#190 - December 2016 by CPI Financial

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DECEMBER 2016 | ISSUE 190

The cautious optimist Omar Bouhadiba, Managing Director of ibq

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Omar Bouhadiba, Managing Director of ibq

10 2017—a perspective

page 3-4 contents.indd 1

14 The golden triangle

24 Qatar in the clear—for now

Dubai Technology and Media Free Zone Authority

The cautious optimist

“There is enough still going on for the banks to keep growing. The key is to stick to fundamentals, manage risk, and stay close to your clients.”

42 A means to an end

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CONTENTS

DECEMBER 2016 | ISSUE 190

Editor’s Letter

News Analysis

NBAD on a winning streak

News bites

THE MARKETS 10 2017—a perspective LEGAL FOCUS 14 The golden triangle COVER STORY 18 The cautious optimist COUNTRY SPOTLIGHT 24 Qatar in the clear—for now

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Managing Director

54 The need to teach old dogs new tricks

72 Business defence forum: the compliance front line

10 2017—a perspectiv e

14 The golden triangle

24 Qatar in the clear—for

Zone Authority and Media Free

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Omar Bouhadiba , Managing Direc tor of ibq

Dubai Technology

30 Kuwait on stable ground

The cautious optimist

“There is enough on for the banks still going growing. The keyto keep to fundamentals, is to stick and stay close to manage risk, your clients.”

now

42 A means to an

end

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Editor

BankerMENA

6 Middle East in the middle

Dubai Technology and Media Free Zone Authority

of ibq

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Philippe Ghanem, CEO of ADS Securities

Nabilah Annuar

| ISSUE 190

Omar Bouhadiba,

Conquering GCC and the world Philippe Ghanem, CEO of ADS Securities

“I am optimistic about global growth. We are better oﬀ than we think—businesses are much healthier, and regulators have done a very good job levelling the playing ﬁeld.”

Conquering GCC and the world

Nabilah Annuar

DECEMBER 2016

NOVEMBER 2016 | ISSUE 189

The cautious optimist

he year 2017 looks to be an exciting one on all fronts—economically, across global markets, and the banking and finance sector. As the industry endeavours to move forward—positioning itself to be at par with the rest of the world—we are seeing various progressive developments that will change the financial landscape in the Middle East. This year, markets saw financial institutions rolling out numerous innovative services as they aim to cater to more sophisticated clients, in addition to adjusting their balance sheets and leveraging on their strengths, in light of new regulations including the IFRS 9 and Basel III. Financial redress is now available in the UAE with the implementation of the new Insolvency Law. The region will also witness one of the largest mergers in the region as FGB and NBAD come together under one umbrella next year (pg. 6). On top of this, we will also see GCC economies gearing up for the implementation of Value Added Taxes amidst improving oil prices and market sentiment. Apart from all these, another exciting thing to look forward to is how the new president of the United States will navigate his country and interact with the rest of the free world. As many of us aspire for renewed spirits and resolutions going into the New Year, so do banks. This month, we have seen three rebranding exercises across the board—Saudi Hollandi Bank, Al Ahli Bank of Kuwait and Trade Bank of Iraq—all of which are discussed in this issue (pg. 28). In the cover interview, we spoke to Omar Bouhadiba, Managing Director at ibq on his projections for the year to come (pg. 18). Indeed there is a lot to look forward to in 2017. Despite the many obstacles 2016 has brought us, be sure to go into next year with an optimistic attitude having learned from our experiences over the last 12 months. As usual, have a productive read and Happy New Year.

CPI Financial

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CONTENTS

DECEMBER 2016 | ISSUE 190

REBRANDING 28 Saudi Hollandi Bank reinvents itself 32 Al Ahli Bank of Kuwait affirms commitment

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to Egypt

38 Sending the right message in Iraq IN DEPTH 42 A means to an end 46 Customer demand, technology and innovation

falsified credentials

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

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

Chief Commercial Officer OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419

TECH FOCUS 50 Overcoming threats posed by

Chairman SALEH AL AKRABI

EDITORIAL editorial@cpifinancial.net

ADVERTISING sales@cpifinancial.net

Editor - Banker Middle East Sales Director - Banker Africa NABILAH ANNUAR JON DESPRES nabilah.annuar@cpifinancial.net jon@cpifinancial.net Tel: +971 4 391 3726 Tel: +971 4 433 5321

PERSONALITY 54 Dr. Yousef Padganeh, Head—Enterprise Risk

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

Management, Commercial Bank International

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M CM

Y MY

Y CY

Y MY CMY

CMY

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NEWS ANALYSIS

NBAD on a winning streak NBAD wins lawsuit against BP, ahead of shareholder approvals for the merger with FGB to create UAE’s largest bank

hareholders of First Gulf Bank (FGB) and National Bank of Abu Dhabi (NBAD) have approved a proposed merger of the two banks, according to a joint statement issued by both banks. The new entity will create the largest financial institution in the UAE with assets of approximately AED 655 billion ($178 billion).

MERGER

At separate general assembly meetings in early December, shareholders in FGB and NBAD voted in favour of the merger, which was recommended by the board of directors of both banks in July. The approval of at least 75 per cent by value of the shares represented at FGB and NBAD quorate general assembly meetings was required to proceed with the merger. Shareholders from both banks voted in favour of all agenda items at each general assembly meeting, including the authorisation of the combined bank’s board of directors once the merger becomes effective. Commenting on this success, His Highness Sheikh Tahnoon Bin Zayed Al Nahyan, Chairman of FGB, said, “The overwhelming vote of support from FGB and NBAD shareholders to approve this historic merger is a clear testament to the compelling rationale and value proposition for creating a bank with the financial strength, scale and expertise to deliver benefits for our customers, our shareholders and for the wider UAE economy.”

6 page 6 News Analysis.indd 6

HH Sheikh Tahnoon Bin Zayed Al Nahyan is the Chairman designate, while HE Nasser Ahmed Alsowaidi is the Vice Chairman designate. Abdulhamid M. Saeed, who is currently Board Member and Managing Director of FGB, is the CEO designate for the combined bank.

Echoing this sentiment, His Excellency Nasser Ahmed Alsowaidi, Chairman of NBAD, said, “The resounding endorsement for the combined bank from both sets of shareholders represents a significant milestone. The new larger bank will be in an excellent position to invest in our people, in technology, in products and services that our increasingly sophisticated client base demands, while capitalising on growth opportunities in the UAE and beyond”.

LITIGATION

In an announcement on the Abu Dhabi Securities Exchange (ADX) last month, NBAD confirmed that it has won a lawsuit against BP Oil International (BP) worth $68 million. The case dates back to the closure of the Société Anonyme Marocaine de L’Industrie de Raffinage (SAMIR) refinery in Morocco in 2015. There was a single issue of interpretation to be resolved,

namely whether or not the existence of this prohibition means that the representation given by BP to NBAD in the purchase letter was false. NBAD contends that it was; BP contends that it was not. The High Court in London ruled that BP did not have the right to pass this debt on to NBAD, noting that the contract between BP and Samir stipulated that there could be no assignment of obligations or rights without reasonable consent and that SAMIRS’s consent had not been obtained. “NBAD is entitled to judgement on its claim in the sum of $68,881,854.62 together with interest to date, which I invite the parties to agree by reference to NBAD’s cost of funds plus two per cent. I also invite the parties to agree all outstanding consequential matters so far as possible, including costs,” concluded Honourable Mrs Justice Carr DBE in her ruling.

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NEWS

BITES

Oil price to remain fairly stagnant in 2017

Negative outlook on global sovereign ratings

High inventories and the potential for US shale production to respond quickly to any market tightening mean oil prices may flat-line in 2017 before gradually moving higher over the next few years, said Fitch Ratings in a recent report. The research and ratings agency expects supply and demand to be broadly balanced in the first half of 2017, with a move to a more pronounced deficit from the second half. But the still-high commercial inventories may delay any significant price response. Fitch has therefore maintained their base-case assumption, used when rating energy-sector corporates, that both Brent and WTI will average $45/ barrel in 2017. It has also maintained its $55/barrel assumption for 2018 and introduced a 2019 price expectation of $60, reflecting the belief that it may take longer to fully return to a long-term equilibrium price of $65/barrel. But there is significant uncertainty about the future path of oil prices. Unprecedented capex cuts could translate into a far sharper fall in output than the consensus expectation, while there is also potential for demand growth to slow if economic growth disappoints or for supply to be higher than expected if US shale comes back strongly as prices rise.

