#222 September 2019

SEPTEMBER 2019 | ISSUE 222

MIDDLE EAST

SEPTEMBER 2019 | ISSUE 222

A CPI Financial Publication

Mohamed Mahmoud Ahmed Eletreby, Chairman of Banque Misr of things to come for GCC credits 34 Shape

management, added value, and investment intelligence 36 Wealth

cut 40 Aabove

ways to simplify customer experience 54 Five

Dubai Technology and Media Free Zone Authority

LEADING THE EGYPTIAN MARKET Mohamed Mahmoud Ahmed Eletreby, Chairman of Banque Misr

LEADING THE EGYPTIAN MARKET

KUWAIT BANKING EVENING RECEPTION 18 October 2019

On the occasion of the IMF-World Bank Annual Meeting Kuwait Banking Association will be hosting its reception during the IMF and World Bank Annual Meeting in Washington, D.C. The reception will bring together senior bankers from Kuwait & the Middle East as well as international bankers & business people attending the IMF meetings.

Join us and meet other regional & international bankers and find out what’s happening in the GCC & International region.

Date: 18 October 2019 | Time: 6:00 pm - 8:00 pm Venue: Four Seasons Hotel, Seasons Hall. Washington, D.C Spaces are limited. Those interested are requested to register via www.kba.com.kw/imfkuwaitreception Organized by

Sponsored by

EDITOR’S NOTE

K

icking off the second half of 2019, we saw global banks flock into Saudi Arabia to start bidding for a role in Aramco’s IPO. Signalling a positive start after the summer break, the commencement of the 2020/2021 IPO provides a degree of confidence to investors and a sentiment that will be shared across the GCC. Although encouraging, growth across the MENA region is expected to be 1.0 per cent in 2019, rising to about 3.0 per cent in 2020. The IMF’s forecast for the rest of 2019 is 0.5 percentage points lower than its April estimations, largely due to the downward revision to the forecast for Iran (owing to the crippling effect of tighter US sanctions). Civil strife across other economies, including Syria and Yemen, adds to the difficult outlook for the region.

Partially offsetting these developments are improved prospects for Saudi Arabia’s economy—the non-oil sector is expected to strengthen in 2019 with higher government spending and improved confidence, and in 2020, with an increase in oil sector growth.

There is much excitement to close the year with high expectations on deals across capital and equity markets. On the Shari’ah compliant side of things, global Sukuk issuances is expected to grow by six per cent to around $130 billion this year. This global upward trend is supported by the rising demand for Islamic bonds from domestic Islamic banks and central banks in core Islamic finance markets. According to Moody’s, the increase in H1 2019 was driven by the GCC, where issuance rose nine per cent to $26.5 billion. Saudi Arabia accounted for around half the wider GCC region’s H1 2019 issuance, with volumes of $12.8 billion compared to $11 billion in the same period of 2018.

In spite of the challenging backdrop we all currently operate in; the silver lining is still visible. A gleaming example can be seen with our cover star, Banque Misr, as it steadily strives in the Egyptian market. Within these pages you will find a a succinct projection of capital markets, a couple insightful features on wealth management and family offices, as well as intelligence in managing your technological capabilities.

As your information partner we aim to provide you with the best market-leading views to enhance your business; wishing you a productive read.

Nabilah Annuar EDITOR, BANKER MIDDLE EAST

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CONTENTS

SEPTEMBER 2019 | ISSUE 222

ANALYSIS

8Â The Lebanese crisis

NEWS

20

12 News Highlights

THE MARKETS

16 Fiscal reform drive across the GCC shows faltering signs

COVER INTERVIEW

20 Leading the Egyptian market

COUNTRY FOCUS: JORDAN 26 Is Jordan out of the woods?

DEBT CAPITAL MARKET

34 Shape of things to come for GCC credits

WEALTH MANAGEMENT

36 Wealth management, added value, and investment intelligence 40 A cut above

26

34 4

36

40

For generations, the better way to bank.

Over 40 years ago, Dubai Islamic Bank pioneered a way of banking that was truly better: Islamic banking. Since then, many generations of customers continue to enjoy world class products and services backed by the very latest in banking technology. For them as for you, this is still the better way to bank.

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CONTENTS

SEPTEMBER 2019 | ISSUE 222

ISLAMIC FINANCE

42 The potential in Oman continues to grow

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FAMILY OFFICES 46 Changing times

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

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SEPTEMBER 2019 | ISSUE 222 MIDDLE EAST

CHAIRMAN

SEPTEMBER 2019 | ISSUE 222

Saleh Al Akrabi

LEADING THE EGYPTIAN MARKET Mohamed Mahmoud Ahmed Eletreby, Chairman of Banque Misr

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LEADING THE EGYPTIAN MARKET Mohamed Mahmoud Ahmed Eletreby, Chairman of Banque Misr of things to come for GCC credits 34 Shape

management, added value, and investment intelligence 36 Wealth

cut 40 Aabove

ways to simplify customer experience 54 Five

Dubai Technology and Media Free Zone Authority

A CPI Financial Publication

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AUGUST 2019 | ISSUE 221 MIDDLE EAST

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FLYING THE BAHRAINI FLAG Jean Christophe Durand, CEO, National Bank of Bahrain

EDITORIAL

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FLYING THE BAHRAINI FLAG A CPI Financial Publication

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Jean Christophe Durand, CEO, National Bank of Bahrain economic stability 14 Fair

risk for the UAE 28 Mitigating

a future through sustainable financing 38 Creating

Staying one step ahead 47 Cybersecurity:

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TECHNOLOGY

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51 Achieving a proper ROI on digitalisation 54 Five ways to simplify customer experience 56 How digital transformation is driving the finance sector

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ANALYSIS

THE LEBANESE CRISIS In spite of its strong banking sector, Lebanon’s below-investment grade rating remains a grave concern for many

F

itch Ratings has recently downgraded Lebanon’s long-term foreign-currency issuer default rating (IDR) from B- to CCC. The downgrade reflects intensifying pressure on Lebanon’s financing model, increasing risks to the government’s debt servicing capacity. This is consistent with the rating actions by Moody’s (Caa1) and S&P (B-).

According to Fitch, Lebanon requires substantial capital inflows to fund its large twin budget and current account deficits. The ratings agency has estimated Lebanon's gross external financing needs at 24 per cent of GDP in 2019. However, total deposits in commercial banks (excluding public sector deposits) have declined since the end of last year to June 2019.

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Downward pressure on banking sector deposits, central bank foreign reserves and increasing dependence on unorthodox measures by the central bank to attract inflows, has illustrated an increased stress on financing. The government is largely relying on financing from the central bank, both in domestic

Fitch has projected GDP growth of

3.3% 9.2% and a deficit of

of GDP for 2019

debt markets and for the repayment of Eurobonds. While recent policy steps point to nascent fiscal adjustment, a credible medium-term plan to stabilise government debt/GDP is lacking.

Fitch has projected a deficit of 9.2 per cent of GDP in 2019. Revenue projections seem optimistic given weak economic growth and inefficient tax collection. A nominal GDP growth of 3.3 per cent is anticipated by Fitch, lower than the government’s estimation of 5.7 per cent. The overall spending allocation may prove realistic, provided that the government can maintain discipline on no new hiring, and that the stock of arrears is not higher than estimated. In January-June, the deficit was around 4.2 per cent of Fitch’s forecast annual nominal GDP.

Even if the budget plan were fully realised, it would only be a first step towards stabilising government debt/ GDP (152 per cent at end-2018). Given the weak growth outlook, the ratings agency estimates that the government would need to run a primary surplus of at least five per cent of GDP over the next four years to stabilise government debt/GDP. This indicates the extent of fiscal and structural reform required to put government debt on a sustainable footing, unless Lebanon can access a period of cheap financing or experiences a positive shock to growth.

THE BANKING SECTOR Lebanon’s banking sector is believed to be the country’s strength. The unblemished track record of public debt repayment and the depth of the financial system (deposits in commercial banks are around 300 per cent of GDP), remain the rating strengths, said Fitch. Public debt is predominantly held by the country’s large banking sector and monetary authority and non-resident depositors are mostly diaspora Lebanese. This close-knit nature of the financial sector has helped the government manage its large burden of debt over an extended period of time.

Lebanon has had very few episodes of deposit outflows in the last 15 years.

KPMG in a recent whitepaper has suggested that consolidation within the banking system is a positive for this debtladen nation. A total of 65 local, regional and international banks operate in the country, of which 49 are commercial banks and 16 are investment banks.

“The Lebanese banking system has a solid foundation that has been supporting the economy for many years, but the current economic conditions in Lebanon have been unstable for a prolonged time.

So, it is the right time to look into the sector with a critical eye to avoid a downfall that might be triggered by a slip of one of the small banks,” suggested Nafez Almorhabi, CEO & Partner of Advisory, KPMG Lebanon.

THE LEBANESE BANKING SYSTEM HAS A SOLID FOUNDATION THAT HAS BEEN SUPPORTING THE ECONOMY FOR MANY YEARS, BUT THE CURRENT ECONOMIC CONDITIONS IN LEBANON HAVE BEEN UNSTABLE FOR A PROLONGED TIME. — Nafez Almorhabi, CEO & Partner of Advisory, KPMG Lebanon.

The Central Bank of Lebanon has offered banks several incentives under law number 192 (dated 04/01/1993), to encourage M&A activity within the banking sector. These incentives include, granting the acquiring bank necessary loans on concessional terms, exemption on income tax, stamp, transfer and notary public fees, tax benefits and endof-service indemnities for dismissed employees, etc.

The whitepaper pointed out that with the number of active commercial banks considered to be relatively high in Lebanon when compared to international norms, the Central Bank of Lebanon’s move to consolidate the banking sector is a right step and will promote healthy competition among banks and benefit bank stakeholders.

“The Central Bank of Lebanon may need to should follow footprints of other local and international regulatory authorities and take necessary actions that would further encourage consolidation and ensure that the promised synergies are fully exploited, while post-consolidation challenges are reasonably mitigated,” added Almorhabi.

Mergers and acquisitions can be a valuable tool to diversify a bank’s portfolio which allows for employing more of the reserves and reaching higher profitability rates while maintaining a comparable risk matrix.

“Consequently, with every successful merger, the banking system gets sounder, creating larger and more resilient banks, while customers get wider access to credit at lower rates, hence, mergers benefit local economies. We believe the Central Bank of Lebanon needs to push for more bank consolidation by offering additional incentives,” said Almorhabi.

OUTLOOK Analsts have suggested that the main factors that could, individually or collectively, lead to positive rating action is an improved outlook for external financing, such as nonresident deposit inflows into the banking system or other substantial inflows of external support. An improvement in public debt dynamics, whether through fiscal tightening or stronger economic growth will also get Lebanon back into the green.

However, a deterioration in the situation such as the critical weakening of the government’s capacity to secure financing to meet debt servicing needs, the inability of the central bank to maintain sufficient gross foreign exchange reserves to retain confidence in the currency peg, or indications that the government is planning for debt restructuring, could, individually or collectively, lead to another negative rating action.

In spite of all this, industry reports have indicated that the Lebanese government is confident that it would be able to get out of the crisis. Time will tell.

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NEWS HIGHLIGHTS UAE’s FAB denies QFCRA currency manipulation allegations First Abu Dhabi Bank (FAB) reiterated that the allegations by the QFCRA in the QFC Courts are false and the UAE-based lender unequivocally denies them following a statement by the regulator that it has imposed a financial penalty of QAR 200 million ($55 million) for obstruction investigation into allegedly manipulation of the Qatari Riyal.

The lender said that the QFCRA have made it impossible for its operations to continue in Qatar, despite its QFC branch providing all relevant and responsive information that it was required to disclose pursuant to QFC law.

FAB is in the process of effecting a wind-down of the QFC branch’s operations and the bank said that it has put in place appropriate measures to protect its QFC branch employees and customers.

On 19 June 2019, the lender notified the Qatar Financial Centre Regulatory Authority (QFCRA) that it will relinquish its Qatar Financial Centre branch (QFC) licence and permanently close its Qatar operations.

