Ahli United Bank reported a 15 percent growth in net profit in 2018, the performance coming in line with the bank’s strategic direction. With its strategy, the bank is able to produce sustainable growth and sound financial and credit standing, despite political and economic upheavals in different parts of the world. In an interview with International Finance, Deputy Chief Executive of Ahli United Bank for the Banking Support Group Jehad Al Humaidhi explains how the bank is committed to reinforcing its leading position in the market by leveraging technology, while also explaining how the wider economy and markets will support banking in Kuwait in the coming years.

Jehad Al Humaidhi graduated from the Kuwait University in Mathematics and Economics. After graduation, she joined the IT programming team at Ahli United Bank (previously known as Bank of Kuwait and the Middle East). She has been fundamental in developing systems, databases, and other advanced technology for the bank over many years. While helping the bank develop advanced technology capabilities throughout her career, she has also taken up major managerial roles, particularly since 2011. In 2011, she assumed the responsibilities of the technology, central operations, and administration hub before becoming the deputy chief executive of the bank for the entire technology and support functions in 2018.   Jehad Al Humaidhi has vast experience in both conventional and Islamic banking as well as board-level experience in key technology boards of directors in Kuwait including the boards of K-Net, Ci-Net and Gulf Custody Companies.  

International Finance: Ahli United Bank reported a 15 percent growth in net profit in 2018. Being part of the Kuwait banking industry, what are the drivers of growth for Ahli United Bank?

Jehad Al Humaidhi: The bank’s performance in 2018 came in line with the strategic direction, confirming its ability to produce sustainable growth and sound financial and credit standing, despite the political and economic instability in many parts of the world. The bank is inspired to provide innovative products and services and sustainable returns balanced with high discipline, risk management and cost control. The bank keeps a firm grip on both liquidity and equity values. This commitment reinforced our leading position in the market.

For the 12 months ending on December 31, 2018, Ahli United Bank reported a year of strong growth with net profits of KD51.3 million derived from the core business, a rise of 15.3 percent on the KD 44.5 million achieved in 2017. Net operating income has increased by 3.3 percent reaching KD84.4 million as opposed to KD81.7 million in 2017. The bank has enhanced its provisions coverage by adding more provisions as they might be required to ensure a higher quality of financial books and a loss absorber buffer. The increase in operating income underscores the strength of the bank’s business model focusing on corporate banking, retail banking, private banking, and treasury, all conducted within an effective risk and control framework. The return on average equity (ROAE) and return on average assets (ROAA) of 14 percent and 1.4 percent, respectively, continue to be among the best in the market.

In line with the bank’s eagerness to meet customer expectations, we have used technology to make significant strides in achieving our customer experience milestones in 2018. By upgrading our technology and online banking applications, we have delivered state-of-the-art mobile and online channels in the region. With the opening of our fully digitised branch in Avenues Mall in Kuwait in 2018, the bank is taking a major step toward fintech innovation for a new a new era of seamless operations and hassle-free banking.

Global economic fluctuations can impact Kuwait’s revenue. Against this background, have the repercussions of these factors affected Ahli United Bank’s performance? And what has been the subsequent effect on the banking industry?

Jehad Al Humaidhi: Kuwait is an active player in the world economy, particularly in the area of hydrocarbons production, being a member of the OPEC. We always face challenges as business is underpinned by an economy that has a large share of its GDP coming from hydrocarbon sales. The state of Kuwait, by having one of the largest sovereign and savings funds in the world, manages to provide a reasonable buffer to absorb those temporary fluctuations with the help of a stable, balanced, and peaceful political landscape as well as balanced diplomatic relationships with other nations. Similarly, the fluctuations in the US and global interest rates also have limited impact on Kuwait because of prudent monetary policies that are also flexible with a currency pegged to a basket of currencies all operating under strict supervision of the authorities and Central Bank of Kuwait (CBK). Ahli United Bank, and Kuwait banks in general, remain profitable, well capitalised, and liquid.

What were the significant roadblocks encountered while achieving a robust performance last year? How were they addressed?

Jehad Al Humaidhi: The bank generally did not face real roadblocks in 2018, but only a few challenges. Our research capabilities and professional executive teams usually provide insights about the expected market movements and changes ahead of time.

One of the top challenges concerns cybersecurity, with the number of attacks rising worldwide even against institutions that are known to maintain higher security standards. Ahli United Bank has addressed these challenges through further investments and allocation of capital to strengthen our systems in collaboration with the Ahli United Bank Group. A dedicated team that works around the clock is monitoring the networks and analysing portal activities. We conduct training sessions not only for employees but also for customers through our social media and online channels. Ahli United Bank always disseminates alerts through tellers, ATMs, and digital channels to create awareness among dealers and customers.

Another challenge has been the compliance layer and the increasing cost of compliance. The bank has addressed the challenge by automating all main anti-money laundering (AML) functions and by closely monitoring customer behaviours with an end-to-end enhancement of its related procedural manuals. All activities are being supervised closely by the respective Audit and Compliance Board Committee of the bank.