The outlook for sovereign ratings globally for the coming 12 to 18 months is negative, said Moody’s in a recent report. The key drivers of that negative outlook are a combination of continued low growth, a shift towards fiscal stimulus that will increase already high public sector debt and rising political and geopolitical risks. Many emerging markets remain exposed to the risk of a reversal in capital flows. Twenty-six per cent of Moody’s 134 rated sovereigns currently carry a negative outlook, compared to 17 per cent a year ago, the largest proportion since late 2012. The share of sovereigns with a stable outlook has fallen to 65 per cent from 75 per cent last year, while nine per cent have a positive outlook, similar to last year with eight per cent.

Fitch Corporate Oil and Gas Price Assumptions 2016

2017

2018

2019

Long Term

44/42

Natural Gas-Henry Hub (USD/mcf)

2.35

2.75

3.00

3.25

Natural Gas-NBP (USD/mcf)

4.75

5.50

6.00

6.50

Base Case Oil-Brent/WTI (USD/bbl)

Stress Case Oil-Brent/WTI (USD/bbl)

Natural Gas-Henry Hub (USD/mcf)

2.30

2.00

2.25

2.35

2.50

Natural Gas-NBP (USD/mcf)

4.00

4.50

5.00

5.50

5.50 Source: Fitch

RATINGS REVIEW Entity

Abu Dhabi

Bahrain Egypt

Lebanon

Kuwait Ras Al Khaimah Turkey Saudi Arabia Qatar

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

F1+

BB+

B-

LT IDR/LT ST IDR/ST Rtg (LC) Rtg (LC)

F1+

BB+

B-

page 8 News Bites.indd 8

BBB+

B-

UAE

Bahrain Egypt

Lebanon

F1+

AA+

UAE

BBB-

BBB

AA-

F1+

AA-

F1+

AA+

F1+

AA+

Turkey Saudi Arabia Qatar

Positive Negative Evolving Stable

Under Review

AA+

KEY

Country Country Ceiling

OUTLOOK

Kuwait

WATCH

Financing needs in the GCC to reach $560 billion in 2019 The consequences of the sharp fall in oil prices are clearly visible in GCC sovereigns’ fiscal and external accounts. S&P Global Ratings in a report found that the region’s funding requirement has been mounting since 2015, when the drop in oil-related revenue turned fiscal surpluses into deficits, although these differ among the sovereigns in scale and duration. In nominal terms, GCC sovereigns’ combined fiscal deficit will reach $150 billion (12.8 per cent of combined GDP) in 2016 alone. As a proportion of GDP, S&P expects that in 2016-2019 these deficits will average around 10 per cent per year in Bahrain, Oman, Kuwait, and Saudi Arabia, and four per cent on average in Abu Dhabi and Qatar. They believe that GCC sovereigns’ financing needs will likely remain substantial over the next several years, given the region’s almost uniform dependence on hydrocarbons. The cumulative funding requirement across these countries could be as high as $560 billion between 2015 and 2019. Although most governments’ balance sheets remain a rating strength, the related assets are finite. Furthermore, international liquidity sources could start to dry up at a time when foreign inflows are most needed and the liquidity of domestic banking systems is diminishing. This creates uncertainty about how, and at what price, GCC sovereigns will cover their fiscal deficits, said S&P.

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THE MARKETS

2017—a perspective Eversheds is optimistic on how 2017 will pan out for the Middle East on the back of new reforms and a positive growth projection

t’s been a busy year for lawmakers across the Middle East in 2016, and 2017 is set to introduce some significant changes to the business community. It will be a year of both continued development and implementation where the new laws introduced in 2016 will be put to the test and more change will follow.

One of the most anticipated legislative changes is of course the introduction of a whole new insolvency regime in the UAE. The new law, which has been underway since 2009, was approved and published in the official gazette

in September of this year and is set to become law on 29 December 2016. For foreign and domestic business owners alike, the overwhelming response so far has been positive. For the government, this is another step towards making the UAE an even more attractive place to do business and ensuring the continued development of the economy by attracting foreign investments and encouraging international businesses to set up locally. However, as with any major legislative change, there will be an initial period of uncertainty during which the new laws are tried and tested.

This may well mean that we see a significant increase in the number of cases brought by creditors over the first half of 2017, who seek to use the courts as a means of exerting pressure on debtors, something previously achieved through the (now curtailed) threat of penal action taken for bounced cheques. There is also a degree of uncertainty in the market. When parties are unclear about their rights, they may be more inclined during these early stages to seek the support of the courts and take advantage of the newly available remedies. These legislative changes are well aligned with the government’s goal of

Nasser Khasawneh, Managing Partner, Eversheds Middle East

Rebecca Copley, Partner, Financial Services Disputes and Investigations, Eversheds, UAE

Erica Crosland, Associate, Litigation and Dispute Management, Eversheds, UAE

NEW INSOLVENCY LAW

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cont. on page 12

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THE MARKETS

cont. from page 10

achieving greater diversification and encouraging investment in the UAE, a goal which is shared with other countries throughout the region as substantial legislative changes are also expected to the bankruptcy regime in Saudi Arabia in 2017. A draft law has already been shared with the public for comments and consultation, a couple of months ago. The changes are designed to help companies in financial difficulty to survive where there remains a realistic prospect of continued operation. Where no such prospect exists, the companies will be placed in liquidation with the remaining assets placed under management.

FOCUS ON SMES

One key aspect of the diversification objective is a focus on supporting the small and medium size enterprises (SMEs) in the region. Traditionally, there has been little support for failing businesses in the Middle East, but the changes to the insolvency regimes are certainly a step towards creating an environment that is more supportive of entrepreneurs and fostering a culture where it is ‘safe to fail’, which in turn should encourage a more dynamic startup and SME environment. The focus on SMEs is also apparent from the 2017-2021 strategy for the UAE Central Bank which encourages the banking sector to provide finance for SMEs moving forwards. SMEs should also be helped by the Dubai Future Accelerators Initiative, launched earlier in the year and designed to help entrepreneurs and innovators turn their ideas into successful companies by connecting them with leading figures in the government. The importance of supporting SMEs is also widely recognised in Jordan as a huge amount of legislative reform is expected in 2017, designed largely to make it easier for SMEs to do business in the country, an objective

12 page 10-12 The Markets.indd 12

Many challenges remain in the region on the economic and political front. However, there are some relatively encouraging developments. A lot will depend on whether the region veers, at least slightly, towards more peace and stability in places such a Syria, and that the advances against terrorist groups are sustained… In all cases, we are seeing some healthy levels of activity in various sectors across the Middle East region. — Nasser Khasawneh, Managing Partner, Eversheds Middle East which cannot be underestimated given that SMEs are responsible for employing the majority of the country’s workforce. In Saudi Arabia, the government has established a new authority to govern and support SMEs, the Public Authority for Small and Medium Enterprises (Riyada/ Entrepreneurship).

FREE ZONES

We have seen a steady increase in the number of free zones across the region in the last few years with the Abu Dhabi Global Market now firmly established as a credible counterpart to the Dubai International Financial Centre. This trend may be set to continue as Saudi Arabia prepares for its post-oil future with the development of the King Abdullah Financial District, where the Capital Market Authority and the Stock Exchange will relocate, looking to attract banks to the centre, which could prove transformational to its future economy. The changes coincide with an equally transformational development this year as the Kingdom issued a decree that will allow 100 per cent foreign ownership in retail companies for the first time (albeit with various conditions attached).

REGULATORY AND COMPLIANCE

The gulf countries, in their capacity as global financial hubs, have for many

years now faced a wider range of risks than many of their international counterparts and we see no signs of this changing in 2017. Keen to maintain their healthy ratings in the Transparency International Corruptions Perception Index, we expect to see an increased investment in financial crime defence work and compliance support with organisations ensuring that systems and controls meet the increasing standards set by their respective governments and regulatory bodies.

GENERAL OUTLOOK

“Many analysts are counting on 2017 to be a year of greater growth and more positive economic outlook. Many challenges remain in the region on the economic and political front. However, there are some relatively encouraging developments. A lot will depend on whether the region veers, at least slightly, towards more peace and stability in places such a Syria, and that the advances against terrorist groups are sustained. There are some grounds for guarded optimism in this regard. In all cases, we are seeing some healthy levels of activity in various sectors across the Middle East region. We are hopeful that this trend will continue and 2017 would be a year of consolidation and greater growth,” said Nasser Ali Khasawneh, Managing Partner at Eversheds Middle East.

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LEGAL FOCUS

The golden triangle Cleary Gottlieb Steen & Hamilton, Abu Dhabi, provides an overview of the key elements of UAE’s new insolvency law and explains how, together with the Commercial Companies Law and the Competition Law, it contributes to enhancing the UAE legal framework

he new Insolvency Law, which comes into force at the end of 2016, is the latest in a series of reforms aimed at modernising UAE business law. It follows the Commercial Companies Law in 2015 and the Competition Law, originally enacted in 2012 but whose legal framework was finally completed earlier this year. Together, these three laws form a ‘golden triangle’ designed to attract investments, improve business confidence and legal certainty and help diversify the economy.

The absence of a consolidated regime for resolving failing businesses in the UAE has long been viewed as a significant gap in the UAE’s business law landscape, and one which discouraged investment in the country. The existing rules were considered unclear and inconsistent, and remained largely untested. This reality resulted in the UAE ranking 99th (out of 189 countries) for resolving insolvency in the World Bank’s Doing Business 2016 index. According to the report,

resolving insolvency in the UAE takes on average 3.2 years, costs 20 per cent of debtors’ estate and yields an average recovery of about 29 cents on the dollar. This compares to under a year, three to four per cent and 89-90 per cent recovery for Finland, ranked first, or Singapore, ranked 28th for resolving insolvency, according to the index. The new law repeals the existing insolvency regime and provides a comprehensive legal framework to help distressed companies in the UAE avoid bankruptcy and liquidation.

Gamal Abouali, Partner

Chris Macbeth, Counsel

Lynn Ammar, Associate

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THE NEW INSOLVENCY REGIME

cont. on page 16

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Where banking is more personal

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LEGAL FOCUS

cont. from page 14

The scope of the new Law is broad— it applies to companies governed by the UAE Commercial Companies Law (CCL), most free zones companies (but not in the DIFC or ADGM), sole establishments, and any other person qualifying as ‘merchant’. Governmentowned companies can ‘opt-in’. However, it does not apply to private individuals— personal insolvency laws are yet to be developed. The new law provides for a Committee for Financial Restructuring, which will oversee the procedures of financial restructuring and maintain databases of insolvencies and restructuring experts. The new law introduces an alternative to the cash flow test traditionally used to determine insolvency in the UAE—the balance sheet test—whereby a person is deemed insolvent when its assets are inferior to its liabilities. The cash flow test is maintained to characterise payment cessation, when a person is unable to pay its debts as they fall due. The criminal offence of bankruptcy by default, commonly referred to as the ‘30-day rule’ is abolished. A debtor failing to repay due debts for over 30 business days, or who has become insolvent on a balance sheet basis, is required to initiate insolvency procedures; failure to do so may result in a disqualification order against the debtor in certain circumstances, but would not constitute a criminal offence per se. A business undergoing financial difficulty may choose one of the three procedures set out below, each of which is supervised by a court-appointed trustee. Preventive settlement—persons facing financial difficulty, but who are not yet insolvent, may initiate a debtorled, court-controlled process to settle their debts if approved by a majority of unsecured creditors who also represent two-thirds by value of debt. The scheme must be implemented within three years of court approval, unless extended with creditor consent.

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Restructuring—where the debtor is already insolvent (a key distinction with the preventive settlement) but where the court deems that the business is capable of rescue, it may approve a restructuring scheme. Such a scheme is subject to the same approval thresholds as set out above, but is allowed a longer five years initial period for implementation. The restructuring scheme may be initiated by the debtor, the creditors or the court. The court may also allow businesses undergoing a preventive settlement or a restructuring scheme to raise new funds or obtain fresh loans, under terms set out by the court. Winding-up—where a preventive settlement or a restructuring is inappropriate, rejected or terminated, the court will order the insolvent winding-up and liquidation of the business. To apply to have a debtor declared bankrupt, a creditor (or group of creditors, acting jointly) must—hold debts of at least AED 100,000, first notify the debtor in writing, and allow a grace period of 30 business days. Finally, the law sets an order of priority for repayment based on the types of the debt, and leaves the door open for nullifying the effects of acts undertaken during the ‘suspect period’ against creditors.

COMMERCIAL COMPANIES LAW

The CCL which came into force on 1 July 2015 amended the UAE’s existing commercial companies law to bring the business environment closer to international standards. Notable changes included expressly allowing the pledge of shares of limited liability companies (LLCs), permitting sole-shareholder LLCs and introducing provisions on mergers and acquisitions. The CCL also prescribes enhanced corporate governance and shareholder protection provisions such as rules prohibiting related-party transactions and insider trading, allowing shareholders to file unfair prejudice claims, prohibiting financial assistance

and loans to directors and requiring the preparation of accounts in accordance with International Accounting Standards. However, the CCL did not amend the UAE’s foreign ownership restrictions.

COMPETITION LAW

The Competition Law issued on 10 October 2012 was created to enhance and protect competition in the UAE by regulating hindrances to competition in the form of restrictive agreements, the abuse of dominant position and economic concentration. The Competition Law has still never been enforced, because various details (including the percentage market share threshold that triggers premerger approval) were unclear until two cabinet resolutions were passed earlier this year. Now the full legal framework is in place, UAE-based companies and those considering investing in them need to analyse how the law impacts them and whether they will need to make an application to the Competition Department of the Ministry of Economy, once it is fully operational. In years to come, the last 18 months may be seen as the period when the UAE made a quantum leap in its efforts to build a truly investor-friendly legal environment (although changes to foreign ownership rules are still eagerly awaited). The new insolvency law should result in faster and more flexible procedures and significantly higher recovery rates but the law will not on its own improve the UAE’s poor ranking for resolving insolvency overnight. To build the transparent rescue culture that international investors expect requires insolvency expertise in the courts and among UAE-based advisers and, most of all, a sea change in attitude among companies in distress. The practical impact of the Competition Law will only become clear once its rules are applied to real-life mergers and anticompetitive scenarios. All of this will take time to develop.

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COVER INTERVIEW

18 page 18-22 Cover Story.indd 18

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12/12/2016 09:34

The cautious optimist Banker Middle East catches up with Omar Bouhadiba, Managing Director of ibq, to discuss his plans for the bank next year and his outlook on 2017

escribe ibq’s growth trajectory over the past few years. What are the bank’s biggest achievements thus far?

Following a phase of rapid expansion, that far outpaced the market, ibq marked a pause for a couple of years to take stock of the rapid changes, tighten controls, improve systems and consolidate its position. The Bank is now in a strong position to resume its growth path and play a bigger role in the local economy. Over the past 60 years, building solid client relationships has been a clear priority for ibq. Our excellence in client service led to six decades of sustainable growth and helped us secure customers’ trust. ibq truly believes in relationship banking, and has nurtured client loyalty in all aspects of banking. Our overall strategy is fully aligned with the Qatar National Vision 2030 through the support of major development projects in Qatar.

True, low oil prices have impacted liquidity, and the pace of infrastructure spending in many countries, but there is enough still going on for the banks to keep growing. The key is to stick to fundamentals, manage risk, and stay close to your clients. — Omar Bouhadiba, Managing Director, ibq ibq’s main branch in Doha. cont. overleaf

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19 15/12/2016 11:16

COVER INTERVIEW

cont. from page 19

Managing risk is indeed our number one priority. We will focus on the fundamentals and provide our clients with the support they require to grow and prosper. â&#x20AC;&#x201D; Omar Bouhadiba

Amidst a relatively challenging macroeconomic backdrop, what challenges do you anticipate going into 2017?

While 2015 was a foundation year, 2016 so far, has been good with all financial parameters showing improvement. In spite of the global economic gloom, we remain cautiously optimistic for 2017.

ibq launched a $500 millionÂ five-year bond last year. What does the bank have in its pipeline for the rest of 2016 and in 2017?

The bond launched in 2015 had two main purposes: introduce our name to the international financial markets, and diversify our funding sources. At this point in time, we can say that both objectives have been successfully met. Today the Bank is liquid, and there is no need for us to access the international markets again. So we do not foresee another bond issue in 2017.

How do you view digital innovation in banking?

