MARCH 2018 | ISSUE 204
MARCH 2018 | ISSUE 204
TOKENOMICS: MEET THE NEW FACE OF VALUE INNOVATION REZA DARI, CEO, Global Investment Bank
OMAN: NEW BEGINNINGS
The worldâ€™s oldest independent Arab state must adapt to a new world
RIDING THE WAVE
The private equity and venture capital landscape is largely dependent on diversification agendas and international events across the region
GREEN DEVELOPMENTS IN ISLAMIC FINANCE
The global increase in environmental awareness has led to a rise in appetite for green bonds and Sukuk
A CPI Financial Publication
TOKENOMICS: MEET THE NEW FACE OF VALUE INNOVATION REZA DARI, CEO, Global Investment Bank Dubai Technology and Media Free Zone Authority
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losing the first quarter, I hope we’ve achieved our goals for the first three months of the year. Having performed fairly well in the last quarter, the banking and finance sector can be said to be on better footing this year. In addition to the slight increase in oil prices, the wave of structural reforms across MENA economies which targeted almost everything from taxes to economic and social standards, have gained some traction. Frontier and emerging markets have always been viewed by investors as small, illiquid, and poorly regulated. However, the 2014 crash of the oil prices served as a wake-up call for Middle East economies. Some were quick to react to it, while others remained adamant. Over the past nine months however, we’ve seen encouraging developments: UAE’s bankruptcy laws coming into force; Saudi Arabia’s social, financial and economic reforms and ambitions unfolding; Egypt’s reform agenda involving cutting interest rates and the further removal of subsidies; Lebanon’s adoption of the Basel liquidity ratio; and Kuwait’s transformation agenda which includes the development of Northern Kuwait and its capital markets. In spite of these reforms, some issues in the Gulf remain a potential deterrent for foreign investment. The economic impact of the blockade against Qatar and escalated regional tensions between Iran and Saudi Arabia remain a prime concern. Adding salt to the wound, Bahrain’s recent credit downgrade over unclear Government strategies to tackle government deficits as well as Oman’s inability to curb its government wage bill also raises some red flags.
Nevertheless, the banking system in the region, particularly in GCC countries, are generally sound and is set to meet Basel III requirements. Moving forward, analysts are expecting more capital market activity across the region this year as sovereigns and corporates seek more liquidity. Although the pace has been a bit slow to take off, we have now recently seen Saudi Arabia and Qatar tapping international markets for funding. We have also seen the central banks of UAE, Kuwait and Bahrain raising its rates by 25 basis points mirroring the Federal Reserve Board’s decision to increase the Federal Funds Rate. Evidently GCC and the wider MENA region are on the right path for a fiscal and economic correction. One can only expect for this momentum to continue smoothly barring any major geopolitical disruptions. The crucial goal that should be kept in mind for any initiative at this juncture, be it from financial institutions or governments, is sustainability. At the heart of all such reforms, cost-cutting agendas or digital transformations, should be its capability to function and persevere over the long-term. In encouraging sustainability on all fronts, this month’s instalment of Banker Middle East takes you across a myriad of issues and hotly discussed topics in the industry—from the realities of cryptocurrencies and financial technology risks, to overlooked opportunities in private equity as well as green bonds. As always, we hope you enjoy this edition and wish you a fruitful read.
Nabilah Annuar EDITOR, BANKER MIDDLE EAST
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MARCH 2018 | ISSUE 204
TOKENOMICS: MEET THE NEW FACE OF VALUE INNOVATION REZA DARI, CEO, Global Investment Bank
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MARCH 2018 | ISSUE 204
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OMAN: NEW BEGINNINGS
The world’s oldest independent Arab state must adapt to a new world
RIDING THE WAVE
The private equity and venture capital landscape is largely dependent on diversification agendas and international events across the region
GREEN DEVELOPMENTS IN ISLAMIC FINANCE
The global increase in environmental awareness has led to a rise in appetite for green bonds and Sukuk
TOKENOMICS: MEET THE NEW FACE OF VALUE INNOVATION REZA DARI, CEO, Global Investment Bank Dubai Technology and Media Free Zone Authority
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FEBRUARY 2018 | ISSUE 203
THE RISE OF GCC BONDS A healthy pipeline for 2018 despite precarious oil prices and geopolitical instability
BALANCE OF POWER The hard work begins in Saudi Arabia
THE MENA POTENTIAL
Venture capital activity rising to the eyes of the west
FIRST LADY Rania Nashar, CEO, Samba Financial Group
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JANUARY 2018 | ISSUE 202
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Looking to the future
Get the next issue of Banker Middle East before it is published. Full details at: www.bankerme.com
Steve Bertamini, CEO of Al Rajhi Bank INSIDE:
12 DEEPENING GCC-ASIA
24 THE NEW BLACK
36 SERVING THE UNDERSERVED
44 BANKING ON BLOCKCHAIN
Dubai Technology and Media Free Zone Authority
“It’s about quality of customer service and the experience around everything you try to do.”
ISSUE 204 | MARCH 2018
Time to shine
12 News Highlights THE MARKETS
16 Towards a single unified economy 20 Creating a world-class landscape COVER STORY
meet the new face of value innovation
32 Oman: new beginnnings DEBT CAPITAL MARKET
40 Bonds and Sukuk: structuring fixed income instruments in the GCC
16 8 40
MARCH 2018 | ISSUE 204
82 Stanton Chase Lighthouse Leadership Meeting
86 EFMA Retail Banking Summit 2018 THE LONG VIEW
90 Women in Power
PRIVATE EQUITY & VENTURE CAPITAL
44 Riding the wave
48 Green developments in Islamic finance CYBERSECURITY
52 Adopting the highest standards of security
58 Leading Kuwait for over 75 years 64 Honing the talent TECHNOLOGY
72 The real power of blockchain 76 IT team in the dark: the impact on banking
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Positive sentiments for MENA IPOs as more regional energy companies expected to go public in 2018 and beyond
riven by economic reforms and privatisation drives of countries such as Saudi Arabia and Egypt. IPO activity in the MENA region is expected to gain momentum this year. EY believes that this, coupled with improved oil prices, favourable government initiatives and strong investor appetite, is likely to spur more listings in the MENA, especially from leading regional government-entities. IPO activity across the MENA region witnessed a 60 per cent surge in volume year-on-year in the fourth quarter of 2017. With eight deals concluded in that quarter, the capital raised amounted to $2.5 billion—over ten times the capital raised last year and the highest since 2014. “The IPO activity is poised for further growth in 2018, especially with government and quasi-government owned assets preparing to go public in Kuwait, Egypt, KSA and the UAE. The IPO activity in the region is likely to see a mix of local and international floatings. In addition, family owned, owner managed, and private equity-backed businesses are also signalling their intention to go to the market during 2018; this again could include a combination of local and international offerings of different sizes,” said Gregory Hughes, MENA IPO Leader at EY.
The UAE led the MENA IPO market in value, raising a total of $2.2 billion in capital, primarily contributed by the Emaar Development IPO at $1.3 billion— the largest IPO in the region since 2014. In addition to Emaar, the UAE also saw ADNOC going public, raising capital amounting to $850.9 million. On the other hand, Oman’s Muscat Securities Market recorded the highest number of listings with three IPOs in the last quarter of 2017, raising a combined capital of $81.9 million. DOUBLING IN VALUE Collectively, GCC markets witnessed six IPOs deals in the fourth quarter of 2017, recording a substantial volume increase of 200 per cent from the same period last year, while the deal value rose by over 10 times the capital raised in the previous year, reaching $2.4 billion in the final quarter last year. The real estate sector raised the highest capital with $1.3 billion, closely followed by the energy sector with $850.9 million. The REIT fund came third with a capital raised of $110 million. MENA MARKET MIRRORS GLOBAL SURGE According to EY, the global IPO market surged in 2017 with the listing of 1,624 deals, raising an aggregate capital of $188.8 billion. This was a significant growth trajectory in the number of deals listed
surge with 8 deals in Q4 2017, raising the highest value since 2014
3,000 Capital raised (US$m)
MENA IPO activity witnessed a
in Q4 2017
UAE leads the MENA IPO value with
Q4 16 Capital raised (US$m)
400.8 Q1 17
617.0 Q2 17
287.0 Q3 17
2,451.0 Q4 17
Volume (number of IPOs
MENA IPO ACTIVITY (Q1 2016-Q4 2017*)
*As at 31 December 2017 Notes: Companies listed on the Saudi parallel market (NOMU) are included from its commencement date, 26 February 2017. Source: EY
Summary of IPOs (2017)
Quarter Issuer Size Sector NEWS ANALYSIS (US$m) Q4 2017 — 24 Dec
et cap US$b) 468.9 107.5 135.9 87.7 23.3 22.2
AlAhli REIT Fund 1 Muscat City Desalination
Q4 2017 — 7 Dec
Abu Dhabi National Oil Company for Distribution
Q4 2017 — 7 Dec
110.0 Real Estate (REIT)
16.4 Power and Utilities
850.9 Oil and Gas
87.6 Health care
Q4 2017 Novcent) National Life &capital General Insurance Muscat SE Authority (CMA)of Saudi (up 49— 20 per and raised (up55.1 40 Insurance Capital Market Company per cent), in comparison to 2016. The uptick Arabia has allowed direct investments by Q4 2017 — 16 Nov Emaar Development 1,313.4 Real Estate DFM made 2017 the most active year for IPOs non-resident investors on NOMU Q4 2017 — 5 Oct Oman Qatar Insurance Company 10.4 Insurance Muscatforeign SE Q3 2017 —2007 15 Sep with Mulkia Gulf Real Estate REIT IPO market 52.9 Real Estate (REIT) 1 Saudi SE since the global effective January 2018. Q3 2017 — 20 Aug Zahrat Al Waha for Trading SE projected to grow even further this year.61.2 Industrial “The Saudi CMA’s recent updates could Manufacturing This— 7is to positively impact 10.4 the Insurance encourageMuscatmore small and mid-cap Q3 2017 Aug seen Vision Insurance SE Q3 2017 — 2 Aug Insurance Co “With a large 19.5 Insurance regional IPOAl Ahlia landscape. companiesMuscat to SEgo public in 2018, leading Q3 2017 — 25 Jul Musharaka REIT Fund 93.9 Real Estate (REIT) Saudi SE number of companies already gearing to to a rebound in IPO listings on NOMU Q3 2017 — 2 Jul Al Maather REIT Fund 49.1 Real Estate (REIT) Saudi SE go public in the couple of years and alone. TheDFM IPO activity pipeline for the UAE, Q2 2017 — 15 Jun Orientnext UNB Takaful Insurance 16.3 Insurance Q2 2017 — 6 Jun Alkathiri Holding Co. largest IPO may 6.8 Industrial Saudi NOMU that one of the world’s Kuwait, and Egypt also looks promising Manufacturing come from the MENA itself, the outlook with major government-owned firms Q2 2017 — 18 May Thob Al-Aseel 68 Consumer Goods Saudi NOMU for regional IPO activity remains robust, ” announcing their Q2 2017 — 12 May ADES International Holding Ltd. 243.5 Capital Goods London SE plans to go public within Q2 2017 — 10 May Taleem REIT Fund 22.8 Real Estate (REIT) Saudi SE asserts Gregory. Q2 2017 — 20 Apr
Raya Contact Center
44.6 Business Services
M.M. Group for Industry 39.3 Capital Goods Regional stock market SAUDI ARABIA—A REGIONAL and International Trade, S.A.E. Q1 2017 — 6 Mar Atelier Du Meuble Interieur SA performance 2017 3.5 (%)Consumer Goods BEACON FOR IPOS Q2 2017 — 6 Apr
Q1 2017 — 5 Mar
Emirates NBD Asset Management 40%
105.0 Real Estate (REIT)
The IPO market in Saudi Arabia is buoyant Q1 2017major — 14 Feb regulatory Arab Sea Information Systems underway, 5.9 Information with reforms 20% Technology and the impending public listing of Saudi Q1 2017 — 13 Feb Development Works for Food 4.3 Leisure 0% Aramco, Saudi Exchange, and other large and Tourism Q1 2017 — 12 Feb Al Samaani Factories for Metal 4.6 Industrial -20% government-related Industries entities. Manufacturing Q1 2017 — 10 Feblast Raydan 57.6 Leisure In the quarter of 2017, Tadawul -40% and Tourism raised an announced value of $110 Q1 2017 — 9 Feb Al Omran Group 9.0 Food -60% and Beverages million. However, parallel market, January its March May July August October Q1 2017–9 Feb Abo Consumer2017 Goods 2017 Saad Mohammed 2017 2017 2017 12.82017 NOMU, saw Abdullah a decrease by 48 per cent Moati Stationaries Co. Abu Dhabi SE (AD) Bahrain SE (BSE) Dubai FM (DFM) SE(REIT) in 2017 Jan withAlJazira no Mawten IPOs the third31.5 or RealQatar Q1 2017–22 REITin Fund Estate Saudi SE (SASE) Egypt SE Q1 2017–22quarter Jan Investment FTSEGroup 350Perhaps as135a Construction NOMU fourth last Holding year. Q1 2017–17 Jan Baazeem Trading 31.6 Retail at 31 December 2017 response Note: to Updated the aslack of uptake, the Source: CapIQ.
Marafiq Power & AD Water Utility Co for Jubail & Yanbu
Saudi NOMU Saudi NOMU Saudi NOMU Saudi NOMU December Saudi NOMU 2017
Saudi SE Qatar SE Saudi SE
Sadara Chemical DFM Co
EGX (Saudia) Saudi Arabian Airlines
BSE (Tadawul) Saudi Stock Exchange
FTSE 350 Emirates Global Aluminium NOMU
Global Education Management Systems
Engineering For The Petroleum & Process Industries
Oil price movement 80
70 United Bank of Egypt
60 Insurance Co National Life & General 50 Muscat Electricity Distribution
Q4 2017 — 7 Dec
Abu Dhabi National Oil Company for Distribution
Size Sector Size Sector (US$m) (US$m) 7.1 Financial Services 110.0 Real Estate (REIT) 16.4 Power and Utilities 850.9 Oil and Gas
Egypt SE Saudi SE Muscat SE ADX
Q4 2017 — 7 Dec
87.6 Health care
Q4 2017 — 20 Nov
National Life & General Insurance Company
Q4 2017 — 16 Nov
Q4 2017 — 5 Oct
Oman Qatar Insurance Company
Q3 2017 — 15 Sep
Mulkia Gulf Real Estate REIT
52.9 Real Estate (REIT)
Q3 2017 — 20 Aug
Zahrat Al Waha for Trading
61.2 Industrial Manufacturing
1,313.4 Real Estate
Q3 2017 — 7 Aug
Q3 2017 — 2 Aug
Al Ahlia Insurance Co
Q3 2017 — 25 Jul
Musharaka REIT Fund
93.9 Real Estate (REIT)
Q3 2017 — 2 Jul
Al Maather REIT Fund
49.1 Real Estate (REIT)
Q2 2017 — 15 Jun
Orient UNB Takaful Insurance
Q2 2017 — 6 Jun
Alkathiri Holding Co.
