The ‘Open Sesame’ for unlocking what made BankMed, one of Lebanon’s top five banks by both assets and deposits, move into Dubai this spring is ‘opportunity.’ This is no coincidence. This term and the art of seeking out opportunities were the key words by which Mohamed Ali Beyhum, BankMed’s executive general manager, describes the bank’s strategy in an exhaustive interview with Executive.
[pullquote]”We do not define ourselves as an international, regional or local bank”[/pullquote]
“In our expansion strategy, we move into opportunities. We do not define ourselves as an international, regional or local bank. We are a commercial bank with different activities, including investment banking activities, but what we do is look for opportunities to grow our business,” Beyhum says.
Sustainable opportunities have a habit of being sequential and interconnected — meaning one good opportunity tends to lead to the next. This is what attracted BankMed to not venture this time into a new territorial market but instead set up a twofold presence in the Dubai International Financial Center (DIFC) with BankMed (Dubai) and with its fully owned subsidiary MedSecurities Investment.
The DIFC financial free zone, which officially opened in 2004 and is in a number of ways insulated from the domestic markets of the United Arab Emirates, provides the group with a platform to interlink and grow activities in the same geography where it has been increasingly focused over the past decade, Beyhum explains. “We have operations in different regions, in the GCC, in Africa — we are not on the ground but we have a lot of clients in Africa — we have Iraq, we have Turkey. The DIFC specifically, like the [United Arab] Emirates in general, is like a platform, and if you think about it just in terms of trade, it is a major hub for all the regions that I just mentioned, where we already have some activities.”
According to Beyhum, BankMed established a unit in Turkey by acquiring a local bank jointly with Arab Bank in 2006. In the second expansion move, “we opened up a company in Saudi Arabia in 2008 and we started looking into Iraq in 2011,” he adds. “We started operations there in 2012 and we looked at DIFC back in 2013 and have been working on it for about a year and a half.”
While the group could have established a DIFC presence as a financial intermediary under what is called a category three license by the free zone’s dedicated regulator Dubai Financial Services Authority (DFSA), BankMed acquired both this license for MedSecurities and a more demanding category one license, which is required for accepting deposits, for BankMed (Dubai). “One could send people from Lebanon to deal with the different markets, but what we are trying to grow is not only a banking business but a large book volume. This can only happen if you have the right people on the ground, with good operations and good controls. Thus we needed a bank and this is a major opportunity for us,” Beyhum tells Executive.
The BankMed group reported $15.4 billion in assets and $12.1 billion in deposits at year end 2014, making it Lebanon’s fifth largest bank on both criteria. In terms of profits, the bank ranked seventh, with $133 million. The bank is, in Lebanon, often perceived primarily for its strong association with the name of slain Lebanese Prime Minister Rafik Hariri and the Hariri Group of companies owned by his family heirs. As a privately held organization, BankMed is not present on the Beirut Stock Exchange and no research on the bank is published by local or regional equity analysts.
Given the general past lack of outside views into BankMed’s strategies and the limits of insights that a publication like Bankdata’s Bilanbanques can offer with reporting financial data and ratios on the bank, Beyhum’s elaborations offer a fascinating view of the bank.
As BankMed was in the professional media’s perception not much associated with retail, it may seem surprising that its total lending portfolio exceeded $4.7 billion at year end 2014 and put it into fourth place by loans and advances, ahead of the third largest group, Byblos. This was in spite of BankMed’s annual growth rate in loans and advances at 6 percent being modest when compared with most alpha group banks.
Part of the explanation for the bank’s overall strong lending position is that the lending portfolio’s composition is skewed in favor of corporate and commercial business, where the bank in 2014 lent out $4.4 for each dollar in retail finance. Thus the corporate realm, where construction related loans traditionally play an outsized role in BankMed’s portfolio, is where the bank has its power base and Beyhum acknowledges that retail is where the bank still has to do its homework on growth in Lebanon.
“On the retail side, our market share is too small compared to the size of our balance sheet. We have been growing the retail side at double digit percents, and we have been growing it at a much higher pace than the market in the past three years. It takes a bit of time to catch up because we are starting from a very low base,” he says.
Growing the retail business includes the time honored usage of the branch. Beyhum confirms, “We have embarked on adding more retail branches in Lebanon; given our size, we definitely can sustain adding more branches, and there are areas of the country where we feel we need to beef up our presence — locations outside of Beirut and in different regions.”
[pullquote]”In terms of pricing we are neither on the high side nor on the low side, but close to the average offered in the market”[/pullquote]
He goes on to say that the bank this year aims to grow the retail portfolio further and targets an increase “by around 20 percent, plus or minus,” but clarifies immediately that it will pursue this goal by “deploying more people into the network” and will not loosen any lending conditions. “The criteria did not change, for example, for debt payment ratios or down payments for an apartment purchase. We did not relax these criteria, and in terms of pricing we are neither on the high side nor on the low side, but close to the average offered in the market,” he elaborates.
