The Central Bank of Kuwait has refused to allow banks to add interim profits to the capital base, in the case of interim “semi-annual” distributions, or to postpone the deduction of interim cash distributions from the capital base to the end of the year with the timing of adding the year’s profits to the capital base.
A local Arabic daily has learned, that the Federation of Kuwait Banks had proposed to the Central Bank to update the Basel III instructions regarding capital adequacy, by easing its requirements, stressing the importance of this step to be in line with the supervisory instructions and in line with the laws on interim dividend distributions.
It is worth noting that the same accounting control rule is also applied to the method of classifying interim losses, which are not also included in the capital base of banks, as they are financial statements that have been financially audited but not audited, and this comes as a precaution and precaution.
From the accounting point of view, the banks’ request in this regard means allowing the banks to enter the quarterly profits within their capital bases, a procedure that the Central Bank does not apply, given that these data are not audited and the annual statements of the banks that are being audited.
The Union of Banks believes that this proposal is of additional importance due to the changes related to dividends, indicating that due to the lack of regulatory permission for interim dividends, 3 practical difficulties will arise, which are as follows:
1 – Deducting interim dividends from the first tier of capital without adding interim dividends will result in a decrease in the capital base, which may directly affect the limits of credit concentration for each client (15 percent of the capital base) and other regulatory limits related to the legal capital.
2 – The bank’s overall capital adequacy ratios will weaken, which may result in capital liquidity-related obstacles to business growth.
3 – The stable funding ratio will be negatively affected and this will lead to an increase in the bank’s overall liquidity costs.
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