Country Awards for Excellence 2017: Middle East

Regional results

Middle East awards press release

	Bahrain		Egypt		Iran		Israel
	Jordan		Kuwait		Lebanon		Oman
	Palestinian Territories		Qatar		Saudi Arabia		UAE

As in much of the Gulf, banking conditions in Bahrain were difficult over the last year. Despite these challenges, Ahli United Bank did well. 

Still by far the biggest bank in Bahrain in terms of absolute profit, Ahli United reinforced its dominant position with a healthy increase in profit before tax from $609 million to $670 million over the year, achieved in a context of declining assets. They totalled close to $34 billion in 2015 and have since fallen to a little over $31 billion. It is to the bank’s credit that it was able to keep growing its profits even as the size of its assets fell.

The bank also strove to improve its capital position to weather the region’s worsening liquidity situation. Ahli United Bank’s total capital ratio now stands at 17.1%, up from 16.7% a year earlier.

A special mention should be made of the group’s Islamic banking operation, which did especially well considering the economic conditions. Profit before tax rose in that division from $170 million to $188 million. 

Last year will be notable in Egyptian financial history, thanks to the shift to a floating currency regime in late 2016, as the central bank unpegged the pound from the dollar, bringing a drastic devaluation. Generally, the banks have managed the transition well, with the most astute avoiding a rash expansion of their local dollar loan books before what was a long-awaited currency move.

Despite the investments made in the Egyptian banking industry by Gulf institutions as the European banks have started to exit, Commercial International Bank stays ahead of the pack. It surpasses the profit of other private-sector lenders in Egypt and indeed beats any other top-tier lender in the region with its financial returns.

CIB’s return on equity reached a heady 34% in 2016, while its cost-to-income ratio remained ultra-low at only 25%. Its movement towards retail customers and funding has also been helpful during devaluation-triggered monetary tightening; in the longer term this strategy should pay off in the most populous Arab nation. The bank’s expansion of its small and medium-sized enterprise banking and data analytics capacity should support success in this area.

In investment banking, this year’s winner in Egypt has a presence in the UAE, Saudi Arabia, Kuwait, Oman and Jordan. But it had another particularly strong year in Egypt, working on a range of investment banking deals there, including debt, equity and mergers and acquisitions.

Thanks to those efforts, EFG Hermes, led by CEO Karim Awad, retains the title of preeminent investment bank in Egypt.

EFG was appointed by Litat Group as sole financial adviser on the sale of a majority stake in its subsidiary Solb Misr, one of Egypt’s leading steel producers. The $1.4 billion sale was the largest M&A transaction in Egypt last year, as well as one of the largest in the Middle East. Apart from advising the seller on the structuring of the transaction, EFG also oversaw the share-transfer procedures between Litat Group and the buyer in its capacity as transaction broker.

In July 2016, EFG was mandated by B.Tech for Trading & Distribution, Egypt’s largest retailer and distributor of household appliances and consumer electronics, to advise on a capital increase that would support the firm’s next phase of growth.

EFG also acted as sole global coordinator and bookrunner on the $40.5 million IPO of Cleopatra Hospital Company, floating 25% of the company’s share capital on the EGX. The deal was the first primary listing of an Egyptian hospitals group on the exchange and stood out because of the level of interest it generated. The IPO was 10 times oversubscribed in a show of international investor confidence in the Egyptian economy.

Finally, EFG underwrote a debt syndication of $55 million for Advanced Energy Systems to finance the acquisition of three operational rigs from Hercules Offshore, a large business operating in Saudi Arabia, where EFG Hermes was also acting as buy-side adviser. EFG led the syndication on behalf of the other lending banks and was responsible for the overall coordination, agreements, negotiation and execution of the transaction.

It was a year of tremendous change for Iran’s banking sector as the country continued to open up to the world thanks to the effects of the nuclear agreement. 

The change was not all easy: banks struggled to modernize systems. Levels of non-performing loans remained alarmingly high and the apparent threat to the nuclear deal presented by Donald Trump’s election to the US presidency in November also caused the country’s bankers some concern.

One bank that did well over the year, positioning itself well for the internationalization to come, was Bank Pasargad. The bank, which also won last year, grew its correspondent banking relations by an impressive 300%, from an admittedly low base.

Pasargad was founded in 2005 with the intention of becoming Iran’s first globally active private bank. Those plans were thwarted by the sanctions imposed on the country, but now it may be able to achieve that goal. The increase in correspondent banking relations is the first step in that direction. Next the bank hopes to open branches abroad, primarily in Europe, as well as in South Africa and South Korea.

