Ziad Makkawi: Show me the money

With Muslims now making up one fifth of the world’s population, Islamic banking has taken off in a big way. Ziad Makkawi, Dubai Bank’s CEO talks to Rhys Jones about his bank’s plans to become a Shari’a-compliant institution — one way or another.

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By  Rhys Jones Published  August 7, 2005

Dubai Bank’s Makkawi is still undecided on whether to adopt a dual or wholly Shari’a banking system. As with everything in the UAE’s burgeoning business world, Dubai Bank started very quickly. It launched in September 2002 as a retail and corporate banking entity, but the man at the helm, Ziad Makkawi is now looking to lead the company into unchartered territory — into the foreign world of Islamic banking.

“Maybe more time should have been spent on thinking about the bank’s strategy than was initially done [at the time of the launch], but I think speed to market has always been a Dubai trait,” Makkawi says candidly, admitting he is uncertain in which direction to take the bank. He could choose to adopt a dual system where Islamic and conventional banking methods operate in parallel, or take on a single banking system that fully accords to Shari’a injunctions — the Lebanese Dubai Bank CEO is still deciding.

“How we tackle the market — whether we fully convert to an Islamic banking institution or set up individual companies to deal with the opportunities available is something that has been studied and the board of directors and shareholders are currently deliberating it. No final decision has been taken on that but this (Islamic banking) is definitely one area we want to be very active in,” he explains, suggesting that a clearer plan for the future should have been put in place before he joined the bank 18 months ago.

“One of the things that I was commissioned to do when I joined the bank in February 2004 was to review the bank’s strategy and answer some of those questions [regarding conversion] but some of these questions could have been asked earlier,” he admits. “Actually I think initially, even at the very inception of Dubai Bank, there was talk about defining the strategy and whether it should be Islamic or not, retail focused or corporate focused and so on and so forth,” he adds.

Islamic banking is more or less the same as conventional banking except that it operates in accordance with the Islamic rules on transactions. Its basic principle is the sharing of profit and loss and the prohibition of interest. Among the common Islamic concepts used in this form of banking are profit sharing, safekeeping, joint venture, cost plus and leasing.

With a vibrant Islamic banking industry already present in the emirate, Dubai Bank’s conversion could play a meaningful role in the emirate’s future economic and social development. But the UAE’s Central Bank will be keen to see Dubai Bank build competent institutions and develop its supporting infrastructure before it gives Makkawi the green light to make any changes.

“Conversion to Islamic banking is probably the easiest option and once we have decided on what strategy we want to pursue we will engage the Central Bank in discussions,” he explains. “We have already started talking to them about the different scenarios but where it becomes complicated here in the UAE is if you start to require additional licenses — they require Central Bank license approvals and they can sometimes delay you,” he adds.

With Islamic finance having gained wide acceptance as a form of financial intermediation in the Middle East it has also taken on a new dimension to meet the changing requirements of consumers and businesses. As such, Makkawi and Dubai Bank are keen to alter their respective strategies in a bid to tap into this market.

“I’ve spent quite a bit of time looking at a move into Islamic banking and we’ve looked at the various businesses — retail, corporate and investment and asset management — and tried to identify the opportunities available on the Islamic banking side. We are convinced that there are tremendous business opportunities in most if not all of these areas,” he says.

“Most institutional investors and corporate banking clients tend not to be religiously motivated and are more interested in the services and the pricing they get. But in the retail space you do have a sector of the client base that is religiously or ideologically motivated,” he adds.

As the Islamic banks get more and more competitive, the world’s 1.2 billion Muslims will naturally shift towards Shari’a compliant lenders — a move that could spell disaster for conventional institutions. Proof of this is the fact that many western banks have started offering Islamic services.

Muslims now make up one fifth of the world’s population, but Islamic financial institutions have failed to adequately tap into this potential market, which has traditionally been serviced by conventional financial institutions. Furthermore, with the global financial system now operating in an era of transformation, even non-Muslim nations are expected to test different financial systems such as Islamic banking in the future.

“There are Muslims that live all over the world — 6 million in France alone, so clearly that’s an untapped market. But this year we’ve also seen the establishment of the first Islamic bank in Britain, which has received FSA approval, there’s another one — the European Islamic Investment Bank — which will see the light of day in the next few months,” explains Makkawi. “Islamic banking is a high-growth industry, it’s here to stay and it’s not limited geographically. I’m speaking about places of course like Malaysia, Indonesia, India, Singapore, Pakistan, Iran — very untapped markets,” he adds.

Despite the competitive nature of the UAE’s banking sector — there are 48 banks currently in the country with more set to follow — Dubai Bank’s financial results for 2004 showed an earlier than expected break even. Last year’s strong growth placed it well ahead of initial plans to break even by 2006.

“Our operational revenues reached US$30.2 million, an increase of 156% compared to last year. The bank also generated a profit of US$1.1 million compared to a loss of US$9.8 million last year,” Makawi says, glowing with pride.

“We have attained break even within a short period of two years, and the excellent results speak for themselves. To achieve this milestone, we faced different challenges and increasing competition within Dubai. As the city grows into a global player, Dubai Bank will continue its ongoing success through increasing competency levels and providing services at par with international standards,” he adds.

Makkawi puts the bank’s impressive growth down to the good choices made in terms of the businesses it started off with as well as its popular credit cards. He also claims that the bank’s cautious yet uncompromising tactics have paid dividends.

