Fitch Ratings-London:  Key new laws in Kuwait are set to drive growth and diversification in the country’s banking sector, Fitch Ratings says. These reforms, including public debt and residential mortgage laws, will create new lending opportunities and support economic expansion following a period of fairly subdued conditions.

Frequent political gridlock has delayed important economic reforms until recently, contributing to real GDP reducing by 3.6% in 2023 (non-oil: -2.9%) and by an expected further 2.8% in 2024 (non-oil: +1.5%). This constrained banks’ lending opportunities and pushed them towards mergers and regional expansion as avenues for growth. However, government changes since the dissolution of parliament in May 2024 are helping decision-making and supporting the implementation of strategic public plans through Emiri decrees.

Credit growth in the banking sector, which was a low 2.1% in 2023, accelerated to 6.8% in 2024. Fitch expects high 8%–9% growth in 2025 if planned large government projects are awarded swiftly, following the recent approval of the public debt law. Approval of the residential mortgage law could bolster growth by unleashing substantial demand for housing loans.

The public debt law, which allows the sovereign to issue up to KWD30 billion over 50 years, will support government spending on large and diversified projects while preserving foreign assets, including foreign-currency reserves. This should also offset the negative impact from reduced global real GDP growth and lower oil prices. Progress on reforms, particularly the diversification of fiscal revenue (a 15% minimum top-up tax on multinational companies came into effect on 1 January 2025, with collections expected to begin in 2027), rationalisation of expenditure and diversification away from oil, would further support the government’s budget and financial flexibility.

Fitch expects wholesale lending to increase by 7%–8% as the public debt reforms take hold and have a spillover effect across multiple sectors that require financing. Sovereign bonds issued under the new law will support banks’ liquidity, offering high-quality liquid assets that can be traded or used in repurchase agreements with other banks and the Central Bank of Kuwait. These bonds, being 0% risk-weighted, will bolster banks’ regulatory capital ratios while providing a stable interest income stream.

The residential mortgage law, if approved, could significantly transform Kuwait’s housing finance landscape. For the first time, banks would be allowed to offer mortgage loans, potentially up to KWD200,000 and with a tenor of up to 25 years, with state-subsidised interest for tranches above KWD70,000. Given Kuwait’s population of 1.5 million, even modest uptake could generate a substantial volume of new loans, expanding the banking sector and stimulating growth in the construction industry. Potential reforms to foreign property ownership laws could further increase demand for housing loans, mostly from high-earning expatriates.

Kuwaiti banks are adequately capitalised to support the likely growth in housing finance. We do not anticipate a significant build-up of asset-quality risk as over 80% of Kuwaiti citizens are civil servants with stable income sources. However, the new corporate income tax could put pressure on profitability, particularly at some of the largest multinational banks.

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Matt Pearson
Associate Director, Corporate Communications
Fitch Group, 30 North Colonnade, London, E14 5GN
E: matthew.pearson@thefitchgroup.com