KIZAD cuts fees for over 75 per cent of its services to boost investment Khalifa Industrial Zone Abu Dhabi (KIZAD) waived the charges for over 75 per cent of its services to encourage further investment into the emirate.

The initiative allows investors to save a lot of costs and contributes, furthering the competitive business advantage at Abu Dhabi’s industrial zone for its current and future clients.

KIZAD stated that three-quarters of services will be offered free of charge, while fees for a significant number of the remaining services will also be reduced and streamlined to a simpler tariff structure.

The exemptions are aligned with the three-year ‘Ghadan 21’ initiative, which invests around AED 50 billion in a series of development initiatives and incentive packages Since its launch in 2010, KIZAD has attracted more than 500 investors and AED 65 billion in investment across multiple sectors, including metals as well as polymers, oil and gas, and automotive among other sectors.

Albaraka Turk signs a financing facility with ICD to bolster SME support The Islamic Development Bank Group’s Islamic Corporation for the Development of the Private Sector (ICD) has signed a $40 million Murabahah financing facility with Al Baraka Banking Group’s Turkish unit, Albaraka Turk Participation Bank, to support the growth and productivity of SMEs in Turkey.

Albaraka Türk offers retail, SMEs as well as corporate and investment banking services across its branch network of over 230 branches spread across Turkey and abroad.

12

Mumtalakat, Fajr Capital and Blackstone complete exit from GEMS Education A consortium of investors led by Fajr Capital, including tactical opportunities funds managed by ‘Blackstone’ and Bahrain Mumtalakat Holding Company have completed their divestment from GEMS Education to a consortium led by CVC Capital Partners, according to Bahrain News Agency.

GEMS Education stated that with the CVC Capitalled deal, the academic group will take on a further 14 private schools in Europe through the acquisition of Britain’s Bellevue Education.

Additionally, Malaysian sovereign fund, Khazanah Nasional will retain a three per cent stake while the Varkey family will remain the largest shareholder in GEMS once the deal is completed.

In July 2019, a consortium led by private equity firm CVC Capital Partners agreed to acquire a 30 per cent stake from Mumtalakat, Fajr Capital and Blackstone in GEMS Education.

Fajr Capital, Blackstone and Mumtalakat were advised by Rothschild & Co together with Morgan Stanley, Credit Suisse and Gibson, Dunn & Crutcher.

Saudi Aramco to acquire a 20 per cent refining stake in Reliance Industries Reliance Chairman Mukesh Ambani said that Saudi Aramco will acquire a 20 per cent stake in the oil-to-chemicals business of India’s Reliance Industries, including the 1.24 million barrelsa-day Jamnagar refining complex on the country’s west coast, reported Bloomberg.

The move is the latest in a spree of Saudi Aramco refinery investments as the company plans to double its processing network to handle as much as 10 million barrels a day by 2030, locking in friendly buyers for the Kingdom’s crude.

Reliance values its oil-to-chemicals division at $75 billion including debt, implying a $15 billion valuation for the stake and the deal should be completed by March and is subject to due diligence, definitive agreements and regulatory and other approvals, said Ambani.

Bahrain’s credit profile reflects a weak balance sheet, Moody’s

TBI seeks to lift revenues to 30 per cent by 2022 The Trade Bank of Iraq (TBI) has achieved another consecutive year of expansion and growth with an increase in revenues as well as growth recorded in key financial areas.

The lender is making great strides towards reaching its strategic goals both in business and in assisting the ongoing reconstruction of Iraq as it continues to define its reputation as a competent institution with access to global financial networks.

In April 2019, TBI’s inaugurated its first international branch office in Al-’Olayya district of Riyadh. The bank is also considering upgrading its licence in Abu Dhabi to an asset management company from a representative office.

Additionally, the bank is working on expanding into China and plans to open a representative office next year, seeking to lift its revenues from retail banking and international operations to 30 per cent by 2022.

The bank plans to launch a fund towards the end of the year focusing on lending to other Iraqi banks for international trade, this follows the launch of financial products and services for retail customers in Iraq such as ‘My Study’ product and the international investment vehicle ‘Dananeer Fund’.

Moody’s said that the credit profile of Bahrain (B2 stable) reflects a sharp and persistent deterioration in the government’s balance sheet, which has intensified since the oil price decline in 2014.

The ratings agency said that the Kingdom’s credit strengths which include very high per capita income, a diversified economy compared with fellow GCC states and a positive net international investment position provides some shockabsorption capacity.

Bahrain’s credit profile is also supported by the financial support package committed in 2018 by neighbouring GCC governments, equivalent to more than 25 per cent of GDP. Moody’s urged the Kingdom to embark on a substantial and sustained rebuilding of the central bank’s foreign-currency buffers that will materially decreases external vulnerability.

Saudi Arabia’s business gauge slowed to five-month low in July A measure of activity in Saudi Arabia’s non-oil private sector dropped in July for the first time this year, hitting a five-month low in a sign that economic growth was losing momentum at the start of the third quarter, reported Bloomberg.

Export orders rose at the quickest pace since February 2017, but there was only a marginal increase in employment and businesses surveyed reported lower optimism over future output.

The Kingdom has struggled to get its economy back on track since it contracted 0.7 per cent in 2017, an after-effect of the oil price rout and austerity measures that hit businesses hard.

Second-quarter budget data showed that a long-promised injection of government cash was finally materialising as officials try to boost growth. Gross domestic product is expected to grow 1.7 per cent this year.

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NEWS HIGHLIGHTS National Bank of Bahrain still weighing BisB M&A offer The National Bank of Bahrain (NBB) has announced that it is still in discussions with BisB for a potential offer for the Shari’ah-compliant lender’s issued shares, adding that its continues to undertake the financial and legal due diligence as the national bank seeks to expand its reach into the Islamic banking market.

The national bank commenced a financial and legal due diligence process in July 2019, reviving its interest in buying Bahrain Islamic Bank’s (BisB) issued shares.

In a bourse filing, NBB stated that it is still conducting discussions with BisB in relation to potentially making a voluntary takeover for the issued shares, subject to receipt of all necessary regulatory, board and shareholder approvals.

Currently, NBB holds a 29.06 per cent stake in BisB and last year said the lender said that it had started talks with Islamic Development Bank to acquire its 14.42 per cent stake in Bahrain Islamic.

ADNOC Distribution shares certified as Shari’ah compliant ADNOC Distribution’s shares have been certified as Shari’ah compliant based on the recent screening assessment made by the UAE’s Unified Committee of Islamic Banks for Shari’ah Screening of Equities.

The certification allows brokerage arms of Islamic banks to trade ADNOC Distribution shares.

The compliance will help the company attract a broader investor base that deals through brokerages of Islamic banks and invests in equities which are deemed as adhering to Islamic principles

UAE court sentences Abraaj Group’s Naqvi in absentia Arif Naqvi, the founder of defunct Dubai-based private equity firm Abraaj Group, was sentenced in absentia to three years in prison by a court in the UAE for a case involving low-cost carrier Air Arabia, reported Bloomberg.

The airline reported a full-year loss in February after booking impairments to cover its $336 million exposure to Abraaj. The buyout firm borrowed money from Air Arabia, on whose board Naqvi sat.

Naqvi’s sentencing comes a week after the Dubai Financial Service Authority fined the collapsed buyout firm a record $315 million for misleading investors and misappropriating their funds.

The founder of Abraaj is also facing fraud allegations in the US, however, in London he was granted conditional bail in May after paying the largest security bond ever ordered in the UK. While he awaits his extradition hearing, he must wear an electronic tag and stay in his London home as part of the bail conditions.

14

Fitch cuts Lebanon deeper into junk as FX deposits dwindle Fitch Ratings has downgraded Lebanon’s credit ranking into junk as one of the world’s most indebted nations finds its finances stretched with a dwindling flow of cash from abroad, reported Bloomberg.

Lebanon relies on bank deposits, mainly from remittances from millions of Lebanese living abroad to keep its lenders stable and defend the dollar peg, with the Banque du Liban (BdL) using what it describes as financial engineering to keep up an inflow of hard currency.

The rating agency downgraded Lebanon for the first time in three years, taking the sovereign down two notches to CCC, while S&P Global affirmed Lebanon’s rating at B-, six steps below investment grade and one level higher than Moody’s.

The downgrade reflects intensifying pressure on Lebanon’s financing model and increasing risks to the government’s debt-servicing capacity, while recent policy steps point to nascent fiscal adjustment, a credible mediumterm plan to stabilise the government’s debt to gross domestic product ratio is lacking the firm, said Fitch.

Bank Nizwa signs financing agreement with Raysut Cement Company Oman’s Bank Nizwa signed OMR 19.5 million ($51.08 million) Shari’ah-compliant financing facility agreements with Raysut Cement Company (RCC), the Sultanate’s largest cement manufacturer, reported Times of Oman.

The facilities consist of long-term financing of OMR 12 million, working capital of OMR 3 million to RCC in Salalah and OMR 4.5 million for construction and expansion of Sohar Cement Factory in Sohar.

The bank expanded its services to cater to SMEs, corporate and commercial customers while providing tailored services across diverse local market segments and industries, as the lender contributes to the economic diversification efforts led by the government.

India’s RuPay card launches in the UAE RuPay card, an Indian indigenous equivalent of Mastercard or Visa, was launched in the and around 175,000 merchant acceptance locations of 21 businesses and 5,000 ATMs in the UAE will soon start accepting India’s RuPay card, according to local newswire, WAM. An MoU to establish a technology interface between the payment platforms in India and the UAE was signed between UAE’s Mercury Payments Services and India’s National Payments Corporation of India.

NMC Healthcare, Lulu Group as well as Aster DM Healthcare, Landmark Group, Sobha are among the 21 business groups who will accept the card in their merchant locations in the UAE. RuPay is the first domestic debit and credit card payment network, with wide acceptance at ATMs, point of sale devices and e-commerce websites across India.

SOVEREIGN RATINGS AS OF 1 SEPTEMBER 2019 Issuer

Foreign Currency Rating

Last CreditWatch/Outlook Update

1 Bahrain

B+/Stable/B

01-Dec-2017

2 Central Bank of Bahrain

B+/Stable/B

02-Dec-2017

3 Egypt

B/Stable/B

12-May-2018

4 Iraq

B-/Stable/B

03-Sep-2015

5 Jordan

B+/Stable/B

20-Oct-2017

6 Kuwait

AA/Stable/A-1+

20-Jul-2011

7 Lebanon

B-/Negative/B

04-Mar-2019

8 Morocco

BBB-/Negative/A-3

06-Oct-2018

9 Oman

(BB/Negative/B)

11-Oct-2017

10 Qatar

AA-/Stable/A-1+

08-Dec-2018

11 Saudi Arabia

A-/Stable/A-2

17-Feb-2016

12 Abu Dhabi

AA/Stable/A-1+

02-Jul-2007

13 Ras Al Khaimah

A/Stable/A-1

05-Dec-2018

14 Sharjah

BBB+/Stable/A-2

27-Jan-2017

Copyright © 2019 S&P Global Ratings. All rights reserved.

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MARKETS

FISCAL REFORM T DRIVE ACROSS THE GCC SHOWS FALTERING SIGNS

Most GCC countries have recently begun to reverse these cuts, while in some cases such as in Kuwait, higher oil prices have begun to exert upward pressure on subsidy spending bills once more he 2014 oil slump prompted GCC governments to launch fiscal consolidation programmes, which included cuts to spending, energy price reforms and new non-oil revenue measures. According to Moody’s, the policy measures and reforms implemented since 2014 managed to relatively slow down fiscal deterioration caused by lower oil prices which caught GCC sovereigns off guard.

Between 2015-18, all GCC countries u n d e r t o o k t o exe r c i s e s p e n d i n g rationalisation and—although less significant—some delivered substantial forms of energy price reforms and introduced new economic-diversification measures. However, progress has been uneven across the region and so far skewed towards spending cuts.

Moody’s stated that the implementation of fiscal consolidation measures and reforms have been uneven across the six GCC sovereigns and so far more concentrated on the expenditure side.

