Transaction banking was the subject of discussion when representatives from most banks in the Kingdom of Saudi Arabia took part in the first ever roundtable discussion organised by Cash & Trade
The participants were:
Badri Ali Kadhim, AGM, head of global transaction banking/financial institutions
Khaled M. Al-Busayes, head of cash management and e–corporate banking
Ahmed Said Al Ghamdi, trade and cash management sales manager, GTS
Prasad Indraganti, vice-president/manager, cash management
Ahmed A. Al-Mangour, vice-president, country trade finance operations head
Osama Bukhari, vice-president, head of cash management division, corporate sector
Sami F Ragheb, head of financial institutions, corporate banking group
Abdelhadi Badrezzamane, vice-president, head of global transaction services (GTS)
Arab National Bank:
Wasif Hasan, head of business development and sales, Transaction Banking Solutions (TBS), Corporate Banking Group
The importance of cash and trade solutions provided by banks in the kingdom of Saudi Arabia has never been so vital, competitive and demanding for both the bankers and their customers.
Saudi banks continue to invest heavily in resources, products and technology to help meet their customers’ requirements when it comes to financing trade and managing their payments, collections and optimising their liquidity management in an efficient and effective manner.
With the support and infrastructure made available by the central bank, SAMA, Saudi banks have deployed technology most successfully, thereby stepping up services and adding value. Simultaneously, they have introduced tailormade solutions to the market to secure a bigger share of business from their customers. This has not just enhanced their revenue but has allowed them to compete with global banks.
At Cash&Trade’s first roundtable discussion in Riyadh – with most KSA banks participating to discuss transaction banking – the focus was on cash management and trade, business and the challenges ahead. (The discussion was the first in a series of sessions that will take place in other parts of the region).
Cash&Trade asked the participants the following question that drew most illuminating answers: How do you see the cash and trade business evolving in the KSA and what is your overview of the importance of this market to you and your customers?
Prasad: It is without doubt a growing business. Customers have been recognising the importance of cash and trade business and they are increasingly looking for sophistication. For example, many now demand integration with their back office and mandate banks to be embedded within their work flow. This flexibility is the key in sustaining a long-term relationship between the bank and customer. Riyad Bank, having established long-standing relationship with its customers, understands their requirements and works towards fulfilment of these needs.
Osama: Cash and trade is extremely important business for NCB, which it takes very seriously. It is a key component of the bank’s strategy and one of the key initiatives in NCB. Back in 1996, customers in the kingdom were reluctant to sign up for electronic banking and initiate transactions online. Today customers’ demands are more sophisticated and I agree with Prasad on the increase in customers’ requirements for banks to integrate and to provide a smooth and error-free environment for customers to manage their working capital.
Sami: Customers in the kingdom have invested heavily in their technology and back office due to an increase in their overall business and the growth in their transaction volumes. We believe that our customers are always looking for economic-scale solutions. At AlBilad, we will be launching our new cash management electronic platform, where we will not re-invent the wheel, but re-shape it. Naturally, though, as an Islamic bank, due to Sharia compliance, we are restricted on our offering when it comes to some of the complicated price demands and structures available in the market.
Abdelhadi: There is a pronounced understanding from the market in the kingdom of the importance of the banks’ transaction banking product mix, specifically when it comes to cash and trade offerings. However, this understanding differs from one segment to another. For example, SMEs do not fully comprehend current banking offerings, while large multinationals and the bigger local corporates demand tailormade solutions. Internally, relationship managers continue to position financing and loan extension as their priority, whilst less attention is given to cash and trade that generates annuity business, FX, fees, and commission.
There are huge transaction business opportunities in the Saudi market, which are supposed to be beneficial for Saudi banks as source of new revenues but also for clients in terms of processing quality, treasury optimisation and cutting processing cost. A good integrated GTS banking solution gives the client a competitive advantage that supports him in attracting more business.
Wasif: For any bank to serve the growing cash and trade business and capture market share, two crucial factors need to take place: senior management support and the building of industry-specific solutions. Internally, at ANB we have been able to consolidate transaction banking solutions under one division that offer our customers one point of contact.
Ahmed Al Ghamdi: Trade is a very healthy revenue generator and the market continues to grow. However, the scarcity of local Saudi talent remains very challenging. After spending more than 15 years in the trade business and trade operations, I still have a difficult time finding staff. Local resources are hard to find for trade product management and trade operations. Regarding cash management business and the pressures on NIBs, corporate customers are not keen on paying certain fees. Additionally, some of the cash product offerings – eg the cash pick up – remain expensive operations to provide. Furthermore, customers in general continue to demand complicated tailormade solutions that will lead to fruitful growth in cash management products.
Ahmed Al-Mangour: Although trade is a very complicated business, I think there is enough local qualified talent available in the market. We do, however, see the necessity of customer training. Banks have under invested in the trade business and only recently came to appreciate the importance of trade, given the low-interest environment, risk appetite and liquidity etc. Not all aspects of trade are fully covered and there are areas for improvement – for example, in export financing.
Sami: I also agree that not all banks appreciate the added value trade and cash brings from a risk management point of view and in terms of customer business penetration. And, definitely, Saudiasation in this area is a key issue as well as product training.
Badri: We are in a developing country and business volumes are growing, so I believe we should not be concerned about the products offering. I concur that a scarcity of qualified personnel is always an issue, both in general, and, particularly, regarding local talent. Each bank has its own organisation in place. We, at AlRajhi, opted to change the name of the bank’s trade operation to trade services, as we felt the word operation sent the wrong message and we wanted to align our products and solution with our customers’ needs. We position our trade offerings in the form of solutions to the market where we meet customers’ specific financing requirements. On the limitation of export trade product offering, it is normal in my view, given that we are an import economy. However, I do agree that export business is on the increase .
Regarding the resource issue and that of growing our trade business, we implemented compensation and incentive schemes to all staff involved in trade services to encourage response time, and to increase our share of “wallet” through cross-selling and repeat business.
Khalid: In general, banks have been late in investing in technology and at the right level. Despite almost all banks offering electronic platforms for their customers to transact online, real time and manage their accounts and track activities, we are still observing a “low” of 20 per cent transactions conducted online, whilst the other 80 per cent are conducted manually via the branches. It is a challenge to encourage customers to transact online and bypass the manual method. Innovation is key for the business and we at AlRajhi are exploring the new wave of the social media.
Abdelhadi: More products – on both the payments and collections front – are needed in the KSA. The capability of a multinational company finance department based outside the kingdom to transact and move money online real-time between Saudi banks through a consolidated platform is the way forward, instead of different, single-browser-based solutions. We have several customers demanding a “one-solution” for all banks.
On the other hand, more alignments between Saudi banks is needed in terms of pricing (minimum and maximum) in order to have an organised and regulated cash management market, as this is the case for trade finance and treasury as well as other banking business areas.
Badri: Pricing among Saudi banks for cash and trade product offering remains extremely competitive. One would, however, like to see it based more on value-added beside the risk pricing and SAMA guidelines.
The group also briefly discussed the impact of new regulations under Basel III. A concern was that certain capital restrictions for banks as mandated by Basel III will greatly harm the funding of trade finance. However, it was agreed that it was currently too early to have a full picture of what the regulations might contain.