InterviewsNovember 09, 2009

Bahrain Retail Banking National Bank of Bahrain (NBB) Bahrain's Leading Bank

: Published: November 09, 2009

Bahrain’s economy is expecting to slow down this year as a result of the global economic crisis after years of economic euphoria, what is your assessment of Bahrain’s retail banking sector and its ability to recuperate from the crisis and what is the outlook for 2009-2010?

Bahrain Retail Banking - National Bank of Bahrain (NBB): Bahrain as a financial sector that has gone through many waves of ups and downs in regional, international and the domestic markets. There are some unique features in Bahrain that come from the culture here; people are more conservative and believe in long term investments rather than being opportunistic and this helps a lot in Bahrain retail Banking. Many banks here have been around for a long time and have solid financial standing and that will help us get through this difficult time. , Considering the economy of Bahrain in general, we are a consumption based economy and not a manufacturing based one. Thus, we can look at the problem from a different perspective and look at what the public will gain. People here will benefit from lower prices but our government may become poorer and that is unconstructive. Bahrain is still likely to see a positive GDP growth, albeit at a lower rate than previous years, in spite of the prevailing global financial turmoil. The impact of the economic crisis would be limited in the Kingdom. The dwindling oil scenario has made it imperative for the government to push for diversification. This has led to the formation of Economic Vision 2030, which outlines the blueprint of the aspirations for the economy, government and society for sustained long-term development. The government has decided to go ahead with key government backed development projects in the 2090-10 budget and has embarked on a number of infrastructure projects which has the potential to change the economic scenario of the country and enable, Bahrain to be on par with world standards. Herein lies the opportunity for banks. We, at NBB, are eager to actively participate in nation building, something the Bank has always been associated with for the past five decades. Our strategy for 2009 is to continue this role and to focus more on the active sectors of the domestic economy (viz. trading, manufacturing, services) and gain market share. Bahrain has always been cautious and prudent in its financial stance. This has ensured that the impact of the financial crisis has been controlled in the country. We are yet to see any bankruptcy or redundancy in the Kingdom. While I do not expect very strong growth in the Bahrain Retail Banking sector as was seen in the past few years, I do however believe that there would be reasonable growth in business and I remain optimistic, albeit cautiously so, about the prospects for the year 2009. Banks that rely heavily on real estate related business to generate revenues would find it difficult to continue the pace of growth.

Do you feel more could be done to improve Bahrain’s international and regional position?

Bahrain Retail Banking - National Bank of Bahrain (NBB): We always look at Singapore as a model and try to identify the steps that made it so successful. However, the regional strategic direction was completely different. We kept our focus on real estate but you can never base models on brick and mortar. They are only structures for economic development. Nevertheless, Bahrain has the reputation of being the most investor friendly country in the region with a transparent business environment. For over three decades, the country has served as the financial centre for the Middle East and is home to a large number of banks and financial institutions in the region. Over the years, the government has followed a policy of economic diversification with an emphasis to reduce reliance on oil as a corner stone of economic growth. The Wall Street Journal and the Heritage Foundation’s “2008 Freedom Report” named Bahrain as the freest economy in the Middle East and North Africa region, a reflection of the Government’s efforts to attract international investment. The Vision 2030 is another laudable initiative by the Government to further enhance standards of living based on the three principles of sustainability, competitiveness and fairness. In my opinion, the expansion plans of any country should take cognizance of the demand and supply situation to ensure sustainable growth and this is exactly what Bahrain is trying to achieve. The Vision 2030 documents clearly outlines the nation’s aspirations on the national, regional and international fronts that provides impetus and direction to coordinated reforms. The Government will shortly publish the National Economic Strategy, which will bring the Kingdom’s Vision 2030 a step closer to implementation.

Concerning Bahrain having the highest banking density in the GCC and the marketing being saturated with retail banking, how do you structure your competitive strategy when other companies are coming up with innovative sales concepts such as banking malls?

Bahrain Retail Banking - National Bank of Bahrain (NBB): the ideas of Bahrain retail Banking are deeply embedded in the culture of the country. We have focused on Bahrain retail Banking and personal banking which is our backbone. The challenge is delivering the service and delivering the product to customers and being better than the rest. We have continuously strived to meet the needs of our customers in the shortest possible time. On the other hand, NBB has always maintained a prudent business philosophy with the objective of delivering consistent returns to its stakeholders. This alert, prudent and consistent strategy has been our guiding principles for the past 50+ years. The results are evident in the sustained growth in National Bank of Bahrain’s performance over the years. Competition is not new to National Bank of Bahrainand we take great pride in the fact that we have a pre-eminent position in Bahrain retail Banking . This has been achieved as a result of a well thought out business strategy, which focuses on nation building and meeting public aspirations. I believe product quality and service standards are the ones which distinguish us from competition. We will continue to play an active role in the development of the nation and will constantly innovate and provide leading edge technology to maintain our leadership role. Also, National Bank of Bahrain has never ignored our social role and since 1980 we have kept aside 5% of our annual profit to be used for the development of the society. These projects involve the creation of hospitals, housing for the poor, and centers for the physically and mentally challenged, among other things.

Does this reflect the way you make your investments through corporate banking services?

Bahrain Retail Banking - National Bank of Bahrain (NBB): We have used the investments to help build economic power and operators. We are also very aggressive and because of our size, deposit base and liquidity, we can afford to lower prices for people during a crunch and offer cut-throat competition and yet it won’t affect our profitability. We aren't trying to be technology leaders., We bring technology that helps our customers without escalating costs but we are technology oriented and we have always been so.. Sound knowledge of the market, deep roots and being embedded into the society are the pillars on which we stand.

