NOVEMBER 2019 | ISSUE 224 MIDDLE EAST
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SERVING THE BANKING INDUSTRY EMBRACING THE NEW DAWN IN SAUDI ARABIA Steve Bertamini, CEO, Al Rajhi Bank Dubai Technology and Media Free Zone Authority
EMBRACING THE NEW DAWN IN SAUDI ARABIA
Steve Bertamini, CEO, Al Rajhi Bank A CPI Financial Publication
SPECIAL REPORT: CULTURE TRANSFORMATION
34 Noor Bank's culture factor | 40 Everything comes from the top
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INVESTMENTS 54 ISLAMIC FINANCE 69 TECHNOLOGY 52 Rethinking wealth A 40-year legacy A 360-degree view
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AN AWARD-WINNING REGIONAL BANK
Simpler Banking
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EDITOR'S NOTE
T Nabilah Annuar Editor, Banker Middle East
he atmosphere at the IMF/World Bank Annual Meetings in Washington was rather gloomy. Speaking to several chief executives from the region who attended the event, many have conveyed genuine concerns for the challenging macroeconomic landscape—a broader global economic slowdown, structurally lower oil prices and heightened geopolitical tensions that have not shown any concrete signs of recovery. In the MENA region, governments and economies continue to navigate through these challenging times. Encouraging investor sentiment continue to bode well for emerging markets. Pricing for deals have become more attractive and the wave of consolidation across the GCC demonstrate signs of a maturing market. According to a quarterly review from MUFG Bank, the outlook on MENA for the last quarter of 2019 continue to be tainted by global economic uncertainty, weaker external demand, ongoing oil market volatility and geopolitical uncertainty. Although several countries in the region have gone up in the World Bank’s ease of doing business index, because the challenges facing MENA economies are structural and not cyclical, economic growth for the region is projected to remain subdued in the last quarter of 2019. Lower oil production, slowing global growth backdrop and weaker oil prices continue to take a toll on economic progress. Governments that are executing their reform agendas, will slowly but surely make headway. From governments to corporates, everyone is adapting to change. This issue of Banker Middle East provides a thorough examination of how external factors such as lower oil prices and technology have impacted banks, their respective financial markets and economies. Our cover story with Steve Bertamini discusses the Al Rajhi's initiatives in aligning itself to Saudi Arabia’s Vision 2030 (page 18). Venturing to the north, our country focus for the month is Egypt (page 26)—here we explore how the government has implemented difficult but necessary reforms, and how this has garnered positive sentiment from the global investor community. We also provide you with an extensive discussion on debt capital markets both in terms of pricing as well as opportunities for both conventional and Islamic bonds (pages 46-51). In this issue we also have a special report on culture transformation—something that is always talked about at the board level and in management meetings, but hardly ever carried out successfully. One bank however has managed to pull this off—in an exclusive, Noor Bank shares their culture transformation journey, how they started, what changes they have made, the challenges they’ve encountered and how it has driven the bank’s performance over the last few quarters (pages 34-42). Covering a lot of ground in this issue, we hope you have a fulfilling and productive read.
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CONTENTS NOVEMBER 2019 | ISSUE 224
ANALYSIS 8
GCC banks to maintain stable financial profiles in 2020
NEWS 10
News Highlights
THE MARKETS
18
14 What can we learn from 200 years of emerging market bond history?
COVER INTERVIEW 18
Embracing the new dawn in Saudi Arabia
COUNTRY FOCUS: EGYPT 26 Surviving a fiscal turbulence
SPECIAL REPORT: CULTURE TRANSFORMATION 34 Noor Bank’s culture factor 40 Everything comes from the top
CAPITAL MARKETS
46 Trapped in original sin 48 Women-empowering Sukuk: A noble goal 50 GCC deal pricing bode well for Sukuk issuers
INVESTMENTS
52 Rethinking wealth
ISLAMIC FINANCE 54 A 40-year legacy
CORPORATE BANKING
COVER INTERVIEW Embracing the new dawn in Saudi Arabia Steve Bertamini, CEO of Al Rajhi Bank
TRADE FINANCE
60 Ensuring a successful and accessible market
BRANDING AND MARKETING 64 Too good to be true?
14 4
58 Serving the international community
40
52
BANKER MIDDLE EAST | NOVEMBER 2019 | ISSUE 224
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For Forgenerations, generations, For Forbetter generations, generations, the the betterway wayto tobank. bank. the thebetter betterway wayto tobank. bank.
Over Over 40 years ago, ago, Dubai Islamic BankBank pioneered a way of banking that was truly better: 40 years Dubai Islamic pioneered a way of banking that was truly better: Islamic banking. SinceSince then,then, many generations of customers continue to enjoy world class Islamic banking. many generations of customers continue to enjoy world class products and services backed by the very latest in banking technology. For them as forfor products andago, services backed by the very latest technology. For them as Over Over 40 40 years years ago, Dubai Dubai Islamic Islamic Bank Bank pioneered pioneered ainway a banking way ofof banking banking that that was was truly truly better: better: you,Islamic this isthis still way tomany bank. you, isthe stillbetter the better way togenerations bank. Islamic banking. banking. Since Since then, then, many generations ofof customers customers continue continue toto enjoy enjoy world world class class products products and and services services backed backed byby the the very very latest latest inin banking banking technology. technology. For For them them asas forfor you, you, this this is is still still the the better better way way toto bank. bank.
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CONTENTS NOVEMBER 2019 | ISSUE 224
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ANALYSIS
Banks across the region are also increasing their international foray, reducing a glut of banks through a wave of synergies as well as digitalising their products and services to enhance customer experience.
PHOTO CREDIT: Husni Tawily/Shutterstock
GCC banks to maintain stable financial profiles in 2020 GCC countries’ growth is likely to be constrained by a broader global slowdown, regional geopolitical tensions and diplomacy fallouts as well as the ongoing US-China trade tension and the slump in global oil prices
A
ccording to the World Bank, growth across the Gulf region is expected to increase from two per cent last year to 2.1 per cent in 2019, before accelerating to 3.2 per cent in 2020 owing to the ongoing reforms which are meant to improve the business environment in the region.
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The GCC, home to some of the fastest-growing economies in the emerging markets, is seeing increased investment in the financial sector as banks seek to diversify their risk profiles and strengthen capital generation through earnings. Additionally, banks across the region are also increasing their international foray, reducing a glut of banks through a
BANKER MIDDLE EAST | NOVEMBER 2019 | ISSUE 224
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wave of synergies as well as digitalising of their products and services to enhance customer experience. However, banks in the Middle East do not operate independently of their environments which pose severe threats to their businesses. S&P Global expects GCC economies to show modestly stronger economic growth in 2020 after a dip this year following an aerial strike on some of the Kingdom’s largest oil facilities in September 2019. The drone attack on the Abqaiq processing plant and Khurais field temporarily reduced production by more than half. The growth in GCC countries will remain below than what was seen during the era of triple-digit oil prices, says the IMF. Growth is also likely to be constrained by a broader global slowdown, regional geopolitical tensions and diplomacy fallouts as well as the ongoing US-China trade tension and the slump in global oil prices. S&P expects net lending expansion to remain flat in the midsingle digits on average and the cost of risk to stabilise at around one per cent of total loans, due to the stronger buffer of provisions that GCC banks accumulated over the past few years and linked to International Financial Reporting Standards (IFRS 9). Banks took the opportunity of the transition to IFRS 9 in 2018 to recognise the effect of the softer economic cycle on their asset quality indicators in a relatively conservative manner, therefore, the amount of problematic assets, which is defined as IFRS9 Stage 2 and 3 loans is expected to remain stable. S&P said that GCC banks’ profitability will deteriorate slightly or stabilise at best. Regional lenders’ profits will likely be affected by the shift in global monetary policy toward lower interest rates for longer. The Central Bank of the UAE and the Saudi Arabia Monetary Authority reduced their interest rates by a quarter percentage point after the Federal Reserve policymakers lowered their main interest rate for a second time in 2019 saying the move should be sufficient to sustain the US expansion. The Saudi riyal and the UAE’s dirham are pegged to the US dollar and the central banks in the respective countries follow the US Federal Reserve on interest rate moves. The global monetary policy trends have already triggered a closer look from GCC banks’ management toward operating costs, including through higher digitalisation and collaboration with fintech firms.
DIGITALISATION EFFORTS GCC banks are increasingly digitising their products and services as well as experimenting, invest and integrate with fintechs. Banks are leading or participating in several accelerators, incubators and training programmes to get early access to technology and talent.
GCC growth:
2% 2.1% 3.2%
in 2018, in 2019 and in 2020
“REGIONAL LENDERS’ PROFITS WILL LIKELY BE AFFECTED BY THE SHIFT IN GLOBAL MONETARY POLICY TOWARD LOWER INTEREST RATES FOR LONGER.” — S&P Global Ratings
In March 2019, Emirates NBD partnered with Dubai International Financial Centre FinTech Hive, to launch a new programme where they are certifying fintechs that collaborate, co-create and innovate using the bank’s API Sandbox. According to Moody’s, the UAE-based lender’s collaboration with fintech start-ups is credit positive because it will help the lender develop new digital products and services to meet evolving customer expectations, supporting the bank’s profitability. Emirates NBD and DIFC FinTech Hive certified five fintech start-ups in August 2019, including Monimove, Norbloc as well as Gamechanger, Leap FinTech and Bankbuddy, a chatbot for the financial industry, following their successful integration with the bank’s API Sandbox. Additionally, Emirates NBD together with family-owned Mashreq Bank, unveiled online banks for SMEs, entrepreneurs and start-ups as they invest in digital transformation and address challenges faced by new businesses. E20. is Emirates NBD’s second digital bank, following the success of Liv., the UAE’s first lifestyle-based digital bank for millennials and Gen-Z launched in 2017 while Mashreq’s NeoBiz is a business account version of Mashreq Neo, the digital bank it started in October 2017.
GCC M&A ACTIVITY Fitch Ratings said that given the overbanked nature of some GCC banking systems, further consolidation could help improve banks’ performance and financial stability hence a new wave of merger and acquisition (M&A) motivated by purely economic reasons could follow, but it may take longer to be realised. Similarly, S&P said that banks in the GCC continue to display strong capitalisation by global standards and the rating agency took a couple of positive rating actions because of upcoming mergers or our view of higher systemic importance. The Central Bank of Kuwait recently approved the proposed merger between Kuwait Financial House (KFH) and Bahrain’s Ahli United Bank (AUB). The consolidation is expected to create the largest banking entity in Kuwait with assets of around $94 billion and the sixth-largest bank in the Gulf region. In the UAE, Abu Dhabi Commercial Bank merged with Union National Bank and the combined entity acquired Al Hilal Bank, creating a banking group with AED 423 billion in assets in May 2019. Additionally, Dubai Islamic Bank (DIB) and Noor Bank are also exploring the possibility of a merger, which is expected to create a Shari’ah compliant lender with AED 277 billion ($75 billion) in assets. The Investment Corporation of Dubai is the largest shareholder in DIB with a 28 per cent stake and it is also one of the biggest investors in Noor Bank. Similarly, in Saudi Arabia, National Commercial Bank is in the process of merging with Riyad Bank to create the Gulf’s third-largest lender with $193 billion in assets. Consolidation can help banks to develop their franchises, diversify their risk profiles and strengthen capital generation through earnings.
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NEWS HIGHLIGHTS
Mashreq appoints Abdul Aziz Al Ghurair as the new chairman Dubai’s Mashreq Bank has appointed HE Abdul Aziz Al Ghurair as the new Chairman of the Board of Directors. The bank’s founder and chairman, Abdullah Ahmed Al Ghurair, steps down after serving 23 years. He will continue to be a board member. Under the leadership of Abdul Aziz Al Ghurair, Mashreq has grown from a small local bank to a leading customer-centric financial institution in the region known for its innovative products and services. In a statement, Mashreq said that Abdul Aziz Al Ghurair, the former Chief Executive of the family-controlled lender, also relinquished his position as CEO after almost three decades in the role and he will be replaced by Ahmed Abdelaal. “We had planned this transition some time ago and Ahmed was brought onto the leadership team two years ago with that in mind and as the Chairman, I will continue to provide support and guidance to the leadership team,” said Abdul Aziz Al Ghurair, the new Chairman of Mashreq Bank.
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Lebanese central bank, lenders asked to fork out over $3 billion Lebanon’s central bank will slash $2.9 billion from the country’s local-currency interest payments and commercial lenders will pay a one-time tax under a government plan to wipe out the budget deficit almost entirely next year, reported Bloomberg. The measures are part of a sweeping and unprecedented attempt by the government to appease protesters who have been demanding its resignation The government will also impose a two per cent tax on banks’ revenue in 2019, which would amount to nearly LBP 600 billion ($397 million), said Adel Afiouni, the Minister of State for Information Technology. Additionally, ministers have also agreed to cut their own salaries by half and begin privatising the telecommunications sector. While the plan to slash debt costs may appease the protesters, many of whom accuse banks of profiting from the nation’s financial trouble, investors will be assessing the implications on Lebanon’s credit.
Oman’s Musandam Power Company plans to list 28 million shares Musandam Power Company (MPC) plans to list 40 per cent of its equity shares on Muscat Securities Market as stated in the Project Founders’ Agreement, according to Oman News Agency. The owner of independent power plant plans to offer 28 million shares in a price range of 260-325 baiza per share. The price range translates into an average dividend yield of 8.6 per cent to 10.7 per cent for IPO investors, the highest dividend yield offered across all power and water sector share sales in the last five years in the Sultanate. MPC’s IPO is going to be the first share sale in the country under the new guidelines introduced by the Capital Market Authority (CMA). The introduction of these new mechanisms is expected to provide more transparency and attract wider interest as well as participation in the share sale.
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Abu Dhabi’s Mubadala launches $250 million MENA tech investment vehicles Mubadala Investment Company has launched AED 918 million ($250 million) MENA-focused tech investment funds to support start-ups from the GCC as well as the entire Middle East region while empowering tech talent in the UAE and across the wider region. The investment vehicles will be managed by Mubadala Capital and the funds will be invested in start-ups as well as venture funds, enhancing Abu Dhabi’s status as a tech and innovation hub. The state investor stated that its new MENA tech funds will invest in companies and venture funds that help boost local tech incubator Hub71—which was launched earlier this year as part of a broader effort by the government to diversify the economy. The funds will include a AED 550 million ($150 million) ‘fund of funds’ programme, which will invest in funds that are committed to support Hub71 ecosystem. As part of this programme, Mubadala Capital stated that it will commit to San Francisco-based Data Collective Venture Capital (DCVC), Middle East Ventures Partners (MEVP) and Global Ventures as a part of its first funds cohort. Similarly, the investment programme will also include a further AED 367 million ($100 million) fund dedicated to direct investments in early-stage technology companies led by founders that are committed to be part of the Hub71 ecosystem. The fund aims to invest in a portfolio of 15 companies.
Central Bank of Kuwait approves KFH-AUB merger The Central Bank of Kuwait ‘conditionally’ approved the proposed merger between Kuwait Financial House (KFH) and Bahrain’s Ahli United Bank (AUB). The consolidation will create the largest banking entity in Kuwait with assets of about $94 billion and the sixth-largest bank in the Gulf region. In a bourse filing, KFH stated that it has received the approval of CBK to acquire 100 per cent of the capital shares of AUB and such approval shall be conditional upon fulfilling certain requirements by the central bank. KFH’s Board of Directors offered to acquire AUB in an all-share deal that is valued around $8.8 billion and the Kuwait-based lender plans to issue one share for every 2.326 shares of AUB—the banks’ advisers had recommended the same swap ratio. The KFH-AUB merger deal was formalised in January 2019 and is going to be the first major cross-border tie-up in the region in recent years.
Sharjah issues 10-year US-dollar denominated Sukuk Sharjah, the third-largest emirate in the UAE, is set to raise $750 million in a 10-year Sukuk, reported Reuters. The Emirate started marketing the notes at around 185 basis points over midswaps but increased demand meant it was able to tighten spreads to 155 basis points. The debt sale comes amid a flurry of US dollar-denominated debt issues across the Gulf region, as governments and companies take advantage of low global rates to raise cheap debt and attract yield-seeking buyers. Abu Dhabi issued $10 billion bonds in a three-part deal in its first international offering in two years as it takes advantage of relatively low borrowing costs in September 2019. Saudi Arabia is also considering selling a dollar-denominated Islamic bond as the Kingdom seeks to take advantage of lower borrowing costs. S&P Global said that bond and Sukuk issuance by corporate entities in the GCC is likely to increase in the remainder of 2019 after a slow start in the first quarter of 2019, due to volatility in the global capital market.
Saudi Aramco delays planned initial public offering Saudi Aramco’s stop-start initial public offering (IPO) has been delayed again just days before a planned launch as doubts re-emerged about the $2 trillion valuation placed on the state oil giant by Crown Prince Mohammed bin Salman, reported Bloomberg. The Kingdom seemed determined to press on with an accelerated schedule even in the face of potential headwinds such as weak oil prices, a slowing world economy and last month’s attack on the company’s biggest processing plant. The postponement, by at least a few weeks, will allow the array of Wall Street bankers advising the state-owned oil company to incorporate third-quarter results into their pre-IPO assessments of the company. The banks are still struggling to meet the valuation the company is seeking. Saudi Aramco, which pumps about 10 per cent of the world’s crude oil, stated that the timing of the IPO will depend on market conditions and that it continues to engage with shareholders on activities related to the listing. Last year, Aramco delayed the IPO after more than two years of preparations as international investors baulked at the Crown Prince’s $2 trillion valuation.
Mubadala weighs debt issuance, plans to invest in Saudi Aramco The Group Chief Executive of Abu Dhabi’s Mubadala Investment Company said that the state investor is weighing debt issuance plans amid attractive market conditions and could invest in oil giant Saudi Aramco’s planned initial public offering (IPO). Khaldoon Khalifa al Mubarak, the Group Chief Executive of Mubadala added that the sovereign wealth fund exited its investment in US chipmaker Advanced Micro Devices in September 2019 after 12 years, having made $4.25 billion on its initial investment of $770 million. Saudi Aramco postponed plans to float a one-two per cent stake on Tadawul before a possible international listing, launching an initiative that is central to Crown Prince Mohammed bin Salman’s economic diversification drive. The sovereign wealth fund is also considering to list Emirates Global Aluminium (EGA) but Mubarak cautioned that this is not the best time for an exit from EGA given a correction in aluminium prices. The Gulf region has seen a flurry of international debt issuance as governments and companies take advantage of low global rates to attract yield-seeking investors and raise debt cheaply, reported Reuters.
