The Kuwaiti banking sector represents a unique opportunity for the global banking industry. Flushed with liquidity, the industry enjoys both an above-average capitalisation and formidable support from a government that so often succeeds in posting a yearly budget surplus in excess of $30bn. What’s more, by implementing a $100bn national development plan, the government’s strategy to stimulate the economy and diversify away from hydrocarbon revenue is leading the country’s financial services sector on to greater things.
Kuwait’s banking sector is a tightly regulated market, and with the central bank having recently introduced new governance standards, based primarily on the Basel III agreements, the regulatory stringency compares favourably even with more developed western markets. For Kuwait’s Islamic banks, however, complying with new regulatory standards is seen as a relatively straightforward process, given that the Islamic banking model requires strict adherence to sound financial principles, effectively putting them one step ahead of their conventional counterparts.
The establishment of the Capital Markets Authority also represents a crucial step in better stabilising the Kuwait Stock Exchange – the GCC’s oldest stock market – and in bolstering the country’s financial services sector. When combined, these developments have not only created a stable environment conductive to expansion, but also signalled that Kuwait is a serious contender on the world stage and an emerging financial hub. Loai Muqames, CEO of Kuwait International Bank (KIB), chosen by World Finance as 2014s Best Islamic Bank in Kuwait, believes that the time is ripe for Kuwaiti Islamic banks to strengthen cooperation with foreign institutions, in light of the country’s unique local banking environment and accommodating government.
There is a unique opportunity now for all parties to benefit from the developments currently taking place in Kuwait
“There is a unique opportunity now for all parties to benefit from the developments currently taking place in Kuwait. The local banking sector is closely tied to the national development plan, which also requires the participation of foreign institutions in order to bear fruit,” says Muqames. “Additionally, Kuwaiti banks are eager to offer their financial services to international firms in part because the local credit market has become saturated and the low-risk environment created by the government’s dual regulation-protection role. This has been a keen understanding at KIB for a long time, and we have structured the bank accordingly.”
Going global
KIB has invested heavily in a dedicated international banking department, focused primarily on correspondent financial services, syndication, multinational corporations, commodity trade finance, treasury services, corporate banking and investment. The department feeds off of KIB’s core traits as a champion in market research and a trusted partner of numerous local governmental and commercial entities. “We have the systems, asset base and long-standing trust from the government to accommodate the full spectrum of needs in a flexible and sound manner that is not easy to imitate,” says Muqames.
Incorporated in 1973, where it was originally known as Kuwait Real Estate Bank, KIB first started operations according to Islamic law in 2007 and has since extended its influence to all reaches of the nation. With a four-pronged business philosophy pertaining to operational excellence, customer focus, innovative products and outstanding service, KIB today boasts a network of 26 branches and is fast-emerging as a key constituent of the country’s banking industry and national economy.
The bank is transparent in making known its commitment to keeping the highest level of ethical standards in all transactions, preserving professional integrity with all customers, complying with the provisions of sharia law, and adhering to the appropriate regulatory framework. These commitments combined mean that KIB has made a name for itself as a responsible corporate player in the national economy and a vital cog in the machine that is the Kuwaiti banking sector.
KIB also enjoys an additional competitive advantage in that it is flexible, adaptable and free to mold its strategy in step with the rapidly changing landscape. The bank’s structure enables it to accommodate specific client needs in a way that other banks have difficulty doing. With a management team consisting of eminent and distinguished individuals, each with many years of experience in banking, Islamic or otherwise, KIB’s ability to accommodate for sudden market changes is unmatched the country over.
Islamic banking
A prime example of KIB’s agility could be seen in its swift 2007 transformation from a conventional real estate bank to a full-fledged Islamic bank, operating in full compliance with sharia law. The event marked a world’s first, and became a case study for others looking to adopt the Islamic banking model. Moreover, it was testament to KIB’s ability to react to perceived market opportunities with decisive action, and testament to the bank’s commitment to its customers. “KIB, with its Islamic banking model, was able to gain wide market traction because in our system, funds only flow in direct support of real underlying economic activities,” says Muqames. “Therefore, investors only approach us when they have genuine needs, and in this sense, KIB and Islamic banking can be seen as superior to traditional financial models.”
The prudent and flexible nature of Islamic banking is something that has benefitted the financial development of Kuwait, and something that has played a decisive part in bringing the country’s financial services sector up to speed with international developments. Compliance with Islamic banking principles ensures lower debt ratios and minimal use of leverage, meaning there is less chance of exposing the business and its customers to irresponsible risk-taking. These attributes mean that projects financed through sharia-compliant methods are seen as less risky by investors, which has understandably appealed to cautious investors in this post-crisis world. Moreover, Islamic banking has a wealth of tools available to meet the needs of Kuwait’s development plan and usher the economy onto greater heights.
With a sizeable presence in Kuwait, the Islamic banking industry today represents a central pillar of the country’s banking landscape and a major growth engine. By taking advantage of what opportunities have presented themselves in recent months and years, KIB is in many ways representative of what can be achieved in a burgeoning Islamic banking sector.
In this respect, KIB has targeted energy sector penetration as a core component of its diversification strategy. This sector represents a major portion of the national development plan and the government has announced plans to partner with the private sector institutions to finance its projects. In this sense, such projects will no longer be 100 percent conventionally financed by the government and will undoubtedly contain an Islamic tranche. Therefore, KIB has already begun leveraging its resources towards securing agreements with key governmental entities tasked with implementing these projects.
Government plans
Muqames says that KIB’s deepening penetration in the energy sector yields a two-fold advantage for the bank. On one hand, KIB is directly benefiting from a monumental government-funded development plan, while simultaneously offering new opportunities to foreign clients who require local support to enter this area. The energy sector in Kuwait represents glowing opportunity for international investors; however, without the local know-how to match the finances, many investments are simply not worth making.
The $100bn Kuwait Development Plan, originally laid down by the government in 2010, has accelerated demand for measures to assess the country’s infrastructural challenges, despite 15 consecutive years of budgetary surplus. However, it is not the money that is lacking, but the expertise in ensuring these projects go ahead as planned.
The rise of key names such as KIB has given inhabitants and investors alike cause for optimism moving forwards now that there are businesses capable of leading the much-needed multi-billion dollar projects and acclimatising to constant market changes. With a population of some 3.5 million and proven oil reserves of over 100 billion barrels, it’s fair to say that the country is capable of much greater things. And with the likes of KIB leading the ranks in the banking industry, the country’s aspirations to become a major financial hub looks only to be a matter of time.
Indeed, KIB and the broader banking sector are increasingly playing a key role in Kuwait’s long-term development plan, and the financial sector underpins Kuwait’s emerging private sector by serving as a pillar in the state’s overall economy, second only to oil and gas.
