Mark Robinson is pretty sanguine about the size of the task that he faced when he took on a new job in the UAE in October 2014. As the CEO of Commercial Bank International (CBI), Robinson has already had plenty of obstacles to overcome since stepping into the hotseat — fresh from Australian lender ANZ.
“It was a difficult time for the bank,” he admits. “The brief was that the board wanted this to be, at least in the near-term, a much healthier bank. The first thing on the agenda was - how do we make the balance sheet better?
“During the course of the end of 2014, but really 2015, we addressed a substantial number of problem loans that had been there for some time. In doing that, we recognised a large loss last year.”
In 2015, CBI reported a loss of AED466.6m ($127m) as it reduced the value of its non-performing loans (NPLs) from AED1.38bn to AED983m. However, that was offset by the private placement of AED460m-worth of tier 1 bonds, meaning that the bank ended the year with a capital adequacy ratio of 14.8 percent.
“Our coverage ratio had gone up from roughly 60 percent to about 80 percent — so we did that by both addressing the problem of bringing in the additional tier 1 capital, and we also shrunk the balance sheet by 18 percent, which is another way of raising capital,” Robinson adds.
As well as cleaning up its balance sheet, the lender also spent much of last year working on an upgrade of its tech platform — which will be rolled out early in 2017 — and strengthening the leadership team.
All those efforts appeared to pay off in the first quarter, which saw CBI swing back into the black. The lender reported net profit of AED36.5m during the period.
“Our asset and deposit growth were up about 6 percent year on year — compared to a market growth of under 1 percent for deposits and about 2 percent for assets,” Robinson says, adding that both the retail and corporate sides of the business performed healthily.
That being said, he also predicts a tougher outlook for the rest of the year, although in the second quarter, CBI also posted strong results, with net profit rising from AED2.6m in the same period last year to AED32.2m.
“We won’t be able to keep that pace up — that’s just unrealistic — so I think the next couple of quarters will be more subdued and not at the same level of growth,” says Robinson. “From the perspective of the wider banking industry in the UAE, I think there’s a lot of stuff that’s still flowing through, and there’s the impact obviously of the low oil prices, and some of the ripple effect that’s had, especially on sectors like construction and tourism.
“Most people tend to look at the first half of next year as a time when things will start to get better, with some commentators sort of writing off this year. That seems a bit harsh, but from what I’m seeing I think it’s probably the most conservative and best thing to do.”
But there are several factors playing in CBI’s favour. One is the 40 percent stake in the lender held by Qatar National Bank (QNB) — one of the Gulf’s largest and most profitable companies. The relationship with the Qatari bank has proved helpful in more ways than one; in the recent $500m Meydan funding round, CBI provided $50m of financing while its partner provided the rest. It enabled the UAE lender to get access to a deal that its size would otherwise have prevented.
“The other thing that’s interesting is that we’re a UAE-based bank with 24 branches around this country,” Robinson adds. “But we can offer access to QNB’s network in Africa and the Indian subcontinent and Far East, but also into Europe.
“When it comes to trade transactions, we would execute those through the QNB network, which we think is very helpful in terms of pricing and speed, response and so on.”
Another recent bonus for CBI has been the receipt of its first rating from an independent ratings agency. In April, Fitch awarded the lender a long-term issuer default rating of A-, the seventh highest rating and well into investment grade. It’s a move that Robinson says will attract the kind of large firm that only uses rated banks for deposits and cash management, and also places CBI as a potential counterparty for some of the top global lenders.
The recent stronger results are also down to a cost-cutting programme introduced last year. The bank is certainly not alone in its desire to streamline expenses; Emirates Islamic Bank, Emirates NBD, RAK Bank, HSBC and First Gulf Bank (FGB) are just some of the local lenders to have pared back their workforces in tune with the tough economic conditions.
Robinson says that CBI laid off “almost 5 percent” of its workforce in the middle of 2015, and the bank is also looking at other ways of bringing down its expenses. That will eventually include multi-year leases for some branches in Dubai, as well as looking to have headcount based outside Abu Dhabi and Dubai, the two most expensive cities in the country.
