BME 100 2017 by CPI Financial

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Group CEO & Managing Director of Bahrain-based Ahli United Bank, notable as one of the region’s key players with significant operations in several countries. Finally, with a strong performance in the BME 100 itself, we hear from Steve Bertamini, appointed as CEO of Al Rajhi Bank in May 2015, who outlines the strategies the bank has adopted under his leadership. You will also note a different format to our survey with this publication. We are presenting the findings of our analysis in a more graphical format rather than as a series of tables in the hope that this will more easily represent the results in an engaging fashion. The data summaries before you were prepared with a cut-off date for collection of the first week in April in order for the analysis to be completed in time for the Banker Middle East Industry Awards 2017. This did, in fact, result in a small handful of institutions not being included in our analysis because their results were not published until mid-April and even into May. This is an issue we will be addressing in order to improve our analysis still further. Our top 100 banks represent institutions that are both licenced and domiciled with the countries that we cover, including the six countries within the Gulf Cooperation Council, Jordan, Lebanon, Palestine and, as mentioned above, for the first time, Iraq. The largest representation of institutions is from the UAE, which

dominates our listings in the BME 100, with fully one-fifth (20 banks) domiciled within the UAE. Bahrain fell to second place with 16 banks, down from 20 the previous year. Introducing our previous survey last year, I commented that the dominating factor governing the economic performance of the GCC nations continued to be the price of oil. This remains the case but the way we view the significance of oil to the region’s economies has changed and is continuing to change. As you will read, for our top bankers, the slump in the oil price in 2015 and 2016 was ‘a wake-up call’, according to one, and we are now in the ‘post-oil economy’ according to another. While for certain economies and industry sectors, the adjustment comes with some pain, it is perhaps the most necessary challenge that the banking industry and the regional economies at large face. Now is the time that the issues of establishing sustainable industries, diversified economies, vibrant jobs markets and relevant capital markets need to be addressed. Bankers and their banks will play a key role in these exciting times. Finally, I would like to offer my thanks to my colleagues Nadine Abouzeid and Shais Memon for their work in the compilation and analysis of the data on which this research is based. Robin Amlôt CEO, CPI Financial www.cpifinancial.net

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ISSUE 2017

elcome to the eighth edition of our survey of the top banks in the Middle East. We continue to enhance and expand our coverage with this edition. We have expanded our country coverage, including a bank in Iraq for the first time, a step we aim to build upon in future surveys. A change to our presentation this year is a step into the minds of the key executives behind some of the most successful banks in the region. We have conducted in-depth interviews with some of the key players in the Middle East banking sector, offering insights into their aims, ambitions and what they see as the key challenges they face. Among our top bankers in this issue, at this year’s Banker Middle East Industry Awards, Dr. Adnan Chilwan, Group Chief Executive Officer of Dubai Islamic Bank received the CEO Award Excellence in Islamic Banking. Under his leadership, Dubai Islamic Bank has been in our top five in the BME 100 for the last three years. Another of our individual winners at the Banker Middle East Industry Awards was Patrice Couvegnes, Group CEO & Board Member, Banque Saudi Fransi who was awarded Outstanding Contribution to Banking and Finance Award. You will also find other interviews here, including comments from HE Abdul Aziz Al Ghurair, CEO of Mashreq, the oldest and largest privately-owned bank in the UAE. We also spent time with Adel El-Labban,

introduction

WHAT THE REGION’S TOP BANKERS ARE THINKING…

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Banks

ISSUE 2017

contents

LEBANON

BME 100 CONTENTS 06 12 16 20 26 28 30 32 34 36 42 46 50 54 60 64 68 72 76 82 84

Banks

01 Bank

Banks

IRAQ

PALESTINE

Banks

JORDAN KUWAIT

Banks

BAHRAIN

QATAR

UNITED ARAB EMIRATES

SAUDI ARABIA

DIB: Shariâ&#x20AC;&#x2122;ah compliant DNA

Banks

OMAN

Banque Saudi Fransi: Leading transformation Mashreq: Embracing the future Ahli United: The post-oil world and other paradigm shifts Al Rajhi: The transformation of Al Rajhi Bank Introduction to InvestBank Top banks

Map of the top banks Movers and shakers Overview and methodology UAE analysis KSA analysis Bahrain analysis Kuwait analysis

Oman analysis Qatar analysis Jordan analysis Lebanon analysis Palestine analysis Iraq analysis Islamic banks

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Dubai Islamic Bank is the longest-established modern Islamic bank. It is also one of the leading financial institutions in the Middle East. Robin Amlôt spoke with Group CEO Dr. Adnan Chilwan about the bank’s growth strategy

ISSUE 2017

top banker - UAE

SHARI’AH-COMPLIANT DNA

n Robin Amlôt spoke with Dr. Adnan Chilwan, Group CEO of Dubai Islamic Bank.

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ubai Islamic Bank (DIB) is one of the top five banks in the Middle East region on the BME 100 performance metrics and it has been for the past three years. In addition to impressive growth in its domestic market in UAE, the bank is working to establish its crescent of operations under its control that spans from East Africa to Southeast Asia. Dubai Islamic Bank celebrated its 40th anniversary in 2015. It is not only the world’s first modern Shari’ah-compliant player but also the largest Islamic bank in UAE with group assets of more than $50 billion, a market capitalisation of nearly $8 billion, and workforce of more than 8000 employees across a network of branches and entities in all emirates as well as growing international operations in Asia, the Middle East and Africa. DIB has operated a whollyowned subsidiary, Dubai Islamic Bank Pakistan, since March 2006. In 2015, the bank joined the ‘Billion Dollar Club’, a membership it retained in 2016 with DIB showing profits of more than a billion dollars each year.

DIB is one of the small number of ‘international’ institutions in the region’s financial sector. Is the bank able to leverage economies of scale as a result?

If you actually look at when we started expanding internationally, it has been a decade but in the last three years we have really gained traction. We now operate in seven countries. We were latecomers in this, given that we were one of the fastest-growing franchises in the region but we had to focus on our base at home. Having captured everything that we could in the UAE it was time for us to venture out. We started to look at operations outside our traditional borders. We now operate within Far East Asia in Indonesia, we have presence on the

ground in Pakistan, South East Asia and we recently started to venture into East Africa. We definitely see economies of scale but for us it is a different strategy. There are three distinct ingredients that we look for when we look at international expansion: firstly, we want to make sure that we take our brand name along with us, so Dubai Islamic Bank wherever we operate you will see there is consistency in the way people would

There is a myth that Islamic banking is for Muslims alone and that Islamic banks cannot offer what a conventional bank can offer. This is where technology, product innovation and structuring, come in. We worked very closely with Shari’ah scholars all around the world. n Dr. Adnan Chilwan, Group CEO, Dubai Islamic Bank

see us; secondly, we need to have management control—we do not believe in passive investments, we want to make sure we drive the strategy of the organisation in line with the overall group strategy set within the UAE; thirdly, we want to make sure that Islamic finance and the norm of Islamic finance penetrates into new markets. If these three pillars of our strategy are met vis-à-vis international expansion, that is where you will see us operating. While economies of scale are very important, we want to be different from what others have done and that needs to come

out of the very niche that Islamic finance has been in. Islamic finance has always been a very niche kind of discipline, we are trying to position ourselves differently. Whilst we are a Shari’ah-compliant bank, we want to make sure that we position ourselves as a bank for all. That has been one of our strategies that has worked for us both locally and internationally.

Looking to your international activities, in January 2017 DIB exited its investment in Jordan Dubai Islamic Bank. What was behind the decision to withdraw?

When we got into Jordan in 2008 we came with a clear mandate to set up a global institution that could implement best practices that we had established within the UAE. Having set up Jordan Dubai Islamic Bank (JDIB) we were quite passive in managing the institution. With a 20 per cent stake you are neither here nor there. With a very limited contribution to the future of JDIB we realised that it was an opportune time for us to exit our investment having been in the country for about 10 years. Capital is finite. You have to make sure that you reinvest capital for the benefit of the shareholders in countries where ROEs are maximised. It was not a decision we took overnight. It was always part of our plans when we entered Jordan, we wanted to make sure that we enhanced the profitability of the Jordanian venture and, having achieved that within a decade, it was the right time for us to leave it in the capable hands of the existing shareholders and look at expanding elsewhere. [Jordan Dubai Islamic Bank was the legal successor of The Industrial Development Bank which had originally been established in Jordan as a conventional bank in 1972. Following DIB’s withdrawal, the bank has been rebranded as Safwa Islamic Bank.] cont. overleaf

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ISSUE 2017

top banker - UAE

cont. from page 7

In March 2017 Indonesia’s Bank Panin Syariah rebranded to Panin Dubai Syariah Bank (PDSB). DIB holds a 40 per cent interest here. What growth do you expect in Indonesia? Indonesia is a very exciting market. It is the largest, most densely populated Muslim market, with around 250 million Muslims. When we entered into Indonesia, I was told that it is a market where Islamic banks are quite small, where Islamic banking is underpenetrated—so why go in to Indonesia? These are exactly the right reasons. The Indonesian market has tremendous potential. It is a market which has something in it for everyone. Given that you have the right positioning you cannot go into Indonesia and be just another player. You have got to bank on all the experience that you have gathered over the four decades that we have been in existence. Technology also plays a very large part. Last but not least, the regulator in Indonesia is quite supportive of Islamic finance. It is on the national agenda. If you look at the current five per cent penetration of Islamic finance, it is just the tip of the iceberg. Organisations in the past that have tried to venture into Shari’ah compliant banking in Indonesia were not as successful as they wanted to be because of their positioning. Given the size and potential of the Indonesian market, you cannot just do faith-based banking in Indonesia. There has to be a value proposition that makes sense to everybody. I am not saying that we would ever compromise on Shari’ah compliance, that’s within our DNA but you do not need to keep nailing the point that we are an Islamic bank, so you are a Muslim and you should bank with us. The success of DIB within the UAE has been for that right reason, because we have changed our positioning. That’s the reason why

n Robin Amlôt and Dr. Adnan Chilwan, Group CEO of Dubai Islamic Bank.

after being in existence for four decades you have actually only taken notice of the bank in the last three or four years, because we have changed our positioning. We have not compromised Shari’ah, we have not compromised Islamic banking jurisprudence but what we have done is we have understood what the customer wants. We are now fighting tooth and nail to make sure we compete with the largest players within every region we are operate in and try to bank everyone. If that’s the positioning we follow in every geography we enter into, including Indonesia, I think the sky is going to be the limit.

The bank has very recently moved into a new geography; in May 2017 DIB was granted a banking licence by the Central Bank of Kenya to operate a subsidiary, DIB Kenya Ltd. What’s the next step and what opportunities do you see?

From where we sit within UAE, if you visualise it geographically, we have always had ambitions to connect the dots. We always wanted to make sure we ventured into Far East Asia

and East Africa. It is an ambition that Dubai itself has in order to make sure it captures the trade flows between these two continents. Being a bank in the UAE, we subscribe to that natural ambition and we want to make sure we can play a part in enhancing and capturing these trade flows. Within the UAE we have gained momentum, as everyone has witnessed, we had already ventured into Far East Asia, East Africa was the next logical point. When you look at Africa as a continent, everyone talks about ‘the promise’ and ‘Africa rising’, you have to choose between West and East. From where we are geographically located, East Africa makes more sense. Now, when you look at the countries in the East Africa belt; Kenya, Tanzania, Rwanda, Burundi, Malawi; Kenya stands out. It is a country that stands out in its regulatory framework, the stability in the country and also the welcome that the Kenyan regulator has for an institution coming out of the Middle East. We worked alongside the regulator and now have a licence to operate, the bank is up and running, it is already open and we have ambitious

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plans for East Africa. Kenya is just the start, we are also looking at the East African belt, but we have to walk before we can run, so we are taking it at the right pace and making sure that the organisation actually comes out of this gestation period. Kenya is going to be a country we will be focussing on in years to come.

Dubai Islamic Bank is the largest Islamic bank in the domestic market in UAE. Have you reached the limits of growth in local terms?

Not really. I have immense belief in the leadership of the UAE. If you look at the last four to five years, the world has gone through all sorts of global financial crises, we’ve had economic slowdowns in many countries within the world. Within the UAE itself we have not been insulated from the global economy, we have seen commodity prices falling and oil volatility, we have seen the impact of that on liquidity and asset quality. Despite all of this, if you look at every financial institution within the UAE, it has become stronger and it has gained momentum and gone a step further. DIB embarked on a growth strategy in 2014, that was the peak of this ‘mini crisis’, what did we do, we put a step forward and we started growing. Any analyst or any consultant coming to you would have advised that this is not the time, you have to consolidate and take a step back. We did quite the opposite. Why? Because we believe in this country, we believe in the leadership and we knew that the reliance on oil was not the only thing that the country ever did, it diversified. If you look at global macroeconomics of the UAE you will see it has diversified its reliance on oil into other sectors. That is exactly what the bank did, we started looking at other sectors and not put all our eggs in one basket.

I always say, if you want to have something you never had, you have to do something that you never have. In 2014, 2015 and 2016 we grew. I feel that if we did that in the most tumultuous times then 2017, 2018 and 2019 are going to be relatively easier. I see that there is domestic growth on the agenda not just for DIB but for every institution that has got this right.

and beyond when the bank started growing, and now 2017 and beyond the bank will continue to grow. What we have learned is you need to be in the right place at the right time. One of the most important ingredients and the secret of this success is capacity creation. We have made sure that we have always been ahead of where the market is in terms of creating capacity. By that I refer to

We are growing faster than the market compared to conventional players. That positioning was key for us and had to be done both externally and internally. We did the right thing and the results speak for themselves. n Dr. Adnan Chilwan, Group CEO, Dubai Islamic Bank

What do you identify as the key opportunities in the next few years, where will you focus your energy?

If you look at the domestic market, it is always going to be our key market. Over the next five to 10 years we see the UAE contributing to our group profitability like never before. In addition, we will also focus on three major international countries, so in addition to UAE, South East Asia which is Pakistan, Far East Asia; Indonesia and East Africa which is Kenya. If there is anything on the horizon, we will keep looking at opportunities and see if there are organic or inorganic growth opportunities and we will evaluate that at the right time. Within the UAE and each of these markets, with a strategy that is tried and tested, we have embarked on the second phase of our growth agenda, called ‘growth 2.0’, which means we need to do more of the same. One thing that we’ve actually done, we have learned from our experiences in the past, from 2008 when the bank was consolidating to 2014

capital and liquidity. If you have these two in the right form, not excessive capital, not excessive liquidity, you should not be undercapitalised and you should not have inadequate liquidity, if you have this in the right form that capacity would allow you to move forward at a pace you are comfortable doing.

How do you see the business of Islamic banking changing/ evolving over the coming years? When we embarked on our growth strategy in 2014, one of the biggest challenges was to change the perception that people had, not just externally but also internally. Whilst, we are an Islamic bank and we will always continue to be an Islamic bank, there’s no compromise on that. We wanted to make sure that we open our doors for all, not just by opening physical doors but by making people understand that this is a bank that has something in it for them. We started to understand what people are looking for and positioned ourselves to make sure that we are in each

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ISSUE 2017

top banker - UAE

cont. from page 9

and every segment of the banking pyramid—we are a very strong retail and wholesale bank and we make sure we understand what customers are looking at. When we looked around, when we started to grow, our biggest competition was not the Islamic banks in the regions we were operating in, they were the large conventional banks. When we started to compete with these conventional banks, there was this misnomer, there is a myth that Islamic banking is for Muslims alone and that Islamic banks cannot offer what a conventional bank can offer. That is where technology, product innovation and structuring came in. We worked very closely with Shari’ah scholars all around the world. We said that if you want to make Islamic finance the norm you have to stop comparing it with conventional banks and the conventional system, saying we are a better alternative. That’s not how you are going to capture the masses. You will capture that market if you tell them that what you get in other banks, you can get in an Islamic bank and it offers the same thing at probably a better value proposition. When we changed that positioning we started making inroads into the retail space, consumers started understanding Islamic banking is for all. We are not preaching here. It is a mode of operating. At the same time, the wholesale banking customers also realised that this is not that complicated, it is not something that we don’t understand. Over the last three to four years that’s how we have gained market share, quarter on quarter, close to around four times. We are growing faster than the market compared to conventional players, not Islamic players. That positioning was key for us and had to be done both externally and internally. I’m glad we did the right thing and the results speak for themselves.

DIB is now a member of the billion dollar profits club… What are your ambitions for DIB in the short term and in the long term?

