Citi expects ‘record year’ on back of Saudi Arabia and UAE operations

Investment banking fees have helped to drive regional revenue growth to high single digits

Atiq Rehman, Citi's head of EMEA Emerging Markets Cluster. Reem Mohammed / The National

Citigroup expects its Middle East business to pick up this year, despite a drop in interest rates and a slowdown in some regional economies, the bank's head of emerging markets said.

"Top-line [growth] is in high single digit … we are going to have a record year for revenues," Atiq Rehman, the head of Europe, Middle East and Africa Emerging Markets Cluster for Citigroup, told The National in an interview in Dubai on Tuesday, citing a pick-up in its fee-based income. "Profit is a function of many things but I would say it would be for the bottom line as well," he said declining to provides specific figures.

Mr Rehman, who was previously chief executive of Citi’s Middle East and Africa operation, was this week charged with running the bank’s emerging markets cluster, consisting of the Middle East and North Africa and Sub-Saharan Africa regions, in addition to Turkey, Russia, Ukraine and Kazakhstan.

The cluster contributes significantly to Citi's overall business growth as it accounts for “inside of 10 per cent” of Citi’s net profit from its global operations, he said. The lender reported a net profit of $18 billion (Dh66.1bn) last year, a 14 per cent year-on-year growth.

“I remain confident about the future as our business [in the region], which is immensely strong. We are in the budgeting process right now and we are going to budget for growth [next year],” Mr Rehman noted.

The hydrocarbon-dependent Middle Eastern economies have faced headwinds in the wake of volatility in oil prices against a gloomy backdrop of softening of global growth as the US-China trade war continues to weigh heavy.

Most Arabian Gulf states, including the UAE and Saudi Arabia which are pegged to the US dollar, have lowered key interest rates after the US Federal Reserve cut its policy rates last month for the first time since the 2008 financial crisis. The Fed is expected to further reduce benchmark rates and central banks in the region are likely to mimic its moves.

Like other lenders, a drop in interest rates will impact Citi, but the bank has a diverse business model in the region and generates a large amount of revenue from its investment banking and wealth management businesses, which helps to offset any drop in revenue elsewhere. Governments and corporates are likely to tap debt markets are the cost of borrowing declines, and this means more income for Citi and its peers.

“Fee-based income is still a significant part of our revenues in the region. I haven’t seen any impact on my business this year,” he said. “It is not necessary that a bank’s business is linked to the economic growth rates [and] we typically do much better than the economic growth rate, given our business model,” he explains.

The bank has invested heavily in building its investment banking capability in the region, to capitalise on opportunities arising out of Saudi Arabia’s economic transformation. The kingdom, which is the largest economy in the Arab world, is diversifying and wants to reduce its reliance on oil. It opened its stock market to foreign investors and tapped debt capital markets to reduce the burden on state finances from lower oil prices.

Privatisation of some state-owned entities, including the world’s largest oil producing company, Saudi Aramco, is also part of Riyadh’s economic overhaul efforts. A rise in merger and acquisition deals has also driven Citi’s investment banking business in the kingdom where it plans to increase its headcount to 20 from 14 by the end of next year.

“This year investment banking has done exceptionally well ... M&A activity in the region ... has been unprecedentedly high and Citi has been part of most of the transactions,” Mr Rehman said

Citi was the fourth-highest investment banking fee earner in the region in the first half of this year, with a 5.1 per cent share of the market, according to financial data firm Refinitiv. This placed it behind Bank of America Merrill Lynch (5.7 per cent share), JP Morgan (12.1 per cent) and HSBC (13 per cent).

Citi, which exited Saudi Arabia in 2004 and re-entered the market in 2017 through a Capital Market Authority licence, that allows the bank to pursue investment banking and markets operations, is keen to get back into consumer lending in the kingdom.

“I think from an investment banking [and] markets business we are reasonably well kitted-out. As far as domestic commercial banking is concerned …. it is our goal and ambition to over time achieve that capability,” Mr Rehman said.

“It is absolutely our desire to do that [get the commercial banking licence]. We have a plan, we have a schedule and we are working on them and hopefully, step by step, we will get to the results,” he said.

Within the UAE, the second biggest Arab economy, Mr Rehman sees revenues and profit of Citi’s  consumer banking business growing by high single digits.

“We have the largest card spending among the foreign banks and we rank among the top banks [in card spending] in the entire country,” he said.