Etihad, Air Arabia partner to launch Abu Dhabi’s first lowcost carrier UAE’s Etihad Aviation Group partnered with Sharjah-based Air Arabia to launch ‘Air Arabia Abu Dhabi’, the capital’s first low-cost carrier. Etihad and Air Arabia will establish an independent joint venture company that will operate as a low-cost passenger airline with its hub in Abu Dhabi International Airport. Tony Douglas, Etihad’s Group Chief Executive Officer, said, “We look forward to the launch of the new airline in due course.” Based in Abu Dhabi, the new airliner will adopt the low-cost business model and its board of directors, consisting of members nominated by Etihad and Air Arabia, will steer the company’s independent strategy and business mandate. “The partnership with Air Arabia supports our transformation programme and will offer our guests a new option for low-cost travel to and from Abu Dhabi, supplementing our own services,” said Douglas.
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NEWS HIGHLIGHTS
Dubai’s Emirates NBD mulls AED 6.45 billion rights share sale Dubai-based Emirates NBD is seeking to raise AED 6.45 billion from a rights share offering as it expands abroad and courts more foreigners to its stock. Last year, the lender proposed selling new shares to help fund the acquisition of Turkey’s Denizbank. Emirates NBD stated that the statecontrolled bank plans to offer 758.8 million shares at AED 8.5 each and the issue opens on 10 November and will close on 20 November 2019. The bank plans to use the proceeds of the sale to strengthen its capital base and support growth. Lenders across the GCC are trying to broaden the base of their investors as a combination of low oil prices, slowing economic growth and geopolitical upheavals drain inflows. Additionally, Emirates NBD last month raised the cap on foreign ownership holding in its shares to 20 per cent from five per cent with plans to seek shareholders’ approval to double the new limit. The lender also raised GBP 305 million ($373 million) from the sale of a stake in London-listed Network International Holdings.
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Carlyle completes acquisition of minority stake in Mubadala’s Cepsa Egypt says IMF keen on new programme to ‘preserve’ economic gains Egypt said that the International Monetary Fund (IMF) is interested in starting a new programme to preserve the success achieved by its $12 billion loan agreement, reported Bloomberg. The Prime Minister’s office stated that while lauding Egypt’s efforts over the past three years, the IMF’s new Managing Director said that the fund needed to make a greater effort in developing the country’s human capital. In a meeting with Prime Minister Mostafa Madbouly, Kristalina Georgieva, the IMF Managing Director stressed the fund’s desire to start a strong cooperation programme with Egypt in the coming period, in order to preserve the achievements realised under the reform programme and to aid with efforts” to boost structural changes. The IMF programme is credited with helping restore investor confidence in the most populous Arab country, though critics say austerity measures to repair public finances have led to rising poverty rates.
Abu Dhabi’s Mubadala Investment Company and The Carlyle Group completed the acquisition of a 37 per cent stake in Spanish oil and gas company Cepsa in a $3.6 billion deal. Mubadala stated that the composition of Cepsa’s Board of Directors reflects the new shareholding, with the Abu Dhabi sovereign wealth fund entitled to appoint five members to the board, including its chairman, while The Carlyle Group is entitled to appoint three members. Additionally, Carlyle and Mubadala have appointed Philippe Boisseau as the new CEO of Cepsa to succeed Pedro Miro, who will be retiring. Mubadala will remain the majority shareholder in Cepsa, holding the remaining 63 per cent. The acquisition marks the conclusion of a dual-track process through a public offering and private placement, conducted by Mubadala to bring in new partners as part of its portfolio management strategy. Last year, the state investor shelved plans for an initial public offering (IPO) of a 25 per cent stake in Spanish refiner as investors balked at the valuation amid a stock market collapse.
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DIFC records a 45 per cent increase in Islamic assets in one year
IMF slashes Saudi Arabia’s 2019 growth forecast to 0.2 per cent
Turkey’s Halkbank faces US charges as tensions mount
The Dubai International Financial Centre (DIFC) recorded a solid growth of 45 per cent increase in Islamic assets being managed in the financial hub between Q2 2018 and Q2 2019. The global financial centre supports over 40 firms that provide Shari’ahcompliant products and services in reaching a Muslim population of over 600 million in the MENA region alone. DIFC stated that Islamic finance is growing at 1.5 times the rate of traditional finance and the MEASA region continues to be a steady driver of this industry owing to several jumbo Sukuk issuances and almost $1 trillion in financial assets across GCC countries. Dubai remains one of the world’s largest centres for Sukuk listings by value at $62 billion, with DIFC-based Nasdaq Dubai at $60 billion, added DIFC. The DIFC’s robust legal and regulatory environment, as well as its developed and dynamic financial ecosystem, attracts major Islamic institutions such as Maybank Islamic to establish their regional headquarters in Dubai. Additionally, the financial centre has also become the preferred home for emerging Islamic fintech firms, contributing to the UAE’s position as the fourth largest Islamic fintech hub in the world.
The International Monetary Fund (IMF), which just lowered its 2019 global growth forecast for a fifth straight time, expects Saudi Arabia’s economy to grow 0.2 per cent this year, down from an earlier estimate of 1.9 per cent, owing to oil output cuts. The IMF stated that “While non-oil growth is expected to strengthen in 2019 on higher government spending and confidence, oil GDP in Saudi Arabia is projected to decline against the backdrop of the extension of the Organisation of Petroleum Exporting Countries and their allies (OPEC+) agreement and a generally weak global oil market.” Despite an acceleration in non-oil growth this year to the fastest since 2015, output curbs negotiated by OPEC are increasingly a drag on an economy where the energy sector accounts for about 50 per cent of GDP. Additionally, the attack on Saudi oil infrastructure last month also put the spotlight on risks ahead. The Washington-based fund also projected a more modest pick-up next year, with a gain of 2.2 per cent while growth in the non-oil sector is expected to be 2.9 per cent this year. In 2017, the Kingdom’s economy shrank for the first time since the global financial crisis almost a decade earlier, but last year, it grew 2.2 per cent, boosted by a strong oil sector.
The US brought a criminal case against one of Turkey’s largest banks for aiding a scheme to evade sanctions against Iran, a move that carries political implications and may complicate tension between NATO allies Washington and Ankara, reported Bloomberg. US prosecutors accused state-owned Halkbank of participating in a wide-ranging plot to violate prohibitions on Iran’s access to the US financial system, the conspiracy is said to be involving high-ranking government officials in Iran and Turkey. The charges unsealed in federal court in Manhattan reflect those against one of Halkbank’s former executives, Mehmet Hakan Atilla, who was found guilty and sentenced to prison after a trial in the same court last year. Geoffrey Berman, US Attorney, said, “Halkbank’s systemic participation in the illicit movement of billions of dollars’ worth of Iranian oil revenue was designed and executed by senior bank officials.” The bank is now expected to answer for its conduct in an American court. Two people, including a senior Halkbank executive, were previously convicted in the case, which led to the airing in a Manhattan courtroom of many of Halkbank’s activities. The late-2017 trial sparked vehement protests from Erdogan, who accused US officials of trying to harm his country’s national and economic interests.
Sovereign Ratings as of 1 November 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 4 Iraq 5 Jordan 6 Kuwait 7 Lebanon 8 Morocco 9 Oman 10 Qatar 11 Saudi Arabia 12 Abu Dhabi 13 Ras Al Khaimah 14 Sharjah
B/Stable/B B-/Stable/B B+/Stable/B AA/Stable/A-1+ B-/Credit Watch Negative/B BBB-/Negative/A-3 (BB/Negative/B) AA-/Stable/A-1+ A-/Stable/A-2 AA/Stable/A-1+ A/Stable/A-1 BBB+/Stable/A-2
12-May-2018 03-Sep-2015 20-Oct-2017 20-Jul-2011 25-Oct-2019 06-Oct-2018 11-Oct-2017 08-Dec-2018 17-Feb-2016 02-Jul-2007 05-Dec-2018 27-Jan-2017
Copyright © 2019 S&P Global Ratings. All rights reserved.
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MARKETS
What can we learn from 200 years of emerging market bond history? Alejo Czerwonko, Emerging Markets Strategist at UBS Global Wealth Management, elucidates
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e have argued for some time that emerging market (EM) hard-currency bonds, particularly those issued by sovereigns, have been one of the best performing fixed income asset classes globally over the last 15 years. In past work we showed that the asset class has exhibited an information ratio (annualised returns divided by annualised volatility) of close to one over this time horizon, outperforming many comparable developed market fixed income segments in terms of both total and riskadjusted returns. A fascinating recent paper by The National Bureau of Economic Research titled Sovereign Bonds since Waterloo by Josefin Meyer, Carmen M. Reinhart, and Christoph Trebesch, has taken the historical analysis of the asset class’s performance a whopping 185 years further back. The authors built a time series of monthly prices for 1,400 emerging market foreign-currency bonds since the battle of Waterloo in 1815, spanning 91 countries—a database of more than 200,000 observations. The authors conclude that notwithstanding defaults, wars, and global crises, the average real yearly return on a global portfolio of hard-currency emerging market sovereign bonds was 6.8 per cent over the entire sample, about four per cent higher than that of “risk-free” benchmark government
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Alejo Czerwonko
BANKER MIDDLE EAST | NOVEMBER 2019 | ISSUE 224
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MARKETS
ASSET CLASSES ACROSS 200 YEARS: RISK AND RETURN Panel A: Full sample, 1815-2016 Returns Return, yearly average, real, in %
0.5 8
Sharpe Ratio
0.4
Sharpe Ratio
0.3 6 0.2
Sov. bonds
0.1
4
0.0 2
-0.1 -0.2
0
-0.3 -2
Corporate bonds (US, S&P index, since 1900)
"Risk-free" gov. bonds (UK/US)
UK equities (FTSE)
Sovereign bonds (in USD or GBP, global portfolio)
US equities (S&P 500)
-0.4
Return (real, yearly average; left axis) Sharpe ratio (excess return/SD; right axis) Source: Sovereign Bonds since Waterloo by Josefin Meyer, Carmen M. Reinhart, Christoph Trebesch, February 2019.
“DEFAULTS OF EM SOVEREIGNS HAVE BEEN A COMMON OCCURRENCE IN THE PAST AND WILL ALMOST CERTAINLY CONTINUE TO OCCUR IN THE FUTURE, BUT THAT IT’S IMPORTANT TO SEPARATE THE INDIVIDUAL STORIES FROM THE ASSET CLASS AS A WHOLE.” — Alejo Czerwonko, Emerging Markets Strategist, UBS Global Wealth Management
bonds of the UK or the US. The lion’s share of those returns is explained by coupon payments (70 per cent) rather than by price changes (30 per cent). Such diversified exposure to hard currency emerging market sovereign bonds has shown favourable risk-return properties compared to other assets during in the last 200 years. Only US equities show a higher average return, but these also have a higher standard deviation.
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In our recent report, Thinking Strategically About Emerging Markets, we demonstrated that—in addition to possessing desirable stand-alone risk-return properties— US dollar-denominated bonds in emerging markets have historically added great diversification benefits to global portfolios, leading to improved risk-adjusted returns of the overall portfolio. We have also argued that defaults of EM sovereigns have been a common occurrence in the past and will almost certainly continue to occur in the future, but that it’s important to separate the individual stories from the asset class as a whole. Interestingly, The National Bureau of Economic Research’s paper also conducts a census of all distressed sovereign debt restructurings since 1815. Their sample includes a total of 313 external sovereign debt restructurings in the last 200 years. As painful as many of these credit events have been, the authors argue that investors have been compensated for the risks involved. Looking at the behaviour of a group of 60 ‘serial defaulters’, they conclude bonds from these issuers provided on aggregate significantly higher returns compared to UK or US government bonds as well as in comparison to emerging market countries that have never defaulted, in addition of course to a higher standard deviation of returns. All in all, we conclude that 200 years of EM bond history support the thesis that emerging market US dollardenominated bonds can play an important role in a globally diversified portfolio.
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COVER INTERVIEW
Steve Bertamini
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BANKER MIDDLE EAST | NOVEMBER 2019 | ISSUE 224
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Embracing the new dawn in Saudi Arabia In his fourth year at the helm, Steve Bertamini, CEO of Al Rajhi Bank, sits down with Banker Middle East, to share his views on the performance of the largest Shari’ah-compliant lender in the world, as well as his vision of how banking would look like in the future
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hat keeps you up at night?
PHOTO CREDIT: Florante Magsakay/CPI Financial
It’s all about managing change—thinking about the current situation and how things are moving very quickly, sometimes it’s difficult to determine if the path you have chosen or the technology you have adopted is the correct one. In this regard, we are moving to an open architecture view. For instance, we now have 80 per cent of our applications API-enabled which makes it easier for us to not only work with other partners such fintech players but also to deploy new digital capabilities much faster. Open architecture is the way to go in this fast-evolving world, which I think its important especially in retail banking. This is because customers today expect banks to act and have an experience like that they are used to, when using Amazon, Google and Apple. If you do not provide them with such an experience they will switch to other providers.
Al Rajhi posted a 16 per cent increase in profit in the first half of 2019, an increase compared to the same period in 2018. What was this profit attributed to and how do you expect to finish the year? First of all, one of the main drivers of Al Rajhi’s growth during the first half of the year was an increase in customers purchasing homes, as the largest financier of mortgages in the country the bank recorded a 39 per cent year-on-year growth in the first half (H1) of 2019 compared to H1 2018. Since there is an excess in demand compared to supply, as more supply comes online, we expect to continue to see this growth for the next two to three years.
We also saw very strong growth in current accounts as well as faster growth in corporate lending.
As the largest Islamic lender in the world, what are your expansion plans both domestically and in international markets? We are very much focused on domestic growth. We believe that there is still a lot of potential for growth in Saudi Arabia, on the back of the Kingdom’s Vision 2030, a transformation plan announced in 2016. We are currently beginning to see a pickup in activity especially in the last few months where large projects are being awarded, with more upcoming opportunities.
“THE BANK CURRENTLY HAS NO PLANS TO ACQUIRE. THERE IS A STRONG ORGANIC GROWTH OPPORTUNITY FOR THE BANK BUT IT’S NOT UNUSUAL TO SEE MERGERS OCCUR IN THESE MARKETS.” — Steve Bertamini
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PHOTO CREDIT: Florante Magsakay/CPI Financial
COVER INTERVIEW
Al Rajhi is proud to be the first Saudi Arabian company to issue an ESG Report, which is a new global trend being focused on by foreign investors who are interested in investing in the Kingdom, following the MSCI inclusion.
“IT’S ALL ABOUT MANAGING CHANGE— THINKING ABOUT THE CURRENT SITUATION AND HOW THINGS ARE MOVING VERY QUICKLY, SOMETIMES IT’S DIFFICULT TO DETERMINE IF THE PATH YOU HAVE CHOSEN OR THE TECHNOLOGY YOU HAVE ADOPTED IS THE CORRECT ONE. ” — Steve Bertamini, CEO, Al Rajhi Bank
What is Al Rajhi Bank doing to align itself with Vision 2030? There are very few sectors that we are focused on and one of them is housing. As you know, one of Vision 2030’s objective is to have 70 per cent of the population owning homes in the country. Since then, we have seen a strong growth—we saw this number exceed 50 per cent in 2018. Similarly, there is also a big interest in developing the SME sector—a sector which is very important in generating employment in the country—as well as some major projects that were announced in the country including new industries being established such as tourism and entertainment. These sectors provide a good opportunity for the bank to participate in Vision 2030.
When you mentioned new industries, is this what the bank wants to tap into in terms of financing? Absolutely! Tourism and entertainment are the main areas where there are a lot of employees as well as a lot of customers. Having the largest retail franchise in Saudi Arabia, this will play to the bank’s strength as Al Rajhi is able to provide a broader range of solutions to the client, their employees as well as customers.
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Other areas of increasing activity and interest are in renewables, education and healthcare.
A number of mergers are currently underway Saudi Arabia as well as across the region. Does Al Rajhi have any acquisition plans? The bank currently has no plans to acquire. There is a strong organic growth opportunity for the bank but it’s not unusual to see mergers occur in these markets. A lot of internal activity is required, particularly when you have large mergers. For example, in the first 18 to 24 months of a merger, a lot of time is spent internally rationalising the branch infrastructure aligning procedures, systems and policies. For Al Rajhi, in the short term there are none of these distractions, but there is still opportunity in the market and over time we will see how things play out.
Do you see this trend picking up pace for the next year or so? There has been one merger completed and another one announced, I do not expect a lot of merger activity in Saudi Arabia in the near term. But as you know, there has been a lot of M&A activity across the Gulf, and I expect that to continue. This is primarily driven by the fact that banking is a scale business and the larger scale you have the easier it is for the bank to compete. While I expect the trend to continue in the region, there is also a need for time to digest the recently announced acquisition in the Kingdom.
Al Rahji launched the Al Mubasher app for its retail customers what is the next step from here? The app has been extremely successful. Al Mubasher is the most downloaded application and highest rated application in Saudi Arabia. Over the last 12 months the bank has been adding over a hundred thousand digitally active customers a month. Al Rajhi also recently enabled customers to be
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COVER INTERVIEW
“I DO NOT EXPECT A LOT OF MERGER ACTIVITY IN SAUDI ARABIA IN THE NEAR TERM. BUT AS YOU KNOW, THERE HAS BEEN A LOT OF M&A ACTIVITY ACROSS THE GULF, AND I EXPECT THAT TO CONTINUE.” — Steve Bertamini, CEO, Al Rajhi Bank
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We also recently launched an innovation lab that is utilizing the latest tools, including eye-tracking technology, with various focus groups to ensure that whenever Al Rajhi launches something, it will be successful. The bank will continue taking feedback to further enhance the application from time to time in terms of both features and usability.
How do you view digitalisation? Digitalisation has three distinctive phases. Phase one is when you digitalise your transactions—so the bank makes it easy for customers to do the transactions they would normally do in a branch such as transferring money, checking balances and making bill payments. The second phase is the digitalisation of products—at this stage the bank is digitalising products so that customers do not need to walk into the bank to get those products. The third and final stage which Al Rahji has started working on as well, is called ecosystems. At this stage the bank provides a much broader solution not only for banking products but everything else around what the customer may need, such as purchasing a home. We help customers from selecting a home, to furnishing it, as well as the insurance and after-sale services. So, this is where the future is, and the bank has a clear road map on how to execute phase three.
Al Rajhi is in the phase of digitising their products to ensure a better customer service experience. The bank has also started building ecosystems and digital markets places.
PHOTO CREDIT: Florante Magsakay/CPI Financial
Talking about ecosystems, are there any plans in the pipeline to launch digital branches?
able to open current accounts online and we are seeing a year-on-year increase on new customers which are also of a younger age. Therefore, while digitalisation does replace regular openings, it also brings in new customers to the bank. Additionally, the bank also enabled the application to give customers the ability to apply for consumer financing and complete the transaction within the application itself. We plan to expand this functionality to the other products as well.
