Kuwaiti banking system succeeded in 2017 in confronting pressure caused by low oil prices period between 2014-16, Kuwait top banker said Monday, noting that Kuwaiti Dinar’s appreciation vis-avis the US Dollar increased by 1.4 percent in 2017.
Dr Mohammad Al-Hashel, Central Bank of Kuwait Governor, said in a statement marking the release of the 2017 financial stability report KD exchange rate against the Euro and Streling Pound was depreciated by 11.7 and 7.4 percent respectively.
He said the KD pegging to a basket of currencies protected the national currency from fluctuations of exchange rates thus secured a concrete income. Al-Hashel said the banking sector remained sound and stable in 2017, with an increased credit thanks in part to counter-cyclically built precautionary provisions supporting the requisite write-offs in 2017.
As for the Financial Intermediation, said Al-Hashel, the banking system posted visibly healthier growth in 2017 with its consolidated assets increasing by 7.4 percent on the back of higher private sector credit off-take and growing investments.
Increase in domestic credit, by 3.9 percent, was marginally better than the year before though partly dampened by some corporate loan repayments, he said. Bank’s consolidated deposits also picked up to seven percent, with domestic deposits posting 6.6 percent growth in assets and credit off-takes moderately picked up, he said.
Al-Hashel said asset quality of the banking system has visibly improved over the years, exhibited by a steady decline in both the gross and net nonperforming loan ratio (NPLR). The gross NPLR, on a consolidated basis, has further dropped to a historically low level of 1.9 percent (1.3 percent on domestic, Kuwait-only basis) as of December 2017, well below 3.8 percent observed in 2007 before the global financial crisis struck.
The impressive progress in bringing down the NPLR in the recent past is particularly evident if the existing NPLR (1.9 percent) is compared with the double-digit NPLR (11.5 percent) observed in 2009. The improvement in asset quality in 2017 came in part from the active writeoff policy supported by countercyclically- built ample provisions, he said.
Consequently, added Al-Hashel, the coverage ratio (available provisions to NPLs) marginally came down, underscoring the fact CBK has not adopted a unidirectional, higher-the-better, policy towards provisions; rather, it has allowed banks to use such provisions, built in benign times, to write-off bad loans whenever warranted. Still, the coverage ratio remains robust at 230 percent (317 percent, if viewed on domestic basis), substantially greater than the pre-crisis ratio of 87 percent observed in 2007.
Sectoral analysis of NPLs indicates that the decline in NPLR has been quite broad based with all key sectors experiencing a contraction in their respective NPLRs, with the equity purchase loan segment posting the largest drop in absolute terms.
Geographically, the share of NPLs originating from banks’ operations in the GCC and Europe has marginally increased. Industry breakdown reveals that conventional banks account for 54 percent of total NPLs, relatively lower than their share in gross loans (58.3 percent).
Al-Hashel said banks’ exposure to equity markets has been on a steadily declining trend; equity investments make up around 15.6 percent of banks’ total investments, and use of firms’ shares as collaterals accounts for 18.8 percent of banks’ overall collaterals.
Banks’ liquidity levels have remained healthy, with banks’ LCR comfortably above the minimum benchmark (80 percent for 2017) or even against the ultimate benchmark of 100 percent (due in 2019). Positively, banks’ funding structure has improved further, with increasing reliance on time deposits and diminishing role of non-core liabilities. Al-Hashel said Kuwait stock market realized good profits in 2017 with the decision by FTSE Russel to promote the market’s status.