Middle Eastern Wealth Management2nd edition

Middle Eastern Wealth Management - 2nd edition

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

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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

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Chapter 9 Bahrain 109Overview 109Mutualfunds 109Bankingindustry 109Marketplayers 109

GulfInternationalBank 109ArabBankingCorporation 111ABCIslamicBank 114AhliUnitedBank 115BankofBahrain&Kuwait 119UnitedGulfBank 119NationalBankofBahrain 124ShamilBankBahrain 127

BahrainIslamicBank 132

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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

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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

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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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