#194 - April 2017

www.bankerme.com

APRIL 2017 | ISSUE 194

Focusing on the fundamentals Shailesh Dash, Founder & Board Member of Regulus Capital

Focusing on the

fundamentals Shailesh Dash, Founder & Board Member of Regulus Capital

14 Regional regulatory update page 3-4 contents.indd 1

24 Iraq: hanging on

54 Creating a diverse bond market

Get the next issue of Banker Middle East before it is published.

Full details at: www.bankerme.com

Dubai Technology and Media Free Zone Authority

“We try to present investors with attractive investments in this region instead.�

60 The blockchain conundrum 12/04/2017 11:46

ABK’S AWARD-WINNING CREDIT CARD ABK Emirates Visa Infinite credit card recognised by Banker Middle East Product Awards 2016.

• Best Co-Branded Credit Card • Best Credit Card

Simpler Banking

CONTENTS

APRIL 2017 | ISSUE 194

Editor’s Letter

O

10

18 6

24

News analysis Funding pressures on GCC banks to ease this year

8

News bites

THE MARKETS 10 Can Oman survive a fall in oil revenue?

LEGAL PERSPECTIVE 14 Regional regulatory update COVER INTERVIEW 18 Focusing on the fundamentals COUNTRY SPOTLIGHT 24 Iraq: hanging on INSURANCE 30 Optimising the insurance customer experience PRIVATE EQUITY 36 Undiscovered horizons www.bankerme.com APRIL 2017 | ISSUE 194

www.bankerme.com

| ISSUE 192

Nabilah Annuar

MENA 40 The state of

14 Tadawul launches Nomu-Parallel Market

32 Saving Oman

52 Room for improvement

60 Determining actual value

Focusing on

fundamentathlse

Shailesh Dash, Founder & Board Member of Regulus Capital 14 Regional regulatory

update

CPI Financial

54 Creating a diverse bond market

60 The blockchain

conundrum

Full details at: www.bankerme.com Follow us on Twitter: @bankermena

www.bankerme.com

page 3-4 contents.indd 3

24 Iraq: hanging on

Get the next issue Banker MiddleofEast before it is published.

Full details at: www.bankerme.com

Zone Authority

Dr. R. Seetharaman, Group CEO, Doha Bank, receiving

the Pravasi Bharatiya Samman Award from the President of India, Pranab Mukherjee

“We try to present investors with attractive investm ents in this region instead .”

Get the next issue of Banker Middle East before it is published.

Full details at: www.bankerme.com

and Media Free

Zone Authority and Media Free Dubai Technology

Fostering continental development

Get the next issue of Banker Middle East before it is published.

Editor

BankerMENA

payments 18 A new rule: digital and virtual currencies

track

of Regulus Capital

Bank of Iraq

Nabilah Annuar

10 Bond markets in acceleration

on 28 Getting back

& Board Member

Chairman, Trade

Faisal Al Haimu

Shailesh Dash, Founder

Faisal Al Haimus,

Get the next issue ofEast Banker Middle before it is published.

Full details at: m www.bankerme.co

fundamentals

in Iraq and beyond

s Making stride beyond andTrade in Iraqs, Chairm Bank of Iraq an,

Focusing on the

Making strides

is positive “We believe the outlook based on for the Iraqi economy and better oil price forecasts t spending.” improved governmen

“GCC-India bilateral trade is close to $100 billion in 2015-16 out of which the Qatar-India bilateral trade is close to $10 billion.” – Dr. R. Seetharaman

Dubai Technology

FEBRUARY 2017

MARCH 2017 | ISSUE 193

Dubai Technology and Media Free Zone Authority

www.bankerme.com

Fostering continental development Dr. R. Seetharaman, Group CEO, Doha Bank, receiving the Pravasi Bharatiya Samman Award from the President of India, Pranab Mukherjee

ne of the biggest highlights this month was the official amalgamation of FGB and NBAD. The two entities merged to form First Abu Dhabi Bank—a name that will be approved at a later stage. This landmark merger spurred market chatter and the anticipation of further consolidation in the UAE banking sector. I however believe this is highly unlikely, at least in the short term—more mergers amongst banks in other GCC countries? Possible—we are currently seeing Qatar undergoing a historical tripartite merger.

Although the Bank Dhofar and Bank Sohar merger in Oman was shelved, this bears testament to the existing interest in consolidation as an option to strengthen operations.

Banks in the region face a series of challenges going forward—more rigid regulatory requirements, maintaining healthy levels of liquidity and keeping up with the rapid evolution of technology to best serve customers, amidst the macroeconomic factors currently affecting the industry. These are concerns that require great attention and need to be addressed simultaneously.

This month’s instalment of Banker Middle East covers almost all bases: it features a detailed breakdown of regulatory changes in the market (pg.

14); provides an insight into pockets of opportunities in the UAE and wider GCC economy (pg. 18); and discusses the issues surrounding insurance, private equity, human capital and fixed income markets (pg. 30-56). The final part of the magazine (pg.

58 onwards) offers a comprehensive discussion on various challenges and developments in technology and cybersecurity.

With an exhaustive deliberation on the myriad of concerns revolving around the banking and finance industry in the region, I wish you a fruitful read.

3 16/04/2017 15:18

CONTENTS

APRIL 2017 | ISSUE 194

HUMAN CAPITAL 42 Building the future INVESTMENTS 48 A commodity bull market coming in 2017?

IN DEPTH 54 Creating a diverse bond market 58 Strength in regulation TECHNOLOGY 62 Cybersecurity can power fintech to new heights 66 The blockchain conundrum 70 The future of banking: evolution necessary to meet consumers’ needs

www.bankerme.com

42

Chief Executive Officer ROBIN AMLÔT robin@cpifinancial.net Tel: +971 4 391 4681

Managing Editor GEORGINA ENZER georgina@cpifinancial.net Tel: +971 4 391 3728

Sales Director OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419

66

EVENTS 74 Risk compliance & regulatory seminar for the banking sector

PERSONALITY 76 Feroz Noorani, Chief Risk Officer, Warba Bank

Chairman SALEH AL AKRABI

76

EDITORIAL editorial@cpifinancial.net

ADVERTISING sales@cpifinancial.net

Editor - Banker Middle East NABILAH ANNUAR nabilah.annuar@cpifinancial.net Tel: +971 4 391 3726

Business Development SIMON MOTWALI simon.motwali@cpifinancial.net Tel: +971 4 433 5321

Editors MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716

NIKHIL NIDHAN nikhil@cpifinancial.net Tel: +971 4 391 3717

WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718 JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024

DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526 MOHAMED MAKSOUD mohamed@cpifinancial.net Tel: +971 4 433 5320

London Bureau ISLA MACFARLANE isla@cpifinancial.net Tel: +44 7875 429476 Chief Designer BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719

74 Log on to www.cpifinancial.net for news, polls, events, analysis, blogs, features, commentary and more.

Caring for your career

Looking for a new position in financial services in the Middle East?

Checkt CPI Financial’s Jobs page

ou

4 page 3-4 contents.indd 4

www.cpifinancial.net/jobs

Senior Designer FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724

Creative Designer ANA MAKSIC ana@cpifinancial.net Tel: +971 4 391 3723

Online Marketing Manager SIYAMUDEEN PAINAYIL siya@cpifinancial.net Tel: +971 4 391 3722

Data Analyst NADINE ABOUZEID nadine@cpifinancial.net Tel: +971 4 433 5322

Events Manager NATALIA KAILA natalia.kaila@cpifinancial.net Tel: +971 4 365 4538

Finance Manager SHAIS MEMON, ACCA, CMA Shais.memon@cpifinancial.net Tel: +971 4 391 3727

Administration & Subscriptions enquiries@cpifinancial.net Tel: +971 4 391 4682 Tel: +971 4 391 3709

CPI Financial FZ LLC P.O. Box 502491, Dubai Media City, UAE Tel: +971 4 391 4681 Fax: +971 4 390 9576

WEBSITE www.cpifinancial.net ©2017 CPI Financial. All rights reserved.

No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the editor. Registered at the Dubai Media City Printed by United Printing & Publishing - Abu Dhabi, UAE

www.bankerme.com

20/04/2017 11:42

bleed guide.indd 1 BME wayoflife 210X270mm OL HRPR.indd 1

09/02/2017 17:04 2/9/17 4:17 PM

Funding pressures on GCC banks to ease this year Stabilising oil prices, large international sovereign debt issuances and lower credit growth bodes well for banks in the Gulf

S

tabilising oil prices, large international sovereign debt issuances and lower credit growth will improve funding conditions for banks in the GCC over the next 12 months. Moody’s Investors Service in a recent report, pointed out that Omani and Qatari banks will benefit the most from this, followed by banks in Saudi Arabia and the UAE. Bahraini and Kuwaiti banks are expected to continue exhibiting the strongest funding and liquidity profiles in the region.

Improved government oil revenues would support deposits from government and corporates. Moody’s expects oil prices to remain between $40-$60 through 2018, compared to $43 in 2016, with lows of $26 in early 2016. Stabilising oil prices are projected to increase regional government revenues due to their high reliance on hydrocarbons, although they remain below the fiscal break-even oil prices for most GCC countries.

As governments are large depositors in GCC banks, higher oil revenues will bolster deposit levels. Higher government revenues will also promote

6 page 6 News Analysis.indd 6

public spending, which will limit the economic slowdown and boost both corporate and retail deposits.

In addition to the hike in oil prices, international sovereign debt issuances are also expected to support deposits.

GCC governments are projected to continue to raise funding from international markets following a record issuance last year. These issuances will reduce the need to borrow from local banks and the money raised will flow at least partially as deposits into banks.

International sovereign debt issuance from the region increased from $2.1 billion in 2015 to $38.9 billion in 2016. Moody’s expects sovereign issuance from the region to reach approximately $32.5 billion this year (total issuances currently stand at $13.6 billion so far as of March 2017).

Large GCC banks with an international footprint are also anticipated to raise funds in the global market.

Furthermore, lower credit demand will also reduce funding pressures.

Slower economic growth in GCC countries will subdue lending activity and reduce banks’ funding needs. This will in turn reduce funding pressures,

given the slow pace of deposit growth in most GCC banking systems.

Omani and Qatari banks are believed to benefit the most from these easing funding conditions, followed by banks in Saudi Arabia and the UAE. According to Moody’s, Omani and Qatari banks exhibit the highest net loans to deposit ratios in the GCC, providing little cushion to fund further loan growth. This reflects a combination of high government dependence on oil, high banking system dependence on government deposits and relatively rapid historical loan growth.

However, the Qatari Government (Aa2, negative) benefits from considerably higher financial reserves than the Omani Government (Baa1, stable), providing it with a higher capacity to support local liquidity if necessary.

Kuwaiti banks will remain primarily deposit funded and well-cushioned by liquid assets that amounted to 35 per cent of tangible banking assets in September 2016. The banks will remain among the most liquid and the net interbank lenders in the region, despite increasing market funding reliance, as deposit growth slows. In contrast to some GCC peers, private and public-sector deposits in Kuwait have continued to grow despite the effect of low oil prices, albeit at a slower rate.

Bahraini banks will continue to exhibit the strongest funding and liquid position in the Gulf region, with a net loans to deposits ratios of 76 per cent at June 2016 and modest loan growth that will require low levels of new funding. Liquidity buffers stood at 32 per cent of tangible banking assets as of year-end 2015.

(Photocredit: Anton Balazh/Shutterstock.com)

NEWS ANALYSIS

www.bankerme.com

12/04/2017 11:48

SHIFT TO SHIFT TO A BETTER FUTURE A BETTER FUTURE 800 124 2525 800 124 2525 Alawwal Bank hereby confirms that the change in its name from Saudi Hollandi Bank to Alawwal Bank was only confined to the trade name/logo Alawwal Bank hereby confirms that the change in its name from Saudi Hollandi Bank to Alawwal Bank was only confined to the trade name/logo

NEWS

BITES

John Iossifidis to take the helm at Noor Bank Following news reports by Reuters, Banker Middle East can confirm from its own sources that John Iossifidis, Head of Corporate and Investment Banking Group at Mashreq will be joining Noor Bank as its CEO. After an eight-year stint at Mashreq Bank, Iossifidis has resigned from Mashreq. Unnamed sources have confirmed to Banker Middle East that Iossifidis will be joining Noor Bank as its CEO. Expected to begin in August, Iossifidis is set to replace Hussain Al Qemzi, current Chief Executive of the bank and Group Chief Executive of Noor Investment Group.

Iossifidis is expected to be replaced at Mashreq by Nabeel Waheed, current Head of Treasury and Capital Markets for Mashreq.

ENBD REIT floats IPO on Nasdaq Dubai ENBD REIT, a Shari’ah-compliant real estate investment trust managed by Emirates NBD Asset Management Limited, has announced that its ordinary shares have been admitted to the Official List of Securities of the DFSA and to trading on Nasdaq Dubai under the ticker symbol ENBDREIT. ENBD REIT offered 94,594,595 ordinary shares to institutional investors at a price of $1.11 per ordinary share. Gross proceeds of the offer amounted to approximately $105 million, before the deduction of commissions and other fees payable by or on behalf of ENBD REIT in connection with the offer.

Masraf Al Rayan establishes committee to manage tripartite merger Dr. Hussain Al Abdulla, Chairman and Managing Director of Masraf Al Rayan has confirmed his statement made at the Ordinary General Assembly Meeting, on 2 April 2017, about the upcoming merger between Masraf Al Rayan, Barwa Bank, and the International Bank of Qatar.

In an announcement to the Qatar Stoock Exchange, Masraf Al Rayan stated that a committee has been established composed of the management of the three banks in order to manage the merger within a designated timeline.

RATINGS REVIEW Entity

Abu Dhabi

Bahrain Egypt

LT IDR/LT ST IDR/ST Rtg (FC) Rtg (FC)

AA

F1+

B

B

BB+

B

LT IDR/LT Rtg (LC)

ST IDR/ST Rtg (LC)

AA

F1+

B

B

BB+

Country Ceiling

B

AA+

BBB+ B

Country

UAE

Bahrain Egypt Iraq

Iraq

B-

Kuwait Ras Al Khaimah Turkey

AA

F1+

AA

F1+

AA+

Kuwait

A

F1

A

F1

AA+

UAE

BB+

B

BBB-

F3

BBB-

Saudi Arabia

A+

F1+

A+

F1+

AA

Qatar

AA

F1+

AA

F1+

AA+

Turkey Saudi Arabia Qatar

Lebanon

UR

B-

B B

Under Review

8 page 8 News Bites.indd 8

B-

KEY Positive Negative Evolving Stable

B

OUTLOOK

B-

B-

Lebanon

WATCH

DGCX Shanghai Gold Futures Making a mark in history, the Dubai Gold and Commodities Exchange (DGCX) has launched the DGCX Shanghai Gold Futures (DSGC), following the signing of a deal with the Shanghai Gold Exchange (SGE) last year. The yuan-denominated contract, marks the first-ever usage of the Shanghai Gold Benchmark Price in international markets. DSGC provides investors across the globe access to the largest bullion market, which is connected to over 10 million institutional customers, 8.3 million individual customers and 55 certified gold vaults. The DSGC contract is quoted and traded in yuan, with settlement prices derived from the Shanghai Gold Exchange (licensee). The contract is size 1,000 grammes (1kg) with the contract price quoted in CNH per gramme.

NBAD and FGB completes merger to become First Abu Dhabi Bank First Gulf Bank (FGB) and National Bank of Abu Dhabi (NBAD) has successfully concluded its legal merger on 1 April 2017. The combined bank will be named First Abu Dhabi Bank, following regulatory approvals and a General Assembly Meeting that will be held at a later stage.

The combined bank began trading on the Abu Dhabi Securities Exchange on 2 April 2017 under ticker symbol NBAD. The new bank is now the UAE’s largest bank and one of the largest in the MENA region with a capital of AED 10.9 billion, total assets in excess of AED 670 billion, shareholders’ equity of AED 98 billion and a market capitalisation of approximately AED 111 billion.

The integration cost has been estimated at a full annual run-rate of approximately AED 1.1 billion, to be realised over a three year period. This is an increase from the previous assessment of AED 600 million. The cost will be primarily driven by network and staff rationalisation, consolidation of common businesses/enablement functions, systems integration, and premises reduction.

The cost synergies were broken down into: UAE retail at 30 per cent, wholesale and international, including subsidiaries at 25 per cent, enablement functions at 25 per cent, IT and operations at 15 per cent, and others at five per cent. The integration cost is expected to be absorbed by 2019.

Fitch Ratings, Moody’s and Standard & Poor’s have affirmed NBAD’s ratings at AA-, Aa3 and AA- respectively, following the merger. S&P has removed ‘CreditWatch Negative’ and assigned a ‘stable outlook’ to its rating on NBAD. All credit ratings on FGB have been withdrawn following merger completion.

www.bankerme.com

17/04/2017 10:36

bleed guide.indd 1

16/03/2017 12:03

Photo credit: Philip Lange/shutterstock.com

THE MARKETS

Can Oman survive a fall in oil revenue?

An overview on one of the more challenging economies in the GCC,

by Marcus Turner-Jones

O

man is often overlooked and until the 1970s, somewhat isolated. It’s the oldest independent state in the Arab World, strategically located at the mouth of the Arabian Gulf and rich in oil wealth, albeit fairly modest compared to its neighbours. Unlike other countries in the Gulf, Oman has not faced the same economic pressures caused by Islamist militant activity and a massive influx of refugees fleeing the crisis in Syria and Iraq. However, it has not remained impervious to political dissent from critics of the ruling family. In 2014, Oman had a population of 3.99 million, 43.4 per cent of whom were expatriates. A third of the population lives in Muscat, the capital of Oman.

