Kuwaiti banks enter bounce-back mode
10 August 2023
With low levels of non-performing loans (NPLs) and improving funding metrics, 2023 is proving to be a solid year for Kuwaiti banks. At the same time, the promise of project-related lending is also starting to firm up on the horizon.
Profitability is trending in the right direction, with half-year results in 2023 revealing robust performances for the largest banks in the tightly knit firmament of 11 Kuwaiti banks.
While unlikely to repeat last year’s growth levels, which saw net income increase by 25.3 per cent on average thanks in part to bulging interest margins, lower loan impairments and a continued focus on cost efficiencies, this year’s six-month reporting cycle indicates double-digit growth will be repeated for the full year.
National Bank of Kuwait (NBK), the country’s largest lender, reported a 16 per cent increase in first half 2023 profits to KD275.3m ($895.3m), as interest income rose. Total assets in the first half increased by 5.3 per cent to KD36.1bn ($117.4bn).
As NBK chief executive Isam al-Sager noted: “Strong business growth, robust liquidity and prudent levels of asset quality will continue to drive profit growth throughout 2023.”
Robust fundamentals
Improving NPL metrics – already the lowest in the GCC – and solid funding growth are driving improvements for the country’s banks.
The IMF noted in an assessment earlier this year that banks remain well capitalised and liquid — comfortably exceeding prudential regulatory requirements. Last year, the average capital adequacy ratio was 17.3 per cent, above the 12 per cent limit required by the Central Bank of Kuwait (CBK).
NPLs remain low by regional standards, at least in part because Kuwait’s small and medium-sized enterprise (SME) sector is not as vibrant as some other Gulf states, meaning fewer insolvent customers to deal with. The average bank’s customer portfolio comprises Kuwaiti nationals who work in solid government jobs and are considered low-risk customers.
Another supporting factor in terms of asset quality is the solid performance of Kuwait’s real estate sector, which has relatively little exposure to foreign investments – removing the risk of speculation-driven increases affecting the banking market.
On a note of caution, Ashraf Madani, vice-president and senior credit officer at Moody’s Investors Service, says there have been some issues for Kuwaiti banks with foreign operations, in Turkey and Egypt, for instance.
“Foreign currency translations have also impacted capital. So we saw a slight decline in the capital ratio over the past two to three years. But there’s still strong capitalisation,” he says.
“Most banks have large corporate borrowers that have been in the business for quite some time. They have established long-term relationships with the banks, and the portfolio has good seasoning.”
The funding side is also improving, Madani notes, and this year there seems to be higher growth from the deposit side compared to the credit side, which is slightly favourable for the funding of banks.
Growth in the pipeline
Lending to the private sector should remain strong, despite a series of interest hikes that have grown by 250 basis points since the global monetary policy tightening cycle began in 2022.
Lending growth averaged a healthy 7.7 per cent last year, although this year will not be as high.
“This year, our expectation is that the credit growth in the system will be around 3 per cent,” says Madani.
“That’s for two reasons. Number one is that we don’t expect the exceptional growth last year to continue on the consumer side because we’re coming from a high base already in 2022.
“And number two, there are some repayments on the corporate side this year, and these are basically offset by some good project awards on the corporate side. There are some big projects awards happening this year.”
Another push for credit growth will come from a new mortgage law, under which local lenders can provide a housing loan of up to KD140,000 ($455,000) and on which the state will cover the interest for the first KD70,000 ($227,000) on behalf of the borrower.
An increase in project awards this year could technically drive credit higher, but expected tepid growth on the consumer side will likely exert a smothering effect on total loan performance.
On the regulatory side, the Central Bank’s regular review of the adequacy of its financial regulatory perimeter and macroprudential policy toolkit have won the IMF’s plaudits.
The fund said the CBK will continue to regularly stress test the banking system's resilience to emerging financial stability risks, and said the existing blanket guarantee on bank deposits should be gradually replaced with a limited deposit insurance framework to address moral hazard.
Meanwhile, the interest rate cap on commercial loans should be phased out to support efficient risk pricing and credit supply to SMEs.
Though NBK, once the largest GCC bank by assets, has been overtaken in size by the region’s emergent banking behemoths such as the UAE’s First Abu Dhabi Bank and Saudi National Bank, it and other national heavyweights remain active lenders with a keen interest in servicing economic opportunities in Kuwait and beyond.
Big ticket mergers are not in the pipeline this year, but after the tumult of recent years, Kuwaiti lenders will be happy with stable, if unspectacular, growth.
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Siemens Energy signs preliminary 14GW Iraq pact
9 May 2025
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Germany’s Siemens Energy and Iraq’s Electricity Ministry have signed a preliminary agreement to add 14GW of electricity generation capacity to Iraq’s grid.
The firms also signed two long-term service contracts for the Dibis and Al-Mussaib gas-fired power plants.
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Abu Dhabi hopes bigger is better with Disney theme park
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Commentary
Colin Foreman
EditorEver since Aldar Properties first launched the Yas Island project with its Yas Marina Circuit for the Abu Dhabi Grand Prix in 2006, Abu Dhabi has been steadily adding theme parks to the island’s roster of attractions. First, there was the Ferrari theme park, then came a water park, a Warner Bros theme park and, most recently, SeaWorld.
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Miral has developed a series of theme parks and other entertainment-related attractions on Yas Island
Enter Disney
Disney changes that. It is the largest brand in the theme park space and will be a major attraction, but with limited information released on the project so far, it is difficult to fully gauge how significant the project will be.
The official release said that the project will be developed and operated by Abu Dhabi developer Miral, adding that Disney’s in-house design and engineering unit, Walt Disney Imagineering, will lead creative design and operational oversight to provide a world-class experience. It did not give any details on the ownership of the project.
In Hong Kong, for example, a company, Hong Kong International Theme Parks, was established as a joint venture, with the Government of Hong Kong holding 57% and The Walt Disney Company holding 43%.
In Japan, the structure is different. The Tokyo Disney Resort is owned and operated by Oriental Land, and the company pays licences and royalties to The Walt Disney Company.
In interviews following the launch announcement, Miral CEO Mohamed Abdalla Al-Zaabi confirmed the arrangement will be like Tokyo.
Waterfront location
The official release for the Abu Dhabi launch also said that the project is on Yas Island, which only has limited areas of land to develop. The release also said that the land is waterfront, and imagery in the launch video shows the Abu Dhabi skyline in the background, suggesting the land is on the northern waterfront of Yas Island.
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Tourism gateway
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If that potential is realised, then the bigger is better theory will be proved right. If the park’s performance disappoints, then it will suggest the region is not such a great destination for theme parks after all.
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Photo credit: Kahramaa
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OQ to take interest in Oman renewable projects
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“The direction seems to be for OQ Alternative Energy to own up to 25% shares in the upcoming solar and wind IPP projects in the sultanate,” says a source familiar with the plans.
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