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Sulaiman Al-Marzouq on NBK’s new standalone ‘Weyay’

The National Bank of Kuwait’s deputy CEO for Kuwait talks to John Everington about the outlook for the economy and the prospects for public–private partnerships.
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Sulaiman Al-Marzouq on NBK’s new standalone ‘Weyay’

Q: What is the National Bank of Kuwait’s (NBK’s) economic outlook for Kuwait for 2022/23?

A: We are cautiously optimistic and confident that the recovery will gather strength over the coming months as higher vaccination rates have enabled the gradual and safe roll back of most Covid-19 restrictions. In the meantime, oil prices have soared, hitting another record high amid increase in global energy demand on economic recovery and the escalation of geopolitical tensions due to the Ukraine conflict. 

Higher oil prices bode well for our fiscal balance. The deficit has narrowed to Kd400m ($1.3bn) in 10 months, and we may even see a surplus by the end of the fiscal year (ending in March 2023). We expect this improvement to continue as life returns to normal, especially if oil prices continue on an upward trajectory. 

Going forward, we also expect the consumer spending momentum to continue in 2022 on the back of economic growth, albeit at a slower pace than last year, when it rose by 37%, supported by loan payment deferrals and reduced overseas travel.

However, the chances for financial reform are still facing challenges in light of the political standoff between the National Assembly and the government, which may adversely affect the efforts to rationalise spending and increase government revenues or pass bills like the public debt law and mortgage law, especially in light of the hikes in oil prices.

Q: What impact will public–private partnerships (PPPs) have on credit growth? What steps can be taken to stimulate the growth of PPP projects? 

A: They have stagnated over the past few years. However, we are optimistic given the recent government directions and following the resolution issued by the minister of finance to stop the renewal of state property contracts signed under the BOT (build, operate, transfer) system and to transfer these contracts to the Kuwait Authority for Partnership Projects — an initiative that will further stimulate corporate lending growth. 

The private sector is playing an increasingly crucial role in project finance, furthering economic development to promote competition and enhance output efficiency, both of which are key pillars to achieving Kuwait’s National Vision 2035. This also contributes significantly to increasing investment spending, which accounts for only 13% of total government spending in the 2022/23 budget.

PPP projects should go through legislative review to accelerate project awards and ensure smooth sailing ahead once clear mechanisms are established to resolve any challenges. It is also imperative to expedite the rollout of key projects that build practical experiences and highlight the drawbacks and possible solutions required to develop this vital mechanism to achieve sustainable development.

Q: Why did deposits decline so sharply across the banking sector in 2021? Are we likely to see a rebound in 2022?

A: Both government and business sector deposits remained in negative territory in 2021; however, we witnessed a major drop in government deposits, which declined by 1.6% due to the budget deficit and an urgent financial need to support government response to the Covid-19 crisis. The absence of a debt law or alternative financing arrangements made financing the deficit challenging; hence, the government was compelled to draw down their deposits with domestic banks to meet their spending commitments and tackle the liquidity squeeze. 

This trend was further bolstered by the record-low interest rate environment as banks started shedding expensive institutional deposits and sought lower opportunity cost from current and saving accounts, and zero-interest deposits and deposits with interest up to 2% increased by 1.5% during 2021.

We expect higher deposits this year as public finances improve thanks to surging oil prices and the likelihood of passing a new debt law to tackle the budget deficit and the liquidity crisis, so that government deposits with local banks would be restored to previous levels — they represented 17.5% of total deposits as of the end of December 2020.

Moreover, an increase in interest rates may spur demand from retail customers and the private sector that view deposits as a safer investment vehicle with more competitive returns.

Q: What impact will the easing of coronavirus support measures by the central bank have on NBK’s loan book and non-performing loan (NPL) ratio in the coming year?

