The cream of the crop for 2016 from the Middle East.
Bahrain, Ahli United Bank Bahrain
Ahli United Bank (AUB), the winner of this year’s Bahrain country award as well as our Middle East regional award, impressed the judging panel on several fronts. An outstanding financial performance in 2015, expansion in its home market and commitment to supporting small and medium-sized enterprises (SMEs) all contributed to AUB’s success in its category this year.
Bahrain accounted for 13.4% of the group’s net profit after tax, equivalent to $72m. That this figure was achieved in the country’s more difficult economic environment points to AUB’s strong strategy and prudent growth vision. The strength of the bank’s operations in Bahrain and across the region have led to it achieving a higher rating than the sovereign.
“Sustaining core earnings momentum and concluding new strategic acquisitions in a very difficult operating environment, exacerbated by sustained low of oil prices together with continuing adverse regional geopolitical and security situations, remained our key challenge in the past year,” says Adel El-Labban, AUB group chief executive and managing director.
In October 2015, AUB acquired the remaining 50% stake in Legal & General Gulf, its Bahrain-based joint venture with Legal & General Group specialising in conventional and sharia-compliant life insurance services. Following the completion of the deal, which gives AUB 100% ownership, its title was changed to Al Hilal Life. AUB’s plan for Al Hilal involves moving it beyond being a primarily bancassurance operation to a more rounded life insurer.
AUB’s commitment to supporting SMEs distinguishes the bank from its competition. Sector expertise is accompanied by strong relationship-building efforts, including dedicated SME relationship managers across most of its key markets. In 2015, SME loan growth across the group was about 14.5%, well above overall corporate growth.
Cooling growth, high inflation and liquidity pressures in the banking sector have all taken their toll on Iran’s economic trajectory. The winner of this year’s country award, Bank Pasargad, has weathered the worst of these difficulties, though as is the case with most other Iranian banks, it did not emerge from 2015 unscathed.
Encouragingly, the bank’s Tier 1 capital and total assets increased by about 23% and 17%, respectively, in local currency terms. However, net profits and return on equity both fell over the course of the year.
“Our biggest challenge in 2015 was the very tough economic conditions of Iran, which flirted with economic recession and only posted gross domestic product growth of 0.5%. High inflation also continued to put pressure on the economy. As a result, the banking sector faced a credit crunch and liquidity was a major issue,” says Majid Ghassemi, chief executive and vice-chairman of Bank Pasargad.
In response, the bank has devised a five-pillar strategy that involves diversifying its revenue base, reducing non-performing facilities and non-performing loans, increasing its share of the deposit market, growing Tier 1 capital and cutting expenses. It is also working to develop new products and services to bolster its leading position in the market. This includes the launch of the ‘Green Deposit Account’, in which depositors can transfer all or part of any funds that are generated through the account to environmental protection causes.
“Our main focus will be to grow internationally by creating our own international network composed of branches, representative offices and subsidiary banks. Domestically, we intend to increase our market share in all sectors specially regarding deposits, loans and trade finance,” says Mr Ghassemi. “The biggest opportunity is to return to international debt markets, to sign financing agreements with large international banks and to broaden our correspondent banking relations.”
Israel’s Bank Leumi is embracing the digital innovation revolution and fintech like few other banks anywhere in the world. The launch of its banking technology arm, Leumi-Tech, has now been followed by Israel’s soon-to-be-launched first and only fully mobile bank, known as Pepper. These efforts, coupled with a strong performance in 2015 and steps to boost the bank’s capitalisation, captured the attention of the judging panel and ensured that Bank Leumi scooped this year’s country award.
“During the past year, we dramatically improved the bank’s capital adequacy with several major creative steps, some of which are pioneering in banking. The main steps include converting pension and jubilee rights of employees into shares, purchasing an insurance policy for guarantees issued by the bank, and the issuing of contingent convertible bonds,” says Rakefet Russak-Aminoach, chief executive of Bank Leumi.
In 2015, Bank Leumi’s net profits grew by 100% while assets and Tier 1 capital grew more modestly, by 4.9% and 4.6%, respectively. Meanwhile, the bank’s return on equity improved markedly, climbing to 10.3% from 5.4% in 2014. And, in line with its strategy to achieve greater operational efficiency, Bank Leumi’s cost-to-income ratio fell over the same period, from 74.6% to 65.8%. The ratio of non-performing loans also fell from 1.7% to 1.3% over this time.