With inflation hitting the market due to higher utility bills and the gradual reduction of the government subsidies for the sake of economic reforms, Ahli United Bank has taken solid steps to cut unnecessary costs, streamline a number of processes, and automate others. We involved employees in initiatives to create awareness on energy savings and cost optimisation, which eventually resulted in Ahli United Bank having a cost-to-income ratio that is among the best in the market.

What drives Ahli United Bank’s decision making and how is the swift adoption of digital technologies accelerating the transformation of your customer experience?

Jehad Al Humaidhi: The board of directors at Ahli United Bank provides a more than adequate and updated vision for the bank in general. The strategy is reviewed by the executive management whereby the commitment is created and tightened up with strict budgets. The strategy clearly defines time-to-the market with robust project plans and steering teams turning the plan to reality, while constantly measuring performance.

With the overall global move towards digital transformation, we have identified opportunities and potential systems, and introduced products, services, and processes in a number of projects.

Successful digital transformation efforts always start with a clear understanding of the strategy, current and future state operating models, and risk appetite. Organisations need to decide whether they are disrupting the market and leading digital transformation, or whether they seek to play a waiting game, monitoring the competitive landscape and reacting as needed to defend market share. Leaders then must consider the impact on people, including how easily they can adapt the culture of the organisation and behaviour of individual employees to new approaches and how customer interactions will change for the better. Ahli United Bank Kuwait has taken the lead and we have decided to create a digital forum which will realise several digital projects, then enrich the customer experience, save costs, and speed up the time to market.

What are your views on the domestic capital markets? What are the necessary efforts required by policy makers to enhance it and currently how are policy makers changing the course of the country’s capital markets?

Jehad Al Humaidhi: Boursa Kuwait’s had numerous achievements to its credit in 2018 that were in line with Kuwait’s State Vision 2035 and mainly focused on turning the country into a regional and, possibly, a global centre of commerce and finance.

The bourse embarked this year on a path that prioritised international standards of operations that were aimed at attracting foreign capital and investments. One of the chief highlights was the Standard and Poor’s (S&P) rating, which affirmed Kuwait’s AA/A-1+ long and short-term foreign and local currency sovereign credit ratings, with stable economic outlook.

Boursa Kuwait is also being upgraded to an ‘emerging’ market, starting from September 23, 2018. Also among the achievements was the Morgan Stanley Capital International’s (MSCI) intention to include the Kuwait Index in its 2019 annual market classification review for a potential reclassification from frontier market to emerging market status. Locally, the Boursa Kuwait has reclassified its indices to include three major indices: the Main Market Index, the Premier Index, and the All Share Index to emulate the stock exchange processes at global markets.

The new classification aims to bolster transparency as well as increase liquidity and the number of shares traded. Boursa Kuwait also launched the over the counter market (OTC) back in November 2018. The fresh market aims to create a transparent environment by bringing buyers and sellers together using fully supervised mechanisms.

To derive the benefits of well-functioning markets, adequate and well-defined regulations for issuers, investors, and intermediaries are critical. The markets require robust supervisory arrangements on an ongoing basis to protect investors from market manipulation and to manage systemic risks. Such a framework in turn needs to be anchored in a good investment climate that includes a sound corporate governance framework, reliable and quality accounting, creditor rights, property rights, and bankruptcy and competition law. Finally, markets need advanced infrastructure, exchanges, trading platforms, clearing houses, and custodians all working toward supporting market activities and investors relations.

Kuwait is more typically known as a source of investment rather than a destination due to the size of its sovereign wealth fund, but the government aims to reverse this trend by attracting more foreign direct investment as a key economic diversification tool outlined in Kuwait Vision 2035. The FDI focus is on high-quality direct investments since the country is not desperate for capital, but looking forward for added value, innovation, and transformation of the economy.

It seems Kuwait stocks had outperformed most of their peers in the region last year. This means, the domestic stock market might capture the interest of international investors. How do you see this opportunity as a good fit to boost liquidity?

Jehad Al Humaidhi: Inclusion of the Kuwait market in an emerging market benchmark and an improvement in oil prices have helped Kuwaiti stocks outperform their regional peers in the past few months although trading continues at a lower level than is deemed desirable. This emerging market accession signifies the growing investor confidence in the Kuwaiti market as well as the rapid and successful implementation of reforms and wide-ranging developments that have enhanced international investors access to the Kuwait Stock Exchange. The inclusion is expected to lead to a significant inflow in foreign investment, which will boost liquidity in the domestic capital market and contribute to more balanced market conditions and stability.

Kuwait is a prosperous country, largely financed by its oil revenues. How do you foresee its economic expansion in the next five years?

Jehad Al Humaidhi: Kuwait’s public and external balance sheets will remain strong over the next two years, primarily underpinned by sizeable foreign assets accumulated in the country’s sovereign wealth fund. Ample financial assets, low debt, and a sound banking sector allow Kuwait to undertake the needed reforms from a position of strength and at a measured pace. The national mission believes that the fiscal adjustment should be primarily expenditure-based, supported by non-oil revenue mobilisation.