Today, Wednesday, the credit rating agency, Fitch, suggested that the self-credit rating of Kuwaiti banks will be subjected to further weakness, as a result of the Corona virus epidemic crisis and the drop in oil prices, despite the support measures provided by the Central Bank of Kuwait.
Self-credit rating of banks means creditworthiness in the absence of any interference from the parent bank or government intervention.
In a report, the agency pointed out that the profitability of local banks will continue to face negative factors, including low interest rates, low non-interest income that has been exacerbated by diminishing business volumes, in addition to the high costs of weak loans.
While the agency clarified that the quality of Kuwaiti banks' assets had deteriorated during the first half of this year, especially in the services sector and the real estate sector, it expected that this quality would decrease, with the inability of all lenders to overcome the effects of the economic slowdown.
She indicated that the real impact will disappear in the short term, through loan deferral programs and regulatory flexibility for banks to recognize impairment under the International Financial Reporting Standard No. (9).
On the other hand, the agency stated that the total average and costs of impairment of weak loans increased despite the current high loan loss provisions, expecting the continued pressure on the quality of assets until the first half of next year.
She pointed out that the capital metrics of local banks were also affected, but they remained within adequate levels.
"Fitch" clarified that the liquidity of Kuwaiti banks may also be subjected to pressure, if the Kuwaiti government and its affiliated entities withdraw deposits from the banking system to support their conditions, indicating at the same time that it does not expect this to happen in the short term.
According to the agency, the average non-performing loan ratio for Kuwaiti banks increased to 2.5% at the end of the first half of 2020, compared to 1.4% at the end of 2019.
In this respect, the agency considered that this does not reveal the full extent of the asset quality problems, because payment licenses and restructurings partly mask them.
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