KUWAIT Law and Practice Contributed by: Yousef Al Shereedah, Abdulrahman Al-Roumi and Bashayer Al-Tuwais, International Counsel Bureau – Lawyers and Legal Consultants
on usury (ie, charging of interest). While the CBK does not regulate the conformity of the financ - ing activities of Islamic banks to Sharia law per se, it mandates a certain corporate governance function in which an internal Sharia Supervisory Board must bless the compatibility of the financ - ing activities with Sharia law. Restrictions on Licensed Banks Banks in Kuwait are expressly prohibited under the CBK Law from: • engaging in any non-banking-related com - mercial or industrial activities; • purchasing or owning real estate except (i) for operational purposes; (ii) when real estate properties are acquired through the enforce - ment of debt or a security (provided that such real estate property is sold within three years from said acquisition); or (iii) in relation to Islamic banks, as part of the transactional process of a Sharia-compliant financing mod - el (eg, a Murabaha or a Mudharaba financing); • owning or dealing in bank’s own shares except as permitted by the CBK Regulations; • owning beyond 50% of the share capital of a commercial company except as permitted by the CBK; and • in respect of shares acquired by way of enforcement of debt or security, banks may not hold such shares for more than two years. Restrictions applicable on consumer loans The extension of consumer loans (ie, loans made to natural persons for non-commercial purpos - es) by Kuwaiti banks is tightly regulated by the CBK. Consumer loan facilities are capped and categorised as either (i) “personal loans” which are repayable within a period not exceeding five years and whose value may not surpass 25 times the monthly income of the consumer, subject to a maximum of KWD25,000; or (ii) “housing
loans” which are repayable within a maximum period of 15 years and their monetary limit may not exceed KWD70,000. Moreover, banks may not deduct consumer loan instalments beyond 40% of the monthly income of a consumer (or 30% for a retired consumer) nor may they extend a new loan if the total instal - ments for all outstanding loans (for which the consumer is liable) would exceed these limits. Lastly, the interest rate ceiling applicable on consumer loans may not exceed 3% over the discount rate declared by the CBK. For con - sumer loans, interest rates may only be fixed (ie, not floating). Such fixed rates must last for a minimum of five years, after which, the interest rate may be reviewable by the bank in line with the published CBK rate, provided that such a change must be within a plus or minus 2% of the preceding contractual interest rate. Restrictions regarding banks’ role in the housing market The Lands Monopoly Law regulates the bank - ing sector’s role in the housing market, whereby banks are expressly prohibited from dealing with, selling, purchasing, mortgaging, receiving or assigning rights, or disposing of in whatso - ever way, whether for themselves or on behalf of other persons, any housing property. This prohi - bition does not cover transactions or properties owned prior to the promulgation of the Lands Monopoly Law. The legislation, however, permits banks to finance residential real estate in a lim - ited context where the recipient of the financing is a Kuwaiti natural person who does not own residential property. Common Ancillary Activities It is customary for many CBK-Regulated Enti - ties to carry out “securities activities”, such as
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