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Necessity is the mother of invention for Kuwaiti lenders

6 August 2026

 

If 2025 was marked by the advent of reform in the shape of public debt and mortgage laws, 2026 has been a year of resilience in the face of sharp shifts in the operating environment.

Like their peers across the GCC, Kuwait’s banks have stood out this year for their crisis preparedness. With Kuwait facing sustained attacks from Iran – testing a hydrocarbons-based economy that is uniquely vulnerable to such shocks – banks are focusing on maintaining durability under especially challenging conditions.

The sector entered 2026 in a relatively strong position. As of March 2026 – one month into the US-Israeli campaign against Iran – the non-performing loan (NPL) ratio stood at a creditable 1.7%. A capital adequacy ratio of 17.5% in Q1 is another sign of resilience, underscoring banks’ capacity to absorb unexpected losses.

Kuwaiti banks’ reserve coverage stands at 223% of problem loans, one of the highest levels of loan-loss allowance coverage for Stage 3 exposures in the region. This is in large part due to the Central Bank of Kuwait’s (CBK’s) strict regulatory requirements.

Overall, banks have strong capitalisation, solid liquidity, high loan loss-absorption buffers and sound asset quality. That mix provides confidence that the banking sector can continue to support the economy in difficult circumstances.

Kuwait has retained significant sovereign financial strength. There are large fiscal buffers, there is the existential hydrocarbon wealth, and there is a long track record of supporting the banking sector when required
Abdulla Al-Hammadi, Moody’s

Bank dominance

Banks also remain central to Kuwait’s economy. As the Washington-based IMF has noted, financial intermediation is overwhelmingly bank-based, with domestic currency bond and equity markets underdeveloped by emerging-market standards.

“Kuwait has retained significant sovereign financial strength. There are large fiscal buffers, there is the existential hydrocarbon wealth, and there is a long track record of supporting the banking sector when required,” says Abdulla Al-Hammadi, an analyst at Moody’s.

Bank assets reached 250% of GDP in 2024 – among the highest in the GCC, according to the IMF. This is supported by strong balance sheets, high liquidity and a large Islamic finance segment. Kuwait Finance House, Boubyan Bank, Kuwait International Bank and Warba Bank – the four main Islamic lenders – together account for KD53bn ($172bn), or 51% of total banking sector assets.

Early 2026 performance metrics show a solid rise in assets at listed Kuwaiti banks, growing by 12.5% year-on-year to KD130.82bn in Q1. Net profits increased by a smaller margin, 1.1%, to KD382.96m in the same quarter, according to KPMG.

National Bank of Kuwait (NBK), the largest bank by assets, reported net profit of KD324.8m for the first half of 2026, a 3% year-on-year increase. Despite the impact of the conflict, the second quarter saw profits rise 4.5% to KD181.2m.

Ratings support

Ratings agencies have retained their confidence in Kuwaiti banks. In a rating action announced on 18 June, Moody’s affirmed the long-term deposit ratings of eight Kuwaiti banks, reflecting their resilient credit profiles supported by strong capital, provisioning reserves and liquidity buffers.

Under Moody’s central scenario – which assumes a prolonged disruption to the Strait of Hormuz through autumn and persistently high and volatile energy prices – the expected deterioration in operating conditions remains within the absorption capacity of these banks’ baseline credit assessments.

Kuwait’s strong sovereign ratings and high level of system support provide additional comfort. Government financial assets are estimated at more than 475% of GDP, while the debt burden was around 19% of GDP as of March 2026 – factors that underpin the government’s capacity to support the banking system in the event of stress.

Nor is Kuwait at particular risk of external funding outflows. According to S&P Global, Kuwait has a comfortable net external asset position that mitigates such risks.

“Depositor confidence has remained stable. The banks continue to access international interbank markets,” says Al-Hammadi. “Their liquidity buffers will support their ability to continue lending and absorb any potential shock.”

Regulatory response

Regulatory supervision is another core strength. The CBK has a reputation for hands-on oversight of the banking sector. In March, it rolled out a stimulus package to encourage banks to lend as the Iran conflict buffeted the region. The measures included a temporary easing of macroprudential requirements, with the minimum liquidity coverage ratio and net stable funding ratio reduced from 100% to 80%. The minimum regulatory ratio was cut from 18% to 15%.

These measures appear to have had the intended effect. According to NBK’s research arm, domestic credit growth picked up in May, rising by half a percentage point over the previous month to 6.7% in year-on-year terms. Signs of stronger business lending, with gains across services, trade and real estate, will have been particularly welcome.

“Many Kuwaiti banks have concentrated their lending activity around the Kuwait economy,” says Al-Hammadi. “Overall GDP is under pressure given recent developments in the hydrocarbon sector. It’s still an oil-driven economy, but if you look at non-oil activity, it has continued to benefit from government investment.”

Credit growth will be supported by improving economic sentiment, so long as deposit growth keeps pace. However, lending is unlikely to match previous years’ levels.

“Our expectation is that lending growth will drop, given what is happening in the macroeconomic environment. Growth could be a bit slower compared to previous years,” says Al-Hammadi.

The CBK has urged local banks to be flexible towards customers, although anecdotal evidence suggests greater caution, including tighter personal loan limits.

Reforms, including the mortgage and housing law, provide an additional opportunity for Kuwaiti banks to support broader growth. The Real Estate Financing Law permits banks to offer supported loans under which the state covers interest payments via the Kuwait Credit Bank, while borrowers repay only the principal.

Although hydrocarbon-sector growth will be negatively impacted by events in the Gulf this year, banks should be able to secure growth by focusing on the non-hydrocarbon economy.

“We see growth driven by the non-oil economy and some of the project finance opportunities, which will benefit from the banking sector’s capital and liquidity position. It places the banks in the right place to grab this opportunity,” says Al-Hammadi.

MEED’s September 2026 report on Kuwait also includes:

> OIL & GAS: Regional war to have lasting impact on Kuwaiti oil sector
> CONSTRUCTION: Kuwait construction holds up despite regional strife

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James Gavin

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