In an interview with The Oil and Gas Year Magazine, Group CEO of Kuwait Finance House (KFH), Mazin Saad AlNahedh discussed the importance of economic diversification in Kuwait and the private sector`s role that can play in this regard.
Al-Nahedh said:” As far as Kuwait is concerned, diversification is a must going forward. The 2015-2016 period was a wake-up call not only for Kuwait but for the entire GCC, a clear indicator that suggested diversification was needed.”
He added that “Kuwait Vision 2035 seeks to diversify the country away from both upstream and downstream activities to ultimately hit a more stable output with a certain degree of predictability in fuel prices. Although it is true that more than 50% of Kuwait’s GDP comes from oil and gas, we also have to account for the investment income of KIA [the Kuwait Investment Authority]. In addition, emphasis is put into developing both technology and human capital as new keys to success.”
“Most importantly, the government is also trying to give more space to the private sector to promote sustainability. The active involvement of the private sector will make the market more dynamic and take an important amount of the financial burden off the government’s shoulders. In the coming years, it will start to lead this country’s development,” Al-Nahedh stressed.
On the robustness of Kuwait’s financial sector, Al-Nahedh said that for the last couple of years, the Central Bank of Kuwait has introduced the application of the IFRS 9 standard, which tracks the shortages or surpluses of provisions with banks.
“Interestingly, all Kuwaiti banks now have surpluses thanks to the precautionary provision the Central Bank has established. We see that it has applied reforms to the system in order to reduce excesses.” He added.
“If you compare this panorama with those of banks in other jurisdictions, for example in the KSA or UAE, they all had shortfalls and had to reinforce their provisions to meet the IFRS 9 standards. This gives you an idea of how conservative our Central Bank is, and the buffer that the Kuwaiti banks have. This, in a way, reflects the strength of our financial sector.” He said.
Al- Nahedh expected seeing more steps in the Boursa Kuwait and the CMA [Capital Markets Authority] to guarantee a more robust environment, saying that the free flow of capital is the key to achieving a stable and robust financial system.
On the benefits of stronger private sector that would bring to the market, he confirmed the market would be more dynamic, flexible and efficient, adding that it is much easier to invest abroad than in Kuwait.
“This is due to the high levels of governance and bureaucracy, and the way tenders function in the country, which ends up jeopardizing the functioning of the entire system. In this regard, the private sector is much more efficient. We hope PPPs get revived as this could represent a huge success moving forward. That is why we say: “Move to private.” Al-Nahedh explained:”
Partnerships with government
Regarding the synergies between KFH and the K-companies, Al-Nahedh said:” We are extremely close with the K-companies, particularly with KPC, because they lead the majority of the projects we are involved in. So far, we have been involved in important projects developed by KPC subsidiaries such as KNPC, KPI, PIC and KIPIC both domestically and abroad. We meet up with representatives of the K-companies periodically in order to keep updated on projects in the pipeline, so we can anticipate and act accordingly.”
KPC’s 2040 strategy
On KFH involvement in some of the mega-projects anchoring KPC’s 2040 strategy, Al-Nahedh said that KFH is deeply involved in the diverse mega-projects which shape the present and future of Kuwait’s oil and gas sector. In 2016, KFH signed a financial contract with KNPC for the Clean Fuel Project. While Islamic banks have a KWD 490-million [USD 1.61-billion] share in the funding, KWD 275 million [USD 901.3 million] was directly financed by KFH.
The most recent deal we have sealed is a credit-based contract with KIPIC where KFH is in charge of the financing for the USD 2.3-billion LNG import facility. Here, we were selected to lead the deal with the Islamic banks, being responsible for a USD 500-million share.
“In the international arena, we have successfully led the Islamic tranche that is sponsoring the new Duqm refinery in Oman. KPI is a major shareholder in this mega-project, which has facilities valued at USD 4.6 billion. While the financing of the project will be carried out by 29 prestigious funding institutions from 13 countries, we participated with a USD 500-million credit package supporting the development of the project.” He added.
A key financer
Al-Nahedh said that KFH is leading the Islamic tranche of every transaction flowing into those oil and gas projects sponsored by the K-companies.
“We are dealing with all the local Islamic banks, covering the entire market in terms of capacity that could be financed. There is a drive by the K-companies to provide financing in local currencies for local banks to grow their portfolios and have a share in the rebuilding of Kuwait. We are in charge of channeling these transactions.” He added.
Al-Nahedh said that KFH will definitely be aligned with KPC’s strategic plans, expecting a spurt of oil and gas projects in addition to projects in power generation infrastructure.
“We should see more projects coming to life and we will be present. Our role will involve the financing of these projects, the provision of simple and complex banking services as well as consulting and trade facilities. We are involved in nearly every major financial transaction in Kuwait, funding government and private projects, both domestically and abroad. We want to continue playing this vital role.” He confirmed.
In line with Kuwait Vision 2035, USD 32 billion worth of public projects are planned for the near future, Al-Nahedh expressed his confidence that the banking sector is well-equipped to play an important role when supporting the development of Kuwait’s greater project activity in 2020 and beyond.
“In this scenario, KFH is a key component of the 2035 vision as it is the leading Islamic financial institution enabling national development and the growth of the financial services industry.” He added.