BNP Paribas Bahrain Leading Foreign Bank in Bahrain

Bahrain is considered the freest economy in the Middle East, and the financial hub of the region. What are the key advantages for international banks to establish their regional headquarters in Bahrain?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand: There are many advantages. We are one of the few international banks to have its headquarters for the Middle East here. That was a decision made years ago because BNP Paribas Bahrain was in the region for 35 years. At the time, it was not a “fashionable” decision, but one based on very clear criteria. The number one criterion obviously being the quality of the supervising authorities, and the Central Bank of Bahrain has not only an excellent reputation but very good teams, very strong regulations behind them; it’s an institution that is very accessible, very good dialog, and a very good quality of supervision. It is very comforting to be under its jurisdiction which is well-controlled. Number two, our business, like many banking businesses is about people and building a regional center requires local competencies and the ability to impose specialized competencies and Bahrain is by far the easiest country from that perspective. There is a pool of local financial talent which is the largest in the region; we also have ability to bring business-line specialists from Europe, America, or wherever without restrictions.. Today we have close to 500 people here in Bahrain. More than half are local Bahrainis, and the rest are market specialists, structured finance specialists, commercial banking specialists, trade finance specialists, spending 3, 4, 5 years in the region. So overall, the human resources aspect is the second most important aspect. The third, is the geographic position. Obviously at the time we started our regional setup we didn’t have a presence in Saudi Arabia and Saudi Arabia is the largest market, and quite naturally Bahrain was chosen because Saudi Arabia is right across the bridge but Saudi Arabia and Bahrain also have a very long-established relationship. For us, it was much easier to develop in Saudi Arabia from Bahrain than from anywhere else. Now, having a local presence in Riyadh for the past 3 years means it is very easy for us to go to Riyadh to bring people from Riyadh to Bahrain, but also we have relocated some Bahrainis to Riyadh to add to our presence there. So still, despite our presence today, the proximity to Saudi Arabia remains an advantage. Then there are other, smaller advantages which became more important with time. One of them is costs. If you look comparatively at other places in the region, Bahrain has many cost advantages.

Dubai is positioning itself as the financial center of the Gulf. How advantageous is it to be in Bahrain compared to Dubai? And why have other banks chosen to go to Dubai?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand: Dubai has not necessarily attracted regional offices. What has been publicized over the past 5, 6, 7 years of the arrival of American or European investment banks and set up shop in Dubai to cover the region, we have a very specialized team. If you look at the team of 500 we have here,  we have people who are functions, people who are support, we have people who are specialized business-line, not only investment banking, it’s commercial banking, trade, finance, so we have to compare like with like. The fashion of setting up offices in Dubai has been in my opinion, restricted to mainly investment banks. The second point is that there are banks that are regional centers, and that dates back to ten years ago, people like HSBC or Standard Chartered, but it’s a different configuration. They have a broader region, some of them cover South Asia, for example. Also, they are really local banks in the UAE.. So we cannot say that Dubai has become a financial center, it is a center like other centers – Qatar is a center, Riyadh will be a center, especially with the central bank of the GCC – normally we should see more banks setting up in Saudi Arabia. The strength of Bahrain is that it has been able to maintain its quality.. They have built a reputation and built on this reputation to attract long-term players and people who have a regional view as well, like a GCC view. I haven’t seen people trying to make out competition between Dubai and Bahrain; it’s a different set up and different ambitions. That doesn’t mean that having our regional center in Bahrain prevents us from going to the UAE; on the contrary, we are quite active there actually, we have a branch in Dubai and in Jebel Ali, but we do local business there, and the investment banking business is based from here.

With new entrance and foreign banks seeking a piece of the action, the GCC-established Islamic banks are facing competitive pressures. How do you structure your competitive strategy vis-a-vis local competition?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand: Islamic banking is not something to which we are newcomers. We have had Islamic banking activities for the past 20 years. At the time it was less of a fashion so we didn’t advertise it. Now what has changed is that Islamic banking, like any other industry, had to develop fast and therefore a lot of international banks have dedicated a department or some form of a department to have expertise on this. In 2003, we created an Islamic banking unit here in Bahrain with a global mandate, called Najmah; so from here we service all Islamic banking activities of BNP Paribas worldwide, including Southeast Asia. We have started mainly on financing and treasury activities where we have a reasonable position, and over the past four or five years we have been much more active in treasury income and things like Forex or interest rates-like activities. We have been very active in structured finance, and we have developed an asset management capability, both here in the Gulf and in Southeast Asia. The idea of having this entity is to have all the products that are devised and Structured by BNP Paribas Shariah-compliant, validated by our Shariah committee which is here, the head of it is Sheikh Nazim Yaqoubi, a very well-known scholar based in Bahrain. He sits on major Shariah committees in the region and beyond. With our expertise, we restructure and re-engineer some of our products to meet our Shariah principles. We have competition in many fields, we have international banks, like HSBC, local banks which have become more sophisticated, and Islamic banks as well, and some institutions that are not banks. So we have competition which is growing fast and is diversified. I think one of the strengths we have is that we have the competence for conventional products, we know how to book them and assess the risks. We know how to discuss in detail with the Shariah committee about technical issues, and also we have a commitment to the region. We didn’t arrive yesterday to start Islamic banking; it’s part of our day-to-day business, in fact it’s part of our strategy, and part of the business here. We have a recognized expertise in Islamic banking structured products to lend money and make deposits and to service our clients in a whole range of products.

