KFH eyes expansion in China and Egypt

Talks to buy Ahli United have not started

KFH suspended the acquisition of Bahrain’s Ahli United until December. Andrew Henderson / The National

Kuwait Finance House, the Arabian Gulf’s 10th-largest lender, plans to expand in China and Egypt as the region’s banking sector nears saturation, its chief executive said.

The bank, known as KFH, plans to open a branch in China and is considering a licence to operate in Egypt, one of the Middle East's most populous countries, Mazin  Al Nahedh said.

“There are opportunities for a Kuwaiti bank to operate in China,” Mr Al Nahedh said. “We’ve thought about it because of China’s emergence, obvious importance to the world economy. We’re reaching saturation, particularly in the GCC banking system.”

In Egypt, KFH, which has assets of about US$57 billion, is looking at options to buy an existing license to operate there, he said.

Apart from saturation, banks in the region are also facing deteriorating conditions as oil prices remain lower for longer, leading to a decline in government spending, slower economic growth and falling asset quality. In Kuwait, the growth of Islamic banking is also slowing as the market “reaches equilibrium,” Mr Al Nahedh said.

KFH is "cautiously optimistic" about its operations in Turkey, Mr Al Nahedh said. Its subsidiary Kuveyt Turk contributes 22 per cent to the group's bottom line as of the end of June, he said. The bank expects credit growth of no less than 20 to 25 per cent over the next three to four years as long as base rates remain where they are. Opportunities in the country are "vast" with significant infrastructure projects and "good growth
on the SME side and in certain corporates."

As KFH continues its restructuring and sale of non-core assets, the bank is studying offers for its stake in Aref Investment Group, which it aims to sell by the end of the year, Mr Al Nahedh said.

While KFH has not started talks to buy Bahrain’s Ahli United Bank, the rationale for such a deal would be increasing shareholder value and building a stronger franchise, Mr Al Nahedh said. Any such deal could “be financed through issuance of sukuk, raising capital through an IPO, or the new offering per se of new shares, that would be uptaken by potential investors”, he said.

KFH is in talks to buy Ahli United, in a deal that would create one of the Middle East's largest Islamic lenders with about $85bn of assets. Mr Al Nahedh sees opportunities for Kuwaiti banks growing if more government projects materialise. "Oil prices will play a big role in basically the outlook of the country, even for the sentiment overall," he said.

* Bloomberg