Front Matter Page

IMF Country Report No. 19/96

KUWAIT

FINANCIAL SYSTEM STABILITY ASSESSMENT

April 2019

This Financial System Stability Assessment paper on Kuwait was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with Kuwait. It is based on the information available at the time it was completed on March 11, 2019.

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© 2019 International Monetary Fund

Front Matter Page

KUWAIT

FINANCIAL SYSTEM STABILITY ASSESSMENT

March 11, 2019

Approved By

James Morsink and Aasim M. Husain

Prepared By

Monetary and Capital Markets Department

• The FSAP team was led by Amina Lahreche (IMF) and Ilias Skamnelos (WB), and included Thor Jonasson (IMF) and Haocong Ren (WB) as Deputy Mission Chiefs, Anastasia Guscina, Abdullah Haron, Hideo Hashimoto, Peter Lõhmus, Rafel Moyà (all IMF), John Groom (IMF expert), Marc Schrijver, Valeriya Goffe, Ghada Teima (all WB), and Eddy Rodriguez, Prasanna Seshachellam and Matthew Sullivan (all WB experts). Yunhui Zhao (IMF) led the banking sector stability analysis during the scoping mission.

• The mission met the Governor of the Central Bank of Kuwait, the Minister of Finance, the Vice Chairman (Acting Managing Director) of the Capital Markets Authority, and staff in their respective agencies. It also met other high-ranking public officials, and senior representatives of local and foreign banks, credit rating agencies, auditors, law firms, financial sector representatives, and industry associations.

• FSAPs assess the stability of the financial system as a whole and not that of individual institutions. They are intended to help countries identify key sources of systemic risk in the financial sector and implement policies to enhance its resilience to shocks and contagion. Certain categories of risk affecting financial institutions, such as operational or legal risk, or risk related to fraud, are not covered in FSAPs.

• This report was prepared by Amina Lahreche and Thor Jonasson, with contributions from the members of the FSAP team. Shiyuan Chen and Kiran Sastry provided research assistance, and Christine Luttmer, Margarita Aguilar, and Vanessa Guerrero provided administrative support.

Contents

• Glossary

• EXECUTIVE SUMMARY

• MACROFINANCIAL SETTING

• VULNERABILITIES AND RISKS

• SYSTEMIC RISK ASSESSMENT

• FINANCIAL SECTOR OVERSIGHT

• A. Regulatory and Supervisory Framework

• B. Oversight and Management of Systemic Risks

• C. AML/CFT

• FINANCIAL SAFETY NETS, BANK RESOLUTION, AND CRISIS MANAGEMENT ARRANGEMENTS

• MANAGING SYSTEMIC LIQUIDITY

• DEVELOPMENTAL CHALLENGES

• A. Developing Capital Markets

• B. Promoting Access to Finance for SMEs

• BOX

• 1. Financial Safety Nets and Islamic Finance

• FIGURES

• 1. Macrofinancial Environment

• 2. Financial Sector Indicators

• 3. Stress Test Scenarios and Results

• TABLES

• 1. FSAP Key Recommendations

• 2. Financial Sector Structure, End-2017

• 3. Selected Economic Indicators, 2014–24

• 4. Financial Soundness Indicators, 2011–Sept 18

• ANNEXES

• I. Risk Assessment Matrix

• II. Macroprudential Tools and Instruments

• III. Contingent Claims Analysis of the Banking Sector

• IV. Previous FSAP Recommendations

• V. Top-down Stress Test Matrix (STeM) for the Banking Sector: Solvency and Liquidity Risks

Glossary