Banking on success

If money talks, Abdel Hamid Shoman is making a lot of noise. As CEO and Chairman of Arab Bank he has presided over an astonishing 58 percent annual growth in profits over the past four years.

This Jordan-based financial institution is going from strength to strength, marrying a successful 70-plus year history with the ongoing upswing in the Middle East’s fortunes. When we speak with Shoman he is quick to attribute at least some of the bank’s recent success to favourable economic conditions where they operate. “Jordan has enjoyed a free market economy for many years, which is an important factor in enabling the banking industry to succeed,” he says. “Additionally, the Central Bank of Jordan deserves a due credit for providing proper supervision and guidance in maintaining a strong and prosperous financial sector.”

Whatever is going on in Jordan, it clearly spells good news for the banks. During the first half of 2007, the 185 companies on the Amman Stock Exchange listed net profits of US$923 million. US$599 million of that total was generated by just 15 banks, with Arab Bank accounting for US$366 million of that figure. That’s a staggering 61.7 percent of total banking profits and 36.4 percent of the entire exchange’s returns. Regardless of how favourable conditions may be in the country, Arab Bank is obviously doing something right to be able to dominate the market so comprehensively.

Asked about the driving forces behind the bank’s phenomenal growth, Shoman points to extensive far reaching efforts to enhance operations. “The bank was reorganized to separate the business units from the support and control units,” he explains. “The business units were divided into corporate, retail, private banking, investment and treasury. The retail banking group was among the new segments which added material value to our growth.” While the successes already experienced would be enough for many corporations, Shoman is continuing to push the bank forward. There is a planned expansion of the retail branch network into critical markets, new advanced solutions for the corporate client base and the aim to build a global wealth management and private banking proposition. The bank has also adopted a new management structure and hired a number of highly qualified professionals to fill key global positions. “The real impact of these new organizational and operational changes is yet to be seen,” says Shoman, in a statement that will surely sound ominous to Arab Bank’s competitors.

Regional and international
Though Arab Bank has its roots planted firmly in the Middle East, it has an extensive presence across the world. With over 400 branches in 29 different countries, there are particular challenges involved with working in so many different locations. “The biggest is to strike a balance between the various roles the Bank plays,” Shoman explains. “We must be a good local citizen in the different countries we operate in, not allow the large reach to create inefficiencies and always focus on the customers’ needs, be they local or global.” Much of this revolves around employing the right people in the right location. “We seek highly qualified professionals with a parallel code of ethics, knowledge of local markets and a sensitivity to both our Arab culture and the culture of the Bank,” he continues. “Hiring local talent, empowering them to achieve their goals and involving them in decisions taken centrally are three main elements for a successful recipe.”

Good business practice is also a global vision for Arab Bank. “Irrespective of the geography, we make sure that our business dealings are based on sound corporate governance and are in sync with the bank’s over all strategy,” Shoman says. “As a regional bank with global presence, we carefully balance opportunities and risk and make sure that as a financial service provider, we add value, hoping that our involvement will have a sustainable impact.” Every local market has its own special nuances, particularly relating to regulatory and local market practice. Shoman attributes the care taken to balance global vision with the sometime unique needs of individual countries that has made Arab Bank the successful financial institution it is today.

It is a general rule that companies experiencing major successes then seek to expand and push into ever wider territories. Bucking the trend, this is not an ambition that Arab Bank is pursuing. “While we are present in nearly 30 countries, of which only half are in MENA, we do not view ourselves, nor do we aspire to be, a global banking organization.” Shoman explains. “We are the leading financial service company in MENA, and most of our activities outside the region are to further our purpose and vision in MENA. For instance, our business in Europe focuses on Arab clients investing and trading in Europe, or on European clients investing and trading with the MENA region. The same goes for our Asian business, managed out of our Singapore hub. We believe our success comes from this single-minded focus.”

The sustained period of economic growth currently taking place in the Middle East has been a major driving force in the increasing prominence of Islamic finance. Naturally, it’s an area that Arab Bank has been keeping an eye on. “We believe Islamic Finance has enormous potential in the Arab world, and particularly the GCC, but also in London,” continues Shoman. “We already operate a successful Islamic Bank in Jordan under the name of International Islamic Arab Bank, and we would like to expand our reach to other countries.” Though the bank currently offers only plain ‘vanilla’ commercial Islamic products, there are plans afoot to explore the possibility of expanding them to the more value-added product families.

“The rapid growth of Islamic Finance over the last few years is simply a reflection of the demand, which has been fuelled by the region’s increased wealth,” states Shoman. “Furthermore, many in the MENA region who also bank traditionally may well prefer a Sharia-compliant option if it is made available to them. We do not see this trend slowing down in the near and medium term.”

But Islamic finance is only one aspect of Arab Bank’s ongoing business plans. Shoman is very keen to tell us about what else the company’s recent achievements and its plans for the future. One of the most significant of these is the establishment of Europe Arab Bank which started full operations in January 2007. “Arab Bank plc branches located in Europe have been converted to Europe Arab Bank which now serves as the umbrella for all of the bank’s European operations,” he says. “It has a European passport enabling it to branch out into the rest of the European countries without any constraints. We have availed all elements of success for Europe Arab Bank, including a capital base of €700 million, clear strategic directions, qualified management and professional staff.”

