Saudi, Kuwait banking outlooks stable as govt spending rises: Moody’s

The outlook for Saudi Arabian banking system remains stable over the next 12 to 18 months with profitability remaining solid at 2.2 percent in 2019, Moody's Investors Service said in a new report on Wednesday.

“Planned government spending increase will compensate for lower oil production and weaker GDP growth, and will benefit the non-oil economy. Real GDP growth will be modest at around 1.8 percent,” it noted.

In addition, problem loans will stabilize and profits will remain strong as modest loan growth will partially offset sluggish deposit growth to keep overall funding conditions broadly stable, the report said.

“After rising for several years, Saudi banks’ non-performing loans will stabilize at 2 to 2.25 percent in 2019, although the lingering effects of the recent economic downturn mean construction and commerce loan performance will stay under pressure,” said Ashraf Madani, Vice President – Senior Analyst, Moody's.

The bank will have ample liquidity, as liquid assets make up 25 to 30 percent of banking assets over the outlook period.

According to Moody’s, Saudi Arabia’s non-oil GDP growth will strengthen to 2.7 percent this year, from an estimated 2.2 percent last year as the government increases capital spending.

In a separate report, the rating agency said Kuwait’s banking system outlook will also remain stable in the coming 12 to 18, driven by high levels of government spending and favorable credit conditions for the sector.

Kuwaiti banks’ loss-absorption buffers will remain strong, and net income will stabilize at 1.3 percent in 2019 after increasing from around 1.1 percent over 2017, it noted.