ONCE considered the sleeping giant of Middle East finance, the National Commercial Bank (NCB) of Saudi Arabia is now responding to a demanding corporate re-engineering project.

The bank has set itself the task of rebuilding market share, developing new products and services, absorbing the latest technology and boosting profits. It is cultivating a new generation of managers with skills to lead the bank to its goal of becoming the most dynamic as well as the largest Saudi Arabian bank.

A customer-service revolution is under way within NCB led by Mohammed Bin Mahfouz, chief executive officer of the bank since the summer of 1992 and chairman of its executive committee for 15 years. ‘My main mission is to try and change the environment inside so that we are able to handle our main concern which is the customer,’ he says in a rare interview (see page 36). Bin Mahfouz spoke to MEED in the summer of 1994, before the death of his father and NCB’s co-founder Salim Ahmed Bin Mahfouz on 10 September.

The pace of change within the bank quickened on 1 June when a new organisational structure was launched. Out went the previous system of highly autonomous regional units. In came kingdom-wide business divisions reporting to Bin Mahfouz and his corporate team in NCB’s Jeddah head office.

An executive committee of line managers has been created comprising the heads of the bank’s four administrative and seven profit-centre divisions. The existing general management committee, chaired by Bin Mahfouz and including the bank’s deputy general managers, is now focusing on corporate policy issues.

The June shake-up involved major changes in management responsibilities. Deputy general manager Ahmed Banaja, who worked as an NCB executive in 1977-87, returned to a full-time position as retail division chief responsible for the bank’s 230 domestic branches (see page 40). Former central and eastern region manager Abdullah Bahamdan, also a deputy general manager, now heads up the corporate division (see page 38). Other deputy general managers have had their duties revised.

The new management structure is driving a revised corporate strategy which prioritises consumer banking. Corporate banking, a major NCB activity in the past, will be addressed more selectively from now on.

The June changes are another milestone in a journey of change for NCB and its owners, managers and employees that will continue well into the second half of the decade. A vigorous cost-cutting programme is underway to boost net earnings from the 1993 figure of just over SR 500 million ($133 million). Staff numbers, totalling 7,400 two years ago, have been significantly reduced. Training has been intensified for those who remain.

Important appointments have been made. Former Citibank global finance sector head Michael Callen, who was managing director of Riyadh-based Saudi American Bank in the early 1980s, was appointed adviser to Mohammad Bin Mahfouz in the spring of 1993.

Don Hill, another former senior Citibank executive, joined in the summer of 1993 to head the critically-important treasury division. The operation is based in Jeddah. Reviving the Bahrain dealing operation is under consideration (MEED 2:9:94, Finance).

A private banking division, headed by former Saudi Hollandi Bank executive Saud Sabban, has been established (see page 40). The Islamic banking unit, first launched in 1992, has been upgraded to a full division (Islamic Banking, MEED Special Report, 26:8:94, page 8).

Each division is now working to busy agendas. One of the most important for the bank’s future is the Al Sagr (The Hawk) programme launched in January this year. This entails a full re-engineering of all processes in the branches and head office departments. ‘Maybe 70-75 per cent of our staff is working in the back office,’ says Saleh Kaki, assistant general manager and head of the systems and operations division. ‘What we are doing is moving a part of that towards clients.’

Al-Sagr involves setting up three regional processing centres: one apiece in Jeddah, Riyadh and Dammam. A central, kingdom-wide remittance-processing centre is being established in Jeddah.

Centralising processes has two advantages. Branches will concentrate on front-line services. Secondly, the three regional processing units can ensure consistency. ‘If you have letter of credit processing done out of 230 branches you are going to have very inconsistent quality,’ says Bikram Kochhar of the systems and operations division. ‘But if you form a unit of 15-20 people, you will develop a level of expertise which over time would bring about excellent delivery of these services.’

The processing centres opened in the summer. By the end of 1994, more than 40 of the largest branches will be served by them. In 1995, most of the other branches will be covered.

