The Financial Stability Office at the Central Bank of Kuwait (CBK) released the Financial Stability Report for the year ending December 31 2018, which is the seventh of its kind. It reviews indicators and details that mean progress in both quality and transparency, the Central Bank of Kuwait and the concerned department are to be thanked. We will present very briefly some of the information and indicators reviewed by the report which confirms the soundness of the local banking sector conditions during the period covered by the report as there is still some growth in its business and risks are still few.
The report confirms that banks’ assets in 2018 achieved 4.3% growth rate compared with a 6% growth rate in 2017. Although the number of traditional and Islamic banks is equal, or five banks each, traditional banks have remained more dominant in having assets as they captured 59.5% of total assets while Islamic banks captured 39.6%. Loans portfolio, the main banks’ activity, achieved a growth rate by 4.9% compared to 3.9% in 2017. Personal loans recorded a growth rate of 7.8% and took 60.4% of total assets. The slow growth in total assets may be accompanied by a reduction in its value in anticipation of risks. A decline in the defaulting loans for the ninth consecutive year coincided with the growth of the loan portfolio to unprecedented levels of 1.6% only in 2018, which is lower than the percentage prior to the global financial crisis at 3.8% in 2007. It scored about 11.5% in the post-crisis in 2009. Despite its record decline, the defaulting loans coverage percentage was at 254% (230% in 2017). Prior to the global financial crisis in 2007 it was 87%. The traditional banks’ share of total irregular loans is about 56.5%, almost in proportion to their share of total loans of 56.8%.
This remarkable improvement could not have happened without instructions to write off some of them and to deduct additional allocations that seemed unnecessary then at times of prosperity but they were preventive prudent policies. The above is supported by the solid banking sector conditions. The capital adequacy ratio stood at 18.3% in 2018, which is higher than the 13% required by the Central Bank of Kuwait. The financial leverage level for the sector reached 10.3% while the requirements of the Basel Committee were 3%. This provides a significant margin for the banking sector to expand lending.
The growth rate of deposits with Kuwaiti banks declined to 2.4% in 2018 compared with a remarkable growth of about 7% in 2017. At the end of 2018, it scored KD 55.2 billion, including the ownerships of deposits of branches or banks owned by local banks abroad, while domestic deposits accounted for 79.2% or KD 43.7 billion, of which 66% were deposits for a term, which is a high percentage and represents a stabilizing factor for the banks’ lending activity. This has strengthened the status of liquidity assets at the banks which scored about KD 24 billion. Basic liquidity percentage scored 75.5% there from.
Kuwaiti banks’ profits continued to rise and their growth scored 18% in 2018 compared with 9% in 2017, thus achieving the highest level of profits for Kuwaiti banks since the global financial crisis. The consolidated net profit rose to about KD 959 million. The profitability of banks has been assisted by the expansion of the fiscal policy, the increase in interest and non-interest revenues and the decreasing need to take allocations for loans. Despite the equal number of conventional and Islamic banks, the report notes that the conventional segment is still superior by contributing 60.4% and 59.5% of the banking sector’s profits and assets, respectively.