Despite the stifling repercussions of the Coronavirus crisis, the write-offs of bad loans in banks continued to decline for the fourth year in a row, down by 21.9% to KD522 million in the first year of the Coronavirus crisis, compared to KD668 million in 2019, and about KD735 And KD746 million in the years 2018 and 2017 respectively, but it remains higher than the annual average of writing off bad debts since the global crisis of about KD454 million dinars, Al Qabas daily reported.
The data indicate two very important indicators. The first is that banks have been able to maintain high levels of the quality of their assets, based on their financial soundness indicators and their ability to cope with shocks, through the process of continuous construction of provisions in the face of the requirements of writing off bad debts, in order to strengthen their financial repercussions. It increases its durability and strengthens its ability to provide its services to all sectors of the national economy with high efficiency, in a balanced manner that takes into account the interests of all concerned parties, noting that bank allocations increased by 47% to exceed one billion dinars in 2020.
As for the second indicator, it is that banks are not in a hurry, with regard to liquidating mortgages, especially after the Central Bank of Kuwait’s decision to stop selling the collateral pledged to them in exchange for loans and financing operations granted to customers until the stability of the markets and the improvement of economic conditions, which gives customers comfort, whether to conclude settlements, or to obtain new funds that enable them to weather the storm.
According to statistics issued by Bayan Investment Company, which was allocated to Al-Qabas, local banks have written off amounts ranging between KD4 million (Warba Bank) and KD126 million for KFH, while Warba Bank topped the list of banks with the most increase in debt cancellation by 961%. It is followed by “KIB” at 269%.
In the context of their keenness to quickly clean their budgets from bad debts and transfer them outside the budget, banks have carried out a major budget cleaning process during the past years, especially debts that have been completely impossible to collect as a result of customers’ compelling circumstances, after the banks made sure of the impossibility of repaying them.
According to these data, the following should be noted:
● Provision coverage ratios for non-performing loans reached 222% at the end of 2020, while the ratio of non-performing loans to total loans reached about 2% last year, compared to 11.9% in 2009.
● Written-off loans do not cause damage to the bank’s budget, as they are not written off until after they are classified as bad, that is, they are no longer generating income and profits, according to accounting standards.
● Despite the decline in bank profits by 53% in 2020 and the decrease in distributions, especially cash, the ability of banks to clean their balance sheets confirms that the banking sector faces the crisis firmly and steadily, noting that the percentage of planned distributions is usually affected by the size of the allocations that are built, as the distributions are linked with the provisions. With an inverse relationship; The higher the provisions, the lower the dividend distribution rate, and vice versa.
● There is no legal harm to the bank as a result of writing off debts and transferring them outside the budget, that is, the bank’s legal position in front of the customer is not negatively affected, as he has the right to follow the procedures for collecting the loan in the usual ways, and the write-off of debts does not mean that banks have abandoned their right and the right of their shareholders to collect These debts, through amicable or judicial claims, and accordingly, the possibility remains “even weak” that they will be collected, even partially.
● Stability of the non-performing loan ratio at 2% means that the lending mechanisms and conditions that banks have been following since the “aggravating” and “selective” global crisis, and the activation of risk departments have paid off and protected banks from Coronavirus.
● Bank allocations increased by 47% to exceed one billion dinars in 2020.
● A provision is not written off unless the provisions are 100% against it. Otherwise, the remaining percentage is recorded as a loss. It is known that a provision of 20% is set aside after 90 days of delay in payment, 50% after 180 days and 100% after 360 days, and the bank cannot cancel the classification of the loan from defaulting to non-performing and release the specified allocations against it unless the customer pays each Late instalments.
● The components of written-off loans, the year of write-off, and the amount of written-off debts in relation to the total loan portfolio .. all are indicators of important significance and may give positive or negative indicators about the bank.
● Editing allocations and returning them to profits does not take place except in the case of debt collection, whether they are classified as defaulting, or have been written off. Therefore, the write-off process means transferring loans with their off-balance sheet allocations, but with the “central” reassurance of the safety of the bank’s budget, it may allow part of the allocations Where the regulatory ratio is to maintain a general provision of 1% of cash facilities and 0.5% of non-cash facilities.
In a related development, banking sources said that the application of the macro-prudential policies imposed by the Central Bank of Kuwait on banks have fortified them over the past decade in the face of crises, by raising the quality of risk management, strengthening capital rules, forming precautionary provisions, and applying the Basel III set of standards, which enabled Banks to continue their activities without using their precautionary barriers, while increasing the capital adequacy ratio, and enhancing the strength of their supervisory capital.
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