We want to keep it very simple. I say this with all modesty and humility, a billion dollars is just a number. It was not an aspiration that we always wanted to go into the billion-dollar club. We are not trying to follow the market or emulate anyone else’s success. We are trying to be better than what we were yesterday. Having seen exponential growth and success over the last four years the challenge is going to be to keep up that pace. What’s next? We have embarked on our growth ambitions, we are not taking a step back, there’s no sabbatical. We want to make sure we continue to put the right foot forward both domestically and internationally. The markets we operate in now, in addition to the UAE are quite challenging. We have to make sure we find the right way of replicating the successful strategy. I think a billion dollars is just a start. It makes shareholders happy, the bank

is stronger. This is a billion dollars in quality. There are no one-offs. We are talking about core growth of the bank, which is how an analyst would look at it. If you look at the key metrics of the institution, we are looking at ROEs and ROAs that shareholders look at, NIMs that analysts look at. We look at sheer size, we have become a billion-dollar bank, very close to AED 200 billion of balance sheet size. It is a bank that has caught everybody’s attention. I hope we will be able to keep up that good work, we have got to make sure that we engage with all stakeholders. It is not just about profits but also customers and customer service, making sure the regulator is happy, making sure the ratings agencies, research analysts and shareholders are happy with what they get from the bank. We have been blessed with wonderful direction we have from the board of directors and I am very fortunate that I have a fantastic team behind me that has made this billion dollar profit possible.

Dr. Adnan Chilwan has been the GCEO of Dubai Islamic Bank since 2013. In nearly two decades in the banking industry, in both conventional and Islamic banks in the region, Dr. Chilwan has worked for Dubai Bank, Commercial Bank of Qatar, Mashreq Bank, Abu Dhabi Islamic Bank and HSBC. He was Head of Marketing and Product Development at Dubai Bank. At Dubai Islamic Bank, prior to his current role he held the position of Deputy Chief Executive Officer and Chief of Consumer and Wholesale Banking since December 2010. Dr. Chilwan has been President Commissioner at Panin Dubai Syariah Bank since July 2016 and Commissioner since March 2016. He is also Chairman of DIB Bank Kenya and a Director of Tamweel. He has been a Director of Dubai Islamic Financial Services since August 2009. Dr. Chilwan also represents DIB on a number of strategic boards including Deyaar, Liquidity Management Centre and Dar Al Sharia. Dr. Chilwan is also an integral member of the advisory council of Higher Colleges of Technology (HCT), UAE. He has a PhD and an MBA in Marketing to his credentials. Dr. Chilwan is a Certified Islamic Banker, a Post Graduate in Islamic Banking & Insurance and an Associate Fellow Member in Islamic Finance Professionals Board. He has been a consistent recipient of leading CEO awards in the region and squarely positioned amongst the top ten since 2015.

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top banker - KSA

LEADING TRANSFORMATION ‘Excellence’ is the watchword for Patrice Couvegnes, Banque Saudi Fransi’s Group CEO. Here he explains how he prepared the bank to be ready for the challenges of the future

anque Saudi Fransi (BSF) is a Saudi Arabian Joint Stock Company established by Royal Decree No. M/23 dated 4 June 1977. The bank offers a wide range of banking and investment services to commercial clients inside and outside Saudi Arabia. Patrice Couvegnes, Group CEO and Board Member joined BSF in 2011. He received the Outstanding Contribution to Banking & Finance Award at the Banker Middle East Industry Awards 2017. Robin Amlôt spoke with Patrice Couvegnes at BSF’s head office in Riyadh.

ISSUE 2017

What do you identify as the key challenges and opportunities facing the bank? The challenge today for BSF is to continue the implementation of the restructuring and transformation we did in the last five years in order to completely change the bank. The challenge today is to cope with the new economy in Saudi Arabia (KSA), the new opportunities for corporate clients, the new opportunities for our retail clients and our high net worth clients. We are facing a big change in the country but given our position in the market we have many opportunities to manage the situation. Let me remind you of something important. Today the bank is doing well. This is not by chance. We were expecting a big change and we totally restructured and transformed the bank with a new business model and

n Banque Saudi Fransi is ‘the bank of clients’, and ‘the bank of excellence’, according to Patrice Couvegnes, Banque Saudi Fransi’s Group CEO.

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new international practices because we were expecting a big change in the economic environment. I strongly believe in the economic cycle and when I came here in 2011 the economy was doing very well but I was expecting change and that is the reason why we prepared the bank for the future. Not only to get good results and good performance for one

What is the biggest challenge facing BSF now?

We want to be the best quality. Our culture is ‘the bank of clients’, ‘the bank of excellence’. We are in longterm relationships. What we want to do is to serve our clients; to be a service provider; to focus on the quality of service; to act quickly to bring a better service. In order to

strategy and their balance sheet. We want to be the best at what we do and be recognised by our clients as ‘the bank of excellence’.

How competitive is the marketplace in KSA?

It is a very competitive market. I am talking specifically about the corporate market. We benefit because of the DNA of BSF. Historically, we are more a corporate bank than a retail bank. We have strong positions with our clients but we face challenges every day—most banks in KSA started as retail banks but they are looking to do more corporate banking.

How is the business of banking changing? What opportunities do you see for new product areas for the bank to grow in— in retail, private banking, SME and corporate banking, etc.?

n Patrice Couvegnes is highly supportive of the bonds/Sukuk market in Saudi, which he believes will help diversify banks’ risk.

year but to prepare a new BSF. The banking industry is not shortterm. When you focus on short-term business you are wrong. Today, the performance of BSF is the result of the work we did on the heavy transformation of BSF and I think we are more prepared than the competition to cope with the more difficult environment. Before [I joined] BSF I spent 15 years in Asia and I experienced a lot of difficulties and crises. The banking business is experience so what I brought here was my experience… we could have been facing big difficulties if we had not totally changed the bank. It was difficult, it was painful but it was necessary to prepare the bank for the future.

do that, for our top 100 clients we have 10 senior bankers, high quality relationship managers, in charge of the biggest clients of the bank in order to serve them in the best possible way. What I am implementing with our team is action not reaction; to be ready with solutions for clients. Our culture is service. For example, take a five-year loan with bullet repayment, what is the difference between bank X and bank Y? It’s the same product, the difference is the quality of the person you have with you. You need a banker who understands you and understands what you want. We need to understand what the client wants and to really know our customer. The basis of this business is ‘know your customer’, know their

Bonds will be important. I am highly supportive of the development of the bonds/Sukuk market here. It will help diversify the risk for the bank. That is a big change I expect in the future. Securitisation will help us. The debt market, for the bank, is a solution to reduce risk and reduce pressure on the balance sheet. The banking business will have to change and be more of a solutions provider. Clients, particularly corporate clients are becoming more sophisticated. Banks will have to provide more equity capital market and debt capital market solutions. We have Saudi Fransi Capital to do that. I am keen to develop Saudi Fransi Capital. There is a long way to go but I think that BSF is moving in the right direction.

Do you agree with the commonly-held view among many bankers in the Middle East of the need to foster a ‘savings culture’?

There is no culture of saving [in KSA]. There is a need to change, cont. overleaf

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top banker - KSA

cont. from page 13

to save, for education, for children, for the future, for retirement, etc. We are working on that at BSF to prepare savings products. Before, retail banking was mostly providing consumer loans and home loans. Now we have to think about products for the future and to take account of the population. The population of KSA is very young. We have to accommodate our business, our retail banking for the new generation.

I was told recently by a banker in the region that there is ‘a tidal wave’ of regulation and technological change coming— what’s your view and what preparation is the bank making?

The banking industry is not shortterm. When you focus on short-term business you are wrong. n Patrice Couvegnes, Group CEO, Banque Saudi Fransi.

How has the rollercoaster ride of the oil price in the last couple of years impacted on BSF? The economy of KSA before the oil price drop was flooded with liquidity and there were a lot of projects. Business was doing well but suddenly the tap closed, business changed. This affected our portfolio and brought us to change our approach but also to look for new clients. We changed our strategy to be more active and looked beyond the contracting business. Fortunately, we were prepared for this. BSF is a mid-sized bank, which means we can manoeuvre quickly and change direction. The banking business is a risky business and sometimes people forget this. Four years ago, we started to slow down the development of our balance sheet because when you are too hot, when you go too fast you take more

ISSUE 2017

This is not new! When I came here in 2011 I was surprised to discover the way the banking industry in KSA was working. Balance sheets were not an issue, loan spreads were very thin. I was expecting a big change, we knew Basel III was coming.

I bombarded people in the bank about it. It was the purpose of the business plan we put in place; to develop offbalance sheet business to reduce the pressure on the balance sheet. I was expecting it [the change in regulation] because I had experienced it in the past in other countries. Being a G20 member and part of the Basel Committee, KSA is implementing the rules. The purpose of the restructuring of the bank is to prepare the bank for the future.

n Patrice Couvegnes, Group CEO of Banque Saudi Fransi chats to Robin Amlôt, CEO of CPI Financial.

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risk and at the end of the day it will catch up with you! Today we have to be very cautious on risk.

How important is Vision 2030 to the long-term well-being of the Saudi economy?

The purpose of this project is to transform the economy from an oil economy to a non-oil economy and boost the role of the private sector. We need to have a more dynamic private sector. It is a big project, a transformation, not on paper but within people, their habits and culture. It’s a big challenge but there is no choice. KSA being a G20 country cannot depend only on oil resources. Oil is not forever. Vision 2030 is to change the business model of the country. Change is very, very difficult. It is easy to talk about but the problem is how to manage change with your team and your people. It is an opportunity for us of course. The Chinese say crisis is opportunity… you have to clearly accommodate and think about the new opportunities you have and accommodate your business to them. For example, the financing of the economy done in the past by government will be done more by the private sector. It is an opportunity for the bank to be there and to leverage the change. Banks are important as actors in the economy. We have to be ready to come to our clients with new financing, new solutions and new purposes.

Let’s turn to the capital markets, is BSF likely to go to the market itself with bonds/Sukuk?

We do not need to for the time being. We have enough equity today. We may consider a Sukuk to leverage our equity but not today. The development of our

balance sheet is slow now because of market conditions. We have to grow the market but we also have to be very cautious, very selective, ready to reduce the speed of development of revenues to protect the bank and its provisions. In the first half of 2017, BSF benefited one of the lowest costs of risk in the kingdom because we were very conservative. Risk is part of the P&L—you have operating income, then provisions. If you have a mountain of provisions you are in trouble! What I implemented here is a culture of managing risk. I am ‘crazy’ about this. Risk is the biggest issue banks face.

How will the expected bond issuances and privatisations of Government-owned entities impact on the local financial environment? There is a need to develop the debt capital market. Take Sukuk, we distribute Sukuk to, say, 20-25

investors; that is it! Yet there are mountains of deposits in private accounts. What is important is to make sure Sukuk are distributed throughout the retail network. This is not the case today. Saudi Fransi Capital distributes Sukuk to major investors but there is a need now to offer to the population, the citizens of the country, access to bonds as is the case in Europe and elsewhere. Why are there big deposits in branch accounts? We need to plug these retail deposits into the financing of the economy. In my opinion, KSA needs a ‘Big Bang’, a reorganisation of the capital markets to change the way the economy is financed. We are talking about long term projects Sukuk are totally qualified to finance long term projects but you have to find the investors, not just sovereign funds. I strongly believe and support and hope the capital market will be reviewed so that banks can sell assets to individuals like in the US.

Patrice Couvegnes has more than 40 years of experience. He was appointed Group CEO & Board Member of Banque Saudi Fransi in September 2011. He is also Vice Chairman of the Board of Saudi Fransi Capital and Chairman of the Board of Allianz Saudi Fransi. Previously he had served in different roles in Asia, culminating in the position of Senior Regional Officer for Credit Agricole CIB, based in Hong Kong and overseeing operations in 13 countries from India to China. Patrice Couvegnes worked for the French Ministry of Equipment and Transportation, before joining the Corporate Banking Department of Banque Française du Commerce Extérieur in 1975. In 1984 he joined Banque Indosuez as Senior Banker and was promoted to Deputy Head of Large French Corporate Department in 1989. He became Regional Head Corporate Banking for Credit Agricole Indosuez for Asia Pacific in 1996, based in Singapore. Four years later, in 2000, he was named Country Head in South Korea. In 2005 he became Country Head of Calyon (later renamed Credit Agricole CIB) in Japan. In 2008, Couvegnes was appointed as Senior Regional Officer. He holds a PhD in Economic Science from Paris University. Patrice Couvegnes was awarded Officer de l’Ordre de la Légion d’Honneur in 2012, Commandeur de l’Ordre National du Merite 2016, Chevalier de l’Ordre National de la Legion d’Honneur in 2002 and Chevalier de l’Ordre National du Merite in 1993. He also received Industrial Service Medal from the Government of South Korea in 2005.

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top bankers

EMBRACING THE future Mashreq has an enviable history of setting the pace in banking in the UAE. This is a trend that looks set to continue

ashreq celebrated its 50th anniversary in 2017, having been originally established as the Bank of Oman in 1967. The bank occupies a unique position in the UAE banking sector. It is the largest and oldest privately-owned bank in the UAE. However, the bank is unique not simply because of its size or longevity but also because it has an impressive track record of leading the adoption of new developments in banking. Mashreq was the first UAE bank to offer ATM cash dispensers; the first to issue debit and credit cards; the first to introduce consumer loans; the first to offer microchip-based credit cards; and the first to offer merchants digital point-of-sale readers. Robin Amlôt spoke with HE Abdul Aziz Al Ghurair, Chief Executive Officer of Mashreq, a position he has occupied since 1990.

ISSUE 2017

What is your view on how the UAE economy will evolve over the next few years?

I am pretty optimistic about the future of the UAE economy for many reasons. First, we have been able to diversify the economy, build infrastructure, and attract investment from the region. We have become a regional hub. We will deal with any uncertainty in the future; we have the ability to respond fast to any challenges. Our projection for the future is our track record. We have grown from a small economy to a large economy. For example, our

n Robin Amlôt spoke with HE Abdul Aziz Al Ghurair, Chief Executive Officer of Mashreq, a position he has occupied since 1990.

banking sector is the largest in the Arab world with AED 2.5 trillion in assets. That is a success story!

How has the rollercoaster ride of the oil price in the last couple of years impacted on Mashreq? At Mashreq, our first strategy was to diversify by geography—25 per cent of our revenue today comes from outside the UAE. Secondly, we have sector diversification within our portfolio. We are not dependent on a single industry sector. Thirdly, I think for the overall economy and for all institutions, the fall in the oil price is the best thing that ever happened! It gave us all a wake-up call to look for alternative solutions, for our institutions and for our economy not to be solely

dependent on oil. Indeed, the UAE has been successful in diversifying its economy: 70 per cent of revenue now comes from the non-oil sector and the Government is targeting this to reach almost 90 per cent. And, of course, at Mashreq we are always looking at how to improve productivity, cut costs, and become competitive not only locally but also to compete internationally.

I was told recently by a banker in the region that there is ‘a tidal wave’ of regulation and technological change coming— what’s your view and what preparation is the bank making? With the UAE economy growing so fast, some new regulations are to be encouraged and recommended, as long as there is enough prior

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Now at Mashreq, 90 per cent of our transactions happen outside our bank branches. This is a phenomenal change in customer behaviour. Our customers are accepting and encouraging us to look for new technology solutions and Mashreq is one of the pioneers in driving this technology shift in banking.

What are the bankâ&#x20AC;&#x2122;s international ambitionsâ&#x20AC;&#x201D;how do you see operations outside the UAE growing?

We are fortunate that we have 25 per cent of our revenue outside the UAE, with operations in key cities like New York, London, Egypt, India and Hong Kong. We have diversified and will continue to grow in these locations. We want to grow organically outside the UAE.

n HE Abdul Aziz Al Ghurair, Chief Executive Officer of Mashreq.

consultation taking place. Regulators must use a consultative approach with the impacted parties, to achieve a win-win outcome.Let me give you an example: digital payments; 10 years ago, there were no digital payments. Now we look to the Central Bank to come up with digital payment regulation so everybody knows the rules of engagement. Another example is mortgages. Home finance has become a sizable business and the Central Bank has introduced regulations to protect both sides, both the bank and the customer and there is now complete transparency in the process. This is protecting everybody, so we do welcome regulations. Indeed, sometimes we ask for new regulations. We go to our regulators and ask them to come up with some regulations because it is important to have a framework to work in. Take Netting for Banking [this is a

way of lowering credit, settlement and other risks of financial contracts by aggregating/combining multiple obligations to achieve a reduced net obligation]. We have approached the Central Bank and the Ministry of Finance regarding this issue and they have accepted that this is important for the UAE, and will work on a framework. We are also asking the Government that regulations should be periodically reviewed, whether five years or 10 years, let us review the regulatory framework, tweak it, and freshen it up. That must continue to happen. On the technology side, the world is seeing a revolution in technology and the UAE is a leader in the region in the adoption of technology. For example the e-gate card was introduced almost 20 years ago at Dubai International Airport. In banking, years ago, all transactions took place in branches.

