E What are the top three most challenging issues the banking sector faces today? And what is your bank doing to address them?
Human capital. That’s the most important challenge in banking today. Not only on the management side of the activities, but at all levels below that. You just cannot find enough qualified people to hire. This is going to have an impact in the future on the newly formed giant bank. For example, there is a new, very large bank coming to Saudi Arabia, and the challenge for them is not to collect money and capital to run the bank, it’s finding the right people to run the bank. To hire people with a long history of banking experience is very expensive, and with a specialized bank there is an even greater need for the right people; it’s a major challenge, especially within Islamic banking, to find somebody who is “well-trained”, highly qualified, someone with the knowledge to handle Islamic banking — both simple transactions and more sophisticated transactions. It’s very difficult to find people of the right caliber. Islamic banking requires a lot of sophisticated people in all departments — legal, sharia, management… all of that needs qualified people.
We have confronted the problem on two fronts: training and retaining. To train, we have established a management associate model where we go to top-notch schools all over the world, and recruit only A students. When I talk about A students I mean 3.6-4.0 GPAs, nothing lower. We put them on an intensive program for 2 years until they’re trained, and then we polish and further educate them according to whatever market we feel they best fit into.
The second front is retaining. We have been watching the market very carefully, and we’ve even engaged an international company to study the market for us so that we can see where we stand compared to the rest of the market. Basically, we want to always be in the 50th-to-75th percentile of the market, and we try to maintain and move within that. We do this with action, every Khaliji knows that. For example, if I feel that there is a 20% push upward in the housing element, I will act on that. I will act on that because we have to remain flexible and be prepared to make moves; in the UAE market there is a lot of competition taking place so retaining is a very important issue. Because we are in 102 countries we tend to tap from different markets in the region. We are approaching a fantastic period all over the world. If you look around the bank we have at least 20 to 25 different nationalities, not necessarily just Arabs from the UAE, but Latin Americans, Indians, Pakistanis, Malaysians, and others. Even within the Gulf we have Bahrainis, Kuwaitis, Saudis… We have managed to achieve quite a good mix. That’s one way that we’ve been able to overcome this challenge.
E In your opinion, especially with Emiratization, is the development of human resources the responsibility of the private sector, of banks like you, or of the public sector?
Actually, both. What you see today is a private sector that does the hiring and training, and a public sector that re-hires. That’s always the case, except for a few, very rare cases where people start in the public sector and then move to the private sector. The majority, though, start in the private sector and move to the public especially with the Emiratization trend. There is an issue with Emiratization for each institution. I think we are meeting the issue. We have very strong human resources programs in the UAE. We train Emirati candidates for four months academically and on the job, and then there’s a series of tests that they have to pass. On successful completion of the program, they land full-time positions at the bank. This has been a very successful program here, evident in the hundreds of full-time hires we’ve achieved through the program.
E When Emirates Bank and NBD merged everyone said that this is a new era in banking. Do you think that the synergies are there in the market to say that “yes, there will me more Mergers and Acquisitions (M&A)”?
I think there definitely will be. The Basel II capital adequacy stipulations will really force people into mergers, but what I would like to see here is a more active role for central banks to orient and educate banks about the merits of merging and creating larger entities, versus forcing them to merge because that’s not their job. It should become clearer for local banks that joining hands makes sense in order to survive in the future and to be able to create the activity and growth that they truly aspire to achieve. Having said that, we’ve found that when there is a huge project, the majority of local participants are able to participate thanks to strong capital adequacy monitoring by the UAE central bank and other central banks in the region. In some markets we are even competing head-to-head with larger, stronger banks that have more capital.
Competition is good for our bank; it brings better quality, better customer services, and better customer satisfaction. We welcome competition. We are unique in the sense that we consistently bring value-added products into the region and more often that not we do complement local banks activities rather than compete with them. If we cannot continue to add significant value as a global bank, then we should not really be here. We have to bring expertise, new and innovative products that benefit institutional clients as well as individual customers. That’s what differentiates us from other banks.
E What are the pros and cons of financial sector liberalization? How will banks be affected by liberalization? How do you plan to utilize this liberalization?
We are entering into a new era of economic liberalization at all levels including in the financial sector, and I think the biggest challenge that would persist is the lack of transparency. Today you don’t have immediate access to figures that come directly from the banks. A lot of activities take place and these activities cannot necessarily be translated into a number or disclosed properly. On a macro level, you have chronic issues with accounting for inflation levels and fairly assessing the currency system… these all cause problems in terms of putting raw numbers into strategy models, hence creating an information gap and major distortions. We work very hard and pay a lot of money to find estimations of these numbers. It’s very difficult to find information that can actually help you.
On the other hand, the opening up of the financial sector and other sectors will create huge financing opportunities especially in infrastructure and real estate projects. There is a phenomenal need for financing, and banks have to really work together to handle significant transactions.
For us, there is much opportunity for M&A services and advisory activities here in Dubai and out of Dubai. On the consumer side, liberalization means that we will be able to compete on equal footage with any local bank, so we expect more products and services to be rolled out through an expanded footage.
E What role does corporate governance play in this environment?
