Widgetized Section

Go to Admin » Appearance » Widgets » and move Gabfire Widget: Social into that MastheadOverlay zone

Central Bank issues Financial Stability Report – CBK also issues annual report for FY 2014-2015

Governor of the Central Bank of Kuwait (CBK) Dr Mohammad Yousef Al-Hashel presents CBK’s 43th annual Financial Stability Report 2014 to HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah (left) and HH the Crown Prince Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah (right) yesterday. —KUNA

Governor of the Central Bank of Kuwait (CBK) Dr Mohammad Yousef Al-Hashel presents CBK’s 43th annual Financial Stability Report 2014 to HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah (left) and HH the Crown Prince Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah (right) yesterday. —KUNA

KUWAIT: The Central Bank of Kuwait (CBK) has issued the Financial Stability Report (FSR) for 2014 - Governor Dr Mohammad Al-Hashel announced yesterday. This is the third in a series of reports published by CBK as part of its efforts to enhance transparency and to make available reliable information and statistics related to the Kuwaiti banking system and financial sectors, he added.

The FSRs issued by CBK analyze and highlight economic and financial developments in terms of their effect on financial stability and the resilience of the financial system to unanticipated adverse shocks, thus maintaining the provision of efficient financial services at the macroeconomic level, Hashel told KUNA. He added that the latest FSR is composed of five chapters, the first of which assesses the role and performance of banks - both conventional and Islamic - as financial intermediaries, while the second evaluates the risks faced by the banking system. The third chapter of the report examines the trends in profitability and solvency of the banking system and its resilience to a variety of major shocks, both endogenous and exogenous under different financial and economic stress scenarios. The fourth explores the key developments in money, foreign exchange, equity and real estate markets, the four key components of the domestic financial market. As for the fifth part, it examines the performance of retail and large-scale payment and settlement systems in the country, significant components comprising Kuwait’s financial system and stability.

According to the report, the consolidated banking sector balance sheet marked another year of double-digit growth. In 2014, assets worth KD 7.2 billion were added to the banking system, putting total assets at KD 66.4 billion by year-end - marking growth of 12.2 percent, versus 11.9 percent in 2013, the governor noted. Both in absolute and growth terms, this was the most significant expansion recorded in the last seven years. Growth of the consolidated balance sheet of banks reveals, in part, that the increased international activity of Kuwaiti banks remains robust and accounts for 20.4 percent of the consolidated balance sheet, thereby providing a major source of banks’ income that reduces reliance on local sources and strengthens their stability. Banks have also expanded their consolidated loan portfolio by another KD 4.2 billion, posting the strongest growth (11.5 percent) observed in the last five years, Hashel said.

At the domestic level (Kuwaiti banks and foreign banks’ branches in Kuwait), credits granted to national economic sectors rose from KD 29 billion as of Dec 2013 to KD 30.8 billion in Dec 2014, an increase of KD 1.8 billion and a yearly growth rate of 6.2 percent, less than the growth rate of 8.1 percent in the last year). However, the growth rate in 2014 reveals the upward trend of credit off-take compared to 0.4 percent in 2010, 1.6 percent in 2011 and 5 percent in 2012. In addition, growth of banking credit encompasses most of the local economic sectors including installment (housing) loans and loans granted to the real estate sector.

By Dec 2014, such facilities totaled KWD 16 billion, marking an increase of KD 1.4 billion compared to Dec 2013, and a yearly growth rate of around 9.4 percent, which is higher than the growth rate of the total loan portfolio. Hashel said that the 2014 FSR report revealed that the asset quality of the banking system visibly improved over the last few years, and the gross non-performing loan ratio (NPLR), on a consolidated basis, dropped to a historically low level of 2.9 percent in Dec 2014. Improvement of asset quality demonstrates the success of the CBK and local banks in their combined endeavors over the last years to analyze and assess the quality of loan portfolios in accordance with the strict implementation of the relevant standards.

