Interview with Mr. Michel Accad

CEO of Gulf Bank, Michel Accad: I think that the banking system has gone through some very difficult times and that 2010 will still be difficult.  Yet the banks have to prepare for the inevitable turn around. How long it will take, however, is anybodies guess.

In your opinion, what is the lesson learned by the industry?

CEO of Gulf Bank, Michel Accad: There are a couple of important ones.  One, in general, people have to focus on their core competencies rather than venturing into businesses that they do not fully understand, and at Gulf Bank we learned this the hard way. Two, we probably need to take strong and tough action earlier on to protect us and allow us to recover more quickly from the crisis.

The so-called financial stability law passed in Kuwait in March 2009 stipulated that the government would guarantee 50% of new loans from local banks to productive sectors.  What do you think of this measure? And do you think the Central Bank has done a good job insulating the banking sector from the effects of the crisis?

CEO of Gulf Bank, Michel Accad: The financial stability law’s principles are very good, however, in terms of implementation it has lagged a bit.  The law is about a year old, yet I don’t think many customers have been able to take advantage of the law because of some quirks. In order to stimulate growth the government should invest in infrastructure projects and execute the plan more thoroughly.  This needs to be fixed and the law should be more accessible to companies. Regarding the Central Bank, I think they have done a pretty good job. In the case of Gulf Bank, they intervened quickly and decisively to restore confidence in the market by standing behind their banks.  

Interbank lending in June 2009 was at 2.15 billion dollars compared to 1.9 billion dollars in 2008.  What is the outlook for 2010 and what are your expectations for interbank lending rate?

CEO of Gulf Bank, Michel Accad: I believe generally many banks are more comfortable from a liquidity perspective, but the interest rate levels remain essentially dependent on the Central Bank. Kuwait banks have more liquidity today than they had in the past. In December, we have a meeting with the top fifty leaders at Gulf Bank and we decided on Gulf Bank’s strategic direction.  Our vision was to be a dominant player in the local, conventional banking market, focusing on retail and commercial banking.  At this stage, we aren’t particularly interested in Islamic finance, or direct investments, or brokerage.  The key thing that came up from that meeting was that for the next two years Gulf Bank will be in rebuilding mode and our strategy will revolve around four pillars. One is to refocus on our core retail and commercial banking competencies. Another is to strengthen our balance sheet by being more aggressive on the provision side and having strong capital and liquidity. A third is to ring-fence our legacy problems and manage the “bad bank” separately from our profitable business. Lastly, we want to provide superior services to our customers by empowering our people and improving our business processes. 

The ratio of non-performing loans to total loans in Kuwait has roughly doubled since the crisis began.  How do you see the problem from the perspective of Gulf Bank and what remains as the greatest challenge?

CEO of Gulf Bank, Michel Accad: There is good news and there is bad news – I’ll start by explaining the bad news.  Gulf Bank’s own ratio is probably higher than the market average.  However, the good news is that our coverage in terms of provisions and strong collateral is very high, over 80%. Meaning that over the next few quarters it won’t be so much of a problem for Gulf Bank but an opportunity as we start recovering.  

Many believe that Kuwait Banking is overbanked and can be heading to a period of consolidation, where Gulf Bank could become the target of an acquisition?

CEO of Gulf Bank, Michel Accad: I do not believe the market is really over banked.  In Lebanon, for instance, we have not a very dissimilar profile in terms of inhabitants and maybe a lower GDP, but it has a hundred banks and many of them are very successful. If you look at the major local banks in Kuwait and the few international banks, which have a very limited scope, I don't think that the banking system is over saturated.  Gulf Bank’s capital situation is very strong and as we turn around over the next year or two, I believe that we will not be the typical acquisition target.  Rather, as we become over-liquid and over-capitalized, we may even be looking ourselves to expand more aggressively within the country or abroad!

You mentioned that the Q4 2009 results will probably be negative for Gulf Bank but that this will likely be the last negative quarter in the future.  Can you elaborate?

CEO of Gulf Bank, Michel Accad: We will likely have a few more quarters that are difficult but we should break even and from that point on I am optimistic. We have been very proactive in taking the necessary provisions and discussing with our customers about acceptable restructuring plans. Based on these factors I can justify Gulf Bank’s optimism for 2010. In my opinion, even if the economy does not improve, 2010 should still be profitable for us.

You mentioned your fourth pillar strategy regarding superior services and staying competitive in the market. How is Gulf Bank going to achieve this?

CEO of Gulf Bank, Michel Accad: Our branding and our network are key strengths and we can achieve superior service through our exceptional reach. Again, delegating more authority closer to the customer contact points will be the first step, and second, various business improvement processes that we have already started.  For example, within the next 8-9 months Gulf Bank will be able to make promises to our customers regarding our services and timeliness.  But for us to be able to communicate this credibly we need to invest in this process to ensure we meet the criteria at all times.  For the next two years, therefore, our focus is just going to be local, and only if we are successful, would we then have earned the right to expand beyond our core markets.

With Gulf Bank’s rating being downgraded how will we see this improve and be reevaluated?

CEO of Gulf Bank, Michel Accad: We have been downgraded because we were the first and most proactive in recognizing the level of bad loans.  If the rating agencies feel this is worth a downgrade, so be it.  As we start recovering it will warrant a second evaluation of Gulf Bank’s rating.  Perhaps other banks in Kuwait move more gradually to recognize bank loans so their rating has not been effected as much as Gulf Bank at this point.  

What are you going to do with your investment arm with real estate?  You mentioned diversification.

CEO of Gulf Bank, Michel Accad: We don't have an investment arm in real estate.  We have loans that are real estate related and loans that are related to investment companies and we would like to reduce our concentration from these sectors as we move forward.  We would like our expansion into retail banking to be proportionately bigger as well as the proportion of our business in infrastructure, logistics, commercial and industrial, and trade finance, instead of loans to investment companies and real estate development.

How do you envision Gulf Bank in 2015 after all of these changes have been implemented?

CEO of Gulf Bank, Michel Accad: 2015 is a long ways away but I think before that Gulf Bank will emerge as a very strong bank.  I think we are already among the top twenty banks of the Arab world in terms of capital and size and I believe that by 2012 or 2013 we will be in the top ten.