The Ethical Touch

As you were appointed Group CEO of KFH in October 2014, what have been some of the key elements of your executive strategy thus far?

The board of directors would like to see improvements in efficiency, customer service, and achieve a better integration of the group as a whole. The key focuses were to align all the businesses that KFH owns, making sure that they add value to the KFH bank and provide significant, sustainable revenue to the group. We continue to look at ways of unloading assets that are speculative in nature or not core to our business lines and improve our asset quality by getting rid of heavy risk-weighted assets. This is one method that we use to give us room for our capital to support future growth. Beside our core competencies of real estate and financing, we are in many businesses in many areas such as energy, healthcare, human resources, and IT. As you can imagine, spreading out to so many different industries requires management teams. The focus moving forward is going to be on increasing sustainable top line numbers, particularly in financing.

KFH is one of the leaders in Islamic finance worldwide. What is your assessment of the development occurring internationally in the Islamic finance space?

The development in Islamic banking products on the liability side has reached a level that is comparable to conventional banking but we have not yet reached the same level of product diversity on the assets side. The financing vehicles that are available on the Islamic side could see further improvement. We have seen a significant amount of sukuks outstanding because of their acceptability by the issuers and by governments. We’ve seen the government of South Africa, for example, issue sukuks because it can access the market and get the right type of funding with the right price. Investors whose confidence was shaken after the 2008 financial crisis feel more comfortable dealing with sukuks because they are asset based. Borrowers are willing to provide asset-based collateral for the sukuk instruments and thus both the issuer and the investor are happy. We are working to introduce more products on the asset side to a level where we are comparable to conventional bank.

The KFH Group inaugurated the first Islamic bank in Germany. What is your view of the level of acceptance of Islamic banking in Europe?

If you were to compare us to European banks, we would be an ethical bank; a bank that does not deal with industries such as alcohol, tobacco, arms, and so on. Conventional banks are looking to make money irrespective of the transaction type. We have restrictions on which industries we can finance. When our clients come to us with problems we tend to be more helpful than conventional banks because it is part and parcel of sharia teachings to try and help whoever is in need, versus conventional banks, which typically push for settlement or legal action. That difference in philosophy makes customers appreciate us more in times of trouble. We typically have participation-based agreements with our clients and thus we tend to have the largest customer-deposit base if you compare us with other banks. We had to sit down with the German authorities and explain what participation banking means. The problem with conventional banks is that they rely on wholesale deposits to finance their financing activities. After explaining this to the German authorities, ultimately Islamic finance made sense for the banking system, for the customers, and for the consumer or end-user of the product because he or she is potentially getting the best deal.

Focusing on Kuwait, how do you view your role in raising the bar of banking technology and improving efficiency in the Kuwaiti banking sector?

We need to invest heavily in technology that provides a positive user experience in order for KFH, and all Kuwaiti banks, to operate more efficiently. If we can automate the transactions that currently go through call centers or physical branches and make products available in a self-service, user-friendly manner, more people would migrate to those channels and this would significantly decrease our operating cost base. It’s win-win: better service for the clients and cheaper for the banks. KFH is the leader in online banking across all Kuwaiti banks with an excess of over 250,000 active online banking users. We are looking for payments to be easier with the likes of Apple Pay or Google Wallet, whereby you are replacing your credit card with the mobile phone, or facial recognition technologies whereby you make a payment based on your features or other biometrics such as fingerprint, palm print, voice recognition, or iris recognition. If these potential technologies are developed well enough, we want to be the first to adopt them. Our Turkey operation has a fantastic system called an XTM machine, which is a full-service mini branch including video conferencing and document scanning that is remotely done by speaking to a person on video who takes care of full transactions from A to Z. We are looking at how we can integrate this with our own systems in Kuwait. We will be adopting this as and when we test it and are sure it is suitable for Kuwait. We recently rolled out an idea during Ramadan whereby customers could donate to Zakat Al-Fitr at KFH ATMs. We received an amazing amount of appreciation from customers thanking us for making it easy to donate simply with the click of a button. It was very positive and we are continuing to evolve in this manner.

How have you seen the Basel III regulations impact KFH and the banking sector as a whole in Kuwait?

Basel III had a significant impact on all Kuwaiti banks, specifically on KFH and NBK. Due to our size, regulators could potentially impose a premium for us over and above the thresholds set by Basel III of 15% in order for us to sustain future growth. This puts us at a disadvantage because at every loan, we risk-weigh to assess the minimum equity or capital we need to finance it. If my minimum is higher than the competition, it is not as economically feasible to me as it is to my competition. Secondly, the returns to investors in the banking sector are going to slightly drop initially because of the capital requirements increases.

What are your goals for KFH in 2016?

We are continuing down the path of consolidation, which we began early in 2015 by merging the three investment companies: KFH Capital, KFH Investment, and KFH Real Estate. Asset quality and asset optimization is a key target. We would like to build a very good portfolio of assets sustainably to give us the required rates of return going forward. The third element is improving our customer channels by being available 24/7 at their convenience. We are going to revamp our online banking to add more services. We will be spending more on training our staff, making sure they are customer service orientated, and not process orientated. We also have to maintain a minimum of 64% of our workforce to be Kuwaiti. We need to develop Kuwaiti talent to meet the international standards of other bankers. It is a tall order to achieve 75% but it is something I aim to do in three years.