Islamic banking already has a strong presence in Kuwait. With a number of innovative lenders competing in the sector, and support and regulatory oversight from the country's central bank, it looks as though the industry can only become a more prominent fixture on the country's financial landscape.

The Islamic banking system in Kuwait has gone from strength to strength in recent years, as it has done in many parts of the world. The solid growth of the market has illustrated the strong demand in the country for products and services that are compliant with sharia law, and further growth is expected in 2014.

According to industry research, Kuwait’s Islamic banking assets grew by 8.7% in the first nine months in 2013, to reach a total of Kd22.5bn ($37.6bn) and Islamic financing grew by 11.2% to reach Kd13.5bn in the same period. Islamic deposits grew by 8.4% to Kd14.6bn. This growth exceeded that of the overall banking sector in Kuwait, which recorded 7.1% growth in assets, 7.5% growth in loans and a 7.2% growth in deposits during the same period.

Islamic banking assets accounted for 45.2% of total Kuwaiti banking assets in the third quarter of 2013, up from 43.5% in 2012, the second highest proportion among the Gulf Co-operation Council (GCC) countries, and a clear sign that the industry is making significant progress in Kuwait.

House of cards

Kuwait Finance House (KFH) is the leading Islamic bank in Kuwait by assets and Tier 1 capital, according to figures compiled by www.thebankerdatabase.com. The bank’s CEO, Mohammed Al-Omar, says that KFH will seek to increase its share in the local market, and to cement its international presence by entering new overseas markets in the coming years.

“In the local market, KFH is taking full advantage of the restructuring process that began two years ago,” he says. “This process created a new work mechanism that ensures better service flow and quality for clients, in addition to making employees work more efficiently.

“This plays a role in reinforcing KFH’s share in the local retail market, since KFH operates in the most productive economic sectors, and is considered to be a main market player in the automobile, furniture, electrical appliances, local real estate and construction sectors. This goes hand in hand with the bank’s ambitious plans for debit and credit cards, while offering a selection of new banking services that meet the needs of individual or corporate clients.”

Mr Al-Omar explains that KFH seeks to take advantage of the development plans that the Kuwaiti government has announced, and the bank has allocated large sums of money for that purpose. KFH also has ambitious plans when it comes to expansion abroad.

“Concerning overseas markets. KFH continues to underline its presence in the markets it operates in. In the GCC, KFH Bahrain achieves good results, despite challenges. It managed to execute huge real estate projects through its subsidiary companies. In Saudi Arabia, KFH plans to become a key player in a market that is seen as one of the most important markets in the region. In Turkey, KFH plans to step up its role in a market that is seen as a gateway to Europe.”

Right indicators

Ahli United Bank is another main player in the Kuwaiti Islamic banking market. It recently posted record profits of $579.4m for 2013.

“Since the bank’s conversion to Islamic banking, our performance has improved,” says deputy CEO Ahmed Zulficar. “We have very strong corporate governance and our risk culture is very strong. That’s why we have maintained the high quality of assets within the bank. The performance of our credit portfolio is very good with proper asset and liability management and we have controlled our costs. The performance as a whole is very good and improving. The bank has strong and stable asset quality, solid liquidity levels and strong capitalisation levels."

Mr Zulficar says there is a balance to the Islamic banking market in Kuwait and it can now be seen as mature. But it does seem there is still scope for the gaining and losing of market share.

“The competition is always there,” he says. “Some customers have a preference for Islamic finance and some don’t. It depends on the customer’s perspective. We find that all the customers we are dealing with are very satisfied with our services.”

Boubyan Bank is another big player in the Kuwaiti market and vice-chairman and CEO Adel Al Majed is also convinced of the health and growth prospects for Islamic banking.

“As for Islamic banks and financial institutions, whether in Kuwait or the whole region, we are greatly optimistic as all indicators show an increasing demand for Islamic banking and financial products and services, which have become very popular, even for non-Muslims, as the matter has to do not only with sharia, but also with the service provided to customers,” he says. “The current and ongoing development witnessed in the products and services provided by these banks makes them always good competitors for similar conventional institutions.”

A clear vision

Assets in the Islamic finance industry globally grew 16% year on year, to a total of $1800bn in 2013, according to industry research. And the Islamic banking sector continues to dominate (comprising 80%) global Islamic finance assets, and it has sustained double-digit growth.

The Islamic banking sector has been the driving force of the global Islamic finance industry and Islamic banking assets are expected to reach $1600bn by the end of 2014, according to the research. And advanced Islamic banking markets in the GCC and some parts of Asia are expected to develop a greater sophistication of products offerings, as well as achieve regulatory advancement by the financial supervisors, according to the research.

The governor of the Central Bank of Kuwait (CBK), Dr Mohammad Y Al-Hashel is a strong advocate of the Islamic banking industry in his country. He delivered a speech in Kuwait at the opening ceremony of the Fifth Conference of the Islamic Financial Institutions, which took place on December 16 to 17, 2013, explaining that the first Islamic financial institution in Kuwait was established in 1977.

“That was followed by successive establishments of a number of sharia-compliant financial institutions,” he said during the speech. “Presently, there are five sharia-compliant national banks registered with CBK, in addition to a branch of a non-Kuwaiti Islamic bank and 51 Islamic investment companies. Ever since the dawn of Islamic financial activities, CBK has believed that it was necessary to work within a regulatory and supervisory framework that guarantees the soundness and efficiency of these activities.”

The governor was also keen to emphasise his organisation’s role in overseeing the industry and making sure it remains healthy. “The importance of the supervisory and oversight role of the CBK on Islamic banks emerges from the fact that it guarantees the soundness and strength of the activities, liquidity and solvency of these banks, and ensures that they have robust financial positions. In addition, it preserves the rights of their customers and business counterparts,” he said.

Islamic banking now has long and well-established roots in Kuwait, with backing from fast-growing institutions and officials with a strong vision for its development. There seems little doubt that Kuwait and its Islamic banks will continue to ride the wave of global growth in the industry and figure prominently as new innovations come to the market.

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