The Business Year

Sheikh Ahmed Duaij Al Sabah

KUWAIT - Finance

Sheikh Ahmed Duaij Al Sabah

Chairman, Kuwait Banking Association (KBA)

Bio

Sheikh Ahmed Duaij Al Sabah has been the Chairman of the Commercial Bank of Kuwait since 2018 and is also the Chairman of the KBA. He also became a board member of the Kuwait Institute of Banking Studies in April 2018, alongside a range of other board positions. He has an MBA from the Maastricht School of Management.

"Kuwait has a large and long-standing Islamic banking sector comprising five banks out of 10 commercial banks, and many non-bank Islamic financial institutions."

Sheikh Ahmed Duaij Al Sabah
According to a recently published report, across the region Kuwait topped the list with a 91.4% growth in the net profits of GCC-listed banks. From your perspective, what is your assessment on the banking sector and KBA’s position in contributing to that strength?

I would like to emphasize that although the operating environment of Kuwaiti banks still faces some challenges, given regional and global economic developments, the Kuwaiti banking sector remains profitable and resilient thanks to the Central Bank of Kuwait. The performance of Kuwaiti banks highlights their strength, sound financial position, and flexibility. Total consolidated assets of the banking sector at the local level increased to 82.2 billion dinars by end April 2022, with an increase of 8.4 billion dinars, or 11.4%, compared to 73.8 billion dinars at end April 2021. The facilities’ balances increased by about 3.7 billion dinars, or 9.2%, to reach 44.1 billion dinars by end April 2022 compared to 40.4 billion dinars at end April 2021. The total deposits’ balances also increased by 7.1% to reach 46.7 billion dinars by end April 2022 compared to 43.6 billion dinars at end April 2021, with an increase of about 3.1 billion dinars. Asset quality has witnessed a remarkable improvement over the past years, as the ratio of non-performing loans to total loans declined to reach 1.4% at the end of December 2021, thanks to the prudent policies of the Central Bank of Kuwait. The coverage ratio of provisions for these non-performing loans increased to 309.7% by end December 2021, compared to 270.6% in 2019 before the pandemic. The liquidity ratio reached 24%, and the capital adequacy ratio of local banks increased to 19.2%. KBA, in coordination with the Central Bank of Kuwait, is holding several plans to improve the Kuwaiti banking and financial system. KBA strives to effectively serve the interests of banks by analyzing new legislations and raising recommendations to the regulators and other bodies to maximize the positive effects of such legislations. KBA conducts several awareness campaigns to the public about the role of banks in the society. In line with its commitments toward social responsibility, KBA continues to raise contributions to help and provide the required support to protect the environment and other social related issues. KBA also plans to prepare economic and research studies in major areas of interest to the banking sector and the economy. It is worth mentioning that KBA has prepared several studies in past years addressing the fiscal challenges facing Kuwait, the potential risks of current public spending, and policies to improve the fiscal conditions of the country. From time-to-time, KBA arranges public forums where renowned experts are invited to discuss critical and important banking issues. In past years, KBA arranged a seminar about BOT with a view to formulate a better PPP system. KBA also hosted seminars to discuss public issues such as the housing problem in Kuwait and the role of banks, based on which KBA outlined a proposal to help ease the housing bottlenecks in Kuwait. KBA represents the banking sector in public conferences and forums by submitting speeches and research papers.

The finance sector is becoming increasingly digitalized, especially in light of the pandemic. How is KBA engaging with this digital theme and pioneering ideas that are driving the financial sector forward?

Kuwaiti banks are proactive in adopting digital solutions, launching several new initiatives that are improving interoperability, e-payment systems, digital customer service delivery, and doing transactions more efficiently, securely, and reliably. Banks compete daily to develop their electronic applications and provide best innovative and most secure banking services available around the clock to enhance customer experience. Among the advanced services launched by banks are opening accounts online without the need to visit branches, requesting personal finance, making money transfers locally and abroad, and many other services that characterize Kuwaiti banks. The Central Bank of Kuwait has opened the door for the establishment of digital banks, which is a new milestone for digitization in Kuwait and helped in keeping abreast with the latest trends in global financial services. In addition, banks provided their feedback on a drafted new instruction on electronic payment in preparation of its official issuance. The instructions were updated to keep abreast of developments in fintech and e-payments, introduce governing frameworks, enable fintechs to offer value-added services, and supersede the 2018 instructions. The Central Bank of Kuwait issued a framework for cybersecurity requirements and upgraded and enhanced the infrastructure for payment systems such as RTGS System, Electronic Government Payments System, Electronic Clearing System, and others solutions. In 2019, KBA formed a specialized committee from all local banks to study developments in modern financial technologies, the risks and challenges associated with them, and provide proposals to reduce those risks and challenges. The committee conducts studies on all services and technologies that serve the business of banks, where experiences from other countries are being evaluated. In addition, KBA provides its observations on the legislative environment governing digitalization processes. Moreover, KBA conducts workshops and seminars in cooperation with major regional and global institutions to keep the banking sector abreast with important developments and recent technologies adopted.

