Abu Dhabi Commercial Bank stepped up its efforts to support small businesses, buying a Dh450 million portfolio of loans made to SMEs, it said yesterday. The deal comes a week after the UAE announced a new law designed to expand the sector.
The portfolio, acquired from Mubadala GE Capital, which comprises loans to small and medium-sized enterprises in the Emirates, would enhance ADCB’s position in “a critical component of the UAE economy”, said its chief executive, Ala’a Eraiqat.
The move could also spark more loan acquisitions, analysts said.
“The deal represents merely 0.4 per cent of ADCB’s loan book,” said Jaap Meijer, the head of financials research at the Dubai-based investment bank Arqaam Capital. “However, it fits in the strategic push towards SME lending. SME lending comes with a lot of operating expenses and a high cost of risk, but payment delinquency hasn’t been that bad. The asset yields and the margins are very good from these type of loans, compensating for high costs and cost of risk. We believe they may have paid a premium for the loan book. It’s net positive for the bank. We may see other acquisitions in SME lending space in the UAE.”
ADCB, the state-owned lender controlled by the Abu Dhabi Investment Council said its profit rose by 40 per cent in the fourth quarter, with profits for last year up 29 per cent, after an increase in borrowing and deposits, and a decline in bad loans.
Yesterday’s “transaction follows a competitive bid process, and aligns with ADCB’s strategy to support the development of SMEs” in the UAE, the bank said.
Sheikh Khalifa, President of the UAE, has approved Federal Law No 2 of 2014, which outlined incentives to be offered to Emirati business owners as well as funding provisions and mandatory support from federal ministries and government related entities. Currently the proportion of loans to SMEs to overall bank lending is only about 3 per cent and the Central Bank is set to issue guidelines designed to increase bank lending to the sector.
The UAE has been striving to bolster support for SMEs, which represent almost 92 per cent of the total number of companies and provide more than 86 per cent of private-sector jobs.
One of the key goals of the legislation was to help raise the contribution of SMEs to the country’s economic output. Sultan Al Mansouri, Minister of Economy, said that he expected the contribution of SMEs to economic output to rise to 70 per cent by 2020 from about 60 per cent.
The IMF forecast this month that UAE economic growth this year would be 4.4 per cent. It upgraded its estimate for growth last year to 4.8 per cent.
The Mubadala GE Capital chief executive Ronald Herman said yesterday (SUN) that “transactions of this nature are a normal part of continually evolving our business”.
The US$8 billion commercial joint venture between Abu Dhabi’s Mubadala Development and General Electric was established in 2010 to provide structured financing to businesses.
It said last year that it planned to issue $1bn worth of bonds annually from this year onwards, helping to support commercial financing assets that have grown to more than $5bn globally.
Mubadala Development yesterday declined to comment on the deal.
The Abu Dhabi strategic investment company on Thursday posted a profit of Dh1.5bn, compared with Dh470 million the year before, as the performance of the company’s investments benefited from improvements in financial markets and the global economy.
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