Q&A: CEO of Bank of Maldives, Peter Horton

The Bank of Maldives (BML) has appointed British national Peter Horton to the position of CEO, replacing Ganesan Subramanyam who left the country in May 2010 amidst an internal investigation concerning allegations of sexual assault. Minivan News spoke to Horton about the challenges facing the bank, its strengths and opportunities such as developing the Maldives as an offshore banking destination for nearby emerging economies such as India.

JJ Robinson: What was it about your professional background that makes you suitable for the role?

Peter Horton: The very long story is that I’ve been in banking since 1984, spending the first 15 years in the UK with Barclays (one of the UK’s four major banks). I then moved out to Africa with Barclays operating initially as a risk director for the business, at the time the most profitable part of their business. That was in Botswana.

From there I ran Barclay’s corporate turnaround teams for the whole of Africa, so I have huge experience dealing with distressed portfolios and problem lending. I lived in Nairobi (in Kenya) for three and a half years.

Afterwards I spent time building my own company in South Africa, before going back into banking in the Bahamas with a subsidiary of the Canadian Imperial Bank of Commerce, where I was in charge of corporate banking. If there is any theme in my career it is one of building strong teams and re-engineering teams and businesses internally and externally. In many ways I’m probably more equipped for this role with BML than I first realised.

JJ: What were your reasons for accepting the BML role, how did it come about, and why did you decide to come to the Maldives?

PH: At this particular stage of my career I was looking for the right step in terms of progression and development. This is my first CEO role, although not my first leadership role.

It really fulfilled a number of my requirements. Here is a business with challenges facing it, and a CEO role with some degree of autonomy, and just happens to be in the Maldives. I was happy to come here – although I have limited experience of Asia, my wife is from Indonesia.

I am very hungry to develop myself and I wanted a challenge. I also know that at my age it’s important to advance your career properly, and I never hide from challenges or taking responsibility for my actions.

The bank was looking through many channels to recruit and the role came to me through an HR consultant I was working with in the UK. He recommended it and the rest is history.

JJ: Did you hear anything about the fate of your predecessor?

PH: It’s fair to say is that Google is a very powerrful tool and I’ve seen a lot of things, some of which might be true and some might not. Obviously on arriving here it was very important to understand the history of the business. Certainly I’ve taken time to understand some of the challenges the business has had to face in the last few years.

My predecessor did go some way towards making changes in the business, and I needed to understand where it was going to. I’ve spent the first two months learning the recent and distant past.

JJ: What do you see as the key challenges BML is facing?

PH: I think many [challenges] will dovetail ino each other. We have a very public and a very high non-performing loan problem. Whereever you are in the world, that is an impediment to any bank’s performance, and it has a carrying cost. It also creates a certain mood around the business internally and externally.

The economy we are operating in creates a challenge. We like any bank in the Maldives are restricted by the size of our balance sheet and in respect of having a single borrower limit, and also crediential industry limits. Knowing that the bulk of the industry here is tourism, but also having a limit up to which we are not able to lend any more to tourism, becomes a constraint and a challenge.

I think the other challenge we face is around service. I think this business grew very rapidly, not just the loan base but in terms of customers, especially if you look at what BML was 10 years ago.

That goes some way to explaining why we have such big queues in the banking hall. When I came out for my interview I took the time to walk around Male’ several times – and go in very incognito to see the BML branch. I have to experience what the customer experiences , and I don’t think that experience is what any of us want.

So for me a challenge is to create a great customer experience. That is a challenge: serving the segments we have chosen to serve, but acknowledging some aspects in which we have to do better. Some of that is service, some of that is embracing new technology, other looking is at our processes. The customer base often grows faster than processes.

Those are the key challenges: a challenging and relatively flat economy – we haven’t even touched on the dollar shortage – a high level of non-performing loans, concentration of activity in the economy which is at odds with what any bank has to have for a balanced portfolio, and personal service issues.

JJ: What are some of the ways you are planning to address these challenges?

PH: Without sidestepping the question, I am at the point where I am formulating a bigger strategy for the bank and it is only correct that I speak to the board and engage them first.

What I can say is that every single one of those issues we can address, and we can deal with. None of the challenges I’ve outlined daunt me. What I do not want to do is to rush into inappropriate quick fixes. I want this business to be successful in a very sustainable way.

We can talk about the challenges, but also focus on the upsides of the business and start to capitalise on them better than we have been.

JJ: What are some of key areas of potential for BML?

