CBK considering restructuring credit concentrations in banks’ portfolios
KUWAIT CITY, Oct 13: Member of the National Assembly MP Dr Adel Al-Damkhi said the total number of citizens borrowing from banks, investment and finance companies in Kuwait, was about 455,300 by the end of the first quarter of 2019, and that 200,150 of them are women, reports Al-Anba daily.
He went on to say, the total of these debts including consumer loans at the end of the first half of 2019 was KD 13.02 billion, according to the CBK data. Al-Damkhi added the total number of borrowers whose net salaries do not exceed one thousand dinars amounted to 169,120 borrowers, and the number of borrowers whose net monthly salaries do not exceed two thousand dinars or less is 399,030.
The Central Bank of Kuwait is currently considering restructuring credit concentrations in banks’ portfolios, which obliges banks to add new credit concentration limits for financing small and medium enterprises (SMEs), reports Al-Rai daily quoting related sources.
The sources pointed out that the regulator seeks to encourage banks to grant loans and credit facilities to companies and SMEs, based on the importance given to these projects to help contribute to the localization of this sector on a sound basis to support its facilities, strengthen its structure, and ensure its efficiency after doing the spade work.
The sources added the CBK is currently looking to determine the rules for requirements of new ratios that the banks must adhere to and ensure liquidity and solvency, pointing out that open regulatory discussions on the ideal ratio that the banks should be obliged to concentrate.
The sourced added there are more regulatory opinion in this regard under discussion, but all ranges from 5 to 10 percent, while work is underway to determine the best limits for banks and entrepreneurs.
In practice, some banks are already active in the financing of SMEs, and there are agreements of understanding between these banks and the National Fund for the Development of SMEs, but it seems the CBK seeks to increase the share of banking for financing this sector, through collective banking participation, within specific concentration on ratios, ensuring the effectiveness of this approach.
The sources pointed out that according to the instructions issued by the conventional credit concentration ratios, the bank is not entitled to dispose of the proportion of SMEs except for the owners of these projects, which makes the bank have two options either to increase its contribution in this sector.
The sources pointed out that the credit facilities balances recorded about KD 37 billion, which means that if the CBK decided on the credit limit for SMEs by 10 percent, this means about KD 3.7 billion will be pumped into this sector. Concentrations are a major issue for central banks. If a bank’s loans are highly concentrated in a small number of borrowers or in a particular economic sector, the risk increases if these borrowers or these sectors are exposed to financial problems, hence the importance of setting credit limits for concentrations. The sources pointed out the CBK is well aware of the double importance of the SMEs sector for Kuwait, economically and socially, pointing out that from the economic point of view, the hope is very much on the ability of this sector to absorb newcomers from among the citizens to the labor market and beat disguised unemployment