Rather than intervene by buying stakes in struggling banks, Kuwait’s government responded in December last year with an emergency financial stability law designed to provide a safety net for banks that need assistance. In return, the banks must apply stricter risk-management rules.
But it is Kuwait’s investment firms, rather than the banks, that are the focus of the government’s longer-term plans. The banks were exposed to risks taken on by their main borrowing clients – investment companies and real estate firms, which had invested in local shares that plummeted in value between October and December last year. The government’s response is to set up a new capital markets authority to enforce stronger requirements for disclosure by investment firms.
The National Assembly’s finance committee approved in October the framework legislation for the new authority, and has now put the bill to the assembly for approval. The technical preparatory work needed for its creation is almost complete. If successful, the new regulator should significantly bolster the quality of non-bank finance in Kuwait.