Tirad Mahmoud

CEO of Abu Dhabi Islamic BankWe have been successful in differentiating ourselves from the others. We don’t emphasise transactions with customers, we emphasise relationships with customers. The customers know the difference. When they deal with a bank that is focused entirely on them and their needs, they feel and appreciate it, as opposed to when you are dealing with a customer for the purpose of selling that customer a specific product.

Globally, Islamic banks controlled assets worth about $750 billion at the end of 2006, a figure which may rise to more than $1 trillion by 2010 as the industry expands, said U.S. management consultants McKinsey & Co. How do you assess the situation of Islamic banking in the UAE and globally?

I think Islamic banking has been growing much faster than conventional banking for the last ten years and the reason for that is twofold. It is a demand-driven industry; there has been a pent up demand, especially in the consumer sector and the SME sector, for Islamic banking. Islamic banking started in the UAE in the early 1980s and since then, those who offered it were pleasantly surprised; the demand for it continues to grow insatiably. In our case, for example, Abu Dhabi Islamic Bank will be ten years old at the end of this year and we continue to have double digit growth annually. I believe that Islamic banking, historically, has been the exception but if the trend continues, as I think it will, it will become the convention.

So, we can say that Islamic banking started in the United Arab Emirates. How does this market compare to other emerging Islamic banking markets? What are the trends and what are the opportunities?

The UAE is an exceptional market in the sense that it has a highly competitive environment; it has 50 banks. There has always been a banking sector that has been very vibrant and very strong. So, for Islamic banking to be thriving and growing in the UAE is an indication of a very good experience that will bring incentives for other countries to start Islamic banking. If it is successful here, in a place that has more than 50 banks, I can assure you that it will be successful in other countries where the density of banks is much lower. If we look at a country like Saudi Arabia, which has a population of 30 million people and about 11 banks, there are only two Islamic banks that one can speak about – Al Jazira and Al Rajhi, both those banks have had phenomenal growth rates and that has led to the introduction of two new Islamic banks in Saudi Arabia; Bank Al Bilad and Bank Al Inma. Also, I believe the introduction of Islamic banking members by the other conventional banks in Saudi Arabia goes to support that. The new licenses that have been issued in the UAE for local banks have been Islamic banks; Noor Islamic bank and Hilal Islamic Bank, and that is demand-driven. Similarly, in Qatar, the two banking licenses that were issued there for Islamic banks; for Al Rayan Bank and for Barwa Bank. So, the demand for Islamic banking is very strong and I think this will continue to be the case. As I said earlier, historically, Islamic banking was the exception and I think in the future it will become the convention.

UAE banking sector posted nearly $6.8 billion in profits for 2007, an increase of 29%. How confident are you that the UAE banking sector and Islamic banking in particular, will be immune to the global economic slowdown?

Nobody can be immune to the environment. If the environment is growing you will be affected, and if your environment is anaemic you will be affected by that. I believe what is very special about this area is that the banks here are very well capitalized and they rely on the domestic business, they do not rely on cross-border businesses. So, if there is a crisis in Latin America, the UAE is not exposed to that crisis. They are very much heavily exposed to their domestic economy. The fact that the state itself is immensely wealthy and rich brings a lot of stability and resiliency to the banking sector as a whole. This region has seen crises in the past; they have seen wars and they have seen oil being sold at single digit dollars and the banks have actually come through with, what I would say, flying colours considering what is happening in the world right now – I’m not mentioning any names, but all you have to do is watch CNN and you can see the casualties.

Do you see Islamic banking spreading into new geographical areas such as Europe, the US and Asia?

Islamic banks already exist in the States, and particularly in the UK. There is a noticeable and a sizeable Islamic banking business there. The Islamic financial industry is driven either by supply or demand. As I said earlier, it has been demand-driven here. What I have found in Europe is some of the large borrowers, such as municipalities, that are looking to raise long-term financing found that Islamic banks have a lot of liquidity and they resorted to borrowing money through Islamic structures from the Islamic banks. So, in respect to Western Europe, I think it is supply-based. There is a supply of Islamic funds liquidity and they are tapping into that. However, if you look at the Islamic world itself, it is demand-driven; the customers want Islamic banking services.

