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National Bank of Abu Dhabi (NBAD) Case

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Be sure to incorporate a strategic group map in the recommendations section.
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National Bank of Abu Dhabi (NBAD) Case
College of Business
Zayed University
External Environment Global Banking Trends
The world economy is undergoing significant shifts that affect the banking industry. The global financial crisis and the ensuing developments have heightened the role of transparency and regulation in a global context. In the post crisis period, many banks are focusing on recovering outstanding loans, acquiring new customers to build financial assets, reducing risk, meeting regulatory requirements and diversifying revenues.
An important driving force in the external environment is the pace of technological change which includes new technologies that change how products and services are delivered.   In particular, the growth in internet usage, ATMs, online banking, smartphones and social networking are redefining the channels that reach consumers and illustrate a shift or decline in the popularity of branch banking in most countries.
In branch transactions and branch visits have declined significantly in mature markets and in the US, an estimated 40% of branches are not profitable (Carter, 2012). In mature markets, branch banking is being replaced by digital channels and firms such as Barclays and HSBC are closing branches (Carter, 2012). If fact, ING Direct and HSBC both report that 90% of all their transactions occur over digital channels in some markets.
In a report on the future of branch banking, Carter (2012) reports that the top three types of transactions conducted in branches are checking balances, transferring funds, and withdrawing cash, all of which do not produce revenues and can easily be automated. Further, the results from a customer survey indicated that 43% wanted better access to ATMs and 33% wanted improvements in web sites. A study by IBM indicated that customer satisfaction varied across the banking channels. Call centers tend to have below average satisfaction, the internet and mobile slightly higher, and ATMs and branches receiving the highest satisfaction ratings (Giridhar, Notestein, Ramamurtby, & Wagle, 2011).
Banking habits of consumers are changing. In financial services, the accelerating pace of change due to new technologies provides significant opportunities for differentiation for those banks who are the first to implement successfully. New technologies can result in new business models. Reengineered and improved services that are more responsive, agile and efficient lead to a competitive advantage that is sustainable to the extent that it is difficult, costly, or time consuming for competitors to copy. Successful new products and services mirror the changing requirements of customers and go hand in hand with a growing demand for innovation and complementary IT applications. Consider NetApp in Australia, the world’s leading direct saving bank, ranked 51 out of 100 companies by Forbes on a list of the world’s most innovative companies.   NetApp, via an integrated “Bank in a Box” project, is able to bring new banking products and services to the market quickly so that innovative ideas result in a competitive edge.
Technologies can be very disruptive for banks who do not or cannot adapt quickly. Nonetheless, while the payoffs may be high for first movers, the risk and costs of pioneering new technologies may indicate that a fast follower strategy is advantageous. Notwithstanding numerous success stories, there are notorious failures that cause consumer confidence to fall. After implementing a software update to its IT system, a system outage at Ulster Bank in Ireland affected over 600,000 customers. Customers could not access funds or view balances for over a month.
The growth in the internet has led to the subsequent growth and popularity in online banking. As shown in Table 1, the overall percentage of the population with the internet is 40% and the growth rate in users each year greatly exceeds the world’s population growth rate from 1993 to 2014. According to Pew Research Center (2013), internet usage is less among the older generation and positively related to education and household income. Figure 1 shows that the trend in the use of online banking steadily increased from 2001-
2007. From 2008-2011, the growth rate slowed, and the last couple of years indicate that usage has transitioned to a mature stage with no growth in usage from 2011-2013.
Enormous untapped opportunities exist in banking to identify and integrate data across channels that will transform the status quo, improve productivity and risk management and increase customer satisfaction and revenues (Giridhar, Notestein, Ramamurthy and Wagle, 2011, McKinsey, 2011; World Economic Forum, 2013). Most financial institutions are using information to develop new offerings or strengthen relationships with employees, partners, customers and suppliers.
