Role of the UAE Banks Federation

Emmanuel Daniel (ED): There are three aspects of your role I’m interested in profiling. Firstly; your role as the chairman of the UAE Banks Federation, formerly known as the Emirates Banks Association, Secondly; the bank itself, Mashreq Bank which is very prominent in the UAE, and thirdly, the competitive profile of the region and how you think that’s evolving.

How would you profile the federation itself, and what are its most important priorities?

AbdulAziz Al Ghurair (AAG): One is to represent the bank to others within the UAE, such as Central Bank of the UAE, the government, and to the people, our customers. So there is a spokesperson representing the banks, be they foreign or domestic.

We also raise issues of importance to the banking community here, taking them up with Central Bank of the UAE, Dubai Financial Services Authority (FSA Dubai), and even with the government for issues such as labour. On those issues we represent the banks, and sometimes we also initiate issues such as responses to new regulations and so on that we think the government or the Central Bank of the UAE, or FSA Dubai needs to be made aware of.

We’ve managed to maintain the relationship with Central Bank of the UAE so well that sometimes they consult with us on many regulations to get our views and feedback so they can consider necessary adjustments.

ED: Some central banks have been focusing on the liquidity platform or framework. Why is that a priority for the Central Bank of the UAE given that liquidity isn’t really an issue for the banking system here?

AAG: I think the best time to establish regulation is when you’re in a good position. Liquidity is great here now so the timing is good. If liquidity was bad, and you impose regulations, nobody can comply with them. At this point we don’t feel any banks in the UAE would have issues with these regulations.

ED: What about the shared credit bureau that you’ve just launched? It took a long time building it, is it a positive or negative list at the moment? What do you think it’s utilisation will be and the culture that will come as a result?

AAG: It’s a full-fledged credit bureau. First we had to draft a law to allow banks to share their data. Previously banks were hesitant to share any data with third parties. Now, by law, they are all required to do so with the credit bureau. Then came the setting up of the regulations and technology, and dialogue with the banks to obtain and standardise the data.

ED: For the time it took to build the consensus, what do you think it says about the nature of the cooperation between the member banks and their understanding of the competition? The market is very small, and if you’re sharing data you’re giving away very proprietary data. The culture of competing on shared data hasn’t been put in place. What are some of the challenges you faced in getting the agreement of your member banks towards a credit bureau.

AAG: Now they have no choice. In the past they were hesitant, but by law they are now all required to do so. Every bank must share all their data on retail customers. There are multiple benefits to this. First of all it benefits the consumer, so that they really know what their capacity for borrowing. It also benefits the banks because then they know how much they can lend. It also benefits the central bank, and the economy. There is a healthier retail lending system, and it reduced risk-charge write off for consumer retail.

ED: Right now, how much data does the credit bureau have, and how useable is it?

AAG: All the banks have already shared their data. However there are still a few issues, such as that with the recent law being passed on seeking customer consent for each time their data is used. That’s not user friendly so the banks are seeking to have that law revised as it’s not user friendly at all.

ED: Where did that customer consent law come from, because in a number of countries you don’t have that? In the US customer consent became important because there was too much data available on consumers and banks were actually rejecting them.

AAG: It stemmed from customer privacy; the personal data issue. But we’re sharing it with a limited number of institutions, not the public. Yet there was a push in the parliament to protect the consumers, so that came about.

ED: So was there a lobby against sharing information that didn’t come from the banks, maybe from the consumer industry?

AAG: Yes, they didn’t want that because it was in their own interest. The more data they have the better decisions they can make and the better prices they can get.

Building Mashreq Bank

ED: Your Excellency, you role is very interesting. You come from a very distinguished family, you’ve been active with the government and now you’re running a bank. In building a bank and building an infrastructure for a banking system, what are the issues that you’ve found difficult to sell at the government level? How have you managed to get the government’s attention on issues that are important to banking?

AAG: I think people should be aware of the success of the economy, and one of its pillars is the banking system. Without a strong, health, innovative banking system you aren’t going to go far. Thankfully, the UAE has good policies, and good central bank, and therefore the economy is flourishing.

ED: The banking system as a percentage of the size of the economy is much smaller than financial centres. It’s still growing. Is it your goal to see banking grow much more significantly, to the extent this becomes something like an offshore centre or similar?

