Simon Hughes: Congratulations to AAIB and to yourself on the award of the International Banker CEO of the Year Middle East. Well done.
Hassan Abdalla: Thank you, Simon. I really appreciate it. This is a distinguished award coming from a very reputable institution. And I will very much cherish it. And, of course, despite this being personal, I would like to assure you that nothing of this would have happened without the team at Arab African who have done a brilliant and marvellous job. And again I would like to thank you and thank the organizers for having me awarded this. On a personal level, thank you very much.
Simon Hughes: You’re very welcome. Many congratulations.
[Title Card Break]
[0:58] Simon Hughes: Now, 32 years with AAIB, that’s a long time. But tell me, how did your career in banking actually start?
Hassan Abdalla: You’re right. It’s a lifetime journey. I started right out of school into Arab African International Bank, where at the time I was not really sure if banking was my thing. And since then I’ve been focusing. Since I started liking banking and liking what I do, I’ve started focusing. And I’ve been now 32 years heading the bank after all these years.
Simon Hughes: After all that time. Did that working your way through the bank, do you think that’s helped you in terms of understanding both the bank and the people and the services and the products? Has that background and that knowledge helped you?
Hassan Abdalla: Of course it has helped, but more importantly, I have been able at the time to have extensive on-job training with big houses, like – some of them aren’t there anymore – but Merrill Lynch, Paine Webber, Drexel, UBS, which is still there. So I’ve had on-job training there. And I’ve also worked a couple of years in Manhattan, one year here in London. And this being said, it’s helped me a lot to understand the international financial markets from my exposure abroad and, of course, I did know the local markets for Arab African inside out.
[2:24] Simon Hughes: So you worked your way to the top. What were the biggest challenges you faced when you took over the helm?
Hassan Abdalla: There are several challenges, because at that stage, Arab African International Bank was a relatively small bank in terms of market share. It was less than half a percent of market share. And now it’s around five. And it was only seven branches networked and very few employees. And when I took over, my age was around late 30s. Average age was around 57. So it was not easy at all to turn this around. Of course, I had to really focus and choose a good team to be able to make this come true.
[3:19] Simon Hughes: So in terms of managing it, building a team around you that could move it forward, was that one of the ways that you managed it?
Hassan Abdalla : That’s the most important thing; that’s the core thing. The core thing is to manage. And to…more important, I mean, I don’t believe in parallel structuring. I don’t believe… in a lot of institutions worldwide when there is a mess, they try to do a parallel structure. The parallel structure is more flexible—have people who are paid better and work better and are more educated. And the old structure is left to fade away. I totally believe in total restructuring. So you have to get the people onboard. And in order to get the people onboard, you have to really make a statement, and you have to really prove to them that things are doable and to lead them. Lead them first of all, of course, by example and lead them by informing them and by knowledge, which is a very important thing, I believe.
[4:24] Simon Hughes: In terms of leadership, what do you think it is that you have brought to that role? What are your leadership qualities that have helped you make that comprehensive change rather than doing something in parallel?
Hassan Abdalla: The most important thing is that you have to believe that you can to a big extent change the culture and the attitude of people, which is one of the most difficult things in the world. Because as you know, even worldwide, when there are MMAs, most of them fail because of the cultural differences. So addressing the culture and doing that in a specific way to your institution is the most important thing to have people know. I just tried to give you an example. When I first started, I told you that the average age was 57. And I used to get new hires, very brilliant, very smart, and when they came, they would stay in the institution for like six months, seven months. Then they would leave. Then I decided to call them and ask, “What’s going on?” Especially if I knew them. I teach at university, so I knew them from university. They were my students. So I asked them, “What’s going on?” So they said, more or less, the elders are demotivating us, and we are unable to even do anything or to even perform. They’re not helping us. So I just kept thinking, what to do with these guys? So I decided to establish a forum for them. Anybody who is in the bank up to one year, where they can sit there. Because when we met individually, it becomes the get, get any kind of ideas. But collectively they have to come up with ideas that would make the workplace better for them. Or ideas to improve the work. And they have the right to call on me or any of the seniors of the bank to present what they want in a proper manner. And this has done wonders. They felt ownership. And they felt that they are part of the change, and we have been able after that to be one of the employers of choice.
[6:23] Simon Hughes: That was a significant change. You’ve had over the last 10 years, you’ve moved from being a bank really to a financial group. How do you plan to continue the drive of growth in the future?
