Emirates NBD is expecting loan growth to slow to the "mid single digits" this year from 10 per cent in 2015 as lower oil prices sap business confidence in many quarters.
Still, despite the slowdown the bank’s chief executive says there are enough areas of growth for the bank to keep it busy – especially from fee and commission businesses such as foreign exchange remittances.
“I know there’s a lot of pessimism out there, but actually, we’re not that pessimistic,” says Shayne Nelson, the bank’s chief executive.
“There’s no doubt that we have seen a slow down. You talk to retailers, you talk to real estate agents, there’s a slowdown in the economy. You can’t avoid that, it’s real.”
Despite that, Emirates NBD has bucked the trend of slowing profitability. While many banks saw a huge retrenchment of growth in fourth-quarter earnings, Emirates NBD jumped 74 per cent year on year. That was largely amid higher income from fee-generating businesses, as well as a drop in provisions for bad loans.
The bank, Dubai’s biggest by assets, has been blazing a trail of profitability in the past couple of years, partly due to lessening its exposure to non-performing loans. The bank had the biggest exposure among financial institutions to Dubai World, which had triggered the financial crisis in 2009 when it froze payments on US$25 billion worth of debt. Last year, Dubai World agreed to a $14.6bn debt restructuring.
The crash in the price of oil, however, has not really spared anyone and all lenders and other financial services companies are starting to experience some signs of strain as the price of oil continues to flounder. Crude oil has lost some 70 per cent of its value since mid-2014, making it difficult for many of the smallest businesses to service debt.
The Egyptian investment bank EFG-Hermes warned last month that the fallout sparked by SME debt delinquencies may spread to individual borrowers as the strain from the weakening economy increases. The UAE is the fourth-biggest exporter of crude oil in the world and the federal Government relies on sales of oil to fund more than 65 per cent of its budget.
While fourth-quarter bank earnings in the UAE grew compared with the third quarter, they were largely propped up by one-off gains and increases in non-interest income, EFG-Hermes noted. More worryingly, banks are putting aside more cash to cover any nasty surprises this year, it says.
Mr Nelson says while there has been stress in the market, he does not see a crisis forming in his portfolio of loans.
“We have a process called an early alert process which looks at accounts in our corporate space which we think may have problems, looking at their financials and looking at general trends of consumer spending for example,” he says.
“It’s in a very good state, surprisingly good to be frank and we’re not too worried about what we are seeing in our portfolios at the moment.”
To beef up fee and commission income, Mr Nelson says the bank has been searching for other ways to make more money apart from the interest it receives on loans, such as asset management, brokerage, foreign exchange remittance and selling insurance.
It has been in the field of foreign exchange remittances, however, where Emirates NBD has had the greatest success, the chief executive says. Since starting the service for its retail customers, the volume of money being sent abroad through Emirates NBD has jumped six-fold since they started it two and a half years ago
About $18bn is sent home by workers each year, according to the World Bank. More than half of the remittances go to Asian countries such as India, Pakistan and the Philippines. Beyond Asia, the United Kingdom, Australia and Canada are among top destinations. Emirates NBD’s Direct Remit service can transfer money within an hour and as quickly as 60 seconds to any bank in India using new technology, and the lender says it will eventually be able to send money just as quickly to most destinations.
“The remittances have been a huge success,” Mr Nelson says.
“One of the things that people always talk about [regarding] banks is that we will be arbitraged out with digital.
“This is an example where we’ve been able to arbitrage out the other way.”
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