Much of this success has come from the strides in innovation that Bank Leumi is taking. A case in point is its new standalone digital bank, Pepper.
“In 2015, we started building Pepper from scratch, on a separate, completely new technological platform. Pepper will be a fully mobile bank, branch free, with no management fees. It is a personalised app with an innovative user interface. For me, Pepper epitomises the start-up nation’s culture, capabilities and brilliance,” says Ms Russak-Aminoach.
Jordan’s Arab Bank has enjoyed another strong year despite a number of political, economic and legal headwinds. As a truly regional bank, with a footprint across the wider Middle East and North Africa (MENA) region – 75% of its income is generated outside Jordan – its geographical diversification has been a source of strength during a challenging time.
At the end of 2015, Arab Bank reported a net operating income of $1.1bn, while its net profit after tax and provisions amounted to $442m, compared with $557m in 2014. Without the legal provisions of $349m, the bank would have posted a $791m net profit.
“The strong underlying performance of the bank reflects the success it has had in growing its business across the different markets while at the same time managing risks very effectively. The bank has succeeded in growing its operating profit through its prudent strategy and by taking advantage of the broad diversification of its business in Jordan and across the region,” says Nemeh Sabbagh, chief executive officer of Arab Bank.
In recent years, Arab Bank has taken a leading role in financing the development of clean energy infrastructure projects in Jordan. In partnership with the International Finance Corporation (IFC), the bank played a key role in the development of the Al-Tafila wind farm in 2015, while it also closed the financing of six out of 12 solar photovoltaic power projects under the auspices of the IFC in collaboration with other financing groups.
“Arab Bank continues to be a primary gateway to and from the MENA region. The bank’s extensive global network makes it uniquely positioned to help international companies tap into Middle East markets and at the same time act as a primary enabler and supporter of local companies with international growth ambitions to expand their business within the region and globally,” says Mr Sabbagh.
Kuwait, National Bank of Kuwait
Relative to a number of its Gulf Co-operation Council peers, Kuwait is weathering the lower oil price environment reasonably well. Thanks in part to low production costs, the country’s budget breakeven oil price is about $47 a barrel. Backed by this healthier domestic economic, coupled with a well-diversified regional business model, National Bank of Kuwait (NBK) was the standout entry in this year’s Kuwait country category.
In local currency terms, net profits increased by 8% year on year while total assets and Tier 1 capital grew by 8% and 22%, respectively. Meanwhile, the bank’s return on equity and cost-to-income ratio remained steady in 2015, at a respective 10.5% and 32.2%. Encouragingly, NBK’s ratio of non-performing loans decreased from 1.5% in 2014 to 1.3% in 2015, despite the challenges linked to cooling oil prices both in Kuwait and across the wider Gulf region.
“Kuwait remains our core market and we will continue to lead the business activity generated by the government’s infrastructure spending programme. But since our strategy focuses on diversification, we will concurrently strengthen our regional and international presence, capturing growth opportunities that emerge in the Middle East and north Africa region. We also see a growing opportunity in Islamic banking, and our sharia-compliant subsidiary, Boubyan Bank, continues to aggressively penetrate that niche market,” says Shaikha K Al-Bahar, deputy group chief executive officer of NBK Group.
NBK’s leading position in the corporate banking space has seen it participate in several recent landmark transactions. This includes the syndicated financing for OSN, the region’s dominant pay-TV network, of which NBK was the only Kuwaiti bank to participate. In addition, the corporate banking group provided all engineering, procurement and construction firms with their financing needs on the $13.2bn Azzour Refinery Project.
Numerous economic and political headwinds, a challenging regional security environment and a highly competitive market combine to make Lebanon a difficult place to do banking. But this year’s winner, Blom Bank, impressed the judges based on its commitment to customer service, technological innovation and support of the local economy.
It also exhibited strong financial growth in 2015, overcoming a number of politico-economic problems to do so. Net profits increased by 10% in local currency terms, while total assets and Tier 1 capital grew by 4% and 7.9%, respectively.
“Despite the challenging environment, we were able to achieve very satisfactory results in 2015 and the first half of 2016, recording the highest absolute net income among all Lebanese banks as well as the highest performance among peers in terms of major ratios. As of the first half of 2016, we had a return on equity of 16.8%, a return on assets of 1.5%, cost to income of 35.6% and capital adequacy of 18%,” says Saad Azhari, chairman and general manager of Blom Bank.
