Habib Bank AG Zurich, though considered one among the not-so-big foreign banks in the UAE, it has been present here for decades and has been able to carve its own niche in the corporate banking space. Known for its sharpness in trade finance operations, the bank now plans to enter other areas of businesses as well as other countries in the region. The chief executive of the bank (UAE operations), Arif Lakhani during an interview with The Business Weekly's CL Jose, explained his bank's plan going forward. Being a veteran in the UAE's banking industry with three decades of experience, Lakhani shared his views on different areas of banking in the emirate and the region as a whole. Excerpts:
There are many foreign banks including the big names such as HSBC, Citibank, Standard Chartered, ABN Amro, etc. How do you find yourself in this crowd?
UAE has always had numerous banks and the presence of foreign banks has also been equally strong. We are a Swiss bank and I can say that Habib Bank AG Zurich is the sixth profitable foreign bank in the UAE. And we have always been able to maintain our position.
Though Habib Bank is said to be strong in corporate banking, why are you not strong in retail?
We are very focused on Trade Finance and Retail Banking. This year we are planning to enter the consumer banking for which we have hired a team of top consumer finance bankers.
Don't you have plans to enter other GCC countries?
As everyone knows, getting licence in most of the other GCC countries is difficult. However, we are looking for a branch in Qatar where the economy is going through a boom period. I hope sooner than later, GCC countries will allow branches from other countries. Last year, the Central Bank of UAE has licensed three banks, one each from Saudi Arabia, Kuwait and Qatar. Doha Bank from Qatar has already commenced its operations. We used to have branch operations in Oman until late 90s. We sold our Oman operations about eight years ago.
You said you have plans to enter Qatar. Are you eyeing Qatar Financial Centre (QFC)?
No, we are looking for a branch in Qatar market itself.
In the UAE, which is you focus area?
Though we are into all areas of operations with plans to strengthen the consumer also, our main focus has always been trade finance. Despite the fact that we do business internationally, mostly our clients are UAE-based.
How big are you in trade finance?
In non-oil, we are one of the biggest players in trade finance with a market share of close to 20 per cent in the UAE. We issue huge number of letters of credit (LCs). Our corporate banking business is growing very fast. Our corporate banking business has grown almost 45 per cent during last year. Our corporate banking business include, lending to big clients, participating in syndications, etc.
How many syndications (syndicated loan facility) did your bank take part last year?
I don't remember the exact number, but we have participated in a majority of syndications that came up for bidding in the UAE. The number could be in the region of 15 to 20 during this year.
Is this a new trend for Habib Bank AG Zurich?
Yes, until two years ago, we used to do mostly trade finance. Now we are into syndicated deals and other corporate banking operations.
But the margins are very low in syndicated deals. Don't you think this is less rewarding business for a bank like yours?
No, because, we are one of the largest buyers of certificate of deposits (CD) in this market which means we are really liquid.
Can you explain this?
This is because we keep our entire liquidity in the UAE, including in the CDs with Central Bank of UAE. We do not normally finance anything outside the UAE. And this has been our policy for decades. Our CDs are in billions of dirhams.
How long normally you keep funds in CDs?
We keep almost permanently, but in different maturities - from one year to 18 months. Since we now have the opportunity to keep CDs in longer maturities, we will be seriously looking at those options.
But, aren't the rates too low?
In longer tenure like two years, the rates are naturally less.
Then why do you want to go for longer maturities?
The Central Bank has announced recently that any bank that keep funds [in CDs] for more than one year can avail of the repo facility, whereby banks can borrow funds from the Central Bank. Today, while I can place three or four billion dirhams in CDs, I have the facility to borrow this amount. Though this rate is bound to be higher than the rate that I get against my CDs, liquidity is assured by this system, which is very important for banks.
Going forward, do you think this will help establish an interest curve soon for UAE?
The last circular said any banks that keep funds for one year or more are entitled for a repo facility.
This will encourage banks to go for longer term maturities, and this should in turn help slowly establish interest curve in the UAE. But don't expect this to happen overnight, as this has will take its own time. But having said this, we are on the track towards achieving this.
Many banks are still waiting on the sidelines when it comes to mortgage finance. Why are banks hesitant about mortgage business?
We have already entered the mortgage business. We will be increasing our Mortgage Portfolio and our mortgage book is growing every day.
Are you into investment banking and private banking?
Our presence in the private banking is through cross selling of products. We have got a strong customer base of 72,000 and that is our strength.
Foreign banks have to pay 20 per cent tax on net profit. They have a limit on number of branches at eight. Do you think these are prohibitive?
I don't think so because the size of our presence can be increased by opening electronic branches though the number of branches [original] cannot exceed eight.
Any plans to do Islamic banking?
Yes, we are already looking at Islamic banking.
Can you brief us on your global branch presence?
We have 100 branches in Pakistan. 11 branches in UK, eight in UAE, four in Kenya, six in South Africa, two in Canada, one in Switzerland. We also run one representative office each in Bangladesh and Egypt.
What about India?
We are very much interested to open our office in India.
I presume you have a branch operation in the UAE. What is the capital here?
Our total equity is more than Dh760 million.
Do you think the role of foreign banks increasing in the UAE?
Foreign banks are playing a bigger role in corporate banking. DIFC banks are supporting them.
Do you think there is enough room for more banks here?
More the number of banks enter this market, better will it be for the economy. The theory of UAE being 'over-banked' is not right. In 1976, we had about 48 banks and if it was not over-banked then, whey should it be over-banked now when the economy has grown manifold since then.
Banks have grown a lot during the last couple of years. Do you think the banks still grow their profitability in the future?
Yes, because the economy is growing at a much faster pace than that of many other countries.
What do you have to say about consolidation of banking in the UAE?
I am of the view that the merger between Emirates Bank and National Bank of Dubai is not the end and rather it is the beginning of more future mergers waiting to happen among local banks. If the local banks want to grow and compete with foreign banks, the local banks will have to merge and become larger.
Any diversification plans for Habib Bank AG Zurich?
We will focus more on banking by entering and strengthening different segments of banking. We do not contemplate entering any new areas of businesses, but on the other hand, we see a lot of growth for banking in the coming ten years. We are preparing to take on the challenges lying ahead.
How has your bank been growing in the past?
In 2007 we had a growth of 35 per cent in profit and this year (2007) it could reach 46 per cent. We hope to end up the year (2007) with a profit of around Dh250 million.
Any listing plan?
Operations in the UAE are branches of the Zurich Office.
© The Business Weekly 2008
