SAUDI Hollandi Bank boasts a history which stretches back to the days when Saudi Arabia had yet to emerge as the world’s largest single source of oil. And the bank prides itself on its ability to stay abreast of the changes, as the desert kingdom has acquired all the trappings of modernity.

The bank has not always found it easy to maintain the momentum, and in terms of profitability it lags behind most of Saudi Arabia’s commercial banks. But in the past five years, the bank has worked hard to strengthen its balance sheet, reorganise and restructure its management and adhere to a strategy for cautious but steady growth.

History and structure: Saudi Hollandi is 40 per cent owned by the Netherlands- based ABN Amro and the balance is held by the Saudi public. The largest Saudi shareholder is the local Al-Mawarid Group, whose chairman, Prince Khalid Bin Fahd Abdulaziz, sits on the board.

Saudi Hollandi was established as a joint venture bank in 1977, but ABN Amro’s association with the kingdom goes back much further. In the 1930s, the European bank’s forerunner, the Netherlands Trading Society, was the first bank to be established in the kingdom.

ABN Amro is represented on the board and occasionally seconds staff to Riyadh, but the relationship has a strong commercial twist. ‘Where ABN Amro offers the best service at the best price we deal with them, otherwise we go to another bank with the best service and price,’ says Sheldon Boege, the managing director of Saudi Hollandi. ‘I would say the relationship is probably weaker than in other (Saudi joint-venture) banks, mainly because of the automation end.’ Saudi Hollandi does not source its automation systems from its Netherlands shareholder.

The bank is expanding steadily the number of electronic services offered to clients. By the end of 1994, the number of automated teller machines (ATMs) had risen to 47, up from 35 a year earlier. The number of point- of-sale (POS) machines increased more rapidly, rising to 538 at the end of 1994, compared with only 50 the previous year.

The number of branches has climbed less dramatically during the past five years, and has now reached 38. However, the bank has refurbished almost all its outlets to make them more customer-friendly. ‘The change is very noticeable, but what we have found is that we still have to have an active sales presence out there to bring in the customers,’ says Boege.

Developing an experienced staff base is one of the bank’s priorities. There is an active Saudisation programme and by the end of 1995 the bank expects Saudi nationals to constitute 60 per cent of its staff. The reorganisation has gone right to the top. All except one of the 13 division heads and assistant general managers have been appointed since 1990.

Boege himself joined the bank in 1990 as deputy general manager, after 20 years with Citibank, mostly dealing with the Middle East. He was appointed to his present position as managing director in March 1994.

Strategy: The strategy rethink of recent years has looked at the smallest details. ‘Take a simple thing like the logo. We had no logo or house writing style, now we have a branding strategy,’ says Boege. But the most important changes are found elsewhere.

‘We have a highly selective corporate exposure,’ says Boege. ‘This does not always mean the big names.’ The bank carries out extensive surveys on corporate credit which can take months, but once a relationship is established the bank likes to ensure that it goes as deep as possible. The size of the bank’s branch network limits its capacity to reach the lower end of the consumer market, but Saudi Hollandi likes to deal with the employees of its corporate clients, providing employee loans and remittance services, as well as payroll distribution services.

The bank is also promoting its treasury department. ‘Our treasury is driven by the customer, rather than the interbank or money market. This reflects ABN Amro’s approach to treasuries and I think it is a good one,’ says Boege. ‘We tend to stay small in scope with our treasury operation, but it is very, very profitable.’ The bank has launched three funds since July 1994, all of which are locally managed, and is planning to offer two more in the coming months.

The bank mainly targets the higher end of the consumer market. ‘Our private banking is not on the scale of luxury lounges, but customers get a good service.’ However, Boege admits that the bank has yet to make an impression with the middle ranking customer. The bank hopes that this will be achieved in time, through cost-effective automation rather than investment in the branch network.

The problems the bank once had with its loan portfolio are now a thing of the past. About 10-20 per cent of the bank’s doubtful loans are still current on their interest payments, according to Boege, which reflects the bank’s policy of not reclassifying loans once they have been declared non-performing. Such conservatism pervades the bank’s activities. ‘I come from Citibank and I thought they were conservative, but this is more so,’ he says.

Performance: The bank reported a stream of improved earnings from 1986 until 1994 when profits dropped by more than 30 per cent to SR 121 million. The bank attributes the setback to losses stemming from trading on the international futures market.

In 1993, the bank earned profits of SR 73 million from securities trading, in common with other Saudi banks that had invested excess liquidity in a rising market. But the downturn in the bond markets in 1994 led to losses of SR 72 million in that year. However, the bank managed to increase foreign exchange and commission income during the year, which offset in part the poor performance from its trading activities.

Even without these losses the bank still underperforms most banks in the kingdom in terms of returns on assets. However, the bank hopes this will change as the restructuring brings down expenditure.

‘We were a very high-cost organisation before with no great capacity for increasing the number of customers or volume of trade,’ says Boege. ‘Now, it is a brand new organisation.’

Saudi Hollandi has not issued a dividend for the past five years. ‘We are growing and want to build our capital by retaining earnings rather than going to the market,’ says Boege. ‘We think this is a more efficient use of earnings.’ The bank plans to double paid-up capital through a bonus issue to SR 840 million in 1995 which is awaiting approval from the Saudi Arabian Monetary Authority (SAMA – central bank). The bank is also planning to split the value of the shares, lowering its present market value of about SR 450.

Outlook: Conservative policies, inherited from its Dutch shareholders, will be the main characteristic of Saudi Hollandi’s activities as it continues to develop its corporate and treasury departments. That conservatism was reinforced by the experience in 1994 when losses in international markets resulted from placements with outside managers. However, the bank says it now manages its investment portfolio locally, which is part of the bank’s continuing commitment to the local market. Says Boege: ‘We are here for the long haul.’