The Al-Sagr programme is linked to NCB’s technology upgrade programme. Branch 2000, a new front-end delivery system for tellers and customer service staff, is being introduced across the branch network. The aim is to make it available to all branches by the middle of 1995.

The electronic point of sale (POS) programme launched at the end of 1993 is one of the most ambitious in the kingdom. The aim is to have about 2,500 POS terminals by the middle of 1995. NCB Mastercard holders have been able to use them in the bank’s POS terminals since the summer. The number of investment funds is being increased. Future consumer banking initiatives may include telephone banking.

In the corporate sector, technology-related services are being investigated. In the treasury, a new front-end dealing system, allowing dealers to input information and make inquiries about deals they close, is being introduced. Analytical systems for derivative packages are being evaluated.

The work behind the scenes is matched by efforts to upgrade NCB’s image through the Boxer project. This involves giving the retail bank a new image and setting standards for all NCB locations. It encompasses corporate identity and all external signs, branch designs and furnishing.

The re-engineering programme is winning praise from competitors and changing the view of analysts. ‘For the next couple of years at least, this bank will be changing,’ says Mardig Haladjian, of Limassol-based bank rating agency Capital Intelligence. ‘It will really have a solid set up and operation after 1997/98.’ Capital Intelligence gives the bank a single A long-term rating, classifying NCB as a strong bank with no cause for concern. The short-term rating is A-1, Capital Intelligence’s top grade.

This assessment indicates that the dark clouds that hung over the bank in the late 1980s and early 1990s have dispersed. Auditors qualified NCB’s financial statements in 1987, 1988 and 1989. No figures were released for the subsequent two years.

In 1992, the New York and London branches closed. In July that year, chief operating officer Khalid Bin Mahfouz was indicted in the US in connection with the Bank of Credit & Commerce International (BCCI) affair. He resigned his executive position in NCB soon afterwards (MEED 14:5:93, Cover Story).

This was followed by a period of uncertainty which was conclusively ended when the financial figures for 1991 and 1992 were finally published at the end of 1993. They showed that a capital injection from the shareholders of SR 5,937 million ($1,580 million) had restored the bank’s equity to internationally-acceptable standards.

Provisions of more than SR 550 million ($147 million) were made for the two years. Unexpectedly high additional provisions of SR 856.5 million ($228.4 million) for possible credit losses and falls in the value of investments and real estate were made in the 1993 accounts. Says Haladjian: ‘The provisions are still looking a bit high. It seems the bank is being conservative.’

NCB argues it is building a business on solid foundations. Lending is now carefully scrutinised, says Omar Bajamal, deputy general manager and chairman of the bank’s credit policy committee. ‘In the previous organisation, this credit function was dispersed,’ he says. ‘Things have changed…One does not have any concern any more that there will be an uncontrolled credit extension.’

For the foreseeable future, the emphasis will be on the domestic market, but some enhancements are possible in the international network. This comprises branches in Beirut and Bahrain, representative offices in Europe and Asia and a presence in New York and London for NCB’s securities operation.

The biggest unanswered question is about the ownership structure of NCB, which still operates under the terms of the original general partnership agreement of May 1950. More than 90 per cent of the bank is owned by the Bin Mahfouz family.

In the early 1990s, there was speculation that NCB would be converted into a joint-stock entity like the other 11 Saudi banks. This has since subsided. However, Mohammed Bin Mahfouz acknowledges ownership is an issue. ‘Certainly, a broader ownership base is probable, including, eventually, public participation, but it is premature to speculate on the nature of such an arrangement,’ he says.

The prospect of going public, perhaps towards the end of the 1990s, provides a further impulse for the changes that are transforming NCB.

It aims to be a profoundly different bank at the end of the decade to the one it was at the beginning. The efforts of the past two years are evidence that this indeed will be the case.

And yet, the links with the past are strong. It is unlikely that in pursuit of banking excellence NCB will abandon the unique role it plays in Saudi society. Says Bin Mahfouz: ‘I would like people in the future to say that the bank never forgot that its people and community have helped it be what it is.’