Shuaa forecasts more profitable times ahead

Shuaa, the UAE's oldest investment bank, is forecasting a sustained return to profits after five years in the red.

Unveiling the bank's "strategic road map", Sheikh Maktoum bin Hasher Al Maktoum, the executive chairman, said Shuaa projections showed a range of operating returns next year running from a loss of Dh18 million (US$4.9m) to a profit of Dh6m, but the bank expected to be in positive territory next year. Thereafter, Sheikh Maktoum predicted, there would be a "hockey stick" effect, with profits rising sharply until 2016, although these were not quantified beyond next year.

Results for the current year would show an improvement but would not be in profit, he added.

"We aim to generate consistent returns to shareholders in the coming years," he said. "We have done with the right-sizing of the workforce, reduced non-core assets and cleared up the balance sheet."

He was speaking at a gathering of shareholders at which Mohammed Al Shaibani, the director general of the Ruler's Court, unveiled the bank's new corporate identity, dropping the word "Capital" from its name. The Dubai Government holds 48 per cent of Shuaa's shares.

The recovery strategy put in place by Sheikh Maktoum when he was appointed chairman in May last year has led to Shuaa shedding hundreds of jobs and exiting the retail brokerage business in Dubai in an effort to control costs.

"We have cut the payroll by 52 per cent and only kept the best of the best," he said.

In a move to tap the market for private lending in the UAE, the new "road map" will add an expanded credit business to Shuaa's existing operations of asset management, investment banking and capital markets.

In particular, Shuaa will seek to serve the market for lending to small and medium enterprises (SMEs) that many analysts believe is underserved.

"SMEs account for up to 60 per cent of GDP and 86 per cent of employment in the UAE, but they only get 4 per cent of bank financing. We believe the way to a businessman's heart is through his wallet," said Sheikh Maktoum.

A new division, Shuaa Credit, will include the existing business of Gulf Finance Corporation, formerly a private equity business but which will be transformed into a vehicle for commercial and consumer lending.

The bank's balance sheet will be "redeployed" towards the credit market. At the end of the first half of the current year, Shuaa had assets of Dh1.47 billion against liabilities of Dh329m, and "negligible" bank borrowing.

Apart from SMEs, Shuaa is also to target traditional corporations, the family offices of large privately owned trading groups, and high net worth individuals.

It will also provide Sharia-compliant products, and is planning moves into the Saudi Arabian market for SME lending. "Asset-backed finance is already Sharia-compliant," Sheikh Maktoum said.

Markets reacted with cautious approval for the new strategy. The Dubai Financial Market-traded shares, down 93 per cent from their peak in 2008, gained 3.66 per cent to close at 62 fils.

"It remains to be seen how successful the strategy will be, but asset yields are high in SME lending and it could be reasonably profitable," said Jaap Meijer, an analyst at Arqaam Capital,