Stymied by the limited growth potential at home, Kuwait’s major banks have continued their various strategies of expansion abroad. Turkey has been a particular focus, while north Africa is still providing growth opportunities despite recently being beset by political upheaval. Encouraged by the Central Bank of Kuwait to grow overseas, banks from the country are looking to Algeria and Morocco to the west and considering options as far east as Indonesia, where Islamic banking is in its early stages.
Meanwhile, as Kuwaiti banks look outwards, Chinese banks are starting to see the opportunities offered by Kuwait as the pipeline of mega-projects from the $130bn five-year economic development plan, unveiled in 2010, slowly begin to emerge.
Big and getting bigger
The National Bank of Kuwait (NBK), which has the biggest domestic banking presence with 64 branches, began its Middle East and north Africa expansion in earnest in 2004 and now has an international network of an additional 109 branches to its domestic offering. Besides its presence in leading financial centres including London, Paris, Geneva, New York, Singapore and Shanghai, NBK has built up an extensive regional coverage that includes Lebanon, Jordan, Iraq, Egypt, Bahrain, Qatar, Saudi Arabia, the United Arab Emirates and Turkey.
NBK has continued to strengthen its presence outside Kuwait as the domestic environment has remained stagnant, and has increased its focus on operations in Gulf Co-operation Council countries. Ibrahim Dabdoub, NBK’s group chief executive, notes in the bank’s 2012 results that international profits recorded 22.7% year-on-year growth, accounting for 23% of net profits of $1.09bn. He says: “My dream is to expand in Saudi Arabia; we have a branch there now, but Saudi Arabia is a big economy and we would like to expand there.”
NBK is not planning any major expansion abroad at present, but operations in the Gulf have been going well and subsidiaries, such as its 90% stake in Credit Bank of Iraq, are progressing as Iraq’s oil exports gain strength. In Egypt, NBK’s subsidiary, Al Watany Bank of Egypt (AWB), has reported a 35% growth in net profits in 2012, reaching E£304.1m ($44.8m), an increase in profits of E£225.6m for 2011.
Strong outposts
Commenting on AWB’s performance, Isam Al Sager, NBK group deputy chief executive and AWB chairman, says: “AWB has once again proved its ability to post strong profits despite the unfavourable and challenging situation in Egypt. AWB has been one of the fastest growing banks in Egypt over the past few years and is moving forward with its strategy to strengthen its position in the Egyptian market.” AWB has branch network of 42 branches across Egypt.
Meanwhile, in 2008 NBK took a 40% stake in Turkish Bank and Mr Dabdoub is optimistic about the growth potential of the Turkish economy with its youthful demographics, and is keen to expand further. With the Shanghai representative office expected to be turned into a branch in the coming months, NBK continues its global expansions and expects its income from outside Kuwait to expand well beyond the current 23% in the coming years.
In addition, NBK’s new Kuwait subsidiary, Boubyan Bank, an Islamic banking specialist, is considering its strategy outside Kuwait. As Adel Abdul Waha Al Majeed, chairman and managing director of Boubyan, says: “We are looking at some countries, especially Indonesia, where Boubyan has a 25% stake [with NBK] in Bank Muamalat Indonesia, the second largest Islamic bank in Indonesia. Boubyan is undergoing a strategy refocus with consultant McKinsey and the results and Boubyan’s new international focus will be known in the summer.”
Islamic challenger
Besides NBK’s extensive global network, Kuwait Finance House (KFH), the country’s largest Islamic bank, has been expanding significantly outside Kuwait and is looking for further opportunities for sustainable growth following an ambitious transformation programme and its decision to increase the bank’s capital by 20%. On the back of successful 2012 results, KFH chairman Mohammad Al-Khudairi says: “KFH plays a major role in Malaysia, Bahrain and Turkey in strengthening commercial and economic relationships between Kuwait and these countries. In addition, the bank is currently investigating a number of investment opportunities in other international markets in order to expand its network, which stands at 300 branches around the world, and better serve its customers and clients.”
