Sabah K. Almoayyed General Manager of Eskan Bank

UNITED WORLD: Eskan Bank was established in 1979 by an Amiri {Royal} Decree with the prime directive of developing and providing sustainable financing housing solutions to Bahraini citizens. Since its inception, Eskan Bank has disbursed government subsidized mortgages of over BHD 449,5 million to 23,000 Bahraini families. Could you outline Eskan Bank's contribution to the prosperity of Bahrain and its people?

MRS. SABAH K. ALMOAYYED: In terms of the mandate of Eskan Bank, I think the Kingdom of Bahrain has been a true pioneer in establishing a bank that would both cater to the mortgage loans of the underprivileged people of Bahrain, and contribute actively in the mortgage market and the development of real estate (i.e., commercial, social, and other relative activities). If you imagine 29 years back, the people who thought about the welfare of the country in such a way had a lot of vision at the time.

The mandate of the bank focused on mortgage financings and the development of properties with the objective of contributing to economic growth in that sector. What we have seen over the past 3 to 4 years are some very good initiatives coming from the government and the private sector in terms of participation in the development of the Social Housing construction. This eventually will help the government to play more role as regulator vs full operator.

The bank initially focus has been to disburse government social mortgages and property development. This means that the government funded the bank to release the mortgages to the beneficiaries. The articles of association of the bank were first drafted in 1975. It subsequently started operations in 1979.

In terms of extending loans, the bank has extended more than BHD 450 million or US$1 billion. The Government recognized that the bank should play a more active role in the sector instead of just serving the Government's list of beneficiaries. In today's world, you need dynamism. You need institutions that will work to create partnerships between the public and the private sectors.

Eventually the bank is moving towards introducing more financial products services to capitalize on its shareholders strength and support Economic Development of the Kingdom of Bahrain. This would mean achieving our vision to become an integral part of the Government's plan to make houses available for the low to middle income group, and at the same time, be one of the prime real estate players in the market, taking our experience into consideration. The Bank's prior success in establishing major profitable property development companies later privatized by the government in a major oversubscribed IPO's help vs to create more success slivers. Our interest is in creating that kind of vision where we would get the private sector to participate actively in funding social and commercial activities, provided which are indirectly supported by the Government.

We looked at the different social housing models available in the other countries (i.e., US, Malaysia, Singapore, etc.). We have decided that we want to cover both, the supply and the demand side (i.e., making mortgages available in the banking sector rather than limiting the product to one entity awaiting the yearly budget). We worked with a consultant to establish a mortgage guarantee system for the country. We need to have more initiatives to ensure that we continue to leapfrog others rather than copying - it will not take long for our initiatives to be followed by others and we might lose our competitive advantage. As overall, our country has taken the lead on creating number of legislature bodies and entities that are considered the first of kind in the region.

The objective of the mortgage guarantee system is to create both the primary and secondary markets. Our interest is to support the government to make the program sustainable so that people in the future would not have problems getting mortgages with a subsidy (provided that they fall under the specified income group) from any bank in Bahrain and subsequently pool those mortgages and sell them to the National Mortgage Corporation. The idea of creating a primary market is to address demand. The idea of creating the secondary market (the securitization aspect) is to ensure the sustainability of the program. Those mortgages for the category that is eligible to get the social benefit would be supported through a government guarantee of defaults which would place them in the same way that you would place the Federal Agriculture and Marketing Authority (Fed AMA) mortgages and Federal Home Loan Mortgage Corporation (Freddie Mac) mortgages. The corporation that we would create would act like the other Internal Mortgage association securitizatinsecuritization of mortgages and placing them among regional and international investors.

To support this theory and program, we took the initiative to issue the first securitization in the Kingdom and the Gulf last year. We were proud to be the first one to issue residential backed securities against another bank's mortgages and we managed to attain maturities for up to 10 years. We also tried to support the initiation of trying to create a yield curve for the currency. The Central Bank of Bahrain (CBB) appreciated this initiative because we are helping in creating a benchmark. The CBB being a driver of new initiatives in the regional financial market is keen to expand the securitization market. We will be working closely with them to achieve an active securitization,securitization; we need to have a lot of players. We do hope that this step will not be limited to Bahrain. We hope the securitization program and the securitization entity that we will establish will be able to cover any securitization in the region, and maybe internationally. We are hoping that by the end of the second quarter the mortgage guarantee program will be up and running. We hope that we can take the model to other GCC countries by replicating it in different ways. We have recently signed an MOU with the Canadian Mortgage Housing Corporation to cooperate in establishing the mortgage system in Bahrain.

