Kuwait banking system stable as economy grows, Moody's says

Non-performing loans to stabilise at 2% of total loans this year

Moody's has a stable outlook on Kuwaiti banks. Andrew Henderson /The National

Kuwait’s banking system is stable as the country's robust economic growth boosts businesses and non-performing loans abate amid new accounting procedures for bad debt, according to Moody’s Investors Service.

“Non-performing loan levels will stabilise at around 2 per cent of gross loans,” said Alexios Philippides, an assistant vice president and analyst at Moody’s.

“We also believe that banks have cleaned up their portfolios before this year’s implementation of IFRS 9 accounting standards by mobilising the large pool of general provisions accumulated in recent years, which will help limit impairments going forward.”

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The rating agency is also forecasting buoyant credit growth over the next 12 to 18 months at around 6 per cent, that will largely be driven by households  due to higher pace of job creation. Corporate credit growth will be slower because of repayments for existing debt that businesses are making, as well as a slowdown in the development of projects.

Kuwait's non-oil gross domestic product is forecast to grow 3.5 per cent in 2018 and 4 per cent in 2019 amid greater government spending, according to Moody's forecasts.

The profitability of Kuwaiti banks, like most lenders in the region, will improve this year due to higher net interest margins as interest rates rise following a prolonged period of low rates. The ratio of net income to tangible assets will rise to about 1.3 per cent over Moody's outlook period from 1.1 per cent in 2017.

The rating agency said the main risks to its outlook include renewed weakness in the price of oil and adverse geopolitical developments.