Local banks have sent verbal inquiries to the Central Bank of Kuwait about the extent to which it is permissible to extend the exemption of some big clients from applying the credit portfolio concentration ratios, which include the 50 largest clients.
A local Arabic daly has learned from responsible sources this came after clients submitted to their creditor banks a request to renew their credit lines, which are about to expire, after they lost their feasibility, due to which they obtained the supervisory exemption.
Simply and without any complexity, the banks’ renewal of the clients’ financing in question means that they remain within the category of clients who exceed the credit concentration ratios, which are established by the supervisory authority that the maximum financing credit commitments for a single client should not exceed 15 percent of the bank’s capital base.
In principle, it should be noted that for the purposes of calculating the aforementioned percentage, the debtor parties that are economically or legally related are considered as one customer, whether this link is through joint ownership or joint management.
Until earlier times, the clients under discussion deserved to continue on the list of concentration, but it seems that something has changed in terms of their financial positions and the quality of their assets, and to the extent that the bank suggests that there are greater risks to exempt them from the concentration ratios. However, the corresponding challenge emerges that these clients cannot reduce their loans, which leads to their exit from the circle of concentration granted to them.
In accordance with the banking and supervisory tradition, banks weigh the clients included in the list of the 50 largest clients in their credit portfolios, when calculating their capital adequacy ratio, and the Central Bank determines the exception ratio as a flexible procedure, for each bank according to the size of its capital and the distribution of overrun ratios in its list.
As a result, the banking debate emerged within the concerned banks, under the title “What do we do? Do we return the traditional exemption, or is there something that must be observed in terms of oversight?” Here, the importance of moving to the CBK has grown to anticipate its opinion.
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