The relationship between banks and their customers is, according to the principle, subject to the principle of dominion of will, to the effect that it is permissible to agree on the interest rate in loan contracts granted by banks to their customers, provided that it does not exceed the rates announced by the Central Bank on the date of made the agreement.
Whereas the Kuwaiti Civil Code stipulates in Article 196 of it that “a contract is the law of the contracting parties, and neither of them may be independent by revoking it or modifying its provisions except within the limits of what is permitted by the agreement or stipulated by law.” This indicates that the principle of authority of will still prevails in legal thought, and leads That is because what the two contracting parties have agreed upon in a way that does not violate public order or morals becomes binding on both parties, and neither of them may rescind the contract or amend it without the requirements of its conditions unless it is agreed upon with the other party.
The powers of the Central Bank in determining the interest rate granted by banks to their customers
Article 73 of the Central Bank of Kuwait Law permits the Board of Directors of the Central Bank, after the approval of the Minister of Finance, to determine for banks the maximum value of discount operations, loans, or other banking operations that they may carry out as of a certain date, and it may also set for banks the interest rate that they pay For deposits and the higher interest rates and commissions it receives from its clients.
And according to the text of Article 74 of the law, the decisions issued by the Central Bank in these cases may not have any retroactive effect, nor do they prevent the implementation of agreements concluded between banks and their clients earlier than they were issued.
Agreeing on the interest rate in the loan contract
Article 111 of the Kuwaiti Commercial Law grants the contracting parties the right to agree on another interest rate, provided that this price does not exceed the rates announced by the Central Bank, which are determined by the bank’s board of directors after the approval of the Minister of Finance. If they agree on interest in excess of these prices, it shall be reduced to the bases announced on the date of concluding the agreement, and what was paid in excess of this amount shall be refunded.
The Commerce Law also clarified that every commission or benefit of any kind stipulated by the creditor if it and the agreed-upon interest exceed the maximum limit determined by the Central Bank is considered a hidden interest, and it is subject to reduction if it is proven that this commission or the benefit is not matched by a real service that the creditor has performed, and there is no legitimate expense.
When are banks entitled to raise the interest rate agreed upon in the loan contracts they grant to their customers?
It has been settled in the Kuwaiti Court of Cassation that it is permissible to agree in loan contracts granted by banks to their clients to authorize the bank to raise the agreed interest rate without the need for a renewed approval from the client in accordance with what the Central Bank issues, and that is when these contracts have explicitly mentioned the implementation of special amendments At the interest rate, in accordance with Article 74 of the Central Bank of Kuwait Law No. 32 of 1968.
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