6.8 Industrial Manufacturing
68 Consumer Goods
243.5 Capital Goods 22.8 Real Estate (REIT)
London SE Saudi SE
Q2 2017 — 20 Apr
Raya Contact Center
44.6 Business Services
Q2 2017 — 6 Apr
M.M. Group for Industry and International Trade, S.A.E.
39.3 Capital Goods
Q1 2017 — 6 Mar
Atelier Du Meuble Interieur SA
Q1 2017 — 5 Mar
Emirates NBD Asset Management
3.5 Consumer Goods
Q1 2017 — 14 Feb
Arab Sea Information Systems
5.9 Information Technology
Q1 2017 — 13 Feb
Development Works for Food
4.3 Leisure and Tourism
Q1 2017 — 12 Feb
Al Samaani Factories for Metal Industries
4.6 Industrial Manufacturing
Q1 2017 — 10 Feb
Q1 2017 — 9 Feb
Al Omran Group
Q1 2017–9 Feb
105.0 Real Estate (REIT)
57.6 Leisure and Tourism
Tunis SE Nasdaq Dubai
9.0 Food and Beverages
Abdullah Saad Mohammed Abo Moati Stationaries Co.
12.8 Consumer Goods
Saudi NOMU Saudi SE
Q1 2017–22 Jan
AlJazira Mawten REIT Fund
31.5 Real Estate (REIT)
Q1 2017–22 Jan
Investment Holding Group
Q1 2017–17 Jan
Source: Source:CapIQ EY and Thomson Eikon.
— stock exchange Note:Note: SE -SEstock exchange
Europe Brent crude
Note: Updated till 31 December 2017 Source: OPEC and Energy Information Association (EIA).
Kuwait Oct 2017
Source: CapIQ Source: EY and Thomson Eikon.
Kuwait Stock Exchange
20 Kuwait Petroleum Corp 10 Az-Zour North Independent Water and Power Project 0 Kuwait Energy
Muscat City Desalination
Q2 2017 — 10 May Taleem REIT Fund
31 Dec 2017
Oman Oil Co
AlAhli REIT Fund 1
Q2 2017 — 18 May Thob Al-Aseel
Banque du Caire
Q4 2017 — 19 Dec Q4 2017 — 18 Dec
Q2 2017 — 12 May ADES International Holding Ltd.
Return Emirates DistrictNote: Cooling LLCupdated as on 31 December 2017; market cap updated UAE as at 24 January 2018. Source: Thomson Eikon. Abu Dhabi Ports Co UAE
overnment gger more
Al-Tawfeek Leasing Company — Egypt
s emerging gulatory in line with
Q4 2017 — 24 Dec
arket will on leading
Market cap (US$b)
2017 annual index return
SELECT IN PIPELINE SelectIPOs IPOs in pipeline Issuer Issuer
Tunis SE Nasdaq Dubai
Note: SE — stock exchange
Oil prices (US$ per barrel)
31 Dec 2017 Dec 2017
g in terms
Source: CapIQ and Thomson Eikon.
the next two years. The ADNOC IPO is one of the most successful regional issuances in recent times and it is likely to pave the way for more public listings from the MENA energy sector,” said Mayur Pau, MENA Financial Services IPO Leader at EY. Additionally, Tadawul is also on its course to join MSCI’s emerging market index and has been expeditious in improving the regulatory environment and allowing foreign investments to align with global standards.
Summary of IPOs SUMMARY OF IPOs (2017) (2017)
Market return (% change)
4 January 2018.
Q4 2017 — 19 Dec Q4 2017 — 18 Dec
7.1 Financial Services
Al-Tawfeek Leasing Company — Egypt
MENA IP0 Eye 2017
Broader outlook • UAE, Saudi Arabia and Egypt look particularly strong in terms of announced and potential IPOs.
Select IPOs in pipeline Issuer
Marafiq Power & Water Utility Co for Jubail & Yanbu
Sadara Chemical Co
Saudi Arabian Airlines (Saudia)
Saudi Stock Exchange (Tadawul)
The National Commercial Bank Realize Tomorrow
bleed guide.indd 1
| 9 2000 1000
Lebanon implements Basel liquidity coverage ratio on conventional banks Banque Du Liban (BDL) has issued Basic Circular No. 145 instructing banks to apply Basel’s liquidity coverage ratio (LCR) on their local and overseas operations. The LCR calculation will be applied on an unconsolidated basis for banks in Lebanon and their overseas branches and subsidiaries. The circular mandates that the ratio should exceed 100 per cent for each currency that accounts for more than five per cent of a bank’s total liabilities. For Lebanese banks, these currencies are usually Lebanese pounds and US dollars. Analysts believed that the LCR ratio will improve banks’ short-term liquidity management and help them avoid liquidity shortages which is a credit positive. Additionally, BDL is also expected to ask the banks to apply the net stable funding ratio in the coming weeks.
Egypt introduces country’s first movable collateral registry The Financial Regulatory Authority of Egypt has launched of the country’s first movable collateral registry. The registry will inform banks’ credit decisions and improve their ability to secure movable collateral, such as a borrower’s machinery, inventory, patents and crops, among other assets. In a commentary, Moody’s projects that the registry will help banks reduce their credit risk, particularly for loans to small and midsize enterprises (SME) and especially smaller and less-established SMEs, whose movable assets are often the main or only collateral available to a lender. The registry will allow banks to check whether pledges of movable assets are already pledged elsewhere and will allow banks to establish the priority of creditors against third parties, diminishing their credit risk.
UBF makes financial literacy as a primary focus in 2018 The UAE Banks Federation (UBF) will launch a new initiative to promote financial awareness for both consumers and SMEs. The federation has already launched campaigns on its website and social activities to increase financial awareness among both youth and adults. UBF encourages member banks to educate their clients through financial literacy programmes.
Saudi Arabia teams up with Ripple for cross-border payments In a bid to improve payment transparency and efficiency, the Saudi Arabian Monetary Authority (SAMA) has signed an agreement with US-based fintech company, Ripple, to offer a pilot programme for cross-border payments. Under the agreement, participating Saudi banks can explore a solution for cross-border transactions using distributed ledger technology (DLT, or blockchain), while SAMA and Ripple provide programme management, training and other support to banks. Moody’s in a statement believes that this is a credit positive for the country and estimates that even a 10 per cent reduction in the cost of completing and managing a crossborder transaction will translate to savings of roughly $200$400 million per year system-wide.
Growth in core income drives higher quarterly profits for UAE banks Despite higher provisioning and operating costs, higher business volumes and recent interest rates hikes, which generated higher recurring income, both in the form of net interest income and fees and commissions, has helped the four largest banks in the UAE achieve higher net profit in the fourth quarter of 2017, says Moody’s. In a recent report, Moody’s evaluated the earnings of the four largest banks in the UAE—First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank—all accounting for approximately 62 per cent of UAE banking sector assets as at December 2017. The four banks reported a combined net profit of AED7.3 billion ($2 billion) in the fourth quarter of 2017, up eight per cent from the corresponding period in 2017 and and two per cent higher quarter on quarter. Operating expenses at the large UAE banks rose 10 per cent quarter on quarter and seven per cent from a year ago. Customer deposits at the four banks increased two per cent to AED1 trillion (around $273 billion), compared with the third quarter of 2017. Deposits grew fastest at FAB and DIB, (up 4.5 per cent and 2.5 per cent respectively for the quarter) reflecting their deposit franchises as the largest bank (FAB) and the oldest Islamic bank (DIB) in the country.
Emirates NBD plans Tier 1 capital increase
DGCX launches region’s first Shari’ah-compliant spot gold offering Due to materialise at the end of March, the Dubai Gold & Commodities Exchange (DGCX) has announced that trading on its Shari’ah-compliant spot gold contract will begin on 29 March 2018. The exchange has appointed INTL FCStone as the market maker for the product. DGCX’s physically-backed Shari’ah-compliant gold contract is the first-of-its-kind and marks the exchange’s entry into the Islamic finance sector.
Emirates NBD plans to increase its regulatory Tier 1 capital by up to 270bps (based on risk-weighted assets as of 31 December 2017) through a rights issue of up to AED7.35 billion (approximately $2 billion). Boding well for the bank, if approved, the proposed rights issuance will increase the bank’s regulatory capital amid implementation of Basel III capital requirements and IFRS9 accounting standards, providing additional headroom for future capital consumption from organic and inorganic asset growth. It will reduce the bank’s large related-party credit concentration as a proportion of capital and support ENBD’s liquidity position. According to Moody’s, the planned issuance will strengthen ENBD’s regulatory Tier 1 capital ratio (per Basel II) to up to 22.2 per cent on a pro forma basis, from 19.5 per cent as of December 2017. Starting in 2019, UAE banks will have to comply with a capital adequacy ratio of 13 per cent, including an 11 per cent Tier 1 capital ratio with a 2.5 per cent capital conservation buffer.
Emerging markets demonstrate continual progress On the back of attractive valuations and strong fundamentals, emerging market (EM) assets is an asset class the is impossible to ignore. Approximately 60 per cent of global GDP come from EM economies, with the differential in projected 2018 growth rates between EM and developed markets expected to be around three per cent. There is an increase in interest to access emerging markets, particularly from Shari’ah compliant investors. An example of this is the Emirates Emerging Market Corporate Bond Absolute Return Fund which almost doubled in size over 12 months to reach $66.2 million having generated a return of 7.6 per cent in 2017. Similarly, the Emerging Market Equity Fund delivered 12-month performance of 17.92 per cent.
Bahrain explores digital currency The Central Bank of Bahrain (CBB) is mulling over the introduction of a digital dinar. Governor Rasheed Mohamed Al Maraj disclosed to local press that the central bank is in the early stages of studying the proposition. Al Maraj highlighted that it is an idea that the central bank is discussing and nothing has been confirmed. It is at an early stage and the central bank is trying to understand how it will work and how it will affect the current situation in the country. The CBB may also grant licences to more digital banks after Meem, a subsidiary of GIB, became the first digital bank to get a licence in Bahrain.
Kuwait’s CMA to implement second phase of market development programme on 1 April 2018 Mishaal Musaid Al-Usaimi, Vice Chairman of the Board of Commissioners and Acting Managing Director of Capital Markets Authority of Kuwait (CMA), in his speech during the Kuwait Investment Forum 2018 said that the second phase of the authority’s market development programme will be implemented on 1 April 2018. The initiative is part of a fourpronged strategic initiative to bolster Kuwait’s capital market. The second phase aims at stimulating broad market liquidity and enhancing risk management tools. This follows the launch of its first phase in May 2017 which emphasised on clearing and settlement mechanisms. The initiative led to Kuwait’s upgrade to emerging status by FTSE Russel in September last year. Further down the road, the third and fourth phases which revolves around full infrastructure reform to expand products, is expected to materialise by the second half of 2018 and the first half of 2019, respectively.
Dubai Investments sets up first wholesale Islamic bank in the UAE With a paid up capital of $100 million, Dubai Investments, along with a consortium of investors will launch Arkan Bank, the country’s first homegrown wholesale Islamic bank. Arkan Bank has applied for a Category 5 licence from the Dubai Financial Services Authority to operate as an Islamic financial institution. Operating from the Dubai International Financial Centre (DIFC), the bank will offer a fully integrated range of Shari’ah-compliant banking services and investment products serving the needs of ultra-high-net-worth individuals, corporates, as well as institutional clients through its core business lines—corporate banking, asset management and awqaf, investment banking and treasury. Set to have an authorised share capital of $500 million, Arkan Bank also plans to list its shares on NASDAQ Dubai within 12 months of establishment, subject to the fulfilment of listing guidelines and regulatory approvals. Abwab Capital, the investment advisor to Arkan Bank aims to make the bank a first-class wholesale bank rooted in Islamic values, and set a new standard in Islamic banking to capitalise on the increasing demand for Shari’ah-compliant banking services witnessed in the global market.
GCC establishes money transfer company for member states Based in Riyadh, the company will facilitate direct money transfers without reliance on international currencies among its six members, including Qatar. Kuwait central bank Governor Mohammed Al-Hashel said that the CEO of the company has been selected and all six-member states have agreed to contribute initial capital, reported Reuters. Central bank governors of the six Gulf states will sit on the board and a secondary office will be set up in the UAE. A commencement date on the operations of the company is yet to be disclosed.
Regulators must embrace regtech to keep abreast with digital disruption
Implementation of IFRS 9 to have little impact on bank credit ratings
A report produced by The World Government Summit and Accenture suggests that regulators must embrace the innovative application of emerging technologies—also known as regtech—to enable a more effective regulatory environment, mitigate risks and drive competitive advantage. According to the report, RegTech allows regulatory processes to be redesigned, enabling real-time, data-driven decisions that drive innovation. As digital disruption increases, innovative products and services, such as ride sharing and lodging services, are increasingly challenging or bypassing regulatory processes. The report found that regtech opens a treasure chest of opportunities for regulators to keep pace by using analytics and anticipatory interventions to build trust in regulations needed for new business innovations. The report identifies a roadmap that regulators can use to adopt regtech in the near term. This includes the initiation of an open engagement, orchestrating innovative ecosystems, test potential solutions and transform operations. In the longer term, regulators are suggested to look at “Regulation as a Platform”, which is defined as a holistic approach in which regulators collaborate with businesses, government entities and citizens to drive innovation and improve compliance outcomes.
In a recent report, S&P Global Ratings does not expect widespread changes to issuer credit ratings as they increase credit-loss provisions in line with the new IFRS 9 accounting standard. The higher credit-loss provisions will be reflected immediately in full in S&P’s capital measures for 2018, but the rating agency does not expect widespread changes to their ratings on initial adoption as it is a change in reporting and not a change in underlying economic activity. Provisioning is set to vary more greatly from bank to bank, increasing complexity and lessening comparability, which is a big disadvantage for investors, not least because of the diverging IFRS and US GAAP approaches. A survey conducted by S&P amongst its analysts globally found that majority of their financial institutions analysts (59 per cent) expect IFRS 9 will increase provisioning by between 10 per cent and 25 per cent, while the remainder (41 per cent) expect an increase of less than 10 per cent. The potential risks that IFRS 9’s earlier and higher provisioning requirements could amplify the swings of the economic cycle are not yet clear but full and consistent application of the rules, which may require regulatory encouragement and monitoring, will lessen such procyclicality risks. IFRS 9 will affect banks across much of the world outside of the US and Japan. In the US, new rules on accounting for credit losses, which differ from IFRS 9, do not take effect until 2020 at the earliest. In Japan, most banks will continue to report under Japanese GAAP (which incorporates an element of expected credit losses) or US GAAP.
