Moody's Investors Service's outlook for Kuwait's banking system remains stable, reflecting the rating agency's expectation of continued government spending and growing loss-absorbing buffers, which will allow banks to manage modest new problem loan formation and balances an increase in market funding reliance that the rating agency expects in the context of low oil prices. The outlook expresses Moody's expectation of how bank creditworthiness will evolve in Kuwait over the next 12-18 months. Moody's report, entitled "Banking System Outlook - Kuwait: Government Spending and Growing Loss-Absorbing Buffers Drive Stable Outlook" said "spending by the Kuwaiti government, even as oil prices stay low, will maintain growth momentum and support operating conditions for the country's banks." Alexios Philippides, Assistant Vice President – Analyst at Moody's, said "execution of the government's new five-year development plan will drive new business for banks, while domestic consumption will remain strong, supporting our projections of 7% credit growth." While the country's economy remains highly dependent on oil – contributing over two-thirds of government revenues and accounting directly for around 45% of GDP in 2015 – policymakers are pushing ahead with nonoil related infrastructure projects, as noted in May 2016. Furthermore, enhanced loss absorption buffers, by way of stronger capital levels (with a Basel III Tier 1 ratio of 15.3% at year-end 2015) and a growing cushion of general provisions – 3.8% of gross loans as of year-end 2015 – will allow Kuwaiti banks to manage new problem loan formation, which the rating agency expects to be modest. — SG