The World Economic Forum (2014) refers to big data as the new class of assets and the driver of business opportunities and economic growth if organizations can harness the potential of the increasingly large volume of data originating from different sources. Gartner (2013) echoes this theme by identifying the ability to translate large volumes of data across multiple sources into actionable insight as a key success factor to improve cost efficiency and profitability as well as grow revenues. Adding to the chorus for competitive advantages the result from increased analytic capabilities is the inaugural launch of a new journal, International Journal of Big Data Analysis in 2014. In the words of the editor: “Today’s IT technologies offer great opportunities to make the era of big data a reality. To gain value
and insight from big data analytics, organizations need the ability not just to process the vast quantities of data being generated, but also to blend the right datasets together to give context and meaning. Big data intelligence goes beyond business intelligence; it gives significant potential for increasing productivity, competition and innovation. (Hsu, 2014, p. 1)”
Data driven decision making will require managers to have expertise in quantitative analysis with corresponding IT capability to integrate data across platforms.   Successful banks will synchronize information from traditional and new banking channels to extract relevant information at every customer touch point. Some banks will need to increase IT budgets and the qualifications of banking employees will change to reflect these new requirements. Governments will play a vital role in whether organizations can capitalize on the intelligent use of big data by supporting broadband networks and digital developments such as 3G wireless networks.
Risk management is increasingly important in financial institutions. Bank fraud is a problem in the industry as financial crimes are growing and becoming more sophisticated. According to an American Bankers Association Deposit Account Fraud Survey, fraud cost the industry $1.744 billion in 2012 with debit card fraud accounting for 54%, check fraud for 37% and online banking and electronic transactions for 11%.  Prevention measures stopped approximately $13 billion in fraudulent losses. Banks play a key role in data protection and ensuring consumer privacy.
Gulf Cooperation Council (GCC)
The GCC, formed in 1981 in Abu Dhabi, is comprised of six nations (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) that are strategically located on the largest proven oil reserves in the world. These oil-rich nations are pursuing major economic initiatives with the goal of diversifying from an economy depending on natural resources to one that is fueled by innovation and knowledge. The financial sector is expected to provide the investments needed to accelerate major transformations in economic growth and development. Capital markets play a critical role in the efficient allocation of savings into productive investments.
Oil is a commodity export from the GCC region. The reliance on hydrocarbon resources leads to economic growth and credit booms when prices are increasing which contributes to systemic risk and financial shocks when prices fall. The International Monetary Fund described the impact of the 2003-2008 oil price boom as initially leading to GDP growth, followed by a corresponding increase in the demand for credit from the private sector primarily for real estate and construction, which in turn fueled credit growth, inflation and ultimately an increase in asset prices (United Arab Emirates, 2013). When this period of prosperity came to an abrupt end in late 2008, stock and real estate markets fell, asset prices fell, and credit defaults loomed. The subsequent financial crisis was further exacerbated by changes in exchange rates.
In 2014, Global Finance reported that banks in the GCC were liquid, well capitalized, and more profitable (Best Banks 2014: Middle East, 2014). Economies in the region were expected to continue to expand with loan growth increasing about 10% and profitability was predicted to be in the high single digits in the coming year.
UAE Banking Industry
Mobile communication services and penetration have become important predictors of economic growth and prosperity (World Economic Forum, 2013). Mobile phones have improved communication with customers and expanded economic activity for financial institutions. As technology develops, mobile services are increasingly available and in demand from consumers and businesses. The growing use of the internet and mobile devices in both consumer and business spheres combined with the increasing presence of social networking have already led banks to create new solutions and tools to add greater value to customers.
According to the World Economic Forum (2014), the UAE ranks 24 in the world on overall network readiness which measures a country’s capability to leverage information and communication technologies (ICTs) to improve competitiveness and well-being (see Table 2). In Table 2, each of the ten indices represents an average across a range of factors on a 1-7 rating scale where 7 demonstrates a high or favorable score. Over the last three years, the UAE has improved in all ten indices except infrastructure and digital content. The ranking reflects the government’s commitment to develop ICTs to diversify and grow the economy. There is increasing pressure on telecommunication networks to increase capacity in response to an explosion in demand for newly available internet services such as online banking.
Particularly relevant to the banking industry, mobile network coverage, the % of the total population that is covered by a mobile network signal is ranked one of the highest in the world. In addition, the accessibility of digital content via multiple platforms is ranked 20 out of 148 countries. However, regarding the level of competition for internet services, international long distance services, and mobile telephone services, the UAE is ranked 126 reflecting Etisalat’s virtual monopoly in the market. Under the category, individual usage, mobile telephone subscriptions are 150/100 in the population and the % of internet users is 85% both of which are among the highest in the world. The UAE ranks 10th in the world on business to business internet usage and 20th on business to consumer internet use. Government use has the highest index at 6.1 which results from the UAEs implementation plan to utilize ICTs to improve the country’s overall competitiveness (1st place ranking) as well as the degree of success the government has experienced in promoting ICTs (2nd place ranking).
