SINCE taking over the reins of the International Bank of Asia (IBA) in 1988, cigar-chomping chief executive Mike Murad has engineered an impressive turnaround of a troubled mortgage lending bank into a financially sound and diversified retail bank, with strong growth prospects. The key to the turn-around has been a tight focus on profitability and productivity, the development of new niche markets and aggressive marketing. As one of the smallest listed banks in Hong Kong, IBA has been nimble enough to pioneer innovative products such as affinity credit cards and up-front interest deposits, which its larger rivals have been slow to follow. Its aggressive defence of its niche areas, backed up by strong marketing and incentive plans, have helped it grow at a time that the industry remains relatively stagnant. It has closed unprofitable branches and trimmed staff from 640 people in 1989 to 560 today, while increasing its asset base, which has expanded three-fold since 1989, from $4 billion to about $12 billion. Profit growth has been equally impressive - from $26 million in 1989 to $172 million last year. Analysts estimate this year's earnings will grow at a rate between 27 and 35 per cent. IBA started life as Sun Hung Kai Finance company in 1970, but after it ran into financial difficulties in 1985 it was bailed out by the Arab Banking Corporation, which took a 75 per cent stake in the bank. Primarily a mortgage lender at the time, it was not until 1988 that a new strategy to operate as a diversified retail bank, under the direction of Mr Murad, was put in place. By 1990 the Arab Banking Corporation had bought full ownership of the bank. Last November, the bank floated 25 per cent of its capital, with an additional 20 per cent placed with Chinese conglomerate China Everbright. Arab Banking Corp. which is listed in Bahrain and controlled by the Government of Kuwait, Government of Abu Dhabi and the Central Bank of Libya, retains a 55 per cent stake and control over IBA. The failure of the Bank of Credit and Commerce Internationale (BCCI) in 1991 proved a turning point for the company. Along with Citibank, Standard Chartered Bank and Dao Heng Bank, IBA experienced a 'bank run' over two days in 1991. At the time, IBA was praised for the way in which it handled the crisis. 'The BCCI experience solidified us - it was the best thing that could happen to us in the worst possible of circumstances,' said Mr Murad. 'There were substantial withdrawals, but we stayed open after normal bank hours and we gave each customer cash on the spot. By the second day the money came back,' he said. Apart from that incident, it has been plain sailing for IBA, which is firmly focused on sustained growth through the development of new products and the servicing of niche areas. Mortgage lending continues to be a strong focus for the bank, although it aims to continue to diversify its income base. In relation to the total loan portfolio, mortgage lending has been reduced from 39 per cent in 1991 to 29 per cent, and more than 67 per cent of the mortgage portfolio consists of owner-occupied properties. Mr Murad said the bank preferred lending to New Territories properties because the properties were cheaper and the borrowers were genuine end-users, not speculators. IBA is also very active in corporate banking and hire purchase which together account for 38 per cent of the bank's income. 'There is not a single institution in Hong Kong that resembles IBA,' said Mr Murad. Measured by smart and aggressive marketing, Mr Murad may well be right. The bank became the sixth largest issuer of Visa cards in Hong Kong mainly on the back of clever and well-timed marketing. It was the first bank to recognise the needs of women and created a credit card specifically for them. Called My Card, it was an instant success and created a new market for the bank. Features included health and beauty offers, and shopping discounts. While other card programmes offer air miles, IBA gives its card holders a karaoke laser disk and a chance to win a car in a lucky draw. It has also signed up a deal with the territory's leading travel agent, Morning Star, which gives card holders a discounted interest rate if they book a tour using the card. In spite of the rapid growth in card acquisitions, Mr Murad is quick to point out that credit controls are not relaxed to boost new cards. He boasts of a loss rate of 1.4 per cent, compared with an industry average of about 4.8 per cent. IBA has also pursued deposits with the same combination of innovative products and incentives. The up-front interest deposit, which pays interest at the beginning of the term, has been very well accepted. A current promotion which gives new customers the chance to win prizes, including gold bars, attracted $303 million in new deposits last month. When the scheme was started in August 1992, IBA expected to attract $330 million in deposits. So far it has amassed $1.4 billion. Another popular product is the savings plan, which offers a loan to customers who save a fixed amount for two years, using the amassed savings as a collateral for the loan. This also provides the bank with a much-needed intermediate-term source of funds - although the plan offers to lend the saver double the amount of the total saved. The marketing strategy is to lure customers with one product and then get them to do the rest of their banking with the group. Products like these, which create a market where there was none, are crucial to IBA's expansion plans. That is because the bank has had to be aggressive in marketing to make up for its lack of branches - just 21 in total although an additional three are planned to open this year. In Hong Kong, where convenience is a critical factor because people often don't have cars to drive to the bank, IBA has had to find new ways to build up its deposit base to finance its lending and ultimately its ambitious growth plans. IBA's loan-to-deposit ratio of 75 per cent is the highest among locally listed banks, which means that it will need to attract more deposits if it is to increase its lending operations. The bank has raised certificate of deposits to fill the gap although 85 per cent of the bank's deposit base comes from customer deposits. IBA's liquidity position remains strong with a ration of liquid assets to net deposits of 40 per cent and a capital adequacy ratio of 15 per cent. 'IBA is in good shape in terms of capital adequacy and liquidity, but their biggest difficulty is their small deposit base,' said one analyst. 'They are relatively dependent on the wholesale market for deposit growth rather than their own customers,' he said. Mr Murad hopes higher interest rates will draw customers back to deposits. The bank is also pursuing international opportunities. It will operate a bank in China as a joint venture with the Everbright group (which owns 20 per cent of IBA) and a finance company in the Philippines, and it has applied for a licence to operate in Vietnam and Kuala Lumpur.