“On the retail side, the credit card business really took off — we have 50,000 cards issued and on the gold card we are the fastest growing. On the corporate banking side, we started developing our business in a prudent yet aggressive manner so we built up quite a nice portfolio of corporate banking business, which is interest rate based or fee based. We were able to grow with the market and achieve better market penetration than was originally anticipated,” he says.

In terms of Makkawi’s vision for the future, he wants to promote the emirate as the region’s number one financial centre by making Dubai Bank a monetary behemoth. But to do that Makkawi realises that first of all he must find a gap in the Islamic financial market and cement the bank’s position there.

“I want us to carve out a niche for ourselves ... occupy a hill and be able to defend it,” he proclaims. “Then our aim is to become a financial powerhouse that champions Dubai’s role as a financial centre. I see our mission as one to grow the bank to a size and importance that will put Dubai on the map as far as financial services are concerned,” he adds.

This may seem like an enormous mountain to climb for a bank which was set up just three short years ago. However, with backers like real estate giant Emaar Properties and the bank’s high-profile chairman (Sheikh Hamdan Bin Mohammed Al Maktoum — the son of Dubai’s crown prince Sheikh Mohammed Bin Rashid Al Maktoum) such ambitions do not seem beyond reach.

“It’s a tall order. We’re one of the smallest banks, we’re definitely the youngest bank and we’re dealing with a highly competitive market. Because of who owns us — today Emaar, tomorrow it may be Emaar and others, and who our chairman is, we have to carry the flag and we have to make sure what we do reflects Dubai and what Dubai stands for,” states Makkawi. “I would say that whether it’s Emaar, Dubai Bank, Emirates Airline, all of them have a brand vocation to make sure Dubai is successful at what it does and positions itself as a global leader. Emirates Airline is a great example and we want to be that successful on the financial side,” he adds.

In order to emulate the achievements of the likes of Emirates and fund his grand expansion plans, Makkawi claims Dubai Bank is seriously considering floating on the emirate’s financial market. The move is expected to be approved by the bank’s shareholders later this year.

“[Going public] is definitely something we are contemplating,” he says. “It obviously has to go back to the shareholders and the Board of Directors in terms of what is the best timing. There’s no doubt that somewhere down the road, and probably not too far down the road, Dubai will ... end up opening up its shareholding to a broader public audience,” he adds.

Rumours have been rife that Dubai Holding, the emirate’s government owned investment vehicle would buy part or all of Dubai Bank. However, Makkawi is quick to quash those stories.

“The media has repeatedly reported interest by Dubai Holding in the bank. I think the story behind all of this is that Dubai Bank was established to be an important bank in the UAE,” Makkawi explains. “Within that context, various scenarios were floated around — IPOs, Islamic conversion, and Dubai Holding. Rather than commenting on a specific transaction, Dubai Bank must become one of the leading banks in the UAE because of what the bank stands for,” he adds.

The fact that the bank is fully owned by Emaar Properties, which is in turn partially owned by the Dubai government, any sale would have to be approved by the state.

“This is absolutely a private company, although being 100% owned by Emaar and Emaar itself having a 30% ownership by the government, one could argue, that’s where you get some blurred lines,” affirms Makkawi. “But this is absolutely a private entity and our flotation is a private one. Ultimately the one theme is that Dubai Bank needs to grow to become one of leading banks in Dubai and the UAE and needs to carry Dubai’s name to the region and maybe the larger region,” he adds.

Makkawi certainly has the credentials to spearhead the bank and the emirate’s financial growth. He started his career on Wall Street with JP Morgan. But after a spell at Elf Aquitaine structuring energy related products, he moved back to Beirut in the mid-1990s. It was here that he helped to established two banks; Lebanon Invest and Middle East Capital Group.

Before joining Dubai Bank as CEO in February 2004, he acted as executive managing director of Shuaa Capital, where he helped build up their financial services business. With all of this experience, the importance of Makkawi’s role is not lost on him.

“A bank is a very powerful piece of equipment. It gives you antennae into really very deep roots in the economy and community, and it gives you visibility into what’s growing and what’s not,” he says. “It’s a very exciting time to be a banker in this part of the world, which is seeing truly historical change in terms of the scale of the growth and also qualitative transformation — I’m having a good time,” he adds.

How long the good times will last is another question entirely. Makkawi admits that perhaps the markets in Dubai “are getting ahead of themselves”, but believes that there is still plenty of room for additional growth within the market.

“I’ve witnessed big market crashes but I don’t expect this to happen here because of the liquidity we see here in the market and there is growth left in the companies,” he explains.

“Some of the smaller retail clients may not know what they are getting into and that’s an area of concern but in general if you look at the size of the credit on a per capita basis relative to some of the other GCC countries and some more developed markets there is still room for growth. I’m not concerned about it in this type of high-growth market.”

Despite the fact that Dubai is no longer an oil economy, Makkawi believes that the petro-dollars are still having an influence, especially since oil prices are still sky-high. At the time Arabian Business went to press oil prices were hovering around the US$60 per barrel mark.

“As long as you have high oil prices that will underpin the whole economy,” predicts Makkawi. “Over the next five years, GCC economies are worth somewhere in the region of US$1.5 trillion. That’s a liquidity tsunami and will not be easily absorbed by the GCC economies.

“The question is how long this boom will last — that’s the US$64,000 question,” he adds.

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