Over its 80 year history, Arab Bank has been steadfast in its commitment to 'helping the Arab World meet its economic aspirations'. CEO Nemeh Sabbagh reinforced the Bank's enduring policies in remaining well capitalised with high liquidity to protect shareholders and customers. Zoya Malik reports

Please do tell us about enhanced regulations affecting the industry in terms of operations and business growth?

The objectives that drive regulation are designed largely to ensure alignment of the financial industry with regulatory goals of protecting customers, shareholders, as well as the industry holistically. Often such standards are introduced with the intention to encourage competition where possible, incentivise the industry to enhance performance, promote price structures that foster economic efficiency, and establish regulatory processes in accordance with the law, that lend greater independence, transparency, consistency and credibility for the regulatory system.

Since the start of the recent financial crisis, the Basel Committee has introduced a substantial number of new requirements such as Basel III to enhance the resilience of the banking sector to big shocks. These guidelines focused on the adequacy and quality of capital, as well as the short and long term liquidity of banks. It should be noted that some of these requirements will not impact the MENA banks given the nature of the banks' operating models and the pro-active approach of regulatory bodies in establishing capital levels in excess of the minimum required by the Basel Committee. However as it currently stands, once these requirements are implemented they may have a negative impact on certain products.

Overall, well thought-out regulations introduced in the right way have a positive impact on gaining customer trust, help attract investments and capital to the community, build wealth and create shared value even though they may affect the profitability of certain financial products.

In particular, what is the outlook for your business in terms of loan growth, deposit growth, bad loan provisions and interest margins?

Our business strategy has been developed taking into consideration the prevailing and expected market conditions. Though we expect the local economy to recover slowly, Jordan's path of economic recovery will continue to be affected by regional developments.

In terms of loan growth, we are forecasting moderate growth for the remainder of this year underpinned by an improving economic and fiscal outlook. The Bank is also witnessing a steady growth in deposits at this time which is projected to continue. For the 2012 financial year, customer deposits which account for 72 per cent of the Bank's total sources of funds increased by $1 billion to reach $32.9 billion. This increase in deposits reflects the Bank's reputation as a safe haven during volatile times in the region, reinforcing customers' trust in its ability to cope under different circumstances. In tandem, we expect our Net Interest Margin to hold steady for 2013.

It is also worth mentioning here that the Bank maintains very comfortable capital and liquidity levels, with a capital adequacy ratio of 15.04 per cent exceeding the requirements of both Basel II and the Central Bank of Jordan at 12 per cent and a loan to deposit ratio of 68 per cent.

Arab Bank is careful to maintain prudent policies with regards to its asset quality. The Bank has increased the provisioning coverage on all non performing loans to reach in excess of 100 per cent, excluding the value of collaterals held.

What are your strategic goals for the next three years?

Given the current challenging environment in the region, we have set out our strategic objectives for the near future based on closely monitoring the evolving global and regional situation, regularly simulating its impact on our business. Our focus will be on maintaining an ample amount of liquidity to support our operations and to protect our shareholders and customers in the countries in which we operate. This has always been and will continue to be one of the pillars on which Arab Bank is built. This, of course, is in addition to maintaining our high capital adequacy ratio. Also as part of our strategic direction, we will maintain our prudent risk management policies when it comes to our credit portfolio.

Our objectives are to improve our customers' satisfaction and to improve our shareholders' returns and operational efficiency. In terms of business lines, Arab Bank will focus on financing projects in infrastructure and economic sectors that show high rates of growth in addition to special attention to environmentally friendly and green projects to foster sustainable development in the region. For both our corporate and individual customers, we will further enhance existing programmes and introduce new ones across the different markets in addition to developing our branch network and electronic banking channels.

What impacts have you felt from the social and political unrest domestically and the spillover of the conflicts from Syria and Iraq?

Jordan's location, openness, and economic ties make it susceptible to the instability in the region. Despite the low economic growth rate in the previous year affected by these external factors, the service sectors in Jordan did particularly well, including financial services, trade, and tourism. It will take several years to return to the high growth rates of 2000-2009 periods. Jordan's important tourism sector was adversely affected in 2011 by regional developments. Yet, there has been a good recovery recently, with tourism revenues increasing.

In general, Jordan's services industry benefits from the country's stability and its reform path, as well as the developing and diverse infrastructure in the Kingdom.

What trends do you see for your business operating outside of Jordan and in those international markets?

Arab Bank Group operates the largest Arab branch network in the world, with over 600 branches spread across 30 countries. With diverse global business lines and sources of income, the Bank is well positioned to take advantage of growth areas in different markets.

Despite the fact that many challenges still persist with high levels of uncertainty, there are signs of a global recovery, including some positive economic indicators from the United States and with Europe getting closer to resolving its debt crisis. This has created a more optimistic outlook for the overall global economic situation. However, with inconsistent performance, it will still take some time to return to stable economic growth.

As for the Middle East, several countries in the region have moved forward in implementing economic and financial reforms in response to the ongoing political situation. However, there is still a cautious mood amongst businesses in the region.

In Arab Bank's case, we managed to grow our business during the last year through providing advisory, underwriting and funding services as well as supporting international and regional companies for essential projects across the MENA region, outside of Jordan. Examples include providing the financing requirements of major projects and investments in the infrastructure sector in UAE, petrochemicals in Saudi Arabia and construction projects in Qatar. Also our extensive presence in the GCC countries has been a beneficial contributor to our business operations given their robust pace of economic activity.

© Banker Middle East 2013