In 2004, BNP Paribas obtained the first license granted to an international bank from the Central Bank of Kuwait to operate in the local market, and after about 20 years it is expected to pull down the shutters.
In this regard, responsible sources revealed to Al-Rai that BNP Paribas, which was founded in 2005 in Kuwait and runs a commercial branch that provides banking services to companies and institutions, as well as investment solutions, is planning to close its headquarters in Kuwait at the end of this year.
It is likely that December 31 will be its last working day locally, according to initial expectations in this regard, noting that in addition to BNP Paribas, there is a branch of another Gulf bank that has informed the Central Bank of its desire to exit the local market as well.
BNP Paribas was preceded in the local market by Union National Bank – Kuwait Branch, which was removed from the register of banks at the Central Bank, as this came in accordance with Resolution No. 41 of 2021 and based on the approval of the Board of Directors of the Central Bank at its session held on August 23, 2021; and Articles 6 and 7 of Ministerial Resolution No. 39 of 2003 regarding the regulations for the bank registry system at the Central Bank.
The sources indicated that the Central Bank was informed some time ago of BNP Paribas’s desire to close its branch in Kuwait, explaining that the supervisory regulator tried to discuss the challenges facing the foreign branch to operate in the local market, in a move aimed at addressing them and then pushing it to abandon the closure decision, which contradicts the state’s efforts to open the way for the Kuwaiti economy in general and the banking sector in particular to attract foreign investors, especially major companies.
However, the friendly discussions in this regard showed that the decision to exit was strategic and related to profit and loss targets, as the sources attributed the parent bank’s approach in this regard to the inability of its branch in Kuwait to achieve the group’s goals on the majority of its planned levels, most notably achieving the appropriate market share. And the profitability rate to be achieved.
The Central Bank also obligated foreign banks to invest their deposits locally and not transfer them abroad and to regulate the pumping of their dollar liquidity into the group’s treasury to the lowest level, which reduced the ability of these branches to compete and benefit the parent group in terms of liquidity.
The sources pointed out that “BNP Paribas” did not send an official request to the “Central Bank” for the expected closing date, but the indication that the headquarters will be closed at the end of this year unless any procedural changes occur that impose an extension of the closing date, is reinforced by the measures taken in terms of addressing the conditions.
Employees, in addition to stopping granting loans a while ago, and re-emptying the deposit portfolio for its owners, led the accounting department to not build any new deposit centers that would affect the closing date of the headquarters.
The sources noted that, according to common procedural experiences in such cases, it takes about 3 years for BNP Paribas to fully exit the local market accounting for about 3 years, which is the period in which it is necessary to complete arranging the conditions of the deposit portfolio and return it to its owners before its scheduled dates and the same applies to the portfolio. Credit, which will take the longest period to be liquidated, is linked to the terms of the loans granted, unlike deposits that the bank can pay off early for the long terms and wait for the short ones to be resolved.
However, according to circulated “unofficial” banking information, BNP Paribas officials succeeded in the recent period in reaching an initial agreement with banks to sell its cash loan portfolios and others that usually come in the form of bank guarantees, explaining that what facilitates this deal are the loans of foreign branches in general, which are based Mainly to finance companies and not individuals as local banks target.
According to the traditional scenario, where financial centers process all transactions recorded at the bank branch for periods longer than the closing date, communication in the future with BNP Paribas clients will be from outside its usual headquarters in Kuwait, as it will be through the parent group’s various channels and from any branch of the bank. In the region, as for the employees, the sources only coordinated with them to pay all their dues and terminate 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:
1 – 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.
2 – 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.
3 – 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, 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.
4 – 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.”
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