Latest news with #FitchRatings-London
Zawya
29-04-2025
- Business
- Zawya
Fitch: Kuwaiti banking sector to benefit from public debt and mortgage laws
Fitch Ratings-London: Key new laws in Kuwait are set to drive growth and diversification in the country's banking sector, Fitch Ratings says. These reforms, including public debt and residential mortgage laws, will create new lending opportunities and support economic expansion following a period of fairly subdued conditions. Frequent political gridlock has delayed important economic reforms until recently, contributing to real GDP reducing by 3.6% in 2023 (non-oil: -2.9%) and by an expected further 2.8% in 2024 (non-oil: +1.5%). This constrained banks' lending opportunities and pushed them towards mergers and regional expansion as avenues for growth. However, government changes since the dissolution of parliament in May 2024 are helping decision-making and supporting the implementation of strategic public plans through Emiri decrees. Credit growth in the banking sector, which was a low 2.1% in 2023, accelerated to 6.8% in 2024. Fitch expects high 8%–9% growth in 2025 if planned large government projects are awarded swiftly, following the recent approval of the public debt law. Approval of the residential mortgage law could bolster growth by unleashing substantial demand for housing loans. The public debt law, which allows the sovereign to issue up to KWD30 billion over 50 years, will support government spending on large and diversified projects while preserving foreign assets, including foreign-currency reserves. This should also offset the negative impact from reduced global real GDP growth and lower oil prices. Progress on reforms, particularly the diversification of fiscal revenue (a 15% minimum top-up tax on multinational companies came into effect on 1 January 2025, with collections expected to begin in 2027), rationalisation of expenditure and diversification away from oil, would further support the government's budget and financial flexibility. Fitch expects wholesale lending to increase by 7%–8% as the public debt reforms take hold and have a spillover effect across multiple sectors that require financing. Sovereign bonds issued under the new law will support banks' liquidity, offering high-quality liquid assets that can be traded or used in repurchase agreements with other banks and the Central Bank of Kuwait. These bonds, being 0% risk-weighted, will bolster banks' regulatory capital ratios while providing a stable interest income stream. The residential mortgage law, if approved, could significantly transform Kuwait's housing finance landscape. For the first time, banks would be allowed to offer mortgage loans, potentially up to KWD200,000 and with a tenor of up to 25 years, with state-subsidised interest for tranches above KWD70,000. Given Kuwait's population of 1.5 million, even modest uptake could generate a substantial volume of new loans, expanding the banking sector and stimulating growth in the construction industry. Potential reforms to foreign property ownership laws could further increase demand for housing loans, mostly from high-earning expatriates. Kuwaiti banks are adequately capitalised to support the likely growth in housing finance. We do not anticipate a significant build-up of asset-quality risk as over 80% of Kuwaiti citizens are civil servants with stable income sources. However, the new corporate income tax could put pressure on profitability, particularly at some of the largest multinational banks. -Ends- Matt Pearson Associate Director, Corporate Communications Fitch Group, 30 North Colonnade, London, E14 5GN E:
Zawya
15-04-2025
- Business
- Zawya
GCC banks face limited direct impact from tariffs
Fitch Ratings-London: US tariffs are likely to only have small direct effects on GCC bank operating environments, but indirect effects due to lower oil prices and weaker global economic activity, which could lead to lower government spending, will be key, Fitch Ratings says. GCC exports to the US are dominated by hydrocarbons, which are exempt from tariffs. Non-hydrocarbon exports, which face a 10% tariff, or 25% for aluminium and steel, are relatively low, which limits the direct impact of the tariffs on GCC economies and bank operating environments. Lower oil prices and weaker global demand are the main risks for GCC bank operating environments. Government spending strongly affects bank operating conditions in most GCC countries, and a further drop in oil prices could weaken Fitch's lending growth forecasts from those in its Middle East Banks Outlook 2025, published in December 2024, which were, in most cases, close to 2024 levels. Fitch reduced its forecast for global GDP growth in March 2025 to 2.3% in 2025 and 2.2% in 2026, and risks are tilted towards a sharper slowdown. This could put pressure on global commodity prices, particularly for hydrocarbons, which account for most government revenues in the GCC and traditionally underpin economic activity and the banking sectors, through government spending. We believe market balance and oil prices will chiefly be determined by global economic performance and OPEC+'s supply management. OPEC+ had large spare capacity of over 6 million barrels per day (MMbpd) in January and indicated plans to start unwinding its production cuts from April. Fitch's pre-tariffs base case was that non-oil GDP for the GCC in aggregate would increase by over 3.5% in both 2025 and 2026. However, lower oil prices and budget revenues could lead to a marked reduction in non-oil economic activity and government spending, which would weaken GCC banks' lending growth prospects. Credit conditions for GCC banks could also deteriorate if corporates operating in affected sectors experience weaker profitability and cash flow due to higher operating costs and inflation resulting from the tariffs. Corporates could also face higher debt costs due to uncertainty surrounding interest rates and potential delays in rate cuts. Pressure on corporates could dampen overall credit demand and ultimately lead to higher credit risk for banks and an increase in problem loans. However, GCC banks are generally well placed to absorb a deterioration in the operating environment. Many banks have strengthened their capital buffers in recent years, helped by solid earnings on higher oil prices and interest rates, good liquidity, strong economic activity and favourable credit conditions. The GCC bank operating environment score most at risk of a downward revision is that in Bahrain, where the score is 'b+'/negative. It is capped by Bahrain's sovereign rating (B+/Negative), which is the most vulnerable GCC sovereign rating to an oil price drop due to the country's weak public finances, high debt burden and the highest break-even oil price among GCC countries. Bank operating environment scores in other GCC countries have stable outlooks except in Oman, where the outlook is positive. These sovereigns have more robust credit profiles and higher ratings (Saudi Arabia: A+/Stable; UAE: AA-/Stable; Qatar: AA/Stable; Kuwait: AA-/Stable; Oman: BB+/Positive), reflecting better financial flexibility and stronger reserves, and therefore better abilities to face shocks and maintain spending to stimulate economic activity. Their bank operating conditions are more favourable, particularly in the UAE and Saudi Arabia, which have the highest operating environment scores (both 'bbb+'/stable) in the GCC (Qatar and Kuwait: 'bbb'/stable; Oman: 'bb+'/positive). Media Contact: Matt Pearson Associate Director, Corporate Communications Fitch Group, 30 North Colonnade, London, E14 5GN E:
