The regional power Arab Bank reaches its 90-year milestone this year. Nemeh Sabbagh, CEO, speaks with Global finance on current challenges and opportunities.
Global Finance: Arab Bank, which has built a significant network in one of the world’s most volatile regions, turns 90 this year. How to reconcile risk and growth?
Nemeh Sabbagh: Since its creation in 1930, the bank has developed an in-depth knowledge of the region and its stakeholders. We are deeply rooted in almost all 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 show a very consistent performance, with steady organic growth and sustainable increases in profitability and return on equity.
Arab Bank is built on prudent trade policies, a strong institutional approach and proven and unique cross-border capabilities. The bank also places great emphasis on protecting customer deposits, which makes us a safe haven in times of turbulence. We develop long-term customer relationships 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 earnings growth.
GF: What are the challenges you face today?
Sabbath: The current high level of uncertainty in different parts of our region prolongs and widens the wait-and-see attitude. This slows down private investment and the demand for credit in several areas. Another challenge is the slowdown in global and regional economic growth. The first hopes of recovery in 2020 have now been dashed by the coronavirus. The disruption of trade, travel, tourism and supply chains clearly reduces economic activity, in addition to creating new sources of risk. The financial sector will face lower interest rates, while the long-term impact has yet to be assessed.
A third challenge is the volatility and weakness of oil prices. The oil-exporting economies account for more than three-quarters of the Arab world’s GDP, and the region’s oil-importing economies have important investment, trade, tourism, and financial links with oil-exporting countries. Managing the higher fiscal and external deficits due to low oil prices will have direct implications for non-oil growth, private investment, credit demand and financial sector liquidity in the region.
GF: Where do you see the best regional growth opportunities for 2020?
Sabbath: The region offers various growth opportunities within core businesses, including corporate banking, consumer banking and SMEs. [small and medium-size enterprises], especially in key markets. The possible resumption of intraregional or international trade also represents an important growth opportunity for trade finance. In addition, banks could play an important role in providing financial services for the increasingly important public-private partnerships for the provision of public infrastructure, or in supporting privatization efforts. Arab Bank has been a regional pioneer in providing financial services for renewable energy projects, and is currently well positioned to finance this growing sector.
Another important growth opportunity stems from the low penetration rates of financial services in the region. While financial systems are relatively developed in the Gulf Cooperation Council countries, less than half of adults in other Arab countries have an account with a financial institution. Central banks and governments in many of these countries have developed or are developing financial inclusion strategies to improve financial literacy, increase financial penetration, and expand SMEs’ access to financial services, including credit.
GF: Tell us about the fintech accelerator you launched in 2018.
Sabbath: AB Accelerator was launched to increase Arab Bank’s innovation rate by identifying early stage tech startups and collaborating with them through funding, mentoring and testing their solutions with our customers and markets through proof concept. So far, our business units have collaborated with more than 50 startups. We want to focus on technology that accelerates our digital transformation and makes it easier to create frictionless digital experiences for our customers. We also focus on technology that helps us maintain high standards of protection for our clients and their assets.