You mentioned that the GCC region offers a very unique opportunity for international and local banks. Can you comment on this potential? How do you envision your role in the region?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand: The GCC has been included as one of the promising new markets to invest in. It has been the fashion, again, like Brazil, Russia, and China. Very early on it was part of these new, priority markets in which we decided to develop all the activities of a bank, invest, and be a leader. This is very important for BNP Paribas, it’s not done just purely opportunistically. It’s based on criteria and objectives and ambitions. And in that respect the GCC has been year after year part of this plan, and in the current environment, the GCC is doing very well compared to our peers in Russia, Brazil, or China. So the revenue growth has been even better than expected, the development of new products and the arrival of new business lines have followed the objectives we set, and today within the context of crisis, the GCC remains one of the priorities of BNP Paribas. We had our yearly Middle East meeting last week here in Bahrain with 120 people from all over the world, and it’s the only territorial meeting we have showing the importance of being present in the region.

What is your strategy for your presence in the region? What sectors do you plan to enter?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand:  There is one sector in which we are not present, so we cannot compare ourselves completely with people like Standard or HSBC, we do not have a retail network which removes us from a big chunk of the business of course. Our strategy is much more geared towards large institutions, corporations, mid caps, governments, and investors. We are the upper end of all these segments and our strategy in terms of product is obviously linked to these segments, like asset management, trade, and commercial banking. The strategy has been built on several criteria, one of them is proximity. We believe that being close to our clients is an important factor. As much as we could we have opened commercial branches in the GCC countries. We have been present in four of them for the past 30 years or more. And we have been establishing presences wherever possible. One of them is in Kuwait, we are the first foreign bank in Kuwait, we opened the branch in 2005, and the first foreign international branch in Saudi Arabia also opened in March 2005. When I say international it means a branch of BNP Paribas, so a joint venture. Based on that we have built presence, we have a joint venture on asset management, we have asked for a CMA license, but really the idea was to be close to our clients, because each territory is a different country with different regulations and specialties, and it is important to be fully efficient to have a local presence with local staff and people who understand the region. So in terms of geography our strategy is to be present in the region through commercial branches in the center, have a strong center of expertise be it investment banking or asset management, plus all the functions that go with this set up, like operations, compliance, audits, risks, credit, etc. The function platform is about 200 people at the center. We ensure all our branches in the GCC are really to the highest standards.

During the 9th GCC banking conference Mr. Abdulkareem Abu Al Nasr the CEO of National Commercial Bank of SA declared “profitability will come under stress, but the banking system is resilient” addressing Developments in GCC Banking. Do you agree or disagree with this statement and is profitability a cause of concern to you, especially facing the global economic downturn?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand: I am sure Mr. Abdulkareem was talking about local or regional banks and I would agree with this statement. It is true that we will be going from an environment in which growth was in the 6th to 7th percent continuously for 6-7 years and probably we will see a much reduced growth rate in 2009 and 2010, and probably in some countries even a negative growth. Another important point is the way additional revenue is created by markets; brokerage fees and investment fees, etc. That has affected banks’ profitability with the downturn. But local banks won’t be affected in the American or European way where they face major losses because of things like bad investments and uncontrolled risks. I think he is also right to say the banking sector in this region is very resilient. We have seen banks that took provisions on their portfolios, but large commercial banks in this region haven’t been affected that much because they had limited investment portfolios. There have been investment banks which had to markdown their portfolios, like anywhere else, but by and large they are based in Bahrain, an environment which is well controlled, and I’m sure they have a discussion at the Central Bank but they’re not concerned and they know what to talk about because they have a very good monitoring of the situation. 2008 and 2009 will probably see a decline in net revenues, but what you have to keep in mind is that growth in the previous year was much higher than the standards were.

Is profitability a major challenge for you, and what are the major challenges you face?

