The original report was published in The Independet on Wednesday, February 10, 2011
NCB banking on growth
The National Commercial Bank, the oldest and largest lender in the country, sees profits, assets, deposits and loans continue to rise
AlSharif Khalid AlGhalib, Senior Executive Vice President, Head of the Corporate Banking Sector, NCB
“I am quite proud to say that our banking and financial sector is very conservative, well-regulated, resilient and extremely profitable. Our performance over the last couple of years is a testimony to that fact. We are diversifying the growth of our banking activities and are proud to be able to support the kingdom’s economic agenda,” says Mr AlGhalib.
Established more than half a century ago, state-owned NCB has become one of the Arab world’s largest financial institutions, with more than 2.2 million customers and over 5,000 employees in Saudi Arabia. Today, it manages a third of the kingdom’s total assets and with 282 branches, it boasts the second-largest retail network in the country.
The solidity of the banking sector to which NCB belongs is due in large part, according to Mr AlGhalib, to the prudent oversight of the country’s central bank. “The Saudi Arabian Monetary Agency, SAMA, has played a significant role in stabilising the banking system. SAMA’s sound stewardship has helped the country weather the economic storms over the years – from the 1980s to the 1990s, as well as the most recent 2008/09 downturn,” he says. “Saudi Arabian banks continue to be highly resilient. We rely on core banking activities. Despite the challenging global financial climate, Saudi Arabian banks have sufficient non-performing loan [NPL] coverage – well over 100 per cent – and ample liquidity. You just have to look at the numbers. From 2008 to 2009, the majority of the banks reported profits. The country’s 12 major banks generated a total profit of SR 26.53 billion [£4.45 billion] in 2010, up 1.6 per cent on 2009.”
NCB’s own profits reached $1.25 billion (£786 million) last year, representing a 16.9 per cent increase over 2009. Total assets at year end 2010 were $75 billion, up 9.7 per cent from the previous year, while loans and advances had grown by 12 per cent over 2009 and customer deposits by 13.1 per cent to $61 billion.
A decade of growth
After a change in NCB’s ownership structure in 1999 and the introduction of new management, the lender underwent a period of new growth with an increased emphasis on corporate governance and transparency that has significantly improved performance. Expansion efforts over the past decade have been accelerated by a three-tiered strategy focused on growing core business with improved service quality and providing tailored products through a range of channels, as well as broadening scope through pioneering new products and leading in new segments and geographic expansion.
Consequently, NCB has significantly strengthened its Islamic banking activities, converting all of its retail operations into Sharia-compliant products and indeed pioneering several of these tools. The creation of NCB Capital as a spin-off of the bank’s investment arm has also been a significant move, boosting NCB’s position as the leading asset manager in the kingdom, with a 30 per cent share of the mutual fund market. This development has gone hand in hand with an increased focus on risk management that has led to NCB’s compliance with both Basel I and Basel II standards.
In addition, NCB has introduced a host of leading services in its retail and corporate divisions and now offers a selection of alternative distribution channels. All NCB’s transactions can now be completed electronically thanks to its AlAhli Online system. e-Corp, the bank’s corporate portal, was upgraded to enable the distribution of the government payroll, enabling the government’s transition towards e-government.
NCB has also launched a regional expansion strategy, acquiring a 64 per cent stake in Türkiye Finans Katilim Bankasi in 2008. Since then, the leading Turkish bank has performed ahead of forecasts despite the global economic downturn.
In brief, “NCB has enjoyed robust growth over the years, remaining profitable despite having been conservative in areas such as asset impairment and NPL coverage,” says Mr AlGhalib, adding that NCB enjoys strong capital adequacy ratios. “NCB has transformed from a strong local commercial bank to a leading regional financial services group.”
Diversifying sources of liquidity
Its success in corporate banking has led to a “substantial” increase in NCB’s asset base, says Mr AlGhalib. According to a report issued by Dealogic during the first nine months of 2010, the bank was first in KSA and second in project finance within the Middle East and North Africa region. It has a leading participation in almost all of the major projects now under way in the kingdom.
However, Mr AlGhalib sees constraints on the lending capacity as a challenge facing Saudi Arabia’s financial sector as a whole due to the underdevelopment of the country’s capital markets, which may threaten the continued bank financing of large-scale projects.
“Diversifying the funding layers is important for us to continue to grow. Because of a number of reasons such as legal lending limits, some mega projects – particularly in the area of infrastructure – require financial support that is beyond the capabilities of the local banks,” he explains. “We need to have multiple layers of funding. The local banks are solid, but we have to manage risk in the right way. That is why it is important to have other sources of funding.”
Progress is being made. Last year, the capital market authorities approved the issuance of sukuk and bonds, introducing a flexible funding mix for corporate customers. However, corporate Saudi Arabia also needs better access to capital markets, says Mr AlGhalib, and this will mean stronger corporate governance, even in family businesses.
Despite this challenge, Mr AlGhalib says that the country’s financial sector is robust and competitive. “The Saudi Arabian banking and financial sector is extremely competitive. You have to aspire to be one of the best banks in a local, regional and/or global context, continuously develop your skills and capabilities. You have to invest in your abilities to be competitive. The environment that we operate in, and the products and services we offer our customers are leading edge in the region. You have to be a world-class banker to operate in the kingdom,” he observes.
JEDDAH PROJECT TEAM:
Project Director: Idil Demirel
Editorial Director: Juan Manuel Sacristán
Project Assistant: Alla Ilushka
World Report would like to thank the following for their support in the realisation of this report: Prince Khalid Al Faisal (Governor of Makkah Region), Dr Abdulaziz Alkhedheiri (Deputy Minister of Makkah Region), Haitham O Jamal Allail, Sheikh Mohammed Saeed, Serhat Ozalpi, Waleed A Al Hamoudi and Ghassan Al Abdali
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