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

How has Kuwait’s banking industry adapted to digital transformation in the finance sector? 

Kuwaiti banks have fostered open dialogue for years and worked closely with the Central Bank of Kuwait (CBK) to build digital infrastructure and promote innovation.

CBK has provided regulatory flexibility and introduced various initiatives, one of which is an experimental regulatory environment. Within this environment, innovative financial services and products can be safely tested without jeopardising the stability of the financial system.

Consequently, emerging companies and entrepreneurs have the opportunity to introduce groundbreaking products and services while ensuring the ongoing stability of the financial and banking sector.

In its efforts to pave the way for the digital economy, CBK is engaged in developing key infrastructure projects.
Notably, the Kuwait Automated Settlement System for Interparticipant Payments, an electronic payment platform, is being established to enhance the efficiency of the financial system. 

A digital framework for Know Your Customer is also being implemented, making account opening procedures more efficient by transitioning the process to online platforms. Furthermore, CBK is developing a digital banking framework to simplify and enhance digital banking services, making it easier to establish digital banks.

National Bank of Kuwait (NBK) places significant importance on digital transformation as a key element of our long-term strategy. We are fully committed to preparing for the future of financial technology.

To achieve this objective, we have established NBK’s Group Digital Office, functioning as an innovation lab that plays a significant role in driving our digital transformation initiatives across the organisation.

We have made significant investments in digital banking services, with a comprehensive approach that covers both the front-end and back-end through the implementation of robotics process automation.

Our dedication to digital innovation is further demonstrated through the development of digital wealth management solutions, such as Smart Wealth, in partnership with NBK Capital (Watani Investment Company) and Private Banking Investments. 

Our focus remains on automating our operations through robotics. We have more than 70 digital workers/bots aiding our employees in reducing response times and ensuring accurate services. The digitisation efforts have yielded significant benefits, saving approximately 3,800 working hours for our employees.

We have made significant investments in digital banking services, with a comprehensive approach that covers both the front-end and back-end through the implementation of Robotics Process Automation

What trends and opportunities are there in Kuwait’s financial markets? 

Over the past years, the Capital Markets Authority and Boursa Kuwait have undertaken several initiatives aimed at aligning the regulatory, operational and institutional framework with international standards.

These efforts have significantly enhanced the attractiveness of foreign investment in Kuwait, with foreign purchases reaching 15 per cent during the first half of 2023.

We hold a positive outlook as the ongoing dialogue between the newly elected National Assembly and the government signals an improvement in the political scene.

This positive development is expected to stimulate a revival of project activities, which aligns with our core strengths as the largest financier of megaprojects in the region.

In the meantime, we are capitalising on the strength of the NBK brand and our reputation as the reliable banking partner for the region’s largest entities. This strategic positioning allows us to actively reinforce our presence and take advantage of the flourishing activity in regional markets. 

Furthermore, we are pursuing an increase in the volume of assets under management, which currently amounts to $17bn. Our approach involves expanding into new markets and reinforcing existing customer relationships.

What macroeconomic factors are currently most critical to the banking industry in Kuwait?

Similar to other sectors in the economy, the banking sector does not operate in isolation from the prevailing business environment.

Although there are signs of economic challenges in Kuwait during 2023, including a decline in oil production due to Opec+ decisions and the diminishing effects of the post-pandemic recovery, there are still robust fundamentals for economic activity.

These foundations are reinforced by steady consumer spending, a resilient labour market and continued government support measures.

The performance of Kuwait’s banking sector is intricately linked to government investment spending, a crucial factor driving economic growth that directly affects project awards and corporate credit.

Despite a 15.2 per cent decrease in capital expenditure estimates in the draft budget for the fiscal year ending in March 2024, amounting to KD2.5bn, there is a sense of optimism regarding the acceleration of project awards. 

This positive outlook is fuelled by the government’s recently announced 2023-27 action plan, which includes ambitious goals such as building large residential cities, distributing 15,000 additional housing plots and implementing a comprehensive road maintenance programme within the first year. 

These initiatives are expected to have a beneficial impact on government investment spending.

Considering our economy’s heavy reliance on oil revenues, the influence of oil sector investments continues to grow, affecting multiple sectors, including banks.

The oil minister has recently revealed Kuwait’s aspiration to bolster its oil production capacity through an investment plan that extends until 2040. The total value of these investments exceeds $300bn.

Meanwhile, inflation impacts the banking sector in many ways, and June saw an annual surge in inflation to 3.8 per cent.

This increase in inflation has the potential to curtail consumer spending activity, which had significantly accelerated after the pandemic, thereby affecting the performance of the personal banking services sector.

Additionally, inflation holds a crucial role in shaping monetary policies, as demonstrated by CBK alignment with the US Federal Reserve’s actions, resulting in a record increase in the discount rate to 4.25 per cent by the end of July.

While banks generally benefit from the interest rate hike, they may also face challenges due to the decline in consumer spending and a potential slowdown in personal credit as a result of higher interest rates. 

The impact of the interest rate hike is evident in the volume of personal credit facilities, which showed minor change during the first six months of 2023.

In June, the level of personal credit facilities reached similar levels as at the end of the previous year, totalling approximately KD18.5bn.