How will the region’s structural reforms affect banking in the GCC?

The banking sector should benefit from the structural reforms being introduced across the region, not only from an activity point of view, but also from the opportunities to diversify offerings through new products.

Banks generally benefit from reforms as they generate private sector activity, which creates credit demand, as well as ancillary business opportunities such as advisory and investment banking.

Some of the more common reforms expected in the GCC are privatisations, capital market reforms, mortgage finance and financial reforms.

On the other hand, as economies strengthen, bank balance sheets will become healthier, which generally improves the capacity of the banking system to continue supporting economic growth and diversification.

What is the outlook for financing in the region?

As most GCC currencies are linked to the US dollar, overall interest rates are on the rise. Any deviation from the direction or frequency of rate moves by the US Federal Reserve will be linked to dollar liquidity in our regional markets.

Most GCC governments are targeting aggressive expansion plans with significant amounts to be spent on infrastructure projects. This is likely to lead to some pressure on dollar liquidity in the region, which will be highly likely met through debt issuances.

GCC issuances have been successfully placed in global markets and there is demand for such quality issuances. This will add pressure to the cost of debt and the cost of financing in the region as competition for capital increases.

What is your assessment of the strength of the region’s banking sector?

The subdued credit growth and rise in non performing loans (NPLs) of recent years has been dealt with well by regulators. Most banking systems went into the lower oil price environment in much stronger positions than in the 2008 financial crisis.

Central banks in the region have been hands-on when it comes to banking supervision and we have seen several regulatory measures taken since 2008. We have also seen several initiatives by the regulators globally aimed at strengthening the financial health of banking systems and increasing their capacities to absorb systemic shocks.

Most of these have been adopted by the GCC banking regulators. The credit ratings of GCC banks remain strong relative to their global peers, reflecting the financial strength the GCC banks currently enjoy, despite being domiciled in relatively smaller, more concentrated economies.

Going forward, the consensus view on oil prices is stable-to-positive, which means the banking systems in the region have seen the worst of a cyclical downturn and have remained unscathed. This confirms the success of those regulatory measures in sustaining the health of banking systems in the region.

With oil prices above $75 a barrel, are we past the worst of the economic slowdown?

The rise in oil prices has reduced budget deficits and helped slow the pace of fiscal consolidation. Public spending will likely see positive growth this year, supporting domestic demand.

The region has also benefited from strong growth in the global economy, while the impact of the GCC dispute on the regional economy has been minimal. We expect non-oil growth of about 2.6 per cent this year, up from about 2.3 per cent in 2017.

There are still many downside risks to growth, however. These include a drop in oil prices, financial turbulence as global monetary policy is tightened, an escalation in global trade tensions and geopolitical fallout from the US’ withdrawal from the Iran nuclear deal.

So, despite the improved fiscal prospects, governments should step up the pace of reform to boost growth and job creation.

How is GCC banking affected by the disruptive effects of technologies such as blockchain and artificial intelligence?

Accessibility and quick service are pivotal to meet increasing customer demand for instant fulfilment across the world. The Middle East is no different.

Artificial intelligence (AI) and machine learning will automate customer service. Chatbots and authentication through biometrics, facial recognition and voice-enabled digital signatures will reduce the learning curve for technology migrants – the non-tech savvy generation, and improve speed.

Interactive teller machines, virtual branches, and robo-advisory for wealth management will become standard offerings. Location-based, real-time offers through big data analytics will proliferate.

Faster payment service through the use of integrated authentication processes will eliminate the need for physical presence or documents. It will also reduce the need for outsourcing and move back to insourcing of back-office work and instant fulfilment.

Blockchain is seen as the future of banking, with secure and cost-effective means of transacting. However, the technology has a long way to go before it can become mainstream.

How is National Bank of Kuwait (NBK) responding to this digital disruption?

The digital space and, in particular, payments are key areas of interest. We are continuously monitoring the market and looking at opportunities to invest in, partner with, or acquire fintech technology in order to provide the best-in-class services to our customers.

The past few years have seen a tipping point for NBK’s digital transformation through our “Mobile First” strategy and “Bank in your Hands” approach.

NBK, which has the largest point-of-sale network in Kuwait, introduced near-field contact (NFC) tap-and-pay cards in December 2016, and it became the largest NFC-enabled point-of-sale network, with the highest number of NFC-enabled cards in Kuwait. NBK recently launched NFC wearables and stickers.

Strategically, we target cash and paper as opportunities. We are focused on changing the habits of our customers from cash usage to digital money, and eliminating paperwork and automating processes in order to provide our customers with a secure and seamless experience.

Strategic thoughts:
  • Rise in oil prices has reduced budget deficits and helped slow fiscal consolidation
  • Government spending will see positive growth this year
  • Non-oil growth of about 2.6 per cent in 2018, up from about 2.3 per cent in 2017
  • Despite improved fiscal prospects, governments should step up pace of economic reform to boost growth and job creation
  • Blockchain is the future of banking, with secure and cost-effective means of transacting. But the technology has a long way to go before it can become mainstream

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