The cream of the crop for 2017 from the Middle East.
Like much of the Middle East, Bahrain has had to face a landscape of lower oil prices and reduced government revenues. This has affected the country’s banking sector. Despite this, Bank ABC, our Bahrain country winner, saw steady growth in 2016, after a year of negative growth rates in 2015, with assets up 7% and net profits rising 1.6%. The bank’s Tier 1 capital also increased, by 2% in 2016, with return on equity stable at 4.8% and its cost-to-income ratio dropping from 58% in 2015 to 50% in 2016.
In October 2016, Bank ABC successfully acted as joint lead manager and bookrunner on Bahrain’s $2bn dual-tranche sukuk and bond issue, having played a similar role in its $600m financing in February 2016. The bank was also ranked first among syndicated loan lead managers in the Middle East and north Africa region by number of deals arranged.
Also in 2016, Bank ABC upgraded its representative office in Singapore into a full branch, and opened a branch in the Dubai International Financial Centre. The bank’s risk management framework was significantly strengthened, while it continued to prioritise its digital strategy, with ABC Digital, its digital banking platform, introduced for both consumer and corporate clients, and with mobile payment platform ABC Pay rolled out in Jordan.
The bank has faced multiple challenges, notably a lack of growth in many of its core markets, along with a deep recession affecting Banco ABC Brasil, its major subsidiary in Brazil. The bank is also continuing to adapt to the post-crisis regulatory landscape.
“Notwithstanding both of these challenges, we are pleased that Bank ABC is steadily improving its earnings performance, while maintaining a strong balance sheet with excellent levels of capital and liquidity,” says Khaled Kawan, group CEO of Bank ABC.
With many of the international sanctions imposed upon Iran lifted in early 2016, the country’s banking sector has found a new lease of life, though storm clouds could be on the horizon with continuing regional tension and uncertainty over US policy towards the country.
Ayandeh Bank, the Bank of the Year for Iran, had a remarkable 2016, with profits up 315%, after rising just 14% in 2015, Tier 1 capital up 139% and total assets rising 44% in local currency terms. Meanwhile the bank’s return on equity grew from 12% to 21%.
Ayandeh Bank, which was established in June 2012 through the merger of Tat Bank, Salehin Credit Institution and Ati Credit Institution, has a 17% market share of deposits among private banks and credit institutions in Iran.
While its share of commercial bank deposits dropped from 18.5% in March 2015 to 12.54% in March 2017, its share of specialised banking deposits rose from 10.2% to 14.4% over the same period. The bank also ranks first among private banks in terms of its share of overall loans, at 16%.
Embracing the post-sanction landscape, Ayandeh Bank recruited consultants from around the world to prepare a new study, from which more than 10 projects have emerged, with the highest priority placed on attracting new customer groups such as frequent travellers and Iranians living abroad.
In 2015, the bank cut its number of branches from 641 to 165, in order to create a more agile and responsive bank. It has also launched projects related to anti-bribery and corruption, anti-money laundering and due diligence, all based on the latest international standards.
Meanwhile, in January 2017 Ayandeh Bank became the first Iranian bank to launch an open banking application programming interface portal, aimed at helping developers create customised banking services.
Bank Hapoalim, our winner for Israel, has continued its strong push into the digital realm, while also enacting an ambitious four-year efficiency programme focused on cost-cutting, headcount and space reduction.
The bank has reduced its retail branches by 15%, while also decreasing the amount of space it owns and rents. All of this was accomplished while Bank Hapoalim continued to maintain its leadership position in terms of retail presence across Israel, including the opening of several new fully digital branches.
Even so, Bank Hapoalim continues to have a cost-to-income ratio of 60.9%, although this does not include provisions in respect to the group’s business with American clients, nor expenses related to its efficiency drive, and the ratio is better than many of its domestic peers.
While Bank Hapoalim’s net profits dropped 14.7% in 2016, Tier 1 capital and assets grew 4.4% and 3.8%, respectively, while its non-performing loan ratio decreased from 1.75% to 1.27%. The bank has seen consistent growth in each of its strategic market segments over the past three years.
