KUWAIT Trends and Developments Contributed by: Yousef Al Shereedah, Abdulrahman Al-Roumi and Bashayer Al-Tuwais, International Counsel Bureau – Lawyers and Legal Consultants
In line with the global economic response from other central banks such as the US Federal Reserve, the European Central Bank, and the Bank of England, the Central Bank of Kuwait (CBK) swiftly tightened monetary policy and raised interest rates to combat inflation through - out 2023. Specifically, the CBK increased its dis - count rate seven times, reaching 4.00% by the end of the fiscal year, up from 1.75% the previ - ous year. In 2024, also in line with international trends, Kuwait reduced its discount rate by 25 basis points from 4.25% to 4.00%. While these trends and developments respond to macroeconomic and geopolitical challenges, the banking regulations landscape in Kuwait in 2024 is primarily driven by government ini - tiatives. These initiatives appear to be shielded from populist trends due to the Emir of Kuwait’s pronouncement to suspend the National Assem - bly (Kuwait’s Parliament) for up to four years. Without a parliament in place, the forward-look - ing legislative agenda is unclear. However, the government is making efforts to pass systemi - cally important pieces of legislation and regula - tion that were previously unpopular due to the role of Parliament. These include legislation to allow the government (and its institutions) to borrow, either directly or through issuing debt in international financial markets (the “Public Debt Law”). Furthermore, the government seems unrestrict - ed (given the suspension of Parliament) from passing unpopular taxation legislation (the “New Taxes”), which are cornerstones of its develop - ment plan and vision for the future as articulated in Kuwait Vision 2035. While neither the Public Debt Law nor the New Taxes are directly consid - ered “banking regulations”, they are expected to have a direct impact on how the CBK may consider its regulatory response to these regula -
tions. This is due to the fact that the Kuwait gov - ernment, through the Kuwait Investment Author - ity (Kuwait’s Sovereign Wealth Fund) and other entities, has significant interests in local banks. Additionally, banking activity has the lion’s share of the Kuwaiti equities market, either through the sheer size of the banks as issuers of securities or through the banks’ role in financing projects and transactions. For example, in 2023, banks represented close to 73% of the entire Boursa Kuwait market capitalisation. That said, the CBK’s supervisory efforts appear to focus on promoting environmental, social, and governance (ESG) initiatives, safeguarding cybersecurity, and advancing digital banking. A few examples of the CBK’s regulatory agenda in 2023 shed light on what the CBK aims to focus on in the next few years. In relation to ESG, the CBK issued a bundle of directives to promote “launching financing products and instruments consistent with Green Finance Activities” and requested banks to be familiar with the Basel Committee on Banking Supervision’s “Principles for Effective Manage - ment and Supervision of Climate-Related Finan - cial Risks”. To this effect, the CBK circulated directives to all banks concerning its guide - lines for sustainable finance and is “prioritizing products that align with Kuwait’s environmen - tal, social, and governance (ESG) strategy in its regulatory sandbox.” Here, it is important to note the interplay between the regulation of fintech and the overall regulatory orientation to ESG, two issues that the CBK appears interested in promoting. The CBK signals to the market that technological innovations in banking must have due regard to ESG principles. This is significant because the CBK wields a lot of power in its licensing regime for any initiatives by existing banks, in addition to any potential digital bank -
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