Kuwait’s parliament passed a law requiring the government to pay 744 million dinars ($2.6 billion) to purchase citizens’ loans taken before March 30, 2008 and write off all interest before rescheduling payments.
The law, approved by 50 lawmakers out of 57 members of parliament who were present, also requires banks to repay borrowers who were charged more than 4 percentage points above the base rate on their loans.
“It’s a start to a problem rather than solving a problem,” Jassim Al-Saadoun, head of Al-Shall Economic Consultants, said by phone from Kuwait City. “It’s unjust even among borrowers, legally and morally this will be a problem. Who will believe us now that we will be a financial center?”
According to lawmakers, 47,444 Kuwaitis who borrowed from conventional banks are eligible to benefit from the law, which excludes citizens who took loans from Islamic banks. Previous attempts at passing similar laws had failed amid opposition by the government, which always said Kuwaitis in trouble with loan payments already have access to a special fund set up in 2007. The law underwent numerous amendments before the government would lend support to its passage today.
“Banks are in full compliance with the regulations that do not allow banks to charge more than 4 percent over the discount rate,” Hamad Al-Marzouq, chairman of the Kuwait Banking Association, said by phone after the vote. “Banks have not charged anything in excess of what is legally allowed, so in our assessment there will be zero impact on the banks.”
Bank lending in Kuwait, OPEC’s fourth-biggest producer, grew 4.8 percent in February, after growing an average 4.1 percent in 2012, the fastest pace since 2009 and boosted by a jump in consumer loans. The government posted its 13th straight surplus in the last fiscal year, a record 13.2 billion dinars. Kuwait will exhaust all oil revenue by 2017 if the government’s current spending policy continues, the International Monetary Fund said last year.
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