Interview with Mr. Rayan Fayez, Managing Director and CEO, Banque Saudi Fransi

29 Aug Interview with Mr. Rayan Fayez, Managing Director and CEO, Banque Saudi Fransi

Country Reports: Three years into the Crown Prince’s Vision 2030 plan to reduce Saudi Arabia´s dependence on oil by diversifying its economy and developing public service sectors such as health, education, infrastructure, mining, entertainment and tourism. What are the biggest challenges and opportunities that lie ahead in order to achieve the Kingdom’s goals? How is the banking sector contributing to its implementation?

Mr. Rayan Fayez: What Vision 2030 stands for and its objectives are ambitious. We are starting from a kind of economy that I would describe as almost artificial, yet it is what we have lived in for the last forty (40) years. Everything from fuel, water, labor, electricity, and even food was subsidized by the government. Everything was heavily subsidized to the point that it created a certain behaviorism and economic structure — almost like a dependency. An economy that not only encouraged dependence, but was no longer sustainable. I believe it is what the new leadership has recognized early on and tried to communicate broadly albeit the innate difficulty in communicating such messages. What ultimately transpired was Vision 2030 and all of the programs born from that vision.

Any transition period is difficult. You cannot go from getting used to living in a certain way for forty, fifty years and then expect changes overnight. It does not work that way. We have been in this period of transition for about three years, and the economy experienced some weakness as it adjustes to the changes. People from different sectors of society have been impacted, whether they are consumers, retailers, contractors etc. What is good about Vision 2030 is that the intention is there, the direction is clear, and all of the objectives are exactly what they should be. Collectively, we must accept that such a period of transition is difficult but necessary in order for us to come out better and more powerful than before. These adjustments were needed in order to wean the economy off complete government dependence.

A big pillar of the Vision and what it stands for is private sector participation and private sector contribution to the economy. We are now seeing a point where economic weakness has bottomed out, and we are starting to see some recovery through some broader indicators, such as car imports, car sales, food consumption and amusement. A big number of our clients have been telling us that things have stabilized, although growth still varies depending on the sector of the economy. At the least, there is a resemblance of positive sentiment returning.

The financial sector contributes to and also benefits from Vision 2030. One of the core programs of the Vision after all is the financial sector development program, which is part of the twelve programs enabling the Vision. What we have been seeing in the last three to four years, however is a little bit of a slowdown in corporate credit growth.

Country Reports: Traditionally Banque Saudi Fransi has focused on Corporate Banking, which as you mention, hasn´t seen huge growth in recent years. Tell us your plans to diversify into other sectors like retail banking?

 Mr. Rayan Fayez: A large part of our business is corporate banking – a segment that has seen effectively no growth over the last three years. With that we just kind of grow and shrink with the market. If the market grows then we grow as well, but if the market shrinks then we just see it as a part of the legacy business that we are in. The last couple of years since I joined the company we have had a stronger focus on the retail sector.

Our retail market share has grown. The growth that we have exhibited in both personal loans and mortgages allowed us to pick up market share, especially in mortgages where historically we are the smallest bank to offer them. Data from 2018 to 2019 to date shows that we are the number 5 or number 6 bank. The market share that we picked up and the market position that we are in today are positive. Deposits, customer base, and all of the retail KPIs (key performance indicators) have also improved over the last year and a half. We have an amazing team, if I may say so, but the numbers truly say it all. The team is doing a great job and I believe the future is going to be even brighter. Part of our strategy is to get a lot more from our corporate clients while expanding the retail base to tap markets that we historically have not addressed.

Country Reports: We have seen a lot of mergers and acquisitions in the Kingdom recently with SABB (The Saudi British Bank) and Alawwal merging. As well as NCB (National Commercial Bank) and Riyad Bank in discussions. Do you think this is something that Banque Saudi Fransi might consider over the coming years?

 Mr. Rayan Fayez: The quick answer is no. We are observing these movements, and we have considered the possible impact that they will have on us, but for now we do not feel compelled to react.

What it does do is give us an almost laser beam focus on delivering what we have planned over the next 2 – 3 years. This period is when four of the country’s banks are going to be distracted with negotiations for mergers, integration, talent, or a host of other issues. We are free from any of those constraints, so we should be able to focus on picking up market share and delivering excellence. Of course the saying “never say never” also holds true. Who knows what the future holds? Personally I am quite agnostic towards this topic, but if the right opportunity is there and it would create shareholder value then there is nothing that would prevent me from going for it.

Country Reports: Let’s move on towards your current market position and further expansion and diversification plans. The bank started in 1977. You have eighty-three (83) branches, five hundred fifty-six (556) ATMs (automated teller machines) and over three thousand (3,000) employees. Tell us a little about your growth strategy. Do you have plans to open more branches, are you perhaps looking outside of Saudi, or are you more focused on consolidating your position locally? 

 Mr. Rayan Fayez: Let us take a look at the two big businesses that we have – corporate and retail. In corporate we enjoy robust market share. It is way above the size of the bank relative to the other banks, and we have market leadership position that we will continue to consolidate and solidify but not necessarily double because we are already big enough. The corporate banking business is a little tricky because it’s a lending business. If I set a target for myself to have 20 percent market share, I can do that, but it will come at a cost of risk and price. Theoretically you can set any target for yourself in corporate banking.

Question: But then later on you might find yourself in trouble with bad loans.

Mr. Rayan Fayez: Absolutely. And it is all too easy to get into bad loans in corporate banking. For us, the strategy is to retain our market share, grow with the market, but deliver better profitability with every client that we get.

On the retail side of banking it is quite different. Our strategy is very much focused on capturing a certain market segment that we have not efficiently addressed in the past, which is the mass market segment. I am not planning to be an NCB or Riyad Bank or Al Rajhithat are big retail banks, but at the same time we found that we are only playing in 20 percent of the market when there is 80 percent of the market that we intentionally have not addressed previously. We will dip our toes into that now.

That is our strategy, growing market share beyond our historical position to something that is more commensurate to the size of the bank. When you look at the number of branches that we have it represents roughly 6 percent of the market share of branches. When you look at our deposits, it also reflects about  6 or 7 percent of retail deposits. But when you look at our assets, which are the retail loans today they are 2 or 3 percent of the market. When we say we want to grow our retail loan business it’s not growing it into something that is not commensurate to the size of the bank.

Question: Moving on to technology. We have a lot of FinTech companies impacting the digital space. How is BSF adapting into this new landscape and investing in technology? Do you consider investing in technology as a way of reaching a younger demographic, particularly in retail?

 Mr. Rayan Fayez: We don’t see a strategy of massive physical expansion. We think we have the right number of branches but we also feel like our assets are underutilized. I believe we can do more with the branches that we currently have, likewise in our position in the digital space. In the digital space, there are two different ways – there is our core business, and there are the FinTechs. With the core business we are making significant investments in technology. We are effectively installing a new core banking system. We have been working on it for six months. It is a multi year significant technology investment. What it entails is an expansion of our digital offering. What we have today is actually one of the best mobile app digital offerings for our retailers. How so? Presently, we are one of the very few banks where you can seamlessly open an account online without having to visit any branch. What we have that is unique from other banks in that during the account opening process, you get a virtual debit card, so you don’t have to wait for your physical debit card to be ready. With the virtual debit card, you can link it with Apple Pay and within ten minutes you have a new bank account that you can use anywhere using your mobile device. There are a couple of features in that process that is exclusive to our bank. It’s not because it is particularly complicated, it is just that we are the first to do it. I am sure others will catch up. This has already been released, we have announced it already. A lot of this has been out in the last six to eight weeks, and it has given us a huge boost as far as the image of the bank as being “digital first”or “mobile first” is concerned. A lot of the ads that we came up with are also young, fun ads that are relatable to the youth today.

The youth of today don’t want to go to the branch. Obviously we still need to make the branch experience fun but I also think that we have to consider that at present, 90 percent of our transactions happen online. That is significant. If you walk around the branches, you will find that people are there to open an account or to get a loan, but to make transfers and pay bills, no one goes to their branch anymore.

A big part of FSDP or the Finance Sector Development Program is about promoting a cashless society. It’s not about becoming truly cashless but reducing the amount of cash in the system. There are a lot of initiatives – whether it is encouraging more people to use Apple Pay, or increasing the number of POS (point of sale) machines out there, they all contribute to the penetration of cards and elimination of cash.

Currently we are the partnership with one of the leading peer-to-peer e-wallet payment systems in the Kingdom that was started by a group of young Saudi individuals. We are now their partner bank. Here in Saudi, FinTech regulators promote and highlight  innovation but they also make sure that safeguarding systems are in place. They tell them to go ahead and innovate but to also partner with a bank who can provide compliance, back office, anti-money laundering knowhow, and all of these important elements that banks are more adept with than FinTechs.

Question: Saudi Arabia is already considered a regional financial hub. Do you think the Kingdom has the potential to become an international finance hub?

 Mr. Rayan Fayez: There is such a big aspiration for Saudi to be on a higher level of banking and finance than its current operational level. I also sit on the board of the Saudi Stock Exchange and the content of the news for the last twelve, eighteen months were mainly on the MSCI (Morgan Stanley Capital International) inclusion (20:05)and FDI (foreign direct investment). I think that this is crucial to elevating the profile of Saudi Arabia as a financial capital. For the Saudi Stock Exchange to be considered as a serious stock exchange and one that is to be reckoned with, I think will take time. The ambition is there but it will take time because I think the King Abdullah Financial District is going to be a part of creating this new environment.

Question: I want to talk a little bit about your CSR (corporate social responsibility). Tell us how important CSR is to the bank and what are some of your favorite initiatives.

 Mr. Rayan Fayez: CSR is something you would generally see quite prominently across many companies here. I have to say – and I would be the first to admit – that we are doing CSR but we are not doing enough. Now we have a great team and we are about to start some major initiatives. A lot of the initiatives that we have done in the past included supporting disabled children’s organizations. We also participated in supporting the establishment of a major autism centre here in Riyadh along with some of the other banks. These are the two strategic ones that we have done at least in the last year but I do feel like we can do more. We should try adopting a cause and not just contributing. That is what we are working on now. I already have an idea on what that cause is, and I think it’s a great cause, but we still haven’t activated it. We are spending money, we are doing enough, but I would like our CSR projects to be more strategic than they have been.

Question: You have been CEO of Banque Saudi Fransi for almost a year and a half. When you eventually decide to step down from the position what kind of legacy would you like to leave behind and what would you like people to remember your leadership style by?

 Mr. Rayan Fayez: I am the first Saudi to effectively run an international bank in Saudi. All of the CEOs that ran a bank before it merged were coming from a joint venture, including all the people that ran this bank, they were French people who came from the French side of the business. As the first Saudi to run an international associated bank, I did feel like there was a lot of weight on my shoulders coming in because it sets a precedent that has not been done before.

I would also like to leave a legacy behind known for good local talent and expertise. We are young, energetic local talent that is at par if not better than some of our peers from around the world. And I think that having confidence and the ability to tell the story of transforming the bank through local talent is something that I feel strongly about leaving behind. The corporate banking business is one that we have developed great leadership in and that is something that I have inherited and will maintain and continue. I think that utilizing local talent to produce a standout retail business that people recognize in terms of customer experience, customer service, product offering, and in terms of their digital experience. Then five years from now if I leave this job with that in mind I will be very happy.