Bloomberg/Kuwait City

Kuwaiti banks are poised to benefit as the government revives a $110bn spending plan that may spur corporate lending, according to Standard & Poor’s.

“We are currently at a tipping point and can see a scenario where the domestic condition will be relatively more favourable for Kuwaiti banks,” S&P analyst Paul-Henri Pruvost said in a phone interview March 26. “What has really helped Kuwaiti banks in terms of growth is the retail element. Retail should take the back seat and corporate the front seat.”

Corporate lending in Kuwait lagged its peers in the Gulf Co-operation Council as conflict between government and parliament stalled its development plan. Loans to private businesses grew 4.8% in the year to February after accelerating to 4.1% last year, according to Kuwait central bank data. That compares with February loan growth of 16% and 14% in Saudi Arabia and Qatar, which are pursuing development plans valued at more than $600bn.

Kuwait’s government and parliament this year pledged to put the development plan, first approved in February 2010, on fast track after elections in December resulted in an opposition-free legislature. The country, the fourth-biggest Opec crude producer, is currently pre-qualifying companies to build a new $14bn oil refinery and is completing financial arrangements for Al-Zour North power station.

S&P expects loan growth to reach mid to high single-digit percentages during the next two years, supported by corporate lending. Gulf Bank, which lost $1.3bn on derivatives trading in 2008, had its long-term rating raised one level to BBB+, the eighth highest investment grade, at S&P last month.

“The new parliament seems to adopt a more pro-business attitude, so we expect some easing up in terms of lending opportunities,” Pruvost said. “If the business environment starts to be credibly positive over the next two years, that will greatly help all the banks.”

The revival of projects has boosted appetite for Kuwaiti debt. The average yield on Kuwaiti debt has fallen 54 basis points, or 0.54 percentage point, this year to 4.52% on April 5, according to JPMorgan Chase & Co’s CEMBI Broad Kuwait Blended Yield index. That compares with little change in JPMorgan’s Middle East index, while the Qatari index advanced 37 basis points to 3.21%, the data show.

Kuwait’s benchmark equities index also jumped 16% this year, after declining in four of the past five years.

After Kuwaiti opposition groups boycotted December elections, Prime Minister Sheikh Jaber al-Mubarak al-Sabah was able to form a government with few adversaries in parliament. The opposition boycotted the polls because of changes to the voting system that required voters to choose only one candidate, instead of four previously.

“If parliament has been the main obstruction to development spending, then the election of this assembly should allow progress on stalled infrastructure spending, and a better growth outlook for the non-oil sector,” Liz Martins, senior economist at HSBC Middle East, wrote in a report last month. “Kuwait’s political environment is more conducive to growth than it has been in years.”

Repeated clashes between lawmakers and the government over how to share power and implement political reforms had resulted the dissolution of parliament twice in 2012 alone. The stalemate undermined the four-year plan to boost oil and gas production, build a metro and rail network, expand the airport and construct new power stations, hospitals, roads and a port.

That contrasts with Saudi Arabia, where King Abdullah has ultimate authority in pushing through plans to invest more than $500bn to build infrastructure, industry, housing and spur job creation.

Still, a Constitutional Court ruling set for June 16 on changes to the voting law may destabilise the political situation. Kuwaiti banks, which reported higher profit last year compared with 2011, are also still taking provisions for loan losses as companies such as Global Investment House and Investment Dar restructure debt.

“Kuwaiti banks have been among the most sluggish in the GCC in terms of private sector credit extension, not because of a lack of funds or appetite to lend but because of a lack of quality lending opportunities,” HSBC’s Martins said.

The nation’s banks are encouraged by financing plans for Al-Zour North power plant, according to Tom Lind, head of corporate finance at Gulf Bank. The completion of funding for the facility will “trigger the release” of new requests for proposals for other projects and benefit banks, he said April 4.

“2013 should witness decent credit growth on the back of weak credit growth that prevailed during the last four years,” Mandagolathur Raghu, head of research at Kuwait Financial Center, said by email on April 3. “Things will pick up once the government launches the investment programme.”