Kuwait’s new loan-to-deposit ratio rules for banks are aimed at encouraging capital market development, improving asset-liability matching and boosting credit supply, the country’s new central bank governor said on Monday.
Under legislation that took effect on May 11, ratios are now calculated based on loan maturities. Banks can now group other sources of funding along with deposits in calculating their loan-to-deposit ratios.
The new rules allow interbank deposits, long and medium-term loans, certificates of deposit and bonds or sukuks as part of the calculation, Governor Mohammad al-Hashel said.
“This will increase the amount of banks’ available funds for lending,” he said in a written response to questions.
“Inclusion of bonds and sukuks would hopefully promote their usage and demand, thus supporting capital market development.”
For maturities below three months, the loan to deposit ratio must not exceed 75 percent, according to the new rules.
“(The) higher haircut for short-term deposits is aimed to further curtail the risk of any potential asset-liability mismatch,” he said.
“It is also to help banks develop a more stable funding base, since now banks would have the incentive to raise more deposits of longer maturities,” said Hashel, who took office in March.
Hashel replaced veteran policymaker Sheikh Salem Abdul-Aziz al-Sabah, who headed the central bank for 25 years before resigning in March.
The new rules also state that if the funding matures after one year, banks may have a loan to deposit ratio of 100 percent, and 90 percent if the funding matures between three months and a year.
This is aimed at boosting credit supply, Hashel said, adding that this would also encourage banks to raise deposits of longer maturities, ensuring a more stable funding base.
The old rules stipulated an 85 percent loan to deposit ratio, Reuters reported.