GCC sovereigns trimmed their total expenditures by an equivalent of about five to eight per cent of 2018 GDP in the initial years of the fiscal adjustment, but some of them began reversing these cuts as early as 2017 when oil prices began to rise from their 2015-16 lows.

According to the Bahraini finance ministry, government spending in the Kingdom remained broadly unchanged during 2014-18. In contrast, Qatar, Oman, Saudi Arabia and Kuwait implemented the largest initial spending cuts with Qatar remaining the only one to maintain its spending restraint through 2018.

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BACKTRACKING TRENDS Most GCC countries have recently begun to reverse these cuts, while in some cases such as Kuwait, higher oil prices have begun to again exert upward pressure on subsidy spending bills. According to Moody’s, total government spending across the GCC rose by about 10 per cent in 2018.

Additionally, Oman is considering introducing value-added tax (VAT) in 2021, further delaying a fiscal consolidation measure that economists say could be politically sensitive at a time of sluggish growth and high unemployment.

The Sultanate said that it would increase its revenue base by introducing VAT which the government expected to be implemented in 2021, according to a bond prospectus distributed to investors earlier in July 2019.

Likewise, Oman’s increase in the corporate tax rate in 2018 has only had a small fiscal impact—at around 0.3 per cent of GDP. Most of the governments have implemented new or increased miscellaneous fees for government services across the region—these added relatively little to their overall revenue intake, explained Moody’s.

Excise taxes on tobacco, alcohol and sugary beverages were rolled out in five countries excluding Kuwait, but the fiscal impact of this measure has been very small, at only around 0.3 per cent of GDP across the region.

GOVERNMENT REVENUES HAVE SHRUNK DUE TO LOWER OIL PRICES* Oil and gas fiscal revenues, % of GDP 60

2013

2018E

50 40 30 20

10 0

Kuwait

Qatar

Oman

Saudi Arabia

UAE

Bahrain

*In the UAE, Saudi Arabia and Oman, higher hydrocarbon production offset some of the decline in oil prices.

In Kuwait, Qatar and Bahrain, lower production deepened the revenue loss.

Sources: National sources, Haver Analytics and Moody's Investors Service

FISCAL CONSOLIDATION MEASURES HAVE SLOWED THE PACE OF BALANCE SHEET DETERIORATION IN 2015-18 Cumulative impact of revenue and expenditure measures on the sovereign balance sheet, % of 2018 GDP* Expenditure cuts Expenditure cuts

30

New/higher taxes New/higher taxes

Other revenue measures Other revenue measures

20 10 0 -10

-20

FISCAL REFORMS The agreement by the six-member bloc to introduce VAT is believed to be part of a broader strategic shift by the respective governments to move their economies away from depending on hydrocarbon revenues.

In a bid to boost and retain foreign investment in the country, the UAE implemented regulations to stimulate non-oil economic growth earlier this year following the issuance of a new investment law by the President of UAE, HH Sheikh Khalifa bin Zayed Al Nahyan.

-30

Saudi Arabia Saudi Arabia

Oman Oman

Kuwait Kuwait

Qatar Qatar

UAE UAE

Bahrain Bahrain

*The estimate does not take into account the impact of one-off measures (e.g. revenues related to the 2017 anticorruption drive in Saudi Arabia) or fluctuations in dividend payments from state-owned enterprises in the UAE. In Saudi Arabia and Bahrain, “other revenue measures” include primarily the impact of energy price reforms.

Source: Moody's Investors Service estimates

THE BUDGETS APPROVED BY GCC SOVEREIGNS IN 2019 OFFER A PREVIEW OF WHAT SHAPE FISCAL POLICY MAY TAKE IN THE MEDIUM TERM.

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MARKETS

QATAR IS THE ONLY SOVEREIGN THAT HAS MAINTAINTED CUTS TO CURRENT SPENDING Government current spending (Index, 2014=100)

130 130

UAE Qatar Oman Bahrain - State budget only*

GOVERNMENT WAGE BILLS HAVE RISEN IN MOST COUNTRIES SINCE 2014 Compensation of government employees, % of GDP

Kuwait Saudi Arabia Bahrain

2018E

16 16 14 14

120 120

12 12

110 110

10 10

100 100

88

90 90

66

80 80

44

70 70

22

60 60

50 50 2014 2014

2014

18 18

2015 2015

2016 2016

2017 2017

2018E 2018E

00

UAE UAE

Kuwait Kuwait

Qatar Qatar

Saudi Arabia Arabia Saudi

Oman* Oman*

Bahrain Bahrain

*Bahrain's “state budget” spending does not include off-budget expenditures, including on infrastructure and housing projects funded by the GCC Development Fund program. ** Saudi Arabia's capital spending in 2016 includes settlement of the previous year's payment arrears.

* Oman's government wage bill includes our estimate of compensation paid to defense and security staff, which we belive is close to half of the total “defense spending” bill, although the exact breakdown is not available.

Sources: National sources, IMF, Haver Analytics and Moody's Investors Service

Source: Haver Analytics

The new FDI law will be integrated with several supplementary laws and a list of incentives to lead future FDI trends with an aim to reach between $1111.5 billion in investments. Additionally, financial regulators in the UAE has provided a legal framework for foreign investors that guarantees their investor rights, property rights, arbitration, insolvency and corporate laws.

The UAE’s new debt law is also set to deepen financial markets, allowing the emirates to tap a wider pool of financing options and create a government yield curve. The new Public Debt Law enables the UAE to issue sovereign bonds, enabling the country to tap a wider pool of financing options and creating a government yield curve to bolster the country’s secondary debt market.

Similarly, Saudi Arabia is also restructuring and opening up its nonhydrocarbon economic activities, rethinking the role of foreign investors as the Kingdom looks to ease fiscal burdens and do away with dependence on oil, focusing on technology, entertainment and FDI. PwC said that the introduction of VAT in Saudi Arabia has brought in

18

more funds than the expat levy and excise taxes combined, and it tripled the amount from taxes on income and capital gains.

Under Crown Prince Mohammed bin Salman’s Vision 2030, Saudi Arabia introduced a series of economic transformation reforms aimed at reducing the Kingdom’s high reliance on oil. According to the Arab Monetary Fund’s September 2018 Outlook Report, the reforms implemented across the GCC improves business climate supports economic activities during the forecast horizon.

Similarly, Bahrain introduced VAT for the first time in the Kingdom in January 2019, following a $10 billion aid package offer from the Kingdom’s wealthier neighbours Saudi Arabia, UAE and Kuwait to avoid the risk of a debt crisis in the country, which was also tied to fiscal reforms. The country is yet to introduce other reforms, including changes to the pension system and a new subsidy programme in a bid to fix its public finances. However, the Kingdom’s oil minister stated that oil will be excluded from value-added tax (VAT), part of an essential goods exclusion from the tax.

More significantly, Saudi Arabia’s increased levy on expatriate workers and a implementation of a new levy on their dependants has generated approximately one per cent of GDP in additional fiscal revenue in 2018. The Kingdom plans to increase these further in the next couple of years and expects to more than double its contribution to the budget.

The budgets approved by GCC sovereigns in 2019 offer a preview of what shape fiscal policy may take in the medium term. This is carried out in an environment where moderate oil prices and steady social pressures to maintain high living standards exist, in a bid to ensure employment for nationals entering the labour force each year.

The majority of GCC countries’ 2019 budgets targeted higher spending than in 2018, and only Oman and Bahrain are targeting spending cuts related to their actual or estimated outcomes for 2018. Moody’s suggests that—with the exception of Bahrain and Saudi Arabia— GCC countries’ 2019 budgets contain no significant new non-oil revenue and costsaving measures.

COVER INTERVIEW

BANQUE MISR IS CURRENTLY STUDYING TO ACCOMPLISH MEGA PROJECT FINANCINGS WORTH ABOUT EGP 40.5 BILLION WITHIN A NUMBER OF SECTORS SUCH AS COMMUNICATIONS, BUILDING MATERIALS, FERTILISERS, CONTRACTING, ETC.

Mohamed Mahmoud Ahmed Eletreby

20

LEADING THE EGYPTIAN MARKET Mohamed Mahmoud Ahmed Eletreby, Chairman of Banque Misr, speaks to Banker Middle East about the bank’s performance over the past year, his plans for the Egyptian market and where he sees international expansion

T

he macroeconomic landscape in the region has been strenuous.

How has the bank fared operating in current market conditions?

This year our unaudited profit reached more than double the amount of the net profit of the previous year ending June 2018, which was EGP 4.1 billion. The drop in the previous year, June 2018, profits was due to local currency saving pools of high yield rates (17-20 per cent) on the back of the state’s economic reform plan as well as the corrective plan through liberating the currency exchange rate.

The state reaped the fruits as shown in the country’s economic indicators.

The high-yield saving pools were issued to reduce the impact of liberating the exchange rate on citizens’ savings as well as eliminate the impact of the inflation rates, which resulted in a hike on the cost of funds. However, the bank’s profitability gradually returned to its regular levels once the high-yield certificates started to mature.

Banque Misr’s deposit market share reached 18.8 per cent as of June 2019, the ratio of nonperforming loans (NPL) represented only 2.08 per cent of the

total loan portfolio with NPL coverage ratio of 96.7 per cent of the total loan portfolio, with irregular loan payments reaching EGP 1.9 billion in spite of current economic challenges and its impact on the banking sector as a whole.

The bank’s retail portfolio is valued at EGP 31.4 billion in June 2019, compared to EGP25 billion in June 2018, recording an increase of EGP 6.4 billion, marking 25.6 per cent growth rate.

By the end of June 2019 Banque Misr’s customer deposits reached

EGP

746 billion

and loans to customers reached

EGP

272 billion

Our results showed notable growth in all sectors. This year, we witnessed a steady increase in the volume of the bank’s business. With a 23 per cent growth rate, the net value of customers’ direct loans increased by EGP 51 billion to EGP 272 billion, compared to the previous value of EGP 221 billion. In June 2019, the value of customer deposits increased by EGP 76 billion to EGP 746 billion, up from EGP 670 billion in June 2018, marking a 11.3 per cent growth rate.

As rapid technological changes take place across the global banking industry as well as within the region itself, what are your digital transformation strategies for the bank?

Banque Misr believes that technology is the main drive for success and this contributes to promoting the value of its services for our clients. The bank is always working on developing its technological infrastructure by applying the latest technologies to boost the efficiency of our services. For the first time in Egypt, Banque Misr implemented artificial intelligence to launch a self-service chat bot on its website to better serve customers 24 hours a day.

bankerme.net

21

COVER INTERVIEW

The interactive service is considered a step forward in the digital transformation process where clients can interact with the auto assistant anytime without waiting—this will reflect on the speed and flexibility of our customer service.

It is worth noting that Banque Misr is the first bank to provide withdrawal and deposit services via mobile phone wallets, through a network of ATM machines specialised for this service.

Through this network, the bank enables over 11 million mobile banking users to benefit from the ATM service, which increases the number of transactions via mobile wallets, as the instant cash deposit and withdrawal services are made available for customers 24 hours a day.

Banque Misr also issued a national electronic payment card called Meeza.

The Meeza Card is considered the first national payment card in the country that holds the logo of the Electronic Payment Network through the Egyptian Banks Company’s “123” network, in conformity with the state’s policies in regard with expanding electronic payment channels, as well as the Electronic Payment Council’s initiatives under the patronage of the Central Bank of Egypt (CBE).

Apart from that, the issuance of the Meeza e-payment card also facilitates to secure cash withdrawals and purchase transactions via the points of sale (POS) systems all across Egypt, which significantly contributes to the enforcement of financial inclusion initiatives and digital cashless society plans, in line with the objectives of the sustainable development strategy in Egypt’s Vision 2030.

How would you describe your pipeline for your corporate banking business?

Banque Misr is considered one of the largest national banks in financing enterprises across different sectors.