As Chairman of the UAE Banks Federation what concerns do you see raised by the industry?

The UAE Banks Federation (UBF) works in partnership with the Central Bank, our relationship has been outstanding. There is a great dialogue that takes place back and forth. We have 18 subcommittees working and interacting with the Central Bank and we have an excellent relationship. We are pushing to enhance the brand of banking in the UAE. For example, the UBF initiated a customer complaint resolution system. The UBF and the Central Bank shared IT with the banks so that now in the banking system you have a process, when a customer has an issue, that is very transparent. I think that is good for the customer, the regulator, the Government and for banking. All banks have good intentions to resolve such issues and we should be prepared to resolve them when things go wrong. Second, we also want to have a self-imposed regime where we undertake ethical selling. It is very important to set a guideline in the cont. overleaf

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top bankers

cont. from page 17

banking community: what is acceptable, what is not acceptable and have a common standard. We have engaged a major consultant to come up with this [standard] and how we can adopt a protocol on ethical selling to enhance the image of banking. The UBF is committed to communicate to the government, the regulator, and the customer that the banking system is here to help everybody, to help them grow along with us.

ISSUE 2017

What opportunities do you see for new product areas for the bank to grow in—in retail, private banking, SME & corporate banking, etc.? How will technological change affect this?

Let’s start with corporate banking. Mashreq has put a system in place over many years that allows a corporate client to do every single transaction without visiting us, without using paper. It is all done electronically from his office. That is a big revolution in corporate banking. We are now connecting our system with the client’s system through hostto-host connectivity [this offers an automated solution for data transfer and means that information may be exchanged in formats stipulated by the corporate client]. So, the moment the client uses his keyboard, the information comes from his system to our system immediately. This offers peace of mind, is error-free and allows our system and the client’s system to reconcile automatically. On the retail side, the bulk of our transactions now happen on mobile banking, then ATM, then online. Previously online banking was on top but now it is declining. People do not want to go back home or to the office to do a transaction. They want to do it on the move, anywhere, anyplace. Mobile banking is taking off. In addition, we launched Mashreq Wallet, which offers the ability to pay from your

Our customers are accepting and encouraging us to look for new technology solutions and Mashreq is one of the pioneers in driving this technology shift in banking. n HE Abdul Aziz Al Ghurair, Chief Executive Officer of Mashreq

phone for any transaction, whether customer to merchant, or customer to customer. We have also recently launched a pilot branch that takes automation to the next level, migrating a lot of manual transactions that used to happen at the customer service counter or teller, to automation. Our customers are adopting these new services very quickly. From a branch with a staff of 15 people, this has reduced to six people. We have seen customers bringing their friends into this branch to show them what the bank is doing. Mashreq is also investing in technology to give the customer greater convenience and extended hours. In the past you could only encash cheques when the branch is open. Now, with automation, customers may encash cheques until 10pm. When we add new services such as this, customers accept and adopt them very quickly. We are using robotics and artificial intelligence to replace simple transactions and we will see, in the next five years, more and more simple and repetitive jobs being replaced. Today on our chat bot, you can just ask what’s your balance, what were your last 10 transactions, etc., and get the information. You can ‘chat’ with the computer and the artificial intelligence behind it can understand what you have asked and reply with the information you want.

Regarding capital markets, what, if anything, needs to be done to improve them and improve functionality in UAE? In my view, It is becoming critical

that the UAE Federal Government should start issuing bonds. We need a yield curve. That will set a pricing mechanism for all other lenders and borrowers to be used as a benchmark. We need that to happen. We have already discussed netting, which the Government is now working on. This, together with bond issuance, are two fundamental pillars for capital markets that are critical.

What do you see as the biggest challenge in the future?

From the banking point view, it is not just a challenge, it is an opportunity. It is how the banking system can work with Government agencies to encourage young Emiratis to start their own businesses. There are great opportunities in the UAE for Emiratis to start new businesses. The question is how can banks and Government agencies work together to support these new SMEs. The future lies with the small businesses that grow to become large businesses—we need to support them. After all, my family’s business started as a small business.

What are your ambitions for Mashreq in the short term and long term? Mashreq will continue to strive to be the leader in service, in customer convenience and in providing our customers with a wide range of products and services at a very competitive price. Like most banks, we look at how can we grow as an institution, how can we grow market share. That is the challenge, to grow our market share in a profitable manner.

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top bankers

The post-oil world AND OTHER PARADIGM SHIFTS Ahli United Bank (AUB) is ranked #15 in the BME 100, rising six places over the previous year. In this in-depth interview, the bank’s Group CEO & Managing Director, Adel El-Labban discusses the challenges and opportunities facing banks in the Middle East

ISSUE 2017

hli United Bank (AUB) was established in Bahrain on 31 May 2000 following the merger of the London based United Bank of Kuwait PLC (UBK) and the Bahrain based Al-Ahli Commercial Bank (ACB). Through these predecessors, AUB has been active in the United Kingdom since 1966. The bank operates under a retail banking licence issued by the Central Bank of Bahrain. In addition to the Group’s wholly owned operations of AUB (Bahrain) and AUB (United Kingdom), AUB Group holds an 85.5 per cent stake in AUB (Egypt) and a 74.9 per cent stake in AUB (Kuwait), which became fully Shari’ah-compliant in 2010. In addition, the Group has a 74.3 per cent stake in Commercial Bank of Iraq, a 40 per cent stake in United Bank of Commerce & Investment (Libya) and a 35 per cent stake in Ahli Bank (Oman). AUB also fully owns Al Hilal Life (previously Legal & General Gulf), which initially started as a bancassurance joint venture with the UK-based Legal & General. Adel El-Labban is AUB’s Group Chief Executive Officer and Managing Director, and has led the Group since its formation. AUB and its network of subsidiaries and managed associates provide: retail banking; corporate banking, treasury and investment; private banking and

n Adel El-Labban, Ahli Bank Group CEO & Managing Director talked with Robin Amlôt, CEO of CPI Financial about the banking industry in Bahrain.

wealth management services; and Shari’ah-compliant banking services under the ‘Al Hilal’ brand name.

Is AUB able to leverage economies of scale?

AUB was built and continues to operate on a vision of regional expansion and integration. Such strategy is based on acquisitions and business combinations which are a reasonably high-risk proposition in terms of the overall risk level of the strategy particularly at the initial stages of any acquisition so accordingly we explored multiple

ways to reduce the organic risk within the operations themselves. Of these ways, first is leveraging economies of scale in costs whether they are the costs of a standardised IT platform, the costs of wide-scale cross-border training programmes, or the costs of bulk purchase of all requirements of the bank to the extent that you can place wholesale multicountry rather than individual country orders. The second aspect of reducing the risk was driven by the scaling of the marketing and business efforts that we have within the bank, meaning that a marketing officer is not just

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responsible for covering the territory in which he or she resides. The marketing officer is also responsible for identifying business opportunities in other countries where the bank exists. We put a very high premium on developing the cross-border business which, within our vision, is probably the most distinguishing feature of AUB as a business proposition.

within the UAE with the wholesale Government and corporate clients that we have and that we plan to develop. We expect to achieve two objectives. We have a large UAE client base that has grown to a size that requires us to have eyes and ears on the ground in the UAE to be able to monitor it. Secondly, the UAE and specifically Dubai have become the

n The group’s most recent foray into the capital markets - AUB (Kuwait) issued a $200 million Sukuk in October 2016.

Your most recent international expansion came last year when AUB became the first bank from a GCC country to receive a Category 1 Licence from the Dubai Financial Services Authority (DFSA) in February 2016. What’s the significance of this move, what do you expect to achieve? First of all, we are very happy to be the first regional bank to acquire a Category 1 Licence in the Dubai International Financial Centre (DIFC) which gives us a full range of banking activities on both the wholesale conventional and Islamic sides. With the exception of access to the UAE retail client base and to Dirham funding, we are well-positioned to deal

home away from home for many Arab citizens of countries facing political problems or pressures at the current time. We operate in a number of these countries. Accordingly, our new Dubai platform enables us to follow our clients as they shift their personal investments or corporate businesses onto a UAE platform.

Where do you see growth in the bank’s international operations, in particular, where are the double-digit growth areas? At present I think it is very difficult to achieve prudent and sustainable double-digit growth anywhere in the banking world. The world economically is still in a phase of readjustment from the 2008 Financial Crisis and its

economic implications and our region is still feeling the effects of the Arab spring and of subsequent political and oil market turmoil. There are no countries in the region today, or in the developed countries, or even the more rapidly developing markets in Southeast Asia that are achieving doubledigit GDP growth. So, to talk of double-digit banking growth, the assumption would be that you need a big element of support from GDP or a willingness to accept a big element of risk. Two to three per cent GDP growth is never going to translate into 10 per cent banking growth. In terms of risk appetite, we already have an in-built risk component because of our acquisitive DNA. We cannot afford to compound it by taking a ‘high business risk’ business approach. Our board has been very prudent from the establishment of AUB to moderate and control the business risk as our goal is sustainable growth.

Do you have any concerns that you think need to be addressed by the regulators under which the bank operates in its different markets?

The whole regulatory environment has seen an extreme tightening of regulations regarding risk, liquidity, and capital following the 2008 Financial Crisis. A strong banking sector needs to be a growing and profitable banking sector. Bank operations cannot be de-risked to quasi utility company levels. This will not assist the ultimate goal of using banking intermediation to grow the economy. The banking business is not a utility business, it is a leverage driven business, it takes risks, it must have scope to grow. So long as it is properly managed and prudently but reasonably regulated, this is the road to a strong banking system and to a healthy economy. Over-regulation at the end of the day is self-defeating to the banks, to the regulators and to the economy. cont. overleaf

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top bankers

cont. from page 21

AUB is the largest bank in Bahrain. Have you reached the limits of growth in local terms?

Technically that depends how you define the largest bank in Bahrain! By domestic Bahraini Dinar (BHD) operations we are the third-largest bank. In terms of the totality of our business, yes we are the largest bank but we see ourselves as a regional bank headquartered in Bahrain which represents about one-eighth of our business, seven-eighths of AUB is non-Bahrain centric.

ISSUE 2017

What do you identify as the key challenges and opportunities facing the bank now and in the future?

The region is essentially facing a major economic challenge. The region, whether oil producing or non-oil producing countries, is very dependent on the health of the oil and gas market. What we have seen post-2015 is a shift in the dynamics of energy markets to be more supply driven than demand driven. Previously, it was essentially the economic cycle and its demand that drove the price of oil up or down and OPEC as a cartel could influence the market by increasing or reducing supply to adjust for the movements in demand. Right now, the paradigm shift is shale oil and gas, a well-known geological phenomenon that has become commercially available in very significant terms through improved technologies. Essentially this has expanded the amount of oil and gas available in the world on a sustainable basis. Its production is also mostly located in the US which does not suffer from the political and security issues affecting other suppliers. This has converted the oil market from being a very cyclical one that could range from $30 to $140 a barrel over its two to five year cycles to being a very range-bound market where the upper end is the price at which the shale

n Ahli Bank Bank is one of a handful of ‘international’ banks in the Middle East.

producers would inundate the market with additional production and the lower end band is really the minimum survival rate for the non-shale energy producers to continue funding their needs. This is a paradigm shift. Talk of the post-oil economy phase is not an academic proposition… we are in the post-oil economy right now. Oil and gas will remain key GDP contributors but growth has to be sourced elsewhere. To the extent that we can diversify energy producing accounts will do well, to the extent they do not diversify, the outcome is not encouraging. There is another challenge in the region – the 1916 Sykes Picot agreement that defined the modern Middle East with its current borders is currently in shambles and is being redefined. The concept of sovereign regional countries within the existing boundaries as we have known them for many decades now is no longer a given. It is a fluid proposition; countries may end up staying as they started or alternatively seeing considerable border changes. We, as a bank with a regional focus, have to be quite careful in terms of where to direct our investments to ensure that we remain a player in the markets that we originally had the intention to be in.

[The Sykes–Picot Agreement, also known as the Asia Minor Agreement, was a deal made in secret between the United Kingdom and France in 1916 with tacit assent from Tsarist Russia to carve up parts of the tottering Ottoman Empire. The premise of the Agreement was the defeat of the Ottomans in World War 1. Dividing many Ottoman Arab provinces into areas of ‘control and influence’ it led to the partitioning of the Empire following its defeat in 1918, creating arbitrary state boundaries derided since by some as nothing more than lines drawn on a map.]

I was told recently by a banker in the region that there is ‘a tidal wave’ of regulation and technological change coming— what’s your view and what preparation is the bank making? We are very much in phase of survival of the fittest. To be able to continue to survive and to deliver the returns to shareholders that they have become accustomed to, you have to be extremely lean and cost efficient. That involves complete embracement of technology. Technology is the way forward. Banking as we currently see it in the GCC is, in my view, essentially ending one age with the new age not yet started. I am not talking of cont. on page 24

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top bankers

cont. from page 22

token changes like normal annual enhancements to IT platforms or delivery capabilities. I am talking a major transformation, I am talking about going fully digital, evolving from a brick and mortar model to a fully cyberbased banking model. This is the only way you will be able to manage your costs and deliver your products effectively in an environment where there is massive competition and massive pressure on your other non-cyber cost structures. Banks that develop the right strategy for themselves within the limits of what they can or are able to do will survive and do well. Those that do not will have to bear the consequences.

ISSUE 2017

AUB operates both conventional and Islamic banking and you have a wholly Shariâ&#x20AC;&#x2122;ah-compliant unit in Kuwait. Where do you see the most potential for growth?

AUB has adopted a hybrid approach. Our position is that we want to provide to our clients, wherever we exist, a choice between a competitive conventional and a competitive Shariâ&#x20AC;&#x2122;ah-compliant suite of products and services. This is only achievable under a main principle conventional licence because it also allows us to provide Islamic products and financially consolidate their revenue and profit and loss. We looked at every country we are in from a competitive and business growth opportunity stance and have taken the view to either do a full transformation, remain conventional or accept a hybrid structure. Our choices are also affected by the degree of regulatory licensing flexibility available. In all cases, except Kuwait, we found that the hybrid structure suits us very well. In our assessment, about 80 to 85 per cent of clients in the region are willing to work with both Islamic and conventional banks. They are not naturally inclined one way or

Banks that develop the right strategy for themselves within the limits of what they can or are able to do will survive and do well. Those that do not will have to bear the consequences. n Adel El-Labban, Group CEO & Managing Director, Ahli United Bank

the other, they are driven by their business interests and the quality of service provided. Then there is the remaining 15 per cent component that will not work with a conventional bank or will not work with an Islamic bank. You cannot base a strategy on the minority, you need to pursue the majority base of clients.

What can you tell us about the discussions regarding the future of AUB (Kuwait); over what timeline would you expect this issue to be resolved?

I can only tell you that our policy for many years has been not to comment on press rumours or press announcements. We have made a very simple short statement to the Bourse in Kuwait to essentially to cover the statutory side. Over the years, AUB has faced multiple rumours and talk in the media regarding deals we were allegedly supposed to be involved in. At the end of the day when something needs to be disclosed, we will disclose it. Before that, we are not going to contribute to speculation.

What opportunities do you see for new product areas for the bank to grow in and how will technological change affect this? On the technological challenge, it is not a matter of being prepared.