10 page 10-12 The Markets.indd 10

The majority of Oman’s income is derived from oil, but since the 1970s, when Sultan Qaboos Bin Said deposed his father, Sultan Said bin Taimur, and took the reins of power, the country has embarked on a series of economic reforms. Tourism has become an increasing source of revenue and the government is exploring other revenue streams in a bid to diversify away from oil.

In 2014, oil production was 945,000 barrels per day. This is, in part, thanks to recent oil discoveries and improved recovery techniques.

The services sector dominates nonoil GDP, but industry, in particular manufacturing, accounts for 18.1 per cent and agriculture and fishing account for 1.3 per cent.

OIL GDP

The IMF predicted Oman’s GDP will expand by 2.68 per cent in 2017, and a further 3.8 per cent in 2018, an improvement on previous GDP projections. This is due to a partial recovery in oil prices, as well as Oman’s successful economic policies.

Oil makes up 44.8 per cent of Oman’s GDP. GDP grew by 4.6 per cent between 2013 and 2014, but a fall in the international price of oil has cut deep into Oman’s national income, putting pressure on government revenue and hampering government spending.

AREAS OF ECONOMIC GROWTH

cont. on page 12

www.bankerme.com

16/04/2017 15:38

THE MARKETS

cont. from page 10

The construction sector enjoyed growth of 8.3 per cent in 2014. It is now worth $5.3 billion of Oman’s GDP. Manufacturing also grew by a modest 0.4 per cent in 2014. Transport, storage and communications also grew by 7.2 per cent in 2014.

Oil makes up

44.8% of Oman’s GDP

THE BANKING SECTOR

Omani banks are in good shape.

According to KPMG, asset and profit growth is strong and their cost to income fell in 2015, but falling oil revenue has affected investor confidence and the banks have had their ratings downgraded recently.

EXPANSION PLANS

Oil is the biggest single contributor to Oman’s GDP, but oil revenue has fallen and Oman’s oil wells are likely to dry up within 20 years. It’s imperative that the sultanate finds other sources of income.

The Tanfeedh is a five-year plan which aims to reduce Oman’s reliance on oil income from 44 per cent to 26 per cent by 2020. Tanfeedh was launched in 2016. It aims to raise the profile of five key industries in Oman. These include tourism, mining, industry and manufacturing, fisheries, transport and logistics. However, growth in these sectors is unlikely to be straightforward.

Plans are afoot for the development for three ports along the coast. Oman occupies a strategic position at the gateway to the Gulf, so there is a market to exploit, but a proposed rail link between the planned ports and the wider region has been put on hold.

There are also tentative plans in place for a gas pipeline between Oman and its neighbour, Iran, but the government and financiers are hesitant of moving forward for fear of causing ripples in Washington.

Twelve to thirteen thousand private sector jobs were created in 2016. The government’s aim is to repeat this success

12 page 10-12 The Markets.indd 12

Oman’s GDP grew by

4.6% between 2013 and 2014 it will expand by

2.68% in 2017 and a further

3.8% in 2018 in 2017. The Tanfeedh programme is supporting 121 projects and initiatives, which will lead to the creation of a further 30,000 jobs. This will add an extra $4.4 billion to the economy.

GOVERNMENT SPENDING

Falling oil revenue has hampered government spending. Budget cuts have allowed the government to reduce public spending by eight per cent in 2016, but spending still exceeded government targets by six per cent.

This led to a deficit of $13.8 billion, which was 60 per cent higher than previous estimates.

The budget for 2017 is focusing on further reducing expenditure.

New taxation is being introduced to increase government revenue.

This includes an increase in corporation tax and a new tariff on tobacco and alcohol. The government hopes extra taxation will reduce the budget deficit to $7.8 billion.

The Oman government is also looking at the overseas bond markets and forex trading as a source of extra revenue. In June last year, Oman offered five- and 10-year notes, raising $2.5 billion in additional revenue. In 2017, it is planning more bonds offerings, which will raise a further $5.5 billion internationally and $1.6 billion locally.

OVERSEAS INVESTMENT INITIATIVES

Oman is keen to court the private sector and encourage international investment.

In 2016, the government launched the InvestEasy portal, which brought 76 government services together in one easy-to-use web portal. As a result, Oman is now ranked 32 in the World Bank ‘starting a business’ category. Capital requirements at incorporation have been lifted and it’s a lot easier to register employees. A public-private partnership initiative is expected to be introduced this year, which should encourage more private sector investment and faster delivery on projects, particularly in the healthcare sector.

Measures like this will further enhance Oman as a place to do business within the international community. It’s an important move in the right direction as Oman seeks build a sustainable economy and further diversify away from dwindling oil revenue.

Marcus Turner-Jones graduated from Economics at the University of Sheffield before going on to work for City Index in London. He now writes freelance and spends time between his hometown of Harrogate and Buenos Aires.

www.bankerme.com

17/04/2017 11:22

bleed guide.indd 1

13/04/2017 10:57

LEGAL PERSPECTIVE

Regional regulatory update Divya Abrol Gambhir, Head of Financial Regulation & Securities, Banking & Finance and Margaret Elder, Associate, Banking & Finance, both at Al Tamimi & Company provides an aerial view of the regulatory landscape in the region

U

NITED ARAB EMIRATES

The UAE has recently seen as number of new regulations issued by the UAE Central Bank and the UAE Securities and Commodities Authority (SCA).

The Regulatory Framework for Stored Values and Electronic Payment Systems

Divya Abrol Gambhir

14

Regulation (EPS Regulation) issued by the UAE Central Bank and is effective as of 1 January 2017. The EPS Regulation has been long awaited by the banking industry and marks the formal issuance of regulations by the UAE Central Bank that recognises, governs and licences the fast growing business of digital payment services. The EPS Regulation

enables the issuance of Digital Money and Payment Instruments involving the United Arab Emirates Dirham (AED).

The EPS Regulation introduces four different categories of licences for a payment service provider (PSP). They are: (a) Retail PSP; (b) Micropayment PSP; (c) Government PSP; and (d) Non-issuing PSP.

Margaret Elder

www.bankerme.com

page 14-16 Legal Perspective Al Tamimi.indd 14

12/04/2017 12:25

While commercial banks licenced by the UAE Central Bank are exempt from applying for a PSP licence, they are required to apply for authorisation to the UAE Central Bank at least three months prior to providing services covered by the EPS Regulation.

The EPS Regulation allows a transition period of one year whereby any PSP that has commenced the provision of digital payment services in the UAE prior to this EPS Regulation shall take all measures to comply with it within such one year from the date of its issuance.

Promotion Regulations. Some of these exemptions include: the promotion of UAE listed products, a promotion to a qualified investor (except the high net worth individuals/solvent natural person), the promotion of products issued by the Government or its subsidiaries, reverse solicitation initiated by the proposed investor, introduction and promotion between the parent and related entities, the introduction of the financial consultant or legal consultant if it is part of the consultancy and commodity brokers.

The New IFRs seek to simplify matters through a consolidation and clarification of all relevant rules.

In particular the foreign fund rules are now set out in Part 6 of the New IFRs. — Margaret Elder, Associate, Banking & Finance, Al Tamimi & Company The SCA has issued a new regulation, Board Decision No. (3/R.M) of 2017 regarding the Promotion and Introduction Regulations (Promotion Regulations).

The Promotion Regulations were published in the Federal Gazette on 31 January 2017 and came into force on 1 February 2017.

Since the issuance of the new SCA fund regulations last year, it was evident that the Promotion Regulations were necessary to effectively conduct any marketing activity relating to foreign funds.

The Promotion Regulations requires the licencing or approval of the following financial activities: (i) Promotion of financial products; and (ii) Introduction services. To carry out Promotion activities requires a licence from SCA and to carry out Introduction services requires an approval from SCA. There are various situations that are exempt from the application of the

The Promotion Regulations provide for various requirements in order to obtain a promotion activity licence.

However to be an introducer, a person would need to seek the approval of the SCA (it is not a licence application).

Promoters are obligated to notify SCA at the time of the promotion of any financial product; however SCA prior approval is necessary for promotion of investment funds. The Promotion Regulations also lists further obligations when conducting any promotion activity.

The promotion of foreign funds (both public and private placements) is now mainly captured under the Promotion Regulations. The promotion of foreign funds under private placement is restricted to qualified investors only.

In addition the SCA has also recently issued various new regulations which include: substantial amendments to the anti-money laundering and terrorist financing regime;

licencing requirements for entities providing fund administration services; and specifications and controls in relation to real estate, venture capital and private equity funds. cont. overleaf

The Promotion Regulations define the following terms: Promotion: the marketing, distribution, advertising, publishing or making available any statements, information or promotional material in any way, related to a financial product.

Financial product: include securities, commodities contracts, derivatives, structured products or any foreign securities.

Introduction: Introducing a person to another person licenced by SCA or any other supervisory authority that is similar to SCA, to provide a financial service.

Qualified investor: means: A. An investor who is able to manage its own investments including: i. Federal and local Government, government institutions or any companies wholly owned by any of them. ii. International institutions and organisations. iii. A person licenced to engage in any commercial business provided that one of its purposes is investment. iv. A solvent natural person who acknowledges that his annual income is not less than AED 1 million or the net value of his assets, with the exception of his principal house, is AED 5 million, and further acknowledges that he has the sufficient knowledge and experience, whether by himself or through a financial advisor, to evaluate the offering document as well as the benefits or risks accompanying or resulting from the investment.

B. Â An investor represented by an investment manager licenced by the SCA. Source: Al Tamimi & Company

www.bankerme.com

page 14-16 Legal Perspective Al Tamimi.indd 15

15 16/04/2017 15:46

LEGAL PERSPECTIVE

cont. from page 15

QATAR

In Qatar Law No. 13 of 2016 concerning the privacy and protection of personal data (Data Protection Law) was recently approved and grants certain rights to individuals in relation to the collection and processing of their personal data.

The Data Protection Law places a heavy burden on the data controllers and processors to ensure that the personal data is handled with care and is protected from any loss or unauthorised disclosure. Added protection is afforded to personal data of a private nature.

Such information can only be processed after obtaining permission of the relevant department of the Ministry of Transport and Communications (MTC).

The Data Protection Law also prohibits direct marketing through electronic communication to individuals without obtaining their advance consent.

However, certain exemptions do exist under the Data Protection Law.

of services, or saving time for the bank’s main services. However, it seems that the Data Protection Law places an additional obligation on the banks to ensure that the data obtained meets the lawful purposes and is processed in accordance with the law.

BAHRAIN

The Investment Limited Partnerships (ILP) Law; the Trusts Law; and the Protected Cell Companies (PCC) Law have been recently implemented in Bahrain with the principal aim of advancing the financial services sector and encouraging investors to choose Bahrain as their destination of choice when doing business in the Middle East.

Limited Partnerships are the most popular form of closed ended funds internationally and is understood by international fund investors. By introducing the ILP Law, Bahrain catches up with neighbouring GCC jurisdictions namely Dubai, Abu Dhabi and Qatar.

The EPS Regulation allows a transition period of one year whereby any PSP that has commenced the provision of digital payment services in the UAE prior to this EPS Regulation shall take all measures to comply with it within such one year from the date of its issuance.

— Divya Abrol Gambhir, Head of Financial Regulation & Securities, Banking & Finance, Al Tamimi & Company The Data Protection Law may cause some practical difficulties for the banks, either due to lack of clarity or the subjective nature of the law.

For example: during the KYC process, certain personal data of a private nature may be gathered by the banks.

However, this information may only be processed after obtaining permission of the MTC. The Data Protection Law lacks clarity in this regard. Moreover, banks usually outsource certain non-core functions to service providers which results in cost reduction, improvement

16

The Trusts Law introduces a number of substantive and procedural changes to the previous trust law. One such change is the formal recognition, for the first time in Bahrain, of trusts established under and governed by the law of a foreign jurisdiction.

A PCC is a single legal entity made up of a core and one or more parts called ‘cells’. The cells do not have their own legal personality but do offer ring-fencing of assets and liabilities that are completely segregated from any other cell or the PCC.

Advantages of PCCs include cost savings and efficiency of managing certain risks.

We hope that these changes enhance Bahrain’s competitiveness in the financial services sector by making it easier to structure investment activities and boost Bahrain’s position as a financial hub.

SAUDI ARABIA

Last year the Saudi Arabia Capital markets Authority (CMA) made extensive changes to the rules governing the regulation and distribution of investment funds. The new Investment Funds Regulations (New IFRs), amended the Investment Funds Regulations issued in 2006 (Former IFRs). The New IFSRs have clarified the regulations in relation to foreign funds.

In practise, the promotion and distribution of foreign funds pursuant to the Former IFRs relied upon an uneasy combination of the express provisions of the regulations and the practises that were generally tolerated by the CMA. For example, it was not previously clear how the rules relating to offering securities in a foreign fund would be applied as the offering rules only related to public offers of KSA funds.

The New IFRs seek to simplify matters through a consolidation and clarification of all relevant rules. In particular the foreign fund rules are now set out in Part 6 of the New IFRs. Pursuant to Article 93 of the New IFRs, a foreign fund (i.e., an investment fund established in any jurisdiction other than KSA) may be offered within KSA only if: 1) the offer is made through a distributor authorised by the CMA to conduct ‘dealing as agent activities; 2) the offer is made solely by way of private placement; 3) the fund manager of the foreign fund is authorised in a jurisdiction that has regulatory standards and requirements that are at least equivalent to those of the CMA.

www.bankerme.com

page 14-16 Legal Perspective Al Tamimi.indd 16

16/04/2017 15:46

STAY AHEAD is not just a statement.

STAY AHEAD It’s our way of exceeding expectations.

is not just a statement.

It’s our way of exceeding expectations.

At Dubai First we continuously strive to ‘Stay Ahead’ by offering innovative financial solutions combined with world-class customer service. Industry recognition for our service, products and campaigns is testament to this commitment strive and our as one the leading consumer finance companies.

At Dubai First we continuously to position ‘Stay Ahead’ by of offering innovative financial solutions combined with world-class customer service. Industry recognition for our service, products and campaigns is testament to this commitment and our position as one of the leading consumer finance companies.

2016 Best Consumer Finance Company

2016 Best Consumer Finance Company

bleed guide.indd 1

17/04/2017 15:12

COVER INTERVIEW

Focusing on the fundamentals Shailesh Dash, Founder & Board Member of Regulus Capital sat down with Banker Middle East to discuss his concept and strategy in investments

We believe the world has significantly changed since the last financial crisis, especially in this part of the world where people want a more direct say in the management and not blindly invest into businesses. They want to be in control of their money and their assets. Although the business is run by the management, as founders and board members of Regulus Capital, we provide the direction, strategic vision and manage the corporate governance of each of our entities.

Regulus Capital (Cayman) and its related entities—Regulus Advisors and Regulus Consultancy—has strived to bring in investors from different parts of the world to grow businesses in the GCC and UAE in particular. This is because all this while, the story has been sovereign funds taking the money out of this part of the world and investing externally in places such as US and Europe. We have gone the other way round in a sense that we try to present investors with attractive investments in this region instead, in places like Dubai,

18 page 18-22 Cover Interview.indd 18

Shailesh Dash

Photo credit: Florante Magsakay/CPI Financial

W

hat prompted the inception of Regulus Capital?

www.bankerme.com

16/04/2017 15:47

Abu Dhabi, Sharjah, Kuwait, Muscat, Doha, Riyadh, etc. Regulus currently provides its services in four market segments— healthcare (AVIVO Group), education (Al Najah Education), F&B (Diamond Lifestyle) and logistics (Gulf Pinnacle Logistics).

Tell us about Regulus’ healthcare portfolio.

As a group of investors, we have developed/advised a very successful healthcare business called Avivo Group that has produced nine per cent in cash dividends for the last five years. It has significantly grown in terms of its profitability, with 43 healthcare assets employing approximately 1,300 people. Established in 2011, it is currently the second largest clinical chain in the GCC with 43 healthcare facilities, spun across UAE, Qatar, Kuwait, Saudi Arabia and Lebanon.

My outlook on the healthcare sector is very positive but this depends on who you are talking about. For instance, I would not say that that the outlook is positive for the smaller healthcare units such as single-doctor private practises/clinics operating in emerging markets. This is because as regulations become stricter in terms of quality control and compliance—in addition to the compulsory healthcare insurance policy in the UAE— these small clinics would need to upgrade their standards on all aspects in order to cater to a more sophisticated market.

In this sense, more often than not, although the doctors are good, smaller clinics would have to close down as they do not necessarily have enough capital to adhere to the demand for better services that are predominantly in line with US/ European norms. As healthcare becomes a strategic sector, I believe the rest of the GCC will move towards implementing a compulsory insurance policy similar to Saudi Arabia, Abu Dhabi and Dubai. This is what’s leading the smaller entities to sell out to the bigger companies—a lot of consolidation is happening in this sector. The expectations that both investors and consumers have towards these clinics are increasing on a daily basis. Similar developments are happening in Saudi Arabia, Kuwait, Qatar and other countries in the region.

How has the company’s investment in education grown over the past few years?

