A report from Fitch Ratings warns that a protracted or intensifying conflict between the U.S., Israel, and Iran could severely strain the operating landscape for Kuwaiti financial institutions. Given that nearly all of Kuwait’s oil exports—which constitute 95% of its total trade—transit through the now-blocked Strait of Hormuz, a prolonged war would stifle business opportunities and degrade both asset quality and bank profitability.
The severity of the situation is highlighted by data from TankerTrackers, which reported that Kuwait exported zero crude oil in April. This marks the first time since the 1991 Gulf War that the world’s eighth-largest oil exporter has seen its monthly shipments completely halted. Such a standstill poses a direct threat to banks’ Viability Ratings (VRs), which measure an institution’s standalone creditworthiness.
Despite these risks, Fitch notes that Kuwaiti banks currently maintain stable outlooks under a baseline scenario, bolstered by the sovereign’s robust “AA-/Stable” rating. Stress tests conducted by the agency suggest that most banks could remain profitable or at least break even under severe asset-quality pressure. Furthermore, the banking sector appears resilient enough to withstand a 10% deposit outflow without immediate emergency funding, thanks to the government’s exceptionally strong fiscal position and the Central Bank of Kuwait’s (CBK) ability to provide liquidity.
To further safeguard the sector, the CBK has already implemented regulatory relief by lowering minimum capital requirements. By reducing the capital conservation buffer, the central bank has effectively eased the capital adequacy ratio from 13% to 12%. This proactive measure, combined with the state’s massive external balance sheets, provides a critical safety net against the escalating geopolitical volatility in the region.
Click here for more on Banking
