Kuwait's Burgan Bank sees profit from overseas

Burgan Bank's Head of Investments Richard Webster speaks to during the Reuters Middle East Investment Summit in Kuwait City on November 4, 2008.

KUWAIT (Reuters) - Kuwait's Burgan Bank (BURG.KW) expects to generate 20 percent of profits from new markets including Iraq, its head of investment said on Tuesday, as the Gulf banking sector positions itself for a wave of consolidation.

Burgan Bank, a unit of investment firm Kuwait Projects Co (KPRO.KW), moved outside of its home market for the first time this year with the acquisition of stakes in four banks in Iraq, Algeria, Jordan and Tunisia for 194 million dinars ($718.2 million).

It should conclude purchases of stakes in Bank of Baghdad, Algeria Gulf Bank, Jordan Kuwait Bank JOBK.AM and Tunis International Bank from Bahrain's United Gulf Bank UGBB.BH by the end of the year, Richard Webster said.

"Most Gulf banks are probably in a similar position: they are small by an international perspective and they are generally in markets where they have strong competition," Webster told the Reuters Middle East Investment Summit.

Once consolidation is complete, the bank would derive 30 percent of revenues and 20 percent of profits from operations outside of Kuwait, one of five Gulf oil producers where the economy has been booming on six years of high oil prices.

"We're diversifying ourselves from a business cycle which is heavily oil dependent. In Jordan or Tunisia, the factors governing the business cycle are very different .. it gives us a cyclical offset," Webster said.

Burgan Bank also said this year it would expand into Syria, and has its sights set on moving into Egypt and Mauritania.

The banking sector in the Gulf Arab region is also poised to witness a wave of new merger and acquisition deals as smaller banks aim to boost their balance sheets to weather the global credit crisis and larger lenders eye cheap valuations.

"Privately owned banks will see more merit in consolidation and I would expect to see a lot more in the next two years because we've seen very little so far," Webster said.

"It is hard to get family-owned banks to consolidate at a time when the banking environment is good because the value of any exit price which is acceptable to shareholders is probably not good for any acquirer.

"Now I think that valuations are a lot more reasonable."

Kuwait rescued Burgan rival Gulf Bank (GBKK.KW) from collapse last month after it suffered from losses related to derivatives trading -- and since then media reports have said local lenders were looking to buy out the bank.

Webster said Burgan Bank did not "have any such exposure" on its books.

He added that a central bank move last month to ease lending restrictions could help banks in Kuwait boost their lending portfolios. The bank's profit rose 34 percent in the third quarter.

But he added that lenders are waiting to see the results of a government crisis committee, led by the central bank governor, on how to address the impact of the credit crisis on Kuwait.

"When we know what measure they decide to take that will give us a guide in terms of credit growth in 2009," he said.

(Reporting by Daliah Merzaban; Editing by Alexander Smith and Hans Peters)