Knowledge is the real wealth! [Banker Middle East]
(Banker Middle East Via Acquire Media NewsEdge) Doha Bank is the largest private commercial bank in Qatar. In a wide-ranging interview with Robin Amlôt, the bank's Group Chief Executive Officer, Dr. Raghavan Seetharaman discussed Doha Bank's performance, his plans and his thoughts on the economic outlook for the future, beginning with the domestic economy in Qatar.
"The Qatari economy is poised for growth. Qatar's GDP at current account prices is estimated at around $200 billion, taking oil at $65/barrel and is expected to grow further in the future. Qatar's current account surplus as a percentage of nominal GDP should be around 25-30 per cent.
"According to Qatar National Development Strategy 2011- 16, aggregate GDP growth in 2012-2016 is expected to average 6.9 per cent out of which hydrocarbon GDP growth will be 4.4 per cent and non-hydrocarbon GDP will be 9.1 per cent. The service sector is a major driver. By 2016 the service sector could account for 40 per cent of total output up from 36 per cent in 2009. Construction may account for about eight per cent of total output by 2016, up from seven per cent in 2009.
"The outlook for the Gulf region overall is also good. Around the world some people mix up North Africa and the Gulf states. This region, the GCC, is different from North Africa. The Gulf States are responsible for about 40 per cent of world oil and 20-25 per cent of natural gas. The GCC has a combined GDP of around $1.6 trillion. If you look at the next five years, Government expenditure is going to be the driving force with every state focussing on social progress. In 2013, infrastructure projects exceeding $350 billion have been planned in the GCC economies. Infrastructure is going to be modernised - road, rail networks, power, real estate; all visible indicators of the vibrancy of the region. We are absolutely confident. Of course, there are issues in the Arab world. We are not insulated, we are not isolated but we are financially stable and we have a sufficient base for us to stand out as a performer."
You have been recently conferred with a Doctorate in Global Governance at European University after defending your thesis. What is your concept of Global Governance?
"In response to the financial crisis, global regulatory reforms have been actively reviewed under the leadership of the G20 countries and in co-ordination with the Financial Stability Board (FSB), International Monetary Fund (IMF), and the Bank for International settlements (BIS). The G20 has also noted the progress achieved by the Global Partnership for Financial Inclusion (GPFI) in implementing the Financial Inclusion Action Plan. The world is getting leveraged. The Dodd-Frank Wall Street Reform and Consumer Protection Act in the US implemented regulatory reforms in response to the crisis. The Consumer Financial Protection Bureau was formed under this Act. The Volcker Rule is a specific section of the Act designed to restrict proprietary trading. The SEC also proposed tougher disclosure rules for hedge fund and private equity firms. The FSB, IMF and BIS are working on macro-prudential policy frameworks, including tools to mitigate the impact of excessive capital flows. Policy framework for systemically important financial institutions, regulation and oversight of shadow banking are some of the areas which required review in the light of the crisis. Basel III implementation is underway. Tax havens should also be regulated. The current realignment of the global architecture will support the achievement of one of the eight UN Millennium Development Goals: 'to develop a global partnership for development', which aims to further develop an open, rules-based, predictable, non-discriminatory trading and financial system. This would include a commitment to good governance, development, and poverty reduction, both nationally and internationally. Economies, institutions and individuals need to follow governance. My idea for 'Global Governance' is strategic control of economies and corporations in the most effective way through governance. It can be called corporate governance for institutions, and global governance for economies. Individuals are also affected by corporate governance and global governance due to the links with institutions and economies, respectively.
"The global financial crisis is an opportunity for real economies to prosper, and financial economies to correct their values to become real and more ethical so that the world becomes a better place. The crisis is also an opportunity to create a better world, based on sound transparent principles and ethics. On account of the crisis, emerging economies may have realised their strengths, and advanced economies have come under regulatory re-alignment. Economies need to integrate the principles of sustainable development into their policies and programmes. Moral and ethical governance is the key for sustainability and strengthening of global and corporate governance will promote sustainability. Sustainability is the key for long-term growth."
What are your views on the outlook for the dollar?
"The dollar will continue to be the 'universal' currency for this century although the Renminbi is shaping up well. The Chinese currency has a long way to go in terms of overall maturity but it is worth noting that Doha Bank has a presence in Shanghai and was the first GCC bank to enter China. We also have an office in Hong Kong.
