FGB is the leading bank in the UAE by net profits. The Prospect Group spoke with FGB’s André Sayegh (CEO), Hana Al Rostamani (Head of Consumer Banking), and Simon Penney (Senior Executive Vice President & Head of Wholesale Banking) about FGB’s strategic direction, the UAE’s transformation into a financial hub, and capitalizing on changing global trade flows.The UAE has been working to diversify its economy and build up its financial industry for a number of years.
How successful has the country been at establishing itself as a major player in the world of finance?
SAYEGH: The UAE is very well placed to move into the second level of doing business. Historically, the UAE is very well known as a trading hub. Now, what we have witnessed over the past few years is that the UAE is transforming into a financial hub, and when we talk about financial hubs, it is essential for an economy to have a strong banking sector in order to have a prosperous economy. We’re talking about 23 local banks and 28 foreign banks operating in the country, plus those who are operating in the free zones.
We’re also moving into becoming an industrial hub. And there are very good reasons for the UAE to become an industrial hub because you’re talking about closeness to raw materials, and very good infrastructure; airports, roads, and highways. We’re talking about an environment of low to no taxation, and it attracts good talent. The human element is essential for the success of any business, and particularly for the world of finance, because our major asset is something which we do not see. What you see are the talents of people, and so talent is something which is critical to the success of the financial sector and the UAE is very well placed, and has historically proven to be so, to attract talents from all corners of the world.
I would rank the human element as number one in the financial world. And if I come to FGB, we are moving now more and more into offering to our staff a different lifestyle internally. So we want our staff to live the customer experience internally, experience it, and then move it to the outside world and this is what we say building a culture of very good and efficient service.
What is your outlook for the UAE’s banking system? How well positioned is the banking sector to support economic growth going forward?
SAYEGH: The banking sector draws its strength from the economy, and the economy is growing at a rate of 4% in terms of GDP on an annual basis, and the 4% is a reasonable growth. It is not very high; it’s not very low. It’s a reasonable growth.
The banking sector in the UAE is the backbone of the strength of that economy. It is very important for any economy to grow to have a very solid banking sector. When I say banking sector, I do not talk about isolated banks. I talk about the strength of banks across the whole spectrum of institutions which you see in the country. Over the past few years, we have noticed that the banking sector has sailed safely, even during the most difficult times, and this is related to the very strong regulators, very strong ownership, and professional management across the banks.
We always face challenges. But the banking sector is very well placed to support the growth of the economy locally and internationally. Now I’m very pleased to say that the Central Bank over the past few years has played a major role in terms of supporting the banking sector in terms of regulations, I would call them rational regulations. Those regulations have the intention of controlling, monitoring, and supporting growth at the same time.
Now there is one more element which I would like to introduce, which is that the regulator does not operate in isolation of the banking sector community. There is what we call the UBF, which is the UAE Banks Federation. It’s in direct consultation all the time with the regulator to make sure that whatever is being offered and whatever is being regulated goes in line with what the economy really requires, with the intention, again, of making sure that growth happens. So the difference between a regulator and another regulator is that there is always a benchmark beyond which one should not cross, because if you cross that benchmark, then you kill growth. So the UAE regulators understand very well the importance of regulation and the importance of that benchmark.
FGB, being a major bank in the UAE, has a responsibility towards the economy and towards the community to make sure that it plays a major role. So one of the roles which the bank is playing along with the UBF, the UAE Banks Federation, along with the regulators, is to make sure that we introduce rational regulations with the objective of growth in the economy and that’s the whole purpose. The purpose of a regulator is not necessarily to choke an economy. The purpose of a regulator, along with the banking sector, is to make sure that there is prosperity in the country, there is employment, and that basically everywhere it has to be a win-win for the economy. That’s the whole purpose of establishing this dialogue which happens very frequently.
How well is FGB’s strategy aligned with Abu Dhabi’s Economic Vision 2030?
AL ROSTAMANI: FGB’s strategy is very much aligned with the Abu Dhabi Vision 2030. It falls in different ways and different areas. I will talk to you about the first area, which is economic diversification, and that is very important in the Abu Dhabi Vision 2030. We have also been very supportive with the economic diversification of Abu Dhabi. We have been focusing on supporting all the economic development in various industries and sectors like energy, transportation, aviation, as well as manufacturing and the telecom industry. So all these areas we’ll be focusing on supporting as a business and in the financial industry, in terms of corporate finance and aligning our portfolio and strategy, and diversification in these industries. So there’s very much alignment and a parallel line of growth. Our growth really comes from the economic growth of Abu Dhabi and the economic diversification.
What products and services are the most promising for FGB from the wholesale/investment banking point of view? What plans do you have to leverage your existing client base?
PENNEY: The key focus of the reorganization, and the creation of the wholesale bank at FGB, is built around three key pillars. The first one is our client franchise. The second one is the products that we sell to our clients, and the third one is the geographies and regions in which we work.
