Islamic Finance 

Kuwait Financial System Overview

| 29 August, 2018 | General
Kuwait Financial System Overview
 

This article is an extract from the Islamic Finance in Kuwait: Broadening Horizons report.

The report can be downloaded from HERE.

 

Fifty Years of Solid History

The CBK, which commenced operations in 1969, is one of the oldest governing bodies in the  Middle East. Its astute leadership throughout its 50-year history has steered the country’s economy through myriad global crises that have shaken the Middle East. As a regulator, the CBK governs Kuwait’s domestic banks, foreign banks operating in the country, finance companies, and exchange companies. Over the past decade, in response to the global financial crisis and volatile oil prices, the CBK has implemented a comprehensive set of macro-prudential measures to minimise systemic risks in the banking system, adeptly keeping a balance between pre-empting a build-up in risks and stifling credit growth.

A New Regulator is Born

Having adroitly governed Kuwait’s stock market since its inception in 1977, the CBK has handed over regulation of the bourse to the Capital Markets Authority, which was established in 2011. The CMA also oversees Kuwait’s myriad investment companies and investment funds.

Financial regulation is constantly evolving in response to new technologies and trends. In 2015, Kuwait’s laws were amended to strengthen the CMA’s financial and administrative independence and enhance its ability to regulate capital markets with complete transparency and neutrality.

Boursa Kuwait

Kuwait’s stock market is one of the oldest in the Gulf, although its extensive history has proved no barrier to reform and improvement. The CMA in 2014 founded Boursa Kuwait, a new company that took over operations of the Kuwait Stock Exchange in 2016 and which plans to go public in early 2019.

Nearly 180 companies are currently listed on the bourse. In 2017, Kuwait was upgraded to emerging market status by FTSE Russell after the stock exchange and CMA instigated major reforms to improve the trade settlement cycle and custodial services, better manage failed trades, and boost market liquidity.

“The reclassification of Kuwait is in recognition of the recent market enhancements.” FTSE Russell said in a statement. In 2017, Kuwait was the Gulf’s best performing bourse, with a rise of 14.1%. Market capitalization was $92 billion as of April 3.

Healthy Competition

Kuwait’s vibrant banking sector sees conventional and Islamic, foreign and domestic banks compete for retail and corporate customers. The country’s 23 banks — 11 domestic, of which five are fully Sharia-compliant, and 12 foreign — have been steadily swelling their balance sheets despite bearish oil markets. Combined, banks’ assets totaled $189.6 billion at the end of 2017, up 23% on 2013’s $154.4 billion.

All of Kuwait’s domestic banks are listed on Boursa Kuwait and these publicly traded lenders had a combined market capitalisation of $40.6 billion as of April 3. That is about half the total value of the stock exchange, demonstrating the outsized importance of banking to Kuwait’s economy. Biggest banks include National Bank of Kuwait, Kuwait Finance House, and Commercial Bank of Kuwait.

Investment Companies and Financial Services

While banks dominate Kuwait’s financial industry, the sector is also home to a thriving non-banking segment. The country’s 29 investment companies had assets totaling $10.8 billion at the end of 2017, while their 39 Sharia-compliant counterparts were even bigger, with assets valued at $13.9 billion.

Financial services are in fact the fourth-largest sector on Boursa Kuwait — after banks, industrials and telecommunications — with a market capitalization of $8.0 billion as of April 3, 2018.

CBK Country Report_Kuwait Islamic finance assets

Kuwait Investment Authority (KIA)

Although it does not publicly disclose its investments, Kuwait’s sovereign wealth fund, Kuwait Investment Authority (KIA), is widely thought to be among the largest in the world, and its vast

array of carefully managed assets anchor the government’s finances. The KIA manages the Kuwait General Reserve Fund and the Kuwait Fund for Future Generations, with the latter receiving 10% of state oil revenues.

Reducing Risk

Kuwait’s fledgling Sharia-compliant insurance sector is developing, although it represents below 1% of market share.

 

Read the full Islamic Finance in Kuwait - Broadening Horizons report

Report: Islamic Finance in Kuwait: Broadening Horizons

© Thomson Reuters 2018 All rights reserved

Read the full Islamic Finance in Kuwait - Broadening Horizons report.

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