TBI: Harnessing collaborative opportunities

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In an exclusive interview, Faisal Al Haimus, Chairman & President of Trade Bank of Iraq, takes a deep dive into the crucial role that Trade Bank of Iraq plays in the country’s financial landscape, and unearths budding opportunities within the Iraqi economy.

editor's pickTuesday 18, December 2018

How has the year been for Trade Bank of Iraq thus far?

Trade Bank of Iraq (TBI) is the most profitable and wellcapitalised bank in the Republic of Iraq. The bank grows from strength to strength each year, and this year has been no exception. In line with the Iraq’s national strategy to improve the power infrastructure, TBI issued letters of credit (LCs) to Siemens worth EUR 105 million. Another feather in the cap was a five-year funding arrangement with Euler Hermes, a German export credit agency, for EUR 100 million under which Commerzbank would fund LCs for German and European exporters.

On the retail banking front, TBI had a healthy 56 per cent growth in the number of accounts since 2017 and continues to attract new customers through innovative products and state of the art services. Additionally, to empower women in the country, a woman-only branch was also introduced this year to exclusively serve the female population. TBI was also the first Bank to launch the Dananeer Fund, in association with DIFC-based Alpen Capital.

The fund is a bespoke US dollar mutual fund for both local and regional investors. The bank also had a strong performance this year with an increase in bottom line figures while maintaining healthy liquidity ratios. Throughout the year, we continue to be recognised with various awards and accolades, including Best Trade Finance Bank and Banker of the Year awards by Banker Middle East.

 What are your views on the development of the financial sector in Iraq?

The restructuring of the banking system in Iraq has had positive results not only in terms of numbers, but also towards the general perception of the role and potential that the industry has on the country’s economic growth. TBI is a leader in banking and trade finance, and has made tremendous strides in the last two years with its strategy deeply aligned to the vision of the Republic of Iraq and its nationals.

To rapidly move ahead towards a reform for the banking sector, the mindset of the population needs to change as the traditional way of holding money as physical cash/asset is a real challenge for the industry. In addition, there should be no restrictions on the government and state-owned agencies including their employees in dealing with private sector banks to create a competitive playing field.

Going forward, the financial system will need to continuously evolve and adapt to areas of organisational structure, IT infrastructure, risk management and banking supervision. Increasing the dialogue between the Iraqi authorities and the banking system, as well as introducing best practises in terms of human resources, audit framework, accounting and performance is vital for the sustainability and solidity of this sector.

TBI constantly engages in dialogue with decision-making authorities and adopts best practises to continuously create new benchmarks in products and services, essentially raising the bar for itself and its peers. TBI’s involvement as a co-arranger in the launch of the Republic of Iraq’s sovereign $1 billion bond issuance in 2017 and proposing hedging solution to the Ministry of Oil are amongst a number of forward-direction initiatives undertaken by the bank.

In your opinion, what are the biggest challenges for banks right now?

For banks around the world there are a number of challenges which include, demanding regulations, legacy systems, disruptive models and technologies, new competitors and an often-restive customer base with ever-higher expectations. Therefore, banks need to be focused on accelerating their transformation into more strategically minded, digitally connected, and operationally agile institutions to be better equipped to maintain market leadership and continuity in a rapidly evolving ecosystem.

The banking industry, like many other industries, is poised to experience unprecedented change as it moves towards a digital industry. While most bankers have already begun to embrace a digital landscape, the future of banking will include a number of new ideas and methods for accomplishing tasks on a grander scale; and perhaps most importantly, changing customer dynamics will be at the forefront of this transformation.

Today’s average banking consumer expects more, demands faster service and expects better results. Banks that are unable to compete with or meet these demands to improving customer retention will likely struggle to remain viable in the long term. Fintech companies use software to provide financial services and are gaining popularity and disrupting the way traditional banking is done.

This creates a big challenge for traditional banks because they require swift adjustment to these changes—not just in technology— but also in operations, culture, and other facets of the industry. Banks can learn from fintech firms, which have set a new benchmark in exceeding customer expectations in financial services. However, even though financial institutions are likely to maintain their dominance due to their scale of operations and regulatory compliance, they still need to be aware of the need to rapidly change.

Meanwhile, regulations continue to be more stringent and banks are forced to re-think traditional strategies and instead spend a large part of their discretionary budget on being compliant and building systems and processes to keep up. Basel III regulations which are being made mandatory, are restrictive and controlling leading to requirements of higher capital, extra provisioning and stressing liquidity.

