The Central Bank of Kuwait (CBK) has introduced a new set of tightened financial regulations in a bid to clean up its investment sector which posted losses of over $5bn in 2008 and 2009.

Combined losses for the sector exceeded $100m in the first three months of 2010.

The new regulations were approved by the CBK’s board of directors on 8 June. The central bank has given investment firms until June 2012 to fully comply with three new criteria, which target liquidity and leverage levels.   

The new regulations stipulate that investment companies’ debts do not exceed twice the size of their capital. Cash and cash equivalents should cover at least 10 per cent of liabilities, and a company’s investments or contracts outside the country will no longer be allowed to account for more than 50 per cent of its capital.

On 15 June, CBK governor Sheikh Salem Abdul-Aziz al-Sabah said only 49 per cent of all listed and unlisted investment companies in Kuwait currently fully comply with the new regulations.    

The losses suffered by Kuwaiti investment firms in 2008 and 2009 prompted a government economic rescue package worth $5.15bn.

In December 2009, Global Investment House reached a deal with creditors to reschedule $1.7bn in debt after entering into new three-year facilities with each of its 53 lending banks. Meanwhile, Investment Dar is struggling to restructure about $3.48bn of debt and has applied for support from the government package.

The regulations are further evidence of Kuwait’s strengthened commitment to restoring the health of its financial sector. In February, parliament approved the creation of the country’s first capital markets authority – a significant step given that around half of all investment firms are listed on the Kuwait Stock Exchange (KSE).