Kuwaiti investment companies need government intervention to overcome the effects of the economic crisis, and failing to deal with their debt may hurt banks in the country, said Asaad al-Banwan, chairman of the Union of Investment Companies.
“The continued weakness of investment companies and their inability to service their debt may cause a significantly negative impact on the performance of local banks,” al-Banwan said in an e-mailed statement today.
“Challenges of the financial crisis can be overcome by government interference, and Kuwait is not an exception,” he said. Given a lack of funding channels for investment companies, the union “sees the necessity for the government to review its stand toward the investment sector,” al-Banwan said.
About 10 percent of bank lending in Kuwait is to investment companies, some of which defaulted amid the credit crisis after asset values collapsed and frozen debt markets prevented them from raising new loans. Investment companies had used cheap credit during the boom years to invest in real estate and private-equity assets.
Al-Banwan suggested the government might boost the private sector’s role in the economy, balance the budget and pump capital directly into companies among means of supporting investment companies.
Kuwait’s 95 investment companies have 20 billion dinars ($71.6 billion) of assets under management, equivalent to 67 percent of total deposits in local banks, according to al- Banwan. The combined profit of listed Kuwaiti companies dropped to 1 billion dinars last year from about 4 billion dinars before the 2008 crisis, he said. Kuwait’s benchmark share index has plunged 54 percent since the end of 2007 and slid 16 percent last year.
The Kuwait City-based union represents the country’s investment companies and has 42 members, according to its website.
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