RATINGS REVIEW Entity
Bahrain Egypt Iraq
LT IDR/LT Rtg (FC)
Ras Al Khaimah Saudi Arabia
ST IDR/ST Rtg (FC)
B B B
LT IDR/LT Rtg (LC)
ST IDR/ST Rtg (LC)
KEY Positive Negative Evolving Stable
Saudi Arabia Qatar
UNIFIED ECONOMY In an exclusive interview, Amit Dua, President and Global Head at SunTec, says that the implementation of VAT may facilitate inter-GCC trade
ow would you describe the transition for banks in implementing VAT in their businesses? Itâ€™s a completely new worldâ€”taxation. Neither the UAE nor Saudi Arabia have ever experienced indirect taxes on goods and services, so this transition is challenging. There are differences in the way both countries have implemented VAT. While in Saudi Arabia the VAT liability is passed on to the consumer, in UAE, certain services are absorbing VAT as part of their cost of service. Banks are one unit with multiple business houses, making it a largely mixed supply organisation under VAT. This means the attributability of input to output is a challenge for them. The input tax credit that can be claimed by banks for expenditure tax is also significantly low (compared to other industries). Therefore, one of the key impacts of this transition is the increase in costs and the lower recoverability for banks. From a system perspective, it means all banks need to have an umbrella system for overall tax to be calculated. This system also needs to be agile to be able to update and change as regulations evolve. These updates are quite common when a new system like VAT is introduced. We expect a lot more changes to come from the regulators and the capability of systems to manage these changes will be crucial, not just in UAE and Saudi Arabia, but as VAT gets introduced across the region this capability will be crucial for all GCC countries.
PHOTO CREDIT: Shutterstock/nikkytok
Having it take effect in full force this year, what is your projection of its long-term implications on the banking business in these respective markets? In the long term, I believe we will see a strategic shift in the way banks are structured. Currently, a bank is one unit with multiple business houses, making it a largely mixed supply organisation. We now expect banks to strategically plan businesses based on recoverability of expenditure tax. For example, if one of the businesses of the bank has higher recoverability and lesser exempted income, they may start mapping input and output accordingly rather than reporting the entire bank under mixed supply.
Amit Dua President and Global Headâ€” Client Facing Groups, SunTec
Some of the large-scale changes could also include having separate invoices from vendors for goods and services provided to different business units in the bank. Focus will be on increasing recoverability of expense taxes. Banks will take a deeper look at managing income that is exempted and may need to restructure some of its portfolio. As the year progresses, we will see more complexities being introduced, especially as the rest of the GCC begins the introduction and implementation of VAT. Regional taxation laws will come into effect. Banks will need to look at not only their own local taxation rules, but also those of the other industries since their
corporate customers will be from these other industries and, in some cases, across the region. What other issues should financial institutions be aware of regarding VAT moving forwards? There are a couple of areas that need to come under scrutiny, such as the import of goods and services, inter-change income, realised and unrealised foreign exchange income, etc. Inter-change income is a complex area where too many parties are involved, and a systemic approach is required to analyse the impact of any additional expenditure. For example, pre-VAT, imports had no great meaning, but with VAT, they are treated under reverse charge mechanism and that is an additional expenditure. Another significant area which we think needs more attention is the field of manual or ad-hoc transactions in the bank. It was acceptable in a pre-VAT scenario, but any VAT-able service accounted without taking the impact of VAT will pose a big challenge in FTA audits. In conclusion, I think that the allocation of taxes will become an issue that the banks will need to seriously consider even more seriously, meaning they will need better analytics to provide the right amount of flexibility and scalability as regulations change and get adjusted. Seeing things from a broader point of view, what major impacts do you expect the economies of KSA and UAE to face following the implementation of VAT? We see a very bright picture. We see a unified GCC and country borders becoming state borders, thus making it easy for interGCC trade. We see harmonisation of goods and services, tax rates, standardisation of exempted supplies and the ability to claim inputs for supplies across GCC. We also see that systems will play a very big role with digitised invoices and effective tax management solutions. Regulators may simplify procedures and systematically approach a unified GCC goal.
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CREATING A WORLD-CLASS LANDSCAPE In a bid to increase investment flows into the country, Egypt has introduced two new regulations to complement the investment laws it passed last year
ollowing Egypt’s investment law passed in May last year, the government has also introduced two new counterparts—bankruptcy laws and a revised capital markets regulation. Both new regulations will likely improve the health of the banking sector and indirectly, the overall Egyptian economy. BANKRUPTCY LAW In late January the Egyptian parliament approved the country’s first-ever bankruptcy law in a bid to encourage both local and foreign investment in Egypt. The new law aims to tackle the outdated bankruptcy procedures that the country had relied upon. Previously bankruptcy cases were decided on a caseby-case basis with no specific law, which could lead to long and difficult judicial proceedings. Furthermore, the new law limits punishments to a monetary fine— previously debtors had faced jail time. In a sector comment, Moody’s Investors Service said, “The new law is credit positive for banks because it will provide them with more options to deal with viable troubled companies, making loan workouts more flexible and faster. Additionally, the new bankruptcy law will speed up the liquidation of non-viable companies, which will increase recovery amounts.” The law allows for out-of-court company restructuring and permits a standstill on creditors that allows a viable company to reorganise in a comparable manner to the US Chapter 11 bankruptcy protection.
The capital market amendment has reduced listing fees from
0.005% 0.002% to
to encourage smaller companies to list on an exchange (the NILEX)
PHOTO CREDIT: Shutterstock/Kanuman
“The new law will allow borrowers and creditors to reach restructuring solutions more swiftly, increasing recovery amounts and improving banks’ ability to deal with problem loans,” added Moody’s. “Egypt’s weak insolvency framework has been a drag on banks’ asset quality. Indeed, the country’s two largest banks, National Bank of Egypt and Banque Misr have taken more than 10 years to recover from legacy problem loans and reduce their aggregate ratio of nonperforming loans to gross loans to around two per cent as of June 2017 from more than 25 per cent a decade ago.” Egypt has struggled in many global indices, such as the Doing Business Report (dropping 18 places in the 2018 edition to 128 of 190) and the Global Competitiveness Index. This new law should help improve this situation, especially in rankings related to resolving insolvency—Egypt ranked 115 in this category in the World Bank’s 2018 Doing Business report. Moody’s noted that creditors in Egypt have on average recovered 26 cents for every dollar lent, in comparison to 71.2 cents in countries that are members of the Organisation for Economic Co-operation and Development (OECD). Furthermore, bankruptcy proceedings have been known to take an average of 2.5 years, although there is some evidence to suggest that time period may be longer, in comparison the bankruptcy duration which is 1.7 years on average in OECD countries. The bankruptcy law was introduced to complement the investment law (passed by Parliament late last year) in order to attract foreign investors and reduce bureaucracy. Both laws are part of a reform process to drive investment, something Egypt’s economy has been struggling with in recent years. CAPITAL MARKETS ACT At the end of February the Egyptian parliament moved to amend the Capital Markets Act. The amendment was aimed to deepen the financial markets in Egypt
Bankruptcy proceedings in Egypt typically take
2.5 years 1.7 years
compared to an average duration of
in OECD countries
by facilitating Sukuk issuances and the investors ability to hedge. The law’s amendments include the introduction of futures trading, a commodities exchange, allow the establishment of privately owned stock exchanges and reduce listing fees to 0.002 per cent from 0.005 per cent to encourage smaller companies to list on an exchange (the NILEX). The amendments also facilitate Sukuk issuance, set higher penalties for violations of the law and set up a federation for non-banking financial companies similar to the Federation of Egyptian Banks. Moody’s has pointed out that the amendment is credit positive for banks as increased capital markets activity will contribute the banking sector’s income from their debt capital markets business while also providing funding options. Egypt’s capital markets are underdeveloped relative to other African peers. Egypt ranks 14th among the 17 African countries in the Barclays Africa Group 2017 Financial Market Index, which measures the openness and attractiveness of countries across the continent to foreign investment. Government issuance dominates Egypt’s debt market and listed equities are few. Although Egypt is the largest Arab country by population, the Sukuk market is inactive, something the authorities are aiming to address with the revised law.
Moody’s in its report also highlighted that Egyptian banks are financed mainly by deposits, which accounted for 71 per cent of nonequity liabilities as of October 2017. With this new amendment, the income banks earn from their debt capital markets activity may increase, diversifying their operating income, which is heavily reliant on interest income earned from investment in government bonds. As of October 2017, government bill and bond investments accounted for 31 per cent of banking system assets and contributed more than 41 per cent to banks’ interest income. “Although banks will likely lose loan business as some of the country’s largest corporates begin to finance their operations through the yet-to-bedeveloped debt markets, banks’ increasing lending to the country’s underserved small and mid-sized enterprises (SMEs) will support loan growth and profitability. Currently, local corporates finance their operations through bank loans, squeezing out SMEs,” explained the research and ratings agency. Listed corporate debt issuance accounted for 0.5 per cent of listed bonds and the market cap of listed corporations accounted for 20 per cent of 2017 GDP. Increasing the products offered and investors’ ability to hedge will increase Egypt’s attractiveness to foreign investors, which would provide additional funding options for banks. As of October 2017, loans to corporates accounted for around 82 per cent of total loans. To divert much needed credit to the SME sector, the central bank introduced regulations in 2016 requiring all Egyptian banks to allocate 20 per cent of total loans to SME loans by 2020. Local SMEs, which account for around 80 per cent of GDP and 75 per cent of employment, cite a lack of access to credit as a main impediment to their growth. Despite the central bank’s initiative, loans to SMEs remain low at around 10 per cent of total loans, according to our estimates.
TOKENOMICS: MEET THE NEW FACE OF VALUE INNOVATION Reza Dari, CEO of Global Investment Bank, provides an exclusive insight into the power of distributed ledger technologies and how the bank is leveraging it
BLOCK-BUSTER HIT ryptocurrency is the new show in town and crowds are lining up for a glimpse of the action-packed opening act. The bitcoin hysteria and sudden surge of the so-called â€˜Initial Coin Offerings' (ICO) have captivated public awareness by placing the spotlight on the abstract nature of money and value innovation. Protocol developers are raising millions of dollars on the back of untested use cases and theoretical white papers for technology protocols which often stand years ahead of the current rate of marketplace development and mainstream adaption.
Taunted by extreme volatility and wild price swings, cryptocurrencies have grabbed headlines as one of the most divisive topics in the world of finance today. As modern economists struggle to rationalise price predictions through traditional valuation analysis, policy makers scramble to catch up with the lightning speed of digital value innovation. In the aftermath of the opening act, fans and foes have crossed swords and passionate debates are heating up across the board. But in the midst of all the noise one question remains silently unansweredâ€” where is the main featured act?
Reza Dari believes that distributed ledger technologies are here to stay.
According to CoinDesk’s Bitcoin Price Index (BPI), bitcoin experienced an astronomical 2000 per cent rise in a wild swing from $1,000 to over $19,000 at its peak in December before falling below $7,000 in February. Other leading cryptocurrencies such as ether, litecoin, and ripple followed suit in a similar spike correlation. Referencing a recent Business Insider UK report, new cryptocurrency ICOs fetched over $5 billion in 2017 mostly supported by early-stage commercial concepts and a small team of developers. There is no doubt that speculation has played a major role in the sudden growth of cryptocurrency marketspace as was the case in the early days of the information technology boom with investors and speculators throwing hard cash at anything with a dot-com attached to it. But on the flip side of the coin was the simultaneous expansion of key core technology infrastructure which continues to expand the boundaries of traditional market space till this day. Once the dust was settled following the dot-com crash of 2001, it was crystal clear—the internet was here to stay. Similarly, today, as an increasing number of sceptics-turned-investors rush to reinvent the experience of early bitcoin days, new alternative coins (alt-coins) and ICOs are spreading like wildfire. However, as an increasing number of professional investors and regulators get more involved, ICOs will gradually evolve from their current form to access bigger pools of institutional capital.
AS THE BITCOIN MANIA CONTINUES, A SPECULATIVE BUBBLE IS CERTAINLY ON THE RISE BUT ON THE FLIP SIDE OF THE COIN—LITERALLY—IS THE EXPANDING EVOLUTION OF KEY CORE TECHNOLOGIES WHICH WILL CONTINUE TO IMPACT MARKETS AND DISRUPT INDUSTRIES FOR MANY DECADES TO COME. Reza Dari
In December, Chicago exchanges CME Group and Cboe Global Markets launched bitcoin futures followed by Goldman Sachs and Morgan Stanley announcing plans to clear futures for large institutional clients paving the way for new alternative asset investment vehicles such as hedge funds, mutual funds, and ETFs which will gradually pull this once infamous asset class ever closer to the mainstream financial markets. More importantly, as token offerings start to comply with securities regulations a decrease in the number of conceptual pre-network ICOs is expected resulting in reduction of speculative token offerings and trading volumes followed by a cycle of sustained growth in utility value innovation. UNLOCKING THE BLOCKS Blockchain, cryptocurrencies, and distributed ledger technologies (DLT) are often used interchangeably as they remain largely misunderstood by the general public; however, key fundamental distinctions are worthy of note. A distributed ledger is a database spread over several computing devices or nodes with each node replicating an identical copy of the ledger independently and without a central administrator. Blockchain is one form of distributed ledger technology, which uses cryptography to bundle and link data in a chain of blocks. Blockchain is not necessarily a new technology in itself but a new architectural combination of pre-existing technologies such as P2P networking, cryptographic hashing, and distributed timestamping. And, despite the misleading name, what is generally referred to as a cryptocurrency is not really currency in the traditional sense but rather it is a digital utility token representing an exchangeable unit of account which can be acquired, stored, and transacted electronically over a distributed ledger network without a central third-party administrator.
