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Kuwait to step in with emergency funds after lender appeal
The Kuwaiti government on Wednesday signalled it was ready to put more money into banking deposits after lenders asked for help to secure liquidity following last week's sharp falls on the local stock market.
"We call on government institutions and authorities to increase the volume of deposits at Kuwaiti banks," Commerce & Industry Minister Ahmad Baqer said, according to state news agency KUNA.
The move came after the Gulf Arab state's banking association urged the government in a statement to put medium and long-term deposits into commercial banks, "particularly in this period to support economic activities."
The central bank, which could not be immediately reached for comment on Wednesday, said on Monday it would 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.
Baqer, speaking after a meeting of the Kuwaiti parliament's financial committee, said the Kuwaiti banking system was in good shape and required no government intervention like in the United States.
The Kuwaiti Banking Association (KBA) said local lenders were still strong, although "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."
Naser Al-Nafisi, General Manager at the Al-Joman Center for Economic Consultancy, said the KBA wanted sovereign investment vehicles such as the Kuwait Investment Authority or the finance ministry to shift deposits from the central bank, where they tend to 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 were now being affected by the global downturn. (Reuters)
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