“Requirements and Challenges of Rebuilding Banking Sector’s Capital and Liquidity Margins after lifting Stimulus Packages”  Two years ago today, the world was hit by coronavirus pandemic. Repercussions were far-reaching and severe posing challenges not only to the global markets but also the normal life that has been disrupted or almost disrupted. The pandemic had elements of both supply and demand shocks. On the supply side, closures in many economies around the world, and restrictions imposed on travel, gatherings, events and schools, as well as business interruptions led to supply chains disruption that had a negative impact on the growth of the global economy. This, in turn, affected the demand on energy that that witnessed a sharp fall, as brent crude oil plunged to 20-year low in April 2022 of USD 20 per barrel. The Purchasing Managers’ Index (PMI), concurrently, experienced a sharp decline during the same period reflecting deterioration of the operating environment for companies. In an effort to reduce the negative effects of the spread of the coronavirus pandemic and weather its repercussions and challenges, central banks around the worlds have taken exceptional measures. At the monetary policy level, interest rates have been cut to alltime low levels, reaching zero in some countries, liquidity injected exceptionally into the markets having eased the regulatory requirements to ensure the continued inflows, while fiscal policy stimulated economies by providing financial facilities and aids including payment moratoriums and extending financial aids to the affected segments.

The above indicators unveil the Central Bank of Kuwait’s prudent policy and proactive approach that helped banks to weather one of the most difficult economic crises from a position of strength, and continue providing their services efficiently. Having considered the positive results and resilience of the banking sector, the Central Bank of Kuwait decided to lift restrictions and lay down a map to redirect its regulatory mitigants to prepandemic thresholds. Notwithstanding the banking sector’s sound indicators, high liquidity ratio and strong solvency, the estimated liquidity and solvency ratios above the minimum regulatory thresholds, and outlook of healthy growth, the Central Bank of Kuwait decided to gradually unwind the regulatory mitigants in line with the IMF recommendations. The first phase of our 2-phased transition began early 2022 by withdrawing 50% of the regulatory mitigants. The second phase of withdrawal process shall be completed early 2023 to return to the previous pre-crisis regulatory thresholds. Meanwhile, we shall still support small and medium enterprises by maintaining the same risk weight, and closely monitor the performance of the banking sector and conduct stress testing on its various units. Though the Central Bank of Kuwait is satisfied of the resilience of the banking and financial sector in the State of Kuwait, the developments recently seen in the world and the evolving risks surrounding the prospects of the global economy drive our efforts to protect our economy and banking and financial sectors from external shocks through proper monetary policies and supervisory measures.