While the Gulf region continues to pose important political, social, economic and environmental risks, the UAE has weathered the geopolitical instability well. The UAE continues to expand and grow by investing the revenues from oil and international investments into public and private ventures (The United Arab Emirates and the World: Scenarios to 2025, 2007). Dubai and Abu Dhabi have numerous government related entities (GREs)–commercial corporations, financial institutions and investment firms that are related to the municipality’s government. In the wake of the 2009 financial crisis, the UAE has introduced changes in regulation to improve financial stability, corporate governance and transparency, provide early warning signs and moderate the effects of volatility in oil prices (United Arab Emirates, 2013), such as, maintaining higher capital and limiting large dividend payouts in periods of prosperity.
For years, high oil revenues served as a catalyst for infrastructure development, economic growth and the accumulation of financial reserves in local banks. But in 2009, Moody’s rated the fundamental credit outlook for the UAE banking system as negative (Global Credit Research, 2013). The assessment was based on the falling property prices in Dubai which reflected the number of bank loans given to “opportunistic” developers struggled to repay the loans when corrections were made to reflect the decreasing value of assets. Another problem was tightening liquidity, which was predicted to affect asset growth and profits.
Throughout 2012, the outlook for the banking industry remained negative driven by asset quality challenges especially in the Dubai-based banks. Moody’s based the projections on low provisioning coverage levels and the expectation that problem loan levels would remain elevated, “driven by exposures to large, stressed, government-related issuers (GRIs), and legacy corporate impairments, primarily real-estate-related, which are still emerging after failed attempts to restructure earlier in the crisis,” (Tribune Business News, 2012). The problems with high risk loans were expected to cause future loan growth to slow as well as constrain profitability for banks in the coming year. While analysts expected Abu Dhabi banks to have stronger credit growth and profitability, a fall in oil prices would weaken the UAE’s fiscal surpluses and negatively impact economic growth.
More positively, UAE banks’ deposit ratings have a high probability of systemic support, and had strong financial fundamentals overall, it said “The banking sector’s strong association with local governments and quasi-government institutions, which are the principal architects and drivers of infrastructure, have helped to boost the franchises of local banks.”
Late in 2013, Moody’s reassessed the UAE banking industry outlook from negative to stable (Global Credit Research, 2013). Some summary highlights of the report:

Real GDP growth is expected to be almost 4% in 2014, supported by public sector spending, particularly in Abu Dhabi and recovery in Dubai’s more diversified private sector.
Economic growth, and continued recovery in the real estate market is predicted to support credit growth of 7%-10% in 2014.
The decline in the problem loans is expected to continue.
Profitability will increase which will provide the banks with the internal capital generation to support asset growth.
Continued high liquidity and capital buffers that were built up since the onset of the global financial crisis.
Asset-quality metrics will also be supported by a reduction in the stock of problem loans due to the increasing volume of settlements, recoveries and commercial restructurings and expected loan growth. Although loan loss coverage levels remain relatively low at around 53% for June 2013, this metric will improve as the problem loan balance falls.
Other weaknesses, such as limited transparency, sizeable related-party lending and high loan and deposit concentrations, will continue to leave UAE banks susceptible to single-borrower or sector-specific risks, such as real estate and construction.

In the aftermath of the financial crisis, the UAE, especially Dubai, experienced a wave of loan restructuring, e.g., reductions in interest rates and maturity extensions. Between 2014 and 2018, many of these loans will mature. In addition, internally, the country faces challenges in the areas of social, political and environmental concerns including unemployment, skewed demographics and income distribution regarding the expatriate/national balance, water conservation as well as pollution and conspicuous consumption.
There are 49 and 69 foreign banks operating in Abu Dhabi and Dubai, respectively, including JP Morgan Chase Bank, Citigroup, Wells Fargo, Royal Bank of Scotland, Bank of Singapore, Bank of India, Bank of China, and the Philippine National Bank. At the end of 2013, according to the UAE Central Bank Report, there were 23 local banks with a total of 841 branches and 4664 ATMs. Bank deposits increased from AED 1167.8 billion in 2012 to AED 1278.9 billion in 2013. Total bank assets increased from AED 1791.6 in 2012 to AED 2025.8 in 2013. There were 25 finance companies and 25 investment firms. The number of licensed foreign banks grew to 120 in 2013 and the number of money changers grew to 134 offices and 786 branches.