Omar Bouhadiba, Managing Director of ibq

We are constantly reassessing our systems in order to improve them, and create the best and safest user experience. For example, we just launched a new mobile banking application that has proven very popular with customers. However, our approach to client relationship is a pragmatic one that focuses on one-to-one relationship with each of our customers. cont. on page 22

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COVER INTERVIEW

cont. from page 20

This is one of the reason why we are not engaged in a race for the latest digital gimmick or scanning the world for more bells and whistles that do not make business sense. Our focus is therefore clearly on upgrading service quality, managing costs, and more importantly, improving our IT security. Data security is constantly in our mind. This is actually where most of our efforts, and investment dollars are spent.

Moving into 2017, what is ibq’s focus for the bank?

ibq’s focus remains very domestic for the moment. We truly believe that the Qatari economy offers, in the medium term, better growth opportunities than most foreign and distant markets, in addition to providing a safer environment—a key asset in our industry. Managing risk is indeed our number one priority. We will focus on the fundamentals and provide our clients with the support they require to grow and prosper. We will, as before, strive to constantly improve our service and deal execution capabilities to be able to compete against the best in our home market.

Today the Bank is liquid, and there is no need for us to access the international markets again. So we do not foresee another bond issue in 2017. — Omar Bouhadiba, Managing Director, ibq

In terms of product offerings, what does ibq have in store for next couple of years?

This year, ibq’s resources and efforts were focused on improving its product offering on the private banking and wealth management sides. We have adopted an open architecture that allows us to offer our clients one of the broadest product suites in the world, through a set of strategic alliances with renowned international banks. We can then advise our clients as to what we believe is right for them, and guide them in their investment activity.

Looking ahead, what are ibq’s expansion plans?

ibq’s expansion plans are very clear: organic and domestic. We are blessed to operate in a market which, we believe, will still offer good opportunities for the coming years, and have no urge to go overseas.

22 page 18-22 Cover Story.indd 22

What is your opinion of the banking and finance industry in Qatar and the wider GCC? And what would you say is the way forward?

Banks in Qatar are well regulated, and well capitalised. As a result, the banking sector here is less exposed to the wide swings in performance that we may see in other GCC locations. There is also limited exposure from the banks to highly volatile derivative products. While banks may have good years, and not so good years, the amplitude of the swings in revenue and profits remain reasonable, if not low by international standards. True, low oil prices have impacted liquidity, and the pace of infrastructure spending in many countries, but there is enough still going on for the banks to keep growing. The key is to stick to fundamentals, manage risk, and stay close to your clients.

ibq Established as the ‘Ottoman Bank’ in 1956, the International Bank of Qatar (ibq) is one of the oldest banks in Qatar and is a well-established commercial institution headquartered in Doha, Qatar. The bank offers the full range of corporate, private and retail banking solutions. ibq has a network of branches, service centres and ATMs strategically located throughout the country. ibq’s corporate banking has longstanding relationships with strong Qatari companies as well as international ones operating in the country. ibq’s private banking is marketing its wealth management platform specially designed to enhance the products and service offering to clients, while its retail banking is known for its innovative approach in designing products, in particular on mortgage solutions and special personal loans throughout the year. ibq has received various international accolades which are testaments to its position as one of Qatar’s leading banks. The bank has received various awards for its private banking, retail banking and corporate banking services. The latest awards include:  2016 Best Private Bank Award from Banker Middle East  2016 Best Customer Service Award from Banker Middle East  2016 Private Banker of the Year to Chaouki Daher, General Manager and Head of Private Banking at ibq from Banker Middle East  2015 Best Customer Service—Corporate award from Banker Middle East Source: ibq

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COUNTRY SPOTLIGHT

Photo credit: Fitria Ramli/Shutterstock.com

Qatar in the clear—for now Qatar is still in a strong financial and economic position, however this may change a few years down the line

ince the fall in oil prices last year, Qatar has survived relatively well. The country’s stability has thus far been bolstered by the economy’s robust growth performance, vast hydrocarbon resources (with the Barzan gas project as a main contributor to upstream hydrocarbon production), very high per capita income and prudent budgeting

as well as large fiscal buffers and a very strong external payments position. Qatar’s credit rating still stands at A—Standard & Poor’s credit rating for the country is AA with a stable outlook, Moody’s credit rating for Qatar was last set at Aa2 with a negative outlook, while Fitch’s credit rating for Qatar was last reported at AA with a stable outlook.

ECONOMIC OUTLOOK

Despite lower oil prices, real economic growth in Qatar is expected to rise to 3.9 per cent this year. Economic growth in the country is expected to remain stable, driven by the non-hydrocarbon sector. However, according to the Qatar Economic Outlook 2016–2018 report issued by the Ministry of Development Planning

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and Statistics, nominal gross domestic product (GDP) is expected to contract by 2.9 per cent, reflecting the drop in global hydrocarbon prices. In 2017 and 2018, hydrocarbon production will again plateau, but solid expansion in non-hydrocarbon activities will sustain overall economic momentum. Services will be the largest contributor to growth, followed by construction. As attention turns towards completing current projects rather than starting new ones, and as population growth eases, growth in the non-hydrocarbon sector is expected to moderate. In 2015, real GDP expanded by 3.7 per cent, but the fall in oil prices during the year led nominal GDP to decline for the first time since 2009, by 20.6 per cent. Inflation in the country is rising on the back of domestic and foreign pressures. In a recent annual credit analysis on Qatar by Moody’s, the ratings agency pointed out that Qatar’s governance indicators are strong, although inflation volatility and data transparency issues suggest some institutional challenges. Annual inflation, as measured by the change in Qatar’s consumer price index, is forecast to average at 3.4 per cent in 2016, and to nudge up to 3.6 per cent in 2017 and to 3.8 per cent in 2018. The introduction of a range of taxes and the removal of further subsidies will maintain domestic pressure on prices in the near term. Qatar’s fiscal balance is expected to be in deficit this year and to remain through 2018. The latest data updates suggest that, for the first time in 15 years, there will be a fiscal deficit in the calendar year 2016 that will remain through 2017 and 2018. The deficit in 2016 is estimated at 7.8 per cent of GDP, with it staying almost constant in 2017 and recovering somewhat to 4.2 per cent in 2018.

Qatar’s fiscal deficit in 2016 is estimated at

7.8

of GDP, staying almost constant in 2017 and recovering to

4.2

in 2018

Islamic banking in Qatar accounts for about

of banking assets Banking profits to grow by

3.2

in 2016

The external balance for Qatar is to remain in surplus, but with a foreseeably gradual decline. The current account of the balance of payments is expected to register a small deficit of 0.4 per cent of GDP in 2016, but modest surpluses seem likely in 2017 and 2018. The key factors are Qatar’s dependence on hydrocarbon exports and the lower prices expected for them in 2016. The forecast recovery in global oil prices in 2017 and 2018 will support export growth, projected the report.

Risks that affect the Ministry’s two-year outlook mainly stem from international oil price movements. If oil prices rise more quickly than government forecasts, there will be better outcomes for realised nominal income growth and for fiscal and external balances. However, if they remain low for an extended period, the fiscal and external accounts deficit will be more pronounced, requiring funding efforts. The continued volatility in global financial markets spilling over into the domestic economy and squeezing liquidity may imply a higher cost of funding on international markets for Qatari institutio ns. Othe r downside risks include delays or cost overruns (or both) in the delivery of key infrastructure projects and a slower than anticipated pace of fiscal reforms.

BANKING AND FINANCE

Qatar’s banking system is expected to remain stable despite the economic slowdown driven by low oil prices and the overall resilience is underpinned by the government’s continued deployment of its ample resources to maintain capital expenditure, according to Moody’s. Banks in Qatar are still likely to face funding shortfalls despite the overall resilience in the operating environment. The continued credit growth, compounded by a sizeable reduction in deposit inflows from the government and related entities due to lower oil prices are expected to apply pressure on loans to deposit ratios. Sustained lower oil prices will continue to reduce the flow of deposits from the government, the largest depositor in the system and as a result, banks are likely to further increase their reliance on expensive market funding to support their lending growth into 2017. cont. overleaf

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COUNTRY SPOTLIGHT

cont. from page 26

Qatar’s banking sector reportedly accounts for 144 per cent of the country’s nominal GDP in 2015 and banks’ credit to GDP stood at 116 per cent, according to Marmore MENA Intelligence. Post-financial crisis industry growth has been lower than the pre-financial crisis growth, but the overall size of the sector has increased. According to the research agency, Qatari banks witnessed a credit growth of 15.8 per cent in 2015, loan loss provisions decreased by 22 per cent with total provisions amounting to $51 million and provisions as a percentage of total loans accounting at 0.25 per cent. Moody’s expects Qatari banks’ liquid assets to remain at around a healthy 25 per cent of total assets—down from around 28 per cent as of December 2014—as banks’ continue to raise additional liquidity in capital markets. Although problem loans are expected to rise modestly, capital buffers will remain sound and Qatari banks will continue to display one of the best loan performances among GCC countries. According to Marmore, lending growth in Qatar is expected to moderate in the coming years at around five to seven per cent, with deposit growth estimated at approximately eight to nine per cent. Profits are expected to hit 3.2 per cent in 2016, driven by fall in loan growth and increase in loan loss provisions. Islamic banking in the country currently accounts for about 26 per cent of banking assets, with a likely increase in the future. Investments in infrastructural projects, foreign acquisitions, strong public spending, and the FIFA World Cup in 2022 have been the growth drivers for banks in the country. Qatari banks are expected to further benefit from funding infrastructure projects envisioned in the Qatar National Vision 2030 as well as those related to the World Cup.

