Regional powerhouse Arab Bank reaches its 90-year milestone this year. Nemeh Sabbagh, CEO, talks to Global Finance about current challenges and opportunities.
Global Finance: Arab Bank, which has built a sizable network in one of the world’s most unstable regions, is turning 90 this year. How do you balance risk and growth?
Nemeh Sabbagh: Since its establishment in 1930, the bank has developed a deep understanding of the region and its stakeholders. We are deeply rooted across almost all the Arab countries, where we operate as a local bank as opposed to a branch of a foreign bank. Our operating environment faces complex challenges, risks and opportunities. Arab Bank continues to deliver a very consistent performance, with steady organic growth and sustainable increases in profitability and return on equity.
Arab Bank relies on prudent business policies, a sound institutional approach and proven and unique cross-border capabilities. The bank also has a primary focus on safeguarding customer deposits, making us a flight-to-safety bank during turbulent times. We develop long-term customer relations while serving the local communities in which we operate. Arab Bank emphasizes high levels of liquidity and capital adequacy, strong risk-management and compliance frameworks, good portfolio quality and sustainable growth in profits.
GF: What are the challenges you face today?
Sabbagh: The current high level of uncertainty simultaneously across different parts of our region is prolonging and broadening a wait-and-see attitude. This is slowing private investment and demand for credit in several areas. Another challenge is the slowdown in global and regional economic growth. Early hopes for a recovery in 2020 are now being dashed by the coronavirus. The disruption in trade, travel, tourism and supply chains is clearly reducing economic activity, in addition to creating new risk sources. The financial sector will be facing lower interest rates, while the long-term impact is yet to be assessed.
A third challenge is volatile and low oil prices. Oil-exporting economies account for over three-quarters of the Arab world’s GDP, and the region’s oil-importing economies have significant investment, trade, tourism and financing links with the oil-exporting countries. The management of higher fiscal and external deficits from low oil prices will have direct implications for non-oil growth, private investment, credit demand and liquidity in the financial sector across the region.
GF: Where do you see the best regional growth opportunities for 2020?
Sabbagh: The region offers various growth opportunities within core business lines, including corporate banking, consumer banking and SMEs [small and medium-size enterprises], especially in key markets. The possible recovery in intraregional or international trade also represents a sizable growth opportunity for trade finance. Moreover, banks could play an important role in providing financial services for the increasingly important public-private partnerships for the provision of public infrastructure, or supporting privatization efforts. Arab Bank has been a pioneer regionally in providing financial services for renewable energy projects, and is currently well-positioned for financing this rapidly expanding sector.
Another important growth opportunity arises from the region’s low rates of financial services penetration. While the financial systems are relatively developed in the Gulf Cooperation Council countries, less than half the adults in other Arab countries have an account at a financial institution. Central banks and governments in many of these countries have developed, or are in the process of developing, financial inclusion strategies to improve financial literacy, increase financial penetration and expand the access of SMEs to financial services, including credit.
GF: Tell us about the fintech accelerator you launched in 2018.
Sabbagh: AB Accelerator was launched to boost Arab Bank’s innovation rate by identifying early-stage technology startups and collaborating with them through funding, mentoring and testing their solutions with our customers and markets through a proof-of-concept. So far, our business units have engaged with over 50 startups. We are keen to focus on technology that accelerates our digital transformation and facilitates the creation of frictionless digital experiences for our customers. We also focus on technology that helps us maintain high standards of protection for our customers and their assets.