Kuwait bail-out to cost banks

“This would affect financial results … It would also mean that banks might be reluctant to grant consumer loans in the future,” said one banking executive. The violations include requiring borrowers to make monthly payments exceeding half of their monthly wages and granting loans for terms longer than 15 years.

“The idea is whether banks can waive some interest payments so that the 50% (repayment) limit will not be exceeded but this would then mean a burden for the lenders,” said one banking source. While bankers argue that debtors were struggling due to rising interest rates, the central bank appeared to be trying to curb banks’ lending appetite.

The central bank, which earlier this year dropped a dollar peg to lower the costs of non-dollar imports, has been trying to discourage consumer lending by keeping the key discount rate stable at 6.25% since the summer of 2006. Nanny state The central bank was clamping down on banks granting consumer loans “too generously” in violation of regulations, said Naser al-Nafisi, general manager at al-Joman Center Economic Consultancy. “The central bank is following up on violations.

It is very strict,” he said. Nafisi said banks would have to waive interest and even payments if loans had been deliberately set for terms longer than 15 years. Reducing citizens’ debt has become a hot political issue in the Gulf Arab state after lawmakers proposed the write off bill. The government has for years been trying to end an expensive nanny state tradition which has often led citizens to take large loans in the hope of debt write offs.