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Fri 10 Jul 2009 04:00 AM

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Going global

Noor Islamic Bank's CEO, Hussain Al Qemzi, tells Claire Ferris-Lay why he won't rule out a merger if it means achieving his global aspirations.

Going global
Going global
Noor’s five-year plan includes expansion across markets in Europe, Asia and Africa.

Noor Islamic Bank's CEO, Hussain Al Qemzi, tells Claire Ferris-Lay why he won't rule out a merger if it means achieving his global aspirations.

When Noor Islamic Bank first launched in January 2008, the world was its oyster. Demand for Islamic banking was booming and experts were predicting that the industry would grow from $1 trillion to $2.8 trillion by 2015. Noor's five-year plan saw it expanding across markets in the Middle East, Europe, Asia and Africa.

The Dubai-based Islamic lender was also cash rich - 25 percent owned by the government of Dubai and 25 percent by the emirate's ruler - it was actively seeking acquisitions abroad worth as much as $1bn each. In short, Noor was going global. And quickly.

By culture we realise that the government is taking care of everything. Life is changing and we have to be introducing new services.

But fast forward 18 months and the economic picture is quite different. As Dubai has struggled with plummeting oil and real estate prices and the future of Islamic banking has been further scrutinised amid the downturn, Noor's expansion plans have been halted at the first stage with just one representative office abroad, in Tunisia.

While life at Noor today may be quite different from what Hussain Al Qemzi, the bank's CEO expected when he first took on his role, some things haven't changed. For one thing, he still has plans to go global. And if that means merging his bank with another, then so be it.

"I wouldn't [rule it out]," he tells CEO Middle East. "Noor was born with the aspiration to grow... if that merger meets our interests... and it has mutual benefits to us - monetary or strategically, yes we will."

His openness about a potential merger doesn't come as a shock. Al Qemzi, who has spent the last 25 years working with some of the world's leading banks including Citibank and HSBC, is well known for his opinions on greater banking consolidation in the Gulf.

"We should have less banks and bigger banks, and we should have banks that can add value and create the right mix that can reflect what the UAE is. The UAE exists to serve many countries around us - we do business with the Subcontinent, Iran, Africa and China - we should have strong banks with links to these economies," he explains.

In the meantime, however, Al Qemzi admits that his biggest challenge amid the financial crisis will be getting Noor back on track to achieving its goal of becoming the world's first global Islamic bank - a dream he believes has only been set back by a year. "Our biggest challenge is to go back to our dream; to turn ourselves into a global bank. I still think there is a big void where we can offer our services. There are no global Islamic banks."

For now, he says, expansion plans are firmly on hold. "We are still looking around, but I will look more opportunistically now," he adds.

Noor isn't the only Islamic bank that has been forced to put expansion plans on the backburner. While the industry boomed on the back of rapidly rising oil prices, growth has slowed amid the economic downturn.

Maldivesexpansion on hold

Noor's first casualty was its first Maldives unit which it planned to open in July last year with a paid-up capital of $10m. Noor Maldives Islamic Bank, which is in partnership with the Asian nation's Ministry of Finance and Treasury and a unit of Saudi-based Islamic Development Bank, was to be the island's first Islamic bank which would tap its predominantly Muslim population.

Al Qemzi says that the Maldives unit was not put on hold due to money constraints but rather because resources had to be deployed elsewhere. "All parties thought it time to put on hold...We were in the middle of the crisis and it was hard to make a decision. The Maldives wasn't [put on hold] in terms of costs, it was in terms of focusing inner energies and people on the situation at hand."

He adds that the economic downturn hasn't halted all of Noor's plans, and says that the bank is still on track to open an additional twenty branches across the UAE by the end of the year. The decision to forge ahead with these plans is largely because, thanks to the downturn, Al Qemzi has realised that Noor's future lies in the hands of its retail banking sector."I see retail is the future. When we launched our product, we launched our retail brand. The branches were there, we had about 40 products ready for retail, the thing is retail is just so much slower so we need to focus on building our customer base - something we should have done."

He also expects some growth in the bank's Islamic insurance unit, Noor Takaful, which it launched in January this year. Noor Takaful comprises two businesses; one concentrating on family insurance and the other general insurance. These businesses, says Noor, will further diversify the bank's revenues.

Although growth in takaful has slowed due to the downturn, experts predict the global market could reach as much as $11bn by 2015, as more people switch to Islamic insurance. "I feel there is big growth in our market here. There isn't enough on offer in the UAE for the takaful industry... it is an underinsured market. Many people don't think of the basics like insuring their house. In the UAE we insure our cars because it's a legal requirement but few people insure for education or their home," he says.

He adds that he expects the majority of the industry's growth to come from the local population as more recognise the need to insure for health and family. "Emiratis are the least insured people. I think in the UAE we have probably got used to government subsidies. By culture we realise that the government is taking care of everything. Life is changing and we have to be introducing new services."

But it is Al Qemzi's increased focus on the retail sector which he predicts will improve the lifeblood of the bank, its liquidity. "Islamic banking relies a lot on building your retail because that is where you improve the liquidity from."

Despite the UAE's banks now-strict lending criteria, Al Qemzi insists that the region's banks are liquid. "Today we can access a lot of liquidity, banks are liquid. Some banks have started [to lend] but many banks are holding on to their liquidity at a cost and the reason is they still do not see what will happen. They cannot continue with this for too long because it costs money, they will be bleeding their deposits." He adds that Noor has opened some lines of lending in its retail sector.

The decision to focus on the retail side of the bank is aimed at minimising the shortfall created by the fallout in its corporate banking, he says. In April, Al Qemzi told reporters he expected to arrange two syndicated loans this year worth over $1bn each. One of these loans, he says, is on behalf of a Dubai-based government linked entity for an infrastructure project. The other, he tells CEO Middle East is marked for "civil aviation".

Project finance

Although these deals are sizable, Al Qemzi acknowledges that such deals are not as in demand as they once were and interest from corporations has waned as construction projects have been stopped and liquidity has dried up.

"We recorded our main growth [last year] in the corporate and syndicated and structured finance. We know the market in terms of project finance won't be as easy as it was - we might not get enough leads within our market in the UAE or even around the region. [In the past] you might get eight yields in a year, this year we will be lucky if we get one or two so I think that might witness some slowdown in terms of business sourcing."

In addition to managing the region's liquidity crisis, Al Qemzi says he is also battling against preconceptions that Islamic lenders are heavily exposed to real estate, a sentiment many analysts are particularly concerned about given that the majority of Islamic institutions are small, and poor disclosure laws may have allowed them to slip under the regulators' net.

"Historically, yes they were [more exposed to real estate] because when Islamic banks started they could only offer one product... they didn't do anything except cars and selling cars [but] today you have all of the products and by virtue of having more products you have to be more diversified."

He does, however, hint that there needs to be tougher regulations on Islamic lenders. "To some extent [there is a lack of regulation]; we need some regulations for Islamic banks, but I think we are operating fine."

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