Evolving banking industry in middle east & north africa by Sutherland Global Services

MENA Banking Industry Industry Research April, 2011

Disclaimer This document is the proprietary and exclusive property of Sutherland Global Services except as otherwise indicated. No part of this document, in whole or in part, may be reproduced, stored, transmitted, or used for design purposes without the prior written permission of Sutherland Global Services. The information contained in this document is subject to change without notice. The information in this document is for information purposes only. Sutherland Global Services® disclaims all warranties, express or limited, including, but not limited, to the implied warranties of merchantability and fitness for a particular purpose, except as provided for in a separate software license agreement. All confidential or proprietary information contained in Sutherland’s response shall at all times be and remain the sole and exclusive property of Sutherland Global Services, Inc.

© 2010 2011Sutherland Sutherland Global Services All rights reserved. Privileged and confidential Sutherland © Global Services Inc., Inc., All rights reserved. Privileged and confidential informationinformation of SutherlandofGlobal ServicesGlobal Inc. Services Inc.

www.sutherlandglobal.com

Agenda • Macroeconomic Environment in the MENA –

Key Macroeconomic Indicators

• MENA Banking Industry – – – – – – – –

MENA Banking Industry Overview Banking Assets in MENA Credit Penetration in the Middle East Level of Competitions among the Banks Top 20 Banks in the Middle East Recent Trends Current State of the Banking Industry in the Middle East Challenges in the Middle East Banking Sector

• Health of MENA Banking Industry – – –

Financial Soundness Indicators Profitability Indicators Efficiency Indicators

• Adoption of Technology in the MENA Banking Industry – – –

Technology Adoption Trends Mobile Banking in the MENA Drivers of Technology Adoption in the Middle Eastern Banks

• Surveys – – – – –

World Bank Survey – Financial Access in the MENA, 2010 Gartner Survey - Banking IT Budgets, Gulf Cooperation Council Countries, 2010 Infosys Survey - Banking Technology Trends in the Middle East, 2009 E&Y Survey – Retail Banking in the GCC: Competing for Customers, 2011 Union of Arab Banks and World Bank Survey – The Status of bank Lending to SMEs in the Middle East and North Africa Region

www.sutherlandglobal.com 6 June 2013

Macroeconomic Environment in the MENA

www.sutherlandglobal.com 6 June 2013

Middle East’s GDP to expand at 4.5% in 2011 •

The global liquidity tensions had an adverse impact on MENA, but there were no systematic disruptions. In fact, the downturn proved to be a blessing in disguise for countries like Qatar due to high demand of gas

•

Stable oil prices and improved business confidence are expected to be major catalysts for a robust rebound in GDP growth in 2010-11.

•

The real GDP(PPP) of the MENA was 2.7% in FY2009 and is estimated to be 3.6% and 4.5% for FY2010 and FY 2011 respectively

Real GDP (PPP) Growth, 2009

GDP (PPP – USD Bn), 2009 15,000

Domestic credit provided by banking sector (% of GDP)

www.sutherlandglobal.com 6 June 2013

Middle East Region – Increased Connectivity with the World FDI, GDP and growing internationalization of business 2004-09 emerging markets CAGR FDI inflows1 (CAGR %)

Foreign direct investment

(USD bn)

Emerging markets dominate FDI flows

2003-10 GCC non-oil trade grows quicker than GDP growth2 ( %)

GDP and Trade

Regional trade (oil and non-oil) growing faster than GDP YTD 06 2010

Business to become international

• In the UAE, 9 out of every 10 companies have cross-border operations • India represents 28 per cent of UAE international business, Saudi Arabia 24 per cent and China 22 per cent

Significant demand for international banking services3

Source: 1. World Investment report – UNCTAD, FT FDi Intelligence; 2. HSBC Economist Team; 3. HSBC International Business survey © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

www.sutherlandglobal.com 6 June 2013

Wealthy and educated young population to demand for more banking products in future •

Roughly 30 to 40 percent of the population in the GCC is under age 35

•

Growth in educated young population has been the main driver for banking in the Middle East as this population proved to be more demanding, have a good knowledge and understanding of banking products and their need

•

Owing to large oil deposits and a small population, the major economies in the Middle East have higher per capita GDP

•

Qatar has the highest GDP in the world

Labor Participation Rate, 2008

Population ages 15-64 (% of total), 2009

GDP (PPP) per Capita (in USD ‘000), 2009

www.sutherlandglobal.com 6 June 2013

MENA Banking Industry

www.sutherlandglobal.com 6 June 2013

MENA Banking Sector has Swiftly Emerged out from the Global Financial Crisis •

MENA region has become a significant player in emerging banking market over the past decade, as financial groups develop stronger capabilities in retail, corporate and investment banking

•

The total assets of the Middle East banks grew 3.57% to $2.26 trillion in 2009 despite the global financial crisis

•

The Arab banking sector currently comprises 280 commercial banks, 60 Islamic banks and 80 investment and specialized banks

•

Bahrain's banking sector is far and away the biggest (relative to GDP) of any country in the region. During the last decade, Bahrain has been able to establish as the principle off-shore banking center in the region. Foreign banks are using Bahrain as a location to on-lend and invest in other counties, especially Saudi Arabia

•

The ownership structure of banks in the Gulf region or the Middle East is either government owned or family owned

Total Banking Assets as a % of GDP (2008)

Ownership Structure of Domestic Banking System Public

258%

142% 84%

Bahrain

Kuwait

94% 68%

66%

Oman

Qatar

Saudi Arabia

Private

Gov’t

QuasiGov’t

Royal Family

Total

Domestic

Foreign

Bahrain

9.0

11.4

…

20.4

41.8

37.8

Kuwait

12.0

1.0

…

13.0

87.0

…

Oman

10.0

19.0

1.0

30.0

40.0

30.0

Qatar

20.4

0.3

…

20.7

75.6

3.7

Saudi A.

