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Middle Eastern Wealth Management
iii
Contents
PBI Middle East roundtable viParticipants vi
Tables vii
Figures ix
Executive Summary xConclusions xi
Introduction to Islamic finance 12WhatisIslamicfinance? 12
IslamicShariahanditssources 12PrinciplesgoverningfinancialandbusinessactivitiesinIslam 13
TechniquesusedinIslamicbankingandfinance 14TheShariahapprovalprocess 16
ApproachestowardsShariahcomplianceinSoutheastAsiaandtheMiddleEast 17TheMiddleEast 17Malaysia 18
CorporatestructuresinIslamicbankingandfinance 18IndependentIslamicbanks 18Shariah-compliantsubsidiaries 19‘Islamicwindow’operations 19
GrowthdriversintheIslamicfinanceandbanking 19Marketingpotential 19Favourablecoststructures 20Supportivemarkettrends 21
PBIMiddleEastroundtable:islamicbanking 22Shariainvestments:promisingorpremature? 22
Chapter 1 Wealth Management in the Middle East 25Theopportunities 25
Table of Contents
iv
TheopportunityforwealthmanagementplayersintheGCCcountries? 25Achangingregion 26Thechallenges 26KeyGCCwealthmarketingstrategies 27Theclients 27Thecompetition 29Islamicfinance 29Mutualfunds 29PBIMiddleEastroundtable:familyoffices&ultrahighnetworthclients 30
Chapter 2 Demographics and Social Changes 34Changingsocialattitudes 34
GrowingHighNetWorth 35
Chapter 3 The Main Wealth Management Products and Institutions 40Privateequityfunds 40Marketplayers 41
Investcorp 41Arcapita 42
Realestatefunds 42RiseinpopularityofAsia-focusedinvestments 42InvestmentswithintheMiddleEastregion 43
Islamicbonds 43Privatebanking 43PBIMiddleEeastroundtable:products&services 46
Crisisofconfidence 46
Chapter 4 Saudi Arabia 48Consumerattitudes 48
BankDeposits 48Equitymarket 49Mutualfunds 50Investmentswithintheregion 54Regulations 54Marketplayers 55
NationalCommercialBank 55SambaFinancialGroup 56RiyadBank 63ArabNationalBank 63ANBInvestmentServices 65BanqueSaudiFransi 65
SABB 68SaudiHollandiBank 68SaudiInvestmentBank 69
Privatebankingtrends 70
Chapter 5 United Arab Emirates 71Economy 71Bankdeposits 72Property 73
Middle Eastern Wealth Management
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Mutualfunds 73Marketplayers 74
NationalBankofAbuDhabi 74NationalBankofDubai 75EmiratesBankInternational 76MashreqBank 79AbuDhabiCommercialBank 80UnionNationalBank 82DubaiIslamicBank 83
Chapter 6 Kuwait 85Economy 85Equities 85Mutualfunds 85Investmentsabroad 86Marketplayers 86
NationalBankofKuwait 86KuwaitFinanceHouse 88GulfBank 89
Chapter 7 Qatar 91Economy 91Equities 91Mutualfunds 91Bankingindustry 91Marketplayers 92
QatarNationalBank 92Wealthmanagement 95QatarIslamicBank 98AsianFinanceBank 98ArabFinanceHouse(AFH) 98QINVEST 98EuropeanFinanceHouse(EFH) 99DohaBank 99
Islamicbanking 101Wealthmanagement 101CommercialBankofQatar 102
Internationalventures 105NationalBankofOman 105AlSafaIslamicBanking 105Wealthmanagement 105
Chapter 8 Oman 106Bankingindustry 106Marketplayers 106
BankMuscat 106Wealthmanagement 106
NationalBankofOman 107
Table of Contents
vi
Chapter 9 Bahrain 109Overview 109Mutualfunds 109Bankingindustry 109Marketplayers 109
