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Sun 5 Oct 2008 05:06 PM

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Kuwait injects more cash into banking system

Kuwait moves to shore up confidence, interbanking lending rates fall.

Kuwait injects more cash into banking system
CASH BOOST: Kuwait injected more cash into the banking system to shore up confidence. (Getty Images)

Kuwait injected more cash into the banking system to shore up confidence in the wake of the US financial crisis, bankers said on Monday, while the central bank governor expressed confidence local banks would not be hit.

Interbank lending rates fell for the first time in weeks after bankers said the central bank offered more funds to lenders to boost liquidity after a similar move last week.

"It's good news, showing they are willing to intervene to ensure sufficient liquidity," one banker at a local lender said, adding the bank had offered overnight, one-week and one-month funds.

The central bank, which was not immediately available for comment, has said it is ready to add liquidity if necessary despite worries about rising inflation in the OPEC member country.

The newspaper Al-Anbaa quoted Central Bank Governor Sheikh Salem Abdul-Aziz Al-Sabah as saying Kuwait's banks were safe from the fallout of the US crisis as they had no bad loans.

"Local banks have not been and will not affected," Sheikh Salem said, according to the paper.

He said the approval of $700 billion Wall Street bailout by the US House of Representatives would have a positive effect on US and Arab markets including Kuwait's bourse.

Last month, Kuwaiti banks said the global crisis might affect them even though the oil-driven economy was booming and they urged the government to boost deposits in private banks.

Kuwait's Trade and Commerce Minister Ahmad Baqer has sought to assuage lenders' concerns by calling on government institutions to move deposits from the central bank, where they tend to hold them, to other banks.

Al-Rai newspaper said in an unsourced report the central bank had so far injected almost 100 million dinars ($374.3 million) into the banking system, and intended to sell bonds worth 50 million dinars.

Interbank lending rates fell, central bank data showed on Sunday, with lending rates for one-month funds falling to 4.4375 from 4.8125 last Monday, the last day of business before the start of an Islamic holiday.

Interbank rates had 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 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.

The main stock index fell 3.6 percent on Sunday, the biggest one-day decline in almost three weeks, dragged down like other Gulf markets by the global turmoil.

The newspaper Al-Watan said in an unsourced report the Kuwait Investment Authority (KIA), the Gulf Arab state's sovereign wealth fund, would pour up to 1.5 billion dinars into the bourse to support the market. (Reuters)

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