The Central Bank of Kuwait (CBK) has once again brought about a few changes in the banking system regulations related particularly to the retail banking segment (consumer and installment loans). These changes, effective from March 30, 2008 on incremental loans, among others, limit banks from lending consumer loans exceeding more than 40 percent of the borrower's salary. Previously the cap was at 50 percent. The changes also reduce the lending spread over the discount rate to a maximum of 3 percent from 4 percent. The interest rate is also fixed for 5 years from the date of the loan, to be then reviewed and changed by not more than 2 percent. As per previous policy, the interest rates were changed whenever the discount rate was changed. The new system also abolishes upfront charge of interest on the said loans. Consumer loans are defined as personal medium-term loans to finance personal consumption of (goods, durables, education, and health care) to be repaid on monthly installments over a maximum period up to 5 years. Installment loans (residential loans) are defined as personal long-term loans to finance non commercial purposes - especially to finance the maintenance or purchase of personal housing units to be repaid on monthly installments over a maximum period up to 15 years However, the Kuwait-based Global Investment House (GIH) said that though the CBK move “may provide some relief ... inflation may nevertheless require more aggressive steps given the fact that domestic burgeoning property rentals and global rising food and commodity prices have been the major reasons behind Kuwait's inflation.” Consumer and installment loans constitute a major 22.5 percent of the total loans, according to GIH. __
