Commercial Bank of Kuwait (CBK) is planning to create a presence in London, probably in the form of a subsidiary. CBK has already approached the Bank of England about setting up a unit in the UK capital, although the application is still in its early stages.

'We're talking to the Bank of England about opening up in London,' CBK general manager, David Berry, told MEED on 3 March. 'We do feel that we need to expand our international representation and we've been very successful in New York.' CBK has a branch in New York.

The London unit will probably be a subsidiary which might be wholly-owned by CBK at the outset, with minority investors brought in later. The plan has to be approved both by the Bank of England and by the Central Bank of Kuwait.

CBK was ranked fourth among the Kuwaiti banks in June last year, with assets of KD 1,221 million ($3,940 million). The bank has just announced a 33 per cent rise in profits (see Kuwait).

The London subsidiary would offer new products developed by CBK in areas like structured finance. It would also serve the bank's Kuwaiti customers in the UK, act as a liaison office for CBK's investment services and serve as its European marketing arm.

Berry said CBK's board had already considered a feasibility study on the plan to set up a London unit, which was positive, and the bank is now working on a detailed and up-to-date business plan.

He added that, assuming the plan was approved by regulators, the unit would probably not be up and running before early 1999.

There are 27 Arab commercial banks represented in London, mostly as branches, and some Arab bankers suspect that not all of these institutions make a profit in their own right because of the high costs of operating in the UK (Banking, MEED Special Report, 6:3:98, pages 20-21).

Berry said he was confident that if the plan were properly thought out and the right people are chosen to staff the subsidiary, then it could make a profit in its own right. It might take two or three years to break even, however. In any case, he argued, the Bank of England would not give a licence to a bank which could not present a viable business plan.

Asked why CBK wants to set up a subsidiary rather than a branch, Berry said: 'Being a separate subsidiary gives it autonomy and measurability in terms of stand-alone performance. With a branch, there's a feeling that it would always be living off big brother in Kuwait.'

The new subsidiary would be unlikely to have capital of less than £30 million ($48 million), perhaps augmented with subordinated debt.