Moody’s out­look on Kuwait bank­ing sys­tem sta­ble

Arab Times - - FRONT PAGE -

LI­MAS­SOL, March 14: The out­look for Kuwait’s bank­ing sys­tem is sta­ble as the credit stand­ing of Kuwaiti banks will be sup­ported by steady nonoil eco­nomic growth and solid fi­nan­cial fun­da­men­tals over the next 12 to 18 months, says Moody’s In­vestors Ser­vice in a re­port pub­lished to­day.

The re­port, “Bank­ing Sys­tem Out­look — Kuwait; Eco­nomic growth, solid cap­i­tal and am­ple liq­uid­ity drive sta­ble out­look,” is now avail­able on Moody’s sub­scribers can ac­cess this re­port via the link at the end of this press re­lease. The re­search is an up­date to the mar­kets and does not con­sti­tute a rat­ing ac­tion.

Moody’s fore­casts non-oil GDP growth of 3.5 per­cent in 2018 and 4.0 per­cent in 2019 driven by grow­ing gov­ern­ment spend­ing.

The rat­ing agency ex­pects an­nual do­mes­tic credit growth of around 6 per­cent over the

next 12 to 18 months. House­hold credit growth will be the key driver on the back im­prov­ing eco­nomic sen­ti­ment and steady em­ploy­ment growth. While cor­po­rate credit growth will be slower, due to cor­po­rate re­pay­ments and mod­er­a­tion in the devel­op­ment project space, banks will still find op­por­tu­ni­ties for cor­po­rate credit and non-cash busi­ness aris­ing from sub­stan­tial ac­tive


“Non­per­form­ing loan lev­els will sta­bilise at around 2 per­cent of gross loans amid fa­vor­able do­mes­tic con­di­tions,” 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.”

The main risks for banks are ad­verse do­mes­tic po­lit­i­cal and geopo­lit­i­cal de­vel­op­ments or re­newed weak­ness in oil prices, fac­tors that can dampen con­fi­dence and sub­due equity mar­kets and the real es­tate sec­tor, to which banks are ex­posed to, po­ten­tially re­duc­ing busi­ness growth and pres­sur­ing banks’ as­set qual­ity.

Kuwaiti banks, how­ever, main­tain strong loss ab­sorp­tion buf­fers, with the sys­tem’s Basel III Tier 1 cap­i­tal ra­tio at 15.8 per­cent as of De­cem­ber 2017. The rat­ing agency also says that sig­nif­i­cant gen­eral pro­vi­sions will al­low banks to mi­grate to IFRS 9 with­out a neg­a­tive im­pact on cap­i­tal.

Bank prof­itabil­ity will im­prove on wider net in­ter­est mar­gins and lower credit costs. The ra­tio of net in­come to tan­gi­ble as­sets will in­crease to around 1.3 per­cent over our out­look pe­riod, from 1.1 per­cent in 2017.

Moody’s also ex­pects that growth in de­posits to­gether with cur­rent ex­cess liq­uid­ity will al­low banks to grow their loans with­out in­creas­ing their re­liance on con­fi­dence-sen­si­tive mar­ket fund­ing over the 12-18 month out­look pe­riod.

HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah ar­riv­ing to grace the grad­u­a­tion cer­e­mony of the 44th batch of grad­u­at­ing po­lice of­fi­cers of Saad Al-Ab­dul­lah Academy for Se­cu­rity Sciences.

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