Kuwaiti banks address rising risks from revoked-citizenship clients

Kuwaiti banks are exploring financial and accounting solutions to manage increasing credit risks, particularly related to non-performing loans linked to individuals whose Kuwaiti citizenships have been revoked, as well as companies associated with them.

These risks have intensified, with affected clients defaulting on loans for over three months, prompting banks to evaluate their exposure and financial safeguards.

According to banking sources quoted by Al-Rai, lenders are considering submitting proposals to the Central Bank of Kuwait that would allow them to address both existing and potential obligations tied to these clients. The proposals may include using previously established precautionary provisions, as instructed by the Central Bank, rather than reducing from current profit accounts—a departure from traditional provisioning practices.

Key Discussion Points:

• Impact of Citizenship Revocations: Sovereign decisions to revoke citizenships have created credit and regulatory challenges, especially for clients with ties to companies or financial obligations.
• Regulatory and Financial Implications: Potential defaults may require provisions that could affect credit portfolios, capital adequacy ratios, and banks’ credit ratings.
• Provisioning Scenarios: Banks are debating whether to create a one-time 100% provision or distribute provisioning over time. They are also distinguishing between general provisions (1% for cash, 0.5% for non-cash) and specific provisions based on payment irregularities.
• Case-by-Case Treatment: Clients whose citizenship was revoked due to fraud will have their accounts frozen, and their debts labeled as doubtful. However, if such clients continue to repay regularly from existing balances, they may avoid classification as defaulting, delaying provisioning.
• Company Impact: Companies owned by these individuals will also undergo individual evaluation, with financial decisions tailored to each case’s data and legal status.

Exceptional Accounting Measures:

Given the novelty of these situations, banks are reviewing accounting frameworks to accommodate these exceptional cases and ensure financial balance, legal clarity, and proper forecasting. The aim is to safeguard stability without undermining profits.

First-Quarter 2025 Financial Highlights:

• Total banking sector provisions: KWD 80.81 million (up from KWD 66.52 million in Q1 2024) — a 21.4% increase.
• Net profits for nine Kuwaiti banks: KWD 411.4 million in Q1 2025 vs. KWD 385.4 million in Q1 2024 — a 6.7% rise.

  These figures reflect growing caution in the sector as it braces for emerging risks related to sovereign decisions and their ripple effects on clients’ financial obligations.