| Kuwait investment firms seen at most risk - IMF |
| | Sun, 01 Aug 2010 |
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The International Monetary Fund (IMF) has warned in a report that Kuwait investment firms are at greatest risk from further financial shocks impacting the region.
They have a limited capacity to withstand further financial stress and need greater regulatory supervision, the IMF said in a study cited by UAE daily The National on Monday.
It said in the event of a significant deterioration in the value of their assets, such firms would need a capital injection equivalent to about two percent of Kuwait’s GDP.
“The stress analyses for investment companies point to a limited capacity to withstand adverse shocks,” the fund said in a report about the stability of Kuwait’s financial system, the paper reported.
The report added that while comfortable capital and liquidity buffers meant the country’s banks could broadly withstand significant shocks, several of its investment companies would be vulnerable to further crises.
Under the fund’s stress test scenario, assuming a 15 to 33 percent default or loss rate, three out of 11 investment companies would lose all their capital and seven would have a capital-to-assets ratio of below 10 per cent.
The IMF recommended the establishment by the Kuwaiti Central Bank of a financial stability unit responsible for macro-prudential supervision, the paper added.
Last month, the IMF said Gulf Arab states needed to strengthen regulation of their financial industries without tightening credit conditions and damping economic growth.
In a recent report, IMF said: “This requires a continued forward-looking approach to monitoring bank capital adequacy through periodic reviews of bank asset quality and regular stress testing."
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