Top 5 banks by assets (USD ‘000) Masraf Al Rayan

22,809,404

Doha Bank

22,887,119

The Commercial Bank of Qatar

33,914,584

Qatar Islamic Bank

34,898,490

Qatar National Bank

147,968,995 Source: CPI Financial

Top 5 banks by liabilities (USD ‘000) Qatar Islamic Bank

8,922,844

Al Khalij Commercial Bank (al khaliji)

13,913,927

Doha Bank

19,258,740

The Commercial Bank of Qatar

29,158,509

Qatar National Bank

130,920,808 Source: CPI Financial

Top 5 banks by revenues (USD ‘000) Doha Bank

772,459

Masraf Al Rayan The Commercial Bank of Qatar Qatar Islamic Bank

916,701 1,114,897 1,524,328

Qatar National Bank

4,469,334

Source: CPI Financial

Top 5 banks by net profit (USD ‘000) Doha Bank

377,393

The Commercial Bank of Qatar

400,420

Masraf Al Rayan

556,631

Qatar Islamic Bank

557,786

Qatar National Bank

3,112,298 Source: CPI Financial

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REBRANDING

Senior executives of Alawwal Bank at the launch of the new identity: (L-R) Dr. Bernd Van Linder, Managing Director; Mohammad Al Sheikh, Treasurer; and Khalid Muammar, CEO.

Saudi Hollandi Bank reinvents itself Saudi Hollandi Bank shifts to a better future as it rebrands to Alawwal Bank

audi Hollandi Bank revealed that it has rebranded to Alawwal Bank in an announcement late November. The new corporate identity was launched on 27 November 2016 through the bankâ&#x20AC;&#x2122;s branches across the Kingdom and through all of its electronic banking channels. The new identity will be implemented on all of the bankâ&#x20AC;&#x2122;s internal and external systems within a period of three months. cont. on page 30

28 page 28-30 Rebranding.indd 28

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REBRANDING

cont. from page 28

The new branding highlights the bank’s commitment to supporting the growth of the country’s economy while meeting the demands of its existing customers and a new generation of Saudi entrepreneurs and enterprises. The name—Arabic for ‘The First’—reflects the banks’ pedigree. Established in 1926, it became the first bank to operate in the Kingdom, and seven years later, the first to finance an oil transaction for the Government. “We were established 90 years ago. In that period, we have defined banking in the Kingdom and set a number of firsts. Now, as the Kingdom transforms and diversifies its economy, we have also transformed to deliver the future of banking and meet the needs of the leaders of tomorrow. Our new identity is more than just a name change. Not only is it representative of our efforts to continue delivering a wide range of services to our clients, but it is also a statement of how we view the way the banking sector should operate going forward as the Kingdom realises its ambitions,” said Engr. Mubarak Abdullah Al-Khafrah, Chairman of the bank. The new identity also reflects the banks’ recognition of the evolving banking landscape, and its commitment to technological innovation. In addition to its innovative mobile banking platform, Alawwal Bank is investing in infrastructure designed to deliver services to customers through more digital channels—resulting in a quick, efficient and convenient banking experience. In line with the country’s vision, the bank also plays an active role in a number of initiatives across the Kingdom. Alawwal has partnered with leading global organisations to launch training programmes designed to help young Saudis realise their potential.

30 page 28-30 Rebranding.indd 30

Our new identity is more than just a name change. Not only is it representative of our efforts to continue delivering a wide range of services to our clients, but it is also a statement of how we view the way the banking sector should operate going forward as the Kingdom realises its ambitions. — Engr. Mubarak Abdullah Al-Khafrah, Chairman of the bank “Increasingly driven by its young and ambitious citizens, Saudi Arabia is shifting to a better future and so are we. As the new generation of techsavvy Saudi business leaders, SMEs and entrepreneurs emerge, they will need a trusted and reliable banking partner. However, while we are focused on the current and future needs of our customers, our values will remain the bedrock of our culture. These values have made us the bank of choice for companies in Saudi Arabia for the last 90 years, and we are confident that they will continue to do so into the future,” explained Al-Khafrah. Similarly, the bank’s wholly-owned brokerage and capital markets arm, Saudi Hollandi Capital, also reported that it had requested and received

Capital Market Authority approval to change its name to Alawwal Invest Company. In a separate announcement, the Board of Alawwal Bank has appointmented of Soren Nikolajsen as Managing Director with effect from 1 January 2017. Nikolajsen’s appointment follows the resignation of Dr. Bernd van Linder as Managing Director, which had been announced on 12 October 2016. Nikolajsen has more than 30 years of experience in banking, including in the Kingdom of Saudi Arabia and the Middle East. For the last eight years he was with the Royal Bank of Scotland based in London and Hong Kong. He has been a member of the board of Alawwal Bank since 1 January 2014.

Alawwal Bank Alawwal Bank was the first bank to operate in the Kingdom, opening its doors in 1926 as the de facto central bank and issuing the first Riyal two years later. Over the years it has played an integral role in supporting the leaders of the Kingdom and the growth of the Saudi economy. The bank has always put its customers first and remain committed to improving their individual banking experiences by delivering service excellence and increasingly advanced technologies. The bank introduced the first smart credit card to the market, and continue to integrate new technologies at its branches and operations. Having maintained a strong capital base for the past 90 years, the bank is consistently among the Kingdom’s leading banks in earnings growth and return on average equity. Today, the bank rapidly evolves to solidify its position as an industry leader and a force for positive change across the Kingdom. With ambitious plans in place to redefine what banking can be for businesses and individuals, the future is bright for Alawwal Bank, its people and its customers. Alawwal Bank was voted as the Best Cash Management and Best SME Customer Service in Saudi Arabia for the Banker Middle East KSA Product Awards. Source: Alawwal Bank

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REBRANDING

The ribbon cutting ceremony to celebrate the occasion was attended by Mai Abulnaga, Assistant Sub Governor—Central Bank of Egypt Governor’s Office, Ali Ebrahim Marafi, Chairman of ABK—Egypt, Michel Accad, Group CEO of ABK, Khaled El Salawy, CEO of ABK—Egypt, Abdulla Al Sumait, Deputy Chief General Manager—ABK Kuwait, Board Members and Management representatives.

Al Ahli Bank of Kuwait affirms commitment to Egypt Al Ahli Bank of Kuwait inaugurates its Egyptian operations following the rebranding of its subsidiary, from Piraeus Bank Egypt to Al Ahli Bank of Kuwait–Egypt

l Ahli Bank of Kuwait (ABK) on 6 November 2016 successfully launched its operations in Egypt through its subsidiary Al Ahli Bank of Kuwait— Egypt (ABK—Egypt) along with the introduction of its Zamalek Flagship branch and Smart Village Headquarters.

32 page 32-36 Rebranding.indd 32

This follows the rebranding of the Bank after its recent acquisition of Piraeus Bank Egypt (PBE) in 2015.

