Mohamed Hussain, CEO of Ithmaar Bank and Member of the Board has repeatedly proved himself a valuable asset, and has lent his considerable experience and great expertise to the bank. He helped the bank steer through the global financial crisis and has contributed, in a big way, towards defining the bank’s future direction.
Hussain is no stranger to the Ithmaar banking group; immediately prior to his Ithmaar appointment early last year, he was Chief Executive and Member of the Board of Shamil Bank, a wholly-owned subsidiary, and he played an instrumental role in building Shamil into a leading Bahrain-based Islamic retail and commercial bank.
Hussain is a true veteran of the Bahrain banking and finance industry. Hussain currently serves on a number of boards including those of BBK, Faisal Private Bank (Switzerland), Faysal Bank Limited (Pakistan), Faisal Islamic Bank of Egypt, First Leasing Bank, Solidarity, Naseej, Ithraa Capital (Kingdom of Saudi Arabia), Emerging Markets Partnership (Bahrain) BSC (c) and CITIC International Assets Management Limited (Hong Kong).
BL: There are some rumors that Ithmaar Bank is on the verge of finalizing a big merger by acquiring Shamil Bank. Is it possible to have some details?
Mohamed Hussain: Yes, actually on October 4th, 2009, we have received a letter from the Central Bank of Bahrain expressing their non objection to re-organize Ithmaar Bank with Shamil Bank to create a new Ithmaar Bank with a Islamic retail banking license and that we would surrender Ithmaar Bank license (the investment bank license) back to the Central Bank and we will keep Shamil Bank license (the Islamic bank license) as the prevailing license for the new re-organized bank. Therefore, Ithmaar Bank’s name will stay while Shamil Bank’s name will disappear.
The new Ithmaar Bank will be a retail bank focusing on retail banking, corporate banking, and on the financial institution’s treasury activities. The retail bank will be focused on the Bahrain market, and the corporate banking activities will be focused on Bahrain and the GCC. And the financial institution will be to further develop inter-bank activities between the new Ithmaar Bank and all other banks locally, regionally and internationally. Now, that would also means a more efficient new Ithmaar Bank having one board, one management team and one system and when this step is done, Ithmaar Bank will be the largest retail bank in Bahrain, at least Islamically, and one of the largest banks in the region.
In parallel, Ithmaar Bank is planning to raise the equity capital of the new Ithmaar Bank through three means of capital raising: one is rights issue, second is mandatory convertible Sukuk, and the third one is through equity line of credit. These three capital raising process should raise a new amount ranging between US$400 and 500 million which will raise the shareholders equity of the new bank from the current US$1 billion to US$1.4 billion. That will make it one of the largest banks in the region with a solid equity base which will pose it for more expansion in both retail banking and on corporate banking. Now, in addition to retail and corporate banking, we will be still have a line or activity for investment banking activities and we will continue to do some investment banking activities but the major focus of the business will be on the core business, i.e., retail, and the corporate banking as well as financial institution relationship.
BL: Mohamed Hussain, may I know what the cause behind this merger is especially at this time of financial global meltdown?
Mohamed Hussain: Actually, we have thought of this merger or this re-organization for more than a year and it has nothing to do with what has happened in terms of the financial crisis. Our plan comes at a time when we need to consolidate, and we thought that a new retail bank will have a low risk profile. This is one reason. The second reason is that we will solidify the equity base. The third reason is to have higher capital adequacy.
BL: When will the merger of Ithmaar Bank and Shamil Bank be finalized?
Mohamed Hussain: The bank is working with the relevant authorities towards completing all the necessary requirements ahead of the launch of capital raising initiatives and Ithmaar bank hopes to be able to do so by February this year. We have obtained the approval or no objection letter from the Central Bank and the approval from the shareholders of both Shamil Bank and Ithmaar Bank. However, there are certain laws and rules that we must follow and that’s why it might take till the end of March to finalize.
BL: Will the merger lead to a reduction in the number of your staff?
Mohamed Hussain: We are not going to do with redundancies as a result of the merge but if there is any sort of redundancy made it will be out of lack of good performance on the part of staff. But if there is excessive staff in one area over the other areas so we can try to redeploy employees into other areas in order to avoid redundancies as much as possible. We will not do that because I think if the new Ithmaar Bank will go in a big way into the retail banking market and make a big penetration in the market with respect to retail in the corporate banking in the GCC then we will need staff.I think that the quality of the staff that we have now is very good.
