The Central Bank of Kuwait (CBK) is considering a bill that will lead to lifting the government guarantee on deposits that was approved in 2008 within the law to enhance financial stability, Al Rai daily reported.
Amongst the objectives of the expected law is the replacement of a guarantee for the entire amounts deposited with another that covers a specific upper limit for every customer.
The sources told the daily that the Central Bank’s approach in this regard is linked to a package of global and local considerations, including Kuwait’s sovereign rating, explaining that it was noticed in the recent period that international rating agencies put among their considerations that the government guarantee of deposits constitutes an obligation on the state, which represents pressure on the sovereign rating. Although this obligation is indirect.
These agencies take into account that the state will pay the deposits to customers if its banks default on that, noting that this view puts pressure on the rating, even if these agencies see the impossibility of this happening, due to the financial strength of Kuwaiti banks and their creditworthiness.
The Central Bank is currently calculating with high accuracy the cost of raising the guarantee in exchange for maintaining it and making the most appropriate decision that will represent protection buffers for the market and banks if the cost of raising is less than maintaining the guarantee and the guarantee is canceled.
The sources said that the Central Bank is working, to establish a guarantee system as an effective alternative to the state guarantee, and that there is more than one scenario for this, including the establishment of a body or fund that guarantees, in cooperation with banks, a portion of customers’ deposits, noting that among the proposed scenarios is also that the state remains a guarantor of a certain minimum amount of money, regardless of the value of the deposit.
The sources indicated that customers’ choice of banks in which they will deposit their money in the future will depend, in the event of raising the state guarantee, on two main considerations, either based on the name and position of the bank, or the value of the interest that it will obtain, which allows raising the level of competition among local banks.
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