Bitcoin, the original cryptocurrency, rose from the ashes of the 2008 global financial crisis as an experimental response to the prevailing sense of scepticism towards global financial institutions failing in their intended role as stewards of trust. Bitcoin is simply a digital unit of account which can be transacted, verified, and recorded on a fully decentralised distributed consensus ledger network (DCL) using blockchain technology. With the first recorded bitcoin payment transaction in 2010, an expression of value was electronically communicated peer-to-peer without any third-party intermediation. And with that, the property of trust which is a fundamental prerequisite in all socio-economic transactions shifted entirely from man to math for the first time. In contrast with the inflationary print-on-demand protocol of modern fiat currencies, bitcoin protocol limits the total quantity of supply at 21 million units and also determines the rate at which new supply is created. Given that the supply side of the equation is predefined, pricing remains mostly a function of demand or perceived future value which is ultimately determined by the actual utility of the token and its adoption at scale. Therefore, if digital tokens are to be entertained as investment opportunities, due consideration must be given to the proposed use case and long-term utility application as the basis of value instead of future pricing. Placing undue emphasis on market capitalisation instead of utility value innovation is highly misguided. The emergent application of bitcoin as a digital payment system has overwhelmingly dominated public perception of digital tokens, but from a strategic point of view, the value proposition of digital utility tokens is less as a currency and more as the underlying utility application of distributed ledger technologies to autonomously represent and communicate value without the traditional cost of trust intermediation.
Bitcoin has a limitation of
7 to 12 2,000 50,000
transactions per second compared to VISA which facilitate
transactions per second and a peak capacity of up to
transactions per second Source: Global Investment Bank
One of the biggest obstacles standing in the way of wider mainstream adoption of digital tokens is the proof-of-work (PoW) scalability challenge embedded in first-generation blockchain protocols which require significant energy consumption for complex mathematical computations called mining. Blockchains, in their current form, have a relatively low throughput of about 10-100 transactions per second with transaction times ranging from several minutes to several hours. Bitcoin has a limitation of seven to 12 transactions per second as opposed to traditional mainstream payment systems such as VISA which facilitate 2,000 transactions per second and a peak capacity of up to 50,000 transactions per second. To overcome these barriers, various solutions are currently under research and development to improve network efficiency
WE HOLD THE VIEW THAT FRACTIONALISED INVESTMENTGRADE SECURITY TOKENS BACKED BY PHYSICAL ASSETS MAY HELP INTRODUCE NEW SOURCES OF LIQUIDITY BEYOND TRADITIONAL PHYSICAL TRADERS AS ATTRACTIVE ALTERNATIVE INVESTMENTS FOR LARGER INSTITUTIONAL INVESTORS. Reza Dari, CEO, Global Investment Bank
by replacing PoW with a more efficient proof-of-stake (PoS) protocol. In addition, new off-chain alternatives such as Raiden and the Lightening Network are also attractive second layer protocol solutions which operate on top of public blockchains to facilitate transactions over an out-ofband connection residing outside of the public master ledger in order to enhance network capacity at the blockchain level. Block-less protocols are the next generation of distributed ledger technologies as an evolutionary extension of blockchain technologies but are fundamentally different. Two such new technologies, Tangle and Hashgraph, have recently emerged as possible alternative solutions for scale. Tangle retains the distributed ledger feature of blockchain but uses Directed Acyclic Graph (DAG) instead to verify two random transactions on the network with little to no transaction cost as it does not involve mining. IOTA is a digital utility token using the Tangle open source public distributed ledger protocol to facilitate large-scale resource sharing on the internet of things. Similar to Tangle, Hashgraph is also a new blockless consensus alternative which uses DAG under a â€˜gossipâ€™ protocol. The Hashgraph whitepaper claims to have superior security and scalability with up to 250,000 transactions per second; however, it is not open source and has not been tested in non-permissioned (public) ledgers yet.
THINKING OUTSIDE THE BLOCKS As the bitcoin mania continues, a speculative bubble is certainly on the rise but on the flip side of the coin—literally— is the expanding evolution of key core technologies which will continue to impact markets and disrupt industries for many decades to come. Everyone from bankers and economists to cab drivers and enthusiasts have a view on the future pricing of cryptocurrencies now but what has gone largely unnoticed is the dormant potential of their underlying technologies above and beyond their store of value applications. We are fortunate enough to be living and operating in one of the fastest growing technology innovation hubs in the world today which has embraced the power of digital transformation to lead the way for a better future. Appreciating the vast potential of digital utility value innovation and encouraged by the visionary leadership of the UAE government, Global Investment Bank has embarked upon a journey to further explore the disruptive nature and impact of distributed ledger technologies across select industries in collaboration with a number of strategic partners globally. One industry I have been observing closely over the last few years is the film industry in particular. I am convinced that the conventional media and entertainment business model is long overdue for a seismic paradigm shift and that distributed ledger technologies will lead a new wave of value innovation in this space. Accordingly, our Digital Innovation Lab has been enthusiastically working on a groundbreaking distributed ledger utility platform in close collaboration with a select group of Hollywood production partners and film finance experts with the view of expanding market boundaries through application of digital utility tokens designed for deep consumer engagement and direct audience participation for the first time in the history of motion pictures.
BLOCK-LESS PROTOCOLS ARE THE NEXT GENERATION OF DISTRIBUTED LEDGER TECHNOLOGIES AS AN EVOLUTIONARY EXTENSION OF BLOCKCHAIN TECHNOLOGIES BUT ARE FUNDAMENTALLY DIFFERENT. Reza Dari, CEO, Global Investment Bank
The legacy theatrical distribution model used today is completely disengaged from its consumer base with billions of dollars spent every year to blindly promote and market films without any real visibility on levels of audience engagement and emotional feedback. The motion picture industry has experienced multiple cycles of technological disruption throughout its history and emerging digital streaming and distribution platforms are just the start of a tsunami of innovation heading its way. Another project we are working on at the moment is a distributed ledger precious stones trading platform to further enhancing market liquidity and transparency in conjunction with US and international securities laws. In recent years, precious stones manufacturers have faced liquidity challenges as an increasing number of banks pull back from extending inventory and trade finance facilities. We hold the view that
fractionalised investment-grade security tokens backed by physical assets may help introduce new sources of liquidity beyond traditional physical traders as attractive alternative investments for larger institutional investors. We are now living in a digital era driven by a fast-growing generation of consumers holding a more abstract qualitative view of value where distributed ledger technologies offer the promise of an alternative multifunctional utility whereby users can communicate and express value in ways never possible before. To that end, it is not far-fetched to envisage early manifestations of a decentralised autonomous organisation (DAO) over the next few years in form of a complex multi-layered smart contract structure, wherein complex governance rules and consumer protection policies are digitally embedded to form the organisational bylaws and implemented without human administrative intervention. Distributed ledger technologies may currently lack the maturity needed for mainstream adoption at scale in their current form but nonetheless they are fast expanding our digital infrastructure to reconstruct traditional governance systems and business models in ways never imagined before. Tokenomics is set to disrupt traditional intermediaries across various industries including but not limited to financial services, healthcare, telecommunication, media and entertainment. And make no mistake—distributed ledger technologies are here to stay!
Global Investment Bank Limited (GIB) is a company limited by shares incorporated in the Dubai International Financial Centre and regulated by the Dubai Financial Services Authority (DFSA). GIB provides services only to Professional Clients and Market Counterparties as defined by the DFSA. The views and opinions expressed in this article are not to be construed as investment advice under any circumstances and belong solely to the author and do not necessarily reflect the views of GIB.
OMAN: NEW BEGINNINGS The worldâ€™s oldest independent Arab state must adapt to a new world
PHOTO CREDIT: Shutterstock/lkpro
he only thing worse than being talked about is not being talked about, as Oscar Wilde noted. Oman’s glamorous cousin Dubai has lapped up the world’s attention for years while Saudi Arabia’s young Crown Prince has hogged the headlines by shaking up the old order. Oman, which has the lowest GDP per capita of any GCC nation, has enjoyed a quieter life; but with low oil prices as the new normal it cannot afford to be outdone for much longer. Oman has long been dependent on its modest oil reserves, which are the 25th largest in the world. Oman has been making efforts to diversify its economy since a slump in oil prices back in the ‘90s, however progress has been too slow to shield it from oil’s most recent slide. 2018 will mark the halfway point of Oman’s ninth five-year development plan, which was the last of the series of five-year plans for the Vision 2020.
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The Government plans to play to Oman’s natural strengths, including the country’s enviable location, and beef up manufacturing, transportation and logistics, tourism, fisheries and mining to reshape the economy for the 21st century. Oman has one of the most diverse landscapes of the GCC, and it has been successfully luring an increasing number of tourists from around the world. In 2017, the World Travel & Tourism Council named Oman as one of the fastest growing tourism destination in the Middle East. Oman’s tourism industry may become the country’s most vital asset as it stems oil’s contribution to the economy. Among its prudent targets, Oman wants oil to contribute just 30 per cent towards its GDP before 2020, down from 44 per cent at the end of 2015. DEBT TRAP While these plans have been declared sound by many impartial observers, continued low oil prices have left deep fiscal scars. Compounded by participating in OPEC oil production cuts in 2017, protracted low oil prices and fiscal austerity continue to weigh on Oman’s economy. Fiscal and current account deficits remain large, according to the World Bank, and with Oman increasingly resorting to external borrowing to finance its deficits, public debt is rising rapidly. Oman struggled to reign in its spending last year. Government spending cuts fell short of targets in the first half of the year, according to Fitch Ratings. Data showed a six per cent decline in total government spending in the first seven months of 2017 compared with a year earlier, with a year-on-year decline of 26 per cent in July alone. The authorities took important policy measures in 2016, including fuel price reform, to address the impact of lower oil prices on government finances, but implementing the budget proved challenging. The combination of lower oil prices and higher spending has resulted
total exports in 2016), we expect large current account deficits above ten per cent of GDP in 2017 and 2018, before they gradually decline to six per cent of GDP in 2019 and 2020.”
Net interest margins for banks in Oman is expected at
Over the next 12-18 months
in a widening of the budget deficit to around 22 per cent of GDP, according to the International Monetary Fund (IMF). S&P estimates that Oman’s net external asset position has materially declined to 30 per cent of current account receipts in 2017, from 60 per cent in 2016. The ratings agency also estimates that Oman’s fiscal and current account deficits were higher in 2016 than it had anticipated, and GDP per capita lower. “Based on our projections for continued sizable current account deficits, we expect Oman to be in a narrow net external debtor position of 12 per cent in 2020,” the rating agency said. “Due to oil prices remaining relatively low and Oman’s dependence on the hydrocarbon sector for export receipts (60 per cent of
BANKING BLUES According to Moody’s Investors Service, the government’s tighter purse strings could paralyse Oman’s banking sector, as its capacity to support the country’s banks will be limited and liquidity conditions will be tightened. “We expect a softening in Oman’s operating environment, with fiscal consolidation amid prolonged oil price weakness weighing on economic growth,” said Mik Kabeya, Analyst at Moody’s. “This will weigh on credit growth, which we forecast to fall to five per cent in 2017, down from 10.1 per cent in 2016 and 12 per cent in 2015.” Slower economic growth will drive a marginal weakening in problem loans to around three per cent of gross loans in 2017-18, from 2.1 per cent at end-March 2017, according to the rating agency. Moreover, high concentrations of loans to single borrowers and to the realestate sector pose downside risks to asset quality. However, Moody’s expects capital to remain sound, providing strong loss absorbency. Moody’s forecasts systemwide tangible common equity (TCE) to range between 12 to 14 per cent of riskweighted assets over the next 12 to 18 months. Even under the rating agency’s low probability 'stress test' scenario, the TCE ratio would remain a solid 10.3 per cent.
AMONG ITS PRUDENT TARGETS, OMAN WANTS OIL TO CONTRIBUTE JUST 30 PER CENT TOWARDS ITS GDP BEFORE 2020, DOWN FROM 44 PER CENT AT THE END OF 2015.
Profitability will decline slightly. Net interest margins will likely remain stable at around 2.4 per cent over the outlook horizon (2.4 per cent in 2016) as higher lending rates offset increasing funding costs, while loan loss provisioning will increase somewhat as problem loans rise. Funding and liquidity conditions will remain tight, as high domestic government borrowing limits funds available to lend to the wider economy. Nonetheless, the government’s international bond issuances, slower credit growth and higher oil prices will moderate the pressure. Finally, although the Government’s capacity to support banks if needed will reduce, the rating agency notes that willingness to provide support will remain very high. Allison Holland, Division Chief Regional Studies, Middle East and Central Asia Department, International Monetary Fund, said, “The Omani banking system
remains well capitalised, deposits have increased, liquidity conditions appear to have eased, and credit to the private sector continues to grow. “Interest rates are likely to increase as US monetary policy tightens further. Gross reserves of the Central Bank of Oman increased in 2016 from $17.5 billion to $20.3 billion and are considered adequate on a number of metrics. The exchange rate peg to the US dollar continues to serve Oman well given the current structure of the economy.” OPTIMISM FOR OMAN There is certainly some cause for cheer. Oman’s GDP growth is expected to rise to 5.2 per cent next year, according to a recent report from Cluttons, aided by the introduction of natural gas production at the Khazzan gas field and the opening of the new airport in Muscat. This will mark the strongest rate of expansion since 2015.
Fitch noted that revenues increased 26 per cent year-on-year in the first seven months of 2017, reflecting some recovery in oil prices, and revenues will be further supported in 2017-2019 by the recent start of production from the Khazzan gas field. A review of corporate tax exemptions and an increase of tax rates will begin to have an impact in 2018, while new excise taxes could be introduced soon and VAT in late 2018. Fitch’s 2018 deficit forecast for Oman stands at 10.9 per cent. It expects the country’s 2019 fiscal deficit to narrow to 9.8 per cent of GDP. “Continuing deficits mean we forecast debt to rise to 48.2 per cent of GDP in 2019,” the rating agency said. “We estimate Oman’s fiscal breakeven oil price at $75-85/ bbl even with planned spending cuts and non-oil revenue measures.” Oman has financed its deficits mostly through foreign debt issuance, accompanied by drawdowns from the
PHOTO CREDIT: Shutterstock/Alexey Bagmanyan
State General Reserve Fund of Oman (SGRF). SGRF foreign assets were $18 billion at end-2016, underpinning Oman’s sovereign net foreign asset position and supporting its market access and exchange rate peg. In a hypothetical scenario where Oman did not issue debt and maintained fiscal deficits at forecast 2017 levels, SGRF assets would be depleted by the end of 2018, Fitch said. But they could last considerably longer if accompanied by debt issuance, fiscal consolidation, and favourable asset returns. The Government is also hoping to privatise some of its domestic infrastructure assets. “The authorities recognise that the sustained decline in oil prices underscores the need to undertake sustained fiscal adjustment, accelerate economic diversification, and increase the role of the private sector to stimulate the economy,” Holland said. “Economic growth moderated in 2016 to about
OMAN’S GDP GROWTH IS EXPECTED TO RISE TO 5.2 PER CENT NEXT YEAR.
three per cent, from 4.2 per cent in 2015, with non-hydrocarbon growth slowing from 4.2 to 3.4 per cent given the continued impact of low oil prices.” The IMF expects non-hydrocarbon growth to average about 3.5 per cent over the medium term. The IMF noted that improving the business environment, including by streamlining regulatory processes and increasing the level of vocational skills, will support efforts to increase private sector employment.