Hassan Abdalla : The whole Middle East has a lot of potential in the banking for growth with different and varying degrees. Egypt was the home country and the base and the head office. We have numerous opportunities. The penetration of the banking sector is very low. The segments are not all banked. The SMEs are not well serviced. So there is a lot of potential. Retail, of course. We are very good in Egypt in the big ticket items, like the big corporates, the big syndications, stuff like that. But when it comes to the middle market, we still need as a banking sector to move forward and to cater to it.
[7:18] Simon Hughes: And that’s your area for growth.
Hassan Abdalla: That’s our area for growth locally. I do also believe that since you mentioned the financial group, our investment arm is the area for growth, exponential growth, in the region. Because it is very hard to compete in traditional banking in our region of the world, because banks are already competitive in their own markets.
Simon Hughes: We’ve touched on the great challenge when you joined and how you started to incorporate new people into the existing structure. You’ve had a lot of success. What are the operational challenges that come with success? As you’ve achieved growth and you’ve developed new markets and you’ve developed new products, what are those operational demands on you and how do you deal with those?
[8:04] Hassan Abdalla: They are extremely tough. And unfortunately I’m more of a business guy, so this makes it more tough for me. But I have to do the job. And, yes, the challenges include, of course…Now we have these challenges spelled out, like operational risk, market risk, and we’ve been strengthening this immensely in the bank lately to cope. And it’s already been established and coping with the growth of the bank. Of course, it’s most important also to have the policies and the procedures and an IT system that caters with the control system that caters for the growth.
Simon Hughes: Just touch on the kind of IT. There’s a huge amount of attention being paid to, if you like, the difference between automating things and making things available online for customers. And the need for face-to-face. Where are you in that journey of where do we put our effort, where do we focus? Is it more the kind of systems that allow transactions quicker and easier for your customers, or is it actually maintaining the face-to-face service that customers often require?
[9:13] Hassan Abdalla : This is a worldwide question, and it depends on the market and on the product. Of course, in retail, you have to focus on IT and the Internet, but when it comes to SMEs or high network, there is this personal touch. I do remember, I mean, you were with us, you’re as old as I am, so you would remember that when the ATMs first started, it was like, “Oh, wow, what’s going on?” But now without the ATMs, this would not have happened. It’s the same with what happened with Internet banking. After a while, a lot of people who helped the penetration, especially in a country like ours where the Internet penetration is way higher than the banking, and the mobile penetration… The mobile penetration in Egypt is above 100 percent, and banking is lower than 10 percent, so you see the spread.
Simon Hughes: Huge opportunities. Let’s touch on how you calibrate your achievements. What do you think has been your greatest achievement since you took over as CEO?
[10:14] Hassan Abdalla : Of course, the performance of the bank and building the team and having a sustainable story, not a blip. That’s one of the things I totally believe in. Sustainability. And what’s close to my heart is being able to fund, to establish the first NGO specifically targeting CSR and sustainability and development of society. And that’s very close to my heart, and it was one of the reasons how I convinced the team to work more. I told them, “If you stay extra hours, more than your colleagues, know that part of this is going to the society back.” So we’re doing it on behalf of our bank, and we’re doing it in a very good way.
Simon Hughes: You are well-known for the kind of CSR sustainability programs that you run. Which is the one for you that resonates most personally, the one you’re most proud of?
[11:15] Hassan Abdalla: I just like to focus, because a lot of institutions do charity work, including Egypt and worldwide and CSR work. When we started coming from the banking, we knew that we wanted to maximize returns at a given level of risk; so we want to maximize the returns at a given level of donations. What happened practically was that when we started first, we started before the established association as a kind of a normal donation to one of the hospitals. And when it was done, it was amazing. The refurbishment with money was well spent. And it was done in the winter, and I had my photos. Everything was cool. Everything was great.
Hassan Abdalla: And then two months later, I decided to go and visit the place. Because I wanted to see. And I found it going down very fast. Because there was no maintenance. Because these…I’m talking about public sector hospitals. They don’t have the means. So whatever donation you give to them, they take and they build, and then it goes under again. So we decided to, and coming back to focus, we decided to focus on health, health for kids, and education on the side; but that’s mainly one of the focuses. And focusing on health for kids. We wanted to focus on the sustainability of the project. So we are now partners with these people. We partner, and we do the extra they have. The infrastructure. They have the place, but we partner in terms of getting cleaning companies, security companies, making it state of the art for the people.
