Kuwait’s economic upturn

What challenges does Kuwait’s economy face?
Kuwait’s economy is definitely on the upturn. The market is growing, government expenditures are growing, oil prices are up, production is up and the world economy is growing. Kuwait is an oil exporting market, and oil is one of the key enablers of world growth, whether it be in commuting, transportation, plastics or packaging. Given the growing world economy combined with China’s rapid development, Kuwait is well geared towards continued growth.
The questions to be asked are how we can navigate through the geopolitical risks that we might face and how we can continue to ride on the coattails of government expenditures and economic growth. We are also riding on the state’s future-oriented thinking, foreign policy and strategic initiatives, as well as the ability to do business across the GCC and the region.
Being in this environment provides a net gain, but geopolitical risks are there. This is something we have to manage. I believe we are in good hands, given that the country has chosen to attach itself to the world market rather than pursuing an isolationist model.

Do you think the government’s move to open the economy to foreign companies is a positive one?
The more the competition, the better the outcome. Be it international or local, all competition breeds excellence and allows us to learn from others. Our ability to innovate and learn from our rivals is heightened by more international and local competition. This in itself leads to better products and services for the internal populace. It might hurt one or two companies, but the net gain is for everyone.
We are in an industry in which we have nine to 10 other local peers. This competition leads to better products, services and abilities. I would like to see more of that in the economy.

How well positioned are local banks to finance the oil and gas projects fostered by KPC’s targets?
KPC’s objective is to produce more oil and provide fuel stock to electricity plants because its key drive is not expenditure, but rather achieving higher production gains and goals. The Commercial Bank of Kuwait is here to help KPC – and any other company – to achieve their goals. We will provide cash, cash facilities and all the services needed to bid, undertake and complete any of these projects.
On a broader level, KPC’s goals are very ambitious. Expenditure is large and there is a lot of business to be had for all banks. On top of competing, we need to collaborate on how to help further because there is enough business for all of us.

The bank is participating in the financing of the refinery development in Duqm, Oman. Why is this project attractive?
It is a compelling story with a compelling strategy that we as a bank agreed with. It is on Omani sovereign land and is financed by both parties [Kuwait and Oman], with the crude taken from Kuwait. It’s necessary to guarantee that Kuwaiti crude will be transported to the refinery outside the Strait of Hormuz, which means a little less risk to mitigate and manage.
We went forward with the funding of this project, and we hope for the best. The idea is sound, as is its ability to go down the value chain and provide finished products to consumers.

What is the bank’s strategy on non-performing loans (NPLs)?
Like all banks around the world, we would not like to see any NPLs. It is, however, a fact of life. We have a different take on dealing with NPLs. Our strategy is to ring fence them and cut them off from our balance sheet or asset books, whereas others some might do an extend and pretend model. Our model has shown its efficiency in the balance sheet that we have today. We are the most aggressive Kuwaiti bank in getting rid of these NPLs.
There are pros and cons to this model, and there is a balancing technique to it. It is an art, not a proper skill. Some might take it in stages or take a gradual approach. There is a benefit to the gradual approach where you do not see large swings. With an aggressive system, we do see a seesaw on our balance sheet where on a given year we may not achieve much growth or may take a hit on profits because we take the full hit at any given moment.
However, writing NPLs off creates stability since the bank is not living with a phantom loan that is still on the books.
The two key pillars that allow us to do this exercise are strong shareholders and our clients’ support. We are able to take decisive actions because they understand our model of really exorcising NPLs and how it impacts profits.

How can financial institutions evolve to meet the needs of the oil and gas industry and the nation’s growth?
Although the Commercial Bank of Kuwait is the second-oldest local bank, we are not the second-largest local bank. My target for the next two years is to refine our services to provide quality and excellence by shortening the time it takes to make decisions and the time it takes to access what clients need.
On the retail side and the corporate level, this strategy involves expediting processes and unlocking employees’ time so they can meet client needs rather than just pushing paper. It is about moving towards automation. The idea is not to lower head counts as much as it is about using our employees’ time to provide analysis and advisory services. In other words, we want less task time and more strategy and advising.
I definitely believe that one of our bank’s strengths is our ability to be flexible in order to cater to our clients’ needs. We have a much shallower organisational structure and decisions are made in a well-studied and expedited way. We do not, for example, go through deep laborious emails.

What allowed for the bank’s high profits in 2017?
The strong growth, especially over the first quarter of 2018, can be attributed to the fact that we are definitely riding on the coattails of a strong economy. At the end of the day, we facilitate the growth of the economy. If the economy performs, we perform well in tandem with it.
We recognise the ambitious targets that the government has set. These have allowed us to grow with them and for us to be enablers of that growth. The biggest export in Kuwait is oil. As the Commercial Bank of Kuwait, we are within the cogs of this machine.

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