AFTER 25 MONTHS without a break, Kuwait central bank governor Sheikh Salem Al Sabah took a much-needed holiday in July. Perhaps it is a sign that banks in Kuwait are regaining confidence.
In the past two years a large chunk of Kuwait’s financial system has disintegrated. In a way, it was a re-run of the country’s Souk Al Manakh crisis in 1982: an immense stock market bubble that burst, leaving many banks insolvent. This time it was a number of Kuwait’s 100 investment companies that found themselves in trouble. And according to credit rating agency Moody’s the problem is not resolved: some investment companies have restructured but the standing of others relies on continued support from local banks.
With on- and off-balance-sheet assets, according to the IMF, having risen to more than 90% of the banking system’s total assets, collectively the companies constitute a system the governor refers to as "shadow banking". The firms are often aligned with business families loth to concede defeat in this tight-knit community. The chief executive of one financial firm says: "Without strong leadership, the banks will keep quiet. No one will be forcing anyone out of business."