What differentiates Al Mubasher from what is currently being offered on the Saudi market? The main competitive advantage that any digital player has is customer experience. The bank invests in ensuring that it has the best customer experience by both designing internally, as well as by learning and leveraging from best practices across the world.
Effectively, the bank’s app is a digital branch. Over the last two years, all the new branches or upgrades we have done are more digital by nature—they have a larger digital footprint and more automated machines. We believe there is still a need for customers to visit bank branches physically for advisory services, especially for firsttime home buyers, who may want to talk to someone who has product knowledge. Additionally, as Saudi Arabia is relatively in the early stages of having—for instance, wealth development products and savings products—we think as demand for these products and services begins to increase, we will be able to leverage the branch infrastructures for these types of advisory services.
What sort of technology capabilities is Al Rajhi using? Al Rajhi was the first bank to conduct a blockchain transaction in the Kingdom with our subsidiary in Jordan as well as a correspondent bank in Kuwait. The bank is now expanding that to Egypt as well as India, and continues to do more transactions using blockchain technology between us and corresponding banks. The bank has also been active in robotics. Al Rajhi is one of the largest users of robotics in the Middle East, over two years now we have added over 250 bots, conducting around 24,000 transactions per day in 50 different financial and nonfinancial processes. Digitalisation allows the bank to have a very high level of service as customers increasingly demand and expect 24/7 ability to conduct their banking needs. We have started thinking of the next phase including using big data, AI and obviously 5G which is going to transform banking in terms of opportunities. Al Rajhi is taking a phased approach because sometimes it’s too early to introduce products and services to the market. Now we are in the phase of digitising our products to ensure that we have great customer service experience as we have started building ecosystems and digital markets places.
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PHOTO CREDIT: Florante Magsakay/CPI Financial
COVER INTERVIEW
Steve Bertamini, CEO of Al Rajhi Bank and Nabilah Annuar, Editor of Banker Middle East.
What is your area of focus for Al Rajhi next year? For the last twelve months, we have been working on our 2025 strategy. As you know we have our ‘ABCDE’ strategy in place since 2016, which has been a success and placed us in good stead. While the framework works, as we think about 2025 and given the conversation that we just had, things are moving at a faster pace especially in the digital space. So, the bank is weighing options on how it can reposition itself for 2025. We are going to take this to the board later this year and subsequently we will begin to communicate what we think will be most relevant for 2025. For now, the bank remains on track with our 2020 strategy.
How do you see banking changing for your customers in 2025? First, the app! I think everything will be handheld and wearable as we are already moving in that direction particularly with the demographics in Saudi Arabia—I expect this trend to accelerate and impact both corporates as well as SMEs. Additionally, there is a lot of automation that will continue to take place in the back office—robotics, chatbots, AI, etc.— all of which will allow you to process information and have better insights than you do today. Also, the workforce will change. Banks will have few tellers and more data engineers as well as people working on customer experience. Even for Al Rajhi today, the digital team has grown from four to five people a few years ago, to over 100 people. And we think this will continue to change as we digitalise the bank.
Tell us more about Al Rajhi’s CSR initiatives. CSR is something that Al Rajhi is proud of. We started it in 2016 and we hoped to achieve 50,000 volunteer hours by 2020—which seemed like a huge task when we started— but every year we have effectively doubled the number of
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volunteer hours. This year alone we have had over a hundred events in 20 different cities, with over a thousand staff contributing over 15 thousand hours already. The programmes were focused on financial literacy, helping the needy and improving the environment. We really give people the freedom and latitude to always find ways to help and contribute to their communities. Helping others by utilizing teamwork always make people feel better and frankly it is a big driver of employee engagement.
Considering micro- and macro-economic conditions, what kind of risks do you anticipate the business to face next year in Saudi Arabia and globally? One of the things that changed recently is pressure on rates, which tends to affect the banking industry as a whole. Al Rajhi is quite fortunate because the bank has a very strong current account deposit base. So, in some ways, we are insulated from that and also because our portfolio is largely retail, where most of our retail lending is on a fixed-term base. Additionally, there are always geopolitical issues and as a company you focus on what you can control by staying focused on executing your strategy as well astaking care of your staff and customers. Al Rajhi is proud to be the first Saudi Arabian company to issue an ESG Report, which is a new global trend being focused on by foreign investors who are interested in investing in the Kingdom, following the MSCI inclusion. The company seeks to remain active in engaging investors and increasing disclosure, which is positive for the industry. Investors increasingly want transparency, and this is something that as a company, shows we have good policies in place, that we are concerned about the environment and we are trying to do the right thing from our social perspective. Transparency makes people more comfortable to invest in the bank which is one of our goals as more foreign investors increase their presence in the Kingdom.
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COUNTRY FOCUS
A pedestrian checks a mobile device near market stalls in Cairo.
Surviving a fiscal turbulence The Egyptian government is leaving no stone unturned in boosting its finances and luring foreign investors who fled during the 2011 uprising
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2011 uprising partially ended when the Egyptian authorities secured a three-year, $12 billion Extended Fund Facility (EFF) from the International Monetary Fund (IMF). According to EY’s Economic Report 2019, the IMF bailout programme came with stringent conditions and to secure the deal, Egypt was forced to float its currency, introduce new taxes and slash energy subsidies—all of which sent inflation galloping above 30 per cent for most of 2017, a high that had not been seen in a generation. While the process required sacrifices in the short-term, the reforms were critical to stabilise the economy and lay the foundation for strong and sustainable growth to improve living standards for Egyptians. Similarly, the IMF stated that the economic reforms would help achieve more sustainable, inclusive and private sector-led growth which will help create jobs for youths while ensuring adequate resources are available for social protection.
REAPING THE BENEFITS
PHOTO CREDIT: Sima Diab/Bloomberg
The Egyptian economy is supported by the government’s ongoing efforts to improve the business operating environment,” said S&P. Cairo is emerging from a three-year IMF programme, which provided a $12 billion loan as the country endorsed sweeping and widely unpopular economic measures. The Washington-based fund stated that the completion of the review in July 2019 paved way for the last $2 billion
“EGYPT’S ECONOMIC REFORMS HAVE HELPED STRENGTHEN GROWTH, REDUCE UNEMPLOYMENT, INCREASE FOREIGN EXCHANGE RESERVES, AND PUT PUBLIC DEBT ON A DOWNWARD PATH.” — Fitch Ratings
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pproximately four years ago, Egypt’s economy was teetering on the edge as investors shunned the country and entrepreneurs scoured the black market for greenback. Now Egypt is being hailed as one of the region’s fastest-growing economies, favoured by international investors seeking high yields in an increasingly uncertain global environment. The ouster of Hosni Mubarak nine years ago destroyed Egypt’s economy, resulting in a 3.1 per cent decline in annual growth in 2011-16, from an average of 6.2 per cent in 2005-10. While the former Egyptian president is credited for reforms that spurred economic growth to highs of eight per cent, keeping the spoils among his own sparked a costly revolution and left a financial carnage whose stains are still noticeable in Egypt’s socio-economic fabric. The recent uprising against the government of President Abdel-Fattah El-Sisi was incited by a disgruntled building contractor who claimed—without providing evidence— that there is extensive corruption in the military and the government. The allegations came amidst economic reforms and austerity measures that are detested by adversely affected middle-class citizens. The economic woes that followed the
instalment, bringing total disbursements to $12 billion—the full amount approved in 2016 to aid the authorities’ economic reform programme. The country has since attracted tens of billions of dollars into its debt market and the central bank’s foreign reserves have surged to more than $44 billion. Additionally, Egypt’s macroeconomic situation has improved remarkably since 2016, supported by the government’s commitment towards the reform programme as well as decisive upfront policy actions. The critical macroeconomic reforms which were introduced to unlock billions in IMF funds successfully corrected the country’s large external and domestic imbalances. Egypt’s fiscal discipline caught the attention of the three main rating agencies—Fitch Ratings, Moody’s and S&P —who could not help but upgrade the country’s sovereign ratings as well as their outlooks, citing the country’s strong economic growth prospects following fiscal reforms. According to the African Development Bank, the reforms achieved macroeconomic stabilisation and recovery in growth and employment as well as putting public debt on a clearly declining trajectory.
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COUNTRY FOCUS
The IMF commended Egypt for achieving the 2018/19 primary surplus target of two per cent of GDP which helped to anchor a further decline in the public-debt-to-GDP ratio. The fund added that it will be important to maintain primary surpluses at this level over the medium term to keep public debt on a downward trajectory. The success of the government’s structural reforms enabled the modernisation of the economy which includes steps to support exports and reduce non-tariff barriers. Cairo also managed to streamline as well as enhance industrial land allocation process and support SMEs and strengthen public procurement. Despite uprisings which are being fuelled by allegations of graft and misuse of public funds, the government is making efforts to improve transparency and accountability of parastatals as well as eradicate graft. These reforms are vital to lure private investment which is essential to raise growth and make it more inclusive.
“DESPITE THE AUTHORITIES’ SUCCESS IN STABILISING THE MACRO-FISCAL ENVIRONMENT AS WELL AS STRENGTHENING CONFIDENCE IN THE ECONOMY, THE ADOPTED MEASURES CAME WITH ADVERSE SOCIOECONOMIC EFFECTS.” — World Bank
SOVEREIGN WEALTH FUND As part of structural reforms, the government launched its first sovereign wealth fund that is expected to become operational in the last quarter of this year, in a bid to support private investment. Modelled after sovereign wealth funds in Saudi Arabia, Kuwait and the UAE, Egypt’s new investment arm will seek to generate additional wealth from under-utilised state assets. According to the International Forum of Sovereign Wealth Funds (IFSWF), the Egypt Fund was created by Law No. 177/2018 and its mandate is to contribute to the sustainable economic development of Cairo by managing the country’s assets to maximise their value for future generations. Partnering with the private sector, the fund will seek to attract domestic and foreign investment as well as build on economic reforms which began in 2016 with the flotation of the currency. The EGP 200 billion Egyptian sovereign wealth fund is the latest government measure aimed at reviving growth and investment that faltered in the wake of the 2011 uprising, said the IFSWF. The sovereign wealth fund will start with paid-in capital of EGP 5 billion, 20 per cent of which will be injected by the Government when it is set up. The economic revival vehicle will partner with the private sector to invest in a wide range of assets, including land and buildings, as well as stakes in stateowned companies at market value. While the Government will wholly own the sovereign fund, the private sector will be allowed to buy stakes of over 50 per cent in sub-funds and affiliated companies. Private sector investors will also be able to invest in various financial instruments, stocks, bonds as well as other securities inside and outside Egypt.
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MAJORITY STAKE OFFERINGS IN PARASTATALS Egypt also plans to raise up to EGP 100 billion ($5.7 billion) by selling minority stakes in at least 20 state-owned enterprises on the stock market. The country’s public sector has long been criticised as bloated and inefficient; officials have struggled to push the firms toward profitability. The current programme marks a first step toward attempting to strike a balance between efficiency, profitability and raising revenue for the government. Cairo plans to offer minority stakes in Alexandria Mineral Oils Company, Eastern Tobacco, Alexandria Container as well as Cargo Handling, Abu Qir Fertilisers and Heliopolis Housing—the second phase of the listings was postponed last year due to unfavourable market conditions. Similarly, the Governor of the central bank said that stateowned lender, Banque du Caire, will offer a stake of its shares, ranging between 30 and 40 per cent, which is expected to garner between $300 million and $400 million. The Egyptian Ministry of Finance said that the initial public offering (IPO) is focused in areas such as petroleum services, chemicals, shipping as well as maritime and real estate to help boost state finances. In Q1 2019, the government appointed companies to manage the sale of stakes in 23 companies. In the first phase of the IPOs, the government offered investors the chance to acquire a majority stake in state-held Heliopolis Housing in July 2018. Additionally, there has been a lot of activity on the Egyptian Exchange (EGX) in the last nine months. Cairo for Investment and Real Estate Development (CIRA) announced its intention to offer up 37.8 per cent of the company’s outstanding share capital, representing 207 million ordinary shares currently owned by Social Impact Capital. Additionally, Egypt’s Fawry for Banking & Payment Technology Services—the first company to make its trading debut on EGX this year, raised around EGP 360 million ($22 million) in an over-subscribed private placement ahead of its IPO. Fawry’s listing in August 2019 was the first by a private owned firm since Sarwa Capital IPO in October 2018—as high-interest rates attract investors to fixed income rather than equities.
CITIZENSHIP BY INVESTMENT The Egyptian government is leaving no stone unturned in boosting its finances and luring foreign investors who fled during the 2011 uprising. In July 2018, Egyptian lawmakers passed the citizenship by investment law allowing the offering of citizenship to foreigners who deposit at least EGP 7 million ($392,000) in foreign currency, then hand it over to the treasury after five years. It is not immediately clear what economic benefits a foreigner would obtain by acquiring citizenship. Egypt places restrictions on foreign investment projects andforbids foreign ownership of agricultural land and property in the Sinai Peninsula.
MARKETS ACTIVITY Egypt returned to the global bond markets in 2017, lowering its borrowing costs overseas as domestic rates soared amid a far-reaching economic reform programme. The government seeks to vary its instruments and gradually move towards longer-term credit to reduce the burden for one of the Middle East’s most indebted countries. In September 2019, the ministry of finance announced that the government will approach investment banks to advise
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COUNTRY FOCUS
“WHILE THE PROCESS REQUIRED SACRIFICES IN THE SHORT-TERM, THE REFORMS WERE CRITICAL TO STABILISE THE ECONOMY AND LAY THE FOUNDATION FOR STRONG AS WELL AS THE SUSTAINABLE GROWTH THAT WILL IMPROVE LIVING STANDARDS FOR ALL EGYPTIANS.” — World Bank
on a planned international bond issuance to raise between $3-7 billion by June 2020. According to a Bloomberg report, Cairo is taking advantage of lower borrowing costs amid signs the world’s major central banks may cut interest rates or deliver a fresh batch of monetary stimulus to shore up economic growth. The announcement followed the reduction of the main interest rate by the US Federal Reserve for the second time this year—a move Federal Reserve lawmakers said was aimed at sustaining US economic expansion.
In a report, the World Bank, said, “despite the authorities’ success in stabilising the macro-fiscal environment as well as strengthening confidence in the economy, the adopted measures came with adverse socioeconomic effects.” The highest impact came from the increase in inflation rates fuelled by the large currency depreciation, which triggered a sharp increase in the cost of living. Majority middle-class Egyptians were hit hard by the 2016 currency devaluation and subsidy cuts that sent prices soaring and almost a third of the population now lives in poverty. Under the $12 billion loan IMF bailout programme, Egypt hiked fuel prices as much as 50 per cent and increased electricity rates by around 25 per cent—measures that made it even harder for the middle class to make ends meet, with another fuel price rise scheduled for next year. PwC stated that the elimination of most fuel subsidies, which are regressive, encouraged energy efficiency, helped protect the budget from unexpected changes in oil prices and free up fiscal space for social spending. The recently closed IMF bailout programme’s economic reforms have started to pay off for Egypt’s longsuffering population. Fitch Ratings suggested thatEgypt’s economic reforms have helped strengthen growth, reduce unemployment, increase foreign exchange reserves, and put public debt on a downward path.” S&P Global stated that the stable outlook for Egypt balances the rating firm’s expectation that current account deficits will remain as a smaller percentage of GDP and that growth prospects will remain strong, against risks of fiscal slippages and an increase in the already-large stock of relatively shortdated government debt issued at high-interest rates. Egypt’s economy is expected to grow 5.5 per cent annually over the next three years and it will be driven by more investments in a ‘robust’ pipeline of projects as well as an increase in natural gas production and a rebound in tourism.
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PHOTO CREDIT: Eduardo Rossi/Bloomberg
A BITTER PILL TO SWALLOW
The government recently finalised the details of a new oil and gas contract to attract more foreign investments than the $10 billion already coming into the energy industry this year. With the completion of the IMF programme, Egyptian officials successfully averted an economic collapse and set the country on a more sustainable path. Economic growth accelerated to 5.6 per cent in the fiscal year that ended in June 2019, the highest level since 2010. Debt and the budget deficit, though still hefty, have been on a downward trend. The deepening and broadening of effective reforms are critical to underpin the positive outlook for growth and unemployment.
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The IMF commended Egypt for achieving the 2018/19 primary surplus target of two per cent of GDP which helped to anchor a further decline in the public-debt-to-GDP ratio.
“THE IMF BAILOUT PROGRAMME CAME WITH STRINGENT CONDITIONS AND TO SECURE THE DEAL, EGYPT WAS FORCED TO FLOAT ITS CURRENCY, INTRODUCE NEW TAXES AND SLASH ENERGY SUBSIDIES—ALL OF WHICH SENT INFLATION GALLOPING ABOVE 30 PER CENT FOR MOST OF 2017, A HIGH THAT HAD NOT BEEN SEEN IN A GENERATION.” — EY
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COUNTRY FOCUS
EGYPT in numbers
POPULATION
UNEMPLOYMENT RATE
100 million
7.7%
11.8% 10m
100m
(2019 est.)
(2016 est.)
Source: Worldometers
MEDIAN AGE
24 years Source: Worldometers
11.4%
GDP
(2018 est.)
NOMINAL GDP
Source: The World Bank
$302 billion (2019 est.) $250 billion (2018 est.) $235 billion (2017 est.) $333.9 billion (2016 est.) $333.6 billion (2015 est.)
GDP COMPOSITION
Agriculture:
11.9%
Source: The IMF
ANNUAL GDP GROWTH
5.6% in 2019 (est.) 5.3% in 2018 (est.) 4.1% in 2017 4.3% in 2016 Source: The IMF
GDP PER CAPITA
Industry: Services:
33.1%
55.7% (2017 est.) Source: CIA World Factbook
PUBLIC DEBT
-9.8% of GDP (2017 est.) Source: CIA World Factbook
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$14,000 (2019 est.) $13,400 (2018 est.) $12,700 (2017 est.) $12,500 (2016 est.)
104.4% of GDP (2017 est.) 111.2% of GDP (2016 est.)
Source: The IMF
Source: CIA World Factbook
BUDGET DEBT
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SPECIAL REPORT CULTURE TRANSFORMATION
PHOTO CREDIT: Folrante Magsakay/CPI Financial)
Noor Bank’s culture factor On the back of a three-year strategy set out in 2017, Noor Bank has successfully implemented a bank-wide culture transformation programme. In this special feature, Banker Middle East speaks to Noor’s CEO, John Iossifidis, Gail Stanley, Head of Organisational Effectiveness, and Gerhard Strydom, Senior Vice President in Organisational Effectiveness, on the importance of a strong corporate culture, and its relationship, impact and role in driving the bank’s solid financial performance
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n 2018, Noor Bank reported the largest percentage increase in total assets (18.9 per cent) as well as the highest percentage increase in net profit (62 per cent) amongst all banks in the GCC. To put this into perspective, the region's banking sector asset base grew by only five per cent whereas the second highest percentage increase for profit in 2018 was only 33 per cent. This momentum continued into 2019 with the bank recording a net profit of AED 410 million for H1 2019, which is a 29 per cent increase from the corresponding period last year, and 11 per cent more than the 2017 financial year.
