Kuwait’s banking sector enters a new era of growth and structural reform: Moody’s
- Moody’s emphasized the importance of the upcoming mortgage finance law, which will allow banks to provide mortgage loans to individuals for the first time, replacing the current installment system managed by the Credit Bank.
- With around 100,000 pending housing applications, this legislation could unlock billions of dinars in consumer lending and significantly boost bank profitability. While the law mirrors Saudi Arabia’s Vision 2030 model, it is expected to provide unified support for all citizens.
Credit rating agency Moody’s has highlighted that the Kuwaiti banking sector is undergoing significant structural changes, supported by recent legislative reforms. Central to this transformation is the Public Debt Law, which allows the government to issue both conventional and Islamic debt instruments to finance the budget deficit while enabling banks to invest surplus liquidity in high-quality, liquid assets.
According to Moody’s, the Public Debt Law, effective March 27, 2025, provides a legal framework for government borrowing that strengthens economic growth and financial management in line with Kuwait Vision 2035.
The law is expected to enhance liquidity and profitability for banks, which typically hold about a third of their assets in liquid form, largely in deposits with the Central Bank of Kuwait, short-term instruments, or foreign securities, reports Al-Rai daily.
By investing in locally issued bonds and sukuk, banks can earn higher returns without compromising liquidity, while the government’s issuance of debt with varying maturities will create a benchmark yield curve to guide pricing for corporate and financial instruments.
Moody’s also emphasized the importance of the upcoming mortgage finance law, which will allow banks to provide mortgage loans to individuals for the first time, replacing the current installment system managed by the Credit Bank.
With around 100,000 pending housing applications, this legislation could unlock billions of dinars in consumer lending and significantly boost bank profitability. While the law mirrors Saudi Arabia’s Vision 2030 model, it is expected to provide unified support for all citizens.
However, long-term mortgage products may introduce maturity and liquidity risks, requiring banks to carefully manage interest rate exposure and operational compliance.
The agency further noted that the sector is overcrowded relative to Kuwait’s population of approximately 5 million, a third of whom are citizens. With about 20 banks operating (9 local, 11 foreign), smaller banks are under pressure, and mergers are increasingly viewed as a pathway to efficiency and growth.
Notable developments include the Kuwait Finance House acquisition of Ahli United Bank – Bahrain, as well as potential mergers like Gulf Bank and Warba Bank, which could improve shareholder value and reduce competitive pressure.
Finally, Moody’s highlighted the impact on Islamic banks, which historically faced limited Sharia-compliant investment options. The government’s commitment to issuing sukuk regularly provides high-quality liquid assets, supporting profit margins and liquidity reserves while reducing reliance on low-yield central bank deposits.
As of December 2024, Islamic banks allocated around 30% of total assets to financing individuals, compared to 26% for conventional banks, signaling strong growth potential in retail and consumer lending.
