KUWAIT - Kuwait Credit Bank, a state-owned lender that provides interest-free home loans, is in talks with banks and Oliver Wyman about issuing a possible 1 billion dinars ($3.30 billion) of bonds, its director general said.

No decision has been made and KCB is also considering issuing sukuk or taking bank loans to fund a longstanding lack of liquidity amid ballooning demand for its interest-free 70,000-dinar home loans, Salah al-Mudhaf told Reuters.

He said KCB needs 16 billion dinars to finance home loans through 2035. Kuwait's parliament last week approved a measure to provide KCB with 300 million dinars from the Kuwait Fund for Arab Economic Development to boost its capital and to reschedule 500 million dinars in bonds owed to KFAD.

Kuwait's government guarantees housing for its citizens, who number roughly 1.47 million and make up about a third of the population, providing free land and the KCB financing.

Kuwait has about 100,000 outstanding orders for homes, which KCB would likely partly finance, and a 17-year backlog amid a liquidity crunch at KCB.

"The situation today is not stable. There is no stability and there is no possibility for (the bank) to continue providing loans in this way in the long term," al-Mudhaf told Reuters.

"The housing philosophy must be reconsidered to develop sustainable solutions."

Neighbouring countries guarantee their citizens with lower incomes the right to housing, Mudhaf said, "while in Kuwait, everyone takes, whether they are low-income, middle-income or high-income people."

He later clarified that he did not mean only low-income Kuwaitis should be guaranteed housing, but that recipients should be put into categories.

($1 = 0.3027 Kuwaiti dinars)

(Writing by Yousef Saba; Editing by Kirsten Donovan) ((Yousef.Saba@thomsonreuters.com; +971562166204; https://twitter.com/YousefSaba))