For a small country, Kuwait stands out as a leader in Islamic finance. How would you characterize the development of Kuwait’s Islamic banking sector?

Kuwait has a large and long-standing Islamic banking sector comprising five banks out of 10 commercial banks, and many non-bank Islamic financial institutions. Kuwait’s Islamic financial services sector is well established, with a long history in both Islamic banking and takaful, or Islamic insurance. The segment has expanded in recent years, building upon the country’s reputation as an emerging Centre for sharia-compliant banking, insurance, and investment products. Islamic banks acquire almost 45% of the total market share in terms of the assets, compared to 42% in 2019 and 40% in 2018, with financing assets rising to USD85 billion as of September 2021, compared to USD78 billion in December 2020. Many of these banks have significant operations outside Kuwait, in the region, and internationally. According to Moody’s special report on Islamic finance issued April 2022, the Islamic sector recorded double-digit growth, averaging 12% between December 2019 and September 2021, thanks to the steady demand from corporate and individual customers for products compatible with Islamic law. In addition, Fitch Ratings special report issued in October 2021 mentioned that Islamic banking has stable asset quality where average impaired financing ratio increased to 2%, liquidity ratios remained strong supported by large and stable deposits. The high growth of the Islamic finance industry provides excellent opportunities for them to expand their business regionally and internationally. These developments stem from the vision to transform Kuwait into a financial and trade hub, with a vision that Islamic finance plays an important role in this center. Supporting Islamic Finance at the local level, the Central bank of Kuwait issued instructions on governance of Sharia Supervision, and in 2018 the central bank launched the Certified Sharia Auditor Certificate program, within the Kafa’a initiative launched by the central bank in cooperation with Kuwaiti banks, to enhance governance of Sharia supervision in Islamic banks. In 2020, the central bank laid the foundations and rules for Sharia supervision in accordance with the requirements of Law 3 of 2020 regarding the formation of the Higher Sharia supervision authority. Kuwait’s Islamic financial services market is well positioned to benefit from increasing demand for sharia-compliant products. As the market expands, the Islamic banks develop their product offerings and bring themselves in line with conventional services, the outlook for Islamic product offerings looks positive. Islamic banks’ strong growth in profits and the shift from takaful units to fully fledged takaful companies underscores the opportunities in the segment. Key to further development will be an issuance of a sovereign sukuk, which would provide an attractive security for investors and act as a benchmark for corporate sukuk issuances.

You were recently appointed the Chairman of the KBA. What is your vision for the association going forward?

KBA’s vision is renewed and developed periodically according to the developments of this vital and sensitive sector. KBA always looks forward to serving member banks, taking into consideration the development in Kuwait’s economy, especially with the five-year development plans and Kuwait Vision 2035 launched by the government, which includes hundreds of billions of investments. Our vision for the future is ambitious so that the banking sector will be one of the growth engines driving towards the realization of Kuwait as a regional and global financial and commercial center. In this context, KBA plays a pivotal role on more than one level to help the Kuwaiti banking sector expand and retain its leading position in the region. The KBA board of directors is keen to continue enhancing KBA’s role, and we work as a group to achieve our mission. In that context, we review KBA workflow from time to time to achieve our objectives and improve the overall performance and efficiency of different KBA committees.

Looking ahead, what are the main projects and expectations for the KBA in the foreseeable future?

Within the framework of the ambitious development plan that we are looking forward to, I see several issues that must be focused on through KBA in cooperation and coordination with Central bank of Kuwait and the relevant government institutions. We must accelerate the implementation of the privatization process for some sectors; Implement economic reform programs consistent with the directions of the state while considering global developments in the oil market; activate real estate finance law that is reliable in solving the housing problem; update education outputs to graduate highly skilled, efficient, and productive human resources; and rebuild the legislative environment to speed up the mechanism and procedures for enacting laws and their fundamental amendments.

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