As the global economy ails from an unprecedented financial crisis, the Middle East is generally believed to emerge stronger than ever. From the financial disaster an important lesson has been learnt with regards to the effects of globalization. In an exclusive interview with BUSINESS LIFE, Abdul Kader Askalan, Chief Executive Officer and Member of the Board of Oman Arab Bank (OAM), discusses the global financial crisis and what it means for Oman.
BL: What is your opinion of the world financial crisis?
Abdul Kader Askalan: I feel that the economic crisis, which has started in August 2008, is a global problem but Oman is not heavily affected. This is due to the strength of the government's financial structure, its good reserves, and the absence of any foreign debts. They will be able to continue to spend money on the projects that have been set for execution. No projects have been postponed and the government is facing its liabilities without any difficulty.
Oman doesn't have to worry about it. The same thing goes for the banks, they are well observed and well controlled and no bank suffers from any serious difficulty that leads to bankruptcy. All the banks are functioning smoothly without any difficulty.
Those banks that have exposures outside Oman, internationally, their investments outside have been affected by the global difficulties. However, in spite of the big losses in foreign investments, the banks are still in a good shape.
BL: What are the ramifications of this crisis?
Abdul Kader Askalan: The crisis has begun in the United States which has a huge global economy and it started with bad housing loans because they spend a lot, so suddenly they found themselves unable to pay back the huge debts to the banks. It's like a domino when one sector is facing difficulties, other sectors will be facing them too. A lot of large and solid companies in the United States, such as GM and other huge cars companies suddenly went bankrupted, what happened? Did everyone stop using cars? No! But their assets had been invested in shares and when those collapsed, they were left without assets and there was no liquidity so they started asking the government to help them.
The global economy has been affected by investments in the American market. In Oman all the sectors are okay except for the stock market because there are foreigners who invested in it. Local people got scared, especially those who took loans from banks to buy shares, and when they noticed the share value going down they thought they won't be able to refund their loan so they started to sell the shares to save some money and give it to the bank. So the only affected sector here is the stock market which has witnessed a decline of around 50% which implies that the value of the people's assets has been reduced by 50% which is bad. In addition, the real estate business has also been affected because people do not have money to continue buying flats.
BL: Do you think that this crisis will lead people and business people to be aware that we have to take advantage of nature and the green environment that will benefit us more than the stocks?
Abdul Kader Askalan: It's is actually a very good lesson for the people who are concentrating their investments on one side. As a bank, we never put or invest our money outside the country. Why? Because I believe that the money that belongs to the country should be used in the same country. If there are investment opportunities that help develop my country why should I put my money outside and develop other countries? Our role is to support the development program.
If the whole Arab countries put only 30% of their deposits locally and converted them to the local banks, all the situation will be changed because they will be supporting the banks and giving them a push to be able to participate in the country's development but only 10% of the money is in the local banks, and the rest is outside. If we are going to finance a big project, the big banks in the world will be taking the syndication for such a project and we are taking what they have given us. At the same time they will be financing our project from our money, we give them deposits and they will finance us, and local banks cannot compete with them only if the government changes its policy and put more money in the local bank then the whole picture will be changed.
BL: Do you mean that governments should put confidence in the local banks especially after this crisis?
Abdul Kader Askalan: Of course! Now in this crisis, some foreign banks stopped financing projects even when they were obliged to do so while the local bank continued to pay. Then I called the central bank and told the" you have to keep some money ready to the use of the local banks in case it is needed" because the banks relying on the foreign ones for funding won't be able to get anything from them, therefore you have to ask the government to keep money ready for any bank that needs it to improve its liquidity. And they do that, the government gives the money to the central bank to be ready for it but I didn't agree and told them that we need this money directly from the government to our bank, you know why? Because if the central bank takes the money, I'll have to borrow from it and this will affect my rating because on the balance sheet it will say that I am in need of money and I'm borrowing from the central bank. However, if the government gives it to me as a deposit, it will be as a deposit and I won't be borrowing. I told the government that and they were convinced and I think that they gave some banks direct money. This is my recommendation actually and I told the central bank openly that this is not the way, "you want to make profit out of us, okay, but our rating will decrease and this won't be for the benefit of the country. Our rating should stay the same and we should receive the money as a deposit not as a loan."
Actually governments of all Arab countries that have money abroad should change their policy and deposit a larger percentage in local bank.
BL: With the present turbulence roaring in the globe, do you agree that certain countries like Germany and China must work hard on keeping trade flowing?
Abdul Kader Askalan: China no, Germany yes. China is now perhaps the most comfortable country in the world because they don't borrow from abroad since no one gives them money and they have a very high surplus deposited in the U.S. The Dollar went down because the Americans want it to go down in order to decrease the Chinese assets.