Bank Hapoalim has continued to show its commitment to innovation. The bank launched Poalim Digital, Israel’s first digital bank, and in 2016 established a centre for the study of data science, in collaboration with the Technion – Israel Institute of Technology, becoming the first bank in Israel to set up such a centre. In 2017, Bank Hapoalim launched Bit, a free app that allows individuals to transfer money to contacts via their smartphone with just three simple clicks. The app attracted 250,000 users within weeks of launching.
In May 2016, the bank also launched Israel’s first centre for business accompaniment, in collaboration with the Israeli Institution for Management, with the aim of providing small businesses with the knowledge and tools necessary for managing and growing their business.
Despite the challenging landscape for banks operating in the Middle East, Arab Bank, which won The Banker’s Jordan country award as well as our Middle East regional award, achieved a net profit of $533m in 2016, up 20% on 2015.
The bank, which has the largest market capitalisation on the Amman bourse, ranks first among Jordanian banks in terms of market share of assets (19.8%), deposits (19.7%) and credit facilities (13.9%), while continuing to benefit from its wide geographic presence, with more than 75% of its income generated outside its home market, making it a truly regional bank.
Arab Bank has not escaped the economic and geopolitical challenges that currently exist in the Middle East, with overall assets dropping 3.2% in 2016 and the bank’s cost-to-income ratio growing by 7% to hit 49.7% over the year. However, Tier 1 capital increased 16% and return on equity ticked up to 6.5%.
Arab Bank has managed to effectively grow its business across the Middle East and north Africa region. The bank has continued its Digital Channels campaign, launched in 2015, with a dedicated team at key branches in Jordan, Egypt and Palestine tasked with educating customers on using the bank’s digital products. Meanwhile, its online banking service, Arabi Online, has undergone a major upgrade to provide customers with a greater variety of features.
“Our strategy is underpinned by prudent operating policies, including sustaining high levels of liquidity, strong capital adequacy and high asset quality. We will also continue to improve our operational efficiency, to further support our organic growth in existing markets and to enhance our readiness to exploit appropriate new markets and opportunities, whenever they arise,” says Nemeh Sabbagh, CEO of Arab Bank.
Kuwait, National Bank of Kuwait
Kuwait has not escaped the impact of lower oil prices, but with a strong regional presence, National Bank of Kuwait (NBK), our winner of the country category, has had another strong year.
NBK remains one of the most diversified banks in the Middle East, both in terms of geography and product lines, which has helped it to sustain growth and profitability. In local currency terms, NBK’s net profits grew 5% year on year in 2016, while total assets and Tier 1 capital increased by 3% and 12%, respectively. Meanwhile the bank’s return on equity and cost-to-income ratio remained steady in 2016, at a respectable 10.2% and 33.8%. The bank’s ratio of non-performing loans also remained steady at 1.3%.
NBK has continued its push into the Islamic banking segment, with its sharia-compliant subsidiary, Boubyan Bank, a key element in the group’s strategy to diversify its income, product offering and client base.
NBK has also set up a specialised project finance unit, successfully leveraging its experience and reputation to play a lead role in financing and arranging two landmark projects in Kuwait: the $4.3bn new terminal at Kuwait International Airport and the country’s $2.9bn liquefied natural gas import facilities. The bank also advised Kuwait National Petroleum Company on borrowing requirements for its Clean Fuels Project, the largest financing in Kuwait’s history.
“NBK successfully solidified its diversification strategy last year. All segments and geographies contributed strongly to the group’s growth and profitability. We strengthened our leadership position in the domestic market. Our Islamic banking and investment banking subsidiaries delivered exceptional performance, growing their contribution to the group. Our international operations continued to strongly position the group’s offerings,” says Isam J Al-Sager, CEO of NBK Group.
In September 2017, Moody’s changed its outlook on Lebanon’s banking sector from ‘negative’ to ‘stable’, reflecting the improved political and economic stability in the country, with the economy set to grow 2.8% in 2017, up from 1.8% in 2016.
This bodes well for Blom Bank, which once again wins our Lebanese Bank of the Year award, after posting strong financial results in 2016 and completing its takeover of HSBC’s local operations. The bank also launched two retail loan programmes, targeting small businesses wanting to borrow up to $100,000, which are seen as substitutes to lending by unlicensed ‘comptoirs’ in the informal economy.
