#Kuwait’s rating at AA-, stable outlook: Fitch

Kuwait’s rating at AA-, stable outlook: Fitch

In its recent assessment, Fitch Ratings has highlighted the robustness of Kuwait’s banking sector, noting that banks in the country are well-capitalized, well-funded, and exhibit strong risk management practices, reports Al-Seyassah daily.

Fitch anticipates a modest credit growth of 3 percent to 4 percent in 2024, influenced by higher interest rates and limited real GDP growth. However, the agency maintains a stable outlook for Kuwait’s rating at “AA-”, acknowledging the sector’s resilience while noting constraints related to oil dependency and the large public sector. Fitch’s analysis underscores that while Kuwaiti banks are positioned well with adequate capital and strong practices, overcoming political and institutional barriers is essential for accelerating credit growth and realizing the sector’s full potential.

The agency views the recent uptick in banking mergers and acquisitions as a positive development for the sector, as it promotes business model diversification and enhances financial stability. Fitch’s report comes amid ongoing discussions about significant mergers within the Kuwaiti banking industry. Notably, the Boubiyan Bank, the nation’s second-largest Islamic bank, and Gulf Bank, the fifth-largest, are exploring a potential merger. If realized, this merger could create a formidable Islamic bank with assets totaling 16 billion dinars (approximately $53 billion) and a 15 percent market share in terms of consolidated assets.

However, Fitch does not anticipate the merger’s completion before 2025. The landscape of banking mergers in Kuwait has been active, with Burgan Bank announcing its acquisition of a 100 percent stake in Bahrain’s United Gulf Bank in June. This move is part of Burgan Bank’s strategy to optimize capital and concentrate on GCC markets. Previous attempts at consolidation, such as the planned merger between Gulf Bank and Al Ahli Bank of Kuwait in 2023, were canceled.

Meanwhile, Kuwait Finance House (KFH) expanded its regional footprint by acquiring Bahrain-based Ahli United Bank in 2022, extending its presence to Bahrain, Egypt, and the UK, though KFH-Bahrain was sold to Al Salam Bank in May 2024. Boubiyan Bank also diversified by acquiring a majority stake in the Bank of London and the Middle East in 2020. Despite these strategic moves, the Kuwaiti banking sector faces challenges. Political deadlock, institutional constraints, and delayed reforms– such as the stalled public debt and mortgage laws –are impeding growth.