Desert dreams

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MARKET LEADERS: National Bank of Kuwait together with KFH account for more than half of the banking sector's capitalisation on the Kuwait Stock Exchange.

Spurred by the rising price of oil and a buoyant banking sector, Kuwait's economy continues to expand at a terrific pace. Arabian Business profiles three of the desert state's key growth sectors.

Banking on success

The fourth-largest OPEC oil producer has become one of the world's most vibrant economies, and at its heart lies the banking sector, where the stock of Kuwait's major players has risen almost as fast as the price of oil.

According to the Oxford Business Group, the country's banking profitability reached record levels in 2007 with profit growth averaging 30 percent per year between 2004 and 2006.

The strong position of the sector is also reflected in its share of the Kuwait Stock Exchange. The total market capitalisation of banking firms has averaged 32 percent growth over the past five years and finished 2007 with a 35 percent share, according to the National Bank of Kuwait (NBK), the Gulf state's biggest lender by market value.

Credit ratings agency Moody's describes Kuwait as having "one of the most robust banking sectors in the GCC region, benefiting from the country's outstanding economic performance in recent years, as well as fairly effective banking supervision." Its strong position is secured by the "backbone" of the financial sector, the Central Bank of Kuwait, established back in 1968.

"The Kuwaiti banking sector has a robust system in terms of risk management and a regulatory authority which is keeping a very vigilant eye over the industry's activity," agrees Naveed Ahmed, financial analyst at Global Investment House in Kuwait.

With just 14 banks, nine of which are publicly listed, the industry has a great deal of potential to grow, particularly abroad. "There is a lot of room for growth as there are very few competitors at the moment," says Ahmed.

"The banking sector is doing quite well but a lot of it is on the back of operations outside of Kuwait," agrees Laura James, Kuwait analyst at the Economist Intelligence Unit (EIU) in London. "That should change in the future."

Islamic bank Kuwait Finance House (KHF) and NBK are the country's two largest financial institutions and are both 100 percent Kuwaiti-owned. Together they account for more than half of the banking sector's capitalisation on the Kuwait Stock Exchange.

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