Middle Eastern Wealth Management 2nd edition

Middle Eastern Wealth Management 2nd edition

Middle Eastern Wealth Management - 2nd edition

Middle Eastern Wealth Management Contents PBI Middle East roundtable Participants Tables Figures Executive Summary Conclusions vi vi vii ix x xi Introduction to Islamic finance 12 What is Islamic finance? 12 Islamic Shariah and its sources 12 Principles governing financial and business activities in Islam 13 Techniques used in Islamic banking and finance 14 The Shariah approval process 16 Approaches towards Shariah compliance in Southeast Asia and the Middle East 17 The Middle East 17 Malaysia 18 Corporate structures in Islamic banking and finance 18 Independent Islamic banks 18 Shariah-compliant subsidiaries 19 Islamic window operations 19 Growth drivers in the Islamic finance and banking 19 Marketing potential 19 Favourable cost structures 20 Supportive market trends 21 PBI Middle East round table: islamic banking 22 Sharia investments: promising or premature? 22 Chapter 1 Wealth Management in the Middle East 25 The opportunities 25 iii

Table of Contents The opportunity for wealth management players in the GCC countries? 25 A changing region 26 The challenges 26 Key GCC wealth marketing strategies 27 The clients 27 The competition 29 Islamic finance 29 Mutual funds 29 PBI Middle East round table: family offices & ultra high net worth clients 30 Chapter 2 Demographics and Social Changes 34 Changing social attitudes 34 Growing High Net Worth 35 Chapter 3 The Main Wealth Management Products and Institutions 40 Private equity funds 40 Market players 41 Investcorp 41 Arcapita 42 Real estate funds 42 Rise in popularity of Asia-focused investments 42 Investments within the Middle East region 43 Islamic bonds 43 Private banking 43 PBI Middle Eeast round table: products & services 46 Crisis of confidence 46 Chapter 4 Saudi Arabia 48 Consumer attitudes 48 Bank Deposits 48 Equity market 49 Mutual funds 50 Investments within the region 54 Regulations 54 Market players 55 National Commercial Bank 55 Samba Financial Group 56 Riyad Bank 63 Arab National Bank 63 ANB Investment Services 65 Banque Saudi Fransi 65 SABB 68 Saudi Hollandi Bank 68 Saudi Investment Bank 69 Private banking trends 70 Chapter 5 United Arab Emirates 71 Economy 71 Bank deposits 72 Property 73 iv

Middle Eastern Wealth Management Mutual funds 73 Market players 74 National Bank of Abu Dhabi 74 National Bank of Dubai 75 Emirates Bank International 76 Mashreq Bank 79 Abu Dhabi Commercial Bank 80 Union National Bank 82 Dubai Islamic Bank 83 Chapter 6 Kuwait 85 Economy 85 Equities 85 Mutual funds 85 Investments abroad 86 Market players 86 National Bank of Kuwait 86 Kuwait Finance House 88 Gulf Bank 89 Chapter 7 Qatar 91 Economy 91 Equities 91 Mutual funds 91 Banking industry 91 Market players 92 Qatar National Bank 92 Wealth management 95 Qatar Islamic Bank 98 Asian Finance Bank 98 Arab Finance House (AFH) 98 QINVEST 98 European Finance House (EFH) 99 Doha Bank 99 Islamic banking 101 Wealth management 101 Commercial Bank of Qatar 102 International ventures 105 National Bank of Oman 105 Al Safa Islamic Banking 105 Wealth management 105 Chapter 8 Oman 106 Banking industry 106 Market players 106 BankMuscat 106 Wealth management 106 National Bank of Oman 107 v

Table of Contents Chapter 9 Bahrain 109 Overview 109 Mutual funds 109 Banking industry 109 Market players 109 Gulf International Bank 109 Arab Banking Corporation 111 ABC Islamic Bank 114 Ahli United Bank 115 Bank of Bahrain & Kuwait 119 United Gulf Bank 119 National Bank of Bahrain 124 Shamil Bank Bahrain 127 Bahrain Islamic Bank 132 vi

Middle Eastern Wealth Management PBI Middle East roundtable Where Do The Opportunities Lie In The Middle East Private Banker International Roundtable Wednesday 14th April 2010 Dubai International Financial Centre Participants Shaima Faisal Al-Awadhi, special projects manager, Governor s Office, Dubai International Financial Centre (DIFC) Jahangir Aka, senior executive officer, SEI (Middle East) Kevin Birkett, executive director, Asset Management, DIFC Jon Breach, partner, BDO Corporate Finance Tim Casben, partner, Lawrence Graham LLP Walid S. Chiniara, founder of Shoora Principal, Shoora Principal Amani Choudhry, chief executive, Mayfair Wealth Management Company Gary Dugan, chief investment officer, Emirates NBD Private Banking Navid Goraya, advisor to the chairman, BMB Group Sarah Lord, chartered financial planner, Killik & Co (DIFC) Jason Peers, group chief executive, Jasper Capital Group Nigel Putt, head of private banking, Lloyds International Banking Group Sandy Shipton, executive director, DIFC vii