Between 1 July 2018 to 1 June 2019, Banque Misr has arranged, provided for, and participated in eight financing

22

THE BANK’S RETAIL PORTFOLIO IS VALUED AT EGP 31.4 BILLION IN JUNE 2019, COMPARED TO EGP 25 BILLION IN JUNE 2018, RECORDING AN INCREASE OF EGP 6.4 BILLION, MARKING 25.6 PER CENT GROWTH RATE. — Mohamed Mahmoud Ahmed Eletreby, Chairman of Banque Misr

transactions with a total value of EGP 20.45 billion across several industries, including electricity, real estate investment, contracting, oil and gas, land transportation, maritime transportation, as well as communications and information technology. The value of Banque Misr’s coverage guarantee is estimated at EGP 10 billion.

In light of its intensive market strategy, the bank seeks to attract new clients and finance operations. Banque Misr is currently studying to accomplish mega project financings worth about EGP 40.5 billion within a number of sectors such as communications, building materials, fertilisers, contracting, etc. The value of Banque Misr’s coverage guarantee here is estimated at EGP 12.7 billion.

With one of the largest client base in the country, tell us more about Banque Misr’s financial inclusion initiatives. What else are your priorities for the Egyptian market over the short term?

Banque Misr has a huge interest in financial inclusion, working on various pillars in accordance with the Central Bank of Egypt’s plan to promote the financial inclusion in the country’s banking system. This includes initiatives in transforming Egypt into a cashless society through supporting and motivating the usage of e-payment methods in accordance with the policies of the National Council for Payments (NCP) under the chairmanship of the Egyptian President. The plan is aimed at reducing cash flows outside the banking sector and motivating the usage of e-payment methods instead.

To fulfil the customers’ demands in this regard, Banque Misr has offered various e-payroll solutions for both public and private sector companies, providing a variety of salary transfer products (salary cards, salary accounts), in addition to offering tax/custom e-payment services through our extensive branches in Egypt and the UAE. Banque Misr is ranked first among the banks that provide customs payment service.

Banque Misr has a CPS service for companies enabling their employees to carry out e-payment processes for taxes, customs, and any other fees while being in their respective offices.

In addition to the BM Wallet service, Banque Misr also entered into a number of partnerships to facilitate the accessibility of e-payment methods, including partnerships with Visa, Exxon Mobil and the Egypt Post Authority.

Moreover, Banque Misr’s branches nationwide also offer funds for micro, small and medium enterprises (MSMEs) across the industrial, agriculture and services industries.

COVER INTERVIEW

In June 2019, the value of the bank’s MSMEs portfolio was accounted at EGP 24.5 billion up EGP 12.2 billion from EGP 12.3 billion recorded in June 2018, witnessing a growth rate of 99.2 per cent.

Banque Misr always aims to fulfil the various demands across all segments of the Egyptian society to drive development and combat unemployment. Banque Misr has therefore partnered with the Ministry of Local Development to fund small and micro-projects through a single-window system at our local units nationwide. The total number of customers of the bank’s SMEs portfolio reached 134,355 clients in June 2019 compared to 86,573 clients in June 2018, with an increase of 47,782 clients, recording a growth rate of 55.2 per cent.

Apart from the Middle East, the bank has a presence is Asia, Russia and Europe. Do you have any plans to grow your network?

Pursuant to our financial inclusion strategy, the bank seeks to ensure the accessibility of the financial services for various segments in the society through a geographical expansion plan.

To bring the bank closer to its customers wherever they are, Banque Misr has recently inaugurated a number of new branches. We now own the largest network of more than 661 branches nationwide; in addition to our regional and international presence in the UAE, Lebanon, France, Germany, China, South Korea (Seoul) and Russia.

In the coming period, we intend to be present in Italy (Milan), Kenya (Nairobi), and other African countries. Additionally, the bank aims to have a large network of representative offices all across the world.

What is your approach on CSR for the bank?

Banque Misr is considered as one of the largest banks with a long-standing role in the development of the Egyptian society.

24

FOR THE FIRST TIME IN EGYPT, BANQUE MISR APPLIED ARTIFICIAL INTELLIGENCE FOR LAUNCHING A SELF-SERVICE CHAT BOT ON ITS WEBSITE TO BETTER SERVE CUSTOMERS 24 HOURS A DAY. — Mohamed Mahmoud Ahmed Eletreby, Chairman of Banque Misr

This is in addition to the high level of awareness of the environmental and societal responsibilities, as well as rules of governance that the bank should comply with, in accordance with its long-term performance and sustainability standards.

Banque Misr is also the first stateowned bank to be accredited according to the Global Reporting Initiative (GRI) standards for sustainability as we issue our business reports in accordance with the principles of sustainability, taking into consideration governance and human rights, anti-corruption, social inclusion as well as environmental safety standards.

The bank also adheres to the UN Global Compact standards for citizenship (Corporate Social Responsibility). Banque Misr has spent about EGP 759 million on CSR activities during the 2018/2019 financial year.

Believing that CSR is the essence of sustainable development, Banque Misr achieved several direct and indirect contributions through its non-profit foundation, Banque Misr Foundation for Community Development.

Through its non-profit foundation, Banque Misr has several social development contributions either directly or indirectly for a better society. The foundation has contributions in various sectors including health, education, as well as social solidarity and development projects such as developing Egypt’s most-in-need villages and slums as well as projects for developing human resources.

The bank has made prominent CSR contributions to various sectors.

In the healthcare sector, it allocated as Shefa Orman Hospital’s third phase to be named after Banque Misr as recognition for its efforts. We have also provided significant contributions to various university hospitals including Cairo University Hospitals, Ain Shams University Hospitals, Assiut University Hospitals, Zagazig University Hospitals and Mansoura University Hospitals. In addtition to that, the bank supported Tahya Misr Fund’s Nour Haya initiative to promote each citizen’s rights to receive adequate healthcare.

On the other hand, Banque Misr has also financed the establishment of student services building in support of Zewail City of Science and Technology.

The new building provides a centralised location for all strategic studies.

The building represents a real breakthrough in terms of professional guidance and training through advising the students about their academic journey and offering internship opportunities at major companies in Egypt and abroad. The bank has also contributed to the Nile University through a scholarship programme designed to support entrepreneurs, as well as all the university students.

More and more banks are joining SWIFT gpi every day. Is your bank?

SWIFT gpi Delivering fast, transparent and trackable cross-border payments Go to swift.com/gpi #InsistOnSWIFT

COUNTRY FOCUS

IS JORDAN OUT OF THE WOODS? Credit agencies and analysts say that the country's growth is underpinned by strong Western donor support and geopolitical factors that provide an economic and political cushion for the country 26

W

hile other Middle Eastern countries boast of oil, Jordan has the location and a stable political environment compared to its peers in the region. The fact that the Hashemite Kingdom is one of the region’s most politically stable countries attracts the world’s attention and international investors have come to the country’s aid—so the West and regional powers have long valued their relationship with Jordan.

In June 2018, Jordanians took to the streets in protest against tough subsidy cuts and new taxes, the austerity measures backed by the International Monetary Fund (IMF). The civil unrest culminated in the appointment of Omar Razzaz as the new prime minister replacing Hani al-Mulki, whom protesters accused of ‘increasing prices to burn the country’.

According to a Bloomberg report, with unemployment running at a two-decade high of 18.4 per cent and a third of the population living below the poverty line for at least one quarter of the year, the people of Jordan felt they are suffering because of the failures of successive governments.

JORDAN’S EXTERNAL FINANCING FLEXIBILITY IS A RATING STRENGTH, UNDERPINNED BY STRONG RELATIONS WITH THE INTERNATIONAL DONOR COMMUNITY, MULTILATERAL ORGANISATIONS, AND BILATERAL ALLIES, INCLUDING THE US AND PARTNERS IN THE GCC. — Fitch Ratings

GDP growth in Jordan is expected to reach

2.2% 2.6% in 2019 and

over the medium-term Source: IMF

By December, the protesters stormed the streets again, chanting, “Our demands are bread, dignity and freedom,” complaining that Prime Minister Omar Razzaz was dragging his feet on promises to jail corrupt officials and businessmen.

Jordan has one of the smallest economies in the Middle East and few natural resources. It has lavished subsidies on its public thanks to the support of its richer Arab allies, however, an unprecedented influx of refugees from Syria, the Israeli occupation of the Palestinian territories and the yearlong closure of border with Iraq strained the country’s already fragile economy hence the attempt to introduce fiscal reforms to realign the economy.

The IMF said that Jordan has preserved macroeconomic stability in a most difficult environment, having weathered a series of severe and highly persistent shocks, including regional conflicts, domestic uncertainty, the hosting of Syrian refugees, the disruption of critical export markets and rising borrowing costs.

AN ENABLING ENVIRONMENT Improved regional stability will enable the growth of exports. In the second half of 2018, the improved security conditions in neighbouring Iraq and Syria allowed for a reopening of Jordan’s border crossings into its neighbours.

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27

COUNTRY FOCUS

A border crossing reopened with Syria in late 2018 and the updating of trade as well as border agreements with Iraq in 2019 following the reopening of the border in 2017 is already helping Jordan’s exports.

According to COFACE, “Iraq has traditionally been a key source of demand for Jordanian goods, accounting for 16.1 per cent of the Kingdom’s total goods exports in 2014 prior to Islamic State’s expansion as a result, we expect Jordanian goods exports to pick up substantially over the quarters ahead.”

Analysts said that Jordanian growth will remain moderate, partly due to the shaky confidence of private sector agents in the face of regional instability and as in the previous year, they expect economic activity to be driven by the mining and tourism sectors.

Similarly, as in the past, banking and insurance activities—which contributed 20 per cent of GDP in 2017—will be the main drivers of growth.

In the financial sector, the IMF commended the Jordanian authorities for improving financial sector oversight and supervision, adding that the enactment of long-needed growth-enhancing reforms such as the secured transactions law, the bankruptcy law and the businessinspections law are encouraging.

FINANCIAL LIFELINE The Hashemite Kingdom’s wealthier circle is strongly backing Prime Minister Razzaz’s commitment to maintain the reform momentum, strengthen growth and reduce public debt. Additionally, the London Initiative on 28 February 2019 helped unlock essential budget grants and concessional financing to support the authorities’ reform programme.

Jordan’s external financing flexibility is a rating strength, underpinned by strong relations with the international donor community, multilateral organisations, and bilateral allies, including the US and partners in the GCC, said Fitch Ratings.

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IRAQ HAS TRADITIONALLY BEEN A KEY SOURCE OF DEMAND FOR JORDANIAN GOODS, ACCOUNTING FOR 16.1 PER CENT OF THE KINGDOM’S TOTAL GOODS EXPORTS IN 2014 PRIOR TO ISLAMIC STATE’S EXPANSION AS A RESULT, WE EXPECT JORDANIAN GOODS EXPORTS TO PICK UP SUBSTANTIALLY OVER THE QUARTERS AHEAD. — COFACE

At the London Initiative, Japan promised to provide $730 million over the next five years, while France promised EUR 1 billion ($1.1 billion) between 2019 and 2022. The host government also chipped in, with UK ministers announcing several different programmes, the largest of which was the underwriting of a $250 million soft loan via the World Bank.

Fitch Solutions said that the ‘London Initiative’ conference provided the new government with a valuable opportunity to demonstrate to both development partners and investors its commitment to accelerate economic reforms.

The IMF stated that following on from that conference, the Jordanian authorities have received additional financing commitments of about $5 billion—which are critical in both supporting reform efforts and funding the programme.

The then British Prime Minister Theresa May said that a stable Jordan is a bulwark against the spreading of terrorist groups taking root and also strengthens

the border security of neighbouring countries, that is why collective support for the country is so crucial.

In May 2019, the IMF completed the second review of Jordan’s economic performance under the 2016 extended arrangement under the extended fund facility, enabling the disbursement of SDR 120.085 million ($166.4 million), bringing total disbursements under the programme to SDR 223.015 million ($309 million).

Additionally, Jordan’s wealthier GCC allies—Saudi Arabia, the UAE, Kuwait and Qatar—pledged a cumulative $3.5 billion in aid over the next five years, part of which will likely be channelled towards capital projects. According to the Saudi Press Agency, the package also includes guarantees to the World Bank and annual support for the budget of the Jordanian Government for five years.

