Saudi gov't-backed Gulf International Bank is seeking to diversify after almost collapsing during the global financial crisis
Gulf International Bank (GIB) has launched the Middle East's first online-only consumer banking business, seeking to diversify after almost collapsing during the global financial crisis and to tap into a young, tech-savvy population.
Until now, GIB has been solely a wholesale bank - which provides services to big companies and financial institutions. It needed a bailout from the Saudi government after suffering $757 million of losses in 2007 from investing in complex debt instruments linked to the US subprime housing crisis.
Its ability to fund itself from wholesale money markets was also compromised as banks stopped lending to each other, meaning it had to scale back its operations. Its assets roughly halved between 2007 and 2010, and remained nearly a third below 2007 levels at the end of 2013, according to financial statements.
Called "Meem" - the letter M in Arabic - the new retail banking platform will offer personal finance products and credit cards in Saudi Arabia, the region's largest economy.
Around two-thirds of the population are under 30, and the kingdom is the biggest user of YouTube per capita in the world and among the top 10 nations for Twitter use.
The new business will give Bahrain-based GIB - 97 percent-owned by the Saudi government - a more stable funding base, GIB Chief Executive Yahya Alyahya said at a launch event.
"It will be a mitigant for the bank against any potential financial crisis in the future so we will not face the problems that we faced in 2008, which took us to the point where the bank could have defaulted," he told reporters.
"Dealing with retail is also profitable in itself, so that is going to enhance our profitability."
GIB aims to have around a 3 percent share of the Saudi consumer banking market by 2020.
"Our strategy is to be a pan-Gulf universal bank, so after Saudi and when the proposition proves successful, we will move it to other countries," Alyahya said, adding it could launch into another unspecified Gulf country by next year.
Whilst as an ex employee I wish GIB continued success, I still after all these years cannot see the logic in some of the decisions made by top management. Many Senior Management staff have been let go or left the Bank whilst under the leadership of the new CEO - some of which were hired by Yahya himself. From experience I can tell you that the Bank has some of the best business relationships with clients and retains excellent staff. I however am sad to say that I think that the direction taken in terms of retail and other business ventures may not lead to success due to lack of leadership. This is just an opinion but it saddens me to see one of the top regional banks make these types of decisions. I wish the bank success in the launch of Meem and hope that it can turn itself around.