Press Releases

H.E. Sheikh Salem Abdulaziz Al-Sabah, the Governor of the Central Bank of Kuwait (CBK) announced that the CBK Board of Directors, in its meeting on 11th of December 2005, has decided to endorse the application of Basle II Capital Adequacy Standard unto the conventional domestic banks as of 31st of December 2005, thereby making the State of Kuwait the first Arab country to apply this standard.

H.E. the Governor explained that CBK had followed all stages and developments of the Basle II project through regional supervisory committees and contacts with the Basle Committee on Banking Supervision. At the same time, local banks too followed the evolution of this project during its various phases.

H.E. the Governor further explained that as the Basle Committee on Banking Supervision issued its final document on the Basle II Standard in June 2004, CBK discussed the standard with the local banks through correspondence and meetings during the second half of 2004 and early 2005. This included conducting trials to choose the most appropriate approach to measuring risks. Agreement was reached on the application of the standardized approach to measuring credit and operational risks. Local banks tested the application of the standard for the periods ending in August, September, and October 2005.

H.E. the Governor indicated that in preparation for the application of Basle II standard, CBK provided the necessary training to its Supervision Division staff through many training courses on introducing the standard and its application systems inside and outside Kuwait. The last of these courses is currently underway during the period 10 - 15 December 2005. Participants, besides some CBK Supervision Division staff, include representatives of local banks invited by CBK to familiarize their staff with the standard.

With respect to the basic features of this standard, H.E. the Governor illustrated that the revised capital adequacy framework known as Basle II standard is based on three pillars, which are: minimum capital requirements, supervisory review, and market discipline (public disclosure). In this regard, H.E. the Governor pointed out that according to risk measurement approaches included in pillar 1 of the standard, determining capital requirements is more sensitive to each bank's actual risks and aims in the first place to encourage banks to improve their risk management. H.E. the Governor highlighted that the adopted standardized approach gives lower risk weights to bank claims on entities of high credit assessment, and gives banks the advantage of utilizing credit risk loosening systems.

Furthermore, H.E. the Governor mentioned that the new Basle II capital adequacy standard includes capital requirements for operational risks of banks, and public disclosure requirements. Both elements are important to encourage banks to apply best practices in managing and monitoring various aspects of risk.

H.E. the Governor also clarified that local banks will continue to abide by the minimum capital adequacy ratio set by CBK at 12%, whereas the recommended ratio by Basle Committee on Banking Supervision is 8%.

Finally, H.E. the Governor stated that necessary measures are currently underway to prepare instructions to Islamic banks pertaining to the application of the revised Basle II standard when the capital adequacy standard is issued by the Islamic Financial Services Board (IFSB) in a way similar to that pertaining to the application of Basle I capital requirements for Islamic banks.