CBK: Very limited exposure of Kuwaiti banks to SVB collapse

KUWAIT: The Central Bank of Kuwait (CBK) affirmed on Sunday that the exposure of Kuwaiti banks to Silicon Valley Bank (SVB), following the closure of the bank by the US authorities, is “very, very limited”. Central Bank of Kuwait Governor Basel Al-Haroun reaffirmed the stability and solidity of Kuwaiti banking system in light of the large financial buffers that banks possess.

The governor said in a statement to KUNA that in light of the closure of SVB by regulatory authorities in the United States, the Central Bank of Kuwait confirms, through its direct communication with Kuwaiti banks, that the exposure of Kuwaiti banks to Silicon Valley Bank is “very, very little”.

The governor indicated that the Central Bank has an integrated supervisory system aimed at fortifying the banking sector and maintaining financial stability. Within the framework of this system, there is an integrated package of supervisory instructions and controls issued to banks to preserve the integrity of their financial positions and enhance all indicators of their financial safety, especially with regards to basic standards.

The governor added that among these standards are the capital adequacy standard, liquidity standards and standards related to asset quality and profitability, in addition to the instructions and controls issued within the framework of strengthening governance, risk management, internal control systems, internal and external auditing, and what is also related to the rationalization and regulation of banks’ credit policy to reduce credit risks and their decisions, based on comprehensive studies that have been made when considering borrowing and financing requests.

Haroun affirmed the integrity of the conditions of the units of the banking system and that the Central Bank of Kuwait exercises its supervisory functions and procedures on banks through offsite control, which is carried out in light of a statistical system that provides regulatory requirements and is supported by supervisory functions through field inspection of banks to ensure the stability of the units of this sector.

US Treasury Secretary Janet Yellen on Sunday said the government wanted to avoid financial “contagion” from the implosion of the Silicon Valley Bank but ruled out a bailout of the institution. “We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said during an interview with CBS.

On Friday, US regulators pulled the plug on SVB – a key lender to US startups since the 1980s – after a run on deposits made it no longer tenable for the medium-sized bank to stay afloat on its own. Following SVB’s disclosure on Wednesday, investors punished the banking sector in total on Thursday, but by Friday, shares in some larger banks posted gains.

However, regional lenders remained under pressure, including First Republic Bank, which slumped nearly 30 percent in two sessions on Thursday and Friday, and Signature Bank, a cryptocurrency-exposed lender, which has lost a third of its value since Wednesday evening. Yellen said on Sunday that the government was working with the US deposit guarantee agency, the FDIC, on a “resolution” of the situation at SVB, where approximately 96 percent of deposits are not covered by the FDIC’s reimbursement guarantee.

“I’m sure they (the FDIC) are considering a wide range of available options that include acquisitions,” she said. Yellen said reforms made after the 2008 financial crisis meant the government was not considering a bailout for SVB. “During the financial crisis, there were investors and owners of systemic large banks that were bailed out… and the reforms that have been put in place means that we’re not going to do that again,” she said. “But we are concerned about depositors and focused on trying to meet their needs.”

Following the 2008 failure of Lehman Brothers and the ensuing financial meltdown, US regulators required major banks to hold additional capital in case of trouble. US and European authorities also organize regular “stress tests” designed to uncover vulnerabilities at the largest banks. SVB’s implosion represents not only the largest bank failure since that of Washington Mutual in 2008, but also the second largest failure ever for a retail bank in the United States.

Little known to the general public, SVB specialized in financing start-ups and had become the 16th largest US bank by assets: At the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits. Earlier on Sunday, Britain’s finance minister Jeremy Hunt warned that the country’s technology and life sciences sectors were at “serious risk” following the SVB closure, noting that the bank manages the money of some of the UK’s most promising businesses. He added, however, that the governor of the Bank of England had made it “very clear” that there was no systemic risk to the UK’s financial system due to the SVB’s collapse. – Agencies

The post CBK: Very limited exposure of Kuwaiti banks to SVB collapse appeared first on Kuwait Times.

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