18.0

17.0

…

35.0

52.0

13.0

UAE

42.0

0.5

11.0

52.3

46.5

0.2

UAE

Percent of Total Assets

www.sutherlandglobal.com 6 June 2013

Banking Assets in the MENA Increased Substantially During Past Few Years • The total consolidated assets in the Middle East’s top 100 banks reached $1.83 trillion in 2009, up by a huge 131.5% in 2004 • MENA banking assets compare favorably with those of India ($1.21 trillion) and Russia ($1 trillion), but fall below $2.1 trillion in Central and Eastern Europe in 2009 • The Gulf based banks, led by Saudi Arabia, the UAE and Bahrain, accounted for 71% and 60%, respectively, of core capital and total banking assets

Assets (US$ Mil.) Sept 2010

No. of Banks by Country (2008)

Banking Assets Growth in the MENA, Sept 2010 40

32 26 15

16 9

Bahrain

Kuwait

Oman

Qatar

Saudi Arabia

UAE

Egypt

www.sutherlandglobal.com 6 June 2013

Mortgage market is still in its Nascent Stage in the MENA •

• • •

Across GCC countries, the mortgage penetration (defined as the mortgage market ration to the GDP) is much lower than in Western countries and it can be considered still at an early stage Egypt and Saudi Arabia still have low financial penetration ratios, and enjoy large population bases, with the majority yet to enter the workforce Qatar enjoys the highest GDP/Capita in the region, and with a moderate financial penetration rate and considerable government support Egypt, Saudi Arabia, and Qatar are the main banking markets within the MENA region, with a higher long-term potential for growth

Loan to GDP & Deposits to GDP, 2010

Loans/Deposits (Sept 2010)

Retail Lending-to-GDP (2010)

www.sutherlandglobal.com 6 June 2013

MENA Banking Industry is Marked by Lower Competition when Compared to US and India • Most banking sectors in MENA operate under monopolistic competition. Low banking competition in the region is largely because of worse credit information environment and strict regulations and practice governing bank entry

Bank Concentration (% of Total Assets by Top 3 banks), 2009

• Bank concentration, measured by assets of three largest banks as a share of assets of all commercial banks, reflects Bahrain’s banking sector is the least competitive; the UAE’s bank sector is the most competitive in the region • The Middle East banking industry remains heavily concentrated; 35 premier banks hold about 60% of the region's banking assets or $1.12 trillion. • Cross-border competition in the banking sector across the MENA has historically been limited. Protectionist measures have restricted the ability of national banks to set up operations in the neighboring states, thereby closing a wide range of potential growth opportunities

Profitability vs. Market Concentration , 2009 UAE Bahrain

Kuwait India Qatar

Saudi Arabia Egypt

www.sutherlandglobal.com 6 June 2013

Recent Trends in the MENA Banking Industry

Robust Growth of Islamic Banking

Islamic Lenders merging with Conventional Lenders

• Islamic banking in the region has evolved during the past decade from a niche market to an important segment of the local banking industry, and has now reached critical masses • Shariah-compliant financing is growing at 15% a year and it has been forecasted that the assets under management will reach $2.8 trillion in 2015

• The Shariah-compliant lenders are joining hands with conventional banks to gain the critical mass for reaping economies of scale in Mena region • The best example of this is Bahrain-based Islamic bank’s recent takeover of a conventional bank to convert itself into a Shariah-compliant business

Product Innovation

• Many Gulf banks are coming with new innovative products and risk diversification strategies. Qatar National Bank launched new payments systems and credit card products • National Bank of Abu Dhabi (NBAD) introduced a new SMS remittance service and launched the region's first Exchange Traded Funds

Market Expansion

• Many GCC banks are aggressively expanding in international countries largely because of limited growth in domestic market and business risks linked to limited geographic spread • For instance, NBAD has announced its plan to expand its Egyption operation from 28 to 50 branches in coming years. Emirates NBD of the UAE is also expanding its retail operation in Saudi Arabia

Growing Competition

• The GCC retail banking is more competitive and customers now have multiple choices. Ernst & Young survey reveals that 25% of GCC customers may switch banks within a year if their banking experience does not improve

Source: A T Kearney, Gale Group Inc, Pan Arab Research Centre, Islamic Financial Services Board reveal © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

www.sutherlandglobal.com 6 June 2013

Current Status of Banking Industry in the Region (1/2) Loans

Investments

Deposits

Wholesale

Capital Market Liabilities

Lower loan growth is relieving the pressure and generally leading to lower funding requirements

