This is not the time to engage in stringency

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BRAVO to the government for postponing loan installments for six months!

This is the second time the government is taking such a measure. Despite its merits, it is necessary to address the mission of the Central Bank of Kuwait in this regard.

After the first six months elapsed, the citizens were surprised when the banks began demanding the payment of the loan interests without re-scheduling and adding it to the principal of the debt, like the way banks in other countries do.

The banks argued that the Central Bank of Kuwait issued such directives through very harsh circulars as if it was calling on commercial banks to execute the borrowers.

In this regard, we turn to His Excellency the Governor of the Central Bank of Kuwait Dr. Mohammad Al-Hashel with the following questions:

Was it necessary to harass citizens through circulars that did not take into account the force majeure conditions imposed by the COVID-19 pandemic not only on Kuwait, but on the whole world? Why didn’t the Central Bank of Kuwait follow the path taken up by most countries of the world in terms of using the crisis as an opportunity to revamp the economy, especially with the rescheduling of debts and their interests, and extension of the payment periods in an effort to preserve companies and help them recover financially, while we have a Central Bank that pushes the commercial banks to take from “bare hands”?

There is no doubt that Central Bank Governor is well aware of the fact that corporate loans are given in exchange of mortgages and assets that exceed the value of the loan by several times. No company has taken this step without being able to repay. The revitalization of the financial and economic cycle in any country requires the central banks to observe leniency in times of crises imposed on commercial banks. It does so by rescheduling loans and cutting the interest rates in an effort to alleviate the pressure on the private sector and in order to avoid collapse. However, it is the contrary in Kuwait. The circulars issued by the Central Bank of Kuwait pushed the banks to tighten the screws on borrowers, and actually went much further unnecessarily.

Based on this fact, we fear that this procedure will lead to an increase in the number of financially-troubled companies. They will be referred to the courts in order to recover those debts or to confiscate the collateral from creditors, especially since many small and medium enterprises are threatened with closure, which will negatively affect the lives of many, especially the owners.

This means that the objective behind postponing the loan installments without supportive remedial steps will definitely frustrate the borrowers, and more economic contraction seems evident.

This order imposes the Central Bank of Kuwait to put in place a plan for the  protection of the borrowers, and to prevent banks and financial institutions from exerting pressure on them. Without that, the entrepreneurs will only find recourse to the bankruptcy law as a way to salvation.

Does Dr. Mohammad Al-Hashel understand the meaning of this? Will he work towards finding a solution to this dilemma that a substantial number of Kuwaitis are facing? This problem will undoubtedly worsen after the end of the loan-installment-postponement period if the situation remains as it is.

By Ahmed Al-Jarallah

Editor-in-Chief, the Arab Times

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