Banks to review PIFSS refunds for nationality-revoked borrowers on a case-by-case basis
Each bank to continue to apply its own credit policies and risk management standards, in line with regulations and guidance issued by the Central Bank of Kuwait.
The Public Institution for Social Security’s (PIFSS) decision to refund certain social insurance contributions to individuals whose Kuwaiti nationality has been withdrawn, and who do not qualify for retirement pensions, has clarified questions surrounding the mechanism and timing of the payouts.
However, it has also raised a new issue: how banks will treat these funds when they are deposited into the accounts of customers with outstanding loans.
According to banking sources cited by local media, lenders have reached a common understanding to assess each case individually. The approach will depend largely on the customer’s financial position, employment status, and overall creditworthiness.
Under the proposed framework, some customers will have unrestricted access to their refunded contributions and may withdraw or invest the funds as they see fit. Others, however, may face restrictions, with banks placing a hold on all or part of the amounts as security against existing loan obligations.
Sources explained that banks will first evaluate whether the customer remains employed and possesses sufficient job stability to continue servicing personal loans. They will also assess whether the individual has other assets, deposits, or guarantees that reduce the bank’s exposure to potential repayment risks.
For customers with strong credit profiles and reliable income streams, banks are expected to allow full access to the refunded contributions. The same principle is likely to apply to borrowers with business-related financing, provided their financial standing remains sound.
In cases where the refunded social insurance contributions represent the borrower’s primary source of security and employment stability is uncertain, banks may adopt alternative arrangements. If the refunded amount is equivalent to the outstanding loan balance, customers may be offered several options, including converting the funds into an interest-bearing deposit held with the lending bank until the debt is repaid.
Banking sources noted that customers may also be given access to a range of investment products offered by the lender, including fixed-income instruments and low-risk investment funds. Such arrangements would allow customers to earn returns on their funds while preserving the bank’s ability to secure repayment of outstanding obligations.
Should a customer choose not to invest the funds, banks may retain the amount and use it to cover monthly installments until the borrower’s employment situation becomes more stable.
The sources emphasized that this approach provides greater flexibility than the procedures typically applied to end-of-service benefits for expatriate employees, where funds are generally frozen and used to settle loan installments without generating investment returns for the customer.
Bankers argue that the model balances the interests of both parties. While banks maintain adequate safeguards after pension entitlements have been excluded from their guarantees, customers retain the opportunity to earn income from their refunded contributions, helping them meet repayment obligations more comfortably.
The sources also stressed that each bank will continue to apply its own credit policies and risk management standards, in line with regulations and guidance issued by the Central Bank of Kuwait.
