Kuwait banks show resilience

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S&P says stability should remain

DUBAI, Feb 22: The overall credit profiles of rated banks in Kuwait should remain stable in 2020, barring any unexpected increase in geopolitical risk or a major fall in oil prices, S&P Global Ratings said Thursday in the “Kuwait Banking Sector 2020 Outlook: Resilience Despite Subdued Growth and Real Estate Concentrations” report published on RatingsDirect.

“Cost of risk (CoR) should further decrease to below 90 basis points for 2020 on the back of steady accumulation of provisions (exceeding 200 percent) thanks to conservative Central Bank of Kuwait (CBK) regulations.

Margin compression should partly rollover into 2020, post the CBK’s decision to cut the interest rate in 2019,” said S&P Global Ratings credit analyst Zeina Nasreddine. Concentration in the commercial real estate (CRE) segment remains a key credit risk for banks.

Nevertheless, we expect the current real estate price correction period to end in the next 12-24 months, with a limited effect on the banking system. Furthermore, we expect International Financial Reporting Standards 9 implementation to be delayed.

This is because we believe the central bank does not want banks to release general provisions, but prefers to keep them as a buffer against potential future risks. “Nonetheless, we expect lower CoR to come mainly from lower judgmental provision charges,” Ms Nasreddine concluded. This report does not constitute a rating action.

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