The document discusses strategies for retail banks in the Middle East to adapt to changes in the regulatory and consumer landscape. It recommends focusing on digitizing services, innovating products, building scale and brand, offering offshore propositions, and becoming more customer-centric. It also stresses the need to streamline organizations by diversifying geographies, restructuring operating models, reengineering expenses, and preparing for uncertainty through scenario planning. The presentation provides retail banks a framework to succeed in the "New Retail Banking Order".

1. Retail Banking in MENA
The New Order
Sanjoy Sen
Consumer Bank Head - Middle East, Pakistan & North Africa
6th Annual Middle East Retail Banking Forum
Dubai, Apr-11, 2011

2. Agenda
Emerging Trends : Regulatory and Consumer
State of Banking Industry
New Retail Banking Order
2

3. State of Global Banking Industry
Global banking sector recovering … but mixed signals
Total market capitalization
2004-2010 ($trillions)
19% 27% 3% -52% 55% 10%
5.6
6.7
8.4 8.7
4.2
6.4
7.1
2004 2005 2006 2007 2008 2009 2010
End-of-year values
Source: Thomson Reuters Datastream, BCG
 Low point of financial crisis:
Lehman Brothers bankruptcy
Emergency sale of Merrill Lynch
Bailout of Fannie Mae, Freddie Mac, AIG
Collapse of Washington Mutual
 Impressive recovery of market cap:
 Market cap bottomed early 2009 at
$3.1 trillion
 Increase by 55% to $6.4 trillion in 2009
 Despite a dip in H1-2010, FY 2010
increase of 10%
 Banks recapitalized at great speed; most
banks paid back bailout funds
 Mixed signals about future economic outlook
 Constraints on future growth due to
regulatory reforms
3

4. Banking in Middle East
Profitable banking industry in MENA …..can this be sustained?
Total shareholder return by region
2009 & H1 2010 (%)
2010 2009
Bubble size representing % of global banking market capitalization
Resilient banking industry:
 Region’s TSR neither fell back steeply nor
bounced back as much during the crisis
 Middle East did not follow the gains of other
regions in 2009 but caught up in 2010
outperforming APAC, North America and
Western Europe
Performance perspective:
 Revenues continued to grow and low
cost-to-income ratios
 After tax ROE of major banks at 17.5% in
2009 vs global average of 4.1%
 High capital ratios
 Kuwait and Qatar led the Middle East
recovery in 2010
3.6
100
105
29
29
50
15.2
18
23
-9
9
8
Middle
East6
CEE5
LATAM4
Western
Europe3
North
America2
APAC1
4.3
%
4.8
%
8.5
%
22%
25%
34%
Source: Thomson Reuters Datastream, BCG
Note: 1.. Australia, China, Hong Kong, India, Indonesia, Malaysia, Japan, Pakistan,
Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand 2.. US & Canada
3 .. EU-15 plus Norway and Switzerland. 4.. Argentina, Brazil, Chile, Mexico, Colombia,
Peru and Venezuela. 5 .. Bulgaria, Cyprus, Czech, Hungary, Malta, Poland, Russia,
Slovenia, Turkey 6 .. Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, UAE
4

5. Agenda
Emerging Trends : Regulatory and Consumer
State of Banking Industry
New Retail Banking Order
5

6. Regulatory Trends
Regulatory actions … can impact nascent recovery
UAE: New Central Bank directives
Possibility of populist government
measures as a result of crisis
SEPA in progress
Poland: Rec T limiting DBR
Turkey: Cap on CC pricing &
min due increase to 40%
Hungary: Bank tax
CARD act 2009: Curb credit
card’s interest rates & fees
Durbin Amnd 2010: Limits on
debit-card interchange,
eliminates network exclusivity
Modification to Reg E: “Opt in”
for overdraft protection
Impact of $25 Bn, 30% of retail
transaction revenues
6

7. Basel III Committee Proposals
Significant pressure on banking profitability
Strike a better balance
between financial innovation
and sustainable growth
Tier 1 ratio could decline by 50%
Stricter definition of eligible
Tier 1 capital
Increase in risk-weighted
assets from more stringent
calculation rules
Could mean a need to
increase core capital by
15 - 40%
Impact on business
Raise more capital = Share value dilution
Limit business activities = Lower profits
Stock prices could fall by
15 to 25% if extra capital
needs to be raised
Basel
Committee
proposal
7

