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RIYADH: The surge in mergers and acquisitions among Kuwaiti banks is reshaping the nation’s crowded financial sector, according to Fitch Ratings.
This strategic move is being embraced by banks as a way to address the limitations of organic growth, diversify their business models, and bolster their financial profiles.
Fitch sees this consolidation trend as a credit-positive development, particularly given the overbanked nature of Kuwait’s financial sector, which includes 11 banks.
Despite Kuwait’s strong fiscal and external balance sheets, the banking sector has been hindered by frequent political gridlock and institutional constraints.
For instance, the delayed implementation of key reforms, such as the new Public Debt Law and the mortgage law, has exacerbated these challenges.
In response to these obstacles, Kuwaiti banks are increasingly turning to consolidation as a strategic solution. Recent developments illustrate this trend.
In July, Boubyan Bank, Kuwait’s third-largest bank, and Gulf Bank, the fifth-largest, announced their plans to explore a merger. If completed, this merger would create a sizable Islamic bank with approximately $53 billion in assets and a 15 percent market share.
The trend toward consolidation is not entirely new. In 2022, Kuwait Finance House expanded its regional presence by acquiring Bahrain-based Ahli United Bank, which extended its operations into Bahrain, Egypt, and the UK.
However, KFH has recently started to retract some of its international investments, selling KFH-Bahrain to Al Salam Bank in May 2024 and announcing plans to exit its Malaysian operations.
Burgan Bank, Kuwait’s second-largest bank, has also been active in this space. In June, it acquired Bahrain’s United Gulf Bank and realigned its focus by divesting significant stakes in Burgan Bank Turkiye and Bank of Baghdad. This strategic shift reflects Burgan’s broader strategy to concentrate on its Gulf Cooperation Council operations.
In June, Fitch reaffirmed Kuwait’s A+/A-1 sovereign credit rating with a stable outlook, aligning with global projections that traditional banks in Kuwait are expected to dominate the market with a projected volume of $33.99 billion in 2024.
Net interest income is forecast to grow at a compound annual growth rate of 4.06 percent from 2024 to 2029, reaching a market volume of $44.31 billion by the end of that period.