Fitch Solutions stated that although Kuwait has one of the oldest financial sectors in the region, its regional competitors have recently outpaced it in a research on the predicted performance of the Kuwaiti banking and financial services sector for the fourth quarter of 2022.
However, the agency believed that the regulatory environment improvements would increase stability and create space for market expansion. This suggests that, in the medium term, both client loans and banking assets will experience consistent growth.
Due to the high price of oil, Fitch Solutions predicted that client loans would increase by 9.7% this year, but that pace would drop to 4.3% in 2023.
8%, bringing the total amount of client loans to roughly 52 billion dinars (although this percentage is still significant).
The total assets are projected to increase by 6.9% and 5.1%, respectively, in 2022 and 2023, bringing the total assets to 86.6% billion dinars the following year.
rate of growth
A record number of projects have lately created a number of lending opportunities for businesses, which raises the risks of a spike in non-performing loans. Accordingly, the agency estimates the growth rate to reach 5 percent yearly in the remaining medium term and to drop to 4 in 2026.
The assessment said that the sector’s performance was remarkable in terms of keeping non-performing loans at a low rate, but Fitch still anticipates a rise in defaults due to the anticipated growth in corporate loans.
The asset management sector, on the other hand, was praised by Fitch, which noted that it has great potential but that non-compliance problems are impeding its expansion. It also noted that the Covid-19 pandemic has slowed the industry’s growth because it is so closely related to the economy, but predicted that the sector would benefit more from higher oil prices in the short term than from economic diversification in the long term.
the start of the year
The agency made a comment about the stock exchange’s performance this year, stating that the market saw strong activity in the second half of the year, with an increase of 8% between the start of the year and the start of June 2022. The Kuwait Stock Exchange is still working to attract new listings, and it has plans to expand its offering of derivatives and future products in order to increase liquidity.
Kuwait was third among Gulf nations in terms of the banking industry risk index, after the UAE and Qatar, with 78.08 points out of 100. It also placed second in financial terms, behind Bahrain, with 75.20 points, third in government finance, with 75.03 points, and fourth overall in the Gulf. It received an overall score of 89.06, but its environment and quality control scores of 47.32 placed it lowest in the Gulf.
Kuwait, with a score of 90.46, was top in the Gulf area for international links.
Cost variations
On the other hand, despite high inflation and Kuwait’s exposure to oil price fluctuations in relation to growth expectations, which suggests slightly higher risks, the level of economic volatility in Kuwait stabilised at 51.45 in the second quarter of the year, which is lower than the level observed in 2021.
In addition to having a sizable net foreign asset base, steady deposits, and solid levels and qualities of capital, which give them better protection against future loan losses, Fitch noted that Kuwaiti banks have a robust financing file.
less possibilities
It encouraged banks in the area to grow overseas.
Fitch Solutions has demonstrated that, in addition to the various advantages of the regional banking sector, there is a thriving economy that benefits from oil.
She claimed that Kuwaiti banks expanded overseas since there were few domestic expansion prospects due to the small size of the nation. Due to the dangerous exposure to investment companies, it also suggested that there may be a vulnerability in the quality of assets.
On the other hand, the report discovers that among the opportunities awaiting the banking industry and financial services is the expansion of consultancy and other services provided to clients and investors, as well as the existence of a new law that permits the expansion of bond portfolios, which will allow banks to access alternative financing methods, increasing the growth of assets. The report also notes that among the opportunities The other, the growth of digital banking services, and the
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Fitch: Kuwaiti banks have performed exceptionally well in lowering non-performing loans.
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