KUWAIT CITY, Jan 5: The Central Bank of Kuwait said on Tuesday that the draft law for relieving citizens of interest of consumer and installed loans includes many controversial technical, legal and procedural sections, thus rendering it inapplicable The CBK, in a statement coinciding with the parliamentary debate on the bill, said the proposed law “adds heavy and intolerable burden upon the central bank to the extent that will result in total paralysis of its supervision tasks and carries grave and unwarranted risks.” From a constitutional perspective, it violates the basic principle of justice and equality before the law and the right of litigation, some of the basic rights of the Kuwaiti society.
Moreover, it weakens confidence in the state financial and banking systems, as well as the stable legal system that affirms the principle of respect for contracts and covenants, in addition to encouraging negative conducts by clients of the banking and financial sectors.
According to statements released by local banks and inevstment companies submitted to the CBK till the end of last September, the CBK statement continued the total volume of the loan assets and consumer and installed financing granted to the citizens, free of interests and proceeds, amounted to KD 4891 million.
Moreover, this asset including the interests and the returns on the mature loans amounted to approximately KD 6709 million, with the difference standing at KD 1818 million, constituting the overall interest and returns of the mentioned asset, to be written off according to the proposed law.
Affirming that the principle of relieving some citizens of such financial liabilities constitutes a breach of justice, the CBK statement said other loan takers, in the coming years, would request to be treated equally with those who have been relieved of such financial liabilities.
The CBK indicated that such a bill implies that all debt-bearing citizens have failed to pay their dues as scheduled, and this is contrary to the facts that show that only 3.3 percent of the indebted nationals have failed in honoring their financial obligations.
It warned that such an approach would encourage deception where “unreal loans may be created thus adding to the hefty financial costs upon the state budget.” Moreover, it raises the legal issue whether the banks and the investment companies can be compelled to reschedule the loans, for they are governed by contracts with the citizens.
The bill in its first provision states “a blurred definition of the lending client” and the second article fails to specify the timetable of the debts’ scheduling.
Moreover, the bill does not include a clear definition of the deposits of the government departments in the banks, where it neither stipulates whether they are interest-free, nor mentions longevity of these assets.
The proposed law does not stipulate adding other government assets to make up for the interests to be cancelled in the re-scheduling.
The state funds, throughout the re-scheduling period reaching 15 years, would not post any yields. On the contrary, they will sustain waste of investment opportunities, a loss that affects rights of the next generations.
The statement also indicated at the difference in tackling such an issue between the conventional and Islamic banks, also noting that the draft law does not mention means of loans granted by the investment companies.
It also contested the term that calls for withdrawal of legal law suits against the defaulters.
Meanwhile, the Kuwaiti parliament postponed a scheduled vote on a controversial multi-billion-dollar scheme to buy up citizens’ private debt after heated exchanges on Tuesday.
Speaker Jassem al-Khorafi adjourned the session until Wednesday as he failed to bring order to the floor when supporters and opponents of the plan traded accusations.
The bill, which was approved at first reading two weeks ago, would require the government of the state to buy up some $21.6 billion of personal and consumer loans taken out by citizens.
It would require the government to reschedule the repayment of the principal in interest-free instalments over 10 years and forgive the interest currently owed, which is estimated at more than $5.2 billion.
The government has strongly opposed the bill, warning of serious economic consequences and vowing to reject it even if parliament passes it at second and final reading.
Under Kuwaiti law, the government can reject legislation passed by MPs, but it must then go back to parliament, which can override the veto if it can muster a two-thirds majority in a new vote.
At first reading, MPs passed the bill by 36 votes to 18, following a marathon 13-hour debate. Half of the MPs who voted against were cabinet ministers, who have ex-officio seats.
In total, the 65-seat parliament has 50 elected members, one of whom is also a minister. The other 15 ministers hold their seats ex-officio.
Finance Minister Mustafa al-Shamali told parliament on Dec 23 the debt relief scheme breached the constitution and could cost up to $13 billionin public funds, in addition to encouraging citizens to spend lavishly.
The minister said the government is currently helping citizen debtors who are unable to repay through a $1.75-billion defaulters fund set up a year ago.
MPs backing the plan however blamed the government for causing a debt problem by failing to apply strict monitoring on local banks, which they said lured citizens into taking out loans beyond their ability to repay.
They said that more than 40,000 citizens are facing legal action over debt arrears.
The bill would require the government to use returns on some $30 billion of state deposits at local banks to cover the cost of the scheme.
Al-Shamali during Tuesday’s session reiterated the government’s stand against the bill, which he deemed unconstitutional and costly as the state will spend billions of dinars for its implementation.
On the other hand, the Parliament voted in favor of a request for the parliamentary Economic and Financial Affairs Committee to meet for two hours to discuss amendments to the bill.
When the discussions resumed, a number of lawmakers disagreed over the amendments and the session was adjourned.  Another session was then slated for Wednesday to continue deliberations on the issue.
Khorafi said on Tuesday that he had to adjourn Tuesday’ssession because the MPs’ debates on the topic “were no longer objective.”
Speaker of National Assembly Jassem Al-Khorafi, speaking after the session held at the Abdullah Al-Salem Hall, said “The MPs prompted me to end the session because they raised irrelevant issues and things worsened to the extent that pursuing the discussion was no longer possible.” The veteran speaker expressed hope that his decision to defer the session on the crucial issue would furnish the members of the assembly with sufficient time to resume the debate, on Wednesday, in a calm atmosphere.