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Positioned as the ninth largest bank in the UAE in terms of assets and capital, these numbers speak volumes about the bank’s three-year transformation strategy which was designed and implemented by the leadership team in H2 2017.
John, what was the culture like when you joined Noor Bank in June 2017? What were your views on it at that time? John Iossifidis (JI): Noor Bank's aspiration as well as its potential was well-recognised. Further, the bank opened its doors in January 2008 and had shown resilience in managing
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To deliver against the four strategic pillars envisioned for Noor Bank, it was important to have less of a traditional old school banking culture, and 'to behave more like a technology company with a banking licence.' One which fully embraces present-day Islamic finance principles, underpinned by the highest standards of Shari’ah law.
Gail, do you therefore think there is a pressing need for culture transformation of banks across this region?
Noor Bank won the award for ‘Best Transformation and Strategy 2019’ at the Global Islamic Finance Awards, with CEO, John Iossifidis, named 'Best Transformational Leader 2019'.
through the financial crisis which started when Lehman Brothers filed for bankruptcy in October 2008. The same resilience was apparent in 2017, but I felt that a culture which embraces change was needed to unleash the potential of the people and the bank. The culture at that time was hierarchical, opaque and there was a fear of change. The lack of a clear strategy, as well as the need for an identity and a purpose was holding the bank and its people back from realising its full potential. As a result, we designed a clear three-year transformation strategy, and engaged with colleagues to define the bank’s purpose and refresh the values to deliver the new strategy.
Why did you see the need for change? And, what culture did you envision for Noor Bank? JI: The global banking industry is evolving at a rapid pace. The emergence of fintechs and the impact of digitalisation,data analytics and regulatory frameworks changed the banking landscape. As a result, the future of banking, along with the needs of our customers and our people is also changing. This will require a different level of focus, thinking and execution by all of us. And for that reason, it was important to design and implement a three-year transformation strategy at the end of 2017 which placed our customers at the core, our people first, and technology at the forefront of everything we do. Our three-year plan reflects the fast-changing UAE landscape and consists of four strategic pillars: • Delivering outstanding customer experiences; • Empowering, enabling and engaging our people; • Becoming simpler and more efficient through technology and analytics; • Enabling outstanding growth through strong and proactive control functions.
Gail Stanley (GS): Yes. However, I think this is a global phenomenon. In my previous roles at international and global banks, a need for culture transformation was already evident. Digitalisation, design thinking, data analytics, and agility are key elements in defining new ways of working, which demands culture change. Only banks that can create and manage seamless customer experiences across any device, and transition from a silo to an omnichannel mentality will remain relevant, competitive and deliver sustainable financial results. And, delivering all of this will require banks to shift from the inherent ‘traditional old school banking culture’ that John referred to earlier. Besides, culture and strategy have become interlinked. For too long, leaders have only focused on strategy to provide clarity and direction for their actions and decisions. Most leaders have a deep understanding of strategy but leave culture for their HR function to manage. They do not realise that culture can create a competitive advantage for their business. Culture transformation needs to be approached—by design—it deals with how leaders can articulate, describe and outline the specific organisational behaviours required for people to deliver against the strategic objectives. If business leaders fail to recognise the most optimal culture dimensions that will drive the required actions and behaviours, they will only deliver mediocre results, and may even fail to deliver against their strategy.
“IT WAS IMPORTANT TO HAVE LESS OF A TRADITIONAL OLD SCHOOL BANKING CULTURE, AND 'TO BEHAVE MORE LIKE A TECHNOLOGY COMPANY WITH A BANKING LICENCE.' ONE WHICH FULLY EMBRACES PRESENT-DAY ISLAMIC FINANCE PRINCIPLES, UNDERPINNED BY THE HIGHEST STANDARDS OF SHARI’AH LAW.” — John Iossifidis, CEO, Noor Bank
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As a result of its culture transformation journey, Noor Bank produced the largest percentage increase in total assets and the highest percentage increase in profit across all banks in the GCC region, in 2018.
“CULTURE CHANGE HAPPENS WHEN YOU PUSH OR PULL SPECIFIC CULTURE LEVERS TO CONFRONT TOUGH BUSINESS CHALLENGES.” — Gerhard Strydom, Senior Vice President in Organisational Effectiveness
Gerhard, how does culture then fall into Noor Bank’s overall plan? Gerhard Strydom (GSY): Creating a new vision, mission and purpose, strengthened the three-year turnaround strategy and resulted in redefining the bank’s values. Building a strong culture was at the core of the bank’s transformation journey. The best way to explain how it all fits together is to visualise Noor Bank’s ecosystem as an onion with multiple concentric layers. Culture is at the core of this ecosystem (see Diagram 1 in page 39). Employee engagement forms the outer most layer of the bank’s onion-like culture ecosystem. We’ve implemented an interactive real-time platform to measure employee engagement that enables people and managers to interact with one another—branded internally as ‘Your Voice’. At the next level is the bank’s values. Each value comprises of clearly defined behaviours which provide us with the guiding principles for the way we think, act and interact with people and technology. The values and behaviours describe ‘how’ we need to behave to deliver against the bank’s four strategic pillars.
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The next layer outlines the four strategic pillars and is the roadmap of ‘what’ needs to be done to achieve the key objectives mapped out in our strategy. The four strategic pillars (the what) are the building blocks of the bank’s change agenda, and the values (the how) are the instructions to put the building block together. The vision, mission and purpose round off the final layer, forming the underlying basis for the bank’s strategy and culture. Vision outlines ‘where’ the bank is heading, mission illustrates ‘what’ needs to be done and the purpose describes ‘why’ the bank exists. Putting these elements together gives meaning to our work. With culture at the core, this ecosystem emphasises the methodical approach that we have adopted in designing the bank's culture.
John, the onion-like concentric layers explain how the bank’s strategy, culture and values all fit together, but as the CEO, what challenges did you face in implementing a new culture in the bank? JI: Quoting Allan Murray, President of Forbes Magazine, he rightly said, “Changing a deep-rooted culture is the toughest task a leader will face.” Culture is a group phenomenon and it exists because of our shared values and behaviours in a group. As a starting point, the leadership team needed to first understand what it looks and feels like ‘to behave more like a technology company with a banking licence.’ For example, we took the leadership team and the culture squad to a technology company to experience the work culture. As Gail mentioned, culture and leadership are inextricably linked, and culture transformation must start from the top. The leadership team had to drive and demonstrate the new ways of working, thinking and interacting throughout the organisation.
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Source: Noor Bank
And, the fear of change is something that could have held us back. A wider extended leadership team was established— known as 'League 2020'—to equip leaders with the skills and knowledge to create a change driven culture.
approach we have adopted and credit goes to to the culture squad and our people for truly embracing change.
Have you seen any direct impact on performance as a result of the bank’s culture transformation journey?
Gerhard, culture reform seems to be the solution for all business problems and can create success; therefore, how can culture be fixed in an organisation?
JI: Over the past 24 months, Noor Bank has won various awards. This external validation shows that we are well underway in achieving our vision—to be recognised as the world’s best contemporary Shari’ah compliant bank. As Gail has mentioned, in today’s fast-paced banking sector—with digitalisation, design thinking and data analytics—it’s not uncommon to see organisations pledging to be innovative, agile, collaborative and customer-centric. While Noor Bank is built on similar beliefs, I have recently asked myself, what sets us apart? Our transformation journey has many ingredients. We developed a clear vision and strategic intent which delivered a first-class tech stack; we continued innovating with fintechs inside and outside the bank; we created a learning academy with the latest technology, and we adopted a market-leading approach to map customer journeys. Our financial performance speaks volumes, and our employee engagement scores are strong. However, the real differentiator for me is the work we have done on our culture and bringing our values to life. I believe our culture is the glue to the building blocks and the one thing that makes us unique. Over the last two years, our culture transformation has been intentional, systematic and meaningful, leading us on the path of excellence by showcasing the true spirit of collaboration. My leadership team and I are proud of the
GSY: One can only wish it was that easy. It has become fashionable to propose culture transformation as a solution for anything that goes wrong in an organisation these days. News headlines and the importance of culture in shaping an organisation’s reputation, and ultimately its success also propelled into the public conversation. Culture change happens when you push or pull specific culture levers to confront tough business challenges. Organisations are complex systems with many dynamics, energy and information flows. Every organisation needs to take a different approach to get the desired result to tackle its business challenges through culture change. An organisation consists of autonomous culture dimensions. We had to identify the dimensions as well as the culture levers to push and pull, to achieve our desired optimal culture, aligning with our three-year transformation strategy. So, to answer your question, one cannot fix culture. Let me explain by using a specific example: • Business Challenge; Enable, engage, and empower people to design and deliver innovative digital products and solutions for customers. • Culture Lever Pulled; We encouraged colleagues to expand their knowledge and provided them with a safe environment for experimentation and innovation. Additionally, we created a real-time employee engagement
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Noor Bank's management committee and culture squad.
“IF BUSINESS LEADERS FAIL TO RECOGNISE THE MOST OPTIMAL CULTURE DIMENSIONS THAT WILL DRIVE THE REQUIRED ACTIONS AND BEHAVIOURS, THEY WILL ONLY DELIVER MEDIOCRE RESULTS, AND MAY EVEN FAIL TO DELIVER AGAINST THEIR STRATEGY.” — Gail Stanley, Head of Organisational Effectiveness
platform for managers to interact with their teams— 'Your Voice'. • Culture Change; This resulted in a shift from strict hierarchical management to a more collaborative, flexible, and dynamic style of working which allowed for better work-life balance and stimulated innovation which allowed people to bring their whole selves to work. However, on the flip side, for the culture change to be successful, there are also culture levers to be pushed. Flexibility, freedom to experiment, and the opportunity to innovate come with a great deal of accountability, responsibility and self-discipline. A culture of experimentation and innovation tolerates failure but not incompetence. It fosters collaboration but only when individuals take accountability.
Gerhard, what was the bank's approach to execute the culture transformation programme? GSY: The bank made the decision not to engage a managing consulting practise to design, deliver and implement our culture transformation because leaders and the people within the bank needed to own the culture as well as the transformation thereof. Therefore, we were looking for the best organisational culture framework to support our culture journey. There
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are several market-leading organisational culture models supported with evidence-based research to help organisations with their culture change initiatives. We did our research and shortlisted the best three to support the bank’s culture transformation journey. Our initial approach consisted of training and certifying 12 leaders across the bank, referred to as the culture squad, on the dynamics of oragnisational and national culture. The certification was facilitated by Hofstede Insights. The UAE, being home to over 200 nationalities from different national cultures and backgrounds, we needed a strategy that included an extensive research on national culture and how values from different nationalities influence the workplace. We needed to bridge the gap between national culture and organisational culture. We also required an advanced level of analytics in this process as it is essential in any culture transformation to measure the existing organisational culture.
Gail, from your perspective, what are the most critical elements to implement a successful culture transformation? GS: John has already mentioned the important role leadership plays in shaping the culture within an organisation, and Gerhard spoke about our culture squad. We’ve also touched on how important it is to have a clearly defined strategy. But, the third most important element in a successful culture transformation is communication. Culture transformation will only be successful if the intent is communicated in the right way. We’ve developed a robust communication plan to engage people throughout the culture transformation journey. As culture continuously evolves, culture transformation never ends. Also, in addition to Gerhard’s points, the following processes were essential to the journey: • Measure current culture—we obtained a deep understanding of the actual culture across the bank;
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Partner Content • Define optimal culture—we charted out what the optimal culture should look and feel like to execute the bank’s three-year transformation strategy; • GAP analysis—identify the gaps between the actual culture and the optimal culture and recognise factors which will enable or hinder our strategy; • Implement change—apply the analytics and tools to implement change.
John, what has been the most notable changes across Noor Bank as a direct result of the culture transformation journey? JI: We’ve created a purpose and values-driven organisation which gives everyone a sense of meaning to their work. Our people have become energised and committed to the bank’s three-year transformation strategy, and that manifested into high performance. We’ve delivered strong financial results. As we’ve already mentioned, in 2018, Noor Bank produced the largest percentage increase in total assets and the highest percentage increase in profit across all banks in the GCC region. Besides, some of the symbolic initiatives to demonstrate culture transformation are: • Breaking down walls—to create an atmosphere of transparency and collaboration, we broke down walls between functional and business areas within regulatory requirements; • Flexible working—our people are provided with the worklife balance they need to thrive at their work; • Creating break-out areas—to create an atmosphere of agility and innovation; • Retiring dress code policy—our people are trusted to dress depending on their calendar and agenda for the day rather than rely on a prescribed dress code policy; • Retiring office policy—the requirement for a dedicated office is no longer determined by position or seniority in the bank;
“FLEXIBILITY, FREEDOM TO EXPERIMENT, AND THE OPPORTUNITY TO INNOVATE COME WITH A GREAT DEAL OF ACCOUNTABILITY, RESPONSIBILITY AND SELF-DISCIPLINE. A CULTURE OF EXPERIMENTATION AND INNOVATION TOLERATES FAILURE BUT NOT INCOMPETENCE. IT FOSTERS COLLABORATION BUT ONLY WHEN INDIVIDUALS TAKE ACCOUNTABILITY.” — Gerhard Strydom, Senior Vice President in Organisational Effectiveness
• And most importantly, our employee engagement shifted from the bottom quartile to the top quartile in 18 months.
Gail, how would you describe Noor Bank’s new culture? GS: Noor is now an organisation where colleagues are encouraged to expand their knowledge base and are provided with a safe environment to experiment and innovate. We emphasise on building meaningful relationships rather than merely selling to the customer, with a focus on creating efficiencies through automation. We strive to continually design a workplace where colleagues look forward to coming into work and allow for flexible working, therefore creating a better work-life balance for our people.
DIAGRAM 1
Noor Bank fostered a culture of collaboration to execute its three-year transformation strategy in a coordinated fashion across all its businesses and functions. The culture transformation programme was carried out with the agility to adapt to changing trends in the industry, whilst delivering outstanding customer experiences. As a testament to their success, Noor Bank won the award for ‘Best Transformation and Strategy 2019’ at the Global Islamic Finance Awards (GIFA) in Cape Town last month. The bank competed with Islamic financial institutions from across the globe, making the win all the more impressive for a UAE-based bank. GIFA also awarded John Iossifidis, Noor Bank's CEO, with the ‘Best Transformational Leader 2019' award. The culture transformation journey created by the colleagues of Noor Bank for the colleagues of Noor Bank has clearly made a difference for the better.
Source: Noor Bank
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PHOTO CREDIT: ImageFlow/Shutterstock)
Everything comes from the top Noor Bank partnered with Hofstede Insights in implementing their cultural transformation exercise. Telling the story from the other side of the coin, we speak to Hofstede Insight’s CEO, Egbert Schram, for his feedback
C
EOs basically know that culture is important, but not much action is taken reflecting this concern. What are they missing?
The biggest challenge for most CEO’s lies in not knowing where to start with the topic of culture. It is a ‘big, buzzy, and fuzzy’ topic with few details. The lack of numerical and tangible data available for CEOs leads to challenges in understanding where their biggest organisational cultural challenges lie in—in terms working of practices not being aligned with (newly) formed strategies, how to go about transformation and to which extent they themselves need to be involved. Another big challenge is the lack of awareness in how national culture reinforces certain practices and their meaning. Words currently being used in many parts of the financial world, such as compliance, have very different interpretations with regards to what compliance means and how compliance is implemented and maintained on a behavioural level. A third big element of non-action lies in not being able to visualise to which extent there is sufficient trust inside an organisation. For cultural transformation to take place, it is important that trust levels are at an adequate level.
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Why is company culture fundamental for an organisation to perform well? Company culture is important as a ‘unifying’ factor to ensure the greatest possible focus within an organisation in terms of peer pressure to ‘fit in’. As with the example given above, if organisations only focus on policies and strategies, but not on the quintessential question of ‘how’ and enable that ‘how’ to differ according to both function and location, you end up with not having any identity. It is the lack of a sufficiently unified identity which causes both waste, in terms of becoming overly reliant on systems, and lack of adaptability due to the “we have always done things like this around here” or going overboard and want everybody to be the same. A delicate balance needs to be struck between ‘feeling part of one organisation’, yet being able to work in a way which supports your function. Organisational culture is a tool. A tool which we define as ‘the way in which people relate to each other, their work and the outside world, compared to other organisations’. This means two things: 1. That the main question with organisational culture is whether or not it is functional (supports the strategy);
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2. That the observation whether or not an organisation’s culture is functional and moves with time. If there are significant changes in the outside world (e.g. regulations, recession), in the nature of work (e.g. digitisation) or in the consistency of the workforce (e.g. lay-offs, rapid growth), the organisational culture alignment with strategies in place will change. In other words, enabling a type of peer pressure to ‘behave’, which supports the strategy of an organisation is the ultimate goal for organisational culture, whatever the strategy might be. The group dynamics will ensure proper behaviour, and that will go beyond typical HR policies on behaviour. Failure to actively lead this behaviour, and instead be led by it with negative consequences is extremely costly (examples, like fixing Libor rates, forgoing safety procedures on drilling rigs, or being creative in interpreting numbers).
From your experience working with large institutions and banks around the world, what is the main roadblock in changing their culture?
Egbert Schram
“THE PROBLEM STARTS AT THE VERY TOP. AND THAT IS THEIR BOARD ROOMS.” — Egbert Schram
For most large institutions, their failures in turning their much reported ‘bonus-cultures’ around, is a multi-level problem. Another similar problem lies in the relationship between having to deal with very complex legacy IT systems and the need to innovate in order to face the rise of fintech. In both cases, the problem starts at the very top. And that is their boardrooms. If the strategic focus set by a board is to maximise shortterm shareholder interests, then executive teams will naturally set the tone in terms of using their own behaviour to exemplify this, even when deep down they know that it might not be in the best interest of an institution’s overall stakeholders (shareholders, boards, employees, society, customers, providers, etc.). Once boards give space to executive management teams to focus on a longer time horizon, then it makes sense for these management teams to behave in a longer-term way. Long-term-oriented behaviour, which tends to lead to more sustainable behaviour, then becomes an embedded way of working throughout an organsiation, not anymore dependent on a few enlightened individuals. In practical terms, once it has become clear that a management team can focus in a longer-term way, then they should themselves become involved in either participating in, or publicly promoting, the importance of cultural transformation. It cannot be stressed enough, that if an executive management team is not personally involved in a transformation process, it will most likely fail.