Do you agree that banks will focus more on managing risk and raising productivity? Is risk management a cause of concern to you?

Bahrain Retail Banking - National Bank of Bahrain (NBB): Managing risk is a key component of a bank’s governance. By tradition, commercial bankers are considered prudent and conservative; a customer entrusting his money to a bank automatically places his trust in that bank. A recent OECD study has highlighted failures in risk management as one of the main contributory factors for the current financial crisis. The key is to have a long-term strategic view of business and not fall for the lure of short-term profitability as the main business driver. Banks that have not followed this approach had to pay a heavy price as can be seen from the current financial crisis and here comes the role of risk management.

To what extent is NBB poised to face the global crisis and what are the major challenges NBB is facing?

Bahrain Retail Banking - National Bank of Bahrain (NBB): NBB has always followed a careful and practical business philosophy and we have been cautious and vigilant in our approach. As a result, the impact of the global crisis on NBB has been substantially lower than many of our peers as can be seen from our performance. In my opinion, the current global crisis is an opportunity for National Bank of Bahrain; while our competitors are busy cleaning up, we will concentrate on adding new business and move forward. The major challenges faced by National Bank of Bahrain are external factors viz., market uncertainty and lack of confidence, asset valuation due to absence of market participants and realistic quotes, depressed stock markets impacting the valuation of equity.

What is your philosophy behind making decisions in where to invest your resources?

Bahrain Retail Banking - National Bank of Bahrain (NBB): If we see a need we invest. We are the third largest shareholder in Batelco, we are a leading shareholder in Bahrain Commercial Facility and many other institutions. We once saw a need for car financing put the car dealers, banks, and customers together to form a company. Each decision is based on the need in the market and based on the ideas we learn from others that we believe will bring business. We are business driven. Our focus has always been to be the best in what we do. We do not do business for charity but we ensure that our success is passed on to the betterment of the society we prosper in. The National Bank of Bahrain is a representation of Bahrain retail Banking in Bahrain.

National Bank of Bahrain (NBB) has reported a fall in profits of 17 per cent during 2008, as a result of falling investments and the global financial crisis. Is this a cause of concern to you?

Bahrain Retail Banking - National Bank of Bahrain (NBB): One cannot win all the time with all the decisions. The secret of the game is to balance and diversify your portfolio taking into consideration your size, capability and your risk tolerance. As the CEO of National Bank of Bahrain, I am certainly not pleased to report a fall in profit. However, a drop of 17% needs to be looked at in context of the last 40 years. National Bank of Bahrainhas consistently delivered profits and hence the faith of the people on National Bank of Bahrain has never suffered. Given the market scenario, our customers have not only reaffirmed their faith but have also ensured that we can pursue our business strategies without any worries. One cannot be correct with 100% of the decisions and neither are we. I’m not saying we don't make mistakes but the key idea is portfolio management and the diversification and balance of your portfolio. We are great believers in portfolio management, even in human resources. There would be instances of deals which may have soured but we have been fortunate that our customers judge us on our results and not on our transactions.. Furthermore, as I explained in my statement in the Annual Report, the drop is only on account of mark to market loss on managed funds due to sharp decline in equity markets and the Bank’s decision to take 100 % provision for investment in debt securities of institutions impacted by the global crisis. National Bank of Bahrain has very little control on these external events. The core areas of business continue to show strong growth and we have not faced any asset quality problems on our loan portfolio. These losses are one-off and while I am not happy about the same, it is not a cause of concern going forward. Whoever believes he cannot make a mistake is mistaken; circumstances can always change.

What is your real challenge?

Bahrain Retail Banking - National Bank of Bahrain (NBB): As a banker you always worry but in this case the worries are great since the uncertainties are many. I don’t know what company, what giant, what brand will disappear- these things are beyond you and of course, then, the worries take a higher magnitude. What you think was right at the time under certain circumstances can become wrong; truth is a matter of consensus and known facts, there is nothing beyond that. You have to move with the situation and move with the circumstances. Your lines of thinking should be in a matrix whereby all possible situations have been considered and then you will be able to move forward.

What are your expansion plans, strategic goals for 2009 and how do you envision NBB in 2015?

Bahrain Retail Banking - National Bank of Bahrain (NBB): In the long run, things will not remain like this. We have to admit that everyone is trying to solve the problems and they will be solved. As of now, the Bank’s 3-year strategy envisages a more dominant position in the local market, an important player in the region and selectively pursuing international opportunities. However, as a result of the recent global turmoil, the Bank has made a tactical shift in terms of focusing more on the domestic economy while curtailing the regional and international activities. Accordingly, our strategy for 2009 is to focus more on the active sectors of the domestic economy (viz., trading, manufacturing, services) and gain market share. We will continue with our branch refurbishment plan and the expansion of the ATM network besides focusing on product development to offer additional/enhanced products to our customers. NBB has played a major role in the development of Bahrain’s economy. We foresee an even more active role as the government progresses with the Vision 2030. The private sector will take on the role of being the engine of growth while the Government concentrates on investing in people and infrastructure development. With a clearly focused strategy, I expect NBB to mirror the progress of the nation and further improve our pre-eminent position in the Kingdom. Regionally, as things settle down in the medium term, we will pursue with our strategy of selective expansion and become an important player.

tags: Bahrain Retail Banking, National Bank of Bahrain