PH: Some of this is again part of the strategy. But as to the strengths: we already have some great innovation within BML. We issue credit cards, debit cards, and have invested substantially to be a card acquirer serving domestic and resort communities. We have unparalleled reach in this country. We are in every atoll and do our best to reach clients even if we don’t have a branch near them. It might not be the best in some respects, but we are trying.

We bank more parts of the sector in this country than any other bank, and we have some outstanding talent within our business.

JJ: One of the perceptions here is that despite the resorts being a major part of the economy and certainly moving a lot of money around, they tend bank outside the country – either because of concerns relating to the stability of the Maldivian economy, dollar issues, or because they already have a head office based overseas somewhere like Singapore or Thailand. Is there an issue attracting these businesses to bank locally?

PH: Every international business is going to to an international treasury function. I’ve seen it in Africa and the Caribbean. They will move funds around as it suits them best, and it isn’t necessarily negative towards the Maldives. [A company] in Sydney might have an offshore unit in Singapore for tax reasons because that suits them better.

If we were able to provide an offshore banking alternative, it is not inconceivable that the Maldives would attract some of that global flow of cash by having a favourable tax jurisdiction here. It is certainly a big plus.

I think that’s always what you are up against in terms of flow of cash. Ways we can attract more dollar flow to stay here is  probably by lending more dollars to make it stay here. If I am lending in dollars I am making a dollar profit – that dollar profit stays here because we don’t have dividends going outside the country. If we’re able to address the balance sheet and dollar contraints we have, that to me would be a way to increase the level of dollars that stay in the country.

Merchant services is one aspect – whilst the dollars might flow out of the country, we do make a profit on it – a profit I can lend, because my profits stay here. Beyond that it is very difficult to dictate to people where their cash should and shouldn’t be, and the decsions are largely dictated by people outside the country anyway, at least for the international groups.

JJ: What were some aspects of the Bahamas’ approach in making itself a favourable tax environment for attracting offshore banking, and are they things that can be applied in the Maldives?

BH: Some of it is historic [in the Bahamas], and that can be an advantage and a disadvantage. It is a disadvantage because you get very staid in your ways and you don’t move as quickly as you should. But the advantage is that you build up in your economy local and imported people who are experts in these areas. The legal and accountancy professions are very experienced in the industry and there are lots of local staff who are qualified trust professionals.

But some of the things that are a real advantage – a colossal advantage – is the Bahamas’ geographic proximity to the US mainland. But if you look at the world’s emerging economies, which are moving West to East, our proximity to India and to a lesser extent Sri Lanka, and with direct flights to most South-East Asian cities, should be a huge advantage for us.

The majority of offshore banking centres do rely on imported people and instiutions. They are truly migratory these days. We are in a global economy now where things move overnight, so if you were able to do the things to attract people, it is very, very doable.

The other thing is having sufficient protection around the business – having a strong regulator, a strong legal system, and probably some degree of monetary protection. If a private bank is bringing dollars into the country, there needs to be some degree of certainty that the dollars can sit in the country quite safely. A lot of the things are already here, and not many things need to be done. There is certainly quite a lot of sophistication in the Monetary Authority, certainly the Maldives’ geographic location is a huge plus, and you already have a tax regime which is friendly to anybody, more or less.

It is doable, but it shouldn’t be considered easy. You also have to decide on a specialisation – if you look at the Carribbean, jurisdictions tend to specialise in one area so you have to pick what horse you’re going to ride as well.

JJ: The ongoing dollar shortage is now among the top issues everyday people in the Maldives are facing. What is your impression of the origins of the dollar shortage, how it can be addressed, and do you agree with the government that it is an internal problem, or is else a product of outside factors?

PH: I’ve only been here for seven weeks so it is difficult to say. A reality of the economy is that we are importing so very much, and we have so few dollar generating industries. In very simple terms, any downturn in the economy incur losses in the economy when turnover drops below break-even level. That is where we are as an economy – our revenue in dollar terms, in terms of the imports we require, is lagging.

We need to look at ways of keeping dollars in the country as much as possible. You touched on the fact that a number of entitites are taking money out of the country – and are free to do so without exchange control. I think we also need to look at other ways of enhancing dollar revenues through fresh or new industries – and I would include financial services among those industries.

It is also an impact of the global [economic recession], and there are only so many things the Maldives’ economy can do. I know too little of the history of the dollar shortage to know the precise causes of it, but I agree that it is a real challenge facing the whole country right now.