Banks looking to selectively retire expensive loans and refinance domestic currency borrowings

Saudi Arabia

YTD credit growth has been virtually zero, partly also due to high risk averseness of banks post NPL issues at family businesses

Most of the incremental liquidity is channeled to government securities

Banks have been shedding time deposits, and replacing them with demand and savings

Oman

Corporate credit has slowed considerably, while flow of consumer loans is generally steady, but at lower levels

Banks depositing excess liquidity with the central Bank

Focus is on improving the demand/saving mix, and reducing the reliance on wholesale funding

Increased initially but normalizing Now

Have become expensive. Banks selectively looking to raise domestic currency financing

Kuwait

Retail credit driven by Kuwaiti nationals but corporate credit weak. Plans to boost credit growth awaiting Parliamentary approval

Fewer lending opportunities has increased banksâ&#x20AC;&#x2122; demand for central bank/government Bonds

Deposit mix shifting to cheap government deposits from expensive corporate Deposits

Increase in the loan to deposit ratio to 85% from 80% in November 2008 reduces the need for expensive funding sources

Virtually no exposure (ex Burgan Bank)

www.sutherlandglobal.com 6 June 2013

Current Status of Banking Industry in the Region (2/2) Loans

Investments

Deposits

Qatar

Loss of zero spread public sector business, and sale of property loans distorts numbers, underlying public sector loan demand until 2012e

UAE

Banks initially guiding to 10% growth, some products areas targetted for exit

Gradual sell-down of riskier positions

Rapid scramble for deposits, until wholesale funding Returns

Loan growth almost zero from December 2008 mainly on lower corporate investments

Banks have not shifted signifcantly their investment books mix. Excess EGP liquidity invested in T-Bills

Deposit growth has slowed but remains at a solid 8% from December 2008, primarily driven by retail deposits

Egypt

DSM-listed equity holdings sold to QIA, boosting government debt Positions

Also affected by netting of zero spread public sector loans/deposits

Wholesale

Capital Market Liabilities

Strong liquidity so little urgent Requirement

Strong liquidity so little urgent requirement

Syndicated funding not yet a feature

After NBAD success, many to push for MTN funding in 2H2009e

Banks have not traditionally relied on this source of Funding

None

www.sutherlandglobal.com 6 June 2013

Top 20 banks by capital in the MENA, 2009 Rank

Bank

Country

Capital ($M)

Assets ($M) CAR (%) Profits ($M) ROE (%) ROA (%)

The National Commercial Bank (NCB) Saudi Arabia

7,637

68,654

11.1

1,077

14.1

1.5

Emirates NBD

UAE

7,257

76,661

9.4

980

13.5

1.3

Riyadh Bank

Saudi Arabia

6,721

47,040

14.3

808

12.0

1.7

First Gulf Bank

UAE

6,063

34,161

17.7

901

14.8

2.6

Samba Financial Group

Saudi Arabia

5,992

49,472

12.1

1,214

20.2

2.4

National Bank of Kuwait

Kuwait

5,952

44,974

13.2

986

16.1

2.2

Al Rajhi Bank

Saudi Arabia

5,859

45,528

12.8

1,805

30.8

3.9

National Bank of Abu Dhabi

UAE

5,795

53,319

10.8

862

14.8

1.6

Kuwait Finance House

Kuwait

4,784

39,340

12.1

268

5.6

0.6

Arab Bank

Jordan

4,771

50,601

9.4

783

16.4

1.5

Abu Dhabi Commercial Bank

UAE

4,656

43,618

10.6

-139

-2.9

-3.0

Banque Saudi Fransi

Saudi Arabia

4,118

32,153

12.8

658

16.0

2.0

Qatar National Bank

Qatar

3,807

49,258

7.7

1,152

30.2

2.3

Arab National Bank

Saudi Arabia

3,637

29,413

12.3

632

17.4

2.1

Attijariwafa Bank

Morocco

3,153

36,940

8.5

874

27.7

23.0

Mashreqbank

UAE

3,149

25,762

12.2

293

93.0

1.1

Bank Saderat Iran

Iran

2,873

41,131

6.9

313

10.9

0.7

Union National Bank

UAE

2,831

20,433

13.8

325

11.5

1.6

Saudi British Bank (SABB)

Saudi Arabia

2,780

33,823

8.2

542

195.0

1.6

Awal Bank

Bahrain

2,702

7,645

35.3

-20

-0.7

-0.2

www.sutherlandglobal.com 6 June 2013

Challenges in the MENA Banking Industry

Slower Growth Environment

Asset Quality

• Despite government intervention, foreign investments have declined due to financial crisis. As the global economy comes out of the recession, a lower growth environment is likely to persist and banks will have to adapt their approach to doing business

• The outlook of the Middle Eastern banks remain cautious because of the asset quality deterioration . UAE banks faced significant asset quality problems in 2009 and banks have been increasing collective loan loss provisions in order to create satisfactory buffers

High dissatisfaction among credit card users in the KSA and UAE

• Customer retention is the new marketing challenge for bankers as nearly one third of the credit card holders in Saudi Arabia and their UAE counterparts are dissatisfied with their existing credit card provider. This is a clear signal for card providers to focus new ways to better take care of the existing customers

