The Central Bank of Kuwait is assessing banks’ readiness to return to pre-March regulatory liquidity requirements, nearly five months after temporarily easing selected rules to cushion the banking sector from the impact of the regional geopolitical shock on energy markets.
The Central Bank has asked some banks how much time they would need, both operationally and from an accounting perspective, to restore the liquidity ratios that were in place before the exceptional measures introduced at the end of March.
The question is significant for banks that used the stimulus package, which lowered requirements including the liquidity coverage ratio, net stable funding ratio and regulatory liquidity ratio. The measures also increased permitted cumulative liquidity gaps, raised financing limits and released part of the precautionary capital buffer to give banks greater flexibility to meet market needs and support economic activity.
Banks largely maintained precautionary buffers
According to several banks, most did not use the additional regulatory flexibility for liquidity, financing and capital adequacy, while others used it only on a limited basis and in some cases just once before quickly returning above the previous limits.
The figures indicate that Kuwaiti banks were able to continue managing operations and financing economic activity despite the external turbulence without significant reliance on the temporary regulatory cushions.
Strong liquidity and capital adequacy buffers also provided banks with room to withstand the shock while remaining above global benchmarks and regulatory requirements by comfortable margins.
Two possible signals
The Central Bank’s inquiry could point to two developments: a possible move toward restoring the normal liquidity ratios that applied before the regional conflict, or growing confidence that banks no longer require exceptional regulatory flexibility.
The sector’s ability to maintain banking services and meet its obligations during the five months since the package was introduced has strengthened the case for reassessing the need for the temporary measures.
The Central Bank has previously attributed the resilience of Kuwait’s banking sector to prudent, long-term precautionary policies that have strengthened banks’ ability to support economic activity while maintaining banking stability.
Resilience tested during COVID-19
Kuwaiti banks’ limited reliance on crisis-related regulatory relief is not unprecedented. During the COVID-19 stimulus package launched on April 20, 2020, banks were given additional regulatory room to maintain financing to vital economic sectors, affected individuals, SMEs and companies.
According to the report, no local bank was shown to have used the additional liquidity space provided under that package, despite the partial and full economic shutdowns during the pandemic.
The COVID-19 measures were in effect for about six months before being suspended as normal activity resumed at the end of 2020. Unlike the March 2026 package, use of the COVID-era facilities was linked to restrictions on profit distributions.
The latest Central Bank inquiry therefore places the question of when to close the current liquidity exceptions on the table, as regulators assess banks’ readiness to operate again under their normal regulatory limits.
