Kuwait Banks Could Face Life-Threatening Losses

KUWAIT - The emirate's banks, still reeling from the Iraqi occupation and the Gulf war, face a severe debt squeeze and loss of client confidence, bankers and economists said.

Because of longstanding debts, failure to collect on loans, a drop in the speculative value of their stock, and capital flight, the banks could suffer losses equaling their deposits, these experts said.

Only central bank support is likely to see banks through. But since the liberation, senior officials have repeated that the country is overbanked and the government is likely to purge some of the banks.

Deposits Are Drained

Kuwait's five commercial banks reopened March 24. With the economy in tatters and shortages rife in every sector, bank customers rushed to withdraw their funds.

Limits on withdrawals were imposed but will be scrapped Aug. 3. Bankers expect 30% to 40% of all deposits, about $1.45 billion, to seek safe havens abroad.

By suspending interbank lending, which is yet to resume, the central bank also imposed de facto control over the whole banking system.

Commercial customers have been either unwilling or unable to pay outstanding debts while they await government grants to cover damage inflicted by the Iraqis.

Virtually certain to remain intact is the National Bank of Kuwait, which remains profitable and is largely in private hands, bankers say.

Meanwhile, the emir of Kuwait has given his government the green light to seek about $2.9 billion in foreign borrowing to finance postwar construction.

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