The World Bank also extended $500 million in concessional financing, Bloomberg reported. The funds consist of a $111 million grant from the Global Concessional Financing Facility and a $389 million non-concessional portion with a final maturity of 35 years.

Similarly, the World Bank further agreed to offer Jordan $1.2 billion loan to help reschedule its debts and improve investment in the public and private sectors, according to Jordan News Agency.

The European Investment Bank (EIB) is also weighing plans to invest EUR 850 million in Jordanian businesses.

While the US committed to providing economic and military aid of at least $1.275 billion annually over five years, representing a 28 per cent increase from 2017 and the first five-year MOU with Jordan.

In March 2018, the US Congress also weighed in by approving aid of $1.52 billion, which is $250 million higher than the MOU amount—demonstrating the US’ strong commitment to Jordan.

COUNTRY FOCUS

Omar Razzaz, the Prime Minister of Jordan, speaks during a panel session at the Jordan Growth and Opportunity Conference in London. (Credit: Chris Ratcliffe)

The Saudi Jordanian Investment Fund signed an MoU with the Aqaba Special Economic Zone Authority to establish, develop and manage a railway connecting Aqaba, on the Red Sea to a future dry port in the Ma’an governorate, as Saudi Arabia is bolstering efforts to shore up the economy of a fellow Arab monarchy with a JOD 500 million ($705 million) joint investment in Jordan.

OUTLOOK The IMF said that Jordan’s fiscal reforms are crucial to preserve macroeconomic and external stability as well as placing public finances on a sounder foundation while lessening the risks to debt sustainability.

30

JORDAN IS ONE OF THE FEW COUNTRIES IN THE MIDDLE EAST WHOSE ECONOMY IS NOT DEPENDENT ON NATURAL RESOURCES DUE TO THE SCARCITY OF HYDROCARBON AND WATER, NEVERTHELESS, IT IS ALSO ONE OF THE MOST COMMITTED TO FISCAL REFORMS WITHIN ITS REGION. — Fitch Ratings

The Hashemite Kingdom delayed several key fiscal reforms, however, the IMF stated that recent amendments to the income-tax law are encouraging and will be key in helping Jordan secure a fairer and more sustainable fiscal framework.

Jo r d a n i m p l e m e n t e d i t s f i s c a l reforms under the terms of the IMF 2016 extended fund facility and Lloyds Bank lauded the authorities for the fiscal consolidation policies that subsequently reduced the budget balance to a deficit of 0.9 per cent of GDP in 2018, from 1.3 per cent in 2017.

The Kingdom is one of the few countries in the Middle East whose

economy is not dependent on natural resources due to the scarcity of hydrocarbon and water, nevertheless, it is also one of the most committed to fiscal reforms within its region having taken steps to privatise the economy, introduce tax reforms as well as opening up the banking sector, said Fitch Solutions.

Moody’s expects Jordan’s (B1 stable) credit profile to gradually become more resilient with the resumption of fiscal consolidation this year and proposed structural reforms.

The IMF projected the country’s GDP growth to gradually increase to 2.2 per cent in 2019 and 2.6 per cent over the mediumterm. This export-led recovery hinges on the restoration of macroeconomic stability, a supportive external environment including official support as signalled in the London Initiative as well as lower cost of generating energy and stable international oil prices.

Fitch also expects Jordan’s (BB- stable) growth to improve but remain moderate, at 2.3 per cent in 2019-2020, given fiscal constraints and gradual improvement in trading and investment conditions in the region.

THE FINANCIAL SECTOR Moody’s said that it expects the Central Bank of Jordan (CBJ) to further lower the main interest rate in the next 12-18 months and lower policy rates will lead to lower lending rates, which will relieve some negative pressure on banks’ asset quality by supporting economic activity, loan growth and borrowers’ loan repayment capacity.

A looser monetary policy and lower lending rates will support economic growth and help Jordan’s economic recovery. The rating agency expects the asset quality benefits of rate cuts to outweigh the negative pressure on banks’ lending margins.

Similarly, Fitch said that while the availability of external financing has helped the central bank to retain a

JORDAN HAS PRESERVED MACROECONOMIC STABILITY IN A MOST DIFFICULT ENVIRONMENT, HAVING WEATHERED A SERIES OF SEVERE AND HIGHLY PERSISTENT SHOCKS, INCLUDING REGIONAL CONFLICTS, DOMESTIC UNCERTAINTY, THE HOSTING OF SYRIAN REFUGEES, THE DISRUPTION OF CRITICAL EXPORT MARKETS AND RISING BORROWING COSTS. — IMF

significant stock of international reserves despite persistent current account, Jordan’s net external debt is rising.

CBJ’s reserves fell in 2018 but remained robust at 7.1 months of current external payments, backing the dinar’s peg to the US dollar.

According to Fitch, the current account will average 6.3 per cent of GDP in 20192020 and for gross external financing needs of 15-16 per cent of GDP. Despite a prolonged economic slowdown, capital adequacy at 17.2 per cent is well above the regulatory minimum and non-performing loans have declined.

In the event of rising credit risk, the Jordanian central bank has a broad range of potential tools at its disposal such as risk-weight requirements and concrete limits on loan-to-value and debt-toincome ratios, said the IMF.

The authorities issued Basel III regulations on capit al adequacy, including for domestically systemically important banks (DSIB) and on liquidity requirements. The Jordanian government has also been working with banks to ensure a smooth transition to IFRS9 accounting standards, however, it is expected to have a modest impact on capital ratios.

According to the IMF, financial inclusion indicators suggest a sizable payoff from reforms that facilitate access to finance, promote innovation and enhance financial literacy, particularly for SMEs. The government published a financialinclusion strategy (benchmark) to enhance the quality, access and use of financial services in Jordan, including improving SMEs’ access to finance, developing credit bureau and payment system as well as enhancing digital financial services and improving access to microfinance.

Under the administration of Prime Minister Razzaz, Jordan's economic outlook shows renewed momentum despite persistent challenges. The country’s economy has survived years of instability at its doorstep such as wars in Iraq and Syria and a prolonged conflict in the Israeli-occupied West Bank. The instability worsened the economic environment of the country that is already poor in resources and hosts close to over one million Syrian refugees.

However, the administration of Prime Minister Razzaz has been negotiating with major donors and the World Bank for a while to secure new concessionary loans, grants and guarantees to repay a maturing debt to reduce high debt servicing that weighed heavily on its $13 billion budget. The economy is expected to recover steadily in the coming years helped by a pickup in exports and the reopening of Jordan’s border crossings with its war-torn neighbours.

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COUNTRY FOCUS

JORDAN in numbers POPULATION

GDP PER CAPITA GROWTH

10.10 million

1m

10m

-0.4% (2016) -0.9% (2018) -1.6% (2017) -0.5% (2019 – projected) Source: Standard & Poor’s

Source: World Population Review (2019)

DEBT

MEDIAN AGE

22.1

UNEMPLOYMENT RATE

19% (2019)

years

Source: Worldometers (2019)

Source: Standard & Poor’s

NOMINAL GDP

$85.31 billion (2015 est.) $87.34 billion (2016 est.) $89.1 billion (2017 est.)

Source: World Bank

80.7% of GDP (2016) 79.4% of GDP (2017) 78.8% of GDP (2018) Source: Standard & Poor’s

BUDGET

$9.157 billion Expenditures: $11.83 billion (2017 est.)

Revenues:

Source: CIA World Factbook

REAL GDP GROWTH

3.5% (2016) 3.8% (2017) 2.1% (2018) 2.5% (2019 – projected) Source: Fitch Solution

EXPORTS

35.1% of GDP (2016) 35.6% of GDP (2017) 36.4 of GDP (2018) Source: Standard & Poor’s

INFLATION RATE

GDP PER CAPITA (000s)

$12,500 (2017 est.) $12,500 (2016 est.) $12,500 (2015 est.)

3.3% (2017 est.)

4.4% (2018 est.)

2.02% (2019 est.)

Source: CIA World Factbook

Source: CIA World Factbook

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O R G A N I S E D BY

SUBMIT YOUR NOMINATIONS NOW! 26 NOVEMBER 2019

The Ritz-Carlton, DIFC, Dubai, United Arab Emirates Award Categories • Best Bank in the Middle East • Banker of the Year • Lifetime Achievement Award • Fastest Growing Bank • Best Retail Bank • Best Islamic Bank • Best Corporate Bank • Best Commercial Bank • Best SME Bank • Capital Market Transaction of the Year • Most Innovative Digital Banking Proposition • Best Insurance Provider • Best Takaful Provider • Best Investment Bank – Conventional • Best Investment Bank – Islamic • Best Private Bank

Join over 400 senior banking and finance officials from across the Middle East as we honor the outstanding institutions that shape the region’s financial landscape.

• Best Wealth Management Firm • Best Investment Management Firm • Best Private Equity Firm • Best Trade Finance Institution

Now in its 20 year, the Banker Middle East Industry Awards programme is recognised as the most prestigious banking accolade celebrating financial excellence across the MENA region.

It acknowledges pioneering developments, innovative banking solutions, and achievements in the financial services industry. th

We encourage you to select your categories and submit your entries online by 3rd October 2019. You are welcome to submit multiple entries.

• Best Brokerage Solutions Provider • Best Law Firm – Banking & Finance • Best Law Firm – Private Equity • Best Research & Consultancy Firm • Best Ratings Agency • Best Islamic Ratings Agency • Best CSR Programme • Best Core Banking Service Provider • Best User-Experience Innovator • Best Cybersecurity Provider

To learn more about the Awards process, please email: awards@bankerme.net

• Best Payment Solutions Provider • Best Communications Infrastructure Provider

DEBT CAPITAL MARKET

(Photo credit:Husni Tawil/shutterstock.com)

SHAPE OF THINGS TO COME FOR GCC CREDITS

34

Situated right in the center of things, Mohammed Khnifer, Senior Associate, Debt Capital Markets at Islamic Corporation for the Development of the Private Sector (ICD), shares his opinion on the burgeoning nature of GCC credit

B

y the time everyone reads this in September 2019, government bonds/Sukuk issued by Saudi Arabia and four other Gulf states have joined (or about to join) JP Morgan’s emerging markets bond indexes. Their inclusion was a gradual one. It started on 31 January 2019 and it will be completed by 30 September 2019.

By now these states should have realised more than original weightage in the index (i.e. to be accounted more than 11.4 per cent of the benchmark, a big change in one year). This is due to the fact that these states have issued more debts this year when the early figures over their weightage in the index were released early this year.

LESS VOLATILITY The move was expected to have attracted a total of around $30 billion of new foreign investment into their debt. But what is important, is that such credit, within the emerging markets (EM), is gradually being appreciated by international investors.

For example, we have seen that after Argentina’s poll result in August, vulnerable credits have suffered a shortlived sell-off in EM, while higher rated ones appeared unaffected (eg. GCC).

While such credits have sustained geopolitical pressure in the region, the premium over EM peers are still there.

THE LOWER UST YIELDS, THE HIGHER GCC CREDITS The second factor that will give boost to GCC debt to outperform is the interest rate cut by the US Federal Reserve’s in July. This is an attractive rate environment for issuers as well as those who have issued debt in 2018 as such securities are probably is being traded at premium in the secondary market.

Further, the 30-year US Treasury yields have been seen traded below two per cent. This credit phenomena will drive prices of the 30-year (investment grade) GCC bonds into historical high levels (we are talking about bids around 116 for

Mohammed Khnifer

THE 30-YEAR US TREASURY YIELDS HAVE BEEN SEEN TRADED BELOW TWO PER CENT. THIS CREDIT PHENOMENA WILL DRIVE PRICES OF THE 30-YEAR (INVESTMENT GRADE) GCC BONDS INTO HISTORICAL HIGH LEVELS. — Mohammed Khnifer

Saudi Government bonds at some point in July!). This is due to the fact that yields are between 5-5.25 per cent. There is a correlation between UST yields and the spreads of GCC sovereigns as they both being used in the pricing mechanism of the debt instruments.

