meed-logo

line1 line2 line3
SIGN IN / REGISTER

Kuwaiti banks hunt for growth

15 August 2024

The broader economic backdrop for Kuwaiti lenders is relatively more challenging than for peers in other Gulf states, with the state budget back in deficit territory and oil revenues down 20% in 2023-24.

The Washington-based IMF estimates real economic activity to have fallen by 2.2% in 2023, with the oil sector contracting by 4.3% due to Opec+ production quota cuts.

Even so, Kuwaiti lenders have managed to put in some decent performances, benefitting – like their Gulf peers – from stronger net interest margins (NIMs) that have flowed from the global high interest rates of recent years.

Overall banking sector profits grew at an impressive 28.7% in 2023, according to Kamco Invest Research.

This year, profit performances are unlikely to match such increases. Traditionally the country’s largest bank, National Bank of Kuwait (NBK), for example saw a 6.2% increase in first-half 2024 profits to KD292.4m ($953.6m).

Kuwait Finance House, newly enlarged since its acquisition in February this year of Ahli United Bank (AUB), creating one of the largest Islamic banks globally, reported a 2.3% increase in net income to KD341.2m ($1.12bn) for the same period.

Policy pressure

Higher interest rates have exerted a negative impact on lending in Kuwait; according to the IMF, growth in credit to the non-financial private sector fell in 2023 to only 1.8% as bank lending rates rose in response to gradual policy rate hikes by the Central Bank of Kuwait (CBK), broadly in line with global monetary policy tightening.

However, it added that in light of prudent financial regulation and supervision, banks have maintained strong capital and liquidity buffers, while their profitability has rebounded from pandemic lows, and non-performing loans remain low and well provisioned for.

One challenge facing Kuwaiti lenders is that the domestic market still does not provide sufficient lending opportunities to materially impact their performances. In part, this reflects familiar issues related to Kuwait’s unique political structure.

“Political conflicts involving the parliament and the government delayed the much-needed fiscal and economic reforms, which have put pressure on growth and limit the credit growth potential of the banking sector,” says Gilbert Hobeika, a director at Fitch Ratings.

This has implications for Kuwait’s lenders because if they cannot grow domestically, they will likely look beyond the country’s borders.

Looking beyond Kuwait is designed to create market share and build stronger franchises.

KFH is a case in point. Upon completion of its merger with AUB Kuwait, it is now placed as a rival of NBK in terms of size, giving it the critical mass to enable it to consider expanding into other GCC markets. Market speculation has centred on the potential acquisition of a large stake in Saudi Investment Bank. 

There is also the prospect of another large domestic merger, with Boubyan Bank and Gulf Bank, two Kuwait-listed sharia-compliant lenders, undertaking an initial feasibility study for a potential tie-up. Further consolidation moves could see a conventional lender absorbing an Islamic player or gaining an Islamic subsidiary. All options remain open.

Relative weakness

That focus on inorganic expansion also reflects the weaker profitability seen in Kuwait’s banking sector relative to other GCC banking markets.

There are several reasons for this, says Hobeika. “One is that Kuwait has one of the highest loan loss allowance coverages of stage three loans, meaning that while you could see in the region of 70-120% in the GCC, in Kuwait banks could reach 500% and on average around 250%. This is because the CBK is much more conservative than any other regulator in the region.”

The other point is the pressure on Kuwaiti banks’ NIMs. Different considerations explain why Kuwaiti banks have not benefitted from higher NIMs in the same way as Saudi or UAE banks have.

“The dynamics are really different,” says Hobeika. “One is the pricing cap set by the Central Bank, and then you’ve got the fixed interest rates on retail loans, so they cannot increase their pricing. Then you’ve got a huge amount of murabaha on the Islamic side, which are fixed for long durations.”

In an overbanked economy such as Kuwait, the result is increased competition, with banks bidding to take a piece of a small cake.

That said, the effective supervision of the CBK provides for some additional support for banks.

“They will provide some relief for them to be able to generate efficient operating profit, to support their capital and internal generation of capital. Even if the performance is lower, it’s still sufficient to support internal capital generation,” says Hobeika.

The NIM situation reflects Kuwait’s distinctive policy approach. CBK does not systemically follow the US Federal Reserve’s interest changes, meaning that typically, every two or three changes made by the Fed will be followed by a single change in Kuwait. 

According to an analysis by Kuwait-based research firm Marmore, the approach of skipping interest rate tweaks has meant that while the overall NIM has changed in line with the global policy rate, the magnitude of change has been smaller. For that reason, NIMs might not decline for all Kuwaiti banks in the anticipated forthcoming easing cycle.

Marmore notes that this year, while banks such as NBK expect their NIMs to be stable, other banks have highlighted the difficulty in providing guidance for NIMs given the uncertainty over the timing and magnitude of rate cuts.

And while some Kuwaiti lenders have not gained as much benefit as other Gulf banks from higher interest rates, they may yet feel the positive impact from lower rates, given that retail loans are fixed.

