Press Releases

His Excellency, the Governor of the Central Bank of Kuwait (CBK) - Dr. Mohammad Y. Al-Hashel, announced that the CBK’s Board of Directors has approved the structure of the Basel III capital adequacy standard and the transitional  phase of its implementation. This standard is among a set of comprehensive reform measures developed by the Basel Committee on Banking Supervision (BCBS).

His Excellency, The Governor clarified that Basel III capital adequacy standard calls for basic amendments to Basel II standard as represented by  a) an increase in the ratio of regulatory capital; b) redefining the regulatory  capital within a set of standards that is  meant to improve the quality of the eligible capital by setting minimum limits that banks should maintain in the form of common equity; c) determining additional margins in the form of conservation and countercyclical capital buffers; d) introducing more constraints to the eligibility criteria of recognising the tier 2 capital in addition to the deletion of tier 3 capital which was recognized by the Base II standard; and e) the setting of higher ratios for those banks identified as domestically systemically important banks (D-SIBs).

The Basel III reforms package  includes other standards  such as the leverage ratio standard and  two new Liquidity Standards in the form of short-term liquidity [Liquidity Coverage Ratio (LCR)] and long-term liquidity [Net Stable Funding Ratio (NSR)].

His Excellency added that the amendments to the Basel II capital adequacy standard developed by the BCBS aim to enhance the quantity and the quality of banks’ regulatory capital to strengthen banks’ resilience and ability to absorb losses and to enable banks to build-up additional capital buffers within a framework of macroprudential policies that are implemented by regulatory authorities in order to limit systemic risk and enhance financial stability.

Considering the above mentioned amendments to the capital adequacy standard, Basel III guidelines allow for the phasing-in implementation that starts from the 1st January 2013 until the 1st January 2019 – thus enabling banks to gradually build-up the required increases in their capital to meet the new capital adequacy requirements whilst avoiding the risk of a contraction in credit, taking into account the fact  that many international banks may not be able to fully comply with the new requirements introduced by the standard without a transitional phase.

His Excellency also pointed out in terms of pursuing best international practices the CBK immediately initiated the phase-in of Basel III reform measures and guidelines noting that Kuwait was amongst the first countries  to implement Basel II measures. Kuwait’s early response to these measures has contributed to enhancing the image and reputation of the Kuwaiti banking sector as well as the supervisory authority and has been appreciated by international institutions including rating agencies. The initiatives taken by the CBK to implement such reforms have been clearly reflected in the comparatively high ratings awarded to the Kuwaiti banks.

Within the framework of the Basel III guidelines implementation plan, the CBK has undertaken initiatives such as a) the forming of a steering committee including amongst its members representatives from local banks and headed by the CBK; b) sourcing a consultancy firm to co-develop the Basel III draft regulation c) conducting a quantitative-impact study for the implementation of capital adequacy standard, the two liquidity standards, and the leverage ratio standard and c) organising training programmes for local banks’ as well as CBK staff. Within this context, the CBK also issued, during July and August 2013, draft regulations to Islamic and conventional banks outlining the basis for the quantitative-impact study.

His Excellency further added that in light of the outcomes of the quantitative-impact study and in keeping with Basel III guidelines and the implementation by other central banks around the world, the Board of Directors had approved a minimum capital adequacy ratio of 13.00% to be implemented by the Kuwaiti banks over the following time-frame:

              Beginning of 2014     12.00% 

              Beginning of 2015     12.50% 

              Beginning of 2016     13.00%

His Excellency pointed out that the gradual phase-in of Basel III capital adequacy standard will ensure that Kuwaiti banks will be able to continue broaden business activities, expand the extension of loans - particularly with regard to development projects and remain strongly competitive. Within the context of this implementation,  the Kuwaiti banks  shall provide the CBK with the requisite data on capital adequacy as of December 2013 in parallel with the data submitted for Basel II capital adequacy purposes. In this respect it may be further noted that Kuwaiti banks have already initiated trial tests starting from the end of 2012.

The positive outcome of the quantitative impact study reflects the high capital adequacy ratios that Kuwaiti banks maintain in accordance with Basel II guidelines, which in turn are attributed to a balanced and gradual implementation of rules and regulations by the CBK encouraging banks to maintain higher buffers in accordance with the CBK’s macroprudential policy objectives.

His Excellency further indicated that the final format of Basel III capital adequacy standard is to be finalised in cooperation with local banks and the consulting firm and shall be published during the first half of 2014. Other aspects of Basel III regulations, including the financial leverage ratio and the liquidity standards, are scheduled to be completed within a time-frame taking into consideration the outcomes of the quantitative impact study.

His Excellency concluded by stating that it is the CBK’s intention to continue to develop supervisory tools in line with best international practices and to strengthen local banks’ resilience to financial shocks whilst simultaneously maintaining their competitiveness and to ensuring solid economic growth.