E What are the top three most challenging issues CBD faces today? How can they be solved?
Without hesitation, I think that the number one issue is hiring and retaining quality employees. The business has been growing at such a fast pace; CBD as an example has been doubling its business in the last 18 months. New banks have been established, and UAE nationals in particular are in high demand. There is a responsibility for all banks to recruit, train and retain them, but it’s not easy as there are so many good opportunities for young people entering the field.
Another important challenge is inflation. I believe that inflation, more and more is becoming a critical issue, and it’s become more difficult to control imported inflation. The UAE does not have an independent monetary policy as it is following the US in relation to the dollar-peg. Fighting the double-digit inflation in the UAE with a 2% interest rate is very difficult. Inflation affects peoples’ daily budgets and it means that debt-service ratios are no longer representing the appropriate level at which people can actually bear debt and repayment of debt.
When people came here a few years ago, there were good opportunities to save, in particular for foreigners; today it’s getting more and more difficult for people to actually make ends meet. For companies, the cost of doing business has increased significantly, and imported inflation is partly responsible.
E Human Resources are a continuing issue for regional banks. How does CBD ensure to acquire and retain highly qualified staff and management? What internal training programs does CBD have? Do you have programs supporting Emiratization?
Let’s start on the level of management and leadership. About 18 months ago we deliberately started a very innovative leadership development program where we complete 360-degree reviews of our managers. We supply direct reports to give input to the managers — how they felt about the climate, how they felt they were supported in their career development, in their jobs, in their personal growth. Based on this, we’ve organized workshops where the top 75 managers of the bank are trained in applying different styles of leadership depending on the environments and the situations they are faced with. We emphasize that there are different leadership styles which can be applied in different situations and, as a good leader you need to be able to use those styles when they are required. The changing leadership culture has a major impact on the people working in the different departments.
Second, training and development of people is a very important element of our Emiratization drive. We have extensive training programs set out for both internal training as well as external training. We have an entire floor of our building completely dedicated to training, not only training of our own people, but also external young Emiratis. We train them just to make sure that they are prepared for professional life in society. It is partly a social responsibility, and partly our own teams that are being trained.
Emiratization is an important issue for us. We have one of the highest Emiratization rates of all banks. We gave special attention to ensure that when young UAE nationals come to our bank we prepare them though induction programs for each level, ranging from those with a high school diploma to university graduates.
Another element is the right incentives. We are one of the few banks that have introduced long-term incentive plans for the top layer of our bank. We have KPIs — Key Performance Indicators — objectives that actually cascade down to the lowest level in the organization. It’s relatively easy to do that at the top level, but at the lower levels it’s complex to measure; it’s complex for people to understand what the KPIs are and how they are measured objectively. We went through the process and I think it made people feel more engaged with what the organization is all about. This serves to provide very clear alignment and much more transparency in terms of why some people receive a higher bonus, or a higher salary increase than others.
When Emirates Bank & National Bank of Dubai merged everybody said it was the start of the mergers and acquisitions (M&A) phase in UAE, and that it was in preparation for the liberalization of the market and the penetration of the big banks like HSBC or City Bank, which were expected to become much more aggressive once the market liberalized, but then nothing happened…
I tend to disagree with what everybody said. Typically, in the West, mergers are driven by a desire for higher returns or more efficiency. Here, if you look at the efficiency ratio or cost to income ratio of banks, we’re talking typically between 30-35%. If you look at Europe, banks are typically between 60-65%, so banks here are already quite efficient. Then, if you look at the returns, a return equity of 20-25%, which is higher than the returns in the West, is not unusual here. So, it’s not yet the time for shareholders to look at mergers from that perspective.
However, I do believe that Emirates and NBD have set a very important example in the region, as we now need larger banks. One of the reasons is that our projects are becoming larger and larger, and the region should be able to depend on its own banks to a large extent.
If I look at the years to come, I do believe that in the next two to three years we will see a fair amount of consolidation. The Basel II requirements, the corporate government requirements, will require higher degrees of professionalism and for smaller banks it’s difficult and costly to achieve that on their own.
E Lebanon is a small country where banks have much smaller assets, and obviously less profitability. They are able to expand and to penetrate new markets whether it’s in North Africa, or Sudan, or other parts of the region. But we haven’t seen this yet with huge banks in Emirates for example. How can one explain this?
We must look at this from both sides. Let’s start with the GCC side: the returns here are still so high, and the market is growing at such a rapid speed, there is a lot of business for everybody. So the incentives to look outward are not as strong as they are in Lebanon. The Lebanese market is a very peculiar market. It’s a relatively small market and you have a lot of very good banks with well-trained people. Realizing that their market is relatively restricted, Lebanese banks have been innovative in going out into markets that show higher-risk profiles, but because of the depth of the management that many Lebanese banks have, they are able to mitigate those and do profitable business.
Eventually, I believe we will see cross-border mergers and acquisitions in the region, but typically the case is that first we’ll see consolidation within the country, and after a strong entity is established we’ll see cross-border mergers.