What is Hofstede’s strategy in implementing a cultural transformation exercise? What are the essential elements? There are a few lessons we adhere to: Lesson 1: Create a dedicated change group, sponsored from right at the top—this change group gets certified in our methodology in order to ensure the client owns the change, and not we as consultants.
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Full process picture
Hofstede Insights Multi-Focus Model path way Needs Assessment
Change Planning Process
Change Process
Executive Ownership
Organisation culture analysis
Setting of strategic behaviour KPIs
Certification of internal change navigators
Executive match analysis and debrief
Stakeholder interviews
Debrief of results using gap reports
Creating indirect change initiatives using the change levers
Personal coaching CEO program
Debrief of actual culture results
Prioritisation of change initiatives using the change lever reports
1
2
SET TARGET
MEASURE
Define the target and plan the course of action
Measure the current culture of your organisation through an online survey and/or interviews
3 OPTIMAL CULTURE
GAP ANALYSIS
Define the optimal culture See whether your culture for your organisation enables or hinders your strategy
“FOR CULTURAL TRANSFORMATION TO TAKE PLACE, IT IS IMPORTANT THAT TRUST LEVELS ARE AT AN ADEQUATE LEVEL.” — Egbert Schram, CEO, Hofstede Insights
Lesson 2: In order to change a culture, you need to know the culture and what needs to change where—this point is particularly important in terms of measuring culture in various parts of an organisation—the work of IT units is very different from the work of e.g. clerical staff/this means that any change required has to be relevant for daily work. Lesson 3: Continuous communication on the project progress to ensure buy-in into the importance—as described earlier, communication needs to be aimed at both the function and, in global contexts, take into account the nationality of the receivers as things like the words you use, the person who sends the message, the frequency with which you communicate, all will be impacted by national culture. Lesson 4: Ensure full buy-in at executive level by making management team members co-responsible for aligning culture and strategy—should there be a gap between the culture measured and the optimal culture set by looking at the strategic goals, then it is the management team’s responsibility to take the decision which is to be changed (typically strategy is easier to change than culture). It also means that we measure to which extent leaders walk the talk/does their behaviour reinforce existing practices or does it show the need for change. Final lesson: As a supportive culture is business critical to strategy execution it is a never-ending journey and as such requires constant monitoring—if the environment changes, or when a strategy changes, cultural transformation is critical.
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4
5 IMPLEMENT CHANGE Apply change tools: Levels of Change™ Executive Match 360™
The very positive experience in working with Noor Bank and in working in the Middle East, is the commitment shown at the top. If the top indicates that changes are needed, participants show case importance and diversity is welcomed in terms of the approaches used through different parts of the bank, change in any Middle Eastern bank can be achieved at a really fast pace due to the urge for perfection which is shown throughout the Middle East.
About Hofstede Insights Hofstede Insights is a global cultural advisory, started in 1985 with the support of one of the pioneers in comparative cultural anthropology, Prof. Dr. Hofstede. Headquartered in Helsinki Finland, we have over 130 associate partners in 60 countries. Our unique competitive advantage is the combination of strategic and management experience with a data-driven approach to visualising the impact of culture on individual and organisational level, with instruments grounded in academic research. The ability to enable people from different backgrounds to work more effectively together is instrumental in enabling future success. This is at the core of what we do - to leverage differences and make a sustainable impact. https://www.hofstede-insights.com/ Source: Hofstede Insights
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Announcing the winners of the Banker Middle East Product Awards 2019 CPI Financial, the leading financial publisher in the Middle East, is proud to announce the winners of the 2019 edition of the Banker Middle East Product Awards. CPI Financial, the publisher of Banker Middle East, has been conducting Awards programmes associated with its market-leading banking and finance publications for the last two decades. Banker Middle East, its flagship title which now celebrating its 20th year, boasts more than 68,000 online members from across the Middle East who actively vote on www.bankerme.net. The Banker Middle East Product Awards, now in their 12th year, celebrate the highest achievers and most successful financial products and services. While the Banker Middle East Industry Awards is decided by a complex methodology and panel of judges comprised of experts in the industry, the Banker Middle East Product Awards is decided by the readership of Banker Middle East both online and in print. This year’s edition received a record number of votes from registered subscribers of the publication both online and offline, with 9,200 votes recorded across 51 categories. Due to the overwhelming response, categories which received a large number of votes in noncompeting markets resulted in individual winners for countries that reached a certain vote threshold
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in that category. Otherwise, only one winner was chosen for the region. In addition, because of the positive feedback and passionate engagement that this year’s Product Awards programme has generated for the industry at large, Banker Middle East will be publishing a Product Awards 2019 magazine, in order to highlight in greater detail the superlative products and services of the winning institutions. “In the 20 years that we have published Banker Middle East, the industry’s products and services have experienced a period of remarkable growth and innovation, with exemplary institutions from across the region embracing the latest technologies and innovations to match and sometimes exceed the best banks and financial institutions worldwide. We’re proud to offer a platform with which the industry itself, as well as those in the broader financial landscape, can recognise those institutions across the Middle East whose product and service offerings stand out,” said Nigel Rodrigues, Founder and Chief Executive Officer of CPI Financial. “The world is still changing rapidly, however, and the financial community must continue changing with it. The best institutions are customer-centric not only in their words, but in their actions. We look forward to tracing how the industry continues its forward momentum and adapts to the needs of tomorrow’s consumer,” Rodrigues continued.
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A full list of Banker Middle East Product Awards 2019 winners is as follows: RETAIL BANKING • Best Retail Banking Services (Oman) Oman Arab Bank • Best Retail Banking Services (Lebanon) Blom Bank • Best Retail Banking Services (KSA) Al Rajhi Bank • Best Retail Banking Services (UAE) Emirates NBD • Best Car Loan Emirates NBD • Best Consumer Insurance Product AIG • Best Credit Card (KSA) The National Commercial Bank • Best Credit Card (UAE) Mashreq Bank • Best Islamic Credit Card The National Commercial Bank • Best Premium Credit Card (Kuwait) Ahli Bank of Kuwait • Best Premium Credit Card (KSA) The National Commercial Bank • Best Co-Branded Credit Card Blom Bank • Best Call Centre Commercial Bank of Dubai • Best Deposit Account Emirates NBD • Best Deposit Product Citibank • Best Current Account RAK Bank • Best Savings Account First Abu Dhabi Bank • Best Savings Product Ahli United Bank Kuwait • Best Bancassurance Product Proposition First Abu Dhabi Bank • Best Personal Loan Al Rajhi Bank
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• Best Retail Customer Service Dubai Islamic Bank
CORPORATE & INVESTMENT BANKING
• Best Customer Loyalty Programme The National Commercial Bank
• Best Investment Banking Services GFH Financial Group
• Best Social Media Customer Service Dubai Islamic Bank
• Best Trade Finance Offering Trade Bank of Iraq
• Best Islamic Retail Banking Services (UAE) Dubai Islamic Bank
• Best Real Estate Advisory Mashreq CIBG
• Best Islamic Retail Banking Services (KSA) Al Rajhi Bank
• Best Corporate Advisory Service Standard Chartered
• Best Islamic Retail Banking Services (Egypt) ADIB Egypt
• Corporate Deal of the Year Dubai Islamic Bank
• Best Islamic Retail Banking Services (Bahrain) KFH Bahrain
• Best Cash Management Commercial Bank of Dubai • Best Treasury Management National Bank of Fujairah
• Best Islamic Corporate Banking Services Dubai Islamic Bank
• Best Market Maker and Liquidity Provider Al Ramz Capital
• Best Digital Banking Services (Kuwait) Warba Bank
• Best Customer Service – Corporate/ Investment Banking (UAE) National Bank of Fujairah
• Best Digital Banking Services (UAE) Mashreq Bank • Best Ladies Proposition National Bank of Fujairah
• Best Customer Service – Corporate/ Investment Banking (Bahrain) KFH Bahrain
• Best Financial Inclusion Programme Standard Chartered
• Best IT Solutions Provider SAP
• Best Home Finance Product Dubai Islamic Bank
• Best Investment Management Services GFH Financial Group
WEALTH MANAGEMENT & INVESTMENTS • Best Forex Trading Service Century Financial Consultancy • Best Islamic Fund First Abu Dhabi Bank • Best Wealth Management Solution Standard Chartered • Best Equity Fund First Abu Dhabi Bank SME FINANCE
• Best Premium Banking Services National Bank of Fujairah
• Best SME Exchange Service Mashreq Bank
• Best Priority Banking Service Mashreq Bank
• Best SME Internet Banking Service National Bank of Fujairah
• Best Mobile Banking Service (UAE) National Bank of Fujairah
• Best SME Loan National Bank of Fujairah
• Best Mobile Banking Service (Kuwait) Ahli United Bank Kuwait
• Best SME Trade Finance National Bank of Fujairah
• Best Business Insurance Product AIG
• Best Customer Service – SME Mashreq Bank
OVERALL • Best Banking Services (KSA) The National Commercial Bank • Best Banking Services (UAE) Dubai Islamic Bank • Best Banking Services (Lebanon) Blom Bank • Best Banking Services (Oman) Oman Arab Bank • Best Banking Services (Iraq) Trade Bank of Iraq • Best Banking Services (Bahrain) KFH Bahrain • Best Digital Transformation Services Commercial Bank of Dubai • Best CSR Services Ahli United Bank Kuwait
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CAPITAL MARKETS
PHOTO CREDIT: Itan1409/Shutterstock
Trapped in original sin Middle East and Africa sovereigns have not followed the trend towards an increasing share of local currency debt in total government debt, as has been seen in other emerging markets in recent years. However, progress has been achieved on financial deepening in the region. Mahmoud Harb, Director in Fitch Ratings’ Sovereign Group, sheds light on the matter
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iddle East and Africa (MEA) issuers’ ability to issue local currency (LC) debt at low cost or long tenors is constrained by deeprooted structural challenges, including weaknesses in their institutional framework and policymaking and narrow and bank-dominated domestic investor bases. Consequently, LC market debt tends to have shorter tenors and higher interest rates than foreign-currency (FC) debt in MEA. Considering a sample of Fitch-rated MEA sovereigns, we estimate the median weighted average residual maturity for outstanding LC market debt was about 4.1 years at end-July 2019 versus 9.6 years for FC market debt. The median weighted average coupon rate on outstanding LC debt securities was 6.1 per cent, higher than 5.75 per cent for FC debt instruments, despite the domestic market debt having a much lower average tenor. Against this backdrop, MEA sovereigns face difficult tradeoffs in choosing the optimal currency composition of their debt portfolios. FC debt involves exchange-rate risk and heightened rollover risk. Conversely, LC funding is often more stable, but frontier market sovereigns may be unable to issue domestic debt in sufficient quantity or only at relatively short maturity or high interest rates. MEA sovereigns are yet to escape from this phenomenon famously dubbed “original sin” by economic literature. The share of LC debt in MEA has fluctuated significantly since 2000 and appears to have increased. However, this has mostly been driven by compositional effects due to foreignexchange debt relief rather than it reflecting a structural shift in debt composition. Nonetheless, the LC debt share in MEA (41 per cent) still compares favourably with other regions such as emerging Europe (33 per cent) and Latin America
Mahmoud Harb
"BANKS REMAIN THE LARGEST DOMESTIC CREDITORS OF THE SOVEREIGNS ANALYSED BY FITCH, HOLDING AN AVERAGE OF 60 PER CENT OF OUR MEASURE OF MARKET DEBT AND 50 PER CENT OF TOTAL DOMESTIC DEBT. THIS RAISES RISKS OF MACROECONOMIC AND FINANCIAL DISTORTIONS, INCLUDING A STRONG SOVEREIGN-BANK NEXUS AS WELL AS CROWDING-OUT PRIVATE INVESTMENT AND UNDERMINING LONG-TERM GROWTH." — Mahmoud Harb
(35 per cent), considering sub-investment-grade sovereigns only. This reflects a combination of higher restrictions on capital accounts in MEA and varying degrees of trade openness among regions. While our analysis shows that sub-investment grade MEA countries have achieved little progress on “debt domestication”, the level of privately held LC debt in MEA has risen significantly relative to the size of the economy, pointing to some progress on domestic market deepening which has mostly come from domestic private sources. At an average of 24.5 per cent of GDP over the past three years, the median level of LC debt has reached its highest level since 2000 at least, up by one third compared with its level in the early 2000s. This has been facilitated by improved economic development, but weak governance standards remain a major hurdle for further financial deepening. The development of domestic debt markets improves access of sovereigns to stable funding and has positive externalities for local economies such as the development of private financing and more efficient domestic saving allocation. However, narrow investor bases and shallow secondary markets tend to prevent MEA issuers from reaping the full benefits of financial deepening. Some countries such as Egypt, Ghana, Nigeria, South Africa and Zambia have succeeded in attracting significant foreign participation in their LC debt markets, but this has sometimes come at the price of high interest rates or increased susceptibility to shifts in portfolio investments. Banks remain the largest domestic creditors of the sovereigns analysed by Fitch, holding an average of 60 per cent of our measure of market debt and 50 per cent of total domestic debt. This raises risks of macroeconomic and financial distortions, including a strong sovereign-bank nexus as well as crowding-out private investment and undermining long-term growth. Finally, a common view is that default on LC debt is highly unlikely as a sovereign could always monetise it or inflate it away. However, Fitch does not share this view and, as per its rating criteria, does not consider LC debt to be immune to default. Defaults on LC debt have occurred in the past, usually amid acute macroeconomic crises, although these defaults have been at a lower frequency than FC debt defaults Fitch has downgraded the long-term LC ratings of sovereign issuers to default territory in eight instances in the past, against 15 episodes of default on FC ratings. Notably, none of these defaults happened to countries in our sample of sub-investment-grade MEA countries.
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CAPITAL MARKETS
Women-empowering Sukuk: A noble goal It seems that Sukuk may have found a new purpose. The concept of utilising Sukuk proceeds for the empowerment of working-women is new to this niche industry and it is yet to be adopted. Mohammed Khnifer, Senior Associate, Debt Capital Markets at Islamic Corporation for the Development of the Private Sector, explores
Mohammed Khnifer
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T
he concept of utilising Sukuk proceeds for the empowerment of working-women is new to this niche industry and it is yet to be adopted. This noble goal will need the support of beyond Islamic finance stakeholders and investors in order to thrive as there are many challenges ahead of its implementation. Probably the only reference for Women Empowerment Sukuk (WES) came in October 2018 by the New York-based Near East Foundation (NEF) who was planning, at that time, to issue the first tranche of $14.94 million of a developmental impact Sukuk, a world first, to fund Syrian women refugees in Lebanon and Jordan. Up until now there is no confirmation if such issuance has taken place.
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“THESE BONDS, VERY FEW IN NATURE, EMPOWER WORKING-WOMEN ECONOMICALLY AND SOCIALLY. IT IS UNDERSTOOD THOUGH, THAT SUCH DEVELOPMENTAL BONDS STILL MAKE PROFIT TO THE INVESTORS. THE BACKERS OF THIS FIXED INCOME PRODUCT AIM TO FACILITATE WOMEN TO HAVE ACCESS TO THE LABOUR MARKET AND SUPPORT THE INSTITUTIONS THAT CREATE AN ENABLING ENVIRONMENT FOR FEMALES.” — Mohammed Khnifer
USE OF PROCEEDS It was reported that the issuer intends to focus on the ‘growing and starting home-based businesses with the support of local organisations in Lebanon and Jordan’. The proposed NEF Sukuk was supposed to target around 5,500 beneficiaries, of whom 75 per cent are women and 50 per cent refugees. The female-led households were supposed to be ‘provided business skills, vocational training and cash disbursements over the duration of the programme,’ according to reports.
GENDER BOND MARKET In the conventional world, the nascent gender bond (GB) market is relatively new too. These bonds, very few in nature, empower working-women economically and socially. It is understood though, that such developmental bonds still make profit to the investors. The backers of this fixed income product aim to facilitate women to have access to the labour market and support the institutions that create an enabling environment for females. In fact, those firms where women have leadership positions, can obtain financing (out of bonds proceeds) on competitive rates. On the regulatory side, it is understood that the so called gender bonds do follow the principles for social bonds agreed by the International Capital Markets Association (ICMA). They also contribute to the UN’s Sustainable Development Goals (SDGs).
WAY FORWARD Clearly in order to see gender Sukuk within the Islamic finance industry, investors will need to be comfortable (from credit risk perspective) on the debt instrument that they are buying. Financial engineering will also come into play as well. Nevertheless, small and medium-sized enterprises that empower women will be one of main beneficiaries when such product is debuted within the industry.
Facts: • In November 2017, Australia’s QBE Insurance Group drew applications of more than $8.25 billion for a $400 million ‘gender equality bond.’ Bonds like the ones QBE sold invest in paper issued by companies that support workplace gender equality. Europe and Middle East were accounted for 37 per cent for QBE’s bonds. • Inter-American Investment Corporation (IDB Invest) intends to acquire 100 per cent of $50 million in five-year gender bonds that is issued by a subsidiary of BanColombia and Panama’s second largest financial institution. The purpose of the funds raised through this issue is to finance SMEs led by women, specifically those with an annual turnover between $12,000 and $10 million. • In 2017, the Asian Development Bank (ADB) has issued its first ‘gender bond’ to finance a pool of eligible projects that promote gender equality and women’s empowerment in Asia and the Pacific. The NZD 130 million bond (equivalent JPY 10 billion) was purchased in its entirety by Dai-ichi Life Insurance Company of Japan. The proceeds raised through the gender bond will be used by ADB to finance projects that promote gender equality and women’s empowerment, such as ADB’s support for financial inclusion for women. • In January 2018, the IBRD issued a bond to raise awareness for how empowering women and girls is one of the most effective ways to accelerate economic development, reduce poverty, and build sustainable societies around the world. The bond raised CAD 1 billion from institutional investors in the Canadian dollar market. • In August this year, it was reported that International Finance Corp. and Deutsche Investitions und Entwicklungsgesellschaft (DEG) agreed to subscribe to Women Entrepreneurs Bonds to be issued by Thailand’s Bank of Ayudhya. Goal of the offering is to boost lending to women-led small and medium-sized enterprises in Thailand. Such issuance is expected to be the first private-sector ‘gender’ bond issuance in the Asia-Pacific region.
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CAPITAL MARKETS
GCC deal pricing bode well for Sukuk issuers ADIB acted as a joint lead manager and a bookrunner for several Sukuk deals this year, including the recent $500 million issuance by Aldar Investments. Amir Riad, Head of Corporate Finance and Investment Banking at ADIB, explains why GCC financial institutions, corporates, sovereigns, and government related entities (GREs) are increasingly likely to look to Sukuk issuances for their financing needs in 2020
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he significant move lower in global rates and the attractive pricing of recent GCC Sukuk deals in the Arabian Gulf would encourage issuers to come to the market in the coming months to take advantage of the outstanding international demand for paper from the region. Abu Dhabi’s Aldar Investments, the asset management unit of Aldar Properties, successfully placed a 10-year, $500 million Sukuk in mid-October, achieving a coupon of 3.875 per cent—the lowest rate ever achieved by Aldar. The deal, which was the first ever 10-year Sukuk by an Abu Dhabi issuer, was 6.4 times oversubscribed, accumulating more than $3 billion in orders from over 190 global and regional investors. It had unprecedented international demand resulting in 71 per cent of the total transaction being allocated to foreign investors.
