Commercial bank of kuwait (CBK) - Essay Example

Characteristics of the industry in which the bank operates Commercial Bank of Kuwait operates in the Kuwait’s banking industries whose environmental features are identifiable. The industry is one of the strongest in the region and this identifies positive prospects such as sustainability and a business’ profit making interests. The industry is also free from unfavorable competition from international financial institutions. It comprises of about ten local banks and nine foreign banks, a number that identifies oligopolistic market.

This means that the market players have significant potentials to dictate market factors but competitors can at the same time use such powers to gain competitive advantage over the firm. This further identifies banks’ fears of customer manipulation and leads to significant level of stability in the industry. The industry is also in its developmental stage in which competition is increasing as each bank seeks to expand its market control. Developments in the industry also identify diversification into new products and application of technology for developing new products as well as for efficiency.

Innovation has been another characteristic feature of the industry and is a factor to increased level of competition. Favorable political environment has also been reported within the industry with policies that support commercial banks’ stability and operations. The policies indicate stability of the industry, regardless of possible entry by more foreign banks, because of the government policies that focuses on protecting the industry. Further, the minimal market size helps in protecting the industry from further venture by foreign banks because of risks of failing to reach breakeven points by new entrants and the country’s small population explains this (Capital Standards 1).

The Industry however faces risks from volatility in two industries that are significant to its sustainability. The industries’ dynamism affects performance and profitability of the banking industry that is also susceptible to threats of concentration. The role of Islamic banking that is gaining momentum in the country is another threat to the banking industry because of its ability to reduce the market base. Islamic banking is a significant threat because of the country’s dominant faith that is likely to induce bias towards the religious banks (Capital Standards 1).

The Kuwait’s banking industry is also susceptible to global economic factors as global recession was witnessed during the global recession in the year 2009. Other significant sectors to the banking industry such as the construction sectors are also susceptible to the global economy and affect banks’ conditions. The industry’s financial indicators such as gross loans and non-performing loans also offer a basis for its analysis. Amount of gross loans has been increasing and this indicates increasing demand for financial services.

Increasing trend in nonperforming loans in the industry also indicates increasing advanced services to customers that culminates to increased defaults and threats of defaults. The increasing volume on non-performing loans is however, a threat to the industry as defaults constrains liquidity. Policies to improved asset quality have however promised to reduce the threats of growing volume of nonperforming loans with positive results being reported in the year 2010. The industry also relies on low cost deposits as sources