Abu Dhabi Islamic Bank’s net income in the three months to March 31 – after depositors’ share – surged by 47% to 244.25 million dirhams ($66.5 million). What ability makes you perform better on a year-on-year basis?

The bank is fortunate in the sense that all our sectors are performing above expectations. Our retail bank is growing, our corporate bank is growing, our treasury is growing and I would expect that to continue into the future. Our second quarter results will be published next week and they will look the same, if not better, than the first quarter results.

What are you targets for the end of 2008 and 2009, in terms of growth?

Double digit.

The Goldman report has forecast that Abu Dhabi Islamic Bank (ADIB) is likely to face three main challenges. Firstly strong competition coming not only from established Islamic finance players in the UAE, but also from new entrants among which are mainly conventional banks launching Sharia-compliant platforms or converting altogether. Regarding this first challenge, what will your strategy be to differentiate yourself from the 50 existing banks in the UAE?

The bank has done extremely well over the last ten years, despite the fact that the country has always had a large number of banks. The reason why it has done well is because it came to the market with an offering that was unique and credible. Abu Dhabi Islamic Bank takes pride in its transparency, its credibility and its commitment to customer service and to giving a good value proposition to the marketplace. We are not a bank that brings gimmicks into the street, we are not a bank that is interested in making profit, we are a bank that is interested in providing value to our customers and creating value for our shareholders. I think a combination of these things makes us very unique in the market and we will continue to grow our franchise throughout the United Arab Emirates with these simple, basic values. Our customers, through many surveys, have told us that they trust Abu Dhabi Islamic Bank and they like Abu Dhabi Islamic Bank. What we gain from that feedback is an enormous incentive and reward for us to continue to invest in these basic values.

For the other challenges; secondly, the lack of sizeable targets to grow inorganically, given that there are not many Islamic finance banks perceived to be willing sellers; and lastly, the bank will face cost pressure as it expands operations, particularly abroad. How are you going to tackle these two last challenges?

The second one has already been tackled; as you know, we bought a bank in Egypt six months ago. It has 70 branches and it’s a conventional bank. The bank in Egypt is now being gradually converted into an Islamic bank and it is being upgraded. Once we achieve our operational targets, we will rebrand it into Abu Dhabi Islamic Bank. So, the second issue has already been dealt with. We do not have a problem with buying conventional banks and converting them to Islamic banks. In fact, our experience in Egypt has been much better than we expected, we thought it would be difficult; it is not easy but it’s not as difficult as we anticipated. On the third item, in terms of cost-income ratio, this is a reflection of the heavy investment the bank has been making into infrastructure. The bank grew its distribution network in the UAE from 16 branches in 2004 to 44 branches as of now and will be adding four new branches by the end of the year. That in itself does increase the cost of the bank. But, as we reach the ideal size of the network, you start to see increasing revenue in the bank and a more stable cost base. So, these are temporary features of our growth strategy.

However, you are also eyeing some expansion onto some of the North African markets, such as Algeria and Morocco. Are you going to continue your expansion into those markets?

The growth outside the country into a country like Algeria and other countries is part of establishing ourselves as a regional bank. We have a strategy for each country to make sure we achieve profitability in the shortest period of time. I would say that our targets are being selected on the basis of economics that justify our entry. Algeria is a country that has 30 million people, it is oil rich, it has gas resources and therefore, going to Algeria, for us, is entering a market full of new opportunities. The investment that we are making there, we believe, will be rewarded quite handsomely.

How are you going to establish your bank? I can imagine that in Algeria no one knows about Abu Dhabi Islamic Bank. How are you going to establish your name over there or in Morocco and other countries?

That’s not very difficult. Establishing ourselves in Algeria is something that we have already started and we were very pleasantly surprised by the warm reception that we received there. Abu Dhabi, as an emirate, has maintained very strong relations in the region and there is a very strong legacy between Abu Dhabi and all of these countries. Our name being Abu Dhabi Islamic Bank is a big advantage for us. I think we already have half the job done just with the fact that our name is Abu Dhabi!

David Bennett, head of brand strategy at Emirates NBD, citing the study that 75% of UAE consumers think all banks in the country offer the same services, said that one of the reasons is not yet matured strategy of branding. Furthermore, he added that in addition to poor branding strategies, the customer’s lack of trust in the bank is a problem. This means some of your customers think the same way. How are you going to change this perception that you are offering something different?

