Commercial real estate most likely source of non-performing loans in Kuwait

The Standard & Poor’s (S&P) forecast a decline in the rate of non-performing loans in the local banking sector over the next 12-24 months, with the commercial real estate to be the most likely source of non-performing loans.

The agency expected an improvement in the profitability of banks in the Gulf countries due to the lower cost of risks and higher interest rates, noting that the Central Bank of Kuwait raised the discount rate by 0.25 percentage points in July and the same in August after the central banks in Saudi Arabia, Qatar, UAE, Bahrain and Oman followed the lead of the US Federal Reserve and raised interest rates in July.

With the continuation of the trend for more interest rate hikes in the current year, high oil prices constitute a positive contribution to the operating environment of banks.

With regard to Kuwait and Bahrain, the agency considered that high oil prices will support the economic recovery in the two countries during 2022, expecting that the improvement of the UAE and Bahraini economies will protect the quality and profitability of their banks’ assets.

According to the agency, the five largest Gulf banks recorded an increase in profitability in the second quarter of this year, as the increase in interest rates by central banks in the region boosted the net interest income of banks.

First Abu Dhabi Bank, Emirates NBD, Saudi National Bank, Al Rajhi Corporation and Qatar National Bank recorded an increase in net income on an annual basis, according to Standard & Poor’s Global Market Intelligence data.

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