(MENAFN- Arab Times) The outlook for Kuwait's banking system remains stable, unchanged since 2011, says Moody's Investors Service in a new report published today. The outlook reflects the rating agency's expectation of a benign operating environment, supported by high oil revenues and government spending (mainly current account). The new report, entitled "Banking System Outlook: Kuwait", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
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 (local banks operate primarily in the non-oil sectors of the economy) 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 billion 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.
Projects
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. 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 notes 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.
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