New Regulations for Deferred Payments Govern Loan Defaults and Provisions
The regulatory authority mandates new classifications for deferred payments and specific provisions based on the duration of the delay
Translated by Qiyas from الراي — Original source
- Classification is transferred to Stage 2 if the delay in settling dues exceeds 30 days.
- A quarterly report on the classification of deferred payments, their provisions, and expected credit losses.
- External audit and review of final data by the external auditor, as well as review of interim data.
- 25 percent provision in case of payment delay between 30 and 59 days.
- 50 percent provision if irregularity ranges from 60 to 89 days.
- 100 percent provision if default exceeds 90 days or more.
In this context, the regulatory authority has mandated supervised entities to adopt new classifications for deferred payment amounts, specifying the provision ratios to be established in the event of customer default, in line with the Central Bank’s efforts to safeguard the stability and integrity of the banking and financial sectors and enhance stakeholder confidence.
Regarding the classification of irregularities and specified provisions, the Central Bank directed that any deferred payment service meeting any condition of irregularity must be classified into three categories, with the delay condition for each category and the required provision ratio relative to the total outstanding balance clearly defined.
1. “Substandard”: The condition for delay in repayment is between 30 and 59 days, including cases of non-payment of a single installment. In this category, the required provision ratio to the total outstanding balance is 25 percent.
2. “Doubtful”: The condition for delay in repayment is between 60 and 89 days, including cases of non-payment of two consecutive installments. In this category, the required provision ratio to the total outstanding balance is 50 percent.
3. “Doubtful/Loss”: The condition for delay in repayment is 90 days or more. In this category, the required provision ratio to the total outstanding balance is 100 percent.
The calculation mechanism also calls for transferring the classification of any deferred payment service to Stage 2 if the delay in settling dues exceeds 30 days.
The Central Bank has required officials of all local banks, financing companies, and major electronic money service providers to submit a quarterly report on the classification of deferred payment services, the required provisions against them, and the calculation of expected credit/financing losses, on a periodic basis (at the end of March, June, September, and December), according to the specified format and within the stipulated deadline. The report must be audited by the external auditor regarding the final financial statements and reviewed regarding interim financial data.
Furthermore, it is necessary to provide the external auditor with a copy of this directive and coordinate on its implementation, with the required report to be submitted starting from December 31 next year.
Emphasizing the importance of the regulatory authority’s actions in this direction, it is worth noting that global rating agencies have praised the monetary prudence of the Central Bank of Kuwait and the robustness of the country’s banking sector, indicating that Kuwait’s monetary policy management constitutes a source of institutional strength.
