Kuwaiti banks well-capitalized, able to withstand severe war-related shocks, says Fitch
The Kuwaiti banks are strongly positioned to absorb potential economic shocks linked to the ongoing war environment, with credit ratings expected to remain stable, supported by continued sovereign backing and an AA “stable” outlook, according to Fitch Ratings.
The agency conducted an extreme stress test on the sector’s asset quality, assuming that Stage 3 loans could triple or even quadruple compared to end-2025 levels, while keeping provisions coverage unchanged.
Despite this severe scenario, results showed that banks would remain profitable or near breakeven, supported by strong starting asset quality and high provisioning buffers.
Fitch noted that Kuwaiti banks entered the period with relatively low Stage 3 loans, averaging 1.7%, and moderate Stage 2 loans at 7.9%, alongside strong general and reserve provisions. The sector also maintains one of the highest loan-loss coverage ratios in the region, reaching 263%, reflecting strict regulatory oversight, reports Al-Qabas daily.
This strong provisioning base allows banks to absorb credit deterioration while limiting the impact on profitability, helping keep the cost of risk low at around 0.4% in 2025.
On liquidity, Fitch highlighted that Kuwaiti banks have consistently demonstrated resilience, even during oil price volatility and the COVID-19 period, supported by stable government and related deposits, which typically account for 20%–25% of total deposits.
Although non-resident and foreign currency deposits are more volatile, they represent a relatively small share of the funding base. Banks also hold comfortable high-quality liquid assets equivalent to 25% of customer deposits, while regulatory liquidity requirements have been eased by the Central Bank of Kuwait, lowering key ratios from 100% to 80%.
Fitch estimates that most banks could withstand a short-term 10% deposit outflow without needing official support, although four banks could see coverage fall below 10%. However, strong sovereign balance sheets provide a backstop for potential liquidity support if required.
The agency also noted that the Central Bank of Kuwait may allow temporary loan repayment deferrals for affected companies, helping stabilize asset quality during stress periods.
In addition, recent regulatory easing of capital buffers, reducing the capital conservation reserve and lowering key capital adequacy thresholds, further strengthens banks’ ability to navigate potential shocks while maintaining overall financial stability.
