Kuwait banking outlook remains stable, says Moody’s

The outlook for Kuwait's banking system remains stable, unchanged since 2011, Moody's Investors Service said in a new report, reflecting the expectation of a benign operating environment, supported by high oil revenues and government spending (mainly current account).
Over the 12-18 month outlook period, the operating environment for the banks will remain accommodative, underpinning the banking sector's robust capitalisation and ample liquidity. Moody's expects that Kuwait's non-oil 2013 GDP growth will increase to 3.2%, the highest rate for the past five years, mainly driven by the government's current account spending.
Meanwhile, although the implementation of the government's $110 bln national development plan continues to face delays in parliament, the recent adoption of electoral laws that favour the election of a pro-government parliament may accelerate related capital spending in 2014. In this environment, Moody's projects moderate credit growth of 5%-8% in 2013 rising to 8%-10% in 2014 as business opportunities related to the tendering of infrastructure projects pick up.
Robust capitalisation and ample liquidity will continue to support financial stability, the rating agency said.
Moody's expects that the sector's Tier 1 ratio will remain close to current levels (15.3% as at year end 2012) and notes that banks hold sufficient capital to absorb losses under both the rating agency's central and adverse stress scenarios. Moody's also expects the system to remain predominantly deposit-funded and to continue to benefit from access to government-related deposits (which are estimated to fund around 25% of assets).
Liquid assets will likely remain at comfortable levels of around 30% of system assets, which will further support the stable system outlook.
Moody's expects system-wide non-performing loans (NPLs) to stabilise within the 5-6% range, down from 10.4% in 2009, as banks have made considerable progress in rehabilitating their loan books following the 2008-09 crisis. Despite this expected stabilisation, Moody's also noted that elevated single-party and industry concentrations, in conjunction with opacity regarding the level of restructured and rescheduled loans, continue to remain key downside risks for system asset quality.