In conversation with Sulaiman Barrak al-Marzouq, deputy CEO for Kuwait, National Bank of Kuwait

Given the global volatility, what are the challenges and opportunities for banks in the Gulf? 

The biggest economic risk we are facing right now is that the world may be falling into the grip of a deep recession. This scenario presents risk to the operating environment. Inflation remains high, as US inflation hit its highest level in 40 years, whereas in Kuwait it has recently approached a high of close to 4.5 per cent. 

This may reduce consumer spending and mount additional pressures, leaving more direct impacts on retail banking performance and indirectly affecting corporate banking services. Financial markets continue to fluctuate as they are extremely sensitive to economic factors, which pose additional challenges and risks to wealth management and private banking services for GCC banks.

At the same time, the upheaval may be turned into opportunities. Banks that managed to successfully position themselves may benefit from the situation, as geopolitical tensions – especially the Russian invasion of Ukraine – push oil prices higher, in turn strengthening the government’s financial position and encouraging investment spending. 

The monetary policy cycle is now increasingly synchronised around the world, with central banks continuing to raise interest rates as a means of combating inflation. This bodes well for banking operations as it pushes net interest income higher. 

How is the Kuwaiti banking sector performing compared to its pre-pandemic scenario? 

Years before the pandemic, Kuwaiti banks shifted towards a more conservative approach and prudential risk management, thus coming to outperform their regional peers in terms of capital adequacy, liquidity and asset quality. So, when the pandemic hit, the banking sector in Kuwait was in a better position.

Non-performing loans among Kuwaiti banks stood at 1.4 per cent by the end of 2021, while capital adequacy stood at 19.2 per cent by the end of 2021, far outperforming the international requirements of 10.5 per cent. Liquidity ratios were also strong by the end of 2021, standing at 183 per cent, while the net stable funding ratio was at 111 per cent – both higher than the required 100 per cent and reflecting good financial health and regular cash flow. 

These strong indicators reflected positively on the banking sector’s performance and resulted in higher profitability. In 2021, Kuwaiti banks’ profitability inched close to pre-pandemic levels at KD961m. Moreover, lower risk premiums, following the easing of Covid-19 restrictions, further helped increase profitability, as banks benefited from years of accumulating provisions prior to the crisis.

Kuwaiti banks were also well-positioned to face the challenges of the pandemic in terms of providing digital services and advanced payment solutions. NBK set an example by taking proactive steps towards digitisation, with digital channels coming to account for 98 per cent of total banking transactions in 2021.

How have market conditions improved since the beginning of 2022? 

Although the economy was already well into its post-pandemic recovery, the stronger oil market this year has added a tailwind. The rise in oil prices from $70 to $100 a barrel is worth about $30bn to the government on an annualised basis and will flip the fiscal position from an estimated deficit of 8.5 per cent of GDP in the financial year 2021/22 into a similar-sized surplus this year. 

This turnaround is allowing the government to rebuild its General Reserve Fund, which had been close to depletion last year, while eliminating any talk of emergency spending cuts or the government being unable to pay salaries.

There is a strong chance that the government’s budget for this year will be revised upwards, providing further impetus for the economy. High oil prices are also leading to calls for increased oil production from Opec, and Kuwait’s oil output is set to jump 13 per cent this year, providing a big boost to GDP.

NBK set an example by taking proactive steps towards digitisation, with digital channels coming to account for 98 per cent of total banking transactions in 2021

What role does digital transformation play in financial institution resilience? 

Digital innovation has been an integral part of NBK’s strategy, and our recent performance is testimony to how our investments and our digital roadmap paid off. During the pandemic, NBK’s digital channels played a pivotal role in serving our customers, and online transactions reached a record high. 

We increased the number of services provided digitally, most importantly through mobile banking, while utilising data analytics, robotics and machine learning to improve our operational efficiency and offer personalised experience to meet the evolving banking needs of our clients. 

Our strategic direction revolves around maintaining our position as the number one digital bank, not only in Kuwait but across the region as well.

We seek to build a new digital banking experience for the next generation and instil the digital mindset culture among our people. Our digital bank, ‘Weyay’, which we launched last year in Kuwait, will serve as a springboard for regional growth and expansion.

We also continue to work towards creating a more flexible, realistic, risk-resilient and collaborative digital culture, while enabling new ways of equipping our employee base with digital transformation abilities through upskilling and reskilling pathways, as well as attracting new talents. 

More generally, banks must constantly adjust their business models for both front and back office operations to keep pace with ever-changing markets and to anticipate potential future technological disruptions. Blockchain, cloud computing and the Internet of Things have become the foundation of digital banking and comprehensive digital transformation.