I'm sure that I'm not alone in cracking a smile every time I hear news of commercial banks being called to account over dodgy practices. Overcharging, overlending and the disclosure of private information are the chief misdemeanors, and yet for each time the banks are caught red-handed, we all know that there will be a million other such infringements that sneak through the all-too-ineffective regulatory net.
Still, every little counts, and so it was with great pleasure that I read of Kuwait's efforts to rein in the routine violation of lending rules. It seems that the state is asking banks to cancel parts of consumer loans involving overridden lending regulations, as lawmakers press the government to bail out borrowers by settling debt worth about US$4bn. Typical violations under scrutiny include requiring borrowers to make monthly payments exceeding half of their monthly wages, and granting loans for terms longer than 15 years.
This is not a complete surprise: it comes just weeks after the Kuwaiti government established a US$1.09bn fund to help citizens settle debt, after parliament came a whisker away from passing a measure to force the government to buy out consumer debt portfolios. That was a close call, and the state has acted quickly and decisively to turn the rising heat away from itself and towards the lenders.
Reducing citizens' debt has fast become a political hot potato in a country determined to move away from the expensive ‘nanny state' model, which has often led citizens to take large loans in the expectation of debt write-offs. The government wrote off all consumer loans after the 1991 Gulf War that ended Iraq's occupation of the Gulf state, and then wrote off millions more in a plan to settle US$20bn in bad loans stemming from a bourse crash nine years previously.
As we approach 2008, Kuwait is at a similar crunch point: central bank governor HH Sheikh Salem Abdulaziz Al-Sabah recently estimated the total national consumer debt at the end of October amounted to almost US$16.7bn. The amount comprises over US$4bn in consumer loans, while the rest are installed credit facilities with adjustable interest rates that change along with the central bank policy. The number of loans offered by lenders in the country totals around 451,000, according to Al-Sabah - 155,000 of which have adjustable interest rates.
Will we witness another government bailout? I doubt it. This time, we will see the central bank curb commercial banks' lending appetites by making them responsible for the loans they approve. Commercial banks will be told in no uncertain terms that they will end up contributing to government efforts to slash citizens' debts, unless they tighten their own practices and hold themselves accountable for fostering the Gulf's short-sighted cult of over-generous money lending. It's time the banks take responsibility, or face being hit where it hurts - in the pocket.
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