In what we do, we would like to very much touch all aspects of the everyday lives of people. So from the time you reach Dubai, we have our logistics team to assist in transporting your belongings, and then to dating—where we have our restaurants, to getting married and having a baby—this is where healthcare comes in, when the children starts school— this is where our education arm comes in, and throughout this journey, as people age, our healthcare facilities play a role here again. This is the concept based on which we have built our ventures from a service and quality perspectives as we try to permeate and impact the lives of people in a positive way.

+$850 million in client’s AUM

300+ years of cumulative advisory and investment experience

92

assets under advisement

34 advisory employees

7

countries in managed assets across MENA and SEA

4 defensive sectors Every venture that we’ve done or advised is not on the highend side—in terms of pricing, we are always in the mid-range.

We ensure that in all of the businesses that we do, we are a mid-market player, which we believe as a market segment, better caters to the growing demographics and its needs.

Our foray as a team into education began in 2012, where we advised Al Najah to buy its first school—Horizon English School, currently ranked ‘Very Good’ by the KHDA. Today, Al Najah Education has grown to four schools in UAE and cont. overleaf

www.bankerme.com

page 18-22 Cover Interview.indd 19

19 16/04/2017 15:47

COVER INTERVIEW

cont. from page 19

Oman and 25 kindergartens in UAE, Oman and Singapore along with several other holistic development centres for children including Learning Centres, Drama Schools and Music Schools.

We aim to touch the lives of children in everything that they do. In achieving this we’ve also provided centres to enhance the capabilities of children in their extracurricular activities—such as music and drama school. We aim to be more involved in the K12 segment where we help to improve both the knowledge base as well as their extracurricular activities. In addition to that education is an important segment for emerging market countries and this includes the UAE. Apart from healthcare, education is one of the strategically important sector focuses of the government and we’d like to be contributing to this.

All this while, the story has been sovereign funds taking the money out of this part of the world and investing externally in places such as US and Europe. We have gone the other way round in a sense that we try to present investors with attractive investments in this region instead.

— Shailesh Dash Al Najah’s education facilities are currently in the UAE, Oman and Singapore and this is an area that we are looking to expand into Saudi Arabia, Kuwait, Malaysia and other markets. We expect to get a foothold in the Saudi Arabian and Kuwaiti markets this year.

The standards put in by the government for the education sector is much higher than in healthcare, particularly in places like Dubai and Abu Dhabi—they aim to be the top 10 in the world. This is why the focus on quality is very important today. Regulators are very strict as to who they allow to operate, who they allow to expand, how they rate institutions and the amount charged for each student. This is why I believe that it is more challenging to run a business in the education sector today in the UAE, than any other business—because of all the above factors.

In the next 10 years, the schools that aren’t doing as well in terms of rankings, will eventually fall out. Therefore, every school operator has to improve their quality, strive to be in the top tier to survive in this industry. This business would need continuous investment into the curriculum, facilities, into the teachers and learning attainment (which includes continuous training).

20 page 18-22 Cover Interview.indd 20

Education is a very serious business for the government and I am very positive on the sector for both parents and children, as Dubai has begun to hold very high standards of education.

Let’s delve into Regulus’ venture into F&B.

To be frank with you, I am a foodie myself. This is the thing that convinced my board and friends to do something in this area— and as you can see in the Gulf, it is one of the many favourite businesses in this region. Food today is very much determined by the customer, the quality as well as demand and supply.

www.bankerme.com

12/04/2017 12:25

Shailesh Dash, with Regulus Capital, aims to touch the lives of eight million people by 2020.

Diamond Lifestyle is an entity advised by us that runs two brands in the UAE—Johnny Rockets, a fast food burger chain and Café Rouge, an all-day French-style bistro.

We are in the burger business—Johnny Rockets—one of the top burger chains in the US, but here, there are over 50 burger brands. The customer therefore has ample choice and market forces determine which restaurant should stay and which should not. Unlike healthcare and education, it is not so much of the regulation that pushes this as it only sets a minimum guideline. Restaurants are being vetted

everyday by customers—if you are not the best, you will not survive. The demand and supply here, both direct and indirectly determines the success or failure of a restaurant.

Food is a very popular subject with me and our shareholders, and a large part of the reason why they invest in food is because they love it and they like to be part of a growth story like that. We also invest in food trucks and are expanding into Abu Dhabi, Al Ain and Oman.

However, in terms of competition, this is a very highly competitive industry—unlike that of healthcare and education. cont. overleaf

www.bankerme.com

page 18-22 Cover Interview.indd 21

21 12/04/2017 12:25

COVER INTERVIEW

cont. from page 21

This is because every day you’ll have a new exciting/ interesting product coming through and the only way to stay ahead is continuous investment in diverse marketing, investor education on the particular food product and making product differentiation. We intend to continue in the fast food segment and make more acquisitions in this area.

Tell us about Gulf Pinnacle Logistics.

The vision of logistics is no longer the brick and mortar story but you have to look at it more holistically within the current environment. Today, logistics is not only about having your own warehouses and trucks in delivering products. Logistics today is more and more about putting people in touch with the services that they need and how fast these products and services can be delivered to them.

Apart from transporting children to and from school (leveraging on our education portfolio) Gulf Pinnacle Logistics (GPL) also have warehouse spaces and have recently signed a term sheet to acquire a courier company which is happening as we speak.

The whole idea is to move into a segment where we can be ready to store someone’s goods and products in our warehouses or directly from the producers/wholesalers and deliver it directly to our customer but this process today includes several activities (chain of activities/processes) and we intend to invest holistically in all those segments/ services. Thus we aim to cater to B2B as well as B2C customers. This is important because today, as a logistics player, you are expected to meet all the storage and delivery needs of your clients.

Following the acquisition of the courier company mentioned earlier, we’d love to expand it into the MENA region. We are also in the process of acquiring another logistics business which has presence in seven countries, transporting mostly goods. Having said this, Dubai and Singapore are both key centres for logistic transportation and we intend to advise GPL to invest in both the cities significantly.

How would you describe your competition?

Due to the fact that we are not a private equity player, I do not see much competition. Our strategy is unique compared to the other fund managers in the market. Our investments are in advising companies that we aim to nurture and grow for the long term. The shareholders, their friends, families and management will drive these businesses and these will go on creating employment and quality services for its clients, creating a local champion and economic value for the economy.

22 page 18-22 Cover Interview.indd 22

Moving forward, this year we are seriously considering a foray into the energy sector (this includes renewables). We are also looking at real estate services—we believe that there is a gap here that can be fulfilled by us. Additionally, with a little bit of tightening in the financial sector, I think there is a gap that has been formed for SME credit. This is something that we do plan to take forward this year—to address the needs of the SME sector.

— Shailesh Dash, Founder & Board Member, Regulus Capital We aim to drive as many investors as we can to invest into the Gulf, particularly in the UAE. This is why we do not categorise ourselves as a private equity firm or a fund manager. We consider ourselves as entrepreneurs who like a certain sector and want to build/advise our customers in building sustainable businesses.

Moving forward, this year we are seriously considering a foray into the energy sector (this includes renewables). This is something that we have always wanted to do. Secondly, we are also looking at real estate services—a sector that is developing very fast. We believe that there is a gap here that can be fulfilled by us, particularly in real estate services such as waste and facilities management services.

Additionally, with a little bit of tightening in the financial sector, I think there is a gap that has been formed for SME credit. This is something that we do plan to take forward this year—to address the needs of the SME sector. I believe that there is a space left for the private sector to lend to these businesses.

A general challenge here is getting the right talent to fill up managerial positions and drive businesses across these sectors. Finding the right skilled-person for each sector has always been a challenge.

With our businesses we are currently touching the lives of almost two million people in the GCC and Southeast Asia. We would certainly like to grow this fourfold, to eight million people, by 2020. I believe this can be achieved through energy and real estate services. Our goal here is to meet the needs of the people and improve their quality of life.

www.bankerme.com

12/04/2017 12:25

SPONSORED BY:

I N T HE P URSUIT OF E XCELLENCE

I NDUSTRY A WARDS 2017

S AV E T HE D AT E 11th

THURSDAY

MAY 2017

The Godolphin Ballroom, Emirates Towers Hotel, Dubai 7pm cocktail reception followed by dinner and the awards ceremony

www.cpifinancial.net

bleed guide.indd 1

29/03/2017 09:23

COUNTRY SPOTLIGHT

Iraq: hanging on The economic and financial situation in Iraq remains ever challenging, but improving oil prices and the IMF’s Stand-By Arrangement could place the country in an upward trajectory

I

ncessantly damaged by geopolitical tensions, the Iraqi economy has endured profound challenges in its journey to recovery. But a faint light can be seen at the end of this tunnel—in a twist of fate, Fitch Ratings in March instilled confidence in the war-torn economy as it revised its outlook on Iraq’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from negative to stable and affirmed the IDR at ‘B-’ (similar to that from S&P). Iraq’s country ceiling was affirmed at ‘B-’ and its Short-Term Foreign-Currency IDR at ‘B’.

24

ECONOMIC GROWTH

Iraq has been severely affected by the ISIS conflict and the plunge in global oil prices since 2014. The Government responded to the fiscal and balance of payments crisis with a large but necessary fiscal adjustment supported by financial assistance from the international community. According to the IMF, real GDP growth was sustained at 11 per cent in 2016, supported by a large increase in oil output that benefitted from past oil investments. Nevertheless, the non-oil economy experienced an eight per cent contraction due to the conflict and the fiscal consolidation.

In 2017, economic activity is expected to remain muted due to a 1.5 per cent contraction in oil production under the agreement reached by the OPEC, and only a tepid recovery of the non-oil sector.

“The plunge in oil prices has driven the decline of Iraq’s gross international reserves from $53.7 billion at end 2015 to the still comfortable level of $46.5 billion at the end of December 2016. Fiscal pressures remain significant with the government deficit remaining at 12 per cent of GDP in 2016, due to continuing weak oil prices and rising humanitarian and security spending.

www.bankerme.com

page 24-28 Country Spotlight.indd 24

16/04/2017 15:49

Photo credit: rasoulali/shutterstock.com

displaced Iraqis to their homes after the liberation of Mosul is expected to improve economic activities in these areas driven by private consumption.

The efforts to liberate ISIS controlled areas over the past two years led to a widespread destruction of urban areas. Accordingly, the reconstruction of these liberated areas, supported by financial pledges from the international community, is projected to spur economic growth and booth investment levels in 2017 and beyond. Nevertheless, this growth is seen to drive up imports to satisfy the surge in demand for capital and consumer goods.

The Iraqi Government has secured a $5.34 billion loan from the IMF to support economic stability. However, fiscal consolidation is the central precondition to the IMF disbursing the said loan. Industry players therefore expect to see government spending decrease gradually over the coming quarters.

BUDGET DEFICITS, FISCAL AND MONETARY POLICY

Total public debt increased from 32 to 64 per cent of GDP during 2014-16.

Credit growth decelerated and nonperforming loans in state-owned and private banks increased significantly in 2016,” said Christian Josz, IMF Mission Chief for Iraq in a recent statement.

In an economic analysis supplied by the Trade Bank of Iraq, the country is said to still suffer from major structural issues preventing economic expansion. The forecast for real GDP growth is to reach 2.3 per cent in 2017 and 4.4 per cent in 2018, compared to -3.5 per cent on average between 2014 and 2016. The return of three million

The expected increase in oil prices in 2017 and beyond is set to improve the country’s budget deficit. Fitch in its recent rating action estimated that the budget deficit narrowed to IQD 16.5 trillion or 8.1 per cent of GDP in 2016, from 12.3 per cent of GDP in 2015. The IMF programme agreed in July 2016 is believed to be providing a useful policy framework and has helped Iraq’s financing options. However, progress has been slow in a number of areas including surveying arrears, in part due to capacity constraints.

In 2017, Fitch forecasts that the deficit will narrow further, to 5.1 per cent of GDP, with higher average oil prices driving strong revenue growth (Fitch forecasts Brent crude to average at $52.5/b in 2017 and $55/b in 2018, up from $45.1/b in 2016; also assuming that Iraqi oil sells at a

Real GDP growth to reach

2.3 % 4.4 %

in 2017 and

in 2018 Fiscal deficit to narrow further to

5.1

%

of GDP in 2017 consistent discount to Brent). Fitch forecasts Iraqi oil exports (excluding exports from the Kurdish region) to average 3.3 million b/d in 2017-18.

The rating agency incorporated nonoil revenue of IQD 8 trillion (the IMF assumes IQD 10.5trillion). On the spending side, it forecasts 12.1 per cent growth in expenditure after three years of substantial spending declines.

The financing of the budget deficit will be done through the sale of treasury bills, Central Bank of Iraq’s foreign reserves, international assistance of up to $12 billion as well as the sale of a $1 billion Eurobond (with a 100 per cent US guarantee) issued in January (the country’s first, since 2006) and another planned for later in 2017 (without a guarantee). For 2018, Iraq still needs to identify sources of funding to plug the financing gap calculated by the IMF and will likely again focus on external financing. cont. overleaf

www.bankerme.com

page 24-28 Country Spotlight.indd 25

25 12/04/2017 12:26

COUNTRY SPOTLIGHT

cont. from page 25

Identified arrears totalled at IQD 12.5 trillion ($10.6 billion or 6.1 per cent of 2016 GDP) at end-June 2016.

In October the IMF expected around IQD 6.5 trillion of these arrears to be repaid in 2016 (including most external arrears) and these are included in 2016 spending estimates. The remaining identified domestic arrears are to be repaid in 2017-19 after they have been audited. According to Fitch, it remains uncertain what level of unidentified arrears that are not yet accounted for as there are still ministries that have not been surveyed. Since June 2016 Iraq is likely to have built up arrears at a much slower rate, given the higher oil price. In 2H16 the Iraqi oil price averaged $41/b compared with $25/b in 1Q16.

Government debt/GDP projections have improved because of smaller fiscal deficits, higher oil prices and the statistical office’s upward revisions to nominal GDP (by 2.8 per cent in 2014 and 13.6 per cent in 2015) which have been broadly accepted by the IMF. Fitch estimates the government debt/GDP ratio rose to 62.7 per cent in 2016, compared with a ‘B’ peer median of 54.9 per cent, and forecast it to average 61 per cent in 2017-18. The rating agency previously expected government debt/GDP at 75 per cent in 2018. This incorporates identified arrears. The potential for more arrears coming to light presents the risk of higher debt numbers.

Iraq’s total debt stock includes an estimated $41 billion (21 per cent of forecast 2017 nominal GDP) of debt lent to Iraq by GCC countries during the 1980-1988 Iran-Iraq war, which the authorities do not face pressure to repay or service. If this debt were restructured on the same terms as Paris Club debt was restructured, government debt/ GDP would be 43 per cent in 2016, lower than the ‘B’ peer median. The vast majority of remaining external debt is owed to the Paris Club and multilateral and bilateral institutions.

26

Origin of GDP (per cent real change) Agriculture 4.3 3.9

Industry 2.9 4.8

Services 4.5 2017 2018

2.7 Source: The Economist Intelligence Unit

Financial performance analysis 2015 2015 Results (Trillion Iraqi Dinar Assets % Government Banks Private Banks Total Trade Bank of Iraq

200.5 22.3 222.8 27.5

89.9 10.1 100 16.5

Funded

%

29.1 79 7.7 21 36.8 100 5 13.5

Non Funded 30.2 10.2 40.4 28.2

% 75 25 100 69

Deposits % 55.2 9.1 64.3 23.9

86 15 100 37

Source: Central Bank of Iraq

Nevertheless Iraq’s fiscal position is estimated to gradually improve over the coming quarters, as government revenues are bolstered by rising oil prices and oil production.

The Iraqi dinar is expected to experience inflationary pressures due to a rise in aggregate demand and higher commodity prices. Noting that housing and food comprise of 60 per cent of the Iraqi consumer price index basket, the inflation is expected to rise from 2.2 per cent in 2016 to 3.8 per cent in 2017 and level at five per cent in 2019 onwards.

“The authorities have maintained the exchange rate peg which remains a key nominal anchor. Medium-term growth prospects remain modest driven by projected flat oil production

and investments in the face of the revenue constraint and modest pickup in non-oil growth supported by the expected improvement in security and implementation of structural reform.

Further reforms to create fiscal space for inclusive growth, strengthen the business environment, reduce corruption and repair the banking sector are needed to support private sector-led growth and diversification of the economy once post-ISIS reconstruction is underway. Risks remain high, arising primarily from uncertainty in the oil price outlook, security and political uncertainties, and administrative weaknesses,” commented Josz in a statement on this matter, following the IMF’s mission to Iraq in March. cont. on page 28

www.bankerme.com

page 24-28 Country Spotlight.indd 26

12/04/2017 12:26

Digital banking and payments are a work in progress. Their future will be built on trust.

Banks around the world look to Entersekt to strengthen the bonds of trust they share with their customers, and to help deepen those relationships by launching innovative new digital services.

Discover how our push-based authentication and app security product Transakt™ can help your organization build richer, more satisfying online and mobile banking experiences, unrestricted by security concerns.

Transakt opens up digital banking.

Security in your pocket

Mobile SDK or app Push-based, one touch Out of band, multi-factor End-to-end encryption

entersekt.com sales@entersekt.com +27 21 815 2800

bleed guide.indd 1

13/04/2017 10:58

COUNTRY SPOTLIGHT

cont. from page 26

BANKING

The banking sector in Iraq is mainly dominated by Government-owned banks such as the Trade Bank of Iraq, Al Rafidain and Al Rasheed banks.

There are currently 66 banks in the country, six of which are government owned banks and 60 private sector banks of which 20 are partially or totally owned by foreign banks, with 16 Shari’ah-compliant banks.

