Al-Bahar: Banks are a bright spot in the economy in the middle of the crisis

• Banks’ responsibility to protect the environment goes beyond their operational practices to include financing environmental impact
• Banks need to evaluate the changing climate’s impact on their operations and the financial risk embedded in their balance sheets
• The Central Bank’s efforts built a robust banking system with strong capitalization, ample liquidity and solid asset quality
• Economic diversification is only attainable through increased reliance on the private sector in driving growth and job creation
• Structural imbalances in the economy limit the role of banks to lead a long-term sustainable economic development
• The crisis created long-term implications that were worsened by the economy’s dependence on oil
• The developments in the banking industry increase the challenges of digital transformation, customer protection and combating cybercrime

Mrs. Shaikha Al-Bahar, the Deputy Chief Executive Officer of National Bank of Kuwait (NBK) Group said that the Kuwait economy faces unprecedented crisis that created long-term implications, noting that the structural imbalances in Kuwait’s economy and its high dependence on oil revenues have worsened these implications.

In her participation in the symposium unveiling the Financial Satiability Report 2020 organized by the Central Bank of Kuwait, Al-Bahar indicated that the fallout of the crisis in the Kuwaiti economy was clearly seen in the recent S&P sovereign downgrade report, where the agency states that Kuwait’s 2020/2021 government deficit could have reached 33% of GDP, the highest ratio of all sovereigns they rate globally.

In the middle of all these implications of the pandemic, the banking system remains the bright spot in the Kuwaiti economy thanks to CBK efforts over the years to build a robust system with exceptionally strong capitalization, ample liquidity and solid asset quality trends, Al-Bahar added.

Al-Bahar pointed out that since the financial crisis in 2008 and following the challenges we faced in 2009, the banking system in Kuwait recovered in relatively a short period of time. And despite the regional and international challenges over that past decade, Kuwaiti banks stood up very well and developed significantly and are well-position today to lead an economic recovery.

Al-Bahar referred to the S&P report that, despite all the negativity around the downgrade of Kuwait’s sovereign ratings, clearly indicated how strong the banking system was going into the pandemic and how the regulator’s prompt actions to implement support measure have cushioned the banks and positioned them well to support the local economy.

Banks still have many challenges ahead, as the pandemic and its implications on the economy are not over yet. Additionally, the economic imbalances will continue to put pressure on economic growth and limit the role of banking sector to lead a long-term sustainable economic development that is built on empowering the private sector and promoting its contribution to GDP and creating job opportunities, she highlighted.

Al-Bahar underscored the great strides the Central Bank is making to face the challenges that have emerged as the banking industry matures and develops further in areas like customer protection, enabling and adopting banking technologies and combatting cybercrime and financial fraud.

On the macro level, Al-Bahar mentioned that the Kuwaiti economy faces many challenges; mainly the political tension and the resulting stand-off as seen in the pending approval of the Public Debt Law and the resulting continued liquidity shortage. In addition, the lack of economic diversity and dependence on government spending and the arising negative impacts on the economy’s ability to create jobs, which underlines the need to increase dependence on the private sector in driving economic growth.

NBK Deputy Group CEO affirmed that for long years, the political scene in Kuwait was marked by between the government and parliament, explaining that this tension did not significantly stymie the development process, despite occasionally causing slowdown.

She said that banks need to work together to address the key challenges facing them including the ability in achieving sustainable development, and intensifying efforts in the ESG area.

Al-Bahar noted that banks have done very well under CBK’s supervision in reaching international standards of Governance, but on the other two aspects of ESG (social and environmental), there is a long way of improvement that we should embark on at the earliest to remain a leading banking sector by regional standards.

I would like to specifically address the environmental aspect here as it, not only is a growing responsibility for all institutions but also it can impose a significant risk if not well addressed, Al-Bahar mentioned.

Climate change is a major concern across the world and soon enough non-environmental business practices will not be tolerated and will be penalized directly through financial fines of indirectly through reputational damage, she added.

Al-Bahar stated that banks’ responsibilities go beyond the direct impact on the environment that results from operational practices. Today, we are responsible for our financing activity and its environmental impact. We need to develop approaches to evaluate the ESG practices of all our stakeholders, we need to understand the impact of our lending activity on climate change and greenhouse emissions. We have to work closely with our stakeholders to ensure they follow our commitment to sustainable development goals and ESG practices.

Al-Bahar pointed out that there are many benefits banks can get from growing the commitment to ESG practices, including increasing the attractiveness of Kuwaiti banks to global investors allowing for sustainable funding, noting that total outstanding ESG bonds reached USD 1.6 trillion globally, with estimates that global ESG assets will exceed USD 53 trillion by 2025.

Concluding her speech, Al-Bahar advised that banks need to understand on a system level the physical exposure they have to climate change and how the changing climate will affect their operations and the financial risk embedded in their balance sheets. She also called for preparing for more rigid standards for compliance with ESG disclosures, as they are becoming mandatory in several markets around the world.

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© Press Release 2021