Press Releases
CBK Decides to Make Fundamental Changes to its Consumer and Installment Loans Instructions. New Instructions would Curb Growth of these Loans to the Benefit of Citizens, and will Apply Only to New Loans
Main Changes: Cutting Profit Margin Above the Discount Rate + Monthly Installment Not to Exceed 40% of Net Salary of the Employed and 30% of the Pensioners + Fixed Interest to be Reviewed Every Five Years for Installment Loans
H.E. Sheikh Salem Abdulaziz Al-Sabah, the Governor of Central Bank of Kuwait (CBK) has stated that in view of the ongoing review of the instructions issued by CBK, the CBK Board of Directors, in its recent meeting on 23rd of March 2008, has sanctioned a number of changes to the "consumer and installment loan instructions", the most important of which are as follows:
* Reduction of the interest rate calculated for this type of loans to 3% above the Discount Rate instead of 4%.
* Changing the method of charging interest by fixing the interest rate for five years from the date of the loan, to be then reviewed and changed up or down by not more than 2%, instead of the current method of changing the interest rate whenever the Discount Rate is changed.
* Reduction of the monthly installment due from a client to 40% of his/her net salary or monthly income, instead of the current 50%, in case of working clients. As for pensioners, the ceiling is lowered to 30%.
* Upfront charge of interest on consumer loans is prohibited from now on. It was permitted to conventional banks and investment companies as per previous instructions.
H.E. the Governor concluded his statement by stating that these instructions will be effective as of 30th of this March. They are applicable only to new consumer and installment loans. Obviously, they are not applicable of loans outstanding before the issuance of these instructions. H.E. added that in general these instructions are intended for the good of the community and its members on the one hand, and will safe guard the banking and financial system units and curb the excessive growth of these loans on the other.