Accoding to the analysis from Trade Bank of Iraq, the private banks are small and relatively new in the banking sector where according to 2015 consolidated balance sheets of Iraqi Banks, the private banks share is 10 per cent of the assets, 21 per cent of the funded limits and 25 per cent of the non-funded limits. In spite of its rapid growth since 2015, lending of the banking sector amounted to 14.5 per cent of GDP compared to 55 per cent for the MENA region as a whole.

State-owned banks have the lion’s share of banking business in terms of assets and liabilities in the Iraqi banking industry. This is due to the perceived notion that the deposits in state owned banks are protected.

Private banks offer a range of products, including consumer loans.

However, the range of services provided by many banks is still limited, and loans are mainly short term loans related to wholesale and retail trade.

Due to their small size, private banks are not yet able to finance large projects, as syndication is not yet used.

In 2015, state-owned banks dominate the balance sheet size where it holds 89.9 per cent of the total consolidated balance sheets of the banks operating in Iraq. Total Assets of Iraqi Banks were IQD 222.8 trillion and the government banks’ share was IQD 200.5 trillion. The remaining 49 private banks’ share stand at IQD 22.3 trillion. During the same year, 26 banks were recorded to have reached

28

Net profit of banks with published statements for 2015 (USD ‘000) 8% 12% 39%

18%

Investment Bank of Iraq Iraq Islamic Bank for Investment & Development National Bank of Iraq Credit Bank of Iraq Iraq Middle East Investment Bank

22% Source: CPI FInancial

the capital requirement of the central bank—IQD 250 billion—while 27 banks did not.

Fitch believes that the banking sector is under-developed and fundamentally weak. Private sector credit to GDP is one of the lowest of any Fitch-rated sovereign. The two large state-owned banks, Al-Rafidain and Al-Rasheed, which have high non-performing loans and exceptionally low capital adequacy, dominate the sector. The government has appointed auditors as required by the IMF, but it remains unclear how the banks will be restructured or what this might cost in terms of recapitalisation by the government.

Generally, the banking sector in Iraq offers plain vanilla banking products in retail banking. The sectors that were financed by the banking sector for the year 2015 are—social services: 38.9 per cent; building and construction: 22.86 per cent; retail and wholesale: 14.27 per cent; transport/storage/communication: 6.3 per cent; water/electricity: 2.2 per cent; insurance/finance: 3.6 per cent; and mining: 0.11 per cent.

RATING

Fitch Ratings last month revised its outlook on Iraq’s Long-Term ForeignCurrency Issuer Default Rating (IDR)

from negative to stable and affirmed the IDR at ‘B-’. Iraq’s country ceiling was affirmed at ‘B-’ and its ShortTerm Foreign-Currency IDR at ‘B’.

This rating is similar to S&P’s where it reaffirmed Iraq’s ‘B-’ long-term and ‘B’ short-term foreign and local currency sovereign credit ratings on the Republic of Iraq, with a stable outlook, in August 2016.

Fitch’s revision of its outlook on Iraq is based on the country’s improved fiscal position relative to 2015 and 1H16 due to higher than expected oil prices and reduced government spending. The main factors that could, individually or collectively, lead to negative rating action are: 1) failure to secure adequate fiscal financing in 2017-18; 2) a deterioration in the country’s security, particularly if insecurity hinders oil production and exports.

On the other hand, the factors that could, individually or collectively, lead to positive rating action are: 1) a period of oil prices in excess of Fitch’s current forecasts, particularly if combined with higher oil production and exports and leading to an improvement in Iraq’s public and external finances; 2) a sustainable improvement in the country’s security that allows for stronger non-oil economic development.

www.bankerme.com

page 24-28 Country Spotlight.indd 28

12/04/2017 12:26

MobileMobile Banking Banking Corporate Corporate 27x21 27x21 Ad.pdfAd.pdf 1 12/13/16 1 12/13/16 12:36 12:36 PM PM Mobile Mobile Mobile Banking Mobile Banking Banking Corporate Banking Corporate Corporate Corporate 27x21 27x21 27x21 Ad.pdf 27x21 Ad.pdf Ad.pdf Ad.pdf 1 1 12/13/16 1 12/13/16 1 12/13/16 12/13/16 12:36 12:36 12:36 PM 12:36 PM PM PM

C

C

C

M

M

M

Y

Y

Y

M CM

CM

CM

Y MY

MY

MY

Y CY

CY

CY

Y MY CMY

CMY

K

K

K

bleed guide.indd 1 bleed guide.indd bleed guide.indd 1 1

14/12/2016 15:55 14/12/2016 17:06 14/12/2016 15:55 15:55

Photo credit: CoolR/shutterstock.com

INSURANCE

Optimising the customer experience

Technology is challenging traditional insurance business models.

Michael Jensen, Managing Director MENA Zone, AIG, discusses the impacts of digitisation and its disruption on the insurance sector

T

he winds of change from digitisation and technological transformation are being keenly felt across our regional insurance industry.

This provides an opportunity from which both insurance companies and clients can benefit, particularly as the introduction of new digital distribution channels and bancassurance continue to improve awareness and penetration of personal insurance in the MENA region.

This thinking was confirmed by recent research conducted by MENA Insurance Pulse, sponsored by AIG, which found that regional industry players see technology as one of the top three opportunities offered by MENA insurance markets.

30 page 30-34 Insurance.indd 30

Technology is challenging traditional insurance business models; it has the potential not only to change the way insurance companies fundamentally operate, but to revolutionise the entire customer experience at the same time.

DATA ANALYSIS AND COST CUTTING

Insurance companies have been gathering and analysing data since the dawn of the insurance industry, but advances in technology, together with the staggering growth in the number and type of internet-connected devices, mean that insurers now have the ability to generate and analyse huge data sets. This data can then be factored into risk calculations and product offerings, at a lower cost

than traditional business models allow.

Insurance companies in the MENA region are starting to capitalise on the enormous opportunities offered by this. And we’ve only really just scratched the surface.

In a competitive insurance market as we have in the Middle East, insurers are looking for opportunities to optimise their processes and cut costs; the increasing digitisation of the MENA insurance market brings with it the potential for insurers to do this.

Cost savings may eventually be passed onto customers as a tactic for customer retention. However, as the MENA Insurance Pulse 2017 research shows, customers are in fact willing to spend more money for a more appealing product or a better customer experience. cont. on page 32

www.bankerme.com

12/04/2017 12:33

Untitled-1 1

06/02/2017 14:05

INSURANCE

cont. from page 30

Michael Jensen, Managing Director MENA Zone, AIG

CUSTOMER EXPERIENCE AND EXPECTATIONS IN THE DIGITAL AGE

The MENA insurance industry was historically very much driven by price competition. However, we are seeing a solid trend towards client service and customer experience being a key differentiator for insurers.

From a customer’s perspective, the ease of engaging with insurers has a significant impact on their overall experience. Customers today are increasingly demanding services at the push of a button on their smart phone. They want it easy and instant.

As customer behaviours evolve, so do their expectations when it comes to how they interact with insurers—customers want to engage with insurers online

32 page 30-34 Insurance.indd 32

As customer behaviours evolve, so do their expectations when it comes to how they interact with insurers—customers want to engage with insurers online and expect the same ease of use and access from their insurers as they get, for example, with mobile banking.

— Michael Jensen

and expect the same ease of use and access from their insurers as they get, for example, with mobile banking. This shift is particularly noticeable in the MENA region, where mobile penetration rates are amongst the highest in the world, and there is a large millennial population whose use of mobile technology is integral to their daily lives and jobs.

This shift towards improving the customer experience using methods tailored to the modern end-user has driven insurers to innovate and develop new ways of connecting with their customers. The MENA Insurance Pulse 2017 has found that not only is digital one of the most popular distribution channels amongst regional insurance cont. on page 34

www.bankerme.com

12/04/2017 12:34

Where banking is more personal

bleed guide.indd 1

09/04/2017 09:08

INSURANCE

cont. from page 32

companies, but it also has the most significant potential for growth among the younger, internet-savvy population.

AIG’s full-purchase enabled internet site for travel insurance and personal accident insurance products is a good example of this.

That said, digital interaction is complementing and optimising traditional methods, rather than replacing them. For example, banks still represent a popular insurance distribution model.

With a balance between traditional and digital distribution channels, both opportunities and risks have emerged.

With the rise of digitisation and the internet of things, cybersecurity is increasingly high on the priorities of banks and financial services firms in the UAE and the wider region, who are already investing in cybersecurity, risk mitigation and insurance.

THE BENEFITS OFFERED

BY BANCASSURANCE

Bancassurance delivers its own set of benefits for both insurance companies and customers. Take as an example AIG’s partnership with Bank Muscat, Oman’s leading financial services provider. Since 2014, AIG Oman and Bank Muscat have had an exclusive partnership, which enables AIG to offer specially-tailored insurance products at around 60 Bank Muscat branches throughout the Sultanate. Through this partnership and continued efforts to educate consumers on the benefits of adequate insurance, AIG has access to a strong client base who are now aware of the benefits of being insured, whether to protect their car, home or family.

AIG and Bank Muscat now serve over 50,000 customers in Oman.

This ease of access to insurance through both bancassurance and digital channels serves to increase both awareness and penetration of insurance in the region.

34 page 30-34 Insurance.indd 34

INSURANCE PENETRATION IS ON THE RISE, DESPITE ECONOMIC HEADWINDS

As we know, the Middle East is under-insured in comparison to other global regions. However, penetration rates are increasing, and this trend is expected to continue in spite of economic headwinds, thus presenting the regional insurance industry with a great opportunity.

The economic slowdown caused by the sustained low oil price and geopolitical instability in the MENA region has, of course, had an impact on the regional insurance industry.

It was not long ago that customers were switching to bigger homes and enjoying several cars per household— all of which were insured. That reality has now been downsized, but in my experience, a short-term dip can also present opportunities that result in longer-term growth.

which enables insurers to differentiate themselves from their peers and ensure a positive customer experience.

Commitment from regional insurers to focus on innovation and embrace technology as a means of providing a better customer experience is a key part of the resilience of the regional insurance market in the face of economic turbulence. It can help spur on the underlying and fundamental growth of the regional industry.

THE MENA INSURANCE MARKET IS RESILIENT

As in 2016, continued volatility is likely this year, but we at AIG remain positive in our outlook for the insurance industry in 2017 and beyond. To remedy lower insurance penetration rates in the current Middle East market compared with other global regions, regional industry players must continue to educate their customers on the essential

Commitment from regional insurers to focus on innovation and embrace technology as a means of providing a better customer experience is a key part of the resilience of the regional insurance market in the face of economic turbulence.

— Michael Jensen, Managing Director MENA Zone, AIG As customers rein in their spending, insurance companies are looking ahead.

They are reflecting on their existing business operations, marketing tactics and product offerings and identifying innovative ways of working around the challenges they face, both to their advantage and that of their customers in the Middle East. Two key elements of this shift in focus are the continued education of consumers in order to increase insurance awareness and penetration in the region, as well as a focus on delivering better customer service, experiences and value,

protection and peace of mind brought to them by all forms of insurance, from SME insurance to auto, property, life and cyberinsurance. Moreover, they need to make it easier for customers to choose and buy these products.

Once the macro environment starts to settle down, this emerging digital insurance industry will guarantee greater products, improved customer awareness, and ultimately, it will spur greater, hopefully sustained, growth of a larger, stronger market. All of which means the future of the regional insurance market looks bright!

www.bankerme.com

16/04/2017 15:50

bleed guide.indd 1

11/04/2017 11:29

Photo credit: rumpo/shutterstock.com

PRIVATE EQUITY

Undiscovered horizons Arindam Banerjee, Assistant Professor of Finance at S P Jain School of Global Management provides a holistic view of the UAE’s private equity market

T

he 1970s witnessed a series of developments in the GCC states with the peaking of oil prices mainly resulting from the twin price shocks in 1973 (oil embargo) and 1979-1980 (Iranian revolution). The excess wealth contributed positively to the growth of both physical infrastructure and social services in the region. This increasing wealth led to more private investment.

The GCC private investment scenario can be broadly studied in cycles (waves). The first wave comprised of the years dominated by the unorganised market of private investors and wealthy families, dating back from 1970 and continuing until 2005. Post-2005 can be considered as the second wave that witnessed

36 page 36-40 Private Equity.indd 36

the sudden surge in private equity fundraising and growth in increased deal making. The buoyancy in the market came to a halt with the coming of the financial crises in 2008/2009.

The third wave typically can be categorised as 2010 and beyond that witnessed significant turmoil in the region with its epicentre in the Arab spring starting December 2010.

THE PAST FEW YEARS

Of late, many countries around the Middle East have diversified their economies beyond oil production.

This has been as a result of regional construction boom, increased tourism and an uptick in Western-style consumerism and as a result private equity (PE) has found a home in the

region’s various sectors, such as the food and beverage (F&B), education and healthcare sectors.

But at the same time, it’s not all been a smooth sailing for the industry.

Low oil prices and market fluctuations led to decline in regional M&A transactions activities in 2016 as well as less deal flow in PE in some sectors.

However, F&B along with health care and education continued to be the favoured sectors for both M&A and PE that maintained its momentum in the overall Middle East and North Africa (MENA). 2016 saw relatively weak private equity deal flows within the GCC and can be best described as a watershed year as the demand and supply gap further narrowed promising well for more activity in 2017. cont. on page 38

www.bankerme.com

12/04/2017 12:34

Successful trade starts with the right partner.

Global trade is one of the economic lifelines of the United Arab Emirates.

As the country’s business partner of choice for over 30 years, National Bank of Fujairah has developed an award-winning trade services team that provides tailored solutions to suit each client’s individual requirements.

With locations covering key strategic trading links, we facilitate cross border flows between the UAE and the rest of the world. No matter where you see your business going, we will be there with you, enhancing your competitiveness and maximising your growth.

Trade Finance

NBF Cash & Trade TF.indd 1 bleed guide.indd 1

2/15/17 1:55 AM 15/02/2017 15:03

PRIVATE EQUITY

cont. from page 36

OPPORTUNITIES GALORE

The first quarter of 2017 saw valuation expectations coming down, implying that there are good prospects for more and more attractive deal flow in 2017. In later part of 2017, it is expected that private equity activity in the Gulf will pick up significantly, both in terms of investments and potential exits.

With banking liquidity tightening, and the fact that the regional capital markets are not favourable to IPOs, business owners will possibly look towards private equity firms for growth capital or as a liquidity option to monetise their stakes in their businesses. It is to be noted that private equity in the GCC is increasingly being accepted as a serious alternative to bank financing, potential IPOs or trade sales.

In terms of investment opportunities in 2017, sectors that are fast-growing or defensive in the GCC such as food, FMCG, logistics, business services and consumer-led sectors will attract more capital.

Another area to focus would be the rapidly-growing ecommerce sector.

After registering nearly 30 per cent growth in 2015, the region’s digital economy is set to double over the next three years, passing the $30 billion mark by 2018. Ecommerce in the UAE and Saudi Arabia is expected to grow at an even faster pace over the next four years; at around 40 per cent.This will be primarily driven by young, tech-savvy population that will propel the GCC digital economy at a much faster pace than the traditional economy.

In terms of potential private equity exits, as oil prices recover, regional markets stabilise and investor sentiment becomes more bullish, more liquidity events over the next two years are expected. There would also be the rise of secondary transactions,

38 page 36-40 Private Equity.indd 38

Arindam Banerjee, Assistant Professor of Finance at S P Jain School of Global Management

2016 saw relatively weak private equity deal flows within the GCC and can be best described as a watershed year as the demand and supply gap further narrowed promising well for more activity in 2017. — Arindam Banerjee where private equity firms sell portfolio companies to other private equity firms that will become an accepted exit route in 2017, similar to recent trends in Europe and the US. With government and privates both lobbying for more SME investments, private debt and mezzanine financing will emerge as a serious, alternative financing option for SMEs in the region. Companies with low assets still find it difficult to obtain financing from the traditional banking market.

Several PE firms are launching private debt fund to fill this market gap

and to provide growth capital to promising companies. Private debt will increasingly supplement local lenders and provide much-needed growth capital to promising businesses in the region.

Overall, 2017 promises to be a productive year. While the last year was marked by a soft economic environment and low oil prices, it is expected the prospects for the GCC to recover in the coming year on the back of much-needed structural reforms, successful diversification drives and the recovery in oil prices. cont. on page 40

www.bankerme.com

16/04/2017 15:51

bleed guide.indd 1

02/04/2017 12:40

PRIVATE EQUITY

cont. from page 38

For long-term investors, GCC will remain as one of the most appealing investment destinations and many PE firms will continue to increase their investment and real estate development activities in the region in 2017. Market volatility and lack of good returns on more liquid investments are making institutional investors look for locked-up investments. Additionally, new legislation is starting to remove obstacles to investment.

In the UAE, with the newly formed insolvency law coming into force there is now more clear guidelines and structures for commercial bankruptcy.

The passing of this law gels well for the introduction of the long delayed UAE foreign investment law, which would allow 100 per cent ownership in key sectors. Local private equity firms and notable regional entrepreneurs have started investing in tech start-ups, attracting support from government entities such as Saudi Arabia’s Public Investment Fund—and piquing interest from outside investors. A new trend is that a number of PE firms will now also consider earlier-stage and venture capital type investments.

Smartphone penetration is high and there is a lot of tech entrepreneurship in the region which—when compared to India or Asia—is meeting limited availability of venture capital funding.