Rising Regulatory Constraints

• Governments and central banks around the world are scrambling to ensure that lessons learned during the crisis is not lost by further regulating the bank in the industry. MENA’s banking regulators will try to ensure higher capital buffers against future shocks and strive for more transparency in operations

Increasing Competition

• While overall competition in the region remained low, some key factors will result in increased competition in specific areas of operation. The World Trade Organization (WTO) has urged GCC countries to cease their protectionist policies in the banking sectors and foreign banks are likely to benefit for the further opening of the sector

Source: TNS Middle East & Africa, AT Kearney, Sutherland Research © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

www.sutherlandglobal.com 6 June 2013

Health of Banking Industry

www.sutherlandglobal.com 6 June 2013

Financial Soundness Indicators Bank Regulatory Capital to Risk-Weighted Assets* (%)

•

• •

Nonperforming Loans (NPLs) to Total Loans* (%)

Bank soundness indicators continue to exhibit stability across countries. The average capital adequacy ratio, defined as the ratio of capital to risk-weighted assets, was above 15% for every banking system in the region. This was higher than those of both India and the US Banks' capital was boosted by injections of public money in Qatar and UAE and private funds in Kuwait and Saudi Arabia The median capital adequacy ratio for the Gulf banking sector was 17.5%, well above the 8 percent Basel II framework requirement and the local regulatory minima (8% in Saudi Arabia; 10% in Oman and Qatar; 12% in Bahrain, Kuwait and the UAE) Weighted average nonperforming loans (NPLs) to total loans in the region have almost doubled, increasing from 2% at end-2008 to 4% at end-2009 due to a growth slowdown and weaker property prices Higher NPL led to higher provisioning needs , thus hurting the sector’s profitability. Kuwaiti banks fared worst in the region, with bad assets reported at 6.4% of total loans

IIF estimate for 2009 Source: IMF Working Paper No. 10/87 for 2006-2008. IIF estimates for 2009 © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

www.sutherlandglobal.com 6 June 2013

Profitability Indicators Return on Assets (ROA),2009

•

Return on Equity (ROE),2009

Untill 2008, GCC banking systems witness rapid asset and credit growth. By the end of 2008, $1 trillion was held on the GCC consolidated balance sheet. Following the growth, economic woes forced these banks to face liquidity droughts, asset price decline and lower profitability

•

Fiscal year 2009 was seen to be the most difficult year in the gulf financial markets with the starting of the default of Saad and Gosaibi Groups and ending with Dubai’s crisis

•

In Saudi banking sector, the decrease in lending along with increase in provisions had a negative impact on the sector’s performance. Out of 11 listed banks, 4 banks reported growth in net profit, 6 reports drop, while one reported loss

www.sutherlandglobal.com 6 June 2013

Despite a tough economic conditions, banks managed to achieve decent returns in 2009 largely because of lower bad debt provisions Operating Profit Margin

•

Despite a turbulent year and increased bad debt provisions, most lenders registered decent 2009 earnings led by led by Al Rajhi ($1,815 million), Samba ($1,214 million), Qatar National Bank ($1,152 million), NCB ($1,077 million) and National Bank of Kuwait ($986 million) in 2009

•

Qatar’s banking sector, which has been an outperformer amongst regional peers, despite the small population base and the high financial penetration

•

Net Profit Margin

Qatar is expected continue to deliver high growth, on the back of planned infrastructure spending, which will be financed partially by banks, especially with the World

Cup 2022 award •

Long-term prospects of the Egyptian banking industry is very positive considering its large population base, low financial penetration and high liquidity

•

According to analysts, sluggish lending activity had its toll

on the GCC banks’ performance, with their net earnings dipped by around 8.5% to nearly $14.39 billion in 2009 from about $15.74 billion in 2008 EFG Hermes © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

www.sutherlandglobal.com 6 June 2013

Profitability Indicators - Aggregate Net Income (MENA Banks ex Morocco)

USD billion and Y-o-Y Growth

• It is expected that by 2012, most of the banks will be back to a steady state of growth. But the return of steady state of growth which saw balance sheet items growing at up to 80% per year, and a proliferation of bull market investment strategies is not expected • From 2012, the market is expected to witness an increasing differentiation between the banking sectors in the different countries across the region. • With earnings in 2008 hit primarily by investment losses and write-downs and those in 2009-2010 hurt by provisioning, the sector is still at the beginning of a period of high provisioning and minimal growth. By 20112012, banks are expected to have two years of significant earnings momentum

www.sutherlandglobal.com 6 June 2013

Less number of branches and limited geographic spread helped MENA banks to achieve lower operational costs Bank Cost -to-Income Ratio, 2009

