Kuwaiti bank ratings shifting to negative
The fundamental credit outlook for the Kuwaiti banking system is stable to negative. This reflects, on the one hand, the still good operating environment and the sector's good financial fundamentals, but on the other hand, Kuwaiti banks' high exposure to the weakening domestic real estate market, some earnings quality concerns, the banks' indirect exposure to local equity markets and tightening conditions on international credit markets, says Moody's Investors Service in its new Banking System Outlook for Kuwait.
"On the one hand, we recognise that the correction in residential real estate prices during 2008 has yet to translate into any evident deterioration in the quality of Kuwaiti banks' loan portfolios. However, if market pressures were to persist, non-performing loans would likely start to rise from their still low levels. Bank lending is over-collateralised but this is not in itself sufficient to provide adequate comfort in the event of protracted market weakness. In addition, foreclosure procedures remain largely untested," says Mr Kyriakides.
Most Kuwaiti banks still have modest risk profiles, in Moody's view, as they tend to offer relatively plain vanilla products, while open positions in different currencies or direct exposures to market risk are limited as a result of the central bank's instructions.