Over the year, Pasargad increased its paid-up capital by 20% and slightly reduced its non-performing loan ratio from 5.5% to 5.3% to bolster its balance sheet for the challenges ahead. Its revenue rose by 26% and its assets grew by 18.5%. Its return on equity stood at a solid 16.7%.

Time will tell if Pasargad can see off competition from such rivals as public-sector Bank of Industry & Mine, which has also achieved much since the signing of the nuclear agreement. But for now, Pasargad remains the country’s best.

Israel Best bank: Bank Leumi Best investment bank: Barclays

What might have been a healthy year across the Israeli banking sector was somewhat clouded by a US tax probe. Bank Hapoalim and Mizrahi-Tefahot Bank found themselves battling US claims that they had aided tax evasion. Hapoalim, long a dominant force in Israeli banking, had a disappointing year, in part a result of provisioning against possible losses from this investigation. 

Bank Leumi – this year’s best bank in Israel – has done markedly better. It resolved its US tax issue, for one. Although the year was not all plain sailing for the bank – its net return on equity fell from 10.3% to 9.3% – overall, it performed better than its peers, growing its profit slightly to NIS2.8 billion ($730 million), increasing its capital adequacy ratio to 15.2% and reducing its non-performing loan ratio to just 1.2%.

In recent years Leumi had curbed lending but it is now again looking to grow its loan book. In the first quarter of this year, Leumi reported a 36% increase in net profit, in part thanks to a 13.2% increase in net interest income.

There is another sign of Leumi’s resurgence; for the first time in six years the bank has set a dividend payout ratio, totalling 20% of quarterly profit. 

The bank is also innovating in the digital space. It released Pepper and Pepper Pay, its mobile banking applications, enabling customers to manage all of their banking activity directly through their mobile phones.

Several international investment banks have a strong presence in the country – among them JPMorgan, Citi and Bank of America Merrill Lynch – but none was able to dethrone Barclays this year. The bank, which also won the top prize in 2016, had a stellar year across all segments of the market.  

Barclays rose from fifth to first place in Dealogic’s debt capital markets table and from third to first in equity capital markets. In the completed M&A table, it rose from fourth to second, having worked on four deals, including the $40.5 billion acquisition by Israeli pharmaceutical firm Teva of Actavis Generics from Allergan. Barclays was financial adviser to Teva on the deal, which was the largest transaction ever out of Israel and the largest pharmaceutical M&A completed last year.

Barclays then followed that up with work on Teva’s $20.4 billion senior notes offering as active lead bookrunner and sole billing and delivery agent on the trade.

Barclays was also a joint bookrunner on Israel’s two-tranche €2.25 billion bond issue, which brings the number of Israeli sovereign transactions Barclays has worked on to 32 – showing the bank’s long-term commitment to the country’s government debt programme.

Equity deals included a $102 million block trade for Orbotech, the Israeli tech business, on which the bank acted as sole bookrunner.

In discussions of the impact of Syria’s civil war and refugee crisis, much has been written about the economic impact on Lebanon, which has welcomed over 1 million Syrians since the start of the conflict. But Jordan, another neighbour to Syria, has also been affected by an influx of refugees.

Despite that difficult context, the Jordanian economy and banking sector has managed to remain resilient. Arab Bank in particular has maintained its impressive pattern of growth. The bank achieved 20% growth in net profits in 2016. After-tax profit rose from $442 million in 2015 to $533 million last year.

Loans and advances also grew – by 6% to $23.7 billion – while deposits reached $33.6 billion, up 3% on the previous year. Its capital-adequacy ratio improved further, to reach 15.7%.

Arab Bank’s corporate and institutional banking division continues to finance vital infrastructure projects in Jordan – most recently arranging a syndication from local Jordanian banks to provide funding for the first public-private partnership on a wastewater treatment plant.

The bank also led the creation of a JD125 million ($176 million) Jordan Middle Market Equity Growth Fund, leading a consortium of 18 banks into a fund aimed at investing in Jordan’s growing medium-sized enterprise sector.

The bank, which is headed by CEO Nemeh Sabbagh, has launched new digital services for its customers. Among them an innovative process to authenticate customers using biometric prints that does not require them to present ID or a debit card at the counter. It has also introduced an interactive ATM that allows customers to speak to an Arab Bank agent through the machine.

In January, the emir of Kuwait announced a vast reform programme that would wean the country off oil by 2035 and boost the private sector. But few bankers bought the idea, admitting off-record that they had heard such announcements before, but seldom seen the results.

Despite that, National Bank of Kuwait continues to make its mark in the country and is even able to compete with financial institutions in the rest of the Middle East.

