What’s next for Kuwait’s banking sector?

The Liberation Tower
in Kuwait City, Kuwait&nbsp

Author: Raed Jawad Bukhamseen, Vice-Chairman and CEO, Kuwait International Bank

December 9, 2021

If there is one thing that business leaders around the world can agree upon, it is that the economic impact of the COVID-19 pandemic has been view-changing and paradigm-shifting. And that impact has been by no means limited to 2020. Well into 2021, the volatility of the situation continued to impede economic recovery and growth in Kuwait. Rather than the swift return to pre-pandemic levels of economic growth that many had hoped for, we saw a cautious edging towards economic stabilisation. As a result, Kuwait’s economy and economic development – which had been on such a strong upwards trajectory prior to the pandemic – inevitably levelled out.

That being said, with the pandemic seemingly under control in the country, the national economic outlook has taken a more optimistic turn. Despite a challenging fiscal year all-round with an extremely bumpy start, we are seeing signs of recovery and revitalisation. Nowhere is that truer than in the banking sector. Today Kuwait’s banking sector seems poised and on the brink of a new era; characterised by a fast-paced and dynamic model of constant evolution. One bank that I believe embodies that philosophy is Kuwait International Bank (KIB).

Forward-focused approach
Overall, Kuwait’s banks fared relatively well throughout the crisis. Although the banking sector was impacted – mainly with regards to financial liquidity and profitability – the banks ushered in this turbulent time from a position of strength and stability, supported by decades of foresight, planning and ongoing risk assessment. The expansive, unpredictable and overwhelming scope of impact left its marks on the sector, but Kuwait’s banks proved to be agile, risk-savvy and cautiously action-oriented; and were quick to take decisive steps to alleviate the negative impact and the economic toll, both for themselves and for the economy at large. In fact, banks played a crucial role from the early days of the crisis when it came to supporting the government, national recovery efforts, SMEs and even individual consumers. From contributing to the national COVID-19 fund, to halting financing repayments, the banking sector has been an active source of support on the national scale.

This support, in addition to the economic toll of the pandemic, has added a lot of short- and medium-term stress on operational costs and financial liquidity for many in the sector, but it has not permanently stunted growth or irreversibly damaged the industry. More to the point, banks with a solid strategic vision and a drive for creative problem solving, such as KIB, have been able to find the opportunity for re-evaluation, reassessment and complete revitalisation of business models and brand offerings – to not only mitigate and recover, but actively architect a new industry.

With its core focus on innovation, staying ahead of the pack and cementing its position as a key market player, rather than settling for a return to the pre-pandemic models, the goal for KIB became reimagining the banking experience in the post-pandemic world. The bank’s core strategic vision seeks to strengthen KIB’s financial indicators, diversify its investments portfolio by attracting new opportunities, prudently manage risks and mitigate crises, and pursue focused local expansion, as well as bolster its digital infrastructure and service offering across the board. The ultimate aim is to rethink the bank’s entire business and operational model; to push the boundaries of what the traditional banking experience is and what it can be.

Adoption of the fintech evolution
If there is one thing that the pandemic did, it was to serve as a catalyst for change. As a result, one of the few positive takeaways has been the aggressive push towards a more accelerated digital evolution of consumer offering. Suddenly, as a matter of survival and business continuity, companies across all sectors had to look for upturns and fast-paced solutions in order to improve operational resilience. The banking sector has not been the only one caught up in this digital wave of progress, but we can definitely say it has been one of the most successful transformations.

Kuwait’s banking sector seems poised and on the brink of a new era; characterised by a fast-paced and dynamic model of constant evolution

However, the fintech revolution is not something new. It has been taking the world by storm for the past few years. Yet, the sweeping impact of the pandemic graduated this storm into a full-blown hurricane. Today, the banking sector is fully set on a path towards incredible momentum by redesigning core processes and accelerating forward-looking trends, such as digitisation of operations, prioritising customer experience, leveraging data and analytics alongside other advanced technologies and practices. For KIB, the march towards a whole new digital existence had actually already begun much earlier. When the pandemic first hit, the bank had just completed a months-long exercise to develop a comprehensive and ambitious plan for a radical digital-focused restructuring. The pandemic simply accelerated the pace of roll-out and increased the sense of urgency. Timetables were brought up and even more expansive targets were set, as the bank’s digital evolution quickly went from being a good strategy to a necessary development.