As the leading bank in the Lebanese market, Blom Bank has been pivotal in negotiations with domestic and international policy-making and regulatory agencies. For instance, the bank was at the forefront of discussions with Lebanese politicians to prevent an increase in public sector pay that would have exacerbated the government deficit. Similarly, the bank negotiated with US policy-makers to determine the most appropriate structure for the new Hezbollah International Financing Prevention Act in a way that would be least problematic for the wider banking system.
More recently, Blom Bank’s success in asset management – it has more than $800m of assets under management – has seen it launch a separate asset management company, Blom Asset Management. In April 2016, Blom Bank was also appointed co-lead manager of Lebanon’s $1bn Eurobond issuance.
New oil production techniques and the greater efficiency of the oil sector as a whole led to record production in Oman in 2015 of 980,000 barrels per day. But the lower oil price environment is still hitting the economy hard. Gross domestic product growth in the country in 2015 was about 3.3%, while the International Monetary Fund expects this number to fall in 2016 to just 1.8%. As such, public spending is falling and opportunities for private sector development are diminishing.
For the banking sector, these are difficult times. But this year’s country winner, Bank Muscat, has effectively navigated these obstacles to continue its upward growth trajectory.
“Against the backdrop of the challenging economic situation, the bank faced a herculean task in maintaining abundant liquidity, a healthy asset quality, non-interest income and cost-management measures. Equally challenging was the focus to make a difference in banking excellence through product innovation and improved levels of service for both personal and wholesale banking customers,” says AbdulRazak Ali Issa, chief executive of Bank Muscat.
Bank Muscat’s investment banking division was particularly successful in 2015. It achieved closure for an aggregate of OR2.2bn ($5.7bn) of capital raises for the year, while the debt finance group raised $1bn for the international bond offering of Oman Electricity Transmission Company.
It was the first international bond issuance from a government-owned entity from Oman. Moreover, the debt finance group acted as the sole issue manager for the OR250m sukuk by the government of Oman. This was the first issuance of sharia-compliant paper by the sovereign.
In 2015, Bank Muscat also launched the country’s first electronic branch, located in the Oman Avenues Mall. This location includes bulk cash deposit machines for corporates, and a ‘social corner’, where customers can interact with call-centre employees through social media channels.
Despite operating in a volatile political and economic environment, the Bank of Palestine has developed a sound strategy based on banking essentials, values and long-term sustainability.
In US dollar terms, the bank posted a net profit increase of 7% in 2015, while its total assets and Tier 1 capital also grew by 14% and 11%, respectively. And amid increased economic uncertainty in the Palestinian Territories in 2015, its ratio of non-performing loans decreased from 2.2% in 2014 to 1.72% in 2015, while its return on equity remained stable at 14%.
The bank has remained committed to the development of the Palestinian economy through its support of micro, small and medium-sized enterprises (MSMEs). To this end, it has increased its overall loan portfolio to this segment to $1.39bn in recent times. Last year alone the total credit extended to this group grew by 33%, driven largely by a $200m campaign dedicated to MSME customers.
The Bank of Palestine has also been addressing issues of financial inclusion when it comes to the role of women. Its special Felestineya programme, a new introduction in 2015, focused on social and economic empowerment for women in the marketplace, while more jobs for women were provided at the bank, including in senior positions, boosting the percentage of women employees to 32%.
In early 2016, the Bank of Palestine completed two notable acquisitions in the local banking market. The first was a merger with the Palestine Commercial Bank in a share swap of three to one in favour of the Bank of Palestine. The second was an additional 31% stake in Arab Islamic Bank, meaning Bank of Palestine has become a majority shareholder in an Islamic banking operation in the local market.
“The hallmarks for our successes this past year were the ability to grow our network of branches in pursuit of further financial inclusion and the successful completion of merging a mid-size bank into the Bank of Palestine, incorporating all their staff, their customers, their shareholder and their branches,” says Bank of Palestine chairman and general manager Hashim Shawa.
“The third achievement was the acquisition of a majority stake in the Arab Islamic Bank, giving us an Islamic banking solution in addition to our commercial retail and corporate banking activities.”
Based on its performance in recent years, Qatar National Bank (QNB) is well on its way to meeting its objective of becoming a Middle East and Africa icon in 2017. Net profits in 2015 were up 8% at $3.1bn while total assets grew by 11%, or $147.9bn, over the same period.
