The banking sector in Kuwait remains solid, robust and unaffected by regional events, due in part to the accomplishments of organisations such as Kuwait International Bank (KIB). Its CEO, Loai Muqames, has overseen a successful growth strategy characterised by consistent profit increases and asset value, a flourishing branch network, and corporate restructuring that assisted in making it one of the country’s leading organisations.
Second only to the oil industry in terms of economic importance (see Fig 1), the banking sector has posted steady growth since the global recession of 2008 (see Fig 2). Kuwaiti banks have also benefitted from high liquidity and enjoyed above-average capitalisation relative to the global standards set by Basel III, with the first half of 2014 seeing Kuwait’s banks earn record profits that accelerated even further in the second half of 2014.
The Kuwaiti banking industry comprises 10 fully fledged banks, one specialised industrial bank and 12 foreign banks. These institutions have shown that they can compete in the international market, becoming highly innovative lenders that offer a diverse selection of financial products on par with international standards. The operating environment can be described as low risk thanks to the country’s central bank regulatory role and conservative approach, while exceptionally high asset quality, a steady reduction in non-performing loans and continued profitability reflect the strength of the Kuwaiti banking sector.
Kuwait’s oil and non-oil revenue shares
Source: KIB. Notes: 2013 figures
In Kuwait’s Islamic banking assets
Source: The Banker. Notes: 2013 figures
“Stress tests conducted by the Central Bank of Kuwait have shown that Kuwaiti banks are more than prepared to weather potential shocks should they arise,” said Muqames. “I am delighted to say that KIB is no exception, with Fitch Ratings having upgraded our bank’s rating to A+ at the beginning of 2014.”
In order to provide further stability to the Kuwaiti banking sector, the government has taken concrete steps to attract foreign investment by means of greater controls. Increasing transparency and regulations have been a prime goal of the current administration, with the formation of the Capital Markets Authority (CMA) to regulate equity markets and the Central Bank of Kuwait exercising greater oversight over the financial industry. Kuwaiti banks are also cooperating by tackling money laundering, terrorist financing and other issues targeted by the Kuwaiti Government.
All this has helped shift market preference towards Islamic banking in recent years, as witnessed in many parts of the world. The growing adoption of the Islamic banking model has illustrated the strong national demand for products and services that are compliant with Sharia law, with Islamic banking assets now growing at a faster pace than the overall banking sector – a trend that is expected to continue into 2015.
Despite a highly competitive operating environment, Kuwaiti banks enjoy a prized position as key players in the country’s monumental development plan. “We expect local banks to continue adopting universal banking standards while further developing their retail, private and corporate banking services”, adds Muqames. “Kuwaiti banks also pose to benefit from international expansion as this will diversify risk, increase returns and ultimately raise their share values.”
Muqames attests that KIB has managed to remain competitive by focusing on the bank’s status as a transaction and profit-oriented institution. “KIB professionals are highly effective in identifying and pursuing transactions, which we know will provide a competitive advantage”, explains Muqames. “We operate based on a deep understanding of these transactions, their risks and our ability to properly mitigate them. Additionally, we are keen on identifying and exploiting unmet needs in market segments which competitors have not yet sufficiently entered. These factors all contribute to KIB’s continued high returns.”
Internally, the structure of KIB is designed to ensure high levels of collaboration and information sharing among all its different banking divisions, allowing each to make attractive value propositions to its broad range of clients. Muqames gives one example of the benefits gained from this sort of collaboration, which can be seen in its International Banking Group, through the provision of correspondent financial services, syndications, commodity trade finance, treasury services and corporate banking, providing the institution’s clients with immediate access to the complete range of banking services associated with a fully fledged bank.
The agile nature of KIB, therefore, allows for customised offerings that include various types of wholesale facilities, retail banking for employees, foreign exchange, flexible asset financing, real estate appraisal, and even property management if required. “It is through this integrated approach,” said Muqames, “that we have succeeded in cementing a reputation as a reliable partner with powerful capabilities for clients of all sizes.”
Another key factor in the bank’s success in the eyes of its CEO has a great deal to do with its corporate culture. Over the years, it has made efforts to develop a customer-centric approach that has been set up in order to effectively deal with the complex nature of the current local market. KIB prides itself on taking note of its customers’ needs, and responding to them in an efficient manner through target-specific products and offers.
In the same stroke, it continues to invest in human capital to ensure that its team has the best experience and expertise to scale the business to new heights. This is achieved by maintaining its search to recruit from top talent pools in the local market and abroad. A considerable number of young graduates are returning from top-tier universities in the US, Europe and Canada, and are able to pair their experiences of living in a western society with long-running Kuwaiti traditions of relationship building and hospitality.