For international banks, the picture is a bit different. First, BNP Paribas is still in the growing phase, we opened in Saudi Arabia and Kuwait three years ago, so we have room for growth and having new clients and developing new products. From that perspective, we are quite happy by the revenue growth we see in this region. It is linked to gaining market shares, and developing new products and ideas. And it is certainly one of the fastest growing regions today.

How does your local, regional performance compare to the global BNP Paribas performance?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand:  The figures of BNP Paribas are public, we are one of the few international banks that did not lose money and which had significant net results in 2008 of over 3 billion Euros. The Gulf region did very well; it’s difficult to compare to the whole company but we grew while the whole bank didn’t grow. The first quarter of 2009 was very strong for BNP Paribas, we had a very strong performance, especially of the investment bank, and it’s the same here, with a very strong performance.. It’s not only markets though, it’s because we have continued our plan and continued to grow.

How do you address sustainable development, not only internally but in your products and projects?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand: That’s a very timely question; BNP Paribas is very concerned and involved in sustainable development as part of something we have to report on a regular basis, internally but also as part of the our partners and the counter-parties we deal with, to have socially responsible activities. From very early on in this region we have been discussing with partners, clients and counter-parties about green projects. I am pleased to say that we have succeeded in being advisors to two major projects in the region, from a financial point of view – a strategic advisor if you wish – and both of them are in Abu Dhabi. Abu Dhabi is a territory that is part of those that took this topic very seriously from early on and acted on it. We are advising a project called Shams with Mubadala, which is a renewable energy. It is not a major project in terms of size but in terms of innovation especially in an emirate which has built its strength on oil, so it shows the vision of the leaders in that country, that one day they will need to balance their energy sources  from oil to something else. The big one is the Masdar City. It’s a revolutionary vision, it’s a whole city built from scratch with over 50,000 people, and has started being built. It’s going to be a carbon emission neutral city concerning cooling, heating, electricity and transportation systems. BNP Paribas thanks to its commitment to the region has been selected as advisor for this mega project. It’s very important for us because it’s visible, it’s built in an emirate which is building is credibility in being green and sustainable development and being associated with this name is very important for us. It’s going to give us opportunities for our business lines, not only investment banking but things like real estate, and a commercial branch. We are building a track record in the region in this field and hopefully we will be consulted by other governments to develop other types of similar cities. BNP Paribas as a whole has a good record in terms of carbon credits. Of course, we don’t win the position of advisors for projects without bidding for them, and there are strong competitors, but at the end of the day, more so than track record, I think the fact that we came as one team and was able to advise on all different aspects, and I think this made the difference.

How has the crisis affected the project financing and the way you assess risk?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand: Definitely there has been volatility in commodity prices; oil, petro-chemicals and aluminium prices are down, and this has an impact on the project. Usually we deal with major partners locally and abroad. We have good experience, strong partners, and a very long track record. Certainly we revisit all the financing internally to see how things will be affected, and it depends on whether or not our partners are strong enough to weather these rough times. Generally for the Gulf there has been a kind of low in industrial projects, but some have been refinanced and have been successful. When the projects are good, the international bank continues to be present in support. Parameters have indeed changed but it is probably temporary, and you always try to forecast ahead of time. Today we are not involved in any large project that gives us concern. Other types of projects we are not involved in because of lack of expertise. We would not, for example, take the role of financing real estate projects.

What would be your final message to our audience, our viewers and readers, about the role that BNP Paribas in playing in the region and about your visions and dreams for the future?

BNP Paribas Bahrain, Regional Director, Jean-Christophe Durand: For our vision, this is a region that is going to continue growing and getting more sophisticated. The crisis has affected the region but has not made it collapse. These countries will weather the crisis and will become stronger. In the medium run, we have a strong commitment to the region. We have invested over the past decade and obviously want to benefit from this investment but we don’t want to stop. We will continue, and since the beginning of the year two teams have relocated from Europe to Bahrain, which proves there is a lot of business that we have interest in. Our ambitions are clear; we want to be among the top three investment wholesale banks in the GCC. Again, I am not compare us with banks that have a retail network, but as an investment and commercial bank we want to be among the three leading international banks, which I think we have become. We are certainly number one in structured finance, I think we have gained a strong presence in fixed income, certainly among the top three, and we are strong in asset management, strong in trade finance. The idea is not to be strong though, it is to remain strong. My vision is that GCC will remain a strong contributor to the international presence of BNP Paribas. We will probably gain market share internally, we will generate more revenue, more dividends revenues in other large regions in the world. My dream is that one day we will be a complete bank and have a retail bank here which will help the rest grow even more and we will have the whole market.