Wednesday, December 7, 2022
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Editor's PickKuwait’s first Islamic digital bank – nearing to realization?

Kuwait’s first Islamic digital bank – nearing to realization?

A potential acquisition by Kuwait’s largest Islamic bank is nearing completion since the idea was first made public in 2017, and this is pushing forward a plan to introduce an Islamic digital bank in the State.

Kuwait Finance House (KFH) has submitted its “firm intention” to make an offer to acquire 100% of the issued shares of Bahrain’s Ahli United Bank (AUB) by way of a share swap at an exchange ratio of 0.37 new KFH shares for one AUB share, or 2.8 AUB shares for every new KFH share. The Islamic bank earlier in the week secured regulatory approval to increase its capital to KWD1.34 billion (US$4.35 billion) from KWD928.57 million (US$3.02 billion) by issuing up to 4.2 billion new shares to finance the acquisition of the conventional lender. Regulatory approvals aside, the deal is also conditional upon KFH receiving acceptance of AUB shares representing at least 90% of the total outstanding share capital of AUB.

Post-acquisition, AUB will be rebranded to become Kuwait Finance House–Bahrain as a wholly-owned subsidiary of the Kuwaiti Islamic bank. AUB’s business in Bahrain, Egypt, Iraq and the UK will be converted to be aligned with Shariah principles.

Interestingly, AUB’s subsidiary in Kuwait will be transformed into a digital bank, at the request of the Central Bank of Kuwait (CBK). This move comes as the regulator pushes forward with its digital agenda as its neighbors leap forward to capitalize on the digital revolution and jostle for fintech supremacy in the GCC.

CBK earlier in February released its digital banking framework, opening applications for interested parties to secure a digital bank license. The framework, which benchmarked regulatory approaches of 25 central banks studying use cases from 40 digital bank business models, outlines three types of digital bank models: a unit within a traditional bank; a standalone digital bank; or as a partnership between a traditional bank and a digital institution.

With almost KWD22 billion (US$71.44 billion) in assets at the end of last year, KFH is one of the largest Islamic banking brands globally. The merger has been years in the making. AUB has been a KFH acquisition target since at least 2017, as part of the Islamic bank’s expansion strategy. KFH received a conditional approval by the CBK to explore a potential merger in late 2019. The proposed transaction had been delayed several times due to the COVID-19 outbreak: once in April 2020 and again in December 2020. It was only in December last year that the respective board of directors of KFH and AUB agreed to update the acquisition studies. KFH received final approval from the CBK in July 2022 to purchase the issued ordinary shares of AUB in its entirety.

Kuwait is home to six fully-fledged Islamic banks. Late last year, National Bank of Kuwait launched, Weyay, a digital-only bank service targeted at youths.

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