Friday, October 22, 2021

Joint liability companies’ debts confuse banks… Would you classify them as personal loans on “Scinet”?

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– Governor sorting will not be limited to the finances of board members and their relatives, but everyone
Joint and limited partnership companies make their owners personally joint in their debts
It is difficult to collect loans granted to companies before last September

It appears that there is a supervisory move to recalculate the credit concentration ratios of clients, or at least reorient them to a bank, allowing the integration of all direct and indirect client loans in the banks’ books under one tab that shows his total debts.

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The occasion of this talk, the Central Bank of Kuwait was recently asked about the loans obtained by the members of the boards of directors of banks and related parties, what caused confusion among some officials about the loans that should be considered personal and classified within the credit concentration ratios, which the supervisory regulator set the maximum exposure ceiling to each client at 15 Percent of the bank’s capital in its comprehensive sense of its capital, reserves and capital sukuk/bonds.

Loans tab

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In this regard, Al-Rai learned that a banking discussion was recently opened between bank officials about whether they should classify solidarity customer loans, which means credit facilities granted by banks and financing agencies in general to companies whose owners are jointly obligated according to the law to pay these amounts along with their interests. Is it within the prescribed concentration ratios for personal loans, or not?

Of course, the open discussion in this regard has gone beyond the members of the boards of directors of banks and their relatives, to expand and include all customers who own contributions to joint or limited liability companies, as the question arises about the possibility of including scheduled loans on these companies within the field of personal facilities that are listed on the information network. Credit SciNet, considering that these customers own these companies?

As it is well known, the owner of joint and limited commercial companies is responsible for the loans obtained by his company, to the extent that he is jointly liable in his personal capacity to pay its debts, and the creditor bank or the financing agency in general has the right to sue him in court and demand him personally to pay his company’s debts if it stumbles in the future or goes bankrupt. Of course, the person’s claim will be according to his percentage of ownership in the company.

Asset guarantee

This procedure is not applied by banking with the shareholders of joint-stock companies, which protect the structure of their owners from personal pursuit of their debts as entities independent of personal receivables, because they borrow against the guarantee of their assets or the quality of their balance sheet, or for their cash flows, and for other banking considerations on which the bank relies in its decision to open lines credit with the company.

In the face of this situation, banking questions began to rush among officials, about the concentration ratios, and whether there were customers who unintentionally exceeded them by virtue of their contribution to a joint liability company, the mechanism for dealing with this overrun, and other banking questions due.

While searching for answers to these questions, banks will have to prepare to provide SciNet with all personal loans of customers, in addition to the loans of customers charged to them by virtue of their contribution to the joint liability companies, which requires a wide banking inventory of the corporate loan portfolio, and sorting out the joint and solidarity facilities in an effort to reclassify them again. .

fiduciary behavior

Perhaps what increases the complexity for banks is that “SciNet” developed only in September of last year the automated system for centralizing risks, which made the credit data of bank customers and financing providers at “SciNet” not limited to the credit data of individuals holding consumer loans. And installments only, but also include the data of its corporate clients, as the recent amendment to the law permitted the right to obtain credit information for legal persons (companies) in addition to the credit information of individuals as is currently decided, and here the complexity arises.

Until September 2020, the information available to the “SciNet” network included only personal data, credit and historical information of the customer, which summarizes his credit behavior, based on the information collected from all participants such as banks and financial companies, and therefore it may be difficult for a banker to classify solidarity loans within Personal loans and their calculation within the percentages of customer concentration, especially if they have been for more than a year.

The government asks the banks: How do we revive the capital?

Al-Rai learned that banks were recently asked to present their vision on the government’s efforts to revitalize the capital region. The sources indicated that the opinion of banks and companies, especially those with headquarters in the capital, was requested regarding the possibility of developing them and changing their current face to another that reflects their importance and financial and investment depth.

The sources pointed out that the banks will submit to government agencies their views of the capital’s current situation, including an accurate description of its situation, the challenges it faces, and its proposals to bring about the targeted transformation of this strategic region.

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