ShareKUWAIT: Salah Al-Fulaij, Chief Executive Office of the National Bank of Kuwait, Kuwait, said that NBK’s proactive digital transformation strategy and expansion of its digital infrastructure will continue to drive growth going forward. During an interview with “The Banker” magazine, Al-Fulaij stated that digital transformation is perceived as a springboard for regional growth and expansion, with a special focus on young demographics and retail businesses. When asked about expansion, Al-Fulaij responded that NBK follows a very successful market expansion strategy that started more than a decade ago.
“Today we are satisfied with our geographical coverage and enjoy a wide banking presence with an international footprint spanning the world’s leading financial centers in 13 countries”, he noted. “We continue to look at any potential opportunities that align with our strategic direction, create synergies with our existing operations and markets, and of course generate added value to our shareholders,” he added. Remarkable experience Al-Fulaij indicated that NBK had a very successful experience launching Weyay, the first fully digital bank in Kuwait, confirming that the group plans to introduce similar experiences in other regional markets to open new revenue streams.
Al-Fulaij also confirmed that the bank continues to expand its wealth and asset management market share in both local and international markets, with a keen focus on the Saudi market adding that NBK global wealth management division combines the extensive asset management capabilities of NBK Capital with the expertise and client-focused interfaces developed by the private banking group. “We continue to consider Egypt as one of our important growth markets. NBK Egypt has successfully positioned itself as a leading financial institution on the map of private banks operating in Egypt.
Given our success so far in the Egyptian market and the fast pace of growth, I am confident that we are on the right track towards further growth and more significant market share, with focus on the growing retail sector,” Al-Fulaij added. Weyay’s success Speaking of Weyay’s experience, Al-Fulaij highlighted that a key element in Weyay’s success is Kuwait’s young demographic, with 64 percent of the Kuwaiti population under the age of 34, confirming that this factor played a significant influence in the digital bank’s growth, as did the fact that the country’s internet and mobile penetration and usage rates are among the highest in the world.
“We maintained our relevance by recognizing the market’s changing demands and by creating new business models, developing strategic partnerships and committing to continuous innovation,” Al-Fulaij indicated, adding that since its launch, Weyay has witnessed consistent growth and managed to exceed its customer acquisition goal by 300 percent, thanks to the bank’s innovative approach of direct engagement with young clients by recognizing and meeting their needs in such a way that suits their personality and lifestyle, especially since Weyay’s executives are themselves of a similar age and understand their generation’s demands first-hand.
Strong sector When asked to give his projections for Kuwait’s banking industry in 2023, Al-Fulaij stated that the sector is notable for its high liquidity and robust capitalization, with an overall capital adequacy ratio well above the required minimum level while additionally, non-performing loans remain low, and loan-loss provisioning is high. “The banking sector’s strong foundations have enabled it to handle the uncertainty caused by the COVID-19 pandemic and other global challenges over the past few years,” Al-Fulaij confirmed. He also highlighted that government-led pandemic mitigation and recovery actions afterwards have aided the banking system, allowing it to lead a post-pandemic recovery benefitting from a well-capitalized and highly liquid sector balance sheet.
The banking sector’s strength was supported by various factors, including the positive impact of higher oil prices and improved business activity on the overall operating environment in Kuwait. Additionally, the banking industry is benefiting from the increases in benchmark interest rates, albeit with a slight lag in Kuwait. “Looking ahead, we remain optimistic of an overall stable operating environment in the country, because we expect that high oil prices will continue to support government spending on wages and investments and help boost business confidence,” Al-Fulaij added.
Sustainable growth According to Al-Fulaij, during the past few years, Kuwaiti banks have been reporting strong profitability, and the stage is set for sustained growth with companies returning to normal business operations, a rebound in demand for corporate credit, and a preferable interest rate environment. He also indicated that business credit recorded 6.8 percent growth in 2022, the fastest annual expansion since 2013. Meanwhile, domestic credit ended 2022 with growth at 7.7 percent for the full year, the fastest yearly expansion since 2015.
Exceptional performance As for NBK, Al-Fulaij stated that the bank started 2023 on a very strong footing after recording exceptional performance in 2022, adding: “Against the challenging economic backdrop of 2022, we successfully achieved the highest net profits in our history, demonstrating the value creation inherent in our business model, the continued success of our strategy and our ability to seize opportunities”. In 2022, NBK Group recorded a net profit of KD 509.1 million ($1.7 billion), up 40.5 percent year on year.
This strong profitability growth is driven by solid operational performance and improving cost of risk. Net operating income reached KD 1.0 billion growing 12.2 percent year-on-year. “The group’s balance sheet remains exceptionally strong. During 2022, total assets grew by 9.3 percent to reach KD 36.3 billion while customer deposits surged by 10.4 percent to KD 20.2 billion, with the overall funding mix remaining stable and favorable to the group,” Al-Fulaij confirmed In the meantime, asset quality remained solid, with the bank’s ratio of non-performing loans to gross loans at 1.42 percent as of December 2022. Loan loss coverage ratio is at 267 percent, reflecting the conservative provisioning policy of the group.
Credit remains resilient As for his predictions for the coming year in terms of overall credit growth for the banking sector, Al-Fulaij said: “Going into 2023, given higher interest rates, a weaker global economic backdrop, and likely softer domestic non-oil growth, we expect slower business credit growth than the multi-year high seen in 2022. However, growth should remain decent by historical standards, helped by still relatively elevated oil prices and an ongoing post-pandemic recovery”. During the interview, Al-Fulaij shared his expectations on the infrastructure projects market, which is expected to thrive in 2023, providing momentum to the private sector.
He also provided insights on the draft state budget for 2023-24, which proposes salary and subsidy increases, and if executed, is likely to boost household spending this year. “We expect credit to maintain its momentum and remain solid at 5 percent to 6 percent in 2023, a marginal deceleration from the 2022 levels. While tighter monetary policy may become a consideration for borrowers, we think that credit demand will remain relatively resilient,” Al-Fulaij said. Global challenges Al-Fulaij revealed that uncertainty is the greatest threat to the global economy, when asked about the biggest challenges facing Kuwait’s banking sector.
“We have witnessed a series of unprecedented shocks over the past few years, beginning with the pandemic, followed by supply chain interruptions, the Russia-Ukraine conflict, persistently high inflation rates, and most recently the bank failures in the US and the rise of a potential contagious risk for other countries’ banking sectors,” Al-Fulaij noted.
As for the local economic scene in Kuwait, while the projected rise in government spending is expected to support demand in the economy in the near term, it also adds to longer-term fiscal sustainability pressures, especially in the context of continued over-reliance on volatile oil revenues, limited non-oil revenue streams, a lower capex target and slow reform progress due to legislative gridlock. “Given the current political impasse, it may take longer than usual before the budget is approved by parliament, potentially pushing the boost to the economy from higher spending until later in the year,” Al-Fulaij concluded.
