Kuwait's banking sector remains sound: IMF

The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Kuwait. Non-oil growth has picked up modestly over the past two years, and inflation has moderated. After coming to a standstill in 2015, real nonhydrocarbon growth has recovered and is set to reach 2.5 percent this year, driven by improved confidence.

However, a cut in hydrocarbon output by close to 6 percent, reflecting implementation of the OPEC+ deal, will bring overall real GDP down by about 2.5 percent in 2017. Notwithstanding the impact of higher energy and water prices, inflation is on track to reach a multiyear low of 1.75 percent in 2017, due to a decline in housing rents and favorable food price developments. The government's underlying fiscal position has improved on the back of spending restraint, but financing needs have remained large.

While overall fiscal accounts remained broadly balanced in 2016/17, the fiscal balance which excludes mandatory transfers to the Future Generations Fund (FGF) and investment income posted a large deficit (17.5 percent of GDP) for a second year in a row. The corresponding financing needs were covered through a drawdown in readily available General Reserve Fund (GRF) assets, domestic borrowing at various maturities, and a suc- cessful debut international sovereign bond sale. The external current account recorded its first deficit in many years in 2016.

The banking sector has remained sound, and deposit and credit growth have slowed somewhat. As of Q2 2017, banks featured high capitalization (CAR of 18.3 percent), steady profitability (ROA of 1.1 percent), low nonperforming loans (ratio of 2.4 percent), and high loan-loss provisioning (over 200 percent coverage). Moreover, banks have maintained strong liquidity buffers. Private sector deposit growth has declined in recent years, but this has partly been offset by an increase in public sector deposits. While the growth of credit to the private sector has also slowed mildly on a year-onyear basis since July 2016.