Chapter II: Central Bank of Kuwait
There shall be established a public institution, having an independent juristic personality, to be called "Central Bank of Kuwait". It shall be referred to in this Law as the "Central Bank".
The City of Kuwait shall be the seat of the Bank, and the Bank may open branches in the State of Kuwait and appoint agents and correspondents abroad.
The Central Bank shall have a special budget which shall be prepared in a commercial pattern.
The Bank shall be considered as a merchant in its relations with other parties, and its operations and accounts shall be conducted and organized in accordance with commercial and banking rules.
Apart from Constitutional provisions in force with regard to the operations, budget and closing account of the Bank, the Board of Directors shall, with the approval of the Minister of Finance, lay down all rules and regulations concerning the administrative and financial affairs of the Bank, including staff and accounting matters, without being limited in all this by the provisions of the Public Tenders and Civil Service Laws.
The provisions concerning advance control in Law No. (30) of 1964 establishing the State Audit Bureau shall not apply to the operations of the Central Bank. The functions of the State Audit Bureau shall be limited to auditing the accounts and assets of the Bank, and the Bureau shall not, in any manner, interfere in the operations of the Bank or question its policy. The technical officer of the State Audit Bureau, assigned to audit the operations of the Bank, shall have adequate technical qualifications and special experience in banking.
The objectives of the Central Bank shall be:
- to exercise the privilege of the issue of currency on behalf of the State;
- to endeavor to secure the stability of the Kuwaiti currency and its free convertibility into foreign currencies;
- to endeavor to direct credit policy in such a manner as to assist the social and economic progress and the growth of national income;
- to control the banking system in the State of Kuwait;
- to serve as Banker to the Government;
- to render financial advice to the Government.
The Capital of the Central Bank shall be five million Kuwaiti Dinars and shall be fully paid by the Government. The Capital of the Bank may be increased by decree, and such increase shall be deducted from the General Reserve of the Bank.
* Text of Article (16) was amended by virtue of the Decree Law No. (130) of 1977.
- The Central Bank shall establish a General Reserve Fund.
- At the end of each fiscal year, the net profit shall be the profits realized by the Bank, after deducting the expenses of operations and making the provisions necessary to meet bad or doubtful debts, depreciation in assets, contributions to the Pension Fund and such other contingent expenses usually provided for by banks.
- The net profit of the Bank shall be dealt with as follows:
- The net profit of the Bank shall be paid into the General Reserve Fund until the balance of the Fund amounts to twenty five million Kuwaiti Dinars. The General Reserve Fund may be increased by a decision of the Board of Directors of the Bank with the approval of the Minister of Finance.
- When the balance of the General Reserve Fund reaches the specified maximum limit, the net profit shall be fully paid to the Government.
- If the General Reserve Fund, in any year, is insufficient to meet the losses of the Bank, or if it cannot be used to absorb the losses, the Government shall cover the deficit.
* Paragraph (3) of Article (17) was amended by virtue of the Decree Law No. (130) of 1977.
The management of the Central Bank shall be carried out by a Board of Directors composed of:
- the Governor, who shall be the Chairman of the Board;
- the Deputy Governor;
- a representative of the Ministry of Finance;
- a representative of the Ministry of Commerce and Industry;
- four other members;
* Last paragraph of Article (18) was amended by virtue of the Decree Law No. (130) of 1977.
The Governor and the Deputy Governor shall be appointed by decree for a renewable period of five years on the recommendation of the Minister of Finance, provided that they have experience in banking.
The salaries, allowances and emoluments of the Governor and the Deputy Governor shall be fixed by a decision of the Council of Ministers on the recommendation of the Ministry of Finance.
* Text of Article (19) was amended by virtue of the Decree Law No. (130) of 1977.
- The Council of Ministers shall, on the recommendation of the Ministers concerned, appoint the representatives of the Ministry of Finance and the Ministry of Commerce and Industry and fix their remuneration, and shall name the alternates to take their place in their absence.
- The other members shall be appointed by decree on the recommendation of the Minister of Finance for a renewable period of three years, provided that they shall have experience in economic and financial or banking affairs. Their remuneration shall be fixed by a decision of the Council of Ministers, on the recommendation of the Minister of Finance.
- The members referred to in the preceding two paragraphs may not be directors, managers or officials of any bank operating in the State of Kuwait.
* Paragraph (2) of Article (20) was amended by virtue of the Decree Law No. (130) of 1977.
- The Governor shall have the full powers necessary to manage the operations of the Central Bank and to issue the regulations and instructions relevant thereto and shall be responsible for the implementation of this Law and the regulations of the Bank as well as for the execution of the resolutions of the Board of Directors. The Governor shall be the legal representative of the Bank and shall have the power to sign on its behalf. The Governor may, upon approval of the Board of Directors, delegate some of his/her powers to the Deputy Governor or to any other official of the Bank.
