A decision to allow banks from the Gulf region to operate in Kuwait is the first step to opening up the oil-rich emirate to international banking units, bankers and economists said Tuesday, June 12. "It is indeed a prelude to allowing foreign banks into the country. We are heading towards opening the market," said Ibrahim Dabdoub, chief executive officer of Kuwait's largest bank, the National Bank of Kuwait.
"I expect this to take place within the next two years," Dabdoub told AFP. Kuwait's cabinet on Monday approved a draft bill to amend a 1961 law that allows only national banking units to operate in the Gulf state. The decision to authorize Gulf banks still requires the approval of parliament to become law.
"Undoubtedly Kuwait will open up (to foreign banks). This is part of its obligations of membership to the World Trade Organization (WTO)," said Jassem al-Saadun, head of the independent Al-Shall Economic Consultants.
"This step may accelerate a positive decision on foreign banks," Saadun added. Kuwait's central bank submitted proposals in February calling for Gulf banks to be allowed to operate in the emirate, and to prepare the ground for the presence of international banking units. Eight national commercial banks currently operate in Kuwait, enjoying strong government protection.
But central bank governor Sheikh Salem Abdul Aziz al-Sabah has warned "that justifications for the protection under prevailing legislation ... no longer exist." Sheikh Salem has also urged Kuwaiti banks to upgrade and merge to be able to face up to competition from international giants.
Saadun said the decision to open up to banks from other states of the GCC -- which groups Kuwait with Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- will work in Kuwait's favor. "Kuwaiti banks are more advanced than their Gulf counterparts, and thus they will benefit more from the decision," he said. Dabdoub said that besides boosting competition and banking services, the decision will encourage mergers and the eventual establishment of giant regional banks.
"The decision is very positive. It will encourage smaller banks to merge, because these banks can't operate amid stiff competition. We hope it would lead to establishing giant regional banks," he said.
Foreign investors are currently only allowed to own up to 49 percent of stocks in Kuwaiti banks under the indirect foreign investment bill put into effect last August. — (AFP)
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