The most challenging professional experience of my thirty-year banking career were the last seven years, starting 1991, reorganizing Arab National Bank (ANB) into the modern age.
The Arab Bank of Jordan established its first branch 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 outline why the Board of Directors decided to implement a root and branch reengineering and reorganization of the institution. I will list the principles that guided the process of change and describe the efforts to derail the project. I will end with painting a picture of the new ANB.
Introducing the Arab National Bank to the Digital Age
When I arrived at ANB’s fort-shaped modern granite headquarters in Riyadh on March 5, 1991, the bank had 2,500 employees, 110 branches, and 300,000 customers. It was like a sleepy giant, with a strong balance sheet and an equally strong resistance to change. The branches were not networked, relying on antiquated manual systems. A customer of the main branch in Riyadh, for example, could not conduct their banking business from a different branch in Riyadh, let alone in 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 to the modern age, the Board of Directors and its visionary Chairman, Sheikh Rashid al-Abdulrahman al-Rashid, owner of ~12% of ANB’s shares outstanding, authorised a bank-wide reengineering of systems and procedures, automation, and administrative reorganization. The program was necessary to compete against the state-of-the-art Saudi subsidiaries of Citibank, HSBC, ABN AMRO, Banque de l’Indochine et de Suez, let alone the two largest Saudi banks, National Commercial Bank and Riyad Bank.
The Three Guiding Principles
1. The mess must not be automated. Reengineer 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 Doubting Engineers
Many technologists in and outside of ANB had doubts about OSI, ostensibly, because it was untested to handle a bank the size of ANB. I was determined, however, by experts I trusted to pursue the new technology. Indeed, ANB had already wasted considerable time and money on alternative technologies to zero results and a healthy dose of acrimonious blame game for the failure.
Arab Bank’s Information Technology managers in Amman were most vociferous in opposing Open System Architecture and all that was related to the whole project. They made their views known in private and during ANB’s Board meetings. Even the project manager I employed, who had managed during his 35-year career in the US several large and leading state-of-the-art automation projects, resigned six months later.
In his place, I appointed a brilliant young Saudi mathematician/computer expert colleague, Mohamed al-Mansour. Mansour led the complex project decisively 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 clerks and senior 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 department managers. For many, the change was too much of a culture shock, with criticism bordering on insubordination from a few senior executives.
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 which 50% were new hires. I was pained that the scale and speed of the restructuring was like an earthquake in the ANB community. For me personally, this was the roughest and most unpleasant aspect of the program.
From the very beginning, senior executive in the Head Office put their own rivalries aside and united in their hostility towards the reorganization. They were led by my Deputy Managing Director, son-in-law of the Chairman of the Board. Had it not been for the unbending determination of Sheikh Rashid, the towering Chairman, the project would have died in its infancy. Sheikh Rashid forced the resignation of this gentleman within six months. In the new organization chart, I eliminated the position of Deputy Managing Director.
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
The ratio of costs to gross income between 1991 and 1996, remained constant at 52%, and the rate of return on equity rose from 14.7% to 17.1%. This was achieved despite substantial depreciation charges from heavy investment in computer hardware and software, branch renovation, ATM sites, dedicated TeleMoney remittance centres, special end of service grants to hundreds of employees, and recruitment and training expenses.
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 Wall Street Journal wrote on September 22, 1995:
“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 bank’s social responsibility was not forgotten. Starting in 1993, ANB initiated a program to contribute SR1 to the Saudi Benevolent Association for Disabled Children, at no cost to the customer, every time a cash withdrawal was made at an ANB ATM. By the end of 1997, SR12 million (£3.20 million) had been donated.
Sheikh Rashid passed away in the Summer of 1995. Without his visionary determined leadership of the Board, and with the restructuring complete, it was time for me to return to London. That was January 1, 1998. In September 1998, I became a student again at the School of Oriental and African Studies (SOAS), reading History and Politics of the Middle East. It was a rich intellectual recreational experience with a fresh perspective from thirty years of life in banking.
I published three books. The first: Experiment in Achieving Water and Food Self-Sufficiency in the Middle East Fast. The second: The Islamic Shield. The third: Oil and God. Changing events in the Middle East give me the incentive, from time to time, to write articles which I hope may be of some help to, and even influence, the decision makers of today and the students of tomorrow.
Note: This article was a part of an interview conducted with Elie Elhadj by the Association of Arab Bankers in London on 07/10/24.