Tables Table 1.1: Major principles of Islamic banking and finance xii Table 1.2: Financing arrangements in Islamic finance 13 Table 4.1: Number of mutual fund subscribers in Saudi Arabia, 2009 51 Table 4.2: Number and value of open ended and close ended funds in Saudi Arabia, 2009 53 Table 4.3: National Commercial Bank s income summary, Q1 2010 55 Table 4.4: Samba Financial Group s income summary, 2010 57 Table 4.5: Al Rajhi Bank s financial performance, 2008-1010 58 Table 4.6: Al Rajhi Bank s income summary, 2003-2007 59 Table 4.6: Al Rajhi Bank s income summary, 2004-2008 59 Table 4.7: Riyad Bank s financial performance, 2009 4th Quarter 61 Table 4.8: Riyad Bank s income summary, 2005-2010 62 Table 4.8: Riyad Bank s income summary, 2009, 4th Quarter 62 Table 4.9: Summary of Riyad Bank funds and portfolios performance, April 2010 63 Table 4.10: Arab National Bank s financial performance 2008-2009 64 Table 4.11: Arab National Bank s income summary, 2008-2009 65 Table 4.12: Banque Saudi Fransi income summary, for the years ending December 31st, 2009 & 2008 67 Table 4.13: Saudi Investment Bank financial performance, 2009 69 Table 4.14: Saudi Investment Bank income summary, 2008-2009 70 Table 5.1: Total private sector deposits by type of deposit in UAE, 2008-09 72 Table5.2: National Bank of Abu Dhabi s financial performance, 2008 74 Table 5.3: National Bank of Abu Dhabi s income summary, 2007-2008 75 Table 5.4: National Bank of Dubai s fund performance summary, 2007-2008 76 Table 5.5: Emirates NBD (National bank of Dubai) financial performance, 2008-2009 77 Table 5.6: Emirates NBD (National bank of Dubai) income summary, 2008-2009 78 Table 5.7: Mashreq Bank s financial performance, 2007 08 79 Table 5.8: Mashreq Bank s income summary, 2008 79 Table 5.9: Abu Dhabi Commercial Bank s financial performance, 2005 09 80 Table 5.10: Abu Dhabi Commercial Bank s income summary, 2005 09 81 Table 5.11: Abu Dhabi Commercial Bank s fund performance summary, March 31st 2009 82 Table 5.12: Union National Bank s financial performance, 2009 83 viii

Middle Eastern Wealth Management Table 5.13: Dubai Islamic Bank s financial performance, 2008-2009 84 Table 6.1: National Bank of Kuwait s financial performance, 2009 86 Table 6.2: National Bank of Kuwait s investment funds performance, 2010 87 Table 6.3: Kuwait Finance House s income summary, 3rd Quarter 2009 88 Table 6.4: Gulf Bank s income summary, 2009 89 Table 7.1: Private sector deposits in Qatar, 2004-2009 92 Table 7.2: Qatar National Bank s geographical distribution of total assets, 2009 93 Table 7.3: Qatar National Bank s financial performance, 2008-2009 94 Table 7.4: QNB International Holdings performance since acquisition of Ansbacher, 2008 95 Table 7.5: Qatar National Bank s financial information by business segment, 2009 97 Table 7.6: Doha Bank s key financial results, 2007 08 100 Table 7.7:Commercial Bank of Qatar s key financial results,2008 102 Table 7.8: Commercial Bank of Qatar s income summary, 2008 104 Table 8.1: National Bank of Oman s financial performance, 2008 108 Table 9.1: Gulf International Bank s percentage income by sector, 2004-08 110 Table 9.2: Arab Banking Corporation s major shareholder 111 Table 9.3: Arab Banking Corporation s financial performance, 2008 111 Table 9.4:Arab Banking Corporation s income summary, 2004 08 112 Table 9.5: Arab Banking Corporation s profit and assets by geographical region, 2008 09 113 Table 9.6:Ahli United Bank s major shareholders, 2008 114 Table 9.7: Ahli United Bank s income summary, 2004 08 115 Table 9.8: Ahli United Bank s income and assets by geographical region, 2007 08 115 Table 9.9: Bank of Bahrain & Kuwait s income summary, 2008 09 116 Table 9.10: Bank of Bahrain & Kuwait s income and assets by geographical region, 2007 08 117 Table 9.11: United Gulf Bank s financial performance, 2004 08 119 Table 9.12: United Gulf Bank s income and assets by geographical region, 2008 121 Table 9.13: National Bank of Bahrain s financial performance, 2006-09 123 Table 9.14: National Bank of Bahrain s income summary, 2008 09 124 Table 9.15: National Bank of Bahrain s income and assets by geographical region 125 Table 9.16: Shamil Bank s financial performance, 2009 126 Table 9.17: Shamil Bank s income summary, 2009 127 Table 9.18: Shamil Bank s income and assets by geographical region, 2007 128 Table 9.19: Bahrain Islamic Bank s financial performance, 2005 10 130 Table 9.20: Bahrain Islamic Bank s income summary 131 ix