In explaining KFH’s strong strategic growth in Turkey, Mohammad Sulaiman Al-Omar, KFH chief executive and chairman of KFH Turkey, stresses the 28% growth in profits in 2012 to Tl250m ($138.8m) compared with 2011, the 27% increase in assets to Tl19bn and the 14% increase in loans to Tl12bn. Mr Al-Omar says that the positive financial indicators achieved at KFH Turkey reflect growth in many areas, including a 29% increase in client deposits.
Mr Al-Omar says KFH Turkey opened 40 new branches in 2012, bringing the bank’s total to 245, and recruited 600 new employees, in addition to applying to the German authorities for a licence to open an Islamic bank and expand the role of the bank’s existing branch in south-western city of Mannheim. He adds that KFH Turkey is the 14th largest bank in Turkey and has been targeting markets in countries neighbouring Turkey, as well as introducing new products such as gold and silver accounts. KFH is the only bank offering a gold account in Turkey and Malaysia.
Mr Al-Omar also notes the recent success of a $1.5bn sovereign sukuk arranged for the Turkish government by KFH Turkey and KFH subsidiary Liquidity Management House. He adds that the sukuk model used is being considered by many countries for funding expansion and growth, and by corporates too. Mr Al-Omar sees continued expansion in Turkey in 2013 as its economy continues to grow strongly. The bank expects assets to grow by 30% in 2013 with deposits up 30% too. After attracting nearly 300,000 new retail clients in 2012, the bank expects to bring in another 400,000 clients this year with plans to expand into asset and wealth management. The bank has set itself the goal of becoming one of the 10 largest banks in the Turkish market.
Diversification drive
Besides NBK and KFH, Kuwait’s fourth largest financial institution, Burgan Bank, is also focusing on diversifying its portfolio outside of Kuwait. Chief executive Eduardo Eguren explains that Burgan is not de-emphasising Kuwaiti business but diversifying into growth and profitable areas. In 2012, 51% of Burgan’s Kd190.1m ($667.2m) in revenues came from outside Kuwait. In total the bank's revenues grew by 16.4%, 18% of which came from operations in Algeria.
Burgan has five majority-owned subsidiaries, which include Gulf Bank Algeria, Bank of Baghdad (Iraq and Lebanon), Jordan Kuwait Bank, Tunis International Bank and fully owned Burgan Bank Turkey. In April 2012, Burgan announced it was acquiring Eurobank Tekfen, the Turkish subsidiary of Greece’s Eurobank, for $359m. This deal was completed in December and in January this year the Burgan Bank Group extended its regional brand to Turkey as Eurobank Tekfin was rebranded Burgan Bank Turkey.
The acquisition in Turkey gives Burgan a presence in 21 leading industrial and business cities in the country, a nationwide network of 61 branches, 44% of which are located in Istanbul, and a huge potential for growth under the Burgan brand. The new subsidiary had assets of Kd704m and revenue of Kd41m at the end of 2012, giving Burgan a 13.3% boost in total assets.
The bank, however, is not standing still and Mr Eguren is looking to acquire a specialist trade bank in Malta called FIMBank. Burgan has approval to buy 25% of the bank, which has an extensive global trade network, and it hopes to take control of the Malta operation in the third quarter of this year.
Mr Eguren believes these acquisitions will add real depth to Burgan’s overall offering, providing a further diversified revenue stream through operations in non-oil economies. But he is also looking at Asia, particularly Indonesia and Malaysia, and he adds that Burgan does not have an Islamic capability.
Meanwhile Gulf Bank, Kuwait’s third largest bank in terms of assets, has taken a very clear decision to focus on the domestic market and avoid all overseas expansion. After some heavy losses on derivatives some years ago, new management came in 2009 and introduced a two-year turnaround plan. The focus has been on core competencies and good commercial lending. Chief executive Michel Accad says that his core vision is built around traditional retail and commercial banking with no investment banking or brokerage and no plans for expansion outside Kuwait. “Right now we have no geographical or regional ambitions, we will not be ready for three to four years,” he says.