GulfInternationalBank 109ArabBankingCorporation 111ABCIslamicBank 114AhliUnitedBank 115BankofBahrain&Kuwait 119UnitedGulfBank 119NationalBankofBahrain 124ShamilBankBahrain 127
BahrainIslamicBank 132
Middle Eastern Wealth Management
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PBI Middle East roundtable
“Where Do The opporTuniTies Lie in The MiDDLe easT ”privaTe Banker inTernaTionaL rounDTaBLe
Wednesday 14th April 2010Dubai International Financial Centre Participants
Shaima Faisal Al-Awadhi, special projects manager, Governor’s Office, DubaiInternationalFinancialCentre(DIFC)
Jahangir Aka, seniorexecutiveofficer,SEI(MiddleEast)
Kevin Birkett, executivedirector,AssetManagement,DIFC
Jon Breach, partner,BDOCorporateFinance
Tim Casben, partner,LawrenceGrahamLLP
Walid S. Chiniara, founderofShooraPrincipal,ShooraPrincipal
Amani Choudhry, chiefexecutive,MayfairWealthManagementCompany
Gary Dugan, chiefinvestmentofficer,EmiratesNBDPrivateBanking
Navid Goraya, advisortothechairman,BMBGroup
Sarah Lord, charteredfinancialplanner,Killik&Co(DIFC)
Jason Peers, groupchiefexecutive,JasperCapitalGroup
Nigel Putt, headofprivatebanking,LloydsInternationalBankingGroup
Sandy Shipton, executivedirector,DIFC
viii
Tables
Table 1.1:MajorprinciplesofIslamicbankingandfinance xiiTable 1.2:FinancingarrangementsinIslamicfinance 13Table 4.1:NumberofmutualfundsubscribersinSaudiArabia,2009 51Table 4.2:NumberandvalueofopenendedandcloseendedfundsinSaudiArabia,2009 53Table 4.3:NationalCommercialBank’sincomesummary,Q12010 55Table 4.4:SambaFinancialGroup’sincomesummary,2010 57Table 4.5:AlRajhiBank’sfinancialperformance,2008-1010 58Table 4.6:AlRajhiBank’sincomesummary,2003-2007 59Table 4.6:AlRajhiBank’sincomesummary,2004-2008 59Table 4.7:RiyadBank’sfinancialperformance,20094thQuarter 61Table 4.8:RiyadBank’sincomesummary,2005-2010 62Table 4.8:RiyadBank’sincomesummary,2009,4thQuarter 62Table 4.9:SummaryofRiyadBankfundsandportfoliosperformance,April2010 63Table 4.10:ArabNationalBank’sfinancialperformance2008-2009 64Table 4.11:ArabNationalBank’sincomesummary,2008-2009 65Table 4.12: BanqueSaudiFransiincomesummary,fortheyearsendingDecember31st,2009&2008 67Table 4.13:SaudiInvestmentBankfinancialperformance,2009 69Table 4.14:SaudiInvestmentBankincomesummary,2008-2009 70Table 5.1:TotalprivatesectordepositsbytypeofdepositinUAE,2008-09 72Table5.2:NationalBankofAbuDhabi’sfinancialperformance,2008 74Table 5.3:NationalBankofAbuDhabi’sincomesummary,2007-2008 75Table 5.4:NationalBankofDubai’sfundperformancesummary,2007-2008 76Table 5.5:EmiratesNBD(NationalbankofDubai)financialperformance,2008-2009 77Table 5.6:EmiratesNBD(NationalbankofDubai)incomesummary,2008-2009 78Table 5.7:MashreqBank’sfinancialperformance,2007–08 79Table 5.8:MashreqBank’sincomesummary,2008 79Table 5.9:AbuDhabiCommercialBank’sfinancialperformance,2005–09 80Table 5.10:AbuDhabiCommercialBank’sincomesummary,2005–09 81Table 5.11:AbuDhabiCommercialBank’sfundperformancesummary,March31st2009 82Table 5.12:UnionNationalBank’sfinancialperformance,2009 83
Middle Eastern Wealth Management
