Fitch reports M&A deals positive for Kuwaiti banks
Fitch Ratings said that the recent increase in mergers and acquisitions deals in the Kuwaiti banking sector is a positive factor for the sector in terms of credit, with the increase in the number of banks in the Kuwaiti market, pointing out that Kuwaiti banks have increasingly turned to mergers and acquisitions as a strategic response to growth opportunities, to diversify their business models and enhance their financial positions.
The agency indicated, in its report, that despite the strong situation of Kuwait’s financial balance sheets and external centres, the growth potential of the banking sector has been hampered by some obstacles due to political stalemates and institutional constraints. Late reforms, such as the new public debt bill, and a mortgage law that would enable banks to provide mortgages, are also exacerbating the challenges faced by the Kuwaiti banking sector.
Integration plans
The report pointed out that last month, Boubyan Bank and Gulf Bank announced plans for integration, which, if completed, will result in the establishment of an Islamic bank with assets amounting to about 16 billion dinars, and a market share of about 15%, pointing out that it does not expect the deal to end before 2025.
It continued that in June, Burgan Bank decided to acquire a 100% stake in Bahraini United Gulf Bank. This came after the Kuwait Bank sold 52.2% of its 99.7% stake in Burgan Bank Turkey to Al Rawabi United Holding Company and sold its 51.8% stake in Bank of Baghdad to Bank of Jordan and Kuwait last year. Burgan Bank aims to edit its capital and focus on its work in the Gulf countries.
Growth prospects
It pointed out that in 2022, Kuwait Finance House (KFH) acquired Al-Ahli United Bahraini Bank, and this led to an increase in the bank’s presence, granting it a presence in Egypt and Britain, as well as a higher market share in Kuwait. KFH also plans to expand further in Saudi Arabia. The bank’s external expansion opportunities have opened access to larger business opportunities and broader revenues, which has compensated for the limited growth prospects in the Kuwaiti market.
4% expected credit growth in 2024
Fitch expected a modest growth in Kuwaiti banking sector credit ranging from 3% to 4% this year, compared to 2.3% in 2023, and 3.7% in the first half of 2024, due to higher interest rates (lending interest rate at 4.25%), and modest growth in Kuwait’s GDP this year.
Kuwaiti banks have sufficient capital
The agency pointed out that Kuwaiti banks enjoy sufficient capital, strong financing, good liquidity, and strong risk management practices, which support faster growth of credit in the future.
Possibility of government support
The agency said that Kuwaiti banks rely on the possibility of government support, reflecting strong prospects for sovereign support for the entire Kuwaiti banking sector in the event of the need at any time, and under any circumstances.
