsibility, 4(1), 1-23. Web.
NBK. (2022). Annual Report 2021. Web.