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Middle EastMarch 7 2005

Prosperous life

Samba managing director and CEO Eisa Al-Eisa has steered the bank into a strong position since the departure of Citigroup.
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There is life after Citigroup, a prosperous life. When Citigroup pulled out of its Saudi Arabian joint venture Saudi American Bank, after 23 years, many doubted that the bank could survive on its own. They thought that Citigroup had been the powerhouse behind the bank and without it the bank’s controls and culture would collapse. Now, more than a year since Citigroup’s final exit in October 2003, there is a different story to tell.

Although Saudi American had been one of Citi’s most profitable global assets in the 1980s and had indirectly helped to bail out the giant during its troubles in the early 1990s, Citi’s stake in the bank was reduced to 20%. By October 2003 it was gone from Saudi’s second largest bank.

Without its Citi management contract, the Saudi bank was on its own and it appointed long-time employee Eisa Al-Eisa as managing director and CEO. After three stagnant years, Mr Al-Eisa faced a series of challenges. Would senior staff stay with Citi gone? What could be done to improve motivation, market share and brand image?

Key stakeholders

It was critical that all stakeholders should buy in and Mr Al-Eisa managed to get 20 out of 20 key appointments to accept and attracted some Citi bankers from around the world to move to Riyadh. He told them about his vision of doubling earnings at the bank in four years and after extensive research, the new name Samba Financial Group was chosen.

By last year, a revamped regime was in place and Samba’s exceptional performance that year tells its own story. After net income had declined by 22.7% in 2003 to SR1437m ($383.2m), they rebounded in extraordinary style in 2004, growing by 74% to SR2506m. And this led to a significant increase in return on equity, from 16.2% to 27.3%.

For Mr Al-Eisa, this was a huge vote of confidence in the bank’s new management. But there was more. Although all banks showed strong growth in demand deposits, Mr Al-Eisa was particularly pleased by Samba’s 31% growth in demand deposits to SR29.8bn, a big increase on the 7% growth in recent years and a sign of growing market share. He claims a market share of deposits of at least 21% for the consumer bank.

Accompanying the rise in deposits was a significant increase in loans, which grew by 38% to SR48.2bn. This reflected both major growth in consumer lending, in line with other banks, but even greater advances in its traditional strength, corporate lending.

The stock market also demonstrated its confidence in the bank. Samba’s share price rose from SR380 to SR800 at year-end, a dramatic 111% rise, bringing the bank’s market capitalisation to SR64bn ($17bn) – not far behind that of regional player Standard Chartered Bank.

What has spurred Samba to produce such stellar performances? Mr Al-Eisa appears to have reinvigorated the bank and brought back confidence to the institution after several years in the doldrums. His hirings appear to have borne fruit and naturally the strong economic environment, reflecting both high oil prices and growth in the non-oil sector, have played their part. Citi may have established the model but Mr Al-Eisa’s new team has been able to carry forward the bank’s traditional across-the-board strengths.

Corporate finance provided some key deals. Last year, Samba played a major role as arranger and book runner in several landmark transactions, including the largest ever Islamic financing facility of SR8.8bn for the UAE’s Ettihad Etisalat to finance the second GSM licence in the kingdom (see The Banker February 2005, p40) and the largest local currency syndicated term facility for Saudi Electricity Company of SR6bn. Samba’s success in lead managing the initial public offering (IPO) for Ettihad, with a record 4.3 million subscribers, provides a great stimulus for the bank in the challenges ahead against increased foreign competition in this sector.

Healthy prospects

The prospects also look good in retail and Mr Al-Eisa forecasts strong growth. “Consumer debt remains below international norms, at 12% of gross domestic product, and can still double without introducing systemic risk,” he says. Asset management and treasury are also profitable business areas for the bank.

This year, there are ample opportunities for asset growth and Samba has been selected to key role as processing manager for the IPO of the new Islamic bank Al Bilad, which is expected to be another landmark deal.

With this continuing success, Mr Al-Eisa may be able to achieve his target of doubling earnings in two years instead of four. Those that thought Samba might collapse without Citigroup might have to think again.

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