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‘Branch unable to achieve the group’s goals’
KUWAIT CITY, June 4: One of the foreign banks operating in Kuwait has verbally informed the regulatory authorities that it plans to close its branch in Kuwait, reports Al-Rai daily. Reliable banking sources said the bank in question is in the process of completing what it called ‘exit procedures’ with the Central Bank of Kuwait although an official request in this regard has yet to be submitted.
The sources noted, that if a final agreement is reached between the foreign branch and the supervisory regulator to exit the local market, the deal will take between 3 and 4 years, which is the period during which the foreign bank branch must adjust its supervisory status, foremost among which is ensuring the fulfillment of all the liabilities recorded in its name, whether for customers or employees, bearing in mind that the bank may abandon its plans in this direction, and that discussions that have been open for a while may be closed due to considerations that may arise with the parent group, reports a local Arabic daily.
According to the sources, the procedures for the branch’s termination of its banking relationship locally include paying deposits to their owners, which will most likely be at the end of their terms, as well as paying dues to all related parties, and paying all salaries and entitlements of its employees, while it will be allowed to form new centers of deposits during the first period of the implementation of his decision, provided that it is of medium term, and to help it meet the regulatory liquidity ratios established by the Central Bank, while the termination of the branch’s business will precede its collection of the loans granted to its clients. The sources attributed the orientation of the foreign parent bank in this regard to the inability of its branch in Kuwait to achieve the group’s goals on most of the planned levels, foremost of which is achieving the appropriate market share and the rate of profitability that must be achieved.
The sources explained that with the high operating cost of the foreign branch in Kuwait, none of the foreign branches was ranked among the list of the top 10 banks in Kuwait, despite efforts over the past years to achieve a shift in its position, but it has not yet succeeded in increasing its returns locally, which enhances the group’s lines — the main source of income from abroad. The sources stated that some foreign branches in Kuwait maintain their positions in the local market for strategic reasons only, related to the orientations of their main groups and beyond the traditional concepts of profitability, but as a result of the changes that have occurred in the markets in the recent period, and the resulting financial need to reduce expenses and close unprofitable windows some major banks resorted to slimming their external presence.
Perhaps what reinforces this is that all branches of foreign banks in Kuwait did not take advantage of the easing of regulatory restrictions on foreign banks licensed to operate in the country, the last of which was approved by the Central Bank before March 25, 2014, allowing them to open more than one branch instead of relying on one branch, and the approval of the opening of representative offices of foreign banks, as all of these branches “except for one” have not submitted a request to open an additional branch so far. The sources stated that there is more than one reason for the low returns of foreign bank branches in the local market compared to Kuwaiti banks, and they can be summarized as follows:
■ The focus of these branches is on corporate banking services, and despite this, these branches have not succeeded in attracting a large segment of traders and their companies, even with regard to opening credits, and the reason for this is that their documentary cycle in this regard takes more time as it needs approval from the head office, unlike the Kuwaiti banks, which has a broader incentive cycle with its clients.
■ In contrast to the unproductive concentration of foreign bank branches in the corporate sector, there was an abandonment of them or a reduction in their share in the ‘individuals’ retail market as they did not compete in this sector, given that they only have one branch through which they cannot be courted with customers.
■ This branch, like many others, did not succeed in changing the form of banking competition in Kuwait, and its presence did not have repercussions in stimulating competition within the sector, due to the consequent provision of diverse and distinguished services at an appropriate cost, especially with regard to investment banking services and money management in the Middle East.
■ For the sake of objectivity, it cannot be said that the branches of foreign banks are excluded from the list of the main local competition, due to their failure in implementing the objectives set for them.
■ It is also clear that some of the major banks have declined in the driving force of their foreign branches in Kuwait, especially those that were licensed locally after the outbreak of the global financial crisis in 2008.