Jordan Kuwait Bank: The Road Ahead

In an exclusive one-on-one, Jordan Kuwait Bank Chairman Abdul Karim Kabariti outlines his bank’s strengths and weaknesses, and explains how he plans to take the Kingdom’s third largest lender to the next level.

By Dina Al-Wakeel

Under the 20-year stewardship of former Prime Minister Abdul Karim Kabariti, the Jordan Kuwait Bank has managed to thrive in a highly competitive sector. Here, the bank’s chairmansets out his vision for further expansion in the retail market, addressing previous bad investments, as well as a possible venture into the growing Islamic banking sector.

Kabaritifurther explains why he’s not keen on lending to the Jordanian government, whose growing debts have exceeded 90 percent of GDP, and why Kuwait’s KIPCO, which owns more than 50 percent of the bank through its subsidiary Al Rawabi International Company, is pleased with its investments here.

What banking sectors are you most keen to expand into?

Retail is the wave of the future. Over the last three years we’ve been going strong in retail banking; we have 57 branches around the Kingdom. Our core business is corporate though and we have been very successful at it. Once you do something really well—if it isn’t broken why fix it?—so we are building on it.

We are also focusing on e-JKB, e-services, which we are working to develop. We are the third largest in the Kingdom, we have been competing for the last couple of years for the third position among banks in Jordan but now we definitely are solid third.

I also think Islamic banking is encroaching on regular banking, not only in Jordan but almost everywhere in the region. It’s no secret that we are very interested in this sector. There’s an appetite for Islamic banking. Culturally we are institutions that don’t comply with Islamic sharia, yet we foresee a promising future for Islamic banking, and that’s why we and five other banks were very interested in taking over Jordan Dubai Islamic Bank.

What are some of the main challenges you have been facing?

Basically, it’s a very small market. Jordan depends very much on the wellbeing of the region and right now we are surrounded by a ring of fire. We’ve been shut out of Iraq, our largest trading partner. Syria, which is our gateway to Europe, is closed as well, and then there’s the situation in the West Bank. As for the Gulf countries, Saudi Arabia in particular is the main competitor to our manufacturing sector. We’ve been flooded with Saudi products which are of very high quality, and price-wise they are very competitive. If we are to export to Saudi Arabia there are limitations. So Ithink that if we are to judge the situation by the state of the region, it’s very bleak. But looking forward you try to be optimistic. The situation isn’t sustainable, and something will have to give eventually. There might be some solution in Iraq and Syria and there will be a very big role for Jordan and Jordanians in the reconstruction of these countries.

As for local challenges, they are many. Regulation is one of them. With the investment environment and regulations, there’s a disconnect between laws and their execution. This disconnect is causing many problems for the service industries and other industries in general.

Do you think that if the situation in the region persists, Jordan can overcome these challenges?

In general, no matter how hard things are and if you compare it to the late eighties, early nineties—with difficult economic and political situation—we were on the brink of a total collapse. And then we did not only survive, but we thrived. We went through so many worst phases and we picked up so I am optimistic. It is a phase just like any other thing. In all circumstances, the strategic role undertaken by His Majesty King on the regional and international levels, and the positive image of Jordan in the international community remain the most important attributes to our country’s growth and prosperity. In this regard, it is worth mentioning that His Majesty has done much more than he has been given credit for.

You said it was a small market here, nonetheless we see several other banks expanding exponentially, why is that?

Everybody is expanding because they think that Jordan is still largely under-banked so they are going for the clients everywhere. I was checking on our activities here, and our active clients don’t exceed 120,000, which is peanuts, and that includes corporate. We can double it and that’s why I keep on pressuring to expand our client base. There is still potential in Jordan. As for foreign banks and because of the region, they are not very keen on expanding their business here. HSBC withdrew, and we have been receiving communications from European banks saying they were planning to minimize their exposure in the area. They want to play it safe. The general mood and terror have created a reputation for the region.