One of the biggest challenges that has faced local banks in recent months has been the performance of their SME loan books. As the UAE economy has slowed, smaller companies at the end of the supplier payments chain have found it difficult to meet payments, with some SME owners deciding to ‘skip’ the country rather than face a jail term.
Estimates put the total figure for deserted debts in the year to November 2015 at around $1.36bn. The country’s banking federation agreed in March to a voluntary system whereby indebted businesses could work with their lenders to put new payment schedules in place. In May, the chairman of the federation, Abdul Aziz Al Ghurair, said that the issue had been “contained”.
Robinson says that between 5 and 10 percent of CBI’s loan book is dedicated to business banking, typically to small companies with revenues between AED20m and AED100m ($5.4m to $27.2m).
The chief executive also says that since a revamping of its business banking lending unit, CBI has not had a single credit loss among new clients since January 2015, although there have been “one or two” ‘skip’ cases from debtors brought in under the bank’s old lending criteria.
“Skip cases really occurred in the second half of last year, and of course that will always bring up another conversation about the economics that cause these companies to get into trouble,” Robinson says.
However, the concerted effort by the federation to assist small business owners has even resulted in some of those skip cases returning to the country. Robinson says he is aware of “three or four cases” in which local banks had worked together to restructure the debts of smaller businesses in financial difficulty, allowing executives to return to the UAE.
“In some cases [when a business defaults], there’s not much the banks can do, and in other cases the banks have obviously tried very hard to work together to address those cases, particularly when you can see that this is not a case of a company that was doing anything wrong — they’ve just got impacted by the overall market,” he says.
“The good news is, in three or four of those cases, we’ve actually had people that have left the country, and who were therefore officially classified as skip cases. But then the banks got together and worked with them while they were offshore to come up with an agreeable restructuring, and obviously said ‘please we’d like you to come back now — we won’t do anything precipitous’.
“And we’ve now seen three or four cases that I’m familiar with, where people left three, four, six months ago, and have now come back and are running their company with the full support of the banks,” Robinson adds.
The big recent development, of course, has been the approval of a new bankruptcy law for the UAE — a first for the Gulf — which should come into force at some point in early 2017. Although this interview took place before that announcement was made, Robinson is perhaps unsurprisingly supportive of regulations that will help local companies restructure or become insolvent in an orderly manner.
“I think bankruptcy legislation would do a couple of things,” he says. “Firstly it would stay all creditors equally, so even if you were secured or unsecured… everybody would know that as of this time and date, everybody is stayed and the debtor gets a chance to show what he’s got in an organised court forum and then everybody can get a chance to see how they may or may not choose to support them.
“What you don’t have is one person pulling the rug out and everyone else scrambling.
“And the second thing it does is implicitly decriminalise defaulting — you’ve defaulted and you have an opportunity to work with the banks, either to work with creditors on resuscitating the company or put into effect an orderly wind-down with the full oversight of the court.”
Like most bankers in the UAE and around the world, it’s clear that Robinson’s number one priority is the here and now, rather than far-flung plans about the future. In a highly competitive market, where 50-odd local and international banks are scrapping over a population of roughly 10 million, CBI has “a little under” 1 percent of market share, and while the CEO says the plans are to expand that figure, his interest remains more in gaining sustainable growth.
“We would like broadly to grow faster than the market — but if you interview 23 local banks they will all say they want to grow faster than the market,” he smiles. “So we can’t all be right. I think for the first couple of years, it really is about being confident that we’ve got the right structure in place, the right people in place, the right operating platform.
“I consciously decided when I came here that rather than set these lofty aspirations — go from 1 percent to a much higher percentage or something like that — I just felt that it wouldn’t be credible unless people saw that I was going to address some of things that would make growth sustainable.
“There’s no point in saying we’ve had a good year if next year we fall flat on our faces again. So for now, it’s about running the bank as tight as we can, focussing a laser beam on clients and delivering some sound financials. And, frankly, to get through a year that’s not going to be a great year — and come out looking a bit stronger on the other side.”For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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