The new CEO of Sharjah Islamic Bank tells ABF about his global ambitions and how he hopes to continue the bank’s growth without losing its focus.
As the new head of Sharjah Islamic Bank (SIB), Mohamed Abdalla is aware that he needs to strike a balance between tradition and modernisation in his plans for the future.
SIB is one of the banks to have led the Gulf region’s move into Islamic finance, and the first in the world to complete the change from a conventional bank to an Islamic one.
Yet, with so many other banks in the region following suit, Abdalla is aware of the need for the bank to move forward and continue coming up with new products and services to differentiate it from the rest of the pack.
Abdalla previously served as deputy to Hussain Al Qemzi, the former CEO, but he realises that the new role comes with different demands.
“Where the difference comes is that previously I was a second officer sitting in the second officer’s seat, and the driver is the CEO,” says Mohamed Abdalla, CEO, Sharjah Islamic Bank. “Once you change this seat and become the driver, things need to be changed - you’ve got to concentrate more on all things.”
In his previous position, Abdalla was involved in shaping the bank’s strategy, so he is not planning any drastic changes.
“Previously I was active in the CEO team,” he says. “We used to work together and have the same understanding of targets, the same logic.”
However, Abdalla has seen major changes in his time at SIB. He was a part of the team that planned SIB’s transformation in 2002 from conventional banking to Islamic banking – a world first – and says the benefits the bank has seen from the changeover have exceeded all expectations. The changeover itself was also completed ahead of schedule, allowing the bank to focus on other aspects of its strategy.
Abdalla says: “I remember when we decided to convert to Islamic banking, the Shariah committee had a meeting with us at the beginning and they said ‘you need not less than three years to succeed in converting the bank into Islamic banking’. Three years’ work, which we have done in only six months and saved almost two and a half years. With those two and a half years we concentrated on how to grow and not only how to convert to Islamic banking.”
Abdalla is determined to ensure that the bank’s focus on traditional finance is balanced with a commitment to modernising where appropriate. “Being an Islamic bank doesn’t mean we have to be slack with modern banking,” he says. “Today, in order to be in the market and compete you’ve got to understand the needs of the people around you for the retail customers and for international banking. Once you understand what are the needs then you’ve got to modify yourself and your financing method in order to reach and to satisfy your customers.”
The bank’s modern approach also extends to compliance and risk management. Abdalla believes that SIB is now well prepared to cope with future regulatory requirements.
“We were among the leaders to establish a division called the risk management division, separate from credit, segregated entirely,” says Abdalla. “It always used to be credit and risk management, but today we have two separate divisions.
“The risk division concentrated from the beginning on how to come up with the method and terms and conditions of Basel II. Today my team in that division are fully ready with Basel II terms and conditions of compliance. They have even given presentations to other banks. We prepared for this very early in order to be 100% compliant.”
SIB is also moving ahead when it comes to using new technology to open up new channels for its customers to carry out their transactions. “We do have mobile banking and we also have IVR (interactive voice recognition),” says Abdalla. “We are working now to have internet banking and it most likely will be launched in June 2007.”
However, the bank still remains committed to its traditional roots. “Islamic banks have a different way of financing,” says Abdalla. “Today, for example, with my customers I am very transparent with them. I should not hide any information.
“I don’t have any pre-printed contracts, by the way. The only contract that is pre-printed is the account opening form. That’s it. Otherwise, when you come to us for financing today, I don’t have a personal loan contract form, I have a murabaha contract, and that contract has to be written in the way that we agree upon. It means that every customer has different requests, different demands. Therefore I have to prepare the contract according to that request.
“What does that mean? It means the customer will understand exactly what has been written in that contract. He will know because that was his demand, his request. It will reflect the transparency of Islamic banking activity.”
The bank’s Islamic offerings have also attracted a more diverse customer base than might be expected. “I have a big percentage of my customers who are non-Muslims because they really like Islamic banking,” says Abdalla. “Why do they like Islamic banking? Because it’s very transparent, they understand what are their obligations, they know what they have to pay and what they are going to pay in the future. We provide them with full details of their repayment so that they know at any stage what is their balance and what they need to pay.
“Furthermore, Islamic banks are not allowed to take any penalties on deferments, for example on instalments, while other banks are charging for any delay. All of these factors have really encouraged non-Muslims to deal with Islamic banks.
“Islamic banks are the cheapest for charging on credit cards. If you look at Islamic banks and conventional banks, there are some conventional banks that are charging 24% on credit cards, but with Islamic banks the charges do not exceed 0.5% on a monthly basis, which means on a yearly basis they are only 6%, which is among the lowest in the world. They are very flexible, and non-Muslims are very happy at having all of these features.”
SIB’s success is reflected by its balance sheet. It was affected less by recent stock market corrections than many other banks in the region, due to its relatively low exposure to the Gulf markets, and reported net profits of US$14 million for the third quarter of this year, up 16% on the same period last year.
In 2003, the bank increased its capital, which now stands at around AED1bn (US$272.3m), in order to finance its future growth. “That increase didn’t come out of nothing, it came out of demand,” says Abdalla. “The bank has to grow, has to compete, has to be in the international market, has to be the best ever Islamic bank in the UAE. Once we increased the capital we found that still we want to grow more and more and more, to be able to achieve our hopes to be the bank of choice. Therefore in four years [of operation as an Islamic bank] we achieved what would be achieved, in my opinion, in eight years.”
SIB still has further ambitions for growth, Abdalla explains. “Our plan, my strategy especially, is that I want to be an international bank,” he says. “I want us to be available everywhere and this requires lots of effort.
“Today we have attendance in so many countries through our participation in establishing companies, our participation in syndications, our participation in direct investments in those countries, especially in the US, UK, Turkey, almost all of the Gulf region, and I want to increase our presence. I want to be there with actual banking. Therefore my plan in 2007 to 2008 is to be available in two or three countries outside the UAE, representing Sharjah Islamic Bank.”
Abdalla believes that UAE banks have good prospects, but says that consolidation is required. “If they move towards merging I believe they will have a bright future, because the challenges which are coming in the very near future which I think would be too difficult with a capital of less than US$200 or 300 million. I believe that if the banks in the UAE want to be good banks and compete in the future, they’ve got to be stronger than this.
“Stronger means bigger. They have to develop their footprint or they have to go for a merger. These two options are there. Within the country or with, for example, a foreign bank merging with a national bank.”
He sees the UAE presenting an attractive market to foreign banks, creating increased competition for local banks. “To have big banks coming into the country, once the GATT [General Agreement on Tariffs and Trade] is open, it’s a big potential market,” he says. “The issue is that once GATT and free trade is there, there should be newcomers to the market. If we have the capital, the big customer base – I can be prepared for that.”
Sharjah Islamic Bank has no plans to acquire or merge with any other banks at present, but Abdalla does not rule it out as a long term possibility.
In the coming year, the bank is planning to put particular focus on its investment products, and will also be continuing the expansion of its network of branches. “I believe in contributing to our entire UAE community. Therefore I’ve got to be everywhere,” says Abdalla.
“In 2006-2007 we’ll have three branches in Dubai, we used to have only one. We’re planning to be in other emirates where we don’t have business now, like Ras Al Khaimah and Ajman, and Al Ain just opened a branch recently. We have to be everywhere.”