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Friday , January 21 2022

Irregularities in payment of loan installments by Kuwaitis and Expats

KUWAIT CITY, Dec 20: According to informed sources, it appears that “non-performing” consumer loans are witnessing growth, as in the past period, the managers of some credit portfolios detected signs of steady irregularity in repayment, after a segment of consumer loan clients stopped paying their installments, specifically for the month of November. The exposures are likely to rise during the month of December, especially from residents, but the broader assessment will be with the current month’s deductions, reports Al-Rai daily.

They explained that the balance of consumer loans increased in October by KD 4 million (+ 0.25 percent) compared to September, recording KD 1.599 billion. Their increase reached KD 154 million (+10.66 percent) since the beginning of the year compared to KD 1.445 million at the end of last December.

Degree of risk

Bank statistics showed that the high level of default risk is concentrated among employees whose monthly salaries range from KD 250 to KD 600. Most of them work in the sectors of small and medium enterprises. The pressure is minimal, as the percentage exposed to it so far is within safe limits and less than expected according to the worst-case scenario.

The value of consumer loans represents about 3.7 percent of the total financing portfolios, the values of which exceed KD 39 billion. The value of resident loans from the consumer portfolio is about 15 percent.

As soon as the deduction of premiums, as collection was suspended for six months due to the repercussions of COVID-19 pandemic, was relaunched, bank officials began examining their portfolios in an effort to monitor irregularities in payment. It was difficult in October to accurately determine the exposure rate, given that it represented the first installment after the return of the deductions.

Different proportions

The default rates became clearer with the November installment, as more than one manager noticed that the percentage of irregulars was increasing, compared to the installments collected just before COVID-19 crisis.

The percentage of non-performing loans varied from one bank to another, but it can be said that it has increased recently in all retail loan portfolios, and the downtime risks are increasing.

It is reported that the non-performing loan ratio, according to the latest quarterly data, ranges between 1.2 and 5.4 percent.

The default rate rose for one of the financing agencies by ten percent, while in another it ranged between two and five percent, and it went up more than that in one of the portfolios.

Reasons for faltering

Regarding the reasons for the increase in the percentage of customers’ default, the sources explained that it became clear during the review of the customers who had stopped paying that they were laid off during the COVID-19 crisis, and are still looking for a new job.

During the six months in which the collection of installments was stopped, they were subjected to significant reductions in their salaries, which resulted in an increase in the volume of debts they owed other than their loans, which include rents, personal advances and other recurring consumption expenses. This prompted them to postpone their installments, especially in light of their revenues that have stopped completely, or have declined at rates exceeding 60 percent, in some jobs.

Exposure risk

The collection rates in October were relatively acceptable, albeit at rates lower than the levels before the COVID-19 crisis, but a steady increase was recorded in November.

According to customers’ explanations about non-payment of their recent installments, it is likely that the expansion of exposure to cases of default among individuals for the months of December and January, and the risk of exposure may extend to other months, as it depends on the changes that may occur in the labor market.

Perhaps the question that arises in this regard relates to what banks should do in facing the increased risks of exposure to defaulting individuals. In response, the sources said, “Of course, they will have to wait for the beginning of next February to take any judicial measures against defaulters, as instructions for building allocations are required, for the financing agencies to resort to the judiciary in the event that their client stops paying 90 consecutive days, without any positive signs or agreement on a settlement that confirms the return of regularity. In this case, it will have to build 100 percent allocations for each client that it escalates with. Until then, banks will have to slow down in counting the risks, hoping that the increase in the percentage of irregular customers will be temporary, and will disappear soon, otherwise the effects of any additional growth will appear in their quarterly data for the first quarter of 2021”.

Health and food sectors are resilient

The sources indicated that, if the broad base of clients exposed to bad installments is concentrated in small and medium enterprises, some sectors are excluded from this especially the health and food sectors.

It stressed that, during the crisis, the largest segment of the entrepreneurs’ work was affected, but those who had medical or food production lines, or any sector that had a relationship with facing the repercussions of COVID-19 crisis had benefited, and the employees of those sectors continued to pay their installments after the deductions returned.

Finance companies were exposed before the banks

The sources explained that, perhaps the current impact on banks is greater compared to financing companies, and this of course does not reflect the additional keenness in dealing with defaulters’ conditions, but the matter is simply that these companies postponed their installments for only three months, which means they faced the problem of exposure to bad loans early.

Most of the financing companies have examined their books since July. The default rate in some of them reached 30 percent, but the small size of their portfolios reduced the default pressures to which it is exposed

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