Islamic Finance 

Kuwait Banking Sector

| 30 August, 2018 | General
Kuwait Banking Sector

This article is an extract from the Islamic Finance in Kuwait: Broadening Horizons report.

The report can be downloaded from HERE.


Kuwait’s Banking Sector is Diverse and Competitive

Among the 11 Kuwaiti banks, six are conventional and five are Islamic. There are also eleven foreign conventional bank branches and one foreign Islamic bank branch operating in Kuwait.

Such a broad offering — from National Bank of Kuwait’s 65-year history of excellence to the recent establishment of Warba Bank, which helps ensure that the banking needs of both retail and corporate customers are comprehensively served.

“The banking sector is sound, with high capitalisation, steady profitability, and good asset quality. The CBK has been proactive in improving supervision and regulation,” IMF wrote in a January 2018 report. Banks represent 82.9% of Kuwait’s financial sector, while investment companies, investment funds, insurance companies and exchange companies constitute the remaining 17.1% as of 2017.

CBK Country Report_Market Share of Islamic Banks in Kuwait 2017

Banking Adoption — Financial Inclusion

Bank accounts provide greater security for one’s money, plus the chance to borrow, save or invest, so it is a testament to the inclusive policies of CBK that 73% of Kuwaiti residents aged 15 or over hold a bank account. This is the highest banking penetration in the Gulf.

With Kuwait’s banks on hand to ably meet the needs of commercial and retail clients alike, the nation’s banking sector achieved a 5% increase in total assets to $189.4 billion last year. Bank assets’ compound annual growth rate (CAGR) from 2013-17 was 5%. Over the same period, deposits increased to $150.0 billion thanks to a CAGR of 5%.

Lending Growth

With a fast-growing, young population, real estate in Kuwait is in high demand and banks are helping citizens buy improved housing. Overall, loans achieved a CAGR of 2% from 2013-17 to reach $122.8 billion last year, yet this lending has been responsibly deployed, with non-performing loans (NPLs) falling to a historic low of 1.6% in 2017, compared with 12.1% in 2009, which has been possible by the banks’ strenuous efforts in line with CBK’s instructions and through its active engagement. The coverage ratio — available provisions to NPLs — was a comfortable 322.3%. Loans are the bedrock of Kuwait’s financial sector, accounting for 65% of bank assets at 2017-end, while investments — in government securities, fixed income instruments, equity and real estate investments — represented 17.3%.

Profit Boom

The banks were able to increase profits amid reduced government spending as Kuwait adjusted to the lower-for-longer oil price era, which is testimony to the astute stewardship of the regulator and lenders’ senior management.

Banks’ combined net profit rose 8% year-on-year to $2.2 billion in 2017. Of this net income, conventional banks accounted for 52.2%.

Islamic banks, however, are growing their bottom line faster, achieving an aggregate annual profit increase of 12.3% in 2017, versus 8.4% for the whole banking system.

“The gap between industry-wide returns and those enjoyed by the Islamic banks has continued to shrink, reaching a level where return ratios for Islamic banks have become similar to their conventional counterparts,” CBK wrote in its 2016 Financial Stability Report.

That is all the more remarkable considering Islamic banks have a higher cost-to-income ratio than conventional banks because of Sharia restrictions on products and services that do not apply to their conventional counterpart and which make even standard operations such as liquidity management more difficult. Transaction costs are also higher due to tougher legal and Sharia requirements.

Banks are somewhat well balanced in terms of corporate and retail as these two divisions provided 56.3% and 43.7% of lenders’ loan interest income in 2017. Overall, financing income surged 13.5% versus a year earlier.


Read the full Islamic Finance in Kuwait - Broadening Horizons report

Report: Islamic Finance in Kuwait: Broadening Horizons

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Read the full Islamic Finance in Kuwait - Broadening Horizons report.