Confidence returns to Kuwait
Governor Sheikh Salem Al Sabah is leading efforts to deal with the chaos left from years of property and stock speculation. But as Dominic O’Neill asks at the central bank’s office in Kuwait, is the clean-up anywhere near complete? Is structural change possible?
AFTER 25 MONTHS without a break, Kuwait central bank governor Sheikh Salem Al Sabah took a much-needed holiday in July. Perhaps it is a sign that banks in Kuwait are regaining confidence.
In the past two years a large chunk of Kuwait’s financial system has disintegrated. In a way, it was a re-run of the country’s Souk Al Manakh crisis in 1982: an immense stock market bubble that burst, leaving many banks insolvent. This time it was a number of Kuwait’s 100 investment companies that found themselves in trouble. And according to credit rating agency Moody’s the problem is not resolved: some investment companies have restructured but the standing of others relies on continued support from local banks.
With on- and off-balance-sheet assets, according to the IMF, having risen to more than 90% of the banking system’s total assets, collectively the companies constitute a system the governor refers to as "shadow banking". The firms are often aligned with business families loth to concede defeat in this tight-knit community. The chief executive of one financial firm says: "Without strong leadership, the banks will keep quiet. No one will be forcing anyone out of business."
According to IMF estimates, Kuwaiti investment companies’ debt amounted to about $30 billion at the end of 2009.