Sanjoy Sen - Emirates 24/7 - Crisis forces Banks back to basics - April 2009
2Oz.O4;O9 Tbelssue ,04 DIFCreportsfivepercentjumpinregistrations18 Dubaito startcottontradecentrethismonth24 Fedexsaysnoplanto layoffemployeesinregionThe Talk,,.,Emirates Business 2417 . Tuesday, April 7, 2009Wehaveseenasix per cent increasein ourrevenuesand inour profitsHANS OLBERTZGENERALMANAGER.EMIRATESPALACE,PO5Crisisforcesbanksbacktobasics.Financialinstitutionsrefocusonimprovingcustomerservice. Banksstartsharingbestpracticesonhowto managethecrisis-DUBAI Karen Remo-ListanaThe economic crisis is forcing retail bankersto re-focus on the basics of banking, includ-ing the long neglected customer service,Banking professionals at the fourth Mid-dle East Retail and Banking Forum unani-mously agreed that the crisis has not sparedthe region and this has created even moreneed to address customer serviceRajeev Kakar, EVP and Regional CEO,Fullerton Financial Holdings, said althoughthere are several banks in the UAEonly a fewgive customers the top priority."There are several banks here but very feware focusing on customers," Kakar, who isalso the Executive Director and CEO ofDunia Finance, told Emirates Business onthe sidelines of the forum."When we researched the market, wefound out that there were so many customerswho were not being served correctly. Thereis no focus on customers, especially in theUAE.The banks are focused on products,"Hesaid the reality of the Middle East retailbanking business isthat customers are large-ly ignored.His comments echo the latest Benchmark-ing Service Quality Survey for UAE RetailBanking, which said the continued lack ofimprovement in customer service of somebanks has become "alarming".The study, done by Ethos Consultancy anindependent firm, shows that more than 75per cent of prospective customers get intouch with a branch first and then move onto other delivety channels,it also highlighted that customer satisfac-tion in the UAE retail-banking sector, espe- ~cially in the call centre area, has consistently 0 600declined in the past fewyears.Gary Mond, Head of Retail Banking atMashreq in Qatar, added: "In my experience,sales increase by merely focusing and listen-ing to customers... Youcan flood people withoffers but what really matters is the qualityof offering and how the banks treat cus-tomers as a person."One good thing about the crisis is that tltebal1king industry has been forced to sharebest practices on how to manage the crisis.Sundar Parthasarathy, SVP and Head ofRetail Assets, ADCB, said: "People haverecognised that there is an issue. How do wemanage it collectively? Thats what we aredoing," he told tltis newspaper. "Customerservice is very important because what wehave seen in the case ofreal estate, as we talkto developers, is that you have to be patient."Transaction needs arechanging becausepeople are going backto the basics like foodand petrolSanjoySen,Citibank.RETAILBANKINGmUAEbanks P/E(O9)versusemerging markets0 1 2Russia__IUnionNationalBank---Turkey----FirstGuUBank----- Emergingmarketsfill UAE banksDubaiIslamicBank----EnriralesNBD-----CommercialBankofDubai-----NationalBankofAbuDhabi-----AbuDhabiCommercialBank 1Oman------."".-,~,Qatarf<>yptAbu Dhabi Islamic BankKuwaitBahrainSaucli Arabiam UAEsaggregateloansanddeposits lQO7-4QO81.2001.000. Loans.. Deposits._LID800II-III400200MarO?JunO? Sep07 DecO?Youhave to understand the customers needsotherwise he would go to other channels,""1 heard this topic of cross-sell but whathappened in other markets is Ihat banks onlylooked at the figure without actually realis.in?;whether that customer needs that prod-uct. And then what happens? In this criticaltime, that cnstomer defaults and hell say,well 1didnt go to the bank proactively. Youguys went after me so why are you guysblaming me now?"Kakar said the crisis was primarily causedby the decline in values.He said there was been a beliefthat growthis only a quantitative phenomenon, whichinstead should have been based on an old-fashioned approach built on lIquidity, sus-tainability and solId values.This resulted in a new world order where-as cheap credit, high lIquidity and fiscal sur-pluses characterised in 2008 to 2008; thisyear and next year would be characterisedby expensive credit, shortage ofliquidity andlower fiscal smplus or higher deficits."The traditional rules have been broken,"he said, "This inclndes knowing your cus-120.00%1l0.00%100.00%90.00% ::80.00%7(00%60.00%so.OO%Mar08 Jun08 Sep08 Dee08tomer, prudence in lending, closely monitor.ing and tracking customer behaviour and re.spectin?; money and risk."Currently, the regions retail banks areunder "serious stress" due to the crisisofcon-fidence brought by the credit crunch, SanioySen, Conmry BusinessManager, Global Con-sumer Group at Citibank.He said the growing bad debt isbeginningto creep into many businesses such as cars,personal loans and mortgage creating un-precedented stress inbanks portfolio. "l1lerehas been the destruction of financial institu-tions in unprecedented scale," he said.The region, he said, has not been insulatedin the crisis as evidenced by the drastic isdrop in oil and conunodities prices, steep de.cline in real estate, tourism, retail and for-eign investments banks. This decreases de-mand and confidence levelsand increase, joblosses. Retail banks are now facing seriouschaJlenges, one of which is the most dis-cussed liquidity issue.Because of tierce com-petition Ji)rdeposits, flwding has becomedif-ficult. De-leveraging, a process when house-holds opt to payoff debts and minimise