“Steadfast implementation of the budget will protect policy credibility and sustain investor confidence, which has underpinned Oman’s access to international financing at favourable terms over the past year,” Holland said. “Over the medium term, timely implementation of the increase in corporate income tax and planned introduction of VAT and excise duties will underpin a continued improvement in the fiscal position. The current account deficit, estimated at 17 per cent of GDP in 2016, is also expected to decline.” While Oman’s economic reforms have been warmly received, implementation will be difficult if a fresh fall in oil prices pulls the government’s purse strings even tighter. By contrast, a fair wind and improved oil prices could reduce the country’s debt and stabilise the government’s debt/GDP ratio. Oman’s position therefore remains precarious but pointing in the right direction.
OMAN in numbers POPULATION
Source: Worldometers; United Nations estimates (February 2018)
Source: Worldometers (February 2018)
PURCHASING POWER PARITY
Source: CIA World Factbook
0% 3% 4.2%
GDP PER CAPITA
$45,500 $46,900 $48,300
Source: CIA World Factbook
Source: CIA World Factbook
GDP REAL GROWTH RATE
REVENUES & EXPENDITURES
billion (2017 est.)
Source: CIA World Factbook
41.3% of GDP (2017 est.) 31.4% of GDP (2016 est.) Source: CIA World Factbook
3.2% 3.2% (2017 est.) 1.1% (2016 est.) Source: CIA World Factbook
billion (2017 est.)
billion (2017 est.)
billion (2016 est.)
billion (2016 est.)
Source: CIA World Factbook
Source: CIA World Factbook
Oman’s GDP is expected to grow 3.7% in 2018
Agriculture: 1.7% Industry: 45.2% Services: 53% (2017 est.)
Source: International Monetary Fund
Source: CIA World Factbook
billion (31 December 2017 est.) billion (31 December 2016 est.)
Source: CIA World Factbook
DEBT CAPITAL MARKET
PHOTO CREDIT: Shutterstock/Vintage Tone
BONDS AND SUKUK: STRUCTURING FIXED INCOME INSTRUMENTS IN THE GCC I
The GCC bond and Sukuk market is generally sound, says Philipp Good, CEO and Head of Portfolio Management at Fisch Asset Management
n recent years, the GCC debt market has seen considerable development, in terms of issuance volume and spread, for both the conventional and Islamic space. Issuance has increased considerably since 2015. Between 2013 and 2015, average issuance from the region stood at around $25 billion. By 2016, it had risen to $60 billion, and in 2017 exceeded a record $72 billion. This substantial growth was driven for the most part by the higher funding needs of GCC sovereignsâ€”particularly Saudi Arabia, Kuwait, Abu Dhabi, Oman and Bahrain. The deficits that created the need for funding were the consequence of a rapid and substantial decline in global oil prices, which saw GCC governments trying to avoid dipping into the substantial reserves contained in their sovereign wealth funds. In the last 12 months, we have seen considerable spread compression as oil prices have stabilised and improvedâ€”although it should not
DEBT CAPITAL MARKET
liquidity among local banks (particularly as Basel III comes into play), who have witnessed a decline in their USD deposits as a result of muted oil prices.
be forgotten that they still remain highly sensitive to the volatility created by geopolitics. Spread compression is also the result of more capital flowing into Emerging Market (EM) funds, as well as changing investor behaviour—whereby greater resource is now being dedicated to understanding the region. It also reflects the relative value that the GCC is now known to offer global debt investors. STRUCTURE: WHAT HAVE GCC ISSUERS TYPICALLY PREFERRED? The bond and Sukuk pipeline in the GCC for the last two to three years has been dominated by the senior unsecured USD format, in accordance with either Regulation S (SEC) or 144A/Regulation S (SEC). This has particularly been the case for sovereign issuance, with all sovereigns having issued USD senior bonds in the 144A/Regulation S format. The preference for this type of bond lies in the fact that it lends itself best to a wider international investor base— which is an important objective for GCC issuers. Some corporate issuers—for example, Majid Al Futtaim—have chosen hybrid models. At the same time, some project bond issuance has occurred in the GCC, which has utilised highly innovative structures—for example, ADCOP’s recent $3 billion structured deal. SOPHISTICATED STRUCTURES: WHAT MIGHT WE SEE IN THE FUTURE? More sophisticated structures in the market have mostly been project bond issues. Saudi Arabia’s ACWA Power, for instance, recently issued a $814 million amortising bond due in 2039, while Abu Dhabi’s ADNOC issued a dual tranche $2.2 billion and $837 million bond due in 2047 and 2029 respectively. Looking ahead, the GCC has the opportunity to grow its convertible bond (CB) market in the mid-term, while any equities (ECM) or debt (DCM) capital market play by Aramco would profoundly impact market dynamics across the region.
IT IS OFTEN FORGOTTEN THAT, IN ORDER TO ATTRACT INTERNATIONAL CAPITAL, THEY NEED TO PRICE AT THE INTERNATIONAL MARKET CLEARING PRICE IF THEY EXPECT OVERSEAS INVESTORS TO PARTICIPATE. Philipp Good, CEO and Head of Portfolio Management at Fisch Asset Management
The effects would be wide-ranging, from the stimulation of improved corporate governance to greater relevance for the region on the international stage and a more diverse investor base across capital structures. All this would suit the growth and diversification of the GCC’s DCM landscape. Recent hybrid issuances from corporates, and Additional Tier 1 (AT1) bonds and Sukuk from banks such as First Abu Dhabi Bank, Dubai Islamic Bank and Noor Bank, all prove that there is plenty of scope for more sophisticated instruments to be offered. From the perspective of a global debt investor, the market dynamics of the GCC need to progress in a way that supports the growth of a project bond market and mitigates the scarcity of long-dated USD
IMPROVED STRUCTURING FOR GCC BONDS Certain important aspects are often overlooked by GCC issuers. It is often forgotten that, in order to attract international capital, they need to price at the international market clearing price if they expect overseas investors to participate. Similarly, too many issuers rely on regional banks to support their issues—all this does is recycle GCC liquidity, rather than bringing new liquidity into the region. The GCC’s merits as an investment market are increasingly well-understood, and there’s no need for international money to be neglected. In general, GCC bond and Sukuk structures are sound, but lack the marketing they require in Europe and Asia—particularly outside of Singapore and Hong Kong. A number of key markets within these regions contain a high level of liquidity that issuers should do more to tap. When it comes to hard currency issuance, which has picked up considerably in the GCC, issuers should also look beyond the US dollar. The euro, among other major currencies, presents the opportunity for further diversification of the investor base. None of these observations should take away from the reality that GCC issuers have been doing a good job, and this is clearly reflected in the high level of oversubscription for both sovereign and corporate issuance, as well as the secondary market performance of these securities. Ultimately, the investor base for GCC debt is now more diverse than ever before, and 2018 looks to be another strong year for both issuance and international participation. It will probably be weighted towards corporates, with sovereigns having dominated the market in 2017.
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PRIVATE EQUITY & VENTURE CAPITAL
WAVE In an exclusive interview with Banker Middle East, Campbell Steedman, Managing Partner and Chris Skipper, Partner, both at Winston & Strawn highlight that the private equity and venture capital landscape in this market is largely dependent on diversification agendas and international events across the region
hat were the striking private equity (PE) and venture capital (VC) trends in the Middle East last year and how do you see this developing in 2018? Chris Skipper: Perhaps the most striking trend is the increase in secondary buyouts. Such transactions demonstrate a growing market maturity and should give investors additional comfort when considering exit options. It’s all well and good investing in a company, growing it and making it more profitable but if there are limited exit options, investors are going to be wary about deploying capital. A maturing secondary buyout market gives greater optionality and increases appetite. Campbell Steedman: While recognising the growing number of secondary buyouts, a key concern for private equity in the region remains the lack of deal opportunity at realistic valuation levels. As is the case internationally, there remains considerable “dry powder” in the market, which in a competitive environment can lead to an escalation of already inflated expectations of value. Hopefully 2018, and the growth of the secondary markets, may see more opportunity for deploying capital and a more realistic level of valuations.
A KEY CONCERN FOR PRIVATE EQUITY IN THE REGION REMAINS THE LACK OF DEAL OPPORTUNITY AT REALISTIC VALUATION LEVELS. Campbell Steedman
There was a struggle in finding Series B funding last year. Why was this so and what does it mean for the sector this year? Steedman: Although the Middle East PE market continues to grow, and although there are an increasing number of investment opportunities, the market is still relatively young. As such, investors focusing on Series B funding, and having the skill set to support the build out of a product or business, remain scarce. In addition, the talent pool of suitably qualified, high quality management talent remains limited, restricting the ability for PHOTO CREDIT: Shutterstock/EpicStockMedia
Series B funders to make their investment work. As the market matures, and perhaps with the growth of secondary opportunities, it is to be expected that series B funding will grow in the coming year. In terms of investment, what kind of untapped opportunities do you still see available in the MENA market at the moment? Steedman: With Dubai Expo 2020 imminent and following both the announcements and discussions that took place at the Saudi Future Investment Initiative conference (which we attended by kind invitation of the Saudi Public Investment Fund), there is clearly a regional focus on new technologies whether that be Hyperloop, drone taxis, driverless cars, fintech, medtech, legaltech, telecommunications, artificial intelligence, blockchain or other emerging technologies. We see continued and, indeed, accelerated growth in these sectors. Connected with this focus, we are also seeing increased investment from the region into the tech sector internationally (for example, in Silicon Valley), with a view to securing IP and technological know-how to migrate back to the region. Skipper: Renewable energy will continue to present interesting opportunities. For example, Dubai has a vision to have 75 per cent of its power requirements provided by clean energy by 2050 and that will only be possible
WE ARE ALSO SEEING INCREASED INVESTMENT FROM THE REGION INTO THE TECH SECTOR INTERNATIONALLY, WITH A VIEW TO SECURING IP AND TECHNOLOGICAL KNOW-HOW TO MIGRATE BACK TO THE REGION. Chris Skipper
Campbell Steedman, Managing Partner, Winston & Strawn
by new and improved technologies, and competitive price points. The renewable energy market has taken huge strides forward in recent years, with things like improved efficiencies on solar panels and battery cells and continued investment will be required to make the shift from carbon fuels cost effective. There will also be opportunities down the line for decommissioning and recycling facilities. Based on the deals that you’ve closed thus far, what do you identify as the major issues PE & VC face in this market? And what does this mean for foreign investors? Skipper: The biggest hurdle to foreign investors continues to be the foreign ownership restrictions—particularly for new entrants unfamiliar with the market. While there are very good local partners in the region, a common concern is the inability to hold 100 per cent of the legal interests in certain entities. The UAE Minister of Economy, HE Sultan bin Saeed Al Mansouri, has been quoted stating that the proposed new UAE investment law (allowing foreign investors to own 100 per cent in certain sectors) is expected to be published during 2018. Oman, Saudi Arabia and Qatar are also expected to publish similar legislation.
Chris Skipper, Partner, Winston & Strawn
Such legislation should allay concerns relating to ownership and lead to a greater influx of foreign investment. The other significant issue (affecting both foreign and local investors) remains an unrealistic expectation of valuation from sellers. What are your projections for 2018? Steedman: We have a very positive outlook for 2018. As indicated above, there is perhaps a fair bit of ‘dry powder’ to be utilised in the PE/investment space. After a bumpy 2016/2017, and with the continued regional diversification away from oil, there will be a number of investment opportunities in the private equity space—some being driven by the opportunities likely to be afforded by Saudi’s drive for commercialisation and privatisation. In addition, the region’s diversification away from oil—coupled with the continued recovery of the oil price – is likely to present opportunities in both the exploration and services sectors. Skipper: Perhaps the key message is finding the right opportunity for the right price. There is an old saying ‘there are no bad investments, just bad pricing’, and there are a number of things both investors and sellers can do to demonstrate value in a competitive environment. If they can achieve that, 2018 bodes well for the PE sector.
DEVELOPMENTS IN ISLAMIC FINANCE
The global increase in environmental awareness has led to a marked rise in the appetite for green bonds and this an opportunity for green Sukuk issuances says Dominic Coyne, Manager – Fund Services Group at VG
as Al Khaimah, Abu Dhabi, Dubai…. No, not a bucket list of potential holiday destinations but a rich source of new business potential for offshore jurisdictions. Islamic finance encompasses many forms of Shari’ah-compliant transactions, for example, a group of friends and family agree to purchase a commercially leased property using a commodity Murabahah to ring-fence the Shari’ah-compliant investors from any Haram elements within the structure. This type of investment is a tried and tested, efficient vehicle using a trusted team of experts. Around the world, however, we are now seeing a rise in interest in vehicles such as Green Sukuk, a new and exciting investment option that will hold particular appeal for the environmentally conscious client.
PHOTO CREDIT: Shutterstock/Slawomir Kruz
Dominic Coyne Manager – Fund Services Group, VG
SUKUK Sukuk is far from new, with its history stretching back over a thousand years. Indeed Sakk, the singular of Sukuk, is believed to be the origin of the modern Western word cheque. A traditional Sukuk consists of financial certificates, effectively Shari’ah-compliant bonds, structured in such a way as to generate returns to investors without infringing Shari’ah law that prohibits the earning of interest. Investors in a Sukuk have an undivided beneficial ownership of the underlying assets and holders are entitled to share in revenues generated by those assets and in the proceeds if the assets are realised. According to the State of the Global Islamic Economy Report 2016/17 there were $2 trillion of assets being managed in a Shari’ah-compliant manner in 2015, and $342 billion of those assets were comprised of 2,354 Sukuk issues.