ESTABLISHMENT

Approximately a year ago, ABK completed the acquisition of Piraeus Bank Egypt for $150 million. The rebranding exercise

encompasses the entire 39-branch network of PBE which will be completed by the end of December 2016. ABK’s acquisition of PBE realises ABK’s regional vision, as Egypt is considered a key focus market with a well-regulated yet underpenetrated banking sector, further supported by the country’s cont. on page 34

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REBRANDING

cont. from page 32

Michel Accad, Group CEO, ABK

attractive macro-economic fundamentals and robust population dynamics, boasting a young population of 85 million with a vibrant middle class. Commenting at the inauguration ceremony, Ali Marafi, Chairman of ABK—Egypt, said, “It is a great moment for ABK to inaugurate our Headquarters in Smart Village as well as our Zamalek Flagship Branch, and we are delighted to officially launch our operations in Egypt. The acquisition of PBE is under the ABK brand. Egypt, with its wellregulated yet underpenetrated banking market has been a main focus area and the Bank is very proud to have now become an important part of Egypt’s banking industry. We are looking forward to increase our business and support the Egyptian economy, with the Bank’s strong presence and reputation for quality, customer service and reliability in the region.” Adding to Marafi’s statement on the launch, Khaled El Salawy, ABK— Egypt CEO, explained, “ABK—Egypt is strongly committed to its role in

34 page 32-36 Rebranding.indd 34

Ali Ebrahim Marafi, Chairman, ABK—Egypt

Khaled El Salawy, CEO, ABK—Egypt

Egypt, with its well-regulated yet underpenetrated banking market has been a main focus area and the Bank is very proud to have now become an important part of Egypt’s banking industry. We are looking forward to increase our business and support the Egyptian economy, with the Bank’s strong presence and reputation for quality, customer service and reliability in the region. — Ali Ebrahim Marafi, Chairman of ABK—Egypt

supporting the Egyptian economy through a clearly defined strategy that is founded on supporting and financing corporate and SME clients in various industries with innovative financial solutions. We will also drive focus on the retail segment through a diversified portfolio of products and services that cater to customers’ growing needs.”

CAPTAIN OF THE SHIP

El Salawy was appointed earlier in May this year to head the Egypt office.

He joins ABK from Union National Bank, where he was the Deputy Chief Executive Officer, leading the Corporate Banking Division, Treasury & Investment, SME and Financial Institution activities. Prior to Union National Bank, he spent eight years with AlexBankIntesa SanPaolo Group as General Manager—Head of Corporate Banking. El Salawy succeeds Constantinos Loizides, who stepped down as Chief Executive to return to Piraeus Bank in Greece. cont. on page 36

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REBRANDING

cont. from page 34

ABK—Egypt is strongly committed to its role in supporting the Egyptian economy through a clearly defined strategy that is founded on supporting and financing corporate and SME clients in various industries with innovative financial solutions. — Khaled El Salawy, ABK—Egypt CEO

“El Salawy’s broad range of experience, his relationships in the country and his ability to understand business dynamics in Egypt confirmed him to be the best person for the position. He has an extensive knowledge base and perspective on the banking industry in the region and brings the right combination of knowledge and experience to achieve our goals in Egypt,” said Marafi.

ACCOLADES

ABK has been awarded Best Commercial Bank in Kuwait at the Banker Middle East Industry Awards earlier this year, with CEO, Michel Accad named as Banker of the Year during the ceremony. “It is truly an honour to be recognised as the Best Commercial Bank in Kuwait and I’m very honoured to be named Banker of the Year. ABK has worked hard to develop a successful strategy that aims to create a simpler banking model for its customers, and we have witnessed the success of this since it’s been put into effect. We delivered major enhancements and developments to our systems and services as part of our ‘Simpler Banking’ Strategy, which revolves around offering more security, convenience and speed to our customers,” said Accad on receiving the tribute.

36 page 32-36 Rebranding.indd 36

Michel Accad receives the Banker of the Year award at the Banker Middle East Industry Awards in May.

ABK Established in 1967, ABK is a leading commercial and retail bank in Kuwait with market capitalisation in excess of $2 billion, total assets of $11.9 billion, net loans of $8.3 billion, and customer deposits of $6.6 billion as of 31 December 2014. ABK’s shareholders’ equity stood at $1.9 billion, allowing it to maintain a strong capital position with a Core Tier I ratio of 22.7 per cent, well above the capital ratios of most Middle Eastern financial institutions. Following the consummation of the transaction, ABK’s international operations in UAE and Egypt are expected to account for approximately 18 per cent of its total consolidated assets compared with about five per cent as of 31 December 2014. ABK is recognised with investment grade ratings of A+ and A2 assigned by Fitch and Moody’s, respectively. Source: ABK

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REBRANDING

Sending the right message in Iraq A confident new look for Trade Bank of Iraq reflects the bank’s belief in building economic growth and prosperity in a challenging environment

rade Bank of Iraq (TBI) was incorporated by the Iraqi Coalition Provisional Authority on 17 July 2003 as an independent government entity to facilitate the import and export of goods to and from Iraq. TBI was incorporated with an authorised capital of $100 million in July 2003. Paid-up capital increased to IQD 1.75 trillion ($1.5 billion) as at FYE 2015 by capitalisation of profits earned. While keeping the focus of the bank activities on servicing the government sector’s need in trade finance, the new bank’s management vision is to capitalise on TBI’s existing strengths and increase its market share in other banking segments. This vision is stemming from the TBI’s duty to continue playing an important role in supporting and developing Iraq’s economic growth and prosperity. The rebranding is an outcome of a lengthy exercise in understanding TBI’s existing positioning in the Iraqi market and putting together a strategic plan that defines the road map of where the bank will be in the next three years. “The essence for rebranding is to send a message to our audience, clients and stake holders that TBI is undergoing a major change under the motto ‘Change for the better’ with the focus on our customer needs through the diversification of our products and services offering,

38 page 38-40 Trade.indd 38

Trade Bank of Iraq’s new image.

improving our branch network and other channels of distribution, streamlining TBI internal processes and improving our compliance and corporate governance to international benchmarks,” said Faisal Al Haimus, Chairman of the Board & acting CEO, Trade Bank of Iraq.

ANCIENT AND MODERN

The choice of the winged bull in the bank’s brand reflects Iraq’s ancient civilization and its contribution to the human race. Showing TBI’s strength, the winged bull is a symbol of power, courage, and protection. The colour scheme of gold and turquoise underlines distinction, transparency and creativity while the circle signifies continuity.

“The bank is undergoing change for the better and moving forward to provide excellence in its services to our customers. Recently, TBI has changed its organisational structure to have become more responsive to serving its customer base where three new departments have been introduced: retail banking, private enterprise banking and government enterprise banking. Also, the bank has started ISO 9001-2015 certification process for its foreign trade operations, in addition to revisiting its anti-money laundering policies and implementing automation in AML processes and procedures,” said Al Haimus. Changes are also being made in TBI’s back office procedures, streamlining processes to increase efficiency and improve productivity. Furthermore, the bank is one of the first in Iraq to utilise banking solutions and is working to upgrade its systems to provide new product channels, including internet and mobile banking services. The bank also recognises the importance of its employees as its main asset and is investing in training and HR policies with the aim of becoming the bank of career choice in the domestic market. TBI’s new image is aimed at both influencing the domestic Iraqi marketplace and enhancing the institution’s image abroad. According to Faisal Al-Haimus, “We want to influence both the Iraqi and international markets where we strive to give excellence in services to our clients within Iraq and to our more than 400 correspondent banking network. It is the distinction in service that made JP Morgan Chase Bank to award us the Elite Quality Recognition Award for 2016. “TBI wants to position itself as the bank of choice for its customers, stakeholders and employees. The bank is undergoing a continuous journey of change with the focus on excellence in customer experience.” cont. on page 40

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REBRANDING

cont. from page 38

Joining the club… Trade Bank of Iraq recently collaborated in the first club deal to be done in Iraq’s banking history, signing a financing Memorandum of Understanding (MoU) together with Standard Chartered Bank (SCB) to accelerate the development of power and infrastructure projects in the country. Power and infrastructure group GE noted that this is the first bespoke transaction executed for Iraq. Earlier this year, a similar financing agreement with the three entities had facilitated the completion of the first phase of the ‘Power Up Plan’ signed by GE with the Iraqi Ministry of Electricity to deliver and secure more than 700 MW of power to the country’s grid. Aziz Koleilat, President & CEO Iraq & Levant of GE, said, “The financing MoU marks our long-term commitment to Iraq to support the Government in driving power and infrastructure enhancements and in undertaking new projects that contribute to sustained economic growth. The new MoU follows the successful completion of the

first phase of our Power Up Plan, which we had similarly supported with TBI and SCB, and now helps in meeting the critical power needs of Iraqi people. By bringing international and local banks to drive financing in the country, we will work to implement the key developmental priorities of the government.” Faisal Al Haimus, Chairman of the Board & acting CEO of TBI, said: “The MoU is a strong example of our commitment to support our nation’s progress. Assuring a reliable infrastructure is central to boosting growth and adding to the welfare of our people. We will work with our partners in ensuring the financing support outlined in the MoU will contribute to the nation’s infrastructure development, especially in the power sector. Ahli United Banking Group - Kingdom of Bahrain will take a risk participation of the club deal as a secondary financier along with the primary financiers being Trade Bank of Iraq and Standard Chartered Bank making it the first club deal in Iraq’s banking history.”

