A SEGMENTED APPROACH

Humayun Kabir, General Manager, Wholesale Banking, National Bank of Oman speaks to Mayank Singh about performance, growth and challenges in the banking sector.

What falls within the remit of Wholesale Banking and how has the division’s financial results been in 2013?

The major components of wholesale banking are Corporate banking — our largest division; Business banking which serves mid-market customers; Government banking wherein we serve the government and pension funds etc; Transaction Banking which encompasses trade finance and electronic delivery channels; Treasury, Investment Banking division and the Financial Institutions Group (FIG) where we deal with international banks.

Financial year 2013 was the best ever year for the Wholesale Banking division at NBO. Moreover every single division within Wholesale Banking exceeded its targets in contributing to this performance. Three years ago, corporate banking used to make up over 85 per cent of the Wholesale Banking profits but now around 40 per cent of our revenues comes from other parts of Wholesale Banking. As Corporate banking is a more saturated and mature market, we have been diversifying our sources of revenue from the other divisions and this is leading to improvement in overall returns. Most notably, our revenues from Government banking have almost doubled this year; our mid-market revenues have grown by 50 per cent; investment banking is up by 25 per cent while treasury has grown by over 20 per cent. It also underscores the point, that we are not just a lending bank but an institution that offers a complete array of services across the spectrum. Over the last few years, we have emphasised on taking a holistic approach towards the customer and the diversification of revenue reflects the success of this strategy.

Apart from strengthening your relationship approach, what measures has NBO taken to offer better products and services to its customers?

We have done stronger client segmentation so that we can offer services that suit the needs of the target segment. For example, we have significantly beefed up our services for the government sector. We are providing enhanced levels of attention and care to the sector with dedicated relationship managers who work closely with government entities and pension funds. The same holds true for mid-market customers. We have customised our offerings for them as their needs are different from that of the large corporates and they require a lot more of hand holding and advisory service.

Small and Medium Enterprises have been identified as an priority area by the government. How is NBO contributing to entrepreneurship and job creation?

Per se SME’s do not fall under Wholesale Banking in NBO, but in general the bank has invested a lot in people, technology, product programmes and systems catering to the SME sector. Promoting SME’s is one of the top three areas of focus for the bank. SMEs need a banker who is a trusted partner and someone who can guide them not just with their financial needs but as a business partner and advisor. Overall, our SME offerings are modelled on this idea. We are also using our branch network to reach out to them as SME’s are scattered across the Sultanate and it is difficult for them to access financial services only from Muscat or the other major cities.

How has NBO’s financial performance been in 2013?

NBO has had a good year despite global conditions that have been tough for banks. The bank’s performance has been strong and steady. At the same time we are looking at reinventing ourselves to adapt to changing market conditions and significant regulatory changes. The global financial system is in an unprecedented state as Central banks have flooded the market with excess liquidity and historically low interest rates. This is a big challenge for commercial banks. Apart from these, banks need to adapt to the changing needs and expectation of customers and demographic shifts.

We are strengthening our presence in the UAE with a new branch in Dubai. This will be our second branch in the UAE after Abu Dhabi. We believe that there is a lot of opportunity in cross border trade and business between UAE and Oman. We have significantly beefed up our team in UAE and we aim to exploit the Oman-UAE trade corridor. Though nascent, Islamic Banking is the other potential growth area. NBO was the first bank to open an Islamic banking window – Muzn in Oman. We see a lot of opportunity in that space and we continue to invest in it.

You mentioned about NBO trying to reinvent the way it serves its clients, what does this rethink translate into?

As customers get sophisticated, they think differently and their needs change. This necessitates a change in the way they are served. If you do not adapt and continue with a one-size-fits all offering, the opportunity to differentiate is definitely lost. The rethink is to segment our customers more precisely and figure out the best way to serve them. We are looking at markets by mapping our product matrices on customer segments like high net worth, mid-market, Islamic Banking etc. On this matrix, we superimpose our delivery channel capability to determine how to reach these customers more efficiently from our perspective and more conveniently from the customers perspective. Overall, we are looking at serving our markets better by being more focused and effective.

