New supervisory directive will revive lending locally, increase deposits with CBK
The Central Bank of Kuwait has increased the percentage of funds foreign banks branches operating in Kuwait can investing in foreign markets, as it obligated them to invest 90% of their total deposits locally, irrespective whether they are deposits in dollars or in dinars in the local market.
Relevant sources revealed to Al-Rai that the sources indicated that the Central Bank has raised the percentage of funds that these branches must invest within the country from 80 to 90 percent, which means that it will only be entitled to invest 10 percent of its total deposits abroad, whether in the form of deposits with the parent group, or as the traditional bank liquidity.
Foreign branches will have to reconsider their plans to invest their money, as they will have to focus more on local lending, and increase their presence in bank deposits with the Central Bank, bond and sukuk subscriptions to Kuwaiti companies, and other aspects of organizing and employing liquidity.
Analytically, some interpreted the supervisory move in this regard as coming to reduce the collection of these branches for their liquidity in the balance sheets of the parent banks, especially from the dollar, or to invest them in tools outside the local market, which reduces the importance of banking competition in Kuwait, in addition to that reducing the level of bank liquidity surpluses locally in favor of foreign markets.
In Kuwait, 12 branches of foreign banks operate, including the Industrial and Commercial Bank of China, which is the latest of these branches, compared to 11 local banks (including Bahrain Kuwait Bank), noting that HSBC is listed in the Central Bank’s records as the first foreign bank to open a branch in the local market in 2005.
As for the reaction of the branches of foreign banks, there is more than one opinion in this regard. Some of them believe that although their returns have not formed a difficult number in the balance sheets of their main banks since the start of their business in Kuwait, the supervisory directive in this regard will further reduce their rates of return.
What increases the conviction of those holding this view is the decline in the opportunities to invest money that branches of foreign banks can benefit from locally, especially in light of the open competition between them and Kuwaiti banks, whether in the individual market or in the corporate sector that cannot provide a wide range of banking services. It was intended to be offered in the local market, especially for companies and commercial and investment banking services.
At the same time, there are those who believe that the effect will be relative, as it will differ from one bank to another, and according to the currency of its surplus funds. It is bigger than the dinar, but locally, this should reflect positively in the interest of the Kuwaiti business sector.
Moreover, during crises times the Kuwait Investment Authority, more specifically, tends to support Kuwaiti banks with liquidity, by meeting all their needs of funds, especially since the interest rates offered by local banks are competitive, which makes them more concentrated during the Corona crisis, whose repercussions have spread since last March, as for other government agencies that can deposit in dollars, their rates also declined compared to the earlier times, including the Credit Bank, the Kuwait Fund for Arab Economic Development, and major companies such as the EQUATE Petrochemical Group, and other joint depositors in dinar and dollars.