Fitch: Decline in traditional bank branches in Kuwait as reliance on electronic services grows

Fitch Ratings, in a recent report titled “Digital Banks in Emerging Markets in Europe, the Middle East and Africa,” stated that Kuwait has recently focused its efforts on developing digital infrastructure, noting that digital banking services in the country are still in their early stages.

Fitch’s indicators revealed a noticeable shift in Kuwait’s banking and economic landscape. On the one hand, Kuwait recorded a clear decline in the number of commercial bank branches per 100,000 adult population, dropping to around 10 branches compared to 15 in 2010. This reflects an accelerating pace of digitalization and growing reliance on digital channels and electronic banking services in the country.

Data related to economic growth for 2025 revealed a striking divergence: Kuwait is experiencing a strong boom in the ratio of credit extended to the private sector relative to GDP (exceeding 100 percent), while real GDP growth remains at low levels, hovering around 1 percent. This indicates a high concentration of credit that requires corresponding economic growth to ensure sustainability and mitigate potential risks.

The agency noted that digital banks are witnessing significant growth in emerging markets across the Europe, Middle East, and Africa region, particularly in countries such as the UAE, Saudi Arabia, Turkey, Kazakhstan, and Uzbekistan.

It stated that digital banking services in many other markets are limited to digital acquisition channels and products offered by traditional banks and mobile money operators, while fully digital banks represent only a small share of local banking sectors.

Fitch added that the digital banking sector emerged in the region’s emerging markets over the past seven years, benefiting from digital transformation trends and the rapid shift in consumer behavior driven by the pandemic. These banks target younger generations, unbanked populations, and those seeking more personalized services. It noted that this strong growth has been supported by technological advancements and competitive advantages related to cost reduction.

The agency emphasized that digital banks still account for a negligible share of total assets in the local banking sector (with very few exceptions), despite their rapid growth. It attributed this to intense competition from established traditional banks, which benefit from long-standing customer relationships, high levels of institutional credibility, and brand awareness, posing significant barriers to fully digital institutions.

Fitch pointed out that traditional banks have invested heavily in their digital transformation, narrowing the user experience gap that historically distinguished digital banks. Nevertheless, digital banks will continue to leverage their unique advantages, such as intuitive interfaces, rapid customer acquisition, and high adaptability to changing preferences.

Regarding new neobanks, the agency reported that their business models rely on providing fully digital, low-cost services without the need for physical branches, focusing on speed and customer convenience. These banks seek rapid growth through current account services tailored for smartphones, as well as payments, cards, deposits, savings, and lending to individuals and small and medium-sized enterprises in some cases. Despite their competitive advantage based on low or zero fees and the ability to attract customers within five minutes, their business models appear more sensitive to requirements related to business volume, customer acquisition costs, and the ability to achieve sustainable profitability, in addition to regulatory constraints, particularly in markets where the legal frameworks for digital banks are still under development, such as Egypt and Kuwait.

The agency stated that digital banking in the Gulf countries is undergoing rapid transformation, driven by strong regulatory support, high rates of digital adoption, and ambitious national strategies for financial innovation. The United Arab Emirates and Saudi Arabia are leading this transformation, with widespread use of digital wallets and banking applications.

The agency added that digital banks in emerging markets across Europe, the Middle East, and Africa are well-positioned for significant growth, with the Gulf region emerging as the most attractive opportunity. Demand for cross-border salary transfers by expatriate workers in the UAE, Saudi Arabia, Qatar, Bahrain, and Kuwait is among the key drivers of this growth.