Kuwait lenders call for cash injection

CASH INJECTION: Banks in Kuwait have called on the government to act to boost liquidity in the sector. (Getty Images)

Kuwaiti lenders urged the government on Wednesday to put money into banking deposits to help secure liquidity and support the economy after the local stock market fell sharply last week.

The call came after a banking source and media said the central bank of the only Gulf Arab state without a dollar peg wanted to verify if individual banks had enough liquidity.

Governmental and quasi-governmental authorities should put medium and long-term deposits in commercial banks, "particularly in this period to support economic activities", the Kuwait Banking Association (KBA) said in a statement.

The central bank, which could not be immediately reached for comment on Wednesday, said on Monday it "will not hesitate" to provide liquidity to the banking system if necessary.

Interbank rates in Kuwait have almost doubled since the central bank in August withdrew a facility guaranteeing the availability of dinars at a fixed rate on the interbank market.

In addition, the bourse fell last week and during most of the summer. The government partly blamed a flurry of capital increases including a $4.5 billion offer by Mobile Telecommunications Co. (Zain), for sucking up funds.

Kuwaiti banks were still strong but "this does not mean that we won't be affected in case of a prolonged downturn of the global economy and probability of a recession in countries of the region", the statement said.

Naser Al-Nafisi, general manager at the Al-Joman Centre for Economic Consultancy, said the KBA wanted sovereign investment vehicles such as the Kuwait Investment Authority (KIA) or the finance ministry to shift deposits from the central bank, where they tend the hold them, to private banks.

"They have much cash available for projects. I think they should maybe deposit some money in banks," Al-Nafisi said.

The banking association said it had made several proposals to the central bank to ensure sufficient liquidity and hoped it would approve. It gave no examples in the statement.

Kuwait's Al-Qabas newspaper said earlier in an unsourced report that the central bank wanted to check on bank liquidity after recent stock market declines.

"We expect a letter from the central bank in one or two days. They just want to be on the safe side," a source at a local bank said.

The move would come on the heels of an announcement by the central bank of the United Arab Emirates that it would launch a 50 billion dirham ($13.61 billion) funding facility to help banks cope with a global liquidity crunch.

The Kuwaiti lenders also said an unattractive investment climate, where the cabinet has struggled to win parliamentary approval for reforms to open up the economy, had forced firms abroad. These stories were now being affected by the global downturn.

Kuwaiti banks had so far said they were not affected by a financial crisis in the US after Lehman Brothers filed for bankruptycy last week.

Like other Gulf banks, Kuwaiti lenders have expanded in the region but are still mainly focussed on the local market. (Reuters)

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