Headquartered in Bahrain, owned 59.4% by the Central Bank of Libya (CBL) and with Egypt and Tunisia counting as two out of the group’s four MENA countries, the odds back in 2011 seemed stacked against Arab Banking Corporation B.S.C (ABC). First Tunisia, then Egypt fell into the clutches of revolution as the year got underway with a bang, while protests and civil unrest swept Manama, Bahrain’s capital and the global head function of ABC. Adding fuel to the fire, protests that took hold in Benghazi on 15 February precipitated civil unrest and violent conflict in the oil-rich state of Libya, eventually toppling the intransigent Gaddafi regime after a six-month struggle. While no direct sanctions were imposed on ABC or its subsidiaries as the crisis unfolded, deposits sourced from the group’s largest shareholder were frozen. Political and economic adversities across Europe also combined to create what president and chief executive of Arab Banking Corporation, Hassan Ali Juma, describes as “an exceptionally challenging year.” But as 2011 drew to a close, the tale for ABC was not one of tragedy, but resilience and strength, with a 43% increase in group net profits to prove it.
Against all odds, the ABC Group, established in 1980 and listed on the Bahrain Bourse, recorded a financial performance for 2011 that topped the previous year on most counts, with net profits reaching $204 million, up from $143 million the year before and total operating income of $818 million exceeding 2010’s figure of $719 million. With a network spread over 21 countries across the Arab world, Europe, South America and Asia, geographical diversification seems to have paid off; a view shared by ABC’s president, “our robust financial base and geographic diversification was a source of strength during 2011.”
In particular, the group’s subsidiary in Brazil, Banco ABC Brasil, helped compensate for the turmoil that plagued its interest in other locations, achieving net profits of $137.6 million and revenues of $390 million. But even amidst crisis, ABC’s Europe and MENA operations fared comparatively well too; ABC International Bank (Europe) based in London, ABC Jordan and ABC Algeria all recorded growth in revenues and net profits—albeit modest—while in Egypt, operations continued virtually unhindered. Though the group’s planned transformation in the country halted as the government fell into disarray, rapid action to secure Egypt’s 28 branches, including a targeted marketing campaign and measures to secure liquidity boosted by investment in Egyptian treasury bills led to an increase in revenues to $40.7 million compared to $34.1 million in 2010 along with profit growth to $5.3 million from $4 million the year before. Only ABC Tunisie saw a drop in profits as the challenging landscape in the country that triggered the Arab Spring led to a decline in business.
While Juma’s strong leadership during the crisis undoubtedly helped ABC through 2011 relatively unscathed, from the outset the group’s financial involvement in the Arab Spring countries was limited, restricting the impact of regional turmoil on ABC’s financial portfolio. In fact, according to Morris Helal, senior credit analyst at the international credit rating agency, Capital Intelligence (CI), improvements across asset quality, capital adequacy, funding and profitability were down to the fact that exposures to Bahrain, Libya, Egypt and Tunisia remained low as a proportion of the bank’s consolidated balance sheet, along with ABC’s well-diversified risk assets across geographies. Expanding on Helal’s first point, Goksenin Karagoez, banking analyst at Standard & Poor’s, explains, “with regards to the Middle East, namely Egypt and Tunisia, the group had only $250 million in loans (2% of its gross loans) in these two countries. ABC’s Libyan credit exposure is limited to lower-risk trade finance-related activities, and to a large extent covered by its Libyan deposits.”
Nevertheless, the financial standing of Juma’s banking group was not untouched by the events of 2011, as total assets dropped to $25,015 million compared to $28,105 million the year before. Unmoved by this development, the president-chief executive attributes the decline in assets in part to his solid financial strategy, “ABC continues its policy of de-risking and deleveraging its balance sheet, which resulted in a reduction in our asset base in 2011” he remarks. Furthermore, although total assets may have declined, CI explains that ABC’s quality remains sound as shown by a marginal decline in non-performing loans and more than full loan-loss reserve coverage. In April 2012 CI also restored ABC’s Long-Term Foreign Currency rating to ‘Stable’ from ‘Negative,’ with Long- and Short-Term ratings at ‘BBB+’ and ‘A2’, respectively, following the removal of asset freezes on CBL.
