Kuwait Listed Banks’ Results 2025

With the proposed Mortgage Law in the pipeline, Kuwait is set to enter a new era of housing finance. The proposed law, once implemented, could help commercial banks breathe a sigh of relief as it would enable them to offer mortgages up to KD 200,000 (approx. USD 649,000), with repayment periods extending to 25 years, and allow them to tap into alternate revenue pools. Additionally, if implemented, it is expected that the law will impact the real estate market, directly influencing the demand as well as the prices.

The expectation is implementation of the law might drive banks into an ‘adjustment period’ to ensure adaption to the resulting regulations and compliance procedures around the lending process, potentially calling for added investments toward resources, training and technology.

Profitability aspects regarding the law will be determined once it is implemented and the Central Bank of Kuwait (CBK) has set out the interest rates, among other key guidelines.

After an eight-year hiatus, Kuwait returned to the international debt market after the newly implemented Public Debt Law enabled the government to issue up to KD 30 Billion (approx. USD 98 Billion) in debt instruments over a 50-year period. The pivotal law helps Kuwaiti banks access the country’s sovereign debt instrument, marking a strategic shift in debt management strategies. The law is also a device to help the government minimize its fiscal deficit, as it would take away from the government’s need to rely solely on the general reserve fund — unlocking more options to secure financing, such as bonds and sukuk.

With Fitch assessing Kuwait’s sovereign rating as AA-/Stable (as on 7 March 2025), the outlook is positive. Fitch also predicted Kuwait’s credit profile could improve further if more progress was driven with regard to reforms such as initiatives to diversify fiscal revenue sources, rationalization of expenditure, and reduction of oil reliance (which accounts for about 90% of the exports and 84% of the government revenue, excluding investment income⁴).

In addition to that, we believe debt issuance could help address some slowdowns in the implementation of Kuwait’s economic reforms and management of its fiscal deficit. Although an active debt market could transform Kuwait’s financial sector, considering it brings stability and diversity to the entire ecosystem, the challenge for banks would be to innovate and manage risk in a more complex financial ecosystem.

The long-term impact of the law will be evident in the next few quarters, and we will be watching how it progresses closely.

In September 2024, the Central Bank of Kuwait (CBK) made a significant move, slashing the discount rate by 25 basis points to 4.00%. The decision was part of a broader strategy to help stimulate economic growth and manage inflation. The reduction in interest rates has far-reaching implications for the banking sector and end users, considering lower interest rates would decrease the cost of borrowing and encourage businesses and individuals to borrow from banks. The reduced loan and credit card interest rates could help increase consumers’ disposable income, and thereby increase consumer spending, which in turn could help boost the retail and services sector.

While the increase in borrowers might add to the banks’ liquidity, the lower interest rates could lead to a slowdown in profits made from the interest and reduced net interest margins. That’s why, it is paramount that banks in Kuwait better their operational strategies, reduce costs, digitize operations and offer more innovative products to maintain financial stability.

Our report found that the average cost-to-income ratio of banks in Kuwait was 47%, indicating steep operational costs. Given banks in the country face high regulatory costs, there is a need to rethink how they can manage costs while maintaining their efficiencies.

While there is no one-size-fits-all solution to reduce costs, and each bank is likely to adopt cutbacks that are aligned with their goals, here are the trends we expect to see:

1. Investments toward comprehensive digital transformation to streamline operations and reduce redundant tasks. Digitalization will also be adopted at scale to reduce physical branches and provide more digital kiosks/mobile banking units to reduce fixed costs.
2. Adoption of a cost-culture mindset within the organization by educating employees on every level about cost-savings and giving them cost-reduction targets. Instead of looking at cost-cutting from a birds-eye view, the approach should be to identify key areas on a more granular level where economization could be more meaningful.
3. Management of costs pertaining to risk and regulatory complexities, especially with regard to emerging risks such as cyber, ESG and geopolitics, which require different approaches and resources as opposed to the more traditional risks managed in established risk functions.
4. Use of generative AI: While the executives are still weighing in on the cost benefits of implementing AI in their operations, our latest report on cost optimization of banks revealed that large-scale automation of customer touchpoints has enabled some banks to accomplish high volumes, and lower costs per FTE and overall unit costs. The KPMG report further highlighted that there is a significant shift in AI’s use case as 60% of the executives said AI will be critical in achieving cost-reduction targets, compared to the 42% in 2020⁵.

While AI is largely seen as an effective tool in Kuwait’s banking sector, each bank is on its own maturity curve when it comes to AI adoption. The challenge lies in making decisionmakers understand that tapping into the opportunities presented by AI requires more than investment in technology; rather, it calls for banks to view AI as a strategic investment.

AI implementation necessitates a holistic rethink, comprising strategy, culture, operations and ethics, and banks should treat it as a driver of sustainable growth to maximize its potential. The idea is to integrate AI across functions — from marketing and customer service to fraud prevention and risk management — so banks can create innovative customer-centric solutions that not only enhance profitability but also deepen customer loyalty. 

KPMG’s latest report, Intelligent Banking⁶, presents a few practical scenarios to help unlock AI’s transformative potential and offers a three-pillar blueprint to enable AI adoption on enterprise, functions, and foundations levels that covers almost every function in the bank. Although this blueprint can be one of the ways to drive AI implementation, the aim should be to go at it more as a value-driven implementation and less as a blanket technology implementation. 

We recommend a three-phase approach for AI implementation:

1. enable, where we enable people by identifying the highest value used cases, invest in AI literacy across the Board, select strategic AI alliances, and introduce simple models;
2. embed, where we move the discussion to the blueprint mentioned earlier (enterprise, functions, and foundations level) and embed AI across each pillar; and, finally,
3. evolve, where we create and deploy an AI-based ecosystem across the enterprise.

AI implementation in banks is not straightforward, given factors such as risk, compliance and regulatory complexities, security, and human resistance serve as headwinds. Our research highlighted a deeper dilemma, pointing that banking executives are divided by AI’s transformative potential and the potential risks it brings with it. 

All things considered, the glowing theme for the future is that AI in banking is imminent and banks must move swiftly to stay relevant.