GREEN SUKUK Increasing environmental awareness worldwide has seen a marked rise in the appetite for green bonds and the Islamic finance sector is actively exploring the potential for this form of socially responsible investment (SRI), which speaks directly to some of the core principles of Islamic finance, which are: prohibiting interest (Riba); steering clear of uncertaintybased transactions (Gharar); avoiding gambling; and avoiding investment in prohibited industries. Malaysia has been the market leader in the issuance of Green Sukuk, with guidelines issued in 2014 for SRI. These set out that the proceeds of SRI Sukuk can be used to preserve the environment and natural resources, conserve the use of energy, promote the use of renewable energy and reduce greenhouse gas emission. Malaysia launched the world’s
first Green Sukuk on 27 June 2017. Due to the infancy stages of Green Sukuk there isn’t much data to promote its track record but if we look at the $30 billion of green bonds issued in the second quarter of 2017, the potential is very good. UAE DEVELOPMENTS The UAE Green Growth Strategy was launched in 2012 by HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai. The aim of the strategy is to put forward the country’s ambition to become a global hub and a successful model for the low carbon green economy so as to enhance the competitiveness and sustainability of its development and preserve its environment for future generations. Underlining this commitment, the Cabinet of the United Arab Emirates issued a decision to implement the UAE Green Agenda 2015-30. Whilst it is early in the development of Green Sukuk, it is logical that it is a natural home for such investment. By its very nature, Sukuk is restricted to a pool of approved assets and environmentally friendly projects are an excellent fit, enabling the socially responsible client to invest, for example, in renewable or clean energy initiatives. In an ever-changing regulatory environment, there will most certainly be challenges, not least the drafting of documentation acceptable to governments, investors and Shari’ah scholars. Nonetheless, the demand for green investment options and the appetite for an Islamic finance solution can only grow. Growth in Islamic finance may not in the future be restricted to traditional investment vehicles. There is increasing appetite for environmentally friendly products and considerable potential in the UAE. Green Sukuk as a standard investment vehicle may still be some way off but momentum is building, and the potential worldwide is huge.
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ADOPTING THE HIGHEST STANDARDS OF SECURITY Mohammed Abukhater, VP Sales—MEA at FireEye International (Middle East) discusses potential cybersecurity threats to banks and strategies to address them PHOTO CREDIT: Shutterstock/Mott Jordan
hat potential threats are banks in this region exposed to? What are the cybersecurity risks that financial institutions may not be aware of? Middle Eastern banks are in the spotlight for hackers who have a focus on credit card fraud. The hacker doesn’t have to necessarily attack the bank directly to gain access but cracking into a network is enough to get customer’s data.
As hackers get smarter and smarter, it’s crucial for banks to invest in proper intelligence systems to avoid a breach. In terms of potential threats, is there anything that is specific to this region? Both Muscat and RAK banks were targeted by hackers this year, resulting in the loss of millions of dollars. This happened because the hackers were able to get into the card-processing systems.
What is important to learn from this attack is the hackers used traditional techniques but managed to manipulate the system to gain access to the data of these banks. What kind of strategies would you suggest to banks here to best protect themselves from possible attacks? There are few practical and actionoriented suggestions for the banking industry to consider for protection.
Financial institutions are generally aware of fundamental measures they should take to protect themselves from an attack. Is there anything that you think has been overlooked by banks in this respect? It goes without saying, cyberattacks are a hazard affecting all aspects of the financial sector from the integrity of data, consumer confidence, reputation and— most of all—the bottom line. Financial institutions shouldn’t overlook investing in intelligence-led security to understand the threats they will face, stay ahead of them, and properly secure all levels and functions of their business.
Mohammed Abukhater VP Sales—MEA, FireEye International (Middle East)
How do you assess/rate the level of security of banks in the Middle East? The level of security in each region is diverse, and the maturity of each market in the financial sector varies. KSA and UAE are bigger markets that are seen investing heavily in cyber security, but other countries in the Middle East need to follow suit. The financial sector in the region is now irreversibly dependent on interconnectivity and the internet.
1. Migrate data to the cloud: Cloud computing is here to stay with an estimated 80-85 per cent of companies migrating to the cloud. For banks of any size or history, the cloud offers powerful benefits reducing the entry points for hackers and having stringent safety measures in place. 2. Spend time on patching: It is important to get briefed on the volume and criticality of unpatched software vulnerabilities in the banking organisation. Spending time to figure out who has primary responsibility for applying the patches and then track
and report to senior management on the progress is key. 3. Training: Hackers are getting smarter and smarter every day. It’s crucial for everyone in this industry to stay up to date. The development of skills and awareness are integral to combating cyberthreats, so we need to improve capacity-building and the education of all employees. 4. Engage with the government: As governments are continuing to play an integral role in a company’s compliance with cyber laws, more collaboration and alignment with them will be imperative.
What do you regard as the highest standards of security and how far are Middle Eastern banks from this benchmark? Today, cybersecurity involves not only the protection of information in the form of digital data, but also the associated networks, computers and portals that transport and enable access to this data. The highest standard is to have a holistic approach to security. The governments of UAE and Saudi Arabia are implementing strong security measures to ensure that the region is creating a secure environment. Both these countries have strong central bank regulations that every financial institution needs to comply with. The KSA government specifically put security procedures in place across the region and it is necessary for all the banks to invest in these before venturing into providing any services and transactions for consumers.
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global global ambitions ambitions For For several several decades decades Jersey Jersey firms firms have have been been building building links links withwith markets markets across across the the GCC, GCC, so that so that today today Jersey Jersey provides provides a vital a vital rolerole in supporting in supporting family family succession succession planning planning andand facilitating facilitating global global investment investment strategies strategies on behalf on behalf of investors of investors in the in the region. region.
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UNITED UNITED ARAB ARAB EMIRATES EMIRATES
KINGDOM KINGDOM OF OF SAUDI ARABIA SAUDI ARABIA
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LEADING KUWAIT FOR OVER 75 YEARS In an exclusive interview, Richard Groves, CEO of Ahli United Bank Kuwait, looks back at the bankâ€™s triumphs and provides his views on operating in current macroeconomic conditions 58
hat are your views on the current Islamic banking landscape in Kuwait? The Islamic banking industry enjoys unwavering support of the government of State of Kuwait. With plans to boost its investment spending and allocate a significant share of new project financing to Islamic banks, the Kuwaiti government is instrumental in the industryâ€™s progress. Accordingly, capacity of the Kuwaiti government to execute its investment plans are emerging as key factor to watch for in the growth of Islamic banks. Naturally, to keep with the ever-evolving world, technology-based growth initiatives should potentially play a meaningful role. PHOTO CREDIT: Shutterstock/Eyef Dee
prolonged lower oil price impacting both corporate and retail customer sectors, and the general regional geopolitical instability. We are also heading into a period of more expensive money in the market with the raising of the CBK’s discount rate following the rate increases implemented by the Federal Reserve Bank. Hence, the market is increasingly competitive for good quality business. The lack of activity on the local stock market and a downturn in the real estate market also provides for more difficult market conditions. To sustain growth in such challenging market conditions, AUB engaged majors like financing portfolio diversification, product innovation, engagement of enhanced risk management techniques suitable for a dynamic risk environment and diversification of AUB’s capital base with the issuance of Additional Tier 1 (AT1) Sukuk, which took place in October 2016.
Richard Groves CEO of Ahli United Bank Kuwait
Based on a recent study by the International Monetary Fund (IMF), it is evident that some GCC countries will have to significantly cut spending to balance their budget with an average oil price of $50 per barrel. For Kuwait, this is less than five per cent. The Central Bank of Kuwait (CBK) has introduced new Shari’ah banking guidelines for implementation by the end of this year. This highlights that the CBK is keen to enhance and develop proper guidelines for Islamic banking in Kuwait, and to have a properly regulated approach
across all Islamic banks in the state. This is especially important as Islamic banking becomes even more widely available and more and more customers are seeking Shari’ah compliant banking solutions. What are the main challenges that are facing the Islamic banking industry in Kuwait? How are you working to overcome those challenges? The main challenge impacting the Islamic banking industry in Kuwait will be similar to those faced by conventional banks. Namely, a weaker economy due to the
What differentiates Ahli United Bank from its competition in Kuwait? At Ahli United Bank (AUB), we are proud of the respect and reputation earned locally and regionally, thanks to all our achievements that have set us apart in the banking industry. From being the first bank to open in Kuwait in 1941, we have grown with the development of the economy and the many changes that have taken place, and are taking place today, in the banking industry. At the same time, we are proud of standing AUB has in the local community. A major milestone in AUB’s history in Kuwait is, relatively, a more recent event. AUB’s standing amongst our peergroup banks was enhanced through the conversion to a Shari’ah–compliant bank on 1 April 2010. This proved to be an historic turning point. The conversion was based on a prudent strategy adopted by the Board of Directors and supported by our major shareholders, effectively propelling the bank vigorously into the Islamic banking industry.
With over 75 years of industry-leading expertise, we differentiate ourselves from other banks through our dedicated teamwork, innovative products and services, sustainable returns, experience and solidity and a world-class customer service that our clients deserve. Whilst we have much to be proud of in our history, we are not backward looking. Indeed, we are very much forward looking. What have been the main initiatives of Ahli United Bank in 2017? AUB’s business model reflects its vision of meeting the changing dynamics of financial markets by ensuring better distribution of risk and sustainable returns for its shareholders. In response to changing market conditions and challenges, the Bank repositioned its treasury and corporate banking unit to include more integrated Islamic banking services, in addition to growing its retail footprint to include 40 branches backed by a strong technology framework. From a business perspective, we launched the heavily-supported and wellreceived initiatives such as Al-Hassad Islamic Saving Investment Account, which is the biggest Islamic rewards account in Kuwait with a prize pool of up to KWD 3.4 million per annum; the Pearls Rewards Program, which is AUB’s loyalty program rewarding our customers for using their debit or credit cards with a simple point system and through instant discounts across many popular retailers, restaurants, medical centers, and more; cash back programs that give back to our customers when they spend on their cards, by putting up to 50 per cent of their cash back into their accounts; the Beizat Card, which is AUB’s new prepaid card that offers clients the security and luxury of using a prepaid card during travels or to give someone in the family to use. Being part of shaping Kuwait’s history, AUB has a proud heritage in social responsibility towards the community,
TO SUSTAIN GROWTH IN SUCH CHALLENGING MARKET CONDITIONS, AUB ENGAGED MAJORS LIKE FINANCING PORTFOLIO DIVERSIFICATION, PRODUCT INNOVATION, ENGAGEMENT OF ENHANCED RISK MANAGEMENT TECHNIQUES SUITABLE FOR A DYNAMIC RISK ENVIRONMENT AND DIVERSIFICATION OF AUB’S CAPITAL BASE. Richard Groves, CEO of Ahli United Bank Kuwait
and 2017 was another outstanding year in terms of social initiatives. Driven by the vision to better serve our customers with special needs, now our branches, ATMs, website and call centers are equipped with inclusive features such as priority service, wheelchair access, braille printers, voice control, headphones, and expertly trained staff, to name a few. In addition, we are the first bank in Kuwait which proactively anticipated the customers’ need as a result of fluctuating market conditions and unpredictable US Fed rate changes and launched innovative ‘profit rate swap (PRS)’ product after Shari’ah approval. The PRS enables the customers to manage their profitability and market risk. What is your personal leadership style? My management philosophy has always been to lead by example with a high level of personal integrity. Whilst one makes every effort to obtain the best return for shareholders it is important to take into account the varied needs of all our stakeholders, whilst bearing in mind our overall risk profile. I also believe in engaging our youth in the decision-making processes which helps in bringing innovation, which is always appreciated. What was the proudest moment of your career? I have had a career in banking of over 38 years and have worked in 11 countries, in the Middle East, Asia and Europe. Hence my experiences have been many and very varied, and for the most part, highly enjoyable and rewarding over the years. There have been many proud moments and no single one can be deemed to be the proudest. However, AUB’s hugely successful AT1 Sukuk issuance in October 2016, followed by being invited to ring the market opening bell on Nasdaq Dubai in November, will go down in my personal experiences as a very significant and proud moment.
HE Hesham Abdullah Al Qassim
Banker Middle East sat down with HE Hesham Abdullah Al Qassim, Chairman of Emirates Institute for Banking and Financial Studies, for a conversation on the hurdles faced by banks in talent management and the institute’s approach in addressing these
n terms of talent management, what kind of challenges do financial institutions in the country face? Managing talent in the rapidly evolving financial sector is a challenge. Regulations and technology are changing the face of the industry and it’s always difficult to obtain the best talent necessary to cope with that change. It’s a matter of demand and supply. While in some areas we have adequate personnel, there are other areas such as credit management, risk management, audit, IT security, treasury and Basel III, as well as specific areas of corporate banking and Islamic banking, where we have a dearth of qualified executives.
