801.50 K01.20 ROI.SO

OR IS SR15

OHSIS

PLUS: GULF BUSINESS INDUSTRY AWARDS WINNERS

10 Fl

ES :cE

E Local banks have been quick to lend more and offer more sophisticated services as international banks nurse lingering wounds and lose marketshare.

U Al\ h.mks havE:' aggress1vrl>' l'Xp.tntled the1r COijlOrittl' Joan books in recent years, a surge that

man}' s.1y could signal ,, long·tt•rm shift tn

local financi.tl services. Mostly, 11':- been ,t C<ISC or lllhng !he

gap lett bv lllll'mauonal lenders smce the 2.008 downturn. Europt.>an b,mk.-, ha,·e been on hfl' ~uppon tor a wluh.' now and have inm'asmglr retrenched to tend to worsening condillons at home

Walid Aradi, C£0 of lah~Cl'll Consulting. says ··1 hey Wl're seeking to hnut thetr exposure Ito the .~1iddle E.lst), tocus on rebuildmg thr1r compeU!Ive advantage in their home countries, and unproVt' their b.1lance sheets. This left the I!X\tl banks, which came oil a pt.>riod ot consolidation, ready to ptck up the slack should tht.> econorruc conditions improve."

He Sdys with UAE I?COIIUI11k' growth hovermg around four per et'lll, and an mcreased .lppt:'tlle to lend due to tht.> introduction of loan caps and mort? defint'\l l<>nding cntena, local banks responded by aggrt?.ssiVl'l>• markellng tlwir l'Xisting products. and offcnng new Olll'S. They have abo bt.>n<'htl'<l from an tnLTeased pace of governml'nt mfrastructure protects.

Other lavou~<thle condluons have opent?d up the JocaJ market for UAE lendt•rs, mcludlng ·• return of excl-ss CJsh m the system .1s the Impact of the UAE housing cnSJs tadt'll. llus hoosted thl' liqUJd!ly

1'0 JCTOBER 2013

"Analysts say domestic financial institutions have shaped up their portfolios and are starting to offer more s "s+i.- ted products in conventional and Islamic banking than before. As a result they've been eating up market share and have witnessed buoyant growth recently."

pos1tions ol mo~t hank.-., who wert! .tlso

holsterl'd br ~trong capual intlow~ causl'd hv the Arab Spnng

Analvsts say dome!HIC fin.1nci,ll insututions h.we sh,tped up thear ponfoho> clnd .He stanmg to otter more sophasucatl'd products m convenuonal and blamtc h,lnking than bl'flltl'. A~ a result. tlwy've been eating up market share and h.ave w1tnessed buov.uu growth r~?Cently.

The UAE Monthly Bankmg lndlc<ltors. published by the UAE Central R.mk, fihow that desplll' ex.penencmg modest vear·on-year growth of 2.6 per t:t'nt m 2.012. m loans .111d advances. the increase in the ftrst st•ven months of 2013

excel'ded 4.3 pt·r cl'nt. Champtonmg th1s

growth were local banks such as ADCB, Emtr.lies NBO, \lashreq dnd First Gulf Bank, \\ hu:h have been some of the most aggressive pia) e1 s 1 n filling the gap ll'll behind by the downsizmg ol opN.lllons or some mternationais.

Lcndmg to gowrnment·relatl'd entllll'S (GRI:S) IS CUITl'llll} well above the cethngs cnv1 agl'l.l by the UAE wntral bank last ycJr, whtch has led to concerns about .1

rcpe.tl ol Dubat's COij>Orate debt cns1s. Accorllmg to a receru Merrill Lynch rese,uch note, UAE hanks' GRE exposure

UAE banks saw year-on· year growth of 4.3 per cent for the hrst seven months of 2013.

"Championing this growth were local banks such as ADCB, Emirates NBD, Mashreq and First Gulf banks, which have been some of the rr ggressive player in filling the gap left behind by the downsizing of operations of some internationals."

IS at Its highest level as .1 pl'rcl'nt.Jge ot

capatal suace the 1970~.

ew ligures show thl' domesuc b.mkmg ector lt.h extended $42 balhon In cn.'tht

to the gowmment and GRE.., s111ce the hanking crisas of 2008. A~ a r~·sult. exposurl' to thl'

gowrnruent and non·hn.1nct.11 pubhc

THE RETURN OF GOVERNMENT LENDING ~h.('re have been fresh concerns about

the amount local banks are tending

to state· linked compames. Some fear

there are stgns of a taclilng time bomb

hke that w1tnesset1ln Duba1 an the lead

up to 2008 and 2009.

In September, analysts at Bank

ol Amenca Merrill lynch sa1d the

exposure of UAE banks to government·

related entitles was at Its highest level

as a percentage of cap1ta11or over 40

years The bank also warned there IS

hltle chance of authont es enforcmg

stnct e~posure lim1ts.

BOAML said the UAE banktng

sector has extended $42 billion an

crad1t and as a result exposure to the

government and non·tananc1al public

enterpnses as a percentage of bank

capital Is at 104 per cent

Government ent1ties relied heavily

on local banks to support the

restructuring process 1n the aftermath

of the Duba1 property crash, w1th

fore gn banks takmg the1r money out

of the reg1on.

l'ntt'rpnses as a percent.lgt• ol h.lllk cap1t.11 I!> dl 104 per cent

fl'w wtll forget the ntogauvny that ram~

down on the UAE. pantcul.uly m the

llltt'nl.lltonal m~ta. lollowmg the nubai

World .md Nakh~l d<"fault~.

