Dubai: Large-scale fiscal and structural reforms being undertaken by the governments across the Middle East and North Africa, especially the GCC will create new opportunities for financial services, Elissar Farah Antonios as Head of the MENA Cluster and Citi Country Officer (CCO) for the UAE told Gulf News in an interview.
The sharp economic contraction across the region caused by the COVID-19 pandemic and a prolonged slump in oil prices have driven home the urgency of fiscal reforms to balance budgets, structural reforms to diversify the economies away from hydrocarbon dependence and reforms at the public sector, government related entities (GREs) and large corporates to bring in more efficiency and scale.
Drive towards efficiency
The pandemic has made many regional sovereigns, GREs and large companies to think hard on how to be more efficient.
“There has been a lot of focus on simplification of public sector, creating efficiencies, monetisation and creating synergies. We have been witnessing large mergers & acquisitions (M&A) deals over the past 12 to 18 months. Clearly, the two markets that are leading such transaction are the UAE and Saudi Arabia,” said Antonios.
She sees this as just the beginning of a larger trend in the region and expects a lot of opportunities for regional governments and the private sector to create further efficiencies.
The regional sovereign wealth funds (SWFs) and large companies are interested in acquisitions and consolidations within the region and outside. These are creating new opportunities for the bank's institutional businesses in terms of capital markets business, particularly debt market fund raising and investment banking services such as mergers & acquisitions (M&A).
Fiscal compulsions have seen regional sovereigns raise huge funds through both foreign and local currency debt issuances. Going beyond funding the budget gaps caused by the oil price slump and the pandemic-related healthcare expenses, regional sovereigns are clearly looking at longer term reforms in spending by governments, the public sector, publicly managed funds, sovereign wealth funds (SWFs) and GREs.
“Increasing focus on greater level of efficiencies are calling for greater consolidation and synergies. This trend is leading to more M&A and fund-raising opportunities,” said Antonios.
COVID-19 impact on GCC
In addition to the direct and indirect impact on government revenues through low oil prices, several key sectors in the GCC such as the airlines, hospitality, real estate and retail have been hugely impacted by the pandemic. There are also a few industries that have benefitted. Logistics, digitisation and innovations have gained from this crisis.
“Our clients in the technology sector have ever been busier in recent years as companies have been spending heavily on tech solutions to cope with new norms of social distancing and remote working,” said Antonios.
Regional economies, especially the GCC have been very quick in their response to the pandemic both in terms of healthcare and economic support schemes.
The impact of these responses is visible in the quick recovery that is taking shape as these economies are opening and moving towards normalcy.
Antonios said Governments, central banks, and the banking sector have been quick and accommodative in supporting the affected sectors.
“We have retail clients who were affected by the crisis. With the support of the government and the liquidity support central banks in the region we were able to extend support to these clients. Of course, banks across the region joined these collective efforts and are continuing to support their clients,” she said.
With the economies opening, Citi is projecting a 3 per cent GDP growth for the GCC this year.
Resilient banking systems
Despite a sharp decline in the profitability in 2020, GCC banks have remained strong in the face of the pandemic and the economic slowdown that followed.
“Compared to the global financial crisis, the banks have remained largely resilient and are a part of the solution rather than a part of the problem. This has been a great relief to the economies,” said Antonios.
Clearly, bank profits have been impacted because their clients have been impacted. However, she thinks, with the support from the respective central banks, banks in the region have largely remained financially strong and supported their clients through the crisis.
“Banks in the region are well supported and adequately capitalised. They will certainly weather the storm and they will play a key role in supporting the business sectors that have been affected,” said Antonios.
Drive towards greater cost savings is expected to see further consolidation in the banking sector. “We have been seeing this drive towards consolidation even prior to the pandemic. We expect the way forward for regional banks will see further consolidation. I think we have way too many banks in the region,” she said.
She expects to see more mergers happening among smaller regional banks. “We say this because we expect the smaller players to be extremely challenged in terms of costs related to compliance and infrastructure requirements.”
Starting January this year, as Mena Cluster Head, Antonios assumed overall responsibility for driving Citi's business in the Mena region. Antonios’ appointment coincides with the rise of another remarkable woman, Jane Fraser to the helm of Citi Group, something unprecedented for the Wall Street banking giants.