We have been successful in differentiating ourselves from the others. We don’t emphasise transactions with customers, we emphasise relationships with customers. The customers know the difference. When they deal with a bank that is focused entirely on them and their needs, they feel and appreciate it, as opposed to when you are dealing with a customer for the purpose of selling that customer a specific product. Customers are very intelligent, we simply underestimate them and when we do that, we pay the price. So, our differentiating advantage with customers is that we focus on them and their needs and we try to deliver value to them. Our marketing campaigns emphasise that; it’s about people, it’s about the customer. When we speak with our staff, we speak about the customer’s needs, we do not speak about selling to the customer. So, the culture we have at the bank is pretty much aligned with our marketing strategies in the market. I think these things have found their way into the marketplace. Our customers know when we are trying to push a product that they don’t want and they know when we are saying to them “how can we serve you? How can we improve your banking arrangements?” and I think that’s been the advantage that we have. It’s easier said than done, but we do it!

What would you like your name to be associated with in terms of values and of what the customers think of you?

We would like to be a relationship bank. We would like people to think that they have a strong relationship with us, that we are their bank, that they feel safe with us and can keep their savings with us, they can buy their products, credit cards, financing requirements, insurance requirements, and feel that the outcome is predictable; that it is always in their favour.

ADIB’s Board of Directors would like to emphasize their constant approach towards improving the bank’s performance and taking a further step of expansion and growth at each stage all to achieve stability, profit growth, enhancing its competitive position, and taking its full responsibility in developing the economic, social, and cultural sectors in the UAE. How are you addressing corporate social responsibility and what is your role in the development of Abu Dhabi?

We are a bank from the community and we are part of this community and we are committed to continuously investing in this community. There are a number of schemes and programs that we participate in. We are participating in the Red Crescent Society. We even participate in mass weddings, we have recently sponsored a series of mass weddings, in one of them there were 60 grooms and 60 brides, all sponsored by the bank. We are also entering into the educational field; we are participating in setting up a school of bankers with the university here that we would help fund and help provide with teaching expertise and building special educational programs in that regard. The social responsibility that Abu Dhabi Islamic Bank has is part of its essence. It is the way it started and it is the way it continues; it is not something that we need to bring into Abu Dhabi Islamic Bank, it is something that is already part of Abu Dhabi Islamic Bank. In addition to that, we take a key interest in applying our best skills, in educating our staff and the customers. For example, if we look at the consumer finance industry, we have recently made a decision to start educating our customers on how to budget their household expenses; something that I feel is essential if we’re selling to the community, financing products and credit cards, which you can’t avoid describing as addictive, we have to also educate them on how to manage their finances better. This is something that we feel we are obliged to do and we want to do it. In the fourth quarter of this year, we will start these educational programs in the community. So, social responsibility is something we live with everyday, it’s not something we think about, it’s something we do all the time.

Abu Dhabi has positioned itself as a cultural destination. Are you also helping to encourage visitors and tourists to come here as a destination and what is your role in this field? As I mentioned, you have a responsibility towards developing the cultural sector in the UAE?

We’re participating in many ways in improving the tourism infrastructure in Abu Dhabi. Some of it is in financing, some is in advisory and we are promoting Abu Dhabi through our own campaigns both in the country and outside. Once we rebrand our franchise in Egypt into Abu Dhabi Islamic Bank, people will start to hear the name Abu Dhabi in many places and I think that in itself will bring a different face to Abu Dhabi; a face that is much more familiar and known elsewhere.

You only joined the bank recently. What kind of unique experiences are you going to bring to this institution and what is your ambition? Where would you like to take the bank?

Abu Dhabi Islamic Bank has a very strong history of producing the best it can to the marketplace. When I joined the bank, I was attracted to it by its very good brand and very good presence on the marketplace. What I do bring to Abu Dhabi Islamic Bank is my international experience, which they lack, and that dovetails extremely well with the bank’s strategy to go outside the UAE; their presence in Egypt and their acquisition in Algeria, that is what I bring to the bank, taking the bank outside the country and making it a regional bank. I have worked in the past for Citigroup for about 25 years spent in nine different countries. So, that experience is exactly what I am going to do here.

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