Take the case of Islamic banking, for example. Most bankers in the Islamic banking space are recruited from conventional banks. Therefore, getting personnel with specialised skills in this area remains a challenge. We need more experts in Islamic finance and banking. For that to happen, we require institutions to impart high level courses to professionals. When it comes to UAE nationals it is important for us, as an institution, to carefully manage their growth and provide ongoing platforms for development during their banking or financial careers, in line with the government’s vision. This is key to attracting talent at the entry
level, where numbers are still low. We have witnessed UAE nationals, even if it is not a substantial number, who have left their banking careers midway because of the lack of opportunities to grow. We must stem this and it’s important that we ensure that they are not only qualified when they start their careers as graduates, but also receive the necessary training at all levels to allow them to progress and climb the corporate ladder. What is in the pipeline for EIBFS this year? The Emirates Institute for Banking and Financial Studies (EIBFS) has a continual pipeline of programmes that we offer to banking and financial professionals as well as students. This year, we have planned a marginal increase in the number of courses offered under our flagship Annual Training programme (ATP) to reach 585 in total. This marks a three per cent increase from our initial target of 570 courses in 2017. The EIBFS delivered a total of 980 vocational training and educational programmes, as well as activities including workshops, during the period from 1 January to 31 December 2017, which is the highest in our history. What we have seen over the years is that the final number of courses and workshops/ forums offered at the end of the year always surpasses the previous year’s target by a wide margin. I will not be surprised if we touch the 1,000 mark this year. Part of this growth is the sustained demand from UAE financial institutions, mainly banks and insurance companies, which regularly reach out to us to help create customised programmes to train their employees. We work closely with the heads of human resources at banks and insurance firms. We also have pro-active HR and Advisory committees which have been formed with the participation of all national banks. These committees are mandated
THE KEY TO RETAINING UAE NATIONAL TALENT IN THE FINANCIAL SECTOR, ESPECIALLY BANKS, IS TO PROVIDE THEM WITH OPPORTUNITIES FOR GROWTH. HE Hesham Abdullah Al Qassim, Chairman, EIBFS
to conduct training needs analysis and, based on the results, come up with a series of programmes suited to different employees. We also aim to provide 12 Professional Certificate Qualifications in 2018. Offered in collaboration with specialised international institutions, these qualifications are an important component of our programmes. To add to that, we have a target of 40 customised programmes, as well as 15 national development programmes aligned with the UAE government’s Emiratisation vision. We realised that it is critical to conduct the training programmes closer to the participants and their workplace. In addition to the main campuses of Sharjah, Dubai and Abu Dhabi, the EIBFS has also scheduled training programmes in Al Ain as well as other Northern Emirates. Our target for 2018 is to offer 28 programmes in Al Ain, 18 in Fujairah, and seven in Ras Al Khaimah. Some of the newer courses that we will offer
this year include credit proposal writing, Central Banks UAE Regulations Training, Advanced Selling Skills and Techniques and Quality Assurance. Through our collaboration with the reputed Bangor University in the UK, we offer an extensive bachelor’s programme that equips students in a broad array of disciplines. This allows EIBFS students who have completed their requisite credits here in the UAE to proceed to Bangor in the UK for their final year and receive the degree therefrom. Finally, we aim to conduct nine workshops and seminars with industry experts from the UAE and abroad. These will be relevant to recent developments in the financial sector and outline the opportunities as well as challenges for banks in the market. From our experience, we have seen the incredible value that such forums provide; they are a great platform to share insights and encourage collaboration. What Emiratisation initiatives does the EIBFS have for financial institutions in the country? Over the years, the EIBFS has introduced various customised programmes for UAE nationals, keeping in mind the needs of banks as well as insurance companies. Emiratisation initiatives in the banking sector play a significant role in supporting the national economy, and thus we are constantly reviewing our courses based on the needs of financial institutions in terms of their Emiratisation strategy. ‘Al Masrafi’ was one programme that we created to train and qualify UAE nationals for banks. Last year, Emirates NBD, Emirates Islamic, Noor Bank, Union National Bank and RAKBank sent their UAE national employees to the Al Masrafi programme to train a total of 116 nationals. As part of their MoU with the EIBFS, the banks encouraged their UAE national staff to complete professional certificate courses such as
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certified banking operation (CBO) and certified credit management (CCM), as well as specialised training for bank branch managers. For the insurance sector, three ‘Al Shamil’ programmes were conducted in 2017 that trained 41 UAE nationals. As I mentioned before, the key to retaining UAE national talent in the financial sector, especially banks, is to provide them with opportunities for growth. Given the importance of creating leadership competencies, and in line with the Federal Government’s strategy to invest in national human resources, the EIBFS has continued to support senior bankers in becoming the leaders of tomorrow.
THE EMIRATES INSTITUTE FOR BANKING AND FINANCIAL STUDIES (EIBFS) HAS A CONTINUAL PIPELINE OF PROGRAMMES THAT WE OFFER TO BANKING AND FINANCIAL PROFESSIONALS AS WELL AS STUDENTS. HE Hesham Abdullah Al Qassim, Chairman, EIBFS
In this regard, the EIBFS recently collaborated with the University of Virginia’s Darden School of Business, which has been offering a Leadership Development Programme in the US. Last year, 11 senior and mid-level UAE nationals working in the banking sector were part of this programme, and in 2016, a total of 20 UAE nationals attended the Darden programme. Thanks to such exposure, today we have a number of UAE nationals from senior positions at various banks who regularly participate. To give you a perspective of the EIBFS’ efforts in terms of numbers, last year 5,945 UAE nationals—or 25 per cent of the total participants—took
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part in our programmes, including the ATP as well as the more customised ones mentioned above. In the last three years, a total of 18,112 UAE nationals participated in various EIBFS training programmes and workshops. The EIBFS’ role doesn’t stop at training and qualifying UAE nationals. We are now a strategic partner of the Careers Festival organised under the aegis of the Ministry of Human Resources and Emiratisation. We are also a key contributor to the Government Accelerators, which was created in October 2016 as the world’s first such concept. The Ministry, as well as the Government Accelerators, consider the banking and financial sector a key pillar, and to support their work we actively help in the placement of UAE nationals. For instance, in February 2017, we hosted a Careers Festival on our Dubai campus that placed more than 900 UAE nationals at various financial organisations. The EIBFS also recommended constituting a committee to meet the requirements of banks looking for qualified national cadres. This was put into action by the National Qualifications Authority (NQA) and established the ‘National Committee for the Development of Professional Standards’, which will optimise study programmes within the banking industry with the strategic objective of supporting the UAE’s Emiratisation drive while also increasing the number of qualified personnel within the sector. The committee includes members from UAE Central Bank as well as a consortium of commercial banks. What are your projections on the market this year? The full year earnings of GCC banks in 2017 show that profits are improving, costs are reducing and there is a substantial drop in cost of risks, which is positively impacting their profitability. Islamic banks are also performing well and experiencing good profitability, and
WE ARE NOW A STRATEGIC PARTNER OF THE CAREERS FESTIVAL ORGANISED UNDER THE AEGIS OF THE MINISTRY OF HUMAN RESOURCES AND EMIRATISATION. WE ARE ALSO A KEY CONTRIBUTOR TO THE GOVERNMENT ACCELERATORS, WHICH WAS CREATED IN OCTOBER 2016 AS THE WORLD’S FIRST SUCH CONCEPT. HE Hesham Abdullah Al Qassim, Chairman, EIBFS
the UAE continues to be a large player in the Islamic finance market. I think this shows that we are on an upward trajectory and that the industry is well poised to register growth. As an institution that caters to this market, it is imperative that we stay relevant to banks and financial institutions, given that it is an industry that needs constant training in line with the transformational changes taking place all over the world. What’s EIBFS’ strategy for the medium term? I am happy to share exclusively with you that the EIBFS recently worked with the Boston Consulting Group (BCG) to produce a report outlining the institute’s strategic direction until 2020. As part of this, BCG concluded a Strategy Review exercise to define a revised strategic positioning
and operating model for the EIBFS in line with the UAE financial training landscape, as well as audits of internal and external stakeholders, customers and international training institutes. The report highlighted that our efforts to launch various programmes to enhance our offerings have been recognised by the banks, and that there is the general perception that our quality has improved. However, the report also noted that there is room for improvement in terms of our perception among senior banking stakeholders. Going forward, our strategy calls for further evolution in line with the increasing sophistication of the UAE’s market. This essentially means that in the medium term, over the next one to three years, we will continue our focus on training sessions with minor, well-defined tertiary roles, for example through our academic programmes. We also aim to expand our range of offerings, focus on certifications and enhance quality as well as perception. With regards to the mandate of our academic college, which includes Bachelors and Diploma programmes, BCG recommended partnership with other academic providers, preferably within the UAE. It was suggested that we launch a new academic partnership model to leverage partner strengths for the delivery of high-value specialised programmes. The partners will provide core course delivery and add credibility to each degree as part of their commitment to delivering best-in-class education, especially in advanced courses. In turn, the partner benefits from a stronger link with banks. This is something we are keen to work on going forward. The strategy report also mentioned that the EIBFS should play a more active role as a participant in defining professional standards. As an advocate of Emiratisation and a strategic partner of the Ministry of Human Resources and Emiratisation, we will continue to engage in nationalisation strategies.
THE REAL POWER OF
BLOCKCHAIN Sirish Kumar, CEO & Co-founder of Telr, asserts that blockchain technology is a driver of financial innovation
With that in mind, here’s a few specific areas where blockchain stands to make a genuinely significant impact on the way that financial services are provided and accessed.
PHOTO CREDIT: Shutterstock/Phive
f blockchain didn’t already exist, we’d probably need to invent it. It’s difficult to think of any other application that is so completely of the moment: its security, accessibility and ability to treat real-world items as digital ones could make blockchain the glue that binds together our future digital ecosystem. The opportunities in a digital ecosystem lie in being able to join the dots, to provide the linkage between one set of data and another. This is more evolution
than revolution, but that’s not necessarily a bad thing—and blockchain provides a platform to supercharge its impact. That’s not to say that blockchain comes without its own challenges: in particular, its computing power requirements and its cost per transaction are current barriers to it being able to operate at scale. Nonetheless, blockchain has vast scope, making it highly likely that market forces will provide the stimulus to overcome today’s power and cost challenges.
DIGITAL IDS Governments—and the UN—are now exploring how to use blockchain to provide digital IDs to the segment of the population that’s financially excluded. This segment is massive (a recent study showed that it represents 19 per cent of the population of India alone, and a billion people globally). Historically, they have often lacked the essential identity documents required to access financial services, but this is being addressed at a governmental level, with these individuals being provided with a digital ID on blockchain. This under-served segment of society gains a presence in official records and through this, access to public services—and thereby an entry point into financial services. And that’s just the beginning. The presence of a digital ID and historical data facilitates a quicker credit process, and faster loan disbursement. Overlay individual data and transactional behaviour with machine-learning, and there is the capacity to create an early-warning system for fraud detection. These mechanisms—rapid evaluation and disbursement, and predictive antifraud—stand to improve the availability of credit, as financial institutions are able to lend with more confidence, with a shortened application cycle. This offers a boost to domestic economies, but also creates a whole new marketplace for the innovative provision of credit. DISINTERMEDIATION Disintermediation in one form or another has been a threat to traditional financial services institutions for the best part of this century. Well, blockchain is nuclearstrength disintermediation.
Blockchain takes data—whether relating to a person, asset or transaction— out of the control of isolated owners and makes it commonly available to all actors. Financial agreements can be validated at speed. Payment values can be computed in real-time. And all within a highly secure environment. Traditional financial services firms have just ceded their ownership of data, security and payment channel. Take insurance as an example. Blockchain-led smart contracts remove the need for laborious manual processes, in both the establishment of an insurance contract, and the investigation and pay-out of claims. An insurance company in India is now using blockchain to settle claims for overseas flight delays—the distributed ledger provides the data and transparency; the insurance company benefits from a reduction in administrative overheads and fake claims, and the customer benefits from ease of use and rapid payout. PAYMENTS Blockchain’s greatest disruptive potential is in the payments space. As we’ve seen, blockchain is already enabling the world’s unbanked to access financial services. This creates a new segment of individuals that previously would’ve been entirely cash-focused, but that now are able to access digital payments. Inevitably, old habits of reaching for a banknote will take time to supplant, but the speed and security of blockchain could well bring a significant positive push to the behavioural change. Also meaningful to this segment is the impact that blockchain will have on international money transfers. As recipients of remittances from family overseas, they will be able to receive funds directly rather than rely on exchange houses and receive their payments rapidly. Whereas overseas payments currently take days, with blockchain this transfer time turns to seconds—and of course this speed of transfer will apply equally to businesses, whose cashflow will benefit from a vastly
improved collection period from overseas customers. This speed, and blockchain’s security, will make it the channel of choice where immediacy matters. And blockchain works as well for micropayments as it does for sizeable overseas transactions, and this becomes particularly interesting when we start joining the dots between individual behaviour and public/private services in smart cities. Imagine, for instance, dynamic, real-time pricing for public transport to decrease congestion, with the charge automatically levied as the service is used. This whole process, from calculating the price, to monitoring individual use, to applying usage fees, hinges on blockchain.
Sirish Kumar CEO & Co-founder, Telr
THIS IS MORE EVOLUTION THAN REVOLUTION, BUT THAT’S NOT NECESSARILY A BAD THING—AND BLOCKCHAIN PROVIDES A PLATFORM TO SUPERCHARGE ITS IMPACT. Sirish Kumar
CUSTOMERS WILL EXPECT MORE So why is all this a particular driver of innovation? Each of the aspects I’ve focused on creates opportunities for innovation in that particular field. But more than that, blockchain as a whole drives an innovative environment. It allows firms to join the dots between live data sets that would previously have been out of reach—and provides a pressure to innovate from the raised expectations of consumers that increasingly benefit from the intelligence that blockchain brings to their digital activities. A prime example of this is in the use of blockchain in smart cities: blockchain is likely to be an essential component of many smart city initiatives. This not only habituates consumers to the smart application of blockchain technology, but also stimulates participants in the smart city ecosystem—in which financial services institutions will be vital actors— to think themselves about how else blockchain could be applied to their own services and processes. Ultimately, it’s win-win for financial services consumers and businesses alike, at least for those businesses that have the agility and foresight to be able to take advantage of the opportunities that blockchain offers.
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IT TEAM ‘IN THE DARK’: THE IMPACT ON BANKING Elie Dib, Regional Vice President, METNA at Riverbed, explains the long-term implications of a sluggish technology system on a bank’s day-to-day operations
ver the last decade, banks have focused their energy on keeping pace with an increasingly digital world. In fact, the majority have done a great deal of work to streamline processes, both online and in traditional banking, to meet customer demands. Banks have enhanced ATMâ€™s to be able to handle balance, withdrawal and basic deposit tasks, and have even developed mobile apps and efficient queueing systems in-branch.
Elie Dib Regional Vice President, METNA, Riverbed
IN TODAY’S WORLD WHERE BANKS NEED TO KEEP PACE WITH THE RAPIDLY PROGRESSING USER EXPECTATIONS OF IMMEDIATE ACCESSIBILITY, IT IS IMPERATIVE THAT BANKS LOOK WITHIN THEMSELVES. Elie Dib
Ultimately, banks want to move all low value, high frequency transactions into fully digital channels, in a way that provides ease of use for customers as well as increased productivity and efficiency for transactions taking place in branch particularly for the higher-end, high value, face-to-face interactions such as mortgage and loan applications. However, despite these advances, there remains an underlying, unaddressed issue that will continue to hamper performance and end-user experience, cause delays and potentially lead to customers switching banks if not addressed—slow running systems. How often have you either called up or visited your bank during your lunch break, to be faced with a long queue and the mental debate of whether to give up and try again another time or wait it out? If you decide to wait, when you finally reach the cashier or get taken off hold, you are likely to be greeted with, “sorry for the wait, it seems my computer is running slowly today,” whilst they try to pull up your banking details. However, these small glitches are damaging to a bank when they repeatedly happen. They mean that the end-user (cashier) is losing productivity, and the banking customer’s experience is a slow and often negative one—which could have a huge impact on the brand’s reputation overall. The question is how to fix this issue? In majority situations, it’s doubtful that you will be able to rely on your end-users to report the problem. The unfortunate fact is that more often than not, a slow running system has become an accepted norm and though it might be annoying— unless the computer fails completely— it’s unlikely that it will be reported to IT to be investigated.