EURO DENOMINATED BONDS AND SUKUK It seems there is a spillover from Negative Euro yields and this is not a bad thing for highly rated GCC credits. It was reported that some institutional investors (i.e. Eurofocused investors) are offloading their euro negative yields holdings and are heading to attractive high-grade yields. This additional demand will prove positive to Investment grade GCC Credits who have issued Euro-denominated debt.

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WEALTH MANAGEMENT

WEALTH MANAGEMENT, ADDED VALUE, AND INVESTMENT INTELLIGENCE In an exclusive, Ali Janoudi, Head of Central and Eastern Europe, Middle East and Africa at UBS Global Wealth Management, sheds light on the crucial importance of information and consistency for a fund management house

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ealth management clients today are increasingly demanding. They expect better ser vice, greater transparency, and ever more comprehensive advice. As banks, we are under constant pressure to feed a pipeline of innovative products and solutions while offering superior service and added value—and at the same time ensuring effective use of our resources.

INTELLIGENCE PROVIDES ADDED VALUE Focusing on financial and economic intelligence, and investing in gathering, assessing, and communicating this information adds value. Based on this, UBS has established the Chief Investment Office (CIO) which has over 200 analysts in 13 financial hubs globally, who research as well as oversee the investment policy and strategy for approximately $2.5 trillion in invested assets.

CONSISTENCY: A SINGLE INVESTMENT VIEW The CIO creates a single investment view—the UBS House View—which forms a consistent basis for internal investment decisions and wealth m a n a g e m e n t i nve s t m e n t a d v i c e .

Based on this, the CIO communicates investment opportunities and market risks to clients in regular, carefully managed and appropriate detail for every level—from affluent to UHNWIs, to corporates and bank customers of our global Bank for Banks service.

GLOBAL NETWORKS ENSURE BREADTH OF VISION It is crucial for the CIO to be independent f r o m r eve n u e c o n s i d e r a t i o n s i n preparing its research. Our Global Investment Committee draws on in-house investment management and CIO experts. And to ensure clarity and integrity, we use our global networks to

connect with leading financial experts and top entrepreneurs, who we invite to challenge our UBS House View every month. We also run an Industry Leader Network, which brings together global industry leaders, mostly CEO’s and CFOs, to discuss industry trends, exchange experiences, as well as provide valuable input.

INVESTOR SENTIMENT SURVEYS As part of UBS’ broader investment research, we also conduct regular Global Investor Sentiment surveys with wealthy clients, with a special focus on key markets. For our latest survey, from 3 June 3019 to 6 July 2019, we approached 3,899 investors and business owners with at least $1 million in investable assets. The global sample was split across 17 markets: Brazil, China, Germany, Hong Kong, Indonesia, Italy, Japan, Malaysia, Mexico, the Philippines, Singapore, Switzerland, Taiwan, Thailand, the UAE, the UK and the US. The results showed that most investors are still optimistic about the economy. And even more so about their own region’s economy. When the survey was conducted, 84 per cent of UAE investors reported being optimistic and looking to invest more. Overall, HNW individuals globally are staying invested and diversifying their portfolios across

INTELLIGENCE, BOTH THE COLLECTION OF VALUABLE DATA AND THE APPLICATION AND SHARING OF THIS KNOWLEDGE, REMAINS AT THE CORE OF SUCCESSFUL WEALTH MANAGEMENT. — Ali Janoudi

many markets, including the Middle East. Their cash holdings, currently at 26 per cent, have been slightly increasing recently, which indicates that investors are looking for the right moment to deploy their liquidity.

INVESTORS LOOK FOR ALTERNATIVES As part of our global investor watch research we also deep dive into other investor views. Last year for example, we produced a ‘Sustainable Investing’ edition and found that 95 per cent of UAE investors are interested in sustainable investing, compared to the global average of 85 per cent. Given that our clients are very passionate about philanthropy and sustainability—we proactively worked with the World Bank for solutions that fund social and economic development in disadvantaged markets.

And we are helping clients achieve lasting impact while realising similar returns to traditional investments. By engaging in sustainable investing, the investment community is helping all UN member states to achieve the UN’s 17 sustainable development goals by 2030.

It’s an exciting thought that we now live in a world where everyone is a changemaker. At an organisational level, we are also advancing the scope of these investments through our Global Visionaries programme. Under the programme, UBS board members for Global Visionaries select entrepreneurs who are working towards one or more of the UN goals, addressing societal issues, across diverse sectors such as health, education, equality and the environment. Many of our investors are proud that they are able to diversify their portfolios in such a way that reflects their personal values.

GCC INVESTOR TRENDS AND FORECASTS Our GCC clients have shown a tendency to invest in real estate or stocks in their

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WEALTH MANAGEMENT

home markets, but also in investments that deliver fixed income. Yield is still top of mind for investors in the face of a likely more accommodative global liquidity environment.

We believe that the greater pick-up of emerging market bonds will also benefit fixed-income markets in the region in terms of price performance, but also in their primary market activity.

Higher yielding instruments like those from Oman and Bahrain, will likely benefit most, followed by Saudi Arabia and the remaining GCC countries. At the same time, local developments will crucially shape the outlook for the GCC markets. For example, we expect economic growth in the UAE to pick up by half a percentage point to three per cent this year, although greater global uncertainties need to be monitored closely.

Ali Janoudi, Head of Central and Eastern Europe, Middle East and Africa, UBS Global Wealth Management

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The increased activity of GCC issuers in the primary market also raised interest from abroad, including from our clients in Russia, Central and Eastern Europe, Turkey, and Africa. Solid credit fundamentals and a favourable pricing compared to similarly rated peers make these bonds attractive for international investors.

Over a medium-term horizon, current efforts to further transition economic growth away from energy are paramount and a key for success is an effective public-

KEY RISKS TO MONITOR ARE OIL PRICES AND TRADE TENSIONS BETWEEN THE US AND CHINA AND/OR A MORE MEANINGFUL DECELERATION IN GLOBAL GROWTH. — Ali Janoudi

private partnership with the participation of domestic and foreign investors. The region enjoys competitive advantages in many industries such as petrochemicals, energy and tourism, which can facilitate the transition and provide interesting investment opportunities for local and foreign investors alike.

OUTLOOK FOR GCC INVESTORS As an example of our UBS House View, within our latest outlook to GCC investors, we recommend staying invested in a welldiversified global portfolio. In our view, a low-for-longer interest rate environment will be supportive of carry trades and income enhancement strategies. Indeed, in a pre-emptive move, the US Federal Reserve recently cut the policy rate for the first time in a decade to cushion economic risks. At the same time, we highlight that financial markets continue to expect further sizable easing, creating the risk that the Fed disappoints the market.

For GCC investors, this can be an important consideration: A less-dovishthan-expected Fed would also mean less policy support for the GCC region (through the pegged exchange rate regime).

Moreover, the regional bond market hugely benefited from the global hunt for yield and from the inclusion into global benchmark indices for bond investors. While our fundamental view on GCC sovereign credit remains favourable, tighter valuation increasingly require investors to become more selective. Key risks to monitor are oil prices and trade tensions between the US and China and/or a more meaningful deceleration in global growth.

INFORMATION IS KEY Whatever the many geopolitical and economic uncertainties of our time, it is vital to maintain an optimistic yet realistic outlook. Intelligence, both the collection of valuable data and the application and sharing of this knowledge, remains at the core of successful wealth management.

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hat are your views on the wealth management sector in the Middle East?

At Mashreq, we have seen consistent growth in our clients and their assets under management with us. We foresee this trend to continue over the next three to five years, especially given that the UAE continues to provide requisite climate and progressive outlook to attract high net worth individuals (HNWI) into the region.

This is also in line with the established research reports, based on which Middle East will experience a strong growth (forecasted) in the wealth management sector, and UAE has been ranked first in the “Top 40 fastest growing HNW cities for the years 2018-2023”.

Where do you see most potential in the UAE? Legacy planning and transfer of wealth to the next generation will definitely hold the most potential in this market.

More and more clients are moving into bespoke portfolio solutions diversifying across the full range of traditional and alternative investments.

As the region attracts more and more international population, and the legal structure evolves, there is still an opportunity in this market for setting up trust services, fund and asset management services, which will further strengthen its position as a major financial hub.

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A CUT ABOVE Vipul Kapur, Head Of Private Banking at Mashreq Bank, discusses his approach in running the business

WE CONTINUE TO RECOMMEND PORTFOLIO DIVERSIFICATION WITH HIGHER WEIGHTAGE TOWARDS DEFENSIVE SECTORS AND ASSET CLASSES. — Vipul Kapur

What are the emerging trends in this space?

We have seen an emerging trend surrounding digital transformation which is gaining importance in wealth management and is becoming one of the industry’s most strategic goals. A new generation of investors with different expectations and preferences that have been shaped by new technologies, has brought new standards to the industry in terms of how advice and investment solutions are being delivered. That means that the race to deliver the best digital client experience will become even more important and will be the competitive edge for providers.

The introduction of robo-advisor solutions that automate the planning process have gained popularity in recent years, but clients still show a preference for a hybrid model—a balance between automation and help from a human professional. We have seen other areas being digitally transformed such as client onboarding, faster delivery of relevant information as well as execution of transactions. There is no doubt that this trend will continue to evolve and shape the future of our industry.

What is Mashreq’s current market share and how do you plan to expand this?

Mashreq Wealth Management and Private Banking are leaders in the UAE

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Vipul Kapur

banking sector and have a global reach with clients across Europe, Middle East and Asia. We have significant assets under management that give us the scale and expertise to deliver a range of solutions for our clients across their investments, forex and lending requirements.

We continue to identify solutions that will cater to the needs of our private banking clientele and constantly invest in innovation, technology, products and propositions.

In terms of investments, where do you see opportunities in the current economic landscape?

We are inching closer towards the end of the current business cycle and that is evident by the number of central banks that have started to reduce interest rates to stimulate their economies. Having said that, we continue to recommend portfolio diversification with higher weightage towards defensive sectors and asset classes.

What are the three main things you keep in mind when conducting business with your clients?

Mashreq has a unique operating rhythm where we provide our clients a team-based approach in managing their wealth. With access to certified relationship managers, qualified investment and insurance advisors, forex specialists as well as client service managers, we aim to deliver exceptional experience throughout the client journey. We provide bespoke solutions to suit our clients’ needs and requirements, because each client is unique with specific long-term financial goals.

As the market evolves towards innovation and digital platforms, we pay extra attention on enhancing our value proposition, building new capabilities and product solutions centred around clients.

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ISLAMIC FINANCE

THE POTENTIAL IN OMAN CONTINUES TO GROW According to HE Taher bin Salem bin Abdullah Al Omari, Executive President of the Central Bank of Oman, the Sultanate has one of the highest Islamic asset growth rates in the world

(Photo credit:Joat/shutterstock.com)

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slamic finance in Oman is thriving.

There are more financial institutions currently offering Islamic finance products or working under a Shari’ah framework than ever before, and this is due in no small part to the regulatory environment that has allowed the financial system to grow and prosper. “Since the start of Islamic banking in Oman we have achieved legal framework for this and there are 82 outlets which are offering Islamic services. The Sultanate has one of the highest Islamic assets rates in terms of growth and all

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ISLAMIC FINANCE

the indicators for this are encouraging,” said HE Taher bin Salem bin Abdullah Al Omari, Executive President of Central Bank of Oman, to commemorate the opening of the second annual Salalah International Islamic Finance Conference in Salalah, Oman in July.

“We have secured deposits based on Islamic regulations and we are working hard to see initiatives in the future,” continued bin Salem al Omari.

The three-day event, organised by Tawafuq Consultancy and Muscat Clearing and Depository Company, was held under the patronage of H E Sheikh Khalid bin Omar bin Said al Marhoon, Minister of Civil Service.

The conference included a presentation of working paper s under four main themes: Islamic finance and economic diversification, contemporary issues in Islamic finance in terms of Sukuk issuance procedures and their role in development, in addition to the legal aspects of Sukuk, and importance of the role of supporting organisations of Islamic finance, as well as various seminars.

