Kuwait’s banking sector sees an increase in coverage of non-performing loans

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The banking sector’s coverage of non-performing loans increased last year, despite the decline in these loans to their lowest levels in approximately 16 years, dating back to the global financial crisis in late 2008, reports Al-Jarida daily. During that crisis, non-performing loans amounted to about 0.9 percent, which remains one of the lowest levels globally. However, last year, the coverage of non-performing loans reached 312 percent, marking a 10 percent increase from the end of 2022 when it stood at 301.9 percent. This increase in coverage is attributed to the hedging policy, particularly within the framework of increasing general allocations. This policy may be justified by a conservative reading of the geopolitical situation.

Despite this, the ratio is considered normal given the prosperity of profits and the overall good financial condition of the banks. The coverage ratio represents the ratio of total provisions available (from general and specific) to the total non-performing loans. Additionally, the sector saw an increase in the regulatory liquidity ratio from 21.4 percent at the end of 2022 to 22.7 percent at the end of 2023. This ratio reflects the percentage of balances with the Central Bank of Kuwait and government treasury bills and bonds compared to customer deposits in dinars, meeting the minimum requirement of 18 percent.

Furthermore, the banking sector maintained a strong indicator of capital adequacy, with the ratio of capital base to Basel III risk-weighted assets reaching 19.9 percent at the end of last year, compared to 19.2 percent in 2022. The sector also saw improvements in net profitability margin, return on average shareholders’ equity, and operating expenses ratio. Despite the positive indicators, the banking sector operates within a diverse, competitive, and fluctuating operational environment. Major projects are delayed, and the private sector’s role in the economy is less than expected. However, there are hopes for the liberalization of projects that could lead to an unprecedented development boom, complementing the operational deficiencies of the modern economy and fostering additional economic activity