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“WITH TRILLIONS WORTH OF GLOBAL DEBT CURRENTLY TRADING AT NEGATIVE YIELDS, IT IS NOT HARD TO SEE WHY INVESTORS ARE LOOKING TO THE REGION FOR YIELD, WITH MANY ISSUERS CLOSELY LINKED WITH HIGHLY RATED SOVEREIGNS.” — Amir Riad
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Amir Riad
With trillions worth of global debt currently trading at negative yields, it is not hard to see why investors are looking to the region for yield, with many issuers closely linked with highly rated sovereigns. Other issuers this year include ports operator DP World, the Governments of Sharjah and Oman, and a jumbo $12 billion by Saudi Aramco, which has been looking to foster relationships with international investors ahead of its planned IPO. Sukuk from the region have tended to outperform their conventional peers and to achieve tighter spreads with difference usually ranging from 5 to 10 basis points depending also on market conditions. This is driven by a combination of factors, including the relative scarcity of Sukuk issuance in general and the fact that the pool of Islamic investors that are keen to partake in Shari’ah’acompliant instruments only, can lift demand for Sukuk by as much as 30 per cent to 40 per cent versus comparable conventional bonds from the region. This investor demand also leads to a trend of outperformance on secondary markets, which in turn contributes to strong demand for new issuance. After a spate of issuance, the fourth quarter of this year is likely to be more subdued, as liquidity is starting to dry up as investors have largely fulfilled their commitments for the year. Deals coming to the market now will need to offer a small premium of 10 to 15 basis points to attract significant interest. However, the ingredients are all there for a surge of issuance in early 2020. Benchmark rates are likely to remain low, and Sukuk premium is likely to hold strong. This is an opportunity for issuers from the region to lock in low cost of capital and extend the overall duration of their liabilities.
Aldar Properties successfully placed a 10-year
$500 3.875%
million Sukuk achieving a coupon of
It was
6.4 $3 190 71%
times oversubscribed, accumulating more than billion in orders from over global and regional investors with
of the total transaction being allocated to foreign investors
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INVESTMENTS
Rethinking wealth With its profile rapidly rising in the region, we explore the secrets behind Lombard Odier’s success. Banker Middle East catches up with Arnaud Leclercq, a Limited Partner at the Swiss bank
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hy do clients in the GCC region choose to bank with Lombard Odier?
Our clients are only satisfied with the best in their personal, family and commercial affairs. They draw on a team of specialists to help them manage their business, their children’s education, their health—and in wealth it is the same. At Lombard Odier, our sole focus is on wealth and asset management, for the long term. We are investment specialists, with a global network of more than 200 experts, and we have a single, multidisciplinary Middle Eastern team located across Dubai, Abu Dhabi, Geneva, Zurich and London. Naturally, our clients want personal service and solutions that meet their complex individual situations. They do not want products pushed on them, or to be part of an increasingly commoditised banking space. Our approach is
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bespoke and we build our offering around our clients’ needs. Our discretionary Shari’ah mandate for example is not a ‘one-size-fits-all’ fund like many others in the market, but a fully customisable solution. It allows our clients to build their portfolio the way they want, drawing on the full capabilities of the bank.
Does Lombard Odier see itself as a Swiss bank, or a local bank in the Middle East? Both parts are important—we are global wealth management experts with considerable local expertise. Our roots are Swiss, and reflect the experience, stability and security that we offer, but we have served clients in the Middle East for over half a century. This is one of our fastest growing and most strategically important regions, and our business here continues to evolve.
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Sponsored Content
Is there something about the way Lombard Odier is owned that sets it apart? Yes, I believe so. We’re a privately-owned family business and we have always believed in acting with integrity and responsibility. Our Partners are entrepreneurs, like many of our clients, and share many of the same concerns on succession and wealth transmission. Our independent ownership means we can invest for the long term and focus on growing wealth via steady returns. We’re not driven by short-term profits. Instead, our timescales reflect those of our clients: wealth accretion over generations. This focus on the long-term is one definition of sustainability—which we believe is the first principle of long-term investment.
Does sustainability define your offering? It is certainly a field where we are setting the agenda, and where we have a strong investment conviction. We believe sustainability is a global shift that is already transforming our economies and the companies that drive them and have made a very public commitment to embedding it into all our investment processes. Of course, Islamic finance has long recognised the importance of a sustainable approach, and our Shari’ah offering is a local expression of our wider commitment to sustainable investing. It’s just one of the ways in which our bank’s offering is a natural fit in the Middle East.
“OUR ROOTS ARE SWISS, AND REFLECT THE EXPERIENCE, STABILITY AND SECURITY THAT WE OFFER, BUT WE HAVE SERVED CLIENTS IN THE MIDDLE EAST FOR OVER HALF A CENTURY. THIS IS ONE OF OUR FASTEST GROWING AND MOST STRATEGICALLY IMPORTANT REGIONS, AND OUR BUSINESS HERE CONTINUES TO EVOLVE.” Our Dubai office has doubled in size and won seven consecutive industry awards in the last seven years. Assets from the UAE are growing at a double-digit rate (as of end of July 2019). Earlier this year we opened a branch in Abu Dhabi, in order to serve our local clients better, with bespoke, onshore wealth solutions. In fact, we were the first Swiss private bank to open in the prestigious Abu Dhabi Global Market.
— Arnaud Leclercq
Why did you choose Abu Dhabi? We are committed to building a strong footprint in the Middle East, and the UAE is one of its largest wealth markets. The new Abu Dhabi branch is testament to our faith in regional growth and economic stability, and our confidence in the Emirates’ future as a key business location and wealth generator. The city’s culture and values—a combination of international influences and a strong commitment to local heritage—are also a good fit for us. Of course, our growth in the region is not primarily driven by new offices, but by strengthening and enlarging our relationships with local institutions and families. Our managing directors and bankers are senior figures, with decades of experience and deep connections here. Even our Private Bank CIO spent eight years working at the Abu Dhabi Investment Authority. Only a handful of banks can truly claim to know multiple generations of clients here as we do.
Arnaud Leclercq
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ISLAMIC FINANCE
"Eventually, I want BisB to be known as a tech company that offers Islamic banking services," said Jarrar.
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A 40-year legacy Banker Middle East sits down with Hassan Jarrar, Chief Executive Officer of Bahrain Islamic Bank, to talk about his sentiments on the market and how industry trends have impacted the bank
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ow has BisB performed in 2019 so far? What kind of risks do you anticipate your business to face next year within the Bahraini market itself and on a global level?
To counteract the impact of the global credit crunch, we’ve been limiting our exposure to risk and concentrating our efforts on growing ‘stickier’ long-term deposits, which has allowed us to maintain our market share. ‘Fintech’ will remain an overused buzzword that is tossed around, it has to be transformed into meaningful components with clear expectations that outline the roles required from key players in the financial ecosystem, with open communication and collaboration between banks, regulators and entrepreneurs. The fact is, besides the fact that the pace of change we are witnessing across virtually every industry is unprecedented, the banking ecosystem in and of itself is constantly evolving. The fast-evolving digital economy has affected purchasing behaviours, giving an entirely new meaning to the age-old mantra of 'customer is king'. Essentially customers are calling the shots and we are forever trying to figure out the 'face' behind each customer in order to really dig deep into what they actually need so we can better innovate for them. This is a huge departure from previous models, which focused on product first. Banks that maintain a ‘Business-as-usual’ approach or auto-pilot banking mode will face more difficulty to survive against ever-changing consumer demands and standards. Adding to the equation, regulatory requirements will continue to pose challenges for banks, especially the ones smaller in size. With significant investments required in systems and in professionals with the right skill set required to keep up, there will be even more pressure to increase capital. IFRS-9 requirements will also continue to pose challenges for banks as they enter the second or even third year of implementation.
As for the Bahraini market itself, the Kingdom’s diversified business portfolio and healthy appetite for change is forging the way ahead, transforming the existing banking mindset along with it. On both a regional and global level, this year’s momentum in M&A’s will continue into 2019, if not increase, with the first half of the year likely to be more active than the second. It is essential that regulators and governments safeguard economies against risk. Their success will determine the health of the business community itself, and how its players will fare in the years to come.
What is your approach on technology for the bank? What digital transformation efforts have BisB carried out and where do you plan to go from here? As we’re operating in a global economy, we see it as our responsibility as one of the oldest Islamic banks in the region to help drive the industry’s digital evolution and stay ahead of the digital race. Our approach to technology is based on our approach to customers. It’s all about co-creating. Simply put, we involve our customers in the conversation because that is the only way to guarantee we meet their expectations. It has been an evolving journey and we are committed to seeing it through to deliver a truly transformative experience and find the perfect balance between proactively anticipating our customers’ needs and delivering on what they actually want as opposed to what we think they need.
“THE FACT REMAINS THAT BANKS ARE STILL REELING FROM THE EFFECTS OF THE LAST GLOBAL FINANCIAL CRISIS. THIS HAS LED TO SEVERAL MERGERS AND ACQUISITIONS, SIMPLY TO COPE WITH THE CURRENT CLIMATE.” — Hassan Jarrar
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ISLAMIC FINANCE
BisB's approach to technology is based on its approach to its customers. "It’s all about co-creating. Simply put, we involve our customers in the conversation because that is the only way to guarantee we meet their expectations," explains Jarrar.
“IT IS ESSENTIAL THAT REGULATORS AND GOVERNMENT SAFEGUARD ECONOMIES AGAINST RISK. THEIR SUCCESS WILL DETERMINE THE HEALTH OF THE BUSINESS COMMUNITY ITSELF, AND HOW ITS PLAYERS WILL FARE IN THE YEARS TO COME.” — Hassan Jarrar, Chief Executive Officer, Bahrain Islamic Bank
We used data analytics and insights gathered from various platforms and sources. We discovered that our customers expected faster service and considered their financial transactions a hassle to do. This is how we formed our Simplification Strategy, which uses technology as a means to an end. Our relationship with technology is cast using digital innovation as a tool, instead of a crutch. Today, when it comes to any product or service we launch at the bank, first we ask the question, does it simplify our customers’ lives? If the answer is yes, we tap into the knowledge
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of our departments and make use of our in-house Innovation Lab. We continued to expand the lab by adding a line of new generation ATMs and digital banking services, which now enables our IT department to test pilot the products before they are deployed in the market.
Looking back at the last nine months, what were your biggest challenges? And how do you expect these to pan out going into 2020? Last year, we took a 360 degree look at our business, both from an operational and a people’s front, assessing the good, the bad and the ugly, to ensure we stood out and had the right components to transform into a truly customercentric bank. The results of this journey of self-discovery were tremendous. Our average employee was unengaged and had little insight on the Bank’s strategy and vision. We realised that we needed to be more inclusive as a Bank. We had a new company culture and we had to create a strong ‘DNA’ that would unite us under a common umbrella. We engaged our employees in reviving our value system which led to a new brand promise - “to simplify customer’s money matters.” This was all good and well on paper, but
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bank in Bahrain, Islamic or conventional. We still have quite a few digital transformation initiatives in the pipeline and 2020 will be an even bigger year for BisB. In the coming year, we will continue to harness the power of technology and AI as a differentiator. Eventually, I want BisB to be known as a tech company that offers Islamic banking services.
There are currently several potential mergers on the books involving GCC Islamic banks. What are your views on this? What plans do you have in the pipeline? Today, almost every industry is feeling the brunt of technology which is taking the world by storm. Almost every company is being disrupted by a wave of digital transformation, forcing companies to innovate faster than ever before. Banks are no exception to the rule. In order to create a differentiator amidst fierce competition and to avoid the risk of lagging behind, huge investments are being made in operating structures and processes in an effort to 'go digital'.
Hassan Jarrar
truly implementing a new DNA and embedding it in daily practise was an uphill battle. It required targeted and consistent communication efforts to ensure our employees were on board. Another challenge was the stringent regulatory requirements under a new-found framework established by the Central Bank of Bahrain, which mandated the industry to adopt open banking systems by the end of June 2019. And yet, we managed to complete the integration of backend processes in time, as well as emerge as the first bank in Bahrain to launch a fully digital bank, and the first to launch mobile account opening through face ID. The fact remains that banks are still reeling from the effects of the last global financial crisis. This has led to several mergers and acquisitions, simply to cope with the current climate. The technological advancements have completely disrupted the rules of the game, taking the playing field to an entirely new level, bringing in new players to the mix, such as mobile payment systems and FinTech companies that offer similar services. In addition to the more “traditional” threats such as volatile economies and geopolitical tensions, the wave of digital transformation taking the world by storm is pushing companies to innovate, and innovate quickly, in order to create a differentiator amidst fierce competition and to avoid the risk of lagging behind. Looking to the year ahead, on an internal front, we’ve completed the brunt of the work. Our employees are more engaged than ever before and we’re on schedule with regards to our digital milestones. As for the industry itself, we will continue to implement our simplification strategy, and hone in on our focus areas for 2020.
What will be your areas of focus for the bank next year? The truth is, at BisB our mindset resembles a tech giant more than a Bank. Our approach to business is unlike any other
“THE PERFECT FORMULA IS TO MIX THE AGILITY OF THE SMALLER BANKS WITH THE SCALE OF THE BIGGER BANKS TO WEATHER THE STORM. AS YOU MAY HAVE HEARD IN THE NEWS, WE ARE IN TALKS WITH NBB. AS OF NOW, NO OFFICIAL OFFERS HAVE BEEN SUBMITTED YET. BUT IT MAKES GREAT SENSE FOR BAHRAIN’S BIGGEST NATIONAL BANK AND ITS FIRST ISLAMIC BANK TO JOIN FORCES.” — Hassan Jarrar, Chief Executive Officer, Bahrain Islamic Bank
Gaining a competitive edge is also becoming increasingly difficult. The rules of the game have completely changed, taking the playing field to an entirely new level. The market for financial solutions has now opened up to include tech companies who have joined the race in digital payment solutions, putting even more pressure on traditional banks to become more innovative in their product and service offerings to maintain resilience and market share. To boot, in a region that is already overbanked, growing threats such as increasing geopolitical pressures and volatile economies are forces we still need to reckon with, leaving the bank with little choice but to have the right endurance through efficiencies and economies of scale. This is more challenging for smaller banks. The perfect formula is to mix the agility of the smaller banks with the scale of the bigger banks to weather the storm. As you may have heard in the news, we are in talks with NBB. As of now, no official offers have been submitted yet. But it makes great sense for Bahrain’s biggest national bank and its first Islamic bank to join forces.
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CORPORATE BANKING
Serving the international community Despite expected risks, Jan-Willem Sudmann, Head of International Banking Group at Mashreq Bank, believes in the region’s potential and continues to spread the bank’s wings globally
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Jan-Willem Sudmann
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hat are your views on the current market landscape? How has it affected your line of business at Mashreq?
The UAE, and Dubai in particular, is the financial hub of the region and serves as the gateway for investments into the wider Middle East, Asia and Africa region, thanks to its advanced financial sector infrastructure and its proximity to Europe. Gulf and international investors increasingly use Dubai as a base to make investments in these geographies across different sectors from telecoms and airlines to natural resources and agriculture. This has benefitted Mashreq tremendously, looking at the bank’s strong corporate lending profile and expertise in helping its clients. For instance, we have supported Dubai International Airport and Jebel Ali Port in developing infrastructure that is both honed to operational and commercial perfection and designed to capture and channel significant trade flows optimally. Mashreq has a very unique proposition, and our clients, from SMEs through to multinationals, know we aren’t just their ‘bank for the UAE’, but their financial partner in the GCC region and beyond. Since our inception, we have been careful to adapt and hone our strategy to suit each market. Our presence in Egypt is deep and long-standing, with a history that stretches back 30 years. Additionally, our strategy in India, a very competitive market, has shifted gears, to focus more on a selected set of services, notably transaction banking and trade finance. In terms of the share of overall revenue we generate outside the UAE, no bank can beat us. We are the region’s most international lender. Our roster of services also spans the corporate banking spectrum, from loans and deposits, to merger and acquisitions (M&A) and structured finance, to investment banking and trade finance. It is this geographic
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Partner Content
and product diversification that places us in good stead and helps mitigate the impact of slowdown in certain parts of the economies we operate in.
How has technology impacted the function of your department? How has it changed your role as head of Mashreq’s international banking group? Mashreq’s international banking business covers financial institutions (FI) and services globally, including corporate and retail banking services to customer segments in Bahrain, Egypt, Kuwait, Qatar and India. Furthermore, the international banking division caters to corporate clients in markets beyond these geographies. In addition, the international business segment recently established an operational branch unit in Bahrain. As part of its ongoing strategy, a corporate mobile banking app was launched in Egypt, Qatar and Bahrain. Additionally, Mashreq Matrix, an online banking platform for corporate clients, was introduced in Kuwait. In key African countries, we assisted in raising funds for the top banks as well as development financial institutions and continued to be the leading Middle East bank in the FI business. Technology is currently disrupting all functions across the industries and this is no different for the international banking division. Innovation is a core part of our strategy, and we are investing heavily in technology to offer value-added and holistic services to our clients in the corporate banking space. In line with this objective, we recently introduced a payments tracker application that enables our corporate customers to trace every transaction as it flows through global clearing systems. This means they can access the step by step transactional movement of their payments, minute by minute.
Where do you see this going in the next few years? As Mashreq continues to steadily move ahead with implementing its digital transformation strategy, it remains focused on improving the banking experience for all our customers through on-going investments in digitisation and technology. We believe that the response to our digital initiatives has been well-received by our customers who are embracing the convenience and flexibility that digital banking has to offer. We are blessed to be based in the UAE, a nation that has always been an early adopter of cutting-edge technology and smart services. With a favourable regulatory environment, complemented by an increasing demand from the market and cost efficiencies for services providers, we can expect that the state of digital banking will further strengthen, and as one of the oldest financial institutions in the country, Mashreq is committed to leading this change.
Looking ahead, what would you say are your biggest risks in 2020? • Trade dispute: At the moment, there is ongoing geopolitical instability, including continued uncertainty surrounding Brexit as well as the US and China trade dispute. We now seem to be trapped in a trade paradox in which politicians promote the benefits of free trade, but often act in the opposite direction. This paradox will continue to be an ongoing theme in years to come.
