Banking review 2013: lenders shake off years of low growth

UAE banks became more willing to lend in 2013 as they hatched plans for expansion into emerging markets.

Banks have reacted positively to rule changes as the finance industry attempts to escape the excesses of the last boom. Christopher Pike / The National
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UAE banks continued to recover this year amid an economic rebound following years of low growth as jitters about defaulters subsided and more loans started to flow out of the bank’s vaults.

Jostling for business in a crowded market, lenders here have also ramped up the tempo to tap emerging markets for more growth.

National Bank of Abu Dhabi (NBAD), the biggest lender by assets in the UAE, is among those that said this year they were focusing on capturing a slice of US$137 billion market in corporate lending in Asia and Africa.

At home, the competition for retail banking has become intense because products such as home and car loans offer better margins than company financing. Abu Dhabi Islamic Bank, the largest Sharia-compliant lender in the emirate, has been aggressive in luring customers outside of its home city, while Mashreq, run by the billionaire Abdul Aziz Al Ghurair, has spent millions of dollars to set up high-tech, iPad-laden branches that make banking chores easier for customers.

“The story of 2013 for me in the banking sector is loan growth,’’ said Shabbir Malik, a Dubai-based banking analyst at the Egyptian investment bank EFG-Hermes. “The economy is picking up and so is the real estate market and that has made banks more willing to lend.”

Mr Malik said the decline of bad debts and the tightening spreads banks were getting from making loans to companies had made the retail segment much more attractive because individuals had to pay higher rates when seeking finance.

“There has been a bigger focus on the retail market where the spreads are better,” Mr Malik said. “The retail loan book is growing and the margins are higher.”

Total lending growth in the UAE rose 7.2 per cent in the nine months to September, while personal loan growth alone advanced at a rate of 9.3 per cent in the same period, according to the latest Central Bank data. That rate is yet to rebound to the 30 per cent growth rate banks were recording before the financial crisis, but it is a welcome recovery by banks from the 1 per cent low that it reached post-2008.

Economists estimate that the UAE’s economy will grow at least 4 per cent this year and by at least the same amount next year after Dubai won the right to host World Expo 2020. House prices have appreciated by about 30 per cent this year, according to estimates from property firms.

While local banks, such as NBAD, are opening offices in emerging markets, they have taken more notice this year from business they can get from retail customers, especially following the Arab Spring.

That is because political turmoil has made banks with high credit ratings attractive to expatriates from countries such as Egypt, Syria and Tunisia.

The state-owned bank has not been as historically as active as its local rivals, such as Emirates NBD and Abu Dhabi Islamic Bank in the UAE’s retail banking market. But as part of its retail drive this year NBAD has started to offer new mortgage products to benefit from the housing boom.