These advantages may seem marginal, but in a global climate where lower interest rates will reduce the capacity to generate easy profits as in past years, they may prove to be welcome for Kuwait’s lenders.

https://image.digitalinsightresearch.in/uploads/NewsArticle/12309760/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Contractor appointed for Abu Dhabi Riviera residences

    1 July 2026

     

    Dubai-based real estate developer Mered has appointed Turkiye’s Sera Group as the main contractor for its Riviera Residences project on Al-Reem Island in Abu Dhabi.

    The development will comprise more than 400 one- to three-bedroom apartments and 11 villas.

    Lebanese engineering firm Dar Al-Handasah is the project consultant, while Switzerland’s Herzog & de Meuron is the architect.

    The enabling works are being carried out by local contractor NSCC International.

    Mered and Sera Group are also working together on the Iconic Tower project in Dubai Internet City, where the developer awarded the main contract in December 2024.

    The 67-storey tower is being built on a site covering about 6,368 square metres.

    Local firm Mirage is the project consultant, while Singapore-based Hirsch Bedner Associates is the project architect.

    Dubai-based Chawla Architectural & Consulting Engineers is the architect of record, and Omnium International is the quantity surveyor.

    The foundation works were carried out by local firm Dutch Foundations.

    Mered’s latest contract awards in the UAE market come amid heightened real estate and construction activity, with schemes worth more than $323bn at the execution or planning stages, according to UK-based analytics firm GlobalData.

    GlobalData forecasts that output from the UAE’s residential construction sector will grow by 3% in real terms in 2026-29, supported by infrastructure, energy and utilities developments, as well as residential construction projects.

    READ THE JULY 2026 MEED BUSINESS REVIEW – click here to view PDF

    Stress test for Gulf aviation; Mixed performance as country outlooks diverge in the Levant; GCC tourism sector pivots from crisis to recovery mode.

    Distributed to senior decision-makers in the region and around the world, the July 2026 edition of MEED Business Review includes:
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/17509888/main.jpg
    Yasir Iqbal
  • Siemens Energy to supply turbines for Oman IPP projects

    1 July 2026

    Germany’s Siemens Energy has announced it will supply power generation technology and long-term service agreements for the 2.6GW Misfah and Duqm independent power producer (IPP) projects in Oman.

    The scope includes the supply of six F-class gas turbines, six generators and 20-year long-term service agreements for the equipment.

    The combined-cycle gas-fired plants will add almost 20% to the sultanate’s electricity generation capacity. They are expected to provide electricity to more than two million people.

    Oman’s Nama Power & Water Procurement (Nama PWP) signed power-purchase agreements (PPAs) for the development and operation of the plants in January.

    The two combined-cycle gas turbine plants are being developed by a consortium comprising Korea Western Power (Kowepo), Qatar’s Nebras Power, the UAE’s Etihad Water & Electricity (EtihadWE) and Oman’s Bhawan Infrastructure Services.

    The Misfah IPP will be led by Nebras Power and located in Wilayat Bousher in Muscat Governorate, with a planned capacity of 1,600MW.

    The Duqm IPP will be led by Kowepo and located in Wilayat Duqm in Al-Wusta Governorate, with a capacity of 800MW.

    In May, MEED exclusively reported that a consortium of China-headquartered Shandong Electric Power Construction No. 3 Company (Sepco 3) and South Korea’s Doosan Enerbility had been appointed as the main contractor.

    The gas turbines will have hydrogen co-firing capability, providing flexibility to increase hydrogen use over time, Siemens said in a statement.

    The turbines will be manufactured at Siemens Energy’s facility in Berlin. The generators will be produced at the company’s plant in Muelheim, Germany.

    READ THE JULY 2026 MEED BUSINESS REVIEW – click here to view PDF

    Stress test for Gulf aviation; Mixed performance as country outlooks diverge in the Levant; GCC tourism sector pivots from crisis to recovery mode.

    Distributed to senior decision-makers in the region and around the world, the July 2026 edition of MEED Business Review includes:
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/17506190/main.jpg
    Mark Dowdall
  • Qiddiya awards estimated $1bn racecourse deal

    1 July 2026

     

    Register for MEED’s 14-day trial access 

    Saudi gigaproject developer Qiddiya Investment Company (QIC) has awarded an estimated SR4.3bn ($1.1bn) contract for the construction of a racecourse at Qiddiya entertainment city, on the outskirts of Riyadh.

    The contract was awarded to Taj Dhabi, a local subsidiary of UAE-based Trojan Construction.

    The racecourse venue will cover 1.3 million square metres and accommodate 70,000 spectators.

    QIC issued the tender for the construction works in December last year, but formally announced the project only on 10 February. Contractors submitted their bids on 15 February, MEED previously reported.

    According to a statement published on QIC’s website: “The venue will include the region’s first straight-mile turf course, alongside a 2.2 kilometre (km) main turf track and a 2.4km inner dirt track.

    “A 21,000-seat grandstand will anchor the venue, with the ability to expand capacity to up to 70,000 guests through event overlays during major race days,” the statement added.

    A centrepiece of the venue will be a 110-metre central parade ring, located in the middle of the racecourse.

    The project also includes an equine hospital that will provide advanced veterinary services, including diagnostics, surgery, rehabilitation and emergency care for horses.

