October 14, 2020 banking

Will banks be able to pursue expat borrowers abroad?


Many expatriates depend on their severance pay while planning their retirement, as the balance of these funds is savings, which is generally linked to the investment plans and can be withdrawn when needed, Al-Rai daily reported.

However, while this thinking was natural for a long time for expat employees in Kuwait, the plans for investing the end of service benefits have changed in the recent period, especially among expatriate borrowers whose residencies have expired while they are stranded abroad due to Coronavirus travel restrictions.

It was recently reported that local banks intend to pursue those expats who are stranded abroad with unpaid loans and expired visas. This raises the question about the effectiveness of the bank’s judicial approach. As before proceeding with debt collection, banks should also consider the lack of severance pay and loss of jobs in Kuwait.

It should be noted at the outset that banks grant personal loans with the end-of-service indemnity as a guarantee, or in return for assets, such as cars. Sometimes they require additional guarantees, such as a Kuwaiti national to offer as cosign for the loan.

In the last few days, the number of expats whose residency has expired while abroad has increased to about 160,000, as many live in countries listed in the 34 country ban list.

It can be expected that their numbers will increase in the coming period, in line with the government plans to address the demographic imbalance. The question arises whether the expats can avoid banking prosecution abroad, by attempting to claim end-of-service benefits, from companies that are indifferent to their plight, although some have tried this early and for other reasons, but weren’t successful.

According to official data, total personal loans increased by KD132 million dinars (0.8 percent) in August compared to the previous month, reaching KD16.69 billion, while the increase was KD259 million (1.6 percent) since the beginning of the year, and KD620 million (3.9 Percent) compared to August of 2019.

Consumer loans registered a growth of KD38 million dinars (2.5 percent) in a month, to reach KD1,557 billion dinars in August compared to KD1,519 billion in July, while they increased by 112 million (7.8 percent) since the beginning of the year, and 261 million (20.1 percent). Compared to the same month of last year, according to estimates, the value of expatriate loans is generally about 15 percent of the total personal loan portfolio.

For creditors, end-of-service benefits are the first and most important guarantee for granting a personal loan. Based on them, the decision is taken, and the maximum limits for the loan are decided, which in the best scenarios does not exceed KD25,000 dinars, according to the instructions of the Central Bank of Kuwait.

Creditors seek to reduce the risk of defaults on loans in their personal portfolios, by limiting the granting of loans to employees of an approved list of companies, and only to certain professions. As most companies have an obligation to fulfill employment rights, they are reassured of the option of freezing the end of service benefits to the amount of this debt, but some have allowed for credit expansion, making job guarantees in some cases a difficult process for recovering the loans.

Banks often do not face a challenge with borrowers working in well-known companies. Based on the relationship between the bank and the company (the employer), the latter informs the bank in the event that an employee is no longer employed, and the bank resorts to protecting its rights by seizing amounts of the end-of-service benefits until the employee starts a new job or makes his due installments.

But if the company that this employee works for is not included in the list approved by the bank, then there is no legal obligation for it to inform the bank of the employee leaving the job, on the basis that this is not within its rights, and it does not have a specific moral obligation to the bank.

Writing off dues

Perhaps what worries creditors are the companies that take advantage of the expiring of residency visas of their employees, especially if they are stranded abroad, by writing off their dues from their books, in an effort to improve their budgets, by reducing their liabilities and then improving their already weak asset structure. Because of the behavior of the second type of companies, their employees, especially those with expired residency visas, try to push the banks to collect their dues from their employers, without forgetting to update these banks that they agreed to use these end of service funds to pay off their loans.

Specific relationship

And legally, the creditors, even if the employee delegated the task to them, are unable to compel companies to pay the debts of their employees, on the basis that the relationship between them is defined by the Labor Law, which does not mention this obligation to the banks.

Also, the creditors are well aware that they must bear the risks of granting loans to employees working in non-accredited companies. Credit expansion is required, but it should not be at the expense of risks.

Generally speaking, banks cannot play the role of attorney for employees with expired residency visas vis-à-vis their employers, on the grounds that this relationship is special, and then the option of prosecution remains in place to only address their bad debts, if any.

What reassures banking concerns a little is that most banks have long adopted a credit policy that does not grant loan facilities to job professions whose salaries are less than KD300 dinars.

Perhaps what reduces the risk of exposure to a wave of debt defaulters from those with expired residency visas, whose numbers are close to 160,000, that all indicators note that so far the majority of them do not have the qualifications to obtain a loan.

Residents’ salaries

According to previous data issued by the General Administration of Statistics, the percentage of expatriates working in the private sector is about 1.4 million. The percentage of those whose monthly wages are less than KD180 dinars is about 59.29 percent of them.

The percentage of those whose salaries range between KD180 and KD360 dinars is approximately 24 percent, and the percentage of those whose monthly wages between KD360 and KD480 dinars do not exceed 5.79, while the percentage of workers who receive a monthly wage of KD480 dinars or more is about 10.7 percent.

With a quick survey of these figures, it is expected that a large segment of expatriates whose residency visas have expired belong to the category of limited salaries that could not qualify for a loan.

timeskuwait



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