KUWAIT Law and Practice Contributed by: Yousef Al Shereedah, Abdulrahman Al-Roumi and Bashayer Al-Tuwais, International Counsel Bureau – Lawyers and Legal Consultants
Additional requirements for Systemically Important Banks According to the CBK’s Basel III instructions for Domestic Systemically Important Banks (DSIBs), these banks are required to maintain additional capital buffers to enhance their financial stability and withstand economic pressures. The require - ments include the following: • Capital buffers for DSIBs: Banks classified as DSIBs must hold additional capital buff - ers (beyond the minimum capital adequacy ratio of 13%) ranging from 0.5% to 2.0% of risk-weighted assets. These buffers are composed of Common Equity Tier 1 (CET1) capital. • Periodic monitoring: The CBK will annually inform DSIBs of the additional requirements and the timeframe for meeting them. 8. Insolvency, Recovery and Resolution 8.1 Legal and Regulatory Framework Overview of the Insolvency Regime of Kuwait The insolvency and resolution of CBK-Regulated Entities is subject to Law No 71 of 2020 (the “Bankruptcy Law”) which replaced Decree-Law No 2 of 2009 (previously enacted to enhance the financial stability of the banking sector amidst the 2008 Financial Crisis) and the bankruptcy provisions of the Commercial Code. The previous bankruptcy regime, dating back to 1980 with minor amendments in 2009, had become outdated and inadequate in address - ing the needs of modern businesses. It offered limited insolvency protections and restructuring mechanisms, making it difficult for distressed companies to recover and discouraging foreign investment. In this context, the Bankruptcy Law
to lending a maximum of 90% of qualifying deposits, irrespective of maturity profiles. In response to the COVID-19 pandemic, this limit was temporarily raised to 100% but returned to 90% in January 2023 after a phased reduction to 95% in 2022. • Credit facility classifications: The CBK requires Kuwaiti banks to regularly assess and categorise their credit facilities as either regular or irregular. Facilities are classified as irregular under certain circumstances, includ - ing missed instalment payments, unpaid interest, or exceeding approved credit limits. • Credit to non-residents: Local banks may offer credit in Kuwaiti dinar to non-residents without prior CBK approval, provided the loan is connected to a government contract under KWD40 million, and the loan value is no more than 70% of the contract’s worth. In other cases, CBK consent is required. • Foreign exchange: Local banks are permitted to engage in foreign exchange transactions with international banks, including depositing Kuwaiti dinar abroad and entering into deriva - tive transactions such as swaps, options, and futures. Concentration risk regulations • Investment limits: A Kuwaiti bank’s total securities portfolio cannot exceed 50% of its capital. Investments in any one issuer are limited to 10% of the bank’s capital or 10% of the issuer’s capital, whichever is lower. • Credit concentration cap: Without prior CBK approval, a single customer’s total credit liabilities to a bank must not exceed 15% of the bank’s capital base. • Clustering limits: Large credit concentrations, defined as those exceeding 10% of a bank’s capital base, are capped at four times the bank’s capital base.
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