Blom Bank registered a 14.4% growth in net income in 2016. At the same time, total banking assets and Tier 1 capital grew by 1.43% and 7.8%, respectively, while the bank maintained its leading position in relation to return on equity (up to 17.4%), cost-to-income ratio (34.6%), and with non-performing loans dropping slightly to 4.19%.
“The greatest challenge was probably maintaining our track record of consistent growth in profits and a smooth performance in the face of a turbulent environment in Egypt, where we saw a devaluation of the pound, in Syria, where we had to divest, and a mediocre economy in Lebanon,” says Saad Azhari, chairman and general manager of Blom Bank.
In November 2016, Blom Bank completed the purchase of the Lebanese operations of HSBC, beating out local rivals. As part of the agreement, Blom Bank retained all 200 employees at the bank, taking advantage of their knowledge and expertise. “In particular, we have adopted many of HSBC’s processes where we found them to add value, most notably in corporate banking and trade finance,” says Mr Azhari.
Last year was a busy one for Bank Muscat, our Bank of the Year for Oman, which like many banks in the Middle East has faced a challenging economic environment.
While Bank Muscat, the country’s largest lender, saw overall assets drop 13.7% in 2016, versus a rise of 28.95% in 2015, Tier 1 capital increased by 10.8%, doubling its growth rate from a year earlier. Net profits also rose, albeit by 0.6% year on year, while return on equity was 12.5% and the bank’s cost-to-income ratio improved slightly to 40.4%.
Outside the raw numbers, Bank Muscat has achieved a number of significant developments. The bank was chosen to arrange syndicated loans for petrochemical and liquefied petroleum gas projects, and was also assigned lead arranger for the financing of two power generation projects and a water desalination plant.
The bank’s investment banking division successfully closed an aggregate of $1.8bn in capital raising transactions, while carrying forward a strong pipeline of more than $2.3bn-worth of transactions into 2017. Meanwhile the bank’s treasury and capital markets division facilitated Oman’s first oil hedging deal in 2016, in addition to adding several new clients spread across the Gulf region and Asia to its portfolio.
The bank has continued its development from traditional bank to digital leader, while its private equity and asset management division remains among the leading asset managers in the Gulf region, with total assets under management in excess of $2bn.
“In the prevailing economic situation, a challenge faced by the bank was to maintain steady growth in the loan book, fee income and deposit mobilisation. With customers seeking greater convenience and freedom created by technology, the bank was required to enhance innovative technology-based banking channels in order to optimise services,” says Abdul Razak Ali Issa, CEO of Bank Muscat.
While Palestine continues to be buffeted by uncertain political and economic realities, Bank of Palestine had a strong 2016, with assets growing almost 50% to $4.11bn, and net profits up 22.91% year on year.
The bank impressed our judges with its continued commitment to promoting economic growth through lending to micro, small and medium-sized enterprises, which employ an estimated 87% of Palestine’s workforce, increasing overall lending to this segment to $2.2bn, up 59.7% year on year. Meanwhile, the bank has kept its non-performing loan ratio to 1.99%, slightly up from 1.71% in 2015.
Bank of Palestine has also proved to be a strong advocate of corporate social responsibility, dedicating 6% of its net profits to community and human development. In 2016, the bank was accepted as a member of the Global Alliance for Banking on Values, a network of banks committed to advancing positive change in the banking sector. It is the group’s first member from the Middle East.
In September 2016, Bank of Palestine completed its merger with Palestine Commercial Bank, with the share swap three to one in favour of Bank of Palestine shares. The bank also acquired an additional stake in Arab Islamic Bank (AIB), bringing its total holding to 51.98%, with AIB set to remain an independent subsidiary while giving Bank of Palestine a valuable majority stake in a local Islamic banking operation.
Bank of Palestine is set to open a new branch in East Jerusalem in late 2017, the first Palestinian bank to have a branch in the city since 1967. It also recently opened a representative office in Dubai, with a second representative office set to open in Santiago, Chile, before the end of 2017.
The winner of our country award for Qatar, Qatar National Bank (QNB) has over the decades grown to become the largest financial institution in the Middle East and Africa, with 2016 proving another impressive year for the lender.
“In the past year, QNB has continued to demonstrate sustainable top-line and bottom-line growth. The key drivers of this success are the strength of our capital, top-tier credit ratings, our leadership position in Qatar, a strong brand franchise, and an increasing international contribution through geographical diversification and expansion,” says Ali Ahmed Al-Kuwari, group chief executive officer of QNB.