KIB has managed to cultivate a culture among its employees that offers transparency and performance, along with a defined career path, ongoing training and development, as well as a host of attractive rewards to ensure that it not only hires top talent, but is able to retain it too; something that is increasingly important in today’s market. At its core, the bank’s human resources objective is to establish KIB employees as model Islamic bankers.
Knowledge sharing is encouraged to engage the many banking experts working full time at KIB, organising regular in-house seminars on topics ranging from financial contracts to healthy living habits. Moreover, it has implemented a talent management programme to identify and nurture outstanding performers already within the organisation. The approach provides KIB with a sharp competitive edge that would be costly for competitors to try and imitate.
KIB is also taking steps to increase awareness of its status as a reliable partner in the Kuwaiti market. This effort involves a dedicated unit within the bank tasked with building bridges between KIB and the many mega-projects being floated by the Kuwaiti Government.
Its team leverages the bank’s longstanding relationships with top governmental and commercial bodies in a bid to better identify ways to facilitate business in Kuwait for its clients. It does this by maintaining a constant contact not only with the main governmental institutions, but also with other ministries, local and international contractors and the foreign banks that support them. Part of being a successful Islamic financial institution involves supporting the local community in a meaningful way. As KIB began to penetrate new banking frontiers in 2007, its capacity to do so grew substantially, permitting KIB’s aggressive support for local SMEs – which are recognised as having a strategic economic importance for the nation – through products tailored specifically to their needs.
“We recently took the opportunity to chair the fourth annual SME Forum for Arab countries, a leading platform for discussing challenges and opportunities facing the region in terms of advancing SME development,” explained Muqames. “KIB is also highly active in its social responsibility role. From this perspective, we have adopted a unique youth-focused social responsibility programme [which aims] to prepare the youth segment for [its] vital role in shaping Kuwait’s future.”
This altruistic culture at the heart of Islamic finance has been taken to new heights by KIB, as it has partnered up with a UNICEF-affiliated organisation to develop special educational sessions on topics such as the purpose of money in society, distinguishing between saving and spending, and educating the public on how to invest money wisely. KIB regularly sponsors and participates in youth development programmes in Kuwait, which is of particular interest to KIB since a large percentage of the local population is under the age of 25.
Muqames told World Finance: “Looking back, long before our 2007 conversion into an Islamic bank, we have always benchmarked our business success to the bank’s involvement in Kuwait’s economic development initiatives and, since our establishment more than 40 years ago, we have built a unique heritage as a national pillar in the banking field: a crucial area for Kuwait’s efforts to diversify its economy beyond oil and gas. Our real estate appraisal division became a key reference for numerous governmental authorities, banking institutions, investment and real estate companies.”
In 1986, the division gained central bank approval to appraise real estate debt settlements, rendering KIB one of the few entities in Kuwait capable of providing such a service. KIB has made itself an essential pillar within the economic machine and simultaneously helped it secure close ties within the government as a result of this unique position.
KIB is also helping to strengthen Kuwait’s ever-important position in the regional Arab banking arena, with its chairman, Sheikh Mohammed Jarrah Al-Sabah, representing Kuwait at the Union of Arab Banks, having gained multiple recognitions for his contribution to the regional banking sector, including the Arab Golden Coin – Pioneer in Banking and Business Leadership and Outstanding Contribution to the GCC Economy Awards.
Converting to Islamic finance
The move from real estate specialist to fully fledged Sharia-compliant institution was conducted through careful assessment of the long-term trends in both the Kuwaiti and regional markets, before the bank concluded that the Sharia model would best serve its growth aspirations. By moving forward with the decision, KIB ventured into unchartered territory, as there had previously never been a case where a specialised conventional bank had managed to transform into a fully fledged Islamic bank. Being a bank that thrives on challenging itself, KIB was eager to break new ground.
The conversion to Islamic finance was initiated in early 2007, immediately preceding the global financial crisis that so dramatically shook the industry. “The emerging operating environment characterised by volatility and uncertainty only reinforced our belief in the wisdom of adopting the Islamic banking model, hence KIB accelerated the transformation process to fill new gaps created by the crisis,” explained Muqames.
“Diversification into the retail sector took priority with the launch of standalone retail banking operations. While financial institutions were conducting layoffs, KIB was pursuing an aggressive recruitment campaign aimed at acquiring top talent from Kuwait and abroad. In this respect, we could not have chosen a more ideal time to make our transformation.”
Embracing advancements in technology – particularly the implementation of social media – is crucial for all businesses that hope to keep up with market trends and customers. For KIB, technology has proven indispensable in its efforts to become a more customer-centric and responsive bank. It has invested in a unified CRM system aimed at enriching, better managing and extending its entire customer lifecycle.
