What was key to your success in 2018, and how did you significantly grow your loan book?
We operate in different jurisdictions, including Kuwait, Turkey, Germany, Malaysia, Bahrain, and KSA. Throughout those locations, the growth trajectory for each economy is different. For example, in Turkey, because of the high inflation and devaluation of the currency, typically growth rates are in the high 10s or 20s. In comparison to Kuwait, with low interest rates and inflation, credit growth is more subdued and closer to 5-6%. Therefore, in Kuwait we focused specifically on infrastructure projects, primarily in the oil and gas sector in addition to financing trade-related business. We provide most of the corporates with the necessary financing requirements when they import goods. In addition, we focus on the large corporate sector that has not been banked by KFH in the past. We take market share from other banking participants, which helps the general growth of KFH on the corporate and SME sides. On the retail side, KFH enjoys likely the largest customer base in terms of numbers; we are the second-largest bank in Kuwait and the largest Islamic Bank. Our strength lies in our retail portfolio and the diversity of our deposit base. This is primarily driven by KFH being the only Islamic bank upon its establishment in 1977 up to 2003.
What factors differentiate KFH from its main competitors in Kuwait?
We have been in the market much longer than the rest and have extensive experience and know-how in Islamic banking, as we were one of the pioneers driving that movement forward. We are the only Islamic bank that offers as part of our sustainable development goals and financial inclusion pillar female-only branches to cater the needs of an important part of the population.
How is KFH adjusting its strategy to the new trend of digitalization?
The digitalization strategy started about three years ago. Each of our eight KFH business lines had its own system managing the same customer base; the same customer would reside in multiple databases without any links. We therefore changed our system into a relationship-based approach rather than a product-based one and segmented our customers based on their business activity. The objective is to better manage our customers' wealth and facilitate their transactions. This also ensures the quality of service we provide. On another level, we implemented robotics to reduce the process time for time-consuming applications such as onboarding. With our new systems, we reduced processing time by a third. That frees up time for our employees, who can be more productive and serve customers better. We also made significant improvements to our mobile banking app that cover almost 90% of the services a branch can provide. We just launched a concept called KFH Go, our new vision for what future branches should look like on a self-service basis. Those branches' footprints are about one-fifth of the existing branches' footprints, which drastically diminishes rental costs and overheads. This is a full-fledged electronic branch that does roughly 90% of what one could do in a branch. Printing of checks and instantaneous issuance of cards are services that will soon be available as well. We piloted this concept about a year and a half ago and started off with two machines. We have ordered eight more. We will have 10 electronic branches that we will be installed in 2019 and 2020 so that we can have 24/7 banking available to all our customers in key locations.
What sector will experience significant growth in 2019 and become of interest for KFH's investments?
We are looking to finance the solar farm project built by KPC. There is also the solid waste plant that we are working on and hoping to close. Finally, there are plans for new cities in the north and south that will be developed through the PPP structure. We see those projects coming to completion rather than just being tendered; once complete, the infrastructure would be ready, the city will start flourishing, and activities will begin. In the oil sector, there are about hundreds of billions dollars of projects over the next five years that involve LNG and the improvement of upstream and downstream processes through the fourth refinery, which is one of the key projects that will be introduced. However, less government bureaucracy will be the key in order to cut down on delays. Another main factor will be the urgency of completing the national plan, and as long as oil prices go above USD60, the urgency will be less. When we saw oil prices drop below USD40, the country immediately went into damage control. When oil prices broke the USD70 ceiling, everyone forgot the reforms that needed to be done; even the introduction of VAT is no longer in the agenda. Many factors will play into the equation; however, if oil prices remain high, the public sector will ask for more benefits, which might be dangerous in the long term for the economy, and the government might delay its delivery on the development plan.