The outlook for Kuwait's banking system remains stable, unchanged since 2011, says Moody's Investors Service in a new report ("Banking System Outlook: Kuwait) published yesterday. The outlook reflects the rating agency's expectation of a benign operating environment, supported by high oil revenues and government spending (mainly current account).
Over the 12-18 month outlook period, the operating environment for the banks will remain accommodative, underpinning the banking sector's robust capitalization and ample liquidity. Moody's expects that Kuwait's nonoil 2013 GDP growth (local banks operate primarily in the non-oil sectors of the economy) will increase to 3.2 percent, the highest rate for the past five years, mainly driven by the government's current account spending.
Meanwhile, although the implementation of the government's $ 110 billion national development plan continues to face delays in parliament, the recent adoption of electoral laws that favor the election of a pro-government parliament may accelerate related capital spending in 2014. In this environment, Moody's projects moderate credit growth of 5-8 percent in 2013 rising to 8-10 percent in 2014 as business opportunities related to the tendering of infrastructure projects pick up.
Robust capitalization and ample liquidity will continue to support financial stability. Moody's expects that the sector's Tier 1 ratio will remain close to current levels (15.3 percent as at year end 2012) and notes that banks hold sufficient capital to absorb losses under both the rating agency's central and adverse stress scenarios. Moody's also expects the system to remain predominantly deposit-funded and to continue to benefit from access to government-related deposits (which are estimated to fund around 25 percent of assets). Liquid assets will likely remain at comfortable levels of around 30 percent of system assets, which will further support the stable system outlook.
Moody's expects system-wide non-performing loans (NPLs) to stabilize within the 5-6 percent range, down from 10.4 percent in 2009, as banks have made considerable progress in rehabilitating their loan books following the 2008-2009 crisis. Despite this expected stabilization, Moody's also notes that elevated single-party and industry concentrations, in conjunction with opacity regarding the level of restructured and rescheduled loans, continue to remain key downside risks for system asset quality.
Kuwait banking outlook stable
