Stepping out

Doha Bank sets its sights on the world's major financial centres as it plans to broaden its reach.
Stepping out
By Daniel Stanton
Mon 01 Oct 2007 04:00 AM

R Seetharaman, the CEO of Doha Bank, and until recently its deputy CEO, is a man with global ambitions for his institution. In the past four years, he has overseen a six-fold increase in annual net profit and a three-fold increase in shareholder equity.

Doha Bank now has 30 domestic branches, and has also expanded into new delivery channels. Its electronic E-branches provide ATMs, instant cash and cheque deposit machines, plus access to phone and internet banking, while it has three additional mobile banking units that visit different locations in Qatar to provide ATM services. Online banking has been particularly popular, and the bank recently introduced Doha Souq, a round-the-clock email offering.

We have been progressing across the globe, wherever Qatar has got economic linkage.

Beyond Qatar, Doha Bank now operates full branches in Dubai and New York, and representative offices in Turkey, Singapore, Tokyo and Shanghai.

These locations have been chosen not only because they are major financial capitals, but because they also play a key role in Qatar's economy.

"We have been progressing across the globe, wherever Qatar has got economic linkage," Seetharaman explains. The US is a major partner in both trade and defence, Japan was the first country to take a shipment of LNG (liquefied natural gas) in 1996, while Singapore is Qatar's third-largest bilateral trade partner.

In September, the bank received an initial licence to operate in Kuwait, which would make it the sixth foreign bank to operate there if its licence is approved by the cabinet. Doha Bank is also looking to India, which has a strong connection to the peninsula not only through its geographical proximity but also through the large number of non-resident Indians who work and live there.

In May, the bank made a strategic equity investment in Select Securities, the holding company for the Select group of companies, which owns the Indian brokerage firm Investnet. "We are also looking to set up our operations with the central bank of India," says Seetharaman. Its interest in India runs both ways: in July, Doha Bank agreed a deal with Birla Sun Life to distribute the company's mutual fund products in Qatar.

Doha Bank has also beaten many of the region's banking giants to establishing a presence in China. By setting up a representative office in Shanghai, the bank is in a good position to capitalise on the country's development into one of the world's trading giants.

Seetharaman has no doubt that Doha Bank needs to be present in such major financial markets in order to thrive.

"The local market has become global," he says. "The customer has got a choice today, he may not depend on local markets. For financial services, he has got information: he is no more location-centric, he is information-centric. It has been our mission to go global."

He adds: "We look at logical expansion, wherever it is possible.

"Quite a few applications have been submitted to various regulators and effectively in the coming days we might achieve a few more licences."

On a regional level, Doha Bank recently received regulatory approval from the Qatar Financial Centre to establish a 100% subsidiary company, Doha Bank Assurance. The bank already has a sizeable market share in corporate as well as retail insurance, and now wants to expand its involvement in the sector.

"We want to get into the insurance business 100% because we thought it's good to synergise and offer real value to our relationship," says Seetharaman.
"Apart from retail we have strong support in terms of corporate insurance, including trade finance. Already we are supporting them in terms of insurance advisory, so we will be working on large-scale insurance support for various projects, whether it's energy or construction or other areas."

The bank's expansion into new markets has been funded by a US$1 billion EMTN (Euro Medium Term Note) programme, of which $340m has been issued so far. It also issued a $350m syndicated loan in August this year, which was snapped up in less than a day by 26 banks in 13 countries, despite the slowdown in global credit markets.

Now the real economy is the driving force in globalisation.

"This clearly indicates the global community's confidence in Doha Bank," says Seetharaman. "At the same time, we also managed to secure a long-term liability to reduce the maturing mismatch between assets and liabilities."

Doha Bank had little or no exposure to sub-prime lending, but Seetharaman says he noticed signs of disturbance in this region. "Banks were ready to accept placements, but when it comes to borrowing, the margins were very high, and some of the GCC banks were not giving to others," he says. "We did not have that experience but other banks have gone through stuff like that."

He warns that the excess liquidity in the GCC at present should not lull the region's banks into a false sense of security. "Countries should be cautious in placing their investments, because if you start overdoing it your country market will be distressed," he says.

"You have to play within your fiscal surplus and investment surplus. What should not happen is if you look at a current account surplus and start placing more and above your capacity - you will not be able to absorb the shock when there is a system at risk.