As a consequence NPLR, at the domestic level, edged down from 7.1 percent as of Dec 2011 to 4.9 percent as of Dec 2012, 3.2 percent as of Dec 2013 and 2.3 percent as of Dec 2014, visibly lower than the pre-crisis ratio. Profitability of Kuwaiti banks posted a strong recovery in 2014 after experiencing a noticeable contraction back in 2013; net profits attributable to shareholders of Kuwaiti banks (conventional and Islamic banks and the Industrial Bank of Kuwait) surged by 26.5 percent in 2014 to KWD 656.4 million from KWD 519.0 million a year earlier.

This marks an increase of KD 137.4 million. Amid rising net income of the banking sector, average return on assets inched up from 0.9 percent as of Dec 2013 to 1 percent as of Dec 2014, and average return on equity increased from 6.9 percent in 2013 to 8.2 percent in 2014.

Capital Adequacy Ratio
In the meantime, the Capital Adequacy Ratio (CAR) of the banking sector was still well above the requirements of Basel III - the new standard adopted by Kuwaiti banks within a comprehensive set of reforms, the 2014 FSR showed. Reports submitted by Kuwaiti banks indicate full compliance within the terms of Basel III as the CAR of Kuwaiti banks is still well above the CBK’s requirement of 12 percent for 2014, which is higher than Basel requirement of 10.5 percent, Hashel stated. As of December 2014, the CAR of Kuwaiti banks, on a consolidated basis, as per Basel III stood at 16.9 percent. Leverage ratio data reveals the ability of Kuwaiti banks to abide by this ratio in addition to other new ratios implemented by the CBK in 2014 within the framework of Basel regulations.

The Leverage ratio of the banking industry was 8.9 percent as of Dec 2014 - well above the minimum of 3 percent required by CBK, as recommended by Basel Committee for Banking Supervision. Additionally, this ratio is intended to firmup capital adequacy taking into account the computation of leverage ratios based on the overall “off” and “on” balance sheet assets of the bank, rather than the size of risk weighted assets as stated under capital adequacy regulations. Therefore, this ratio is considered an additional buffer to minimize systematic risks and strengthen financial stability. Banks’ liquid assets of less than three months witnessed a rising trend since 2010; during 2014, liquid assets were up by KWD 5.3 billion to reach KD 20.4 billion.

A breakdown between core and non-core liquid assets indicates that the core liquid assets accounted for 80.5 percent of the total liquid assets which, in turn, constitutes 30.7 percent of the total banks’ assets. It is, therefore, clear that these high ratios of high quality liquid assets fortify the financial positions and soundness of financial indicators of banks and their resilience to unanticipated shocks without any adverse effect on financial stability. Furthermore, the higher levels of liquidity maintained by Kuwait banks helped them to fulfill the requirements of the liquidity coverage ratio (LCR) introduced among the Basel III set of reforms and adopted by the CBK as of Dec 2014.

In line with its monetary policy, the CBK kept unchanged Discount Rate at the historically low level of 2 percent, representing the key benchmark serving as a reference rate to calculate interest rates charged on lending facilities. By maintaining interest rates at this level the CBK also aimed to help increase credit off-take by the various sectors.

Annual Report
Meanwhile, the CBK also released its annual report for the fiscal year (FY) 2014-2015, Hashel announced. This is the 43rd issue of the series of annual reports prepared and published by the CBK. It includes the CBK Balance Sheet, the Profit and Loss Account for the FY ending 31st March 2015, in addition to the Auditors’ Report on the financial statements, Hashel told KUNA.

The report reviews, in brief, key developments in the monetary policy and monetary and banking indicators, in particular those relating to money supply, local interest rates, KWD exchange rates, bank credit, and aggregate balance sheets of local banks and investment companies, he added. In addition, it contains the main supervisory measures and directives issued by the CBK, and major banking operations carried out during FY 2014-2015.

The report outlines the CBK’s efforts during the past fiscal year to implement projects covered by the Annual Plan, Hashel said. These projects are of an ongoing nature and relate to the core objectives of the CBK. It also presents the CBK’s main initiatives for the enhancement of competency of the its manpower as well as measures taken toward modernization and the upgrade of the CBK’s information technology infrastructure. The 2014-2015 Annual Report is available on the CBK official website. —KUNA

Pin It
This article was published on 13/07/2015