Standard Chartered seeks better governance

DUBAI — It seems that everyone in the financial sector, everywhere, is talking about the importance of good governance and transparency — for themselves, as well as for other companies and institutions.

By Lucia Dore (Assistant Editor, Business)

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Published: Fri 6 Apr 2007, 9:48 AM

Last updated: Sat 4 Apr 2015, 9:03 PM

In this respect, Shayne Nelson, Standard Chartered's regional chief executive in the Gulf and Levant, is no different. "My primary brief in Dubai is governance. Standard Chartered is very keen on governance. We have ambition to be best in class in governance and that is why we have so many people globally," he says.

Not only is Nelson concerned with ensuring his own institution upholds the highest standards of governance, but he is also pushing for higher levels of governance and transparency throughout the region. "This region has come a long way but it still has a way to go, especially in relation to international accounting rules," he says, emphasising the need for "greater transparency in terms of financials as well as the need for tougher stock exchange rules".

For many companies, "their financials don't have the detail and transparency that stakeholders and regulators require," he says. "This is generally an issue across the region. Although countries vary, we would like to see an improvement." He adds, however, that "regulations are improving quite quickly and that the DIFC creates a good standard for countries to look up to". Nelson also thinks "Bahrain is doing a very good job".

The quest to gain regulatory supremacy has resulted in massive rivalry between financial centres. But instead of setting up in competition with one another, Nelson believes each centre should be able to find its own niche. "It doesn't necessarily mean that because you are smaller you can't find a niche that is very profitable and adds a lot of value to the community," he says. "Despite Singapore being a big regional financial hub, for example, Malaysia has still found a niche as an Islamic hub," he adds.

Certainly, authorities in Dubai would like to establish the emirate as a hub for Islamic finance, especially for the issuance of sukuks, or Islamic bonds. Nelson thinks that the bond market in the region will "get bigger and deeper", particularly given the amount of liquidity floating around. He also encourages governments to issue bonds. "We would encourage governments to issue bonds because they create a yield curve that others can match," he says.

Nelson will not say how many bond issues Standard Chartered has lined up for the coming months, but one would imagine it is quite a few. All that he will say is: "We certainly have an aggressive budget. We are certainly hoping we have lots of success this year and our pipeline is looking quite healthy." Only last week, Amlak, the UAE's largest home-finance lender, announced that it was working with Standard Chartered to issue a $300 million sukuk.

Developing Islamic financial products and structures is high on Nelson's agenda. As chairman of Standard Chartered's Islamic bank, this is not surprising. "There is not much that we shouldn't be able to offer and structure to be Shariah compliant," he says, adding: "A lot of the innovation in derivatives (Islamic) is coming from Standard Chartered." Inconsistency in the interpretation of Shariah law, and the time taken to get approvals for a new structure or product can hold back the speed of innovation, however, explains Nelson. And because Malaysian scholars have been more liberal than those in the Middle East in their interpretation of Shariah law, "it is better to structure a product here and then sell it to Malaysia and Indonesia. It is easier to get the necessary approvals this way around," he says.

Despite the challenge of ironing out differences in interpretation, the structuring of Islamic products is becoming easier, says Nelson: "Sukuks have become very standardised. Shariah scholars know the structures, they are not difficult."

He also notes other developments. "Some of the trends we are seeing in Saudi are quite interesting. Companies that have an initial public offering (IPO) ambition for example know they will get a better premium if they are designated as an Islamic company versus a conventional one. Why? There are a lot of Islamic funds around looking for investment so there is lower cost of capital." For that reason, an increasing number of Saudi banks are also switching from Islamic to conventional. "At the moment it is about 50/50 but this is rapidly changing," says Nelson.

He also sees two big challenges facing the banking industry in the region. The first is that it is over-banked. "The banking sector needs some consolidation and it makes sense to get size," he comments. "I would argue that size does matter. It is hard to have the right products for all people if you don't have size. To buy in talent with all the right skill sets is not cheap; to have the back office processing control is not cheap; to get into mass market to have cost-effective processing systems is not cheap. It's hard to be a generalist bank that does everything and not have size."

The second challenge for banks in the region is to improve their customer service, particularly in retail banking. Says Nelson: "Service still needs improvement, albeit there are a lot of banks, as an industry we don't seem to have cracked service. The industry still has a long way to go, including ourselves."

Standard Chartered has just moved into its new corporate offices in the Dubai International Financial Centre (DIFC) — the first bank to purchase its own offices there — and has major plans for the Middle East. In 2006, the bank saw income growth of 32 per cent in the region, which also includes Pakistan, Bangladesh and Sri Lanka (but excludes India). Although the bank is present in 56 countries, it is most at home in emerging markets, particularly Asia, Africa, and the Middle East.

Going forward, the bank aims to grow organically, by entering new markets and by innovating. "New markets, new skill sets, new market penetrations," says Nelson. "Standard Chartered definitely has plans to continue innovating and announcing new products, but I'd rather announce them when they are ready to go."

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