Thursby spins NBAD’s world view

Euromoney, June 2014

The last time Euromoney caught up with Alex Thursby, he was spearheading ANZ’s expansion into Asia and was in a strident frame of mind. “We’re noisy people,” he said then. “Certainly a straight-shooting bunch.”

Four years on, we find Thursby in a quite different role and, if somewhat less noisy in a new environment, no less driven in ambition. As chief executive officer of National Bank of Abu Dhabi, he is in a role with different sensitivities – running a mainly state-owned bank, ultimately held by the Emirate’s royal family, in the politically nuanced world of the Gulf – but equally bold in what it wants to do regionally.

Along the way, his role models have changed. Back at ANZ, Thursby and his then-boss Mike Smith were great believers in the model exemplified by their former employers, Standard Chartered and HSBC respectively: on-the-ground presence, in-country, with a large part of the business based on transactional work which might not be as sexy as investment banking but which follows the patterns of emerging market trade.

Today, though, it’s Asian banks he wants to emulate. Joining NBAD, he says, is somewhat like joining Singapore’s DBS 15 years ago. And DBS now is among the names he wants to follow: he also names other Singaporean and Malaysian houses. You won’t hear a reference to Stanchart unless he’s specifically asked about it, and there is a sense that he believes that western institutions have had their time in the sun and, in some respects, blown it.

“My philosophy is very clear,” he says. “A lot of the failings that led up to 2008 were based on a product push from western banks. And what I learned about eastern banks – and we are in a new world where the eastern banks are getting stronger and stronger – is that they start with the client.”

Time and again during our interview, Thursby makes comparisons to western banks and finds them wanting. “I fear for the west a bit,” he says. “Western organisations, outside tech on the [US] west coast, have become incumbent models, and incumbency can lead to non-reactiveness to the market.”

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NBAD’s board approved a five-year group strategy last July, the month he formally joined, and followed it up with specific five-year business plans for global wholesale banking, global wealth, and retail and commercial in January. With the ambitions set, Thursby has set about trying to make them happen.

Today he outlines a strategy with several components, and the first of them is based on the lessons he has taken from Asia: “That whatever we do geographically or whatever business we’re in, we want to ensure that we take a customer approach.”

“The reason for that,” he says, “is that depth, rather than out-and-out breadth, is better risk management: you know your counterparty, you know their segment, and you position the bank around specifics that allow you to be selective with the clients that you choose.

“It doesn’t mean we don’t have product groups, but they start with the client: we can’t do those clients well so we don’t do them.”

Talking of a customer-centric approach isn’t, on first glance, particularly striking or interesting, except for the fact that he just doesn’t see the best examples of this in the west. “I believe passionately in the customer model: that’s what a DBS, a UOB, a Maybank, a CIMB are doing and that’s why they’re so successful,” he says. Asked about the parallels with his old employers, he says: “I think this has similarities with the Standard Chartered of old. The Stanchart model has changed over the years since I was there, and whether it’s changed for better or worse is for others to make a judgment on. We have more similarities with the current Asian bank model.”

There are more components, pillars, priorities, sub-divisions: Thursby speaks as if referring to bullet points, with delineated lists of ambitions. This can get a little confusing – “the second component is that there are three pillars to our growth” – but behind it are some interesting ideas. The plan, geographically, is to start by build out the UAE business followed by selected Gulf markets; then simultaneously to build a network for the wholesale and wealth businesses, tying in European and North American platforms; and finally to build five banking franchises within what he calls the West-East corridor.

This push will start at home, with characteristic focus. He talks of “our emerging affluent clients, mainly Arab locals and Indian sub-continent people. Really, can we beat HSBC for Europeans? I’m not sure we can.” Another focus will be what he calls “international commercial,” which means “selecting commercial and SME clients who have an international business: they trade, they manufacture and they export, and those companies need certain types of services that a domestic commercial does not. FX, trade finance, international cash management.” Then there has been a revamp of many of the branches in the UAE, hiring marketing people and direct banking staff. “The flow of business has more than doubled in the last six or seven months as we’ve done that. It’s a big tanker but it’s moving very well now. We’ve got a lot more to do.”

Then – and this is also underway – the private banking and wholesale operations will be taken global, but again with a clear eye on specific opportunities. “We look in our private banking business to be focusing on Arabs, from our heartland to Egyptians and Lebanese,” he says. “That offers incredible opportunity. We are seen as a safe haven bank for many high net worth clients.” NBAD had built a Swiss presence prior to Thursby’s time, but it’s now being strengthened and looking more broadly than just the UAE. “It’s going extremely well,” he says.

