The BNP Paribas was the first international bank to be granted a license by the Central Bank of Kuwait in 2004 to operate in the local market. It was established in 2005 and operates a commercial branch that provides banking services to companies and institutions, as well as investment solutions.
However, responsible sources told Al-Rai daily that the French bank has informed the regulators of its desire to withdraw from Kuwait, and that it is preparing with the Central Bank of Kuwait to arrange procedures for its exit during the next period of time, which will be determined according to the withdrawal plan that it will present and be convinced by the regulator.
The sources indicated that the Central Bank discussed with BNP Paribas officials the reasons for their decision and whether it was based on considerations related to the local market, and motivated them to take this decision, noting that all statements received in this regard from the French group indicate that the withdrawal of its branch from Kuwait comes in implementation of the parent group’s policy, which seeks a new repositioning in foreign markets.
The sources stated that the move of the group in terms of its previous plans for expansion and presence in Kuwait is consistent with its objectives for the next stage in order to reduce expenses in light of the decline in operating returns and the high cost of funds, which greatly reduced the rate of profitability that must be achieved, revealing that the group’s withdrawals are not limited to Kuwait but include other markets and coincides with its plans for the next stage.
It is noteworthy that in Kuwait there are 12 licensed branches of foreign banks, and that in 2005, the Central Bank of Kuwait recorded the first foreign bank to open a branch in the local market, in a step that was highly relied upon in opening the way for the Kuwaiti economy in general and the banking sector in particular, which witnessed Several developments in recent years.
The sources indicated that the financial complications that affected most of the markets in the world prompted global banking groups to restructure their operations in foreign markets, motivated by the fact that the current and future period does not bear free expansion or waiting for results for longer periods, indicating that a branch of a Gulf bank operating in Kuwait reduces its employees for some time, which raises the question of the possibility of joining BNP Paribas
The sources noted that the policy makers directed BNP Paribas to conclude that the survival of their branch in Kuwait does not enhance the group’s main lines in terms of its achieved returns, explaining that some foreign branches in Kuwait were maintaining their positions locally for strategic reasons only, related to the directions of their main aggregates and exceeding traditional concepts of profitability, however, as a result of the changes that occurred in the markets, and the resulting financial need to reduce expenses and close unprofitable windows, motivate some major banks to rationalize their external presence.
As a banker, BNP Paribas is not the first foreign branch to plan to withdraw from Kuwait, as it was preceded by a branch of a Gulf bank, which last year discussed with the Central Bank a scenario for its withdrawal from the local market.
In general, there is more than one consideration fueling the withdrawal of foreign banks from Kuwait, perhaps the most prominent of which are:
— It is no secret that the operating branches of foreign banks operate locally through a single headquarters, which makes them unable to compete with Kuwaiti banks to attract individual retail customers, whether in terms of their deposits or financing, which greatly weakens their operational activity, their returns and liquidity flows, and then a decline Their appetite to compete and survive locally.
— As a result of the previous reason, the focus of foreign branches is on corporate banking services, and despite that, they did not succeed in attracting a segment of large or medium weight merchants and their companies, even with regard to opening credits, which weakened the lines of credit with large companies, and therefore their recorded returns did not cover The aim is to continue the presence of its branch locally.
— Local banks enjoy an additional attraction for customers compared to foreign branches related to the faster and easier documentary cycle for Kuwaiti banks, which takes more time for foreign branches, as it needs approval from the head office.
— The strength of Kuwaiti banks in terms of capital and spread, and in terms of the historical relationship with customers, and understanding their requirements and aspirations more, made the foreign branches unable to change the form of banking competition in Kuwait, and their presence had no repercussions in stimulating competition within the sector.
— Local banks’ strong and rapid move towards digital transformation, with their high spending on technology, made local banks proactive in providing diverse and distinguished services at an appropriate cost.
— Several local banks succeeded in overcoming the complex of the greater capacity of foreign banks for investment banking services and private wealth management. Nevertheless, foreign branches lost the advantage of easy direct contact with the rich in Kuwait, or at least a large segment of them, after attracting them from local banks, which reflected positively on market shares. Which changed a lot in favor of local banks.
— Since the foreign branches obtained their licenses to operate locally after the outbreak of the global financial crisis in 2008, the markets have been facing one crisis after another, the latest of which was the Ukrainian-Russian war and before that the Corona pandemic, all of which were crises that increased risk rates and raised the need to reduce optimistic exposure.
— The weakness of development projects in Kuwait, the ambiguity of the economic scene locally and the successive political tensions in the past years prompted foreign banks to prefer to stop their activities locally on the grounds that the future is not clear with certainty.
— The boom in development in some of the neighboring Gulf markets, especially in Saudi Arabia, prompts international banks and companies to prefer concentration in them over Kuwait, driven by the operational plans of these countries, which have already begun to be implemented on the ground.
— With the concentration of the majority of local deposits in Kuwaiti banks, and the high cost of funds after the increase in interest rates, it is difficult to maintain control liquidity ratios and compensate for operational weakness, at a time when the “Central” obliges foreign banks to invest their deposits locally and not transfer them abroad, and organize the injection of their dollar liquidity into the group’s treasury to the lowest level, which reduces its ability to compete, according to the opinion of officials in these branches.
The Central Bank is trying to cling to foreign branches by facilitating their regulatory requirements
Sources reported that the Central Bank is keen on the survival of foreign banks operating in Kuwait, and that it is trying to compensate them for the decline in their operating revenues locally by granting them stimulating facilities for their survival, such as easing the regulatory restrictions imposed on them, on top of which are liquidity ratios compared to Kuwaiti banks, and not obliging them to raise their capital.
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