FGB diversifies its client base away from effects of oil plunge

FGB says it's business as usual amid biggest oil price drop since 2009 as lender picks up more private corporate customers.

FGB, the biggest Abu Dhabi-based lender by market value, says it does not predict major damage to its business from the crash in crude prices, as it has attracted more corporate clients whose businesses are not too sensitive to oil price movements.

“It’s not going to have a catastrophic impact,” said Simon Penney, the head of wholesale banking at FGB, when asked about plunging oil prices. “It’s not like, oh gosh, we’re an oil exporting country, oil prices have dropped to US$65 a barrel, it’s Armageddon.

“Where we see a lot of growth coming is of course in the traditional public sector. Hydrocarbons is by no means going away, but where we are seeing the majority of growth in the next 12 to 24 months is this structural shift (in GDP) towards the private sector.”

UAE banks, whose profits rose to a record last year, have been the prime beneficiaries of a turnaround in the fortunes of the country’s economy, which grew by more than 4 per cent last year. That was bolstered by low interest rates, government spending on infrastructure and an influx of cash from other emerging markets that view the country as a safe haven.

Like Mr Penney, most economists, including those at Standard Chartered and Capital Economics, do not expect major damage to regional economies from the recent plunge in oil as regional governments have built up reserves, with the net current account surplus of the region standing at about $2.4 trillion.

Still, Bloomberg data show that the emirate of Abu Dhabi, which has a stake in FGB through government owned investment firms such as Mubadala, is the world’s eighth-largest oil producer, and the federal government gets more than 60 per cent of its revenues to fund its budget from the sale of crude.

Since the beginning of the month, the price of crude oil has dipped 11 per cent and since June it has shed more than 40 per cent amid weakening demand.

So far, no senior officials have come out to address how the drop in oil will affect government spending but investors are uneasy.

The Abu Dhabi Stock market dropped 4.7 per cent yesterday, its biggest one-day fall since 2009, while Dubai’s main stock measure tumbled 7.4 per cent.

Mr Penney, whose division deals with lending to corporations as well as investment banking activities such as arranging bonds and initial public offerings, said that the bank was currently helping arrange a number of IPOs but that depressed stock prices might delay those sales.

“If we see a long period of depressed equity and oil prices, then it would be naive to say that it wouldn’t impact [on] new issuances,” he said. “Sitting here today, we are working on more than one IPO listing. There’s no slowdown. It’s an issue of timing.”

Mr Penney also said he was pressing on with hiring as usual, with the main constraint being finding the right people rather than the budget to bring them on board, as well as looking for opportunities to expand in Asia.

“Asia is a very important growth area for us,” he said. “We’re currently looking at various options for increasing our presence organically, particularly North Asia, China. We recently opened in South Korea. We’re looking at upgrading our presence in India.”


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Published: December 11, 2014 04:00 AM


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