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Rating for the recovery

Rating for the recovery

A new Kuwaiti ratings agency claims to have a greater understanding of the regional markets. But that alone won’t solve the underlying problems of the country’s banking sector.

April 18, 2010 3:52 by

Gulf-wide, loan-to-asset ratios are still in excess of 98 percent, according to a report from Standard & Poor’s. It’s an indication that liquidity is low because the region’s banks have made loans that nearly equal their assets.

Kuwait’s banking system does hold a few promises, though. Its operating costs are very low, the country is wealthy, and the government implicitly guarantees deposits.

Speaking on a local radio station, Bouresli said she and her colleagues at the newly launched Capital Standards can offer a more comprehensive understanding of regional markets than the international ratings agencies can.

“A local agency will have better understanding of many small things related to the country, like the legal structures and the business models, and family relations in terms of ownership, which will affect the likelihood of support for those majority owners from holding companies and the government support for local firms.”

But enhanced understanding cannot change the underlying problems in Kuwait’s banking sector. Only more judicious lending and more diverse exposure will do that.

- Trends magazine

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