Kuwaiti banks at inflection point—Markaz

Business Published on: 24 May, 2018 @ 6:22 AM
Kuwait banks are at an inflection point, as after years of underperformance relative to GCC peers, some green shoots provide positive guidance, liquidity is abundant, and asset quality improvement is noticeable, said a specialized report Wednesday.

Marmore MENA Intelligence, a subsidiary of Kuwait Financial Centre (Markaz), recently released a report titled آ‘Kuwait Banking Sector 2018- 7 Factors to Watchآ’, in which it said that the increase in Fed rates will increase the cost of funding through increased rates of interest paid on deposits.

It added, however, the good share of unremunerated deposits should provide good cushion here. Loan book growth has been tepid in the past (2.8%) and is expected to touch 4% in 2018-19 on the back of non-oil GDP growth and infrastructure investments.

However, this loan growth will be enjoyed more by larger banks as they will be the only game in the town for larger borrowers and government projects, it said.

Another way of looking at this is defacto, they will capture the low risk projects and therefore can dictate prices. However, the medium and smaller banks will play out on the technology side taking advantage of tech savvy youth population. Banks will be limited in terms of risk funding due to pricing band mandated by CBK for short term and long-term.

The report went on to mention that another concern is the exposure of Kuwait banks to real estate sector, both direct and indirect (personal loans). While the combined share of lending to real estate sector and personal installment was about 33% back in 2008, it now stands at 53%.

There will be a rise in the cost of risk of the bank in 2018 because of the adoption of IFRS 9 and the higher amount of restructured and past due but not impaired loans present in their balance sheets, it stated.

However, the general provisions that Kuwait banks have accumulated over the years will help a smooth transition to the new accounting standard, it concluded.

News Source: KUNA   


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