Investments in financial derivatives by local banks experienced a decline over the initial 10 months of 2023, decreasing by 15.1% to 1.965 billion dinars. This contrasts with December 2022’s 12.951 billion dinars, marking a decline according to data from the Central Bank of Kuwait in October. On an annual basis, these investments increased by 10.3%, reaching 1.03 billion dinars, compared to 9.956 billion dinars in October 2022. However, a monthly increase of 7.8%, approximately 796.9 million dinars, was observed from the end of September, when the total was 10.1 billion dinars.

The trajectory of bank investments in financial derivatives fluctuated throughout 2023. Decreasing from 12.951 billion dinars in December 2022 to 10.654 billion dinars in January, it rose in February to 10.934 billion dinars. Yet, it declined to 10.176 billion in March, reaching 10 billion in April, 9.836 billion in May, and 9.725 billion in June. Subsequently, it increased to 10.304 billion dinars in July, only to decrease again in August to 10 billion dinars and reach 10.1 billion in September. Financial derivatives encompass diverse investment instruments derived from the value of financial or other assets (such as stocks, bonds, real estate, currencies, and commodities). These instruments include futures contracts, options contracts, and more. Futures contracts involve agreements to buy or sell assets at an agreed-upon price on a future date.

Options contracts, on the other hand, grant one party the right (but not the obligation) to buy or sell an asset at a predetermined price on a future date, with payment of a premium. Several Kuwaiti banks have previously obtained approval from the Central Bank of Kuwait to establish special purpose companies in the Cayman Islands, specifically for dealing in financial derivatives contracts. Regulatory authorities, including the Central Bank of Kuwait, the Capital Markets Authority, and the Ministry of Commerce and Industry, have collaborated to create a regulatory framework for derivatives trading.

Notably, a Capital Markets Authority decision in October 2021 mandated companies involved in financial derivatives to regularize their status, with oversight limited to derivatives traded in Kuwait. As part of Kuwait’s efforts to upgrade its market from “emerging” to “advanced emerging” in the “FTSE Russell” index, the Capital Markets Authority is implementing a strategy to develop and enhance the market’s appeal to investors. This involves expanding the offering of financial products and services, including listing and trading platforms for bonds, instruments, exchange-traded funds, financial derivatives, and repurchase contracts. These initiatives align with Kuwait’s ambition to become a regional financial and commercial center, competing with other Gulf markets, and attract both foreign and local investors.