Soaring oil prices, growing liberalisation and huge prospects in Iraq have created boom conditions in Kuwait and massive opportunities for banks over the past 18 months. But Sheikh Salem Abdul Aziz Al-Sabah, governor of the Central Bank of Kuwait, is well aware of the dangers of booming markets and asset ‘bubbles’, and is anxious to avoid a repeat of the devastating Souk Al-Manakh crisis of the early 1980s and to curb other excesses.
Amid record oil revenues, record bank profitability, record stock prices and liquidity, Sheikh Salem is striving hard to keep a tight rein on the sector while also allowing new banks to enter and lifting the restriction on foreign banks.
In 2004 he introduced a rule limiting bank lending to 80% of customer deposits, which has stifled lending growth. With limits on lending for the stock market to 15% and on overall consumer lending, Sheikh Salem has created an asset crunch for some, and has also helped to avoid excessive overheating.
But he has not blocked structural expansion. In 2005, four foreign banks – BNP Paribas, National Bank of Abu Dhabi, HSBC Bank Middle East and Citibank – have been granted licences to open branches.
On the macroeconomic front, Kuwait is awash in surpluses but the governor is adamant that structural economic reforms are needed and the private sector must play a bigger role. “We need to change our approach to both sides of the budget; we must look at taxes, fees and the pricing of services – electricity prices are very cheap and indirect subsidies must be examined.”
In many ways a boom period needs even more prudent management than at other times, and Sheikh Salem deserves due credit for maintaining tight controls while allowing genuine growth to develop, as well as being the first country to implement Basel II.