Notably, an increasing share of this success now stems from the bank’s international operations. In 2014, its international growth accounted for about 28% of its net profits, but by 2015 that figure had risen to 31%.
In terms of its international footprint, QNB has now opened a representative office in Vietnam and has obtained licence approval for Myanmar, while it has received permission to begin operating in Saudi Arabia. Then in June 2016, QNB acquired Finansbank in Turkey, the fifth largest privately owned bank by total assets, customer deposits and loans in the Turkish market.
QNB is also committed to the roll out of its multi-channel distribution strategy, which focuses on enhancing customer convenience. In 2015, the bank launched a new and modern mobile banking application and drew up plans to continue its development over the longer term. It was also the first Qatari bank to introduce a remote cheque deposit function on mobile banking, as well as iris-scanning technology at ATMs, meaning customers can access their accounts without the need for a card or passwords.
QNB has launched a one-stop shop for small and medium-sized enterprise clients in Qatar, which is designed to act as a seamless support system for these businesses throughout their entire lifecycles. This falls in line with Qatar’s National Vision 2030, by catalysing the growth of the private sector.
Saudi Arabia, Alawwal Bank (formerly Saudi Hollandi Bank)
Alawwal Bank, the oldest in Saudi Arabia, continues to go from strength to strength. In an environment characterised by reduced government spending and a slowdown in the country’s economic growth, the bank has maintained healthy growth while keeping non-performing loans (NPLs) to a minimum.
In 2015, Alawwal Bank’s NPL ratio was just 1%, while its cost-to-income ratio was an impressive 32%. Return on equity remained steady year on year in 2015, sitting at 16%. Over the same period, net profits jumped by 11% in Saudi riyal terms, while total assets and Tier 1 capital grew by 30% and 16%, respectively.
Alawwal Bank has an immensely successful co-branded credit card with Saudi Arabian Airlines’ frequent flyer programme, Al Fursan. Since the launch, there has been a 66% increase in credit card acquisition, while 70% of all credit cards issued by the bank stem from the co-brand.
The card is ground-breaking on a number of fronts. It offers customers more air miles per riyal spend than any other card in Saudi Arabia, while the bank offered the first 1000 card customers a free return ticket to Dubai. In addition, 15,000 bonus miles were given to customers based on their spending habits.
Having a physical footprint across a country as large as Saudi Arabia remains paramount to Alawwal Bank. To that end, the bank has increased its branch network from 50 to 65 locations, and its ATM network from 269 to 507. This footprint, in tandem with strong digital offerings, is also important when it comes to serving small and medium-sized enterprises (SMEs) across the country. To better serve these customers Alawwal Bank has developed a specialised risk acceptance framework for SMEs. It also offers the Business Owner Toolkit online portal, which offers guidance and help to new businesses.
United Arab Emirates, Emirates NBD
Emirates NBD’s commitment to customer service excellence, efficiency, geographic expansion and digital innovation all ensured that it scooped this year’s country award for the United Arab Emirates.
The bank’s return on equity stood at a healthy 21.5% in 2015 while its cost-to-income ratio was an enviable 31%. In addition, its net profits in local currency terms jumped by 39% for the year, while total assets and Tier 1 capital grew by 12% and 11%, respectively.
These strong results were underscored by Emirates NBD’s commitment to product and service innovation for new and existing customers. The introduction of the Starwood Preferred Guest credit card, the region’s first co-branded hospitality card, augmented the bank’s premier card partnership offering. In addition, the launch of the Dubai Multi Commodities Centre (DMCC) commercial card for corporate and small businesses set up in the DMCC free zone has proven popular.
Meanwhile, the success of DirectRemit, the bank’s in-house remittance service, has been extended to a number of new markets beyond India, including the Philippines, Pakistan, Sri Lanka and Egypt. Remittance volumes have grown by a factor of five over these corridors since the bank launched its service.
Emirates NBD’s drive towards digital innovation and development is paying dividends. In 2015, 87% of the bank’s total transactions were executed outside of the branch. In addition, more than 750,000 customers have downloaded the mobile app. These trends led to an inflection point in 2015, whereby the bank saw digital transactions grow by 29% while branch transactions declined by 15%.
Most encouragingly, Emirates NBD now sources between 10% and 15% of its new business through digital channels across multiple segments and business lines. The bank has announced a further Dh500m ($136m) of investment in its digital offerings over the next three years.
