In 2004, BNP Paribas became the first international bank to receive a license from the Central Bank of Kuwait to operate in the local market. However, after nearly two decades since its establishment in Kuwait, it is anticipated that the bank is preparing to exit this market.
Reliable sources told Al-Rai daily that BNP Paribas, which was established in Kuwait in 2005 and has been operating a commercial branch providing banking services to companies and institutions, as well as offering investment solutions, is expected to close its business in Kuwait on December 31 (its final working day in the local market).
Notably, another bank from a Gulf state has also informed the Central Bank of its intention to exit the Kuwaiti market.
Prior to BNP Paribas, Union National Bank – Kuwait Branch had exited the local market, following Resolution No. 41 of 2021 and approval from the Central Bank’s Board of Directors during their session on August 23, 2021.
This move was in compliance with Articles 6 and 7 of Ministerial Resolution No. 39 of 2003 regarding regulations for the bank registry system at the Central Bank.
The sources indicate that the Central Bank had been informed of BNP Paribas’s intention to close its Kuwait branch some time ago. The regulatory body attempted to engage in discussions to address the challenges the foreign bank branch faced in the local market, in the hopes of preventing the closure.
This was seen as essential to support the government’s efforts to encourage foreign investment, especially from major companies, in the Kuwaiti economy and the banking sector.
However, discussions revealed that the decision to exit was strategic and related to profitability targets. It was primarily driven by the parent bank’s perception that its Kuwait branch was unable to achieve the group’s objectives, particularly in terms of gaining a significant market share and reaching profitability targets.
The Central Bank also imposed obligations on foreign banks, requiring them to invest their deposits locally and regulate the transfer of their dollar liquidity to the parent group, which hampered their ability to compete and benefit the parent group in terms of liquidity.
As a result, discussions shifted to the second stage, which involves arranging the exit procedures with the Central Bank in the coming period.
While BNP Paribas has not officially requested a closing date from the Central Bank, indications suggest that the headquarters will cease operations at the end of this year unless procedural changes necessitate an extension.
Several measures have reinforced this timeline, such as addressing employee conditions, ceasing loan disbursements, and returning deposit portfolios to their owners. These actions have not led to the establishment of new deposit centers that could affect the closure date of the headquarters.
Typically, in cases like this, it takes about three years for a bank like BNP Paribas to complete its exit from the local market. This duration is needed to address deposit portfolio conditions and return them to their owners before their scheduled dates.
The same applies to the credit portfolio, which will take longer to liquidate due to its association with the terms of the loans granted. Unlike deposits, banks can pay off long-term loans early and wait for the resolution of short-term ones.
However, unofficial banking information suggests that BNP Paribas officials have reached an initial agreement with banks to sell their cash loan portfolios and other assets typically in the form of bank guarantees. This is facilitated by the fact that these loans from foreign branches primarily finance companies rather than individuals, as local banks tend to do.
Following the closure, communication with BNP Paribas clients will be conducted from outside its regular Kuwait headquarters.
It will be facilitated through the various channels of the parent group, accessible from any branch of the bank in the region. As for employees, sources indicate that they have been coordinated with to ensure the settlement of all their dues and the termination of their contracts.
In general, there are a set of challenges that limit the ability of foreign bank branches to compete locally, which can be summarized as follows:
— High operational costs, as foreign branches find themselves required to pay larger operating amounts in exchange for lower operating revenues, due to the narrow volume of business that they control locally and are usually confined to. In lending to companies and granting bank guarantees.
If some foreign branches in Kuwait maintain their positions in the local market better than other branches, this is due to strategic reasons only, related to the trends of their main groups and their overcoming narrow traditional profitability considerations for others related to broader gains, including the external expansion of the parent group.
— The complications that have occurred in all markets in the recent period have reinforced the need for all major companies to reduce their expenses, including closing some unprofitable external windows, or reducing their momentum.
— Despite the easing of regulatory restrictions on foreign banks licensed to operate in the country, especially on opening credits, the most recent of which was approved by the Central Bank before March 25, 2014 by allowing them to open more than one branch instead of relying on one branch, and approving the opening of representative offices for foreign banks.
However, all branches of foreign banks in Kuwait (except one) did not take advantage of these mitigations and are submitting a request to open an additional branch.
The main reason for this is due to the concentration of its business on specific banking businesses, due to its inability to compete in the retail “individual” market due to the spread of local banks in all regions of Kuwait, and its strong capital buffers, high financing capabilities, widespread branches, and historical relationship with customers, all of which are strength considerations that support Its engines are to attract individuals through lending and deposits, in addition to its financing portfolios acquiring a segment of major companies and major development projects.
— The documentary cycle for clients in foreign bank branches is longer, as opening credits and granting new loans require approval from the head office, unlike the Kuwaiti Bank, which has a broader incentive cycle with its clients.
After the exit of “BNP Paribas” from the local market, 10 licensed branches of foreign banks will remain in Kuwait, and the list includes “Bahrain and Kuwait,” “HSBC,” “First Abu Dhabi,” in addition to “Citi.” Bank,” “Qatar National Bank,” “Doha,” “Mashreq,” “Al Rajhi,” “Muscat,” and “China Industrial and Commercial Bank.”