Fitch: Regulatory/competitive pressures may dampen Kuwaiti banks' growth

Nevertheless, the banks remain sound in their fundamentals.

Fitch says measures by the Central Bank of Kuwait (CBK) in H108 to curb rapid growth in consumer lending may lead to margin compression, put pressure on profitability and inhibit growth, while constraining regulatory capital ratios.

Under the new regulations, banks face increased risk weighting for consumer loans, loans for share purchase and loans to the real estate sector, as well as tighter regulations on the maximum interest rates banks are permitted to charge on consumer loans.

Growth in consumer lending is further limited by the small size of the Kuwaiti population, with 16 banks competing to serve a population of around 3 million. The lifting of restrictions for foreign banks operating in Kuwait could result in increased competition in retail banking. In addition, the corporate banking market in Kuwait is relatively mature and, with the CBK granting further licences to foreign banks to operate in the sector, competition here may also increase.

In common with other Gulf Cooperation Council (GCC) economies, inflation in Kuwait is on the increase, driven by oil-fuelled public spending growth, rapid growth in credit and a surge in global food prices. A number of Kuwaiti banks have significant concentrations to the real estate and construction sectors and to lending for share purchase. Given the rapid appreciation of property prices in Kuwait and the recent volatility in stock markets, exposure to these sectors is a cause for concern and requires close monitoring.

Nevertheless, Kuwaiti banks' asset quality remains sound. Liquidity is satisfactory, aided by the CBK's stringent guidelines, and capitalisation is adequate. Fitch's Long-term IDRs are largely driven by sovereign support and there is limited downside risk to these ratings, given the benign outlook for Kuwait. Individual ratings, however, may come under pressure if competitive and regulatory pressures were to lead to a marked decline in profitability or if real estate or stock-market related exposures were to lead to deterioration in asset quality.