Kuwaiti banks face challenge in financing major development push
With a KD 4.5 billion annual need for new facilities, Kuwaiti banks could face a loan base of around KD 44.5 billion, as major development projects and KD 20 billion in public debt and real estate financing loom.

• The question of whether Kuwaiti banks can manage the growing credit space is complex. While ‘public debt’ and ‘real estate finance’ help diversify operations, the real challenge lies in overcoming future credit gaps.
• Kuwaiti banks have enjoyed capital protection due to slow credit growth, but with expected financing activity surges, capital consumption is set to accelerate.
• Kuwaiti banks covered KD 7.5 billion in issues in 2024, with demand 12.66 times greater than supply, showcasing strong financial surpluses and readiness to finance public debt and real estate without impacting other sectors.
Amid discussions on the imminent launch of major development projects and the anticipated legal approval of a KD 20 billion ‘public debt’ and ‘real estate financing,’ a key question arises: Are Kuwaiti banks truly equipped to finance the expected surge in government and housing loans without compromising their ability to meet other obligations?
With an average annual need for KD 4.5 billion in new facilities, based on the 2024 credit growth rate, banks could face a potential loan base of around KD 44.5 billion, according to Al Rai newspaper.
Kuwaiti banks face complex challenge in managing expanding credit space
The question of whether Kuwaiti banks have the capacity to manage the growing credit space is more complex than a simple yes or no. While officials and credit rating agencies acknowledge that “public debt” and “real estate finance” serve as strategic avenues to compensate for the limited organic credit growth in recent years—playing a key role in diversifying banks’ operations and strengthening their financial indicators—they are well aware that the real test of credit capacity lies in their ability to overcome potential future gaps.
This challenge will arise from the increasing demand for loans, which depends on key factors such as the Central Bank of Kuwait’s method for calculating capital adequacy. This mechanism determines the ratio of debt consumption relative to the capital adequacy rate, based on Basel III standards.
Higher-risk loans place a greater burden on capital
In simple terms, each loan granted by a bank corresponds to capital depreciation at a specific percentage. The Central Bank of Kuwait requires banks to maintain at least 12% of their risk-weighted assets, which include loans and investments. Therefore, the higher the quality of debt and the availability of solid collateral, the lower the capital consumption rate. Conversely, higher-risk loans place a greater burden on capital.
Recently, Kuwaiti banks have had a flexible margin to protect their capital, due to the slowdown in credit growth and the resulting liquidity accumulation. However, with the anticipated surge in financing activity—expected to be at least five times the amount of new loans issued last year, and with long repayment periods—the natural consequence will be an acceleration in capital consumption, driven by the increased loan demand. So, what can Kuwaiti banks do to prevent the erosion of their capital?
Banks benefit from sovereign debt’s zero cost
It is important to note that Kuwait’s sovereign debt is considered low-risk, with an estimated zero cost to the capital of Kuwaiti banks, thus making it a near-risk-free asset. This factor strengthens the liquidity available for lending by local banks.
Additionally, some argue that Kuwaiti banks will not need to provide the full billions required for “public debt,” mortgages, and regular loans all at once. While this portfolio may seem hypothetical compared to the expected total financing base, it’s likely that Kuwaiti banks will contribute around a third of the total financing. Their exposure, especially to sovereign debt, will include international facilities.
Furthermore, the expected financing jump will occur in phases, not within a single year, giving banks the opportunity to manage their loan portfolios and avoid liquidity pressures that could result in high costs.
Sound loan quality
Responsible banking sources told the newspaper that one of the key indicators of the strength of Kuwaiti banks, as attested by international institutions, is their sound loan quality, diverse profits, sufficient capitalization, and strong financing and liquidity.
According to the preliminary reading of their recent financial statements, the liquidity available for financing in their books is estimated at approximately ten billion dinars, with around five billion dinars in semi-liquid assets, which are also available for lending.
To protect capital, Kuwaiti banks may recycle long-term loan portfolios (sovereign and real estate financing) by issuing sukuks and bonds, with the cost of debt service borne by the bank while maintaining property guarantees.
The sources also highlighted that one of the ways to enhance the efficiency of liquidity available for lending isby attracting regional syndicated loans, in addition to innovatively diversifying the sources of deposits. This includes raising the level of funds from local and foreign companies, as well as attracting more government deposits.
Kuwaiti banks’ strong credit solvency is bolstered by liquidity surpluses accumulated since the 2008 financial crisis, with cautious cash distribution and precautionary provisions ensuring they can meet future loan demands, supporting upcoming development projects.
Liquidity of banks
High coverage rates of Central Bank bonds confirm the strength of Kuwaiti banks’ surpluses, as they eagerly cover these issues despite low interest rates.
Digitally, the sources referred to data from the Central Bank, which revealed that last year, it allocated 34 issues worth KD 7.5 billion, which were covered by banks eager to deploy liquidity in attractive opportunities, amounting to about KD 95.09 billion. This means that demand was 12.66 times greater than supply, a vital indicator of the soundness of the financial surpluses held by Kuwaiti banks. This ensures they are fully prepared to finance both “public debt” and “real estate financing” without diminishing their ability to support financing for other sectors.