Risk Preference Changes in the Kuwait Banking System’s Effect on Profitability

Abstract

As the institutional structure of the Kuwaiti banking market shifts, institutions are adopting a more
westernized approach. Traditionally, the banking system followed closely with Sharia Law, similar to countries like Saudi Arabia. Recently, Kuwait has implemented legal changes that have allowed banks the ability to increase risk taking. Additionally, outside investment is being encouraged, resulting in Kuwait now being considered an emerging market. This paper examines the impact on Kuwaiti bank profitability resulting from increased risk taking.