A glance at the first-quarter financial performance of Arab National Bank (ANB) would appear to give credence to the claim that the corner has been turned. Booming profits and, most impressively, an expanding loan book, suggest the extensive restructuring programme the bank has gone through over the last 30 months is beginning to bear fruit.

The arrival of Nemeh Sabbagh in September 1998 as chief executive and managing director heralded a radical overhaul of the operations and structure of ANB. As is often the case, things had to get worse before they could get better. 'The first move which had to be made was to look at the credit portfolio,' says Sabbagh. 'Eighty per cent of risk in the banks of the region is carried in credit - you have to get it right. We made fresh provisioning which has hit income, but it was necessary to introduce new measures.'

But the restructuring of ANB has been about more than just cleaning the balance sheet. 'We have re-engineered all aspects of the bank's culture, its operations and back office activities,' says Sabbagh. 'Accountability has been introduced for departments and within departments. The focus has firmly been put on the bottom line: senior managers have been set targets against which they are measured and assessed. They have become more focused.'

The reorganisation of the credit side of the bank's business has been radical. A new broom has swept through ANB's extensive branch network which used to offer all the bank's products in haphazard fashion. Corporate banking has been reconfigured as a separate profit centre and has been taken out of the branches. Three separate hubs have been established, covering three geographic regions.

Middle market commercial banking is also being reformed around six centres. The first, in Riyadh, is already operational and preparations for the others are well advanced. 'The middle market portfolio still needs some restructuring but when this is done the rate of growth, and the quality of that growth, will be much improved,' says Sabbagh.

On the retail side, operations specialists have been introduced at the branch level in the hope that the branch staff will be able to concentrate better on the tasks of marketing and selling the bank's products. The thinking is clear: specialists will outperform generalists.

For Sabbagh, one of the most important aspects of the restructuring process has been the willingness and support of his staff. It is no coincidence that a new consumer lending product was introduced in 1999 to demonstrate that the upheaval was beneficial. Already a success, the programme has shown the staff the worth of the new internal processes. 'They are really enjoying selling a first class product through first class systems,' says Sabbagh.

The new thinking, which was formulated in the three-year plan passed by the board in late 1999, goes far beyond the reworking of old and existing systems and catching up with some over the other retail-orientated banks. It is also about setting a clear long-term vision for the bank.

Internet banking

ANB is, to date, the first and only bank in Saudi Arabia to offer a retail internet banking service. Launched in February, the system is primarily a delivery vehicle for the bank's existing products and most of the customers were already with the bank. But Sabbagh is ambitious for the service. 'Although access to the internet came only recently, its use is becoming increasingly pervasive,' he says. 'In the face of rapid expansion, the best policy is to have a developed strategy in place.'

Once again, the thinking is clear. For ANB, the internet offers twin opportunities: it is a new platform for new products for its corporate as well as its retail client base, and it is a very effective tool for cost cutting. 'The process is about getting transactions out of the branches so they can be used to service the needs of customers more efficiently and effectively,' says Sabbagh.

He has every reason to be pleased with the bank's first-quarter performance. Net profits were up 27 per cent against the same period last year at SR 93.9 million ($25 million). 'Q1 profits are looking very good and we expect the profit corner to be turned this year,' he says. 'And the whole process has been done without taking undue risks and despite having maintained the same stringent provisioning levels taken last year.' Perhaps he will be most pleased with the underlying trend in the bank's results: the profit growth is supported by a 19 per cent expansion of the loan book - the highest growth in the sector, with the exception of the tiny Bank al-Jazira.

'When we look ahead, it is clear that the most important quality banks will need in this market will be internal strength,' says Sabbagh. 'This is already the focus for ANB. Our aim is to have a solid, stable earnings base and a clear vision. This is fundamental to the long-term success of the bank.'