Wholesale banking, which the bank believes is a $140 billion addressable market, will take a little longer. “It’s growing considerably but it is under extreme margin compression in this part of the world,” he says. “We’ve geared up to about two thirds of the relationship teams we need. We need another six to 12 months to gear up: we are hiring profusely.”

Other areas of investment include rates capability – “we are building a dealing room in the UK, increasing our sales people right across the franchise, starting in Singapore” – and a new cash management system due to be launched by the end of May. Across these two pillars, as he calls them, “there’s probably at least under 18 months of hard-nosed build-out to go.”

This hiring flurry, and the sense of building something fast, will sound extremely familiar to those who heard him try to build a regional Asian presence at ANZ. And indeed, for all that Thursby namechecks Asian institutions for their approach to banking, he still seems to be hiring from familiar names: his CFO is James Burdett, who he took from ANZ, and he recently poached a five-person trade finance team from HSBC. It would not be a surprise to see Thursby’s former employees raided for staff as his push gathers pace.

But perhaps the most interesting part of the strategy is the third pillar, one Thursby says isn’t really a priority yet but is in train for the future.  This is the West-East idea.

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When you see an NBAD investor presentation these days, there will always be a slide with a map of the world with a rectangle drawn on it. The southern end of this rectangle crosses Africa somewhere around Angola and passes to the south of Indonesia; the north end is just south of Paris and passes through Tokyo. The east and west lines of it embrace Africa and Asia, with the Middle East fitting about a third of the way along. Within this rectangle are some of the world’s biggest cities, from Beijing and Osaka to Manila, Delhi and Mumbai; from Cairo to Istanbul, Lagos and Kinshasa. NBAD’s primary drivers, this slide always says, are trade and investment flows across this corridor: it wants to bank the customers within it, to bank customers outside it who trade within it, and support UAE customers venturing outside it. With, say, BP, “we will say: we’re not going to bank you in Russia or South America, but we are going to bank you on trade and investment flows in the west-east corridor,” Thursby explains.

It is a very enterprising-looking rectangle, but then again, on paper, it’s still just a rectangle. Why does the fact that Lagos and Hangzhou feature within the same geometrical shape mean they will trade with one another?

Thursby sees this one coming a mile off. He is armed with statistics and examples, of Abu Dhabi merchants investing into Africa, of the CEO of Nigeria’s sovereign wealth fund just passing through town, of African telcos, of Chinese investment in African mining, of Indian oil imports and Carrefour and car sales. This is, it seems, his signature long-term idea, and he’s nothing if not prepared.

“I think the linkages between the Middle East and Africa are getting extremely strong. The linkages around the major export of the Gulf – energy – are getting deeper and deeper,” he says. “And the traditional linkages of Africa trade being done through London and Paris have weakened considerably.”

Thursby says that the amount of oil India imports from the Middle East has increased nine percentage points in two years, in terms of the composition of its overall supply; he theorises that America’s shale opportunity plays into this theme too, since there will be more of a need for Middle East exports to focus on Asia, where there is growth, than the west, where there isn’t growth and there are emerging new local supplies. “We whinge about China being 6.5% but it’s still growing, it’s still urbanising, and it still needs oil.”

He talks about the flow of imports into the region; the increasing outward investments from sovereign wealth funds in the Gulf, which traditionally went west but increasingly now go east. “We are seeing high single digit, even double digit growth [in trade and investment flows within this corridor], and seeing it consistently. Our job is to get on to the banking side of those flows, helping to finance Kuwaiti and UAE oil flows into southeast Asia. Have we got all those bases covered? No, it will take us 10 years. But there’s going to be lost of growth for 10 years. I get more and more daunted by the opportunities.”

The international strategy will eventually be anchored on eight hubs worldwide: five within the corridor (Abu Dhabi itself plus Mumbai, Lagos, Singapore and Hong Kong), and three outside (London, Paris and Washington DC, all of which the bank is already represented in).

There are a wealth of stats to support his view: based on EIU estimates, projected CAGR in Asia-Africa trade between 2011 and 2020 will be 11%, and 12% for Middle-East-Asia, while FDI flows will increase 8% and 14% respectively over the same timeframe, and 19% between the Middle East and Africa. Then there are projections around middle class population growth, high savings rates with low national debt, and the growing representation of this corridor in Fortune 500 companies (16% in 2003, 22% in 2013 and – the bank says – 50% of the world’s medium-sized enterprises by 2025). All of them point to a bloc that increasingly becomes the engine of global trade.

He is into his stride now. “The China-Africa flows have always been there but this is something beyond that. I really believe this is the new economic model. It’s going to be interesting to see how it will evolve.

“It’s not going to be built around political union but pure commercial need. And at the heart of it lie three parts of the world which offer something that the other needs. Hydrocarbons are needed by Asia, agriculture is needed by the Middle East, investment funds are needed by Africa.”

