According to recent reports, Kuwait’s banking industry has shown a notable level of stability in its financial metrics.
Non-performing loans (NPLs) had an astounding 245.7% coverage ratio at the end of the first half of the year. The news was released at the same time that the percentage of non-performing loans to total loans was back to the third quarter of 2023, at 1.7%.
After declining to 1.4% in the 2023 fourth quarter, slightly increasing to 1.6% in the 2024 first quarter, and levelling off at 1.7% in the current year’s second quarter, this is the latest development for the industry.
Furthermore, as of the conclusion of the fourth quarter of the previous year, the ratio of net non-performing loans to net loans had risen to 0.11% from 0.91%. The ratio of problematic loans to total net loans is shown by this metric.
In terms of liquidity, the industry’s regulatory liquidity ratio was higher than the necessary minimum of 18%. It was at 21.4%.
Balances held with the Kuwaiti Central Bank, government bonds and bills, and dinar-denominated customer deposits are all included in this ratio.
A strong capital position was indicated by the sector’s reported capital adequacy ratio of 18.1% and the ratio of Tier 1 capital to the capital base of 84.3%. The sector’s net interest margin, according to official data, was 2%.
From 81.6% in the prior quarter to 83.4% this quarter, the basic income to operating income ratio increased. Furthermore, the industry’s net profit margin was reported to be 40.7%, with an average return on equity of 10.8% and an average return on assets of 1.4%.
Meanwhile, amid the anticipation over a potential interest rate cut by the United States Federal Reserve in its upcoming meeting on September 17-18, Kuwait’s financial market is reportedly experiencing a ripple effect.
Both companies and individuals are holding off on their loan plans, choosing instead to wait for clarity on the Federal Reserve’s decision and its subsequent impact on the Central Bank of Kuwait’s policies, reported Arab Times.
Many clients have reportedly paused their financing plans after preliminary discussions with banks, hoping to benefit from potentially lower borrowing costs shortly.
Banks, on the other hand, have observed a notable uptick in demand from individuals renewing their one-year deposits. Customers are opting to lock in rates similar to those on their expired or nearly expired deposits, reflecting a cautious approach in the face of uncertain interest rate trends. Several financial institutions recently reduced their interest rates on one-year deposits to what is known as “counter pricing,” a level set by regulatory guidelines that cannot be lowered further. These rates have dropped to 4.25%, down from previous rates of 4.6% and 4.9%.
“This reduction comes as part of a broader global shift away from the monetary tightening cycle that began in March 2022. In response to these market changes, officials from the Central Bank of Kuwait have recently engaged with local banks to ensure adequate liquidity levels. They confirmed that banks are comfortably managing liquidity in both dinars and dollars and are not facing any significant financing or regulatory pressures. This reassures the market about the overall soundness of the banking sector’s liquidity,” Arab Times reported.
Additionally, the Central Bank of Kuwait has now directed banks to restrict the conversion of loans granted in dinars into dollar purchases, except in cases where the dollar funds are needed for pre-determined customer requirements. This move aims to prevent speculative or unscheduled investments and ensure that foreign currency is used solely for its intended purposes.
The Central Bank’s policies further emphasise maintaining the stability of the Kuwaiti dinar by using a weighted basket of currencies from countries with significant trade and financial relationships with the Gulf nation. This strategy has proven effective in stabilising the dinar’s exchange rate against major global currencies.