On the property side, our aim is to provide mixed use properties (retail, commercial and residential properties) to cater for different income group. Our interest is in creating landmarks. Having spent good amount of time to invite the private sector to support government social projects (both on the constructions and financing side),. T the Bank is approaching the market from time to time to raise funding to cater for social housing

UNITED WORLD: The CBB approved and expanded Eskan Bank's license in 2006 to include commercial, conventional, and Shari'a compliant activities. Could you asses the impact of this historic decision on the bank?

MRS. SABAH K. ALMOAYYED: When we came, we looked at our articles of association and we saw that we were authorized to provide banking services, . Ssince we had introduced an amendment to the articles of association to be under the supervision of the CBB. This would help us to operate and get funding, as well as issue securitizations and get financial institutions to participate being regulated by Central Bank. Fortunately, the modifications to our articles of association were approved.

Today, we really are a modern bank in terms of our corporate governance. We have a Board of Directors, Executive Committee, Audit Committee, IT infrastructure organization development Board and the Remuneration Committee) The way we have organized ourselves is exactly like any other bank.

Right now, we are going through the restructuring of our capital base. This is to make sure that we fully capitalize all our activities. It is very important for us to be well equipped in terms of our financial position. Over the years, we have achieved substantial growth and have managed to utilize much better our surplus liquidity.

I think that the confidence that the CBB has given us even as we issued our residential mortgage backed securities (even with the capital adequacy exemptions) is very important. They are very receptive and interested to see that this bank becomes a leader in terms of initiatives that would help develop the capitalization of companies that come to the market; in addressing the needs on the property side and the social side, as well as generating an attractive liquidity from international and regional players that could be used for social and economic development.

UNITED WORLD: How will these new sources of revenue make the bank more financially independent?

MRS. SABAH K. ALMOAYYED: I think we have to distinguish whether it is a social or non-social activity. For social activities, I do not think it can be done without the support of the Government. What we have seen and have been successful to show to the Government is that on the social side, we have become more active in supporting the people's needs .needs.

On the non-social side, we really need to start generating our own income and our own activities, making sure that those activities are sustainable.

UNITED WORLD: Taking into account these new commercial activities, how can you assure not to lose focus on the social side?

MRS. SABAH K. ALMOAYYED: We will not lose focus on the social side. I think we have gone a long way. All the programs that we have introduced are very much geared towards finding a house for those who need it.

UNITED WORLD: What is your opinion on the new mortgage regulations that are being discussed by the CBB in order to minimize the risk factor for lenders?

MRS. SABAH K. ALMOAYYED: We do think that CBB rules which they have introduced to safeguard the local banking sector from the occurrence of any mortgages real estate lending volatility might be a bit restrictive the banks. However, there is a need to create a balance between the needs of the middle income group as the middle income group aregroups are the ones who are not addressed either through the social side or thethrough either the social side or the high net worth individuals. They do not have enough assets to back their funding as of yet.

The subprimesub prime is a completely different formula. I really think that we should give more attention to the middle income segment because in economies that are driven with subsidies you always find that the middle income would, in time, count as the poor because they are not subsidized in any respect. This is something that I hope we will be able to address in our future programs.

UNITED WORLD: Has your faith in debt securitization dwindled as a result of the sub-prime mortgage crisis in the US?

MRS. SABAH K. ALMOAYYED: Banks will always make the same mistake. They knew what the problem was, but they continued lending. They have short-term memory. I think the ones who have been at a disadvantage are the banks who have bought into portfolios were they did not really know what they were buying into. Because it was Structured Finance, they bought into something without really understanding the impact and the magnitude of it. The risk was constantly repackaged, in a hundred ways.

Here things are very different. The mortgage business is not very big in Bahrain. It is mainly done by us. We are the only specialized mortgage bank. I think there has to be a lot of care in terms of future mortgages.

UNITED WORLD: Do you foresee a greater degree of competition anytime soon?

MRS. SABAH K. ALMOAYYED: That is bound to happen with the mortgage guarantee system. This is the reason we have arranged for the supervision of the CBB to to provide similar facilities to our beneficiaries to support their banking needs... Our vast experience in mortgage lending would help us to capture more business. We will provide customer account services Now, we are busy putting all these projects together.

