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Banking Industry In Kuwait

Banking Industry In Kuwait

Globalization is a process whereby companies, people and governments of different countries from all over the world freely interact and incorporate. More specifically, globalization results from the existing interchange of products, views and ideas from all over the world thus  allowing the free transfer of goods, capital and services across national borders. Therefore, globalization is the principal participant in effecting the major developments being noticed in different industries and countries all over the world. As a result, this essay aims at critical evaluation and detailed discussion of the impacts of globalization on the banking industry of Kuwait. In addition, it will deliberate the available suggestions on how the banking industry of this country can be improved. The following factors will clearly elaborate the impact of globalization on the banking industry of Kuwait.

According to Ritzer (2011), technology all over the world and, more specifically, in Kuwait acts as the steppingstone of globalization. Over the past decades, the state of Kuwait has registered major developments in technology. This is accounted for the great number of innovations that are emerging thus resulting to major breakthroughs in the field of technology. As a result, these changes have had positive and negative effects on the banking industry of Kuwait. The Kuwait banking industry is one of the principal users of technology and, more specifically, financial technology. One of the banks in Kuwait that have adopted numerous technological solutions and equipment is the Jordan Kuwait Bank. To be more specific, the banks are fully equipped with machines and soft wares used in the creation of statistical and economic models that estimate the returns made from distributions to value and create new and existing securities. As a result, it creates room for sound decision-making based on the financial data available. Therefore, it is evident that the banking industry is heavily dependent on technology to gather process and distribute data.

Nevertheless, technology has had its negative impact on the banking industry of Kuwait. To be more specific, the massive encroachment of technology in the Kuwait banking industry has resulted to an increased rate of unemployment in the state. The immense use of computers and robots in Kuwait has led to the replacement of employed individuals, which significantly increasing the rate of unemployment. Similarly, due to the frequent changes in machine models and efficiency, it has become very expensive for the Kuwait banking industry to keep up with the changing technologies. The reason for this is the fact that the banks have to organize seminars meant to train employees to acquaint with the new technology. These seminars are known to stretch the financial positions of many banks in Kuwait because of the high costs required. Furthermore, the establishment of new systems in the banks is also very expensive. However, for the banking industry of Kuwait to secure a competitive position in the worldwide banking industry, it is important to ensure that its technology is constantly being updated.

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Secondly, according to Azzam (2002), political stability plays a major role in determining the state of any banking industry as globalization has amalgamated nations in the past years thus allowing easy transactions between nations. The association of nations has in return led to a rapid growth in the Kuwait banking industry. However, political instability is a major setback in the development of the Kuwait banking industry. To be more specific, in the event of political disputes in the management of the Kuwait central bank, the affiliate banks are destabilized, which may even lead to their permanent closure due to the lack of reliable political representation. Similarly, it is impossible for the banking system of Kuwait to extend its services to the countries in the middle east that are not in good business terms with Kuwait’s national government. As a result, the banking industry of Kuwait is characterized by stunted development because of the limited market environment caused by inconsistencies in the political arena of Kuwait.

Equally, globalization has led to the rise of numerous legal regulations. These legal regulations have had a great impact on the Kuwait banking industry. To be more specific, the penalty policy amended in Kuwait has dramatically resulted to heavy penalties being charged to the banks operating in Kuwait. In particular, the penalty policy (Chapter III Article 85 on the Organization of the Banking Business of Kuwait) states that if a bank violates the provisions provided by law, or fails to submit the statements, documents , or information required by the central bank, temporally suspension or prohibition from carrying out certain operations will be imposed. In return, this has resulted to the closure of many small financial institutions thus creating an epidemic in the banking industry. Similarly, as explained by Duhé (2007), the law has introduced certain policies in support of the customers. These policies have a negative impact on the banking system. In addition, according to Chapter III Article 78 and 79 on inspection of banks and institutions in Kuwait, the central bank of Kuwait has been issued with the power to storm in and inspect any banks under this provision. As a result, any manager or member of the board who refuses to give data or who knowingly provides untrue data shall be liable for imprisonment in the period not exceeding three months. These strict policies being implemented in Kuwait have discouraged potential investors in the banking industry due to the prospect of harassment upon joining the industry. Equally, the numerous regulations investors are required to fulfill before joining the banking industry have also participated in deterring the potential investors from cooperating with the Kuwait banking industry thus making them opt for better soft landing industries.

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Consequently, in the past decades, globalization has harmonized the social factors that affect the banking industry of Kuwait. These social factors, such as the change in life cycle, have had a great effect on many banks. The reason for this is the fact that the mortality rate of Kuwait has reduced thus creating a gap in the employment sector (Ritzer 2015). The demise of productive individuals in their early ages directly influences the increase in the number of inadequately qualified personnel to work in the industries. For instance, in the banking industry of Kuwait, the inadequacy of qualified individuals may lead to low-quality services hence lowering the standards of the services offered when compared to other banking industries in the neighboring nations. Similarly, the banking industry is affected by the income variation among the citizens of Kuwait. In instances where the gap between the rich and the poor in Kuwait is high, the banking industry is affected since the number of clients ready for depository businesses equally reduces. This is explained by the fact that the income received by those in the poor category is directed towards consumption but not saving.

Along with that, globalization has caused hostile changes in the economy of Kuwait. These changes have been registered mainly because the economy of Kuwait highly depends on the extraction of oil as its major driving force. To be more specific, oil production in Kuwait represents more than 90 percent on the earnings acquired from export and 80 percent of the revenue stated in the budget. As a result, due to the overdependence on oil, Kuwait finds it difficult to develop other profitable investment opportunities in the banking industry. In time, the lack of diversity in the banking industry of Kuwait has been coupled with excess liquidity due to of payouts in substantial oil exports. Similarly, the stock market crash that Kuwait experienced in the year 1982 left the banking industry of Kuwait with a crippling assortment of non-performing advances. This crash was branded as one of the worst economic bubbles in the history of Kuwait. In such a way, the Kuwait banking industry is up to now recovering from the speculative bubble, which slows down its international development.

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Importantly, there is no doubt that globalization has caused changes in the environment. As a result, an agreement by the state of Kuwait was tabled stating that every industry including the banking industry should work towards reducing the rate of environmental corruption as the country enters upon the way to globalization. This resulted to the introduction of new environmental regulations and protection policies (Scholte 2005). The policies indicate that every bank in Kuwait must save some funds in order to take care of the crushing environment.

From the above facts, it is evident that the banking industry of Kuwait has several defects. To submit them, the banks doing business in Kuwait should reduce the lending rates to encourage borrowing. In return, this will increase their earnings resulting from the interests gained. Secondly, the banking industry should request the amendment of the legal policies.  For instance, they should request the amendment of Chapter III Article 79 that states that managers and board of directors can easily face three months imprisonment. This will make it easier for the new investors to join the industry freely, without fear. Thirdly, banks residing in Kuwait should adopt new technologies because this will lead to increased speed and improved quality of services. As a result, competition will increase among the available commercial institutions hence reducing monopolization of the industry and making it a free market. Finally, the National Bank of Kuwait (NBK) should work towards harmonizing itself with all other banks under it so that any regulations put in place are adhered to harmoniously, without selection. As a result, this will create an equal market hence increasing competition in the banking industry as they strive to attract potential clients. Similarly, banks in Kuwait should carry out bench marking activities so as to learn from the other successful institutions in the same industry.