List of Table and Figures Figures Figure 1.1: Shariah compliance process in Islamic banking 15 Figure 1.2: Percentage of ex-patriates in national workforces in the Middle East, 2009-2010 26 Figure 2.1: Estimated Growth in HNWI wealth, 2004-2011 34 Figure 2.2: Regional Youth in the Middle East 35 x

Middle Eastern Wealth Management Executive Summary The key findings from the new edition of this report: Wealth management clients in the Middle East want managers who can seamlessly move across product offerings, between traditional and alternative investments and across geographic boundaries to find new opportunities. There is a shortage of talented bankers and fund managers who can navigate the myriad regulations, emerging products and increasingly competitive environment. Clients require a multigenerational relationship. Clients measure performance on total asset appreciation. Muslim clients remain more real-estate focused in their portfolios. Many nations are tax-free environments, thus clients are more performanceconscious. Women are an increasingly important client segment. The Middle East has experienced enormous growth owing to two primary factors: the global dependence on oil (in which the Middle East holds 65% of the world s reserves) and the introduction of new regulations in the US and Europe, which has brought capital to the Middle East that historically has been invested in US markets. These factors and others have contributed to a rapid growth in the number of High Net Worth Individuals (HNWI) and the size of their assets. Oil production is still the key driver behind the wealth. Nations in the region are concerned over having their economies dominated by a single commodity, and have embarked on a process of economic diversification into other industries, in particular finance and tourism. Economic diversification into the financial markets has resulted in the creation of sophisticated financial hubs. The composition of HNWI clients is also changing as wealth managers in the Middle East are looking to extend services to non-residents. Another key development is the rise of Islamicbased or Shariah financial services to appeal to Muslims throughout the region. xi

Executive Summary The actual size of the Middle East wealth management market is not very large; however, the opportunity it provides is indeed significant. The traditional composition of the wealth management market in the Middle East consisted of local family-based investors. However, growing numbers from the UK, India, and Pakistan have been moving into the region in senior managerial roles. As a result the composition of the wealth management segment is changing. Growth can be anticipated from both segments as long as fees are kept under control and high returns continue to be yielded. Financial institutions throughout the region, even banks that did not previously offer traditional services specifically designed for HNWI are now offering products tailored for high net-worth individuals, many of them offering added perks such as valet parking and private executive lounges. In short, the wealth of the region is increasing and so is the competition for managing that wealth. With much of the region s population under the age of 25, generational wealth management is a concern for older HNWIs. Wealth managers are anticipating a demand for an increased exposure to international investments from the younger generation of HNW inheritors. Products are not particularly innovative yet, but banks in the region are doing their best to cater for their customers, and these are, in fact, quite unique. Middle Eastern investors have traditionally favoured real estate investments however, HNWIs are interested in expanding the breath of their portfolios. Transformation in the region is not strictly limited to economics, as changing attitudes toward women are also helping create a new group of wealthy clients. CONCLUSIONS There are four key factors reshaping wealth management in the Middle East: rapid economic growth and commercial diversification; a younger demographic profile; a new demand for Shariah-compliant products; changing cultural attitudes. These factors coupled with macro-economic factors such as economic liberalisation, banking reform and the need to achieve economic diversification beyond petroleum-based financial activities is providing wealth managers with a host of new opportunities and a few challenges. As the market redefines itself over the next five years, wealth managers must rely on product innovation to meet the demands of the region s HNWIs for a greater choice in investment. However, simply providing products is the smaller part of a customer acquisition/retention strategy, as only high-touch customer services will produce a distinctive value proposition. As the market becomes awash with products, two things will act to differentiate the wealth management services between competitors: return on investment and service. Middle East HNWI customers can readily assess individual product performance but value for money is a result of the combination of products and services. xii

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