1. 2
Oz.O4;O9 'Tbe'lssue ,
04 DIFCreportsfivepercentjumpinregistrations
18 Dubaito startcottontradecentrethismonth
24 Fedexsaysnoplanto layoffemployeesinregion
The Talk,
,.,
Emirates Business 2417 . Tuesday, April 7, 2009
Wehaveseenasix per cent increasein our
revenuesand inour profits
HANS OLBERTZGENERALMANAGER.
EMIRATESPALACE,PO5
Crisisforces
banksback
tobasics
.Financialinstitutionsrefocusonimproving
customerservice. Banksstartsharingbest
practicesonhowto managethecrisis
-
DUBAI Karen Remo-Listana
The economic crisis is forcing retail bankers
to 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 spared
the region and this has created even more
need to address customer service
Rajeev Kakar, EVP and Regional CEO,
Fullerton Financial Holdings, said although
there are several banks in the UAEonly a few
give customers the top priority.
"There are several banks here but very few
are focusing on customers," Kakar, who is
also the Executive Director and CEO of
Dunia Finance, told Emirates Business on
the sidelines of the forum.
"When we researched the market, we
found out that there were so many customers
who were not being served correctly. There
is no focus on customers, especially in the
UAE.The banks are focused on products,"
Hesaid the reality of the Middle East retail
banking business isthat customers are large-
ly ignored.
His comments echo the latest Benchmark-
ing Service Quality Survey for UAE Retail
Banking, which said the continued lack of
improvement in customer service of some
banks has become "alarming".
The study, done by Ethos Consultancy an
independent firm, shows that more than 75
per cent of prospective customers get in
touch with a branch first and then move on
to 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 0 600
declined in the past fewyears.
Gary Mond, Head of Retail Banking at
Mashreq in Qatar, added: "In my experience,
sales increase by merely focusing and listen-
ing to customers... Youcan flood people with
offers but what really matters is the quality
of offering and how the banks treat cus-
tomers as a person."
One good thing about the crisis is that tlte
bal1king industry has been forced to share
best practices on how to manage the crisis.
Sundar Parthasarathy, SVP and Head of
Retail Assets, ADCB, said: "People have
recognised that there is an issue. How do we
manage it collectively? That's what we are
doing," he told tltis newspaper. "Customer
service is very important because what we
have seen in the case ofreal estate, as we talk
to developers, is that you have to be patient.
"Transaction needs are
changing because
people are going back
to the basics like food
and petrol
SanjoySen,Citibank
.RETAILBANKING
mUAEbanks P/E(O9)versusemerging markets
0 1 2
Russia__I
UnionNationalBank---
Turkey----FirstGuUBank----
- Emergingmarkets
fill UAE banks
DubaiIslamicBank----
EnriralesNBD-----
CommercialBankofDubai-----
NationalBankofAbuDhabi-----
AbuDhabiCommercialBank 1
Oman------.
"".-,~,
Qatar
f<>ypt
Abu Dhabi Islamic Bank
Kuwait
Bahrain
Saucli Arabia
m UAE'saggregateloansanddeposits lQO7-4QO8
1.200
1.000
. Loans
.. Deposits.
_LID
800
II-III
400
200
Mar'O?Jun'O? Sep'07 Dec'O?
Youhave to understand the customer's needs
otherwise he would go to other channels,"
"1 heard this topic of cross-sell but what
happened in other markets is Ihat banks only
looked at the figure without actually realis.
in?;whether that customer needs that prod-
uct. And then what happens? In this critical
time, that cnstomer defaults and he'll say,
'well 1didn't go to the bank proactively. You
guys went after me so why are you guys
blaming me now?'"
Kakar said the crisis was primarily caused
by the decline in values.
He said there was been a beliefthat growth
is only a quantitative phenomenon, which
instead 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; this
year and next year would be characterised
by expensive credit, shortage ofliquidity and
lower 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%
Mar'08 Jun'08 Sep'08 Dee'08
tomer, prudence in lending, closely monitor.
ing and tracking customer behaviour and re.
spectin?; money and risk."
Currently, the region's retail banks are
under "serious stress" due to the crisisofcon-
fidence brought by the credit crunch, Sanioy
Sen, Conmry BusinessManager, Global Con-
sumer Group at Citibank.