Bank Overhead Costs / Total Assets

• The cost-to-income ratio measures the overhead cost relative to gross revenue; higher ratios indicate lower level of cost efficiency for banks • The Middle Easter banks, especially banks from the UAE and Qatar have shown better cost-to-income ratio which are result of cost reduction initiatives over in the past years • Also, limited geographic spread and less number of branches have helped the banks limit capital investment by using labor intensive operations instead of expensive infrastructure • The overhead cost-to-total assets of Gulf banks is higher than that of India but less than the US. GCC banks have managed to attracted skill and unskilled workers from Asia and Africa Fitch's BankScope database, 2009, Sutherland Research © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

www.sutherlandglobal.com 6 June 2013

IT Adoption in the MENA Banking Sector

www.sutherlandglobal.com 6 June 2013

Technology Adoption in the MENA Banking •

On average, POS retail networks are less developed in MENA compared to developing and high income countries

•

ATM retail networks too are less developed in MENA than branch networks when compared to developing and high income countries

•

GCC banks are still building up their infrastructure to underpin their expansion strategies, and this explains the 34% in infrastructure spending

•

A higher spending on the retail delivery channels than the customer insight component explains how the GCC’s banks focus on reaching new clients rather than analyzing the data that existing clients generate Percentage of IT Budget by Functional Area for Noncommercial Banks, 2009

Source: Financial Access Database (World Bank); Gartner Survey, 2010

ATMs to Branches Ratio(commercial banks)

POS to Branches Ratio(commercial banks)

Note: Medians are reported for “High Income”, “Developing”, and “MENA” categories.

www.sutherlandglobal.com 6 June 2013

Mobile Banking in the Middle East • Mobile banking and payments are on a rising trends in the Middle East. The demand is primarily driven by a higher level of migrant workers and lower penetration of internet banking in the region • In the Middle East alone, businesses such as the EIE can tap into 15 million migrant workers in Kuwait, Saudi Arabia and the UAE. As these workers remit 50 per cent of their salary home, an estimated sum of USD3.195bn a month, the revenue potential to be gained by mobile enabling transactions is clear • Mobile banking solutions have shown strong support in the Middle East where the majority of customers have access to Internet via 3G or WiFi in most cities whilst most Gulf Cooperation Council (GCC) countries have near 100% 3G population coverage

• A recent study by Cisco Systems suggests that the Middle East and Africa region as a whole will see monthly mobile data traffic volumes grow at a rate of 133% per annum between 2009 and 2014. South Africa is one of the most advanced mobile markets in the continent. Mobile penetration officially passed the 100% mark during 2008 • 78% of total global mobile banking customers viz., 697 million people are in Asia, Africa, the Middle East and Latin America

• Mobile payment penetration in Eastern Europe, the Middle East and Africa (EMEA) and Latin America is also expected to exceed 3 per cent by 2012 • South African telecommunications company MTN has launched a service called MobileMoney, which is similar to M-Pesa, for its customers in 21 countries all over Africa and the Middle East. South African-based mobile financial services platform, Fundamo, is providing its Mobile Wallet platform for what is described as the world's largest mobile banking software deal in the world, valued at $9.8bn.

Source: Beltone Financial Research, by IMS Research, Berg Insight, Informa Telecoms & Media © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

www.sutherlandglobal.com 6 June 2013

Drivers of Technology Adoption in the Middle Eastern Banks

Demand Drivers for Technology Adoption

With the growth of the banking industry there is a growing requirement for sophisticated financial products and services to compete with their international counterparts

Further, with the rise in Islamic banking, there is a growing need for sophisticated technology platforms to meet Shariah requirements and create Islamic finance products

Middle Eastern banks recognize the role of core banking technology in enabling various business priorities such as improvement of customer satisfaction, streamlining of processes and shortening lead times for new product rollout

Most Middle Eastern banks use a packaged core system from an external vendor, either exclusively or in combination with their in-house developed systems

Banking IT spending across Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the UAE is focused on Infrastructure. Core banking systems (Islamic banking in particular) are strongly emerging in the back office while, in the front office, ATMs and branches are expected to lead IT budget spending in 2011

www.sutherlandglobal.com 6 June 2013

Recent Surveys on the MENA Banking Industry

www.sutherlandglobal.com 6 June 2013

Survey on Financial Access in the MENA, 2010 by World bank About the Survey • Financial Access 2010 is the second in an annual series presenting indicators on access to savings, credit, and payment services in banks and regulated nonbank financial institutions. The report updates data on access to financial services from a survey of financial regulators in 142 economies and includes new chapters on financial inclusion mandates and reforms, consumer protection policies and SME finance Survey Design • Data were collected through a survey sent to the main financial supervisors, such as central banks or bank supervisory agencies. The survey questionnaire consists of two parts: the statistical table and policy questions • Questionnaire collects data on the numbers and volumes of deposit accounts and loans, number of bank branches, automated teller machines, and point-of-service terminals, as well as other measures of the use of financial services by banks and formal regulated nonbank financial institutions Survey sample

• Questionnaires were sent to 151 countries: 13 in East Asia and Pacific, 27 in Europe and Central Asia, 20 in Latin America and the Caribbean, 14 in the Middle East and North Africa, 6 in South Asia, 40 in Sub-Saharan Africa, and 23 in the high-income OECD countries • The questionnaires were sent directly to the governors’ offices of central banks. When appropriate, they were also sent to monetary authorities or banking supervisory agencies

www.sutherlandglobal.com 6 June 2013

Access to banking services in the MENA remains low – World Bank Survey (1/2) • Most countries in the MENA experienced growth in deposit account numbers but a decline in value of deposits from 2008 to 2009

