Middle Eastern Awards for Excellence 2013: By country

Bahrain

Best Bank: Ahli United Bank

Although the Bahraini economy continues to struggle with political instability, its banking system is faring remarkably well. And within that, Ahli United Bank continued to perform strongly, to win this award once again.

The bank booked its highest-ever net profits in 2012, $335.7 million, up 8% on the previous year, with a strong performance across the corporate, retail and private banking segments.

There was consistent growth across all the main metrics, including total assets, loans and advances, and customer deposits. It is already the largest bank in Bahrain. But in most areas it outperformed its closest peer, Arab Banking Corporation.

Ahli United maintains a conservative non-performing loans coverage ratio of 150%, a figure that was prudently increased from the 135% figure in 2011 despite a slight reduction in the value of non-performing loans during the year.

Unusually, Ahli United has a higher credit rating than the sovereign, which adds to the sense of robust stability.

The strong performance has been maintained in the first quarter of this year, when Ahli United made a net profit of $309.8 million. That figure included a one-off gain of $212.9 million from the sale of its 29% stake in Ahli Bank Qatar, but even excluding this, profits were up 12% on the first quarter of last year.

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Egypt

Best Bank: Commercial International Bank

It hasn’t been the easiest year in Egypt, and many of the big foreign-owned names have sold their local banks to Gulf suitors. But one local bank has succeeded in delivering a record year on numerous metrics: Commercial International Bank.

“CIB has the best corporate franchise in the country,” says a fund manager who holds the stock. “I first invested in this bank back in the mid-1990s and it has consistently added value for shareholders over the long term.”

CIB’s 2012 consolidated net income, at £E2.23 billion ($319.3 million), was up 38% year on year, with standalone revenues up 36%. Return on average equity was 22.68%, with deposits, net interest margins and total assets all up. Yet non-performing loans, in a grim environment, stood at just 3.63%, among the lowest in the sector.

CIB has achieved this through a combination of conservatism and smart moves, rebalancing the loan book, stepping into areas vacated by retreating foreigners, and focusing on consumer banking and bancassuarance alongside traditional institutional leadership.

Notably, its investment banking arm, CI Capital, is also improving, and was lead manager on the first Egyptian ECM transaction since the financial crisis, for Housing and Development Bank, as well as advising Arafa Holding on its sale of a stake in local business Concrete.

Moreover, whatever challenges Egypt’s banking system has suffered in recent years, it still boasts, in EFG Hermes, one of the region’s finest home-grown investment banks.

This bank is among the Arab world’s leaders in M&A advisory and equity fund-raising. Within Egypt, EFG was financial adviser to Al Mokhtabar on its merger with Al Borg Laboratories, owned by Abraaj Capital, creating a new medical diagnostics business, Integrated Diagnostics Holdings.

EFG also stepped in to raise $462 million of equity for the Egyptian Refining Company’s $2.6 billion project financing. The capital-raising, through private placement to Qatar Petroleum and InfraMed, played a vital role in filling an equity gap for this landmark project, which should reduce Egypt’s diesel import needs by half.

Other important deals by EFG Hermes included advising Japan Tobacco on its acquisition of Al Nakhla Tobacco, and handling an equity-raising for Wadi Degla Investments.

Israel

Best Bank: Bank Hapoalim
Best Investment Bank: Goldman Sachs

Best Bank: Arab Bank

Particularly in retail and Islamic banking, new international group-wide improvements at Arab Bank also took place in its home market, one it continues to dominate.

Greater custom from individual Jordanians has been won both within Jordan and in Gulf cities such as Dubai, where many Jordanians work – places, in addition, where Arab Bank has existing operations to use and improve.

Group-wide, the proportion of Arab bank’s net interest income gleaned from retail increased rapidly over the period, if from a very low base. Jordan played a key part in that, partly thanks to a revamp of its youth-oriented service.

During the period, in addition to a new account designed for young professionals and entrepreneurs, Arab Bank launched a new specialized unit for funding small and medium-sized businesses (a relatively new area for the bank).

As priorities on the corporate side, the bank added to its service in cash and risk management, as well as in trade finance – including through more effective use of technology and new staff hires in these areas.