AUB has no choice! Our situation is identical to that facing everyone else. One advantage we have is that we are a regional market leader is cross-border business. That is a very important facet of our strategy that enables us to leverage our size through enhanced cross selling to our clients. We are not and do not aspire to be the biggest bank in the region but we can bat above our average by focusing on the cross-border business flows. Other bigger banks are basically single market banks with possibly token regionalism through minor operations in different markets but we are fully fledged wherever we exist. We believe in market penetration and acquiring clients. Most of our clients only have domestic needs in the market where they live but a reasonable percentage of them, both corporate, retail and high net worth, have business needs outside their market and we have selected the countries where we want to invest to be countries with existing sustainable and hopefully growing flows of cross-border business. Very simply, as an example, the UK is still the preferred extra-regional destination for the GCC and the Arab world, people like to travel, to live there, to invest there, they like to buy homes there and we are there to accommodate these flows. When you look at our secondary markets like Egypt, Egypt has longstanding links to the Gulf. The country exports labour and imports capital, tourism as well as remittances from the resident Egyptian labour force in these countries. By having a bank in Egypt, we are not there to compete head-on with the local Egyptian banks, we are there to capture the cross-border business that we are much better positioned to get. That is AUBâ&#x20AC;&#x2122;s strength and that is the road to achieving higher growth than our competitors.

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Do you agree with the view that there is a need to foster a ‘savings culture’—if so how would you go about doing so?

The need to create a savings culture is critical because mobilising savings is the only way to have sustainable investment and economic growth. However, if you look at the poorer countries in the region, per capita income is quite weak and the savings function is constrained by this factor as well as by the distribution of income which is tilted. In the richer countries, there is a sort of attitude that the future will always be better and that problems will be taken care of by the state going forward. This acts as the main deterrent to having a savings culture. It is assumed that the state will always take care of ensuring livelihood improvement for its employees and its citizens. In the post-oil economy that is a dangerous fallacy, which will not happen as it cannot be funded. As a bank, if you want to grow retail liabilities, you need a savings culture to exist. I think it is going to be a difficult, slow, incremental process.

What is AUB’s activity in the capital markets? [In October 2016 AUB (Kuwait) issued a $200 million Sukuk. In the preceding year, in May 2015, AUB issued $400 million of perpetual Tier 1 capital securities, noted at the time as the first issuance of Basel IIIcompliant Tier 1 securities in Bahrain. A planned OMR 50 million ($113 million) issue is awaiting regulatory approval in Oman.] AUB has existed for 17 years now and I believe that we have the most complex and diverse capital structure of any of our regional peers, including much larger banks. From the outset, we did not focus solely on Tier-1 capital and retained earnings, which is the road many of the banks are taking but we looked

at opportunities to tap alternative types of capital, whether in the subordinated space, the additional hybrid capital space, we looked at tapping them in a conventional fashion, in an Islamic fashion, in a direct investment, in a convertible investment, in a mandatory convertible, voluntary convertible etc. The key aim is to optimise capital leverage and improve earnings per share. The way the costs associated with these instruments are treated vary considerably in accounting and economic terms and can assist our efforts to improve shareholder returns. We are comfortable with our capital structure, it has allowed us to keep a balanced, steady dividend payout ratio, which is important to our shareholders, and it has enabled our name to be exposed internationally and to tap funds from different regional and international sources, whether in the banking, insurance or pension fund space, and among high net worth (HNW) private banking investors.

Finally, what are your ambitions for AUB in the short term and in the long term?

When we started in 2000, our target was to cover the entire GCC with domestic banking presences in all countries and to link them through our cross-border marketing approach. Right now, we exist in three of the six GCC countries onshore and in one offshore (in the context of the DIFC) location. The challenge is to build more onshore presences through friendly mergers and acquisitions in the remaining target countries. This challenge is driven by the AUB vision set up at our inception. The fundamentals underpinning our vision have not changed. There is no bank fully focussed on cross-border flows. We want to be that bank. To be that bank we need more platforms to attract more clients with cross border banking needs. Our main obstacles are the barriers to entry and the existence of executable and attractive deals in our target markets to expand the AUB franchise.

Adel A. El-Labban is Group Chief Executive Officer and Managing Director of Ahli United Bank B.S.C. since 2000. He holds a number of other positions within the group as well, including: First Deputy Chairman, Ahli Bank SAOG, Oman; Deputy Chairman, Commercial Bank of Iraq; Deputy Chairman, United Bank for Commerce & Investment S.A.C. Libya; Deputy Chairman, Middle East Financial Investment Co., Saudi Arabia; Director, Ahli United Bank (UK) Plc; Director, Ahli United Bank KSCP, Kuwait; and Director, Ahli United Bank Limited, UAE. He is also a Director of the Bahrain Association of Banks. Among positions formerly held are: Deputy Chairman, Ahli United Bank (Egypt), Chief Executive Officer and Director, United Bank of Kuwait PLC, UK; Managing Director, Commercial International Bank (Egypt) SAE; Chairman, Commercial International Investment Company, Egypt; Vice President, Corporate Finance, Morgan Stanley, USA; Assistant Vice President, Arab Banking Corporation, Bahrain; Director, Bahrain Stock Exchange; and Director, Kuwait & Middle East Financial Investment Co, Kuwait. El-Labban holds a Masters in Economics (Highest Honors) from the American University, Cairo, 1980, Bachelors in Economics (Highest Honors) from American University, Cairo, 1977 and a General Certificate of Education from London University, 1973.

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TOP BANKERS

THE TRANSFORMATION OF Al Rajhi Bank Steve Bertamini, CEO of Al Rajhi Bank, discusses how the bank has reached its leadership position in the region, and the strategies that were employed to make it succeed

ISSUE 2017

hat are some of the initiatives that Al Rajhi has put in place that have helped it grow so successfully and so quickly?

Over the past two years, we have been executing a major transformation programme throughout the bank which started as a roadmap in late 2015 and become the basis of our strategy in 2016. Our strategy focuses on five key areas and we coined the term “ABCDE” to ensure it was easy to communicate and everyone saw how they played a role. The ‘A’ stands for Accelerate growth; ‘B’ is to Become employer of choice; ‘C’ stands for Customer focus; ‘D’ is Digital leadership; and ‘E’ is Execution discipline. We have seen the benefits of this transformation starting in early 2016 and it has been a key contributor to Al Rajhi Bank’s growth and success over the past 18 months. Another factor of our ABCDE strategy is the banks strong commitment to the Kingdom as a key enabler in supporting the National Transformation Programme (NTP). Many of the key elements in the NTP where factored into developing our strategy and they are reflected in both our key financial and non- financial KPI’s. The combination of our ABCDE strategy with the NTP provides our bank with a clear sense of both direction and purpose.

n Steve Bertamini says that the bank has witnessed strong growth over last 18 months.

What challenges has the bank overcome on its ascent?

We have faced economic uncertainty, market fluctuations, and a challenging operating environment in the GCC similar to many other markets around the world. The main impact has been slower market growth than historical levels during the prior five years. In Saudi Arabia, in particular, I believe that banks are in a good position. Banks in Saudi are well capitalised, have strong capital buffers and healthy balance sheets. This is a testament to the steps an efforts made by the regulators and banks in ensuring

a strong financial sector. We also witnessed a healthier market in 2017 than in the 2016 as the liquidity position in the Kingdom has materially improved. As for the bank, we are continuously growing and have witnessed strong growth in the past year. In the first half of the year, we recorded an eight per cent growth in total profits, compared to the same period last year, reaching SAR 4.4 billion. We also doubled our interim dividend while continuing to invest in strengthening our competitive position in a variety of areas including distribution and our brand. As we move forward, I expect market conditions to stabilise even further, as the government plans are well understood and there is more clarity in terms of the key priorities the Kingdom is focusing on.

What is Al Rajhi doing to develop the growth of the private sector?

Al Rajhi Bank is committed to supporting the Government’s ongoing agenda and NTP. As the government continues to implement the NTP within Vision 2030, we have seen the encouragement of private sector participation, and this has been a priority of the bank’s as well. One key area of growth for the private sector is the housing market. Home financing is a key growth area for the bank and we continue to work closely with the Ministry of Housing to ensure that we have put the right programmes in place to help

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the government drive its agenda. For example, we recently launched our accelerated finance programme in collaboration with the Real Estate Development Fund. This allows citizens to deal directly with the bank and shortens the amount of time that citizens need to wait for a loan. We are the first bank to launch such a programme, which has now been implemented across all of our branches. Another great example is Saudi Arabia’s efforts to boost employment among its native population, mainly women and graduates. This is something we have been focused on at our bank as well. We have one of the highest Saudisation rates, at over 91 per cent, and we have specific graduate development programmes in place which are market leading. We are also committed to increasing female employment and our aim is to double the number of employed females at the bank by 2020. We are also strengthening our corporate banking division. We managed to reverse four years of market share decline in corporate banking last year. We also aim to extend our corporate banking focus into healthcare services, affordable housing, transportation, and energy areas with particular emphasis on midmarket companies. Additionally we have put a heavy focus on our SME business, in line with the NTP, and saw strong progress last year. SMEs will continue to be a focus area for us in 2017 and beyond as we are aiming to become the preferred partner for SMEs in the Kingdom.

What do you think sets Al Rajhi apart from its competition?

There are three core elements that provide our bank with a strong competitive position that are a result of many years of investment and focus. Firstly, we have the largest network in the kingdom in terms of branches,

We have one of the highest Saudisation rates, at over 91 per cent, and we have specific graduate development programmes in place which are market leading. We are also committed to increasing female employment and our aim is to materially increase the number of employed females at the bank by 2020. n Steve Bertamini, CEO, Al Rajhi Bank

ATMs, and POS machines. We have an amazing brand which was recently ranked as the second most valuable brand in the Kingdom and number six in the GCC. Lastly our very strong and conservative capital position allows us to both be well prepared for market uncertainty as well as to invest with confidence in continuing to strengthen our competitive position in the market. One new element we have been investing heavily in is our digital offerings. Saudi Arabia is home to one of the world’s largest digital savvy populations, with mobile penetration rates surpassing 60 per cent. However, it has been argued that not enough has been done to provide these customers with the digital solutions they seek. This represents a significant gap in the market, which we are committed to filling. In line with this, we have put a heavy focus on enhancing the digital offering of our bank, which is the fourth pillar of our ‘ABCDE’ strategy. Over the past year, we have created

a more digitised customer journey and developed new channels in order to support this initiative. To help up better understand our customers’ needs and what it takes to achieve this we recently launched our innovation centre. This facility is designed to have our customer provide feedback on new offerings before they are launched and to help us shape future features and enhancements to our mobile and desktop applications. We are continuing to innovate the payment process in order to drive a shift to electronic banking. We are also launching new formats with an updated look and feel to promote self-service and digitalisation. The next stage is to further upgrade these channels with a new set of functionalities and features, furthering our position as a leader in digital banking. Overall, our ultimate goal is to become the digital main bank for our customers across all divisions of the bank. Our digital offering also goes beyond our customer service and deep into the core of the bank: our employees. We are transforming the employee experience through supporting a virtual work environment through digitised platforms including hardware and communications tools. Also, through digital channels, we are enabling employees to access self-service applications, automating back office operations and enabling straight-through processing. This will also increasingly apply to our customer as we build best in class core straight through processes for our customers and leverage new technology such as robotics. In summary, we will continue to invest heavily in our three core competitive advantages–distribution, brand and strong capital position. We will also build new capabilities in digital in order to become the most recommended bank in the kingdom by our customers to their friends and colleagues. www.cpifinancial.net

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COMPANY PROFILE

INVESTBank An insight into the growth of one of UAE’s thoroughbred banks

n InvestBank began its journey in 1975.

ISSUE 2017

naugurated in 1975, InvestBank was initially known as Investment Bank for Trade and Finance and was head-quartered in Sharjah. The bank stellar journey commenced with a single branch in Sharjah and start-up capital of AED 10 million. Six years after its inception, in 1981, the bank’s total assets and customer deposits reached AED 1 billion. In 1985, InvestBank saw its loan and advances to customers hitting AED 1 billion and in 1987, its total assets crossed AED 2 billion mark. Keeping up with the evolution of technology, the bank introduced its first ATM in 1990. The 90s witnessed some essential changes for the bank: its shareholding and management control shifted locally; in 1997, Investment Bank for Trade and Finance became InvestBank and adopted a new logo and corporate identity; the bank also recorded a

substantial hike in paid up capital to AED 300 million. At the same time, Gulf Finance Corporation a finance company majority owned subsidiary of InvestBank commenced operations (this subsidiary was later sold to SHUAA Capital in 2002). The year 2000 witnessed the initiation of InvestBank’s long term strategic plan. The bank announced its entry into retail banking services in 2002, opening several branches and representative offices across the UAE. Between the years 2003 to 2005, InvestBank achieved several milestones as its total assets hit AED 3 billion, loans and advances to customer exceeded AED 2 billion and for the first time, the bank’s

declared net profit crossed the AED 100 million mark. In 2004, the bank achieved record financial performance recording a paid-up-capital of AED 700 million, shareholder’s equity of AED 974 million and net profit of AED 156 million. In 2005, InvestBank saw its shares listed on the Abu Dhabi Securities Market. It declared a net profit of AED 324 million, an impressive triple digit growth (108 per cent) compared to the previous year, following which the board recommended an increase in paid-up capital to AED 1 billion. In the same year, the bank’s total assets crossed AED 6 billion and customer deposits reached AED 4 billion. InvestBank formed a strategic alliance with Lebanon’s First National Bank in 2006, which paved the way for the bank’s regional expansion in 2014 when it became the first UAE bank to open a full-serviced branch in Beirut, Lebanon. InvestBank has continued to maintain a high level of capital and its Capital Adequacy Ratio (22.75 per cent with Tier-1 ratio of 21.47) at the end 2013, remains one of the best in the UAE banking sector. The bank’s shares are continued to be publicly traded on the Abu Dhabi Securities Market. InvestBank is a premier commercial bank providing full range of financial products and services to corporate as well as retail customers. It prides itself in its motto: “Build value for our customers, shareholders as well as employees.” The bank distinguishes itself from the competition with its personalised approach and services, customer orientation and market focus. Innovative banking products and services, community involvement, social and economic development, corporate governance, customer care and ethical business standards are some of its traits. InvestBank is responsive to the local, regional and international developments but are steadfast in principles and commitments.

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best banks ISSUE 2017

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Bank Al Rajhi Bank Qatar National Bank First Gulf Bank Bank Audi Dubai Islamic Bank BLOM Bank National Bank of Abu Dhabi National Bank of Kuwait Emirates NBD Abu Dhabi Islamic Bank Gulf Finance House Financial Group National Commercial Bank Qatar Islamic Bank Abu Dhabi Commercial Bank Ahli United Bank Alinma Bank Banque Saudi Fransi Bank AlBilad Trade Bank of Iraq Mashreq Byblos Bank Sharjah Islamic Bank Arab Banking Corporation (Bank ABC) Commercial Bank of Dubai Arab Bank Boubyan Bank Bank of Beirut The Housing Bank for Trade & Finance Kuwait Finance House Commercial Bank of Kuwait Bank Muscat Commercial Bank International Arab National Bank Bank of Palestine SABB Samba Financial Group Bank Dhofar BBK InvestBank Ahli Bank National Bank of Bahrain Eskan Bank First National Bank National Bank of Fujairah Doha Bank Union National Bank Bank of Sharjah Barwa Bank National Bank of Oman Al Baraka Islamic Bank

Country Saudi Arabia Qatar United Arab Emirates Lebanon United Arab Emirates Lebanon United Arab Emirates Kuwait United Arab Emirates United Arab Emirates Bahrain Saudi Arabia Qatar United Arab Emirates Bahrain Saudi Arabia Saudi Arabia Saudi Arabia Iraq United Arab Emirates Lebanon United Arab Emirates Bahrain United Arab Emirates Jordan Kuwait Lebanon Jordan Kuwait Kuwait Oman United Arab Emirates Saudi Arabia Palestine Saudi Arabia Saudi Arabia Oman Bahrain United Arab Emirates Qatar Bahrain Bahrain Lebanon United Arab Emirates Qatar United Arab Emirates United Arab Emirates Qatar Oman Bahrain

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Rank 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

Bank Jordan Islamic Bank Gulf Bank HSBC Bank Oman Warba Bank Bank of Jordan Al Ahli Bank of Kuwait Al Salam Bank - Bahrain Capital Bank of Jordan Burgan Bank Inovest Ahli Bank Bank AlJazira Kuwait International Bank Banque Bemo INVESTBANK Bank Al-Etihad Ithmaar Bank Riyad Bank Quds Bank Ahli United Bank - Kuwait The National Bank of Ras Al-Khaimah (RAKBANK) Emirates Islamic Al Khalij Commercial Bank (al khaliji) Bank Nizwa The Commercial Bank of Qatar Al Hilal Bank ABC Islamic Bank The Saudi Investment Bank Saudi Hollandi Bank The National Bank Addax Bank Oman Arab Bank Arab Jordan Investment Bank First Energy Bank Palestine Islamic Bank BLC Bank alizz islamic bank Bank Sohar Jordan Dubai Islamic Bank Palestine Investment Bank Company Emirates Investment Bank Arab Banking Corporation (Jordan) Qatar Development Bank Cairo Amman Bank Bahrain Middle East Bank National Bank of Umm Al-Qaiwain Khaleeji Commercial Bank Shuaa Capital Arab Islamic Bank Bahrain Islamic Bank

Country Jordan Kuwait Oman Kuwait Jordan Kuwait Bahrain Jordan Kuwait Bahrain Oman Saudi Arabia Kuwait Lebanon Jordan Jordan Bahrain Saudi Arabia Palestine Kuwait United Arab Emirates United Arab Emirates Qatar Oman Qatar United Arab Emirates Bahrain Saudi Arabia Saudi Arabia Palestine Bahrain Oman Jordan Bahrain Palestine Lebanon Oman Oman Jordan Palestine United Arab Emirates Jordan Qatar Jordan Bahrain United Arab Emirates Bahrain United Arab Emirates Palestine Bahrain www.cpifinancial.net

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countries of the bme 100

Banks

LEBANON

06 Banks

Banks PALESTINE

01 Bank

IRAQ

Banks

JORDAN KUWAIT

Banks

BAHRAIN

QATAR

UNITED ARAB EMIRATES

SAUDI ARABIA

Banks

ISSUE 2017

OMAN

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UAE

Saudi Arabia

Oman

Kuwait

Bahrain

Palestine

Jordan

Iraq

Lebanon

Qatar

The largest presence in the BME 100 and the largest banking sector overall in the Middle East.

