Kuwaiti banks have achieved high growth over the past few years but they should consider mergers to create larger units and face growing competition, according to the Gulf country’s Central Bank Governor.
Sheikh Salem Abdul Aziz Al Sabah said Kuwait’s national banks are now facing more challenges in a globalised economy following the Central Bank’s decision to lift a ban on new foreign banking units.
In an interview with the Oxford Business Group, obtained by Emirates Business yesterday, Al Sabah said the licensing of a UAE bank and three other foreign units illustrated Kuwait’s commitment to liberalisation but he stressed more reforms are needed, mainly in easing reliance on the state budget.
“Kuwaiti banks have recorded sustained growth rates in recent years with regard to their volume of operations, performance and quality of services. The volume and quality of banks’ activities and their capital base earned them high ranking regionally and internationally,” he said in the interview, part of a comprehensive study on Kuwait’s economy this week. “However, local banks, like many banks around the globe, are facing big challenges due to fast international developments in the financial and economic arenas. These challenges require banking institutions to have the capabilities that can enable them to make changes in order to enhance and develop their performance while bolstering their competitiveness,” he added.
He said Kuwaiti banks, among the largest in the Middle East, face other challenges mainly from the removal of restrictions on the entry of foreign banks.
“This means competition with international banking institutions within Kuwait. Banks also have to confront the requirements of globalisation and economic liberalisation that have led to the emergence of banking and financial groups through mergers and voluntary acquisitions among large international banking institutions. It is important that local banks consider all available options to increase their competitiveness,” he said.
“This involves enhancing the efficiency of their operations, optimising the utilisation of their resources and improving their corporate governance. In addition, they need to consider establishing stronger banking entities perhaps through local or regional mergers.”
Al Sabah said Kuwait’s Central Bank had granted licenses to three international banks and a UAE bank to open branches since Kuwait lifted restrictions on the operation of foreign banking units last year.
Abu Dhabi National Bank , BNP Paribas, HSBC and Citibank have started operations in Kuwait. “Despite being in a new market all these banks are going in the right direction. We allowed these banks to enter the domestic market as part of our policies to develop Kuwait as a financial centre,” he said.
“Their presence will enhance competition in the banking sector. It’ll improve banking products and services without negatively impacting the operations and performance of the country’s national banks.”
Central bank figures showed that Kuwait’s GDP grew at an average annual rate of 27.8 per cent while non-oil GDP recorded a lower but still respectable 15.8 per cent growth from 2003 to 2006. “This growth in non-oil activities has been sustained by enhanced confidence and optimism, supported no less by fiscal stimulus, which in part reflects the comfortable position of the state budget.
Non-oil activities have received a boost from the gradual and sequenced liberalisation of the private sector,” said Al Sabah.
“The sector has experienced solid growth and the aggregate balance sheets of local banks grew by an annual average of 13.2 per cent from 2003 to 2006.”
27.8%: Average annual increase in Kuwait’s GDP, Central Bank figures show
15.8%: Growth witnessed in the non-oil sector GDP
from 2003 to 2006
13.2%: Average annual growth recorded by local banks from 2003 to 2006
Kuwaiti banks should merge to compete in open economy