The Germans and others are suffering from the labor market and they are not able to give salaries so they have lain off employees in the factories and in the companies to reduce the expenditure. Most of the countries nowadays are reducing their workforce, especially in the U.S where millions have lost their jobs. Who would've imagined that in 6 months all these countries will be suffering and will be in this situation? And they are asking for help even from the Arab countries now! They called Saudi Arabia to the G20 meeting just to borrow money, or else why should they go there? Just to tell them that they should pay millions and that's what they did. If they are in good or in bad shape, both ways we are suffering! That’s why we should change our policy of dealing with our financial position and our economies.
BL: Why is China presently interested in the Middle East and Africa?
Abdul Kader Askalan: Because it is a good market for the merchant. You can feel that the Chinese companies have become very active with the projects in the Arab countries and Africa and they are more cost-effective than the Europeans and the Americans. The Chinese are building factories, they have a stimulus plan, they are building a modern infrastructure, they have hard working experts, and they complete their jobs in a very efficient way. Many countries are replacing the companies they dealt with to execute projects by Chinese companies. The European and American projects are suffering from the lack of liquidity and won't be able to be as aggressive and take the projects they want. Most of the countries are suffering except China.
BL: What will calm the present uproar in Iran? What are the effects on our economy?
Abdul Kader Askalan: Iran is a very sensitive country to the whole Arab world. If anything bad happens to it all the area will be affected specially the Gulf area because Iran is very close to it and if we are talking about the nuclear bomb, the gulf which surrounds Iran, won't be able to escape from their financial and health related consequences. It is a very dangerous situation in Iran and it’s preferred that Iran remains safe for the good of all Arab countries. Most Gulf countries agree that Iran's problem should be solved peacefully not through war because they are aware of the consequences of the war.
Now there's a crisis running in Iran, and if there's anything wrong with the elections you can deal with it internally and legally. But the problem now is that there are those who want to sabotage the situation. They do have bombs, but from where did they get them? It means that foreign powers want to make it theirs. This is the bad thing facing the Iranian people.
BL: Is it true that with prices setting new records, the worried wealthy are piling cash in home safes? What about Gold?
Abdul Kader Askalan: I think that gold is maybe the safest investment for those who want to invest in cash and to keep liquid money in their hands, because all the currencies now are fluctuating except for gold which has went up during this crisis while other investments and earnings went down. Thus the best decision is to invest in gold.
Maybe when people look to the biggest bank in the world suffering from a lack of liquidity they ask themselves "where should I put my money? Because these are the big solid banks and they have the highest ratings and all the governments put their reserves and deposits in these banks. So the people start doubting and prefer to keep their money in their homes. They are afraid, and I hear many people asking "should I be keeping my money in the bank?”
BL: It is said that if it weren't for Abdul Kader Oman Arab Bank wouldn't have seen the light because they said it was your ideas and your efforts that contributed to the foundation of this bank. What are your comments?
Abdul Kader Askalan: Actually, Arab Bank is a very big bank and it is a prestigious and an international one as well. At first we started our operations in the Sultanate of Oman as an Arab bank and this bank's management nominated me to be the manager, and by the year 1973 I took all the responsibilities that come with the title. We were actually a small branch in Muscat, the old city or as you may call it "downtown". We were five employees in that time when we started functioning and I was all the time looking to turn the bank into one of the big banks in town especially that I came to compete with one of the oldest banks in Oman and that is the British Bank of the Middle East which has started functioning 25 years before the Arab Bank. No other bank could compete with it because it was taking over everything in town whether it is the merchant, the government, the individual, or the generation. They were all dealing with the British Bank because there were no other banks to compete with it. And all that time I was looking for a way to make our bank as big as the British one. First of all I started strengthening the structure of the bank, then I started opening branches in the areas surrounding the capital such as Matrah, Al Sib, and after covering the Capital's area I started opening branches outside of it. I can say that from 1973 till 1984 we worked as an Arab Bank and we became a very successful one, and we made it one of the government's banks because we gave them loans and facilities which had been previously provided by the British Bank. While we were a very successful bank, I advised our bank's management to merge with a local firm to convert the bank into a local bank because I feel that most of the companies and most of the people who are taking businesses here, start dealing with banks who have links with them, and every entity gives priority to the local bank rather than the foreign one. That is true because four banks are taking 75% of the whole businesses and about 12 banks, mostly foreign, are taking the remainder. Now our portion in the market is better than that of the British Bank because we have converted ourselves into a local bank and we have made a network of branches which helped us in covering the interior area. During the time in which we were opening branches in the interior, the British Bank was closing branches in it, and sold them to one of the local banks and we found out now that it was a big mistake. Anyway, now we are among the best banks in Oman and we have about 750 employees in 52 branches.
