Interview: Isam Al Sager, CEO, National Bank of Kuwait

What are your expectations for corporate and retail banking in the current landscape?

ISAM AL SAGER: Numerous developments could have an impact on the expansion of corporate and retail banking in the current economic and geopolitical environment. Factors such as GDP growth, interest rates, inflation and government policies could influence credit demand, borrowing costs and overall business activity. Environmental considerations can shape lending practices and risk-management strategies, encompassing sustainability concerns and regulations. Additionally, trade policies, political stability and other geopolitical elements may influence investor confidence and market conditions.

Looking at these factors, the operating environment in the GCC is favourable compared to other emerging markets due to the robustness of oil prices. This has contributed to more conducive economic conditions, and provided a solid foundation for development in the region. Additionally, sustainable finance is emerging as a powerful tool for fostering balanced economic growth by transforming existing threats into opportunities. As awareness of environmental, social and governance issues increases, financial institutions are actively incorporating such risks into their decisions.

Which trends are likely to have an outsized influence on Kuwait’s banking sector in the near future?

AL SAGER: We are observing trends in Kuwait that have had a substantial impact on fostering positive consumer sentiment and corporate activity. Consumer activity remains vibrant in the local market due to various factors that have established a strong basis for growth, including sustained job creation, supportive government measures and favourable demographics.

However, after experiencing several years of significant growth, Kuwait is seen as entering a phase of normalisation in retail lending. During this transitional period, the pace of growth in this segment is expected to stabilise, reaching more sustainable levels. This should not be cause for alarm, as it is seen as a natural progression in the lending cycle.

The corporate part of the lending segment is showing signs of recovery. This comes even though the projects market has not yet fully recovered and remains sluggish, despite an uptick in activity in the first half of 2023, when more than KD700m ($2.3bn) in projects were awarded across various sectors.

The higher interest rate environment has been favourable for banks. In recent quarters we have seen the delayed effect of loan repricing on household lending, resulting in margin growth. From an asset quality perspective, the sector maintains substantial levels of loan-loss reserves, which act as a protective measure against possible defaults. Moreover, low non-performing loan ratios indicate a relatively healthy portfolio and bode well for the economy.

To what extent could the projected rise in government spending affect investor sentiment?

AL SAGER: Thanks to the surge in oil prices in recent years, Kuwait experienced a notable strengthening of its fiscal position in FY 2022/23. This development resulted in the government announcing its first surplus in nine years when reporting the results for the fiscal year. Higher oil prices have directly contributed to improved government revenue and offered the authorities the opportunity to address economic priorities.

Nonetheless, the draft budget for FY 2023/24 indicates a planned 12% increase in expenses, most of which can be attributed to current spending. While this might, in the near term, have a positive effect on consumer spending and generate demand for credit and financial services, underlying economic imbalances are likely to persist. However, it is crucial to recognise that focusing primarily on current spending without addressing the structural economic imbalances is likely to result in further long-term challenges for the sector.