"The prospects for currencies are interconnected with overall economic momentum. In the short term, the dollar continued to strengthen on expectations of US fed tapering this month. However, the recent US jobs data has brought down the expectations of tapering. The surge in oil prices on account of the Syrian crisis must have created demand for dollars. Syrian tensions have eased, so the outcome of US Federal Reserve 'tapering' and negotiations on the US debt ceiling issue will determine the short- and medium-term direction of dollar.
"In the long term, there is no question in my mind that international investors see little competition for the dollar. They see a stable political environment with, unlike Europe, unified monetary and fiscal policies.
How much of an issue is food security?
"Globally food prices have fallen in recent times. However, long-term food security still remains a challenge. The World Bank's Food Price Index showed international prices of wheat fell by two per cent, sugar by six per cent, soybean oil by 11 per cent, and maize, or corn, by one per cent during the four-month period February-June 2013.
"There are various measures to promote food security. Some of them include integrating food security and sustainable agriculture into both global and national policies, raising the level of agricultural investment, sustainably increasing agricultural production, assisting vulnerable populations to adapt to climate change, reshaping food access and consumption patterns, ensuring basic nutritional needs are met, reducing the amount of food lost or wasted in production and establishing comprehensive, shared and integrated information systems to track changes in land use, food production and climate change.
"Looking to the GCC, this region is affluent enough to support itself. You don't need to have exponential growth of agricultural activities; there are options around the world. The Qatari Group Hassad Food, for example has investments in South Australia. There are local options. Using renewables such as solar power, increased cultivation is possible but probably not wholly cost-effective in terms of satisfying demand for food. States in the Gulf are allocating investments with governments elsewhere in order to ensure regional and global supply chains.
"This is an issue I focused on in my third PhD, articulating the significance of global sustainability. I believe this is the topmost priority for the world. It is interconnected with environmental sustainability; food security and environmental sustainability should be the key focus globally."
Turning to Doha Bank itself, are you starting to see spending kick-in for the World Cup 2022 and how is this affecting your business?
"It is here in the wholesale banking sector where there is a huge opportunity. The contract financing sector loan book in Qatar had touched QAR 19 billion ($5.22 billion) at the end of the first half of 2013. Doha Bank has a 29.8 per cent market share. Contract financing is considered a centre of expertise for Doha Bank. Our high market share benefits from strong relations with key contractors through Doha Bank representative offices in Turkey, South Korea, Japan and Germany.
"The Qatari contract financing sector has been growing steadily (CAGR of 27 per cent in 2005-2012) and is set to benefit from planned infrastructure spending in Qatar as well as the FIFA World Cup 2022. The Government plans to build 12 stadiums in the next 10 years for a total of $4 billion. The Government has also allocated $20 billion towards the development of the tourism sector."
How well positioned is your wholesale banking division for engaging in project partnerships?
"We have received excellent responses to the road shows which target local and international companies. We will continue to organise such road shows for the benefit of our customers.
"We are able to participate in various projects both in Qatar and the region. Our corporate loans which are directed towards contract financing reflects an upward trend and the success is reflected in this growth; 2010 -2012 CAGR on our contract financing book is 21 per cent.
"Doha Bank's portfolio is focused on the private sector and will opportunistically consider lending to the public sector. We will continue to focus on major projects in Qatar and GCC, including Doha Metro, New Doha International Airport and New Doha Port, Qatar Railways Project, Lusail real estate development, including Energy City, Doha Bay Crossing (TBD), Qatar-Bahrain Causeway, UAE National Railway Project ,Dubai Metro and Bahrain Rail Master plan."
Are you concerned about the strength of property prices in Doha and the exposure of bank customers in general to the real estate market? How has the bank benefitted?
"Qatar's Consumer Price Index YOY in July 2013 showed an increase of 3.1 per cent at the overall level. Rent, fuel and energy had gone up by 6.5 per cent which reflects activity in the residential segment.
"The real estate sector loan book in Qatar had touched QAR 80 billion at the end of the first half of 2013 and Doha Bank had a market share of 8.9 per cent. The loans portfolio is circa 90 per cent completed real estate projects vs. 10 per cent greenfield / under construction. Doha Bank maintains a conservative and cautious approach to underwriting, in particular with regards to the real estate sector."
How do you differentiate your service offering?
"Doha Bank has a strong reputation for innovative products and strong brand quality. Doha Bank was the first to introduce many products and services in Qatar such as Al Dana Saving Scheme, co-branded credit cards and travel cards, gold-collaterised loans, gold bar sales and 'Green Banking'. Doha Bank had the first bilingual Arabic/English website of all banks in Qatar.
