Wednesday, August 11, 2010

Booz and Company to Assist Central Bank of Kuwait with Bank Stress Tests


AlQabas reports that the CBK has engaged Booz and Company to assist it with stress tests for the banking sector.

The article states that the CBK has taken the stress tests prepared by the banks at face value with no follow-up or consultations.  You might find it suprising but the banks apparently did quite well on their self administered test.  An "A" for all in the middle (or medium) case.  And only a few "remarks" on a bank or two for the worst or severe test.  ! مبروك

Booz and Company will review the banks' financials and the information they provided to the CBK and then design neutral (perhaps a better translation is "unbiased") half yearly and annual tests.   It sounds as though this may be an ongoing program).   Booz's "neutral" (unbiased) test will be a decisive factor in determining whether a bank needs to augment its capital or reserves.

4 comments:

Advocatus said...

In defence of the banks when Central Bank started stress testing there were no guidelines at all on how to stress the balance sheets. It was pointed out to the regulator that this would mean that results would not be comparable bank to bank. The regulator now has guidelines on how to stress certain portfolios so the banks are not left to their own devices. However it is an indicator of the experience and knowledge of the regulator that they have had to hire a third party to review the results - NOT the banks problem most of whom have hired their own consultants to assist - E&Y did very well out of this.To add insult to injury Central Bank is making each bank pay KD 20,000+ for the review by Booz.

Abu 'Arqala said...

Advocatus

Thanks for the additional details which fill in the picture.

Kuwait is in many respects the model of the how industry can regulate itself successfully without the heavy hand of the government. Or at least as that model is imagined to work if one ignores the results.

Anonymous said...

Problem is the only thing to frickin lend to in the GCC is real estate!

These guys are mortgage orginators in disguise, and unfortunately they cant even securitize the crap they underwrite and sell it to some monkey who loves marking to models.

Abu 'Arqala said...

Anonymous

But isn't it said that "Real estate gets sick but never dies"? :)

On the other hand, as in the highly developed West, there's also lending for corporate general purposes, trade, and stock market investment.