Dr Ali Muhi’eddin al Qara Dhaghi, Secretary General of the International Union of Muslim Scholars, Ashraf Hashim, CEO of ISRA Consultancy Malaysia, and a number of specialists and interested persons in the Islamic finance sector from inside and outside the sultanate took part in the conference.

On the sidelines of the conference, specialised workshops, focusing on bankers, legal professionals, researchers and those interested in Islamic finance and economics, including professors, students and postgraduate researchers, were held.

In the main panel discussions, which featured a number of CEOs from the top Islamic institutions in Oman, liquidity was a particularly pressing issue.

“Today’s discussion about liquidity in the market especially is very important. This has been one of the

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main challenges for Islamic banks, the fact that liquidity is not available for us given there is no framework yet for our novel industry when it comes to managing liquidity and meeting the requirements of these institutions in a fairly new sector,” Khalid Al Kayed, CEO of Bank Nizwa, said.

In addition to Islamic finance and economic diversification, contemporary issues in Islamic finance including electronic and digital currencies, and the various types of Sukuk and issuance procedures came under the spotlight.

The conference also reviewed the challenges and solutions of banks, Takaful insurance, reinsurance, the governance of Islamic financial institutions, the legality of the Sukuk, its legal aspects and the Sultanate’s experience of the issuance of Sukuk.

“We heard from experts and specialists on Islamic banking as they reflect on the development of this crucial sector which has provided customers with Shari’ah-compliant banking solutions. It is also well known that the Islamic banking system has played an important role in meeting the needs of the people by providing high-quality banking services. This is confirmed by the growth witnessed and is also the result of prudent guidance from the Central Bank of Oman, which spares no effort in providing all support to Islamic banks in the Sultanate,” Moosa Al Jadidi, COO, Alizz Islamic Bank, said.

THE SULTANATE HAS ONE OF THE HIGHEST ISLAMIC ASSETS RATES IN TERMS OF GROWTH AND ALL THE INDICATORS FOR THIS ARE ENCOURAGING. — HE Taher bin Salem bin Abdullah Al Omari

Islamic finance has had a transformative role on communities across the Sultanate of Oman, according to the head of Sohar Islamic.

“It was an honour to support and be a part of the 2nd Salalah International Financial Islamic Conference. The event brought together international industry experts to share knowledge and the latest research regarding the Islamic financial sector and products; making our participation in and support of the event natural. By bringing together stakeholders and researchers from across the world, the event has helped further the growth of Shari’ah-compliant banking in Oman and facilitated greater understanding among all practitioners for the benefit of our customers, partners, and stakeholders. We are pleased to have sponsored and been a part of this pivotal annual forum, and we look forward to continuing to play a strategic role in advancing Islamic finance within the nation,” said Salim Khamis Al Maskari, DGM and Head of Sohar Islamic.

In early August, The High Shari’ah Supervisory Authority held its second meeting of the year at the premises of Central Bank of Oman. The meeting was chaired by Sheikh Dr. Kahlan Bin Nabhan Al Kharoosi and was attended by all the members.

In the meeting, the Authority made detailed deliberations on the issues presented to them with respect to various Shari’ah aspects relating to Islamic banking, including Shari’ahcompliant liquidity management products for islamic banking entities.

Accordingly, the Authority gave its opinions and observations on these issues in light of the discussions. The Authority was also briefed about a follow-up report on the actions taken on the issues discussed in the previous meeting, according to the Central Bank of Oman.

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FAMILY OFFICES Family businesses in the Middle East are the engines of growth and a driving force behind economic diversification across the region.

CHANGING TIMES

Family businesses differ from a generational perspective and majority of businesses under the leadership of successors are taking a fresh look at their portfolios and operating structures, finding ways to become leaner and more competitive

F

amily businesses in the Middle East play a particularly significant role in the region’s economy, so enabling their growth is high on both the private and public sectors agendas. According to PwC, with a workforce contribution of 80 per cent and $1 trillion estimated to pass from one generation to the next within a decade, it is easy to see why this is a prioritised sector.

Just like any other sectors, family businesses are being confronted by the changing market dynamics

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which are calling for new business models, adopting digitalisation which is disrupting whole industries with new related skillsets as well as geopolitical tensions, global trade tensions and succession disputes.

Many family businesses across the region have grown to become conglomerates investing in local real estate and many of their balance sheets are dominated by this asset class.

However, these changing times require adaptability and action in order to ensure that potential isn’t wasted

and that the future is secured. PwC stated that a simple continuation of the traditional ways of working is not enough for family businesses to succeed in a digital and increasingly competitive age.

EVOLVING LANDSCAPES The founders and leaders of several r e g i o n a l fa m i l y b u s i n e s s e s fa c e challenges ranging from changing economic environments, accessing the right skills and capabilities as the leadership is passed on to next generations as well as the inevitable need to innovate to stay in the game.

Additionally, the recent economic downturn has also exposed some family businesses to strategic and operational deficiencies, coupled with changing business models driven by digitalisation and increasing competition emanating from start-ups and disruptors.

PwC said that sustainable growth depends on how well companies navigate these treacherous waters and many business leaders in the Middle East intend to adjust to this new reality.

FAMILY BUSINESSES IN THE MIDDLE EAST ARE THE ENGINES OF GROWTH AND A DRIVING FORCE BEHIND ECONOMIC DIVERSIFICATION ACROSS THE REGION. — PwC

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FAMILY OFFICES

Family businesses differ from a generational perspective and the majority of businesses under the leadership successors are taking a fresh look at their portfolios and operating structures, figuring out ways to become leaner and more competitive. In Saudi Arabia and Kuwait, family businesses are under the leadership of third and fourth generation investors who are bringing in new ideas and new ventures into the family businesses, they are thus more diverse.

According to PwC, no current global survey of the health of family businesses would be complete without looking at the challenge of digitalisation.

There is an uptick in the number of businesses feeling vulnerable to digital disruption. Middle East family businesses and investors are preparing for the future by significantly improving digital capabilities in the short-term, re-evaluating business models and bringing in outside professionals for boards and management teams, to help professionalise their businesses as well as boost engagement for the next generation.

However, family businesses with clear strategic plans that underline their values and purpose also have a significant advantage. Middle Eastern businesses are well placed to profit from being values-driven companies, said PwC. CHALLENGES The recent economic downturn has also exposed some family businesses to strategic and operational deficiencies.

According to PwC, many family business leaders in the Middle East intend to adjust to this new reality. Many are taking a fresh look at business portfolios as well as operating structures and figuring out ways to become leaner and more competitive.

According to PwC, families in the region tend to be large—their size is on average double that of UK and US families. Given the sheer size of Middle East families, their businesses need

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WITH A WORKFORCE CONTRIBUTION OF 80 PER CENT AND $1 TRILLION ESTIMATED TO PASS FROM ONE GENERATION TO THE NEXT WITHIN A DECADE, IT IS EASY TO SEE WHY THIS IS A PRIORITISED SECTOR. — PwC

to grow by double digits for future generations to maintain the wealth and the same standard of living, representing a huge challenge.

PwC revealed that founders of family businesses across the region believe that attracting and retaining the best talent is among their top priorities over the next two years. This is mainly driven by the pressure to innovate, as well as an understanding that survival depends on a company’s ability to navigate an increasingly complex digital landscape.

Succession planning continues to be a massive challenge for family businesses across the globe, but this

is particularly problematic in the Middle East where large families are more common and many of these relatively younger businesses face succession issues for the first time. However, parents in Kuwait and Saudi Arabia have become more experienced in handling transition of power, it is evident that they learn from previous mistakes and are doing more to avoid repeating them.

Establishing family protocols to regulate succession, conflict resolution, business valuations and key issues, are critical in preserving wealth and ensuring a smooth transition between generations. The succession issue has been around for the last five years and is expected to remain a challenge for the next 10 years.

Regional family businesses increasingly adopt policies and procedures, but these do not necessarily include key documents such as family constitutions or conflict resolution mechanisms, therefore there is still much work to be done.

According to S&P, the escalation of tensions in the Middle East could weigh on the creditworthiness of GCC sovereigns and have consequences for Gulf-based entities, possibly banks and some nonfinancial companies. Adding to their plight, family businesses are concerned about tensions in the region involving decades-old rivalries between Saudi Arabia and Iran, Qatar and the other GCC members, on top of the unrest in Lebanon and Yemen.

Family businesses in the Middle East are the engines of growth and a driving force behind economic diversification across the region. The changing times require adaptability and action in order to ensure that potential is not wasted and that the future is secured.

It is increasingly clear that a simple continuation of the traditional ways of working is not enough for family businesses to succeed in a digital and increasingly competitive age.

ISSUE 04

ACHIEVING A PROPER ROI ON DIGITISATION Muraleedhar Ramapai, Executive Director, Maveric Systems

ACHIEVING A PROPER ROI ON DIGITISATION Muraleedhar Ramapai, Executive Director at Maveric Systems, shares his views on how banks can optimise their digitalisation initiatives

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Muraleedhar Ramapai

hat are your views on digital transformation trends in the region?

There is a lot of action and a lot of changes happening in the fintech as well as electronic payments space. We have seen the emergence of services such as AliPay and UAE Exchange enhancing their digital service capabilities.

Additionally, a lot of digital products and services are increasingly being adopted by regional financial institutions.

The majority of these banks are mostly going digital in their retail offerings because on the priority banking side, it might still be early to do so. However, I am sure that banks will use some of the aspects to update their investment execution and because some of these things are already be digitalized, it would be a fast process to implement.

Another three aspects are value, variety and veracity. When you really look at it, when you are exposed to high value accounts, the focus really needs to be on providing value for your customers and this is very much possible, because as a bank you have the economics to provide that kind of service.

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TECHNOLOGY

Banks and financial institutions surely need to invest in digitalisation but in more than investing, they also need to take care of financial assets, develop a focused approach starting from the top level to create the asset base of the data.

What do you see as the greatest challenge for financial institutions in realising their digital transformation agendas?

The main challenge for financial institutions in realising their digital transformation agendas is not necessarily investment in technology. For instance, you can develop a good-looking website or a mobile application that is highly rated in user experience, but it is all about investing in learning and the ability in doing business digitally.

When you said learning to do business, does that involve strategy?

Of course, one is strategy and the second thing is understanding the dynamics within the local market itself. How people will react to the call for a digital product? For millennials it is easy because they are already

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accustomed to using social media like Facebook, Instagram, Snapchat and will adapt quickly to a digital-only pack.

However, a businessperson who is used to physically visiting a banking hall to get work done, for them to accept digital banking, the products should be designed appropriately to ensure that they feel secure using digital services and products.

What kind of major flaws do see in the implementation of digital services?

I do not classify them as a major flaw— they are looked upon as investment problems that needs to be addressed as a strategic business transformation problem and banks are moving to address these strategic business transformation problems. And by strategic business transformation problem, I mean in the same set you are looking at an ROI of

investing in a mobile app it is way too complicated than that.

The ROI in itself is challenging in the sense that these are moving from a single channel to a multichannel and that journey moves back and forth. For instance, you might start applying for a Credit Card on your desktop, on your way home you in the Metro train or a cab you finish the rest of application on your mobile. So, to do that, the business thinking should be implemented when you are breaking down your work and product.

Additionally, there is generation of a lot of data, there is a lot of valuable data in the process, for instance when filling a bank account application form online, its not only a customer’s information that is available there, but also the time spent to complete it, options chosen, as well as more information

from third parties such as how to work with Google SEO, mine this data, and correlate it with how your system is behaving—collate all the information and create a customer 360 degree view—this is where the main challenge lies. Data is the fuel, just like in the way you mine and collect data as well as make it available to individual points of distribution.

In your opinion, what are the cornerstones of a successful digital transformation exercise?

Banks and financial institutions surely need to invest in digitalisation but in more than investing, they also need to take care of financial assets, develop a focused approach starting from the top level to create the asset base of the data.

W ha t do we k n ow a b o u t o u r customers? What do we know about

competition? What is the information?

What assets can we get from the open market and what are things do our partners bring to us? There should be clarity—it is not about people talking about data being commodity or data being available, but banks need to understand how data drives business and that is the critical part.

