Interview: Sheikh Ahmad Duaij Jaber Al Sabah, Chairman, Commercial Bank of Kuwait

Which strategies are banks prioritising to maintain growth amid the global economic downturn?

SHEIKH AHMAD DUAIJ JABER AL SABAH: Under the leadership and guidance of institutions like the Kuwait Banking Association (KBA) and the Central Bank of Kuwait (CBK), the banking sector is handling the global economic downturn with a multi-pronged strategy. We are emphasising digital transformation, which is a top priority for Kuwaiti banks. With more consumers seeking convenient and innovative banking solutions, new products are being launched to enhance the customer experience, drive operational efficiency and reach wider demographics.

Banks can also diversify their offerings and look beyond traditional banking. The new mortgage law is one such initiative, as local banks can offer mortgage loans worth up to KD140,000 ($456,000). With the government’s support in interest payments, this is expected to drive credit growth from the retail side. In addition, the CBK is working closely with stakeholders on regulatory advancements. Initiatives like open banking and buy-now/pay-later products, which can introduce more flexible and customer-centric commodities to the market, are being evaluated as well.

How has the banking sector been managing the impact of higher interest rates?

SHEIKH AHMAD: Navigating fluctuating interest rates is a challenge for any banking sector, and Kuwait’s preparedness for such changes is testament to our approach to economic development. It is important for banks to proactively manage their lending portfolios. While higher interest rates may affect borrowing costs, the recent mortgage law is expected to spur credit growth on the retail side. By allowing local banks to offer significant mortgage loans while the government bears responsibility for a substantial part of the interest, we are ensuring that borrowing remains attractive.

On the corporate side, we expect to see a softening in credit growth due to high interest rates and the broader global economic context. However, the momentum we observed in 2022, especially in the real estate and construction sectors, has given us a robust foundation. Furthermore, the KBA is continuing its efforts to educate the public and raise awareness. With higher interest rates, it is crucial that banks’ retail and corporate customers understand the implications for their financial health, ensuring they make informed decisions.

What steps can banks take to diversify their portfolios and reduce their vulnerability to oil volatility?

SHEIKH AHMAD: Kuwait’s reliance on oil has undeniably shaped its economic trajectory for decades. However, the inherent volatility of oil markets – accentuated by recent geopolitical tensions and global economic shifts – underscores the need for diversification in our banking portfolios. Several strategies are at the forefront of this ongoing endeavour.

The potential passage of the public debt law may provide new avenues for exploring financial instruments and securities, as it could allow funding from capital markets and support growth. It could also have an impact on lending and debt markets, especially during periods of lower oil revenue. Given the global shift towards sustainability, Kuwaiti banks have an opportunity to diversify into green financing, supporting projects that focus on renewable energy, water conservation and sustainable infrastructure.

Beyond this, expanding the international presence of Kuwaiti banks and creating partnerships in global markets can help the country reduce its dependence on domestic economic dynamics, providing a buffer against oil market downturns. As the CBK creates avenues for digital banks and we see growing interest in financial technology (fintech), there is an opportunity for banks to diversify their service offerings. Collaborations with fintech start-ups, and even the potential introduction of neobanks, can help Kuwaiti banks tap into new demographics and reduce operational costs.