Moody's expects Kuwait and its banks to maintain credit strength amid the fallout of the regional conflict
It added that a stable positive outlook for the sovereign rating reflects its continued expectation of Kuwait’s creditworthiness resilience in the face of the regional conflict’s repercussions, despite anticipating a sharp but temporary contraction in real GDP in 2026, followed by a strong recovery in 2027 with the resumption of oil exports. It also kept its assessment of macroeconomic and banking risks unchanged, supported by continued moderate credit growth, asset quality, stability of local deposits, alongside the prudent supervision exercised by the Central Bank of Kuwait over the banking sector.
The agency noted that its “a3” rating for economic strength is based on high wealth levels and abundant hydrocarbon resources, as Kuwait holds one of the world’s largest proven oil reserves, while its production costs are among the lowest globally. According to the Energy Institute’s estimates, proven reserves are sufficient for approximately 100 years at current production levels, giving the country more time to adapt to the global transition toward carbon emission reductions.
Moody’s affirmed that the state’s strong financial position, its track record of accessing international debt markets, the large asset size managed by its sovereign wealth fund, and the enactment of the Financing and Liquidity Law all serve to mitigate government liquidity risks and support the state’s financial flexibility.
Regarding the banking sector, the agency confirmed that credit conditions did not warrant any adjustments, clarifying that local credit growth has remained moderate over the long term, while changes in the private sector debt-to-GDP ratio primarily reflect nominal GDP fluctuations linked to oil, rather than an acceleration in lending.
At the same time, it pointed to the continued high concentration of credit exposures among a limited number of economic conglomerates and cyclical sectors, particularly real estate and investment companies. However, it anticipated that the impact of pressures associated with the regional conflict would remain limited, thanks to strong provisions, high capital levels, and ample liquidity among banks.
It added that organized consumer loans continued to lead credit growth, remaining at relatively low-risk levels, as most are granted to Kuwaiti government employees and repaid through direct payroll deductions, which supports the quality of credit portfolios.
On the financing side, Moody’s noted that local deposits remain the main source of funding for Kuwaiti banks, while reliance on external financing remains relatively limited. It indicated that the funding structure is poised to stabilize in the coming period, supported by the government’s comprehensive deposit guarantee, which has proven effective during periods of stress, including the repercussions of the regional conflict, where the sector experienced some temporary outflows that quickly returned to the banking system without long-term effects. It also considered that government deposits, despite their high concentration, exhibit a high degree of stability based on their historical behavior.
The agency noted that the structure of the Kuwaiti banking sector remains highly concentrated, with the top five banks accounting for approximately 88% of the total assets of the banking system. Meanwhile, the Central Bank continues to adopt a direct and prudent supervisory approach that supports financial stability and compliance with international standards, through the full implementation of Basel III standards, the imposition of strict capital requirements and lending limits, alongside the establishment of high provisions for credit losses. This has been reflected in the average coverage of non-performing loans exceeding 223% as of March 2026.
