The company confirmed that its steady expectations for the sector have been mirrored within the continued growth of the nation’s non-oil financial 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 growth plans, along with authorities capital spending on infrastructure initiatives and main initiatives, will drive demand for loans.
In its report, the company stated that the standard of native financial institution lending in Kuwait will stay good for the foreseeable future, regardless of slight dangers within the small undertaking sector, as rates of interest rise.
“Moody’s” stated in its report that the Kuwaiti banking sector’s giant publicity to actual property and the inventory market are weaknesses for the sector, however considerable monetary loss provisions and robust capital present a powerful defend towards draw back dangers. this publicity, indicating that the profitability of Kuwaiti banks will come below slight stress, however it can stay steady. It’s supported by robust effectivity, noting that the funding of Kuwaiti banks is predicated on fastened and steady deposit flows and robust 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 entire mortgage portfolio, might expose the nation’s banks to danger of a small variety of failures or a shock in one of many sectors.
Nevertheless, client loans, which make up round 35% of the entire mortgage portfolio, are effectively protected as they’re largely focused at authorities workers, who get pleasure from a excessive stage of job safety.
The company added that the publicity of some Kuwaiti banks to a weaker working setting, resembling Turkey and Egypt, might result in dangers for his or her companies.
Moody’s stated the capital of Kuwaiti banks would stay intact, primarily because of the central financial institution’s conservative method 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 era by retaining earnings will enable 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 rising 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 enough to guard Kuwaiti banks from the dangers related to a heavy reliance on government-related deposits, stressing that Kuwaiti banks won’t don’t have an sufficient provide of public funds obligations because of the failure of the adoption of the regulation on public debt by Parliament after.
Which means that most native forex financial institution liquidity is invested in short-term devices, together with central financial institution deposits and Sharia-compliant liquidity amenities 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 capacity to take action will stay robust, as evidenced by Kuwait’s strong score at A1, with a steady outlook, explaining that almost all of Kuwaitis financial institution deposit rankings are long-term with the company A rise of 4 credit score rankings from benchmark credit score rankings on account of authorities help.
The company stated Kuwaiti banks have giant provisions to cowl mortgage losses, amounting to 270% of non-performing loans till the tip of 2022, partly because of the Financial institution’s strict coverage. central when it comes to provisions, which provides nice effectivity towards any doable 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 move of deposits, which is credit score power for banks, explaining that buyer deposits accounted for 73% of the entire 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 increase in the actual 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 are going to stay steady and are prone to preserve robust profitability, as internet earnings 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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