JJ: One of the perennial issues is that most of the banks impose a quota on the amount of dollars they exchange for rufiya every day. Obtaining those dollars seems to be an issue of personal connections at whatever bank you happen to bank at – an issue of who you know. Do you forsee a situation where there will be a free-flow of dollars in the near future? Or do you think it will get worse before it gets better?

PH: I can’t really say if it will get worse before it gets better. I don’t see it [improving] in the short-term without some form of intervention, and correction of what is a difficult day-to-day problem for us. I think it may be as good as it gets right now, and it will be something more than today’s economy that will be required to correct the issue. It is hard to say – it is not going to get much better.

JJ: How does the dollar shortage affect the banks? The government is struggling with the problem and people are quick to blame “greedy banks hoarding dollars”.

PH: As all banks do we have an assets and liabilities committee and that is a sign of a bank very actively managing its balance sheet and its liquidity. As with every bank right now, you have a number of calls on your dollars. You have dollar committments yourself – you may have intermediary credit lines, commitments on credit card settlements you have to meet. If you are issuing credit cards to people using them overseas, that is a cash cost to me. We also have committments to try and help our customers as best we can.

However the inflows of dollars we have are really only in two areas – one is acquiring credit cards, so all the dollars from tourists using credit cards come through our accounts and might not stay with us, but we do make some fee income on those [transactions], and the second area is our lending. Hopefully what we earn on our loan is more than we lend once we settle our funding cost. It is a daily job managing that liquidity. We don’t have the luxury of not being able to monitor it closely.

[The dollar shortage] is very challenging for us because we see customer needs we are unable to fulfill, whether it be the guy trying to get money for medical treatment or the trader trying to buy goods from overseas, and we just can’t provide it because we haven’t enough money. We are credentially holding sufficient dollars to cover our short, medium and long-term commitments – which we have to, and which will be our first priority always. However after fulfilling that requirement we not hoarding any dollars – we are doing our best to satisty as many people as fairly as possible.

The challenge for us is that as a bank for the masses that is a very broad spectrum of people – we try to devise systems that are even-handed and fair, but it is difficult to satisfy everybody.

JJ: What kind of impact does it have on foreign investment when you go to a bank and find a withdrawal limit on your account, or a set exchange you can do in a day?

PH: A lot of the foreign investors will almost see their investment as being in a different country [to the Maldives], because you have a domestic economy and an international economy here. The resort business, which is substantially where the international investors are coming from, has clear dollar flows, and no restrictions on funds being repatriated.

Those companies can only speak from their own personal experience, and their own personal experience is probably that they’ve never had a problem getting money out of the country when they’ve needed to, after they’ve fulfulled their obligations.

I think for those without dollar inflows, it is a challenge. Anybody doing due diligence in the country is probably going to look at that as an issue. It is less of an issue if you are in a dollar-dominated business – I’ve spoken to resort owners who have a problem paying their workers because they are trying to get cash from the bank. You could argue that’s a separate matter, but for the bulk of international investors it’s probably not an issue.

If I was coming in to invest in something that wasn’t exclusively earning dollars, then I would have a problem because any investment you make is on the basis of a dividend coming to you. If you can’t repatriate money – through a dividend or a head-office charge – then the uncertainly would make it a consideration for you. Whether it’s a deterrent depends on the potential profit and competitive advantage, and that might be big enough to mitigate those issues. But it is undoubtedly an issue for incoming investors.

JJ: The MMA has been quietly replicating a successful mobile banking system popularised in Kenya by Safaricom’s M-Pesa. What is the status of mobile banking here and what kind of impact do you think it could have?

PH: The first thing about M-Pesa is that it is a cellphone company initiative – Safaricom – as opposed to what MMA is looking at here, which is a bank-led initiative.

JJ: Didn’t Safaricom effectively become a bank?

PH: Yes, but interestingly – and I havent reasearched it enough – they are taking deposits, but are not registered as a bank. The way they get around it is by converting deposits to ‘mobile currency’ which has a 1:1 value with the local currency. They buy and sell that currency at time of deposit and withdrawal – a highly successful model.

Yes the MMA have been engaging with BML, I have reviewed some of the material, but I’ve asked MMA to share more information with me. We already have a mobile banking option as part of a suite of electronic banking options that we offer to our clients. I think the sentiments and objectives of the MMA are first-class, which is to reach the unbanked, or partially banked. We have been doing that as BML – we have branches in the atolls, and we have a dhoni going around the islands – I suppose having a floating bank really is mobile banking!

I think the whole area of using techonlogy to break down barriers is exciting and appropriate, however within that there are solutions that are not appropriate and there solutions that are appropritate.

