The most challenging professional experience of my thirty-year banking career involved bringing the Arab National Bank in Saudi Arabia into the modern age.
The Arab Bank of Jordan established its first branch in Saudi Arabia in Jeddah in 1949. By 1980, it had six branches in major Saudi cities. These became a 40% shareholding interest in Arab National Bank (ANB). Out of ten Board Members, six were Saudi shareholders and four belonged to the Arab Bank, among whom I was one. In terms of assets, ANB was the fourth largest among the country’s ten commercial banks.
In what follows, I will explain why the Board of Directors decided to invest in the long-term future of the Bank by modernizing its operations and branch network. I will outline the principles that guided the process. I will describe the attempts within the institution to derail the project. I will end with an image of the new ANB.
Introducing the Arab National Bank to the Digital Age
When I arrived at the fort-shaped modern ANB granite headquarters in Riyadh on March 5, 1991, the bank had 2,500 employees, 110 branches, 300,000 customers. It was like a sleepy giant, with a strong balance sheet and an even stronger resistance to change. The branches were not networked: They used antiquated systems and work methods. They treated each other as independent correspondent banks. For example, a customer of the main branch in Riyadh could not conduct their banking business from a different branch in Riyadh, let alone from Jeddah or Dammam. With no ATMs or credit/debit cards, the branches were overwhelmed with cash transactions. Statutory monthly consolidated financial statements to the Saudi Arabian Monetary Agency (SAMA), Saudi Arabia’s Central Bank, were submitted weeks late. Management information reports were inadequate and stale.
To bring the Bank into the modern age, the Board of Directors, led by the powerful Chairman, Sheikh Rashid al-Abdulrahman al-Rashid, owner of ~12% of ANB’s outstanding shares, authorised a bank-wide re-engineering of systems and procedures, a redesign of its organization chart, and a state of the art automation. The program was to improve the Bank’s rate of return on equity and compete effectively against the technologically advanced and highly profitable Saudi subsidiaries of some of the world’s biggest and best recognized financial institutions, like Citibank, HSBC, ABN AMRO, Banque de l’Indochine et de Suez, as well as the two largest Saudi banks, National Commercial Bank and Riyad Bank.
Four years later, on September 22, 1995, The Wall Street Journal wrote:
“Probably the most dramatic example of automation can be found at Arab National Bank, which over the past four years has completely transformed its operations to install what is now one of largest personal-computer-based client/server core banking systems in the world.”
The Guiding Principles
Three principles guided the reorganization:
1. The mess must not be automated. Re-engineer first, then automate.
2. Adopt the Open System Interconnections standards (OSI), the latest development in networking. OSI would free the bank from being tied to any one hardware manufacturer and proprietary operating system. It would enable future transaction growth without the need to re-write the software.
3. Acquire the best software packages rather than develop them at home. ANB was a bank, not a software house.
The Doubters
Many technologists in and out of ANB had doubts about OSI, ostensibly, because it was untested to handle a bank of size. I was determined, however, led by the advice of experts I trusted to pursue the new technology. ANB had already wasted considerable time and money on alternative technologies with zero success and resulting in an unhealthy dose of acrimonious blame game for the failure.
Arab Bank’s Information Technology managers in Amman were the most vociferous in their opposition to the entire project. They had guided the Bank’s previous automation efforts. They made their position clear in private and during ANB’s Board meetings.
Doubts were even expressed by the project manager I employed. During his 35-year career in the US, he had led several large, innovative, and leading state-of-the-art automation projects. He resigned six months later.
In his place, I appointed a brilliant young Saudi mathematician/computer expert colleague, Mohamed al-Mansour. Mansour led this pioneering and technically complex challenge decisively and efficiently to great success, in record time and on budget.
The Technology Platform
We selected the software of an Irish company, Kindle, called Bankmaster/Branchpower support solution. The platform used state of the art UNIX based Hewlett Packard 9000 as a file server. It was the largest and most suitable system in the early 1990s. At the branches, local area networks were installed, each with its own client server. 20 applications systems comprised the information technology infrastructure. Within three years, a real-time integrated general ledger allowed customers to access their accounts from any branch in the country. While the bank had zero personal computers in 1991, it had 2,000 PCs in 1994. And, while ANB was weeks late in submitting the monthly statutory reports to SAMA in 1991, by 1994, the reports were submitted on the first day of every month. Similarly, a consolidated balance sheet and an estimated P & L were delivered to my desk every morning.