- The Deputy Governor shall temporarily replace the Governor in his/her absence or if his/her office becomes vacant.
- The Governor and the Deputy Governor shall devote the whole of their professional time to their work in the Bank and, while holding office, neither of them may occupy any other office, or work for any party other than the Bank, whether with or without remuneration, or have an interest in obligations entered into by the Government or public establishments or combine his/her office with membership in the board of directors of any company.
Exceptions to this shall be the activities related to committees, establishments or organizations formed by the Government or by public institutions and organizations, and the activities related to international conferences.
- No person shall be appointed member of the Board of Directors of the Central Bank who:
- has been convicted of an offense involving dishonesty or misconduct;
- has been declared bankrupt, or has abstained from payment.
- Apart from the cases provided for in the preceding paragraph, the services of any member of the Board of Directors may be terminated by decree by a decision of the Council of Ministers, whichever is the relevant means of appointment, in the following two cases:
- if he/she gravely violates his/her duties or commits serious mistakes in the administration of the Bank;
- if he/she is absent from all meetings of the Board of Directors during three consecutive months without the approval of the Board, unless such absence is due to his/her being on official assignment, annual leave or sick leave.
The Board of Directors shall convene at the request of the Governor, and the Governor shall summon the Board to convene if the meeting is requested by the Minister of Finance or by three members at least. The meetings of the Board may not be less than eight times a year.
At meetings of the Board, the quorum shall consist of five members at least, including the Governor or his/her Deputy and the representative of the Ministry of Finance or his/her alternate.
Resolutions shall be adopted by a majority of the votes of the members present, and in case of an equality of votes, the Chairman's side shall prevail.
The Board of Directors may seek the assistance of experts, and may invite to its meetings any persons whose advice on any particular subject it wishes to listen to.
Within the provisions of this Law, the Board of Directors shall exercise the full powers necessary to perform its duties, and shall do the following in particular:
- draw up the monetary and credit policy of the Bank;
- decide on matters relating to the issuance, circulation and withdrawal of currency;
- determine the system of discounting and rediscounting commercial papers and of granting loans and advances, and specify the collateral required;
- fix the rates of discount, rediscount, interest and commission to be charged by the Bank on loans, advances and discount of commercial papers;
- decide on matters relating to the organization and control of banking;
- consider applications received from the Government for advances;
- fix the maximum limit for advances and loans which may be given to banks operating in Kuwait;
- fix the amounts allocated for the purchase and discount of public debt securities or Government treasury bills;
- establish the clearing rooms;
- establish Staff and Employees Pension Fund and decide on contributions by the Bank to the said Fund;
- approve the estimates of the annual revenues and expenditures;
- review periodically the position of the Bank and the progress of its operations;
- approve the annual balance sheet, the profit and loss account and the closing account of the Bank. The Board's approval of the estimates of revenues and expenditures, the balance sheet, the profit and loss account and the closing account shall be sanctioned by the Minister of Finance;
- approve the Bank's annual report to be submitted by the Governor to the Minister of Finance in accordance with the provisions of Article (50) of this Law;
- issue the internal regulations relating to the financial and administrative affairs, as well as any other regulations it deems necessary for the proper management of the Bank;
- deal with all matters which under this Law, or any other law, are within the competence of the Board of Directors.
The representative of the Ministry of Finance on the Board of Directors may request the suspension of any resolution issued by the Board relating to monetary and credit policy for referral to the Minister of Finance. If the Minister of Finance does not give a decision on the issue within seven days from the date of suspension, such resolution shall become effective.
Unless otherwise permitted by law, no member of the Board of Directors, manager, official or employee of the Central Bank shall disclose any information which relates to the affairs of the Bank or its customers or the affairs of other banks subject to the control of the Central Bank and to which he/she has access by reason of the duties of his/her office.
Information which shall not be disclosed will be determined by a decision of the Minister of Finance after having obtained the opinion of the Board of Directors of the Central Bank.
Without prejudice to the application of any more severe penalty under any other law, any one who violates the prohibition provided for in the preceding two paragraphs shall be liable to imprisonment for a term not exceeding three months and to the payment of a fine not exceeding two hundred and twenty-five Dinars, or to either one of the said penalties plus dismissal from service in all cases.
No salary, wages, fees, allowance, remuneration or bonus may be paid by the Central Bank to or for the benefit of those working for it on the basis of the profits realized by the Bank.
