KUWAIT, 13 January 2004 — Kuwait’s Parliament yesterday approved a draft law to open the banking market of the Gulf Arab nation to foreign banks, in line with a new government policy aimed at attracting foreign investment.
Parliament gave its final nod to a bill that amends a law allowing the Central Bank of Kuwait to grant licenses to foreign financial institutions. The house gave provisional approval in mid-December, with 38 members of the 51-man Parliament voting in favor, but the bill needed further discussion.
Late last year, the government jump-started a law allowing 100 percent foreign ownership of firms. Kuwait hopes to attract billions of dollars in investment following the capture of former Iraqi President Saddam Hussein, who invaded the country in 1990.
The bill stipulates that foreign banks that want to open branches here would face the same restrictions that are slapped on local banks, requiring that 50 percent of the work force be Kuwaiti — part of a government drive known as “Kuwaitization”.
Foreign banks are not now allowed to operate in Kuwait, which has seven commercial banks, including market leader National Bank of Kuwait and Gulf Bank of Kuwait. Central bank figures put the total assets of local banks at 18.84 billion Kuwaiti dinars ($64 billion) in November.
Economist Amer Al-Tameemi hailed parliament’s decision as an important step, noting that Kuwait must open its doors to foreign banks because they will compete with local ones, operate in accordance to World Trade Organization rules, and encourage local banks to do the same.
“The presence of foreign banks in Kuwait, with their expert administration, abilities and resources, will improve the performance and the patterns of spending by local banks,” Tameemi, who heads Kuwait’s Economic Society, told Reuters.
Their presence is beneficial also because that will encourage Kuwaiti banks to seriously consider merging, which would create institutions with larger capital bases, he added. “The Central Bank of Kuwait encourages mergers ... the foreign banks will provide an impetus for that,” he said.
Finance Minister Mahmoud Al-Nuri has said Kuwaiti banks and financial institutions can compete with Gulf and international banks when they are allowed to operate in the country.
In other steps taken by the government to promote Kuwait, it has said foreigners will enjoy a 10-year tax exemption once projects are onstream. The strategic oil and gas exploration and production sector will be off limits to foreigners, but they may invest in banks, hospitals and tourism among other sectors.
Kuwait, which has 10 percent of global oil reserves, was one of the Gulf’s economic bright spots in the 1970s before foreign investors were scared off by the 1980-88 Iran-Iraq war and Iraq’s 1990 invasion of Kuwait.