National Bank of Kuwait, the country's largest lender, is relying on revenue from foreign operations to offset a tough business environment at home, and aims to expand in several Gulf states, its group chief executive said.

NBK, which reported a flat net profit of KD302.4 million ($1.1 billion) in 2011, aims to grow in Saudi Arabia, the United Arab Emirates and possibly Oman, Ibrahim Dabdoub said in an interview late on Tuesday.

"The business environment is not very positive in Kuwait. We're seeing a better contribution from overseas branches. Their contribution to our net profit is 29 percent now. Our target is to hit 50 percent by 2020," he said.

The bank, whose largest shareholder is the government of Kuwait with 5 percent, started expanding outside its home country in 1980 and has operations in Europe, the United States and parts of Asia, as well as the Middle East.

Dabdoub said the bank was increasingly realising that the growth of the economy in Kuwait would not be sufficient to create value for shareholders. A major problem is Kuwait's unstable politics, he said.

"The business environment in Kuwait is a victim of the regional geopolitics, although things are good on the macro level," Dabdoub said.

He did not elaborate on the political situation, but Kuwait has seen eight governments come and go in just six years because of bickering between parliament and the cabinet. The last government resigned in June after the constitutional court dissolved an Islamist-dominated parliament elected in February.

The political strife has delayed economic decision-making within the government and put multi-billion dollar investment plans on hold.

In July, NBK posted a net profit of $140.2 million for the three months to June 30, down from $240.2 million for the same period of 2011. It took a $96.4 million provision for the quarter, citing "further potential deterioration in our operating environment".

Cost of funds

Because of high global oil prices, Kuwait's economy is still growing and the government is posting big budget surpluses. Ample inflows of funds from oil have helped to push the three-month Kuwait interbank offered rate, an indicator of banks' funding costs in the local dinar, to 0.6250 percent from 0.8125 percent at the start of this year.

Dabdoub said he hoped the drop in the cost of funding would have a positive impact on NBK's bottom line figures by the end of this year, despite the poor domestic business environment.

"As far as NBK is concerned and at the balance sheet level, we compensated for that by controlling the cost of funds."

But growth will come mainly from foreign markets, where the bank's past expansion is now paying off, he said. NBK has one branch in Saudi Arabia and aims to increase that number; it is trying to open new branches in the UAE, and may invest in Oman in the near future, he added.

The bank also plans to expand in Egypt once the dust settles after last year's revolution.

"Our presence in Egypt is strategic...With more political stability, the business environment will improve and we are optimistic about it."

NBK's Kuwait-listed shares are down 8 percent this year. – Reuters