First: Relations with the Government
The Central Bank will offer advice to the Government in order to facilitate the realization of its objectives and functions, and the Government will consult the Bank in matters relating to monetary and credit policy.
The Central Bank shall act as banker and fiscal agent for the Government on this basis:
- Government funds in Kuwaiti Dinars on current accounts shall be held solely with the Bank. No interest shall be paid by the Bank on such funds.
- The Bank shall in general carry out, free of charge, banking transactions and services relating to the Government inside and outside the country.
- The Government may place funds in Kuwaiti Dinars with local banks, after seeking the opinion of the Central Bank and in a manner not conflicting with the monetary policy in force.
- The Minister of Finance may entrust the Central Bank with the administration of any other Government funds in accordance with the conditions agreed upon at the time.
- The Ministry of Finance shall transfer to the Central Bank such amounts as may be necessary for the implementation of any particular monetary policy, after the Minister of Finance has approved such policy.
* Text of Article (31) was amended by virtue of the Decree Law No. (130) of 1977 by adding paragraphs (c) and (e).
- The provisions of paragraphs (a) and (b) of the preceding Article may be applied to municipalities and public establishments by a decision of the Council of Ministers.
- As an exception, interest may be paid to these bodies on their deposits, but in this case they shall not be exempt from charges on banking transactions and services.
The Central Bank shall enforce the laws and regulations pertaining to the transfer of funds.
Central Bank shall, either directly or through banks and other financial institutions, undertake the operations relating to the sale and management of securities issued or guaranteed by the Government.
The Bank may also undertake operations relating to the sale and management of securities issued in Kuwaiti Dinars by any public organization or institution in Kuwait.
* Text of Article (34) was amended by virtue of the Decree Law No. (130) of 1977.
In accordance with the provisions of Article 26 (h) of this Law, the Central Bank may:
- purchase, sell, discount and rediscount Government treasury bills;
- purchase and sell public debt securities issued and offered for sale by the Government.
The Central Bank may not give any loans to the Government, municipalities or public establishments and bodies except in the following case:
The Bank may give temporary advances to the Government to cover deficit in Budget revenues. Such interest, as may be determined by the Board of Directors of the Bank in agreement with the Minister of Finance, shall be paid by the Government on these advances.
The total of such advances may not, at any time, exceed ten percent of public revenue of the State Budget for the proceeding fiscal year. Such advances shall be repaid as soon as possible. If they are not repaid by the end of the fiscal year following the one during which they were given, the Bank shall not grant any new advances until those outstanding have been repaid.
For the purpose of financing development projects or strengthening the financial market, the Central Bank may upon approval of the Minister of Finance:
- own or sell shares or bonds of any Kuwaiti shareholding company, franchisee in Kuwait or public establishment;
- extend loans to banks, public financial or credit establishments, against collateral of their holdings of such shares or bonds, provided that the total amounts allocated for the acquisition of the aforementioned shares and/or bonds, or for lending against the collateral of their holding, does not exceed the value of the reserves of the Bank;
- issue negotiable bonds.
* Paragraph (3) was added to Article (37) by virtue of the Decree Law No. (130) of 1977.
- The Governor shall keep the Minister of Finance continuously informed of the monetary and credit policy pursued or intended to be pursued by the Bank.
- If the Minister of Finance has a different view, he/she may issue general directives to be followed by the Bank, and such directives shall become binding on the Bank.
- If the Board of Directors has any objections to these directives, it may submit such objections, together with the reasons for them, in writing to the Minister. The Minister shall then submit the directives, together with the objections, to the Council of Ministers to decide on the matter. The decision of the Council of Ministers on the matter shall be final.
Government departments, public institutions and organizations, and companies operating in the State of Kuwait shall submit to the Governor of the Central Bank all information and statistics which the Bank may require for its studies.
Second: Relations with Local Banks
The Central Bank may:
- open deposit accounts for banks and financial institutions operating in the State of Kuwait, and for public credit institutions.
- open deposit accounts for other institutions, upon approval of the Minister of Finance. No interest shall be paid on the accounts referred to in this paragraph and the preceding paragraph except in special cases as may be decided by the Board of Directors of the Central Bank and approved by the Minister of Finance.
- open accounts in Kuwaiti Dinars with banks.
- participate with banks in any scheme relating to the insurance of deposits.
* Text of Article (40) was amended by virtue of the Decree Law No. (130) of 1977.
The Central Bank may carry out the following operations with banks only, and not otherwise:
- sell, purchase, discount or rediscount commercial papers, provided that these shall mature within one year from the date of acquisition, discount or rediscount by the Bank.
- give loans or advances, in emergency cases, through current account for a period not exceeding six months against such collateral as the Bank may consider adequate.