AAG: If you compare us with China, of course we are very small. But you have to compare us with the region. In the Arab the UAE banking total asset value is the largest at 2.3 trillion dirham ($626b), from Morocco all the way to Oman. If you take it per capita we’re by far bigger than any of them. So relatively, we have the largest banking sector here. The contribution of the banking system to the economy is quite visible.

ED: Is offshore banking something you would be interested to see put in place?

AAG: All banks are licensed to work in the UAE. We have an outstanding financial centre which is DIFC, and now Abu Dhabi Global Market is also setup. It is not offshore, it is a properly regulated financial centre governed by our own laws, legislations, regulator and our own courts. We have created an environment that is world class.

ED: But Mashreq Bank and the domestic banks own ambitions; in order to grow your asset books, it’s not possible to just be domestic. Regional opportunities are still there though so having an offshore book would be beneficial.

AAG: Offshore book, yes. We will expand where is reasonable. We are a full-fledged bank in Qatar, Bahrain, Kuwait and Egypt. In London, New York and Hong Kong we have correspondent facilities which we concentrate on, despite having full banking licenses. We will grow in the GCC region as there’s potential here. I might not want to expand beyond that. We want to have 25% of our revenue coming from international sources, and we’re almost there. UAE is also growing fast, so we have to keep the ratio by growing the rest.

ED: What are the opportunities you see beyond the UAE that can help you keep to that 25%?

AAG: Being a UAE based bank, there are a lot of our clients going international and we tend to serve them. Being an advanced banking system in the region we tend to export out services, products, technology, thinking, and innovation to the region to give us a larger market share.

ED: Mashreq Bank even in your own market comes across as being small. Is scaling up an important priority, and is M&A something you’d consider?

AAG: M&A has been discussed and it’s one way to grow, but we see 80% of M&A around the world failing. We have to be careful, and we’re not looking for size, but we are looking for return on equity for our shareholders, and return on asset for the bank. Among the 51 banks in the UAE, we’re ranked fifth or sixth in terms of size and assets. The bigger four are much larger with three or four times our size.

ED: What is your cost to income ratio?

AAG: Today it’s about 35.

ED: That’s an excellent, well-managed ratio. That’s because your cost to fund is very low and your cost of distribution is not as expensive as other markets. In other markets, you’d be a very expensive bank.

AAG: Really?

ED: In the UK you have banks about your size, the challenger banks, which have cost to income ratios of about 70%. That’s because the cost of acquiring deposits is massive and the competition levels are very high, as well as cost of investment in technology. How important is technology to your bank and what are you investing in?

AAG: We’ve been known to be an innovative bank, one that challenges the system. We were the first bank to centralise the back office. In the old days processes were finished in the branches; even now some countries still do that. In 1991 we centralised our back office; at that time no bank in the Arab world, foreign or domestic had done that. In 1996 we went international, bringing our overseas processes back to the UAE. The idea was control, efficiency, cost and scalability.

If I had a branch in Qatar or Egypt that wanted to add more business, I can scale up very fast here. Today New York, Hong Kong, India, all those back offices are processed here. We’ve gone beyond that and have a mix of processing centres, and that all happens within ours. Today our daily clearing is done in India, not here.

ED: Let me get a profile of you as a leader. You’re not just a banker but you belong to a family that owns properties, retail businesses and more. What is your mental makeup? What is the DNA you bring into the business?

AAG: Yes I come from a business family and we’re entrepreneurs, but scale has changed. Every single business we have today started from scratch. This bank will soon be 50 years old; we’re the second oldest bank in the UAE. Everything was started from scratch, so we’re really businessmen and entrepreneurs.

ED: As an entrepreneur family, the combination of banking and commerce; how do you manage that? Is the bank run separately from the rest of the business?

AAG: Yes, there’s a wall between each business.

ED: Recently your loan loss provisioning has shot up; what was the reason for that? Why now, a few years after the crisis in Dubai?

AAG: It’s a provision of over 100%; we have no issues there and will be at 110% by year end. So we provide for more than we require. If you look at companies in the UAE, time cures all problems. Nakheel used to have an $8 billion loan; this year they’re prepaid. When problems come, as long as it has nothing to do with the customer, it’s really a systemic issues, and industry issue. If the company is good, you cannot be aggressive to the company because customers don’t forget.