"I have been saying that GCC fiscal discipline should be cautiously optimistic because gone are the days where the national economy was driving the globe. Now the real economy is the driving force in globalisation."

Seetharaman believes that GCC economies running fiscal and current account surpluses should hold their surplus within the region or within their own country for the time being, and wait until markets have stabilised, to avoid tying up funds in illiquid assets that could be at risk.

"This is going to be a very delicate balancing act for the finance ministers and regulators," he says. "If you look carefully, the prime rate is going up, liquidity is under strain, even though all these economies are doing well. There is no question of it.

"So there are enough indicators and early warning signals to see that liquidity strain is really on. It has nothing to do with your fiscal surplus or current account surplus - in terms of real liquidity, it's become cutthroat. The money's there, but the issue is at what price you have to acquire it."

This is putting pressure on the region's banks to control costs and manage their own business expansion carefully - possibly through mergers and tie-ups with other institutions. "The cost of funding is going up, so margins are going to come down," says Seetharaman.

"If you have to really play it to your professional advantage you should look at globalisation and consolidation within the local or regional markets. If you have to sustain the return for your shareholders, the return on equity as well as the return of assets, you look at consolidation as an important option."

Doha Bank's strategy seems to be paying off, helping it to grow its brand and international presence, while still showing strong financials. Other regional banks that have not been quite as forward-thinking could soon be wishing they had followed a similar path.

However, Seetharaman is committed to ensuring the bank is socially conscious, as well as profitable. For an institution that is increasing its global presence, Doha Bank is also committed to being environmentally responsible - making it probably the first Middle East bank to take such an approach. Seetharaman has spoken about climate change at seminars, and about the importance of sustainable investments. The bank is determined to become a carbon-neutral entity, and rewards employees who come up with energy-saving ideas. This is a philosophy that Seetharaman wants to share.

"Whether it is anti-money laundering or global warming and climate change, finance plays a big role," he says. "It's up to countries and corporates to do their bit. There are a lot of ways and means by which everyone can contribute. My intention is to promote this across the globe."

What the analysts say

Kuwait's Global Investment House reports: "During 2006, the interest income of the bank increased by 57.3% to QR1, 063.3m from QR676m registered a year before. In line with rising interest rates, the interest expenses witnessed a significant year-on-year rise of 111% during 2006 to reach QR539.8m. Despite the faster growth in interest expense as compared to interest income, the bank reported a growth of 24.6% in its net interest income to QR523.4m in 2006.

"Its non-interest income was at QR549.6m in 2006 as compared to QR593.4m in 2005. Among the major components of non-interest revenue, the bank registered a y-o-y growth of 33.7% in fees & commission income whereas income from financial investments declined by 41.6%.

"Total operating income (net of provisions) of the bank grew by 4.4% in 2006 to QR1, 064.3m, while operating expenses grew by 30.5% to QR298.3m. The net profit attributable to shareholders declined by 5.8% to QR743.9m as compared to QR789.9m reported during 2005. EPS declined to QR6 per share in 2006 from QR11.4 in 2005.

"At the end of 2006, the total assets of the bank stood at QR21.7 bn representing a y-o-y growth of 42.5%. Among the major components, gross loans & advances grew significantly by 56.8% to QR14.2 bn, due from banks and financial institutions registered a growth of 20.6% to QR4.5bn and financial investments stood at QR2.6 bn, which shows a marginal increase of 2.7%. The quality of the bank's asset portfolio is improving as its NPLs (non-performing loans) as a percentage of gross loans have been declining consistently since last few years. In 2006, it improved to 4.3% from 8.9% a year before. The bank achieved a y-o-y growth of 32.5% in its customers' deposit base to reach QR14.6 bn.

"During 1H-2007, interest income grew by 58.5% y-o-y to QR757.4m while interest expense registered a steep y-o-y growth of 93.3% to QR437.8m. With this the net interest income of the bank registered a y-o-y growth of 27.1% to QR319.6m. The bank reported a y-o-y growth of 36.9% in its non-interest income to QR390.3mn as compared to QR285.0m reported during the corresponding period of the previous year.

"During the period under review, the bank also realised some of its bad loans which led to net reversal of provisions for loans and advances to the extent of QR20.5m which was at QR49.5m in 1H-2006."

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