Banks set aside KD 2bn for recovery soft loans

KUWAIT CITY, April 26: The local banks in Kuwait have allocated KD 2 billion to the soft loan portfolio expected to be granted to small and medium enterprises, as well as companies and clients affected by the consequences of the coronavirus, reports Al-Rai daily.

The daily quoting a source expected that SME loans will hold between 15 and 20 percent of the total two billion dinars, while the rest of the sum will be directed to financing companies and clients affected by consequences of coronavirus.

He noted the two billion dinars was allotted based on a study prepared by local banks in cooperation with the Central Bank of Kuwait and international advisors, on the expectations of the approximate financing need arising from the lack of liquidity of private sector units whose businesses were damaged by the economic closure, and their work stopped due to this pandemic.

Based on a study prepared by the Higher Steering Committee headed by the Governor Dr Muhammad Al-Hashel, it is expected that revenues of the affected sectors in Kuwait will decrease by 15 to 30 percent, under scenarios of the closure for a period of 8 to 12 weeks, since the start of the government closure with varying impact for each sector, he said.

He noted the rate of decline in the global economic activity in the second quarter of 2020 is likely to be the most severe since the Second World War. He indicated that banks will classify accountable loan financing in their portfolios with a different mechanism from the traditional method they follow when calculating the loan allocations.

The source confirmed that local banks will work in support of the companies affected by the crisis while the disbursement of soft loans will be within the framework of employee salaries, rents and other obligations resulting from the recent developments, noting the transfer will be made from the bank directly to the owed entities.

According to official statements, the financing package provided will not include companies that faced trouble in the pre-crisis period or those that operated according to a business model causing them losses. The soft loans will not provide compensation either for lost profit opportunities or losses sustained by those affected by the preventive measures taken to combat coronavirus. It will not target financing new projects that were included in the companies’ plans for which they can obtain regular commercial loans.

Statements added the banks plan not to exceed the documentary cycle to decide the customer’s request for soft financing within 3 or 4 days, in the event that the company meets the conditions and criteria approved in this regard. As for the major known companies that have good credit history with the banks, they will be dealt with at a faster pace, given that the banks have launched electronic platforms for those who want financing to enter their data.

It is noteworthy the recommendations of the Supreme Steering Committee included two tranches

to obtain financing, the first of which is for small and mediumsized projects and granting local banks and the National Fund soft loans of two to three years, which includes a one-year grace period, provided that the interest does not exceed 2.5 percent annually. The general budget will bear benefits and returns for the first two years, then it’ll be shared equally with the client on the third year.

For this tranche, financing will be shared between the banks and the fund, with interest being calculated on the part financed by the banks only, provided that the latter will be responsible for managing the debt and the credit risks of the funds provided, while verifying the customer’s use of financing in specific aspects.

Regarding the other tranche of soft loans concerning the affected companies and clients, they will be provided by local banks with the state’s budget bearing the interest for the first year. It will be borne equally with the client in the second year, while the latter year’s will be borne by the client individually.

One of the conditions for granting loans is that the customer must have been regular in paying his obligations before the corona crisis and maintained his national employment rate, and did not distribute any profits to shareholders during the repayment period.