Kuwait banks plan to reassess loans as citizenship revocations put a dent on financial stability

• Estimates suggest that as many as 8,000 people may have lost citizenship due to fraud or forgery, with approximately 5,000 having taken out loans averaging KD 30,000 each.
• This means the banking sector could face exposure of around KD 150 million in potentially at-risk debt. In response, accounting regulations require banks to set aside full provisions (100%) against these loans, classifying them as high-risk or non-performing assets.

Kuwait’s banking sector is currently facing a complex legal and financial dilemma over how to handle loan repayments from clients whose citizenship has been revoked, including those under Article 8 (wives of Kuwaitis), Article 5 (honorable deeds), and the high-risk category of forgers.

The issue has sparked extensive internal debate among banking officials, who are working to clarify whether debt collection will continue under the same contractual terms or require new procedures reflecting the clients’ changed legal status.

At the heart of the issue is the fact that revocation of citizenship changes a borrower’s legal identity and residency classification, directly affecting their contractual terms with banks, reports Al-Rai daily.

When the loans were granted, these clients were treated as Kuwaiti citizens — eligible for preferential credit terms under Central Bank of Kuwait regulations, including personal loans up to KD 95,000. However, once citizenship is withdrawn, they no longer qualify for these privileges, prompting banks to reconsider risk assessments and repayment mechanisms.

The main concern for banks lies in ensuring consistent repayment and managing the increased credit risk now that borrowers’ employment and income stability may have changed.

Many of these individuals had government jobs that guaranteed steady salaries and secure repayment flows. But with their citizenship revoked—especially for reasons related to forgery—their employment status is terminated, and salaries are halted, dramatically heightening default risks.

Estimates suggest that as many as 8,000 people may have lost citizenship due to fraud or forgery, with approximately 5,000 having taken out loans averaging KD 30,000 each.

This means the banking sector could face exposure of around KD 150 million in potentially at-risk debt. In response, accounting regulations require banks to set aside full provisions (100%) against these loans, classifying them as high-risk or non-performing assets.

The Civil Service Bureau’s directives compound the issue, as they bar individuals who lost citizenship due to fraud from continuing in government jobs. This results in the automatic suspension of salaries—effectively cutting off the main repayment source.

Consequently, banks must prepare for the dual challenge of loan recovery and compliance with financial risk regulations.

To address these evolving risks, banks are considering a three-tiered classification of affected borrowers: retirees, potential retirees, and active employees. Retirees pose the least risk, as their pension income provides repayment security.

For active employees, however, banks may restructure loan terms, reduce exposure, or treat them as non-Kuwaiti borrowers—offering smaller loan limits and stricter repayment terms tied to their new residency or employment contracts.

For clients whose citizenships were revoked under Article 8 or Article 5, banks generally remain confident, since retirement pensions can serve as reliable guarantees. Should these clients request restructuring, banks plan to handle each case individually, assessing repayment ability based on pension levels and contractual adjustments.

In contrast, clients with forged citizenship documents represent the highest risk category. Without stable income or legal status, they are unlikely to maintain regular repayments. Banks may therefore initiate early settlement processes, deduct from any available end-of-service or insurance payments, or seize deposits under existing debt recovery rights. Each bank’s response will depend on its internal credit policy and risk tolerance, within Central Bank guidelines.

Practically, creditor banks retain priority over the borrower’s available funds, meaning they can deduct dues from the client’s account if liquidity exists. However, this right applies only to the financing bank itself—other institutions cannot claim repayment from accounts held elsewhere, creating potential complications in cross-bank debt recovery.

Ultimately, banking officials acknowledge that no unified approach will fit all cases. Each borrower’s financial standing, collateral, and employment prospects will dictate the level of flexibility extended by lenders.

While retirees and lawful dependents pose limited concern, forgers and non-employed individuals may lead to substantial provisioning and restructuring costs. In essence, the revocation of citizenship introduces a new class of financial risk, compelling Kuwait’s banking sector to carefully balance legal compliance, debt recovery, and financial stability in the months ahead.

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