L-R: Jeff Bornstein, Chief Financial Officer, GE; Faisal Al Haimus, Chairman of the Board & acting CEO, Trade Bank of Iraq; Ahmad Abu Eideh, CEO, Middle East Jordan, Egypt Iraq and Lebanon, Standard Chartered Bank.

cont. on page 36

40 page 38-40 Trade.indd 40

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IN-DEPTH

A means to an end Dr. Nasser Al Saidi, Founder and President of Nasser Saidi & Associates, explains to Banker Middle East the implementation of VAT and Excise Tax in UAE and the wider GCC

A NECESSITY?

Dr. Nasser Al Saidi

he precipitous decline in oil prices from 2014 peaks has led to sharp falls in government revenues, fiscal buffers and current accounts for oil producers. Though the UAE is one of the more diversified economies of the GCC, it is expected to post a fiscal deficit of 9.8 per cent of GDP and a current account deficit of 3.7 per cent of GDP this year. The UAE needs to introduce broadbased taxation to compensate for the massive loss of oil revenue, to diversify revenue and ensure fiscal sustainability over the medium and long-term term.

Currently, tax revenues are negligible in the UAE, with the share of non-oil tax revenue to GDP averaging 2.5 per cent of GDP during the 2012-14 period, mostly from customs duties, fees and charges—which yield little revenue and are distortionary impediments to trade. Trade taxes have to be phased out given World Trade Organisation and bilateral free trade agreement commitments. Trade taxes should be replaced by domestic excise taxes. Several reasons underlie the use of excise taxes—they can produce significant government revenues and can be tailored to impose tax burdens on those who benefit from government services. Gasoline taxes are often justified as user fees for government provided roads. Excise is also used for the control of externalities, for example on polluting substances. In addition, excise taxes may discourage consumption of potentially harmful substances (such as alcohol and tobacco) that individuals might overconsume in the absence of taxation. The UAE is expected to introduce value-added tax (VAT) by the beginning of 2018. Once the GCC VAT Framework Agreement is approved, the UAE will issue a VAT law and implement rules and regulations. In this regard, a Federal Tax Authority is currently being established.

IMF projects a VAT rate of

5 % 2 %

would raise revenue of around

of GDP for UAE For the UAE, the IMF projects that a VAT rate of five per cent would raise revenue of around two per cent of GDP (assuming a tax base of 90 per cent of private consumption). Realised revenue will depend on unknown details of the law—coverage (registration threshold), exemptions (basic foodstuffs, health, and education), zero-rating of exports, the inclusion of free zones and financial services among others. The improvement in government finances will boost the sovereign credit rating of the UAE, resulting in better access to international credit markets and better terms for the various Emirates’ governments as well as for corporates. Given the low VAT rate, cont. on page 44

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IN-DEPTH

cont. from page 42

we should not expect a major impact on consumption spending and, as a result, on economic growth and employment. However, it will be important to ensure that visitors to the UAE can obtain refunds on their purchases, to avoid a negative impact on tourism, a major industry for Dubai and the UAE. There will be a temporary increase in inflation, during the first year, but no continuing effect on inflation. Ideally, the introduction of VAT and excise taxes should be used as an opportunity to replace the existing large number of fees, charges and stamp duties that raise cost of doing business.

on tobacco is recommended, since it is much easier to determine the quantity (cigarette packs) than the value, which is subject to marketing and pricing decisions by businesses and can be manipulated. Specific taxes are also preferred from a health perspective, since the negative health effects of cigarette or shisha smoking are proportional to the quantity consumed not to the value. Given the large increase in tax (100 per cent in addition to customs of 100 per cent) it will be important to introduce measures such as digital stamps as well as track and trace systems to fight smuggling and illicit activities.

APPLICATION

GCC finance ministers have, in principle, approved an Excise Tax Treaty, which will form the basis of national excise tax legislation, with implementation in 2017. Excises would apply to tobacco (a 100 per cent excise), soft drinks (50 per cent) and energy drinks (100 per cent). Other items such as cars and fuel could potentially also be subject to excise. The choice between ad valorem (on the value) or specific (on the quantity) depends on the nature of the product, the ease and efficiency of collection and market structure. Taking tobacco as an example, specific excise taxes provide more reliable revenues and are easier to administer than ad valorem. Given that tax administration is nascent in the UAE, implementing a specific excise tax

Substantial investment will be required by the private sector ahead of the VAT implementation. The introduction of VAT is likely to result in increased administrative and compliance burdens as well as additional costs as accounting and other IT systems will have to be radically overhauled to address the requirements of new tax laws and regulations. VAT refunds need to be issued promptly for the system to maintain credibility, and timeliness of refunds will be a key issue businesses look at in evaluating the effect of VAT. There will be great demands placed on finance and tax departments. Contracts will require thorough legal review to ensure that the introduction of taxes is provided for. Cross-border issues will also need to be sorted out.

The bottom line is education and investment in tax accounting, reporting and compliance is essential ahead of the potential 2018 VAT implementation timeline.

IMPACT

The tax reforms imply revenue diversification and less volatility of government revenues, improved fiscal sustainability and eventually allow the UAE to implement counter-cyclical fiscal policy, resulting in improved macroeconomic stability. In turn this means a more stable financial system with improved credit ratings. This is a new tax regime for the UAE and it will be a steep learning curve both at the government level as well as the business level. A solid communication strategy is critical to ease awareness and gain public buy-in. The taxes to be imposed affect consumption and the VAT rate is low compared to other emerging and advanced nations and will not affect the international competitiveness of the UAE. Profitability in some businesses, such as luxury goods, automobiles, tobacco, soft/energy drinks and real-estate sectors is likely to be the most affected. Taxes are only one of the adjustments required in the backdrop of the new oil normal. A new economic model, through macroeconomic and structural reforms, including phasing out and targeting fossil fuel and other subsidies (underway across the GCC), efficient pricing of public utilities services (e.g. Abu Dhabiâ&#x20AC;&#x2122;s recent move to raise electricity and water tariffs) and increasing the efficiency of government spending. Economic diversification for job creation will require greater private sector participation through a programme of privatisation and UAE-wide publicprivate partnership, reform of the sponsorship system (Wakalah) to reform the labour market and attract foreign direct investment.

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IN-DEPTH

Customer demand, technology and innovation Raghu Malhotra, President, Middle East & Africa at MasterCard sat down with Banker Middle East at the Innovation Forum in Budapest to discuss its direction going into 2017

hat is your outlook on the UAE market and how does it compare to its global peers?

For us, the Middle East has been an engine of growth in relative terms to the rest of the world for two reasons. First—the predominant way of how payments were made in the Middle East was cash. Then a major shift took place— from a manual way of conducting transactions to the digital form. Second—many governments in the Middle East especially in the GCC and Egypt have been very forward thinking in terms of what the digital economy would look like. They started introducing policies to establish the infrastructure for that change to take place. On top of this is the high level of mobile penetration in the region. cont. on page 48

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IN-DEPTH

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Putting these things together have created the impetus for growth. Therefore, the growth in the Middle East is relatively more dynamic that the rest of the world. It’s a fairly large portion of how businesses is run and going digital also helps a country during economic downturns. We’ve had a great experience in the region. We’ve had good growth and I expect the country to continue this trajectory in the next four to five years going forward.

Does this have anything to do with the upcoming Expo 2020 & FIFA?

This is a very complex business and if you talk about consumers, there are millions of them and they all have different ways of thinking and what they find convenient and how they want to pay.

Raghu Malhotra, President, Middle East & Africa, MasterCard

Innovation used to be something that was developed in other parts of the world and adopted in the Middle East. However, I believe that this is no longer the case. We are now in an era where the region itself is a pioneer in innovation. — Raghu Malhotra, President, Middle East & Africa, MasterCard So it’s hard to say that it’s only one reason—it’s a series of reasons. Do these events spur the demand and spend in different ways? The answer is yes—it is cyclical. There are a few types of growth that takes place—domestic consumption, inbound tourists and business activity. At this point all three vectors bode well for us.