Overall, Arab Bank posted an increase of net profit of 15% in 2012. It also increased its bad-debt-coverage – more reason why Arab Bank’s potential for profitability should be realized to a greater extent in coming years.

Finally, Arab Bank often overshadows Jordan’s second-biggest bank. Despite the adverse impact of its Syrian franchise, Housing Bank for Trade & Finance, which is 35% owned by Qatar National Bank, grew net profits by 5% in 2012.

HBTF deserves mention, not least for a new trade finance agreement with the European Bank for Reconstruction and Development, which installed itself in Jordan subsequent to the Arab Spring.

Best Bank: National Bank of Kuwait
Best investment bank: Markaz

The crisis in Kuwait’s investment companies was a sideshow to the 2008 global financial crisis, with serious local consequences. But in Kuwait, as in other Gulf markets, banks that encountered difficulties after 2008 have begun to recover.

The pre-eminent example is Gulf Bank, which the authorities put on life support in 2008 after currency derivatives losses. Gulf Bank’s success in clearing up its balance sheet was reflected this year in another upgrade by Standard & Poor’s.

Meanwhile, Kuwait Finance House, one of the world’s biggest Islamic banks, is undergoing a two-year restructuring, including technology upgrades and investments in staff. KFH is also due to benefit from a 20% capital increase.

The rise of Burgan Bank continues to impress. Its acquisition of Turkey’s Eurobank Tekfen made headlines. Eduardo Eguren, CEO since 2010, has bolstered Burgan’s position in local corporates and especially consumer finance.

Still, it is unlikely Eguren, who previously occupied senior positions at Barclays and Citi, would have been able to post the kind of growth he has managed at Burgan in Kuwait in a much bigger bank, such as the winner of this award.

Having passed through the crisis relatively unscathed, in recent years National Bank of Kuwait has accounted for around half of sector profits in Kuwait. It also enjoys the country’s highest credit rating.

Despite domestic political conflict having derailed the implementation of large-scale local developmental projects, NBK has continued to pick up opportunities, with Kuwaiti retail banking being a prime example.

Similarly, NBK is establishing a platform for Islamic banking in Boubyan Bank, in which it raised its stake to 58%. NBK Capital completes the picture, not just in asset management and brokerage, but also in investment banking advisory.

Yet an investment bank unaffiliated to Kuwait’s dominant commercial bank deserves to be recognized too. Above all, Markaz has stood out for its role in clearing up the aftermath of the investment companies crisis.

Markaz has advised both borrowers and creditors, assisting in 11 restructurings since 2010. It has helped family offices exit non-core investments, and advised others on new acquisition opportunities.

Among other debt mandates, Markaz managed KD26.5 million ($95 million) in bonds for Al Argan International Real Estate Company. It also helped develop the local derivatives market, working with the exchange on rules and regulations.

The Arab Spring, and above all the prolonged conflict in Syria, has hit Lebanon’s banking sector hard.

Central bank governor Riad Salameh told Euromoney late last year that provisions against Syria operations would trim around 20 percentage points off Lebanese banks’ potential group profit growth for 2012.

The cataclysm on Lebanon’s borders – along with its effect on the domestic political situation – has also further cut expansion opportunities for local banks in such areas as tourism and real estate within Lebanon.

In a situation like this, a lower cost base can be an advantage – and that is something Blom Bank has long enjoyed over rival Audi. This is not say the management of Audi and the other top Lebanese banks’ have gone awry.

Audi has won the award for best bank in Lebanon for each of the past four years. However, the situation in Lebanon over the past year has arguably vindicated Blom’s strategy to a greater extent than previously.

Blom also deserves to be recognized for stepping up efforts on the retail side in Lebanon, including via social media. Blom’s Facebook page had over 90,000 endorsements by the end of the first quarter this year. That is a bit of fun that might lead to a bit more profit for CEO Saad Azhari and his friends.

Audi’s wins of the past four years were extremely well deserved. But Blom was always an excruciatingly close second and, over the past year, Blom’s net profit in Lebanon has appeared more consistent: 2012 Lebanon-only profit dropped only 2% at Blom compared with a 9% drop at Audi, for example.

