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Central Bank The Central Bank of Kuwait is the Government's sole agent for control over the country's monetary policy and for supervising the commercial banks and investment companies, It also channels relations with international financial institutions, functions as a banker for the Government and all other banks, prints and issues the currency. Since January 2003, the Central Bank of Kuwait pegged the exhcange rate of the Kuwaiti Dinar to the US Dollar at 299.63 Fils to US$1. This was implemented to stabilise the exchange rate of the Kuwaiti Dinar against other world currencies and to facilitate with the planned and eventual single currency policy of the member countries of the Gulf Cooperation Council. This standard was revoked in 2007 when the Central Bank switched to multi currency. The Central Bank of Kuwait issued a provisional license in 2003 for establishing new Islamic Banks in Kuwait. The Kuwait Investment Authority will own 24% stake and the remaining shares will be traded at the Kuwait stock market. Out of the ten banks in Kuwait, only Kuwait Finance House and Boubyan Bank function per Islamic principles. Central Bank has also allowed an existing bank, Kuwait real estate bank (KRE), to operate in accordance with sharia, or islamic law, but KRE is still in the process of changing its status. Kuwait finance house (KFH) is the only bank that has been operating in the country for the last 26 years on Islamic principles. The measure to allow two more Islamic banks follows the passing of legislation last year extending the Central bank’s supervision to Islamic banks. Under the legislation, ordinary banks are not allowed to have special units operating on Islamic principles. KFH is one of the largest Islamic banks in the region with total assets reaching 8.5 billion dollars and has 27 branches in Kuwait. To jumpstart the economy, the National Assembly approved the "Foreign Banks" law with a slight majority. The bill allows for the opening of branches of International banks in Kuwait which were previously not allowed. A prime condition for this bill governs that any new bank entering Kuwait must have KD 75 million as capital and KD 15 million for the branch. The most controversial stipulation is that Kuwaiti nationals must constitute a minimum of 38% of the workforce as per the National Manpower Law. Commercial Banks In addition to its Central Bank, Kuwait has specialized banks operating in the areas of savings and credit, industrial loans, and real estate. There are six domestic commercial banks, all of which are 100% Kuwaiti owned, with the exception of the Bank of Bahrain and Kuwait, based in Bahrain and owned equally by the two states. Specialised Banks In addition to the Industrial Bank of Kuwait there are two other specialised banks: the Kuwait Real Estate Bank, which invests funds in loans to finance the purchase or construction of real estate in Kuwait, and the Savings and Credit Bank, which provides loans on easy terms to Kuwaitis to build their own houses as well as for other purposes. The Industrial Bank and the Kuwait Real Estate Bank have recently declared their intention of merging. Kuwait is also the headquarters of Gulf Investment Corporation, a major financial institution set up by the six Gulf Cooperation Council (GCC) states to promote the establishment of companies in various fields by investing in their equity and providing the necessary loan to fund the projects in which it invests provided it must be viable and commercially sound. The banks suffered little physical damage during the Iraqi invasion and the bullion that was taken by the Iraqis from the Central Bank was returned shortly after liberation. Since the liberation, the banking system has been wrestling with three major problems :
Since liberation there has been continuous speculation about possible mergers between various banks but, apart from a statement of intent from the Industrial Bank and the Real Estate Bank, little in the way of firm plans are visible. After the liberation of Kuwait, the Government established a scheme that would relieve the banks, including the specialised banks noted before, of all domestic Kuwait debt caused by the invasion by Iraq on 2nd August 1990. The Government issued bonds totalling some KD 5.6 billion to the banks in exchange for their loan portfolios. The individual debts have twenty years in which to repay their debts to the Government, unless they arrange to settle immediately, in which case they can expect a substantial discount. The implementation of this programme enabled the banks to have clean balance sheets with which to start a new era of self-reliance, without any further support from the Government. Most recently consideration is being given by the Kuwaitis to allow international investors to hold up to 40% of the shares in the Kuwait banks. American, British and other international banks are reported to be negotiating such deals. A recent survey shows that Kuwaitis form 38 percent of the workforce which were 2134 working in the banking sector at the end of year 2003. There is a plan to increase this number. BANK CHEQUES A Cheque should have the following information:
All cheques issued in Kuwait must be drawn on a bank, and it is possible to issue a cheque "pay to bearer" that can be cashed in the bank and a cheque without the name of a person to be paid is considered a cheque 'pay to bearer'. A drawer of a cheque guarantees its payment, and any condition counter to that is considered null. A cheque given in payment for a debt will not clear the debt till it is paid by the bank. The bank will bear responsibility for any cheque that has its signature, or any other information on it, forged without any negligence in the part of drawer if he does not take good care of cheque books, and does not immediately inform the bank about lost cheques. It is possible for a cheque to have several copies, but all copies must have the same number in order to be considered as one cheque, otherwise each copy is considered a separate cheque payable by the bank. Cheques can be endorsed by the beneficiary to the favor of a third person, or even to the drawer himself; and in these cases the endorser will be jointly liable for paying the cheque. Cheques with other phrase written "only for beneficiary", cannot be endorsed to the favor of others. An endorser can indicate on the cheque that nobody should further endorse the cheque after him, in such a case he will not be responsible to pay the value of the cheque to any new endorser; but he is held jointly responsible to pay the original beneficiary and those who endorsed the cheque before he did. Any deleted endorsement is considered effective if proved by bearer of cheque to be in his favor. If a person loses his cheque, whether the cheque is endorsable or issued to bearer (cheques to bearer - without a named person cannot be endorsed) the one holding the check has the right not to give it up, if he proves it is rightfully his (i.e. transferred to him through endorsement). But if he possessed the cheque through malicious conduct or committed a grave error when getting it, then he must return it to its rightful owner. A cheque should not be tampered with, any endorsement with a date should not have its date changed to a prior date; it will be considered forgery. A cheque drawn in Kuwait and payable in Kuwait must be submitted for payment within 6 months from its date; but if drawn outside of Kuwait and due in Kuwait then it should be cashed within a period of three months from its date. A cheque presented to the bank should be paid regardless of its date, and even if the date indicated on it has passed, any protest from the drawer of the cheque will not be heard unless it is related to loss of cheque, or the bankruptcy of the bearer of cheque. The death of the drawer of a cheque or loss of his mental competence, or his bankruptcy, does not affect the legal rules concerning the cheque. If several cheques were issued and presented at the same time, but not enough funds for them exists in the bank, the one with earlier date shall be paid first. And if they were drawn from one cheque book with the same date on them, then the one preceding the others will be paid first. A cheque in foreign currency issued in Kuwait can be paid with its equivalent amount in Kuwaiti Dinars in accordance with the exchange rate at the time the cheque is cashed. The drawer has the right to state the rate of exchange that should be applied when the cheque is to be cashed. The prescription period for filing a case regarding an unsettled cheque concerning the drawer, the bank, endorsers, and others obligated jointly to pay the cheque, is six months from the date the check is due for payment. Lawsuits regarding jointly obligated parties to pay between themselves, is six months from the date one of the them pays the cheque, or is taken to the court for that matter. If the bearer of cheque gets a court ruling against his debtor (the drawer of cheque) then the prescription period does not affect any civil court proceedings regarding the debt indicated on the cheque (unjust enrichment of drawer). This also applies to those who are obligated to pay the cheque vis-a-vis the drawer. PROMISSORY NOTE (COMBIALA) Elements of promissory note: For a monetary paper to be considered a promissory note, it must have the following elements: 1. The words "promissory note" written on the paper. 2. Date and place of promissory note when it was signed. 3. Name of bank, or financial institution, or person. 4. Name of person to be paid, or bearer. 5. Unconditional order to pay that certain amount of money. 6. Date of maturity (date due for payment). 