QNB’s Tier 1 capital grew 21% in 2016, the third year in a row that Tier 1 capital has grown by more than 20%. Meanwhile, overall assets grew 34% to QR719.7bn ($187.9bn), significantly up from the 11% growth rate in 2015, while net profits came in at QR12.4bn, up 9% year on year, continuing growth from 2015 and 2014, when net profits rose 8% and 10%, respectively. However, the bank’s cost-to-income ratio rose from 21.5% to 30.4% in 2016 and non-performing loans ticked up from 1.4% to 1.8%, though this is still among the lowest rates in the region.
With the support of Qatar Central Bank, QNB launched a national programme targeting financial inclusion in Qatar, where almost half of the population in the country is working on infrastructure projects. QNB has partnered with telecom provider Ooredoo to build a digital wallet, accompanied by a pre-paid credit card, for unbanked workers tied to their mobile phone numbers.
In June 2016, QNB also completed the acquisition of a 99.88% stake in Finansbank, the fifth largest privately owned Turkish bank by total assets, customer deposits and loans, further expanding its global footprint.
Al Rajhi Bank, Saudi Arabia’s second largest lender by assets, is the winner of our Saudi Arabian Bank of the Year award, after posting strong growth figures and embarking on a major transformation programme.
Despite the challenging environment, Al Rajhi saw its net profits grow 14% in 2016, with assets and Tier 1 capital rising 8% and 11%, respectively. Meanwhile, the bank’s return on equity has stayed largely stable over the past three years, rising slightly to 16.49% in 2016, while its cost-to-income ratio was an impressive 32.38%.
The bank’s more conservative capital positions have allowed it to weather the recent market uncertainty largely brought about by lower oil prices. Over the past two years, the bank has executed a major transformation programme, which started as a roadmap in late 2015 and became the basis of its strategy in 2016, with the key focus being on accelerating growth, becoming an employer of choice and investing heavily in digital offerings.
Al Rajhi Bank is the first bank in Saudi Arabia to launch an innovation lab, designed to get customer feedback on new digital offerings before they are launched. Other accomplishments include the successful completion of the country’s first cross-border money transfer using blockchain technology.
“We will focus on evolving our digital channels and continuing to invest in innovative technology to enhance our customers’ journeys,” says Steve Bertamini, CEO of Al Rajhi Bank. “The low-growth gross domestic product environment over the past 18 months has impacted overall demand for corporate and consumer loans. Despite this challenge, we continued to grow both our top and bottom line well above the industry [average] as evidenced by nine consecutive quarters of increasing earnings and the recent 100% interim dividend increase,” he adds.
United Arab Emirates, Emirates NBD
Emirates NBD, our winner for the United Arab Emirates, impressed the judges with its strong digital focus, as well as the way it has continued to grow its balance sheet despite challenging market conditions.
Emirates NBD saw asset growth of 10% in local currency terms in 2016, with Tier 1 capital rising 8% and profits up a more modest 2%. The bank’s cost-to-income ratio grew slightly in 2016, but remained a healthy 33.1%, while its non-performing loan ratio continued to fall, reaching 6.4%, down from 7.1% in 2015 and 7.9% in 2014.
The bank has poured significant resources into digital offerings, with notable results. As of May 2017, 92% of the bank’s total transactions were done outside of the branch, with 53% of all individual customers digitally active over a 90-day period. The bank has put in place a strategic investment of Dh500m ($135m) towards digital innovation over the next three years, and has introduced several first-to-market products such as Liv, the UAE’s first digital bank for millennials; Emirates NBD Pay, a contactless payment service; and mePay, which allows customers to transfer cash to friends instantly within the UAE.
The bank has continued to expand its geographical footprint, with its first Indian branch opening in 2017, and plans to open three additional branches in Saudi Arabia. The bank’s popular 60-second DirectRemit service has been extended to Egypt and Sri Lanka, with remittance transactions up 60% year on year.
“In a challenging global economic environment with political uncertainty, we have been fortunate to retain our market leadership with growing market share and strong financials. Having said that, customer service is always challenging in a multicultural market such as the UAE, where service expectations and needs are varied – there is always room for improvement,” says Shayne Nelson, group CEO of Emirates NBD.