In Kuwait, NBK stands out as being the largest by far, with a market share close to 40%. It operates the largest network of branches and ATMs in the emirate, but it is also open to banking services that do not rely on a bricks-and-mortar presence; for example, NBK recently launched a customer-service channel through WhatsApp. And at Kuwait City’s airport, NBK introduced multi-currency ATMs, allowing travelling customers to take out cash in any one of five currencies.

In corporate banking, NBK took a leading role in two landmark projects: the KD1.3 billion ($4.28 billion) Kuwait International Airport terminal 2 project; and KNPC’s $2.9 billion liquefied natural gas import and regasification terminal.

NBK was mandated lead arranger on KNPC’s KD1.2 billion syndicated financing for the Clean Fuels project and Equate Petrochemicals’ long-term senior financing for the acquisition of ME Global, for $5 billion.

An outstanding year by Citi, meanwhile, enabled it to get ahead of last year’s best investment bank in Kuwait, NBK Capital. Citi played a leading role on the most important deals of the year; foremost among them was Kuwait’s debut sovereign bond of $8 billion.

Citi was joint global coordinator on the transaction, which garnered $29 billion of demand from close to 800 orders. The landmark deal gave the emirate access to the international bond market, enabling it to diversify its sources of funding for the future and paving the way for other Kuwaiti issuers wanting to raise debt internationally.

One issuer that quickly followed the sovereign was Al Ahli Bank of Kuwait, which issued $500 million within weeks of the sovereign’s pricing. That deal was three times oversubscribed and was worked on by Citi as a joint bookrunner.

Citi also shone in areas other than debt. In 2016, the bank completed a strategic review for Kuwait Investment Authority and the Central Bank of Egypt on their strategic and potential monetization options on their respective stakes in Arab African International Bank. Other deals of note included a $500 million bond for Kipco, a Kuwaiti investment conglomerate. 

Lebanese banks go from strength to strength, as locals and the diaspora see these institutions as safe places to keep their money, despite the political turmoil on the country’s doorstep. They are not resting on their laurels, however, and are building up their international operations and developing income streams in sectors such as small and medium-sized enterprises and wealth management.

To look at the most basic measure of managerial success, however, Blom Bank remains ahead, with a return on equity of just above 17% in 2016, compared with just below 15% at its main rival, Bank Audi. Blom Bank’s lower cost-to-income ratio, around 35%, is its core advantage – well below Audi’s ratio of around 50%, which is quite high by regional standards. Blom is also ahead of Audi in its capital adequacy ratio: 19%, compared with 15% at Audi.

None of this is to say that Audi’s results were bad. Indeed, there are signs that it is catching Blom. Audi’s cost-to-income ratio is on a clear downward trajectory, falling steadily over three years from closer to 60%. Moreover, Audi’s net income rose slightly faster than Blom; both are approaching the $500 million mark for annual profit.

Yet Blom’s chairman and general manager Saad Azhari can make tangible claims about how it is developing its business – especially in Lebanon and most notably through its acquisition of HSBC’s Lebanese corporate and retail operations. This became effective in November, with the integration expected to be completed early this summer.

Blom is also taking steps to ensure it is seen as a technologically worthy choice, whether it is a mobile app for customs payments or its youth-orientated prepaid card and smartphone programme, Next.

The tense Middle Eastern political environment that affects so many countries in the region has not spared Oman, as it continues to reckon with a civil war at its borders in neighbouring Yemen. But Oman’s economy and banking sector have also benefited from Iran’s opening. Oman, which hosted the first talks with Iran over a nuclear agreement, was also one of the first countries to benefit from the eventual signing of that deal.

That makes HSBC Bank Oman look well-placed to deliver on hopes for growth. Over the past 12 months it has posted a stellar performance, enough to claim the title of best bank in Oman from perennial winner Bank Muscat.

HSBC is hardly new to Oman, having had a presence in the sultanate since 1948. But it was only from June 2012, when its Omani operations merged with Oman International Bank to form HSBC Bank Oman, that the firm became one of the country’s top financial institutions.

HSBC Bank Oman really came into its own in 2016, when the bank experienced loan growth of 18%, much higher than the 7.5% growth in the Omani banking sector as a whole. It also cut costs by 11.5% and achieved a capital adequacy ratio of 18.7%.

Although Bank Muscat is still much larger, HSBC is making waves as a dynamic outsider with spectacular growth. Its net profit was up 31% – to OR21 million ($54.6 million) – while its return on tangible common equity rose from 4.3% to 5.6%. In 2012, it stood at just 2.9% – an indication of how far the bank has come since the merger.