Oman’s two Shari’ah-compliant institutions both appear in the BME 100. The total of nine is up from seven in 2013.

Bahrain’s presence in the index has dropped from 25 institutions in 2014.

Jordan’s banking sector is wellrepresented but has shrunk from 13 in 2014.

With seven banks in the index, Lebanon sees its presence shrink from eight in 2015.

here are 16 new entrants in the BME 100. Some of these institutions are returning to the index after time out while others, including for example Trade Bank of Iraq, our first Iraqi institution, join for the first time. Our biggest mover is Arab Banking Corporation (Bank ABC)–the Bahrain-based institution moving up 73 places in our index. Other impressive moves were shown by Commercial Bank of Kuwait, up 63 places, and Al Baraka Islamic

Bank, up 47 places. There were some equally spectacular moves down the ranking in what was one of the most challenging years the regional banking sector has faced. As has been pointed out elsewhere in this publication in our in-depth interviews with some of the region’s top bankers, the fall in the oil price has been a wake-up call not just for Governments but for business and bankers alike. It was not, however, a gentle call to consciousness!

Saudi presence in the BME 100 once again stands unchanged at 12.

With 10 banks represented in the BME 100, Kuwait’s presence has held steady since it grew from seven to 10 in 2014.

The vibrancy of Palestine’s banking sector is reflected by the growth to six institutions, up from two in 2014.

We initiate coverage of Iraq this year with one institution, Trade Bank of Iraq, making its debut appearance.

Eight Qatari institutions appear in the BME 100, down from nine in 2015 and 11 in 2013.

The fall-out and impact across economies in the Middle East is still being felt and will continue to reverberate in 2017 and beyond. However, despite rising nonperforming loans and a liquidity squeeze, a number of banks were able to take advantage of the low cost of finance to reduce their cost of doing business with bond and Sukuk issues that were generally well-received and not just in region but internationally. www.cpifinancial.net

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movers and shakers ISSUE 2017

Bank Arab Banking Corporation (Bank ABC) Commercial Bank of Kuwait Al Baraka Islamic Bank Eskan Bank Bank of Jordan Byblos Bank HSBC Bank Oman Arab Bank Ithmaar Bank Quds Bank Bank AlBilad Bank of Palestine First National Bank Bank of Sharjah The Housing Bank for Trade & Finance Warba Bank Sharjah Islamic Bank Banque Bemo Bank Nizwa National Bank of Abu Dhabi Commercial Bank of Dubai Gulf Bank Bank Audi Kuwait Finance House Jordan Islamic Bank alizz islamic bank BLOM Bank Palestine Islamic Bank INVESTBANK Al Rajhi Bank Qatar Islamic Bank Bank Dhofar Ahli United Bank Barwa Bank Mashreq National Bank of Kuwait Bank of Beirut ABC Islamic Bank Qatar National Bank First Gulf Bank Abu Dhabi Islamic Bank Boubyan Bank Al Ahli Bank of Kuwait Arab Jordan Investment Bank BBK Bank Al-Etihad Dubai Islamic Bank Banque Saudi Fransi Ahli Bank Alinma Bank

Countries Bahrain Kuwait Bahrain Bahrain Jordan Lebanon Oman Jordan Bahrain Palestine Saudi Arabia Palestine Lebanon United Arab Emirates Jordan Kuwait United Arab Emirates Lebanon Oman United Arab Emirates United Arab Emirates Kuwait Lebanon Kuwait Jordan Oman Lebanon Palestine Jordan Saudi Arabia Qatar Oman Bahrain Qatar United Arab Emirates Kuwait Lebanon Bahrain Qatar United Arab Emirates United Arab Emirates Kuwait Kuwait Jordan Bahrain Jordan United Arab Emirates Saudi Arabia Qatar Saudi Arabia

Rank 2016 23 30 50 42 55 21 53 25 67 69 18 34 43 47 28 54 22 64 74 7 24 52 4 29 51 87 6 85 65 1 13 37 15 48 20 8 27 77 2 3 10 26 56 83 38 66 5 17 40 16

Rank 2015 96 93 97 84 95 60 89 59 100 98 45 61 70 69 48 73 39 81 91 23 40 67 18 43 63 99 16 94 72 8 20 44 21 54 24 12 31 80 4 5 11 27 57 83 37 65 3 15 38 13

Change 73 63 47 42 40 39 36 34 33 29 27 27 27 22 20 19 17 17 17 16 16 15 14 14 12 12 10 9 7 7 7 7 6 6 4 4 4 3 2 2 1 1 1 0 -1 -1 -2 -2 -2 -3

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Bank Doha Bank Bahrain Middle East Bank National Commercial Bank National Bank of Bahrain BLC Bank Emirates NBD National Bank of Fujairah Ahli Bank Abu Dhabi Commercial Bank Union National Bank Ahli United Bank - Kuwait SABB Kuwait International Bank Bank Sohar Bank Muscat Arab Banking Corporation (Jordan) Bahrain Islamic Bank Addax Bank The Saudi Investment Bank Cairo Amman Bank Arab National Bank National Bank of Oman The Commercial Bank of Qatar Burgan Bank Khaleeji Commercial Bank Samba Financial Group Oman Arab Bank Riyad Bank The National Bank of Ras Al-Khaimah (RAKBANK) Bank AlJazira Al Khalij Commercial Bank (al khaliji) Emirates Islamic National Bank of Umm Al-Qaiwain Saudi Hollandi Bank Gulf Finance House Financial Group Trade Bank of Iraq Commercial Bank International Al Salam Bank - Bahrain Capital Bank of Jordan Inovest Al Hilal Bank The National Bank First Energy Bank Jordan Dubai Islamic Bank Palestine Investment Bank Company Emirates Investment Bank Qatar Development Bank Shuaa Capital Arab Islamic Bank InvestBank

Countries Qatar Bahrain Saudi Arabia Bahrain Lebanon United Arab Emirates United Arab Emirates Oman United Arab Emirates United Arab Emirates Kuwait Saudi Arabia Kuwait Oman Oman Jordan Bahrain Bahrain Saudi Arabia Jordan Saudi Arabia Oman Qatar Kuwait Bahrain Saudi Arabia Oman Saudi Arabia United Arab Emirates Saudi Arabia Qatar United Arab Emirates United Arab Emirates Saudi Arabia Bahrain Iraq United Arab Emirates Bahrain Jordan Bahrain United Arab Emirates Palestine Bahrain Jordan Palestine United Arab Emirates Qatar United Arab Emirates Palestine United Arab Emirates

Rank 2016 45 95 12 41 86 9 44 61 14 46 70 35 63 88 31 92 100 81 78 94 33 49 75 59 97 36 82 68 71 62 73 72 96 79 11 19 32 57 58 60 76 80 84 89 90 91 93 98 99 39

Rank 2015 42 92 6 35 79 1 36 52 2 34 58 22 50 75 17 78 86 66 62 77 14 30 56 33 71 7 53 32 29 19 26 10 28 9 New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry

Change -3 -3 -6 -6 -7 -8 -8 -9 -12 -12 -12 -13 -13 -13 -14 -14 -14 -15 -16 -17 -19 -19 -19 -26 -26 -29 -29 -36 -42 -43 -47 -62 -68 -70 New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry New entry

www.cpifinancial.net

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METHODOLOGY ISSUE 2017

SETTING THE benchmark Our analysis aims to identify the region’s top performers across the Middle East banking sector

n the banking sector, the quest for greater efficiency is never-ending as management is always under pressure to improve organisational performance. Banks are constantly seeking better value for shareholders’ money, while the emergence of a more global economy has intensified competitive pressures. The onus is on management to achieve better results from the resources available to them. The BME 100 sets out to define the parameters of success for the banking sector in the Middle East. When first published, in 2010, we focused on eight countries in the region, the ‘GCC six’ together with Jordan and Lebanon. In 2011 we extended this to include the thriving financial sector in Palestine. Note that Palestine does not have a currency of its own, the US dollar is the de facto currency of choice and record. This year we introduce coverage, for the first time, of Iraq. We will continue to monitor developments in other countries, keeping under review the potential for further expanding the footprint of the BME 100. Within our chosen countries, we limit ourselves to coverage of the domestic institutions. That is to say, the banks under consideration for inclusion have been identified as those that are both licensed and domiciled in one of the countries included. From these institutions, the ‘top’ 100 constitute the BME 100 and you will meet these institutions in the pages of this publication. Within our top banks, almost onethird of the institutions are ‘Islamic’ or

fully Shari’ah-compliant. In addition, it should be noted that many of the ‘conventional’ financial institutions in our index also operate Shari’ahcompliant subsidiaries or windows.

MEASURING PERFORMANCE We include both conventional and Islamic institutions and both exchange-

listed and unquoted institutions. Furthermore, the BME 100 does not focus solely on commercial banks, we also include investment banks in our analysis. We cover several metrics and, in this edition, analyse year-on-year performance across 2015 and 2016. The ranking presented as a result of

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this data collation and analysis is not simply a measure of ‘size’. While we do identify the largest banks in the region, absolute size is not, of itself, the true measure of success. Our index offers a clear, straightforward ranking of the Middle East’s top-performing banks. It should be understood that we recognise not only the largest institutions in the region but also those that are improving their financial performance.

CAPITAL ADEQUACY ANALYSIS Capital adequacy seeks to measure the level of ‘shock absorbing’ capacity available in a bank’s financial position.

It is required as a buffer against unforeseen losses and is not a substitute for good management. Expressed as a percentage, the capital adequacy ratio shows the ability of a bank to withstand losses in the value of its assets. Realising the importance of capital adequacy, the Bank of International Settlements through Basel II requires banks to maintain a minimum of eight per cent of total capital and four per cent of Tier-1 capital against risk-weighted assets. It is customary for the Central Bank in each jurisdiction to issue specific guidelines in this regard and stipulate penalties for contravention of this requirement. In the case of

Saudi Arabia, banks are required to adhere to the levels set by Basel II. For computation of the capital adequacy ratio, capital is classified as Tier-1 and Tier-2 capital. Tier-1 capital comprises the equity capital and free reserves, while Tier-2 capital comprises subordinated debt of five-to-seven-year tenure. It may be reasonable and prudent to assume simply that the higher the institution’s capital adequacy ratio, the stronger the bank. However, a very high ratio, a tipping point that may vary from institution to institution depending on business mix, may well indicate that the bank is being too conservative and is not utilising the full potential of its capital. cont. overleaf

n PHOTO CREDIT: IBREAKSTOCK/SHUTTERSTOCK

www.cpifinancial.net

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METHODOLOGY

cont. from page 37

MANAGEMENT CAPABILITY The performance of management capacity is usually qualitative and may be understood through the subjective evaluation of management systems, organisation culture, control mechanisms and so on. However, the capacity of the management of a bank may also be gauged with the help of certain ratios. The capability of the management to deploy its resources, maximise the income, utilise the facilities in the bank productively and reduce costs, etc. can be evaluated using the following: • ADVANCES • TOTAL ASSETS • DEPOSITS • TOTAL INCOME • NET PROFIT

ISSUE 2017

EARNINGS & PROFITABILITY Profitability is an indicator of a bank’s capacity to carry risk and/or increase its capital. It also indicates competitiveness and confirms the quality of management. Profit provides a cushion against short-term problems and is a good source of retained earnings, which increases capital and consequently, the capacity to grow the business. Supervisors should welcome profitable banks as contributors to the stability of the banking system only after being assured of the quality of the earnings. An income statement, especially the common size one, reveals the sources of a bank’s earnings, their quantity, quality and the profile of its expenditures. This statement should serve as a confirmation of a bank’s business orientation. Return on assets and return on equity are conventional parameters of measuring earnings/profitability. The average Return on Assets (ROA) for each country has calculated using the sum of net profit of all the banks and financial institutions of the country, divided by the sum of their total assets. The average Return on Equity (ROE) for each country

has calculated using the sum of net profit of all the banks and financial institutions of the country, divided by the sum of their total equity or net assets.

EXCHANGE RATES In compiling our index of the region’s leading banks, we record the results published by each institution and convert them into US dollars (USD or $) so that we may directly compare them against each other. Several banks throughout the region report their earnings in USD. However, most report in the local currency of their domicile. Of the countries, whose institutions are represented within the BME 100, Palestine uses the USD as its currency while among the other nine countries, all but two have pegged their currency value against the dollar for many years. The exchange rates against the USD for

Jordan and Lebanon were established in 1995 and 1997 respectively. Although we include an institution in Iraq within the index for the first time this year, the bank in question reports its results in USD so while we are tracking the performance of the Iraqi Dinar (IQD), its exchange rate does not yet play a part in our calculations. Among Gulf Cooperation Council members, the Kuwaiti Dinar (KWD) is pegged to an undisclosed weighted basket of international currencies of Kuwait’s major trade and financial partner countries (Decree No. 147/2007). Although the make-up of the KWD basket peg has never been officially disclosed, it has been widely estimated to be roughly 70 per cent USD with the rest made up of EUR (20 per cent), GBP (five per cent) and JPY (five per cent). cont. on page 40

n PHOTO CREDIT: JOAT/SHUTTERSTOCK

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A remarkable track record of long-term growth. An award-winning reputation.

Since launching in 2006, Gulf Capital has become one of the regionâ&#x20AC;&#x2122;s most successful alternative investment firms. We have built a track record of delivering long-term returns and industry-leading results that has made us the firm of choice for regional and global investors. www.gulfcapital.com

Firm of the Year MENA 2014

Best SME Credit Fund 2015

Best Private Equity Firm in the Middle East, 2011, 2012, 2013, 2014 and 2015 Best Alternative Investment Firm, 2016

www.cpifinancial.net

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METHODOLOGY

cont. from page 38

Of those GCC currencies fixed against the USD, Saudi Arabia pegged its currency to the International Monetary Fund’s Special Drawing Rights in 1986 and formalised its peg to the dollar at SAR 3.75 in 2003. The OMR exchange rate fix also dates back to 1986 while the QAR and BHD rates were formalised in 2001. The current AED peg dates to 1997.

Country United Arab Emirates Bahrain Jordan Kuwait Lebanon Oman Qatar Saudi Arabia

2016 USD 1 3.6725 0.376 0.709 0.30605 1507.5 0.3845 3.64 3.75

Sources: Central Banks

BME 100 Ranking Flowchart Database The Data Team creates our own database of these published reports and identifies specific metrics from each bank’s financial statements: • From balance sheet: assets, liabilities, capital, retained earnings, other.T• From income statement: revenue, operating expenses, EBIT, taxes, net profit. • From notes/ risk management: Tier-1 capital, Tier2 capital, total regulatory capital, risk-weighted assets, Tier-1 ratio, capital adequacy ratio.