"Doha Sooq was the first 'online shopping mall' offered by a bank in Qatar. Doha Bank's mobile banking grants access to bank account details and enables instant transfer of funds, paying registered utility and credit card bills, recharging pre-paid mobile or broadband services and viewing current exchange rates.
"Doha Bank is the second largest bank in Qatar. We add value to the overall banking spectrum and in terms of corporate social responsibility we are number one as an institution. Commercially, I believe we have the best model. Almost 10 years ago, I told Banker Middle East that we do not need to be the biggest to be the best. I maintain that stand today.
"We operate in a retail market with strong growth potential, catering to affluent Qatari nationals and a growing expatriate population. Note that Qataris' disposable income per capita showed a compound annual growth rate (CAGR) of 11.3 per cent between 2005 and 2012."
Doha Bank was awarded Best Regional Commercial Bank at the Banker Middle East Industry Awards this year. What are the highlights of the bank's performance?
Net profit for the first half of 2013 recorded an impressive QAR 748 million which represented a growth of 1.1 per cent year on year. Doha Bank increased net operating income by four per cent to QAR 1,273 million. Total assets increased by more than QAR 6.9 billion, a growth of more than 13 per cent, from QAR 52.3 billion as at 30 June 2012 to QAR 59.2 billion as at 30 June 2013. Net loans and advances increased to QAR 36.2 billion from QAR 30 billion for the same period last year, registering a growth of 20.3 per cent. Deposits showed a year on year increase of 12.3 per cent from 30.3 billion to QAR 34 billion as at 30 June 2013 which is evidence of the strong liquidity position of the bank. Return on average equity is 19.6 per cent as at 30 June 2013 which is one of the highest in the Qatar.
What are you doing for the SME sector in Qatar and elsewhere?
"We are innovators. We were prime movers in the support of the SME sector now with some QAR 700 million in lending to the sector. I know we need to create social entrepreneurship to add sustainability to the economy.
"Our strategy is to continually grow in the SME business. Our full-fledged online banking platform for customers as well as corporate credit card propositions adds value to the SME businesses.
"The bank has built a strong portfolio of services and solutions offered to SMEs both directly through its TATWEER programme and through landmark partnerships such as the Qatar Development Bank's (QDB) Al Dhammen programme.
"In 2013, Doha Bank in partnership with the Qatar Exchange (QE) had hosted the first seminar of its kind to highlight opportunities for SMEs seeking to be part of the QE Venture Market. We also intend to support SMEs and corporate clients in the UAE through the bank's fully licensed branches in Abu Dhabi and Dubai, including support for companies in the infrastructure development and construction sectors."
What business initiatives for 2014 can you tell us about?
"The second phase of the bank's capital increase will lift single obligor and real estate lending limits and in general allow for an expansion of the loan book in Qatar and the GCC with a further strengthened capital position. We will also consolidate our position in Qatar and penetrate further in the GCC markets.
"The bank will expand and further leverage its trade finance business through the network of representative offices, by further developing relations with companies doing business with Qatar. We will also develop our regional branch network in the UAE and Kuwait and position Doha Bank at the centre of the infrastructure growth of the GCC economies. We have also applied for a licence in Saudi Arabia.
"We will continue to tap opportunities in contract finance, SME and trade finance across the GCC region."
What are your ambitions for the bank - how do you see it evolving over the medium-term?
"We are aligning ourselves to consolidate our position in Qatar and preparing ourselves to tap the upcoming opportunities in GCC. We are working towards compliance with various ratios and also gearing ourselves for Basel III implementation. The project space in Qatar will provide opportunities. The recent MSCI upgrade of UAE and Qatar will also provide investment opportunities for us.
"We will leverage on strong existing distribution channels to expand loan book, generate more revenues and improve efficiency. It will also identify areas of potential operational and cost efficiency improvements. We also look into opportunities in bilateral trade and investment between GCC and other major blocks.
"We will continue to improve the operational efficiency and our brand equity. We will continue to concentrate on providing full service solutions. We understand customer needs and we can customise solutions."
On a personal note, you have achieved great success in the field of banking - what would you have done had you chosen a different career path?
If I had not been a banker I would have been an economist and a knowledge-sharing consultant. I still strive to be like them as it complements my role as a banker and also enriches me on the personal front. I think knowledge is the real wealth. What really keeps me going is continuing learning."
I think knowledge is the real wealth
Doha Bank has a strong reputation for innovative products and strong brand quality
The dollar will continue to be the 'universal' currency for this century although the Renminbi is shaping up well
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