CBK Offers Regulatory Stimulus Package for Local Banks to Face Coronavirus Fallout
The Central Bank of Kuwait (CBK) announced today it has adjusted its regulatory instructions and macro prudential policy tools to empower the banks’ ability to perform their vital role, provide financing to productive economic sectors, and offer liquidity to help businesses continue operations. This aims to avoid turning a shortage in liquidity from turning into long-term solvency issues. These instructions are part of previous actions taken to support vital economic sectors and enterprises with added value to the local economy and to support people and small and medium enterprises and businesses who have been negatively affected by the current circumstances.
In a statement, the Central Bank of Kuwait Governor, Dr. Mohamed Y. Al-Hashel said, the strength of the banking sector in Kuwait is reflected by the financial soundness indicators that exceed global averages. This is due to the prudent regulatory policies implemented by CBK since the global financial crisis of 2008 in order to face such circumstances. This has created strong capital bases, precautionary provisions, and conservation buffers, which enable the banking sector to continue to perform its integral role in supporting the national economy.
The instructions issued include a reduction in liquidity requirements such as the liquidity coverage ratio, the net stable funding ratio, and the regulatory liquidity ratio. In addition, they increase the maximum limits for the negative cumulative mismatch and the maximum lending limits to providing financing.
In an effort to target more support for small and medium enterprises, the credit risk weight has been reduced from 75% to 25% to calculate the capital adequacy ratio, in order to empower banks to provide more financing to this sector. Moreover, the CBK instructions allowed banks to release capital conservation buffers within the capital base, thus reducing capital requirements. On financing for private housing and development, the new instructions included increasing the ratio of loans to value of the property or the cost of development.
The Governor concluded, the Central Bank of Kuwait will continue to closely monitor the banking sector to ensure the new instructions effectively meet their goal in empowering the banks to provide liquidity to the productive sectors of the economy. He added, CBK will not hesitate to take more actions as warranted to preserve Kuwait’s higher economic interests.