As for the Kuwait banking sector during 2011, credit growth remained stagnant at KWD 25.6 bn (USD 92 bn) due to the reduced demand for credit and the strict lending policy followed by Kuwait banks after being hit by the bad corporate debt.

Growth in net profit for the Kuwait banking sector was also stagnant during the year with combined net income of 9 listed banks recording KWD 565.5 million (USD 2 bn) while provisions elevated to KWD 653 mn (USD 2.3 bn) to cover non-performing loans (NPLs) that have been impacting banks since 2008.

The Kuwait banking sector is well capitalized with strong capital adequacy ratios (CAR) exceeding that set by the Central Bank of Kuwait at 12%. CAR for the sector improved to 18.8% in 2010 up from 16.7% in 2009, indicating the solid financial standing that the sector enjoys.

In 2012, the Kuwait banks are cleaning up their balance sheets as a response to the consequences of the financial crisis that will most likely continue throughout 2012. While banks asset quality is gradually improving, the Kuwait banking sector is still in the repair and recovery stage as conditions in the real estate and equity market are still difficult. On the assets quality side, NPLs coverage ratio improved to 84% in 2011, up from 68% in 2010. Despite the drop in NPLs to Gross Loans Ratio to 6.7% in 2011 down from 10.3% and 8.6% in 2009 and 2010 respectively, this ratio remains high when compared to 3.1% in 2007.

The theme for 2011 was higher provisioning for NPLs and sluggish growth in credit. Despite the moderate increase in net operating revenues, net profit of the 9 listed banks in Kuwait witnessed a drop of 1.7% during 2011 to record KWD 565.5 mn (USD 2 bn), mainly on the back of elevating levels of provisions. Banks in Kuwait were able to maintain a moderate growth of 10% in their operating profits (before LLPs) to reach KWD 1.21 bn (USD 4.3 bn) in 2011 fueled by the 20% growth in non-interest income (fees & commissions, investment and fx income) to KWD 719 mn (USD 2.6 bn).

However, provisions for NPLs continued to place downward pressure on banks' bottom line figures as aggregate provisions booked by the banking sector surged 26% in 2011 to KWD 653 mn (USD 2.3 bn), consequently increasing the accumulated provisions that had been booked since 2008 to KWD 2.77 bn (USD 10 bn).

Michel Accad, CEO of Gulf Bank, adds: "... the demand for loans in Kuwait is down simply because there is uncertainty about the future."

Banks of Kuwait are now following new strategy in extending credit; more focus on the retail sector in Kuwait that is considered to be diversified, less risky than corporate and guaranteed by salaries. Also, the new lending strategy is based on diversifying away from real estate and equities and focuses on real economic sectors that include manufacturing, trade and services that secure sustainable cash flow.

Lastly, Michel Accad forecasts the growth for the banking sector in Kuwait in 2012: "My guess on the banking system is that growth is probably going to be between 3 and 5%, but I'd rather not be held by a number. It's not going to be like it was in 2006 or 2007, it won't be at that level for the banking system; I think it will be close to last year, probably only slightly better."

Quoted from the interview with Mr. Majdi Amin Gharzeddeene, Head of Investment Research Department at KAMCO.