Kuwait's Central Bank aims to cut the bad loan ratio among Kuwaiti commercial banks to below 3 percent of total loans by the end of this year from 3.2 percent at present, and to 2 percent by end of 2015, said Governor of the Central Bank of Kuwait, Mohammad al-Hashel.
The governor was speaking to reporters on the sidelines of the recent meeting of central bankers from the six-nation Gulf Cooperation Council. Kuwaiti commercial banks took a hard hit during the global financial crisis, mainly from the debts owed to them by local investment firms. In 2008, the government had to step in and guarantee all deposits at banks to avert a crisis and the Central Bank ordered Gulf Bank to raise US$1.3 billion in an emergency rights issue, with Kuwait's sovereign wealth fund taking a 16 percent 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 percent of its total loan book from a 2009 level of 25 percent.
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," Al-Hashel said, adding: "Don't overdo it."
Asked about the impact of falling global oil prices on Kuwaiti banks, he said banks might be adversely affected if the decline continued for a long time. But he noted that 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.
In his speech before the GCC central bank governors, Al-Hashel said that the oil price drop had increased pressure on GCC countries to undertake economic reforms in order to ensure sustainable growth.