Economic growth, consolidation and new fiscal laws passed in 2025 are driving the banking sector’s growth, diversification, and lending opportunities. Despite market uncertainty due to US tariff policy, oil market volatility and geopolitical tensions, domestic banks in Kuwait have remained resilient. Kuwait’s leading banks posted strong balance sheets and liquidity for 2024, with capital buffers above regulatory minimums, along with positive growth in terms of net profit and total assets recorded for the first half of 2025.
The year 2025 saw the government enact far-reaching fiscal reforms, notably the Public Debt Law passed in March, which sets a debt ceiling of KD30bn ($98.2bn), marking Kuwait’s return to international debt markets after an eight-year hiatus. The long-awaited law is expected to boost Kuwaiti banks’ sovereign debt, stimulate asset growth and bring new lending opportunities.
Kuwaiti financial service providers continue to consolidate and explore options for mergers and acquisitions (M&A) as a key way to generate economic growth. In early 2024 Kuwait Finance House (KFH) announced the completion of its merger with Ahli United Bank of Kuwait, the largest-ever consolidation in Kuwait’s banking sector, followed by Warba Bank’s acquisition of a 32.75% stake in Gulf Bank for $1.6bn in April 2025.
Kuwaiti banks are increasingly seeking opportunities to integrate green finance into their portfolios. June 2024 saw the National Bank of Kuwait (NBK) enter the sustainable finance market with its debut green bond. Supported by prudent monetary policies, strong fiscal and external balance sheets and a projected return to growth – with real GDP expanding by 2.6% in 2025, according to the IMF – it is expected Kuwaiti banks will remain robust and continue to report asset growth.
Structure & Oversight
Kuwait’s banking sector includes conventional and sharia (Islamic banking)-compliant banks. As of October 2025 the Kuwaiti banking sector comprised 21 banks, including 10 domestic banks – five conventional, four sharia-compliant and one specialised lender. Kuwait also hosts local branches of 11 foreign banks, one Islamic and 10 conventional.
Given Kuwait’s 22 regulated banks serve a small population of nearly five million, Kuwait, like other GCC countries, is considered overbanked. Moreover, the sector is dominated by two major domestic banks: NBK, the country’s largest lender, and KFH, a leading Islamic bank. Combined, these banks hold about two-thirds of total Kuwaiti banking sector assets, resulting in strong competition among financial service providers. NBK held more than a 30% market share of assets with a market value of $26.5bn as of April 2025.
All banks and their operations, including the Kuwaiti operations of foreign banks, are regulated by the Central Bank of Kuwait (CBK), headed by Basel Al Haroon. Appointed in April 2022, Al Haroon chairs the CBK’s eight-member board of directors comprised of private sector representatives and under-secretaries from the Ministry of Finance and the Ministry of Commerce and Industry. As of September 2025 half of the board members were women, reflecting the growing and significant role women play in government finance. CBK is known to adopt a prudent monetary policy, including avoiding excessive rate hikes, as the bank aims to maintain a balance between preserving the attractiveness of the Kuwaiti Dinar and promoting economic growth.
Islamic Banking
The central bank’s specific entity for Islamic financial institutions is the Higher Commission of Sharia Supervision, which reports to the CBK board. In recent years, Kuwait’s sharia-compliant finance footprint has expanded as several financial service providers shift towards sharia-compliant models and unlock new funding sources. Kuwait is positioning itself as a leader in Islamic finance in the region amid growing demand for sharia-compliant products that is driving profit for Islamic banks. Kuwait’s four leading domestic Islamic banks providing Islamic products and services are leader KFH; Boubyan Bank, NBK’s largest subsidiary; Kuwait International Bank; and Warba Bank.
KFH, established in 1977 as Kuwait’s first Islamic bank, is one of the region’s top sharia-compliant lenders and one of the biggest financial service providers in both local and regional markets, with a market value of $42.1bn as of June 2025. In February 2024 KFH completed the share swap merger of Bahrain-based Ahli United Bank for $11.6bn, marking one of the largest deals in the region and the expansion of KFH into a global banking giant spanning 12 countries. The deal strengthened KFH’s position as the world’s second-largest Islamic bank by total assets, which reached KD36.7bn ($119.5bn) in 2024. KFH reported a net profit of KD601.8m ($2bn) for 2024, a rise of 3% compared to 2023, which saw net profit of KD584.5m ($1.9bn). Net operating income for 2024 totalled KD1bn ($3.3bn), an increase of 9% compared to 2023, which saw net operating income at KD945.4m ($3.1bn).
