UAE banks didn’t have the best of years in 2016 amid an oil-inspired economic slowdown but a successful completion of the merger of National Bank of Abu Dhabi and First Gulf Bank, the country’s biggest lenders, in the first quarter of next year will be a watershed moment.
For years high oil prices made the crowded sector, with more than 50 banks, viable as the country was flush with cash but a reversal in the direction of the price of oil in summer 2014 has put a dent in the status quo. The merger of the two institutions, one which is strong in corporate lending and the other in servicing individuals, is expected to come with a host of cost benefits and may set a trend for other lenders to follow.
Investors have by and large hailed the combination, especially as NBAD is considered one of the safest banks in the world, and its high credit ratings will allow it to borrow money cheaply on behalf of the new entity, which will have assets of US$178 billion, making it one of the largest in the Middle East and North Africa.
“We are positive on the merger because it will definitely lead to revenue and cost synergies,” said Sachin Mohindra, a portfolio manager at Invest AD, an Abu Dhabi-based asset manager.
“Both the franchises bring in some specific value. It will improve access to liquidity. The cost of funds for NBAD is fairly low so that will benefit the combined entity. Secondly, FGB brings in a very strong franchise in terms of the retail-banking network.”
The merger was approved by shareholders at general assembly meetings this month. The combination has also been approved by the Central Bank of the UAE but requires further approval from international regulators and the Securities and Commodities Authority. These are expected towards the end of the first quarter next year, the banks said.
Even though NBAD, the biggest bank by assets in the UAE, has made headway in building its consumer banking business, it will get a boost from joining forces with FGB, which has more loans to individuals on its books.
FGB’s retail book is about 40 per cent of its total loans, while NBAD’s consumer lending portfolio makes up just 17 per cent of its outstanding loans.
The move is expected to produce cost savings of about Dh500 million a year from 2019, according to research by the Egyptian investment bank EFG Hermes.
“These savings would primarily stem from the closure of overlapping branches and elimination of duplicate administrative costs,” said Shabbir Malik, an analyst at EFG Hermes.
Saving money has been a key concern for lenders over the past two years, as they have been hit by dwindling deposits as governments scrambled to find cash to plug budget deficits.
Banks will face other challenges in the coming years, including increased costs for having to keep higher reserves and a fixed percentage of provisions for all debt – costs that will most likely be passed on to customers.
Among the hardest hit have been small and medium-sized businesses, which are always in need of loans and have had a hard time getting them of late, leading to the folding of many such enterprises.
A credit sentiment report by the Central Bank in October shows that in the third quarter banks were less willing to lend.
Abdul Aziz Al Ghurair, the head of the UAE Banks Federation, said the same month that banking sector profits may fall between 10 and 20 per cent this year versus last year, as a slowing economy takes its toll on loan growth.
Many banks have already had a drop in profitability but the bigger banks have held their own in recent quarters. NBAD and FGB revealed in third-quarter earnings that their core business of lending remained steady despite the slowdown in economic growth gripping the country.
While FGB reported a 31 per cent gain in profit for the quarter on the back of strong revenue from noncore businesses, NBAD said its profit was unchanged as a gain in fees and commissions was outweighed by a slight drop in income from loans.
There has been speculation of further consolidation in the sector. The Central Bank governor, Mubarak Al Mansouri, declined to comment directly when asked last month if this was likely but said that measures to help smaller banks would be welcome whatever form they take.
“I am for strengthening the banking sector, so I am with introducing measures to help smaller banks improve their financial positions, their ratios,” he said. “I am with that. Whether it is through a merger or not, that is a business decision.”
mkassem@thenational.ae
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THE DETAILS
Solo: A Star Wars Story
Director: Ron Howard
2/5
The Killer
Director: David Fincher
Stars: Michael Fassbender, Tilda Swinton, Charles Parnell
Rating: 4/5
Racecard
5pm: Al Maha Stables – Maiden (PA) Dh80,000 (Turf) 1,400m
5.30pm: Al Anoud Stables – Handicap (PA) Dh80,000 (T) 1,200m
6pm: Wathba Stallions Cup – Handicap (PA) Dh70,000 (T) 1,400m
6.30pm: Arabian Triple Crown Round 2 – Group 3 (PA) Dh 300,000 (T) 2,200m
7pm: Liwa Oasis – Group 2 (PA) Dh300,000 (T) 1,400m
7.30pm: Dames Stables – Handicap (TB) Dh80,000 (T) 1,400m
The Specs:
The Specs:
Engine: 2.9-litre, V6 twin-turbo
Transmission: 8-speed automatic
Power: 444bhp
Torque: 600Nm
Price: AED 356,580 incl VAT
On sale: now.
