APPENDIX I Summary Assessment of Compliance of the Basel Core Principles for Effective Banking Supervision
APPENDIX II IOSCO Objectives and Principles of Securities Regulation
APPENDIX III Report on Observance of Standards and Codes FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism
Fund staff estimates of the overall fiscal balance differs from official data because they include investment income of government foreign assets.
According to the ministry of planning, the government sector constituted 71 percent of GDP in 2002.
The policy of reserve accumulation was formalized in 1976, when the government passed a law requiring that 10 percent of all budget revenues be diverted to the reserve fund for future generations.
Given the large government surpluses, budgetary issues appear to be a longer-term concern, rather than a source of near-term vulnerability.
In 2001, member countries of the GCC decided to create a monetary union by 2010, and have already taken a number of key steps in that direction, including pegging their currencies to the U.S. dollar and adopting a uniform external tariff.
Local banks’ total assets slightly declined from 168 percent to 159 percent of nominal GDP over this period.
Over the same period, the total short position of the Kuwaiti banking system has doubled from 0.4 to 0.8 percent of banks’ capital.
Some third party assets managed by the investment companies might be invested in domestic investment funds.
Law No. 51/1994 amends some provisions of the Commercial Companies Law No. 15/1960, by requiring all companies listed on the KSE to have at least two external auditors.
If such instructions are challenged by the CBK board, the matter is decided by the Council of Ministers.
Kuwait maintains no exchange restrictions subject to Fund jurisdiction, and has liberalized many international capital movements, notably credit transactions. However, Kuwait still maintains controls on inward direct investment, certain securities transactions, and real estate.
Previously, Kuwait pegged the dinar to a basket of currencies.
The liquid asset ratio requires banks to hold government securities equal to at least 20 percent of their private Kuwaiti dinar deposits, primarily for prudential purposes. The maturity ladder primarily serves a prudential purpose.
In general, all central bank lending to banks should be collateralized. However, CBK officials point out that most banks maintain sufficient government securities with the CBK to cover their borrowing from the central bank.
Rates on loans with maturities up to one year cannot exceed 5.75 percent per year (250 basis points over the discount rate, which currently stands and 3.25 percent), while loans over one year are limited to 7.25 percent (400 basis points over the discount rate). There are also a number of other quantitative limits on consumer lending on the individual consumer and at the bank level. These limits on consumer and personal loans are imposed both for prudential and resource allocation reasons.
These may include lifting the ceiling of KD 3 billion on the stock of government bills and bonds. Another possible step would be to ease the liquidity requirement, by lowering the ratio, allowing banks to include their balances with the CBK in meeting it, or permitting banks to meet this requirement on average over a stated period (rather than every day). However, owing to current excess liquidity and prudential considerations, especially those associated with the removal of the implicit deposit guarantee, it may be inadvisable to ease the liquidity requirements in the short term. Even so, they should be simplified as soon as prudential considerations permit.
The observations in this section are based in part on an informal review of observance of the Core Principles for Systemically Important Payment Systems.
The preparations for a RTGS system are well advanced, but implementation has been delayed by the uncertainties associated with the military activity in Iraq in early 2003. The commencement of RTGS operations now has a target date of April 2004.
Article 65 of that law specifies that if such a decision is rendered to delete a bank from the Register of Banks, after first giving it an opportunity to express its views, the bank must be liquidated.
The official definition of NPLs includes “special mention” loans. This report will continue to apply the official definition of NPLs but it will use the more general term “impaired loans,” and the amount of interest in suspension will be excluded.
If general provisions are considered, the coverage ratio jumps to 91 percent.
The value of collateral is subtracted from the required provisions to determine the level of actual provisions to be established. The large difference between required and actual provisions can be explained by banks’ tight requirements on collateral. Nonetheless, some questions arise on the proper valuation (and economic meaning) of collateral. According to CBK instructions, the value of collateral is to be calculated on the basis of “recent market value” after adjusting this value downward by ratios that cover systemic, exchange and other risks, according to the quality of the specific collateral and in coordination with the external auditors. However, if the value of the collateral is quite strong the question remains why the banks do not liquidate them and rid themselves of the problem loans.
Liquid assets include treasury bills and bonds.
A measure of banks’ overall maturity gap and open position in foreign currency was used to measure banks’ vulnerability to interest and exchange rate risk.
As a working hypothesis, it is assumed that banks are required to make additional provisions that amount to 50 percent or 100 percent of the difference between current level of specific provisions, which factors in collateral, and the level of specific provisions that would prevail without collateral.
Domestic interest rates are shocked by one standard deviation that is computed using rolling data windows of 12-month length.
In light of the strong reserve position of the CBK and the large stock of foreign assets of government-related agencies, the exchange rate between the KD and the U. S. dollar is assumed to remain unchanged.
At the end of 2002, local banks’ lending to investment companies amounted to approximately 9 percent of local banks’ total lending portfolios and 32 percent of bank stockholders’ equity.
Examples include: (i) formation of a shareholding company requires the issuance of an Amiri Decree and can take months; and (ii) a representative of the MoCI is required to be present at all shareholder meetings.
The outstanding balance of KD and U.S. dollar corporate bonds in the Kuwaiti market stood at KD 369 million and $775 million, respectively, at the end of August 2003.
Singapore is a notable example of a country where government securities have been issued and used as a catalyst for financial market development, despite the strong fiscal position of the government and the absence of a need for government borrowing from the point of view of budget financing.
The text in this report attributed to the independent law enforcement expert is shown in italics.