Rising oil prices will boost to the Kuwaiti banking sector in 2018 as liquidity increases and demand for credit from the private sector rises, according to a new report from BMI Research.
According to the report, BMI’s oil and gas team has increased its forecast for Brent crude in 2018 to $65 per barrel, up from a previous forecast of $57.
This growth, BMI noted, “bodes well” for growth in the banking sector, with liquidity in the banking system likely to increase because of higher government deposits. Additionally, BMI predicts that private sector deposits will also be boosted by rising interest rates, particularly in light of expected hikes of policy interest rates.
Additionally, BMI noted that an expected pick-up in private sector credit will “more than offset” lower government borrowing requirements as higher oil prices result in low fiscal deficits.
Overall, BMI predicts sector-wide set growth of 6 percent in 2018, up from an estimated 5 percent in 2017 and 3.2 percent in 2016.
“Driving this growth will be private sector credit, which we also expect to expand by 6 percent, up from 4 percent in 2017 and 2.9 percent in 2017,” the report added. “Deposits meanwhile will expand by 5 percent in 2018 according to our forecasts, up from an estimated 2 percent in 2017.”
The report also noted that Kuwait banks’ credit quality is strong, with non-performing loans accounting for 1.7 percent of total loans in 2017, significantly less than the 7.3 percent recorded in 2011.
However, BMI believes that declines in oil and gas prices will continue to weight on financial sector liquidity, forcing the Gulf state’s banks to rely on external and wholesale funding. These pressures could be mitigated by monetary authority interventions, BMI notes, but banks’ funding costs will likely remain elevated in 2018.
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