The credit rating agency “Fitch” believes that the memorandum of understanding that was recently signed between Al Ahli Bank of Kuwait and Gulf Bank regarding the acquisition of one of the other and the conversion of one of them to Islamic, is still in its early stages, and that its completion will not be achieved before the end of 2023.
And the global agency stated in a report that the issuance of debt by Kuwaiti banks will continue to decline in 2023 in light of the high interest rates, uncertainty in the debt markets and high oil prices, which supports the liquidity of the banking sector.
Fitch indicated that debt issuances decreased to 665 million dinars in the first nine months of 2022, indicating that this came in the wake of an increase in Kuwaiti bank debt issuances to 1.142 billion in 2021, compared to 714 million in the previous year and 475 million in 2019, as the total The debts due are 3.2 billion dinars at the end of 2021.
She indicated that debt issuances allowed banks to obtain long-term financing to reduce the mismatch of their liquidity maturities, manage the net stable financing ratio, obtain financing in foreign currency, and be present in the capital markets, especially for any financing needs in the future.
On January 18, Fitch affirmed Kuwait’s sovereign rating at a notch AA- With a stable outlook, reflecting the state’s exceptionally strong fiscal and external budget, it is expected that the total government debt to GDP in the fiscal year ending at the end of March 2023 will be less than 10 percent.
It also suggested that the average net foreign assets would reach 470 percent of GDP during the forecast period 2022 to 2024, noting that the recurring institutional stalemate and political restrictions on reforms impede the government from addressing the financial and structural challenges related to the massive dependence on oil, the generous welfare state and the inflation of the sector. government.
Fitch indicated that pressures on the local operating environment from the pandemic and lower oil prices faded in 2021, which allowed for a moderate recovery in real GDP growth (2.3 percent) following recording a contraction of 8.9 percent in 2020.
The operating environment continued to recover in 2022, as expectations indicate real GDP growth of 8.4 percent for 2022.
Fitch expects the operating environment to be stable in 2023, despite the expected real GDP growth declining by 0.9 percent. And that higher oil prices continue to support government spending on wages and investments and help business confidence recover from the pandemic.
The agency also expects credit growth to the banking sector to be fairly modest at 5 percent in 2023. Kuwait’s fiscal and external metrics will remain sensitive to oil revenues and the private sector will remain highly dependent on public spending.
And “Fitch” expects that the quality of the banking sector’s assets will stabilize in 2023, when the impaired loans will be low and less than 2 percent, thanks to its restructuring and write-down of other debts, and the second stage loans will reach a moderate level below 12 percent.
Fitch also expects coverage of gross non-performing loan reserves, which reached regarding 290 percent at the end of the third quarter of 2022 (above 200 percent) in 2023 due to the stringent provisioning requirements in Kuwait.
The agency suggested that the banking sector will continue to recover in 2023, especially since the ratio of risk-weighted assets to operating profit is regarding 2 percent due to high interest rates and reasonable business volume.
However, Fitch notes that shrinking net interest margins, continued investment in digitization and higher provisioning requirements will limit the positive effects of earnings recovery.
Fitch indicated that the banks’ capitalization will remain adequate in 2023, as the Tier 1 capital ratio will be above 13% thanks to stable asset quality, high loan loss provisions, adequate internal capital generation, and moderate loan growth.
She added that liquidity will remain strong in 2023, thanks to large and stable deposits from government-related entities, which at the end of the third quarter of last year accounted for 21 percent of consumer deposits, while benefiting from higher oil prices.
According to the agency, the liquidity coverage ratio and the net stable financing ratio will remain above 100 percent in 2023, and Kuwaiti banks will remain exposed to event risks due to the high concentration of loans on individuals and specific sectors, which, in Fitch’s opinion, is largely inevitable given the tightness The scope and interdependence of the local economy.
Gulf Bank: Our positive results were supported by growth in the local market
