Wednesday, June 23, 2010

Some Kuwaiti Banks Overreaching in Collateral Demands

AlQabas quotes unnamed financial sources that some banks have been taking excessive collateral in restructuring debts for their subsidiaries and affiliates - reaching 400% coverage in some cases.  The issue is that such coverage levels effectively place other creditors - banks, investors in murabaha transactions, etc - in a much weaker position.

The financial sources expect that disadvantaged creditors will raise formal complaints with the Central Bank of Kuwait.  The article notes that the traditional collateral level is between 150% and 200%.

A final comment is that some restructurings are being delayed as creditors cannot agree - given some creditors' demands for a higher ratio of coverage or specific assets for themselves.
While nothing concrete was said, I wonder if this relates to "Islamic" banks.  

Perhaps one of my better informed readers will care to comment.

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