The growth in branch banking and ATMs in the UAE is shown in Table 3 and 4, respectively.
National Bank of Abu Dhabi (NBAD)
With operations in 18 countries, NBAD is one of the largest banks in the UAE with total assets in 2013 of just over AED 325 billion and customer deposits over AED 211 billion. NBAD’s vision is to be recognized as the World’s Best Arab Bank. Their mission is to provide excellent products and customer service across a range of banking and related financial products including deposits, savings, loans and brokerage services. The bank targets individual and corporate customers at the corporate, retail and private levels and in their home market, they aim to be the largest, safest and best performing bank. In addition, NBAD offers asset management platforms and caters to high-net-worth clients with wealth management and investment services. The Abu Dhabi government, through the Abu Dhabi Investment Council, is the largest shareholder at 70%.
NBAD is organized into three core businesses: global wholesale, global wealth and retail and commercial operations.  The bank is implementing several strategic initiatives over the next five years. First, in their home market, there is a major initiative to rebrand and boost its extensive network of branch businesses. Furthermore, the bank is changing its e-banking platform and plans to offer smartphone and tablet applications by the end of 2014.   The UAE is home to a range of nationalities—in fact, nationals account for less than 20% of the population. Appointed as CEO in 2013, Alex Thursby reports that several market segments will be targeted: “I think we can do a better job in the Arab expatriate segment. I think we can do a better job in the UAE national segment and I think to an extent the non-resident Indian segment. (The National, 2013).”
On the international front, NBAD is focusing on the $137 billion corporate banking market in the West-East corridor which spans from West Africa to East Asia. By targeting megacities (cities with a population of more than 10 million) and a growing middle class, NBAD plans to build bank franchises in the largest, fastest growing markets in the world.   To illustrate, NBAD is one of the largest foreign banks in Egypt and Mr. Thursby asserts that “Egypt can be one of the leading franchise markets for the group in five to 10 years. My aspiration is to develop Egypt as a $100 million profit business if the fundamentals are right. (The National, 2013).”
NBAD has received numerous impressive accolades. Since 2009, the bank has been ranked as one of the World’s 50 Safest Banks by Global Finance magazine. In 2013, the bank was awarded the Sheikh Khalifa Excellence Award (SKEA)—the diamond category.* No other banks received the award in 2013. In the same year, NBAD was upgraded in ratings by Standard & Poor from A+ to AA-.
*Note: The UAE adopted the SKEA in 1999. SKEA uses the European Foundation for Quality Management (EFQM) model which recognizes organizations that demonstrate high levels of performance excellence and continuous improvement. There are three award levels: diamond, gold and platinum.
First Gulf Bank (FGB)
Established in 1979, FGB offers a wide range of financial services through its Wholesale, Consumer, and Treasury and Global Markets divisions that both meet client needs and support the development of the UAE.   On the international front, FGB has branches in Singapore and Qatar, representative offices in India and Hong Kong and a subsidiary in Libya. Their mission is to maximize value for shareholders, customers and employees. Stemming from a commitment to excellence, the bank invests significantly in people and technology to provide superior customer service. The majority of FGB is owned by several sons of the late Sheikh Zayed bin Sultan Al Nahyan.
FGB had a banner year with record profits of AED 4.8 billion. At the end of 2013, FGB’s shareholder equity was AED 31.8 billion making it one of the leading equity based banks in the UAE (see Table X for the financial data). At the Banker Middle East Industry Awards in 2013, FGB was awarded the Best Bank in the United Arab Emirates. FGB received the award for above average financial performance due to a winning strategy based on (1) concentration on core processes and fundamentals, (2) market development through geographic expansion, (3) differentiation through innovation, and (4) product development through strategic alliances. Today, FGB is ranked as the 3rd most powerful company in the UAE, the 6th leading bank in Forbes ‘Top 500 in the Arab World’ list (http://www.fgb.ae/en/about-fgb/index.aspx).
