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Middle EastMay 1 2012

Middle Eastern banks: a little local insight

Local banks in the Middle East have continued to perform strongly despite the global financial downturn. The strategies of three such institutions – state-owned National Bank of Abu Dhabi, local-owned Qatar National Bank and retail franchise Emirates NBD – help to explain such a strong performance.
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Middle Eastern banks: a little local insight

State-owned National Bank of Abu Dhabi (NBAD) already operates in 13 countries and plans to add three more each year during the next 10 years, a sign of its intent to broaden its global footprint from an already extensive platform that spans major Middle Eastern markets – including 29 branches in Egypt – as well as Hong Kong, the US, the UK, France and Switzerland.

Unlike some banks in the region that are growing inorganically, NBAD sees its expansion primarily as 'build rather than buy'. The aim is to grow in areas where it has not yet obtained the right level of market share – and where it perceives its proposition as sufficiently compelling. This means addressing the small and medium-sized enterprise (SME) market, the Dubai market and the expatriate market, says Michael Tomalin, group chief executive of NBAD.

“The SME market is of importance because it is fast growing and central to the diversification strategy of Abu Dhabi and the United Arab Emirates. [In 2011] our SME lending rose by 38% and we are aiming to do something like the same again [in 2012] from a relatively low base. In Dubai we have opened new branches with a new look and feel, particularly in upmarket residential areas where professional expatriates tend to live,” says Mr Tomalin.

Extended coverage

In Abu Dhabi itself and some of the other northern emirates it aims to protect market share with a particular focus on women and young people joining the workforce. “We have also strengthened our elite proposition designed to reach professional customers, both national and expatriate, resident and non-resident. The new regulations set by the UAE central bank are something of a challenge and are likely to limit growth to a certain extent. However, if all banks strictly abide by them we welcome the change as there certainly was overlending to the sector in previous years. Good behaviour by all market participants and tough sanctions on those who do not abide by the new rules will be essential,” says Mr Tomalin.

The international growth is gaining traction in the first half of 2012, with the bank extending its coverage to China and Malaysia. In the second half of the year it hopes to establish a presence in South Sudan and Lebanon and in 2013 it will be looking to India, Qatar and Indonesia, subject to regulatory consent.

The SME market is of importance because it is fast growing and central to the diversification strategy of Abu Dhabi and the United Arab Emirates. [In 2011] our SME lending rose by 38% and we are aiming to do something like the same again [in 2012] from a relatively low base

Michael Tomalin

“We are not establishing NBAD embassies,” says Mr Tomalin. "We are establishing businesses in countries with strong cultural, trade and business links to the Arab world as part of our strategy to become a bank of reference for the Middle East and north Africa [MENA] region. We aim to serve our clients around the world in their investments and business with the Arab world and the needs of our Arab clients in the wider world. In those countries where we are established, we are deepening our business adding branches to our retail businesses in Egypt, Bahrain and Oman and adding new lines of business to our wholesale offerings in London, Paris, Hong Kong and the US.”

Hot topics

While NBAD is pushing forward strongly in all 16 of its businesses, Mr Tomalin identifies three areas of growth for 2012 – debt capital markets, private banking and asset management. “In the debt capital markets space we have built a strong capability to bring our clients successfully to market and to provide liquidity in issues we manage for investors. We think there will be many more issues out of the region [in 2012] and NBAD wants to lead these deals, distribute them to our investors and provide secondary market support,” says Mr Tomalin.

“With the establishment of our private banking business in Geneva and platforms in Abu Dhabi and Dubai, we are well positioned as the safest rated bank in the Middle East to increase assets under management. We have strengthened our relationship management teams of private bankers and working from a low base, as historically much Arab wealth went to Western banks, even a small diversion of funds in favour of NBAD will build us a big business.

“The growth of our asset management business is important both for institutional clients and providing support for our private clients through the private bank. We have established ourselves as one of the leading investment houses in the Middle East and we are looking to provide sub-advisory services for international asset management firms looking to invest a small percentage of their assets in the MENA region.

"Within the UAE, more firms are looking for external asset managers to improve returns, especially when deposit interest rates are so low. For retail investors, our asset management business has recently launched a 'cautious income fund' aimed to take advantage of the very attractive yields on lower Gulf bonds. We see opportunity in both equity and fixed-income markets in the Middle East [in 2012] for both issuers and investors.” 

