Al Ahli Bank of Kuwait

Fitch believes that the lack of political consensus in Kuwait creates some inertia in the system which ultimately hampers economic and credit growth, which in turn is delaying the banking sector’s recovery. What is your take on this issue?

The most important thing to discuss in Kuwait is development and infrastructure. We were all hopeful in 2008 and 2009 that mega-projects would come to life and the government should have released them, but that did not happen. Those consequences are also related to political issues between the Parliament and the government. We hope that this will change in the future since we have an election coming up, and we hope that the new faces in parliament will push for large infrastructure projects.

What is the outlook for Non-Performing Loans in Kuwait and is the crisis slowly creeping back?

The banks, with the help of the Central Bank of Kuwait, have overcome this problem. Ratios have dropped in 2011, as there has been a lot of development and improvement. Al Ahli Bank of Kuwait is known to be a very conservative bank, and this has been reflected in its Non-Performing Loans, Al Ahli Bank of Kuwait is having one of the lowest ratios in Kuwait.

Similar to other local banks, Al Ahli Bank of Kuwait ‘s loan book is highly concentrated by borrower, and Al Ahli Bank of Kuwait is exposed directly and indirectly to the fragile real estate sector and local stock market. Fitch believes that profitability could remain pressured in the short-term by high loan impairment charges. What remains your greatest challenge, and how are you going to mitigate risks?

The Al Ahli Bank of Kuwait has a major opportunity to lend on mega-projects. There is risk involved but it is mitigated on the borrowers and how they perform. Usually we pursue the well-known contracting companies that have a good performance track record and healthy cash flow.

Al Ahli Bank of Kuwait has two branches in the UAE, one in Abu Dhabi, the other in Dubai. Al Ahli Bank of Kuwait is financing many projects of Emirati and Kuwaiti companies. In Abu Dhabi we opened in 2009 which was at the beginning of the crisis. The branch managed to operate well, and we financed government projects there. As such, it is well-diversified, and Al Ahli Bank of Kuwait concentrates on government’s projects in Kuwait as well as in the UAE.

Credit growth slowed to an anemic 1.7 per cent last year…

I agree with you. If you look at Al Ahli Bank of Kuwait portfolio in 2010 compared to 2011, it is almost stagnant, but we are now concentrating on high return loans with good cash flow.

Where do you see the biggest opportunities at the moment?

I think for all banks the concentration is going to be on large government projects. Al Ahli Bank of Kuwait is expanding its retail chain, we have around 30 branches including the two branches in the UAE, and we plan on further expansion with four new branches of Al Ahli Bank in Kuwait during 2012.

We also focus on return services. We have a couple of competitive credit cards to attract customers. Al Ahli Bank of Kuwait’s alliance with the Skywards Miles program linked to the Emirates airlines has proven to be an attractive and successful relationship.

You mentioned the economic development plan adopted by the government in 2010 which has been postponed several times.

The elections in Kuwait are going to take place on the second of February, and I think the outcome will help. The agenda in the parliament will be to push for these mega-projects. The perception is that the government is not pushing. In the 60’s and 70’s, Kuwait was the pearl of the Gulf region, but it isn’t anymore. Other GCC states have taken over, and now Kuwait wants to relinquish that position, hopefully this will be soon.

When do you expect the full recovery of the banking sector in Kuwait?

It largely depends on the economy and the current situation in Kuwait. If the government releases all these projects in Kuwait, I think you will see a major change reflected on the banking sector. I think these projects will take place in 2012 and its effects should be reflected by no later than 2013.

What is the main challenge to the banking sector in Kuwait?

The lack of opportunities is a major issue. The whole industry is willing to lend but only to companies with good performance cash flow and a track record of big projects, either government or private sector. Again, you have to look into the risk aspect as well.

The banking sector in Kuwait has been conservative, especially after the 2008 crisis. I think we are ready to lend but there are no opportunities for the time being. There are some small projects with the government but they didn’t fulfill the expectations of the banking sector.

What are your expectations for Al Ahli Bank of Kuwait’s performance in 2012? Are you aiming to boost revenue or cut expenses?

For 2012, we have a good plan to expand in Kuwait and the UAE, as I mentioned before. I expect that 2012 will be much better than 2011. Al Ahli Bank of Kuwait aims to manage its assets with efficiency for revenue and to cut its expenses as well.

With the vague ownership structure in Kuwait, many companies are inter-linked. Do you see this as getting in the way of doing business in Kuwait – as an obstacle to performance?

I think the reference here is to some investment companies and usually we stay away from this particular sector. Those companies were under pressure to restructure. Most banks will probably stay away from this sector for a while until we see what the outcome of these companies will be.

Is the Central Bank of Kuwait doing enough to support the investment sector?

The Central Bank of Kuwait is the regulator. The Ministry of Commerce and the Ministry of Finance want to support these companies, but again, these are investment companies and they have shareholders. The main support of these companies should come from the shareholders and markets, if they are willing to increase the capital of these companies.

Support doesn’t depend entirely on the government; this is the private sector. Some of these companies haven’t learnt the lesson, instead they try to survive on their own which I don’t think will fly. Lots of them have recognized the problem and have increased their capital or structured an agreement with the other banks, and this will also help. This sector still remains in turbulence and it will take time for them to clear up all the issues.

With many other banks also expanding into retail, do you see increasing competition in the future?

Increasing salaries in Kuwait will attract banks towards the retail sector, and I think this will be a challenge for banks in 2012 to attract more retail customers than others. Good customer care and the quality of service they provide will be the determinants of success.