Kuwait’s central bank aims to cut the bad loan ratio among Kuwaiti commercial banks to below three per cent of total loans by the end of this year from 3.2 per cent at present, central bank governor Mohammad al-Hashel said on Friday.
Hashel, speaking to reporters on the sidelines of a meeting of central bankers from the six-nation Gulf Cooperation Council, said he wanted the ratio to fall further to two per cent by the end of 2015.
Kuwaiti banks were hit hard by the debt problems of local investment firms during the global financial crisis. In 2008, the government guaranteed all deposits at banks to avert a crisis and the central bank ordered Gulf Bank to raise $1.3 billion in an emergency rights issue, with Kuwait’s sovereign wealth fund taking a 16 per cent stake in the bank.
In the last couple of years, however, many banks have made considerable progress cleaning up their balance sheets. Commercial Bank of Kuwait said this month it had reduced its non-performing loans to 1.3 per cent of its total loan book from a 2009 level of 25 per cent.
“The banks are working hard to reduce this figure,” Hashel said. “I have a goal, God willing, that the banks should cut this ratio to below three per cent this year…and God willing, it should fall to the level of two per cent by the end of 2015.”
Big provisions for bad loans taken by Kuwaiti banks in the past few years have limited profits distributed to shareholders.
“We do not want more provisions, but prudence requires us to take provisions to the extent necessary,” Hashel said, adding: “Don’t overdo it.”
Asked about the impact of falling global oil prices on Kuwaiti banks, Hashel said banks might be adversely affected if the decline continued for a long time. But he said Kuwait had coped with periods of low oil prices in the past, and that banks were able to absorb shocks given their ample liquidity and high capital adequacy ratios.
He said in a speech to the GCC central bank governors that the oil price drop had increased pressure on GCC countries to undertake economic reforms in order to ensure sustainable growth.
GCC countries began discussing the idea of adopting a single currency decades ago but the project has made little progress in recent years, and the United Arab Emirates and Oman have pulled out of it.
Hashel told reporters the idea was not dead and that government agencies were still working on it. However, he said it needed “comprehensive study” in light of the experiences of other countries, especially the euro zone.