THE ROAD AHEAD

Cautious optimism will be the theme for GCC private equity in 2017. Private equity in the region is expected to pick up as oil prices stabilise. Early stage venture-capital style deals with technology start-ups will attract international and local interest, boosting M&A activity in the region. This is also synonymous with many countries and cities in the region are aiming for economic diversification through development plans and national visions.

40 page 36-40 Private Equity.indd 40

The GDP in the greater MENA region is expected to reach

$2 trillion by 2020 The largest markets are KSA at

$902 billion and UAE at

$502 billion Dubai has implemented a grand Industrial Strategy 2030, with initiatives in F&B, pharmaceuticals and medical equipment, aluminium and fabricated metals, aerospace, maritime as well as machinery and equipment. Its recent investments in construction and tourism have caught the world’s attention. The destination can leverage its infrastructure and airports to serve the growing demand for food, specifically Halal products.

Additionally, Dubai is strategically located to facilitate distribution throughout the region.

Saudi Arabia also has a vision for diversification with its National Transformation Plan, also to be implemented through 2030. Over the next four years the overall F&B market is projected to grow by 6.5 per cent annually. Some analysts consider the country’s growth opportunity as the country is underserved, from grocery

outlets to foodservice locations. A major event likely to positively impact economic prospects in Saudi Arabia is the planned IPO for ARAMCO, considered the world’s highest valued company. It’s expected to yield a significant economic windfall for KSA, resulting to improved consumer optimism and spending.

S i m i l a r l y, Q a t a r ’ s N a t i o n a l Development Strategy provides an integrated agenda for policy formulation, as well as regulatory and institutional framework changes and implementable projects linked to overall national and sectoral outcomes.

In totality, many opportunities in the region remain. The GDP in the greater MENA region is expected to reach $2 trillion by 2020. The largest markets are KSA (at $902 billion) and UAE (at $502 billion).

As economies in the region diversify and household income levels rise, the several industries stands to benefit, especially in casual dining and fast food, education and healthcare where PE activity has been focused in recent years.

FINAL THOUGHTS

It is to be noted that the private equity business is becoming more difficult, and in recent times, firms have made only small gains in operating efficiency. By reviewing the lessons learned over the past few years, CFOs have recognised their prime objectives, empowering them to tackle the intricate demands facing their firms.

In the near future, both managers and investors will need to know what tools are required for private equity funds to steer the challenges which lie ahead in this uncertain global economic environment, and also look forward to continuing to offer insight and analysis across the broader asset management industry, including the private equity market.

www.bankerme.com

12/04/2017 12:34

bleed guide.indd 1

17/04/2017 14:58

HUMAN CAPITAL

Building the future Emirates Institute for Banking and Finance Studies (EIBFS) sheds light on how banks in the UAE are charting the course for tomorrow’s leaders

Jamal Al Jassmi, General Manager at EIBFS

A

s the 21st century progresses, business leaders will be expected to deliver on several challenging fronts.

An essential measure of their success will be their ability to manage multiple stakeholders who bring different values and attitudes to the table, in a business world where economic volatility is the rule. Moreover, they will have to be masters of new skills such as data

42 page 42-46 Human Capital.indd 42

crunching, understanding analytics and other cutting-edge technologies.

It’s not surprising that when PwC in 2016 asked Middle Eastern and global CEOs to identify their topmost priority, both groups agreed (51 per cent and 49 per cent, respectively) that securing a ‘pipeline of leaders for tomorrow’ who could navigate such a changed business landscape was their highest concern.

PREPARING FOR THE NEXT GENERATION OF BUSINESS LEADERS

Several parts of the Middle East are actively building talent pools to mould leaders of tomorrow. In a separate PwC study titled Middle East Chief Human Resources Officer Survey (CHRO), 84 per cent of the respondents said that they have a leadership programme in place.

For member states of the GCC, the urgent objective is to attract and groom their own nationals to occupy leadership positions. They are approaching the same challenge in various ways. The UAE and Saudi Arabia focus more on programmes that impart professional training and development. On the other hand, Kuwait, Qatar and Oman rely more on a system of incentives that includes financial compensation, associated benefits and flexible working hours, the CHRO study pointed out.

Each business and industry in the GCC region is also carving its own approach to shape its leaders of tomorrow. In the UAE’s financial sector, banks have launched unique programmes to create career paths for UAE nationals. Such programmes not only hone their business skills and strategic perspectives, but also enable individuals to emerge as senior professionals within their organisations. The ultimate goal is that in due course, the best and the brightest will take over the mantle from the current generation of CEOs. A good example of such effort is IRTIQA—a targeted programme recently developed by RAKBANK specifically for UAE nationals.

Susan Gardner, Director, Group Human Resources, RAKBANK, explains, “The main objective of ‘IRTIQA’, a twoyear Management Associate programme, is to provide fresh Emirati graduates with a fast track career path and a cont. on page 44

www.bankerme.com

12/04/2017 12:35

HUMAN CAPITAL

cont. from page 42

LDP Darden School of Business, batch 2016.

variety of learning and development opportunities to take advantage of, so as to enable them to successfully handle a managerial position upon completion of the programme.”

Gardner added that “the development of a robust succession planning is also key to providing momentum and overall direction for UAE nationals to be groomed into more senior positions.”

ACADEMIC INSTITUTIONS SHAPING TOMORROW’S LEADERS

Besides their own internal training and mentoring programmes, banks have also tied up with EIBFS, the country’s leading training and educational organisation that plays an important role in the development of UAE nationals into leaders.

EIBFS’s leadership awareness and leadership development programmes provide talented, mid-management level, finance professionals with a

44 page 42-46 Human Capital.indd 44

platform to advance their critical leadership skills in a crowded and challenging market. The Institute has partnered with the Darden School of Business at the University of Virginia in the US to create the Leadership Development programme (LDP), which responds to the needs of each individual and enhances their capabilities in leading their team to execute their plans.

Jamal Al Jassmi, General Manager at EIBFS, elaborates, “In line with the government’s priority to encourage UAE nationals to opt for the financial sector, it is important for the banking and financial industry to have a structured progression plan in place. In this regard, EIBFS’s various training and leadership programmes, including the one with the Darden School of Business, play an important role in nurturing Emirati talent in terms of their development of business management skills in the highly competitive financial sector.”

Jassmi explains that EIBFS is not just committed to developing leadership aptitude and competency in Emirati youth, but is also continuously fostering a ‘can-do’ spirit that is directly linked to their organisation’s business strategy and desired outcomes. “The current middle-level managers are equipped with the necessary mindset and skill-set, and are on track to eventually assume top management roles. In the process, they are inspiring the next generation of UAE nationals,” he adds.

Strategically, EIBFS is also a partner of the Ministry of Human Resources and Emiratisation and Government Accelerators programme, and as the academic pillar is helping build and leverage partnerships in public and private sectors. The partnerships seek to secure a steady supply of qualified UAE nationals to drive and sustain growth in the UAE’s financial sector. cont. on page 46

www.bankerme.com

16/04/2017 15:52

bleed guide.indd 1

13/04/2017 10:58

HUMAN CAPITAL

cont. from page 44

Noor Bank, one of the country’s leading Islamic banks, boasts several UAE nationals in senior managerial positions, including in departments such as Corporate Banking, Treasury, Compliance, Human Resources, Consumer Finance—all led by their CEO, Hussain Al Qemzi, also a UAE national.

Hind Al Attar, Head of Human Resources at Noor Bank, explained why the institution has succeeded in bringing a large number of talented UAE nationals to serve in key positions.

“Many of our senior officers are ‘home grown—they have risen through the ranks, which is a result of our policies that are aimed at inspiring people to excel and thrive. We have a clearlydefined career strategy coupled with a succession planning philosophy for UAE nationals, which is deeply ingrained in our DNA. Programmes such as our internal Leadership and Coaching programme, and our Management Associate programme titled ‘Imtiaz’ in collaboration EIBFS, to name a few, are manifestations of this strategy.”

RAKBANK also collaborates with EIBFS for training on Fundamentals of Financial Services from CISI (Chartered Institute for Securities and Investment UK), Certified Banking Operations and Certified Credit Management from HKIB (Hong Kong Institute for Bankers).

Referring specifically to the programme at Darden School of Business, Al Attar believes that it helps participants develop several core competencies that are critical to a leadership role. “These skills are not just relevant to a role within our bank. They are universal competencies that our people can utilise successfully throughout their careers. Specifically, the LDP course has helped our employees build proficiencies such as strategic leadership and change management, as well as organisational skills.”

46 page 42-46 Human Capital.indd 46

In line with the government’s priority to encourage UAE nationals to opt for the financial sector, it is important for the banking and financial industry to have a structured progression plan in place.

— Jamal Al Jassmi, General Manager at EIBFS

TRAINING THAT YIELDS SOLID LEADERSHIP SKILLS

Badreya Al Dashti, Head of Public Sector and Large Corporates in the Corporate Banking division of Noor Bank, was one of the 14 UAE nationals who attend the Darden programme in 2015. As someone who aspires to lead a bank in the future, Al Dashti enjoyed her three-week intensive training away from her office in Dubai.

“It helped me immensely,” she said. “I have been implementing my learning in my work. We covered areas that focused on aspects of personality, especially in dealing with new people and new scenarios. It emphasised effective leadership with suggestions to maximise performance with innovative strategies, and to play a role that would allow me to explore the unknowns or work outside of my comfort zone.”

Last year’s attendee included Suhaila Al Jesmi, Deputy Director of Group Human Resources at RAKBANK. The LDP course helped her get a firm grip on decision-making processes, a skill that is highly pertinent to her role, according to Al Jesmi.

She added, “The training enabled us to look at business cases from various perspectives and helped us understand how decision making and strategic thinking contribute to the building of a productive team, satisfied stakeholders and a successful organisation.”

Of course, leadership development is more than just attending the twoweek intensive course on Darden’s US campus, as Jack F. Sullivan, Senior Director, Business Development at the

Darden School’s programme, points out. It is the way the attendees apply what they have learnt once they are back in the UAE that really make the difference.

Sullivan explains, “To ensure practical application, we ask LDP attendees to create an action plan that guides how, where and when they will implement what they learned upon ‘re-entry’ to work. Such an action plan serves as their road map for a smooth transition in applying key skills acquired during the programme, to actual duties and tasks required in their role on the job. With their personal executive coach (coaching is part of the LDP curriculum) they can refer to this document for many months after the programme to cheque progress against goals.”

On their return, RAKBANK participants created an individual development plan that was aligned to the bank’s corporate strategy, which demonstrated the impact and tangible benefits that the programme had on their ability to broaden their strategic and critical thinking, said RAKBANK’s Al Jesmi. A formal presentation was also delivered to the CEO that captured all of the key learning that was acquired, and demonstrated first-hand the improvement in overall capability.

With the help of educational institutions that feature strategic leadership courses, organisations in the UAE and the GCC region are effectively shaping talented leaders who will captain the businesses of tomorrow.

www.bankerme.com

12/04/2017 12:35

Not your copy?

Banker Midle East is a controlled circulation magazine delivered to specific, named individuals in board level and the very top management positions within the banking and financial services sector and to CFOs and Treasury heads in large, listed corporates in the MENA region.

Others may subscribe to receive the magazine regularly through the subscription form below.

Institutions may also arrange bulk purchase orders of the magazine and its supplements to circulate among internal and external stakeholders. If you wish to arrange regular bulk deliveries, please contact subscriptions@cpifinancial.net for terms.

Annual individual subscription (11 issues/year) US$240

To subscribe, simply fill in the order form and return it, with your cheque for US$240 to: CPI Financial, PO Box 502491, 1209 Shatha Tower, Dubai Media City, Dubai, UAE. NAME POSITION COMPANY ADDRESS LINE 1 ADDRESS LINE 2 ADDRESS LINE 3 PO BOX ZIP/POSTAL CODE COUNTRY

CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E. Tel: 4681 391 4 )0( 971+ • Fax: 9576 390 4 )0( 971+ • www.cpifinancial.net

BME subscription house ad 192-193-194.indd 1

18/04/2017 11:55

INVESTMENTS

A commodity bull market coming in 2017?

After commodity prices bottomed in early 2016, demand is outstripping supply once again, suggesting the next bull market may be approaching, writes David Donora, Head of Commodities, Columbia Threadneedle Investments

2

016 was the year when the commodities bear market ended. It capitulated in January when crude oil fell below $30 a barrel and a number of commodityproducing companies in the energy and metals sectors were in a battle for survival, selling off assets and desperately restructuring their balance sheets.

As commodity prices fell below the cost of production, these companies were losing money at a rapid rate.

If oil stayed below $40, then 20 per cent of global capacity would have gone out of business. Similarly, major mining companies Glencore and Anglo American were forced to liquidate significant parts of their overall businesses to reduce debt and to shore up their balance sheets.

The market recognised that prices were unsustainably low and there was a small bounce-back. As we enter January 2017, prices are rising further.

This is because, although prices fell in 2015 and the beginning of 2016, demand for commodities continued to increase; not at an extremely strong rate but fairly consistently. And so the requirement for increased production over the medium term remained.

The Bloomberg Commodities Index rose 11.8 per cent in 2016. That does not signal a bull market. In my view,

48 page 48-50 Investments.indd 48

a commodity bull market is when we experience a doubling or tripling of commodity prices. In the bull market of 2000-2008, the index tripled in value. That was a full commodity bull market. 2016’s rise is just bouncing along the bottom.

So, prices have risen, significantly in base metals and in energy. In oil, OPEC countries and a number of nonOPEC countries led by Russia have agreed to take 1.8 million barrels per day of production off the market to reduce excess inventories more quickly than they would otherwise have been depleted.

DEMAND OUTSTRIPS SUPPLY

The question for 2017 is whether the market bounces along the bottom or prices increase significantly. My view for 2017 is that we will have significantly higher prices for a number of reasons: Firstly, the supply side is not in a position to respond to significant demand growth. While commodity producers have spent the last three years dealing with very low prices, focusing on balance sheet restructuring and saving cash, they have not brought on new projects. Also, in mining they have been ‘high grading’ (only producing the highest grade ore) to just stay cash-neutral or cash-positive. cont. on page 50

Spot gold and US real rates (December 2015 to March 2017) Spot Gold

USD/oz 1400

US 10-yr real yield, inverse

% -0.3

1350

-0.1

1300 0.1

1250 1200

0.3

1150

0.5

1100 0.7

1050 1000 Dec

0.9 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Source: Bloomberg, Saxo Bank

www.bankerme.com

16/04/2017 15:53

GFH has researched and identified unique opportunities which have ensured the growth and diversity of the group’s asset base. The employment of deep market insights, innovative thinking, and investment intelligence, has ensured our portfolio develops in accordance with our strategy, and is capable of delivering remarkable performance. gfh.com | Invested with insight

bleed guide.indd 1

19/03/2017 16:43

INVESTMENTS

cont. from page 48

Secondly, I expect there will be significant demand growth. Emerging markets demand will be greater than the market expects, especially in Asia.

China has been going through economic restructuring for a number of years.

We believe that it is coming through that and there will be stronger consumer-led demand from China and all Asian emerging markets.

Thirdly, we think that in the developed and emerging markets, consumers have enjoyed low food and energy prices for two years, and that has shored up their finances and now they are also receiving higher wages. So, we expect consumer demand for commodities to increase. For example, for two years the oil price has been around $50 rather than $110. That halving in the price of oil was worth $2 trillion per year to the benefit of consumers, at the expense of oil-producing companies and countries.

Fourthly, governments of both developed and emerging countries are signalling a shift in focus from monetary

OECD’s commercial oil stocks mb 3,200

mb 3,200

3,100

3,100

3,000

3,000

2,900

2,900

2,800

2,800 2,700

2,700 Historical range 2012-2016

2,600 2,500 Jan

Feb

Mar

Apr 2015

May

Jun

2016

We think the growth rate for oil demand will continue to be strong in 2017. The return of supply discipline will keep the oil price on an upward trajectory. It is worth noting that there is very little spare capacity globally. If the OPEC agreement holds and 1.8 million barrels are taken off the table globally, that accounts for almost all surplus inventory, leaving the world vulnerable to a supply disruption.

— David Donora, Head of Commodities, Columbia Threadneedle Investments

A WIDESPREAD TREND

The increase in demand is likely to be most acute in base metals. Copper, zinc, nickel and aluminium should benefit from a substantial increase in consumer demand for metals.

50 page 48-52 Investments.indd 50

2017

Aug

Sep

Oct

2,500 Nov

Dec

Average 2012-2016

Source: Argus Media, Euroilstock, IEA,METI, OPEC Secretariat and US Energy Information Administration.

The increase in demand is likely to be most acute in base metals. Copper, zinc, nickel and aluminium should benefit from a substantial increase in consumer demand for metals. policy to fiscal policy and fiscal stimulus.

They recognise that quantitative easing has not materially helped consumers and consider that fiscal stimulus is more likely to do so. We expect to see the US, Europe and Japan turning to fiscal stimulus, while China continues to deploy it. That will increase demand for commodities.

Jul

2,600

We have concerns about this given the security situation in the Middle East.

The new US administration is unlikely to want to be the region’s peacekeeper.

And while the Russians have become more involved, it is not clear whether this will contribute to stability or not. It is likely that the boundaries drawn up in the Sykes-Picot Agreement 100 years ago will be redrawn.

