Opening the door to growth: Vince Cook, the chief executive of National Bank of Fujairah, says some early decisions in 2008 and 2009 helped the bank weather the downturn. Pawan Singh / The National
Opening the door to growth: Vince Cook, the chief executive of National Bank of Fujairah, says some early decisions in 2008 and 2009 helped the bank weather the downturn. Pawan Singh / The National

Small is beautiful in UAE banking sector



Quirkiness is a virtue, says Paul Trowbridge, the chief executive of United Arab Bank (UAB), as he pulls out the lender's newest Islamic credit card, printed vertically rather than horizontally.

"It's a bit unusual," he says."Not everyone's got it. It's relatively understated - and it's Arabic." In a nutshell, that describes the bank's attempts to sell itself during a year of rapid expansion.

The lender based in Sharjah has tried to stand out through high-profile events such as enlisting Fabio Cannavaro, a former captain of the Italian national football team, to open its branches.

UAB's small size means it has to work hard to get noticed, Mr Trowbridge concedes, but the bank's advertising blitz is paying off.

The bank expanded its loan book by 45.6 per cent to Dh8.0 billion (US$2.12bn) last year and plans to maintain the pace of expansion with four branch openings this year, taking its total to 22.

But there are other factors that allowed the bank and other peers from the Northern Emirates to grow rapidly last year.

For one thing, Dubai's banking sector had one of the toughest years on record.

Dubai Bank was rescued by the emirate's government in April and then sold for just Dh10 to Emirates NBD, the biggest bank by total assets in the UAE.

And Dubai banks' share of total lending shrank, allowing for smaller lenders to grow rapidly.

Emirates NBD expanded its loan book by 3.5 per cent to Dh203.1bn. But excluding loans gained through its forced acquisition of Dubai Bank, its lending actually declined by 0.6 per cent.

At Emirates Islamic Bank, Emirates NBD's Sharia-compliant subsidiary, lending fell by 11.3 per cent to Dh12.9bn during the year, despite an earlier statement from the bank that it would resume "aggressive" lending.

Mashreq, Dubai's second-biggest conventional lender, reported a fall in total lending of 8.5 per cent to Dh37.6bn during the year. Meanwhile, Dubai Islamic Bank's lending dropped 9.7 per cent to Dh51.5bn by the end of the year.

With the exception of Dubai Islamic Bank, all of the Dubai-based lenders reported a fall in total assets.

"One of the reasons why [UAB's] assets have grown is that when the market hit a big downturn… other banks shut up shop," says Mr Trowbridge.

That move had opened up opportunities for smaller lenders, such as National Bank of Fujairah (NBF), to specialise in niche markets such as precious metals. "We took some early decisions in 2008 and 2009 that probably put us slightly ahead on the provisioning side," says Vince Cook, the bank's chief executive. "We're probably over the hump.We're not out of the woods yet, but we're not seeing it get worse."

The bank is seeking to expand its specialisation. It also intends to establish a division focused on lending to small and medium enterprises.

NBF plans to open two to three "significant outlets" this year, taking its total to a maximum of 14.

Other banks from the Northern Emirates have also grabbed market share.

Ajman Bank's Islamic loan book grew by 15 per cent to Dh3.2bn as it added four branches, taking its total to 12 by the end of last year.

The bank, which was founded in late 2008, avoided the bad-debt problems that have plagued many other lenders, says Mohamed Amiri, the acting chief executive.

"Our lending portfolio has also shown remarkable growth, and while we still may not be quite near where we want to be, we certainly are in the right direction," he says.

RAKBank expanded its total lending by 12 per cent last year to Dh18.3bn.

Credit growth among these Northern Emirates lenders is expected to outpace the UAE average by a comfortable margin when full-year lending data from the Central Bank is revealed.

Many of the UAE's smaller banks had missed out on Dubai's boom and are now under pressure from management to expand rapidly, says one banker, who asked not to be named.

What remains to be seen is whether these lenders will be able to avoid repeating the mistakes made by Dubai's banks.

UAB, for example, has sought to extend home financing to UAE nationals or committed owner-occupiers who expect to remain in the Emirates for the longterm.

The bank has sparked a price war on mortgages with teaser rates that have undercut the rest of the sector, dragging international banking giants such as Standard Chartered and HSBC into competition.

But some banking chiefs, such as National Bank of Fujairah's Mr Cook, are unconvinced that this approach can be as profitable in the UAE as in other markets. He points to the link between visas and properties among expatriates. This can affect their ability to repay mortgage loans if they lose their jobs.

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German intelligence warnings
  • 2002: "Hezbollah supporters feared becoming a target of security services because of the effects of [9/11] ... discussions on Hezbollah policy moved from mosques into smaller circles in private homes." Supporters in Germany: 800
  • 2013: "Financial and logistical support from Germany for Hezbollah in Lebanon supports the armed struggle against Israel ... Hezbollah supporters in Germany hold back from actions that would gain publicity." Supporters in Germany: 950
  • 2023: "It must be reckoned with that Hezbollah will continue to plan terrorist actions outside the Middle East against Israel or Israeli interests." Supporters in Germany: 1,250 

Source: Federal Office for the Protection of the Constitution

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The Bio

Favourite place in UAE: Al Rams pearling village

What one book should everyone read: Any book written before electricity was invented. When a writer willingly worked under candlelight, you know he/she had a real passion for their craft

Your favourite type of pearl: All of them. No pearl looks the same and each carries its own unique characteristics, like humans

Best time to swim in the sea: When there is enough light to see beneath the surface

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”