Scoring

ISSUE 2017

EXCHANGE RATES (USD 1) SWIFT CODE AED BHD JOD KWD LBP OMR QAR SAR

We assess the performance measures so create and weight them according to the performance in the current year versus performance in the previous year. Our analysis allows to draw conclusions both in terms of absolute and relative growth of the measures we track.

Collection Our Data Team tracks more than 140 websites of banks, seeking year-end published financial statements of banks licenced and domiciled in the countries we cover. We start this process in March and finalise it at end-April.

Analysis This crucial step begins with connecting the database we have created in a live spreadsheet. Within this spreadsheet, we convert all the results into USD figures so we may compare them directly against each other. This allows us to assess each of our criteria in terms of absolute size, USD growth and percentage growth.

Final ranking The scores we create are aggregated to create the rankings within the BME 100. They also allow us to identify the ‘best’ bank in each of the countries covered within the index and the ‘fastest growing’ bank in each country.

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www.cpifinancial.net

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united arab emirates

ISSUE 2017

here is a new kid on the block. Well, almost; First Abu Dhabi Bank came into existence in April 2017 as a result of the merger between FGB and National Bank of Abu Dhabi (NBAD). The bank has published pro forma agglomerated financial data for the merged bank for 2016. However, for the purposes of this analysis we have continued to show FGB and NBAD as discreet entities in order to make comparisons with performance in 2015 simpler to follow. In future years, this survey will show First Abu Dhabi Bankâ&#x20AC;&#x2122;s data and our next annual survey will use the merged data published for

2016 as its benchmark for the bank. The merger between the two Abu Dhabi-based institutions effectively creates, on a number of measures, the largest financial institution in the Gulf region and a bank with true international stature. In the meantime, indications for 2017 suggest that the liquidity and funding pressures present in 2016 and reflected in the performance of the sector for that year as shown here, have eased. That said, one elephant in the room remains the SME sector where banks suffered badly in late 2015 and for most of 2016. While the worst now appears over and no further deterioration in asset quality

and no further concomitant increase in non-performing loans are expected, banks appear broadly unwilling to return to the SME market-place with one or two noble exceptions. Looking ahead, it is worth noting the prospect, highlighted by Fitch Ratings that there may be some increase in provisioning in anticipation of the implementation of IFRS 9 on 1 January 2018, but this should be manageable for all UAE banks. Across the sector, banks remain well-capitalised and a number have taken advantage of market conditions to lock attractive rates available in the current climate through bond and Sukuk issuances.

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Totals of Emirati Banks 8.21%

8.48%

Assets

Liabilities

The UAE banking sector showed total assets at end2016 of $614.74 billion, up from $568.11 billion a year earlier.

-10.58%

ROE Average return on equity was squeezed by tightening liquidity, falling to 11.97 per cent in 2016, from 13.38 per cent in 2015.

-4.82% Net profit The UAE banking sector as a whole saw net profits total $9.84 billion in 2016, down from $10.34 billion in 2015.

Total liabilities rose from $490.85 billion at end-2015 to $532.5 billion at end-2016.

-12.04%

ROA Average return on assets fell to 1.6 per cent, down from 1.82 per cent the previous year.

2.75% CAR Banks in the UAE remain strongly capitalised. The average capital adequacy ratio across the sector rose to 18.7 per cent in 2016, up from 18.2 per cent in 2015. cont. overleaf

www.cpifinancial.net

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united arab emirates

cont. from page 43

Top 10 Banks By Assets (USD '000) Emirates Islamic Commercial Bank of Dubai Union National Bank Abu Dhabi Islamic Bank Mashreq Dubai Islamic Bank First Gulf Bank Abu Dhabi Commercial Bank National Bank of Abu Dhabi Emirates NBD

16,127,485 17,448,543 28,295,601 33,298,768 33,441,339 47,643,432 66,741,529

70,333,635 114,557,794

121,988,839

By liabilities (USD '000) Emirates Islamic Commercial Bank of Dubai Union National Bank Mashreq Abu Dhabi Islamic Bank Dubai Islamic Bank First Gulf Bank Abu Dhabi Commercial Bank National Bank of Abu Dhabi Emirates NBD

14,306,171 15,085,134 23,296,512 28,135,573 29,089,471 40,218,186 56,487,758

62,066,269 101, 894, 621

107, 322, 830

ISSUE 2017

By revenue (USD '000) Emirates Islamic Union National Bank The National Bank of RAK Abu Dhabi Islamic Bank Mashreq Dubai Islamic Bank Abu Dhabi Commercial Bank First Gulf Bank National Bank of Abu Dhabi Emirates NBD

828,885 949,602 1,045,422 1,631,944 1,679,680 1,840,980 2,315,390

2,609,231 2,943,004

4,052,582

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By net profit (USD '000) The National Bank of RAK Commercial Bank of Dubai Union National Bank Abu Dhabi Islamic Bank Mashreq Dubai Islamic Bank Abu Dhabi Commercial Bank National Bank of Abu Dhabi First Gulf Bank Emirates NBD

180,525 273,129 430,927 531,942 532,038 1,102,805 1,131,945 1,442,081 1,652,771

121,988,839

By loans/deposits (USD '000)

Emirates Islamic Commercial Bank of Dubai Mashreq Union National Bank Abu Dhabi Islamic Bank Dubai Islamic Bank First Gulf Bank Abu Dhabi Commercial Bank National Bank of Abu Dhabi Emirates NBD

Deposits, 2016

Loans and Advances, 2016

By ROA

The National Bank of RAK Commercial Bank of Dubai Mashreq Abu Dhabi Islamic Bank Abu Dhabi Commercial Bank Emirates NBD Invest bank Dubai Islamic Bank National Bank of UAQ First Gulf Bank

1.56% 1.57% 1.59% 1.60% 1.61% 1.62% 1.68%

2.31% 2.40%

2.48%

www.cpifinancial.net

p42-83_Country Focus.indd 45

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saudi arabia

SAUDI ARABIA

ISSUE 2017

audi Hollandi Bank, as it appears in our analysis this year, rebranded in November 2016 to Alawwal Bank as part of a new corporate identity rolled out over following months. Alawwal, means “The First” in Arabic, referencing the bank’s status as the first bank in Saudi Arabia (KSA) in 1926. Note also that the bank is now in merger talks, revealed in April 2017, with SABB (40 per cent owned by HSBC). A successful merger of the two would create what would be the Kingdom’s third largest bank. Arguably, the Saudi economy and, by extension the Saudi banking

sector, was hardest hit of all the Gulf economies by what happened to the oil price over the course of 2015 and 2016. Profits were hit in 2016 by a spending freeze and austerity measures imposed by the Government. Given the paramount position of the Government as an economic driver, this in turn slowed credit demand and also the ability of borrowers, both institutional and individual, to service debt. Pressure on spending remains an issue and non-performing loans are also likely to continue to rise. That said, higher interest rates are

offsetting, and will continue to offset the impact of higher provisions and lower fee and commission income. On the plus side, the Saudi banking sector is being supported by a lower-than-expected cost of funding and it should be noted that the seven largest Saudi banks all increased their first half dividends in 2017 despite registering an aggregate fall in earnings. This move was interpreted by BofA Merrill Lynch analysts as ‘a strong signal on management confidence’ on the outlook for net interest margins and asset quality.

p42-83_Country Focus.indd 46

9/12/17 11:13 AM

Totals of saudi banks 2.06%

1.07%

Assets

Liabilities

The Saudi banking sector showed total assets at end2016 of $590.45 billion, up from $578.55 billion a year earlier, a rate of growth of 2.06 per cent.

Total liabilities rose from $494.91 billion at end-2015 to $500.22 billion at end-2016, a growth rate of 1.07 per cent.

-12.87%

-7.17%

ROE

ROA

Average return on equity was squeezed by tightening liquidity, falling to 12.25 per cent in 2016, from 13.95 per cent in 2015.

-5.27% Net profit The Saudi banking sector as a whole saw net profits total $11.06 billion in 2016, down from $11.67 billion in 2015.

Average return on assets fell to 1.87 per cent, down from 2.02 per cent the previous year.

3.11% CAR Banks in Saudi Arabia remain strongly capitalised. The average capital adequacy ratio across the sector rose to 19.9 per cent in 2016, up from 19.3 per cent in 2015. cont. overleaf

www.cpifinancial.net

p42-83_Country Focus.indd 47

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saudi arabia

cont. from page 47

Top 10 Banks By Assets (USD '000) The Saudi Investment Bank

25,163,066

Alinma Bank

27,972,963

Saudi Hollandi Bank

28,018,800

Arab National Bank

45,335,659

SABB

49,614,905

Banque Saudi Fransi

54,247,656

Riyad Bank

58,031,734

Samba Financial Group

61,730,290

Al Rajhi Bank

90,589,818

National Commercial Bank

117,731,019

By liabilities (USD '000) The Saudi Investment Bank

21,551,549

Alinma Bank

22,813,707

Saudi Hollandi Bank

24,588,722

Arab National Bank

38,955,778

SABB

41,273,858

Banque Saudi Fransi

46,327,922

Riyad Bank

47,958,917

Samba Financial Group

50,322,019

Al Rajhi Bank

76,737,319

National Commercial Bank

101,750,827

By revenue (USD '000) The Saudi Investment Bank

681,733

Alinma Bank

887,414

ISSUE 2017

Saudi Hollandi Bank Arab National Bank SABB Banque Saudi Fransi

983,447 1,569,711 1,859,302 1,798,401

Riyad Bank

2,063,412

Samba Financial Group

2,069,455

Al Rajhi Bank National Commercial Bank

4,075,630 4,972,634

p42-83_Country Focus.indd 48

8/28/17 3:39 PM

By net profit (USD '000) The Saudi Investment Bank

280,789

Saudi Hollandi Bank

283,927

Alinma Bank

400,606

Arab National Bank

763,167

Riyad Bank

891,330

Banque Saudi Fransi

936,062

SABB

1,038,595

Samba Financial Group

1,334,843

Al Rajhi Bank

2,166,923

National Commercial Bank

2,510,889

By loans/deposits (USD '000) Bank AlJazira

Alinma Bank Saudi Hollandi Bank Arab National Bank SABB Samba Financial Group Banque Saudi Fransi Riyad Bank Al Rajhi Bank National Commerial Bank

By ROA

Bank AlJazira Alinma Bank Bank AlBilad Ryad Bank

Arab National Bank Banque Saudi Fransi SABB National Commercial Bank Samba Financial Group Al Rajhi Bank

Deposits, 2016

Loans and Advances, 2016

1.31% 1.43% 1.50% 1.54% 1.68% 1.73% 2.09% 2.13% 2.16% 2.39%

www.cpifinancial.net

p42-83_Country Focus.indd 49

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bahrain

ISSUE 2017

espite an apparent turnaround in profitability and returns on both equity and assets for 2016, the outlook for the Bahraini banking sector does not appear to be bright. Both assets and liabilities stood broadly unchanged in 2016 from the previous year. The forward outlook, according to many analysts remains negative thanks to a combination of reduced Government spending, stagnant hydrocarbon output and oil prices that, despite almost doubling from their lows in January 2016, remain stubbornly below the price levels necessary for the island Kingdom. Indeed, sentiment towards the Bahraini banking sector reflects

the challenges posed by weakening economic growth, exposure to Government debt and the limited capacity of the authorities to support banks if needed. The last point is perhaps unlikely to arise given the broadly high level of the banks’ capital adequacy ratios. Moody’s expects Bahrain’s Government debt burden and debt affordability to deteriorate significantly over the coming two to three years. In addition to downgrading the sovereign, the ratings agency has downgraded a number of the country’s banks as well. Pressure on asset quality will continue to be an issue with nonperforming loans expected to rise.

However, this will, in some part, be offset by efforts to recover and writeoff legacy problems in economic sectors that show signs of recovery. Bahrain also benefits from authorities seriously committed to boosting and supporting the role of the financial sector despite the fact the Kingdom is no longer the region’s financial centre in the way it once was. Note that Bahrain has become the first country in the GCC to introduce an Investment Limited Partnership Law and integrate it in the country’s legal system. The move is expected to support growth in real estate funds, private equity funds, venture capital and technology funds, start-ups, and Shari’ah-compliant funds, as well as captive insurance.

p42-83_Country Focus.indd 50

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Totals of bahrain Banks 0%

-0.4%

Assets

Liabilities

Standing broadly unchanged year-on-year, the Bahraini banking sector, as represented in the BME 100 showed assets in 2016 of $128.45 billion.

Total liabilities were down fractionally from $90.60 billion for 2015 to $90.21 billion at end-2016.

1334.7%

66.6%

ROE

ROA

Average return on equity showed a significant recovery in 2016, rising to 6.20 per cent from 0.43 per cent in 2015.

Average return on assets rose to 1.36 per cent, up from 0.82 per cent the previous year.

66.6%

3.6%

Net profit

CAR

The Bahraini banking sector within the BME 100 as a whole saw net profits total $1.75 billion in 2016, up from $1.05 billion in 2015.

Banks in Bahrain remain strongly capitalised. The average capital adequacy ratio across the sector rose to 20.3 per cent in 2016, up from 19.6 per cent in 2015. cont. overleaf

www.cpifinancial.net

p42-83_Country Focus.indd 51

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bahrain

cont. from page 51

Top 10 Banks By Assets (USD '000) Khaleeji Commercial Bank Bahrain Islamic Bank Gulf Finance House Financial Group BSC

Al Salam Bank Bahrain

2,034,572 2,771,777 3,303,401 4,471,524

National Bank of Bahrain

7,917,819

Ithmaar Bank

8,341,310

BBK

9,847,226

Al Baraka Islamic Bank

23,425,265 30,141,000

Arab Banking Corporation (Bank ABC)

Ahli United Bank

31,322,484

By liabilities (USD '000) Eskan Bank

1,079,731

Gulf Finance House Financial Group BSC

1,159,504

ABC Islamic Bank

1,321,688

Al Salam Bank Bahrain

3,424,463

Ithmaar Bank

4,968,860

National Bank of Bahrain

6,814,894

Al Baraka Islamic Bank

8,139,890

BBK

8,586,016 25,881,000

Arab Banking Coortporation (Bank ABC)

Ahli United Bank

26,782,982

By revenue (USD '000) Khaleeji Commercial Bank Bahrain Islamic Bank ISSUE 2017

Al Salam Bank Bahrain National Bank of Bahrain Ithmaar Bank BBK Gulf Finance House Financial Group BSC

Arab Banking Corporation (Bank ABC)

Al Baraka Islamic Bank Ahli United Bank

68,577 110,830 169,487 257,633 262,148 355,125 578,956 865,000 1,074,159 1,149,041

p42-83_Country Focus.indd 52

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By net profit (USD '000) Bahrain Islamic Bank

22,394

ABC Islamic Bank

22,909

Al Salam Bank Bahrain

42,809

Eskan Bank

43,854

BBK

150,923

National Bank of Bahrain

154,894

Gulf Finance House Financial Group BSC

233,048

Arab Banking Coortporation (Bank ABC)

234,000

Al Baraka Islamic Bank

267,636

Ahli United Bank

624,310

By loans/deposits (USD '000) Eskan Bank Al Salam Bank Bahrain Bahrain Islamic Bank National Bank of Bahrain Al Baraka Islamic Bank Ithmaar Bank BBK Arab Banking Corporation (Bank ABC)

Ahli United Bank Deposits, 2016

By ROA

Al Baraka Islamic Bank ABC Islamic Bank BBK

Loans and Advances, 2016

1.14% 1.40% 1.53%

National Bank of Bahrain

1.96%

Ahli United Bank

1.99%

Eskan Bank Bahrain Middle East Bank Inovest Gulf Finance House Financial Group BSC

Addax Bank

2.59% 2.86% 3.84% 7.05% 8.66%

www.cpifinancial.net

p42-83_Country Focus.indd 53

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kuwait

ISSUE 2017

n Q2 2017 a number of the major ratings agencies issued reaffirmations or upgrades on Kuwait’s sovereign ratings to ‘stable’. Against that backdrop, and despite the economy’s dependence on oil, views on Kuwait’s banking sector are mainly favourable. The International Monetary Fund last year cited high capitalisation, robust profitability, low nonperforming loans, and high loan-loss provisioning. It also noted an improvement in bank liquidity, supported by a recovery in deposits of government entities. On the downside there has been a slowdown in particular in the volume and value of real estate transactions.