Middle Eastern banks: a little local insight2

Road to growth: National Bank of Abu Dhabi plans to add three more countries a year to those it currently operates in

QNB's vision

Qatar’s first locally owned commercial bank is the leading financial institution in the country, with a market share exceeding 45% of banking sector assets. But Qatar National Bank (QNB) has also grown rapidly overseas. It operates in 24 countries and through 334 branches.

“We continue to see the large corporate, agency and semi-government agencies as the main providers of growth for [2012] and for the near future given the ongoing and planned development programmes and pipeline of projects towards Qatar’s National Vision 2030 [the country's development plan],” says Mohamad Moabi, assistant general manager of group strategy at the bank.

Also, going forward, private sector activities and consumer banking should continue to benefit from the overall growth of the economy, population and increase in affluence. QNB considers MENA as the main area in which to further build its presence through a direct presence and via its associate companies and subsidiaries. It also sees an expanding presence in Asia – it is currently active in Singapore, where it operates a branch, and Indonesia, where it has a controlling stake in Kesawan Bank PT – which would allow it to benefit from the increasing trade and investment flows between Qatar and Asia.

The bank has extended its regional reach by acquiring stakes in various financial institutions, including a 35% stake in Jordan-based The Housing Bank for Trade and Finance, a 24% stake in UAE-based Commercial Bank International, a 50% stake in the Tunisian-Qatari Bank, a 23% stake in the Iraqi-based Mansour Bank, and a 20% stake in the Al Jazeera Finance Company in Doha.

QNB will also grow through outright acquisition. “Expanding our activities going forward through an acquisition is part of our existing five-year strategy,” says Mr Moabi. “In terms of asset prices, yes they are currently more attractive than was the case four or five years ago, but although price is an important consideration there are other important matters including growth prospects and synergy. We believe acquisitions should be opportunistic in terms of strategic fit and synergies rather than price driven.” 

Looking ahead, QNB sees corporate banking as an area of strong growth. “We also see strong growth in project finance and capital markets, areas in which we have further developed our capabilities through QNB Capital, our investment banking arm, in order to capitalise on emerging opportunities,” says Mr Moabi. QNB Capital was established in 2008 and provides an array of investment banking services to corporate, government and institutional clients both within Qatar and around the world.

“We also believe that asset management will continue to represent growth opportunities for both individuals and institutional investors given the increasing wealth of the country. Also in this regard is our proposition to affluent retail customers through our QNB First, where we see continued strong growth,” says Mr Moabi.

Emirates NBD's expansion

Emirates NBD is the UAE’s leading retail banking franchise, with more than 141 branches spread across the seven emirates .The group also has operations in Saudi Arabia, Qatar, the UK, Singapore and Jersey, and representative offices in India and Iran. The bank is seeking meaningful international acquisitions in target markets, while continuing small-scale expansion through the opening of representative offices and organic growth in select markets such as Saudi Arabia.

According to CEO Rick Pudner, the bank’s resilience and robust financial position in 2011 will help it to make significant progress towards its strategic imperatives: optimising its balance sheet and capital allocation, driving profitability, enhancing support functions and strengthening platforms, and undertaking measured investments in growth areas.

Optimising its balance sheet is the top priority for Emirates NBD. During 2011, the bank worked towards further improving its funding position by focusing on deposit gathering. In 2012, Emirates NBD intends to maintain its loan-to-deposit ratio in the target range of between 95% and 100%. The bank aims to continue its focus on diversifying its funding, reducing the cost of funding and securing longer-term funding sources.

Emirates NBD will look to increase its lending activity in 2012 by focusing on identified areas of growth such as mid-sized corporations, SMEs and consumer finance. The bank also intends to continue to drive profitability across business segments. In the consumer banking and wealth management area, the bank will focus on increasing cross-selling and boosting fee business. It will focus on enhancing the customer service proposition, while reducing its cost base by optimising its infrastructure.

In the wholesale segment, the bank aims to focus on developing comprehensive client solutions, leveraging the expertise across the group in treasury markets, asset management and investment banking. The bank will closely monitor costs with the intention of maintaining a target cost-to-income ratio of about 33% to 34%.

The bank launched Tanfeeth in 2011, a fully owned subsidiary operating as a business process outsourcing provider. In 2012, Emirates NBD will focus on gradually increasing the scope of Tanfeeth by migrating further banking support and back-office processes.

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