The Jordanian banking sector has been criticized for being over cautious and overcrowded. How much truth is there to this?

It’s not conservative. If we are to characterize the banks as conservative then we put them in a category that would set them apart from the best standards in the world. No, they are on par with any good standards in the region and the world.

I also don’t think it’s overcrowded at all. Jordan is still under-banked and I think there’s capacity for expansion for local banks and new comers if they come with some capital and new products, not to come here and generate the capital locally.

You’ve mentioned in the past that you’re becoming less and less enthusiastic about lending to the government. Why is this?

We are one of the Jordanian banks that had weaker appetite for lending to the government, and we think we have reached a sensitive lending ceiling that we do not want to exceed so we avoid reassessment by international rating agencies and the possibility of being placed in the category of institutions whose investments are mostly in government bonds. Additionally, the large cuts imposed on interest rates by the Central Bank with the aim of decreasing the cost of government borrowing will substantially affect the bank’s income when compared to that generated from our core banking activity.It is worth mentioning here that the government debt has reached an unprecedented level, and talks are undergoing with the IMF to set a plan to drastically lower current debt/GDP ratio.

Your bank lost millions in its ill-fated Andalucía real estate project with Taameer. What became of the scheme and what lessons have you learned from it?

The real estate development sector in Jordan was a major part of the bank’s activity. Our business was going fine until the eruption of the global financial crisis in late 2008, which spread to the region and Jordan. The situation was further worsened by the consequences arising from the so-called Arab Spring and the deteriorating security and political events in the neighboring countries. Many economic sectors were directly hit atop of them were the real estate, the manufacturing and export sectors—and unfortunately the Andalucía project, which was developed by Taameer, was one of them.

It was necessary that we find a way to support the company so they can complete the project and sell it. But unfortunately there are laws, instructions, and procedures set by the regulatory bodies that do not look at subject areas from the same perspectives that we look at, particularly the instructions on the account classification if it is overdue for 90 days.

Despite all the efforts made by the government and regulators to help the company and ease its financial position, we couldn’t, and we felt that if we waited any longer, the damage would maybe worsen and be much larger. So we opted to reach a settlement under which we expropriated 235 units of Andalucía houses worth the amount of Taameer debts.

[With regard to the Andalucía project], we have the absolute conviction that this pilot project addresses the needs of the economic and demographic needs in Jordan and serves the broader segment of population, which is the middle class. It is a type of project that Jordan actually needs.

To make the project ready for marketing, the bank took the initiative to complete the acquired villas, improve the internal and surrounding environments, as well as help in making the club and all other infrastructure services ready for operation. A specialized marketing company was contracted which undertook the task of selling the villas in the Jordanian market and the GCC countries. On another track, we have discussions with large investors who showed interest in buying the whole project.

How successful are your investments outside Jordan?

We are present in Cyprus where we have recently activated the role of our branch and expanded its activities to provide several banking and investment services, while introducing a new product to finance the purchase of real estate which was remarkably well perceived by many of our clients and the local community. We are also present in Palestine, and we have a 10 percent share in an Algerian bank which I am the chairman of and which we also started very small and turned to the third largest in the country. We did not want to go with the Kuwaitis in Syria and Iraq. I always had this notion that when you go into a country that has no legal recourse you’d better not fiddle with it. There are issues in the Iraqi market for instance.

We are now focusing on and expanding in the West Bank.

Why was JKB recently sold to another subsidiary of KIPCO? Did this have any impact on the way you operate or on your assets?

It hasn’t been sold; it’s just an internal transfer of shares for technical reasons that have to do with the Kuwaiti mother company. It had no negative implications or effects at all.If the Kuwaitis are not the largest investors in Jordan, then they are the second largest. We belong to one of the largest groups in the region—KIPCO—and it’s not only the bank but they also own 60 percent of Abdali Mall and 40 percent of the Boulevard. They also have other investments in the Amman stock market and the return [on their investments here], I believe, is one of their best investments ever.