Fitch predicts robust credit growth, strong profitability for Kuwaiti banks in 2026
Kuwait’s government framework and fiscal tools will help sustain a stable operating environment; the Finance and Liquidity Law -- together with Kuwait’s exceptionally strong external asset position -- as key factors support public spending and creating favorable conditions for the banking sector.
Fitch Ratings projected in its latest report that the business and operating environment for the Kuwaiti banks will remain stable in 2026, noting that this outlook is supported primarily by an improved macroeconomic landscape.
The agency expects the real GDP growth to rise to 2.7 percent, compared with a forecast of 1.7 percent in 2025, alongside non-oil GDP growth of 2.2 percent.
Fitch said Kuwait’s government framework and fiscal tools will help sustain a stable operating environment. It highlighted the Finance and Liquidity Law — together with Kuwait’s exceptionally strong external asset position — as key factors supporting public spending and creating favorable conditions for the banking sector, reports Al-Rai.
Regarding lending activity, the report forecasts credit growth in the banking sector to remain at a healthy 7 to 8 percent in 2026, similar to the pace expected for the first eight months of 2025.
However, Fitch noted that credit expansion could accelerate significantly if major government projects proceed on schedule or if the long-awaited mortgage law is enacted. Growth prospects may also improve with an anticipated decline in interest rates.
Fitch added that the stable outlook for all Kuwaiti bank ratings mirrors the stable outlook for Kuwait’s sovereign credit rating (AA-).
Stable Loan Quality
The ratings agency expects loan quality to remain solid next year. It anticipates that Stage 3 (non-performing) loans will decline to 1.5–2 percent, and that Stage 2 (high-risk) loans will remain below 10 percent. This trend reflects banks’ continued efforts in restructuring and write-offs.
However, Fitch warned that local banks remain exposed to event-related risks due to high borrower and sector concentrations, particularly in real estate and construction — a structural characteristic of Kuwait’s tightly linked economy, common across Gulf markets.
Provisioning and Credit Losses
The report underscored that the Central Bank of Kuwait applies a stricter version of the expected credit loss (ECL) framework under IFRS 9 compared to most regional markets. Banks must set provisions based on the higher of Central Bank requirements or ECL model outputs.
As a result, loan loss provisions in Kuwait are not directly comparable with those of other regions. Fitch expects the sector’s average coverage ratio for Stage 3 loans to remain above 200 percent in 2026 due to these stringent rules.
Strong but Pressured Profitability
Fitch anticipates that banks’ profitability will remain strong next year, supported by high interest rates, steady business volumes, and continued cost-efficiency measures.
However, downward pressure is expected from gradually declining interest margins, heightened competition, expanded digital-transformation spending, and rising regulatory requirements for provisions. Even so, profitability is projected to provide a sufficient buffer against unexpected losses.
Financing, Liquidity and Capital Strength
The agency expects liquidity to stay robust, backed by two major factors: abundant and stable government deposits — representing 23 percent of total deposits as of the first eight months of 2025 — and Kuwait’s strong financial flexibility.
The Finance and Liquidity Law is also expected to support government debt issuance and shield the operating environment from oil-price volatility.
Fitch further noted that bank capitalization will remain adequate in 2026, with the sector’s average CET1 ratio projected between 13 and 13.5 percent.
Key drivers of this stability include strong loan quality, sound funding profiles, healthy profitability, and moderate loan-portfolio growth. However, concentration risks remain the most significant challenge to capital resilience.
