Size does matter

Freddie Baz explains how Turkish expansion hints at Audi Group’s regional strategy

Freddie Baz, chief financial officer of Audi Group |Greg Demarque|

Freddie Baz is a shareholder and board member of Istanbul-based Odeabank. He is also the chief financial officer of Audi Group, Odea’s parent. Most importantly, he is the personification of strategy at Lebanon’s largest banking group. Executive asked him what Audi Group has on its mind.   

 

You have told us that Odeabank has achieved 110 percent expansion in both the number of customers and new accounts in the first quarter of 2014. How did this unexpectedly high growth impact your targets? Can you tell us what you are aiming for within 2014 and by the end of 2015?

We have a very ambitious business plan. Unfortunately I cannot disclose details because we are listed in London. That means we have legal liabilities and we have developed an ethics [code] to be in full compliance with LSE regulations. So let me put it differently: Our aim is to develop a subsidiary in Turkey which will rank second to [our operation in] Lebanon in the foreseeable future — so not talking long-term — in terms of assets and earnings.

 

When do you expect to achieve positive results in the Odeabank income statement?

We have reached a stage where in Q1 2014 we have for the first time a balanced monthly P&L [profit and loss statement] before provisioning. In the second step we have to reach a balanced P&L including provisioning and taxes, and then start building the profit base and grow exponentially to achieve our RoE [return on equity] targets.

We are the largest contributor to GDP formation; we generate 1.8 percent of Lebanon’s GDP and we are the largest financier to the domestic economy.

 

Can you discuss the Odeabank RoE targets for 2015?

No. In principle our strategy in all markets where we are present is to achieve a sustainable RoE at a premium [against] the country’s cost of equity in order to create value to our shareholders. We have the same target in Turkey.

 

The next stop on the Bank Audi growth tour is to launch in Iraq. What is the group’s target for Iraq?

Iraq fits within the same scheme [as our move into Turkey] because 25 percent of trade turnover between Turkey and the Arab world is with Iraq. Our decision to expand quickly into Iraq is within our regional expansion strategy but also to help Odea acquire Turkish companies involved in business with Iraq as clients.

 

Would it be possible for the group to extend services into Turkish–Iranian trade via Odeabank?

We belong to the Arab World and this is why we look at Turkey. We won’t go to a third country [merely] because it has good trade relations with Turkey. But to give you an honest answer, we are developing more and more curiosity toward Iran. But this is not a short-term interest.

 

Would you be interested in acquiring any bank in the Lebanese market?

I am giving you a conceptual answer which has nothing to do with the reality of the bank: We might consider a mega-merger because any combination among the top ten would make a lot of sense in terms of business and financial synergies — but for the time being, this is something that is not supported by the central bank.

 

Haven’t you attempted to undertake a mega-merger with a top Lebanese bank before? Why would this be something for you to think about, even in the long term? 

We have tried domestically and regionally, and domestically we tried with almost all of [the other banks]. We believe in synergies and we believe that a mega-merger would provide the country with a lot of advantages by promoting a Lebanese bank into the top five to ten regional banks, something that is not negligible for Lebanon. This would also translate into more involvement domestically, although we are already very happy about our level of involvement. Do you know that we are the largest private sector employer and the largest taxpayer in Lebanon? We are the largest contributor to GDP formation; we generate 1.8 percent of Lebanon’s GDP and we are the largest financier to the domestic economy. We are very proud of our economic and social role in Lebanon, but we still believe that consolidation can provide [advantages].

 

Wouldn’t a mega-merger with your involvement create a monopoly power?

I don’t look at it as a monopoly. In my opinion you can tolerate a mega-merger by providing restrictions and rules.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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