Challenges of Retail Banking in Bahrain by BMI Bank

Interview with Jamal Ali Al-Hazeem, CEO of BMI Bank

What is the impact on the private sector and the public sector, on investment and on the banking sector? What is your take on it and where is Bahrain headed?

The damage caused by the recent unfortunate events has been significant.

If you consider one of the many aspects of it, the downgrading of Bahrain in countries ratings, causing the downgrading of the financial situation – only this aspect leads to the increasing of the borrowing costs, affects the credibility and the country’s sovereign risk. A number of credit lines have been either reduced or stopped. This can only lead to pushing the cost up for the end user.

Suddenly, you are contributing to an inflationary economy because of the higher costs. A borrowing that cost you 6% yesterday can now cost you between 7 and 8%. Who is going to bear that? The end user.

Investors look at Bahrain with a different eye today than before February. We don’t blame them. As we say, the capital is a coward: it will only go where it is safe. We have to rebuild the trust, we have to rebuild our image of a positive, vibrant environment for investment in order to attract FDI.

Without that, we will fail. Yes, we have been struck. Yes, it almost killed us. But it did not. As the saying goes, the strike that doesn’t kill you only makes you stronger. And hopefully, Bahrain will come out of this time of dialogue stronger – not just as a country, but as a nation of united people.

I mentioned a lot of negative aspects. Let’s put them into perspective. What is the real situation, as opposed to what the international media shows?

I think what you hear from me will not be very convincing. I’m Bahraini, I’ve always abided by the law and worked within the law. I think it would have a much bigger impact if you heard it from someone who isn’t Bahraini but has lived here for a couple of years.

My point of view on the situation in Bahrain is that Bahrain has been victimized by the international media to a great extent. Reputable news agencies have made reports that weren’t backed by hard facts or evidence. Publishing and broadcasting such news was unfair to Bahrain. Also, our defense mechanism as a country was not capable of dealing with this.

A lot of people have been criticizing Bahrain’s response to the negative light shed by the international media. The reason to this is that Bahrain has never been the enemy of another nation. It never needed to build the necessary infrastructure to defend itself from such attacks. We have always had very good relations with the outside world.

What challenges is the banking sector – and more particularly your bank – going to face in the future?

I think the main challenges will be

1) the rating of Bahrain outside Bahrain;
2) the ability to work with international sectors, by having proper credit lines and proper finances.

Retail banks work with liquidity, and the cost of the liquidity will determine how you can work on the local market. We, as a retail bank, don’t have a problem. I think there is a very good liquidity situation in Bahrain. We have more than we need. However we need to work on how the outside world perceives Bahrain as reputation is of the utmost importance. We want Bahrain to be perceived as stable, good for investment, a country that has laws, that is liberal and free, and has a good economy. We need to rebuild the trust that we have lost in the past 3 months.

How do you see the banks using this excess liquidity?

We are already using it. In fact, there is a ratio laid down by the Central Bank of Bahrain called Long Term Deposit ratio. As a financial institution, especially retail banks, you should not exceed 75%. A lot of banks are above this ratio, which shows we are very active on the lending side. However, because Bahrain is a small economy, there aren’t a lot of sectors which we can lend money to.

The main drivers in a such a small economy are the government and the real estate sector. We are trying to develop other sectors such pharmaceuticals, education and health. Tourism is already important in Bahrain but we are trying to enhance it. If we manage to do that, it will indirectly support the real estate sector.

The BMI bank posted some losses in 2009-2010. How do you see 2011, do you think the bank will be profitable this year?

I came here in May 2010. When you take over a new responsibility, you like to put everything behind you and start fresh. It was very important for me to “clean up” in order to be able to focus forward. So 2010 was a cleaning year. There was a new CEO. 2011 started very well.

We had a very good month in January, we had a very good 2 weeks in February; and then the crisis  took place. That really sold us for about 2 months. After that, the psychological effect of the crisis affected the economy: the atmosphere of crisis impacted the business. Today, we are 50% focused on the business, and 50% thinking about our political future as a nation. But hopefully, with the will of the people, we will be able to put this behind us.

A long time ago, I asked a man from Singapore – Singapore is the same size as Bahrain and has 5 million inhabitants, but its GDP is 225 billion dollars, whereas the GDP of Bahrain is 21-22 billion dollars. I asked him: In Singapore, you have different religions and sects, you don’t have natural resources, no oil, no gas, nothing; and yet, you are very strong economically and you don’t have any sectarian issues or tension between the different communities! He told me something that I found very interesting: he said that when Mao Zedong took charge of Singapore with his group, the first thing they thought of was how to fill up the people’s idle time.

I liked the way he put it. When you have nothing to do, you start to think about politics and problems. If yo are busy, you are raising a family, you are progressing as an individual, I don’t think you will have a lot of time or interest in these things. So I think the challenge for Bahrain is to make its people busy in a constructive way.

