The country’s small and medium enterprise (SME) sector is set to become the near-exclusive domain of Emirati banks, as international institutions back away from the sector over increasing concerns on international compliance and competition.
The development of the SME sector has become a key economic priority for UAE authorities as a means of diversifying the economy away from its dependence on oil revenues.
It increasingly seems, however, that for international banks the sector offers too little return for too much risk.
Last week Standard Chartered announced plans to almost entirely exit the SME banking sector in the country, retaining only a small number of high-value customers.
The immediate trigger for the exit was a sweeping $300 million settlement with US regulators, who said that the bank had failed to adequately identify a series of transactions, many of them emanating from its UAE branches, as high risk.
However the bank is understood to have long been considering an exit from the country’s SME sector in the wake of increasing competition from local banks, who have rolled out increasingly generous packages for SMEs.
The reticence of StanChart and other international banks to deal with SMEs does not appear to extend to local banks.
Abdulla Al Nuami, the Emirati owner of Ayjaal Media, an Abu Dhabi company specialising in the provision of media content development for children, said that he had been served well by his local banking partner, Abu Dhabi Islamic Bank.
“It was a bit hectic when we set everything up, but they offer a pretty good set of services that we can work with quite well,” he said. “Their rates are a bit high, but we don’t really have any complaints.”
In addition to the provision of basic banking services, the bank was keen to offer a series of business loans, said Mr Al Nuami.
“We’ve found it pretty easy to get the banking services that we need,” said Jai Mulani, the chief executive of IBT, an IT services company in Dubai, whose primary banking partner is also an Emirati institution, Abu Dhabi Commercial Bank.
“As an SME the expectations are different from larger enterprises, but it’s quite feasible for companies to get the services you need. The banks are pretty good here compared with other countries.”
StanChart is not the first western bank to withdraw SME accounts in the face of compliance issues. HSBC, one of the first international banks to offer services in the UAE, abruptly cut a series of SME accounts last year, provoking fury among its customer base.
The bank has been forced to significantly tighten its compliance requirements for its customer base after it agreed to pay $1.9 billion to US authorities in December 2012 for doing business with customers in Iran, Libya, Sudan, Burma and Cuba in the face of international sanctions.
HSBC insisted that it remained committed to the SME segment in the UAE, but acknowledged that its focus would be on those that would benefit from its international banking operations.
“Since international business is a key competitive strength that is at the heart of our strategy, we are focusing on those enterprises that will benefit from our global footprint and expertise,” a spokeswoman said in an emailed statement.
This month, the bank blamed an increase in compliance costs, together with a larger wage bill, on rising operating expenses for its UAE operations in the first half of 2014.
The federal Government has worked to boost the standing of SMEs in the country’s economy.
In April, Sheikh Khalifa, President of the UAE, approved a federal law that included a requirement for federal authorities and ministries to contract at least 10 per cent of their procurement budget for purchasing, servicing and consulting to SMEs.
The Minister of Economy, Sultan Al Mansouri, said in April that he hoped the contribution of the sector to the non-oil economy would rise to 70 per cent by 2020, from its current level of 60 per cent.
jeverington@thenational.ae
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