The Central Bank of Kuwait (CBK) has, however, been proactive in strengthening regulatory oversight and mitigating financial stability risks. Kuwaiti banks are under Basel III regulations for capital, liquidity, and leverage. Macro-prudential measures— to prevent excessive debt build up by households and limit banks’ exposure to real estate and equities—are being enforced to minimis e systemic risks. A new corporate governance framework has also been introduced. Moody’s most recent review of the Kuwaiti banking system noted it as being stable, reflecting the rating agency’s expectation of continued government spending and growing loss-

absorbing buffers, that will allow banks to manage modest new problem loan formation and balances an increase in market funding reliance that the rating agency expects in the context of low oil prices. Nevertheless, downside risks to asset quality will remain elevated, owing to high credit concentration and banks’ exposure to real estate and equity markets. Moody’s expects the Kuwaiti government to remain committed and able to support banks, if needed, despite current fiscal pressures. The government has stepped in to provide capital in the past and can call on financial assets managed by the country’s sovereign wealth fund if need be.

p42-83_Country Focus.indd 54

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Totals of kuwait Banks 1.46%

1.05%

Assets

Liabilities

The top Kuwaiti banks show a small increase in assets from $231.85 billion in 2015 to $235.24 billion in 2016.

Total liabilities were also up fractionally, to $205.05 billion from $202.93 billion at end-2016.

-1.64%

1.20%

ROE

ROA

Average return on equity slipped but was still a relatively high 8.71 per cent in 2016, down from 8.85 per cent in 2015.

Average return on assets rose to 1.12 per cent, fractionally up from 1.10 per cent the previous year.

2.69%

7.78%

Net profit

CAR

The top 10 Kuwaiti banks recorded total net profits for 2016 of $2.63 million, up from $2.56 billion in 2015.

Banks in Kuwait show the average capital adequacy ratio across the sector rising to 18.0 per cent in 2016, up from 16.7 per cent in 2015. cont. overleaf

www.cpifinancial.net

p42-83_Country Focus.indd 55

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kuwait

cont. from page 55

Top 10 Banks By Assets (USD '000) Warba Bank

3,682,281

Kuwait International Bank

6,031,792

Boubyan Bank

11,376,595

Ahli United Bank-Kuwait

12,063,914

Commercial Bank of Kuwait

13,479,134

Al Ahli Bank of Kuwait

14,000,369

Gulf Bank

17,863,470

Burgan Bank

23,750,616

Kuwait Finance House

53,910,645

National Bank of Kuwait

79,085,342

By liabilities (USD '000) Warba Bank

3,372,619

Kuwait International Bank

5,198,611

Boubyan Bank

9,993,968

Ahli United Bank-Kuwait

10,607,656

Commercial Bank of Kuwait

11,506,100

Al Ahli Bank of Kuwait

12,184,316

Gulf Bank

15,989,619

Burgan Bank

20,987,812

Kuwait Finance House

47,248,907

National Bank of Kuwait

67,960,585

By revenue (USD '000) Warba Bank

74,445

Kuwait International Bank

206,476

ISSUE 2017

Boubyan Bank

337,536

Ahli United Bank-Kuwait

362,859

Commercial Bank of Kuwait

458,566

Al Ahli Bank of Kuwait

482,003

Gulf Bank Burgan Bank

551,024

766,783

Kuwait Finance House National Bank of Kuwait

2,155,367

2,435,252

cont. overleaf

p42-83_Country Focus.indd 56

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Untitled-1

www.cpifinancial.net

p42-83_Country Focus.indd 57 Untitled-1 1

8/28/17 3:39 PM 06/02/2017 14:05

kuwait

cont. from page 56

By net profit (USD '000) Warba Bank Kuwait International Bank Boubyan Bank Ahli United Bank-Kuwait

8,414 59,608 106,231 123,009

Commercial Bank of Kuwait

134,949

Al Ahli Bank of Kuwait

140,314

Gulf Bank

164,686

Burgan Bank

218,085

Kuwait Finance House

653,825

National Bank of Kuwait

1,019,964

By loans/deposits (USD '000) Kuwait International Bank Boubyan Bank Al Ahli Bank of Kuwait Burgan Bank National Bank of Kuwait

By ROA

Warba Bank

Deposits, 2016

0.23%

ISSUE 2017

Kuwait International Bank

0.76%

Boubyan Bank

0.79%

Ahli United Bank-Kuwait

0.92%

Commercial Bank of Kuwait

0.99%

Al Ahli Bank of Kuwait

1.02%

Gulf Bank Burgan Bank

1.19%

Kuwait Finance House National Bank of Kuwait

Loans and Advances, 2016

1.21% 1.22%

1.29%

p42-83_Country Focus.indd 58

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P in L advert.indd 1 p42-83_Country Focus.indd 59

12/06/2017 8/28/17 3:3911:26 PM

oman

ISSUE 2017

ine Omani banks appear in the BME 100. The country remains challenged by the large but narrowing twin deficits. Delivering on budget targets is critical, according to Bank of America (BofA) Merrill Lynch. The authorities appear to remain committed to the USD peg given its costs and benefits, and it is likely that they also recognise that, beyond the debate, robust measures are needed to support the FX arrangement in the absence of a sustained and material increase in oil prices. That said, higher oil prices in 2017 are likely to help the fiscal deficit to narrow this year. Against that backdrop, ratings agencies have revised down their outlooks for the sovereign and also for the rated financial institutions in Oman.

Fitch Ratings believes Oman has the financial flexibility, albeit weakening, to support its banking system. The fiscal policy response to the fall in oil prices has not prevented a significant deterioration in public finances. Fitch believes that the Omani authorities’ willingness to support domestic banks remains high, partly because of high contagion risk (small number and high concentration of banks in the system) and the importance of the banking system in building the local economy. However, Moody’s noted that the key driver for the Government of Oman’s rating downgrade is that in the rating agency’s view, progress towards addressing structural vulnerabilities has been more limited than expected, reflecting institutional

capacity constraints to address the large fiscal and external imbalances. Both Fitch Ratings and Moody’s revise down their outlooks for a clutch of Omani banks to ‘negative’ from ‘stable’. Moody’s said its decision to assign a negative outlook to the Omani banks’ long-term deposit ratings reflects the potential further weakening in the Omani Government’s support capacity, as reflected by the negative outlook on the Government’s issuer rating, and the potential that Moody’s could reassess its assumptions regarding the Government’s willingness to support the country’s banks. In addition, the negative outlook also reflects the possibility that a weakening operating environment could put downward pressure on the banks’ standalone creditworthiness.

p42-83_Country Focus.indd 60

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Totals of oman Banks -1.22% Assets The top nine Omani banks show a slight fall in assets in 2016, down to $72.67 billion from $73.57 billion in 2015.

-3.25% Liabilities Total liabilities were also down, falling to $61.84 billion in 2016 from $63.92 billion at end-2016.

-11.78%

0.23%

ROE

ROA

Average return on equity slipped but was still a relatively high 8.77 per cent in 2016, down from 9.95 per cent in 2015.

Average return on assets rose to 1.31 per cent, fractionally up from 1.30 per cent the previous year.

-1%

0.61%

Net profit The nine Omani banks recorded total net profits for 2016 of $950.4 million, down from $960 million in 2015.

CAR Banks in Oman remain strongly capitalised. The average capital adequacy ratio across the sector rose to 16.5 per cent in 2016, up from 16.4 per cent in 2015. cont. overleaf

www.cpifinancial.net

p42-83_Country Focus.indd 61

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oman

cont. from page 61

Top 9 Banks By Assets (USD '000) Alizz Islamic Bank Bank Nizwa

992, 577 1,341,991

Ahli Bank Oman

4,940,583

Oman Arab Bank

5,373,139

HSBC Bank Oman

5,861,880

Bank Sohar

6,554,229

National Bank of Oman

9,187,732

Bank Dhofar

10,278,395

Bank Muscat

28,140,624

By liabilities (USD '000) Bank Nizwa

598,075

Alizz Islamic Bank

613,433

Ahli Bank Oman

4,308,728

Oman Arab Bank

4,636,861

HSBC Bank Oman

5,045,990

Bank Sohar

5,841,912

National Bank of Oman

7,787,436

Bank Dhofar

8,889,579

Bank Muscat

24,117,893

By revenue (USD '000) Alizz Islamic Bank

ISSUE 2017

Bank Nizwa Ahli Bank Oman Bank Sohar HSBC Bank Oman Oman Arab Bank Bank Dhofar National Bank of Oman Bank Muscat

23,332 45,199 139,329 173,108 195,581 232,996 331,212 354,000 1,086,871

p42-83_Country Focus.indd 62

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By net profit (USD '000) Alizz Islamic Bank Bank Nizwa

12,288 28,500

HSBC Bank Oman

43,951

Bank Sohar

49,706

Oman Arab Bank

63,787

Ahli Bank Oman

76,858

Bank Dhofar

123,854

National Bank of Oman

145,069

Bank Muscat

459,194

By loans/deposits (USD '000) Bank Nizwa Alizz Islamic Bank HSBC Bank Oman Ahli Bank Oman Oman Arab Bank Bank Sohar National Bank of Oman Bank Dhofar Bank Muscat Deposits, 2016

By ROA

Alizz Islamic Bank

-1.24%

Bank Nizwa

0.02%

HSBC Bank Oman Bank Sohar Oman Arab Bank Bank Dhofar Ahli Bank Oman

Loans and Advances, 2016

0.75% 0.76% 1.19% 1.20% 1.56%

National Bank of Oman

1.58%

Bank Muscat

1.63%

www.cpifinancial.net

p42-83_Country Focus.indd 63

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qatar

Qatar

ISSUE 2017

he future prospects for the banking sector in Qatar are unclear. On 5 June 2017, Saudi Arabia, United Arab Emirates and Bahrain moved to cut diplomatic, trade and transport links with Qatar. Egypt, Yemen, the Maldives and Libya have since joined the boycot. At time of writing, the stand-off remains unresolved. In August 2017, Moody’s changed its outlook on Qatar’s banking system to negative from stable due to the weakening operating conditions and continued funding pressures facing Qatari banks.

The negative outlook also captures the potential weakening capacity of the Qatar Government to support the country’s banks. “Qatari banks’ reliance on confidence-sensitive external funding has increased in recent years due to a significant decline in oil-related revenues,” said Nitish Bhojnagarwala, a Vice President at Moody’s. “This leaves them vulnerable to shifts in investor sentiment.” Moody’s expects Qatar’s GDP growth to slow to 2.4 per cent in 2017 from rates of around 13.3 per

cent recorded during 2006-2014. The economic slowdown, combined with the ongoing dispute together with challenges in the construction and contracting sector, is likely to see asset quality to dip slightly. The ratings agency noted that a prolonged regional dispute could trigger some outflows of foreign deposits and other external funding, reducing liquidity with domestic deposits remaining tight due to reduced oil revenues. Against this backdrop, Moody’s suggests profitability will likely decline.

p42-83_Country Focus.indd 64

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Totals of qatar Banks 21.6%

24.9%

Assets

Liabilities

Assets were $388.7 billion at end-2016. They were $278.64 billion at end-2015.

-19% ROE Average return on equity fell to 6.87 per cent in 2016, down from 7.73 per cent in 2015.

Total liabilities were $267.3 billion at end-2016. They were $214.09 billion at end-2015.

-11.02%

ROA Average return on assets fell to 1.45 per cent, down from 1.79 per cent the previous year.

-1.5%

2.6%

Net profit

CAR

Net profits totalled $4.92 billion in 2016, down from $4.99 billion in 2015.

The average capital adequacy ratio across was 15.8 per cent in 2016. It was 15.4 per cent in 2015. cont. overleaf

www.cpifinancial.net

p42-83_Country Focus.indd 65

9/12/17 11:15 AM

qatar

cont. from page 65

Top 8 Banks By Assets (USD '000) Qatar Development Bank Ahli Bank Barwa Bank Al Khalij Commercial Bank

2,306,610 10,484,948 12,651,011 16,647,596

Doha Bank

24,825,535

The Commercial Bank of Qatar

35,818,760

Qatar Islamic Bank

38,415,969

Qatar National Bank

197,718,273

By liabilities (USD '000) Qatar Development Bank Barwa Bank Ahli Bank Qatar Islamic Bank Al Khalij Commercial Bank Doha Bank

83,067 2,875,103 9,149,728 10,575,227 14,715,514 21,149,564

The Commercial Bank of Qatar

30,516,213

Qatar National Bank

178,253,049

By revenue (USD '000) ISSUE 2017

Qatar Development Bank

144,650

Ahli Bank

263,368

Al Khalij Commercial Bank

318,777

Barwa Bank Doha Bank The Commercial Bank of Qatar Qatar Islamic Bank Qatar National Bank

577,664 755,410 987,430 1,507,754 6,341,954

p42-83_Country Focus.indd 66

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By net profit (USD '000) Qatar Development Bank

7,477

Al Khalij Commercial Bank

117,193

The Commercial Bank of Qatar

137,741

Ahli Bank

173,557

Barwa Bank Doha Bank Qatar Islamic Bank

202,968 289,500 579,869

Qatar National Bank

3,407,769

By loans/deposits (USD '000) Qatar Development Bank

Ahli Bank Barwa Bank Al Khalij Commercial Bank Doha Bank The Commercial Bank of Qatar Qatar Islamic Bank Qatar National Bank Deposits, 2016

Loans and Advances, 2016

By ROA

Qatar Development Bank

The Commercial Bank of Qatar Al Khalij Commercial Bank Doha Bank Qatar Islamic Bank Barwa Bank Ahli Bank Qatar National Bank

0.32% 0.38% 0.70% 1.17% 1.51% 1.60% 1.66% 1.72%

www.cpifinancial.net

p42-83_Country Focus.indd 67

8/28/17 3:39 PM

jordan

ISSUE 2017

ordan’s banking system is ‘well capitalised and profitable’, according to the International Monetary Fund, which adds, “The gradual adoption of Basel III, and the authorities’ decision to complement it with an additional capital buffer, provide important resilience to shocks and will help preserve financial stability.” However, note that Capital Intelligence Ratings, while maintaining ratings on the sovereign unchanged, has revised its outlook for Jordan’s Foreign and Local Currency Ratings to ‘Negative’ from ‘Stable’, a move that reflects the continuing decline in the country’s foreign exchange reserves, which is weakening the capacity to absorb external shocks.

In its first report on the country’s banking sector, Fitch Ratings commented last year that Jordan’s banks are constrained by a challenging operating environment, noting heightened political risk, weak external finances despite falling oil prices and continued concern over the country’s public finances. Jordanian banks, with the exception of Arab Bank Plc, have high exposure to domestic sovereign debt or sovereign credit exposures, which significantly increase the correlation between the banks and their operating environment. However, despite the challenging operating environment, Jordanian banks have continued to demonstrate healthy liquidity, adequate capital ratios and resilient profitability.

Liquidity remains healthy given banks’ stable domestic funding base and slow credit growth. The country’s banks are largely funded by customer deposits and deposits are more granular than in the GCC, with a higher proportion of retail deposits. Fitch believes the sovereign has a high propensity to support the banking system as Jordanian banks, with the exception of Arab Bank, are mainly domestic. However, its ability to do so is constrained by its weak financial flexibility. Finally, note that Jordan Dubai Islamic Bank rebranded in June 2017 as Safwa Islamic Bank, following Dubai Islamic Bank’s disposal of its stake in the bank earlier in the year.

p42-83_Country Focus.indd 68

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-0.5%

-1.8%

Assets

Liabilities

The Jordanian banks show assets falling in 2016 to 84.29 billion, down from $84.70 billion in 2015.

Total liabilities fell to $66.84 billion in 2016, from $68.07 billion in 2015.

8.2%

14.1%

ROE

ROA

Average return on equity rose from 5.55 per cent in 2015 to 6.01 per cent in 2016.

Average return on assets rose to 1.24 per cent, up from 1.09 per cent the previous year.

13.5%

Net profit Total net profit reached $1.05 billion, up from 923 million in 2015.

