GENEVA The development of a trade finance arm will be an important next step in restoring the fortunes of struggling Faisal Private Bank, said its new CEO, but it will take time and probably fresh capital too.
Mark Koch, who became chief executive of the bank at the start of 2010, told Reuters during the Islamic Banking and Finance Summit the company would leverage its relationships with its parent, Bahrain-based Ithmaar ITHMR.BH, and other banks in the group such as Faysal Bank Pakistan.
"You cannot offer these financial services in some countries without an authorized presence, and we can leverage our relationships with Ithmaar partners long-established in Saudi Arabia, Bahrain, Pakistan and across the region," said Koch, who came out of semi-retirement to take the Faisal position.
It has been a time of change for Faisal, whose former CEO resigned for health reasons shortly before Christmas and whose chairman Khaled Janahi also chaired the parent Ithmaar before being replaced in the same period.
Trade finance is a short-term banking facility to allows the buyer and/or seller in a transaction to manage cash flows. Under Islamic finance profits come from transaction charges rather than interest on the facility.
Although this type of transaction is widely used in Islamic banking, it has never been an important part of the offering at Faisal, but Koch said the parent company board has agreed to give him the resources to build an experienced team.
BUILDING THE LINK
As a provider of trade finance services, the bank is hoping to provide a business link between its Swiss home and several Islamic countries including Sudan and Iran, selectively embargoed by a number of other countries.
However, trade finance requires capital and liquidity, currently in scant supply at Faisal, which also badly needs cash to shore up a real estate portfolio it manages for clients and fend off potential foreclosures.
To keep a lid on capital requirements and limit risk, Koch said the bank would at first only engage in well-documented transactions where the bank or a related counterparty would have control over the goods throughout the transaction.
In a second phase and once the bank has built up sufficient capital and experience, it would start taking on more credit risk, which would allow for higher margins, Koch said.
He also noted that strong synergies could be developed between trade finance and private banking.
"Many of the high net worth clients banking with us have businesses that sell across borders, and it would be natural for them to use us to take care of their trade finance requirements, which would reduce our own transaction risk too," Koch said.
He said the bank also needs a broader product portfolio for private banking clients that was less reliant on real estate. This would also enable the bank to better exploit its cross selling capabilities.
To enable a turnaround at Faisal, Koch has requested approval to hire more specialists, and has already made three high level appointments in private banking and trade finance, to be headed by Guillaume de la Borde Caumont, who set up the trade finance arm of Credit Agricole (CAGR.PA) in Geneva.
"People make organizations, banks. If you are surrounded by people who are competent and loyal, you can go a long way."
(Editing by Hans Peters)