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Thursby’s energy is infectious, but one wonders how it is to work within the somewhat conservative constraints of Abu Dhabi state (and therefore royal) ownership. His first, swift response is to point out that the Abu Dhabi Investment Council, which holds 70% of NBAD, “owns a number of banks, not just us.” This is clearly true: it holds significant stakes in Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank, for example.

He then defends the bank’s effective independence.

“This is a commercial enterprise, 100%. If you know ADIC, they are about building, but they are also about returns. This is not a State Bank of India. Our job is to serve our government customers as you would a commercial enterprise: through continuous improvement.

“If you’re a state bank [elsewhere in the world], you take the state for granted and have dedicated revenue sources without doing anything for them. I can assure you that in this part of the world, government enterprise is probably as sharp in terms of what it wants as private enterprise is in the west, in some regards maybe more so. If you look at Emirates or Etihad, they are run really professionally, and really commercially, and we’re run in the same way.”

Nevertheless, state backing has its advantages; NBAD’s credit rating is Aa3/AA-, the equal highest in the Gulf, and the bank does refer to itself in investor presentations as “Banker to the Abu Dhabi Government,” which is surely quite a calling card.  In some cases in the Gulf, such a connection can be a headache as well as a bonus; Qatar National Bank and National Bank of Kuwait have no doubt sometimes found their national links working against them when doing business elsewhere in the Gulf, and this must occasionally be true for UAE institutions too. But Abu Dhabi has not shaken the equilibrium of the Gulf as much as some of its near neighbours lately, and the bank does not seem to be internationally impeded by its associations.

Does NBAD have the heft to be the regional player it one day hopes to be? It’s not so unlikely. Quite apart from having backers with deep pockets, it has a market cap of AED65.3 billion (US$17.8 billion), assets of AED89 billion at the end of 2013, an AED50 billion customer loan book and AED57 billion of customer deposits; those last three metrics are up a compound 22%, 20% and 21% respectively from 2004 to 2013. Net profit and operating income have followed a similar trajectory, if jolted a little more along the way, and its return on equity, at 14.4%, is considerably higher than bigger peer Emirates-NBD. NPLs are certainly lower: 3.2% at NBAD, 13.9% at Emirates-NBD.

A regional comparison shows that NBAD is not the biggest, but could not be considered small either. Its market cap is almost exactly half that of the biggest player in the region, Qatar National Bank, at QR129.45 billion (US$35.55 billion); and roughly the same as that of National Bank of Kuwait. There would certainly appear to be firepower to grow.

In terms of on-the-ground presence, NBAD is already represented in 16 countries, a diverse collective including the Gulf states (but not, notably, Saudi Arabia or Qatar) plus other key Arab centres including Jordan, Egypt, Libya and even Sudan; and also several European and Asian centres, plus Washington DC and Brazil. Not many regional banks outgun it in terms of this international presence: QNB is in 22, NBK 15, Arab Bank 30 and AUB seven.

Viewed regionally, the bank can produce numerous charts combining, say, credit rating with CAR, or credit spreads, and comes out favourably relative to its natural peers in all of them. Often its metrics look somewhat like Hong Kong’s Hang Seng: certainly anything combining return on assets or return on equity with credit rating shows a clear resemblance, as does NBK, and – guess who – ANZ.

Not everyone is a believer: HSBC, for example, is underweight the stock, though this is more because of rich valuations than any concern about the bank itself. In fact, based on data from NBAD itself last updated on May 19, the bank was also rated sell or underperform by Beltone, BAML, JP Morgan and NBK on that date, and a hold by everyone else who covers it.

There is, though, a sense that looking beyond the UAE is sensible, even inevitable. “NBAD is a very strong bank but faces growth constraints in the UAE,” says one analyst who cannot be named for regulatory reasons. This analyst looks at the mature balance sheet and sees limited room for balance sheet growth, noting too that it has one of the lowest dividend yields in the region’s banks with little obvious opportunity to increase it.

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In his ANZ days, there was a time when Thursby told people of the year he spent 258 nights overseas. “Right. When I was living in Melbourne.” Things have calmed a little on the travel front since, he says.

And how has he found the environment in the UAE? “Pretty good, actually,” he says. “The bank wasn’t totally naïve to best practices, let’s put it that way: there’s some good stuff here.

“It’s been extraordinarily positive: you have an entity that wishes to expand, and an entity that has many things that many multinational banks don’t have – chiefly liquidity and ratings. Those fundamentals are fantastic.”

Talking now of Abu Dhabi itself, he says: “Its ability to change is quicker than in the west. It’s a much more mercantile environment, which surprises people. Obviously as it gets bigger it may clog its arteries a bit but the speed it wants to operate – that will to change – is enormous.”