Number of Deposit Accounts per 1,000 Adults, 2009

• In the MENA there are 818 bank accounts per 1,000 adults, compared to 635 bank accounts per 1,000 adults in developing countries • There is a wide variation among countries in the region in terms of deposit account penetration, from 104 bank accounts per 1,000 adults in Yemen, to 1751 banks accounts in the UAE • MENA has high branch penetration in urban area and very low branch penetration in rural areas

Branches per 100,000 adults, 2009

– Urban Areas: 27.76 branches / 100,000 adults

– Rural Areas: 0.85 branch/ 100,00 adults • For every 17,000 people in Saudi Arabia, there is only one bank branch. There are roughly 2,000 people per branch in most European countries • MENA had a lower median growth rate in the number of accounts per 1,000 adults, compared with both high income and develop countries Source: Financial Access Database (World Bank), Al Sidra Media LLC

Note: Medians are reported for “High Income”, “Developing”, and “MENA” categories.

www.sutherlandglobal.com 6 June 2013

Average deposit per capita is much higher in the MENA while the consumer credit remain very low – World Bank Survey (2/2) •

Average deposit size per capita in the MENA is than developing and high income countries

•

Only just over one in five (21.3 percent) of adults in the MENA have a loan account in a bank, while access to bank deposits varies from as low as 10.4 percent for Yemen and 19.2 percent for Syria, to other end of the spectrum with more than one bank deposit account for each adult in Oman, Lebanon, UAE and Iran

•

A large number of low-income expatriates remained out of the banking system. This has changed with the introduction of Wage Protection System (WPS), as their monthly salaries are channeled through the banks

•

In the MENA, there are 201 bank loan per 1,000 adults compared with 245 bank loan in developing countries

•

The ratio of volume of loans to individuals to total volume of loan by commercial banks remained low in the MENA which stood at 26% in 2009

•

There is a wide variation among countries in the region in terms of loan account penetration, from 926 bank loans per 1,000 adults in Israel to only 8 bank loans per 1,000 adults in Yemen

Source: Financial Access Database (World Bank)

Ratio of Volume of Loans to Individuals to Total Volume of Loans in Commercial Banks, 2009

Average Deposit Size/ Income Per Capita, 2009

Note: Medians are reported for “High Income”, “Developing”, and “MENA” categories.

www.sutherlandglobal.com 6 June 2013

Gartner’s Survey on Banking IT Budgets, Gulf Cooperation Council Countries, 2010 About the Survey • For this survey, Gartner interviewed 21 respondents from credit institutions in the GCC countries (that is, Bahrain [19% of respondents], Kuwait [19%], Oman [10%], Qatar [19%], Saudi Arabia [14%] and the UAE [19%]) that, in 71% of the cases, had 100 or more employees and assets under management of $1 billion or more. Respondents came from retail banks, commercial banks, mortgage bankers or brokers, personal credit institutions, universal banks and other financial institutions • Investment service firms and Islamic banks were excluded. The results of this study are representative of the respondent base and not necessarily the market as a whole

Number of Employees in Entire Organization/Region/Business

Respondents by Banking Subsector

www.sutherlandglobal.com 6 June 2013

Extracts from the Gartner Survey, 2010 on Banking IT Budgets in the GCC (1/2) • The greater focus of the GCC banks on expanding and gaining new market share resulted higher spending on both the delivery channels and the deposit and analytical applications in 2009

Percentage of IT Budget by Functional Area for Commercial Banks, 2009

• There was relatively higher spending on core banking solutions (CBS), primarily driven by banks’ expansion strategy and introduction of Islamic banking products • Loan processing as a percentage of the IT budget (18%) was lower than in Western countries( 31%), largely because of the smaller number of transactions rather than less focus Percentage of Allocation of IT Budget for the Back-Office / Operations Functional Area for Noncommercial Banks, 2009

Percentage of Allocation of IT Budget for the Lending Functional Area, 2009

www.sutherlandglobal.com 6 June 2013

Extracts from the Gartner Survey, 2010 on Banking IT Budgets in the GCC (2/2) IT Services Purchased From an External Service Provider in the Past Two Years and Planned for the Next Two Years

www.sutherlandglobal.com 6 June 2013

Online Survey on Banking Technology Trends in the Middle East by Infosys About the Survey

• “Banking Technology Trends in the Middle East” is a report presented by Finacle from Infosys and ITP Publishing Group • The report is based on the findings of an online survey conducted in the last quarter of 2009. • A total of 42 senior banking respondents and senior bankers participated in the online survey • The respondents represent 29 Banks and Financial Institutions including – Global Banks, – Top Middle Eastern Banks, – Islamic Banks and – Investment & Finance Companies.

• The respondents are based out of 9 countries, namely Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and United Arab Emirates and span functions like Information Technology, Risk Management, Corporate Banking, Wealth Management and Retail Banking.

www.sutherlandglobal.com 6 June 2013

Survey Extracts – Banking Technology Trends in the Middle East by Infosys, 2010 (1/3) What, in your opinion, are the key business influencers for technology led banking transformation?