Antonios joined Citi in 2005 as Head of Citi Private Bank in Abu Dhabi. She has more than 25 years of financial services experience in the region. As Citi Country Officer (CCO) for the UAE since 2016 and Cluster Head for UAE, Levant and Iraq since 2019, she has helped to advance Citi's relationships with some of the most important clients in the region. In addition to her Mena cluster role, Elissar will continue as CCO UAE.
Her banking career spanning 29 years started in 1990 in the London office of Republic National Bank of New York as a Management Associate covering the Wealth Management Middle East Desk. She then spent several years with Credit Agricole Indosuez (CALYON) in Abu Dhabi and Dubai and with ABN AMRO Private Bank covering both Abu Dhabi and Egypt.
Her MBA is from Imperial College in London where her thesis dealt with predicting turning points in foreign exchange. Antonios is a mother of two Layal and Rayan and married to Assaad Antonios.
UAE and Saudi will be key growth markets
The Mena region is one of the most exciting clusters for Citi within the emerging markets.
The region is very significant to Citi Group because of the historical role the bank played in the development of the regional economies and the partnership with governments in building infrastructure.
“We came to the UAE in 1964. That tells you a lot about the role we played. This is not unique to the UAE. Across the Mena region we are physically present in 12 countries. We have a much wider foot-print in the region than many of our peers,” said Antonios.
The Mena region includes Pakistan and the latest addition to it is Iraq. In addition, there are 3 countries covered in the region on a non-present basis.
The wide footprint across the region gives the group an edge in participating the new opportunities. In Mena the bank’s CAGR growth has been 7 per cent over the past 10 years.
Citi covers 3,800 institutional clients in the region. Out of this close to 2000 clients are in the GSG [global subsidiary group]. These are the likes of global corporates such as Proctor & Gamble, Cisco, Nestle, Facebook, Oracle etc. These are the clients that automatically continue the banking relations with Citi in whatever markets they enter.
Globally the bank has physical presence across 100 countries and in addition 60 countries are covered on a non-present basis.
Our global client base uses the UAE as their emerging markets, global and regional hub with many of them booking assets and liabilities in ADGM and manage their treasury operations from either DIFC or ADGM.
In the Mena region, the UAE and Saudi Arabia will be the key growth markets for Citi.
In Saudi Arabia, Citi got its CMA [Capital Markets Authority] banking licence 18 months ago.
In the UAE, Citi has presence in three jurisdictions such as the onshore operations regulated by the Central of UAE, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Markets (ADGM).
In 2020, the UAE contributed almost half of Mena’s net income. Citi’s regional office in DIFC was set up in 2005. Today the bank has more than 200 employees. In March of 2019, the bank opened its operation in ADGM and currently it is an international booking centre and a regional treasury centre for its global client base.
Citi with its presence in three jurisdictions within the UAE is fully equipped to service local, regional and global business from the country. While the business under the onshore licence primarily covers the local businesses the two offshore centers support its global clients.
“Our global client base uses the UAE as their emerging markets, global and regional hub with many of them booking assets and liabilities in ADGM and manage their treasury operations from either DIFC or ADGM,” said Antonios.
In addition to the global clients, the ADGM operations of Citi is helping large UAE companies including GREs in activities such as business consolidation, M&A, valuations and cash pooling requirements.
The bank is reportedly studying options for slimming down its international consumer operations.
Over the past few years Citi has been rationalising its consumer banking across the world. In the Mena region, currently the bank has consumer banking business only in the UAE and Bahrain.
Globally, the bank’s consumer banking presence is limited to 19 markets, primarily within in Asia and EMEA.
“As far as the UAE’s consumer banking franchise is concerned, we are convinced that we are well located to capture a diverse client base,” said Antonios.
Although no decision has been taken on the future of global consumer banking business, clearly the Group is moving in the direction of simplification of business in the context of increased regulatory restrictions on expanding in foreign markets.
After the global financial crisis, US banks aren’t allowed to acquire other foreign banks, so from a growth perspective, in many markets local banks have gained an edge in expanding their retail-banking franchises and consolidating. Increasingly, the bank sees its further growth opportunities shrinking.
Citi Global Wealth
Citi sees great future for its global wealth management business that has linkages to consumer banking through the affluent segment.
Citi has created a new vertical bringing together the private banking and wealth management under one leadership called Citi Global Wealth.
The private banking covers mostly ultra-high-networth individuals with more than $10 million in minimum balances. The wealth segment comes under the consumer banking business and covers the affluent. The newly created vertical covers the entire spectrum of wealth management business. Antonios sees great growth opportunities for the wealth business in the region that has a diverse profile of wealth customers.