THE UNFORTUNATE FACT IS THAT MORE OFTEN THAN NOT, A SLOW RUNNING SYSTEM HAS BECOME AN ACCEPTED NORM AND THOUGH IT MIGHT BE ANNOYING—UNLESS THE COMPUTER FAILS COMPLETELY— IT’S UNLIKELY THAT IT WILL BE REPORTED TO IT TO BE INVESTIGATED. Elie Dib, Regional Vice President, METNA, Riverbed
This is hardly surprising when you consider the knock-on effect of a slow system—long queues and already disgruntled customers. The cashier has targets to hit and customers to serve, so they will continue to battle against a slow system, trying to get through the queue as quickly as they can, rather than making the customer wait whilst they follow the procedure of reporting issues to IT. This creates a never-ending spiral of unsatisfied staff and customers alike— and an IT team in the dark when it comes to the problems. THE END-USER EXPERIENCE PARADOX As any IT worker will tell you, the only thing more worrying than a queue for IT support is no queue at all, as this shows an acceptance of bad performance that ultimately damages the bottom line. When the front of house staff is inevitably questioned as to why the queues are growing so large, they will eventually point at the system running ‘slowly’. In this eventuality, the IT department will
rebuke with the fact no complaints have been logged. Thus, the cycle continues. With the problem just posed, it is simple enough to say to staff, “Make sure you are reporting problems to IT!” but the reality of the matter is that this is only a temporary solution. As time goes on, and queues rise again, and pressure builds front of house, the calls to IT slowly dry up and you’re back to square one. Also, if IT does not have visibility of the entire network, it can be hard to pinpoint the exact issue when all they have to go off is a cashier description of the computer being ‘slow’. That description leads to more questions—slow in comparison to what? What is considered fast? Is it a certain application running slowly or the whole network? Or is it just the individual device that is faulty? These are technical questions that the cashier may not be equipped to answer, leaving IT with the task of trying to pinpoint the issue. THE VISIBILITY SOLUTION So, what can be done? Instead of depending on the ‘end-user paradox’ to troubleshoot
chokepoints and inefficiencies within the wider IT network, it is time for financial CIOs to enable their IT workforce to put out fires before they appear. Arming the IT department with tools that provide them with visibility over the entire network, will give them the ability to isolate and fix problems predictively and proactively, rather than having to rely on an end-user to rectify the issue. Having the right solutions in place helps employees to focus on their own individual roles in the organisation, without having to worry about lengthy reporting to another department and slowing down productivity. It also enables IT to reduce delays that impact productivity, before they happen, and ensures improved application performance and end-user experience. Ultimately, in today’s world where banks need to keep pace with the rapidly progressing user expectations of immediate accessibility, it is imperative that banks look within themselves. After all, it is impossible to deliver a first-class digital service if your IT department is left in the dark.
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Participants in the dialogue were: Abdulrahman Al Ansari, Ex Financial Advisor to the Royal Family; Antonio Boulos, VP BPN MENA; Christos Stampoulopoulos, Greek Embassy Commercial Attaché; Debbie Stanford-Kristiansen, CEO, Novo Cinemas; Ersoy Erkazanci, Bloomberg Middle East; Hisham Farouk, Managing Partner, Grant Thornton; Kamel Abdallah, MD Aatco Foods; Kerim Mitri, MD MEA – Spectra Automation; Marios Efthymiopoulos, Associate Professor of International Security and Strategy, UΑE; Nabilah Annuar, Editor, Banker Middle East; Pramod Balakrishnan, CEO, Emirates Hospitals; Rajeev Kakkar, CEO, Dunia; Rina Bardic, Market Development Lead for Innovation, Thomson Reuters; Sanjay Manchanda, CEO, Nakheel; Sara Mohammed, CEO, Suwaidi Pearls; and Tarek Nizami, CEO, CEO Clubs.
STANTON CHASE LIGHTHOUSE LEADERSHIP MEETING Stanton Chase and DVK Consultants provides key highlights of the discussion
n partnership with DVK consultants, Stanton Chase hosted its Lighthouse Leadership Meeting on 5 February 2018. The theme of the discussion was to spot trends that will affect businesses in the UAE between 2018 to 2020. The event was hosted by Panos Manolopoulos, Managing Partner at Stanton Chase Middle East and Strategic Advisor at DVK Consultants, Dr. Dimitrios Vasileios Kokkinos Chairmain and Managing Director, and Spyros Gousetis, Vice Chairman, both at DVK Consultants. Held at the Capital Club DIFC, the meeting discussed the principal challenges for businesses in the UAE, particularly Dubai, in view of the
geopolitical and international environment, the unstable international financial situation, and the specific challenges of doing business in the UAE, particularly in economic adaptation. Operating in the region, businesses must adapt rapid economic, technical and socially fast evolution and growth of the UAE. Businesses must also take under consideration external factors that influence the business such as: the turbulent global situation and the rearmament of most countries; the unstable international financial situation due to the bubble created by excessive liquidity and the possibility of a new financial crisis; the changing economic conditions in the Middle
East; technological challenges;as well as the need to change the business model to ensure survival and growth of the companies operating in Dubai and the UAE. The situation specifically concerning businesses is the instability in many MENA countries, particularly in Syria. The regional instability is principally due to the alliance between Turkey and Iran that form together a significant geopolitical factor with regional expansionist ambitions, further to their common problem of Kurdish irredentism and nation status seeking. Friction is expected to worsen in Syria and Lebanon with Russia supporting Syria, Turkey and Iran, Turkey attacking
Syria and the Kurds and Israel facing aggressively Iran in Syria and Hezbollah in Lebanon. Iran is actively encouraging civil war in Yemen, approaching Qatar, which continues to encourage terrorism against its brother Arab States in GCC. The USA focuses mainly on Syria. No dramatic USA policy changes are expected before their November 2018 elections. Further turbulence in the area is expected. UNSTABLE GLOBAL FINANCIAL CONDITIONS Current global financial conditions exist principally due to the bubble created by excessive liquidity and very low interest rates which is the policy of all main central banks since 2008. Stocks are overbought, and an excessive amount of bonds is offered and bought in the market. Willingness for risk is very high and the proofs are the cryptocurrencies which grew from nothing, based only in the expectation that their price will carry on rising. All leading financial indicators are warning red. Total world debt exceeds $230 trillion and US unfunded liabilities is estimated at $127 trillion dollars and proportionally similar to other important states in the world. The first financial tremors were felt recently and showed how deeply interconnected is the worldâ€™s financial system. It will be an achievement to finish 2018 without a major market correction. A lot will depend on the rate of liquidity reduction and interest rate increases by the central banks. The overall situation is fragile. It was pointed out that the US has switched its debt into long tenured lowcost money. For the world economy to stabilise interest rates must stabilise. It must be noted that a great geopolitical change is taking place. The transition of global finance in a hyperconnected world has, as a result the redrawing of political, and not only, alliances. We see the emergence of hybrid alliances and the shift from capitalism to corporatism.
Another important factor is EU relations with the Arab Gulf. In a changing EU, Germany accepts World trade as part of corporatism and is expanding eastwards in trade and culture, and moderately in political terms. CHANGING ECONOMIC CONDITIONS IN THE MIDDLE EAST The principal factor in this change is the price of oil and the volume of Middle East oil sales. They are both under threat due to the decision of the US to do an aggressive export expansion in hydrocarbons, outproducing every other country which they are achieving with shale-oil taking the slack of OPEC cuts and the establishment of many LNG exporting terminals. The recent Chinese investments in American hydrocarbons indicate that China will increase its American hydrocarbons imports to the detriment of the Middle East producers. The traditional principal source of income in the Middle East is continuously diminishing. That proves the wisdom of Dubai and the UAE, which opted for the rapid development of a non-oil economy. The independence from oil income is the successful future of this country. POINTS NEEDING ATTENTION Something to watch is the tendency for de-globalisation in spite of the significant
A GREAT COMPETITION FOR JOBS IS TAKING PLACE TOGETHER WITH A DRAMATIC CHANGE IN THE LANDSCAPE OF HUMAN TALENT REQUIRED.
dependence on western and large Asian economies. As a result, certain government roles are strengthened in spite of the above-mentioned privatisations and corporatism. A reintroduction of tariffs will hinder international commerce. The world population is increasing from seven to nine billion people with 50-60 per cent of the population being youths. A great competition for jobs is taking place together with a dramatic change in the landscape of human talent required. Cutting jobs continuously, particularly in the services sector, in spite of short term economies, leads to high number of unemployment in the long run unless measures are taken at the early stages to develop new talents necessary to sustain a demand economy. Given the progress of the economy, there is a tremendous opportunity in the UAE for inclusive growth. Dubai is transforming from a city for the affluent into a city that most classes can participate in its economy and enjoy the offerings. One of the strong pillars of business is the SME sector which is presently suffering from lack of resources to modernise, under-financed and are often overwhelmed by rules and regulations which they lack administrative resources to address. The creation of an environment promoting the SMEs will benefit the whole community. The UAE, as it is rapidly maturing, will focus a lot on governance and alignment with international legislations and regulations. Dubai is leading in this effort. In view of the increasing importance of the UAE in the world economy, a central interest rate of the UAE must be formed, the currency control and exchange rates must be defined only by the UAE central banking system and the taxation system must be permanently fixed. The challenge is customer-focused and government-managed. The government must take over the control of technology, so that technology serves the interests of its citizens and not of itself.
EFMA RETAIL BANKING SUMMIT 2018 This panel sesssion discusses the realities of operating in a digital era.
Discussions heavily revolved around leveraging technology to better serve customers and reduce costs
eld on 13 February 2018, the fourth instalment of the Efma Retail Banking Summit Middle East brought together industry players from over 46 financial institutions across the region. The presentations of speakers from different countries focused on the need to strategise operating models with customer segmentation, endto-end digitisation, leveraging links across borders and putting big data to work by identifying new avenues to explore, whilst enhancing the overall consumer experience.
In his opening remarks, Vincent Bastid, CEO of Efma, said, â€œThis summit has proved to be an ideal forum for an exchange of ideas on not only traditional retail banking, but also the latest developments in the sector. The summit is the fourth of a series of events in this region and the response from the financial sector has been exceptionalâ€?. The panels discussed opportunities for banking in an omnichannel world which is driven by the rapid growth in the use of handheld devices and the digital world, and the need to implement strategies that are mindful of both the opportunities and the pitfalls.
Vincent Bastid CEO, Efma
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The yearly summit provides a platform for banks to discuss pertinent issues in a collegiate manner.
“In today’s world, it is essential to anticipate changing dynamics, and to strategise and manage the impact of new entrants on the industry. At EFMA, we believe in encouraging borderless opportunities in the retail banking sector, by leveraging our vast global connections,” Bastid added. The summit was an opportunity for banking executives and professionals from the across the region to discuss the key issues and challenges faced by the industry, in particular the impact of digitisation and channel strategies, with
IN TODAY’S WORLD, IT IS ESSENTIAL TO ANTICIPATE CHANGING DYNAMICS, AND TO STRATEGISE AND MANAGE THE IMPACT OF NEW ENTRANTS ON THE INDUSTRY. Vincent Bastid, CEO of Efma
the imperatives of ensuring a successful digital transformation, while carefully managing costs and risks. The one-day summit was attended by representatives from Emirates NBD, Abu Dhabi Commercial Bank, Mashreq Bank, Abu Dhabi Islamic Bank, First Abu Dhabi bank, Dubai Islamic Bank, Al Hilal Bank, mbank Poland, Alior Bank Poland, Intesa Sanpaolo Italy, Kuwait Finance House Kuwait, Maybank Berhad Malaysia, Swedbank Latvia, Blom Bank Lebanon, Fransabank Lebanon, Facebook UAE etc.
THE LONG VIEW
As the GCC governments propel themselves to new heights, Tony Long, CEO of CPI Financial highlights the significance of a crucial initiative that is evidently changing corporates in the developed world
n the February issue of Banker Middle East, we featured Rania Nashar, CEO of Samba Financial Group on the cover, with a five-page interview discussing her thoughts on the bank’s performance and her vision for the future. As the first female CEO of a listed commercial bank in Saudi Arabia, Rania’s rise to the top is testament to the capabilities of women in what is arguably one of the most fiercely competitive, male dominated C-suite environments in the business world, but unfortunately her story is a rarity in the banking profession and particularly in the Middle East in general. Deloitte’s fifth edition of Women in the Boardroom (June 2017) gave a global perspective on how women are represented at board level, and whilst the there is definitely progress being made in some countries, it is still relatively slow in most markets, and extremely poor in many others. The most glaring statistic being that whilst on average women represent 15
Tony Long CEO, CPI Financial
per cent of board seats globally (which was up from 12 per cent in 2015), berating the UAE for being rock bottom of a list of 64 countries at only two per cent. In contrast, the best performer was Norway with 42 per cent of women holding board seats, with France second at 40 per cent and Sweden third on 32 per cent. The UK came in at 13th on 20 per cent and the US further down at 25th on 14 per cent. Interestingly, Finland and Denmark came in seventh and eighth with 25 per cent and 24 per cent respectively, giving Scandinavia four out of the top eight countries in the world, so something different is definitely happening there in a meaningful way. It is also telling that in companies with a female CEO the level of female board members rises to 29 per cent, compared to 15 per cent for companies with male CEO’s, demonstrating that women in senior leadership positions,
not surprisingly, are much more proactive about changing the status quo. And there’s good reason for this. According to Dame Vivian Hunt, McKinsey UK’s Managing Partner, “The correlation between diversity and financial performance is clear across different sectors and geographies: more diverse teams equals significant financial outperformance.” Among the findings of research conducted by McKinsey between 2011 and 2015, the most gender diverse quarter of companies were 20 per cent more likely than the least diverse to have above average financial performance, and encouragingly, financial services companies performed best in terms of gender equality. This is only going to increase as more women take the reins of bigger companies. Other research conducted by Korn Ferry suggests that the reason for this may be the different attributes that women bring to executive leadership. On average women tend to have held a more diverse range of roles before becoming CEO and are four years older compared to McKinsey's benchmark data. Women also bring more altruistic aspects to the fore. Whilst female CEOs interviewed by Korn Ferry were just as motivated by collaborating with other people, taking on more responsibility, power, etc., more than two-thirds said they were motivated by a sense of purpose and believed that the company could have a positive impact on its community, its employees, or the world around them. Nearly one-quarter said creating a positive culture was one of their most important accomplishments. Amidst the rapidly changing landscape of banking around the world, especially in the Middle East and the emerging markets of Africa and South-East Asia, it is likely that banks which can relate to these values and become central to the lives and communities of their customers will perform much better. It’s time to fully embrace gender equality in our industry, for everyone’s benefit.
For more information, contact Ahlan Ahli 1 899 899 or visit eahli.com Simpler Banking
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