Alex Coelho’s appointment to Al Hilal Bank did not come as a surprise to anyone in the industry. With over two decades of senior leadership roles in the Middle East and New York, along with corporate and investment platforms in the US, Canada, Latin America and Asia, as well as being a finance adjunct lecturer at New York University, his track record had prepared him well for the task ahead.
Al Hilal was founded by the Abu Dhabi Investment Council in 2008 with an authorised capital of AED4bn ($1.1bn) and a remit to provide progressive Islamic banking services. As the institution marks ten years of activities this June, and Coelho completes his first anniversary, it’s a good time to talk about the bank’s journey so far and how Coelho plans to steer it into the future.
Speaking on the phone from Abu Dhabi, he declares himself happy with the journey so far. “We are strengthening and improving our operational infrastructure and efficiencies. This is a holistic approach towards improving the bank in all of its sectors.”
What does that means in practical terms? Coelho responds by outlining the biggest challenges as he saw them: to increase efficiency and productivity, which he says are the job of every modern bank. “Increasing the intensity of how you work in every single department matters a lot – you do more with less. The beauty of a bank of our size [1,500 staff, 100,000 customers, 25 UAE branches and three more in Kazakhstan] is that we don’t have a doubt on what we need to do. It’s just the pace of execution that’s important.”
He lists his other key task as meeting the expectations of a client base he describes as “very devoted to the bank… it’s every CEO’s dream to have customers that care about your brand as much as ours do.”
To achieve all this, Coelho focused on a list of tasks that formed part of the bank’s 2020 strategy. “We tackled both the numerator [cost] and denominator [revenue] of cost-to-income ratio. We streamlined expenses resulting in long-lasting savings. And we boosted fee income and revenue generation through stimulus in cross-selling, product development and improved services.”
As a result, he says proudly, “We have increased our customer base and improved revenue across the board.”
That larger customer base is comprised of a newer audience that wants a seamless digital experience. The innovation required to meet this demand has resulted in some banks now resembling tech companies more than straight-laced financial institutions. Coelho doesn’t disagree, but pushes back against the suggestion that this is a new phenomenon.
“Since the 1980s big banks have been more like tech companies. In fact, some of them have spun off parts of their infrastructure into standalone businesses due to the strength of their IT component,” he says.
Coelho argues that digital innovation is more about scale. Some banks have the infrastructure to develop their own technologies, while others are better served by outsourcing those tasks. Either way, what is really vital, he says, is to develop intelligent systems for data analysis. The fact is, no company is better placed than a bank to understand their customers. “Big Data is a must,” he explains. “Either through artificial intelligence or smart automation you will win market share if you can work with proper data analytics.”
Understanding the wider economic environment is crucial to the success of any bank. Global sentiment, geopolitics, trade wars… all of it affects the planning of a financial institution. Coelho still lectures at NYU, and those theoretical discussions help feed into the practical decisions he makes in his day job. “Teaching is a privilege because it keeps you sharp, and students are very demanding,” he says. “If you’re not up to speed you’ll be left behind.”
He describes the current global economic environment – a subject which is endlessly debated by his students – as “…unique in my almost 30-year career. The emerging market is now more mature and the developed market has learned its lessons from the 2008 crisis. We don’t really have a concern today in terms of systemic risks in either markets, and I don’t remember any other time when this has happened.”
He’s bullish about recent stock market volatility, saying that it is natural after a succession of “bonanza years” and doesn’t seem overly concerned at the possibility of the US economy overheating any time soon. “What I see is a difference between what I call a “hands-heavy” and a “hands-light” approach toward intervention… Markets have a tendency to regulate themselves, so this could be one of the reasons that the US may grow in the next couple of years, because you have less regulation. Not that I agree or disagree.”
When pressed on what his students would say about this reluctance to pick sides, he admits that the 2008 crash was “possibly the result of a hand’s-light approach… The US economy would benefit from an ambidextrous approach, by which I mean moderate intervention with balanced supervision.”
Right now, though, he admits to being more concerned by geopolitical rather than economic upsets. “I wouldn’t want to say that we are stable in this regard, but I’m not an expert in geopolitics.”
In any case, the biggest question for any bank today, in his eyes, is not the state of the markets. “The things my peers are looking at are operational efficiency, which relates to cost, regulatory issues and concern over digital and cyber. Very few banks have doubts on what they need to do and how they need to do.”
On the subject of cryptocurrencies – another endlessly debated subject – he is more emphatic. “I would be very cautious as an investor. I’m from the school where you look into the fundamentals, and the market hasn’t matured enough that you have sufficient data analytics and proper advisory to make an informed decision.”
Blockchain, though, is a different story. “It will be important for all financial institutions to properly understand what this technology means to enhancing their operations. Blockchain is a conduit to better banking and we are looking into its uses in delivering both products and services.”
