Business as Unusual
By Clare Dunkley • Dec 11th, 2008Earlier in 2008, Bank of Kuwait & the Middle East (BKME) was accorded permission by the CBK to convert to Shari’ah-compliance, albeit within a tough one-year deadline to switch over. At the same time, Commercial Bank of Kuwait was denied permission to undertake the same reform. The reasons went unexplained, but some suspect it was because they would compete with the government-affiliated KFH. BKME is one of the state’s smallest conventional banks, and neither KIB nor Boubyan have had the opportunity to build up extensive branch and retail networks.
However, the move of the far more established Gulf Bank to Islamic banking under NBK’s formidable tutelage would provide an altogether stiffer challenge. KFH, perhaps seeing the writing on the wall some time ago (and flush with liquidity before the recent crunch), is already, like its main conventional rival, diversifying into southern Asia. A full-fledged subsidiary already exists in Malaysia to act as a springboard in the region, while operations were set up more recently in Singapore. Meanwhile, Mohammad al-Omar, the company’s CEO, told an investment conference in early November that the wider Middle East, and the Gulf in particular, remained a key target market. A branch in Saudi Arabia and expansion in Turkey were the immediate priorities, he said.
Existing institutions adopt a far more blasé attitude towards the CBK’s piecemeal licensing of foreign banks, especially those from the GCC. Mashreqbank, Al-Rajhi Bank and Bank Muscat have both received licenses over the past year. The one-branch restriction for previous licensees has been relaxed in certain cases to four outlets, as the CBK has established that the sector’s liberalization posed little threat to the businesses of its carefully-protected domestic charges. Even with four branches, foreign banks pose little challenge to domestic banks’ retail dominance. Nor do foreign banks have much incentive in a market already close to saturation and with customers loath to move.
“NBAD [National Bank of Abu Dhabi] has one branch in Kuwait and part of our growth strategy is to strengthen our reach into the Gulf states, so we would view [the relaxation of the branch restriction] as positive,” says Michael Tomalin, NBAD’s CEO. His focus, however, is not to corner the domestic mass market but to, “support our [existing] customers in their business activities in Kuwait, and high-end local retail and corporate clients.”
Cash consciousness. The immediate fear for both the CBK and local banks is not so much of an overly competitive market, what frightens them is liquidity and interbank lending drying up because of the infectious effects of the global credit crunch on the domestic financial sector. These fears have been compounded by well-intentioned moves by the regulator, since the start of the year, to tame record inflation (which runs at more than 11 percent), by curbing consumer lending and removing liquidity from the system. It hasn’t helped that local banks (who now privately admit this) overextended lines of credit to their retail customers.