* Text of Article (41) was amended by virtue of the Decree Law No. (130) of 1977.
The Central Bank must not:
- extend the term of loans given under paragraph (b) of the preceding Article for more than six months.
- accept, for discount or as mortgage, commercial papers signed by any member of the Board of Directors or by anyone of the Bank's officials or employees.
* Paragraph (a) of Article (42) was amended by virtue of the Decree Law No. (130) of 1977.
Third: Gold and Foreign Exchange Operations Inside and Outside the Country
The Central Bank may:
- purchase, sell, import and export gold and silver coins and bullion;
- carry out foreign exchange operations and transfers of all kinds;
- open accounts with central banks or other foreign banks or with international financial or monetary institutions;
- open accounts for central banks, or other foreign banks and for international financial or monetary institutions, and act as correspondent for such banks and institutions;
- grant advances or credits to central banks, other foreign banks or international financial or monetary institutions, and obtain credits, advances or loans from them, provided that such operations are within the scope of its functions as a central bank;
- purchase, sell, discount or rediscount bonds or bills or certificates issued or guaranteed by foreign governments or international financial or monetary institutions, provided that they are expressed in freely convertible foreign currencies and are easily negotiable in financial markets;
- purchase and sell foreign bonds or securities other than those issued or guaranteed by foreign governments or international financial or monetary institutions, provided that they are expressed in convertible foreign currencies and are easily negotiable in financial markets;
- purchase and sell commercial papers acceptable to foreign banks.
*Paragraphs (f), (g) and (h) of Article (43) were amended by virtue of the Decree Law No. (130) of 1977.
The Central Bank may:
- invest the Pension Fund set up for the benefit of its officials and employees, and grant loans to them in accordance with the regulations decided by the Board of Directors;
- own only such immovable property as assigned for running the business of the Bank;
- in general, carry out all operations customarily carried out by central banks and not inconsistent with the exercise of its powers or the discharge of its duties under this Law, and undertake such duties as may be assigned to it under any other law.
Fourth: Prohibited Operations
The Central Bank must not:
- engage in trade operations outside the scope of its functions specified in this Law, or have a direct interest in any commercial, agricultural, industrial or any other undertaking except as provided in Article (37).
- buy or sell immovable property except as provided in paragraph 2 of Article (44). However, the Bank may purchase or acquire, by accord or by forced-sale, movable or immovable property in the way of collecting any of its claims, provided that the Bank shall sell such property within the shortest possible time unless it is used for running its business.
- purchase shares or bonds of companies or public establishments, except as specified in Article (37).
The fiscal year of the Central Bank shall be the same as the fiscal year of the State.
The bases for evaluation of the assets of the Central Bank shall be specified by decree.
* Text of Article (47) was amended by virtue of the Decree Law No. (130) of 1977.
The Central Bank shall enter in a Special Account the profits realized and the losses incurred as a result of altering the exchange rate of the Kuwaiti currency or any foreign currency, or altering the value of gold in terms of the Kuwaiti currency, as well as the profits resulting from the withdrawal of currency notes and coins under the provisions of Articles (10) and (11) of this Law.
Credit balances on this account shall not be entered in the Profit and Loss Account of the Bank. Debit balances shall be met by the Government unless the Board of Directors decides otherwise.
* Text of Article (48) was amended by virtue of the Decree Law No. (130) of 1977.
The accounts of the Central Bank shall be audited by one auditor or more. The Council of Ministers shall, on the proposal of the Minister of Finance, select one or more auditors and fix their fees.
The Governor of the Central Bank shall submit to the Minister of Finance:
- A monthly statement showing the assets and liabilities of the Bank. Such statement shall be published in the Official Gazette.
- An annual report on the Bank's operations, including the Balance Sheet and the Profit and Loss Account for the ending fiscal year, and a general review of the monetary, banking, financial and economic affairs. This report shall be submitted no later than four months after the end of the fiscal year.
- A report on the events affecting the monetary or financial position, including the causes and outcomes of such events and recommendations for handling them.
* Text of Article (50) was amended by virtue of the Decree Law No. (130) of 1977.
The Central Bank shall be exempt from all taxes, duties and financial dues whatsoever, whether they be for the treasury, municipalities or any other public institution or body.
The Bank shall also be exempt from the advance payment of judicial fees, deposits and guarantees, and settlement thereof shall be deferred until the case under litigation has been decided.
Debts due to the Central Bank shall be treated in the same way as debts due to the Government, and shall take priority over debts due to other creditors. Such debts shall be collected by the same procedures provided for the collection of debts due to the State.
The Central Bank may only be liquidated by a law specifying the liquidation procedures and their dates.