Business Portfolio Review
Partnering with corporate entities to achieve their growth aspirations, the Bank seeks to be the most customer centric corporate banker with the best technological support, poised for growth. Drawing on its expertise; local, regional, and global reach; industry insights and robust digital platform; the Bank offers customised solutions to a loyal and growing corporate customer base.
The environmental context
Just as communities and businesses across the Kingdom were affected by the global pandemic, Corporate Banking Group’s business volumes too were impacted during the year under review. With the reduction of Saudi Arabian Interbank Offered Rates (SAIBOR) in 2020, revenues came under pressure as the risk environment grew more challenging and demand deteriorated.
The pandemic negatively impacted the risk profiles of corporate customers and non-performing loans (NPLs) of the Bank increased by 10bps in value terms due to an increase in credit risk in a few large exposures. Consequently, the Bank’s impairment charge for the year increased by 22% compared to the same period last year. Given the fact that COVID-19 is likely to impact businesses well into 2021, the Bank continued to be proactive and increased provision reserves to cover expected losses.
Among the actions taken by Corporate Banking to help customers keep their businesses running at this critical juncture, were the increased availability of relationship managers on call, the efficient running of online channels and the continued operation of select branches. In line with SAMA directives, Corporate Banking participated in loan guarantee and funding programmes to support clients who were in need during these challenging times. Corporate Banking also extended working capital facilities to clients to cover their short-term liquidity requirements and waived digital banking fees during this period.
Every precaution was taken at the limited number of branches that remained open during the lockdown – including regular sanitising of surfaces, restricting the number of customers in a branch at a given time, and the provision of masks and hand sanitisers for customers and employees.
Enhancing the customer experience
Since the beginning of 2020, Corporate Banking had increased the number of customer calls to better understand the pandemic’s business impact and the issues that customers faced. Thanks to the increased number of virtual meetings the Bank was able to save time and resources while directly addressing the pressing needs of its customers. Such a proactive approach has helped Corporate Banking to gain valuable insights and catch early warning signs in time to mitigate risks as far as was possible.
During the year under review, the Corporate Banking Group also implemented its transformation plan with a view to reinvigorating its business operating model and enhancing the customer experience. The reorganisation process focused on improving the efficiency of resource allocation. For instance, by introducing an effective coverage model the Corporate Banking Group was able to optimise the distribution of skills sets among targeted business segments.
As an extension of this project, all operational activities are being segregated from the front line and are consolidated as “one stop shop” to bring in more focus on business development and operational excellence. This allows Corporate Banking branch resources to be redistributed and deployed under the Retain Banking Group to create an effective sales and service model.
As the pandemic raged on, Corporate Banking conducted its first virtual event for customers to promote sales, increase penetration and improve cross selling. The event helped create awareness of the Bank’s products and services across business units such as Trade Services, Cash Management, Treasury, Takaful, and Retail Banking.
With the aim of improving credit quality, Corporate Banking set up systems and processes to enhance the monitoring of client annual reviews, improve follow up on past due obligations and embed a strong risk-awareness-centred governance culture.
To further expand the customer base, the Corporate Banking Group also set its sights on widening its market share in assets by growing liabilities, fee income, and cross-sales at an increased pace while maintaining a below market average cost of risk.
Progress in real estate financing
During the year under review, Corporate Banking also developed real estate programmes that contribute towards the financing of residential, commercial, hospitality, healthcare, education, logistics and mixed-use real estate projects both on recourse and limited non-recourse structures.
Frameworks such as risk models were put in place to assess customer risks and projects based on a combination of both qualitative and quantitative factors. Additionally, Corporate Banking secured approval to refinance quality assets under the newly developed Real Estate Programme.
Contributing towards the Housing Programme
The Housing Programme is designed to enable Saudi households to own or benefit from affordable housing in a bid to improve living conditions for current and future generations. These measures are designed to increase the housing sector’s attractiveness to the private sector, develop local content, create more business opportunities and strengthen the economic foundations of the Kingdom. Corporate Banking will continue to assess the capabilities of new developers in the market and provide bespoke solutions and financing to suit their needs, in collaboration with the Ministry of Housing (MoH).
During the year under review, Corporate Banking secured approvals for top tier MoH project developers for newly launched off-plan projects. Corporate Banking is also working to assess the capability of new developers in the market in a bid to develop bespoke solutions and financing. The Bank is collaborating with MoH to develop a financing programme.
Corporate Banking continues to finance instalment houses and non-banking financing companies, focusing on microfinancing and small enterprises to promote financial inclusion, particularly to disadvantaged members of society, such as those with low income, low education or special needs (refer ESG report on page 89). When providing financing, the Bank’s impact on environmental, social and governance (ESG) aspects are addressed via its Structured Finance team which focuses on financing projects supported by the Government.
