What measures are being taken to strengthen and restructure the banking sector?
For the first year (2000), each bank is supposed to increase his capital up to 1 billion dinars, and an additional 1 billion for the second year and by the third year 2002 it should be 3 billion Sudanese dinars. These are the conditions for the banks, and if you are able to fulfill the condition of the first year the Bank of Sudan will help you to complete the required amount on the second year and will give you some privileges, including exemption from business profit tax or some sort of support to cover the after-service benefit financing and the after-service benefit conditions. If you are going to merge you have to dispose of some of the people from the staff. So they will help you if you give them their after-service payment, and fairly even the government might go ahead to share in the increase of the capital by buying some shares and then reselling it in the future to private sector. But this depends on how seriously the bank is moving ahead in this process. Some banks might not be able to comply with these requirements, so they will be advised to either merge or liquidate. Other banks such as ours have sold some of their assets and have completed the first stage. In the second year, we will ask for more capital to call new shares to complete the second and the third year requirements, and also we will not pay any dividends during these two years to our shareholders. We will retain it as capital reserve and we will also issue new shares for our shareholders with the dividends. So these three processes we think will help us to complete the conditions with the bank of Sudan.
There are six Islamic banks, which started operating between 1978 and 1984. We resumed business in 1983 as the second Islamic bank, and then four other banks came later. At that time, the Bank of Sudan was suffering from a lack of foreign exchange, and therefore set up the condition that the capital had to be in dollars and not in Sudanese pounds, and so all the shareholders, either foreigners or Sudanese were requested to pay in foreign currency. Foreigners easily put foreign currency, but for the Sudanese shareholders they had to go and buy dollars to pay their shares as well as some other running expenses. At that time there was no free exchange. The capital required at that time was 20 million USD but due to the exchange rate, it was 1.8 SP for each dollar. The share was 100 dollar for each. We now have the capital changed into local currency worth 49 million Sudanese pounds (about 5.400.000 Sudanese dinars). Then, from 1992 up to 1997 there was a big fluctuation in the exchange rate; it declined from 1.8 SD per dollar to 2.50 dollar.
We started business in 1983 and we now have 19 branches all over the country: 7 in the capital and 12 in the rest of the country; we also have a very good network with foreign correspondents in Europe, Middle East, Arab countries and Asia. We are the first bank of the Sudanese nationals working abroad; most Sudanese working abroad are keeping their foreign accounts in our bank and we receive everyday transfers from Saudi Arabia, Abu Dhabi, Oman or Yemen. I can say to you that we have never defaulted in any commitment whether to the local or foreign community. We have built a very good reputation and we started to grow business slowly and our graph has never come down.
Could you elaborate on your major activities?
We are performing banking activities offering different services, and we have shares in international trade business, import and export. We also own affiliate companies: we have a real estate company, and the third one is in agriculture… though they are not successful due to some obstacles.
How do you intend to make them successful?
The main impediment is that the Bank of Sudan will not agree to raise the capital of these companies. They think that the bank will direct all its resources to your own company, and this is what they consider a diversion because instead of financing your clients you are going to finance your own company and therefore, the Bank of Sudan is setting up guidelines to avoid this scenario. One of them is not to raise the capital of the company.
Due to the Sharia, banks cannot benefit from interest rates. What is the impact of such rule on your banking activities?
No, in fact we are investing in time deposits that are not in contradiction with Islamic rules. We are now keeping our deposits abroad in Islamic deposit, but some overnight amounts will remain in our accounts; we take interest on them but we don't post it as a profit, we distribute it to poor people, for medical treatment for instance.
What are the advantages and disadvantages of working within the framework of Islamic rules?
We find it very easy now though at the beginning it was very difficult for us. I am coming from a traditional banking environment and we learnt the Islamic rules and started to do business. At first we started with Murabaha: you buy the commodity, you give it to the client and you pay its value to the seller and of course we add our margin. Then we sell it and we give it by installments like other interest, but if there is any delay in meeting the obligations we don't get interest as we do in traditional banking. | The second mode of finance is taking a big percentage of our cost of financing and this is the profit and loss sharing which we call Musharaka (participation); we are especially funding the industry sector with this mode of financing. If there is a profit we share it, we agree at first, we pay let's say 70% of the financing and 30% of the client and then we give him 30 or 40% according to their business and then the profit or losses will be shared according to the capital.
The third one is Mudaraba, trust financing, and in this case the bank provides all the money and the client performs the job against certain percentage of the profit margins.
What measures are you implementing to improve the quality of the service you are providing?
We are mainly focusing on computerization of the bank, as well as on foreign financing. What we are going to do is to make contacts between our clients here and businessmen abroad through our correspondents abroad. If they are able to get financing from abroad we will provide them with the local financing.
Is the bank listed in the stock exchange?
Yes, we are listed in the Khartoum Stock Exchange as a public listed company.
Do you expect the Stock Exchange to have an interesting and increasing role in raising capital?
Yes, the Stock Exchange is in its infancy stage but we hope it will grow easy. We think it would have an important role but the Sudanese are presently not familiar with it. We are buying and selling through the financial investment bank, which is newly established, and we have our own portfolio but we don't have a client portfolio yet. This is what we are aiming for.
Nowadays there are about 28 locally owned banks in Sudan. With this new regulations imposing and increasing the capital base probably some of them will disappear or merge.How do you view the evolution of Tadamon Bank within that context?
The Bank of Sudan was expecting all the 28 banks to become eventually 6 but it seems they have now changed their mind; they should be 11 or 12. As for me personally, what I am expecting is foreign capital from Arab countries. I hope some Arab banks would come and take big shares in some of the established banks, or would buy some small banks before injecting more capital and directing their business through their own banks. We have shareholding from Kuwait Finance House, which is one of the biggest banks in Kuwait, and we have Dubai Islamic Bank sharing in our bank; Faisal Sudan was one of the major shareholders in our bank but they sold their shares; Salih Elkamil of Elbaraka Bank in his own name is one of the shareholders in our bank as well as Bahrain Islamic Bank. After introducing freedom of trade, restrictions on foreign exchange have been lifted and we now expect many businessmen to come to Sudan.
What contacts do you have with Asian partners?
We have a contact in Malaysia with one of the Islamic banks, but most of our business is done through some of the banks in Bahrain, ABC Bahrain (Arab Banking Corporation) and Arab Investment Company. However, most of our clients are importing from China, India, Indonesia, and recently Malaysia.
What is your assessment on the policies being implemented by this new government, and
particularly as far as the Ministry of Finance is concerned?
The Minister of Finance is also hoping that in the future some big investments will come to Sudan because he has lifted some of the restrictions on the economy, and I think we shall benefit from the positive environment. We are also paying some of the debt services, and this also helps the IMF to clear the obstacles they have made. If the expansion plans are based on real resources there will be no problem, but if they are not on real resources this will be a problem for the
stability of foreign exchange and exchange rate.
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