Longer term we are bullish about precious metals as well. Gold is likely in the short term to continue to be weak while bond yields are rising. Commodities, in general, are negatively correlated with bonds but gold at the moment is behaving

more like a low-yield reserve currency and less like a commodity. Gold will be weak when bond yields are going up and bond yields have some way to go. Once bond yields plateau we would expect to see gold strengthen again.

Turning to agricultural commodities, there have been two years of abundant harvests as the El Niño weather cycle’s stable weather pattern has prevailed. But this has ended, so weather is likely to be more variable in growing regions and so crop yields are likely to fall. Our view is that despite having two great years to rebuild stocks, they are only adequate.

If the next Northern Hemisphere harvest is compromised, we will see upward pressure on agricultural prices.

START OF THE BULL MARKET?

Across the commodity markets as a whole, we expect 2017 to be another positive year. Inventories are tightening. Commodity curves are flattening, which supports prices and returns for investors. Producers are likely to have difficulty keeping up with demand over the next couple of years.

We have had the end of the bear market, after which there is normally a period of bouncing along the bottom.

While this historically has persisted for two to five years, we think that a focus on improving the lot of consumers could bring this forward to 2017.

www.bankerme.com

13/04/2017 10:46

...at your service

BESPOKE MEDIA COFFEE TABLE BOOKS NEWSLETTERS MAGAZINES ANNUAL REPORTS MICROSITES

Access our unrivalled experience in publishing and let us help you tell your story

CPI Financial FZ LLC • PO Box 502491

bleed guide.indd 1

23/03/2017 10:19

ADVERTORIAL $GYHUWRULDO

Jersey: providing stability and certainty for

With a strong and growing presence in the region, Jersey is increasingly providing a range of private wealth management services to GCC clients, as Geoff Cook, CEO of Jersey Finance, explains:

GCC Clients This is an exciting time for Jersey and its relationship with the GCC. For more than ten years, Jersey Finance, Jersey’s government and the Island’s regulator have been regular visitors to the region. More recently, Jersey Finance’s representative offices in the UAE have fostered a strong relationship with businesses across the region.

This burgeoning relationship, and the Island’s commitment to the region, is set to be highlighted at the Jersey Finance roadshow event in May in Dubai, and the timing couldn’t be more significant.

With the current changing market and political landscape, the GCC’s wealthiest families are increasingly handing their wealth planning and management to first-class, stable international finance centres (IFCs).

International investment carries risks, yet the right wealth structuring service can identify the most appropriate investment options within fluctuating market and regulatory environments.

Wealth structuring can also navigate tax and regulatory requirements and provide a secure and flexible service to protect and grow those assets.

This is an area of strength for Jersey. It’s a secure jurisdiction that offers a flexible approach to private wealth management, built on more than 50 years’ international expertise, delivering trusts, as well as estate and succession planning. More recently Jersey’s innovative foundations and private trust companies have proven very popular, especially among those seeking greater control over their investment assets.

The suitability of these products is one reason why Jersey has long been a preferred jurisdiction for private wealth management clients from the GCC. Additionally, the number of family offices in the GCC region is expected to grow significantly in the next few years, a service which Jersey has been providing to GCC families for many years. The Island also has a longstanding relationship with many intermediaries and HNWIs in the region, offering

52 page 00 Advertorial.indd 52

appropriate regulation and a tight-knit network of professional firms. Furthermore, Jersey offers excellent market access into both London and the EU – it’s estimated that the Island’s finance industry facilitates around £670 billion of foreign investment flows into those markets.

Of course the Western world has its share of geopolitical uncertainty at the moment too – not least the fall-out from the UK’s recent move to leave the EU. Because of its location between the UK and EU, Jersey finds itself with a front-row view of the ‘Brexit’ developments. The good news for investors is that while the UK’s triggering of Article 50, confirming its formal intention to leave the EU, has generated a huge amount of uncertainty for the UK itself, Jersey’s position is unlikely to be affected. As a Crown Dependency it’s neither part of the UK nor the EU. ‘Brexit’ doesn’t affect Jersey’s long-standing constitutional relationship with the UK, nor its rights to offer its services to EU markets, which are the result of independent bilateral negotiations.

This leaves Jersey in a prime position to provide wealth management services to HNWI clients from the GCC. The Island offers stability, independence and tax-neutrality, and robust, specialised regulation that acts as a quality filter, ensuring that funds comply with international standards and regulations.

Jersey has long been commended by organisations including the World Bank and the OECD for its standards of transparency, and was recently commended by MONEYVAL, the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, for its anti-money laundering measures. MONEYVAL found Jersey to have a ‘mature and sophisticated regime for tackling money laundering and the financing of terrorism’, giving the jurisdiction the highest rating of any state it assessed.

Jersey’s expertise also extends to Islamic finance. The Island’s legal system hasn’t had to change in any way in order to accommodate Sharia-compliant products, and is flexible enough to accommodate the various nuances of different schools of Islam.

www.bankerme.com

13/04/2017 10:47

KUWAIT

BAHRAIN

QATAR

UNITED ARAB EMIRATES

KINGDOM OF SAUDI ARABIA

Any partnership with a wealth structuring provider has to focus on the long term, keeping assets safe and allowing them to grow.

Provisions should be tailored to the investor’s needs and goals, and the practitioners have to keep up-to-speed with changes to regulatory and tax environments, enabling the wealth structuring services to evolve alongside them.

Jersey’s offering balances product innovation with high standards of regulation, world-class legislation and vast expertise from a range of seasoned professionals. As such, the Island is perfectly placed to support the complex estate planning and investment ambitions of GCC investors, as they seek not only to minimise the threats that lie in the rapidly changing global financial picture, but to capitalise on the opportunities that are, without doubt, there too.

Considering all the above, Jersey’s finance offering is perfectly placed to support the complex estate planning and investment ambitions of GGC investors, as they respond to the changing global financial picture.

With all this to discuss and more, the Jersey Finance GCC Roadshow 2017 ‘New Perspectives’ will be in Dubai on 3 May. Find out more at www.jerseyfinance.je/gcc-roadshow-2017 or for further information on Jersey’s world-leading wealth management services, contact either Cormac Sheedy or Richard Nunn, Jersey Finance Business Development Directors for the GCC. E: richard.nunn@jerseyfinance.je E: cormac.sheedy@jerseyfinance.je T: +971 (0) 4 319 9923

OLQNHGLQ FRP FRPSDQ\ MHUVH\ ӾQDQFH

#MHUVH\ӾQDQFH

OMAN

Jersey: 10 key strengths + 50 years’ experience in private wealth management + Deep ties to the GCC, with expertise in Islamic finance

+ Early adopter to the latest transparency standards + Glowing recommendations from the OECD, World Bank, IMF and MONEYVAL

+ A substantial network of top-level financial services professionals

+ An enviable community of support services, from legal to accounting

+ Innovative products – from trusts to foundations, private trust companies and family offices

+ Stable location + Close ties to London + The perfect blend of the transparent and the confidential

‘New Perspectives’, the Jersey Finance GCC Roadshow 2017, will be in Dubai on 3 May. Find out more at: www.jerseyfinance.je/events/gcc-roadshow-2017

MHUVH\ӾQDQFH MH

\RXWXEH FRP MHUVH\ӾQDQFH

YLPHR FRP MHUVH\ӾQDQFH

www.bankerme.com

page 00 Advertorial.indd 53

53 13/04/2017 10:47

IN-DEPTH

Creating a diverse bond market In an exclusive mini roundtable, Banker Middle East speaks to Michael Grifferty, President of The Gulf Bond and Sukuk Association, Dr. Hansjörg Herzog, Member of the Executive Committee at Fisch Asset Management and Roland Hotz, Senior Portfolio Manager at Fisch Asset Management on the state of the debt capital market in the GCC

D

escribe the current debt capital market landscape in the region.

Michael Grifferty: It’s

rapidly growing and there is a huge future in the next five years. Most of the issuance have been in the international dollar markets with minimal local market development.

However, that is going to change as sovereigns seek to develop the local capital markets for their own funding needs and to complement their access to international markets—which was the story of 2016 and will also be the story of 2017, although probably more modestly than last year.

The local investor base is strong and diversifying but still oriented towards banks—they are predominantly the main investors due to relatively lighter weight of pensions and insurance companies in the region. They tend to have a preference for more plain vanilla products.

The region itself needs to further develop its investor base so that we are less reliant on banks as core investors.

There is a lot of talk about retail but I think this could potentially lead us

54 page 54-56 In Depth.indd 54

down a blind alley. This is because global markets are not driven by retail investors. And I think we need to develop regional institutions.

How do you view the pipeline for 2017?

MG: A majority of GCC sovereigns may

come out again in volume. We have already seen Kuwait, Oman and Bahrain come to the market. While Qatar and Abu Dhabi are less likely, Saudi Arabia is likely to issue again this year. This is a wide expectation and they may issue in either conventional or Sukuk, or both.

I also think that the debt management offices now have had more time to evaluate their capacities to manage sovereign liabilities as well as to measure risk and develop a more strategic view towards markets.

Therefore, I think sovereigns are consolidating in what they’re doing this year.

Last year was marked by a bit of urgency.

Now they’ve established themselves in the market. So I think we can see more regularity in terms of government issuance based on more a traditional and developed sovereign risk management.

Is there a difference between the level of sophistication amongst investors and issuers?

Dr. Hansjoerg Herzog: Our observation

of the people we meet, the people who invest in bonds, is that they are very sophisticated in this context. For us as asset managers speaking to these institutions, it’s not that they do not understand the instruments—they do, they understand them very well.

A majority of GCC sovereigns may come out again in volume. We have already seen Kuwait, Oman and Bahrain come to the market. While Qatar and Abu Dhabi are less likely, Saudi Arabia is likely to issue again this year. This is a wide expectation and they may issue in either conventional or Sukuk, or both.

— Michael Grifferty

www.bankerme.com

16/04/2017 16:00

Dr. Hansjörg Herzog

Nevertheless, there is more likely to be a difference in the knowledge base of the instrument within each specific corporate. For example, there might be a gap when going for board approvals, or simply that the board may not be inclined towards more complicated products. Also, local regulations have not encouraged this or offered investors the full suite of products. We also have a perception that the investment bankers/ advisors to the treasurers in this region put less emphasis on more complex structures such as convertible bonds.

Why are convertible bonds suitable for GCC issuers?

HH: Convertible bonds are usually put

in a ‘too complicated’ product box, which in fact they aren’t. It is in essence a simple product. It’s not just about large billion-dollar issuance, but with convertible bonds you can go down to smaller issue sizes. We think that it is a very good instrument for the future

Roland Hotz

Convertible bonds are usually put in a ‘too complicated’ product box, which in fact they aren’t. It is in essence a simple product. It’s not just about large billion-dollar issuance, but with convertible bonds you can go down to smaller issue sizes.

— Dr. Hansjoerg Herzog

in this region. Corporate bonds are usually used by large cap companies.

Convertible bonds can be smaller and suitable for mid-cap companies.

This could be an instrument to target smaller companies with in the region.

Historically, in industries such as biotechnology as well as smaller oil and gas companies in the US, convertibles have been a successful fundraising tool.

There is a good opportunity for similar companies in this region to utilise it as a means of financing. The only issue is that the company needs to be listed, because convertible bonds involve the issuance of

a bond with an option to convert it into the underlying shares over its lifetime.

Therefore, if you do not have a listed share, this conversion is not possible.

Roland Hotz: Our view is that there are a limited number of listed companies to provide an opportunity for a large convertible bond market. However, this is only one side of the coin. We also see the possibility of entities who very often have shareholdings in companies throughout the world. They can use convertible bonds (or more specifically, exchangeable bonds) as an instrument to divest or reduce their shareholdings. cont. overleaf

www.bankerme.com

page 54-56 In Depth.indd 55

55 16/04/2017 16:00

IN-DEPTH

cont. from page 55

If they want to exit or reduce it over time, convertible bonds are an appealing instrument for them to do so. This is because in many cases the issuer itself has a very high credit rating and a perception in the market as safe and large.

Global investors are always looking for good quality issuers in order to offer comfort that the bond will be repaid at maturity in the event that the underlying company’s share does not rise sufficiently and the convertible does not convert into shares. The option to convert means that the issuer can pay a lower coupon than on straight debt. These coupons plus possible repayment of the bond if it does not convert is known as the bond floor, which provides the downside protection sought by investors.

Issuers are able to add a premium, perhaps 20-30 per cent above the actual stock price, at the time of issue. If the share rises above this level and the bond is converted, they achieve a higher sale price for the stock than if they were to immediately sell it in the market. This way, they do not immediately hit the market with a large number of shares which may put pressure on the share price. The good thing about conversion is that in such cases, the issuer doesn’t have to pay back the bond—they deliver the stock. The bondholder then becomes an equity holder. For large government entities, we regard this as a win-win situation.

HH: In summary, there is a lower coupon than on a straight bond, achieving a higher equity price than current levels if it is converted—these are the interesting aspects of convertible bonds from a treasury perspective.

The downside is potential dilution for shareholders. This is because if the share price goes sharply up over the life of a convertible bond, then of course it may have been better to wait and issue equity. So it is a tradeoff between a lower coupon today and a higher equity issue

56 page 54-56 In Depth.indd 56

Global investors are always looking for good quality issuers in order to offer comfort that the bond will be repaid at maturity in the event that the underlying company’s share does not rise sufficiently and the convertible does not convert into shares.

— Roland Hotz

price in five years than risk a dilution today. This is the name of the game.

For treasurers, it really depends on what is important for them. In recent times, with such low interest rates, the benefit of a lower coupon may not be so valuable for convertible bonds.

However, if this secular trend of lower interest rate changes, then we expect to see more convertible bond issuance.

RH: Bear in mind that a dilution only happens if new shares are delivered via conversion. However, if these shares already exist, such as in the case of an issue converting into a crossholding, there will not be any dilution.

HH: Therefore, for state-owed institutions, if they are positive but not overly bullish on the outlook on their respective stock prices, then a convertible bond is a good option. It is an additional fund raising tool for these institutions beyond those they already have.

Do you think local investors would be interested in a convertible bond?

MG: Yes, in principle it is an easily

explainable asset class. If they are offered the proposition, then they could be open to it.

HH: From our experience in Europe, we see that regional investors are much keener on having regional issues because they know how the market works. Therefore they are also willing to invest in smaller companies. We think the sentiment could be the same in this region as well. However, in general, the investor base on the convertible bonds side is more interested in having a

diversified portfolio in terms of regional and sectoral spread.

The convertible bond market is dominated by US and European companies, issuing approximately 80 per cent of the convertible bond universe.

Ten per cent of the market is from Japan, with about eight per cent from the rest of Asia and others, which is a very tiny portion at about two per cent.

MG: This familiarity sentiment I believe fits well with the GCC. Some local investors feel less inclined to rely on ratings as they feel they already know the company in which they are investing.

What is the typical term of a convertible bond?

RH: Typically, a convertible bond is issued

between a three and seven year term— an average of a five-year lifetime for the option of the underlying share to go well and to convert with a profit. If the shares do not perform, you rely on the issuer to re-pay your money. But this is a very long option. You usually cannot get pricing for a call option on the market for five years.

And that is the reason why you often receive a cheaper annualised premium for this individual share via a convertible bond than if you’d bought it on a three or six-month basis and rolled it over all the time. This makes the convertible bond instrument attractive.

There are only a few outstanding convertibles in this region, for example NBAD at $500 million and DP World at $1 billion. We would like to see more convertible bonds coming out of regions other than Europe and the US.

www.bankerme.com

16/04/2017 16:00

bleed guide.indd 1

18/04/2017 15:06

IN-DEPTH

Photo credit: BeeBright/shutterstock.com

Strength in regulation Mark Van Leewarden, Managing Director and Founder of Warden Consulting, discusses the necessities of strong regulations in managing cybersecurity risks

D

escribe the cybersecurity landscape in the Middle East.

Cybercrime is somewhat of a vexing issue in that it defies a precise definition. Most financial crime committed currently involves computer technology or use of the internet in some way so you could argue all such offending is cybercrime.

If you focus on hacking, which facilitates traditional crimes such as theft, sabotage and blackmail, this appears to be more of an issue in the Middle East than globally.

58 page 58-60 In Depth.indd 58

Are there particular trends that are identifiable/typical of cybercrimes in this region?

In addition to hacking and ransomware, cyberware and business email compromise are specific problems that are trending. A good example is business email compromise which targets businesses. The offenders spoof company emails and assume the identity of senior management to request a transfer of funds.

The US response has been to have dedicated teams within the FBI

investigating the problem. The scam can be combatted by having voice verification regarding transfers over a certain amount, for new vendors or where there are bank account changes.

No online payments should ever be made without at least an implemented tier of authorisation. Â

What challenges should financial institutions expect to face in the foreseeable future?

With development in the region many companies have experienced strong cont. on page 60

www.bankerme.com

16/04/2017 16:02

bleed guide.indd 1

13/04/2017 10:56

IN-DEPTH

cont. from page 58

growth and have applied less emphasis to cybersecurity issues. The challenge into the future is not only having the right processes and technology in place but ensuring there is an appropriate culture in the business which must be driven from the top down. This is true of all corporate security including fraud management, ethics and loss prevention measures.

How would you suggest financial institutions protect themselves from cybersecurity risks?

The banking fraternity are well aware of the risks being faced as they are dealing with not only cybercrime attacks but ensuring vulnerabilities to money laundering and terrorist financing are also being contained. The problem is not just IT-based—they require response teams who are appropriately experienced and have clearly defined roles and responsibilities both in terms of prevention and incident response.