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Table 5.13:DubaiIslamicBank’sfinancialperformance,2008-2009 84Table 6.1:NationalBankofKuwait’sfinancialperformance,2009 86Table 6.2:NationalBankofKuwait’sinvestmentfundsperformance,2010 87Table 6.3:KuwaitFinanceHouse’sincomesummary,3rdQuarter2009 88Table 6.4:GulfBank’sincomesummary,2009 89Table 7.1:PrivatesectordepositsinQatar,2004-2009 92Table 7.2:QatarNationalBank’sgeographicaldistributionoftotalassets,2009 93Table 7.3:QatarNationalBank’sfinancialperformance,2008-2009 94Table 7.4:QNBInternationalHoldingsperformancesinceacquisitionofAnsbacher,2008 95Table 7.5:QatarNationalBank’sfinancialinformationbybusinesssegment,2009 97Table 7.6:DohaBank’skeyfinancialresults,2007–08 100Table 7.7:CommercialBankofQatar’skeyfinancialresults,2008 102Table 7.8:CommercialBankofQatar’sincomesummary,2008 104Table 8.1:NationalBankofOman’sfinancialperformance,2008 108Table 9.1:GulfInternationalBank’spercentageincomebysector,2004-08 110Table 9.2:ArabBankingCorporation’smajorshareholder 111Table 9.3: ArabBankingCorporation’sfinancialperformance,2008 111Table 9.4:ArabBankingCorporation’sincomesummary,2004–08 112Table 9.5:ArabBankingCorporation’sprofitandassetsbygeographicalregion,2008–09 113Table 9.6:AhliUnitedBank’smajorshareholders,2008 114Table 9.7:AhliUnitedBank’sincomesummary,2004–08 115Table 9.8:AhliUnitedBank’sincomeandassetsbygeographicalregion,2007–08 115Table 9.9:BankofBahrain&Kuwait’sincomesummary,2008–09 116Table 9.10: BankofBahrain&Kuwait’sincomeandassetsbygeographicalregion,2007–08 117Table 9.11:UnitedGulfBank’sfinancialperformance,2004–08 119Table 9.12:UnitedGulfBank’sincomeandassetsbygeographicalregion,2008 121Table 9.13:NationalBankofBahrain’sfinancialperformance,2006-09 123Table 9.14:NationalBankofBahrain’sincomesummary,2008–09 124Table 9.15:NationalBankofBahrain’sincomeandassetsbygeographicalregion 125Table 9.16:ShamilBank’sfinancialperformance,2009 126Table 9.17:ShamilBank’sincomesummary,2009 127Table 9.18:ShamilBank’sincomeandassetsbygeographicalregion,2007 128Table 9.19:BahrainIslamicBank’sfinancialperformance,2005–10 130Table 9.20:BahrainIslamicBank’sincomesummary 131
List of Table and Figures
x
Figures
Figure 1.1: ShariahcomplianceprocessinIslamicbanking 15Figure 1.2:Percentageofex-patriatesinnationalworkforcesintheMiddleEast,2009-2010 26Figure 2.1:EstimatedGrowthinHNWIwealth,2004-2011 34Figure 2.2:RegionalYouthintheMiddleEast 35
Middle Eastern Wealth Management
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Executive Summary
Thekeyfindingsfromtheneweditionofthisreport:• WealthmanagementclientsintheMiddleEastwantmanagerswhocanseamlessly
moveacrossproductofferings,betweentraditionalandalternativeinvestmentsandacrossgeographicboundariestofindnewopportunities.
• There isashortageof talentedbankersandfundmanagerswhocannavigatethemyriadregulations,emergingproductsandincreasinglycompetitiveenvironment.
• Clientsrequireamultigenerationalrelationship.• Clientsmeasureperformanceontotalassetappreciation.• Muslimclientsremainmorereal-estatefocusedintheirportfolios.• Many nations are tax-free environments, thus clients are more performance-
conscious.• Womenareanincreasinglyimportantclientsegment.