Managing information better
To improve decision-making at both management and front-line level, Corporate Banking introduced a number of new innovations during the year. Through the introduction of account planning tools, credit request templates and Customer Relationship Management systems, for instance, Corporate Banking improved the support employees receive when making important decisions that have the potential to impact the business. The Business Group also revamped existing systems and processes to accelerate the credit approval process and support business development. The result was a marked improvement in productivity and better controls.
In support of the Corporate Banking medium – to long-term strategy for growth, a management information system (MIS) was also introduced during the year under review. This automated system will be used to coordinate, control, and analyse information within the Bank so that better-informed decisions can be made by personnel in key positions to improve client engagement, loyalty and retention. The Bank’s 360o client coverage model provides the Bank with intelligence across the entire spectrum of perspectives from customer penetration and segment performance to product and service usage, aiding effective portfolio management and business planning.
During the year under review, Corporate Banking focused on encouraging existing customers to use a wider range of products and services, thereby expanding the Bank’s wallet share. In support of improved customer experience, Corporate Banking also began measuring and monitoring the turnaround times of its range of products and services.
Over the long term, continuous evaluation will help the Bank to provide customers with the banking and financial services they require when they require it.
In the fourth quarter of 2020, new products and services were launched from a pipeline that stretches forward into 2021. This includes: Real Estate Escrow for developers where a neutral third party holds on to funds during a transaction to protect both the buyer and seller during the home purchasing process.
To achieve the 96 strategic objectives of Vision 2030, the Council of Economic and Development Affairs established 13 vision realization programmes (VRPs). Each VRP consists of a series of initiatives and delivery plans, guided by predefined objectives and key performance indicators tied to five-year milestones. During the year under review, Corporate Banking forged a number of partnerships in order to contribute towards the Kingdom’s VRPs in league with various government-focused programmes. Supporting the Kingdom’s Housing Programme, these partnerships include those with Agricultural Development Fund, Saudi Industrial Development Fund, Tourism Development Fund and Real Estate Development Fund.
The Bank also participated in financing key government projects related to utilities, renewable energy (refer ESG Report on page 89), water, and sewage treatment plants during this year. Continuing to participate in government-related projects and contributing towards Vision 2030 remains an important part of the Bank’s overall strategy.
With more and more people realising the convenience and economy of banking online, especially during pandemic-related restrictions, the Bank's digital corporate banking customers (including SMEs) numbered 78,500 by end 2020.
Moving towards a digitalised world
A majority of people in urban areas around the world turned to digital services to meet their day-to-day needs during the various phases of lockdown. The Bank was able to capitalise on well-laid plans to move further towards digitalising its products and services during the year under review.
Corporate Banking will be rolling out its plans to digitise business development activities such as customer calling, and lead and opportunity management to ultimately improve efficiency and customer centricity. A Customer Relationship Management tool will also soon be added to this mix of tools, systems and processes used by the Bank to better understand customer expectations and enhance the customer experience.
The initial phase of automating the Corporate Banking credit process was completed according to plan. The next phase is in progress, as is a revamp that is designed to improve the process flow through the inclusion of a limit and collateral management function.
In 2020, the Bank launched a new mobile application targeted at Corporate SME customers with features including an end-to-end digital process for sole proprietors to open an account remotely. The web portal targeted at this customer segment was also revamped to offer a host of services such as the ability to make bulk payments online.
Despite the uncertain and arguably volatile environment expected for 2021, the Bank will focus on building a balanced target portfolio across customer segments, revamping its coverage model.
Corporate Banking will also continue to look at ways to close the product and service gap. With customers increasingly exposed to world-class online services, this segment’s customer groups will also expect the Bank to be far more proactive and attentive to their needs in the banking and financial services sphere. In addition, the focus will be on increasing and expanding customer base including supporting the SMEs across KSA.
Aligning the value proposition of Corporate Banking with that of Vision 2030 will continue to be a key focus especially in areas such as encouraging increased numbers of Saudi nationals to own their own homes.
Given the projected longevity of the global pandemic, Corporate Banking will complete the roll out of its plans for digitalisation while also increasing the number of virtual meetings and events it holds for customers. Revamping of physical customer touchpoints will also continue as planned to ensure that customers are welcomed back with warmth and in numbers when it is safe to do so. The “one-stop-shop” initiative will expand to cover operational activities while providing business solutions to corporate clients.
While the Bank is currently ranked eighth in the market for Corporate Banking, in line with the BOTF Strategy (refer page 41), this business group will focus on deepening selected customer relationships in target industries.