BL: What are the plans of Ithmaar Bank after the merger phase?
Mohamed Hussain: The main strategic plan for the bank is to be a leading bank in the retail banking market and in the corporate banking market, which is the core business of its license. This means that we will penetrate the market more, and focus more on the core because the core business will be the bread and butter of this bank. There will be sort of recurring income aspect of the whole bank and the investment banking will not be focused on as much as before. But we will still do some investment activities as per clients’ appetite, and it will be of course customer-driven but it will not be a major focus area for the new Ithmaar Bank. So in retail banking, I will be increasing the number of branches and the number of ATMs. We’ll be focusing more on the e-banking. Our focus will be much more on customer service and customer satisfaction. And on the corporate banking side, we will diversify more into all kinds of industries like the construction industries, the manufacturing industries. I will be working more on arranging syndications. So the focus of the corporate banking side is not only on Bahrain but also on the GCC and selectively even outside of GCC. These are the main points of the strategic plan that I have already prepared which I presented at the December 2009 board meeting.
BL: What about the financial results of the 2009?
Mohamed Hussain: During the first nine months of 2009, Ithmaar Bank reported a loss of US$59.5 million attributed to shareholders equity. That loss came because of a few reasons; just like all other investment banks, there were no investments existing during the year and very weak placement activities. In addition, we had to take more impairment and provisions for some of our assets, and, also including impairment that was done in the Pakistani market through our subsidiary there Faysal Bank-Pakistan. Now for 2009, we showed loss, and that is part of being conservative and taking adequate provisions for that is Non Performing Loans (NPL) as well as for some impairment in some of the investment activities. The most important thing at this stage is maintaining a good liquidity position and managing that in the best possible way. Hopefully, with the year 2009 over, we should start the year of 2010 clean and have a solid base to go forward.
BL: How does the US dollar compare with the Chinese RMB? What is their effect on our currencies?
Mohamed Hussain: Well, I am of the view and I am one of bankers that would encourage and push as much as possible for the GCC Unified Currency because there are a lot of advantages out of this matter. The GCC countries possess collectively large economic powers because of the oil. Of course, it will be a more organized currency if it is one Gulf currency. It could be used as a currency for trade business on a bilateral basis and not as a reserve. The other aspect, having one currency in the GCC will make it easier for financial institutions to cross lend each other. Of course, I think that the GCC currency should not be pegged 100% to the US dollar, it should be partially pegged to the US$ and it should have a basket of currencies which should include the RMB. Hence, we can see it more or less having a floating rate up to a certain extent rather than 100% pegged to one currency.
BL: What is the current state of the financial crisis?
Mohamed Hussain: Currently, we can see some signs of recovery in certain areas of this world, for instance there are some signs of economic recovery in Europe, and countries like Germany and France, which are the two largest economies in the European market.
There are some signs of recovery in the US as well but these are signs and we need to wait for further information on the economies.
Now of course on the Asian side, we see that the Chinese economy and the Indian economy will grow, and they are expecting they should grow something in the range of 6%-8%. Yes there are positive signs but I think we are still living in a tough environment and that we have not seen a full recovery. We have not seen a full come-back of liquidity. I mean, the market, up to a certain extent is tight but it is much easier than what it was, let’s say, 6 months ago, or 9 months ago. I think there is light at the end of the tunnel but this light is still low light. Personally speaking, I expect the real recovery will come by the end of 2010.
Now what happened I think in Dubai’s market about last year is small in terms of size, but it has an impact on the overall regional market. But I think it is not a loss. It is a rescheduling issue and it is a liquidity management issue.
BL: Mohamed Hussain, What have we learnt from this crisis?
Mohamed Hussain: I think what had happened during the last 12 - 16 months in the financial sector and in this region made us realize three things: 1- we should go to the plain vanilla game and focus on the diversifications of investment activities and all kinds of assets activities and liability activities. For that reason, diversification has been always the name of game. 2- before entering into any venture, we should make sure that we have done extensive due diligence on any asset that we enter whether that asset is for an investment nature or retail or corporate banking nature. We should make sure there is a thorough due diligence and assessment of risk and analysis and risk management that really fits with our risk appetite. 3- the lesson that we should learn from this financial crisis is that we should focus more on corporate governance. All banks should have good corporate governance and that means processes, approval layers, policies, procedures, checks and balances, and control. I believe if we follow good corporate governance we should be able to survive and let’s not do things on an ad hoc basis but do things on a planned basis.