Infosys – ITP Survey Results

www.sutherlandglobal.com 6 June 2013

Survey Extracts – Banking Technology Trends in the Middle East by Infosys, 2010 (2/3) Which of the following best describes your current core systems environment?

What would be your ideal method of working with an external vendor ?

Those using at least some packaged core systems solution

Infosys – ITP Survey Results

www.sutherlandglobal.com 6 June 2013

25% of GCC customers may switch bank in the GCC – E&Y Retail Banking Survey, 2011 About the Survey E&Y conducted a survey on retail banking customer of GCC for its latest study Retail Banking in the GCC: Competing for Customers. The survey examined customers’ need and quality of their experience, reasons for attrition and how to prevent it as well as ways to encourage customers to recommend the banks to others

Customer Experience

•

The survey points out that customer experience needs to be driven by operational excellence of each transaction

•

71% of respondents cited trust as highly important to the personal relationship with their primary bank but 70% said transaction speed and 60% tagged service quality

•

The report reveals that if the specific steps are not taken to understand the customer needs and deliver these with exceptional transactional quality, banks will be unable to build the strong profitable franchise

•

The single most important reason for switching banks was a specific service failing (45%) followed by transaction speed (24%), service quality (23%) and the need for Islamic products (21%)

Customer Loyalty

•

GCC customers are using more banks and reliance on their primary bank is decreasing as nearly 60% of respondents have a

relationship more than one. 35% of GCC customers have recently switched or plan to switch banks and only 19% of banking relationship exceeds more than 10 years

Customer Advocacy

Low Transaction Speed of Islamic Banking

•

GCC customers can be advocates when happy, so ample rewards exist for banks that pay attention to their customers

•

The survey revealed that 41% said they would recommend their bank. Differences existed across regions with advocacy higher in Saudi Arabia and Kuwait but lower in Qatar and Bahrain

•

Shari’s sensitive customers are not getting enough transaction speed, service quality and innovation from their banks. Such gaps in service quality are more or less typical of a fast growing sector but also represent an opportunity for Islamic banks to adapt and scale up to meet growing customer demands

www.sutherlandglobal.com 6 June 2013

Survey on the Status of Bank Lending to SMEs in the Middle East and North Africa Region About the Survey •

The MENA survey was conducted between December 2009 and April 2010 and secured a high response rate across the region. The survey was conducted by the Union of Arab Banks (UAB) and the World Bank

•

The MENA survey has 50 questions distributed into four broad sections. Qualitative questions in three board areas: the strategic approach to SME lending, the main products offered to SMEs, and the risk management techniques employed. Fourth and quantitative section designed to measure the extent of SME lending, the share of investment loan in total SME loans and other variables

•

The survey was conducted in English, French and Arabic. The UAB played a fundamental role in the follow-up phase through constant communication with member banks, collecting responses, checking inconsistencies, and frequently revisions

•

The survey was conducted on 139 banks in 16 countries. Among the 16 countries in the sample, 6 were from the GCC and 10 are from outside the GCC. The sample includes 29 state banks and 110 private banks. Out of the private banks, 76 are domestic banks and 34 were foreign banks

•

In the survey, banks were asked to provide their own definitions for SMEs, in terms of employees and turnover. The average maximum number of employees defining a small firm in the GCC and non-GCC is 24 and 17 employees respectively, while the average maximum number of employees defining a medium firm is 90 for the GCC and 58 for non-GCC countries.

www.sutherlandglobal.com 6 June 2013

Extracts from Survey on the Status of Bank Lending to SMEs in the Middle East and North Africa Region (1/2) SME Lending in MENA

Share of Firms with a Loan/Line of Credit from Financial Institutions

•The average share of SME lending in MENA is low – slightly above 8% of total lending • The average share of SME lending in the GCC is only 2%, while the share of SME lending in the non-GCC region in 14% •The average share of SME lending in consistently low across all GCC countries, while there is more variation in non-GCC countries •The low share of SME lending in the GCC reflects to a large extent the structure of oil-based economies – less diversified, dominated by very large enterprises, and

% of Firms with a Loan/Line of Credit from Financial Institution, MENA and other Regions

characterized appreciated exchange rates and small non-oil traded sectors •These factors imply a more narrow space for SMEs to flourish, especially in non-oil sectors producing traded goods •GCC countries tend to have small populations, and the nationals tend to find attractive position in the public sector, which may also discourage risk-taking in the SME sector Source: World Bank; Union of Arab Banks © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

www.sutherlandglobal.com 6 June 2013

Extracts from Survey on the Status of Bank Lending to SMEs in the Middle East and North Africa Region (2/2) SME Lending in MENA •In the non-GCC counties, there is probability scope of

% of Investment Finance by Bank Financing, MENA and other Regions

more SME growth across a wider range of economic sectors, including traded sectors, and also as part of supply chains linked to large enterprises •In the case of non-GCC countries, three sub-groups can be identified: a first group with SME lending shares around 5% of total lending, an intermediate group with SME lending shares around 13%-16% of total lending, and Morocco, with a high share of SME loans exceeding 30%

