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International Monetary Fund. Monetary and Capital Markets Department
This Financial System Stability Assessment paper discusses that Kuwait’s limited economic diversification is directly reflected in the bank-centric financial sector. Banks have high concentrations to single borrowers, large depositors, and sectors, as well as significant common exposures. Risks to the financial sector are mostly external, stemming from oil price shocks, geopolitical tensions, and global financial developments. The risks are mitigated by sizeable sovereign financial assets, and by the ability of public entities to provide liquidity through large deposits. Stress tests suggest that banks are resilient to a wide range of shocks. The newly developed regulatory framework for capital market participants and products is an important step, but some gaps remain. The authorities have made important progress in strengthening the macroprudential framework. The crisis management framework and financial safety net arrangements should be strengthened and further operationalized. The diversification and resilience of the economy is expected to benefit from better financial inclusion of small-and-medium enterprises.
International Monetary Fund

by hiring a senior advisor with expertise in insurance supervision; obtaining expert advice to develop supervisory guidelines for underwriting, and liability management and reinsurance; and hiring additional staff with insurance industry experience Largely implemented . The insurance department has hired a senior advisor with expertise in insurance supervision. However, capacity building is still needed. In liquidity management, reduce reliance on banks’ deposits with the CBK by issuing CBK bills or additional TBs. Implemented Reduce or

International Monetary Fund. Monetary and Capital Markets Department

excess liquidity that stems from the country’s ample oil revenues . Several tools are available to manage liquidity, ranging from three- and six-month CBK bills, which are tendered regularly; to one-week and one-month time deposits offered by the CBK to banks, at its discretion, on a bilateral basis. The CBK also has facilities to provide liquidity via overnight, one-week or one-month repos; three-month FX swaps; a discount and rediscount system of commercial papers for terms up to one year; and overnight lending (the standing facility). These are seldom used, or

International Monetary Fund. African Dept.

’ range during 2015. Structural reforms . Progress in structural reform has been uneven. The government implemented some structural measures envisaged in the program, notably reporting in the 2015 Budget Policy Statement fiscal risks due to PPPs and government guarantees, and adopting a framework for county borrowing. In addition, the CBK further improved its prudential oversight of the banking sector, meeting all commitments under the MEFP. However, the submission of the CBK bill to Parliament has been delayed; the National Treasury’s Debt Management Office remains

International Monetary Fund

.1 46.8 39.4 Equity exposure to capital 40.6 42.4 47.1 45.4 39.1 43.7 Source: Central Bank of Kuwait. 1 Data is on consolidated basis. 2 Averaging was not applied in 2006 indicators. 3 Core liquid assets include: cash and cash equivalents, deposits with CBK, government securities, CBK bills, deposits with banks, certificate of deposits with other banks which mature within three months. The data was extracted from CBK prudential report. Appendix I. Cross-country Statutory Retirement Ages and Life

International Monetary Fund

. In liquidity management, reduce reliance on banks’ deposits with the CBK by issuing CBK bills or additional TBs. Implemented Reduce or introduce more flexibility in the 20 percent liquid asset requirement (e.g., counting deposits with the CBK and permitting banks to meet the requirement on average over a period of time rather than every day). Implemented Building on the preceding steps, by fostering the development of the secondary market. Partially implemented . Issuance of treasury bonds began in 2005. The maturity range of treasury

International Monetary Fund. Middle East and Central Asia Dept.

.9 33.6 41.1 65.3 75.0 139.7 120.8 Gross liability position in derivatives as a percentage of tier I capital 77.9 91.0 71.1 46.8 39.4 40.9 65.1 75.0 139.7 120.8 Equity exposure to capital 40.6 42.4 47.1 45.4 39.1 43.7 37.5 35.3 29.6 28.1 26.1 Source: Central Bank of Kuwait 1 Data are on consolidated basis. 2 Averaging was not applied in 2006 indicators. 3 Core liquid assets include: cash and cash equivalents, deposits with CBK, government securities, CBK bills, deposits

International Monetary Fund. Middle East and Central Asia Dept.

.4 39.1 43.7 37.5 35.3 29.6 28.0 Source: Central Bank of Kuwait. 1 Data are on consolidated basis. 2 Averaging was not applied in 2006 indicators. 3 Core liquid assets include: cash and cash equivalents, deposits with CBK, government securities, CBK bills, deposits with banks, certificates of deposit with other banks which mature within three months. The data were extracted from CBK prudential report. Appendix I. Public Sector Debt Sustainability Analysis Kuwait Public Sector Debt Sustainability Analysis (DSA

International Monetary Fund. Middle East and Central Asia Dept.

exposure to capital 40.6 42.4 47.1 45.4 39.1 43.7 37.5 35.3 29.6 28.1 24.8 23.0 Source: Central Bank of Kuwait 1 Data are on consolidated basis. 2 2016 data for loan composition is as of June 2016. 3 Averaging was not applied in 2006 indicators. 4 Core liquid assets include: cash and cash equivalents, deposits with CBK, government securities, CBK bills, deposits with banks, certificates of deposit with other banks which mature within three months. The data were extracted from CBK prudential report

International Monetary Fund. Middle East and Central Asia Dept.

.3 95.7 86.3 88.1 83.1 76.4 78.6 Sensitivity to market risk Off-balance sheet operations as percent of assets 25.4 27.8 27.8 28.5 28.2 32.1 32.2 31.4 32.1 31.3 31.0 Equity exposure to capital 43.7 37.5 35.3 29.6 28.1 24.8 21.9 20.9 20.7 20.5 19.8 Source: CBK. 1 Data are on consolidated basis. 2 Core liquid assets include: cash and cash equivalents, deposits with CBK, government securities, CBK bills, deposits with banks, certificates of deposit