Again, this needs an education process. The regulators have to find a way to educate financial institutions on the crucial role of corporate governance and its ensuing benefit. For example the UAE Central Bank and the DIFC are putting a lot of emphasis on corporate governance and they are finding ways through meetings and round tables and discussions to enrich this subject. More of that, I think, will have banks buy into the need to put in place strong corporate governance mechanisms while they go about making money.
Issues such as corporate governance and capital adequacy should not be addressed at the senior executive level only, but should go to the board of directors of the institution who should fully understand the grave implications of a lax attitude. This can be done informally through roundtable discussions or even over casual meetings, not to say more formal gatherings. Bottom line, the subject should be brought to the table as a top priority and a matter of survival. Every bank should start thinking: “I cannot survive in this funny sea, unless I join efforts with another or more banks, or unless I cease my operations. Unless I am very big like a crude carrier, I will certainly sink.” Preparing for the next stage has to be mapped, really mapped, and I think this is exactly what the UAE Central Bank is doing.
E Do you have plans to expand in the region? If so, to which countries, and why?
The Middle East market as a whole is among our top five globally significant markets when it comes to growth potential. We certainly see opportunities across all banking sectors, especially in investment banking and consumer markets.
We now have presence across 10 Arab countries including all of North Africa, Egypt, Jordan and Lebanon. In the Gulf region, we’ve had a presence for the past five decades. In the last two years, we established full-fledged branches in Kuwait and Qatar, while the DIFC is now housing our regional businesses, including Investment Banking, Equities Distribution, and Equity Research covering the MENA region. In fact, we have recently shifted our global Co-Head of Investment Banking, Alberto Verme, to the DIFC, in recognition of this fact. Saudi Arabia is on our expansion list; meanwhile we continue to provide our full suite of global services to top institutional clients in the region include Saudi clients.
E Do you feel that banking regulations in the UAE are growing as fast as the banking industry?
Regulators here tend to be selective and prudent when it comes to issuing new licenses. We certainly do not see a wave of, say, 20 or 30 banks coming to the market every year. Rather, in the past two years we’ve seen only two or three banks joining the banking community and they are mainly Islamic banks. Another new bank is now operating out of the DIFC and regulated by the DIFC’s regulatory body.
E What is your perspective on GCC countries de-pegging their currencies from the US dollar? What is your take on inflation in the region, especially in the UAE, and what are the best policy measures to deal with inflation whether on a macro level or on a micro level, because at the end of the day it will be affecting your customers. What are the policy measures at hand to deal with the inflation problem?
I think they have tried one, and I don’t think it fully worked. They went for a salary increase of 70% to every single government employee. It helped but not enough to match inflation. To the contrary, such an action would eventually contribute to even higher levels of inflation by itself. The only solution is to do something about the currency. That’s a costly solution for the UAE and for other Gulf countries, nevertheless a solution. De-peg and revalue. This could cost money, most likely in the GCC countries whose currencies and a big chunk of their imports and major export, oil, are denominated in dollars. With a sliding dollar and an ever increasing oil price, this is going to be very, very costly.
Another complicating factor is that the ultimate buyer of dollars in this region are central banks who have seen a huge demand for local currencies in anticipation of revaluation. If they contribute indirectly to a weak dollar, they would reduce the value of their own holdings. It’s definitely a dilemma, so central banks, at least here in the UAE, are staying on the message that they will not revalue, full stop.
Meanwhile, an active subsidy system has to be put in place to combat inflationary pressures and to see this phase away. This is of course a sub-optimal solution, but can be part of the ongoing social welfare system, especially with ever increasing oil revenues. If we take the position that the dollar is at bottom levels, then revaluing at this time may not be in the best of the UAE’s interests.
E Let’s talk corporate social responsibility. In what way is Citi Bank giving back to the community? What is the CSR role that is played?
I think this is a good question. We are extremely committed to the community and we do give back in different forms. Ours is a universal CSR model, which aims at empowering all the communities which host us across the world, including those in the region. The best way to do that is to engage in activities where we can contribute more than just checks, but rather expertise and volunteer time.
Financial Education is an extension of what we do every day in more than 100 countries. We provide scholarship funds to deserving university students whose only barrier to achieving good education is financial. This we do across top universities in the region, including AUB and LAU, whereby we take it upon ourselves to provide full or partial scholarships to business and finance students. Meanwhile, a strong system of transparency is put in place to ensure that there is no conflict of interest or any touch of favoritism — as a bank, we do not recommend that so and so student receives one of our scholarships… this violates our compliance rules which are very, very stringent. However, Citi scholars are welcome to train with us in summer time, and once they graduate, we seriously consider them for full time positions with us.
Another CSR avenue is micro-finance. Here, again, we not only provide grants to micro-finance institutions — which in turn disperse them to deserving micro-entrepreneurs — but we do provide banking expertise to help orient micro-finance clients in rural and urban areas in the region about the best ways to access banking resources for improving their businesses. An excellent program that we execute here in Dubai is a women entrepreneurship workshop with the University of Dubai, which educates young women entrepreneurs about building robust feasibility studies for their upcoming businesses. We take an active role in evaluating and improving these studies to stand out when evaluated by banks’ credit officers.
