August 30, 2017 / 8:10 AM / in a year

Fitch: Kuwaiti Banks' Asset Quality Improving; Highest Reserve Coverage in GCC

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Kuwaiti Banks' Results Dashboard here LONDON, August 30 (Fitch) Fitch Ratings says in a new report that asset-quality metrics for Kuwaiti banks improved in 2016 and reserve coverage is the highest in the Gulf Cooperation Council (GCC). Lower loan impairment charges (LICs) resulted in improved profitability ratios while liquidity pressures have eased. The average net interest margin was stable in 2016 as higher funding costs due to rising interest rates were met by equal loan book repricing. Operating profitability metrics improved (operating profit/risk-weighted assets improved to an average 1.8%) owing to lower LICs. The sector average cost/income ratio was almost flat owing to tight cost control. Asset-quality metrics are now at their best level since the financial crisis. The average impaired loans ratio was 2.1% at end-2016. Average loan-loss reserve coverage of impaired loans has improved to a significant 323% (and about 5% of gross loans), the highest by a significant margin in GCC. LICs/average gross loans ratios have been falling (to an average of 0.9% in 2016) as a result of several Kuwaiti banks completing loan book clean-ups. Tighter liquidity from 1H15 eased slightly in 2016. Banks have been actively managing their loans/deposits ratios below the 90% regulatory cap. The Fitch-calculated sector average gross loans/deposits ratio was almost flat (about 84% at end-2016). Term corporate customer deposits remain the main source of funding. Market funding is increasing slightly. Kuwaiti banks have proven their ability to extend funding maturity through wholesale issuance, but large asset-liability mismatches remain. Kuwaiti banks are typically interbank placers. Deposit concentration remains high. Slowing loan growth and reasonable internal capital generation have helped the Kuwait banks maintain adequate capital ratios for their risk profiles. Additional Tier 1 capital issuance (not included as part of Fitch Core Capital) has also benefited the ratios. The average Fitch Core Capital ratio was 16.5% at end-2016. The average total capital adequacy ratio was 18%, giving a 5% buffer over regulatory minima (excluding D-SIB). LICs should reduce in 2017 as banks have already built significant loan-loss reserves, which should further benefit profitability metrics. Loan growth is expected to be in the mid-single digits in 2017. The current level of government spending is expected to continue, although this will still be lower than in other GCC countries. High levels of loan-loss reserves at Kuwaiti banks should mean that the implementation of IFRS 9 on 1 January 2018 is manageable for all Kuwaiti banks and may even result in excess loan-loss reserves, although Fitch does not expect the central bank to allow the banks to release loan-loss reserves. It is more likely that excess loan-loss reserves will be transferred to non-distributable equity reserves. Excluding this, capital ratios are expected to remain stable. More information is available in "Kuwaiti Banks - Results Dashboard", available at or by clicking the link above. Contact: Redmond Ramsdale Head of GCC Bank Ratings +44 20 3530 1836 Fitch Ratings Limited 30 North Colonnade London E14 5GN Gilbert Hobeika Associate Director +44 20 3530 1004 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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