The recent wave of mergers and acquisitions (M&A) in Kuwait’s banking sector is a positive development, particularly in a market considered overbanked, a new paper suggests.
According to Fitch Ratings, this trend reflects banks’ strategic response to limited organic growth opportunities, aiming to diversify their business models and boost their financial profiles.
Despite Kuwait’s robust fiscal and external balance sheets, the banking sector’s growth potential is hampered by frequent political gridlock and institutional constraints, the report noted. Delayed reforms, such as the new Public Debt Law requiring parliamentary approval for government borrowing and the stalled mortgage law, further exacerbate these challenges.
Read more: Kuwait sees deficit of $5.23 billion in FY 2023/24 despite non-oil revenue growth
Notable M&A activity
Boubyan Bank and Gulf Bank: These two institutions, the second-largest Islamic bank and the fifth-largest bank in Kuwait respectively, announced their potential merger last month. This move, if finalized, would create an Islamic bank with assets exceeding KWD16 billion ($53 billion) and a 15 percent market share based on consolidated assets. Fitch anticipates the completion of this transaction in 2025.
Burgan Bank: In June, Burgan Bank acquired a 100 percent stake in Bahrain’s United Gulf Bank. This followed the sale of a significant portion of its holdings in Burgan Bank Turkiye and Bank of Baghdad in 2023. Burgan Bank’s strategy centers on capital optimization and a focus on GCC business.
Gulf Bank and Al Ahli Bank of Kuwait: In 2023, these banks planned a merger involving the conversion of one entity into an Islamic bank. However, this deal was ultimately canceled.
Kuwait Finance House (KFH): In 2022, KFH acquired Bahrain-based Ahli United Bank, expanding its footprint in Bahrain and gaining a presence in Egypt and the UK. This acquisition also increased its market share in Kuwait. KFH has also signaled its intent to further expand in Saudi Arabia. While this expansion beyond Kuwait has opened up new business and revenue opportunities, compensating for the limited growth prospects in the Kuwaiti market, KFH recently divested from Malaysia and sold KFH-Bahrain to Al Salam Bank in May 2024.
Boubyan Bank: In 2020, Boubyan Bank acquired a majority stake in the Bank of London and the Middle East, aiming to diversify its business model and boost revenue generation.
Challenges and outlook
Despite the positive impact of M&A activity, the Kuwaiti banking sector faces challenges. High interest rates (the reference rate for lending is 4.25 percent), modest real GDP growth (-2.1 percent in 2024; 2.9 percent in 2025), and political divisions are expected to limit credit growth to 3 percent-4 percent in 2024.
However, the sector’s strengths, including adequate capital, good funding and liquidity, and strong risk-management practices, could support faster credit growth if political and institutional hurdles are overcome.
Kuwaiti banks’ ratings are supported by the strong likelihood of sovereign support in case of need.
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