What we have to do is be careful and not rush in because something looks wonderful but is not right. At this stage we have to tread carefully to make sure it is right for customers primarily, and commercially right for the bank. We cannot enter into things that are substantially loss-making to us, or substantially wrong for us in terms of the risks it exposes us to. Equally we wish to the serve the customers, that is something we can achieve.

I’m very mindful of the difficulties some people have banking with us right now – or in having access to banking at all. I do want to bridge that, and that is a mandate that is implicitly BML’s. Once you are a bank to the masses you are a bank to the masses for life; you can’t go backwards from that.

We are genuinely proud of that, but it is important to look at how we can do it efficiently, with good serivce, and as a cost to business. It should always be profitable – we are not here to be a charity.

JJ: How much autonomy does BML and the CEO’s position have? How far are you able to operate independently of the MMA or the government?

PH: We have a very active board, and it is a board with plenty of experience in many different directions. The relationship between the board and its sub-committees are excellent, and I don’t want autonomy that doesn’t have that. We have a very strong corporate goverance structure and I think that comes out of the previous areas of criticism of the bank, which have since been corrected. They are robust and they work.

We work with the regulator, and I haven’t seen anything that would stop us working as a commercial entitity. We are commercially focused and operate as a commercial entity. I have not sensed any politics in my time so far, in terms of the business.

We know we’re regulated and have a generally good relationship with the regulator. I’ve met with officials and they are doing their job properly and professionally. I don’t feel constrained, but neither do I feel I can run off and do crazy bad things. Which is how it should be – we are properly regulated and governed.

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Travel study finds Maldives “most expensive” island destination

The Maldives has been identified as one of the world’s “most expensive” island hotel destinations, with an average room rate of US$539 per night.

The study by Hawaii-based tourism consultancy Hospitality Advisors compared resort islands in its home territory to those all over the world, covering 38,000 properties and nearly five million rooms.

The highest-ranking Hawaiian destination, Maui – averaging US$331 for a double room – was only topped in terms traveller experience polls (and prices) by the Maldives, which despite an average occupancy of 62.6 percent still managed to register the highest revenue per room.

The study noted the rising popularity of the Maldives as a travel destination for Asian tourists.

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Surge in Chinese arrivals just a passing fad, cautions MATI

China has eclipsed the traditional European tourism markets of the Maldives to become the highest contributor of tourist arrivals to the country, but that gain is unlikely to last, says the Maldives Association of Tourism Industry (MATI).

Figures from the Ministry of Tourism indicate that that 15.3 percent of all arrivals this year originated from China – a staggering growth rate of 137 percent compared to the first eight months of 2009.

UK arrivals, traditionally the Maldives’ greatest market, sits at 14.9 percent followed by Italy at 12.6 percent. Average length of stay has dropped to 7.7 days, compared to the same period 8.1 last year.

Secretary General of MATI, Sim Mohamed Ibrahim, told Minivan News that Chinese tourists regarded the Maldives as a “novelty” destination, and that the growth would not last.

“The Chinese can swamp a destination in terms of numbers, but this is not the tourism the Maldives is about. Our product attracts sunseekers – Europeans,” he said.

“The Chinese who come do not come for the sun and the beach – they come because the Maldives is a novelty, a safe destination, and because of their new-found freedom to travel. Resorts are saying there are not many repeat visitors from China.”

Sim said that while it was “a good thing” that the spike in Chinese arrivals had filled in a seasonal gap in the market, Chinese tourists were comparatively low “yield” compared to other markets.

“137 percent growth is huge, but that’s heads-on-beds,” Sim said. This had not “had the impact on yield as much as it should” because of lower-than-average length of stays, uptake of full board packages and a general disinclination among Chinese visitors to spend on resort restaurants, bars and excursions.

“What we’ve seen January to August is that while most traditional markets have grown, except Italy, there hasn’t been much difference in arrivals figures from Jan-August last year. But Germany, France and the UK are all registering growth and picking up.”

Seasonal dips in the Maldives market during warmer months in the northern hemisphere have historically been filled with the arrival of Russians and Japanese, Sim explained.

“he Japanese market is not growing – it used to be a good market but it hasn’t been showing growth, and we need to do more work in Japan,” he said.

Early visitors from Russia used to be among the highest yield tourists, “but they have since become more seasonal like everyone else.”

“South Africa would be a good market for us, but it requires good flight connections, perhaps via Mumbai.”

