Central Bank of Kuwait may revise soft loan terms for SMEs

150 funding requests out of 37,000 SMEs submitted

Kuwaiti banks have recently opened a discussion with the Central Bank of Kuwait, pushing for a review of funding controls for entrepreneurs, small and medium enterprises SMEs and affected economic entities, well-informed sources said.

The sources said the COVID-19 prompted an urgent need to ease the terms of soft loans, with the local banks showing a willingness to fully finance the programme, without requiring the partnership of the National Fund for Small and Medium Enterprises Development.

Sources said banks demanded a government guarantee of 80 to 90 per cent of the total portfolio of these funds.

The Kuwaiti banks have allocated KD 2 billion ($ 6.5 billion) to the soft loan portfolio expected to be granted to small and medium enterprises, as well as companies and clients affected by the consequences of the coronavirus.

The SME loans will hold between 15 and 20 per cent of the total two billion dinars, while the rest of the sum will be directed to financing companies and clients affected by consequences of coronavirus.

The SMEs will obtain soft loans from local banks and the National Fund for a period of two to 3 years, including a grace period of one year, provided that the interest rate does not exceed 2.5 per cent annually.

Kuwait’s general budget will bear interest for the first two years, then share it equally with the clients is in the third.

The National Fund will bear the responsibility of managing the debt and the credit risks of the financing provided by it, and verify the customer’s use of the financing in the specific aspects.

Some 150 entrepreneurs applied for soft loans, the majority of which are concentrated in three banks, although the data indicate that there are about 37,000 SMEs licensed locally.

The sources noted that the government guarantee for these loans is not expensive, because they will be similar to those approved by the Law to Promote Financial Stability of Bank Deposits, pointing out that this formula guarantees an increase in the frequency of targeted funds, and reduces the risk rates that banks may face in the future.

Last month, Kuwait announced measures aimed at shoring up its economy against the coronavirus pandemic, including soft long-term loans from local banks, and the central bank asked banks to ease loan repayments for companies affected.

The sectors most impacted by the pandemic include aviation, hospitality and real estate, a government source told Reuters.

The stimulus package approved by the cabinet aims to provide liquidity for small- and medium-sized enterprises to meet their obligations, a government spokesman said.

That includes directing government agencies to pay obligations to the private sector as soon as possible.

The central bank separately has asked lenders to postpone loan repayments for three months for companies hit by the crisis, the governor, Mohammad Al Hashel, said in a television interview posted by the central bank on Twitter.