BUY OR SELL-Will govt spending plan boost Kuwait banks?

* Banks rise as Kuwait launches $104 bln development plan

* Govt to guarantee banks' financing of plan's projects

* Doubts remain on whether plan be fully implemented

* Banks up 22 pct year-to-date; Kuwait index down 4.6 pct

By Matt Smith and Nicolas Parasie

DUBAI, Aug 23 (Reuters) - Kuwaiti banks, which suffered more than most regional peers in the financial crisis, are attracting buyers after reports the government will ask local lenders to finance a 30 billion dinar ($104.2 billion) development plan.

But analysts have urged investors to remain cautious on Kuwaiti banks, with doubts over whether the spending spree will happen and while banks are already trading at mid-to-high multiples.

Government approval for the plan, which is set to be backed with state guarantees and includes building new ports and cities as well as investments to raise oil and natural gas production, came six months after parliament backed the scheme. [ID:nLDE67I0XD]

The government will provide half of the funding, with the rest coming from the private sector, in what is seen as a belated attempted to ease the Gulf Arab country's dependence on oil for state revenues.

BUY

"This plan means (bank) balance sheet growth and the issue of loan growth is being addressed," said Muhammad Omer Jawaid, senior investment analyst at Kuwait's Global Investment House.

National Bank of Kuwait (NBKK.KW), the country's largest listed lender and second-biggest in the region by market capitalisation, ended Sunday at a 10-month high and is up 34 percent year-to-date, outperforming Kuwait's index, which has fallen 4.6 percent over the same period. The banking index .KWBNK has gained 22 percent in 2010.

"I do think that the investment plan is a positive, and should provide loan growth momentum for the banks which have been flush with liquidity, and channelling that to purchase government securities," said Murad Ansari, banking analyst at EFG Hermes.

"This could be a good buying opportunity for banks."

All banks are likely to benefit, Global's Jawaid said, especially those trading at cheaper multiples, but also lenders with large balance sheets such as NBK.

"The challenge for Kuwaiti banks remains the quality of the loan portfolio which has to be strengthened," Jawaid added.

Combined bank profits rose 5.3 percent in the first-half of 2010 compared with the year-earlier period.

SELL

Lenders' balance sheets were hammered by the financial crisis and some including NBK, Kuwait Finance House (KFIN.KW) and Boubyan Bank (BOUK.KW) have announced rights issues to boost their share capital.

The government spending plan will not solve all of the banks' problems, analysts say.

"I would be cautious before investing in Kuwait banks and would wait to see tangible evidence of this money being channelled into the real economy," said Rami Sidani, Schroders Middle East head of investment.

"Historically, things have moved very slowly in Kuwait due to a standoff between the government and parliament. Despite its massive wealth, Kuwait has so far failed to finance a major development plan, while some other Gulf countries have utilised their oil windfall of the past five years into heavy infrastructure and development projects."

A lack of transparency dogs all Gulf Arab markets, but is particularly acute in Kuwait, where stock moves can seem totally random and company news can come first not by official announcement but in a nod from friends and family.

These concerns have scared off many foreign investors, while Kuwait bank valuations are rich, said Sidani.

Kuwait Finance House has a price to earnings ratio of 23, Al Ahli Bank (ABKK.KW) 16.1 and NBK 14.9, according to Reuters data. This compares with a p-e of 17.1 for Al Rajhi Bank 1120.SE, the region's largest listed lender, and 11.2 for regional number three, Qatar National Bank QNBK.QA.

Sidani named NBK as his preferred pick among Kuwait banks. "Any improvement in the Kuwait economic outlook and NBK will be the first to benefit," he added. (Editing by David Cowell)