On the international stage, Audi is expanding rapidly in Turkey. But up to now, leaving aside currency fluctuations, this has been another drag on earnings for the bank. Time will tell on Turkey for Audi.

All in all, the Arab Spring has added another captivating chapter to Lebanese banking.

A growing economy is boosting banks in Oman, but one continues to dominate. Bank Muscat remains by far the largest bank in the country, with 38% of total banking assets and 40% of the loans.

On both of these measures it is around three times the size of its nearest competitors, National Bank of Oman and HSBC Oman.

During the year, Bank Muscat launched a new banking package for younger customers and a mobile banking app. It also restructured its corporate banking group and had a record year in terms of investment banking fees and closed transactions, raising more than $1.45 billion of debt and equity during 2012.

There have been some hiccups. The bank reported a 25% drop in net profits for the first quarter of the year, after some pre-paid travel cards were hit by fraud, leading to a provision of OR15 million ($39 million).

Rivals are starting to pose more of a challenge. National Bank of Oman posted higher growth in deposits and profits in the past year, although it is still rated at a lower level by the main ratings agencies.

HSBC Oman also now offers a more potent threat following its merger with Oman International Bank.

The potential for the market remains strong. Oil continues to be a lucrative revenue stream for the country while government spending, particularly on infrastructure and industrial development, is the engine of the economic diversification.

There are 18 banks operating in the small Palestinian market, eight of them local and the rest international, mainly from Jordan. Among that crowded field, however, one bank continues to stand out.

Bank of Palestine is the largest bank in Palestine and one of the largest companies on the Palestine Exchange, accounting for around 14% of market capitalization.

Bank of Palestine is the clear leader in almost every area, with 24% of the loans market and 21% of deposits. Its physical presence encompasses 48 branches and 100 ATMs, more than any other in the territory. It also has the only card-processing operation.

In 2012, Bank of Palestine opened two more branches and started offering mortgages and a children’s savings account. Net profits rose by 13% to $38.4 million for the year and total assets were up 21% to $2 billion.

In December, Bank of Palestine was boosted by a buy recommendation from Dubai broker Rasmala, one of the few to cover the stock.

There was an important development in the rest of the market in 2012, when two smaller banks, Alrafah Microfinance Bank and The Arab Palestinian Bank For Investment, decided to merge, renaming themselves The National Bank.

That deal was prompted by the Palestine Monetary Authority’s insistence that banks in the territory maintain a minimum core capital ratio of $50 million, another potential catalyst for the market.

Although The National Bank is far smaller than Bank of Palestine, it will be worth keeping an eye on it to see what sort of competitive threat it can present in the future.

Much as other local banks might wish it were different, Qatar National Bank (QNB) is in a league of its own in Qatar. It dominates the most important sources of business.

The result is that the other banks in Qatar are forced to turn towards less attractive clients, which reduces their relative profit margins. Even regionally, QNB seems to take the more attractive acquisitions feasible for Qatari banks.

Indeed, after the $2 billion acquisition in late March of NSGB, Société Générale’s Egyptian unit, it seems increasingly likely that QNB will emerge as the best regional bank.

NSGB won the award for best bank in Egypt last year, so the deal might well bring value to QNB, as well as geographic diversification and further experience in integrating acquisitions and managing risk.

QNB also increased its stakes in banks in Tunisia and UAE over the period, in addition to entering the Libyan market via a 49% stake in Bank of Commerce and Development.

QNB has already proved capable of maintaining a non-performing loans ratio of just 1.4%, with a bad-debt coverage ratio of 119% in March 2013. In the year to end-March 2013, its total equity jumped 9.3%. Capital adequacy stood at 20.4%.

Total assets increased by 22.2%, taking the bank over the equivalent of $100 billion, as customer deposits also grew 28.2% over the period. In 2012, net profit grew 11.1%, followed with a similar result in the first quarter of 2013.

The Qatar-Egypt story is less happy in investment banking, after the Egyptian regulator failed to approve the acquisition of Egyptian investment bank EFG Hermes by QInvest for unclear reasons.

This should not detract from QInvest’s other steps forward. It remains the region’s most talked-about investment bank, seen as positioning itself as a strong originator in its own right, not just as the government’s add-on to deals.