Its retail banking and wealth management divisions serve more than 200,000 customers. These clients are increasingly turning to HSBC’s digital offering. After upgrades to the mobile banking application and call centre, customer digital engagement rose to 42% over the year.

Palestine’s economy went through another difficult year as ‘de-risking’ by Israeli and international financial institutions resulted in an increasingly isolated Palestinian banking sector. To bankers’ great relief, the Israeli government, faced with a possible economic collapse in Palestine, decided in January to issue letters of immunity to legally indemnify Israeli banks for dealing with Israel’s neighbour.

That reassurance is another example of how Palestinian banks, always under pressure, manage to pull through. The most exemplary institution in that regard is Bank of Palestine – the worthy winner, once again, of the award for best bank in Palestine.

Bank of Palestine, which has a 34% market share, assets of $4 billion and close to 900,000 customers, expanded over the year with two strategic acquisitions. The first deal was a merger whereby the Palestine Commercial Bank, a local commercial bank, will be combined with the Bank of Palestine at a share swap ratio of 3 to 1.

The second was the acquisition of an additional 31% stake in the Arab Islamic Bank (AIB). This allows Bank of Palestine to become a majority shareholder in an Islamic banking operation in Palestine, with 52% of AIB shares.

Under the leadership of general manager Hashim Shawa, Bank of Palestine remained true to its focus on SMEs in 2016, increasing credit facilities to those firms by 32%. Even with that focus, Bank of Palestine has managed to mitigate risks and maintain its NPL ratio at just 1.9%.

Bank of Palestine has continued to modernize its banking practices, with the launch of a new version of its mobile application Banke.

Along with Kuwait, Qatar is the other country in the Gulf best able to weather low oil prices, thanks to a break-even level far lower than countries such as Saudi Arabia. That may in part explain the resilience of Qatar National Bank, which easily reclaims the title of best bank in Qatar this year.

Under the stewardship of CEO Ali Ahmed Al-Kuwari, the bank, by far the largest in the country, saw its net profit rise by 10% to QR12.4 billion ($3.4 billion) in 2016. Assets increased by an even greater margin, with a growth rate of 34%, to QR720 billion. Deposits grew by 28%.

The bank is also setting itself more ambitious targets overseas and hopes to become a leading bank in the Middle East, Africa and south-east Asia by 2020. Already 37% of its net profit derives from international operations across 30 countries.

At 21%, the bank’s return on equity and asset growth is higher than at all of its Qatari rivals. Its year-on-year profit growth, meanwhile, is among the best, and all the more impressive in a year where several Qatari banks saw their profits decline markedly.

Over the last year, QNB worked on streamlining its small and medium-sized enterprise credit processes and expanding its digital offering through, for example, its mobile banking application.

With its huge exports of capital and the international ambition of its corporate champions, Qatar is a key market for regional investment banks, despite the relatively small size of its economy.

This year Qatar is another country where the regional investment-banking leadership of HSBC shows through. Its bond franchise in Qatar included a repeat mandate from the sovereign in May, at the time the largest-ever bond issue from the region.

In the corporate space, it was global coordinator on telecom firm Ooredoo’s $500 million bond and $500 million senior unsecured revolving credit facility. It acted on both a debut and repeat bond from real estate developer Ezdan. It was sole coordinator on a $650 million revolving credit facility for Katara Hospitality and was active in financings for Nebras Power and Qatari Diar. It also single-handedly provided a $2 billion 25-year rates hedge for the Umm Al Houl Power Company.

Its financial institution deals include a bond for QNB, Commercial Bank and two for Ahli Bank Qatar. It was global coordinator on three of these. Qatar Insurance Company’s $450 million tier-2 perpetual bond was the Middle East’s first ever insurance Eurobond. HSBC was global coordinator.

HSBC’s advisory and equity financing work for Qatar Airways also stands out. It was sole financial adviser and broker on the airline’s $613 million purchase of 10% of Latam Airlines and its stepped $2.7 billion purchase of a 20% stake in IAG, which it facilitated by refinancing and upsizing an existing loan facility.

Liquidity conditions in the Saudi banking sector have eased over the last year, in part thanks to a decline in the oil price at which government accounts break even. After October’s record-breaking debut international bond issue – and as oil prices found a level at around $50 a barrel – the environment for Saudi banks further improved.

The turnaround in the financial performance of Al Rajhi Bank provides the best example of the opportunities in the Kingdom’s banking sector. In 2016, Al Rajhi’s profit rose by 14% to SR8.2 billion ($2.2 billion), while other big private and government-owned banks in Saudi Arabia saw profits fall or stagnate.