E In an increasingly competitive environment, M&A strategically benefit most banks. Is CBD planning to merge with any banks in the UAE?
I think every CEO of a relatively large bank, as part of his agenda, must look at inorganic growth, in other words, acquiring. CBD, because of its shareholder structure, is very keen about keeping destiny in its own hands. We would like to be on the acquiring side.
For us, it’s important to see that what we acquire will fit our strategy. If we execute an M&A transaction, we should then be able to export the specific knowledge and the specific strength that we have into any entity that we acquire. It’s not about just expanding, we have a very distinct strategy that is about family-owned business — both middle-sized and large-sized — it’s about wealth management. We service, through wealth management, the owners of these family businesses and the management of these family businesses.
E What are the pros and cons of financial sector liberalization? How will CBD be affected by liberalization? How does CBD plan to utilize this liberalization?
Liberalization is a good thing. It will bring all of us to a higher level, and it forces us to provide better quality service to our clients. When we have international banks coming in it just means we have to work a little bit harder to ensure that we provide service that is comparable or better in terms of quality. I think liberalization will bring better personnel, more professionalism, better client service, and more competition. I do believe, however, that there are distinct client sectors that national banks will focus on, and distinct client sectors that local banks will focus on.
E What does CBD believe are the best policy options to fight the increasing inflation rates at present?
Apart from the monetary policy mentioned before, I would say that the short supply, high demand, and liquidity have increased inflation. Now, what do we do as a bank? In terms of judging credit risk and looking at the capabilities of people to repay, we are very clear about not wanting to bring people into financial difficulties. Our consumer lending is relatively conservative and that’s not only to protect the bank, but also to protect our clientele.
Regarding our corporate clients, it’s about making them aware of what’s happening around them; making them aware of what’s happening to their suppliers, their buyers, and the market as a whole. It’s really about understanding the business, being a good business partner, and advising the business owner. We feel that this is an added value to the relationship, which is why we often become the main bank for many of our clients.
E How is CBD giving back to the community? What are the CSR initiatives you are supporting & why?
We are a bank that has been here for nearly four decades. We are really an integral part of society. We have a strong desire to achieve and maintain a high Emiratization ratio, not just to meet the numbers, but to make sure that we prepare UAE nationals for careers within our bank as well as outside. Even if people leave us, hopefully they will have had a good experience and they will come back to us as clients at the end of the day.
It’s about making sure that we give back to society through that. We don’t advertise this, but we have been a very significant contributor to the Dubai Cares Program; we’ve contributed 20 million dirham [$5.45 million]. Moreover, we have for many, many years contributed to a large number of organizations which help disabled, orphans and underprivileged. It’s not just about giving money, it’s about really participating. I am very proud to say that our staff actively participates in blood donation programs in a stand against poverty. It creates engagement — it makes people feel more connected to their bank.
E What are the keys to strengthening the institutional framework of the banking sector in the UAE? To what extent are Basel II and WTO implemented throughout the regulatory framework of CBD?
More than ever, the need for a fast implementation of Basel II has been proven by what has happened in the US subprime crisis. Basel II is not only about compliance with the rules, it’s about improving risk-management capabilities, improving risk-management awareness within the banking sector, which is very important. Many of the central banks in the region are quite proactive and I think that banks have been given the proper timeline to adjust to it.
E What role does corporate governance play in CBD?
We are very keen to follow corporate governance guidelines. We have very clear internal controls in place, which ultimately ensure that the financials that we publish as a company are indeed transparent and are projecting reality. I think the transparency aspect is particularly important in the corporate governance guidelines because we have many shareholders and we don’t want to privilege the larger shareholders over the smaller shareholders. CBD has always been one of the first to come out with the quota results; we’ve actually won awards for that. We have a committee within the bank that has been implementing corporate governance according to the standards and regulations that have been issued.
E Does CBD have plans to expand regionally and/or internationally? If so, to which countries, and why?
Every CEO, particularly of the most significant banks, has been looking at expansion inorganically as well as organically. I think the priority for us would lay first within UAE because a lot of opportunity remains in UAE, and the returns are still significantly higher here than other parts of the region. We also scan the market internationally, but at this moment there is nothing specific that we are looking at. Whenever you have an expansion strategy you must be ready in terms of depth of management, and if you buy a stake in a bank you must make sure that it fits into your strategic framework.
E What is CBD’s perspective on GCC countries de-pegging their currencies from the US dollar? How will valuation against a basket of currencies affect CBD?
In all fairness, de-pegging is not really the discussion, the way I see it. The discussion is much more about monetary policy. I can understand that if you have a lot of your assets invested in dollars you don’t want them to devalue from one day to another, so I appreciate why certain governments have expressed their reluctance. However, to have an independent monetary policy in a country that’s going through a strong growth phase is important. You cannot follow the same monetary policy of a country that is sliding into recession or already is in recession, that being the US. For me, de-pegging is a little less important on the agenda than monetary policy.