A: The Central Bank of Kuwait (CBK) announced its decision on the gradual easing of the regulatory mitigation package as effective on January 1, 2022, gradually rolling back regulatory measures related to liquidity and capital adequacy ratios to pre-pandemic levels. This is a testament of local banks’ strong capitalisation, liquidity, profitability, asset quality, and overall success in overcoming the challenges imposed by the pandemic.

In April 2020, the CBK eased certain regulatory requirements to help banks overcome the Covid-19-related challenges. At NBK however, we already had adequate liquidity levels in line with CBK guidelines and Basel III standards.

In 2021, customer loans and advances grew by 12.7% on the back of the six-month loan payment deferral for nationals — a measure that may be discontinued this year. Therefore, we expect loans to witness high-single-digit growth in 2022, as previously mentioned, due to the improved public financial position and the acceleration of project awards.

We have strong asset-quality metrics, with an NPL-to-gross-loans ratio of 1.04% and an NPL coverage ratio of 300% by the end of December 2021, thanks to improved credit quality of some customers and the return to normal life in addition to writing off some debts. We expect to maintain NPLs at the same levels going forward as the operating environment continues to improve.

Q: How will the introduction of digital banks impact NBK and other traditional lenders? 

A: Our digital transformation roadmap, that we carried out for years in preparation for a changing and challenging digital banking future, is at the forefront of our priorities. We heavily invested in digitalisation and managed to lay a strong technological foundation, as clearly reflected in our leading banking services, digital products and advanced payment solutions. Our leadership position was clearly and effectively demonstrated during the pandemic through our ability to serve our customers despite the restrictions imposed at the time.

Our customers’ reliance on our digital channels has significantly increased, as 97.6% of the banking transactions in 2021 were made through NBK Mobile Banking, NBK Online Banking, ATMs and cash deposit machines, whereas the banking services conducted through NBK Mobile Banking increased by 50% year-on-year.

Towards the end of last year, we launched Weyay Bank — the first fully digital bank in Kuwait. A cornerstone of our future growth, Weyay aims to enhance our position in digitising banking services and defend our dominant market share in the local market by targeting the next generation. Weyay is a key pillar in our digital advancement, as it improves our excellence and leadership in the local market, and serves as a springboard for regional growth and expansion. 

When developing our digital agenda, one of our key objectives was to align the technology investments and digital roadmap to the group’s strategy to standardise capabilities even at the international locations. This will consolidate, rationalise and simplify the IT application portfolio within the bank, will further allow improvement on cost synergies, and create room for cross-selling of products and services across the bank’s network.

We are using our digital investments and the capabilities built in Kuwait as a critical growth avenue in the short and medium terms, particularly for growing our retail banking operations across the group.

Going forward, our focus will be on markets where we have identified a growth opportunity and where a digital offering will ramp up growth and grow our market share and targeted segment penetration.

Q: How successful has Weyay proved in its first months of operations? 

A: Launching Weyay in November 2021 was made possible through close coordination with the CBK. By the end of January 2022, the CBK issued its new digital bank guidelines and opened applications for interested parties to bid for digital banking licences.

Weyay operates under the NBK’s banking licence and uses its core banking system to ensure security and efficiency. However, it has an independent personality and is run by a highly talented team of professionals. It is also currently geared towards conducting its operations fully independently. 

We have seen exceptional interest from the youth in opening new accounts with Weyay. In February, we had already exceeded the target that we had set for next August. 

Launching Weyay is a leap into the future aimed at providing innovative digital banking services specifically tailored to meet the evolving banking demands and expectations of Kuwaiti youth who represent a third of the population, and a key feeder to NBK’s consumer banking group customer base.

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Read more about:  Middle East , Kuwait , Kuwait bounces back
John Everington is the Middle East and Africa editor. Prior to joining The Banker, John was the deputy business editor of The National in the UAE, and has also worked for Dealreporter, Arab News and The Telegraph. He has also covered the telecom sector in Africa and the Middle East, living and working in Qatar and the UK. John has a BA in Arabic and History and an MA in Middle Eastern Studies from the School of Oriental and African Studies (SOAS) in London.
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