May. 4, 2016

Lloyd Maddock


Lloyd Maddock

CEO, Ahli Bank

"We remain one of the few banks that trade above book value on the Muscat Securities Market (MSM)."


Lloyd Maddock became the CEO of Ahli Bank in February 2014. Before assuming his position at Ahli Bank he was the Deputy Group CEO-Corporate Banking at Ahli United Bank Bahrain. Prior to joining the AUB Group, he was CEO of HSBC in Pakistan and Kuwait. Since graduating in Engineering, he has been a career banker with 23 years of experience in the Middle East, North America, Europe, and the Asia Pacific region.

What management decisions and factors allowed the bank to post such solid growth figures in 2015?

Differentiating our bank in Oman's fiercely competitive banking market relies heavily on providing accurate and reliable customer service, with suitably tailored products and services. We have also managed the bank in reference to several key financial matrices, such as cost efficiency; Ahli Bank is the most cost efficient bank in the country, with a cost-income ratio of around 33%; return on equity and credit discipline, whereby we aim to achieve above 13% return on equity, and to maintain a low ratio of non-performing loans of below 1%. To date, growth has also been a key part of our strategy. In terms of loans, deposits, and balance sheet footings, the bank has grown at an average rate of 20% a year. Over the previous year, we brought in a lot of innovation in terms of mobile and internet banking. We repositioned some of our key branches and launched a number of customer service kiosks in the major shopping malls, which operate from 10am to 10pm.

How have you adjusted your management and strategy to deal with the widespread downgrading of sovereign and institutional credit ratings?

There are two implications of this, the first of which is our shareholders' potential concern with our stock price. In reality we remain one of the few banks that trade above book value on the Muscat Securities Market (MSM). The MSM 30 Share Index of the large cap companies is closely held by various pension funds and investors. The credit rating downgrades did not have much impact on our stock price because the investor community understands the reasons for both the sovereign and banking sector downgrades. The other implication is that it might have changed the credit appetite and pricing provided by various foreign financial institutions, which provide lines of credit to the bank. To date we have not observed any negative reaction, which is encouraging. Given the tightening liquidity in the finance sector, it remains important to have such lines of credit available in case of need.

What growth potential do you see in Islamic banking for Ahli Bank, and is this organic growth or existing customers switching over from traditional banking?

We took the decision to launch Islamic banking in a big way, opening seven Islamic branches on the same day. We have found that the corporate and consumer customers are generally happy to borrow money through Islamic financing structures. However, it is more challenging to attract deposits, as no interest paid is paid on deposits under Islamic banking principles. However, there are various investment products that we and other banks provide, which pay profits on a risk-sharing basis. One challenge is that the regulators in various countries are not consistent in the products that are permitted. For example, in Oman commodity murabaha and tawaruk are not yet permitted, which reduces the product suite that banks can offer. While home finance is well served, personal finance is more difficult to structure. Despite this, the Islamic banking market has achieved around a 7.5% share of Oman's overall banking market over the last three years, and I would expect it to cross 10% in the medium term. This reflects a combination of existing customers moving to Islamic banking and, in some cases, consumers whom have opened bank accounts for the first time (or returned funds from abroad), as they were waiting for Islamic banking legislation to be put in place. We are certainly pleased with our Islamic franchise, which contributed 25% to our bottom line during 2015.

Would bringing the regulations under one standard across the Gulf fundamentally change Islamic banking for you, given Ahli Bank's link to a larger group?

We have fully Islamic banks in some countries, such as Kuwait, so as a group we have that track record and expertise. Having one set of standards is unlikely because each country's central bank has its own scholars and sharia board whose interpretations sometimes differ. The encouraging fact is that Islamic banking seems to have quickly gained popularity in Oman. The government is playing its part as well, by issuing the first sovereign sukuk, which set an Omani riyal yield curve and a benchmark. This paves the way for companies to issue sukuk going forward.

Oman's ninth Five-Year Plan calls for more PPPs and private financing of infrastructural projects. Do you see the financial sector playing an important role in these efforts?

That has been the case until now. However, current legislation mandates that banks can only lend a certain percentage of their net worth to a single client, whether that client be government or private sector. Banks will begin to hit hurdle rates in terms of their exposure on some of these projects and so other funding sources will need to be tapped. The enabling legislation for PPPs should be released shortly, and there will be IPOs of several state-owned enterprises. We have seen this with the stake sale in OmanTel and we expect that stake sales in the various power generation companies will follow.

How would you characterize the overall regulatory environment in Oman, and do you anticipate any changes?

This is the 12th country in which I have worked, and I find the regulator's track record to be good here. Despite previous economic downturns there have been no bank failures in Oman, which is a testament to the country's strong regulation. Banks are required to keep 5% of their deposits with the central bank, but recent legislation has provided that 2% of that figure can be held by banks as government development bonds, treasury bills, and government sukuk. That has released around OMR400 million of liquidity back into the banking sector, assuming all banks hold 2% of the required 5% in government securities. There might be further enabling legislation in terms of liquidity measures coming from the central bank, and we expect the government to launch a Eurobond transaction this year. My view is that the banking sector in Oman is highly regulated, but that this has stood the country in good stead.

What are your expectations for both Ahli Bank and the wider economy over the next year?

For Ahlibank it is business as usual. The cost of deposits will continue to increase, which means the cost of borrowing will also increase. However, I do not see a constraint on the capacity of the banking sector to lend. I also expect the banking sector to remain profitable, highly capitalized, and well regulated. The economic situation is certainly more challenging and the level of year-over-year profitability in the sector may remain flat or decrease slightly this year.