Kuwait International Bank (KIB) has successfully completed four decades of relentless efforts to become a pioneer of innovation and growth in the banking industry. In 2007, KIB became an exclusive Islamic bank and in just seven years it was recognised as the Best Islamic Bank, Kuwait in both 2014 and 2015 as part of the World Finance Islamic Finance Awards.

We spoke to Sheikh Mohammed Al Jarrah Al Sabah, the Chairman of KIB, about the bank’s new business strategy, what impact pending regulations will have on banking sector and the growing competition in the Islamic finance industry.

KIB is developing an extended strategy for 2015-20. How do you envision the growth of the bank as a result?
The KIB executive management team developed a five-year strategy for 2015-2020 in collaboration with a top-tier global management-consulting firm. The new strategy sets high aspirations for the bank in terms of market growth, customer partnerships and employee propositions. Our aim is to position KIB as the Islamic bank of choice in Kuwait. KIB’s new strategy is customer centric and involves a significant change in service quality and delivery of our banking and advisory services. Together with our clients, we will seek to play a key role in contributing to the economic development of our beloved country.

KIB has indeed reached a pivotal crossroad in its history. Prior to the initiation of our new strategy development and implementation venture, we thoroughly restructured our core departments and launched new businesses. In addition, we diversified our revenue sources and strengthened our positioning on core customer segments. Our balance sheet is now stronger than ever and we are proud to announce that KIB is ready to leap to new to its true potential.

We are truly optimistic about our potential to achieve strong results in 2015 and to grow significantly over the next five years. In spite of uncertain economic outlooks in local and regional markets, we have achieved strong results in the first three quarters of 2015 and are confident that the bank will be able to weather any challenges it encounters. This initial testimony of the new face of KIB is a glimpse of what is yet to come. We are very excited to share this journey with our valued employees and customers and look forward to continue on winning plaudits in the Islamic banking industry and beyond.

Have the Islamic banks recovered from the financial crisis once and for all?
Yes, to a great extent. Several factors helped Islamic banks in warding off vulnerability from the global financial crisis such as their modus operandi, the robust regulatory systems in Kuwait and the efficient leadership of the Central Bank in executing effective recovery measures. The best international regulatory practices were also implemented to accelerate the process of recovery.

KIB, thanks to its management, the staff and the various committees for their sincere and concerted efforts, has brought down the alarming proportion of non-performing loans from 21.4 percent in 2014 to 4.42 percent in the first half of 2015 (against 5.6 percent in the first half of 2014). In addition we increased the provisions and collaterals ratio to 195 percent in mid-2015 compared to 192 percent in the previous year.

Does KIB intend to arrange a syndicated loan with other banks or participate in any development projects?
As for syndicated loans, KIB is exploring new opportunities in the market. As for our participation in development projects in the country, particularly in the oil sector, we are seriously pursuing the financing of a number of development projects that conform to bank’s policy, either solely or through alliances with other banks, for instance the desalination plant project, all in full conformity with the provisions of Islamic sharia.

In fact, ever since its inception, KIB has contributed to the economic growth in the state, starting with the construction sector to establishing specialised divisions supporting and financing different economic sectors. This includes participation in contracting projects, commercial activities, financing SMEs (as they are deemed to be the milestones for diversifying the economy), increasing the private sector contribution in economic growth, improving the efficiency of labour market, and encouraging youth innovation.

What impact will Basel III have on KIB’s operations?
We are well aware of the importance of complying with the regulations, which enhance the banking system’s efficiency and ability to actively respond to any present or future financial development – especially in a way that improves the local banks’ capability to manage risks and protect the stakeholders’ rights via enhancing transparency among banking institutions. In this context we have been always keen on applying the central bank’s regulations pertinent to Basel III. KIB’s financial indices, particularly those related to Basel III regulations, show higher figures against the regulatory requirements – KIB’s capital adequacy ratio exceeded 24 percent and the leverage ratio exceeded 11 percent at the end of the first half of 2015.

Are the regulations imposed by the Central Bank of Kuwait necessary?
I have no doubt that they are indeed necessary. The repercussions of the global economic crisis entail a more vivid regulatory role over the financial institutions all over the world. We at KIB have always been keen on complying with all regulations and roles rendered by the central bank and other regulatory bodies in Kuwait as we believe in the importance of these regulations in enhancing the stability of the banking sector. In this context I should praise the pioneering and proactive role of the central bank of Kuwait under the guidance of Governor Dr Mohammad Y Al-Hashel.

In your annual report, you mentioned the bank intends to focus on the retail sector. What are KIB’s plans in this regard?
At KIB we have felt the need to pay special attention to the retail sector as it represents the milestone between the bank and its customer base. So we give special attention at different levels, including but not limited to, the expansion of the branch network, which will total 30 branches by the end of this year.

This is to provide our quality services to all customers throughout all governorates in the state. Naturally, a similar increase in the number of ATMs, increasing POS terminals, improving the quality of e-services, and social media channels, have all been well-defined to achieve our objectives. These factors, we believe, will create more appropriate and modern Islamic financial products on time. We also plan to classify the customers as per their particular needs and preferences so as to reach out and fulfil all our customers’ diverse requirements.

More banks are emerging in the Islamic banking local market – your comments?
KIB expects an increased demand on the Islamic banking services in the coming years, as shown by a number of recent related studies all around the world. However we still believe that the local Islamic banking market is currently saturated and that local Islamic banks are capable of providing sufficient and adequate services to their customers.

Do you think that the growth of Islamic banks will affect conventional banks?
Basically, Islamic and conventional banks vary in their method of operation and their objectives. Both models managed to achieve sustainable levels of returns and growth in the past few years. This, of course, places the banking sector as one of the major pillars of the Kuwait economy. All banks, whether of Islamic or conventional nature, are competing to serve their customers.

Nevertheless, at KIB we hope to have a greater demand for our Islamic banking products and services in the future. We are also aware of the urgency in the Islamic banking industry, which urges us to create such products and services in order to meet our customers’ current and future expectations.

What are the challenges facing the Islamic banking industry in Kuwait and the region as a whole?
Under the present circumstances, the Islamic banking sector faces several challenges. First of all, it has to introduce new financial products and services. Next, their legitimacy as per the Islamic sharia should be ascertained and they should be able to attract more clients.

Allowing conventional banks to diversify their business model to include sharia-compliant services is also deemed to be another challenge to Islamic banks. A further challenge is the ever-changing regulatory requirements, a prompt response to global and local economic developments.

The increase in banking institutions has resulted in sharp competition against limited investment opportunities and there is a notable absence of catalysts that will accelerate the growth of private sector’s contribution to the local economy, which requires an ongoing process of enhancement to the institutions’ products and services suite.

In spite of the impending challenges encountering the Islamic banking industry, we, with our optimistic outlook, work hard on experimenting, analysing and scrutinising the core issues to overcome these challenges and enhance our capability to compete in the local market so as to continuously provide distinguished services to our customers