Like other banks in the UAE, FGB is pursuing a rebranding platform to reflect their global, contemporary and ambitious plans to grow revenues. While committed to the development of nationals and being a leading service provider across all core businesses and operations, FGB is focusing on both the Emirati (nationals) and the expatriate markets. To address prominent health concerns in the UAE, FGB developed insurance programs for diabetes and breast cancer. Moreover, FGB formed a strategic partnership with an insurance company in India to develop insurance and retirement plans primarily for the Indian expatriate market—the largest demographic group in the UAE.
Late in 2013, FGB purchased Dubai First, a consumer financial services business with a strong market share in credit cards for AED 601 million. The acquisition afforded FGB the opportunity to offer an impressive range of new credit cards that were targeted to meet the needs and add value to various market segments. Dubai First specializes in innovative and value-centric credit cards, that serve the unique characteristics of contemporary “lifestyle-savvy” customers. The product line includes exclusive, super-premium, premium, commercial and value cards. For example, the Royale Card is a MasterCard that targets royalty and the elite echelons of society. The Royale Card is the region’s first diamond–embedded World MasterCard. It is available by invitation only and has no pre-set spending limit. Costing a mere AED 1,500 annual fee, the card, has a myriad of benefits and perks to the user.
In 2013, FGB had profits of AED 4,801,970, slightly more than NBAD, AED 4,733,125, despite having 60% of NBADs asset base, 195,032,370 and AED 325,061,656, respectively.
Abu Dhabi Commercial Bank (ADCB)
ADCBs vision is to be the preferred bank in the UAE based on a strategy of innovative, cutting edge and reliable customer services. Owned primarily by the AD government, the Bank provides a broad range of banking services including corporate and retail banking, private banking, wealth management, cash management, and property management. By 2014, ADCB operated a network of 48 branches, most of which were located in the UAE. Two branches operated in India and one in the UK. ADCB’s financial performance indicators are in Table X. About 44% of the bank’s workforce is women and in April, 2013, the bank appointed the first woman to the Board of Directors.
ADCB has won numerous accolades in the banking industry. In 2009, they won The Sheikh Khalifa Excellence Award (SKEA) for the finance sector in the Silver class category. In 2010, the Bank was named the Best Retail Bank in UAE for the third year in a row. The award was based on comparisons to national and peer competitors in the GCC. The same year, ADCB won the Best Retail Bank in the Gulf States for the second year in a row.   In 2013 and based on industry experts comparisons with 83 countries around the world, they were awarded the “Best Bank in Trade Finance” in the UAE. In 2014, ADCB was assigned an A1 rating from Moody’s in global local currency and foreign currency deposits.
ADCB has implemented strategic endeavors that involve (1) strategic alliances with stakeholders, (2) market development through innovation and reengineering of core technologies, and (3) product/service development and continuous improvement of existing systems. In 2010, ADCB joined forces with Merrill Lynch in a strategic partnership to provide access to services to clients of both organizations. More recently, the Wholesale Banking Group in ADCB partnered with companies in health and life insurance, corporate finance, and utilities to provide an innovative, integrated cash management platform that ensured accurate and streamlined operations.
In Consumer Banking, ADCB has introduced a number of innovative strategic initiatives aimed at developing innovative solutions for customers. To encourage new customers to open savings accounts, the Bank awards a Millionaire Destiny Saving Accounts and an Emirati Millionaire Saving Account. Convenient, new services are provided at the bank’s customer service centers through partnerships with the local water and electricity company, phone company and parking authority. In 2014, SimplyLife, launched a new Titanium MasterCard credit card that offered customers a 1.5%, hassle free cash back on purchases.
In the last year, ADCB has demonstrated a continued commitment to provide unequalled service to customers through improving internal operating efficiencies and effectiveness in internet banking, mobile phone technology and branch operations. To this end, the bank is redesigning the branch experience with a facelift that will focus on being accessible, intuitive and welcoming to the customer. To herald their enhanced, new image, ADCB launched a new advertising campaign to rebrand the Bank. In the words of their CEO, Ala’s Eraiqat, “We feel it’s important to invest not only in the brand, but the complete banking experience, as providing an unparalleled service to our customers is our top priority, no matter how they prefer to bank,” (17 November, 2013, ADCB launches new brand identity; accessed 7/21/2014 at http://www.adcb.com/common/pr/2013/nov/ADCB-bi.asp
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