At its core, KIB’s digital programme seeks to leverage innovative strategies and technological know-how to completely overhaul the bank’s technological base and digital applications and platforms – in order to meet the needs of a more sophisticated customer base. One of the core components of this strategy centres on developing and optimising the bank’s offering, with a relentless push towards innovating more products and services that are bespoke, unique and user-optimised. The bank also continues to be focused on capitalising on the latest financial technologies in the market. From revamping and optimising its alternative channels and digital platforms, to rethinking the concept of the in-branch customer experience and introducing a whole new spatial design concept of branches, KIB has sought to reconceive the entirety of its customer journey.

Moreover, KIB is making great strides when it comes to improving its business model; strengthening its digital infrastructure, and adopting advanced digital solutions and services, whilst in parallel maintaining high efficiency and outstanding performance levels in terms of cyber security, data privacy and risk management. This strategy also goes hand in hand with heavy investment in the bank’s human capital; to put in place teams that are capable of keeping up with the pace of digital development and of fully utilising all the latest technologies being adopted.

The bank’s human development philosophy is one built around the concept of dynamic development, with an ongoing drive to restructure teams and provide extensive professional development opportunities across the organisation periodically; to ensure the right person is in the right position at the right time and that teams are empowered with the tools and skills needed to provide a comprehensive and next-level customer journey. The end product of this strategy has been an elevated, modernised and encompassing banking experience that continues to develop and grow with the needs of consumers.

Exploring new opportunities
Beyond the realm of fintech and the customer experience, the economic impact of the pandemic has made it necessary for banks to carefully and strategically reconsider expansion and diversification plans, to ensure business continuity and long-term fiscal viability. For KIB, the pandemic actually resulted in market conditions aligning to produce one key area of potential growth: financing and investment opportunities.

Accordingly, the bank sought to develop and expand its financing activities across key sectors – both in Kuwait and abroad. The bank sought to pursue and develop key long-term strategic partnerships with economic stalwarts such as Zain and Equate, taking part in various successful investment opportunities that not only drove the bank’s own vertical growth and its efforts to diversify its investment portfolio, but also actively contributed to economic national development on the broader scale – establishing the bank as an industry dynamo able to lead and organise large financing operations on a bilateral basis.

Another area that has proven to be ripe with opportunities is the sukuk market. There is no doubt that sukuk have become a vital component of capital markets, critical for investment and liquidity, both domestically and internationally. After all, they help in overcoming various economic and financial challenges at the best capital cost, and they play an important role as one of the main tools for Islamic investment operations. Moreover, in recent years, sukuk issuances have helped foster Kuwait’s attractiveness for regional and global investors.

From this standpoint, KIB has made a real name for itself in this area, taking part in high-quality sukuk issuances of all tiers involving some of the largest banking and financial institutions in the market. The high demand for KIB sukuk is also a vital indicator of the high level of trust that both local and regional investors have placed in the bank’s pronounced growth strategy – in addition to serving to reaffirm its sustainably strong financial performance. These sukuk issuances continue to support the bank’s business growth and development plans for the coming years, as KIB actively strives to position itself as a serious contender in this rapidly growing domain. Among the bank’s most notable contributions within this area was KIB serving as a Joint Lead Manager in both the $600m sukuk issuance for Ahli United Bank and the $500m issuance for Boubyan Bank.

Regionally, the bank also participated as a Joint Lead Manager and a Joint Bookrunner in the issuance of QIB sukuk, the first of its kind from Qatar, and took part as Co-Manager in Masraf Al Rayyan’s $500m Senior Unsecured sukuk issuance and in Dubai Islamic Bank’s (DIB) $750m Senior Unsecured sukuk issuance. KIB also acted as Co-Manager for the Islamic Development Bank’s (IsDB) $1.5bn Sustainability sukuk issuance, another first of its kind sukuk that sought to mitigate the effects of the COVID-19 pandemic on IsDB member states.

KIB has also continued to diversify its portfolio, by completing a series of financial transactions in 2020 with great success, including its $300m sukuk issuance, as per Basel III standards; these were the highest rated tier two capital instruments in Kuwait and the GCC, as well as being the first USD Tier 2 sukuk from Kuwait to be listed on the London Stock Exchange.

Looking ahead, the bank is exploring various opportunities and prospects, as it aims towards active involvement in the sustainable growth and development of the overall investment infrastructure in the region. With its carefully mapped out – and admittedly ambitious – strategic plans firmly in place, KIB has carved a place for itself in a much-changed banking sector, where constant, proactive and innovative evolution is the new normal.

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