OBG talks to Kris Babicci, CEO, Commercial Bank International

Interview: Kris Babicci

What do you identify as the biggest opportunities in financing industrial expansion? How much of this expansion can be financed locally?

KRIS BABICCI: There are two types of opportunities in financing Ras Al Khaimah’s industrial expansion. The first is with regard to the development of infrastructure projects, like the expansion of the airport, ports and road networks, which present sizeable opportunities. There will be a need for small and medium-sized enterprises (SMEs) to maintain these developments, ensuring a high level of quality over time. There is an opportunity for local banks in financing the growth of existing and new SMEs in this sector.

In addition to providing access to capital, banks are also responsible for facilitating projects by providing letters of credit and guarantees. This being the case, RAK’s industrial expansion can be financed locally through the 54 banks spread across the country. However, financing part of the development through foreign banks provides each particular project, and the emirate as a whole, the advantage of exposure and reputation in the international community and markets.

As RAK’s population grows, to what extent will your strategy focus on retail versus corporate banking?

BABICCI: We follow a very balanced approach in terms of growth strategy. Problems might arise when banks rely too much on either retail banking or corporate banking. This happened in many European countries, for example. If you rely too much on corporate banking, then a downturn like the one in 2008 might occur, wiping out your bank assets rapidly. On the other hand, if you rely too much on retail banking, then your concern is customers leaving, or deciding not to pay. Therefore, our strategy going forward will be very balanced between corporate and retail banking. However, we do expect changes in terms of revenues, as they start coming more from corporate banking. We expect about 60% of revenues to come from corporate operations and 40% from retail. As RAK’s population grows, the corporate sector in the emirate will also grow. As such, we do not see ourselves changing our strategy in the near future. It is more about where we want to get involved, and how we see ourselves growing alongside the emirate’s continued development.

To what extent might greater collaboration between banks and local government bodies help facilitate financing options for the expansion of SMEs?

BABICCI: Given the limited size of the local banking sector, facilitating financing options for the expansion of SMEs depends on the relationship between these firms and the banks, rather than the government bodies and the banks. The government works to improve the investment climate and facilitate the growth of SMEs, but it is essential for SMEs to have easy, direct access to the banks. As a large percentage of the local economy, SMEs offer a good market. It is our job to foster the best relationships possible with them SMEs.

Given the rapid growth of RAK’s economy, how do you interpret the ongoing debate for debt versus equity for corporate clients?

BABICCI: The debate over corporate clients going for debt versus equity in their expansion plans has been going on for a number of years in RAK. We have not seen any changes, although companies in the emirate have been able to grow without this being a major problem. Moving forward, there is significant opportunity for banks, given the growth profile of the emirate’s economy. The challenge, however, is finding the right approach to help corporate clients expand their business without banks becoming their partners, which happens when too much debt is incurred. In a sense, banks are thus responsible for ensuring that not too much debt is incurred. Given what we have seen in Southern Europe, one would understand if corporate clients move towards equity instead of debt, but there have not been great changes in this aspect, nor do we foresee major changes in the short to medium term.