UNITED WORLD: The new licenses and the new activities that the bank is embarking on have also forced it to come up with a new organizational structure…

MRS. SABAH K. ALMOAYYED: Our organizational structure today has the depth of knowledge and the adequacy of the functional reporting responsibilities. We have established a strong control of internal processes and strong risk management. We are now in the process of adapting to Basel II. An International Consultant was selected to look into Phase 1, they have reviewed and established the gap analysis and subsequently, there will be the reporting requirements.

We have a strong relationship with the shareholders that we can leverage on. This will help us expand our banking services, especially in terms of securitization, finance and other retail activities.

UNITED WORLD: Could you outline some of the most remarkable examples of successful joint ventures between the government and the private sector?

MRS. SABAH K. ALMOAYYED: One of our projectprojects is an initiative to address the needs of 1,000 units that would house around 25,000 residents. We used the Shari'a compliant structure whereby we invite the private sector to come and participate in the equity of the projects as well as the issuance of Sukuk. We are working to establish final structure and placement in 2008.

We do believe that we have a structure that we can replicate even on our own projects.

UNITED WORLD: The Property Development Department has completed key projects at a cost of BHD60 million. Could you tell us more about the most relevant upcoming projects?

MRS. SABAH K. ALMOAYYED: We are currently working on the detailed design of the Bank's Head Office. HOK a major International Consultant have prepared a concept for us for 4 major sites, includes head office. Other projects are waterfront project and high-tech complex and an associated condominium.

UNITED WORLD: What happens if borrowers who sign shari'a compliant mortgages have a default on their payments? Eviction would cause some Islamic moral issues. How would you deal with such a scenario?

MRS. SABAH K. ALMOAYYED: The loan will be returned to the borrower under the Mortgage Guarantee Fund and the government would have to take care of it. They would help homers to find an alternative housing.

UNITED WORLD: The Treasury and Investment Banking Department has the objective of putting the banks liquidity to profitable use. How much of a challenge has it been to make and train a HR team dedicated to finance activities that are quite different from the traditional core capabilities of the bank?

MRS. SABAH K. ALMOAYYED: HR is always a challenge because of the growth that we are going through in this region. It has become an employee's world. It is no longer the employer's. We have to be carrying institution to our employees so that we will not lose them.

What we have done this past year was to really complete the team on the banking side. For property development, we will continue to hire more people because our projects are increasing. In terms of treasury, this will be an area that will need a lot of focus.

UNITED WORLD: Can you give us a brief outline of Eskan Banks' objectives or plans for the future?

MRS. SABAH K. ALMOAYYED: We would like to take initiatives to supporting government program for the availability of affordable houses. I think we want to introduce a new way of making the mortgage market more efficient. Hopefully, we will be starting a research center for the mortgage market.

I would very much like to see Eskan Bank to take our model regionally once we have achieved our objectives here in the medium and large term, to share the knowledge and expertise for the benefit of the ones who are looking for houses. I also see ourselves as one of the major players in property development.

UNITED WORLD: You are the only woman at the top executive position in the finance sector in Bahrain that we know of. Do you feel this as a handicap or advantage in a world overwhelmingly dominated by men?

MRS. SABAH K. ALMOAYYED: This is really a man's world and women have to work much harder and be highly qualified to position herself as a leader of organization. They also have to have a very strong EI. Men really respect when they see creativity, accountability and independence. Women are doing very well in banking in general. They are very accountable and loyal; they also tend to stay longer in a company. A lot of our departments have women employees. In terms of availability in the banking sector, the presence of women is truly increasing. In terms of their ability to move to a higher ranking position, it still remains a challenge.

UNITED WORLD: How do you perceive your responsibility as a role model for the modern women in Bahrain?

MRS. SABAH K. ALMOAYYED: That puts a strain because a woman always wants to make sure that she is perfect since she has to work twice as hard to prove herself. The satisfaction that I get is that I see a lot of people who worked with me who are now in senior positions. For women, as they move higher, they feel that they have to prove themselves.

UNITED WORLD: What message would you like to convey to the readers of the USA Today?

MRS. SABAH K. ALMOAYYED: We really hope that the US readers will understand us better. Our people have ambitions and aspirations in the same way that they do. We send our children to study to the US to understand the mentality and reduce the cultural gap and create harmony that will prevail over generations. The real driver of economic growth is the capacity to address the requirements of those in need. All these are factors that can help in the stability of the region, as well as the stability of the entire world.

UNITED WORLD: Mrs. Almoayyed, thank you very much for your comments.