What have been the main highlights for NBAD in 2013 thus far?
THURSBY: I think the highlights for this year have been quite simply the continuing strengthening of the balance sheet of the bank, and I believe that is very, very important. I think in 2008 and prior crises, I’ve always said that the banks that do well, are the banks that have a strong, sustainable balance sheet. The continuation of the growth of the loan book, which is accelerating, and generally the start of the transformation that we're trying to make in terms of our strategy, that has commenced but there is much more to do over the next two years or so. The Q3 earnings are really two stories. The first story is that we've had margin compression within our balance sheet. That is reflective, really, of our strong liquidity, and where we're placing that liquidity.
The second, however, is very exciting and it's the beginning of the building of momentum that we'd like to see, and building of momentum in the new formula that we have behind our strategy. So we're up approximately 5.6% on assets, loan assets. We're also up quarter on quarter; that is we’re also up about 4.5% on deposits, quarter on quarter. So we're trying to build this momentum through our balance sheet. Our non-funded revenue from the real core business was about flat quarter on quarter, and that's more to do with the seasonality of Eid and various other holidays.
So I'm very pleased with what we're doing with our customers. I'm very pleased with what we're doing in terms of transforming the bank in its first phase. But clearly we do have a challenge, as I think that whole industry has a challenge over the next two years, around margin compression. I see a lot more competition in the market building up, and that will in my view, breed a more competitive environment leading to further margin compression from here. How we respond to that is the key.
NBAD has posted a 20% Compound Annual Growth Rate (CAGR) in operating income since 2002. Do you expect the growth trend to continue at this level? How will revenue streams evolve going forward?
THURSBY: We're here to grow quickly. Clearly, growing at 20% over the last 4 years gets harder and harder because you become bigger and bigger. But what you will start to see is high growth in what I call the client end of the business. One of the transformational engines that we're bringing to the bank, is for it to be less dependent on its trading, less dependent on its bond portfolio, less dependent on other non-customer related businesses.
The strength of National Bank of Abu Dhabi is to create strong relationships with customers and it is my view that that is what will give you sustainable growth for the next 10 years or so. So while I wouldn't suggest that we can keep up with the 20% compound growth, as we're now talking about much bigger numbers, what I do suggest is that our growth in customer revenues over the next 5 to 10 years will be appreciably stronger than they have been in the last 4 or 5 years.
NBAD has announced plans to position itself as a global bank by building up international franchises and hubs in the so-called “West-East Corridor”. What specific goals do you have in this regard? What are the timeframes? How confident are you that you can achieve these goals while maintaining NBAD’s philosophy of organic growth?
So while I wouldn't suggest that we can keep up with the 20% compound growth, as we're now talking about much bigger numbers, what I do suggest is that our growth in customer revenues over the next 5 to 10 years will be appreciably stronger than they have been in the last 4 or 5 years.
THURSBY: Our growth is built on an organic attitude and philosophy, and we must have that as the fundamental. We cannot rely on acquisition to execute our strategy. So it is very very important that we build the foundations in order for us to do that organic growth. Now we have built three pillars in order to execute our strategy. The first is to really develop our commercial and retail businesses here in the UAE, and a little bit later in the Gulf. We are underweight relative to many of our competitors, and I believe we have an incredible proposition, or potential proposition, that we can build over the next year or so, that will allow us to become much more meaningful in both those sectors in the UAE. So that's pillar one.
Pillar two is about building a wholesale bank, which is on a broader platform that just the UAE or the Gulf, and we call that the West-East Corridor. Why do we find that attractive? The urbanization, the development of mega-cities, the growth of Asia, the Middle East, and Africa, I believe is nearly assured, and that they are actually three regions that are very dependent upon each other and will become more and more aligned. In many regards, if you think about the old trade routes of three or four hundred years ago, we think they're coming back in a modern way, and that Africa and the Middle East, and Asia, will connect more and more.
So our wholesale strategy is built around following those trade and investment flows that are not only from the UAE but also from the Middle East and also inward and outward from Africa and Asia. In that context, we will build five hub centres across that corridor, in addition to using our Washington, London, and Paris offices, for throwing business from customers from their vicinity into that corridor. I want to emphasize, we're not a global wholesale bank. We're trying to become a super-regional West-East Corridor bank. That is playing to our strengths where Abu Dhabi, and the UAE generally, sits in the middle of these trade and investment flows.
The third area or pillar of our growth is to build five franchise markets; five markets where we can become meaningful. But what is very important is not to think that we can become a big three player in any country, that is left to the local banks. It's the case here in the UAE if you think about it, but it's the case in nearly every other part of the world.
Rather it’s to build a business model in five countries that have high growth, that are reasonably big in size in terms of their GDP, their populations, etc., and have a natural affinity with the core strengths that we're building. Now we haven't developed all of those formulations around which are those countries, but what we have done is been very clear about the criteria. But in the immediacy, it's about building pillar one and pillar two. And in the next five years or so, start to build those five franchise markets.