Kuwait banking regulations and a major risk for banks in Kuwait

Elham Yousry Mahfouz, CEO of Commercial Bank of Kuwait talks about the major risk for banks in Kuwait and regulatory framework.

She says, “I’ll answer with some real examples. By the end of 2003, when banks looked at their loans to deposits ratios, they had figures of 115, 120, 125%. This kind of figure may be existing in banks in countries like UAE, because of their expansion and construction etc. The internal discussions considered how high we could go, maybe 140 or 150%. That would be hilarious, there is something wrong. This is basic banking. The Central Bank stepped in and said each bank had to consider these levels and try to reduce it to about 80% within a set timeframe, 6 months to a year. This was before the crisis but something was already boiling up. They saw it coming. They tried their best to monitor every bank and made other rules and regulations.”

“Some bankers may consider them too tough. From my own personal experience, it’s better to have a strong regulatory authority keeping an eye on things rather than no oversight at all. Mistakes do happen. Every system has drawbacks and limitations. Investment companies were badly affected by the crisis but we will not discuss it here. It was a hiccup in the system. The regulatory authorities didn’t see it. Balance sheets were growing but with the crisis elsewhere, liquidity shrank. Now borrowing is hard. It’s extremely expensive to borrow and collateral is high. The situation was upside down. Can another crisis happen? Yes it’s expected in the emerging markets and Europe. Germany has been shouldering much of Europe’s burdens but how long can they do it? A crisis can happen in the Middle East again. Real estate prices have expanding in many GCC countries. These prices are not really reflective of ground realities. Stock markets were up but in the last 2 weeks there’s been a huge drop, in the UAE, Saudi Arabia and even Kuwait to a lesser extent,” she adds.