Bahrain-based Gulf International Bank (GIB) has reported a second year of profitability after suffering three years of losses and being forced into a recapitalisation by its shareholders.
The bank was one of the first Gulf institutions to be hit by the global financial crisis in 2007 when its investments in US structured products that were at the root of the downturn turned sour. GIB reported a loss of $757m that year as a result of provisions it had to take against those investments.
That led to a bailout totalling $4.8bn from its shareholders, the six governments of the GCC. A rights issue led to the bank up being 97 per cent owned by the government of Saudi Arabia, with the rest held by the other GCC states. It is now preparing to launch retail banking operations in Saudi Arabia later this year in a bid to build a stronger funding base and a more stable business.
“GIB is almost a new bank now,” says Mahin Dissanayake, financial institutions analyst at US ratings agency Fitch Ratings. “The strategy has changed completely and the plan is now to create a pan-GCC universal bank.”
Through its Saudi shareholders, the bank has managed to get a retail banking licence and is understood to also be planning to launch retail operations throughout the region by online and mobile banking to help attract customers while it lacks a branch network.
“In other markets I would say they will face slow growth, but as they are starting retail banking in Saudi Arabia I expect the growth to be pretty fast,” says Dissanayake.
Traditionally GIB was one of the most active banks in the regional project finance market. Its losses over the past few years, mainly stemming from its international structured products investments, has led it to be largely absent from that sector. “The bank has derisked its investment book, got out of activities like proprietary trading and is going back to its roots of wholesale banking, project finance and projects of regional importance with the new business of retail banking,” says Dissanayake.
Asset quality is also expected to start improving soon. Most problem loans have now been recognised as impairments already, but the bank is active in trying to arrange restructurings. Although it had exposure to problems assets in the US and defaulting corporates in Saudi Arabia, it avoided exposure to Dubai’s indebted companies and the real estate sector. With little new provisioning expected, profitability should continue to pick up. Last year, it also issued a $300m sukuk (Islamic bond) to help improve its long-term funding base.
After restoring the bank to profitability, the key challenge ahead for GIH now will be the successful implementation of its retail strategy.