AMMAR A. ALKHUDAIRY

Saudi Arabia 2021 | FINANCE | VIP INTERVIEW

TBY talks to Ammar A. AlKhudairy, Chairman of Samba Financial Group, on adjusting to the pandemic, the upside of digitalization, and expectations in an unstable time.

How did you navigate the initial days of this crisis and adjust your internal systems?

Because we are a bank, we were fortunate in the sense that, as required of all banks, we had contingency plans in place. Banks have what we call disaster recovery, offsite work, because they are expected to stay open no matter what. That gave us a bit of a running start. We knew we needed to be “business as usual" as much as possible. We assembled a taskforce, headed by the CEO of the bank, that met daily, at the beginning twice a day. We were able to go from 100% onsite to less than 30% within four days. I commend the executive leadership for pulling it off. The business remained intact, and people were engaged and productive. While we were disrupted temporarily, the core businesses of investment banking, commercial banking, corporate banking, and treasury were all completely up and running.

Have you readjusted liabilities or investment positions in response to the crisis?

We have not adjusted liabilities at all because we have not had liquidity issues thanks to the central bank's proactive programs mitigating the impact on businesses and banks' liquidity. On the asset side, the situation is different. In March, in particular, markets became disconnected. At the point in time, the London Interbank Offered Rate (LIBOR) became significantly higher than Saudi Interbank Offered Rate (SIBOR), which is a historical anomaly. Our treasury spent a large amount of time managing these anomalies and disconnects in the market. There was negligible adjustment on the liability side and significant adjustment on the asset side.

What do you anticipate persisting beyond the crisis in terms of digitalization?

A crisis does not just force companies to adopt certain changes to their new business model—it also accelerates it. What typically takes six to eight years to adopt is now 12-18 months. Without a doubt, it is imperative to make a client feel like they can do anything they want without coming in, without a decline in the quality of service and delivery, and that the user experience is comfortable for them. These three imperatives have been elevated in importance tremendously. We, as a bank, are spending much more time trying to figure out how to accelerate and enhance the delivery of virtual channels to achieve these three objectives.

What do you expect going forward in terms of profitability and performance?

We have three headwinds that we have to deal with. The most measurable one is falling interest rates. Everyone knows Saudi banks enjoy a high proportion of non-interest-bearing deposits in the banking system. That is the first significant headwind. Headwind number two is the expected decline in economic activity because of the economic climate and, therefore, the decline in demand for consumer, credit card, and even corporate loans. We obviously made projections and have adjusted our budgets and plans accordingly. The third one is NPLS and that one, you never know until it happens. We have started, at Samba, for 1Q2020 and 2Q2020, taking additional provisions. We have coordinated to our risk management and gave them more leeway in taking general provisions in anticipation potential negative credit event.

How are you planning for the various recovery scenarios from COVID-19?

The whole world, Saudi Arabia included, worked hard to flatten the curve and better prepare the health systems and infrastructure in anticipation of COVID-19. We have done a tremendous job in Saudi Arabia to get the healthcare system prepared for a number of cases that is significantly higher than what we could have dealt in three months ago. The whole ecosystem has now been prepared for this. The likelihood of another shutdown is remote. On the economic side, whether there is a second Covid wave or not, the economic and business challenges that we have to live with are indeed real. At the bank, we have planned accordingly, as the full economic consequences might not fully materialize be apparent for a while longer.

What have you as a leader, and as an organization, learned from this unprecedented and historic crisis?

My biggest lesson has been to apply the ideas behind the five stages of grief and then disseminate them throughout the organization. When people talk about agility in management, it is about going through the five phases of grief and bringing your leadership with you. The crisis management team meets daily just to take care of health and similar issues. The senior leadership of the bank has met almost on a weekly basis to discuss and contemplate how the changing landscape affects our business model and prospects. We have had a board meeting to discuss how this affects our plan for this year and the following years. When there is such a huge adverse situation, you have to embrace it and adapt accordingly.