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BANKING ACTIVITIES AND ORGANISATION
Law No. 32 of 1968, as amended bv Law No. 130 of 1977, provides the regulatory framework for the banking industry in Kuwait. The same law created and established the Central Bank of Kuwait ("CBK") which replaced the Kuwaiti Currency Board, the former regulatory agency that had been functioning as the primary monetary authority of Kuwait under the Amiri Decree No. 41 of 1960. It has control and supervision over the banking system and is headed by a Governor. The CBK Board, with the approval of the Minister of Finance, has the authority to lay down all rules and regulations concerning the administrative and financial affairs of the CBK.
Banks are defined as entities whose basic functions involve the receipt of deposits for use in banking operations, such as: the discount, purchase and sale of commercial papers, granting of loans and advances, issuing and collecting cheques, placing of private and public loans, dealing in foreign exchange and precious metals and other credit operations considered by law or customs as part of banking operations.
In Kuwait, banking business may only be carried out by entities set up in the form of joint-stock companies. All banks must comply with the Commercial Companies Law that requires a bank to be in form of a joint stock company to be incorporated in Kuwait, of which 60% of shareholders are to be nationals of the country. As such, foreigners may become shareholders of a bank up to a maximum of 40% provided that the CBK's approval is obtained. There is a draft bill currently pending in parliament that seeks to liberalise foreign equity in local banks. If passed, the new law will go a long way towards liberalising bank ownership in Kuwait.
Kuwaiti banks are managed by a Board of Directors who, along with key officers, are required to have adequate experience in banking or in the financial sector and are held to a high moral and ethical standard.
While all shares of all local banks are required to be publicly offered, the law allows for certain exceptions. Banks of which the government is a co-founder and the branches of foreign banks in which the government or Kuwaiti banking institutions are shareholders may be exempt from...