Mark Van Leewarden

The banking sector focus on regulatory control as an overarching management of the issue is a good sign.

It is an acknowledgment which is critical in dealing with risk generally.

— Mark Van Leewarden, Managing Director and Founder of Warden Consulting The banking and finance sector is currently going through tough times, part of it due to more stringent regulations. What is your opinion on financial regulation in these markets and its efficiency in combating cybersecurity breaches?

The banking sector focus on regulatory control as an overarching management of the issue is a good sign. It is an acknowledgment which is critical in dealing with risk generally. Aligned with this however there needs to be regulatory certainty under which financial institutions can operate. In this sense further clarification around the UAE

60 page 58-60 In Depth.indd 60

Central Bank moves on virtual currency is probably necessary. Banks are facing a difficult and challenging environment.

Any increase in banking activity drags with it an increase in criminality.

What are your suggestions to improve cybersecurity standards in the region?

Improvement in cybersecurity standards is directly linked to awareness, board support and business culture alignment. Also included in this must be customer education coupled with constant system and procedure improvement. Acknowledged and

effective robust enforced processes can then be run effectively under this umbrella. This is a challenge as it could be argued Middle East businesses are not structured as stringently as those globally. A backdrop of regional political uncertainty adds to the problem.

Going forward, what is your outlook on the development of cybersecurity across the financial sector?

The difficult times recently have resulted in a Central Bank focus on risk management regulations generally.

Alignment with international standards is important to ensure global continuity of response.

Any perceived regional weakness will draw focus from criminal elements who can sniff an opportunity for exploitation. Forcing accountability onto boards and management will necessarily result in some resistance but it must be seen as positive long term.

www.bankerme.com

16/04/2017 16:03

THE HERITAGE OF YOUR WEALTH...

Licensed and regulated by Central Bank of UAE

bleed guide.indd 1

600 546656

www.nationalbonds.ae/prestige

16/04/2017 15:02

Photo credit: Zapp2Photo/shutterstock.com

TECHNOLOGY

Cybersecurity can power fintech to new heights Leo Cole, VP—Marketing at DarkMatter, discusses the correlation between fintech and cybersecurity

I

nnovations in fintech, and the growing importance of online transactions in the wider banking and finance sector, means the requirement to institute and maintain the highest levels of end-to-end cybersecurity resilience is imperative to the maintenance of the innovation momentum.

The number and scope of cyberincidents affecting the banking and finance sector are well documented, with estimates ranging between tens and hundreds of billions of dollars of losses incurred annually through cyberattacks. From an industry standpoint, efforts are intensifying to mitigate cyberthreats before, during, and after they have occurred, though more can still be done.

Last year, for example, the Dubai Financial Services Authority (DFSA) announced its willingness to engage

62 page 62-64 Technology.indd 62

with the rapidly evolving world of fintech. The Authority’s efforts in this area are in conjunction with those of the Dubai International Financial Centre (DIFC) Authority, and are in line with the broader innovation strategies of the UAE’s local and federal governments.

The DFSA has been discussing opportunities with interested fintech companies and startups looking to test innovations within the Authority’s regime for some time now. In response to these enquiries, at the beginning of March 2017, the DFSA issued a consultation paper that it believes will assist current stakeholders and the wider public to better understand how the Authority intends to deal with future enquiries from those interested in establishing a presence in the DIFC for a fintech business.

The DFSA does not propose introducing new rules, and instead its

month-long consultation process (which closed 5 April 2017) was geared towards considering how the Authority can make use of the flexibility in its regime to facilitate the testing of innovative fintech business models in the DIFC. We applaud this consultation process, and the Authority’s openness, and forward-looking approach to the technical advancement of the financial services sector. It is our view that the ramp-up of fintech is a positive development but can only proliferate should a standard level of cybersecurity across interconnected networks and endpoints exist.

This standard level of cybersecurity may also be described as the achievement of cyberresilience, which requires entities operating digital infrastructure to adhere to the cybersecurity lifecycle, which incorporates planning, prevention, detection and protection, and response to digital threats. cont. on page 64

www.bankerme.com

12/04/2017 12:37

ADVERTORIAL

Digital disruption: changing the banking industry

By Yaser Alzubaidi, Avaya Engagement Solutions Sales Lead, Asia Pacific, Middle East & Africa

D

igital transformation is changing every industry, and unsurprisingly, banking is at the forefront of this trend. Banks need to improve the customer experience, increase operational efficiency and respond faster to changing business environments. Avaya has already seen major disruptive trends in the financial sector, and this year these trends are set to accelerate.

The first key trend is mobile: mobile is not just a form factor, it is a different experience. This holds especially true in the Middle East, which has a predominantly young, tech-savvy population and some of the highest mobile penetration rates of anywhere in the world.

Mobile financial services are becoming more contextaware and going beyond replacing the basics you can do on a web site. While the mobile, financial services customer experience has been cumbersome and time-consuming with passwords, codes and security questions, advances in context-aware computing will enable the mobile customer experience to be on par with other mobile experiences.

Biometric technologies such as voice authentication, fingerprint and facial recognition are ready for prime time and banking institutions are ready. It’s a challenge being felt around the world: in the Middle East, Emirates NBD Bank has implemented a biometrics log-in capability, where customers can use a Touch ID on the Emirates NBD Mobile Banking App to securely log into all their accounts.

With context-aware computing for banking, financial and insurance on target to grow from $3.25 billion in 2013 to $13.8 billion in 2018, 2017 is shaping up to be a very pivotal year for mobile customer experience in financial services.

As banking and finance companies continue their efforts to digitally transform in 2017, this process will shine an even brighter spotlight on the need for modernising security, in particular identity access management systems.

Companies must abandon their legacy identity security tools and begin deploying new systems that are highly scalable and equipped with high-end encryption enable a high quality user experience as well as the best security.

Security concerns are also leading to increased interest in blockchain. In fact, most blockchain deployments will be in the security and fraud areas, and expect fintech to massively use it.

It will also change how payments are made. The National Bank of Abu Dhabi has already announced that it has introduced real-time cross border payments on Blockchain technology.

Banking customers’ preferences and expectations are changing. Today, Avaya works with the top 10 largest banks in the world, and with leading banks across the Middle East to help them meet these changing expectations seamlessly— from mobile apps to self-service channels to social media tools.

Avaya customer engagement solutions are being used by banks in the region to deliver personalised, collaborative experiences, while our fraud prevention and security features are helping to protect customers and improve service.

Avaya is the global market share leader in contact centre solutions and has been named a Gartner Magic Quadrant Leader for Contact centre Infrastructure for 16 consecutive years.

For more information on our banking solutions, please visit http://www.avaya.com/en/solution/banking or e-mail alzubaidi@avaya.com

www.bankerme.com

page 63 Advertorial.indd 63

63 13/04/2017 13:58

TECHNOLOGY

cont. from page 62

Fintech companies should understand their risk profile before initiating a cybersecurity management and mitigation exercise, which will provide them with an understanding of all their digital assets, the full range of threats they may face and the vulnerabilities, and how best to protect themselves from them.

The planning stage within the lifecycle relates to the implementation of threat assessment efforts, which is often best done by an experienced third-party as it likely has a much clearer perspective of the risk landscape. Vulnerabilities may arise from a number of different areas including technology, processes and people, though once the cybersecurity function of a company has a firm handle on its risk profile, it can then move to take appropriate mitigation measures.

An entity can then move quickly to the next three stages within the cybersecurity life-cycle that are aimed at mitigating the effects of any potential cybersecurity threat and relate to prevention, detection and protection, and response to incidents.

Prevention requires an entity to truly understand the configuration of its network and most importantly who has access to it. It’s a simple truth that one cannot protect what one doesn’t understand; a thorough audit is vital at the start of any mitigation process.

Sophisticated mapping software can certainly accelerate this process, but ultimately a comprehensive audit requires people on the ground to ask the right questions and find the location of servers and access rights.

Detection and protection relates to mapping a system’s characteristics to the known threats and its vulnerabilities in relation to them. It takes the threat intelligence gathered in the risk assessment process and relates it to the specifics of the company’s system, which then informs the implementation of active cyberdefences in order protect systems and data.

64 page 62-64 Technology.indd 64

By the end of this decade, annual gross written premiums for cyberincidents will increase from

$2.5 billion to

$7.5 billion By 2025, this could jump to over

$20 billion, a compound annual growth rate of over

20 % Response relates to the range of tools and actions that can be implemented to deflect possible cyberattacks and is based on the aggregation of the information found in the first two phases. The response is guided by information that can be readily understood by decision makers to enable them to act quickly.

In particular, attacks and responses to them should be logged and diagnosed in a systematic fashion.

Fintech companies need to adopt a pro-active approach to cybersecurity in which they assume a state of breach in order to have the defences and mitigation mechanisms in place to detect and minimise possible disruption caused by any cybersecurity incident as it occurs.

The threat of cyberattack does not loom large for fintech companies in isolation. Digitisation means organisations across sectors are being

targeted by an array of threat actors seeking to steal, disrupt, or compromise the normal functioning of their digital assets. The rise in the risk of loss associated with cyberincidents has been escalating in recent years, with the consequent demand for cyberincident insurance also scaling new heights.

Global advisory firm PwC estimates that by the end of this decade, annual gross written premiums for cyberincidents will increase from around $2.5 billion to $7.5 billion. By 2025, this could jump to over $20 billion—a compound annual growth rate of over 20 per cent, according to a report from Allianz Global Corporate & Specialty.

Tying back into the cybersecurity life-cycle described earlier, insuring losses arising from cyberincidents will require a much higher level of cybersecurity awareness, scrutiny and monitoring. Insurance companies are currently at a big disadvantage in this area as they often have little or no visibility of the condition of an entity’s cyberdefence position. A pure riskbased analysis is insufficient and better tools are required in order to assess how strong companies are in their cyberdefence expenditures and layers.

What this situation means is that insurers in effect do not know how much to charge for insurance policies. Wrong policies could lead to bankruptcy for those insurance companies, which has negative knockon implications across economies.

What is required is the formulation of a cyberdefence condition dashboard that can determine the level of protection an entity possesses and how successful a future cyberattack may be on that company based on its current protections, policies, standards, and other factors.

It is becoming increasingly apparent that further advances in the digital economy will only be successful should they be accompanied by a robust cybersecurity outlook.

www.bankerme.com

12/04/2017 12:37

Mashreq Corporate & Investment Banking Group

Mashreq Corporate & Investment Banking Group Mashreq Corporate & Investment Banking Group

INTRODUCING INDUSTRY- SPECIFIC EXPERTISE, TAILORED TO MEET YOUR FINANCIAL NEEDS. INTRODUCING INDUSTRY SPECIFIC EXPERTISE, INTRODUCING INDUSTRYSPECIFIC EXPERTISE, INTRODUCING INDUSTRYSPECIFIC EXPERTISE, At Mashreq, our aim is to innovate and distinguish our relationship banking approach, leveraging TAILORED TO MEET YOUR FINANCIAL NEEDS. TAILORED TO FINANCIAL our long-standing heritage Corporate &YOUR Investment Banking.

Our strategic focus is to offer a TAILORED TOinMEET MEET YOUR FINANCIAL NEEDS. best-in-class, expertise-led coverage model to our clients. We do this across multiple industries

At Mashreq, our aim is to innovate and distinguish our relationship banking approach, leveraging our longAt Mashreq, our aim is toand innovate andknow-how. distinguishWe ourhave relationship banking approach, leveraging supported by inintelligence industry chosen to re-align our relationship standing heritage Corporate & innovate Investment Banking.

Our strategic focus is to offer a best-in-class, expertise-led At Mashreq, our aim is to and distinguish our relationship banking approach, our long-standing heritage in Corporate & Investment Banking.

Our strategic isleveraging totooffer teams into industry verticals that best your corporate financial Wefocus are industry here be a coverage model to our clients.

We do this acrossserve multiple industries supported by needs. intelligence and knowour long-standing heritage in Corporate & Investment Banking.

Our strategic focus is to offer a best-in-class, expertise-led coverage to our clients. doadd this across multiple industries how.

We true have banking chosen topartner re-align and our relationship teams intosolutions industryWe verticals that besttoserve corporate your delivermodel customised that value youryour business. best-in-class, expertise-led coverage model to our and clients.

Wechosen do thistoacross multiple industries financial needs. are here to beand your true banking partner customised solutions thatrelationship add value to supported by intelligence industry know-how.

Wedeliver have re-align our We focus onWe building rewarding relationships and differentiated customer experience. by intelligence and industry know-how.

We have chosen to re-align our relationship yoursupported business.

We focus on building rewarding relationships and differentiated customer experience. teams into industry verticals that best serve your corporate financial needs. We are here to be

teams intobanking industrypartner verticals that best serve your corporate are here to be your true and deliver customised solutionsfinancial that addneeds. value We to your business. your true on banking partner and deliver customised solutions that add value to your business.

We focus building rewarding relationships and differentiated customer experience.

We focus on building rewarding relationships and differentiated customer experience.

Our diverse industry coverage includes: Agency Services / Automotive / Building Materials /Contracting Finance Our diverse industry coverage includes: Agency Services/ /Government Automotive / Building/ Manufacturing Materials / / / Education / Electronics / Emerging Corporates / Food & Commodities / Healthcare Contracting Finance / Education / Electronics / Emerging Corporates / Food & Commodities / Media / Multinational Corporates / Non-Banking Financial Institutions / Oil & Gas / Retail Trading / Real Estate / Services / Telecom / Technology / Transport & / Trading Companies Trust Management / Wholesale/ &Non-Banking Equipment.

Government / Healthcare / Logistics Manufacturing / Media / /Multinational Corporates

Financial Institutions / Oil & Gas / Retail Trading / Real Estate / Services / Telecom / Technology / Our diverse industry coverage includes: Agency Services // Wholesale Automotive / Building Materials / Transport & Logistics / Trading Companies / Trust Management & Equipment.

Our diverse Finance industry/ coverage Agency ServicesCorporates / Automotive / Building Materials // Contracting Educationincludes: / Electronics / Emerging / Food & Commodities Contracting / Education / Electronics / Emerging CorporatesCorporates / Food & Commodities Government Finance / Healthcare / Manufacturing / Media / Multinational / Non-Banking/ Government / Healthcare / Manufacturing / Media / Multinational Corporates // Non-Banking Financial Institutions / Oil &theGas / Retail Trading / Real Estate / Telecom Technology / Islamic Finance News Awards - Corporate Finance Deal of Year 2015 / Islamic Finance News Awards - Syndicated Deal /of Services the Year 2015 / EMEA Finance Awards Best cash management Institutions / Oil & Gas / Retail Trading / Real Estate / Services / Telecom / Technology / servicesFinancial in the Middle East 2015 / EMEA Finance Awards Best factoring services in the Middle East 2015 / EMEA Finance Awards Best loan house in the UAE 2015 / EMEA Finance Transport & Logistics / Trading Companies / Trust Management / Wholesale & Equipment.

Awards Best local bank in the UAE 2015 / EMEA Finance Awards Best Regional investment bank in the Middle East 2015 / Banker ME Industry Awards Best Real Estate Financing 2015 / Transport & Logistics / Trading Companies / Trust Management / Wholesale & Equipment.

Banker Middle East Product Awards Best Real Estate Advisory 2015 / Global Finance Best Regional Debt Bank in the Middle East 2015 / Global Finance Best Investment Bank in the UAE 2015 / Global Finance World’s Best Corporate & Institutional Digital Bank Award in UAE 2015 / Finance Monthly M&A Awards Trade Finance Firm of the year UAE 2015

Islamic Finance News Awards - Corporate Finance Deal of the Year 2015 / Islamic Finance News Awards - Syndicated Deal of the Year 2015 / EMEA Finance Awards - Best cash management services in the Middle East 2015 / EMEA Finance Awards - Best factoring services in the Middle East 2015 / EMEA Finance Terms & conditions apply.

MashreqBank @MashreqTweets Awards - Best loan house in the UAE 2015 / EMEA Finance Awards - Best local bank in the UAE 2015 / EMEA Finance Awards - Best Regional investment bank in the Middle East 2015 / Banker ME Industry Awards - Best Real Estate Financing 2015 / Banker Middle East Product Awards - Best Real Estate Advisory 2015 / Global Finance - Best Regional Debt Bank in the Middle East 2015 / Global Finance - Best Investment Bank in the UAE 2015 / Global Finance - World’s Best Corporate & Institutional Digital Bank Award in UAE 2015 / Finance Monthly M&A Awards - Trade Finance Firm of the year UAE 2015 Mashreq resized.indd 1

Islamic Finance News Awards - Corporate Finance Deal of the Year 2015 / Islamic Finance News Awards - Syndicated Deal of the Year 2015 / EMEA Finance Awards - Best cash management services in the Middle East 2015 / EMEA Finance Awards - Best factoring services in the Middle East 2015 / EMEA Finance

18/04/2017 13:33

TECHNOLOGY

The blockchain conundrum Darryl Proctor, Product Director—Payments at Temenos addresses common concerns surrounding the applicability of blockchain technology

Darryl Proctor

H

ow would you describe the reception of blockchain technology in the region?

Temenos are having a lot of blockchain related conversations with banks within the region, GCC and beyond who are clearly recognising the potential for this technology. This is further reinforced with the UAE government already having started to experiment with the potential uses of blockchain in the public and private sectors. In particular, blockchain offers potential for IslamTech, as Islamic

66 page 66-68 Technology.indd 66

financial instruments have different degrees of compliance with Shari’ah Law, dependent upon the Imams who authorise the product. In some countries, their interpretations of usury and leverage are different to others, and a shared ledger would be a great way of bringing transparency the market.

