Interview: Basel Al Haroon, Governor, Central Bank of Kuwait, on liquidity, innovation, risk management and shaping future competitiveness
How has recent growth in domestic banking assets affected liquidity levels and the ability of banks to finance large-scale infrastructure projects?
BASEL AL HAROON: Banking sector assets grew by 4.6% in 2024, demonstrating the sector’s resilience even amid tighter global financial conditions. Strong asset growth has supported liquidity and provided banks with the capacity to fund short-term needs and long-term infrastructure projects. Key liquidity indicators reflect this stability: the liquidity coverage ratio stood at 163.9%, well above the 100% threshold; the net stable funding ratio increased to 114%, and the loan-to-available sources of funds ratio remained comfortably below the regulatory ceiling at 83.5%. The regulatory lending ratio was 21%, indicating that banks maintained significant capacity for lending. Additionally, the sector remains well capitalised with a capital adequacy ratio of 19.4% and a low non-performing loan ratio of 1.5% as of the fourth quarter of 2024. Banks are well positioned to continue financing large-scale infrastructure and development projects.
To what extent has the expansion of digital banking and financial technology changed the competition dynamics between conventional and Islamic banks?
AL HAROON: Both conventional and Islamic banks have embraced digital transformation, offering modern online platforms and mobile services. This shift has driven operational efficiencies and broadened access to underserved segments. Regulatory support, including a digital banking framework, cybersecurity standards and e-payment guidelines, has enabled institutions to innovate while ensuring system integrity. A key initiative has been the launch of the Wolooj by the Central Bank of Kuwait (CBK) in 2023. This innovation centre facilitates the development of new financial products through its accelerator programmes and regulatory sandbox. In 2024 a research and development arm was added whereby innovators can participate in the research and development on solutions that address various financial challenges.
How are banks adapting risk management and capital allocation strategies given emerging environmental, social and governance (ESG) regulations?
AL HAROON: Although ESG regulations are still evolving, banks have begun integrating environmental, social and governance considerations into their risk management and capital allocation strategies. This important shift is supported by the CBK’s guidance, which encourages banks to embed ESG into their governance frameworks, risk assessments and long-term strategic planning. Banks are further enhancing their ability to identify and manage environmental and social risks while improving transparency in ESG reporting. These developments reflect a broader commitment within the financial sector to align operations with national sustainability goals and global best practices.
What role will the introduction of standalone digital banks play in reshaping the financial landscape?
AL HAROON: The introduction of standalone digital banks could enhance Kuwait’s financial landscape by expanding access, introducing new service models and fostering competition. Currently, digital banking activity in Kuwait is conducted under a “bank-as-a-unit” model, allowing innovation without full standalone licensing. The CBK has now developed a dedicated regulatory framework for digital banks, ensuring financial soundness through requirements such as adequate capital, liquidity, robust risk management – particularly in cybersecurity and third-party risk – and clear governance standards. A phased licensing approach supports gradual market entry while mitigating systemic risks. This ensures digital banks can operate safely within the broader financial system. At the same time, the CBK remains committed to updating its framework in line with evolving global practices and market developments.
Read More from OBG
