Kuwait - The loans write-off proposal will have a negative impact on the economic and social status of Kuwait, reports Al-Seyassah quoting Central Bank of Kuwait (CBK) Governor Sheikh Salem Abdul Aziz Al-Sabah. Responding to questions presented by Economic and Finance Affairs Committee Chairman at the National Assembly MP Ahmad Baqer, Sheikh Salem warned "Kuwait's revenues from oil will be depleted once the proposal is approved." The committee is demanding for waiving off the payment of loans amounting to KD 960,200,000, he added. Sheikh Salem said the proposal will lead to economic instability and affect the performance of financial institutions, particularly those that are into risk management and issuance of loans. "Besides being unreasonable, the proposal will also encourage citizens to take loans beyond their capacity to pay," the Governor opined.
MP Abdullah Rae Al-Fahma's proposal for the government to purchase citizens' loans of and devise a new payment scheme is not clear and lacks stipulations on what kinds of loans will be purchased and from what type of financial institutions. The proposal should clearly indicate that the government will purchase the consumer loans acquired from financial institutions, which are under the direct supervision of the Central Bank, Sheikh Salem said. He also emphasized the need to specify which loans were obtained for medical purposes. Pointing out that the proposal is unfair, Sheikh Salem said citizens who took loans from financial institutions, which are not under the jurisdiction of the Central Bank will be at the losing end as they will have no protection from the so-called loan 'sharks'. The suggestion will benefit only a very small section of the Kuwaiti population as those who have not obtained any loan will not get anything from the government. Citizens facing financial difficulties and those wanted by law for their unpaid loans make up only 2.1 per cent of the total population, he added.
Disclosing there were around 9473 loans acquired through legal channels in September, Sheikh Salem said these loans amounted to KD 70.5 million, which is only 2.1 per cent of the total amount of consumer loans granted to citizens and 1.5 per cent of the total amount of all types of loans. Moreover, the payment scheme applied to 8326 loans, which is 87 per cent of the total number of loans acquired legally, is the same regardless of changes in interest rates, he disclosed. Sheikh Salem also revealed that loans issued in March totaled KD 1162.4 million, KD 479.2 million of which were obtained from ordinary finance companies and KD 683.2 million from Islamic financial institutions while the interest payments calculated from loans issued by ordinary finance companies totaled KD 64.8 million and KD 106.8 million from Islamic financial institutions.
Talking about the interest rates, Sheikh Salem clarified financial companies should calculate the interest based on the rates applicable when the loan was acquired and should not increase as years go by. He said most of the companies calculate the interest based on Islamic teachings. Revealing that monthly installments on loans reached KD 14,900,000 in the last 25 years, the Governor said the payment period for consumer loans should not exceed five years. Meanwhile, Chairman of the Union of Kuwaiti Banks Abdul Majed Al-Shatti said the Union held a series of talks with CBK officials in the last few days to discuss the proposal, reports Al-Nahar. Al-Shatti claimed the figures presented in a report about the citizens' loans and alleged violations were erroneous. "Sources cited in the report are not credible considering they don't have first hand information on the issue," he added confirming the Union is confident in the ability of the Central Bank to solve the problem and protect the interests of the people.
© Arab Times 2007