Accounting for his success in one of the most challenging years in the bank’s history, the Bahraini, who presviously served as chief executive and later managing director of National Bank of Bahrain, cites a focus on tightening lending activities, safeguarding liquidity, and enhanced customer relations as central elements to ensuring stability. And though conceding that some business lines were affected due to compliance with international sanctions, Juma remains defiant. “The unrest in Tunisia, Egypt and Bahrain provided a good test of our Business Continuity Planning, which ensured that operations continued uninterrupted throughout the crisis period.” Even in Libya with CBL deposits temporarily frozen, the banker explains that he was able to rapidly restore market confidence. In fact, Juma perceives Libya not as an issue to be overcome, but one that presents a wealth of opportunity, “we are constantly reviewing our position in Libya…Libya remains a pivotal country for ABC growth, due to the significant opportunities in the market place post-regime change.”
With not only Libya but also Egypt and Tunisia starting to get back on their feet, Juma’s strategy for the year ahead is well underway with a continued commitment to driving the group’s international wholesale banking products across the network—an understandable move given that, according to Karagoez, ABC’s overall financial and business profiles have been propped up by its wholesale lending business. In addition, growth of ABC’s MENA subsidiaries with a focus on retail banking across the region’s 77 branches is a priority as the president looks to transform ABC from a largely offshore international wholesale bank to an onshore universal bank.
Global trade finance, optimization of credit, and expansion of products and geographies also feature strongly in Juma’s strategy as ABC tackles the future head on, but despite expansion plans, the same strongholds that saw the group safely through the trials of 2011 remain central. “Our subsidiaries in London and Brazil remain key strategic assets, offering geographic diversification as well as strong financial returns,” he asserts. In fact, despite ABC’s name, South America is one of the driving forces behind its recent success. “On the back of ABC Brazil’s strong performance in recent years, profitability [of the group] at both the operating and net levels has continued to recover,” adds Helal. Building on this success, Banco ABC Brasil which is 58% owned by ABC Group is working closely with its Arab counterparts, with the Brazilian bank recently launching its MENA trade finance desk in Sao Paolo, which is anticipated to attract increasing cross-border trade.
Turning from the shores of Brazil to the Middle East, the man who has guided ABC safely into 2012 explains that his strategies for the group’s four MENA locations—Egypt, Algeria, Tunisia and Jordan—remain largely the same, with increases in profits and revenues suggesting little need to do otherwise. However, with the challenges of the past year drawing to a close, Juma is looking to reignite his acquisition program that halted abruptly at the beginning of 2011 as chaos descended. “We have now reactivated this [acquisition program], and continue to actively search for transformational targets in the broader MENA region, including Turkey and Libya,” he remarks.
Seemingly unfazed by the unrest that shook the Arab world, ABC’s president remains positive about the future not only of his bank, but the region also, “we are optimistic the MENA region will stabilize, and intend to support the rebuilding of trade in Egypt, Tunisia and Libya.” Nevertheless, even Bahrain’s expert banker is not blind to the challenges that lay ahead, not least in transforming sustained profit growth into business growth in the face of a continuing volatile environment. Despite their limited impact on ABC, Karagoez warns, “the political transition in Libya and the deteriorated political and economic situation in the Middle East, including Bahrain, remain as major downside risks for ABC.” Nevertheless, confident of his ability in this regard, Juma sees potential opportunities emerging from the crisis.
In 2011, as many parts of the Arab world descended into chaos, the odds indeed seemed stacked against ABC with crisis plaguing not only two of its regional territories, but the group’s global head function and main stakeholder too. But in the face of adversity—assets frozen, regional expansion halted and political and economic uncertainty on the rise—ABC’s stoical leader guided his bank through the storm, weathering the worst of it and emerging stronger. Managing to achieve increased profits and revenues under the exceptional circumstances of 2011, one can only wonder how Hassan Ali Juma and his ABC Group will fare in the good times.