Some conventional banks, like NBK, have Islamic arms. NBK has established a strong presence in the Islamic banking sector through its 58.4% stake in Boubyan Bank, gained after a series of gradual share acquisitions between 2009 and 2012. With a strong retail market share, Boubyan Bank is the second-largest Islamic bank in Kuwait. Islamic banks held 49% of Kuwait’s total banking assets as of mid-2024, reflecting a steady increase in market share, according to international credit ratings agency Fitch. Kuwait’s sharia-compliant financing assets reached $109bn in 2024, up from $85bn in 2021.
New Regulations
In recent years, the Kuwaiti banking sector’s potential for economic development has been impeded by political gridlock and institutional constraints delaying reforms. However, the temporary dissolution of Parliament in May 2024 for up to four years has allowed the government to implement fiscal reforms through Emiri decrees. Most notable is the Public Debt Law, which was passed in March 2025. This statute establishes a framework for structured public borrowing and allows Kuwait to access international debt markets, marking a major shift in the country’s fiscal and debt management strategy.
As of the first quarter of 2025 sovereign debt holdings only accounted for 1.8% of total banking sector assets, compared to 12.5% in 2017, when Kuwait last issued government bonds. The law allows the government to issue up to KD30bn ($97.7bn) in debt instruments, either in local or major foreign currencies, over a 50-year period. Between June and September 2025 the government issued KW1.2bn ($3.9bn) in the domestic market, or 2.4% of GDP. The statute helps banks access the country’s sovereign debt instrument and offers a new tool to manage excess liquidity efficiently, offering high-quality liquid assets that can be traded or used in repurchase agreements with other banks and CBK, while providing new products for banks.
As lenders prepare for official government bond sales, banks’ asset growth is likely to increase as financial service providers purchase sovereign bonds and anticipated stronger lending to large government infrastructure projects accelerates. Kuwait’s low existing debt burden and high sovereign wealth fund reserves allow the country to issue bonds at competitive rates. The Public Debt Law comes a time when Kuwait seeks to balance fiscal sustainability with ambitious infrastructure and development plans and reduce its reliance on oil income. Oil revenue reached KD19.4bn ($63.2bn), making up 87.8% of actual revenue in FY 2024/25 ending March 31 and accounting for 43.4% of GDP in 2024.
Housing Law
Another key piece of legislation is the proposed mortgage law, allowing banks to provide residential mortgages for the first time and tap into alternative revenue pools. If passed, the law would usher Kuwait into a new era of housing finance by enabling banks to offer mortgages up to KD200,000 ($651,000) with repayment periods extending to 25 years. The law’s approval could bolster growth in the banking sector by unleashing substantial demand for new housing loans. Fitch notes Kuwaiti banks are adequately capitalised to support the likely growth in housing finance. The proposed law could spur household borrowing, and potentially help unlock a market estimated to reach $65bn in value, implying a 40% expansion in lenders’ credit portfolios, according to KPMG. The real estate sector accounts for nearly one-third of Kuwaiti banks’ total exposure, according to 2022 estimates by credit ratings agency Standard & Poor’s.
In a bid to boost non-oil revenue and support fiscal revenue, the government imposed a new top-up tax of 15% on multinational companies operating in Kuwait effective January 1, 2025, with collections expected to begin in 2027. NBK and its largest subsidiary Boubyan Bank experienced the most significant increases in their effective tax rates. As NBK is classified as a multinational entity under the new law, the bank reported that its effective tax rate rose from 9.2% in the first half of 2024 to 16%. NBK’s net income dropped after tax by 7% year-on-year (y-o-y) in the first quarter of 2025 due to the new corporate tax.
