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Mon 8 Apr 2013 02:30 PM

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Senior Kuwaiti banker blasts gov't bailout as 'unjust'

Head of Kuwait Banking Ass'n claims decision to bailout indebted nationals is politically motivated

Senior Kuwaiti banker blasts gov't bailout as 'unjust'

The head of the Kuwait Banking Association claims the government's decision to bailout indebted nationals was politically motivated and it unjustly denigrated the reputation of the country's banking sector.

During his public retribution, chairman Hamad Al-Marzouq said allegations banks had charged excessive interest rates on consumer loans during 2002-08 and violated Central Bank of Kuwait regulations were “completely false”.

“Many of the politicians were looking really for an excuse to, I think, make political gains,” he said at a Euromoney conference in Kuwait on Monday.

The Kuwaiti government last month gave initial approval for legislation that would see it take over the loans taken out by about 40,000 nationals between early 2002 and March 2008. It would then write-off the interest and reschedule the loans.

The bailout is expected to cost KD744m ($2.61bn), according to Finance Minister Mustapha al-Shamali.

Many lawmakers had expressed support for the bailout during the campaigns in the December election.

But economists and the finance sector have criticised the legislation as encouraging a lack of confidence in the local banking sector and complacency among borrowers.

“There were a lot of false allegations regarding banks committing violations in terms of implementing the fiscal framework regarding provision of consumer loans,” Al-Marzouq said.

“I think they were really false allegations and anybody who has any grievance regarding illegal calculation of interest or otherwise... the legal system is open for anybody to make allegations. But I think unfortunately the political environments in which this legislation was approved, I don't think was proper, I don’t think the law was just.”

While it would have limited impact on banks financially because the government would cover the owed interest, it would negatively affect their reputations. There were also still legal and constitutional questions remaining, he said.

Al-Marzouq said the accusation that interest rates were excessive could not be true because the Central Bank limited rates to 4 percent.

Also, even if the instalments were 60-70 percent of the salary when the loan was taken out between 2002-08, salaries had since doubled, meaning the instalments represented about 25-35 percent of the borrower's salary.

“The [political] propaganda was so strong that you're even asking the question,” he said.

“It's completely false, the banks are in complete compliance of Central Bank regulation, the maximum they can charge is 4 percent. Anybody, anybody, who has a loan that is higher than the 4 percent margin, we encourage them to go to the court.”

External auditors assessed the loans of 400,000 borrowers with Kuwaiti banks in 2008, with a small number of violations uncovered.

“[It was] probably the first time in the history of banking [Kuwaiti banks] were subjected to an inspection with a sample size of 100 percent,” he said.

“Every file was thoroughly checked by external auditors and violations were rectified. Banks were charged KD82m in 2008 to rectify all the violations so this subject is behind us.

“I'm not saying local banks are immune from committing violations, just like [anywhere]. But [the violations] are here and there, these are exceptions.”

The International Monetary Fund (IMF) also criticised the bailout and claimed the Kuwaiti government ignored its warnings.

“It will impact the government finances, it will create more hazards for the banking system, it will raise the incentives for the banks to take riskier positions, it will raise the incentives for borrowers to take more debt in the future,” Ananthakrishnan Prasad, IMF deputy division chief of the Middle East and Central Asia Department, told Arabian Business on Monday.

“This is the advice we have given Kuwait in the past and we give to any other country that thinks of writing off the debt or interest.

“[The bailout] has to come with the Central Bank or the government [taking] the opportunity for more reforms now and go for a credit protection rights and regulating the regulatory environment.”

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john seinfeld 7 years ago

Can you please send the auditors to TAMWEEL.
they are still charging 8.4% mortgage interest for my loan which was Eibor plus 1%.
seems they have decided to freeze it at 2008 rates.

jay 7 years ago

what a bad message blame the banks etc its simple blame to person as they borrow more than they can afford and know the government will pay it off as it has done before
how many are persistant offenders abusing the system
this system is simple wrong and doesnt solve the problem
lets stop all ofthese people borrowing any more money anywhere