KUWAIT CITY, Feb 11: In a clear reflection of the “domino” theory, and as a continuation of the series of declining economic performance, the negative repercussions of the COVID-19 pandemic have cast their shadows on the Kuwait banking sector, which has always been described as financially robust.

This has happened after Fitch Ratings downgraded the credit rating of 11 local banks from “stable “ to “negative” about a week after the agency downgraded Kuwait’s financial condition from “stable” to “negative.” In a report issued yesterday, the agency said banks will face more challenges as the economy of Kuwait continues to fall under pressure in light of “a large proportion of financing in the banking sector linked to the government.”

Fitch revealed that the eleven banks are National Bank of Kuwait, Kuwait Finance House, Burgan Bank, Al-Ahli Bank, Boubyan Bank, Gulf Bank, Commercial Bank of Kuwait, Al-Ahli United (Kuwait), Kuwait International Bank, Warba Bank, and Kuwait Industrial Bank.

The report indicated that the Kuwaiti authorities would support the banks - if necessary - similar to a previous experience when the Central Bank moved quickly to support a local bank. On February 2, the agency had warned of near-term liquidity risks associated with the State Treasury Fund.

In his part, Head of Middle East Bank Ratings in Fitch Ratings Redmond Ramsdale said, “The oil prices and the effects of the pandemic are refl ected on the profitability of Gulf banks and the quality of assets. The basic non-oil sectors in the region are exposed to great pressures, especially the real estate sector.

This is particularly seen in the UAE and Qatar, as real estate prices have fallen by 30 percent since the drop in oil prices, which greatly affects the performance of banks. The banks in the Gulf have proven their efficiency in managing costs despite the low interest that puts pressure on their profitability.

The issuance of sovereign debt and the continuation of saving during the pandemic period boosted liquidity in the banking sector”. Ramsdale said he expected the acquisitions and mergers in small banks would increase due to the limited capital and the surplus in the number of banks in the region.