He said the growing bad debt isbeginning
to creep into many businesses such as cars,
personal loans and mortgage creating un-
precedented stress inbanks portfolio. "l1lere
has been the destruction of financial institu-
tions in unprecedented scale," he said.
The region, he said, has not been insulated
in the crisis as evidenced by the drastic is
drop 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, job
losses. Retail banks are now facing serious
chaJlenges, 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

2. Tuesday, April 7, 2009 . EmIrates Business 2417
3
OIL(Brentcrude)
j
DIRHAM/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 9MO8
spending, has led to the shrinkage of good
assets. "Banks used to have high concentra-
tion on some specific sectors such astourism
and real estate and there has been an un-
precedented correction in real estate prices
and we know that there are many banks here
that 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 UAE's
banks' total exposure to sub-prime mort-
gages is limited to a negligible ratio ofl_2 per
1000 exposure.
However, the banking system could not es-
cape the aftermath of a dried up interbank
market, a collapse in capital markets, as well
as the banks' own funding constraints on the
deposits side. Higllinflation across the board
within 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 in
loans and londly annonncing the existence
of a severe liquidiry problem within the UAE
banking system and an urgent need for gov-
ernment interference.
The momentum slowed slightly during
4Q08, as deposits grew 5.8 per cent during
the quarter, outpacing the 3.4 per cent in-
crease in loans trinnning down LfDratio to a
110.4per cent by year end.
On the mortgage side, lenders also hit a
funding wall, urging them to drop their
loan/value ratio to lower than 60 per cent
from the previous 75 per cent.
The problem also sparked talks between
the UAE'slargeStmortgage lenders (Tamweel
and AmlaIr)to merge and apply on a com-
bined basis for a banking licence to secure
funding for their future operations.
With no cheap alternative, banks started
cbasing after deposits by significantly raising
their rates to unprecedented levels, such as
5.55per cent by ADCBfor three months and
5.05 per cent by HSBC on one month de-
posits given a minimum balance of
Dh25,000, in order to attract customers.
Defaults at the same time are going up and
even good customers are starting to default,
Sen said. He said although Citibank is in a
much more stressed situation compared to
last year in terms of bad debt, the bank is nev-
ertheless in a much better position compared
to other peers because of their "very tight"
under writing and credit processes.
He said many people have over-leveraged
and one of the smart things to do is to have
smart pro-active collections and predict
which kind of people will default.
Sen said have a strong collection team and
having a tie up with collection agencies in
other countries is essential.
"There should be a focus on collection," he
said. "In onr case we put our best people in
collection. Collection is not an after tl1Ought
but a hont line strategy."
The crisis,Senadded, bas created new cus-
tomer needs, which could in turn create new
opportunities. TIle job inStability, drop in-
come and unprecedcnted loss of confidence
for instance have made people more cautious
in spending.
"There are new customer needs that are
coming out of the financial crisis. We notice
that 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 from
vet}1high equity rlriven to safer saving pI, us,
In loans segment, good customers now want
smaller and affordable loans, affordable and
tbeywant them [loans) restructured so they
can 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"sic
products. IIIinvestments customers want to
diversify their businesses. About 70 per ""nt
of Mena wealth are kept offshore so there is
opportlU1iryin this wherein banks Canhelp
CuslOmersmanage tljeir money."
Sen presented other "mantras" that will
ease the crisis. This includes redefining "the
market, 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-engineering
process to drive effjciencyand managing bal-
ance sheet and product profitabilit y.
ICrCI, India:, second-largest private sector
bank, is also looldng at increasing its branch-
es in India from 1,262 in 2008 to 1,400 this
year and ftU"therincrease it to 2,000 by next
year, all tl1isby not increasing its capital and
operationalexpenditures. .
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 18months
to break-even. "This I think is feasible," V
Vaidy,mathan, ICICI bank Executive Direc-
tor and Board Member, said. "There ,u'etwo
ways to do that we are
trying to find ways to re-
duce the expenses from
our existingoperarions
and to re-orient the re-
sources horn the exist-
ing areas of operations
to new growth areas.