If Gulf state fails to aid with company debt it may hurt economy, warns union chairman
Kuwaiti investment companies need government intervention to
overcome the effects of the economic crisis, and failing to deal with their
debt may hurt banks in the country, said Asaad al-Banwan, chairman of the Union
of Investment Companies.
“The continued weakness of investment companies and their
inability to service their debt may cause a significantly negative impact on
the performance of local banks,” al-Banwan said in an emailed statement today.
“Challenges of the financial crisis can be overcome by
government interference, and Kuwait is not an exception,” he said. Given a lack
of funding channels for investment companies, the union “sees the necessity for
the government to review its stand toward the investment sector,” al-Banwan said.
About 10 percent of bank lending in Kuwait is to investment
companies, some of which defaulted amid the credit crisis after asset values
collapsed and frozen debt markets prevented them from raising new loans.
Investment companies had used cheap credit during the boom years to invest in
real estate and private-equity assets.
Al-Banwan suggested the government might boost the private
sector’s role in the economy, balance the budget and pump capital directly into
companies among means of supporting investment companies.
Kuwait’s 95 investment companies have KD20bn ($71.6bn) of
assets under management, equivalent to 67 percent of total deposits in local
banks, according to al- Banwan.
The combined profit of listed Kuwaiti companies dropped to KD1bn
last year from about KD4bn before the 2008 crisis, he said. Kuwait’s benchmark
share index has plunged 54 percent since the end of 2007 and slid 16 percent
The Kuwait City-based union represents the country’s
investment companies and has 42 members, according to its website.