[12:51] Simon Hughes: So again, it’s that sustainable thing. It’s not just about giving them cash; it’s about working with them and along with them.
Hassan Abdalla: It has to be a mutual interest and partnership and checks and audits. And there has to be an involvement of our personnel on their association with personnel. We do a committee with the head of the hospital and personnel from our part, and they can manage even to the extent of getting involved with the higher level of the running operations of the place. Other than that, what happens—I don’t know what happens here, but what happens is the money goes for, for instance, refurbishing. And then, because there is no maintenance, six months later, we find, oh, the building is very nice, but the nurses are not doing a good job. So we have to put all these dots together. If the nurses need training, we train them. If they need extra time, we pay them.
Hassan Abdalla: We just try to do the best. And, of course, what’s important about this is again another concept of banking, which is leveraging. We’re leveraging the money that the government puts and that is not put to proper use because of just a little bit that you need to add, which is a little. Because they do have specific boundaries. We’ve managed to decrease the waiting list of breast cancer in the public hospitals from two years to zero.
[14:14] Simon Hughes: That’s very good.
Hassan Abdalla: And for kids with water on the brain, from two years to three months.
Simon Hughes : So measurable success in terms of creating that. Now touching on community and corporate social responsibility, Egypt’s had a challenging and difficult time over the last several years. Where do you see that going in terms of the impact that it’s had on the financial sector specifically?
Hassan Abdalla: Egypt, of course, has had a challenging time, and still has a challenging time. The challenges get different, but there are still challenges. As we are now, I believe generally in Egypt, I’m extremely optimistic. We do have these challenges that everybody is aware of. And I believe that our focus currently is to attract FDI and tourism back. Because this is dependent on the security of the country and the social stability. So hopefully if this is done I have no problem. The Egyptian economy is diversified. We have an informal sector that is as big as the formal sector. We have an appetite for people to…because we’re the biggest market in terms of population, we have an appetite for investment. We’ve seen people from all over the world tap dancing to find opportunities. And we did it, and we’ll do it again on the economic front. But we need to take care of the social aspect, and that’s the challenge we’re facing now.
[15:43] Hassan Abdalla: We have been very fortunate that one of the first sectors that was subject to reform in Egypt was the banking sector. We started this in the early 2000s, and we’ve been able to do consolidating the banks almost 40 percent less in terms of numbers. And bringing new banks who are very competitive to take weak banks; so the landscape is very competitive. The banking sector is very liquid. We’ve had very prudent provisioning policies, and we’ve had a very focused central bank, which I’m proud I’ve been serving with them as a board member for eight years. Something I’m very proud of, with a very good team. And we’ve been able to create a banking sector that is solid in the face of even the international financial crisis. And all the recent challenges. So we are quite confident that our banking sector is solid, despite a few challenges that we have to face as I mentioned briefly in the beginning, which are relating to the ability to increase the penetration. To go to the other sectors that are under backed in terms of size of companies and all that stuff.
[17:00] Simon Hughes: And what do you expect the Egyptian banking sector itself is going to do in terms of future development over the next few years? What other things do you think they need to focus on?
Hassan Abdalla: I still believe that going to the SMEs, mortgage finance, which is very important to have, almost negligible in terms of percentage mortgage finance, so can you imagine what this would do? And retail. These are the areas where I think there is a lot of growth.
Simon Hughes: You mentioned SMEs, and there’s a very large increase in SME services in conjunction with Tanmia and the improved provision of SME funding through the IMC Fund. Do you have any additional plans to develop solutions for the SMEs over the next few years? You’ve focused on them a couple of times. What are your specific plans around them?
Hassan Abdalla : The way we want to handle this, because it’s a totally different—the problem when I looked at it, and so are other banks in Egypt doing the same, for example—the problem was that they get people who are trained to deal with big corporate and ask them to deal with middle or small corporate. So I don’t think this is doable. It’s a totally different set of minds, a totally different animal. You have to treat it in a different way. So the way we are starting is—we’re still in the very beginning—we’re doing the funds specifically for SMEs out of an investment group. Which would help us both extend equity or when needed designate that to these companies and understand them, and then we can have a system that you can replicate and grow with.
[18:35] Simon Hughes: So it’s getting a working model that you can then…
Hassan Abdalla : Exactly.
Simon Hughes:Now you’ve also mentioned the way that new banks have come into the market; how much consolidation do you expect to see in the African and Middle Eastern banking sector over the next few years?
