(MENAFN- Arab Times) 'Abiding by directives exposes banks to violating Sharia'
KUWAIT CITY, June 5: Some local banks are facing difficulty in enforcing the international criteria for financial reports 'IFRS 9' based on the suggested monitoring remedy for the first quarter, reports Al-Rai daily quoting informed sources.
They stressed that the commitment of the banks to abide by those directives exposes them to violating the Sharia. The sources explained that the Central Bank of Kuwait issued a circular in April 2018 concerning the enforcement of the international accounting standards 'IFRS 9' on the portfolios, the relevant investments and loans for the first quarter of the year.
Because of the consequent accumulations that the banks have made for the contingent provisions since 2008 and owing to the conservative monitoring policy, most of the banks are expecting to make surplus from the reserved money in their books. They have the right to turn them into cash and then direct them to the gains and losses accounts. According to the banks, this is the preferred process that is in line with the international criteria.
Objected
On the other hand, the Central Bank of Kuwait initially objected to changing the contingent provisions into cash and insisted on taking precautionary actions. It then issued tough directives to reduce the level of the surplus resultant from enforcing the criteria, and asked the banks to absorb the surpluses in their capitals. This led to a dialogue between the banks, especially the Islamic banks and the Central Bank of Kuwait.
The banks said they cannot absorb the surpluses and add them to the capital because this might violate the Islamic Sharia.
They said their work is based on partnership between the shareholders and the depositors, adding that classifying the surpluses to the capital requirements means the depositor will bear costs that he does not have to bear. Concerning the regular banks, they did not hide their desire to 'release the safety belts' or at least make it a bit loose in order to turn some provisions into cash, taking into consideration the fact that the new criteria requires counting the loans' provisions based on expectations of insolvency that makes the loaner incapable of repaying the debts.
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