At the end of the day, despite the headlines about banking profitability, the fast-changing landscape in the financial environment does not allow banks and financial institutions to achieve adequate return on investment or return on equity that shareholders demand.

What are your projections on the MENA market for 2019?

The outlook for growth in MENA is expected to improve slightly to an average of 2.8 per cent in 2019 and 2020 propelled by steady growth in private consumption, infrastructure and investment programmes. After a 1.6 per cent growth in 2017, this year has fared much better as oil producers benefit from firmer oil prices and implementation of revenue-enhancing measures, such as VAT and energy subsidy reforms. Risks to the outlook are diverse; key downside risks include renewed volatility in oil prices, an intensification of geopolitical tensions, and a slowerthan- expected pace of reforms. However, fav able spillovers from stronger than expected activity in key trading partners and recovery in war-torn areas are positive factors that cannot be ruled out.

Domestic reforms to increase revenues and contain public spending, such as in Saudi Arabia, will also contribute to overall growth in the region. Meanwhile oil importers are expected to benefit from reforms to manage public expenditures, rising trade internationally and financial inflows from MENA oil exporters. Egypt’s growth is expected to reach 5.8 per cent in 2020 driven by a reform programme that has included the liberalisation of the exchange rate, rationalised energy subsidies, and increased social protection for the poor.

Overall, many countries in the MENA region are pursuing broad-based reforms that should eventually improve productivity, though growth continues to be challenged by geopolitical tensions and fiscal adjustment. Amongst the oil producing countries in the region, Iraq stands out as having tremendous potential for growth given its mega oil reserves. In combination with its young population, the country has the right dynamics of propelling itself into a major economic powerhouse.

This is clearly a great opportunity for investments by sovereigns, institutions and the private sector, both regional and global. The young demographics in the MENA region is seen as an opportunity as these countries possess all the ingredients they need to leapfrog into the digital future.

To accelerate growth and create jobs for millions of unemployed youth, MENA countries need to pursue and develop a digital economy that leverages its young and educated workforce rather than the traditional path of reliance on manufacturing and exports. Other opportunities of growth are in areas of urban investments, improved transport connectivity, shift towards preventive healthcare and rise of new competition.

Looking to the future, what would you say is the biggest threat to financial institutions?

Cybersecurity continues to be a primary risk focus for financial institutions. With more technology upgrades and workflow changes to implement and monitor each year, banks need to be extra vigilant to avoid creating new entry points for cybercrimes. With all the data breaches and cyberattacks that the financial sector has suffered recently, it is no surprise that cybersecurity is now seen as the top concern.

With banks’ increasing reliance on third parties, downstream risks are becoming a larger issue. Third-party risks do not stop with the primary partner and it is indeed difficult to follow the trail far enough to ensure that proper security measures are in place through the entire chain.

How has TBI grown in the Middle East and what are the company’s plans moving forward?

The Trade Bank of Iraq is growing organically within the country and is looking to establish itself within the Middle East. Domestically, TBI has 25 branches and is looking to expand significantly. In the region, TBI has already launched a representative office in UAE at the Abu Dhabi Global Markets and is presently upgrading its licence to conduct asset management business. TBI plans to open a full branch in Saudi Arabia early next year to facilitate trade and corporate finance business in addition to correspondent banking services. Going forward, there are other expansion plans in the region either through acquisitions or banking licences.

How do you envision banking and finance in the next five years?

 In the coming years, we expect a lot more mergers in the local and regional markets as regulatory capital becomes increasingly scarce. Small to medium sized banks have little option but to consolidate in order to be able to conduct business given the stringent regulations and accounting standards that needs to be complied with.

On the trade finance side, as importers and exporters become more sophisticated in their demands, their trade business will flow to banks that can offer innovative and better integrated trade finance solutions and clearly those banks able to deliver such results, while containing costs, will protect and grow their revenue stream. Trade finance banks will need to have the capability to work within multiple time zones and currencies and have on-the-ground experience of their markets and counterparts to be able to offer seamless transactions through the use of the latest technologies, including blockchain.

More importantly, banks will need to keep abreast of the developments in the fintech industry which is evolving with the latest technologies encroaching upon established markets leading with customer friendly solutions developed from the ground up and unencumbered by legacy systems.

Meanwhile, customers have had their expectations set by other industries—they are now demanding better services, seamless experiences regardless of channel, and more value for their money. It is therefore imperative for banks to move away from their traditional mode and swiftly embrace technology that cater to new channels such as mobile technology and digital-only banks and the usage of biometric technologies, blockchain and artificial intelligence to cater to the behavioural pattern of customer’s requirement of product and services.

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