x Abu Dhabi, UAEFriday 21 July 2017

Testing times ahead for Kuwaiti lenders

What's down Kuwaiti banks will need considerable time to purge their books of non-performing loans and bring profitability back to levels seen before the financial crisis.

DUBAI // In an economy with poor growth prospects, Kuwaiti banks will need considerable time to purge their books of non-performing loans and bring profitability back to levels seen before the financial crisis. Moody's Investors Service said in a recent report that it was maintaining a negative outlook for three of nine Kuwaiti banks that it rates: Commercial Bank of Kuwait, Burgan Bank, and Bank of Kuwait and Middle East. But the ratings agency is also not enthusiastic about prospects for the banking system as a whole in the third-largest Gulf economy. Like many banks in the region, Kuwait's are increasing provisions to cover the costs of poorly-performing loans, a move that will cut into profits. However, they are also hampered by other significant factors: the lacklustre performance of the local stock exchange, a slow recovery of the property market and rising consumer indebtedness, the report noted. The national assembly last month voted in favour of a bill that would require the government to assume responsibility for 6.7 billion dinars (Dh85.1bn) of consumer debt. Such a bailout would be positive for the banks, but few expect it to come to pass as the government is staunchly against the proposal. Loan growth in Kuwait dipped last year and the outlook for the next 12 to 18 months is not promising.

The cash-rich government does not need to borrow from banks and consumers have already borrowed to the limit, leaving few avenues for growth. The one bright spot on the horizon is the 30bn dinar, four-year development plan designed to boost the country's non-oil private-sector economy. If it proceeds on schedule, it could stimulate borrowing by construction companies and subsequently improve the banks' asset quality.

But Moody's is not overly optimistic. "The efficient implementation of the development plan remains in question given that the country's cumbersome bureaucracy has in previous years prevented authorities from meeting much lower spending targets," wrote Stathis Kyriakides, Moody's lead analyst for the Kuwaiti banking system. skhan@thenational.ae