With an economic slowdown driven by sluggish global economic activity and cautious oil production following tighter OPEC+ quotas, monetary policy tightening and government subsidies in Kuwait eased inflationary pressures during a challenging 2023. It is against this backdrop that Al Rajhi Bank – Kuwait (ARBK), the sole foreign Islamic Bank operating in the Gulf State, saw a 10% YoY growth in total assets, with both fee income and yield income increasing YoY by an impressive 209% and 37% respectively. The overseas branch also saw an improvement of 14 basis points in its non-performing loan (NPL) ratio from last year.

While Fitch Ratings affirmed a credit rating of AA- for Kuwait with a stable outlook, the overall financial performance of the Kuwait branch in 2023 was strongly impacted by sequential discount rate hikes by the Kuwait Central Bank (CBK), going from 1.5% in March 2022 to 4.25% in July 2023. The banking sector’s credit growth has been moderate, hindered by the higher interest rates and modest real GDP growth of 0.1%. Borrowings surged at the end of 2022 to meet regulatory ratios as CBK tightened monetary policies and withdrew its stimulus package at the onset of the fiscal year.

Remaining customer-centric amidst challenges

The overseas branch faced a number of challenges across its various business verticals during the year in review; prudent budgeting across the Kuwait branch resulted in limited marketing and technology enhancements across the Retail business, which also experienced aggressive competition from other local banks. The growing Corporate Business portfolio was impacted by the significant increase in funding rates that deterred the market from lending, and the resulting increase in the cost of funds also contributed to reducing profit margins.

ARBK addressed these challenges by executing a number of strategic marketing promotions across existing channels throughout the year. The Bank’s card-less payment offering via smart wristwatches was promoted in collaboration with luxury brands Swatch, Garmin and Fitbit. Promotions were carried out for home financing as well as 12-month financing deferments. ARBK also participated in a number of strategic sales events including large-scale exhibitions such as the Kuwait Car Exhibition and the Gulf State’s largest housing fair – Baiti Exhibition, targeting specific customer segments based on geographic distribution as well as financial needs and lifestyles. The sales teams carried out site visits to private companies as well as to government institutions, facilitating direct engagement with potential customers to understand and address evolving customer needs. The branch also made a concerted effort to elevate its financing and investment portfolio to offset the impact of rising cost of funds.

Customer engagement was driven by monthly customer satisfaction surveys conducted by the overseas branch, where customer suggestions and inputs are thoroughly evaluated, with necessary changes or improvements carried out on products and services to better address customer demands. The overseas branch also launched its official Instagram account in December 2023, expanding its digital reach and penetrating a younger, more digitally savvy target market.

Future-ready products and services

The reporting period saw ARBK collaborate with the Al Rajhi Bank Head Office in KSA; successfully participating in major syndication deals with the government and a number of financial institutions (FI) for a total of USD 150 Mn., while also investing in Sukuk and trade finance products in the range of USD 140 Mn. Other syndication and trade finance products included Letters of Credit (LC) confirmations, back-to-back Letters of Guarantee (LG), which were complemented by cross-border dealings with the Kingdom of Saudi Arabia (KSA) backed by Al Rajhi Bank’s growing FI network.

New fraud rules were applied for card transactions in 2023, with a number of feature and service enhancements for card holders; instant issuance of new cards was facilitated, tokenised debit and credit card transactions were enabled through smart watches. Additionally, new PIN requests for debit and credit cards could be submitted through any of the four in-house ATMs and more than 250 collaborating Al Rajhi ATMs located across Kuwait.

The Mobile App user interface was updated with a number of usability enhancements in 2023, including biometric authentication enabled credit card transfers, thereby enhancing the quality of service, improving digital accessibility, and enriching the user experience.

Imbuing a compliance culture

A number of regulatory updates as per the requirement of CBK were carried out during the reporting period to strengthen compliance, with zero compromise to customer experience and agility. These included compatibility upgrades with Kuwait’s national electronic payment gateway K-Net, with the national Credit Information Network Ci-Net, the Kuwait Electronic Cheque Clearing System (KECCS), and an upgrade to the GCC Real Time Gross Settlement (RTGS) system - the region’s automated quick payment transfer system for cross-border payments. The reporting period also saw the Kuwait branch introduce real-time transaction screening with FIRCO, a powerful screening solution that has enabled ARBK to meet more intense regulatory screening requirements. Branch teller computers were also upgraded with dual authentication for optimal data security.

For the benefit of customers, the Bank followed CBK regulatory requirements by creating awareness among clients on One-Time Passcodes (OTP), and by adding merchant/sub-merchant names in SMS transaction alerts for customers. Cardholder names and reason for transaction have also been added as per the CBK mandate.

Upgrading and optimising resources

A number of technology infrastructure upgrades within budgetary restrictions were carried out by the Kuwait branch in 2023, including the migration of its electronic payment system to ACI Worldwide’s BASE24-eps product, which enabled the branch to leverage the latest in payment engine technology and offer robust features and functions to customers.

The overseas branch also strengthened its internal legal function during the year by recruiting a dedicated legal professional, to coordinate between Al Rajhi Bank’s Head Office in KSA, to better manage ARBK’s relationship with external law firms, and to provide the necessary legal support for internal departments and functions.

ARBK maintained an overall Kuwaitisation ratio of 71.2% for the year in review, and remained committed to achieving the nationally mandated ratio of over 70% for upper and middle management in the banking sector by reaching a ratio of 70%+ by the end of the reporting period.