8. Emerging Consumer Trends
What are the implications for the Middle East banking industry?
Mature
Markets
Evolved infrastructure, product
mix, well established biz model
Refine operating models
Emerging
Markets
Threat Response
High entry barriers, advantage
of scale, deep product
penetration and thin margins
Cost efficiencies
Increase share of wallet &
relationship banking
Partners can be a threat Balanced approach, foster own
products
Less sophisticated infrastructure Forge winning business model
Products & target segments still
evolving
Sharp Targeting & Product
innovation needed
Synergies with Partners E-payment & mobile payment
opportunities
Populous and under-banked
segments
Expand foot print
Penetrate unbanked segments
8

9. Retail Banking Challenges in the Middle East
How will Retail Banks continue to survive and grow?
Your
BankEconomy, Political
Environment Competition
Cautious
Customers Flight to Safety
Regulatory
Changes
Populist Government
Measures from Crisis
9

10. Agenda
Emerging trends : Regulatory and Consumer
State of banking industry
New Retail Banking Order
10

11. New Retail Banking Order – Winning Formula
11
Challenges 2011 and Beyond

12. New Retail Banking Order – Winning Formula
Streamline Organisation:
6. Diversify across Geographies
7. Restructure Operating Model
8. Reengineer Expenses
9. Prepare For Uncertainty
Focus On Your Customer:
1. Digitize
2. Innovate
3. Create Scale & Build Brand
4. Build An Offshore Proposition
5. Be Customer Centric
Success
12

13. 1. Digitize
Migrate banking services … to customers fingertips
Reach the Masses
Need Scale For Cost
Effectiveness
Flexibility To Change
 Bank anywhere / anytime with any smart
device
 Funds transfers / Remittances
 Real-time location based triggers
 Real-time reminders on due bills
 Snap a picture of check & deposit
 Mobile to mobile funds transfer
 Scan and pay
Investments
Japan,
hailand,
on
lion
ay
13
Customer

14. 2a. Innovate to Reach Gen-Y
Reach out to the Gen-Y … through new means of communication
New Segment New Habits New Channels
 Media is getting social
and we have to be
present where the
conversation is
happening
 New partnerships are
required
 Trust has to be
established over time
but can be destroyed
overnight
14
Customer

15. 2b. Innovate Payments
The battlefield for payments is expanding … watch the space
Innovate or Evaporate
Non-Banking
Competition
Telco –
Partners or Competitors
MC Flex & VISA Simply One:
 2 payment applications in 1
card with option to choose
among debit, credit, charge
and prepaid
 1 card, 1 PIN, 1 expir. date
Debit & Credit Combo via Decoupling Debit
PayPass sticker, mimicking
NFC technology:
 Max txn amount AED 90
 Same functionality as
contactless card, but attached
to mobile phone
 Balance can be checked by
SMS
Disruptive /
Paradigm-shifting to Replace Cards/Cash
Product / Experimental Focused on Offline
Transaction Convenience
 Mobile phone number as
the online payment
instrument
 Billing through mobile phone bill, can be linked
to debit/credit card
 Available in 30 countries via top mobile carriers
Square:
 Application to replace POS
terminals
 Allows acceptance of credit
card anywhere with
internet/wi-fi connection and
device with audio input
(mobile phones)
1 2
15
Customer

16. 2c. Innovate – Own Full Ecosystem of your City
Provide 360 degree service to your customers
Digital Cities
Citizens, Businesses,
Governments
Holistic Approach
Success
16
Customer

17. 3. Create Scale & Build Brand
Leverage your brand and marketing $ ……to own the customer’s mind
Expense Pressure
Tight
Marketing Budgets
Perceptual Scale
It is
NOT
It IS
Providing the right product at the right
time, in the right place with the right
messaging through the relevant
channels
Moving from a monologue to a dialogue
Building an impression that Citi is
everywhere in “mine and my family’s life”
Only a campaign
Simply maximizing brand awareness with
a media investment
Build Presence, own space and passion points
Tailor programs and products
Customize messages
Change communications engagement
approach
17
Customer

18. 4. Build An Off-shore Proposition
Your WM has to be complemented by an offshore proposition
Wealth Management On-shore Off-shore
 The world’s population of HNWIs* grew
17.1% to 10 million in 2009 and HNWI
wealth in the Middle East reached
US$ 1.5 trillion
 Considering recent developments, your
customers need to have the choice to
move some of their funds off-shore:
Note: Chart number may not add up due to rounding
HNWIs are defined as those having invest. assets of US$1 m+ , excluding prim. residence, collectibles, consumables, consumer
durables
Source: Capgemini Merrill Lynch World Wealth Report 2010
Off-shore
In house
Off-shore
Via Partner
1 2
North
America
Europe
APAC
LATAM
ME
Africa
HNWI Wealth Distribution, 2006 – 2009 (by Region)
18
Customer

