Gulf banks are facing a tough year and the pandemic is prompting lenders to introduce digital services faster, a senior executive at Bahrain’s Bank ABC told S&P Global Market Intelligence.
Arab Banking Corp. (BSC), which is called Bank ABC and mainly lends to businesses, has subsidiaries in Brazil, Algeria, Egypt, Jordan, Tunisia and UK and also owns the payment processing company AFS, as well than the Ila digital bank, that it can expand into new geographic areas where it is not yet operational.
ABC recorded a net loss in the first nine months of 2020, as net interest income plummeted and its spending on credit losses more than quadrupled.
“2021 is going to be a very difficult year for financial services. It will not be an easy race, ”said ABC deputy managing director Sael al-Waary, predicting that his bank’s net interest income would decline this year.
To compensate, ABC and other banks will try to increase their commission income. This strategy is in part motivating ABC, which had consolidated assets of $ 29.5 billion as of September 30, to accelerate its plans to digitize its operations and expand its retail banking division.
“Instead of investing [over] five years ago, I went to my board of directors and said, “I want to invest my whole digitization program [over] the next 18 months, ”Al Waary said. “The whole dynamic of the business model is changing. We are still a wholesale bank, but thanks to our [platform] we will be focusing more on the consumer through our MENA subsidiaries. “
In November 2019, ABC launched its mobile-only digital bank, Ila, in Bahrain. Ila’s customer base is growing 23% month over month, Al Waary said. Ila services will launch in Jordan in 2021 before expanding to Egypt, and will begin offering credit cards and loans to Bahraini customers from March.
The executive said ABC is keen to deploy Ila in the MENA region markets where it has a presence, making it a regional branchless retail mobile bank. It could also be launched in MENA countries where ABC does not yet have operations, he said.
ABC’s loan portfolio stood at $ 14.9 billion as at September 30, 2020, up from $ 16.5 billion at the end of 2019. Its loans are diversified, with Brazil accounting for 30%, CCG 30%. , the other countries of the Middle East and North Africa 15% and the rest in Europe, Asia and North America, according to S&P Global Ratings, which enjoys a stable rating. at the bank.
Most of ABC’s loans are short-term business finance. S&P Global Ratings highlighted the bank’s resilient performance in the face of difficult national conditions, strong capitalization and geographic diversification.
The experience of 2020 affected its business loans, Al Waary said.
“We had to be extremely careful (…) but you cannot be a banker and not take a risk,” he said. “I’m looking to increase my lending volume. The MENA region is probably our best market – Saudi Arabia, United Arab Emirates, Egypt, Algeria.”
He acknowledged that the Gulf’s real estate, hospitality and retail sectors are under “deep pressure” and that ABC is not immune but must be part of it. from the community.
“We can’t say ‘No, you have to pay.’ So we are working closely with companies to help them reprogram, “he said.” We are working closely with our regulators. ”
In response to COVID-19, Bahrain’s central bank urged banks to allow borrowers to defer repayments for six months. This helped the banking sector’s NPL rate fall to 4.6% as of September 30, 2020, from 5.2% a year earlier, according to central bank data cited by Bahrain’s Sico Bank.
Bahrain’s biggest banks say it’s very difficult to say what the quality of loans is because of the deferrals, said Sumaya Aljazeeri, senior investment research analyst at Sico Bank.
“Banks are conservative in taking provisions,” Aljazeeri said. “Any deterioration in loan quality is unlikely to become noticeable until the second half of 2021 – for now, there is still some flexibility in terms of deferral.”
Al Waary declined to quantify the percentage of ABC loans that had been deferred, but said it was “very minimal”. ABC’s credit loss charges more than quadrupled to $ 234 million in the first nine months of 2020, largely due to its exposure to now collapsed NMC Health.
Expansion in Egypt
The Libyan central bank owns 59.4% of ABC, while the sovereign wealth fund of Kuwait holds 29.7%. In January, ABC agreed to buy the Egyptian subsidiary of Lebanese lender Blom Bank for $ 427 million and is now awaiting regulatory approval to complete the purchase.
Al Waary expects this to be completed by the end of March, with ABC then appointing consultants to help integrate Blom’s ex-unit into its existing Egyptian operations, which include 28 branches, in a process that, according to him, will take eight to 12 months.
“The guidelines for an acquisition for us is that it’s a bank that we can transform,” Al Waary said. He said potential targets must derive at least 30% of their income from retail banking.
“So Blom Bank ticks all the boxes for us. Egypt is a strong market. We want to be stronger in Egypt and increase our market share. Don’t underestimate Egypt’s economy.”
ABC recorded a loss attributable to the parent company of $ 56 million for the nine months ended September 30, 2020, compared to a profit of $ 161 million for the period a year earlier.
“[Bahraini] bank profits have been affected by declining basic income and increasing provisions, ”said Sico’s Aljazeeri, noting that this was largely due to lower interest rates, imposed fee limits by the regulator and prudent provisioning in response to the pandemic.