• Cybersecurity: The increased reliance on technology particularly in the financial industry poses serious risks of data theft and attacks. There is a need to build strong mechanisms to mitigate these risks and we believe cybersecurity needs to be embedded in the very culture of the organisations. With this in mind, the security apparatus of the UAE and local banks are working hand in hand to address these challenges. For instance, the UAE has established the National Electronic Security Authority (NESA) to address cybersecurity risks. • Compliance risk: The banking sector is facing issues related to money laundering and terrorist financing and there is an increased scrutiny of financial institutions by regulators and law enforcement agencies. Any breach poses significant risks for banks. Therefore, financial institutions will need to pay greater attention to their internal processes and systems, and make improvements to their governance frameworks to mitigate these risks. While the banking sector is evolving at a rapid pace, big techs and fintech companies are causing a disruption in the financial ecosystem. However, it is important that regulators create a level playing field for banks as well as for big techs and fintech companies.
“WE BELIEVE THAT EMERGING MARKETS WILL ACCOUNT FOR A FAR LARGER SHARE OF GLOBAL ECONOMIC ACTIVITY, PRESENTING BOTH CHALLENGES AND OPPORTUNITIES FOR BANKS TRADITIONALLY BASED IN DEVELOPED COUNTRIES.” — Jan–Willem Sudmann
What is your outlook on the market landscape? We believe that emerging markets will account for a far larger share of global economic activity, presenting both challenges and opportunities for banks traditionally based in developed countries. Whilst growth momentum is slowing down in China, its pace of economic expansion is still likely to grow at a relatively healthy pace when compared with other economies. Africa’s economic growth prospects are likely to be subdued and is expected to remain challenging. A recent World Bank report states that growth in Sub-Saharan Africa is projected to rise to a modest 2.6 per cent in 2019 from 2.5 per cent in 2018, which is 0.2 percentage points lower than the April forecast. The economic environment in the GCC region is likely to improve further amid ongoing reforms in countries such as UAE and Saudi Arabia towards improving the business environment, which will in turn drive further investments. We will witness more economic diversification activities, and a shift towards private sector job creation.
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TRADE FINANCE
Ensuring a successful and accessible market
The Middle East has seen a decrease in all exposure-, obligor-, and transactionweighted default rates from 2016-2017.
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Olivier Paul, Director, Finance for Development at the International Chamber of Commerce, outlines how industry-led advocacy is necessary for the fair regulatory treatment of trade finance, both in the Middle East and globally
T
he trade finance gap between the demand and supply of trade finance continues to make headlines. Standing at $1.5 trillion—according to the Asian Development Bank – micro, small and medium-sized companies (MSME) remain underserved, particularly across emerging markets. Indeed, results from the International Chamber of Commerce (ICC)’s latest Global Survey found that around 40 per cent of trade financing requests from MSMEs were rejected in 2017. On a regional scale, the Middle East faces a similar scenario—with 38 per cent of MSME requests being denied in the same year, versus 18 per cent overall rejection rate. Despite underlying good intentions, regulation and compliance requirements that have come into force since the 2007 financial crisis have led to the unintentional exacerbation of this financing gap. In their latest report, Banking regulation and the campaign to mitigate the unintended consequences for trade finance: A milestone report, ICC explains how banks, to minimise risks, are actively reducing their correspondent banking relationships in emerging markets and how the industry should—and can—work together with regulatory bodies to help alleviate negative impacts, promoting a fairer treatment of trade finance within banking regulation globally.
REGULATORY CONCERNS
PHOTO CREDIT: Matyas Rehak/Shutterstock
Following the 2007 financial crisis, the Basel Committee on Banking Supervision (BCBS) introduced the third instalment of the Basel Accords—a set of international banking regulation
38%
of MSME requests in the Middle East were denied in 2017 Source: International Chamber of Commerce
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TRADE FINANCE
The result of such uncertainty and variance has generated a level of “de-risking”, whereby financial institutions terminate or restrict business relationships with clients or categories of clients to avoid, rather than manage risk. And it is smaller companies, that typically lack collateral or sufficient credit history, which are the most affected by these decisions.
LOW RISK ASSET
Olivier Paul
“ACHIEVING FAIR TREATMENT OF TRADE FINANCE ACROSS REGULATORY FRAMEWORKS WILL, IN TURN, ALLOW FOR INCREASED ACCESS TO TRADE FINANCE FOR MSMES.” — Olivier Paul, Director, Finance for Development at the International Chamber of Commerce
recommendations first developed by the BCBS in 1988. These recommendations aim to address the shortcomings of the pre-crisis regulatory framework and provide a foundation for a resilient banking system. However, one of the most critical concerns for the banking industry, remains the lack of standardisation across jurisdictions. Indeed, the BCBS does not have the authority to enforce its recommendations, leaving it to national, or supranational, institutions to write these into their legislation and define the parameters for implementation. In turn, this has led to complex and varying regulatory frameworks across regions with the knock-on effect of placing an increasingly large burden on financial institutions as they are required to apply large internal resources and incur growing costs to ensure compliance. While such rules and regulations are essential for the safety and soundness of the international banking system, uncertainty and confusion over differing frameworks and standards can impede provision of trade financing. For example, of the Middle East-based respondents to the ICC Global Survey, 94 per cent highlighted international sanctions and counter-terrorism regulations as obstacles to banks’ growth prospects in financing international trade.
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This trade finance gap—and regulatory burden on the industry—exists despite trade finance’s track record as a lowrisk asset. As outlined in the ICC Trade Register (the latest edition of which was published in June 2019) trade and supply chain finance products retain low-credit-risk characteristics. In fact, default rates across regions are notoriously low. The Middle East, typically the highest ranking of regions surveyed, has seen a decrease in all exposure-, obligor-, and transaction-weighted default rates from 2016-2017. The collection of data, through tools such as the ICC Global Survey and Trade Register, is highly valuable when approaching regulatory bodies to advocate the best treatment of trade finance products. For example, based on data collected for the ICC Trade Register, ICC has successfully lobbied for fairer treatment of credit conversion factors (CCF) for trade finance products with the finalised Basel III rules. As these rules are being translated into national jurisdictions’ regulations, the industry must work together to ensure trade finance products receive the appropriate regulatory treatment. Other areas where ICC has spearheaded change include the net stable funding ratio (NSFR) for financial instruments supporting trade finance. The Basel Committee considered the required stable funding factor for letters of credit and technical guarantees should be determined by national legislators. This led to inconsistent rates being established inside the European Union (EU)—a variable NSFR of between five and 15 per cent—and other jurisdictions where the rate is typically flat at a maximum level of five per cent or non-existent. As trade finance is a low-risk business, and given the global impact of such decisions, ICC led industry discussions to lower the rate at EU level, leading to a significant rate reduction which now stands at between five and 10 per cent.
GOING FORWARD Much work is still needed to engage with regulatory bodies worldwide. And, with regulatory adoption and implementation processes taking up to a decade, the industry must maintain a proactive approach if it is to ensure the best outcome. Achieving fair treatment of trade finance across regulatory frameworks will, in turn, allow for increased access to trade finance for MSMEs. What’s more, as digital ecosystems seek to decrease the cost of trade finance and improve accessibility for all market participants, establishing adequate industry standards will be crucial to ensure interoperability and sustainable implementation. Industry-led advocacy, with the support from ICC, is therefore crucial to ensuring a successful and accessible trade finance industry. The Middle East is not exempt from such difficulties, and industry participants should engage with one another to help promote a fair and productive market. With the next ICC Finance for Development Banking Commission meeting to take place in Dubai next April, discussions are sure to take on a regional focus, notably at how the industry can work together to ensure fair treatment of trade finance within the Middle East.
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BRANDING & MARKETING
Salah Al Tamimi
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Sponsored Content
Too good to be true? In an era of over-information and 'too good to be true' promises, responsible marketing and engaging internal stakeholders remain a winning strategy for banking institutions in the Middle East, says Salah Al Tamimi, President, Brand Engagement and Communications at New Perspective Media Group
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wenty-five per cent cashback; ultra-low mortgage rates; unbelievable car financing rates. Is it really the case or is it too good to be true? In his case studies of five banks with presence in the UAE, Salah Al Tamimi, President, Brand Engagement and Communications at New Perspective Media Group found out the gaping holes in marketing and communication strategies of banking institutions that have inadvertently affected their prospects to nurture long-term customer relationship. “Overpromising and setting unrealistic promises is the classic mistake in marketing, especially in banking. While this helps in customer acquisition initially, this fuels a disappointed client base that adversely impacts the reputation of banks in general,” says Al Tamimi, who has 25 years of experience in banking and marketing communications. Before joining NPM Group, a 360-degree media, marketing research and communications agency, he was SVP for National Bank of Abu Dhabi and Head of Marketing Communications at Dubai Islamic Bank. “There were a lot of banks that offered 10 to 20 per cent cash back offers and very competitive mortgage rates. However, what many customers fail to realise is that even with such attractive cash back offers, there is always a cap on the amount of cash back and that it doesn’t translate to ‘if you spend AED 10,000, you will get AED 1000 cash back.’ In a lot of cases, the maximum cash back is AED 200. So, as a customer, if you do not read the fine print then you are in for some major disappointment. “Similarly, in case of mortgage rates, banks often offer highly competitive rates such as two to three per cent; however, what most customers do not realise is that such rates are often short term and last for only a year or two, leaving the customer to pay around six per cent from the second year onwards. This happens due to lack of proper communication,” Al Tamimi adds. Not only is there over-promising, the banking sector also faces the challenge of making it easier for customer to understand what the brand stands for or how the product is different from the rest. Over the years, the increasingly competitive banking environment in the region has encouraged many banks to over beef-up their marketing and communication messaging.
“WE HAVE WITH US TOOLS AND RESOURCES AND A VIBRANT TEAM THAT WILL HELP IN OUTLINING AND EXECUTING EFFECTIVE COMMUNICATION STRATEGIES THAT WILL NOT ONLY HELP IN GARNERING HIGH BRAND RECALL BUT ALSO IN ATTRACTING AND RETAIN A WIDE AND SATISFIED CUSTOMER BASE.” — Salah Al Tamimi
“Today, there are too many messages being communicated at the same time. Customers are having a hard time to understand them,” Al Tamimi explains. “At its core, marketing is about communication. It is about getting your customers to understand and be aware of the features and benefits of the product in a simple way.” So, in this age of information overload and multiple communication channels, how does one cut through the noise and be a brand differentiator? “This is where the expertise of an agency like New Perspective Media Group comes to the fore,” Al Tamimi said. “We have with us tools and resources and a vibrant team that will help in outlining and executing effective communication strategies that will not only help in garnering high brand recall but also in attracting and retain a wide and satisfied customer base.” Engagement is the key, both with external and internal stakeholders. Al Tamimi explains: “Often banks limit their communication plan to a launch or activation programme. What they do not comprehend is that a communication plan starts before the launch of a product or service. It starts with educating your employees as well as your consumers before the launch followed by the use of cross-selling tools. Later, at the launch stage, most banks carry out direct sales that are supported by social media and communication programmes. The engagement with the customers doesn’t end there. It also extends to after-sales service—that is what leads to a longterm relationship and not just mere customer acquisition.”
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ISSUE 06
A 360-DEGREE VIEW Patrice Amann, Sr Director, Financial Services Business Lead – EMEA, Microsoft
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TECHNOLOGY
A 360-DEGREE VIEW Patrice Amann, Sr Director, Financial Services Business Lead – EMEA at Microsoft, gives the lowdown on how banking will be in the future and the instrumental role technology plays on both sides of the coin
Patrice Amann
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hat trends do you see amongst financial institutions in the Middle East and how do you compare them to other parts of the world?
Financial services globally are under pressure and there is clearly a sense of urgency for financial institutions to change as ‘business as usual’ is no more a way to tackle the changes this industry facing—become more real time, open, interconnected and depending on politicaleconomic uncertainty. The major trend we see is first to deliver new and innovative customer and employee experience with speed and agility that addresses user needs. It’s really about being customer obsessed and moving from traditional banking where the products were in the centre of business models, to focus now first on customers and create differentiated expertise to be more predictive and prescriptive.
This means to take advantage of new capabilities such as cloud and artificial intelligence to build these new customer experiences that will deliver clear business outcome to both individuals as well as organisations. Banks will also have to be balanced in their focus on building new customer experiences by the need of managing the realities of risk, regulation, legacy and cost pressure. As financial services is a highly regulated industry, banks will have to address regulatory challenges and prove that they are staying in control of their business when implementing new technologies and capabilities offered by public cloud. In the last 10 years since the 2008 worldwide financial crisis, the total amount of fees paid by financial institutions due to non-compliance is around $300 billion. We are doing a lot to help our customers in their region, to build their public cloud capabilities in a trusted, secured and compliant way, by having a very open dialogue even with regulators in different countries and keeping in control of their operations. Financial crime is another hot topic that must be addressed in a much different way as systems and payments are going real time. In order to tackle these new cyberthreats, banks will have to review their KYC (know your customer) processes, implement new AML (anti-money laundering) capabilities, evolve their sanctions screening and transactions monitoring to be more accurate and anticipatory instead of suffering from their damages. Legacy systems are not agile enough to address new realtime needs and trends. Their maintenance costs are extremely high and they often prevent investment into innovation. They represent roughly 70 per cent of IT budgets to just keep ‘the lights on’. We see big efforts into modernising the legacy and building operational efficiency (through robotics process automation and digitalisation/simplification) to tend to reduce costs and time to deliver services to customers and organisations.
“BANKING IN THE FUTURE WILL BE ABOUT GLOBAL OPEN ECOSYSTEMS, WHERE BANKS AND FINTECHS WORK TOGETHER TO EXTEND VALUE TO THEIR CLIENTS BUILDING INTELLIGENT, REAL-TIME AND MOBILE BANKING EXPERIENCES IN THE CUSTOMER’S HANDS, IN A SECURED, TRUSTED AND COMPLIANT MANNER.” — Patrice Amann
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TECHNOLOGY
Public cloud is again a great option to take advantage in optimised compute and storage, as well to rethink applications in a more agile way. Digital transformation is a key trend and is fostering open banking scenarios enabled by public cloud and new technologies to enable new business models through ecosystems. Fintechs, insurtechs and regtechs, which were considered as disrupters, are agents of change and we see partnerships built with financial institutions to extend their value chain. A great example is probably Anglo-Gulf Trade Bank—a new entrant that has been able to build a bank in less than six months, running fully on the cloud and taking advantage of advanced capabilities to reshape and reinvent trade finance. Insurance is also part of the financial services industry, and we see new ecosystems emerging in this area. Insurers start to look at how to be closer to their customer journeys by extending their capabilities and offerings to health, automotive, real estate, etc. These trends are quite common to the overall financial services industry on a global scale, with some differences mainly due to where legacy systems and in-house build applications remain massive (large US banks, large European banks) and differentiated approaches from regulators and public cloud capabilities. Open banking is sometimes pushed by regulators (PSD2 in Europe) but became a global trend and Middle East banks understood early the competitive advantage of being more agile by adding value from the global ecosystem.
How do present trends amongst regional lenders differ from that of the developed world—such as US and Europe? Middle East financial institutions are more agile and intentional in their digital transformation than large GSIFIs (global systemically important financial institutions), often called ‘too big to fail’ banks, which struggle with the modernization of their legacy. US and Western European banks are still coping with a major tradeoff to embrace the public cloud advantage at scale, compared to building their own capabilities, thus having a very advanced and open dialogue with regulatory bodies. Some fist movers have now started their journey to the cloud, and as this is a fast-follower industry, we now see good traction and our new datacenters in the UAE have clearly be a large accelerator to embrace new public cloud capabilities. Large institutions like the ADGM, Commercial Bank of Dubai or Mashreq (to name a few public references) are accelerating in their digital transformation and embracing the public cloud to foster innovation and build new business models to better serve their customers.
Banks here are implementing their respective digital transformation agendas. Having a broader point of view, what should they tackle first in their transformation strategy? When you are part of the banking industry, the main assets are your customers. Banks should be customer obsessed by making sure they focus on the best differentiated customer experience to satisfy their clients, grow their potential, and stay in control of the way they operate a secured, trusted and compliant business. This has an implication on how you build and architect your data estate. Banks are not only keeping their customer’s money, they are sitting on a huge amount of data, of which a large part is personal data.
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PHOTO CREDIT: whiteMoccaf/Shutterstock
“WE WILL SEE ARTIFICIAL INTELLIGENCE AUGMENTING (NOT REPLACING) WORKFORCE AND STREAMLINING PROCESSES IN A MUCH MORE EFFICIENT WAY; ROBO-ADVISORY REPLACING STANDARD OR LOW VALUE-ADDED ACTIONS AND FUNCTIONS, SO THAT BANKERS CAN FOCUS ON HIGH RANGE AND TAILORED EXPERIENCES, AND COGNITIVE SERVICES TO HELP BUILD MORE INCLUSIVE CUSTOMER EXPERIENCE, INCLUDING NATURAL LANGUAGE, VOICE RECOGNITION AND TRANSLATION.” — Patrice Amann, Sr Director, Financial Services Business Lead – EMEA, Microsoft
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TECHNOLOGY
Data is becoming the new currency in today’s world and leveraging data to get insights and become more predictive will be key for all industries including financial services sector. Having massive data is great, but banks are urged to have clean data in order to use it in the best way to provide a better quality of service.
What does clean data mean? Data is useless if you are not able to transform it to information and insights—which means the need to understand the nature of what you are manipulating. Classification is the first step of having data strategy and building new datadriven strategy and capabilities. We see first movers moving from data to knowledge by building a new digital transformation technology value chain to ingest data, store it in a comprehensible way, process it to become relevant, and enable it to be visualised and projected in order to take the right actions.
“THE MAIN CONCERN OF MIDDLE EAST BANKS IS CUSTOMER SERVICE IMPROVEMENT. IT IS REALLY ABOUT HAVING A 360-DEGREE VIEW OF THE CUSTOMER IN ORDER TO DIFFERENTIATE ADVICE/VALUE PROPOSITION AND INCREASE SHARE OF WALLET PER CUSTOMER.” — Patrice Amann, Sr Director, Financial Services Business Lead – EMEA, Microsoft
Technology helps in giving sense to the data as well as bringing data to insight into prediction and prescription. When you apply artificial intelligence (AI) through machine learning (ML), you can really differentiate how you provide efficient and differentiated services to customers (from personalised advice, to forecast and predictive actions). Banks need to implement a data strategy in order to drive efficient digital transformation that has measurable business outcomes for their customers, as well as improve their own operational efficiency. This data strategy needs to be built in an ethical way by managing very carefully the privacy topic, as this has to do with compliance and regulation. Some jurisdictions ask for data sovereignty—meaning that data cannot be stored outside the country whereas others are accepting that the data can be stored in a much broader region. As an example, the FINMA regulation in Switzerland stipulates that data can be used within Swiss’ borders whereas across traditional Europe the regulators allow data being used/stored in any of the EU member states as long as it is not transferred outside the region. We see this happening as well in Middle East with individual approaches in UAE, Bahrain, Qatar and Oman. Public cloud technology and services can help here, by providing tools and control functions to stay on top on efficient data management.
