Our Outlook for Kuwaiti Banks Stays Secure

The company confirmed that its steady expectations for the sector have been mirrored within the continued growth of the nation’s non-oil economic system in 2023 and 2024, noting that Kuwaiti banks would profit from credit score progress of round 3 % this yr, with the federal government’s continued dedication to improvement plans, along with authorities capital spending on infrastructure tasks and main tasks, will drive demand for loans.

In its report, the company mentioned that the standard of native financial institution lending in Kuwait will stay good for the foreseeable future, regardless of slight dangers within the small venture sector, as rates of interest rise.

“Moody’s” mentioned in its report that the Kuwaiti banking sector’s massive publicity to actual property and the inventory market are weaknesses for the sector, however plentiful monetary loss provisions and powerful capital present a powerful protect in opposition to draw back dangers. this publicity, indicating that the profitability of Kuwaiti banks will come underneath slight stress, however it can stay steady. It’s supported by robust effectivity, noting that the funding of Kuwaiti banks relies on fastened and steady deposit flows and powerful liquidity.

She defined that financial progress in Kuwait, robust financial institution capital and ample liquidity help her steady expectations for the nation’s banks, noting that authorities spending will help Kuwait’s non-oil GDP progress of three% in 2023.

Moody’s added that the focus of financial institution lending in Kuwait on debtors and people, and sure enterprise sectors, significantly actual property, whose loans represent 18% of the full mortgage portfolio, might expose the nation’s banks to threat of a small variety of failures or a shock in one of many sectors.

Nevertheless, client loans, which make up round 35% of the full mortgage portfolio, are properly protected as they’re largely focused at authorities workers, who take pleasure in a excessive stage of job safety.

The company added that the publicity of some Kuwaiti banks to a weaker working setting, comparable to Turkey and Egypt, may result in dangers for his or her companies.

Moody’s mentioned the capital of Kuwaiti banks would stay intact, primarily as a result of central financial institution’s conservative strategy in making use of Basel 3 capital adequacy requirements, which ensures that Kuwaiti banks have robust monetary reserves, explaining that average mortgage progress and inside capital technology by retaining earnings will permit Kuwaiti banks to keep up capital stability over the subsequent 12 to 18 months.

Regardless of anticipated pressures on the revenue margins of Kuwaiti banks from rising rates of interest, that are growing funding prices extra quickly, whereas competitors between banks is driving down mortgage yields whereas the prices of deposits (particularly these associated to authorities) stay excessive, the company believes mortgage provisions are very excessive, supporting its profitability.

And “Moody’s” estimated that liquid belongings represent greater than 30% of precise financial institution belongings and can stay ample to guard Kuwaiti banks from the dangers related to a heavy reliance on government-related deposits, stressing that Kuwaiti banks is not going to should not have an satisfactory provide of public funds obligations as a result of failure of the adoption of the legislation on public debt by Parliament after.

Which means most native forex financial institution liquidity is invested in short-term devices, together with central financial institution deposits and Sharia-compliant liquidity services for Islamic banks working within the nation.

Moody’s affirmed the robust will of the Kuwaiti authorities to help the banking sector within the occasion of failure, and the federal government’s capability to take action will stay robust, as evidenced by Kuwait’s strong ranking at A1, with a steady outlook, explaining that the majority of Kuwaitis financial institution deposit rankings are long-term with the company A rise of 4 credit score rankings from benchmark credit score rankings resulting from authorities help.

The company mentioned Kuwaiti banks have massive provisions to cowl mortgage losses, amounting to 270% of non-performing loans till the tip of 2022, partly as a result of Financial institution’s strict coverage. central by way of provisions, which presents nice effectivity in opposition to any potential default in fee. .

Moody’s confirmed that the funding of Kuwaiti banks will stay robust with ample liquidity, and Kuwaiti banks are primarily funded by the steady movement of deposits, which is credit score energy for banks, explaining that buyer deposits accounted for 73% of the full deposits till the tip. from final yr.

The company confirmed that the standard of Kuwaiti financial institution loans will stay strong, and that financial progress and a growth in the true property market will result in sustaining steady mortgage stability over the subsequent 12 to 18 months, noting that non-performing loans from Kuwaiti banks have been very low at 1.6% in 2022, down barely from 1.7% in 2021.

Moody’s expects Kuwaiti banks to face slight stress on their profitability, however they’ll stay steady and are prone to preserve robust profitability, as internet revenue from belongings will vary from 1% to 1.2 % over the present yr and subsequent yr. , noting that the effectivity of Kuwaiti banks will stay excessive and that Kuwait’s quantity doesn’t require banks to increase their branches.

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