Banks see wave of loan settlements after revival of Debtor Arrest Law
Recovering non-performing loans provides banks with “dual benefits”: it reduces their exposure to bad debts while also lowering the need to build costly precautionary provisions—which can reach 100% of the loan’s value when legal action is underway
Personal loan departments across Kuwaiti banks are witnessing an unusual spike in activity, as defaulting borrowers—some of whom had been unreachable for years—rush to settle their debts.
The surge follows the reinstatement of arrest and detention orders for debtors, now directly linked to the Ministry of Interior’s ‘Rased’ field application, enabling immediate on-site enforcement under Decree Law No. 58 of 2025, which amends the Bankruptcy Law.
Banking sources told Al-Rai that the activation of arrest warrants, which had been suspended for five years under the 2020 Bankruptcy Law, has significantly strengthened banks’ negotiating positions—especially with financially capable clients who had delayed or avoided repayment.
Since the new measures took effect, banks have recorded a noticeable acceleration in settlement requests from borrowers with overdue loans, indicating a likely increase in recoveries in the coming period.
While banks have yet to determine precise percentages due to variations across institutions, sources confirm that the renewed enforcement has clearly “stirred stagnant waters” and reopened communication channels with long-defaulting customers.
Officials report a rise in inquiries from borrowers seeking to close legal cases against them—either to avoid imminent arrest or in anticipation of potential enforcement.
However, sources noted that there is no unified procedure for approving settlements: each case depends on the borrower’s repayment capacity, loan tenure, and legal status, and the restructuring terms vary accordingly.
According to the sources, recovering non-performing loans provides banks with “dual benefits”: it reduces their exposure to bad debts while also lowering the need to build costly precautionary provisions—which can reach 100% of the loan’s value when legal action is underway.
The enforcement measures also affect defaulting expatriates who have left Kuwait, although to a lesser extent than residents.
For those planning to return, the news is bleak: once the arrest warrant is issued, their data is flagged in the arrival monitoring system, meaning they face arrest immediately upon entering the country.
Sources say this strengthens banks’ leverage, as many returning expats may be compelled to settle debts before or upon arrival—raising the likelihood of recoveries that were previously impossible.
A common question among debtors relates to the credit “block” placed by the Kuwait Credit Information Network (Cynet). Sources clarified that Cynet itself does not determine who is classified as irregular; banks and finance companies are responsible for placing clients on the blacklist.
A borrower’s classification as “not good” is triggered once the lender registers an automated judicial case number against them. This status is visible to all financial institutions—while preserving banking confidentiality—to assess the borrower’s risk.
If the borrower settles the debt or restructures, the lender files a judicial closure, updating the status to reflect repayment or restructuring.
Even after settlement, the borrower remains listed for three years before the restriction is lifted, and banks may still decline financing based on internal risk policies.
If the borrower never settles, their name remains on Cynet indefinitely, marked as a high-risk client.