Also impacting the banking sector are government efforts to combat money laundering and terrorism financing. In July 2023 Kuwait banned all cryptocurrency activity, including transfers, payments and trading. More recently, in July 2025 the government introduced legislation to bolster transparency and reduce fraud by adding more stringent screening measures for opening bank accounts to its anti-money laundering and counter-terrorism financing law. The new law imposes stricter penalties of up to KD500,000 ($1.6m) and grants the government direct authority to freeze funds and assets suspected of links to money laundering or terrorism financing without a court order.
Banking Performance
Kuwaiti domestic banks concluded 2024 on a positive note. According to CBK, the banking sector’s net profits grew by 5% in 2024. Total assets increased by 4.3% – reaching KD115bn ($374.4bn), largely fuelled by an expanded loan portfolio and relatively high interest rates. For 2025 CBK forecasts net interest income in Kuwait’s banking market will reach $35.5bn. An April 2025 analysis by KPMG of Kuwait’s nine listed commercial banks also highlighted a strong overall performance from 2023 to 2024, reporting positive annual development in terms of total assets and net profit. The lenders consist of Al Ahli Bank of Kuwait, Boubyan Bank, Burgan Bank, Commercial Bank of Kuwait, Gulf Bank, KFH, Kuwait International Bank, National Bank of Kuwait, and Warba Bank. Total assets across the nine financial service providers rose by 4.4% in 2024, while net profit increased by 7.5%.
Known for its diversified business model and prudent risk management, NBK reported a robust performance for the first half of 2025 compared to the first six months of 2024. Net profit ending June 2025 totalled KD315.3m ($1bn), compared to KD292.4m ($952m) the previous year, marking a y-o-y increase of more than 7%. As of June 2025 NBK’s total assets were up by 15.9% y-o-y to reach KD43.6bn ($142bn).
In January 2025 S&P assigned a stable outlook to Kuwaiti banks, reflecting their sound projected performance through 2025, supported by improved asset quality, higher lending growth, sustained profitability and strong capital margins. Kuwaiti banks operate with robust capital buffers and typically retain 50% or more of their bottom line, which supports their capitalisation. The quality of capital remains strong, with a modest share of hybrid instruments. Kuwaiti banks’ funding structures are also supported by a solid core customer deposit base and a net external asset position.
For 2025 Fitch expects Kuwait’s banking sector’s operating environment to remain stable, supported mainly by banks’ comfortable provisioning buffers and strong retail depositor base. In September 2025 Fitch affirmed Kuwait’s long-term foreign-currency issuer default rating at “AA-” with a stable outlook, citing strong fiscal and external balance sheets and external assets. However, the agency noted Kuwait’s credit fundamentals were constrained by weaker governance than peers, continued heavy dependence on oil revenue and its generous welfare system and large public sector, which could be a source of long-term fiscal pressure.
The sector is set to benefit from a stronger economy and projected modest economic growth for 2025, buoyed by expansion in non-oil economic activity and increased oil production. S&P expects Kuwait’s GDP growth to rebound to 3% in 2025, after a 2.3% contraction in 2024, as oil production restrictions by the Organisation of the Petroleum Exporting Countries are gradually eased and project implementation and reform momentum improves. Credit growth in the banking sector – which was 2.1% in 2023, rising to 6.8% in 2024 – is expected to rise. Fitch expects 8% to 9% credit growth in 2025, providing government infrastructure projects and residential developments are awarded, spurred by the approval of the Public Debt Law.
Consolidation
The year 2025 paved the way for consolidation in Islamic banking as Kuwaiti lenders actively pursue M&A to seek avenues of growth and ways to diversify asset portfolios. In April 2025 Kuwait-based Warba Bank acquired a 32.8% stake in Gulf Bank from Alghanim Industries, one of Kuwait’s largest privately owned firms, for $1.6bn. This deal raised Warba Bank to the position of Kuwait’s third-largest financial service provider and the second-largest Islamic lender.
The two leading financial institutions signed a memorandum of understanding to explore a potential merger in June 2025, backed by CBK approval. This potential deal marks a significant turning point for Kuwait’s banks, merging Warba Bank’s $19.6bn and Gulf Bank’s $22.9bn in assets into a sharia-compliant powerhouse reaching $42bn, creating a combined network of about 70 branches, the largest branch network in Kuwait.
