The governor of the Central Bank of Kuwait (CBK) has hit back at complaints from the private banking sector that banking regulations are “restrictive” and suffocate growth.
Dr. Mohammad Yousef Al Hashel was responding during a public debate in which the Chairman of Kuwait Commercial Bank Ali Mousa Mohammed Al Mousa urged the government to relax existing regulations to stimulate investment.
Kuwaiti banking laws are too restrictive, Al Mousa told the Euromoney Conference in Kuwait City on Tuesday. The governor intervened to point out “mistakes” in Al Mousa’s speech in what became a small heated exchange between the two.
“His claim that the rules are overly restrictive is incorrect,” said Al Hashel. “By definition, regulation is supposed to be restrictive – it is a way of organising the system to prevent [market players] from taking excessive, uncalculated risks.
“However, we are trying to strike a balance to give banks the breathing space to innovate and experiment and we believe we have succeeded, as the sector continues to grow despite a challenging fiscal environment.” “The phrase ‘restrictive regulation’ is not in our dictionary,” he said.
Al Mousa appeared to reject the rebuttal and Al Hashel added: “The framework must be solid enough to prevent crises – which are way, way more expensive than any regulatory requirement.”
The governor also provided information about bond issuances by Central Bank of Kuwait aimed at managing liquidity and plugging a budget deficit that the International Monetary Fund estimates will reach 13.5 percent of economic output this year.
There were reports earlier this month that Kuwait planned to raise KD3 billion from global debt markets. Al Hashel told the conference the level of issuances by Central Bank of Kuwait had risen from KD1.587 billion as of March, to KD2.717 billion today – “which means we have an extra KD1 billion to finance our deficit”.
The governor also stated that fiscal reform can help Kuwait's economy adjust to low oil prices. Saying that despite economic challenges, the banking system was stable, he pointed out that non-performing loans were only 2.4 percent in 2015.
On a related front, in July this year, Minister of Finance Anas Al Saleh said that Kuwait planned to issue up to KD3 billion in US dollar-denominated bonds and sukuk in international markets to help plug its budget deficit for the current 2016-17 fiscal year. It will also borrow up to KD2 billion in debt from the domestic market in conventional and Islamic instruments, said Anas Al-Saleh, who is also deputy prime minister and acting oil minister.
The remainder of the expected KD9.5 billion budget deficit for the current fiscal year, which began on April 1, will be covered by drawing down funds from the general reserve, he explained. The forecast deficit was after a deduction for the Future Generation Fund, a nest egg for when oil supplies diminish. "Most of the available scenarios suggest that oil prices will remain, for the foreseeable future, lower than the levels required (for) attaining a balanced budget," said Al-Saleh.
For the 2015 to 2016 fiscal year, the government posted a budget deficit of KD5.5 billion, lower than the KD8.2 billion it had previously forecast, he said. That was because of higher production of oil and efforts to reduce current spending. Still, the government was committed to funding capital projects tied to the national development plan and mega infrastructure schemes, he said.
For the current fiscal year the budget was based on an average oil price of $35 per barrel, lower than the benchmark for the previous year of $45. The ministry of finance was preparing a public debt strategy for the coming five years to cover the government's financing needs.
The strategy included setting up a special unit to manage public debt within the ministry. It would work in cooperation with Kuwait Investment Authority, the sovereign wealth fund, and the Central Bank, he said.