Ali H. Khalil, CEO of Kuwait Financial Centre “Markaz”, speaks to Global Finance about the effects of the Ukraine conflict and advancements in fintech.
Global Finance: How are GCC banks affected by the Ukraine war?
Ali H. Khalil: Although the GCC countries are affected by the war in Ukraine in the face of global inflation, the increase in energy prices it triggered has had a positive effect on regional economies. The rise in oil prices is extremely advantageous for Kuwait. We have seen a surge in liquidity, and bigger deposits with the lower rates, so basically the cost of funding has been positively impacted. On the other side, even on the credit quality, we have seen a rise in a lot of the stock prices that in turn enabled many companies to increase and improve their balance sheets. We have also witnessed the reallocation of some of the funds out of Russia-Ukraine into this region as a direct consequence of the war. So, I would say overall, the crisis has been a boon for the region because the government has more money, there is more liquidity in the market, and the impact is positive on the cost of funds. It is certainly an opportunity for some of the banks and companies in the region to recapitalize.
GF: What are some of the upcoming challenges for GCC banks?
Khalil: I think the challenge is how we deal with the increased interest rates of the Federal Reserve in the United States and its impact on the central bank policies here in the region.
GF: How are the GCC banks and financial institutions adapting to fintech?
Khalil: There is a race to digitize across the board by all banks and all financial institutions. As far as banks are concerned, everyone is coming up with a digital platform. At Markaz, we revisited our strategy, thinking about how do we address this emerging yet substantial competition. It is impacting the way we conduct business, and unless we stay ahead of the competition in technology, we will not be sustainable. Revising operating models is critical for all banks and financial institutions. We need to have smart capital and smart systems and be very well automated and digitized, otherwise, we cannot remain efficient and compete effectively in this market.
GF: Do you see fintech as a factor of growth for M&A activity in the GCC?
Khalil: Yes, I think so. As for some of the large banks, they are so much better off acquiring agile fintech companies that have already adapted to the technology in a remarkable way. It is much easier than developing it internally. Acquisition of such firms is quite common these days and I see the trend accelerating.
GF: Where do you see growth opportunities?
Khalil: We must look at the change in demand. I think there is a new generation that is taking over from the older one, and it is a generation that is very keen on dealing with companies that are digitized. They never come and see us, but everything has to go through digital platforms. So, the main demand and the underlying trends that we are focusing on is the change in demographics. There are opportunities where you can transform yourself to cater to the needs of the next generation and its new demands. They have a higher appetite for risk, are much more global in their outlook, and are less keen on investing in conventional products. They look more at VCs, private equities, and alternative investments, and therefore, this is an opportunity for companies like us.
The second factor here is that this very same generation is coming in huge numbers and the government cannot find enough jobs for them, so they will be reliant on the private sector. This means we will see more governments outsourcing their traditional activities. The future will require a stronger private sector, so we are also focused on that.