You are a new CEO, what is your vision, what is your strategy? What did you propose to the board of directors?

As a retail bank we should focus on our core market: Bahrain. We have to be somebody in Bahrain before expanding outside. This is going to be out focus for the next 3 years. How can we increase our market share in Bahrain, and hopefully double it within 3 years?

Being a small business has advantages: you are quick, you can only grow, and you are possibly more aggressive because you are not complacent. A new plan or strategy that you develop needs the right people to execute it. The senior management is very important.

As a retail bank, it is crucial to have a very strong knowledge of the local market, as well as relationships and contacts. You need people who can open doors for you in order to gain more market shares. We had to make sure that we build a strong local management that has experience, relationships and the ability to execute the strategy.

Today, most of our front-line people are local senior executives with years of experience in the local market. The engine has to work, and it has to work fast. To make sure that the engine is working efficiently we use “tools”: people, technology, products and service. In Bahrain, you cannot compete on price, you can only compete on 2 things: quality of service and quality of products.  Most banks have the same products so it’s important that we be creative.

What about your numbers?

We are growing and gaining a lot of new customers. We still have issues we need to work on – for example, we have just embarked on the updating of our net banking. We are improving our branch network: today we have 9 branches, and we will have 12 by the end of the year. We are also improving our ATM network: today we have 26 of them and this number should go up to 32 by the end of the year. The quality of our staff is also a key aspect.

What is your approach to communication and marketing? What importance do you give to brand awareness?

When I arrived, the bank was in the process of enhancing the brand. I don’t want to say re-brand because we still have the same name. Our former logo looked a lot like the British Midland logo. We changed that and we launched our new logo just before the political crisis. Communication with clients should be a continuous process through SMS, email, ATMs, branches, media, etc.

We have been told that during the crisis in February, the only people who spent money on the media were the BMI. You need to be constantly in touch with your customers. Any new product you come up with – or existing product you modify – needs to be introduced to the market. Customers appreciate that. You need to make sure that you keep them in mind at all times.

You are not only a retail bank, you provide other services such as SMI banking, private banking, wholesale banking, Islamic banking and treasure services. How important is private banking and high net worth individuals in your portfolio VS retail banking? What is the future of these other services?

As a retail bank, the main driver is retail. However that does not mean the other divisions aren’t as important. In fact, private banking and high net worth individuals exist in every retail bank because they all have VIP clients.

The BMI has been very successful on SMI. I don’t take credit for that, it was already successful when I came. After I came, we enhanced the offering through SMI. Before I came, the offering was mainly conventional, through the bank program. As soon as I came, we signed a program with Tamkeen to offer the Tamkeen SMI program through BMI.

Today, our clients can choose between 2: either the conventional SMI program that we have, or the Tamkeen program that we started in October last year. Islamic banking is very important. We have a fully-fledged Islamic window. Our customers can choose between conventional financing or Sharia-compliant financing, on both sides of the balance sheet, even when they place money with us. By offering this choice, we can attain more customers.

You are developing a lot of creative products, in partnership with a lot of groups. Your partnership with Tamkeen helps SMIs to grow and tries to address their needs. How do you see the future of banking in Bahrain? Is it going to be more converged services?

I think Bahrain is very advanced when it comes to retail banking. However this market is very saturated and very competitive – which is good, I like competitiveness because it only makes you better. But I think the market has to be consolidated. There are numbers of small banks that are fighting and competing over the same piece of work. I think today the largest bank in Bahrain is probably smaller than the smallest bank in the UK or in the US. Our banks are considered small or small-medium by international benchmark standards.

We need to grow larger in order to compete internationally rather than only locally. Sometimes there are tickets or transactions in Bahrain that one bank cannot take. They have to club it or syndicate it because it is too large for any single bank to take, whereas in Europe and the US, there are banks that can handle such transactions on their own. I think the only natural way to go forward for the retail banking market in Bahrain is consolidation.

Create 1 or 2 larger banks, for them to be able to compete better, rationalize their costs and rationalize their efforts. I think the same thing will happen in the investment banking market, there will be some consolidation.

What is your dream in 5 years?

I would like to see Bahrain focusing on economic development thanks to political consensus. Our only focus should be how to develop the economy to the benefit of the people. In 5 years, I think the financial sector will continue to be a key actor in the national GDP, probably one of the strongest sectors on the island.  I hope the crisis we’ve been through will help us to become a better country in 5 years.

I hope we will have a dialogue of civilized people, working together for the benefit of the nation and not just one sect or category of people. I think we are capable, and I hope for Bahrain to come out of this as a nation with a very clear focus and a very clear strategy. As we say in Bahrain in our local language, “Bahrain deserves it”.