In doing things differently, we approach data from the domain side with all these tools, tools allow to work on large bodies of data, distribute it in API, mobile or any of the channels. But how and what will be put through a particular channel? In digitalising their services and products, banks and financial institutions should take a customer’s journey and break it into what likelihoods are, as well as prompting them to experiences that making business sense both for the bank and the customer.

That is where the investment should be and a bank approaches the data, the level of data quality, the value of data and the variety of data is important. Other open source and third-party tools are also crucial to ensure that infrastructure and other components are made possible. So it is more than leveraging data, it is using data as a tactical tool.

How do you envision banking in the next 10 years?

There are two to three things that already happening, and people in some circles are already talking about three or four things that banks serve. Banks provide you a store of value that is, a place where you keep all your financial assets.

They also provide liquidity—that provision of long and short-term loan as well as

IT IS MORE THAN LEVERAGING DATA, IT IS USING DATA AS A TACTICAL TOOL. — Muraleedhar Ramapai, Executive Director at Maveric Systems

acting as transaction driver for instance, in places where banks were not domaincentric that will get commoditized and fintechs will come and take it away.

For example, in money transfers, idle banks will lose the margins and they have to invest in new technologies and let go of the traditional way of operations—that is one area where the banking industry will change.

Additionally, banks will become store value and one type of bank will come up—that is what’s currently being seen in the form of open banking, API, micro services, amongst others. Banks will tend to outsource even core services such as underwriting, risk assessment, etc.

Similarly, some banks will specialise in certain services—most consumer banks will gain most out of e-commerce related services—so it’s possible to see a local player such as Amazon, partner with a consumer bank and conduct most of the services related to payments, short term credit, unsecured all that will get pulled into one because it’s a data storage, why Amazon.ae because it knows your spending pattern and are able to take it.

As a store of value, banks will continue to serve customers because of their deep-rooted trust in these financial institutions. However, they may not use their bank for everything—customers are bound to migrate from one bank to the other which again is related to regulations and open banking.

In terms of retail banking, more and more branches will vanish, even call centres will be reduced and it will be taken over by digital means. It is going to be about how you find sources of data and how you find opportunities.

Banking is a service which is not consumed at the place of purchase. For instance you take a credit card you can use it anywhere, but in the future a credit card may not be needed because of identity issues and newer technologies such as facial and fingerprint recognition takes away the credit card from being needed.

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TECHNOLOGY

FIVE WAYS TO SIMPLIFY CUSTOMER EXPERIENCE With well-informed customers willing to find alternatives, the simplification of CX becomes critical, writes Avaya’s Giselle Bou Ghanem, Customer Engagement Solutions Sales Manager for the Middle East, Turkey & Africa

T

he Fourth Industrial Revolution has transformed banking customers— and consumers generally—into fickle buyers. Extensive digitisation has indeed changed the way we live, work, play and bank, but while there is a plethora of positives, it has also given customers significant power.

To see this in action, we do not need to look past the impact a single tweet can have on an organisation’s customer experience (CX) strategy.

With the threat of public disdain constantly looming, the simplification of CX becomes critical. Customers these days are well informed about the market and finding alternatives is easier than ever; whether it’s changing banks or credit cards, all it takes is a few clicks for the customer to ditch your brand for the promise of another. The competitive landscape fosters innovation, but it also makes many customers less loyal.

Giselle Bou Ghanem

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CUSTOMERS EXPECT THEIR EXPERIENCES TO BE THE SAME ACROSS ALL CHANNELS. — Giselle Bou Ghanem

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Today’s customers also expect requests to be instantly fulfilled. Even the notion of sitting on hold is enough to send them screaming, and that comes down to the digital era of convenience, where instant gratification is assumed, and not a privilege. Customers expect agents to be fully informed about their journeys—no matter if it’s a real person or a bot—in order to customise every communication to the context. This is a challenge in banking, where customers expect both knowledge of their accounts among agents, but at the same time absolute security and privacy.

It’s a difficult line to walk.

And that line needs to be replicated; with the rise of artificial intelligence (AI), automation and digital adoption, customers expect their experiences to be the same across all channels. Moreover, they expect organisations to provide the ‘human touch’ or assisted service proactively and when needed, rather than forcing them to engage in a specific way. The banks that fail to provide this level of simplicity and consistency may encounter displeased customers exhausted by linear chat bots.

Finally, customers may assume organisations are up to speed with the latest technologies and have developed an appetite for best-of-breed products and services. With the bar set high by tech-savvy consumers and easy access to technology options, banks are faced with the challenge of combining what they sell with a compelling experience.

This evolution in customer behaviours and expectations has led many banks—including some of the world’s most prominent brands—to implement new strategies that will leave a good impression, and these strategies all hinge on making it easier to interact with them. After all, research from Davies Hickman Partners, conducted for Avaya, found 63 per cent of consumers around the world indicated that convenience is more important than price. The same study, titled SuperServe, indicated that 79 per cent want an immediate response when they contact a large organisation.

IN THE DIGITAL ERA OF CONVENIENCE, INSTANT GRATIFICATION IS ASSUMED, AND NOT A PRIVILEGE. — Giselle Bou Ghanem

So how can you simplify? Based on our discussions with banks around the world, the correct dose of each of the below ingredients is essential for a simple customer experience: Products and services: It all starts with the product and service. Organisations at the forefront of their respective industries have invested in not only pushing out new products, but ensuring those products and services are both customised and easy-to-use. As a result, they have established a value proposition that aligns to existing expectations and predicts future demands. Those organisations have secured their customers’ loyalty and earned themselves a sustainable customer engagement model.

Back-office and processes: When we engage with organisations to map a CX vision, we often find the backoffice operation is overlooked—almost neglected—as all eyes focus on the customer only. This can be detrimental because back-offices, and the processes that keep them ticking, are key in ensuring simple customer engagements.

Any back-office should be digitallystreamlined and automated. As the digital economy continues to unravel, organisations need to evaluate how they can incorporate robotic process automation to alleviate agents of repetitive and menial t asks, and consequently accelerate handling times.

These processes must be coupled with

case management to queue efficiently, distribute smartly and report on backoffice service levels.

The agent and supervisor: Another critical component of a simplified CX strategy involves agent and supervisor augmentation, alongside instant access to contextual information. Organisations need to establish a unified workspace in which agents have real-time access to the customer context, including historical information, product knowledge and next-step suggestions. Once agents are equipped to manage the behaviours of today’s customers, resolutions will occur much faster.

The customer journey: How often do you put yourself in your customers’ shoes and test the journey you have designed for them? Is it solving their issues and providing the required support at right time? There are two fundamental principles that underpin a simple customer journey: The first involves building a journey that drives measurable problem solving and/or business outcomes, and the second involves finding the right balance between automation and assisted services, and intelligently adding a human touchpoint to the journey.

The technology: While this point is assumed—after all, the global economy inherently relies on technology in this era—simplifying CX relies on empowering the technology arm of an organisation to cater to the agile business.

We’ve helped many banks and other organisations across the world develop best practises for customer journeys and maximise long-term loyalty. Although each organisation is at a different stage of its CX transformation, simplicity underpins many of our conversations and we recognise distinct use cases for the above five factors.

After all, in the words of the late Steve Jobs, “Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”

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TECHNOLOGY

HOW DIGITAL TRANSFORMATION IS DRIVING THE FINANCE SECTOR Successful digital transformation depends on the connectivity of agile and scalable networks, Azz-Eddine Mansouri, General Manager at Ciena Middle East, tells us why

Azz-Eddine Mansouri

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he recent growth of ‘neo-banks’ offering online-only services has significantly impacted the finance industry. More traditional high street banks are under tremendous pressure to attract and retain enterprise, business and retail customers, and in order to remain competitive, these financial institutions are addressing the fintech challenges by opening up their systems with application programming interfaces (APIs) to allow authorised access into their banking services— levelling the playing field.

However, financial institutions need to take into consideration the underlying network, to ensure the success of digital transformation services.

The disruptive technologies currently deployed by banks require a flexible n e t wo r k t h a t p r ov i d e s s c a l a b l e ,

IT IS IMPERATIVE THAT FINANCIAL INSTITUTIONS ESTABLISH A STRATEGY FOR TRANSFORMATION THAT CONSIDERS THE NEEDS OF THE CLIENTS—NOT LIMITED BY THE OBSTACLES CREATED BY THE INHERITED NETWORKS.

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TECHNOLOGY

low latency and secure connectivity to data centres and the cloud. The advancement of scalable, programmable networks brings both the promise of rich applications and ever-improving economics, but also the need for ongoing development to ensure networks are increasingly trusted, reliable, and secure.

Many fintech applications, such as bitcoin and blockchain technologies, require connectivity, and many distributed financial transactions today require data for common practices including authentication, authorisation, and accounting, that reside across multiple data centres. From a security perspective, there are always security threats that have the potential to disrupt a banking system through a DOS attack on the network.

With surging network traffic posing as a consistent threat to the security of the network, a reliable and efficient network is critical to a business’ longevity.

With the right network capabilities, financial institutions can deploy emerging fintech applications more efficiently and accelerate open banking platforms that improve customer services and loan decisions. Banks that have powerful and flexible networks are already launching AI assistants for their clients in order to improve their experiences. Additionally, other banks are connecting big data

The UAE has the highest number of fintech start-ups in the region with a total of

67 companies 44 start-ups 30 each followed by Turkey with

and Jordan and Lebanon with

Source: Bloomberg Intelligence

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BANKS THAT HAVE POWERFUL AND FLEXIBLE NETWORKS ARE ALREADY LAUNCHING AI ASSISTANTS FOR THEIR CLIENTS IN ORDER TO IMPROVE THEIR EXPERIENCES. ADDITIONALLY, OTHER BANKS ARE CONNECTING BIG DATA ANALYTIC SOLUTIONS, BLOCKCHAIN AND ROBOTIC PROCESS AUTOMATION (RPA) IN THE CLOUD TO ACCELERATE CUSTOMER SERVICES, MAKE BETTER LENDING DECISIONS, AND IMPROVE OPERATIONAL EFFICIENCIES. — Azz-Eddine Mansouri, General Manager, Ciena Middle East

analytic solutions, blockchain and robotic process automation (RPA) in the cloud to accelerate customer services, make better lending decisions, and improve operational efficiencies.

Middle Eastern countries are at the forefront of the adoption of fintech as one of its main drivers is the overall customer preference for digital banking, according to an S&P report. More specifically, according to Bloomberg Intelligence, the UAE is the country with the highest number of fintech start-ups in the region (a total of 67), followed by Turkey with 44 start-ups and Jordan and Lebanon with 30 each.

ADAPTIVE NETWORK AS A SOLUTION

As digital transformation depends on the connectivity of agile and scalable networks, legacy infrastructures are beginning to curb enterprises. Most inherited networks are usually slow, complex and inflexible,

making it almost impossible to adopt new technologies that are scalable and provide the services and experience differentiators that customers want.

There are also questions about the reliability and performance of cloud-based services. If an inherited network cannot respond fast enough to application bandwidth demands or recover from performance degradation or a service outage, the ability to adopt cloud services may be limited.

In addition to these challenges, many inherited networks are very inflexible.

Implementing changes requires long, manual interventions that often take weeks or months to complete, delaying the release of new differentiated services for customers.

It is imperative that financial institutions establish a strategy for transformation that considers the needs of the clients— not limited by the obstacles created by the inherited networks.

For banks managing their networks or banks using managed services providers, it is important to guarantee that their connectivity solutions are based on a programmable infrastructure that can adapt to support the new technologies implemented in their private cloud or data centre. Having an adaptive network that connects, senses and acts in order to quickly adjust to meet changing application demands and host new digital banking services, is imperative to improve customer experiences.

It is undeniable that the financial services industry is undergoing the most radical change they’ve experienced in over 100 years as the digital disruption of the industry accelerates. In order to keep the pace and ensure success in their digital transformation journey, it is crucial that companies have a network that can adapt to ever-changing requirements, by combining programmable infrastructure, a n a l y t i c s , s o ft w a r e c o n t r o l a n d automation to make network complexity and demand manageable.

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