Besides retail, small and medium enterprise (SME) banking is an activity where BankMed is focusing many new efforts that are pushed from the head office and from SME specialized units in major secondary cities. According to Beyhum, the SME lending portfolio has been increasing at double digit rates “for the past few years,” and likewise the bank’s micro lending subsidiary, which generally offers business loans in the range of $500 to $5,000, has been able to expand at double digit rates.
BankMed’s new focus on retail and SME banking is a very logical move considering that the bank’s market share in Lebanon contracted by a few percentage points in the past three years; Beyhum puts it in the total domestic market’s percentage range of “seven-ish or eight-ish”, down from about 10 percent stated in a 2011 Financial Times profile.
Outside of Lebanon, and specifically in the DIFC bank that will serve the geographic region for which Dubai offers hub functions, “the branch will essentially target the low to the middle end of the corporate segment, specifically companies in the trading and manufacturing sectors. In this context, the Bank aims to attract clients from the Levant Region including Lebanon, Iraq, Turkey, Africa and all GCC countries,” BankMed communicated to Executive in a written response statement to questions sent in before the actual interview with the executive general manager.
In the same statement the bank said with respect to its Turkish subsidiary, T-bank, that this unit “has also been laying a specific focus on the SME sector, especially [because] the vast majority of companies in Turkey are classified as SMEs. T-bank has been steadily growing its SME portfolio, extending further financial solutions to its widening client base. In addition, the bank has been expanding into economically vibrant regions within Turkey, where most of these businesses exist.”
Reporting $2 billion in assets at T-bank, BankMed group’s speed of growth in Turkey has been significantly slower than the express rollout of Odeabank by Lebanese rivals Audi Group, whose greenfield unit raced to double digit billion dollar assets in less than three years from being licensed.
According to Beyhum it would have been possible to grow T-bank faster, but they followed a different approach. “We have grown above the average of the banking system in Turkey with about 30 percent annual growth of the balance sheet. Yes, we could have grown this much faster; we had the capability. [But] we are not under pressure. Our strategy was that we wanted to grow at a certain pace, and we believe that 30 percent growth in the balance sheet is a good pace. At the end of the day, the number one priority for us is sustainable returns and asset quality,” he explains.
When the group designed its expansion strategy in the previous decade, the strategy was not conceived with specific percentages of geographic growth targets in mind, Beyhum adds, and cites Iraq as another example of BankMed’s approach. As the country was hit by unexpected unrest after the start of activities three years ago, the bank revised its plans. “Our Iraq expansion moved to a slower pace and different activities, so we increased some activities and decreased others. Since opening our Basra branch [in 2014], for example, we are now pushing Basra more. We of course offer corporate, commercial and retail lending [in Iraq], so we started shifting the lending portfolio to focus on where the opportunities and the risk rewards are,” Beyhum elaborates.
[pullquote]“Moving from $15 billion to $25 billion in five years, you need to grow double digit year on year”[/pullquote]
In more recent contemplations on expansion, a slightly more forceful note may have entered the thinking. However, Beyhum confirms that BankMed Chairman Mohammed Hariri told Reuters, on the sidelines of opening the branch in the DIFC, that the group harbors ambitions to grow its assets to $25 billion within five years and is looking at Egypt for a coming expansion. “Moving from $15 billion to $25 billion in five years, you need to grow double digit year on year. It is doable if pursued organically, but it might be a bit too aggressive. It makes more sense if it involves an acquisition. This [acquisition] could be local or, as the chairman mentioned, in Egypt. It is a country we have been looking at for more than the past five years, [examining] different opportunities,” Beyhum says.
At its home base in Beirut, the bank meanwhile is setting new accents emphasizing both its anchored position in Lebanon and its determination to be more visible. A new head office building is being constructed and its concrete foundations are being poured right next to the existing BankMed tower that overlooks the Phoenicia Hotel. The new head office will provide three times the built up area of the current tower and both will function in tandem as the group’s brain after the new building’s planned delivery in 2018.
Beyhum assures, however, that Beirutis and visitors do not have to be wary about getting another uber structure of more than 40 or 50 floors rammed into the city’s skyline. The new building will reach only a few floors above the existing head office, he exclaims, “it is not going to be one of those arrows pointing up into the sky.”
At the time of writing, the bank is formulating additional new accents of cementing its willingness to communicate ever more engagingly with the public and observers of the Lebanese banking biosphere. After the top of the BankMed tower was concealed for some time last month by plastic coverings, the group lifted this shroud on April 20 and simultaneously blanketed the country with presentations of the new logo that places the bank’s notable wave motif directly above the streamlined BankMed name, whose font has been softened to send a less edgy identity message.
As Beyhum tells Executive, the bank is also fully overhauling its online presence and moving into a different model of a website that he calls “extremely modern,” and transmitting less of a banking and more of a retail vision. As such it will provide the public with information seeking to ensure that the organization is transparent while carrying forward the bank’s emphasis on things BankMed understands as being most important to clients, Beyhum concludes. “The idea is not to talk about the bank itself but to make sure that the client needs are there — more of a selling of services and products point than a talking point about the bank itself.”