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Having had conversations with Middle Eastern banks, what are their main concerns? The main concern of Middle East banks is customer service improvement. It is really about having a 360-degree view of the customer in order to differentiate advice/value proposition and increase share of wallet per customer. Operational efficiency is also very high on the CxOs agendas. With uncertain economic trends, the ability to modernise risk management, (in both financial market and operational risk areas) is key, and that needs to be more granular and in real-time. Finally, differentiation seems to become a key concern when we look into the future of financial services and digital transformation, and building ecosystems are seen as the best way to be more relevant and to develop a competitive advantage.
What are Microsoft’s future plans for the region? Microsoft’s plans for 2020 is about leveraging the company’s top abilities through our new Datacenters in Dubai and Abu Dhabi. This is a deep engagement in the Middle East, on top of our Datacenter capabilities in South Africa and from what we understand so far, this investment is well perceived among our customers across the region. Public cloud is not only a way to extend a bank’s datacenter and to have additional computing power and storage at cheaper cost, it is also a new way of building new applications, consuming shared micro-services and accessing advanced capabilities like artificial intelligence or cognitive services to create a differentiated customer experience. We will definitely help our customers to facilitate their cultural and technology shift from operating on their own to building their capabilities and improve their skills in using public cloud in their digital transformation and business innovation exercises. This will materialise through awareness for each sub-region and cloud framework adoption to build a strong foundation for new operating models and hackathons to foster innovation and improve skillsets of developers and data experts to harness the true power of the cloud. What our customers are looking for is how to leverage their data, the application of AI and ML, as well as better visualisation and all tools that transform data into insight. That is the most important service we are leveraging to our customers and largest partners.
How do you envision banking in the future? The ‘north star’ of modern banking is to become truly customer obsessed and to provide much more intelligent services. Customer experience, after being frictionless, will become more pervasive, real-time, contextual, predictive, open, interconnected and technology will play a key role. We will see artificial intelligence augmenting (not replacing) workforce and streamlining processes in a much more efficient way, robo-advisory replacing standard or low valueadded actions and functions, so that bankers can focus on high range and tailored experiences, and cognitive services to help building more inclusive customer experience, including natural language, voice recognition and translation. Banking in the future will be about global open ecosystems, where banks and fintechs work together to extend value to their clients building intelligent, real-time and mobile banking experiences in the customer’s hands in a secured, trusted and compliant manner.
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TECHNOLOGY
SCALE DIGITAL HEIGHTS WITH AI Artificial Intelligence to play a key role in accelerating and scaling digital transformations across an enterprise, explains Rajashekara V. Maiya, Vice President & Head - Business Consulting Group at Infosys Finacle.
I
t is the case with most new technologies that early adoption does not progress into widespread acceptance. Today, after a few years of intense experimentation and pilot projects, digital is also poised at the threshold of scale. Getting over the hump will be a challenge for most organisations, and especially for traditional incumbent banks. The 2019 edition of the EFMA Infosys Innovation in Retail Banking Study found that only 17 per cent of banks had achieved digital transformation at scale. In our view, the only way to scale digital across the enterprise is comprehensive transformation of all the following: people, organisation, operations and technology landscape. Artificial Intelligence (AI) can play a key role in enriching these transformations and taking them to success.
UPGRADING THE PEOPLE ORGANISATION WITH DIGITAL Possibly for the first time ever, technology is defining a person’s identity. The current generations are digital natives, with more access to technology, information and (collective)
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influence than many organisations. This is in sharp contrast to the pre-digital era when only large, cash-rich enterprises could afford the latest technologies. Now, as digital natives enter the workforce, they are ‘consumerising’ the enterprise by bringing in technologies, devices and applications that are more advanced than what the organisation is using. This can cause significant discord within the enterprise, not just within its existing technology landscape but also among its existing staff. Remember that most bank personnel are digital immigrants (familiar with personal, but not social, computing), who have been forced to deal with digital native customers, and now, with digital native colleagues. They need to be brought up to speed with the digital age through training, empowerment and enablement in order to prevent a generational conflict. There is also a great opportunity to employ AI technologies such as machine learning, deep learning, robotic process automation (RPA) and chatbots to process customer data into fine insights at a scale and speed that is impossible to achieve manually, and empower bank personnel to understand their digital-native customers like never before.
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Sponsored Content
Thirdly, the organisation is focusing less on being a bank and more on getting banking done. Many financial offerings that were only manufactured and delivered by banks are now being offered by non-banking players from big tech, fintech, retail, telecom and other sectors. And the consumer doesn’t care as long as the need is met. AI technologies are enabling these organisational shifts at scale by automating processes, managing human interactions, providing deep insights and triggering next best actions. In the last couple of years, banks have turned their attention to the transformation of corporate banking. Having lost retail ground to new-age competitors who offer better service, superior experience, and lower cost, incumbent banks are now trying to protect the corporate business, which contributes more than 60 per cent of their revenue and profit. Besides, erecting entry barriers and raising the bar with innovative products and initiatives, they are strengthening their technology landscape to meet any competitive challenges in the future. Investing in AI for improving insights and understanding performance across business and customer segments is a key part of that preparation.
TRANSFORMING OPERATIONS FOR EFFICIENCY In recent years, traditional banks, especially in Europe and the United States, have struggled to meet even the cost of equity, let alone offer a decent return to investors. Amidst a negative interest rate environment and market saturation, banks are battling new competitors operating on a lean model and very low cost-to-income ratios. It is therefore imperative for incumbent banks to transform their operations to raise productivity and efficiency to meet the new benchmarks as well as placate the investor community. AI is key to this transformation not only because it can take out many operational costs through automation, but also because it can help banks to decide which operations to onshore, offshore and rightshore for maximum impact.
BRINGING TECHNOLOGY UP TO SPEED
Only
17%
of banks achieved digital transformation at scale Source: EFMA Infosys Innovation in Retail Banking Study, 2019
ENABLING THE ORGANISATION TO MAKE IMPORTANT SHIFTS With open banking taking hold in many parts of the world, banks are moving from the traditional pipeline model to a new, platform-based business. Consequently, activities and relationships that used to be handled directly by the banking organisation are now being managed by its partner ecosystem. Another major change in the banking organisation is that it is shifting focus from engine to experience, that is, from back-office operations to front-end engagement, and from efficiency-building solutions for core banking, wealth management and corporate banking operations to experience-creating technologies like mobile commerce, internet of things and blockchain.
In the EFMA Infosys survey, 70 per cent of banks said that even today, legacy technology and a lack of agility were their biggest barriers to transformation. A bank cannot run on legacy systems and processes and still hope to achieve digital at scale. A comprehensive rethink of the technology landscape to include and integrate cloud-native, open banking systems, is a must. Only then can the bank get the advantage of ecosystem banking, where it has a host of partners and collaborators working for it. The new, scalable landscape should be cloud-first, mobilefirst, open source-first and customer-first. And once again, it is AI that will make it happen by calculating how much cloud capacity is needed and provisioning it automatically; by determining the best way to deliver mobile services; by identifying opportunities for RPA; and by processing big data into insights to help the bank turn truly customer-first. To summarise, a bank can scale digital across the enterprise by transforming its people, organisation, operations and technology. Using AI technologies at every stage will accelerate and improve the outcome of these transformations.
DOWNLOAD THE REPORT Efma Infosys Finacle Innovation in Retail Banking 2019
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EVENTS
GITEX Technology Week
Fadi Hani, Vice President - Middle East, Africa & Turkey at Avaya, talks about their partnership with Mashreq on the region's first digital engagement banking bot.
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PHOTO CREDIT: Andrew Cover/CPI Financial
We catch up with some of our partners at the event on their new initiatives and the current landscape in their respective markets
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PHOTO CREDIT:Florante Magsakay/CPI Financial PHOTO CREDIT:Florante Magsakay/CPI Financial
Hoda Mansour, Managing Director, Egypt at SAP, speaks to Nabilah Annuar, Editor of Banker Middle East, about SAP's contribution to Egypt's tax reform agenda.
T
he 39th edition of GITEX Technology Week 2019 was held under the theme ‘Synergising the Mind and Technology Economy,’ and the exhibition showcased the latest e-projects, AI initiatives as well as 5G applications and cloud computing. Avaya partnered with Mashreq Bank and Koopid to introduce the region’s first digital engagement banking bot—a new banking experience that represents a giant leap forward in enhancing customer experience. The new system will enable Mashreq Bank’s customers to access banking services and complete service requests almost entirely through an artificial intelligence-powered (AI) agent. “Virtual banking and rich visual automation experiences are the greatest disruptors for organisations and self-servicebased industries,” said Venky Krishnaswamy, the CEO of Koopid.
Mohammed AlKhotani, Managing Director, Saudi Arabia at SAP, discusses Saudi's Vision 2030 and how SAP is supporting it.
Avaya started that the ‘chatbot agent’ will be able to verify customers, complete transactions and sign up for new services on the customer’s behalf. Fadi Hani, Vice President - Middle East, Africa & Turkey at Avaya, said, “Mashreq has always been a step ahead of every technological development, this latest deployment sees the bank dive headfirst into the emerging AI category and use the latest tools to take the lead on digital customer engagement.” Similarly, the new solution is expected to pave the way for the bank to open new channels whilst allowing its customers to complete banking transactions. “The new chatbot will not only play a role in transforming banking self-service, but also will make banking more intuitive, easy to use and enjoyable when it comes to performing tasks such as inquiring about your balance on an account, or requesting a statement or applying for a product,” said Sumit Bhatia, the Head of Direct Business Channel at Mashreq Bank.
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Sandeep Chouhan, EVP - Group Head Operations & Technology at Mashreq Bank, tells Banker Middle East, about the bank's new intuitive chatbot.
PHOTO CREDIT:AVAYA
EVENTS
“MASHREQ HAS ALWAYS BEEN A STEP AHEAD OF EVERY TECHNOLOGICAL DEVELOPMENT, THIS LATEST DEPLOYMENT SEES THE BANK DIVE HEADFIRST INTO THE EMERGING AI CATEGORY AND USE THE LATEST TOOLS TO TAKE THE LEAD ON DIGITAL CUSTOMER ENGAGEMENT.” — Fadi Hani, Vice President - Middle East, Africa & Turkey, Avaya
The solution deployed by Avaya in partnership with Mashreq was among many innovations that the digital giant showcased at GITEX Technology Week 2019. Additionally, the UAE’s Ministry of Finance (MoF) also participated at the GITEX Technology Week 2019, where the ministry reviewed the latest electronic and smart solutions, as well as best tech, practises adopted to improve the level of services provided to customers. During GITEX Technology Week, the ministry launched new smart and innovative initiatives that reaffirmed Mo’s keenness to develop its services and adopt the best digital transformation in line with the initiative of HH Sheikh Mohammed bin Rashid Al Maktoum in transitioning from e-government to smart government. HE Younis Haji Al Khoori, the Undersecretary of the Ministry of Finance, said, “The Ministry of Finance takes a proactive and forward-looking approach and adopts digital solutions and innovative initiatives that enhance the efficiency and quality of the services provided as it is
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committed to achieving the highest levels of happiness among customers.” Similarly, SAP’s Hoda Mansour and Mohammed AlKhotani also shared their views on their respective markets—on how SAP is supporting financial inclusion initiatives and tax reforms in Egypt and how SAP is helping the industry align themselves with Saudi Arabia’s Vision 2030. The ministry's participation at GITEX also included specialised workshops that inform UAE nationals and residency about the smart and innovative services as well as projects implemented by MoF. The ministry also organised discussion sessions to deliberate and present the pioneering initiatives launched by the ministry to cater to various segments of society. “The ministry's team will work directly with the public to get their feedback and suggestions on the services provided, and to introduce them to the most prominent smart technologies launched by the ministry that were designed to serve the public,” said Al Khoori.
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WEALTH ARABIA
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EVENTS
Banker Middle East Summit: Transforming banking for the new consumer Fintech companies are becoming an integral part of the banking industry as financial institutions look for simpler, quicker and more efficient services in a fast-changing digital world
T Peter Smith, Managing Director of Policy, Strategy and Risk, Dubai Financial Service Authority delivers his keynote address.
“COLLABORATION BETWEEN BANKS AND FINTECHS IS THE KEY TO THE FUTURE OF BANKING. BANKS HAVE THE CUSTOMER BASE WHILE FINTECHS HAVE CHEAP AND EFFICIENT SERVICE SOLUTIONS.” — Sonny Zulu, Managing Director, Retail Banking-UAE, Standard Chartered
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he banking industry is buzzing with talk and activity on fintech strategy, experimentation, as well as investment, acquisition and integration. No function, service or department seems immune to the wave. According to EY, 70 per cent of banks in the region are open to integrating fintech innovations that could help enhance consumer experience and streamline their operations while 60 per cent of the lenders seek to enhance customer experience and reduce cost through a partnership with fintech. Fahad Al Semari, Riyad Bank’s Chief Transformation Officer, said that the consolidation trend may create more acquisition opportunities for financial institutions and other fintechs interested in absorbing their competition or expanding capabilities and offerings. Captains of industry and experts across the UAE’s banking and fintech sectors gathered for the Banker Middle East’s inaugural BME Summit to get insight into the vital trends shaping the future of the banking industry across the region. The inaugural summit saw over 30 renowned speakers delivering keynote presentations, lead panel discussions and deliberate on key case studies in an event that also served as a networking platform for fintech experts, senior banking executives as well as regulators and visionaries. The summit clarified the paradigm shift in the banking sector with topics offering in-depth understanding of how new-age technologies are changing the banking landscape. Additionally, the BME Summit also stressed the need for the correct infrastructure to facilitate digital payments, as well as the value of big data analytics to enable banks to offer new and personalised services to customers.
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PHOTOS CREDIT: Florante Magsakay/CPI Financial
Giselle Bou Ghanem, Avaya’s Customer Engagement Solution Sales Manager, said, “Establishing collaboration with fintechs is a must to develop a sustainable financial sector. However, this requires identifying the bottlenecks in implementing the integration of banking services and fintechs’ cutting edge technology.” Additionally, fintech companies are becoming an integral part of the banking industry that is looking to find simpler, quicker and more efficient services for customers in the fastchanging digital world. Sonny Zulu, Standard Chartered’s Managing Director, Retail Banking-UAE, said that collaboration between banks and fintechs is the key to the future of banking, banks have the customer base while fintechs have cheap and efficient service solutions. The Deloitte Centre for Financial Service stated that fintechs are often serving as the spark—and in some cases the engine— of true transformation within a growing number of institutions. “Fintechs are increasingly seen as an opportunity to differentiate a critical source of innovation helping to infuse a more agile, entrepreneurial mindset into what has
“70 PER CENT OF BANKS IN THE REGION ARE OPEN TO INTEGRATING FINTECH INNOVATIONS THAT COULD HELP ENHANCE CONSUMER EXPERIENCE AND STREAMLINE THEIR OPERATIONS.” — EY
traditionally been a conservative industry that is slow to change,” said Ahmad Abu Eideh, the Chief Executive Officer of United Arab Bank. Banks are leading or participating in several accelerators, incubators and training programmes to get early access to technology and talent without taking any significant stake in the fintech companies. However, for fintechs, such arrangements provide easy access to resources, data, funding, space and networking opportunities to test and showcase their prototypes.
Nabilah Annuar, Editor of Banker Middle East, along with Sanjay Malhotra, Chief Digital Officer of Dubai Islamic Bank, Muraleedhar Pai, Executive Director of Maveric Systems and Subramaniam Krishnamurthy, Head of Global Transaction Services at National Bank of Fujairah discusses the fundamental impact of big data and analytics on banks and its primary functions.
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EVENTS
A panel discussion on building an ecosystem of sustainable partnerships to drive innovation and trasformation.
“ESTABLISHING COLLABORATION WITH FINTECHS IS A MUST TO DEVELOP A SUSTAINABLE FINANCIAL SECTOR. HOWEVER, THIS REQUIRES IDENTIFYING THE BOTTLENECKS IN IMPLEMENTING THE INTEGRATION OF BANKING SERVICES AND FINTECHS’ CUTTING EDGE TECHNOLOGY.” — Giselle Bou Ghanem, Customer Engagement Solution Sales Manager, Avaya
These types of collaborations are a valuable addition to the internal innovation programmes of the financial institutions who seek to increase and maintain their customer relevance. In a report, PwC said that collaborations and co-developments are on the rise across the GCC region—fintechs are no longer viewed as disrupters to incumbent financial institutions. In March 2019, Emirates NBD partnered with DIFC FinTech Hive to launch a new programme certifying fintechs that collaborate, co-create and innovate using the bank’s application programming interface (API) sandbox. Moody’s said that Emirates NBD’s (A3, stable) collaboration with fintech start-ups, which all use the bank’s API sandbox, is credit positive and it will help the lender develop new digital products and services to meet evolving customer expectations, supporting the bank’s profitability. The BME Summit 2019 also highlighted that regulators see the benefits of—and expect banks to use—regulatory technology (regtech) to improve processes and an array of rapidly advancing technological innovations, from robotics to artificial intelligence (AI) and machine learning (ML) to offer banks new ways to transform.
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Wai Lum Kwok, the Senior Executive Director (Capital Markets), FSRA, Abu Dhabi Global Markets, said, “As a regulator, my primary objective is safety and soundness but if innovation comes along, I can enhance and improve the regulatory system—so I will try and explore an innovation then put in place a sound an secure system. So, this is the regulator’s way of balancing innovation, regulation and collaboration.” “AI and ML allow fintechs to build scenarios that give them some form of predictive analytics and predictions as to how a customer is behaving and how the customer is likely to behave in the future,” added Bhavin Shah, Partner Financial Services at Roland Burger Middle East. Similarly, the relationship between banks and digital payments service providers is no longer about competition but it’s now about collaboration through adopting digital services that enables customer needs are met. “Customers prefer seamless and frictionless very fast transactions—this is what every financial services provider is adopting to enhance digital transformation,” said Alan Al Rousan, Account Director, SWIFT. Being at the heart of the financial ecosystem, we realised that banks understand that they are losing part of the market share it could be domestic payments, remittances or instant payments, as a result, we see lenders are now being innovative, collaborate with fintechs and other digital financial service providers, added Rousan. The payments landscape is also experiencing a wave of innovation, driven by technological advancement and consumer desire for on-demand banking and payment solutions. As a result, fintechs are challenging the long-held role of incumbent banks. Consolidation and platform plays are more likely to occur across the GCC as fintechs begin to seek traction in an increasingly competitive market and incumbents look for more sophisticated partners.
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