The Crown season 5
Stars: Imelda Staunton, Jonathan Pryce, Lesley Manville, Jonny Lee Miller, Dominic West, Elizabeth Debicki, Salim Daw and Khalid Abdalla
Written by: Peter Morgan
Rating: 4/5 stars
The specs
Engine: 2.0-litre 4-cylturbo
Transmission: seven-speed DSG automatic
Power: 242bhp
Torque: 370Nm
Price: Dh136,814
Company Profile
Name: Direct Debit System
Started: Sept 2017
Based: UAE with a subsidiary in the UK
Industry: FinTech
Funding: Undisclosed
Investors: Elaine Jones
Number of employees: 8
Our legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants
Boulder shooting victims
• Denny Strong, 20
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• Tralona Bartkowiak, 49
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• Teri Leiker, 51
• Eric Talley, 51
• Kevin Mahoney, 61
• Lynn Murray, 62
• Jody Waters, 65
Company Profile
Name: HyveGeo
Started: 2023
Founders: Abdulaziz bin Redha, Dr Samsurin Welch, Eva Morales and Dr Harjit Singh
Based: Cambridge and Dubai
Number of employees: 8
Industry: Sustainability & Environment
Funding: $200,000 plus undisclosed grant
Investors: Venture capital and government
Mohammed bin Zayed Majlis
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EMILY IN PARIS: SEASON 3
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Starring: Lily Collins, Philippine Leroy-Beaulieu, Ashley Park
Rating: 2.75/5
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Engine: 1.5-litre turbo
Power: 181hp
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Transmission: 6-speed automatic
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Employees: 60
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Price, base / as tested: Dh269,000 / Dh369,000
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Fuel economy, combined: 8.9L / 100km
THE LOWDOWN
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Rating: 4/5
Produced by: Poetic License Motion Pictures; RSVP Movies
Director: Ritesh Batra
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Name: Haltia.ai
Started: 2023
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Industry: AI
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Investors: Self, family and friends
ON TRACK
The Dubai Metaverse Assembly will host three main tracks:
Educate: Consists of more than 10 in-depth sessions on the metaverse
Inspire: Will showcase use cases of the metaverse in tourism, logistics, retail, education and health care
Contribute: Workshops for metaverse foresight and use-case reviews
The specs
Engine: 2.3-litre 4cyl turbo
Power: 299hp at 5,500rpm
Torque: 420Nm at 2,750rpm
Transmission: 10-speed auto
Fuel consumption: 12.4L/100km
On sale: Now
Price: From Dh157,395 (XLS); Dh199,395 (Limited)
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Capcom
PlayStation 4, Xbox One
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Founder: Ivan Kroshnyi
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Industry: Electric vehicles
Investors: Bootstrapped with undisclosed funding. Looking to raise funds from outside
Killing of Qassem Suleimani
In numbers
Number of Chinese tourists coming to UAE in 2017 was... 1.3m
Alibaba’s new ‘Tech Town’ in Dubai is worth... $600m
China’s investment in the MIddle East in 2016 was... $29.5bn
The world’s most valuable start-up in 2018, TikTok, is valued at... $75bn
Boost to the UAE economy of 5G connectivity will be... $269bn
12 restaurants opening at the hotel this month
Ariana’s Persian Kitchen
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Estiatorio Milos
House of Desserts
Jaleo by Jose Andres
La Mar
Ling Ling
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Malibu 90265
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Cardiff City 0
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Wijnaldum 57', Milner 81' (pen)
If you go...
Fly from Dubai or Abu Dhabi to Chiang Mai in Thailand, via Bangkok, before taking a five-hour bus ride across the Laos border to Huay Xai. The land border crossing at Huay Xai is a well-trodden route, meaning entry is swift, though travellers should be aware of visa requirements for both countries.
Flights from Dubai start at Dh4,000 return with Emirates, while Etihad flights from Abu Dhabi start at Dh2,000. Local buses can be booked in Chiang Mai from around Dh50
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The five pillars of Islam
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.”
ANDROID VERSION NAMES, IN ORDER
Android Alpha
Android Beta
Android Cupcake
Android Donut
Android Eclair
Android Froyo
Android Gingerbread
Android Honeycomb
Android Ice Cream Sandwich
Android Jelly Bean
Android KitKat
Android Lollipop
Android Marshmallow
Android Nougat
Android Oreo
Android Pie
Android 10 (Quince Tart*)
Android 11 (Red Velvet Cake*)
Android 12 (Snow Cone*)
Android 13 (Tiramisu*)
Android 14 (Upside Down Cake*)
Android 15 (Vanilla Ice Cream*)
* internal codenames
TO CATCH A KILLER
Director: Damian Szifron
Stars: Shailene Woodley, Ben Mendelsohn, Ralph Ineson
Rating: 2/5