The Maldives was proving a victim of fashions in the travel industry, Sim noted, particularly in the high-end segment.

“Right now the Seychelles and Mauritius are in fashion. We haven’t done much in terms of destination marketing, and we have lost the buzz we used to have. We have no new products that people can afford, there’s been mismanagement of the local economy, and it’s been hard for the new government to put things back together,” he said.

“Environmental doomsday messages” had not helped attract investors either, he added.

“Hopefully the new budget will have more money for destination marketing.”

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Kuddoo fisheries makes Rf13 million profit

The Kuddoo Fisheries complex has reported an Rf 13 million (US$1 million) in profit over the last two months. It had faced a loss of Rf 80 (US$6.2 million) last year.

The turnaround means that by July, when new figures become available, the company might not be operating at a loss at all. Kuddoo fisheries complex was set up by the government in May as a separate company from the Maldives Industrial Fisheries Company (MIFCO).

Speaking to Haveeru, the company Managing Director Ismail Adam said its intake has increased in correlation to the increase in fish purchase value in the last few months.

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Downturn in European market offset by increased tourism from Asia

Tourists arrivals to the Maldives, where two Sri Lankan conglomerates own or operate resorts, are recovering from recession but construction of more hotels is seen hitting room rates, reports Lanka Business Online.

Sri Lanka’s Aitken Spence and John Keells Holdings had long relied on their Maldivian resorts to compensate for lower earnings or losses in their local hotels during the island’s ethnic war.

But earnings from Maldivian hotels were hit last year owing to global recession which reduced arrivals from the main market in Western Europe.

Although arrivals from Europe are likely to be affected in the short to medium term by the region’s economic woes, CT Smith Stockbrokers said in a report they expect this to be mitigated by increased arrivals from Asia, especially China.

Full story

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President returns from Malaysia

Last Friday President Mohamed Nasheed returned from his official visit to Malaysia for the 6th World Islamic Economic Forum.

Before his return, the president visited the Maldives High Commission in Malaysia. He urged the staff to set an example for Maldivians living in Malaysia, and to participate in Malaysian cultural events.

President Nasheed also met with a delegation of Malay business people, where he spoke of the importance of broadening economic relations between the two countries.

He said Maldives is now open for business, and invited them to invest in the country. Senior officials from State Trading Organisation (STO) and Maldives Industrial Fisheries Company (MIFCO) were present at the meeting.

The president also met with a group of Maldivian students in Malaysia. He advised them to pursue their higher education and asked if they were having any “difficulties that needed attention.”

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President Nasheed calls for a global price on carbon

Speaking at the Business for Environment Global Summit (B4E), President Mohamed Nasheed said the price of carbon should be global because we live in a global economy.

President Nasheed said stating a price on carbon would “unleash tremendous change” and develop a market for cleaner technologies.

“Some countries are still arguing development means becoming dirtier and dirtier as they become richer and richer,” the president said, noting that the goal for carbon-neutrality “will soon need to be done everywhere else.”

President Nasheed said although becoming carbon neutral and combating climate change was urgent, he had faith that human ingenuity would “allow us to flourish indefinitely.”

He said in this time of change there would be uncomfortable uncertainties as well as new opportunities, and urged the world to “leave behind the dirty economy of the 20th century.”

President Nasheed and the First Lady Laila Ali are currently in Seoul, in the Republic of South Korea, for the B4E Summit.

President Nasheed has been awarded the UN’s ‘Champion of the Earth Award’ for his work to combat climate change and will receive his trophy tonight in Seoul.

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President and First Lady depart for South Korea

President Mohamed Nasheed and First Lady Laila Ali departed for South Korea last night.

They will be participating in the Business for Environment Global Summit (B4E Summit) which will take place in Seoul from 21-23 April.

The summit allows for dialogue and business-driven action for the environment, with some of the topics on the agenda being resource efficiency, renewable energy and climate change policies and strategies.

During their visit, President Nasheed will also meet with the President of South Korea, Lee Myung-Bak, to discuss ways of strengthening diplomatic relations between the two countries.

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President to attend B4E summit in South Korea

President Mohamed Nasheed has confirmed his participation in the upcoming B4E Business for Environment Global Summit in Seoul, Republic of South Korea, from 21-23 April, reports Miadhu.

The summit is an international summit for dialogue and business-driven action for the environment, with some of the topics on the agenda being resource efficiency, renewable energy and climate change policies and strategies.

CEOs and senior executives will join politicians, international agencies and NGOs to discuss bridging the fight against climate change and the business world.

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