From a general perspective, the National Bank of Abu Dhabi becoming the first bank in MENA to introduce real time, cross-border payments on blockchain with our partner Ripple was a major step for the region but they

aren’t the only bank to be investing in this technology. In January, the Dubai International Financial Centre (DIFC) and management consultancy Accenture launched FinTech Hive, the region’s first fintech accelerator and Emirates NBD and Mashreqbank will be the first local financial institutions to join the accelerator programme, along with international bank HSBC. Elsewhere within the region, Bahrain is in talks with Singapore’s central bank to deploy a pilot blockchain project to establish a fintech ecosystem and regulatory framework to become a hub in the region. With the Central Bank of the UAE having recently clarified regulations stating they do not outlaw virtual currencies such as BitCoin and the many fintech hubs (including the Global Blockchain Council by the Dubai Museum of the Future Foundation), there is a lot of support for banks wanting to utilise blockchain and as a result many are championing the technology.

What challenges would a bank face in implementing blockchain?

Blockchain is basically real-time. In terms of payments, many of the old systems are batch based. There has to be a technology change, there has to be a transformation from these legacy systems, these monolithic blocks of technology, into more modern open architecture. cont. on page 68

www.bankerme.com

12/04/2017 12:38

TECHNOLOGY

cont. from page 66

Architecture that can deal with realtime and operate 24/7. And of course, all banks will need to have systems to manage real-time payments so the need is twofold. However, we must remember that blockchain technology is a layer outside of a bank that they must interact with. Banks must have agile systems to interact with blockchain services.

Another, and potentially the most important inhibitor, is that of collaboration. For a blockchain to work, all the parties to the said transaction, need to be blockchain enabled. It’s a model that fosters collaboration, but with the expense of processing transactions it’s hard to say, unless it becomes ubiquitous and cheaper, that it will be readily adopted by the general public.

Blockchain advocates affirm that the technology is safe. In terms of cybersecurity, is it full proof?

This is an interesting debate. Security in general doesn’t appear to be a major concern for banks—only three per cent of banks stating security as a factor in ‘preventing (banks) from starting (the blockchain) journey’, according to the Deloitte EFMA KBC Blockchain Survey conducted in April 2016.

However, we have seen hacks from inadequate solutions and related particularly to cryptocurrencies. There is for example, vulnerability in having a chain with very few nodes. This makes for an easy target for someone to attack the chain as there were no other security mechanisms in place.

When bitcoin began with just a handful of nodes their tokens had the value of a fraction of cents, so it was economically unfeasible to attack them.

This wasn’t a major issue initially, but, as the network grew the value of bitcoins grew. While they are at a decent value today their network is at a size that makes an attack economically infeasible—you’d simply burn more money on electricity

68 page 66-68 Technology.indd 68

than the bitcoins that you can steal are worth and at the same time the bitcoins you’ve stolen would become less valuable as the network has to assume stolen tokens. As long as this equilibrium of value and potential to hack remains intact the risk of an attack on blockchain technology and particularly cryptocurrencies employing POW algorithm, is low, but not impossible to comprehend.

to distribute, for example, bitcoin’s blockchain is already storing leaked cryptographic keys and wikileaks files. Therefore occasionally human interaction may be required.

We shouldn’t forget the end client for blockchain, ultimately that is a person in control or in demand of a service that the blockchain needs to fulfil. So ultimately humans will always be part of the solution

The implementation of blockchain in financial institutions would definitely reduce costs. Will it completely eliminate the human element in transactions?

Looking at a worst case scenario— what is the worst thing that can happen to a financial institution when using the blockchain technology?

The essence of blockchain technology is that it has been able to remove the need to trust humans, to store, record or even trade anything of value or importance. And when trust is placed in computer verifiable mathematical equations: a) it becomes very easy to

We are seeing a lot of partnerships between banks and fintechs such as cryptorail providers. This is really positive but what can be overlooked is that the core banking system must be considered. To see this technology embraced we need to complete the

There is a lot of support for banks wanting to utilise blockchain and as a result many are championing the technology.

— Darryl Proctor, Product Director—Payments, Temenos scale these systems; and b) the cost of establishing and proving trust goes down, i.e. creating trustworthy system becomes very affordable. So ultimately, the human element of transactions is set to greatly reduce, however, elimination is impossible to claim.

For example, let’s look at immutability. Although immutability of blockchains is a pivotal feature for security guarantees, this very same property can represent a hurdle to the future of this innovative technology.

This is because external events can occasionally annul existing smart contracts and transactions already recorded on the blockchain or data stored on the blockchain can be illegal

network with parties at both ends integrated to the common platform.

There is a great danger that unless solutions are fully tested and consider the end to end process then the benefit of blockchain will be limited and the technology could fall down before it has even started.

To address this it is important that a bank’s core banking system provider is ready for blockchain as well, that they have a strong partnership with a broad spectrum of fintechs, giving the breadth to allow banks to develop along the blockchain journey as well as benefiting from the economies of scale that providers with multiple clients can offer banks.

www.bankerme.com

12/04/2017 12:38

bleed guide.indd 1

13/04/2017 10:56

Photo credit: TopTika/shutterstock.com

TECHNOLOGY

The future of banking: evolution necessary to meet consumers’ needs Eric Claudel, President Banking & Payment Solutions for the CISMEA region at Gemalto, highlights the need for a “new chronicle” within the banking sector—where creativity and innovation are leveraged to meet customers’ needs and expectations

A

s powerful forces including customer expectations, technological capabilities, regulatory requirements, demographics and economics continue reshaping the banking industry, a new narrative is starting to emerge.

Customers are demanding even higher levels of service and value.

Bank customers are changing— they are becoming more international, more dynamic and more demanding as to the ways in which they interact with their banks. “This makes financial development and innovation essential in terms of meeting customer needs both now and in the future,” said Eric Claudel, President Banking & Payment Solutions for the CISMEA region at Gemalto.

70 page 70-72 Technology.indd 70

He notes that banks arguably have a unique position between borrowers and lenders that puts them squarely in the driving seat of change. “At a practical level, as consumers’ habits change, banks have to adapt their products to meet the needs of their customers wherever they are, and however they choose to transact.”

MILLENNIALS ARE CHANGING THE NATURE OF THE GAME

Millennials in particular expect their banking services to keep up and be at the forefront of the technological trajectory. “They’re driving the debate that essential services such as banking must function smoothly on all the technology they use in every other

aspect of their daily life. Banks need to embrace digitisation accordingly— throughout the customer lifecycle, right from enrolment to engagement and payment,” explained Claudel.

THE DIGITISATION OF ENROLMENT

He pointed out that if enrolment processes are antiquated and timeconsuming, customers are likely to be put off. “The process must be convenient, speedy, and secure—an important combination. It can be difficult to achieve this combination however, thanks to the challenges in place from KYC (Know Your Customer) regulations, which often complicate enrolment journeys which rely on paper-based processes,” he said. cont. on page 58

www.bankerme.com

12/04/2017 12:39

First Female Banking Program in Palestine

$2.5M

Micro-financing with Zero Interest Rates for women’s projects

Empowering Women Economically

bleed guide.indd 1

17/04/2017 14:00

TECHNOLOGY

Banks should seek to increase their interactions with customers to consistently deliver a positive experience, perhaps extending offerings to include nontraditional banking products and services through online and mobile channels, engaging customers in life events rather than simply offering products.

— Eric Claudel, President Banking & Payment Solutions for the CISMEA, Gemalto

cont. from page 56

Unsurprisingly, this can deter customers from signing-up for additional services, declining extra offers and/or leaving the bank all together.

Digitalisation offers the ideal solution to ensure the enrolment process is truly convenient, speedy and secure. “Integrated apps which function on mobiles and tablets mean enrolment can become millennialfriendly. There are of course other key ways to streamline this process, including blockchain technology,” added Claudel.

FROM ENROLMENT TO ENGAGEMENT: THE MULTICHANNEL EXPERIENCE

Once customers are enrolled, they need to be retained, therefore engagement process have to be optimised as well.

72 page 70-72 Technology.indd 72

Banks must offer a consistent, contextual experience across multiple channels, especially as multi-channel demand increases. They must also realise the importance of offering personalised and/or customised experiences for consumers. “Too often consumers feel like they’re just one of the crowd—a bank that instead treats them as individuals will reap the benefits.”

Digitisation creates the ideal platform to do this—including enabling social media engagement with consumers throughout their journeys, based on real-time behaviour. This is increasingly possible to monitor now.

THE RISKS OF RESISTING CHANGE

Without addressing the obvious challenges, banks risk losing credibility

and negatively impacting their brand image. Addressing the challenges will however, improve sign up and conversion rates, as well as reduce existing levels of customer churn.

“Future success lies in a deepened understanding of customer relationships,” said Claudel. “As the world’s top-performing retail banks continue fast-tracking their digital transformation, those that have not yet begun will need to play catchup—and quickly. Banks should seek to increase their interactions with customers to consistently deliver a positive experience, perhaps extending offerings to include nontraditional banking products and services through online and mobile channels, engaging customers in life events rather than simply offering products.”

www.bankerme.com

12/04/2017 12:39

NOVEMBER 2017

EVENTS

Risk compliance & regulatory seminar for the banking sector Oracle in partnership with Banker Middle East conducted a seminar on regulatory compliance at the Jumeirah Emirates Towers Hotel on the 28 March 2017

Bryan Stirewalt, Managing Director, Supervision, Dubai Financial Services Authority

I

n partnership with Banker Middle East, Oracle held a seminar on 28 March 2017 dedicated to addressing risk compliance and regulatory issues surrounding the banking sector. The exclusive event gathered bank representatives from various financial institutions in the UAE in an engaging discussion on these pertinent issues.

The seminar was kicked off with a regulatory keynote by Bryan Stirewalt, Managing Director, Supervision at the Dubai Financial Services Authority as

74 page 74-46 Event.indd 74

Vinodh Nagaiyan, Master Principal Sales Consultant, Oracle Financial Services Analytics—Japan & Asia Pacific

Burak Zatiturk, Director in Risk Management, PwC

he discussed the impact of international regulation on the UAE and Middle East businesses. In his speech, Stirewalt provided a brief overview of global trends that emerging this year— deregulation, globalisation (giving away populism), a return of inflation and the re-emergence of fiscal policy around the world. From a compliance perspective the market is seeing an onset of common reporting standards, in addition to that, standard setting bodies have also shifted their focus on governance and culture as well as cybersecurity.

“The DFSA currently has 600 entities which we have regulatory responsibility. This includes more than 450 authorised firms, 35 of which are banks. We have 117 designated nonfinancials. The banking balance sheet with the DIFC is almost $150 million dollars—this remains small in relation to the UAE banking sector but it does represent remarkable growth given the relative newness of the DIFC. Chinese, Japanese and Indian banks now occupy the top slots in the DIFC in terms of assets. Much of the trade across China, cont. on page 76

www.bankerme.com

12/04/2017 12:39

CPI Mag Multip.BB W21cmXH27cm.pdf

1

1/22/17

10:10

EVENTS

cont. from page 74

the Middle East and Africa is financed out of Dubai. The financial sector across Asia is also becoming more integrated.

The role of the UAE as a renminbi clearing centre is growing within,” said Stirewalt. He called for an alignment towards international standards to be able to operate on a global platform.

Regulators are endeavouring to strike a balance between promoting growth, protecting financial stability, protecting fair treatment of customers and allowing market innovation to develop. Since the start of the year, the DFSA has published two consultation papers on crowdfunding—formalising the approach towards a loan-based and investmentbased platforms. In addition to this, it has also published a consultation paper on innovations testing licence which allows fintech firms to test their technologies in the DIFC within the DFSA rules.

L-R: Ziauddin Ishaq, Global Solutions Lead Treasury, Oracle Financial Services; Adnan Anwar, Chief Financial Officer, National Bank of Fujairah; Bryan Stirewalt, Managing Director, Supervision, Dubai Financial Services Authority, Dr. Yousef Padganeh, Head of Enterprise Risk Management, Commercial Bank International; Robin Amlôt, Chief Executive Officer, CPI Financial.

Regulators are endeavouring to strike a balance between promoting growth, protecting financial stability, protecting fair treatment of customers and allowing market innovation to develop.

— Bryan Stirewalt, Managing Director, Supervision, Dubai Financial Services Authority The seminar boasted four sessions with the first panel discussion assessing the challenges of implementing and meeting new standardisation methods.

Moderated by Robin Amlôt, CEO of CPI Financial, the panel deliberated on the reactive nature of financial regulation, how a bank can police itself in terms risk management and cost as well as technological challenges that entail these issues. There is no standardised solution, however things are expected to continue to change in a gradual manner.

The second session of the day featured a presentation by Vinod Nagaiyan, Master Principal Sales Consultant at Oracle Financial Services Analytics

76 page 74-76 Event.indd 76

where he tackled risk and finance data convergence challenge. Nagaiyan explained that the data challenge stemmed from the compilation of available data to data management capability, to analytic capability and lastly execution capability—where it integrates finance and risk data.

Following up on this was Burak Zatiturk, Director in Risk Management at PriceWaterHouseCoopers, Financial Services where he deliberated on liquidity risk and the new CRD IV requirements. He discussed how to effectively drive business performance through better risk management, corporate governance and compliance.

Zatiturk explained that this was a

matter of monitoring, managing and leveraging these liquidity risks into the bank’s daily business.

Addressing the room once again, Nagaiyan shed light on the role technology plays in the shift from riskbased pricing to relationship-based pricing in the optimisation of pricing deals. “Relationship-based pricing centres around three things: 1) the ability to optimise the price based on the bank’s relationship with the customer; 2) enhance the performance of the people on the field in pricing these deals; 3) maintaining a strong relationship with the customer explaining to him the reason behind giving him that specific offer,” said Nagaiyan.

The succinct dialogue was attended by representatives from Commercial Bank International, Habib Bank AG Zurich, Aafaq Islamic Finance, HSBC Bank Middle East, Al-Braik Investments, AKBANK, Axis Bank, Hinduja Bank Middle East, National Bank of Fujairah, Clearly Bank, Mashreq and Abu Dhabi Islamic Bank.

www.bankerme.com

16/04/2017 16:04

bleed guide.indd 1

28/08/2016 10:58

PERSONALITY

Feroz Noorani Chief Risk Officer, Warba Bank

How long have you been working in your field? And what prompted you into it?

I have been in banking and finance for almost 35 years. The last 18 years of which have been in the GCC, particularly Kuwait, UAE and Saudi Arabia. I entered the career in finance by chance, although as a youngster I had fascination with engineering.

I always had an analytical and inquisitive mind. Being good at numbers led me to start as a financial analyst. In those days, there were no computers or spreadsheets, we had to crunch data from financial statements on sheets of paper to determine trends and calculate the key ratios manually. It was fun and rewarding knowing exactly what factor contributes to a particular outcome. Later in the career, this inquisitiveness helped me to get involved in quantitative analysis.

What is your biggest achievement thus far?

The biggest achievement in my career is the setting-up of risk management framework and leading it in two start-up banks. I moved into risk management after having spent almost 23 years in corporate and investment banking. The experience of having managed a frontline business makes you appreciate the risk and control dynamics to ensure an orderly growth of the organisation by taking calculated risks.

Can you describe your day-to-day routine?

A day in the life of a risk manager is like sitting on the edge every moment. I cannot say when my day starts; due to the international nature of our exposures, I have to be cognisant of what is happening in financial markets across the world. As the risk manager is invariably the most hated person in the organisation, having a level head and maintaining cool with peers and in meetings is an everyday balancing act.

What do you like most about your job? Why? I think I thrive on chaos. That is the temperament required when you are a risk manager. I like my job as it gives me opportunity to analyse events and situations, to drive conclusions that could materialise and impact our business environment and the decisions we take on day-to-day basis. No decision would remain to be good or bad forever, therefore, knowing what is happening in financial markets and the macroeconomic environment, along with ability to take quick decisions and be ahead of the curve is important in recommending the right action to protect the business.

What are you currently working on?

At this point in time, the most important task is the implementation of IFRS 9.

This substantially effects the way financing and investment decisions will be made going forward. Risk-reward profile is finally going to get the importance it deserves. How this will span out in the competitive landscape is difficult to assess at this stage as most banks are still on the drawing-board for modelling and analysing the impact.

How would you like to leave a legacy?

I am very passionate about the core principles of governance, risk and compliance in the financial sector. It is ironic that local GCC talent is rarely available in this area of practise. I would like to start an initiative to promote talent development in this space so as to leave a legacy by mentoring and creating a cadre of smart, articulate and ethical young risk professionals.

What is your outlook on the region’s financial market?

GCC regional financial markets still have a long way to go to be comparative at global level. The rate of saving and consequently the deposit growth is low compared to the level of investments, which essentially means higher leverage.

In the rising interest rate regime, this could prove difficult to sustain. I feel that development of strong capital markets is an urgent need both for new debt instruments and for imbedding equity culture with possibility for investors to participate through funds. This will provide diversification advantage in the region’s financial markets. There is still lots to be done.

78 page 76 Personality.indd 78

www.bankerme.com

12/04/2017 12:42

AKB 10th Ann_banker mag_215X270_eng_FA.pdf

1

4/20/17

9:47 AM

C

M

Y

CM

MY

CY

CMY

K

bleed guide.indd 1

20/04/2017 11:38

bleed guide.indd 1

07/09/2016 16:30