ShareKUWAIT: The Central Bank of Kuwait's recent decision to open the door for the establishment of digital banks signaled a new milestone in the state financial regulator's drive for digitization and keeping abreast with the latest trends in global financial services, Kuwaiti banking officials and experts have concurred. In separate interviews, they argued that the move was also driven by growing needs from a tech-savvy young generation who are searching for easy-to-access financial services.
Executive Director of the Supervision Sector at the Central Bank of Kuwait (CBK) Waleed Al-Awadhi said that the digital banks will have no branches and will offer all banking services through digital channels. This tech-based model saves cost and time, he clarified, adding that these banks do not have the paperwork complications of the traditional counterparts. Awadhi unveiled that the Central Bank of Kuwait had worked intensively in recent years, especially during the coronavirus pandemic to achieve digital transformation, boosting cybersecurity and encouraging innovation.
He noted that most local banks have great capabilities in digital banking services. What is new about the new banking license which was recently announced by the Central Bank is that it allows the establishment of a standalone digital bank, which can provide all banking services through online only, he explained. Digital banks will be able to use the latest financial technologies to offer creative financial solutions at low costs, he envisaged.
Awadhi stated that the existing traditional banks also have the ability and the required infrastructures to provide digital services. The existing banks can also apply for a license to open digital units or a new digital bank in partnership with a shareholding company, he pointed out. Financial shareholding companies can also apply to get a license for establishing a digital bank, he said.
He stressed that the regulatory requirements, guidelines, instructions and controls applicable to traditional and digital banks are the same, indicating that the capital required to establish a digital bank in Kuwait would be KD 75 million (about $247.5 million), the same amount required for a traditional bank. He indicated that the CBK receives applications for digital bank license until June 30, 2022. It will study all applications and give initial approvals before the end of the year. The CBK will also set a deadline for those who got licenses to complete procedures and start operation, he said.
Three models
Manager of the Off-Site Supervision Department at Central Bank of Kuwait Dr Mohammed Al-Khamis said that the CBK's decision on February 2, 2022 started with collecting applications for digital bank license. He added that it was taken after the development of the digital banking framework and studying of relevant best practices of more than 25 central banks and experiences of 40 digital banks worldwide. Khamis added that the framework in Kuwait allows the provision of digital banking services according to three models: a unit within a traditional bank, or through a partnership between such bank and a digital institution or the establishment of a standalone digital bank.
Managing Partner for the Newbury Economic Consultancy Issam Al-Tawari said meanwhile that granting licenses for digital banks in Kuwait has become a necessity due to the great development in this field in various countries and the growing international competition. Tawari cautioned that the opening of this large number of digital banks in the world could attract a large segment of Kuwaiti young investors to banking markets that do not subject to the CBK supervision, especially as 65 percent of the Kuwaiti population is young, and the behavior of this category is completely linked to non-traditional digital services. He suggested that the prevailing global trend of the banking sector is the transition to digital banks, which offer a wide scope for innovation and entrepreneurship.
Tawari, however, ruled out the possibility of Kuwaiti youth applying for digital bank licenses taking into account the announced requirements and conditions. Unless they come up with innovative services and establish a shareholding company, they will not be able to apply for digital bank licenses, he pointed out. He said that other companies eligible to apply for digital bank licenses are companies that have a large customer base, as they can collaborate with other institutions to establish a digital bank and benefit from their customer base. On February 2, the CBK issued guidelines specifying requirements for establishing digital banks as tech-based business models and opened the door for receiving applications and the required documents until the end of June 2022. - KUNA
