Central Bank of Kuwait eyes 25 largest borrowers and related parties in debt review

• To ensure fund flow safety, banks analyze customer data, government deposits, cash flow, and future profitability, while addressing risks from potential changes in depositors’ plans for extra profit.

Officials at the Central Bank of Kuwait continuously review reports and gather feedback from banking policymakers regarding the primary sources of funds for financing and key customers who absorb the majority of liquidity from borrowing depositors, ensuring the steady flow of funds to and from each bank.

In this regard, banking sources revealed to Al Rai newspaper that Central Bank of Kuwait leaders, during their recent discussions with local bank officials, focused on the annual financial statements for 2024, particularly on the list of the 25 largest borrowing customers, as well as depositors.

They emphasized the quantitative and qualitative disclosure of the status of these clients with each bank, aiming to reduce the risk of concentration in loan and deposit portfolios tied to specific customers, especially in the absence of alternative plans should their situation or business direction change.

Risk management

The sources noted that Central Bank officials reviewed the significant exposures, risks of concentrations, and the monitoring mechanisms employed by the banks. The regulator specifies in its instructions quantitative ratios for the maximum limits of credit concentrations with one customer and requests a qualitative analysis of the major clients in each bank’s portfolio, along with related parties.

The sources also highlighted that, as part of ongoing efforts to monitor major exposures and determine the risks of credit concentrations in local banks, open discussions focused on factors such as the cash flows and expected profitability of the 25 largest customers, the future value of their guarantees, and their ability to meet obligations in challenging scenarios.

Assessing fund source safety by analyzing key margins

The sources further indicated that the status of the 25 largest depositors at each bank was also reviewed, with discussions centered on the margins among them to assess the safety of the sources of funds.

While some banks have recently turned to customer deposits and international companies to diversify their funding sources, government deposits remain one of the most stable sources for most banks, whether in dollars or dinars.

The ongoing analysis of major funding sources helps minimize risks associated with large concentrations and mitigates exposure to potential risks, particularly if the financial health of key customers suddenly shifts, potentially affecting profits.

In terms of approach, it is notable that in 2017, officials at the General Insurance Organization adopted a new strategy to reduce ‘cash’ holdings in the institution’s portfolios, aiming to limit cash liquidity to 2% of the total value of the institution’s investment portfolio, which was approximately KD 42.5 billion at that time. The strategy sought to employ un–invested funds, reducing them from 41.2% of the total portfolio in March 2016 to under 4% by March 2021, according to the institution’s officials.

Regarding the bank’s vision, sources indicated that apart from recent meetings with bank officials, Central Bank officials remain focused on reviewing details about the debts of the 25 largest customers and their related parties. This includes reports with a summary of the bank’s evaluation and future outlook for each customer’s risk exposure over at least one year. The evaluation also covers factors like the future of the customer’s economic sector, their ability to adapt to future changes, and their competitive positioning.

Banking reports typically provide an overview of the risk management strategies adopted by each bank concerning large debts and customer concentrations. They also detail the evaluation of creditworthiness, the criteria for assessing guarantees, the quality of economic studies conducted, and how the bank plans to address any issues arising from customers facing financial difficulties.”