Sustaining family-run businesses

ED: How would you describe corporate governance in the bank and in the group as a whole?

AAG: I think it’s on par with best practices. We have invited an US-based international organisation for audit, to come and review our corporate governance and internal processes. They said we were on the top quartile of the companies they’ve audited.

ED: In entrepreneurship, what do you focus on? Is it the industry, the customer, good business sense, profit, shareholder responsibility or anything else?

AAG: I think it is always good to be in the right industry. First you select that and you need to understand that industry. Next you have to manage risk, that’s true no matter what industry you’re in. Then you have to look after customers; I think there’s not enough attention being paid to customers in the region. You also really must have engaged employees. It’s not just a matter of salary and delivery, but it doesn’t work that way. This year we were named “Best Place to Work in the World” by Gallup. The difference is our employees; disengaged employees are a burden on the organisation. If you have below eight to ten percent who are disengaged, that’s already world class.

ED: Is it different for the various businesses you’re in, such as the cement business or the property business? Is the level of engagement different?

AAG: Yes it is.

ED: How do you keep that going? How do you divide your time between the businesses?

AAG: In the other businesses I am a board member. We have four independent board members; the chairman is not a family member. We’re trying to professionalise the family business. We feel the challenges for family businesses here in the region are in transition from generation to generation. The founder must put into place the corporate governance, processes and infrastructure for handing over to the next generation. Run your business like a public listed company, and you’ll have a smooth transition. Otherwise there will always be issues between family members.

I sit on a network of family groups called Family Business Network where we promote good governance for families and what they need to do to ensure good succession planning. This is actually a global issue; family businesses no matter how large can be destroyed if the founder does not put in place the right framework.

ED: How much of that do you extrapolate into your banking business? You’ve written articles on small business and entrepreneurship. Do you put some of those feelings into how you run your small business banking and how you support small businesses into your banking business?

AAG: The large corporates know how to look after themselves. For us we feel it is a duty to encourage small and medium size businesses because they are quick to start up, can generate employment very quickly, and have impact on the GDP of a nation. It is them who can move us faster so there is more focus on them from the banks and government. We play a role in funding their business.

ED: Back to the priorities of the Banks Federation, how would you describe the relationship between the Banking Federations in the different GCC countries?  The economies have tried to integrate but they seem to have a lot of trouble finding common ground. How is their working relationship and what would you like to see, mobbing forward?

AAG: I think we should not expedite; everything takes time and has its own priority. Each country should now enjoy the development opportunities available to them in their countries. We were quite ambitious when we set up the GCC and we wanted to fast track everything, but we couldn’t do that. We have to allow things to happen naturally. We guide, set targets, establish strategies, but we can’t push it or it may backfire. Establishing a common currency was a no brainer, but before we could get a common currency we first had to get legislation, economic policies, everything has to be standardised and uniform. The currency itself is just the tip of the iceberg. Today we don’t even have a uniform standardisation for any of the food items.

ED: So is that like two steps back and three steps forward?

AAG: No, it’s a correction step. Sometimes we want something fast but it doesn’t happen.

ED: Coming from such a distinguished family you could have just sit on the board and have someone brought in here running the bank as the CEO, why aren’t you doing that? Do you enjoy the hands on experience or are you giving yourself a timetable of sorts?

AAG: People make a choice on how they want to live their lives. I believe the more you’re engaged in whatever you do, the healthier, more alert, and active you are in your life. To switch off and take a back seat, and relax, your brain starts to deteriorate. So I believe people should never retire as long as they have their health, concentration and ability to deliver they should be allowed to contribute.  At the same time, you should also know when to pull out, depending on situation.

Categories:

CEO Interviews, Governance, Operational Risk, Regulation, Retail Banking, Risk and Regulation, SME Banking, Trade Finance, Transaction Banking, UAE

ceo,Governance,Oprisk,riskregulation,retail,Risk and Regulation,SME Banking,Trade Finance,Transaction Banking,UAE,

CEO Interviews,Governance,Operational Risk,Regulation,Retail Banking,Risk and Regulation,SME Banking,Trade Finance,Transaction Banking,UAE,

Keywords:AbdulAziz Al Ghurair, Mashreq Bank, UAE Banks Federation, Central Bank Of The UAE, GCC, FSA Dubai, Market Risk, Data Privacy, M&A, Cost To Income Ratio