To ensure high availability and good transaction response rates, an X25 telecommunications network was built. It connected to the host system what grew to be 125 branches, 225 ATMs, 2,000 point-of-sale terminals, VISA and Mastercard debit and credit cards, telebanking for corporate customers, and pioneering smartphones with touch sensitive screen to high-net-worth customers. Named TeleBank Gold, it was probably the first home banking service using a smartphone (FT Business Computing Brief. April 27, 1995).
The Governor of SAMA, Sheikh Hamad al-Sayyari, had a unit installed in his elegant office to demonstrate to visitors. ANB’s X25 network was possibly the largest in the Middle East.
Removing back-office processing from the branches necessitated a complete re-design and renovation of the branch network. A unified, modern functional and attractive branch system emerged.
Obstruction by ANB Managers
By removing back-office processing from the branches, the branch manager’s job description was transformed from supervising processing clerks to managing a marketing team. With the hiring of American, British, and Irish technicians and bankers, English became the language of the weekly communications meeting of Head Office departmental managers. For many, the change was too much of a technical and cultural shock, with criticism bordering on insubordination.
From the very beginning, senior executive in the Head Office put their own rivalries aside and united in their opposition to the reorganization and to me personally. They were led by my Deputy Managing Director, the son-in-law of the Chairman of the Board. Sheikh Rashid forced the resignation of his son-in-law. I did not replace him. Had it not been for the support of the Chairman, the project would have died in infancy.
Combined with SAMA’s Saudization requirement of 65%, which ANB achieved in 1997, the new organization chart reduced the overall employee count from 2,500 in 1991 to less than 1,500 in 1997, of whom 50% were new hires. The scale and speed of the restructuring was like an earthquake in the ANB community. For me, the loss of jobs and the human consequence of the reorganization were particularly painful.
The New Bank
At the Head Office, new departments were formed:
– Corporate business development, to manage relationships with large companies.
– Private banking, to serve the investment needs of high-net-worth individuals.
– A non-interest bearing Murabaha Division, with a Shari’a advisor.
The reorganization required serious investment in training. All employees had to be trained to do their job responsibilities with personal computers. ANB became a major user of SAMA’s extensive training courses. All Head Office and branch managers had to attend three-week courses in Accounting and Finance, taught in English by three professors from the Wharton School of the University of Pennsylvania. Divisional General Managers attended a one-month management course at Harvard University’s Business School in Boston.
To enhance the risk assessment capabilities of branch staff, regional credit committees with modest lending limits were created in the main branches. To promote a spirit of trust, competition, and transparency, a monthly management information packet of 30 pages was dispatched to all managers in the branches and Head Office detailing a by-branch breakdown of the bank’s financial statements. Quarterly, I held meetings with all branch managers in Riyadh, Jeddah, and Dammam to discuss bank-wide results.
The Results
Between 1991 and 1997, the rate of return on equity rose from 14.7% to 17.1% and the ratio of cost to gross income remained constant at 52%. This was achieved despite substantial depreciation charges from heavy investment in computer hardware and software, branch reconstruction, ATM and point of sale networks, dedicated TeleMoney remittance centres, extensive training programs, and special end of service grants to hundreds of employees.
For the first time in its 17 years as a Saudi Bank, ANB was examined in April 1997 by the rating agency, Bank Watch of New York. It received the agency’s highest rating: “A” for Intra-country issuing and “1” for short-term local currency. In November 1997, ANB was rated by the Cyprus based Capital Intelligence rating agency. It received an “A” for long-term rating and “A-1” for short-term rating with a “stable” outlook.
Banks from 9 countries in Europe, the Middle East, and the Far East visited ANB to study the newly re-engineered bank. In 1995, Computerworld Magazine ranked ANB as one of the global 100 most outstanding Information Technology users.
The bank’s social responsibility was not forgotten. Starting in 1993, ANB initiated a program to help the Saudi Benevolent Association for Disabled Children. At no cost to the customer, every time a cash withdrawal was made at any ANB ATM, SR1 was donated to the Association. By the end of 1997, SR12 million (£3.20 million) had been contributed.
Sheikh Rashid passed away in the Summer of 1995. Had it not been for his vision, leadership, and protection the modernization chapter of ANB could not have been written. On January 1, 1998, I returned home to London to become a student at the School of Oriental and African Studies reading history and politics of the Middle East.
Note: This article was a part of an interview conducted with Elie Elhadj by the Arab Bankers Association in London on October 7, 2024.