19. Customer survey* results:
 35% of GCC customers are likely to
switch banks
 50+% have a relationship with more
than one bank
5. Be Customer Centric
Realign business and organization from Product Focus to Customer Focus
Customer Experience Cautious Customers Wallet Share
Note: * ..According to an Ernst & Young study surveying 4,000 bank customers across six GCC countries: Bahrain, Saudi Arabia, Kuwait, Qatar, Oman, UAE
From a pure focus on numbers... ... to a focus on clients / employee satisfaction
Fulfill the employee promise
Inspire customer loyalty
Improve customer satisfaction
Maintain premium
Experience demand growth
Financial success
Specific
service failing
Transaction
speed
Service
quality
Need for
Islamic product
21%23%24%
45%
Key reasons to switch banks
Multiple nominations possible:
19
Customer

20. New Retail Banking Order – Winning Formula
Focus On Your Customer:
1. Digitize
2. Innovate
3. Create Scale & Build Brand
4. Build An Offshore Proposition
5. Be Customer Centric
Success
Streamline Organisation:
6. Diversify Geographies
7. Restructure Operating Model
8. Reengineer Expenses
9. Prepare For Uncertainty
Success
20

21. 6. Diversify Across Geographies
Diversify across geographies …to mitigate the risk of uncertainty
Economical Cycles
Political Challenges /
Crisis
Balance Your Portfolio
of Markets
Expand Regionally
Profits balance out given diverse
challenges / opportunity dynamics
across markets
Build “Center of excellence” in Host
country
Economies of scale, reduced costs
and replicable business model
21
Organization

22. 7. Restructure Operating Model
Find the right balance of standardization and consolidation
Business Models Operating Models Intelligent Consolidation
Cost reduction
Homogeneityofmarkets
One biz model but
separate ops
models
Fully integrated biz
and ops model
Completely
separate biz and
ops model
One ops model
across markets but
separate biz models
Multiple
operating
models
Fully
integrated
Identical
Markets
and
business
models
Diverging /
complimentary
Operating
models
Archetype models are the basis... ... for an intelligent consolidation
Selective
local
outsourcing
Intelligent consolidation with the aim of
combining the advantages of “both worlds”:
 Achieving scale effects where possible
 Remain flexible where necessary
Standardizatio
n of local
processes
Cross-country
consolidation
22
Organization

23. 8. Reengineer Expenses
Cost cutting is critical……to offset reducing margins
Healthy
Margins in the Past
Deleveraging Customers
Incr. Regulatory Actions
Expense Pressure
P&L item Trend Trend / comment
+ interest
+ fee revenue
Pressure on pricing due to
fierce competition and
regulation
- cost of
fund
Increased volatility of COF
adds uncertainty
= total
revenue
Revenues under pressure as a
consequence
- cost of
credit
COC stable/
improving post crisis
- expense
Customers are getting more
demanding pressuring
expenses
= EBIT
EBIT under pressure as a
consequence
Middle Eastern Banks
have been enjoying
healthy margins
Trends like de-
leveraging customers,
increased competition,
increased regulatory
activities will put
pressure on revenues
Achieve positive
operating leverage, cut
back on expenses and
re-engineer your
processes
23
Organization

24. 9. Prepare For Uncertainty
Your strategy formulation process has to adopt for uncertainty
Increased Volatility Scenario Planning Plan for Uncertainty
Scenario planning helps anticipating potential outcomes
As recent developments showed, you need to have a Continuity-Of-Business (COB) strategy
You need to have trip wires and controls in place that trigger alarms to allow you to react
Option1 Option2 Option3


- -
-

- -
Scenario 1
Scenario 2
Scenario 3
Scenario 4

1. Start with scenario
assumptions
2. Overlay this with your
strategic options
3. Brainstorm the results
of each strategic option
in each possible
scenarios
4. Select the strategic
option that works in all
likely scenarios, not the
one that in most
24
Organization

25. New Retail Banking Order – Winning Formula
Thank you 25
Success
Focus On Your Customer:
1. Digitize
2. Innovate
3. Create Scale & Build Brand
4. Build An Offshore Proposition
5. Be Customer Centric
Streamline Organisation:
6. Diversify Geographies
7. Restructure Operating Model
8. Reengineer Expenses
9. Prepare For Uncertainty
Success