BANKING: Two tracks from the old and the new

23 May 1997

The Netherlands' two largest banks, ABN AMRO and ING, are both focusing on the Middle East but from different angles. ABN AMRO has a long established presence throughout the region with the emphasis on corporate banking. ING has recently fortified its presence by establishing a new office in Lebanon and by taking on the investment-oriented activities of the former Barings Group. From their different viewpoints, both see potential for further development in the region.

For ING, the immediate future is one of consolidation. The acquisition of the UK's Barings in 1995 is soon to be taken to its logical conclusion. ING's corporate banking arm, ING Bank International, is to be fully merged with ING Barings - the initial product of the take-over and the part of the group which handles investment banking activities. All corporate and investment banking activities will then be fully integrated. 'This will provide a unified platform to the customer,' says Piet van Zanten, ING Bank International's general manager. Van Zanten says the process of merging

operations could begin as soon as this month and could be completed by early next year.

The aim is to strengthen the group's position in emerging markets. For the most part, this means Central and Eastern Europe, the Far East and Latin America. But, says Van Zanten, the Middle East should not be excluded from the equation. 'We are strong in emerging markets,' he says. 'And the Middle East does now have emerging markets.'

As part of its strategy to win more work in the region, ING Bank International established a branch in Lebanon, which started operations in early 1996. Beirut was selected for its strategic location for trade finance and because of the city's historical tradition as one of the world's great financial centres. 'Setting up in Beirut had two purposes,' explains Van Zanten. 'The primary reason was to get business in Lebanon. The next step would be to use the office as a base for regional expansion.'

The main focus of the drive to win work has been trade finance. This is mostly import finance in the form of letter of credit facilities, says Lebanon general manager Konrad Petersen. Work also includes regular short and medium-term facilities, he adds. 'We have a competitive advantage over other banks doing trade finance in Lebanon because we can route transactions through our international network,' says Petersen. The Lebanon office has also worked for the bank's Global Clients Division helping multinational companies establish operations in the country. The bank provides local credit facilities, project finance and knowledge of the market. The office also runs a private banking operation.

Van Zanten admits that things have not gone strictly to plan. 'The economic environment was not helpful to a quick start,' he says. 'And we had not anticipated the troubles in early 1996,' he says, referring to the Israeli bombardment of Lebanon in April 1996. However, Petersen points out that the bank has learned to expect the unexpected. 'We know that the Middle East can spring surprises so we accounted for that at the planning stage,' he says.

Slow start

Political uncertainty has meant a slow start and expansion beyond Lebanon is still a way off. 'Our attention is still on business in Lebanon, we need to achieve our targets, for example for return on equity, before we expand,' says Van Zanten. When that time comes, Petersen says a natural progression would be cross-border financing. This could be trade or project finance or participation in syndicated loans. Furthermore, co-operations with ING Barings will be increased, Petersen says.

While ING is still finding its feet in Beirut, ABN AMRO has outgrown its Lebanon headquarters and is in the process of moving to new premises. The bank has a long-established commercial banking and trade finance operation and prides itself on being one of the few banks that stayed put during Lebanon's civil war. The bank has diversified in recent years. 'We have an active treasury and the consumer banking operation is also doing well,' regional manager Eltjo Kok comments.

ABN AMRO's presence in the region extends far beyond the borders of Lebanon. In the Gulf, the bank has operations in the UAE and Bahrain, where there are three core activities, Kok says. These are corporate banking, personal banking and a treasury. Morocco is home to a substantial branch network and in Saudi Arabia ABN AMRO has a joint venture bank, Saudi Hollandi Bank.

Saudi Hollandi Bank reported a 15 per cent rise in profits to $43 million in 1996, achieved, the bank says, through improvements in efficiency. Maarten Reuchlin, senior executive vice-president at ABN AMRO says the quality of consumer products used by Saudi Hollandi is such that ABN AMRO operations elsewhere in the world are looking to the bank as an example to follow. 'It is a smaller organisation,' he says. 'So changes and improvements are quicker.'

In Morocco, ABN AMRO will celebrate 50 years of operations in 1998. Gradual expansion has built up the operation to encompass 22 branches and a wide range of activities. Work is focused on corporate clients, using the bank's international network to serve multinationals and large local companies with an international presence.

The last two years have seen a number of changes in Morocco, with the bank identifying and taking up new opportunities. In 1996, liberalisation of foreign exchange controls allowed the bank to set up a treasury operation. Under previous law only the central bank could conduct foreign exchange transactions. The bank also established ABN AMRO Finance Maroc in 1995, to provide intermediary services for investors in the Casablanca Stock Exchange. The set up aims to start playing a role in initial public offerings by early 1998, says Ab Rutgers, vice-president and director general of ABN AMRO Maroc.

The main area of growing interest for the bank, however, is project finance. 'Population growth in Morocco means that the demand for new infrastructure is also growing,' says Rutgers. 'The private sector is becoming more active and we see a lot of potential for foreign financing transactions,' he adds. The project that should set a precedent is the Jorf Lasfar power project. ABN AMRO is part of a group of three banks arranging loans for the project of up to $1,445 million.

Project finance has also attracted the bank's attention elsewhere in the region, as well as catching the eye of ING. ABN AMRO backed Oman's liquefied natural gas (LNG) scheme, signing a deal in November along with six other banks to provide a $2,000 million loan. At about the same time, ING participated in the $570 million loan agreement signed for Qatar Liquefied Gas Company.

For ING, though, participation in the Qatar deal was part of the bank's global, rather than regional strategy. 'This was more a consequence of increasing activity in project finance rather than increasing involvement in the Middle East,' says Van Zanten. But project finance is an international priority and the bank would be willing to participate in more transactions in the Middle East. ING says it would team up with big business clients, like Shell, ABB and Siemens if they wanted to become involved in financing for private infrastructure projects.

One growing area of banking that has attracted ABN AMRO, but not ING, is Islamic banking. ABN AMRO has gained experience of this specialist area in Saudi Arabia and also in Pakistan. It now plans to set up a new Islamic banking unit in Bahrain. The project has had an extended gestation period, having first been proposed in 1995. 'It took a while to identify the right people,' says Kok. 'But now they are on board and we will be starting very soon.' Concrete plans have not yet been finalised. Business will be built up in phases and the bank says it needs to identify which Islamic products and customers it will target first.

The two banks clearly have a different approach to the region. ABN AMRO is building on a long presence to take up new opportunities. ING is more cautious. 'We had expected more progress on the peace process,' says Van Zanten. 'We are disappointed.' By concentrating on the Gulf and North Africa ABN AMRO, can afford a more positive appraisal. In Reuchlin's words, 'We think there is more promise in the Middle East than people realise.'

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