Turning to the first one, which is our client business. One thing that became very clear is that we have a very, very solid UAE corporate banking business, but within that client base, there was a section of clients which have grown very, very significantly over the last decade and that were being serviced very much by the international banks for their cross-border banking needs. We identified a gap in our own product offering, which meant that we weren’t able to service those clients in the same ways the international banks were. So not only is it about diversifying our clients but it’s also about diversifying the products we sell to our clients. The three core products where we see the most opportunities for growth over the next few years are within debt financing, within transaction banking, and within Islamic financing. More particularly, within debt financing, we see great opportunities for syndicated loans, for international debt capital markets, for project bonds, and for structured financing. We’re setting up a dedicated debt team to look specifically at those opportunities both with our investment banking clients here and also with our international clients.
In looking at the other products, transaction banking is a core competence that the bank is looking to develop. More particularly, international trade and international cash management are critical to our evolving global transaction service business. So tapping into trade flows between the UAE, India, Asia, and Africa, is the core to the strategy we have for transaction banking. It’s predominantly around trade financing, helping clients optimize their working capital flows, helping clients access cheaper financing for international trade, and helping clients move their money around the world through an international cash management platform are key to our transaction banking business.
The third leg was international diversification. In 2008, we generated about 3% of our revenue from international business. We generate about 9% today, and we are looking to significantly increase the contribution of international revenue to the wholesale bank over the next three to five years. The main areas we’re focusing on are the East-West Corridor, from the Middle East into Asia, and increasingly the Middle East down into South Africa. If we look at the importance of Asia to the global economy, one only has to look back to say 1980, where approximately 16% of the GDP of the GCC came from emerging markets. Today, that number has crossed 50%. So emerging markets, and Asia within that, form a very, very critical part of global flows of trade and finance going forward.
Within the breakdown of global GDP, the largest trade corridor today is within Western Europe. However, by 2030 Western Europe will be relegated to the second most important trade corridor, and by 2050 Western Europe will become the fourth most important trade corridor. The first three trade corridors will all involve Asia, whether that is trade within Asia, or whether it is trade between Asia and Europe or trade between Asia and the Middle East. So clearly Asia is going to play a very, very important part in global trade going forward into the future.
Take China, for example, and the UAE. Today, Chinese trade with the UAE is about $35bn. That is forecast to increase to $60bn going forward. $60bn is equivalent to the GDP of say, Lebanon and Bahrain combined. So to give a sense of the significance and size of GDP, one simply cannot ignore the role that China is going to play in trade with the UAE going forward. Within that, a lot of trade products get re-exported from the UAE, which is exploiting its trading hub status, on into Africa. So that trade corridor between Asia, the Middle East, and Africa, is going to play a very, very significant role and FGB is looking to place itself in the middle of that and take advantage of supporting our clients who are either importing, exporting, or re-exporting from the UAE as a hub.
How well positioned is the UAE to succeed as a regional financial hub?
SAYEGH: Having a strong financial hub is not only a reflection of what the UAE wants, it is an answer to what the regional requirements are. In today’s world, you know the world of finance does not have borders. So you don’t need a visa to move from one place to another and things move at the blink of an eye.
The challenge which the world is facing is the speed at which you do the transactions because the world doesn’t wait for you. The UAE understood very well the importance of efficiency and it’s moving even one step ahead of some other countries, I would say from being just an efficient country into becoming even a smart country. So efficiency is one way of doing it, but smartness and how you do things is again something very important and essential for an economy to prosper.
How does the UAE’s banking sector compare with others in the region in terms of technology adoption and capacity? How much of a factor is technological leadership in FGB’s overall strategy?
AL ROSTAMANI: Online banking and digitization basically has taken a different dimension globally, and that of course has impacted the UAE. You get people who are very keen on Internet banking and online banking, but you still have the other side of the population that prefers the traditional banking and going to the branches.
In the UAE, the technology and digitization has taken a big growth over the last years. Smartphones cover 60% of the population, Internet usage has been on the rise with a double digit growth over the last years, and naturally with the population of the UAE being on the younger age side, there is more incline to focus on technology and digitization as we move forward.
Investment in technology is one of our main strategic imperatives at FGB. We’ve been investing in technology and that is focusing on improving, first of all, the customer services, so providing other means and other ways of reaching out to our customers. Plus, technology always brings you efficiency in the operating model. So we are looking at it in terms of enhancing our efficiency and our operating model, as well as giving us a competitive advantage and bringing in a new way for our customers to deal with us and an easy way to bank with us.
How has FGB kept up with economic diversification and the development of the finance industry in the UAE?
SAYEGH: What FGB is doing is basically mirroring what the country is doing in terms of diversification of product offering, in terms of expanding across the borders of the country, and in terms of capturing the business from existing corporate customers, from existing consumers, to even overseas and international businesses who wish to come and operate in the UAE.
The bank has moved gradually from initially being a corporate bank, to becoming a wholesale bank, to becoming a full-fledged consumer bank, and then into developing the global markets and treasury operations. In today’s world, it’s very important for a financial institution the size of FGB to be in a position to offer the spectrum of products to our customer base. An existing customer, being corporate or consumer, would require a financial institution to offer a full-fledged product offering. So from this angle, what the bank did is deepen the existing relationships across products and even deepen the relationships across countries, and that’s why you see even the bank expanding and moving outside the borders of the United Arab Emirates.
FGB’s strategic direction mirroring the UAE’s economic growth and diversification is originally published by and copyright of The Prospect Group.
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