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Emirates NBD Seeks Steady Profits by Souping Up its Retail Business

DUBAI — For Emirates NBD, the recession has driven home a useful lesson: Old-fashioned retail banking, modernised for 21st century lifestyles, is the surest path to profit.

The UAE’s largest bank by assets has looked at its counterparts around the world and concluded that those with well-developed retail operations are the ones that have best withstood the financial crisis.

So, in charting its own course for growth, Emirates NBD has tried to avoid flashy corporate services and high-yield, but high-risk, investment banking innovations. It’s focusing instead on the little guy, by opening more retail branches, expanding its credit card services and catering to small firms. “Retail is a much more sustainable business,” says Executive Vice-President Suvo Sarkar, who is leading Emirates NBD’s strategic push as its General Manager for Retail Banking.

“The retail business is less cyclical … whereas some of the other fancy corporate and investment banking products come and go.”

Retail banking is also uncommonly lucrative in the UAE because personal loans, including mortgages, tend to be larger here than in many other heavily banked cities, Sarkar told Khaleej Times in a recent interview.

This retail-intensive strategy faced a stern test on Monday, when Emirates NBD announced a 41 per cent slide in its second-quarter net income compared to the previous year, due to a sharp increase in its loan loss provisions. The profit squeeze was in line with what many other UAE banks have experienced as the effects of the recession has rippled through their loan portfolios.

However, Emirates NBD’s quarterly operating income continued to grow, helped by a 10 per cent year-on-year rise in revenues for the Consumer Banking and Wealth Management unit, which includes Sarkar’s retail division.

As proof of the bank’s retail ambitions, Chief Executive Officer Rick Pudner said that Emirates NBD would continue investing in new branches and private banking operations.

“Those are sort of areas of investment even in these tough economic climes,” Pudner told reporters in a Monday conference call.

Sarkar believes that the second half of the year will bring a further increase in non-performing assets, especially among unsecured credit card and personal loans. “I think all banks are bracing themselves for the next six months,” he said, speaking at his office in Dubai’s Festival City. For its part, Emirates NBD has set up a new unit to help restructure and salvage shaky personal loans.

“We have customers whose salaries have gone down by half, so we have to be able to work with them,” Sarkar said.

In spite of the cloud over its profitability in a punishing year, the bank is pushing hard and fast to expand its retail footprint. Emirates NBD wants retail — which last year generated one-third of the company’s overall profits — to boost this contribution to 45 per cent over the next three to five years. The bank has opened two branches each month for the past several months, enlarging its total network to 
112 branches.

Emirates NBD already has the biggest branch network in the country. It aims to double this within the next five years; in Abu Dhabi alone, it plans to increase its presence from 12 branches to 50. The goal, Sarkar said, is to be “omnipresent.”

Sarkar’s biggest challenge is ensuring good service at all these branches. He concedes, for example, that Emirates NBD needs to be seen as “faster, nimbler, more modern (and) more customer-focused.” To upgrade skills of its front-line staff, the bank has enrolled all 150 of its retail relationship managers in a training program overseen by a UK-based firm. It’s also seeking advice from a consultancy in Singapore.

“There’s a huge amount of work to be done…,” Sarkar said. “Before we can delight the customer, we at least have to satisfy the customer.”

The retail chief is especially eager to attract the prosperous customer. The bank has set up 35 “priority banking centers” catering to what it calls “affluent” and “emerging affluent” clients. It plans soon to have 50 of these priority centers in operation. Small and medium-sized enterprises are another new target market. Emirates NBD has three branches dedicated to providing small companies with foreign currency, trade finance and other basic services. It aims to have 10 of these specialised business-friendly branches by the end of the year.

At the same time, the bank has beome more creative with its credit cards and ATM and Internet services. In June it launched a Visa card co-branded with Emirates Airline that awards cardholders with Skywards frequent flyer miles. Customers can now use the bank’s ATMs to buy tickets on low-cost carrier flydubai, and they can go online to pay traffic fines and top up their 
Salik accounts.

As he advances on several fronts at once, Sarkar is benchmarking Emirates NBD’s retail progress against successful non-banking companies, such as British grocery chain Tesco, as well as top international banks.

Sarkar insisted that Emirates NBD’s emphasis on retail is “not just a crisis-driven initiative,” though he said that the ongoing financial turmoil has given it fresh momentum.

Still, these are tough times for bankers, even for an enthusiastic salesman like Sarkar. He expressed concern about the potentially large number of jobless expats – many of them his customers – who might be leaving the UAE for good this summer. “The next three months,” he said,” are going to be critical.”

· bruce@khaleejtimes.com