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DUBAI, March 25 (Reuters) - Kuwait will let foreign banks open multiple branches in the country to spur growth, authorities said on Tuesday, though analysts doubt many banks will take advantage of the offer unless the government accelerates long-postponed investment projects.
For years, the OPEC member's economic performance has lagged other Gulf Arab oil exporters as ingrained political tensions between the cabinet and parliament, and entrenched bureaucracy, have delayed business reforms and multi-billion-dollar infrastructure plans.
"The new rules will have a positive impact on the local market as they enrich the type of services being offered, create new jobs and ultimately result in the economic and social growth of the country," the central bank said in a statement.
Previously, each foreign bank was limited to opening one branch in Kuwait; that restriction will now be removed, though the central bank will still approve new branches on a case-by-case basis.
The new rules also allow foreign lenders to open representative offices in Kuwait, one of the world's major oil exporters, the central bank said on its website (www.cbk.gov.kw).
Kuwait has 11 domestic banks: five conventional, five Islamic and one specialised bank, according to the central bank. There are also 11 branches of foreign banks, including top regional lenders such as National Bank of Abu Dhabi and Qatar National Bank, as well as international heavyweights such as BNP Paribas, Citigroup and HSBC.
"I do not see that it is going to make a big difference. In general, the main issue for banks is that the sector is underdeveloped and the general economic situation is not very helpful," Abdul Aziz al-Yaqout, regional managing partner at the DLA Piper law firm, said of the new rules.
"I do not see that Western banks are going to necessarily use this opportunity. The overall environment still has to change, then it will be interesting."
Other restrictions on foreign banks in Kuwait have limited them to offering investment banking services and banned them from competing in the retail sector. It was not immediately clear whether these restrictions might be eased.
Kuwait's $186 billion economy is expected to grow by a mere 3.0 percent this year, the slowest pace among the six Gulf Cooperation Council (GCC) countries, slightly up from an estimated 2.8 percent last year, a Reuters poll of analysts showed in January.
The International Monetary Fund said in December that Kuwait's heavy reliance on oil revenues - oil and its products account for more than 95 percent of goods exports - had increased income volatility and risks to long-run growth.
"Credit growth in Kuwait has been extremely weak. So one argument would be: let more foreign banks come in and let them compete and perhaps they can kick-start lending more aggressively," said Farouk Soussa, Citigroup's chief economist for the region.
"If you speak to people in banks in Kuwait, they are more than happy to lend, provide credit to viable projects and companies. But there are not many of those guys in Kuwait, so it does not matter how much supply you put in, you have to improve demand as well. So I think there is a bit of a problem there."
Kuwait attracted mere $4.7 billion in foreign direct investment in a decade to 2012, just 1.4 percent of total flows into the six GCC states, according to the United Nations Conference on Trade and Development. (Additional reporting by Mirna Sleiman in Dubai and Sylvia Westall in Kuwait; Editing by Andrew Torchia)