A key element is the increasing proportion of people with strong experience at global banks: CEO Tamim Hamad Al Kawari, appointed in December, is a former managing director and country head for Qatar at Goldman Sachs.

The new head of investment banking is Michael Katounas, previously a key regional investment banker at Credit Suisse. QInvest also recently hired Nasser Al Mahmoud, previously coverage director at QNB Capital.

QInvest’s list of deals this year is already more impressive than that of any other local firm. In sukuk it was bookrunner for the $4 billion Qatar sovereign sukuk, the biggest-ever dollar sukuk, and for the $750 million Qatar Islamic Bank sukuk.

The bank also arranged syndicated financing facilities for Doha Festival City, Sidra Residential Project and for Al Jazeera Finance. In ECM it is sole offering manager and listing adviser for the local Barwa Bank IPO.

The bank further advised Qatari investors on British and French property buys, and Egyptian energy investments – among many other deals, including the acquisition of India’s Bush Foods, a rice distributor, by Qatari food firm Hassad.

A few large banks battle it out to make the most of the opportunities that this presents, with Al Rajhi Bank and National Commercial Bank the two largest, based on their loan books, total assets, customer deposits and other metrics.

But when it comes to profitability, Al Rajhi Bank is the clear market leader. In 2012 the bank made a net profit of SR7.9 billion ($2.1 billion), a rise of 7% on the previous year.

That is all the more impressive considering what happened during the year. Al Rajhi had to battle against potentially damaging negative publicity in July 2012, when a US Senate report alleged that the bank had links to terrorist financing.

Those allegations were firmly rejected by the bank, which had to expend a good deal of effort to reassure its relationship banks in the US, Europe and Asia.

On the flipside, the bank’s confidence in the future was highlighted by the move, in November, to award a SR617 million contract to a consortium led by South Korea’s Samsung C & T to build a new 37-storey tower in Riyadh, close to the King Abdullah Financial District. That building is due to be completed in 2015 and will become the bank’s new headquarters.

Although it has at times been a tough year for Al Rajhi, the bank seems to have come through the period with renewed confidence while remaining highly profitable.

In investment banking, it was an impressive year for HSBC Saudi Arabia, particularly in debt capital markets. The bank was involved in more than SR14 billion-worth of bond and sukuk issuance between April 2012 and March 2013, including the first issues by the National Industrialization Company (Tasnee), Olayan Real Estate and Savola.

The largest issue was a $2 billion 10-year and 30-year dual-tranche sukuk for Saudi Electricity Company (SEC), on which HSBC acted as joint lead manager and bookrunner. This was the first-ever 30-year dollar-denominated international sukuk, as well as the largest international DCM issuance from Saudi Arabia during the year.

In addition, HSBC acted as financial adviser, mandated lead arranger and bookrunner for a SR9 billion syndicated redrawable Islamic facility for mining group Maaden. The bank also closed five project-finance transactions, worth more than $5 billion, including a $1.9 billion deal for an acrylates complex in Jubail Industrial City.

In other areas of the market, HSBC was sole financial adviser on the $1.3 billion merger of Vela International Marine with National Shipping Company, the largest ever M&A deal in Saudi Arabia.

Other banks had good years too, but could not compete with the breadth of HSBC’s activities. Jadwa Investment had its best-ever year, with revenues of SR77 million, advising on three M&A deals.

Last year’s winner, Deutsche Bank, arranged the first ever sukuk by a Saudi bank, with a $750 million Islamic bond for Banque Saudi Fransi in May 2012. It also acted on the $2 billion sukuk for SEC and in November 2012 executed a SR4 billion FX trade, the biggest of the year.

Nowhere has a recovery in Middle East banking been more apparent than in Dubai, probably home to more members of the Middle East’s financial community than any other regional hub.

Dubai’s rebound, although not without challenges, has surprised many. And the winners of the awards for best bank and best investment bank award in this country have contributed to this.

Banks in Abu Dhabi have won the best bank award in the UAE for the past four years. Abu Dhabi itself came to the end of a more reflective period in early 2013 with the merger of developers Aldar and Sorouh.

Still, growth at banks in Abu Dhabi was less strong than in previous years over the period examined in these awards, even if the winner of last year’s award, First Gulf Bank, continued to post strong numbers.

