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‘Banks face challenges amid growing customer needs’ – Debts rise

HE Dr Mohammad Y. Al-Hashel, Governor, CBK delivering his keynote address

KUWAIT CITY, Sept 23, (KUNA): Banking industry is encountering challenges foremost global economy’s uncertainties, financial technology revolution and meeting customers’ needs and expectations, Kuwait’s top banker said Monday. Dr Mohammad Al-Hashel, Central Bank of Kuwait’s (CBK) Governor, said the banking industry has contributed to improving economies around the globe despite crises. Al-Hashel was addressing an International Banking Conference about “Shaping the Future,” patronized by His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah and attended by Acting Prime Minister and Defense Minister Sheikh Nasser Sabah Al-Ahmad Al-Sabah.

He said the global economy was facing intensifying headwinds, and the financial industry was at a cross-roads which required exploration of new service methods. Al-Hashel, over challenges facing global economy, said the International Monetary Fund (IMF) twice lowered its global growth projections for 2019 to 3.2 percent, with developed economies expected to grow at a much slower rate of 1.9 percent.

A key driver of this slowdown is economic uncertainty brought about by rising trade tensions and protectionist policies. “If trade tensions continue, the IMF may further revise down its economic growth projections,” he said. Al-Hashel said the Bank of England estimated that a 10 percent increase in tariffs between the US and its trading partners could lead to a reduction of 2.5 percent in US GDP, and one percent in global GDP excluding the US.

The Institute of International Finance (IIF) also highlighted economic policy uncertainty as a key risk to business sentiment. The IIF estimates economic policy uncertainty in both the US and China was at a record high, and its impact is being felt in terms of reduced investments and lower consumption, noted the Governor.

International stock markets have also declined by an average of around seven percent in mid-August, he said. Al-Hashel, commenting on role of monetary policy, said economic growth in the last decade has mainly been driven by use of unconventional monetary policies. “While these policies have supported economic recovery following the global financial crisis, by ensuring a low interest rate environment, they have led to other unintended consequences like fueling debt levels across the globe. Thanks to low interest rates, global debt has ballooned to over $246 trillion, nearly 320 percent of global GDP,” he said. He said while household debt has seen a gradual increase (three percent growth per annum), the real growth in debt lies with governments, financial institutions and corporates.

Government debt has doubled since 2008, from $32 trillion to $67 trillion, especially with governments in developed economies having borrowed heavily over the past few years. Among OECD countries, Japan, Greece, Italy, Portugal, Belgium, France, Spain and the UK now all have government debt that exceeds their GDPs. The extended period of historically low interest rates has also enabled corporates from around the world to take advantage of cheap debt.

Global corporate debt has also nearly doubled over the past decade, from $37 trillion to $73 trillion. Al-Hashel said global debt over the past 20 years has grown on average by six percent annually. If these rates continue, and global GDP grows by 3.5 percent per annum as projected, “we could see global debt over the next 20 years reaching $780 trillion, or 500 percent of GDP. “This is clearly unsustainable, and requires urgent action by both governments and financial institutions,” he said, citing advanced countries that joined hands during the 2008 financial crisis to fend off depression through a well-coordinated and robust policy response.

Al-Hashel meanwhile said the latest digital technologies were transforming the economic landscape and were disrupting many traditional industries along the way. Banking is no exception, he added, where financial technology was fast-evolving and being adopted at a breathtaking pace. While banks can potentially manage onslaught by fi- nancial technology firms, the real challenge will be posed by the Big Techs. “What would happen when the likes of Facebook, Amazon, Whatsapp, and Alibaba start competing with banks to provide financial services,” he wondered.

The third challenge, said Al-Hashel, was the fact that financial industry should meet rapidly shifting customer needs and expectations. Al-Hashel said banks have battles to fight in order to added value and efficiency to their services. He said educational and supervisory institutions could have a major role in educating people about new techniques in finance, economy and business administration. Al-Hashel, on the other hand, said CBK launched a virtual supervisory environment platform, one of 48 others around the world and aimed at providing security for financial services and products.

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