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Skip Navigation LinksHome :: Back Issues :: NBK faces greater competition from a new banking breed

March 2002

NBK faces greater competition from a new banking breed


Kuwait’s banking sector has seen many false dawns over the past 20 years, with only one real international player, National Bank of Kuwait, enduring. Now, however, other players are looking to make a real impression.




       
Maha
Al-Ghunaim
The offices of Global Investment House, one of Kuwait's leading investment companies, are decorated in a striking mix of bright blue, canary yellow and steel grey, a colour scheme that has even been picked up in the pictures on the walls.
This sort of vibrancy is not normally seen in the emirate's financial institutions, which have a preference for sober wooden panelling. The choice of a style more often seen in a modern design company is a conscious statement by Global's management.
"We want to show that we are different, young, aggressive and dynamic. People either like it or hate it but they always remember it," says Maha Al-Ghunaim, Global's vice-chairman and managing director.
She is an example of a new breed of dynamic investment banker - working in both the conventional and Islamic sectors - that is breathing new life into what until recently had become a moribund financial industry.
Investment houses, such as Global, are introducing new products including Kuwaiti dinar money market funds. Global has also introduced local and international equity funds and has played a lead role in arranging new issues on the local bond market.
"We try to do things that have not been done before by others. We try to do things that suit our customers. We were the first to launch a money market fund - we have been followed by three other institutions - and we led the way in publishing research on listed companies," says Al-Ghunaim.
And there are even the first signs of competition in the retail banking sector, which has been dominated for a generation by the National Bank of Kuwait (NBK).
NBK's veteran chief executive, Ibrahim Dabdoub, is not yet quaking in his boots. His bank still has 40% of the retail market and the strength of its international reputation - it is one of the highest-rated banks in global emerging markets - was demonstrated by the success of a recent $450 million Eurobond. Uniquely for the Middle East, the bank's rating of A2 from Moody's was two notches above the sovereign risk. This enabled NBK to raise money at only 25 basis points above Libor even though Kuwait is 100% risk rated.
However, there are signs that some of the other institutions are trying to cast off their inferiority complex and will present the toughest challenge to NBK's pre-eminence for years. All the leading banks are developing more competitive products and services, including internet banking. Gulf Bank, under new ownership and management, has delivered a 19% increase in profits and Burgan Bank, which is still the subject of takeover rumours, has successfully introduced Beee, its internet banking subsidiary.
Even the Bank of Kuwait&the Middle East (BKME), until recently dismissed by its rivals as the least active and most conservative of the emirate's institutions, is planning to adopt a more aggressive strategy. This is a direct consequence of the purchase of a 20% stake by Ahli United Bank (AUB), which is planning a full takeover.
"We must become more aggressive in building the bank's assets - we must increase the bank's loan and investment portfolios," says Hamad Al-Marzouq, chairman of the executive committee at Ahli United Bank and its representative on the board of BKME.
Islamic banking, which until now has been dominated by the majority state-owned Kuwait Finance House (KFH), is also expected to become more competitive. The most significant development has been the merger between Kuwait-based investment house The International Investor (TII), and pan-Gulf retail institution Darrah Al Baraka. Bankers say the new institution could mount a significant challenge in Kuwait to Kuwait Finance House, which has itself been on the acquisition trail, buying a 20% stake in the National Bank of Sharjah. And, with a growing number of investors looking to place their money in Islamic banks, several investment companies, such as First Investment, have been set up in the past five years to meet this need.
Perhaps it's best not to get carried away. The Central Bank of Kuwait has, for example, wanted for at least a decade to reduce the number of commercial banks from eight to four. But despite changes of ownership there is little sign of consolidation.
One senior Kuwait banker leans back in his chair and roars with laughter at the suggestion that there is a new dynamism spreading through the whole banking sector. "Tell me where you have seen this remarkable change and I will look for myself," he says. Another notes: "We are still living in a world where some financial institutions seem to exist to provide their boards with prestige and salaries rather than their customers with services."
Despite these reservations, there are opportunities for banks that have modernized their management, though there are conflicting signals about the prospects for Kuwait. On the positive side, the market is extremely liquid. First, there is more money around. Higher oil prices, until September, and the payment of $1 billion in Gulf War compensation from the US, have earned more money for the public and private sectors.
Secondly, there is anecdotal evidence that money that has traditionally been immediately invested in western markets and property is being kept in Kuwait in increasing amounts. This is a result of the collapse in western stock markets and lower US interest rates - traditionally Kuwaiti dinar interest rates have been lower than those for the dollar but there is now a 250bp spread between the two rates. In addition, since September 11, there has been nervousness about the vulnerability of Arab deposits to random seizure by western authorities.
How long will the boom last?
One of the main beneficiaries of this has been the Kuwait Stock Exchange (KSE), which last year was the best-performing market in the region, rising by 27%. The KSE's progress has been helped by the government's decision to allow foreign direct investment in it, though, given the volatility and large amount of cross-holding, most overseas stakes are likely to be taken through local equity funds.
       
Ibrahim Dabdoub
The central bank has also relaxed some of its regulations to enable banks to make more consumer lending. One of its main concerns has been that financial institutions' deposits are short term - typically one to three months - while the lending profile has gradually extended to the extent that for the first time banks are offering 20-year mortgages.
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