Exiting The Kuwaiti Market Is Being Planned By A Foreign Bank

Kuwait's Central Bank has been informed verbally that one of the foreign banks operating there wishes to close its branch, and it is currently undergoing what it calls 'exit procedures'.

According to sources, the bank has not made any formal request regarding exiting the local market, but should there be an agreement between the foreign branch and the supervisory regulator, the deal will take three to four years, due to the period needed to adjust the supervisory status of the foreign bank branch, including the satisfaction of all liabilities recorded in its name, both for customers and employees, but considering the possibility that the bank may abandon its plans in this direction, as well as that discussions that have been ongoing for some time may be closed, according to local Arabic media.

According to sources, payment of deposits to branch owners is part of the process for terminating its banking relationship with its local partner, and also paying dues to all related parties, employees' salaries and other entitlements, This branch will be allowed to place new deposits during the first year of the implementation of the decision, as long as they are medium-term and ensure they meet the Central Bank's liquidity requirements, while the collection of loans granted to its clients will precede termination of the branch's operations.

Apparently, the foreign parent bank was orienting toward this direction due to the inability of its Kuwaiti branch to achieve the goals of the group on most of the planned levels, foremost among them achieving a sufficient market share and profitability rate.

In addition to the high operating costs of foreign branches in Kuwait, none of them ranked among the top 10 banks in Kuwait over the past years, despite efforts to achieve a change in their standing, but they have not yet succeeded in increasing their returns domestically, which increases the group's income lines.

Some foreign banks kept their outward presence in Kuwait for purely strategic reasons, and not for financial reasons, as the performance of their main groups outweighed the need to reduce expenses and close unprofitable windows. But with recent changes in the market, and the resulting financial need to cut expenses and close unprofitable windows, some major banks decided to slim down their external presence.

The fact that all branches of foreign banks in Kuwait failed to utilize the relaxation of regulatory restrictions on foreign banks that took effect before March 25, 2014 when the Central Bank approved the last application, opening more than one branch instead of relying on a single branch, and authorizing the opening of foreign bank branches, as all of the other branches were yet to submit a request for another branch.

Foreign bank branches in Kuwait have low returns compared to Kuwaiti banks for a number of reasons, which can be summarized as follows:

1 - It seems that even though these branches focus on corporate banking services, they have not been successful in attracting traders, businesses, and their clients to open credits with them, and this is due to the long documentary cycle, as it must be approved by the head office, unlike Kuwaiti banks which have a longer incentive cycle with their customers.

2 - The establishment of foreign bank branches in the corporate sector has led to an unproductive concentration, but they have been abandoned or reduced in their share in the 'individuals' market because they are not competing for customers there; having only one branch, they are not able to reach out to them.

3 - In Kuwait, the presence of this branch, like many others, did not change the landscape of the banking sector, and its distinctiveness did not stimulate competition within the sector since a variety of services were available at an appropriate cost, especially in the fields of investment banking and money management.

4 - Due to their failure to meet their goals, the branches of foreign banks cannot be excluded from the list of the main local competitors for the sake of objectivity.

5 - It is also evident that some major banks have reduced their driving force in their Kuwaiti branches after the global financial crisis of 2008. This is especially true for those that were licensed locally after the global financial crisis of 2008.

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