by Olivier Holmey
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Illustration: Pete Ellis |
When Michel Accad became chief executive of Al Ahli Bank of Kuwait (ABK), the bank was a small and rather boring financial institution.
“Nothing ever happened at ABK,” Accad tells Euromoney, bluntly, during an interview in his Kuwait City office. “It was pretty uneventful.”
He adds: “Nobody could remember the bank. Every time you’d say: ‘I’m from Ahli Bank’, they’d say: ‘Which Ahli Bank?’”
Accad, who is Lebanese but grew up in Switzerland, worked at Citi for 27 years, mainly in the Middle East and Africa. He decided to move to ABK in 2014 – a final challenge before retirement – after engineering a stunning turnaround at one of the Gulf’s biggest post-crisis mishaps, Gulf Bank, also in Kuwait.
The question at ABK was: how would he shake the bank out of its old ways and make it a dominant force in the country and beyond?
From the time of his appointment, Accad was convinced that to grow and improve ABK, which also has a tiny presence in the UAE, it needed to buy a foreign institution. The board agreed, but quickly rejected Accad’s first target idea, a proposal which he will not discuss in detail but now admits was “very complex”. He kept looking, however, and hired Citi and JPMorgan to dredge the Middle East in search of the perfect pearl.
When Citi and JPMorgan returned, they had, independently from one another, reached the same conclusion: the bank to buy was Piraeus Bank Egypt. A promising institution in a promising market, but was it for sale? A meeting with the Egyptian bank’s Greek parent Piraeus Bank was soon convened and Michel Accad flew to Athens, in May last year, to meet the potential sellers.
That interview delivered a piece of good news: the bank was indeed for sale. In fact, Piraeus was eager to sell in order to shore up its capital and refocus its business. But with that revelation also came some bad news.
“You’re coming too late,” Accad recalls being told by Piraeus management. Piraeus had begun a private sale process several months before. That auction had now entered its final stage. Lebanon’s Byblos Bank, Morocco’s Attijariwafa and Egypt’s EFG Hermes were the only banks still in the race and the bidding was due to end in just a week.
Once again Accad’s plans for expansion looked to have been thwarted. Since 2012, two other Middle Eastern lenders had bought Egyptian assets, but those buyers were heavyweights – Qatar National Bank (taking over National Société Générale Bank) and Emirates NBD (buying BNP Paribas Egypt). How could little ABK mount a credible offer to buy Piraeus Bank Egypt, a bank bigger than itself, in a country where it had never operated, in such little time?
That is when personal relations came into play. Accad says the head of financial institutions M&A at JPMorgan, the bank ABK eventually hired over Citi to lead its takeover bid, was Greek and knew the management of Piraeus Bank well. More importantly still, in that key meeting was Constantinos Loizides, the CEO of Piraeus Bank Cyprus and the man in charge of the Egyptian sale.
The name ABK might not have carried much weight in the Greek banking community, but Loizides knew Accad, having dealt with him on a previous bank M&A transaction when Accad was deputy CEO of Arab Bank when it sold its Cypriot branch to Piraeus.
Accad says: “The [Cypriot] transaction worked so well for both of us, so smooth, that he’s the one who intervened with his chairman and said: ‘No, no. These guys are serious’.”
This got ABK an extra week to mount a takeover bid. Not much time, but now enough to ready the offer, conduct speedy due diligence and obtain internal approvals. ABK outbid all rivals and clinched the deal. Six months later, after an investigation into ABK by Egypt’s intelligence service (apparently common practice in the country) and approval by Egypt’s financial regulators, the $150 million takeover was made public.
ABK could claim to have become an international player and done so by accessing the Egyptian market, the Middle Eastern country that Accad considers to have the most banking potential outside the areas where ABK is already active.
“That has really transformed us,” Accad says of the acquisition. Indeed it has. In 2015, ABK’s operating income rose 9%, its balance sheet grew by 25%, its loan portfolio by 26% and its branch network by 120%, in large part thanks to the Piraeus takeover. At the same time ABK’s non-performing loan ratio fell from 2.5% to 2.3%. ABK, in 2014 the seventh largest bank in Kuwait by assets, was now the fifth, just behind Gulf Bank.
