Kuwait’s Banking Sector Poised for Historic Mortgage Reform

Kuwait is on the brink of a significant financial transformation as it prepares to permit banks to offer mortgages for the first time. This legislative shift, anticipated to be approved soon by the Council of Ministers, is expected to unlock a market valued at approximately $65 billion, potentially expanding lenders’ credit portfolios by 40%.

Historically, Kuwait has refrained from allowing or regulating mortgages due to concerns over the political repercussions of foreclosures on citizen-owned homes. Instead, the government managed a public housing program, providing married citizens with heavily subsidized homes or plots accompanied by low-interest loans. However, this system has encountered substantial strain, with a backlog of 103,000 requests leading to waiting periods of up to a decade for citizens to receive their homes. The pressing need to address this issue has prompted the government to consider major reforms to the housing program.

The proposed mortgage law aims to provide a structured framework to enhance home financing accessibility. According to Abdulla Al Sumait, acting group CEO at Al Ahli Bank of Kuwait, this development is expected to be a “game changer” for banks in Kuwait, significantly benefiting the retail business by opening a new avenue for conventional banks.

Details emerging from local media reports indicate that the new law would allow commercial banks to lend up to $750,000 over terms extending to 25 or 30 years, a notable increase from the current cap of 15 years. Additionally, the required debt-to-income ratio is expected to rise, offering borrowers greater flexibility. This anticipated reform is poised to address the immense demand, with over 100,000 pending home-loan applications, presenting a significant growth opportunity for Kuwait’s banking industry.

The introduction of this law follows the suspension of parliament by Kuwait’s emir, enabling the government to advance substantial legislative changes. This includes a draft decree for international debt sales, the first in eight years, which has already sparked optimism in financial markets. Kuwaiti stocks, particularly banks like Boubyan Bank KSCP, Burgan Bank SAK, and Warba Bank KSCP, have experienced substantial gains, with increases of 17% or more.