The consolidated bank would create Kuwait’s largest Islamic lender, combining Warba Bank’s Islamic finance experience with Gulf Bank’s reach and strong retail business, paving the way for Gulf Bank’s shift from conventional to Islamic lending. Gulf Bank, the fifth-largest bank in Kuwait, reported total assets of KD7.5bn ($24.4bn) by the end of 2024, up 4.3% from KD7.2bn ($23.4bn) in 2023. Net profit fell to KD60.2m ($196m) in 2024, a 15.4% drop from KD71.2m ($231.8m) in 2023. The potential merger is part of Warba Bank’s strategy to establish itself as a leading Islamic financial institution with regional and global competitiveness. In 2024 Warba Bank recorded 10% asset growth totalling KD5.3bn ($17.3bn), up from KD4.8bn ($15.6bn) in 2023, and net profit rose 13.9% from KD19.7m ($64.1m) in 2023 to KD22.4m ($72.9m) in 2024.
The merger signals Kuwait positioning itself as a leader in Islamic finance and a broader trend of Islamic banking expansion and regional M&A activity. Other notable transactions include Kuwait-based Burgan Bank acquiring Bahrain’s United Gulf Bank in January 2025 for $190m, allowing it to diversify assets and access Islamic financing. Furthermore, in February 2024 KFH announced the completion of its merger with Bahrain-based Ahli United Bank, marking the largest merger in Kuwait’s banking sector and solidifying its position as the world’s second-largest Islamic bank by assets. In the coming years, more M&A activity in the sector is anticipated as Kuwaiti banks seek regional expansion amid greater competition.
Digital Banking
Recent years have seen rapid growth in digital finance offerings and digital innovation in the banking sector. This is largely spurred by CBK guidelines for the creation of digital banks introduced in 2022; the Covid-19 pandemic; and the advance and use of artificial intelligence (AI) and digital commerce. Kuwaiti banks are increasingly looking to reduce high operational costs, boost efficiency and increase cost optimisation through the adoption of AI and digitalisation, along with increased mobile banking to reduce fixed costs. In June 2025 CBK issued a draft Open Banking Regulatory Framework for such services, including technical, security and operating standards. This aims to encourage traditional domestic banks and licensed financial technology firms to develop and deliver open banking services under a clear regulatory framework, while allowing lenders to share customer data with open banking service providers licensed by CBK in a secure manner with explicit customer consent.
KFH and Warba Bank lead the way in Islamic digital banking, offering innovative products and services, including mobile banking apps, instant online payment systems and digital wallets. In October 2023 KFH launched Tam, Kuwait’s first and only fully sharia-compliant digital bank, targeting the youth market. This follows the July 2021 launch of Nomo by Boubyan Bank, a fully licensed and regulated UK Islamic digital bank.
In December 2024 the NBK acquired a 51% stake in UPayments, a local payment services provider and e-commerce enablement platform, allowing the bank to bolster its digital payment services. NBK is also expanding its digital offerings to the youth market. In February 2024 NBK, through Weyay Bank, Kuwait’s first digital bank established in November 2021, launched the Jeel Card, a debit card aimed at eight- to 14-year-olds.
Green Finance
Kuwaiti banks are seeking to expand their green financing portfolios as a way to diversify funding sources, enhance foreign currency liquidity and meet growing market demand for sustainable finance solutions. Leading the way is NBK, with June 2024 seeing the institution enter the green finance market by issuing its debut $500m green bond – the first of its kind from Kuwait, attracting strong investor interest and favourable pricing. NBK aims to build a sustainable asset portfolio exceeding $10bn by 2030.
Outlook
Despite an uncertain geopolitical landscape, fluctuating oil prices and dynamic global trade policies, Kuwait’s banking sector remains well positioned to deal with such challenges, backed by a positive macroeconomic environment marked by projected GDP growth and low inflation in 2025. Kuwaiti banks are poised for expansion, supported by capital and liquidity buffers and an accommodative monetary policy. The government’s fiscal reforms to develop non-oil revenue bring new opportunities for the sector. Furthermore, the government will continue to support domestic banks, irrespective of their size, franchise, funding and level of government ownership, to maintain market confidence and stability. The positive trajectory of Kuwaiti lenders – marked by profitability and asset growth reported in 2024 – is expected to continue through 2025, providing a robust base for the economy.
Read More from OBG
