Deutsche Bank’s latest report on the MENA region showed that Kuwait would post a real GDP growth of 1.9% in 2013, down from 6.3% in 2012 on account of ongoing political deadlocks and project execution delays.
Kuwait’s economy lacks diversification, with an average share of oil and gas to GDP of 54%. The country’s level of capital expenditure is by far the region’s lowest. Noteworthy is that Kuwait’s gross fixed capital formation levels over the past 15 years have lagged behind even those of Egypt, a country with a persistent fiscal deficit.
Kuwaiti banks continue to struggle with a rather subdued overall operating environment. Their assets increased by 10% year-on-year in June 2012, as per Deutsche Bank. Furthermore, loans went up by a mere 5% year-on-year in August 2012. This is due to key structural issues: wide segments of the economy that have historically driven credit growth remain fragile; the public sector is heavily imbalanced; and there is little capital investment. In addition, friction between the Parliament and the government has clogged up the implementation of national spending programs, as per Deutsche Bank.
Kuwaiti banks have experienced poor asset-quality trends since the onset of the financial crisis in 2008: NPLs to total loans rose from 3.2% in FY07 to 10.3% in FY09. As of year-end 2011, NPLs to total loans stood at 7.1%. Given the present operating environment, Kuwaiti banks would continue to build their stock of general provisions over the coming quarters, as per Deutsche Bank.
Kuwaiti banks enjoy a high-quality funding mix, with a high proportion of deposits to total funding and relatively low reliance on interbank funding. Foreign interbank funding is currently at its lowest level in more than five years. Liquidity appears plentiful.
As the domestic operating environment remains subdued, Kuwaiti banks have sought to expand their geographical footprints to achieve better diversification and growth. NBK announced its intention to increase the contribution to profits from its international operation to 50% by 2020. In 2012, Burgan Bank acquired Eurobank Tefken as a part of its international expansion plan.
Mena Weekly Monitor – Bank Audi Research