Kuwait's Gulf Bank expects the third quarter of this year to be a turnaround quarter as it executes a two-year plan to rebuild itself, its chief executive said on Tuesday.

'What everybody expects, is that this (third quarter) will be the turnaround quarter... and going forward every quarter should be slightly better than the previous one,' Michel Accad said at the Reuters Middle East Investment Summit in Kuwait.

Gulf Bank was rescued by the Kuwaiti central bank in 2008, after about 260 million dinars ($921.6 million) of derivatives losses. Its troubles prompted the government to guarantee all deposits in local banks to restore confidence.

The lender made a net profit of 1.48 million dinars in the second quarter this year, from a 9.1 million dinars loss a year earlier.  Accad said the bank's 2010-2011 rebuilding plan aims at consolidating its position locally, strengthening its infrastructure and building a 'fortress' balance sheet.

He added that the lender was on track and it was possible that it might meet the plan's objectives by the third quarter of 2011. 'If the plan succeeds, we'll be extremely powerful, with a lot of excess cash and even excess capital,' he said.

Gulf Bank's shareholders and the board could then decide what to do with the cash including expanding product capabilities or geographic coverage, he added.

The bank's current market share is about 12 percent, and the lender aims to reach 16 percent in five years, he said.

Accad added that Gulf Bank is not considering a stake sale. 'But if some shareholders wish to sell to other investors that's up to them.'    

The lender, which has been booking most of its operating profit in provisions after the derivatives losses, expects the third quarter of this year to be the last one with a high level of provisions.

'But you'd expect that we'll continue to have some provisions, but they will be more of a precautionary nature than specific to certain credit. It is about building the cushion,' Accad said.

He said that the percentage of non-performing loans will be 'comfortably' under 20 percent in the third quarter.

Gulf Bank, in which the country's sovereign wealth fund Kuwait Investment Authority owns a 16 percent stake, booked aggressive provisions in 2009 of 111 million dinars against its credit portfolio.

'We decided not to lend to any customers in Saudi...at least for the next three years... Yes, it's a ban. It's a ban essentially on any customer that is a purely foreign customer who would want to borrow money just in a different country than us,' Accad said.   

Gulf Bank will continue to lend to foreign investors if they plan to invest the money in Kuwait, he added. - Reuters