    The Qiddiya City horse racing venue is one of several major projects within the greater Qiddiya development. Other projects include an e-games arena, the Prince Mohammed Bin Salman Stadium, a motorsports track, a performing arts centre, the Dragon Ball and Six Flags theme parks, and Aquarabia.

    The project is a key part of Riyadh’s strategy to boost leisure tourism in the kingdom. According to GlobalData, leisure tourism in Saudi Arabia has experienced significant growth in recent years.

    GCC presses ahead with tourism projects

    READ THE JULY 2026 MEED BUSINESS REVIEW – click here to view PDF

    Stress test for Gulf aviation; Mixed performance as country outlooks diverge in the Levant; GCC tourism sector pivots from crisis to recovery mode.

    Distributed to senior decision-makers in the region and around the world, the July 2026 edition of MEED Business Review includes:
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/17506035/main.jpg
    Yasir Iqbal
  • NCP seeks firms for Saudi Arabia university hospital PPP

    1 July 2026

    Saudi Arabia’s Umm Al-Qura University, in collaboration with the National Centre for Privatisation & PPP (NCP), has launched an expression of interest for the completion of the construction and operation of the Umm Al-Qura University Hospital in Mecca.

    Issued to contractors on 30 June, the notice has a submission deadline of 21 July.

    The scope includes completing the remaining construction works, as well as the subsequent operation of the hospital.

    Upon completion, the hospital will have a capacity of 391 beds.

    The project will be delivered as a public-private partnership (PPP) under a design, build, finance, operate and maintain model.

    The contract duration is 30 years.

    The project is the latest healthcare project to be procured on a PPP basis in the kingdom. In June, MEED reported that Saudi Arabia’s Ministry of Health and NCP had awarded a PPP contract for the operation and management of the Sabic Specialised Behavioural Healthcare Hospital in Riyadh.

    That contract was awarded to SEH Healthcare, a consortium comprising local firms Specialised Medical Company (SMC Healthcare) and Health Gates Complex, and Germany’s Dr Ebel Fachkliniken.

    In a filing with the Saudi Exchange (Tadawul), SMC Healthcare said the total estimated project value is about SR3.8bn ($1bn).

    In January, Saudi Arabia launched a national privatisation strategy aimed at mobilising $64bn in private sector capital by 2030.

    Building on the privatisation programme first introduced in 2018, the strategy focuses on unlocking state-owned assets for private investment and privatising selected government services.

    In a statement, NCP said the strategy comprises 147 opportunities drawn from a broader pipeline of more than 500 projects across 18 sectors.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17506381/main.jpg
    Yasir Iqbal
  • On-site work starts for $5.4bn gas project in Algeria

    1 July 2026

    On-site work has started for the $5.4bn gas project in Algeria’s Illizi South block, days after a key meeting between Algeria’s Oil and Gas Minister Mohamed Arkab and the chief executive of the Saudi company Midad Energy, Sheikh Abdulelah Bin Mohammed Bin Abdullah Al-Aiban.

    The total investment of about $5.4bn will be fully financed by Midad Energy, including approximately $288m allocated to the exploration phase.

    It is being developed in partnership with Algeria’s national oil and gas company Sonatrach.

    Structured under Algeria’s Hydrocarbon Law No. 19-13, the agreement spans 30 years, with a 10-year extension option. It includes a seven-year exploration phase.

    The initial exploration phase is worth $288m and will involve 2D and 3D seismic exploration as well as drilling more than 13 appraisal wells, according to a report by the local news service Algerie360.

    The second phase, with an investment value of approximately $5.1bn, will involve drilling approximately 60 wells and constructing four natural gas compression units.

    The project is projected to produce a cumulative total of 125 billion cubic metres of natural gas and 204 million barrels of liquid hydrocarbons over 30 years.

    This will include 103 million barrels of liquefied petroleum gas and 101 million barrels of condensate.

    Midad Energy has also stated its intention to further expand its investment in Algeria’s oil and gas industry and explore new joint investment opportunities with Sonatrach.

    Algeria’s president, Abdelmadjid Tebboune, signed a presidential decree ratifying the development agreement in March.

    Presidential Decree No. 26-113 was issued on 8 March 2026 and underpinned by Articles 91-7 and 141.

    It approved a contract signed in Algiers on 13 October 2025 between Sonatrach and Midad Energy.

    The contract granted both companies the rights to explore and exploit hydrocarbons in the Illizi South area. Algeria’s National Agency for the Valorisation of Hydrocarbon Resources (Alnaft) announced the contract award on 11 October 2025.

    The block is located about 100 kilometres south of In Amenas, which was raided by Al-Qaeda-linked terrorists in 2013, leading to a hostage crisis.

    READ THE JULY 2026 MEED BUSINESS REVIEW – click here to view PDF

    Stress test for Gulf aviation; Mixed performance as country outlooks diverge in the Levant; GCC tourism sector pivots from crisis to recovery mode.

    Distributed to senior decision-makers in the region and around the world, the July 2026 edition of MEED Business Review includes:
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/17505309/main.jpg
    Wil Crisp