The Banking Executive Magazine - Septmber Issue 2021

suance of this law and provided by banks or any other donor, which led to the exclusion of a large segment of entrepreneurs. The conditions consti- tute additional obstacles with regard to obliging the borrowing clients to maintain the national labor working under them by the list of 31/12/2019, as well as the obligation to reach the percentage of national labor pre- scribed for the activity in which they work by 31/12/2021, as it is not guar- anteed to bet on fulfilling the re- quired percentages on the specified dates”. Meanwhile, reliable sources said the Central Bank of Kuwait is preparing a draft law for lifting the government guarantee on deposits that was ap- proved in 2008 within the law to promote financial stability. They explained that the objectives of the expected law include the re- placement of guarantee for the entire amounts deposited with another that covers a specific ceiling for every customer deposit balances in local banks which are close to KD 44.2 billion. The Central Bank’s approach in this regard is linked to a package of global and local considerations, in- cluding Kuwait’s sovereign rating. OBLIGATION It was noticed in the recent period that international rating agencies put among their considerations that the government guarantee of deposits constitutes an obligation on the state, which represents pressure on the sovereign rating although this obliga- tion is indirect. These agencies take into account the fact that the state will pay the de- posits to customers in the event that its banks default on that. This aspect puts pressure on the rat- ing – even if these agencies see the impossibility of this happening – due to the financial strength of Kuwaiti banks and their creditworthiness. The Central Bank is currently calcu- lating with high accuracy the cost of lifting the guarantee as opposed to maintaining it, and taking the most appropriate decision that will repre- sent protection buffers for the market and for banks in the event that the cost of lifting is less than the cost of maintaining the guarantee. The Central Bank is working, through its study, to “establish a guarantee system as an effective alternative to the state guarantee, and that there is more than one scenario for this, in- cluding the establishment of a body or fund that guarantees, with the co- operation of banks, a portion of cus- tomers’ deposits”. Among the proposed scenarios is also the fact that the state remains a guarantor of a certain minimum amount of money, regardless of the value of the deposit. The sources said, “In the event of lift- ing the state guarantee, customers’ choice of banks in which they will deposit their money in the future will depend on two main considerations. It will either be based on the name and position of the bank, or the value of the interest that it will obtain, which allows raising the level of competition among local banks”. ISSUE 153 SEPTEMBER 2021 the BANKING EXECUTIVE 15