What is MasterCard’s focus for the Middle East in the coming year and what is the company’s strategic direction in the short term?

As mentioned earlier, this is a very complex industry that is currently going through a lot of change. Our number one objective at this point of time is to ensure that we get the best-in-class

48 page 46-48 In Depth.indd 48

products and services for our consumers across the region. This means that if they are ready to jump onto the digital bandwagon, then we will provide a converged experience. I this regard we are committed to making sure that our partners—financial institutions, merchants and governments—have the proper infrastructure that allows for these transition to take place. According to a poll that is been done by the Business Innovation Forum, 73 per cent of the respondents prefer to have their mobile phones used as a payment tool. This is obviously going to be a focus area for us. It goes back to the same things—providing what the consumers want (a converged experience) with safety and security

in their transactions. We aim to ensure that the infrastructure which allows for these transaction exists in countries that we are expanding into and most importantly to maintain the safety and security of the system.

What are your views on innovation in the region?

Innovation used to be something that was developed in other parts of the world and adopted in the Middle East. However, I believe that this is no longer the case. We are now in an era where the region itself is a pioneer in innovation. For example, the mobile ecosystem that Egypt has. In Pakistan on the other hand, they are a leading pioneer in biometrics. I actually feel that things are starting to change. Innovation will begin to spur that are very regionspecific and in turn other countries will start adopting the same mechanisms. From now on, I believe that a lot of innovation will start developing in the Middle East and Africa instead of the other way round.

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TECH FOCUS

Overcoming threats posed by falsified credentials Harshul Joshi, Senior Vice President of Cyber Governance, Risk and Compliance at DarkMatter sheds light on global hacks committed through falsified credentials and how banks in the Middle East are at risk

t the beginning of December 2016 and following a hack of its CentralÂ Bank, Russia is believed to have lost $31 million, which is an amount less than the hackers initially targeted, according to media reports. In echoes of the SWIFT (Society for Worldwide Interbank Telecommunication) system hack earlier this year, where criminals stole $81

million of a targeted $1 billion plus using the Bangladesh Central Bank, the latest incident in Russia saw cyberthreat actors attempt to steal a total of the equivalent of approximately $78 million. According to reports, the hack was carried out using falsified client credentials, though the bank has provided few further details regarding the hackersâ&#x20AC;&#x2122; methodologies.Â As a result of the attack, Russia says that it

The financial cost of cybercrime in the UAE alone has reached

$1.4 billion to date this year, an increase of

4.9

year-on-year

Harshul Joshi

is now fortifying its defences as far as cybersecurity goes, particularly in light of a potential increase in what may be described as state sponsored incidents in the face of accusations levelled at Russia that it may be using cyberattacks itself as a political tool abroad. Since 2015, Ecuador, the Philippines, Bangladesh, and Vietnam have suffered similar breaches of their central banks, and it would appear that the trend is only becoming more rampant as hackers grow bolder (and security measures remain relatively stagnant). cont. on page 52

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TECH FOCUS

cont. from page 50

The International Monetary Fund has warned that emerging market economies are at higher risk partly due complications with correspondent banking relationships. Interconnectivity—be it with digital networks in general or banking systems specifically—need to take into consideration the cascading effects of a breach and mitigate against them. Given that the latest incident in Russia was likely orchestrated using falsified client credentials, which have become a preferred method of bank

a state of breach in order for them to have the defences and mitigation mechanisms in place minimise possible disruption caused by any cybersecurity incident, before it happens rather than after, as is the case with the Russian Central Bank. This is an area in which financial institutions across the Middle East could look to improve, as assuming a proactive cybersecurity position is often a wiser and more cost-effective than looking patch or recover once a cyberincident has occurred.

It is also recommended that institutions adopt a proactive approach to cybersecurity in which they assume a state of breach in order for them to have the defences and mitigation mechanisms in place to minimise possible disruption caused by any cybersecurity incident, before it happens rather than after. — Harshul Joshi, Senior Vice President of Cyber Governance, Risk and Compliance at DarkMatter system hacking, the use of multifactor authentication for accounts is advised, so that even if a password is stolen and access to a system gained, the hackers are not able to access any accounts or transactions without the corresponding token or biometric for the account. This way unauthorised transactions cannot occur without the complicity of an insider (i.e. the account administrator). We believe that the use of multi-factor authentication in combination with diligent asset management of authentication tokens is a compelling approach to minimising cyberbreaches in a financial services environment. It is also recommended that institutions adopt a proactive approach to cybersecurity in which they assume

52 page 50-52 Tech focus.indd 52

The banking and finance sector is of strategic significance to the Middle East, but is clearly an economic area heavily targeted by cybercriminals looking to steal, extort, or corrupt digital information with the view of benefiting financially. Recent examples of attempted and successful breaches bear testament to this trend. Across the region, cybersecurity generally remains an area of concern with Norton Cyber Security Insights Report estimating that the financial cost of cybercrime in the UAE alone has reached $1.4 billion to date this year, an increase of 4.9 per cent yearon-year. Globally, the financial cost decreased by 16 per cent to $125.9 billion during the same period, the report estimates, highlighting that in the UAE, and

indeed other markets across the region, financial institutions need to take proactive steps to defend and secure their digital assets from internal and external cyberthreats. This is best achieved through a cyberthreat management and mitigation programme, which can be established in a three-part process encompassing visibility, intelligence and integration. Visibility means the financial institution truly understands the configuration of its network and most importantly who has access to it. Large institutions in particular often maintain networks patched together over decades, running different generations of software. It’s a simple truth that one cannot protect what one doesn’t understand; a thorough audit is vital at the start of any mitigation process. Sophisticated mapping software can certainly accelerate this process, but ultimately a comprehensive audit requires people on the ground to ask the right questions and find the location of servers and access rights. Intelligence relates to an individual system’s characteristics to the known threats and a network’s vulnerabilities in relation them; it takes the threat intelligence gathered in the risk assessment process and relates it the specifics of the organisation’s system. Integration aggregates the information found in the first two phases, and displays it in a format that can be readily understood by decision makers to enable them to act quickly. In particular, attacks should be logged and diagnosed in a systematic fashion. Armed with a complete picture, a financial institution should then be able to create a continuous monitoring and mitigation capability supported by intelligence and securely integrated technology, which working together can help reduce the number of successful breach attempts.

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PERSONALITY

Dr. Yousef Padganeh Headâ&#x20AC;&#x201D;Enterprise Risk Management, Commercial Bank International

I have worked in banking for 16 years, and moved to the risk management side of the business in 2004. In 2008 I joined Commercial Bank International (CBI), one of the most established banks in the UAE. I also teach finance and risk management to postgraduate students and participate in academic research. Before joining banking, I was a chief accountant, and I moved to risk management when the Basel II banking regulation was implemented. I recommend that anyone considering this move build a strong financial and statistical background first. On a personal level, I worked hard to achieve double MBAs, double PhDs and a post-doctoral certificate in leadership, and I have used this experience to successfully implement Enterprise Risk Management practises with senior teams across CBI. I also feel privileged to be involved closely with the UAE banking community and UAE Banks Federation, and speak at regional and international conferences. However, I think that my biggest achievement so far is the success of my two daughters, who are now both at medical school in Europe. My role is to enable the board of directors and senior management to achieve organisational objectives within an acceptable level of risk. Thus, we are business partners and proactive in nature.Â My core activity is leading a team of specialists to identify, assess/measure risk, report and monitor the risks through the cycle. Risk management is challenging and dynamic, and requires me to stay up-to-date with the market. Risk affects all aspects of an organisation, and so my job enables me to work in harmony with the whole bank. I enjoy working at CBI because it has the stability and security of a big bank, and the speed and agility of a small bank. I love my job! It is hard for me to pick a favourite book because I read a lot, but I would recommend Leading Change by Dr. John Paul Kotter, to anyone looking to help their organisation reach the next level. I would like most to have dinner with His Highness Sheikh Sultan Al Qasimi, ruler of Sharjah, because he is very active and does a lot to educate people and build culture. The GCC financial market is very competitive and contributes to economic stability in the region. The UAE Central Bank continues to announce supportive policies to enable the UAE to lead the region, especially in Islamic finance. With a new leadership team in place, banks like CBI will benefit from this evolution and participate in building a stronger financial community. Finally, I do strongly believe; success is the result of continued efforts toward realistic objectives.

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