Growing prosperity
There have also been a number of major moves on the retail banking front in the bank’s more traditional markets. Once again, the region’s growing prosperity features large in these developments. “The Middle East Region has seen extraordinary economic growth over the past few years which has resulted in creation of wealth,” Shoman says. “Consequently a new cross section of the population who will need advice and guidance in managing this wealth.” Anticipating this potentially seismic shift, Arab Bank has been working on positioning its assets and capabilities to better cater to the specific requirements of affluent and private banking clients. “We have created dedicated teams of professionals to work with the clients and build investment portfolios that suit their individual requirements,” continues Shoman. “To successfully achieve this we must take into account issues such as the customer’s risk tolerance, investment horizon and cash flow requirements.”

Investment banking is another area of growth that Arab Bank are specifically targeting in an effort to exploit the tremendous rise in Middle Eastern capital markets. “The region’s family businesses are all reaching maturity and need to move away from family ownership and management, while other businesses need capital to grow,” explains Shoman. “This creates a demand for services in helping business in going public and raising capital.” To cater to this need the bank has created two Investment Banking arms: AB Invest is based in Amman and covers the Levant and North Africa region, while AB Capital is based in the Dubai International Finance Centre and takes responsibility for the GCC states.

In the banking world, and particularly in a rapidly shifting market like the Middle East, agility is an increasingly key concept. The ability to be able to respond quickly and effectively to changing demands is what separates a successful organization from an unsuccessful one. Shoman agrees: “The offering of one bank is often immediately out serviced by another bank,” he says. “Customers are sophisticated. They know their needs and have high expectations. So to be successful, banks need to be able to keep up with such fast paced customer expectations, along with the constantly changing operating environment.” This is a challenge to any organization and ranks high as a priority for Arab Bank. Shoman explains that the bank’s organizational structure is geared to support such agility, allowing for efficient and smooth communication to and from the centre, the creation of centres of excellence and speed in decision-making.

The agile bank
This ability to respond to customer demands is a key factor that built into all of Arab Bank’s operations. This responsiveness is reflected in the design of the bank’s new organizational structure and many of the key initiatives that have been running in 2007. “Like many other leading customer focused organizations, we realized that we must ensure our front line staff is focused on providing the right service to our customers,” continues Shoman. “This is why we are pushing forward and changing the look of our branches, a move which is being well received in the market.”

There have also been major changes in internal operating procedures which have moved administration and non customer service related processing to central operational units. According to Shoman this enables our branch staff to focus on providing world class service to our personal and commercial clients. “The changes to our organization for each strategic business unit and support units bring greater focus at head office to ensure we keep abreast and make plans to align ourselves with not only what is happening in the region but also in the world markets,” he says. “We have already made great progress in ensuring that the strategy and planning for each of our strategic business units cascades through our network of branches to ensure a similar customer experience wherever, and through which ever channel people choose to do business with the Arab Bank.”

Emphasizing its commitment to continuous improvement, the Arab Bank has been the first in the region to centralize its operation from different countries to a single location. This gives the bank a major scale and cost advantage over its competitors, but that is far from being the only example. “We recently set up an electronic link between ourselves and Jordan Customs thus achieving major process and service quality improvement in dealing with customs guarantees,” Shoman tells us with obvious pride. “This is again the first of its kind in Jordan.”

But processes can only do so much. Without a talented and motivated workforce a company will constantly be fighting an uphill battle. It’s something that Shoman clearly understands. “To be the best in class, respond quickly to the customers’ changing needs and be more pro-active, we need to have the best people on board,” he says. “For the past three years, we have tapped the market and upgraded the quality of our people.” An aggressive programme of middle management re-training is helping employees become more customer-focused, more service-oriented and more up-to-date on the latest products and developments in the banking world. There is also a major focus on risk awareness.

Future goals
Asked about the bank’s investment focus in the short to medium term future Shoman outlines a number of initiatives, some already underway. “We have invested significant amount of resources in geographical expansion, organically and via acquisition,” he explains. “This includes 50 percent of MNG Bank, which is now known as Turkland Bank (T-Bank). We also contributed to the establishment of Arab Bank Syria of which we own 49 percent. We established Arab Capital Investment Company in Dubai and acquired more than 50 percent of Al Nisr Al Arabi, which enabled us to provide bancassurance products to our clients.”

Looking forward, there are plans build new product capabilities in the Corporate & Investment Banking arm, expand the reach of Retail and create unique, global propositions in Wealth and Private Banking. There is also to widen the reach of Islamic finance products, though that is not expected to have a major impact on the bottom line through 2008.

For the next 18 months, the bank intends to build on previous initiatives to continue it’s strong growth, with special attention being paid to non-organic growth through acquisition. “Our acquisition strategy concentrates mainly on expansion in the Arab region,” explains Shoman. “We have several targets under consideration and are confident that we have in our hands the resources needed to complete these efforts successfully.”

On the face of things, the future seems exceedingly rosy, but Shoman clearly takes nothing for granted. An institution like Arab Bank can only be successful if conditions on the ground remain favourable. Given the Middle East’s turbulent history it always pays to keep an eye on the future. For the moment at least, Shoman sees plenty of reason for optimism. “The continuous positive growth in the GDP of the Arab region is an important element for our success,” he says. “Additionally, the political stability and steady movements towards peace will give us abundant opportunities for better performance.”