Kuwait’s new Central Bank lending guidelines contrast two previous approaches
KUWAIT CITY, Dec 1, (KUNA): Banks in Kuwait started mid-November to implement the new Central Bank of Kuwait (CBK) instructions on rules and foundations for granting loans and personal finance operations, which lifted the cap ceiling of the “consumer” loan from 15 times the net monthly salary to 25 times and a maximum of 25,000 Kuwaiti dinars ($82,500).
The new Central Bank’s instructions on the maximum limits of the “housing” loan (previously fixed) were kept at 70,000 dinars ($231,000). The total amount that the customer can obtain from loans or Islamic financing is 95,000 dinars ($313,000) instead of 85,000 dinars ($28,000). While the new instructions came in the context of the CBK keenness on regular reviews (updating) of issued guidelines, the latest in 2004, the bank stated in a statement published on its website that the instructions took into account changes in indicators of the gross domestic economy (2004-2017).
The past period has seen dramatic changes in the domestic and global economic landscape, most notably the global financial crisis of 2008, the dramatic drop in world oil prices in 2014 and the 60 percent decline in state revenues, which has led the country to borrow from international markets by issuing international bonds.
The past years also witnessed signifi- cant developments in global monetary policy. Most major economies abandoned their monetary easing policies after the financial crisis and began to raise interest rates on their currencies.
The US Federal Reserve has raised interest rates eight times since 2015, while Kuwait’s central bank raised them only four times in order to stimulate the local economy. While raising central banks interest rates contributes to reducing consumption and stimulating savings, it also leads to a low rate of demand for individuals and companies to borrow and then reduce the volume of credit, including loans to the real estate, investment and consumer sectors and securities.
The stabilization of interest on any national currency in return for raising the interest rate on the US dollar invested to deposit in the US currency to achieve greater returns, which loses the national currency attractiveness and thus resort to central banks to stimulate local banks by raising interest rates on deposits in local currency in return for raising the rate of “Repo” leading to an increase in the deposits volume.
Kuwait’s new Central Bank lending guidelines contrast the two previous approaches as a monetary instrument used to stimulate the growth of economic sectors. The indicators adopted by the Central Bank in its recent instructions to achieve the rate of growth in the average monthly salary of Kuwaitis (2004 – 2017) about 12 percent, while the composite infl ation rate for the mentioned years about 67 percent. Among the indicators, the annual compound average growth of the loan portfolio in Kuwaiti banks was 14 percent from one billion dinars (about $3.3 billion) in 2000 to 12 billion dinars ($39.6 billion) in 2017.
Former minister of commerce and industry Dr Amani Boresli told KUNA on Saturday that such instructions issued by the Central Bank come after evaluating the economic situation and conducting a thorough and specialized study. Boresli said that the new regulations would contribute to increasing the volume of cash in the local market. The concerns associated with any decision to increase the volume of credit rising consumer price index (infl ation) and low purchasing value of the currency, but it contributes to stimulate the growth and economic activity of the country, she added
By Fawaz Karami