Just over a year after he joined ABK, the decision to hire Accad already seemed to have paid off.
Making his mark
ABK is not the first Middle Eastern bank on which Accad has made his mark. After his time at Citi, and before ABK, he was CEO of Gulf Bank – the same bank ABK is now catching up with. When he joined Gulf Bank in 2009, the institution was on the brink of collapse. When he left it five years later, it was a viable business once again.
“It was a very challenging situation,” Accad says. “Gulf Bank had some huge exposures which they did not know they had, or didn’t fully realise the extent of.”
One of the bank’s derivative exposures was to a single customer and totalled $1 billion,
Accad says: “What happened there is the bank thought it was covered. It was a bit naive. It’s the risk management that failed and the governance structure. That was the problem.”
When the 2008 financial crisis struck, Gulf Bank’s exposures quickly unravelled, leaving the bank in disarray. That year the bank made a loss of KD359.5 million ($1.28 billion).
The solution was strong financial support from Kuwait’s central bank and sovereign wealth fund, the removal of existing management and their replacement by Accad and others intent on reforming the bank.
“We had to revamp the whole risk culture,” Accad says. He adds that he provided the steady hand Gulf Bank needed to survive. The process was gruelling, but in the end, the bank pulled through.
Unique challenge
The challenges at a bank like ABK are altogether different. But change there, though less urgent, was also imperative, Accad says. And that is what attracted him to the job. Founded in 1967, listed in 1984 in Kuwait, the private bank has taken few risks and grown little over the years.
“This bank was always known for being very conservative,” Accad says of ABK before 2014. “And because it was conservative, it never faced big problems like Gulf Bank or other banks. Here the challenge was different. When you’re too conservative, you may not make losses but you will not gain market share and you are not going to grow. From 2008 to 2014, the bank hadn’t grown at all.
“The main shareholders and the board realized the situation and wanted to give it a little kick and bring something new.”
That something new was Accad. In his view, the acquisition of a foreign bank would give ABK the jolt it needed. But he never thought that would be enough. To him it was also essential that ABK simplify its internal processes, customer service and technology, to turn it into a leaner and more modern business.
Accad insisted that the bank develop its marketing and external communications platform, which had been virtually nonexistent until then, to promote ABK’s simplified approach to its customers. Spokesperson Emiranda Winter is one of only a few people Accad brought over from Gulf Bank.
“It didn’t have the brand recognition,” Accad says of the bank. “ABK didn’t really have an image in the market. To change that, you need people like Emiranda. We’ve worked very hard on that.
“But you cannot work on the image if internally you haven’t worked on what really are your core values, what is it that you want to do, how you want to differentiate yourself from the competition,” he adds.
To Accad the main differentiator is simplicity. He says it is now simpler and faster to open a bank account with ABK than with any other bank in the country. ABK is also introducing a new IT system. A project management team is redesigning all of the bank’s processes and Accad has hired Hassan Abouzeid, formerly of Kuwaiti bank Boubyan Bank, to lead the digital push.
The move away from bricks-and-mortar banking matters to Accad.
“Who likes to come to a bank?” he asks. “Who would want to come to a bank if they can avoid it?” That kind of statement may sound normal in parts of the world where digital banking has already boomed, but in Kuwait, where many workers still queue for their pay checks at their local bank branch at the end of the month, it is dramatic.
Recent growth in ABK’s retail banking division might support Accad’s claim that customers are responding well to the bank’s simplified customer service. Operating profits in retail increased by 27% in 2015, while customer lending rose by 29%.
Accad is not done with ABK yet. Buying Piraeus Bank Egypt, soon to be renamed ABK Egypt, more than doubled the number of ABK bank branches, and these have to be properly integrated in to the ABK network. Moreover, that bank will also require substantial investment – Piraeus had not, in recent years, viewed its Egyptian branch as a priority.
Many other challenges remain. By return on equity, for example, ABK is still only ninth in Kuwait. Although still profitable, last year the bank’s net profit dropped by 19%, to KD30.4 million, due, it claims, to “aggressive precautionary provisioning” in the face of tough market conditions.
A year on from the start of the bank’s push for simplification, Accad estimates ABK is just 30% of the way to where it should be. As he intends to make this his final job in a long banking career, Accad is eager to take on these challenges.