What kind of a challenge does a low interest global regime and excess liquidity pose to banks?

When there is excess liquidity, interest rates come down to very low levels. This is a challenge as in a low rate environment; banks are not in a position to invest their extra funds at attractive rate of returns. Secondly, there is more money chasing less investment and credit, so many of the markets become unremunerative. Thirdly, excess US liquidity and low dollar rates gives foreign banks a chance to come to Oman and lend in dollars. Many of the customers do not care whether they are borrowing in dollars or rials, if the greenback is available at cheap rates. In such an environment, local banks are at a disadvantage as they do not have the same access to a cheap dollar pool as a foreign bank. However, the upside of this situation is that it drives the local banks towards areas wherein we have a competitive advantage, like the mid-market segment, SME etc. Here we can offer customers something that our competitors cannot and we get out of unremunerative lending to compete with foreign players.

Do you think that Oman is overbanked and this is putting margins under pressure?

In any market when new banks come in with freshly minted capital to spend, there is a period when there is excess capacity. The new banks are naturally under pressure to build up their business and many a times they act irrationally. This dislocates the market for some time and Oman like any other market will go through such fluctuations. If you look at Oman, it is the cheapest in the region, from a banking services perspective. Oman was always a competitive market for local banks, but now with low interest rates across the region and the stability of the Oman market, the Sultanate has gradually become attractive for foreign banks thereby exacerbating the competitive situation in the banking sector.

The Central Bank of Oman has reduced interest rates on personal loans from seven to six per cent, this follows last year’s decision to bring down the ceiling on personal loans from 40 to 35 per cent. Will these changes affect your profitability?

The new regulations have naturally been punitive from a profitability perspective and banks will take time to adjust to these challenges. Since the changes in the debt burden ratio (DBR) last year, there is lesser buy out and movement of customers and that continues to dampen personal borrowing. These changes are, however, positive in the long run as they lead to more responsible lending and borrowing in the system.

NBO has done remarkably well on the government side of business this year. What has enabled NBO to do so well in this space?

We have significantly increased the size of the team on the government side. Secondly, we segmented the government based on their needs. Thirdly, we looked at our product offerings and decided to get closer to them through things like technology integration, which enabled us to create efficiencies in processing government transactions. The government business for us used to be mainly for deposits, but now we are providing them with a gamut of services like trade, treasury, investment banking, operational processes and payments. For example, we did an integration with PASI, and as a result NBO customers can make PASI payments through the bank’s website saving them the hassle of queuing up at the PASI office.

NBO has launched its GCC fund recently what prompted you to launch a fund at this juncture and how has the climate been for investment banking?

NBO’s investment banking division has four core areas of focus – asset management, in which we manage money on a discretionary portfolio basis for our clients and we are amongst the top two in this vertical. We have a Corporate finance area, in which we look at M&A transactions, capital raising, IPO’s, debt and equity raising and we have had a very strong year. Then we have a specialised area called custody services wherein we are the custodians of most funds in Oman. We are the market leader in that space and this is a business that we built from scratch in the last three years.

We just launched the biggest mutual fund in the country — the NBO GCC fund. This fund has a focus on strong yield generating companies. In a low interest rate environment, investors are looking for yield with growth and we see an opportunity within GCC stocks to build such a fund. We are very happy with the way the fund has been received by the market.

What are NBO’s Wholesale Banking plans for financial year 2014?

We are looking at continued investment in Wholesale Banking for growth in the Government business, Investment banking, Business banking, Mid-tier Corporate and our Transaction banking business as we feel that these are the high growth areas. We want to increase our reach outside Muscat as we feel that we have been very much centred on the major cities. The Mid-Corporates are all over the country and we need to reach out to them. NBO continues to play a significant role in the large projects that have come in. On the whole we expect Oman to grow steadily as government spending has been very supportive and we expect the same to continue. We are very bullish on the tourism potential of Oman and it was amply demonstrated during the NBO Golf Classic – A European challenge Tour event we hosted recently. It was very pleasing to see how fascinated people were about the country, its beauty and hospitality when Oman is showcased for an international audience.


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