Kuwait banks could face credit risks on real estate slowdown, says Moody’s

The reported slowdown in Kuwait’s real estate market in 2015 is credit negative for local banks, as lower sales volumes will increase risks for lenders highly exposed to the sector.

Last Wednesday, a report issued by Kuwait International Bank showed a 29 percent decline in real estate sales amid softening prices.

“We attribute the slowdown in this sector partly to reduced investor interest amid low oil prices,” the ratings agency added. “It has not yet affected real estate companies: listed companies’ aggregate profits were up 7% year-on-year for the first nine months of 2015.”

“However, further pressures in 2016 will adversely affect the sector’s revenues and likely drive prices down,” Moody’s added.

As of September 2015, about 25 percent of domestic loans issued by banks were to the real estate sector, according to the Central bank of Kuwait.

The sector in Kuwait was one of most severely hit during the global financial crunch of 2008. Kuwaiti banks are now better positioned to survive higher impairments, Moody’s pointed out.

“The central bank has also taken various macro-prudential measures to address the resurgence of real-estate related risks,” it added.