By Ulf Laessing and Rania El Gamal
UPDATE 1: Central bank says it will continue to ensure banking system has appropriate liquidity in wake of global crisis.
Kuwaiti banks have "ample liquidity" available to them and the central bank will continue to ensure its banking system has appropriate liquidity in the wake of the global credit crisis, the bank's governor said on Thursday.
The comments come a day after Kuwait, the only Gulf Arab state without a dollar-peg, slashed its key discount rate by a whopping 125 basis points to 4.5 percent to boost liquidity. It also cut the repurchase rate to 2.5 percent from 3.50 percent.
Markets have tumbled around the world as the upheaval that began on Wall Street spread, effectively shutting down interbank and other loan markets, while hitting stocks also in the booming oil-driven Gulf region.
Sheikh Salem Abdul-Aziz Al-Sabah told newswire Reuters that he is "confident" the banking sector is shielded from the direct impact of the US financial crisis but added the bank is monitoring its financial conditions continuously.
"The banking system in Kuwait is assessed as having ample liquidity to support the operations of local banks," Sheikh Salem said in response to written questions.
He added the central bank, which has been pouring money into the banking system for days, had recently "adopted a more accommodative policy with respect to the provision of short-term liquidity".
"Routine operations are adjusted on an ongoing basis to ensure that the banking system has adequate provision of both short and longer-term liquidity to support efficient operation of the financial sector," he said, without elaborating.
The central bank has been injecting short-term funds to banks to shore up confidence in the banking system and boost liquidity amid a global financial crisis for days including on Thursday, bankers told Reuters.
"They are offering 1-week and overnight, but I didn't take it since there is now plenty of liquidity in dinars," said one bankers at a local lender.
Interbank interest rates have fallen every day this week.
Sheikh Salem did not say which measures the bank might take to become more "accommodative" for lenders, but the Kuwaiti Banking Association said on Wednesday the central bank had increased the loan-to-deposit ratio for banks to 85 percent from 80 percent as a first step to improve the situation of banks.
This will give local banks an additional 1 billion dinars ($3.73 billion) to lend, the head of the association, Abdul-Majeed Al-Shatti, said on Wednesday.
The banks are also urging the government of the world's seventh-largest oil exporter to move deposits from the central bank to private banks to improve liquidity.
The interest rate cuts helped spur the bourse, with the main stock index rising 3.78 percent on Thursday, after days of decline.
Al-Qabas newspaper said on Thursday in an unsourced report that sovereign wealth fund Kuwait Investment Authority (KIA), is capable of injecting almost $15 billion into the market and might withdraw money invested abroad.
KIA said earlier this week it was ready to pump more cash into the bourse, the Arab world's second-largest, after having increased exposure to the market. It gave no volumes.