Tuesday, April 7, 2009 . EmIrates Business 24173OIL(Brentcrude)jDIRHAM/POUND~ -$0.8"" +0.151~ ($54,31)" (+5.556)DIRHAM/EURO~ +0.085(+4.036)~U~~270/0~ :~~;n~%I!I Aggregate deposits breakdown,and aggregate funding 9MO8spending, has led to the shrinkage of goodassets. "Banks used to have high concentra-tion on some specific sectors such astourismand real estate and there has been an un-precedented correction in real estate pricesand we know that there are many banks herethat are associated with the real estate indus-try.The industry pool isbeing reduced signif-icantly," Sensaid.The UAE, along with the rest of the GCC,was fortunate enough to have limited expo.sure to the sub-prime mortgage problem,which is the root of the current global fman-cial turbulence across the board.According to the central bank, the UAEsbanks total exposure to sub-prime mort-gages is limited to a negligible ratio ofl_2 per1000 exposure.However, the banking system could not es-cape the aftermath of a dried up interbankmarket, a collapse in capital markets, as wellas the banks own funding constraints on thedeposits side. Higllinflation across the boardwithin the GCC resulted in negative real in.terest rates.This coupled with speculative money leav-ing the system from the UAE pressured de-posits to grow by 22 per ccnt during 9M08,not matching the 37 per cent advance inloans and londly annonncing the existenceof a severe liquidiry problem within the UAEbanking system and an urgent need for gov-ernment interference.The momentum slowed slightly during4Q08, as deposits grew 5.8 per cent duringthe quarter, outpacing the 3.4 per cent in-crease in loans trinnning down LfDratio to a110.4per cent by year end.On the mortgage side, lenders also hit afunding wall, urging them to drop theirloan/value ratio to lower than 60 per centfrom the previous 75 per cent.The problem also sparked talks betweenthe UAEslargeStmortgage lenders (Tamweeland AmlaIr)to merge and apply on a com-bined basis for a banking licence to securefunding for their future operations.With no cheap alternative, banks startedcbasing after deposits by significantly raisingtheir rates to unprecedented levels, such as5.55per cent by ADCBfor three months and5.05 per cent by HSBC on one month de-posits given a minimum balance ofDh25,000, in order to attract customers.Defaults at the same time are going up andeven good customers are starting to default,Sen said. He said although Citibank is in amuch more stressed situation compared tolast year in terms of bad debt, the bank is nev-ertheless in a much better position comparedto other peers because of their "very tight"under writing and credit processes.He said many people have over-leveragedand one of the smart things to do is to havesmart pro-active collections and predictwhich kind of people will default.Sen said have a strong collection team andhaving a tie up with collection agencies inother countries is essential."There should be a focus on collection," hesaid. "In onr case we put our best people incollection. Collection is not an after tl1Oughtbut a hont line strategy."The crisis,Senadded, bas created new cus-tomer needs, which could in turn create newopportunities. TIle job inStability, drop in-come and unprecedcnted loss of confidencefor instance have made people more cautiousin spending."There are new customer needs that arecoming out of the financial crisis. We noticethat card transactions are moving to the ba-sics so perhaps there is opportunity in part-nership with the groceries," Sen said."Investment plans, people now shift fromvet}1high equity rlriven to safer saving pI, us,In loans segment, good customers now wantsmaller and affordable loans, affordable andtbeywant them [loans) restructured so theycan pay them in a longer period of time.""These new needs create new opportuni-ties: Sen added.There is decrease in demand and increase.incompetition. Transaction needs are chang-ing because people are going back to the ba-sicsIil<efood and petrol sothere are opportu-nities to move into this segment of b"sicproducts. IIIinvestments customers want todiversify their businesses. About 70 per ""ntof Mena wealth are kept offshore so there isopportlU1iryin this wherein banks CanhelpCuslOmersmanage tljeir money."Sen presented other "mantras" that willease the crisis. This includes redefining "themarket, segmenting customers differently,redesigning cll"nnels to reach customers, re-newing focus to cross-seJl to existing cus-tomers, reconfiguring product offering, de-veloping risk-based pricing, re-engineeringprocess to drive effjciencyand managing bal-ance sheet and product profitabilit y.ICrCI, India:, second-largest private sectorbank, is also looldng at increasing its branch-es in India from 1,262 in 2008 to 1,400 thisyear and ftU"therincrease it to 2,000 by nextyear, all tl1isby not increasing its capital andoperationalexpenditures. .1.negoal is ambitious considering each ad-ditional branch involves about $150,000(Dh550,000) a year of operational and capi-tal expenditures and usually takes 18monthsto break-even. "This I think is feasible," VVaidy,mathan, ICICI bank Executive Direc-tor and Board Member, said. "There ,uetwoways to do that we aretrying to find ways to re-duce the expenses fromour existingoperarionsand to re-orient the re-sources horn the exist-ing areas of operationsto new growth areas.