With years of banking experience under his belt, Tom Aaker — chief executive officer of Standard Chartered Bank (SCB) Qatar and North Africa — has an expansive resume. Aaker joined SCB in 1993 and has held numerous senior positions around the globe, from Hong Kong to London, Zambia and the USA. Currently, Aaker is a board member of SCB Botswana, SCB Zimbabwe and Corpmed Medical Center. Executive recently conducted an exclusive interview with the bank’s top man, discussing the current banking situation in Qatar and around the region.
E What strategies will Qatar banks use in 2009? How will they differ from 2008?
Standard Chartered Group had an exceptional performance in 2008. Profits were up 19 percent from 2007 globally and that was up from the year before. We are one of the very few banks in the world that had significant earnings growth from 2007 to 2008 and the prospects for 2009 are very strong as well.
Our bank is in Asia, Africa and the Middle East and those are regions that have had some difficulties, but are nowhere near like the US and Europe. Our bank is typical of the performance in those regions; we don’t have the sub- prime mortgage problems and things that have really hurt banks in the West. So our performance last year was terrific. In Qatar specifically, we have record earnings, we don’t disclose our performance because we’re a branch of SCB in the UK, but I can tell you that our earnings, revenues and growth were record-breaking in 2008 in Qatar.
Our bank is very strongly capitalized and very liquid. Many banks in the world have taken capital injections through bailout packages or by taking capital from various strategic investors — we haven’t done that, we haven’t needed to, our capital base has been very strong. We did a rights issue last year, which was very successful and that was raising capital from existing shareholders.
Our loans-to-deposit ratios are far better than our competition, in Qatar and globally. We have more deposits than we have loans; so there are excess deposits that we generated sitting with the central bank and that gives us a huge advantage.
E What has SCB learned from the global financial crisis? Have these lessons
affected your global strategy?
I would say that probably the best way to describe our strategy in 2009 is to stay with what has worked in the past. We succeeded last year because we remained very true to our strategy, which was retail and corporate banking in Asia, Africa and the Middle East with a long-standing group of customers and with products that we knew well, that were time tested, and we had success. We’ll continue on with the same strategy; I don’t think there will be any departure to new markets or new products, I think it’s more of the same because it’s worked well.
In terms of lessons learned, our group CEO is always reminding us to identify what we call ‘loose rivets,’ and by that he means potential risk areas that if we get a little bit complacent, there could be an unpleasant surprise. He’s told all of us to be always on the look out for that loose rivet that could pop and [result in] an operational breakdown. So we’re being very careful on the operational side right now just to anticipate things that could go wrong. An example of that is liquidity. We know that’s a huge advantage in the global financial markets — to be liquid — so we’re being proactive, raising plenty of deposits so that we are more liquid than anyone else just in case [things] do get worse, [although] we’re anticipating… better. We’re sticking to what we know. In these times it’s not wise to be doing anything too new or experimental when the marketplace is so unpredictable.
E What are the top issues and concerns that banks in the MENA region will be
facing in 2009?
I think there is still a risk that we’ll see bad loans and a lot more provisioning by banks in this region. You’re seeing it happen in record amounts in the West and to some degree we’re starting to see it in the MENA. Some of the UAE banks are now starting to write-off massive amounts of loans to real estate developers and some of the consumers who were employed in those sectors… I think that’s one of the risk areas that we need to be very cautious of this year: credit quality and which banks have strong asset portfolios and which don’t. The ones that don’t are going to be writing-off large amounts of bad loans this year.
Fortunately I believe our quality is very good, not only here in Qatar but around the MENA region because we have very strict credit criteria. In Qatar for example, we don’t even make mortgage loans… we’re not in real estate. That’s one of the areas that I think is the most risky. Those banks that have made mortgage loans to build office towers, they could find difficulties this year… but we’re not in that sector, so I’m not as worried for us, but for the region’s banking sector… I think bad loans, write-offs and provisions are going to be a theme this year.
E There has been a significant decrease in demand in the Qatari property market. How has this affected banking operations in the country?
It hasn’t affected our operations. You hear that real estate prices are down 20 percent, 30 percent… I don’t think it will be anywhere near as severe as the situation in Dubai. There is not a surplus of properties [in Qatar]. The leadership of this country has been visionary to make sure that the build-up of real estate has been at a measured pace and the economy here is not built on real estate, it’s built on infrastructure, natural gas, health care, education, etc… It’s a very diverse economy, and it’s one that I believe has been very well planned.
Even if there is a dip in real estate prices, I don’t think there is going to be a crash like other markets. But even that dip might prove painful for certain banks because they were very exposed and had made some very aggressive loans.
E How would you describe the liquidity situation in the Qatari banking sector?
It’s hard to tell because any data that you get is a couple of months old by the time you see it. One of the situations that was difficult in Qatar last year was the inflow of foreign money in anticipation of the peg being revalued. A lot of speculators around the world thought the riyal was undervalued and should be stronger; there were no exchange controls, no problems moving money in, so a lot of investors would bring dollars into Qatar, buy riyals, sit on those riyals and hope there would be a revaluation… then they could re-buy their dollars back cheaper and take them out.
This time last year, there was this huge amount of riyal liquidity, this hot money that had come in from speculators… What happened last summer when these speculators had gotten in trouble somewhere else and realized they were done with that trade, they bought their dollars back and took them out of the country to use them somewhere else. There was this exit of a lot of liquidity from the system. It all pulled out at pretty much the same time.
All those banks that were sitting on those deposits saw them disappear. In the fourth quarter, a lot of banks in this market were scrambling around trying to get new deposits so they could present good numbers by December 31 to comply with central bank rules. So you saw a scramble at the end of the year and what happened is that banks were willing to pay a lot more for deposits. In this market the rates went up as high as seven or eight percent. Customers were able to pick and choose and move their money around and earn very nice deposit rates. At the end of the year, there was a liquidity issue going on in the sector.
E In a recent report, ratings agency Moody’s forecasted a negative outlook for the Qatari banking sector, reflecting expectations of deteriorating operating conditions. What is your take on the banking sector’s outlook in the next 12 to 18 months?
I think first of all, the ratings generally feel like they were way behind the curve in the last year when there was deterioration in banks and ratings agencies didn’t anticipate it very well. Bad things happened before they had negative outlooks and downgrades. So I think now and for years to come, rating agencies are going to be much more pessimistic and are going to try and anticipate bad things much sooner.
On the other hand, there is still a lot of unknowns in Qatar in terms of the quality of assets. Time will tell whether some of the banks in the sector have lent too aggressively in the real estate sector, personal loans, credit cards, etc. There could be some banks that will really suffer from big write-offs this year and I imagine that some of the ratings agencies are just anticipating that that’s a possibility and saying that the outlook is just not as good as it was.
In terms of economic growth for Qatar, we as an institution are very optimistic — we forecast that the GDP growth will be 16.5 percent, nominal growth… then if you take out our forecast of inflation of about eight percent, you’re left with about 8.5 percent of real growth. That’s very strong growth! If the economy grows at that rate, then I think the banking sector and the whole country will still do pretty well. We see Qatar as booming right ahead, especially with the natural gas reserves that they will continue to sell.