Change of mindset among SMEs needed
Manama, December 2, 2012
Cautious optimism tempered with plenty of pragmatism - that is the mood that prevails among many in Bahrain's business community today. However, while few know exactly where the country’s economy is heading right now, BMI Bank chief executive Jamal al Hazeem has a clear a vision of the route his bank is taking.
Such clarity of vision hasn’t always been the case at the bank, which was established in 2005 and was known as Bank Muscat International until 2008. By al Hazeem’s own admission, when he joined in May 2010 the bank was struggling for identity. Its market presence was minimal. It had several problematic legacy accounts, and its financial performance had been disappointing. He admits the bank needed ‘rebuilding’.
“When we started we established a number of objectives, focusing on the short and medium term, and we’ve achieved most of them,” he says.
Building a management team to mastermind the plan was a priority.
“Let’s be honest – in a small place like Bahrain with our unique culture, faces are important,” he says. “If you bring in someone who is known publicly, it enhances the brand. I think the people we brought in have played a role in enhancing the brand.
“But we still had to convince them there was sufficient potential in this small organisation to leave their jobs and join us,” he admits.
A brand overhaul was next. “When I was first interviewed for the job, I did not know about the bank. I won’t say we needed to rebuild the brand because I don’t believe at that time there was a brand,” Al Hazeem states.
A strategic decision was also taken to consolidate in the Bahrain market, reducing the sort of cross-border exposure which had previously created difficulties. Today BMI is a retail bank concentrating almost exclusively on the local market, but with what the chief executive suggests is a healthy and growing corporate banking business too.
It is also now steady financially. In the third quarter of 2012 the bank turned in a fifth consecutive quarter of profit, albeit a very modest $1 million, but this compares to a net loss after provisions of $10.3 million in the same period of 2011. The bank also reported a capital adequacy ratio of 19 per cent, with strong liquidity, in Q3 2012. Steps are also being taken to address the ongoing problem of the legacy accounts through provisioning, collection efforts and through legal channels, Al Hazeem notes.
One of the smaller players in a saturated local market – with a market share of about seven per cent on the assets side, similar on the liabilities side – it could be argued that BMI is finding its level in a market drifting inexorably to the provision of consumer lending.
“There is a lot of liquidity in the market, you can see that in the balance sheets of the banks, which they are looking to deploy. In the absence of many major local corporations and the high risk normally associated with SMEs [small and medium-sized enterprises] most banks have moved to consumer lending, and the rates are historically low.”
On the corporate side, competition on rates is fierce as well, he says. “There are only a few large corporations in Bahrain and we’re all after the same business,” he explains, before adding that SME rates “are still reasonable” for banks.
In some ways Al Hazeem’s work at BMI to date mirrors his experience at the Bank of Bahrain and Kuwait (BBK), one of the kingdom’s largest and most successful commercial banks, where he spent six years on the board.
“BBK came from a big black hole a few years ago to become a very successful bank with a good brand,” he recalls. “In a similar way people can now relate to BMI Bank. Following the rebranding exercise it is something they see on a daily basis.”
In building BMI, Al Hazeem hopes not only to learn from BBK’s reinvention and turnaround, but also keep focused on what should be – but often fails to be – the mainstays of any bank: customer service and quality of products. He also believes BMI can turn its small size to its advantage against the big boys.
“You can be more agile, make quicker decisions. But above all, relationships are key in a small place like Bahrain. Bank size plays a role, as does credibility, the brand image, and rating. But at the end of the day, the relationship is the most important,” he says.
Relationships take many forms and a tie-up between the bank and Tamkeen, the Bahrain government’s semi-autonomous Labour Fund, continues to support the development of SMEs in the country.
“I’m a big believer that a strong economy is based on SMEs, not just big corporations,” Al Hazeem emphasises.
Under the terms of the Tamkeen programme – which is supported by several banks in Bahrain – BMI’s Islamic banking division has since late 2010 provided three tranches of BD10 million ($26.5 million) each, used as competitively-priced sharia-compliant finance for qualifying firms. Tamkeen guarantees 50 per cent of the total financing amount, and subsidises 50 per cent of the profit payments due from customers.
This commitment to Tamkeen complements BMI’s own conventional SME financing scheme, and has taken the bank’s overall support to about BD60 million to date. Al Hazeem hopes and expects to continue supporting Tamkeen’s SME plans in 2013, but warns that the enterprises themselves must also step up to the plate.
“One of the objectives of the Tamkeen programme is not only to support SMEs but also to improve the way they do business," he says. The Tamkeen programme gives them some leeway on meeting some of the strict lending criteria required by conventional financial institutions. "But if the programme were to stop, would these SMEs be able to qualify for conventional financing?”
Al Hazeem is sceptical. “It is a mindset among some SMEs at the moment. One of the requirements of the Tamkeen programme is to have annual audited accounts. Tamkeen actually pays for the audit, the SME incurs minimal cost. But many SMEs still fail to prepare audited accounts. They argue they are paying their debt, that they are not defaulters. We tell them it is for their own good, to build a credit history. Besides, the commercial companies law clearly states companies must have audited accounts but commercial registrations are still being renewed without them.”
The chief executives calls for a collective effort among banks, Tamkeen, the country’s chamber of commerce and its industry and commerce ministry to address this important issue, and steps are being taken in this regard. There are also moves to establish a credit rating system for companies in Bahrain for the first time, which he hopes will encourage more SMEs to comply with statutory requirements.
Al Hazeem acknowledges, statutory compliance aside, that these are challenging days for SMEs and larger corporations in Bahrain, which is impacting banks. While the uncertain operating environment in the country following the unrest of 2011 has unsurprisingly made foreign investors more hesitant, he also detects a greater caution among companies already operating there.
“We’re noticing that some customers who apply for financing for an expansion or new facility don’t draw it down after it is approved. When we ask them why, they normally tell us they want to wait and see [how the situation develops].”
A one-time chief executive of the Economic Development Board, Al Hazeem nevertheless believes supporting SMEs is vital to Bahrain’s long-term economic health, particularly in terms of the sector’s potential to create jobs. BMI says it has to date provided financing to more than 100 SMEs through the Tamkeen scheme alone, with half the allocated amount going to the manufacturing, construction and wholesale and retail sectors.
“You look at a large industrial company like Alba [Aluminium Bahrain]. Establishing a new production line there may cost $1 billion. Yes it is a major national project which has put Bahrain on the world map, but the new line may create only 40 new jobs.
“On the other hand take an SME. Let it grow and go downstream. You’ll create more than this number of jobs with an investment of maybe $10 million. That’s why they’re an economic backbone - they generate jobs, they can go downstream and because of their size they are more resilient.”
The BMI chief says patriotism must be balanced with pragmatism. “I have spent my life, and continue to do so, being loyal about things relating to our country. But lately, and I will say this candidly, I have to look at things from a business point of view too.”
He is cautiously optimistic about prospects for 2013 – both on national and at bank level – but believes much will inevitably depend on upholding law and order.
“If things are stable – and there is a lot of effort going on in this regard – I think next year will be a good year overall, even though I think the first half will continue to be difficult.
Al Hazeem hopes the government launches mega projects, the contracts from which will cascade down to SMEs. He also thinks public private partnerships can inject must needed stimulus to the local economy.
“They are good projects that get everybody involved. We have an abundance of liquidity to support them.
“I’m a believer that you need to be prepared for the rebound. We will continue to focus on Bahrain, and in the corporate sector we are and will continue to do extremely well,” he says.
* The above interview appears in The Gulf, our sister magazine.
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