Returning to matters closer to home, Coelho refuses to predict the future price of oil, but says what’s interesting is that he has seen no correlation between oil prices and their activity as a bank. He says this is due to government focus on diversifying output. “Oil is becoming less of a player in the economic cycle, and this is good by the way.”
Another country that wants to break away from oil dependence is Saudi Arabia. As the region’s biggest economy, its fortunes impact the whole GCC, so Crown Prince Mohammed Bin Salman’s Vision 2030 plan is of crucial importance to the region.
Coelho agrees with this assessment but cautions against early judgment. “Saudi’s race is not a sprint. They are preparing for a marathon and I think that’s the right thing to do.”
Asked about whether VAT is an unnecessary drag on business or vital tool to professionalise the economy, he defers to the latter. “It keeps us all sharp and competitive. ”
He’s not worried about any resulting inflationary pressures either, saying: “I don’t believe so, not in the long run. If anything, it improves competitiveness and productivity, while relieving constraints on fiscal stimulus. Inflation is mostly an equation derived from supply and demand. I think there’s currently a balanced level between the two, so I don’t see forces on the demand side that could lead to inflation.”
That weaker demand, of course, is due to slower growth in recent years. Coelho admits to “some levelling of economic output,” but says he doesn’t see any “alarming” numbers that point to a slowdown. “I think 2018 will generally be a stabilising year. I believe we will turn the corner from 2019 onwards.”
He thinks Dubai’s Expo 2020 will have a positive effect on the UAE economy, saying, “Events such as these have high impact in economies that are in growth mode, such as the UAE and GCC.”
On the ramping up of GCC government debt in recent years – much of it a result of plugging the gap due to falling oil prices – he is not overly concerned. “Sovereign debt is like cholesterol. There is a good and bad type. Having a proper fiscal balance between debt via capital markets and revenues is key to sustainable growth, as long as it is done in proper fashion.”
When pressed on personal debt in the GCC he is a little more circumspect, arguing that it requires attention. “It is always a concern for any economy. But what’s important is that the system closely monitors what I call the ‘shared wallet’ to make sure clients don’t take more debt than their capabilities. I don’t see an issue in the region but it’s something that we watch very closely.”
To this end, he thinks Al Etihad Credit Bureau consumer retail score, established last year, is doing “a good job” with its scoring system for the UAE’s retail banking customers. “It was much needed and much welcomed for banks and for clients. The better your credit score, the better metrics you have and the more business you can do.”
Returning to the subject of Al Hilal itself, Coelho says the decision to divest of Al Hilal Takaful insurance entity late last year was taken because the bank is “refocusing on our core businesses, which are mostly retail and corporate banking.”
Following the merger of First Gulf Bank (FGB) and National Bank of Abu Dhabi (NBAD) in April last year, there was some speculation over who would be next. Coelho is adamant that it won’t be Al Hilal. “Those were rumours and there is absolutely no intent for any type of merger,” he says emphatically. He will admit that a sukuk could be on the cards this year, however, saying: “We’re soft-sounding the markets today. It is an important instrument for growth as it strengthens your funding capability and supports your capital base.”
With that in mind he is optimistic about the challenges and opportunities ahead.
“I am a big believer in research and development along with science and technology. Every country that has reached full social and economic maturity has passed the ‘R&D-S&T’ barrier.”
With the UAE’s track record for investment he could not be better placed to see that strategy bear fruit, and indeed he says he has thoroughly enjoyed his first year in the nation’s capital.
“I’ve been welcomed with open arms in Abu Dhabi and I mean that in a most sincere way,” he says as the conversation draws to a close. “I’ve been very happy to work with the board, our employees and our clients. We have good winds behind us. Morale has increased and I can feel the drumbeat as I walk our corridors. There is a true, legitimate will to improve and grow this bank. The UAE is proud of Al Hilal. It’s kind of like the younger brother that everybody wants to see grow and develop.”
“In 2017 we welcomed more than 104 Emirati professionals, including 31 UAE graduates, under our new Ruwwad trainee programme – a 36-week, hands-on course for high-potential graduates that contributes to the development of the nation’s youth. We hired more Emiratis in 2017 than in 2015 and 2016 together and have recently achieved 32.5 percent ratio in terms of Emirati contribution to our workforce, which represents a 28 percent increase compared to 2016. Bear in mind that over 80 percent of our client base is Emirati so it would be a little unbalanced if we didn’t do this.”
“There will always be a need for person-to-person coverage. When you look elsewhere in the world, it is true that some banks are reducing their branch sizes, but that is because they’re recalibrating. Banks used to have very big, expensive branches but now they’re migrating to smaller branches in new places and they have to be profitable. However, clients demand that you have a minimum presence in your markets, so I don’t see big banks becoming branch-less in the next five years. Customers still want the personal touch, along with newer digital offerings.”
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