CAR The average capital adequacy ratio across the sector rose to 15.8 per cent in 2016, up from 14.9 per cent in 2015.

cont. overleaf

www.cpifinancial.net

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jordan

cont. from page 69

Top 10 Banks By Assets (USD '000) Invest Bank Jordan

1,339,318

Arab Banking Corporation

1,570,553

Arab Jordan Investment Bank Capital Bank of Jordan Bank of Jordan

2,552,306 2,831,205 3,298,786

Cairo Amman Bank

3,513,658

Bank Al-Etihad

3,610,353

Jordan Islamic Bank

5,782,115

The Housing Bank for Trade & Finance

11,029,937

Arab Bank

47,460,391

By liabilities (USD '000) Invest Bank Jordan Arab Banking Corporation Jordan Islamic Bank Arab Jordan Investment Bank

1,107,523 1,348,963 1,840,525 2,241,425

Capital Bank of Jordan

2,359,967

Bank of Jordan

2,717,979

Cairo Amman Bank

3,037,903

Bank Al-Etihad

3,172,830 9,534,802

The Housing Bank for Trade & Finance

Arab Bank

39,295,855

By revenue (USD '000) Arab Banking Corporation Invest Bank Jordan ISSUE 2017

Arab Jordan Investment Bank

65,828 66,431 96,192

Capital Bank of Jordan

132,839

Bank Al-Etihad

142,125

Bank of Jordan Cairo Amman Bank Jordan Islamic Bank

179,759 180,718 210,989 514,297

The Housing Bank for Trade & Finance

Arab Bank

1,926,412

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By net profit (USD '000) Arab Banking Corporation

19,839

Invest Bank Jordan

22,013

Capital Bank of Jordan

22,759

Arab Jordan Investment Bank

31,930

Bank Al-Etihad Cairo Amman Bank Bank of Jordan Jordan Islamic Bank

41,235 48,990 59,523 76,191 184,785

The Housing Bank for Trade & Finance

Arab Bank

532,666

By loans/deposits (USD '000) Eskan Bank Al Salam Bank Bahrain Bahrain Islamic Bank National Bank of Bahrain Al Baraka Islamic Bank Ithmaar Bank BBK Arab Banking Corporation (Bank ABC)

Ahli United Bank Deposits, 2016

Loans and Advances, 2016

By ROA

Capitol Bank of Jordan Arab Bank Bank Al-Etihad

0.80% 1.12% 1.14%

Arab Jordan Investment Bank

1.25%

Arab Banking Corporation

1.26%

Jordan Islamic Bank Cairo Amman Bank Invest Bank Jordan The Housing Bank for Trade & Finance

Bank of Jordan

1.32% 1.39% 1.64% 1.68% 1.80%

www.cpifinancial.net

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lebanon

ISSUE 2017

n May 2017, Moody’s noted that Lebanon’s B2 Government issuer rating with a negative outlook reflected the country’s resilient liquidity position, very high debt burden and deteriorating fiscal deficit. The ratings agency noted that although Lebanon’s political agreement to restore and reinforce institutions will likely lead to a rebound in tourism and investment, trend growth is unlikely to return to pre-2011 levels without structural reforms. However, the Central Bank’s foreign exchange reserves have continued to increase and support Lebanon’s rating by bolstering confidence in the exchange rate peg

and the financial system, despite weak public finances. Last year, Moody’s maintained its negative outlook on Lebanon’s banking system, reflecting the expectation of a continued weak operating environment that will slow credit expansion and raise asset quality pressures for banks, as well as their high and growing exposure to sovereign debt, which accounts for around half of total assets. The Government relies primarily on local banks to cover its funding gap and roll over existing debt. The level of non-performing loans is still rising and asset quality remains under pressure, especially in construction and real estate.

That said, capital levels are likely remain broadly stable, supported by Basel III implementation, profit retention and limited asset growth. Deposits will continue to grow, but at a rate that reflects subdued domestic economic growth and lower inflows from Gulf Cooperation Council countries. Lebanese banks have low reliance on market funding, as deposits fund more than 80 per cent of system assets. Indeed, S&P believes that deposit inflows to the financial system will remain sufficient to support the Government’s borrowing requirement and the country’s external financing gap, despite the difficult internal and external political environments.

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Totals of lebanon Banks 4.2%

3.5%

Assets

Liabilities

Total assets at end-2016 of $123.84 billion were up from $118.87 billion a year earlier.

Total liabilities rose from $108.12 billion at end-2015 to $111.94 billion at end-2016.

1.1%

10.7%

ROE

ROA

Average return on equity rose to 2.3 per cent in 2016, from 2.1 per cent in 2015.

12.1% Net profit The Lebanese banking sector saw net profits total $1.4 billion in 2016, up from $1.25 billion in 2015.

Average return on assets rose to 1.41 per cent, up from 1.28 per cent the previous year.

9.8% CAR The average capital adequacy ratio across the sector rose to 13.4 per cent in 2016, up from 12.2 per cent in 2015. cont. overleaf

www.cpifinancial.net

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lebanon

cont. from page 73

Top 7 Banks By Assets (USD '000) Banque Bemo

1,758,810

First National Bank

4,503,426

BLC Bank

5,746,834

Bank of Beirut

17,207,396

Byblos Bank

20,825,480

BLOM Bank

29,529,993

Bank Audi

44,266,805

By liabilities (USD '000) Banque Bemo

1,614,545

First National Bank

4,078,149

BLC Bank

5,171,426

Bank of Beirut

14,898,413

Byblos Bank

19,023,016

BLOM Bank

26,583,794

Bank Audi

40,568,326

By revenue (USD '000) Banque Bemo

ISSUE 2017

First National Bank BLC Bank Bank of Beirut Byblos Bank BLOM Bank Bank Audi

47,407 107,870 158,457 421,897 681,439 1,315,080 2,349,067

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By net profit (USD '000) Banque Bemo

15,751

First National Bank

40,835

BLC Bank

45,201

Bank of Beirut

165,305

Byblos Bank

198,618

BLOM Bank

463,305

Bank Audi

470,106

By loans/deposits (USD '000) Banque Bemo First National Bank BLC Bank Bank of Beirut Byblos Bank BLOM Bank Bank Audi

By ROA

Deposits, 2016

Loans and Advances, 2016

BLC Bank

0.79%

Byblos Bank

0.79%

Banque Bemo

0.90%

First National Bank

0.91%

Bank Audi Bank of Beirut BLOM Bank

1.06% 1.15% 1.57%

www.cpifinancial.net

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palestine

ISSUE 2017

alestine is home to seven local banks and nine foreign banks. The BME 100 includes six of the seven local banks. The oldest bank is Bank of Palestine, established in 1960 while the most recent comer to the sector is The National Bank, which was established in 2006. The regulator, the Palestine Monetary Authority (PMA) notes, not surprisingly, that the Israeli occupation is one of the most significant challenges facing Palestinian economic activity, including banking. The occupation restricts trade and movement and continues to entrench Palestinian economic subordination to the Israeli economy.

That said, the PMA is working hard to promote the banking sectorâ&#x20AC;&#x2122;s stability and robustness by implementing international best practices and standards of banking supervision; most importantly the Financial Action Task Force FATF Recommendations on anti-money laundering (AML) and counterterrorist financing (CFT). Programmes of workshops aimed at providing skills transfer and knowledge exchange are being jointly sponsored by the PMA and the European Bank for Reconstruction and Development (EBRD) to strengthen financial sector in West Bank and Gaza.

Micro, small and medium sized enterprises play a crucial role in the domestic Palestinian economy, representing about 95 per cent of economic output. The credit portfolio in this sector had risen by 160 per cent between 2013 and the first quarter of 2017 to around $1.3 billion. Indeed, the Palestinian authorities appear to be pinning their hopes on growth in the SME sector to assist in increasing the penetration rate to financial resources in Palestine, which is currently 36 per cent. The PMA and partner institutions aim to raise this figure up to 50 per cent at least by 2025.

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Totals of palestine Banks 31.8%

35.1%

Assets

Liabilities

Assets of the Palestinian banks reached $7.99 billion in 2016, rising from 6.06 billion in 2015.

5% ROE Average return on equity rose to 5.54 per cent in 2016, up from 5.28 per cent in 2015.

26.6% Net profit Banks in Palestine recorded total net profits for 2016 of $93.14 million, up from $73.58 million in 2015.

Total liabilities rose from $4.67 billion in 2015 to $6.31 billion by end-2016.

-3.9% ROA Average return on assets dipped to 1.17 per cent, down from 1.21 per cent the previous year.

-4.9% CAR The average capital adequacy ratio across the sector eased down to 13.7 per cent in 2016, from 14.4 per cent in 2015. cont. overleaf

www.cpifinancial.net

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palestine

cont. from page 77

Top 6 Banks By Assets (USD '000) Palestine Investment Bank Company

Arab Islamic Bank

352,713 791,442

Palestine Islamic Bank

809,083

The National Bank

957,089

Quds Bank

960,070

Bank of Palestine

4,118,629

By liabilities (USD '000) Palestine Islamic Bank Palestine Investment Bank Company

265,514 272,674

Arab Islamic Bank

319,944

The National Bank

864,593

Quds Bank

871,003

Bank of Palestine

3,715,054

By revenue (USD '000) ISSUE 2017

Palestine Investment Bank Company

Arab Islamic Bank The National Bank

26,769 32,925

Quds Bank

44,099

Palestine Islamic Bank

46,424

Bank of Palestine

16,554

177,497

cont. overleaf

p42-83_Country Focus.indd 78

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palestine

cont. from page 78

By net profit (USD '000) Palestine Investment Bank Company

Arab Islamic Bank The National Bank Quds Bank Palestine Islamic Bank

3,388 6,221 7,402 10,471 12,604

Bank of Palestine

53,056

By loans/deposits (USD '000) Palestine Investment Bank Company

Arab Islamic Bank The National Bank Palestine Islamic Bank Quds Bank Bank of Palestine Deposits, 2016

Loans and Advances, 2016

By ROA ISSUE 2017

The National Bank Arab Islamic Bank Palestine Investment Bank Company

Quds Bank Bank of Palestine Palestine Islamic Bank

0.77% 0.79% 0.96% 1.09% 1.29% 1.56%

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iraq

Iraq

ISSUE 2017

his year we have initiated coverage of the Iraqi banking sector within the BME 100. We begin with just one Iraqi financial institution making an appearance in our index: Trade Bank of Iraq. Despite what we may politely describe as occasionally trying conditions, the bank has notched up a number of achievements and the broader economy itself has been rated as ‘stable’ by S&P, Fitch and Moody’s albeit at a relatively low rating. The International Monetary Fund has recommended measures to bolster supervision, and move forward with plans to restructure state owned banks. It is also encouraging a strengthening of the legal framework

of the Central Bank, eliminating a remaining exchange restriction and a multiple currency practice, and accelerating implementation of AML/ CFT and anti corruption measures. Trade Bank of Iraq itself experience sharp reductions in both assets and liabilities in 2016 against the previous year but also chalked up even sharper increases in returns and profitability. In August 2017, Trade Bank of Iraq was co-manager of the Iraqi Government’s first international $1 billion five-year bond issue. Earlier in the year, together with GE and Standard Chartered Bank, Trade Bank of Iraq was signatory to a financing MoU to accelerate the development of power and infrastructure projects

in the country that will help meet the growing demand for power in Iraq. The bank’s successful activities come against a backdrop of recent positive developments (the steady pushback against IS) that also continue to highlight the fragility of the country’s overall political, economic, and fiscal position. Nevertheless, there is great potential. Iraq has a relatively large economy and substantial oil wealth. Elsewhere in the Iraqi banking sector, in July 2016, Bahrain-based Ahli United Bank raised its stake in Commercial Bank of Iraq to 64.71 per cent. AUB had first invested in Commercial Bank of Iraq in December 2005, then taking a 49 per cent stake in the bank.

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-15.32%

-18.98%

Assets

Liabilities

Trade Bank of Iraq reported assets of $19.74 billion for 2016, down from $23.31 billion in 2015.

Total liabilities were down to $16.64 billion in 2016, from $20.54 billion in 2015.

228.31%

333.95%

ROE

ROA

The bankâ&#x20AC;&#x2122;s return on equity showed a significant recovery in 2016, rising to 14.68 per cent from 4.47 per cent in 2015.

Return on assets rose to 2.30 per cent, up from 0.53 per cent the previous year.

276.47%

30%

Net profit

CAR

Trade Bank of Iraq showed net profit of $453.9 million in 2016, up from $123.5 million in 2015.

The bank is very strongly capitalised with a capital adequacy ratio of 65 per cent in 2016, up from 50 per cent in 2015.

www.cpifinancial.net

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islamic banks

UNCONVENTIONAL

performance

ISSUE 2017

he number of Shari’ahcompliant financial institutions represented in the BME 100 remains unchanged from the previous year, standing at 31. However, there are, behind that headline number, a number of notable features. To begin, for the first time in the eight years we have been carrying out this exercise, we have two Islamic financial institutions within the top five. Further, of those two, Dubai Islamic Bank marks its third year as a top five bank. Overall, growth in the Shari’ahcompliant financial sector continues to outstrip that shown by conventional banking. The conventional banks that are represented in the BME 100 collectively saw growth in revenues and assets of 7.24 per cent and 5.69 per cent respectively. The same calculation shows that the Islamic banks we include saw growth in revenue and assets of 7.67 per cent and 6.83 per cent. We continue to monitor institutions in Saudi Arabia in particular but as before, we exclude from our list of Islamic banks, those that are not wholly Shari’ah-compliant. It is also worth noting that we see a number of institutions returning to the BME 100 for 2016 and some new faces. A total of seven Islamic banks appear in our 2016 listing that were not present in 2015. We will continue to monitor the evolution of the Islamic banking sector around the world in more depth in our sister publication Leaders in Islamic Finance, which will be available later this year.

DOMICILE OF ISLAMIC BANKS IN THE BME 100

16% 29% 13%

7% 6% 16%

Bahrain

Jordan

Kuwait

Oman

Palestine

Qatar

Saudi Arabia

United Arab Emirates

BME 100 ISLAMIC BANKS 2015-2016 Net profit

+13%

Revenue

+8%

Equity

+7%

Loans and advances

+8%

Customer deposits

+7% +7%

Liabilities

+7%

Assets 2015

2016

cont. on page 86

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islamic banks

cont. from page 84

Bahrain leads the table in terms of the absolute number (nine) of Shari’ah-compliant institutions in the BME 100, with Kuwait and the UAE in joint second place with five Islamic banks each. It is also, at this point, worth noting that the UAE may have been placed more highly had certain institutions not been excluded as a result of their not having published

The Islamic banks that are represented in the BME 100 collectively saw growth in revenues and assets of 7.67 per cent and 6.83 per cent respectively.

BANK

COUNTRY

RANK 2016

RANK 2015

Al Rajhi Bank

Saudi Arabia

2016

2015

Dubai Islamic Bank

United Arab Emirates

Bahrain

Abu Dhabi Islamic Bank

ISLAMIC BANKS IN THE BME 100

United Arab Emirates

Jordan

Gulf Finance House Financial Group Bahrain

Kuwait

Qatar Islamic Bank

Qatar

Oman

Alinma Bank

Saudi Arabia

Palestine

Bank AlBilad

Saudi Arabia

Qatar

Sharjah Islamic Bank

United Arab Emirates

Saudi Arabia

Boubyan Bank

Kuwait

United Arab Emirates

Kuwait Finance House

Kuwait

Barwa Bank

Qatar

Al Baraka Islamic Bank

Bahrain

CMY

Jordan Islamic Bank

Jordan

Warba Bank

Kuwait

Al Salam Bank - Bahrain

Bahrain

Inovest

Bahrain

Bank AlJazira

Saudi Arabia

Kuwait International Bank

Kuwait

Ithmaar Bank

Bahrain

100

Ahli United Bank - Kuwait

Kuwait

Emirates Islamic

United Arab Emirates

Bank Nizwa

ISSUE 2017

2015 financials by our cut-off date. At the other end of the table, both of Oman’s new Islamic banks remain in our index and a second Islamic institution in Palestine, Arab Islamic Bank, joins it. It remains notable that Lebanon continues to be unrepresented among Islamic institutions in the BME 100 for the eighth year in a row.

Oman

REVENUE ISLAMIC VS.CONVENTIONAL 61,380,023

19,314,009

Al Hilal Bank

United Arab Emirates

ABC Islamic Bank

Bahrain

First Energy Bank

Bahrain

Palestine Islamic Bank

Palestine

Alizz islamic bank

Oman

Jordan Dubai Islamic Bank

Jordan

Khaleeji Commercial Bank

Bahrain

Arab Islamic Bank

Palestine

Bahrain Islamic Bank

Bahrain

100

17,937,630

2016 (USD ‘000) Islamic

57,236,106

2015 (USD ‘000) Conventional

TOTAL ASSETS ISLAMIC VS. CONVENTIONAL 1,751,200,841

465,065,403

1,656,795,747

435,323,624

2016 (USD ‘000) Islamic

2015 (USD ‘000) Conventional

p84-86 IslamicBanks.indd 86

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