Since adopting this tool, the quality and efficiency of the bank’s customer service has dramatically increased, while its CRM system has allowed for more effective cross-selling, in addition to aiding product development and acting as a key reference for marketing purposes. “We utilise social media to keep our finger on the pulse of the market, obtain honest feedback from our customers and pinpoint areas for improvement. We oversee a dedicated digital team who works closely with all departments to integrate our digital presence with the core of the organisation,” said Muqames. “Social media in particular has proven useful in generating valuable word-of-mouth brand promotion among customers. As this medium matures, we anticipate additional benefits for banks that are able to harness social media correctly.”
Technology has also been at the forefront of KIB’s banking channel development strategy, which works to maximise access and convenience for its customers, taking numerous steps towards enhancing its ATM systems and the digital facilities on offer for its customers. Having fully embraced mobile banking, a tool that customers now see as essential, KIB has taken it one step further: it has managed to look beyond just the standard app by taking a cross-channel approach, allowing customers to do more than access their information. For example, KIB has chosen to partner with Kuwait’s telecoms providers to offer SMS banking for those account holders without a mobile internet connection. These are important steps for further penetrating the retail sector, because they demonstrate to customers that KIB is flexible to their needs and cares about their convenience.
The bank has successfully utilised technology to streamline many of its processes, improving efficiencies and bolstering response time. For example, its finance tracking systems have decreased decision-making time for financial inquiries while helping reduce the number of non-performing loans on its balance sheet. The bank is also capable of developing new useful key performance indicators for staff performance in ways that were previously out of its reach, as a direct result of implementing new systems.
Process optimisation, particularly of those processes related to compliance and risk, has been a priority for the organisation, with its IT department moving to automate several otherwise time-consuming and often costly operations with the help of recent technological developments.
However, with automation comes an underlying challenge: security. “We recognise this and, therefore, have brought our information security systems up to speed with the latest global developments,” said Muqames. “With assistance from international specialists, we ensure that the integrity and confidentiality of our customers’ data are secured at all times. In this respect, KIB was among the first banks in Kuwait to attain Payment Card Industry Data Security Standard 3.0 certification by SISA following a meticulous audit of our systems.”
Kuwait in numbers
GDP per capita (PPP)
Gross national savings (% of GDP)
Current account balance
Investment (% of GDP)
Source: IMF. Notes: All figures 2015 predictions
The global financial crisis significantly disrupted the banking and financial sectors of Kuwait, offsetting the large gains that were made during previous periods. Falling asset prices have had a negative impact on balance sheets, and several institutions within the country faced rising numbers of non-performing loans. Banks were forced to set aside large provisions that strengthened their financial positions going into the post-crisis period. Kuwaiti banks also benefitted from a central bank guarantee on deposits aiming to promote confidence in the minds of customers and depositors.
However, KIB did not face significant problems during this period, despite also being in the midst of its transformation from a conventional bank to an Islamic bank. It even managed to post minor losses, and eventually made a full recovery in 2010. The primary factor for its successful ride through the economic downturn that spelled disaster for so many other institutions the world over is due, in part, to its solid financial standing going into the crisis, coupled with having already adopted the prudent policies required by Islamic Sharia.
“In our view, the Islamic banking framework provides a natural advantage against macroeconomic shocks due to its inherent emphasis on transparency, minimal use of leverage and asset-based finance,” said Muqames. “Credit is also due to KIB’s exceptional leadership at the time for navigating the bank through the most acute period of the crisis. Our senior management, which I was not yet a part of, not only succeeded in adapting the bank’s strategy to fit with the new operating environment, but they instilled confidence among all KIB employees which I believe serves as the primary test during a crisis.”
Not one to dwell on past accomplishments for long, KIB has and is still investing in those sectors related to the $100bn government-funded national development plan that is currently in motion. These sectors include infrastructure, oil and gas, energy, and real estate. “KIB possesses numerous distinctive capabilities in its arsenal which I am pleased to report are greatly benefitting the investment positions of the bank,” explained Muqames. In terms of banking sector growth, KIB’s investment strategy has targeted the international, investment and retail banking sectors, with the former primarily operating in the commercial sphere. Its dedicated international banking team is focused on establishing KIB as a partner for international companies wishing to conduct business in Kuwait.
“The past 12 months have seen the Islamic bank enhance its correspondent banking capabilities following the sharp increase in the number of lines of credit between KIB and international banks,” said Muqames. “On the retail side, we see significant room for growth despite tough domestic competition. KIB is expanding its branch network to extend reach into new target markets.”
Proper segmentation and tailoring innovative products and services to meet the needs of these markets has fuelled KIB’s success in this area, and 2015 looks set to be another busy year for KIB as it plans to acquire an ever greater share of the market as a fully fledged Islamic finance institution.