Fitch: Kuwaiti banks under stress

Fitch Ratings said that Kuwaiti banks are coming under increased stress due to contraction in the local economy and exposure to risky asset classes.

The agency expects economic output in Kuwait to shrink by 2% in real terms in 2009, with output in the oil sector, which accounts for over half the economy, shrinking by 10%, following production cuts agreed to with OPEC. Bank loan growth is thus expected to slow considerably, Fitch said, negatively impacting profitability, as banks take a more cautious approach to lending due to weaker economic conditions.

The Kuwaiti Parliament is reviewing a $5 billion financial stability law, which was approved by Emiri decree in March and addresses banks, investment companies and the national economy. Fitch said it recognizes that the law has the potential to improve the health of the country's financial system, but the agency is concerned by the delay in its implementation and the uncertainty about how it would operate in practice.

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