BL: Do you agree that Oman Arab Bank has the exceptional privilege of being a local bank with an international presence?
Abdul Kader Askalan: Yes, we are also international because of our link with the Arab Bank which is an international bank and all of all its branches are considered as Oman Arab Bank branches because we contact them regularly and we don't worry about having limits or having facilities or not, we are using these branches at all times as our own and we have no problems with that.
BL: Is OAB entailed in all key sectors of banking? How?
Abdul Kader Askalan: We are maybe the only bank committed to all kinds of businesses, we are not encouraging the banks to be aggressive when it comes to personal loans which are a part of the business and there is no problem in that, but to put most of your investments into personal loans is bad for the economy. So from the beginning we've put limits on personal loans which do not exceed 25% of total exposure. I told the central bank 10 years ago to observe the personal loans but they didn't think it was worth a try. Then, after a while, they felt that the personal loans in the banks have become huge thus they declared that personal loans should not make up more than 35% of your portfolio. When the banks start to adjust their portfolio they will find that 75% comes from personal loans. How can they manage to make it 35%? We are the only bank who has 25% and we do not have any problem. I know that if you encourage the people to borrow you are encouraging them to consume. If he has one car he will be able to buy a second one and if he has 2 cars he'll buy three and so on. The individual will start spending without thinking of saving and you have to teach him to save money and not to spend it and spend it without any control. Therefore, we are limiting the maximum amount and period we should give while other banks start to compete with each other and make the society in general a debt ridden society, everyone is in debt with the bank. I don't think that the borrowers will be able to pay all their dues until death, because they gave 25 to 30 years of time to repay by relying on the individual's salary which will be after a while only half, and then how will he repay? He’ll have to reschedule it for another 20 years. This is a very complicated strategy and I told the central bank: “You must put restrictions for that and interfere, you have to put a maximum amount of borrowing to any employee, and you have to put a maximum period and limits.” Later on the limits were put but some restrictions were necessary to organize the thing and I was raising that point at all times and in all meetings: “You should interfere and control it, don't leave it for the bank, the bank's only aim is to increase its profit.”
Our bank has the biggest involvement in project finance; we are part of most of the projects that the government announces. It's safer, and it's the correct role of the bank. We are financing either directly the project or financing the contractor who is executing it because this is the natural way of making business in a bank and not to rely on a salary and give money according to the individual's wish. That's why we are safe.
BL: What is the added value factor that strengthens OAB’s position as a financial institution that is deeply dedicated to the economic development of Sultanate of Oman?
Abdul Kader Askalan: We were the first bank to finance the two cement factories in 1974. We are also the bank that financed the flour mill in 1978 and we are the first bank to finance the purchase of equipment for the port services while other banks did not dare to do it because they were afraid. When the first cement factory opened, the credits were at the time Riyal 40 million which was the biggest over credit in town. We took it as a loan in that time from the German bank and they wanted to build it and the equipment would be German. Only two banks were accepted to open with over credits: the central bank and the Arab Bank. The central bank at that time couldn't make such business so we opened with an over credit, but the government asked us to distribute portions for the local banks and give them a part of it, and we were okay with it but they would have to be able to make a commitment. The German bank was dealing with us so we had to pay the full amount even if they don't pay but we had to give the other banks parts just like the government wanted. But we continued to finance the projects and the factories in town, and now I am proud that when I take my car from here to Sohar I know the owner of everything I see because I was involved in it. All these things I was involved in, that's why we are involved in every sector in town but in a very measured and strategic way.
BL: It is recognized by the Central Bank of Oman that OAB is the only bank to introduce the Business to Business (B2B) system offering instant bill collection services for telecom service providers Omantel, Oman Mobile and Nawras, what additional electronic innovations are there in the pipeline?
Abdul Kader Askalan: We are involved with the contractors who are putting pipelines mainly for the oil and gas business. We are involved when they build the gas station. It had been built by British and Japanese consortium and we have been selected by those two companies to be the main bank for this US$ 2 billion project. We opened a branch on the side to serve them, and this is the biggest project that any bank has ever been involved in. We are also involved with the contractor who is putting the pipes of the project. We are also financing Sohar refinery and Muscat refinery which are now merged. I am the Deputy Chairman of Omantel and I represent the government and we have a contract with Omantel to give them our electronic system to collect money for the phone bills directly to their account through our system we are the first bank that did this with Omantel and the same thing happened with Nawras. Our system receives bills for electricity, water and all the utilities.