7. Place at which the promissory note should be paid. 8. Signature of the one supposed to pay the promissory note. The essential elements of the promissory note are 1,3,4,5 and 8; without them a promissory note will lose its legal power. Nevertheless a promissory note that lacks items 2, 6, 7 remains effectively a promissory note, as the missing information can be inferred, and in such case the promissory note will be considered payable on sight. If a group of persons sign, or endorse a promissory note, and some of them are mentally incompetent, then the law holds those mentally competent as liable and answerable to the bearer of promissory note. A person that signs a promissory note on behalf of another person, without the latter's express approval or authorization is bound by law to pay that promissory note, and after paying the note he can claim his money from that person on whose behalf he signed. This also applies to the one who exceeds the limits of his legal representation. It is legally possible to have several copies of the same promissory note; in this case all copies of the promissory note must have the same number, otherwise each copy will be considered as a promissory note in itself. A person obligated to pay a promissory note, who pays the note based on a copy he holds with the same number as the original, is considered free from obligation towards the original note, and its other copies. If the financial institution or bank accepts the promissory note and its copies, then it should get the original and all accepted copies when it pays the bearer, otherwise all accepted copies not taken by the bank or financial institution must be paid again if presented for payment. If the promissory note has been issued with several signatures on it, and after a certain period of time somebody tampered with it, or forged parts of it, and after that event some other person endorsed the forged promissory note, then the signatories are responsible only for what is in the original copy, as for those who signed after the forgery, they will be responsible for what is forged in the promissory note. If one of the endorsers of the promissory note writes on the back of it, that any further endorsements shall be on the copy and not on the original, then further endorsement on the original are considered null. A bearer of promissory note must hand over the original to the legitimate bearer of the copy. The one supposed to pay the promissory note (drawer of the note) must have its sum of money in the bank; he is accountable to the bearer and endorser of the note. The amount of promissory note is considered secured in the bank if the drawer is a creditor to the bank at the time the note is due. The bearer of the promissory note has the legal priority to claim his money from the drawer's money kept in bank; in case the drawer goes bankrupt. The bearer of the promissory note is not obligated to accept payment prior to maturity date. But if the bank, the party obligated, pay the bearer before the maturity date, then it bears the responsibility resulting from this conduct. Partial payments of a promissory note should not be refused by the bearer of promissory note and as a consequence partial relief is effected on the drawer and endorsers and their guarantors. An indication of partial payment can be put on promissory note. A debtor, who signs a promissory note to pay a certain sum of money at a certain time, can pay up the promissory note in the execution department of the courts and get from the execution department a certificate that clears him of the debt. This certificate must be given to the creditor (bearer of the promissory note) in order to the creditor to give back the promissory note to debtor. If the debtor does not hand over the certificate of payment issued from the execution department then the debtor will have to pay again the same amount to the bearer of promissory note if the bearer protests in the court, because the creditor cannot claim his money from the court without submitting the certificate. If the promissory note is lost, or the bearer goes bankrupt, the promissory can refuse to pay the note. If a lost promissory note that was not accepted by the bank has several copies, it is possible for the bearer of a copy to demand its amount. But if the promissory note has several copies and the one accepted by the bank (endorsed with signature of the bank as accepted by bank) is lost, it is not possible to claim the money, by presenting an endorsed copy if it does not have an express acceptance from the bank unless the bearer resorts to the court and gets a ruling for that matter, in addition to the ruling he should present a guarantor. If the promissory note was lost and the bearer could not submit any copy of it for payment then he must protest to the court a day after the maturity date, and this protest should be notified to the drawer and to all endorsers of the promissory note, even if the court does not issue a ruling in the appropriate time. All court cases related to promissory notes, cannot be heard in court after the passage of three years from maturity date. All court cases filed by bearer of promissory note towards the promissory, or endorser of a promissory note, cannot be heard in the court after one year from protest filed by the bearer in the appropriate