Tlw GREs telied hcavtlv on local banks to support the restructuring process an the

aflrrmath or the Dub.l1 proPt•ny cra.~h Tht• ~ll'rtill Lynch notl' -.ays "Th1g rully

compensat~ lor the hm'tgn outtlows but

incre.bt.'t1 the banking sel'lor'5 exposure ,Js Pl'rcent.1ge of cap11JI by 26 pt•rcemage points. !"he credit stock ,1lso suggt•sts very

roughly that about 50 pt.·r cl'nt ot Dubai

Inc debt ts owned domt.>sllc,!lly.'· In 201.!, the central b.mk tnl'd to

Introduce ntles as p.ut ot ,, dnve to

n•duce nsks and prPVt'nt any rt'l'uiTI.'nce

of Duha1\ 2.009-lDLO coiiJp~l'. hut tlw dt'l:tsion was droppt•d .1ftt>r hanks

complauwd the rt?gulallons would slow

BANKING

growth and Cduse tnJtor lossel' Howevl'r, last month, .t\bdulaziZ

al·Ghura1r, head ot the ll.1110nal banking mdustry .tssOCiallon and chtl'l execuuve ot Mashrt'tl. said the cemr,!l h.mk had

're·t.lblt>tl' t.he caps on GRI. lendmg and

was .tnuoundng a rev1sed set ol sanctions

l.llt'l this year. It's .m amponam developml'nt due to

the SIZe of the loan markt•t that's now up

tor grahs. Arconhng to Amo M.Jtt•rbnagger,

editori,ll c.ltrector at Insult• lm•estor. .. Tile

llCNln.J) loan market h,ls .1 size of around

0112.5 btllion a year ami togt•ther wllh thl.'

corporah.' loan markt•t the ovcr.11l s1ze ol the lmdmg mJJket 111 tht• UAF: IS an estunatro Dhsl.S mUton. and loan growth in 201.~ so tar was enom1ous ,1g.11nst 2012..

Local h.1nks can prob.1bly get a ~lice of as much .1s 60- 70 per Cl'lll ol that market ·

Mi'anwhtle. analv~1s by Frost & Sulliv.Jn

The UAE Central Bank is announcing a set of mortgage caps later th1s year.

gulrbuslness.com I T1

[ BANKING

suggests that if the st,ue of the global economy does not Improve tore1gn banks might have to pull back their oper.:stions in the UAE even further, which ts expected 10

create a funding g.:sp. II has emerged that European banks lent around 25 per cent of the UAE economy's COP as of September 2011. according to the consulnng firm.

-L.9 )-\~' <U \ mashreq

While this may seem an added opportunity for local banks to further strengthen their presence, banks in the UAE are facing an issue of declining margins in the corporate lending segment as huge companies are increasmglv demand.lllg lower borrowrng rates Hence, UAE banks may not find corporate lending an attractive opportunity and could instead locus on other segments such as rrtail loans. UAE banks are facing declining margins in the corporate lending segment.

But if a funding gap IS created in the tuture. companies might be willing to uncfenake higher borrowing costs in the wake of a shortage in credit supply making corporate lending anractive tor the UAE banks.

The safe bet i~ that it's likely that the market share of local banks will increase marginally in the future wh1le fore1gn banks will try to retain thetr current loan book s1ze 111 the UAE.

A FIGHT FOR CORPORATE DEBT

What is certain though is that overall, local banks that managed to mcrt?ase their share of the corporate and consumer lending markets recently will find it increasmgly difficult to maintain past levels of profit.1bilily

This is partly down to the level of future economic growth in the UAE, which is not likely to reach the heady hetghts posted in 1005 or 2007. And measures. like Al-Ghurair's caps 011 state enutv lenchng

Barclays recently ditched 1ts retail arm in the latest sagn that the battle for supremacy 111 UAE corporate lending IS heating up.

"Barclays has decaded to re-focus Its efforts an the UAE on 1ts key strengths in corporate and investment banking and wealth and mvestment management," the bank satd.

The Bntlsh bank, under CEO Antony Jenkins, announced it is cuttmg at least 3,700 jobs globally, reining In pay of senior bankers and closing businesses across the group tn the face of new capital rules. The UAE corporate re·tocus is part of th1s wider change, and follows a number of other retail exits in recent years.

In 2010, part state-owned Abu Dhab1 Commercial Bank bought the retai l bankmg operat1ons of Royal Bank of Scotland 1n a $100 mtlhon deal.

Barclays and other rore1gn banks are mcreas1ngly lacing challenges to compete In the UAE against cash-nch local rivals who are finding it easier to meet stricter rules on risk.

Barclays' potential sate may Impact up to 280 employees, a source fami liar with the plan told Reuters.

Stgmftcantly, tt was confirmed that the bank will keep its existing branches In the UAE to servace corporate banking clients.

72 I OCTOBER 2013

and changes to capital and liquidity reqULremt!llts, could have a dampening effect and ra1se cost pressures on the banking secror.

Local lenders are facing pressure to tmprove products and services if they're to keep momemum up in their corporate lendmg business.

Sheetal Kothari, rese.trch analyst, Busmess & Financ1al Services Practice. Frost & Sullivan. says: "We recommend domestic banks m the UAE focus on relationship management skills. ensuring conunuou~ credit .1ssessment of ihe

borrower and innm•ate customised produd offerings and strategies for cross selling to improve their mJ.Igins in the corporate lendmg segment."

Others rns1st that UA£ banks must do more to attract global talent and lorm greater alliances with global banks to overcome their limited international footprint.

There is a chance that local players in the UAE could make their gains in recent years permanent. However. without fully seizlllg the opponurutv. local banks will tmd themselves having to fend off pressures from global banks when their appetite to invest in emerging markets returns as a consequence of improved market conditions in their home countries. Cl