Hassan Abdalla : Well, the problem when you talk about Middle Eastern-African is that it’s really a very different market. Extremely different market. And the barriers to entry are extremely, extremely tough. In most countries, you cannot have a new licence. And in most countries, there are no banks for sale. And if it is for sale, you have to pay a lot. In terms of multiple banks in our region, there are at least twice the multiples than anywhere else. So that makes it very difficult to grow into the traditional constellation. However as I mentioned earlier. And this is one of the areas I would like to focus on with Arab African; you can go there and do it through investment banking.
[19:45] Simon Hughes: Do you think that’s going to be the answer – the investment banking model? Will that be one of the ways you’ll move forward?
Hassan Abdalla: That is one of the ways that we will move forward. We already have a base for traditional banking in the Emirates, Dubai, Abu Dhabi, Lebanon. But going into other markets like Saudi Arabia, Kuwait… I tell you honestly, even international banks, you can go and ask whoever and just look up on a search, they cannot compete in retail in these markets. Because the local banks are aggressive. They have learned all the banking – banking is not rocket science. At the end of the day, we all know the dimensions. So they can’t compete. It’s better to compete in an area where you have an edge—where you can link countries together. That’s where your edge is.
Simon Hughes: Let’s touch on rocket science—coming back to people— as you look at some of the things you’ve been talking about, how do you spot the new talent that’s going to kind of feed the bank the resources and the thinking and the energy and the drive to make some of these things happen? How do you nurture that talent? How do you bring that through?
[20:59] Hassan Abdalla : You have to be an employer of choice. That’s number one. You have to pay people a fair manner, more than a fair manner, as much as you can. Sometimes it gets very difficult to spot who did what at a specific time, as much as you can. And more important, you have to develop them. So we have, for instance, starting from the entry level, we have what you call, what we refer to as “high flyers”. Those are the people who we put into a whole one-year program for rotation. The program is designed to have…they go and they rotate in all the departments of the bank, everything. And at the same time do have a theoretical overview of the banking sector.
Hassan Abdalla: By the time they finish this year, and despite it being tough for them, I would tell them, consider this as your real education in life. Because if you don’t do it, and you go and sit and be a manager, you won’t understand this and this. When you’re young, you can absorb. This makes for me understand those people when they come. I tend to spot like the best people of them on the theoretical part and the practical part of the reports, and then you start splitting them.
[22:21] Simon Hughes: How does that fit with your personal-life philosophy in terms of leading and managing success? What do you think you bring to that part of the operation? How do you spot those people? What is it that gives you that eye for them?
Hassan Abdalla: As I mentioned, we have this program, and at the end, people who do well, and at the end, we sit with them for 10 minutes. I believe that with 32 years’ experience in banking. And it’s not what they know, by the way, because people will sometimes misread that. It’s not what they already know. It’s their ability to learn. And their ability to think and hopefully – I mean, one of the trick things is to give them a “way-out-of-the-box” question and see how they react. Another thing is to give them a very tough question and make them think. What’s their thinking process? So what we need are people who have the ability to learn. Nobody knows everything.
[23:15] Simon Hughes: Now we’ve been talking quite a lot about local issues and regional issues. How does the broader global banking sector, how does that impact on AAIB?
Hassan Abdalla: Whether AAIB or the whole banking sector in Egypt, we’re not depending on funding from abroad, which has been almost now stopped, because of the situation. Other than the situation, the challenges of the situation in Egypt and the downgrade have hurt. Other than that, more important also the BIS issues, which make it so hard. The intra-bank market has already dried up. But fortunately, and part of the banking sector reform is that most banks are very liquid, so we do have liquidity. In fact, the banks in Egypt to date are a net depositor to the whole world; they are not a net taker.
Simon Hughes: And in terms of local sectors, what do you think will affect the Egyptian economy the most over the next few years?
[24:16] Hassan Abdalla: The ability to get tourism and FDI. Those are two issues that really every Egyptian has to work on.
Simon Hughes:Now, finally, looking into the future, what are the key factors that will affect the growth of AAIB going forward, do you think?
Hassan Abdalla: I believe that on the local front, we will be focusing on increasing the penetration for retail and on the other sectors of the corporate market. And on the investment banking side, we’re planning to grow in this region and to be able to expand our products and our services in the region in order to be one of the leading financial groups in the region.
[25:02] Simon Hughes: Well, thank you very much indeed.
Hassan Abdalla: Thank you, Simon. It’s been a pleasure. Thank you very much.