time, or from date of maturity if the promissory note excludes protest. Court cases filed by endorsers towards each other, or towards the promissory cannot be heard in the court after six months from the date an endorser pays the promissory note, or from the date the court case is filed against him. If the case is filed, the prescription period starts from the date of last proceeding in the case. But if debtor acknowledges the debt then this prescription period shown above does not count. Stock Exchange The concept of shares was introduced in 1952 by the National Bank of Kuwait by offering public subscription. Subsequently many Kuwait share holding companies emerged. The early trading in the stocks was done through real estate brokerage offices and public cafes at the merchants market. During the period of transformation of the economy from tradition to oil, there was no stock market as such. The first law to organize the stock market in Kuwait was issued in October 1962. It addressed the topic of organizing the stock of companies established abroad. The commercial law number 15 of 1960 had a significant role in organizing the issuance of shares and the subscription, yet there was no law to systemize the trading of the shares of several share holding companies in various economic activities. However, in 1970, law number 32 was issued concerning the regulation of stock trading in share holding companies. This law is considered the first significant step towards the organization of trading in local shares which necessitated formation of a consultation committee for supervision of trading. The committee was assigned to structure the legislative articles and organize activities related to the stock market and foreign currencies. It was assigned to design a framework of proportions focusing on establishing stock market and set the necessary laws to preserve the economic interest of the country in the event of unusual fluctuations in the prices of shares. The task of assessment of foreign companies willing to register the shares in Kuwait was also given to this committee. In November 1970, resolution No. 32 was issued by the Ministry of Commerce and Industry concerning the trading of shares in Kuwaiti share holding companies. In February 1972, the first premises for the securities trading section was inaugurated in the commercial area 5 in the city, where employees of the exchange summed up each day's trading in shares and issued the daily report detailing the number of traded shares, prices, and the number of transactions executed. This report was available to brokerage offices and the mass media. Ministerial resolution no. 61 was issued in November 1976 to organize dealing in Kuwaiti share holding company shares and designated the first committee in the ministry to supervise the Kuwaiti share holding companies and regulate the trading of shares. Until 1983 the Kuwait Stock Exchange was working according to the rules and regulations of this ministerial resolution. The Kuwait Stock Exchange was officially established by an Amiri Decree issued in 1983. After the liberation of Kuwait, the Stock Exchange reopened in September 1992. The shares of more than 50 Kuwaiti and a number of Gulf (GCC) companies are listed on the exchange, the eight Kuwaiti banks account for more than half of all daily dealings, with active dealings in only three of these. It should also be noted that the Government itself at present owns a major part of all local shares listed. Total capitalisation prior to the invasion was about KD 3.5 billion. In 1989 the Kuwait Stock Exchange opened to non-Kuwaiti GCC citizens; it was also possible for non-GCC nationals to have an interest in these shares, through investment funds. On a typical day about 10 to 12 million shares are traded with a value of about KD 3 million. This business is transacted in about '300' trades each day. However, with a relatively small population and a limited number of good investment opportunities locally, wealthy Kuwaitis generally prefer to invest overseas. It is estimated that Kuwait's private money overseas is in the order of US$30 billion, an average of $500 per member of the population. In August 2000 the Kuwaiti Cabinet approved regulations necessary to implement the bill allowing foreigners to own stocks and trade on the bourse. The legislation allows foreign investors and expatriates living in Kuwait to own up to 100 per cent of the stock of Kuwaiti companies listed on the KSE, except in banks where the ownership will be limited to 49 per cent. The new regulations provide complete freedom for foreigners to buy, sell and own stocks like Kuwaitis. KSE has plans to introduce trading through the Internet to enable foreign investors easy access to Kuwait stocks. Their website is www.kuwaitse.com. The article (3) of the law states that the rules applicable in the Kuwait Stock Exchange will be applied on the shares possessed by non-Kuwaitis in the share holding companies that are enlisted with Kuwait Stock Exchange. |