When Tirad Al Mahmoud was offered the post of chief executive of Abu Dhabi Islamic Bank in 2007, Sharia-compliant lenders had the reputation of being more ethical than their conventional counterparts but lagging behind in customer service. A veteran Citibank executive, Mr Al Mahmoud saw the challenge as too good to pass up.
“I saw that opportunity at ADIB and I said, “wow I could do this here and dramatically enhance the bank’s performance,” Mr Al Mahmoud told The National in an exclusive interview. “When I came here, we ranked number 23 in terms of service in a survey that was done for 24 banks. And number 24 was a bank that had been in the country for six months only. So basically we were the worst bank in service. Today we are the best customer service bank three years running across all banks.”
The bank, before Mr Al Mahmoud took charge of it in 2008, was small both inside and outside the country with a network of 40 branches and a balance sheet size of Dh35 billion, he said. One of his first tasks as chief executive was gathering all the bank’s employees at a town hall meeting to lay out his vision of how they would improve customer service by getting back to the basics of Arab hospitality.
Today, the bank has assets to the tune of Dh103.2bn and 77 branches. As for many UAE banks, last year was a good one for ADIB – it had a record profit of Dh1.45bn – as the UAE economy grew by more than 4 per cent. Following years of lacklustre growth in the aftermath of the global debt crisis, low interest rates and a spurt of government spending on infrastructure spurred companies to take out new loans to finance growth. Individuals also rushed to banks to take advantage of cheap money to buy property, cars and other big ticket items. Adib expects the momentum to continue this year with single digit loan growth, Mr Al Mahmoud said.
ADIB has also been expanding its reach outside of its borders into emerging markets as it prepares for the possibility of lower future growth rates in a crowded home banking market with more than 50 lenders. ADIB, which was established in 1997 and is majority owned by the ruling family of Abu Dhabi and sovereign wealth funds, has a presence in Egypt, Sudan, Saudi Arabia, Iraq, Qatar and the UK and is also planning on entering the Maghreb.
Authorities there have put in place regulations that will allow Islamic banks to operate, Mr Al Mahmoud said.
“We go to countries where our business is welcome and where there is demand for our business,” Mr Al Mahmoud said. “So far the UAE has been strong, and continues to gain in strength. In Egypt, we are still a small bank in terms of balance sheet, but our growth rate is above average. So there is demand for our business. In Iraq, where we are doing business, we expect that demand will be strong. In Qatar we have a corporate and private banking set up.”
On the consumer banking front, which is one of its main priorities, the bank has become the third-largest. It has done so by aggressively increasing its presence in other emirates outside of Abu Dhabi, such as Dubai. Banks in the UAE began to focus more on the retail side of business after the financial crash of 2008 when companies had lesss appetite for new debt and were struggling to pay off old loans. That competition has squeezed out smaller lenders in recent years.
Abu Dhabi Commercial Bank bought the retail arm of Royal Bank of Scotland in 2010 for about US$100 million, adding more than 250,000 customers. HSBC bought Lloyds’ retail arm in 2012 for $769m and Emirates Islamic merged with Dubai Bank to create Emirates Islamic Bank in 2012. Not to be outdone, ADIB this month snapped up the retail banking operations of Barclays for Dh650m, taking on an 110,000 new customers.
“The natural forces in the market would call for scalability to continue doing business,” Mr Al Mahmoud said. “If you are a bank without scale, you tend to suffer. You have to become a niche player. This is why Royal Bank of Scotland pulled out and this is why Lloyds bank pulled out. It’s a scale thing. In retail banking it is either go big or go home. Consolidation is happening as we speak.”
Of the biggest challenges that Mr Al Mahmoud has had to overcome is that of being an Islamic bank in a country where there is a large non-Muslim population. This has mostly been done through mass marketing campaigns and educating non-Muslims about the virtues of Islamic banking, where interest is banned and predatory practices are frowned upon.
Instead, customers pay a so-called profit rate using a variety of Islamic financial instruments. Under a Murabaha agreement for instance, the bank avoids the proscription on interest by buying the assets of clients seeking finance and letting them buy it back at an agreed markup. That includes retail clients who want mortgages as well as corporate customers.
In recent years, Islamic banking has made headway. Souqalmal.com, a Middle East price comparison site, found that more than 60 per cent of the country’s residents have at least one Islamic bank product, such as a credit card or home and car financing. A survey conducted in November by the website of 5,300 people of different nationalities, income and ages, a majority of those polled said that Islamic banking products had more attractive fees and rates than their conventional counterparts.
ADIB is keen, however, to emphasise the ethical aspect of its banking practices over the religious to cast its net as far as possible. It has not gone as far as Noor Bank, which recently removed “Islamic” from its title, but it has come up with a number of secular motifs for itself such as “banking as it should be”.
“This is not a temple, this is not a mosque,” said Mr Al Mahmoud. “This is a business, and it’s a business that we manage for a profit. We’re not trying to spread Islam. We’re trying to grow our business. Our goal is to make ADIB a role model Islamic bank – banking as it should be. We believe that Islamic banks have a better value proposition for the consumer than conventional banks.
“You do not have to have a consumer protection agency when you do business with us as a client. We cannot gouge you in prices, we cannot increase prices on you dramatically or suddenly without your contractual consent. In some cases, even if you consent we are not allowed to raise the price on you. We cannot throw you out of your house when you default on a mortgage because you lost your job. We have to work with you, we have to be tolerant with you.“
A citizen of Qatar, Mr Al Mahmoud – now in his 50s – was born in Saudi Arabia, and completed his education at Qatari public schools. He pursued his higher education in Montreal, where he studied finance and learnt English. Upon graduation in 1982, he was hired by Citibank and had postings in the Middle East, North Africa and Eastern Europe before joining ADIB. A modest and frugal man, who enjoys travelling and reading, Mr Al Mahmoud has few indulgences except the pleasure he gets from cruising on his Harley Davidson. And of course when it comes to cuisine, he only eats halal.
mkassem@thenational.ae
