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Managing to recognise the dynamic
The financial sector's performance is bound to be aligned with the economic cycle, and has been affected by the subdued circumstances of the time. But First Gulf Bank's template for controlled expansion will stand it in good stead for the upturn, Chief Executive Officer André Sayegh tells Financial Review
- André Sayegh , Special to Financial Review
- Published: 00:00 November 22, 2010
Your third-quarter results beat most analysts' expectations. Provisions declined 1.3 per cent and the NPL ratio remained flat (2.5 per cent). What is your expectation of profitability for the rest of the year — have provisions peaked?
Let me start by stating that First Gulf Bank's (FGB) financial performance is based on a pre-planned model, built to deliver consistent growth results along with solid balance sheet ratios. Our third-quarter results are in line with the Board of Directors plan.
Talking about provisions, it is normal that during economic business cycles countries face volatility in their economic activity, which reflects on their financial sector. This slowdown causes delays in receivables by banks, which according to accounting norms force banks to take provisions. Delay in receivables is the main cause of provisions.
However, a point to be made very clear is that a high percentage of provisions is only a temporary measure to park non-performing loans. The bank, through a dedicated and specialised team, follows rigorously on all non-performing accounts, regardless of the length of time, to ensure the collection of the bank debt.
I seize this opportunity to reiterate an important request to all parties, institutions or individuals: to meet their contractual obligations and pay their dues on time — that is the best remedy to overcome the slowdown in any economy and revive economic activity, thus giving banks more flexibility in relaxing their lending and promoting growth to the benefit of all parties.
Finally, the economic cycle is showing signs of stabilisation and, accordingly, this will have a direct positive impact on the level of provisioning as well as on collections, which will benefit the financial sector as a whole.
Loan book expansion has been marginal (1.5 per cent), while you have capital adequacy at 23.5 per cent, well in excess of the regulatory requirement. In general terms, do you expect lending to expand soon? To what extent do you expect to keep funds locked in capital?
As stated earlier, the financial performance of banks is normally aligned with the country's economic activity. We cannot deny that over the past months there has been a slowdown. By the way, however, I see this slowdown from a positive perspective, as it allows companies to revisit their strategies and reshape their business plans on a solid foundation and be ready for the future boom.
Over the past months FGB's strategy of controlled expansion has proved to be right, as witnessed by our strong financial performance this year. It is true that FGB has, by international standards, one of the highest capital adequacy ratios, at 23.5 per cent. That is very positive as it will allow us to expand along with the economy.
The bank is always ready to support government projects as well as those companies involved with those projects, in the areas of power, hydrocarbon industry, infrastructure, industry, etc. — which have a positive impact on the economy as a whole.
Depending on your previous response, would you pursue a bond or Euro Medium Term Note (EMTN) issue to meet funding requirements in the foreseeable future?
The bank's funding is totally based on a scientific and dynamic model, creating an optimal balance between short-term, medium- and long-term funding. We have one of the best funding models within the industry.
We have always focused on liquidity, and I am proud to state that we are one of the most liquid banks in the country, as reflected in our financial ratios. So the EMTN programme is part of this funding model, which is built on clear objective criteria, taking into account our future expansion plans. Our objective remains to maintain a high capital adequacy ratio.
There have been reports that loan demand is witnessing a strong recovery, especially from corporate borrowers and especially in Abu Dhabi. How might your loan book develop? Are you strategically inclined to particular segments, and planning to increase market share, as others have following consolidation?
You are absolutely right, being an Abu Dhabi-based bank, FGB has always been supporting government, quasi-government and companies involved with government projects.
We have always aligned ourselves with the economy and will always continue to support the domestic economy — this is our primary objective.
There are multibillion-dirham projects, which have been awarded recently, and many will be tendered in the near future. Therefore, expansion is bound to happen, and we will play a major role in this growth.
On the retail side, the consumer bank will definitely tend to benefit from the economic expansion. FGB is very active, as you say, in personal loans and in credit cards. We live in a dynamic world, and we will always bring to our customers new products.
Over the past months we have introduced Emarati Al Awwal, a saving scheme for UAE nationals, which has proved to be very successful.
Recently, in line with our association with our own home town Abu Dhabi, we have launched our branded Abu Dhabi credit card, a prestigious card that is used internationally and which comes with unique benefits to the holders. Our HNWI business is expanding and will be gaining new dimensions in the near future.
Have you revised credit procedures in response to the experience of the past few years?
The credit procedure for our Corporate Bank as well as the Retail Bank is built on a scientific model, regularly validated, whereby the customer is rated based on objective qualitative and quantitative criteria.
Credit facilities are extended to the institutions and individuals who meet our criteria. Obviously, depending on the status of the economic cycle, we may tighten or relax our criteria.
An important point to highlight is that our objective is not only restricted to protecting the interests of the bank; rather we have a responsibility of protecting the interests of the community by either tightening or relaxing the extension of credit.
Can you describe your relationship with government business particularly?
From the early days, First Gulf Bank has been closely associated with government business, directly through bilateral transactions and indirectly through institutions executing government projects. Our relationship extends to almost all government entities and we are at their disposal to support their financial requirements.
In summary, we are ‘from the economy and for the economy'. We are proud to state that this association with the government entities in Abu Dhabi over the past few years took the bank to a new high ranking, featuring among the top four UAE banks and among the largest in the Middle East. Being one of the major banks, we see an expanding role for First Gulf Bank with the government.
How do you perceive the opportunities beyond the UAE now? Do you have particular ambitions overseas?
A few years ago the Board took a decision to expand overseas, to capture the trade flow between the UAE and the various countries with which we have ties. Going beyond the borders of the UAE will boost the business of the bank and diversify our stream of revenue.
Our expansion model is built on an organic model for growth rather than acquisitions. Understanding the countries' dynamic first is critical prior to positioning ourselves in the right business segment.
Based on this plan, we opened our first representative office in Singapore in 2007, which we upgraded to a branch last year, thus capturing a solid business flow coming from Asia.
We opened our first branch in Libya in 2008 jointly with the Libyan Economic and Social Development Fund (ESDF), a wholly-owned government entity. Libya has great potential, and our branch is well placed to play a vital role in the Libyan economy.
Moreover, we have opened representative offices in 2009 and 2010 in Qatar and in India, which are generating a good stream of transactions.
Interview by Andrew Shouler, Editor, Financial Review, and Babu Das Augustine, Deputy Business Editor, Gulf News
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