SME Loans/Total Loans (%)*: MENA Countries

of total loans •The countries with the highest shares of enterprises with a loan tend to be the countries with the highest share of SME loans in total loans – Morocco, Lebanon, and Yemen, while the countries with the lowest shares of enterprises with a loan tend to also have small shares of SME loans – Syria, Egypt, and the Palestine

www.sutherlandglobal.com 6 June 2013

Survey on level of banking services in UAE in 2010 by Ethos Consultancy About the Survey Ethos Consultancy conducted a survey in 2010 on the level of customer services offered by retail banks in UAE as a part of its 6th Annual Bank Benchmarking Index. The survey assesses services offered by banks vis-à-vis those deemed essential by customers. The survey captures real scenarios of a customers’ contact with a bank either through traditional channels (e.g. branch visit etc) or alternative channels (call centers, websites, etc). The results of the survey were drawn from 483 branch visits of 21 retail banks (15 local and 6 international), 378 enquiries made to call centers and 231 enquiries made through bank websites.

The survey revealed that the service levels of UAE banks improved in 2010, indicating a continuation in the uptrend in the levels of customer service over the last 5 years.

•

Customer Experience

The survey indicates that customers are not satisfied with the services provided by banks during their interaction, implying a shortfall in the overall quality of services

•

On most occasions banks failed to contact prospective customers •

In the event of customers being contacted, the quality of services failed to meet the expectations of customers

•

Most respondents complained of the poor responses they received from the banks’ customer service representatives.

•

The survey indicates that banks in UAE have failed to respond to customer enquiries in a timely manner.

Lack of Timeliness

•

Concerns have been raised over time taken by banks to respond to customers’ enquiries to products or services

•

More than 50% of customers did not receive responses within 48 hours of contacting a bank

•

The failure to contact prospective customers has been attributed to the poor quality of services of call centers, since

more than half of the callers’ contact details were not even recorded by the customer service representatives

www.sutherlandglobal.com 6 June 2013

Results of the survey on customer services of UAE banks Results of the Survey •

The survey revealed a 20.75% y-o-y improvement in the performance of the websites of banks, in terms of navigability, level of information available, response times to enquiries received via the website, etc.

Improved Website Performance

•

More than 76% of the banks that formed a part of the survey improved the performance of their websites against 14% which witnessed deterioration

•

Despite the improvement, customer satisfaction associated with website performance remained at the lowest (43%), implying considerable scope for improvement

Marginal Improvement In Call Center Operations

•

trend within individual banks’ call center performance

•

Continued High Performance In Branches

In 2010, there was also a minor improvement (~5%) in Call Center performance over 2009. There was a mixed •

43% of all banks surveyed improved their Call Centre performance

•

An additional 9% maintained their performance levels or were a new entrant

•

However, about half (48%) of the banks witnessed a decline in their level of performance

The traditional distribution channel of bank branches remains the best performing channel in terms of services and related customer satisfaction

•

Banks branch performance improved to 82.97% in 2010 compared with 80.1% in 2009. •

Close to half (48%) of all bank branches surveyed improved their performance

•

19% of the bank branches maintained their performance levels

•

The remaining 33% slipped in their performance

www.sutherlandglobal.com 6 June 2013

Arabian Banking Survey 2010 by Arabianbusines.com About the Survey Arabianbusiness.com has conducted a survey on the banking industry in GCC. The survey included 800 respondents from 63 different nationalities residing in different parts of GCC and were customers of more than 60 different banks in the region. The online survey aimed to identify the level of satisfaction with customers’ banking experience and factors that are sources of discontent for them.

Banking Experience

High Charges

Customers to Switch Banks

•

More than 20% of respondents of the survey termed their banking experience as “terrible”

•

41% of the expatriate population which were a part of the survey have termed their banking experience with GCC banks to be “much worse” than their home country

•

The survey revealed that one in three Gulf residents were unhappy with regions “inadequate” banking experience

•

About 60% of the respondents to the banking survey have shown dissatisfaction with the charges of their banks. The respondents have described the charges as "high" or "extortionate".

•

Of all the respondents, about one-third mention the rates charged by their banks to be “terrible”

•

Another 25% of the respondents have termed bank charges to be “inadequate”

•

The discontent related to quality of services in conjunction with the high charges has led to displeasure among a large section of the respondents.

•

About 62% of the respondents have shown inclination towards changing their banks by switching to a rival bank.

www.sutherlandglobal.com 6 June 2013

Banking Concentration in UAE (1/2)

www.sutherlandglobal.com 6 June 2013

Banking Concentration in UAE (2/2)

www.sutherlandglobal.com 6 June 2013

Names of banks in UAE

•

ADCB: Abu Dhabi Commercial Bank

•

ADIB: Abu Dhabi Islamic Bank

•

DIB: Dubai Islamic Bank

•

ENBD: Emirates NBD

•

FGB: First Gulf Bank

•

NBAD: National Bank of Abu Dhabi

•

SIB: Sharjah Islamic Bank

•

UNB: Union National Bank

www.sutherlandglobal.com 6 June 2013

Banking Concentration in Middle East (1/2)

www.sutherlandglobal.com 6 June 2013

Banking Concentration in Middle East (2/2)

www.sutherlandglobal.com 6 June 2013

Thank You