But it is time to recognize the achievements of Dubai and its banks, and in particular, its biggest bank, Emirates NBD. Since 2010, Emirates NBD has enjoyed a steady recovery in revenues and profit and now looks ready for further growth.

As demand came back in Dubai, Emirates NBD was there to finance it, seeing a pick-up in lending – partly thanks to deals on the liability side, including subordinated bonds, an offshore renminbi bond and toll-road securitization.

Such deals reveal the sophistication of this bank, and its organizational abilities have been further demonstrated with its operational integration of Dubai Bank with few problems and in a short time scale. It has also started repaying the debt the UAE government advanced during the crisis.

True, the bank remains over-exposed to government-related entities, although this is largely inevitable in Dubai. Greater efforts to expand internationally should alleviate it, including the purchase of BNP Paribas’ Egypt unit this year

So if the award for best bank in the UAE recognizes the recovery of Dubai, then so should the award for best investment bank, which this year goes to Moelis & Company.

Advising on the debt restructurings of Dubai’s various government-related entities has been by far the most important work in investment banking in Dubai.

It has been a big task, and the results have put European restructurings to shame. Moelis has been there all the way through, and in the awards period it demonstrated particularly impressive work.

This included restructuring liabilities associated with the flagship asset of Zabeel, the Crown Prince’s investment firm, and the restructuring of UK-based Travelodge Hotel Group, acquired by Dubai International Capital in 2006.

In June 2012, DIFC Investments, advised by Moelis, completed the refinancing of its $1.25 billion sukuk through a syndicated loan, cash, and non-core asset sales – one of Dubai’s most challenging refinancings last year.

As a final example, Moelis advised Dubai’s Istithmar World on a $250 million acquisition, also in April, of a 50% stake in Atlantis The Palm, a Dubai hotel development, part of a $3 billion restructuring for South Africa’s Kerzner group.

In debt markets, National Bank of Abu Dhabi takes the number-one position in UAE, taking over from Standard Chartered and HSBC, which are in second and third position, respectively.

NBAD’s lead in Abu Dhabi is more expected. But its work to build a debt franchise is about more than just serving the local market. That is reflected in the fact that around half of its UAE deals are in Dubai.

In the $500 million Majid Al Futtaim bond, a private-sector deal in Dubai, for example, it was the only regional bank. NBAD also ran the $1 billion tier 1 sukuk for Dubai Islamic Bank, and before that, Abu Dhabi Islamic Bank’s tier 1 sukuk.

In equity capital markets, again there was scant activity: just seven primary-market deals in the UAE totalling less than $500 million, according to Dealogic. But the lead this year by Deutsche Bank was clear.

Deutsche was sole global coordinator, sole bookrunner and sole sponsor for the deal most worthy of mention: the £390 million IPO of Emirati healthcare firm NMC on the London Stock Exchange.

Through the deal, which helped reopen the IPO market in the UK in April 2012, NMC became the first Abu Dhabi firm to list on the Premium Listing segment of the LSE, making it eligible for inclusion in the main index.

NMC had been looking to undertake an IPO for some time, to finance expansion. There was a good story to tell about the UAE healthcare sector. NMC communicated it well, even if market conditions delayed the deal.

As market confidence returned, NMC was quick to respond, albeit with care given uncertainty about the Middle East. Ultimately the valuation, at around 11 times earnings, was a great result for the company.

Last but not least, in M&A, Citi stands out as the exclusive adviser to Abu Dhabi energy firm Taqa on its $600 million acquisition of exploration blocks in Iraqi Kurdistan, affording Taqa greater geographic diversification of its assets.

This was the UAE’s biggest M&A deal completed during the period, and speaks to Citi’s overall strengths in the UAE: a core market for the bank in the region, especially given its lack of a presence in Saudi Arabia.

In Dubai, Citi was instrumental in one of the biggest and most important M&A deals of the period – the $742 million in divestments from Hong Kong assets held by Dubai ports operator DP World.

Citi advised DP World, gaining the firm an attractive valuation for the assets at 14.9 times 2012 EV/ebitda, and securing an experienced strategic partner for the firm in the form of the local unit of Australian logistics player Goodman.