TheMiddleEasthasexperiencedenormousgrowthowingtotwoprimaryfactors:theglobaldependenceonoil(inwhichtheMiddleEastholds65%oftheworld’sreserves)andtheintroductionofnewregulations in theUSandEurope,whichhasbroughtcapital to theMiddleEastthathistoricallyhasbeeninvestedinUSmarkets.ThesefactorsandothershavecontributedtoarapidgrowthinthenumberofHighNetWorthIndividuals(HNWI)andthesizeoftheirassets.
Oilproductionisstillthekeydriverbehindthewealth.Nationsintheregionareconcernedover having their economies dominated by a single commodity, and have embarked ona process of economic diversification into other industries, in particular finance andtourism.Economicdiversificationintothefinancialmarketshasresultedinthecreationofsophisticatedfinancialhubs.
ThecompositionofHNWIclientsisalsochangingaswealthmanagersintheMiddleEastarelookingtoextendservicestonon-residents.AnotherkeydevelopmentistheriseofIslamic-basedor‘Shariah’financialservicestoappealtoMuslimsthroughouttheregion.
Executive Summary
xiixii
TheactualsizeoftheMiddleEastwealthmanagementmarketisnotverylarge;however,theopportunityitprovidesisindeedsignificant.ThetraditionalcompositionofthewealthmanagementmarketintheMiddleEastconsistedoflocalfamily-basedinvestors.However,growingnumbersfromtheUK,India,andPakistanhavebeenmovingintotheregioninseniormanagerialroles.Asaresult thecompositionofthewealthmanagementsegmentischanging.Growthcanbeanticipatedfrombothsegmentsaslongasfeesarekeptundercontrolandhighreturnscontinuetobeyielded.Financialinstitutionsthroughouttheregion,evenbanksthatdidnotpreviouslyoffertraditionalservicesspecificallydesignedforHNWIarenowofferingproductstailoredforhighnet-worthindividuals,manyofthemofferingaddedperkssuchasvaletparkingandprivateexecutivelounges.Inshort,thewealthoftheregionisincreasingandsoisthecompetitionformanagingthatwealth.
Withmuchoftheregion’spopulationundertheageof25,generationalwealthmanagementisaconcernforolderHNWIs.Wealthmanagersareanticipatingademandforanincreasedexposure to international investments from the younger generation of HNW inheritors.Productsarenotparticularlyinnovativeyet,butbanksintheregionaredoingtheirbesttocaterfortheircustomers,andtheseare,infact,quiteunique.MiddleEasterninvestorshavetraditionallyfavouredrealestateinvestmentshowever,HNWIsareinterestedinexpandingthebreathoftheirportfolios.Transformationintheregionisnotstrictlylimitedtoeconomics,aschangingattitudestowardwomenarealsohelpingcreateanewgroupofwealthyclients.
ConCLusions
TherearefourkeyfactorsreshapingwealthmanagementintheMiddleEast:• rapideconomicgrowthandcommercialdiversification;• ayoungerdemographicprofile;• anewdemandforShariah-compliantproducts;• changingculturalattitudes.
Thesefactorscoupledwithmacro-economicfactorssuchaseconomicliberalisation,bankingreformandtheneedtoachieveeconomicdiversificationbeyondpetroleum-basedfinancialactivitiesisprovidingwealthmanagerswithahostofnewopportunitiesandafewchallenges.
Asthemarketredefinesitselfoverthenextfiveyears,wealthmanagersmustrelyonproductinnovationtomeetthedemandsoftheregion’sHNWIsforagreaterchoiceininvestment.However,simplyprovidingproductsisthesmallerpartofacustomeracquisition/retentionstrategy,asonlyhigh-touchcustomerserviceswillproduceadistinctivevalueproposition.
Asthemarketbecomesawashwithproducts,twothingswillacttodifferentiatethewealthmanagementservicesbetweencompetitors:returnoninvestmentandservice.MiddleEastHNWIcustomerscanreadilyassessindividualproductperformancebutvalueformoneyisaresultofthecombinationofproductsandservices.
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