Kuwaiti banks to be lifted by government spending: Fitch Ratings

Kuwait’s banking industry should continue to perform robustly despite lower oil prices because of the strength of the Kuwaiti government’s financial position and developing plans for higher public spending on major projects, Fitch Ratings says in a report issued today.

“Kuwait’s ability to continue with its spending plans without undermining its sovereign credit profile sets it apart from some neighbouring countries that are also highly dependent on oil revenues, Fitch says.

“Kuwait’s exceptional fiscal strength provides insulation from the fall in oil prices and allows the government to press ahead with increasing capital spending,” Fitch says. “This is likely to improve operating conditions for the banks, given that implementation of projects in Kuwait has been slow in the past and because public-sector spending tends to boost credit demand across a wide range of sectors, stimulating private sector growth and consumer spending, says Fitch Ratings.”

Fitch says it forecasts that Kuwait’s non-oil GDP will grow by 4.5 per cent in 2015 and expects the banking sector loan growth to be stable at 10 per cent for the year.

“Loan growth in 2014 was driven mainly by strong demand for infrastructure project financing and retail banking and we expect this trend to continue in 2015,” Fitch says. “Over next year and in the medium term, we expect infrastructure finance and corporate lending to grow at a faster pace as more large projects are rolled out.”

“Kuwaiti banks continue to have strong appetite for retail banking,” Fitch says. “Consumer indebtedness is a concern for Fitch but borrowers are often public-sector Kuwaiti nationals who enjoy job security and generous benefits. Consumer lending is also tightly regulated, which safeguards the banks.”

“The authorities could limit the growth of public sector wages and headcount in 2016, which may dampen demand for consumer lending, but, in our opinion, any such changes are a long way off,” Fitch says. “We consider the potential for any significant imminent contraction in consumer spending to be low.”