Al Rajhi is by far the most profitable of the private-sector Saudi banks. It is now also the biggest Saudi bank by market capitalization, at two times book value, according to Arqaam, as its share price has outperformed its peers in recent months. Analysts seem confident its return on equity will surpass its biggest rival, the partially government-owned National Commercial Bank.

Al Rajhi attributes the rebound in its profits from 2015 to the appointment of a new chief executive that year, Steve Bertamini, following a board shake-up in 2014 that saw Abdullah Bin Suleiman Al Rajhi take over as chairman. Previously head of consumer banking at Standard Chartered and before that a long-standing General Electric executive, Bertamini is Al Rajhi’s first foreign CEO. His Texan background gives him experience of another oil-fuelled desert powerhouse.

Best known as a retail Islamic bank, Al Rajhi’s cost of funds remains exceptionally low, although it continues to grow its financing activities, while rebalancing its investment book and targeting new client segments.

Bertamini, according to the bank, has focused not just on accelerating growth, but also on boosting the bank’s attractiveness to both clients and employees, and investing in digital technology. Already among the Kingdom’s most efficient banks, the trend is towards a lower cost-to-income ratio, which further marks it out from rivals, including NCB.

As Saudi Arabia begins to implement ‘Vision 2030’ – a vast reform programme to create a large, non-oil driven private sector – banks know there is a lot of  potential for them to benefit from those changes.

Investment banks both domestic and foreign are positioning themselves to work on the most important deals to come out of this era of transformation. At the moment, none is better equipped for it than HSBC, which has long had a presence in Saudi Arabia and has shown that it is capable of delivering on that.

Already the Kingdom looks to be relying on HSBC for some of its landmark transactions. The bank was a global coordinator on Saudi Arabia’s debut sovereign bond last year, a deal that stunned the market by its size and oversubscription levels.

Under the leadership of Majed Najim, HSBC Saudi Arabia’s CEO, the bank has also been hired to work on the initial public offering of Saudi Aramco, a listing that may take place over the coming year and is expected to be one of the largest, if not the largest, IPO ever conducted.

The last year has not been all easy for HSBC. Its total assets declined slightly, while its net income fell from SR279 million in 2015 to SR140 million in 2016. This is the result of a difficult transition, as the country tries to overcome the liquidity issues produced by a halving of the price of oil.

Still, and in spite of these setbacks, HSBC’s work on such deals as the sovereign bond and continued efforts to feature on the landmark transactions to come sets it apart from its rivals and puts it in good position for the future.

The UAE, like other oil-rich parts of the Middle East, continued to suffer some asset-margin pressures and low credit growth due to tougher liquidity conditions through 2016. Emirates NBD is among those banks best able to overcome oil-related challenges. It had an excellent year in the UAE and deserves the crown there for another year.

Net profit rose by 2% to Dh7.24 billion ($1.97 billion), underpinned by asset growth, a control on expenses and an improved cost of risk. The bank’s liquidity position remained strong, bolstered by a stable and highly diversified deposit base and its ability to raise over Dh20 billion of term funding.

Emirates NBD also continues to outperform many of its regional rivals in digital banking. Last year, the bank announced that it would invest Dh500 million over the next three years in digital innovation.

The bank also made some efforts in corporate social responsibility, for example by distributing sun-protection equipment to construction workers in the UAE and raising awareness of such issues as heart disease among its customers.

More generally, Emirates NBD remained the premier bank in the UAE with the largest share of total assets, operating income and net profit over the last year. It also boasts a 20% market share of loans and deposits.

At the centre of the regional financial sector, UAE banks have an important role to play in developing regional challengers to the global firms – and that includes in investment banking.

In a record-breaking year for regional debt issuance – 12 months in which this national bank can claim regional supremacy in the financing category – First Abu Dhabi Bank

is at its most impressive in its home market.

Over the awards period – when National Bank of Abu Dhabi retained its identity prior to the merger with First Gulf Bank to form FAB – the NBAD team was behind an innovative $1.2 billion Islamic financing for DP World and a complex $24 billion project financing for the UAE’s first nuclear power plant. It was one of the structuring banks on Etihad Airways’ first standalone bond, a $1.5 billion privately placed sukuk. It was also sole arranger on IPIC’s $700 million privately placed senior unsecured notes in December and arranged a receivables-backed term loan for Mediclinic in its reverse merger with Al Noor.

Andy Cairns, who has built up the business as head of debt origination and distribution, will be key to the bank’s overall investment banking offering as it merges with First Gulf Bank.

Finally, it is one of the region’s largest fixed income market makers, as recognized in last year’s Euromoney awards.