Government recently rejected the proposal from parliament for the postponement on repayment of bank loans taken by citizens and businesses for a further six months. In rejecting the proposal, the government said that deferring loan repayments any further would have a deleterious effect on the economy and on the country’s budget, which is already suffering from a growing deficit crisis.
Government is worried about any move that might impact the financial position of banks, as it could impair the functioning of the entire financial sector, which is crucial to revival of economic growth in the country. Moreover, banks and other financial institutions are the largest employer of citizens in the private sector. Any move that hurts the financial stability of this sector could ricochet and reduce the sector’s ability to support the economy and provide new job opportunities for citizens.
However, with elections to the National Assembly planned for before year-end, legislators are understandably keen to win the favor of voters, and hence their eagerness to support loan postponements and loan waivers, even if it comes at the expense of the state’s budget. The government maintains that there are other solutions that banks can implement to assist borrowers, including restructuring of loans and interest payments.
Banks have already made clear that any further extension on loan repayments will cause severe damage to banks, harm the interests of shareholders and depositors, and impact the economy, without any substantial benefit for borrowers. Noting that they were proactive in their response to the plight of customers from the very onset of the crisis, banks said they had voluntarily granted a moratorium on all loans for a period of six months from the start of April. They also noted that the six-month moratorium on loans had already caused losses exceeding KD370 to the banks and that this would continue to impact the banks’ budgets for the next four years.
With the moratorium scheduled to end on 30 September, banks said any further extension was untenable. Noting that prevailing conditions are not the same as that at the start of the pandemic, the banks said that since it is still unclear when the health crisis would eventually end, and its exact economic repercussions on customers have yet to be studied, it makes no sense in further delaying loan repayments as it is no longer a viable option for banks.
Acknowledging that some SME owners have been severely affected by the economic downturn, and that a few have indeed filed for bankruptcy and defaulted on loans, the banks noted that many people calling for postponement of their loans have in fact used money during the loan deferral period for the purchase of non-essential items and luxury goods, as shown by their spending records.
Latest statistics from KNet, the shared electronic banking services company in Kuwait, shows that the volume of spending through Point of Sale (PoS) machines and online digital payments in August was nearly six times higher than a month earlier. According to the CEO of KNet, Abdullah Al-Ajmi, electronic payments through mobile apps and online transactions witnessed a 109 percent jump since the start of COVID-19 crisis in the country, increasing from around five million monthly operations before the crisis to ten million operations as of July. Transactions via points-of-sale (POS) machines also increased by seven percent during the same period.
With the easing of lockdown in August, the number of transactions and total value of purchases were slowly returning to the levels seen in February, when the start of coronavirus infections led to an eventual full lockdown of the country. Spending through PoS and online payments in August stood at KD1.6 billion. Figures show that over 12 million transactions worth over KD850 million were conducted through PoS devices in August. In the same month, 11 million transactions were recorded for online digital purchases for a value of KD615 million.
Revealing that as part of its social responsibility KNet had exempted customers from the 100fils charged on ATM withdrawal fees, Al-ajmi added that it had also exempted banks from imposing any fees on merchants, including the fees for POS devices and for making electronic payments via the Internet. Pointing out that as a result of these initiatives Knet had lost nearly half of its annual revenues, Al-Ajmi said that the company cannot bear the cost of such exemption for another six months, especially since its revenues depend entirely on these fees.