Off to the Counter



Off to the Counter

Practical remedies to former crises and a recovering market have put local banks on a pragmatic and stable growth path.


The UAE’s banks have, in the past, felt the effects of both global and local turmoil. The year of 2009 saw the global credit crunch and declining oil prices, while the major correction in the UAE’s property market sent shock-waves through the banking universe. The official response was both fast and comprehensive, including emergency liquidity facilities, deposit guarantees, and legislative amendment. Pre-crisis UAE banks had lent substantially to real estate companies and government-related enterprises (GREs), and by 2011 total non-performing loans (NPLs) of the UAE banking sector had reached $16.8 billion, which required urgent attention.


Post-crisis, the federal government propped up the banks with a $15.8 billion capitalinjection, raising the capital adequacy ratio (CAR) by five percentage points and stumping up vast term deposits converted into capital. Yet, the UAE Central Bank’s Law No. 29/2011 regarding bank loans and services offered to individual customers effective as of May 1, 2011 placed responsibility for healthy performance on the system itself, promoting prudent lending activities and efficient due diligence.


In November 2013, Moody’s upgraded the UAE’s banking system outlook to “stable” from “negative” in recognition of an improved operating environment and post-crisis recovery in the local real-estate market. The announcement foresaw a drop in problem loan volume and concomitant climb in profitability over the subsequent 12 to 18 months. Moody’s projected a decline in the problem loans-to-gross loans ratio in the UAE of 8%-9% over the forecast period, improving loan-loss coverage levels.


With a 70.5% stake owned by the government of Abu Dhabi, the National Bank of Abu Dhabi (NBAD) is the only bank in the UAE rated AA- by all major agencies. As of 3Q2013, total deposits were at $62.5 billion, while net profit of $1 billion was up 17% YoY for the quarter. The NPL ratio at 3.32% in 3Q2013 remains below the expected peak of 3.75%. The bank sustained a healthy capital and liquidity position with a CAR of 17.8% and Tier-I ratio of 16.1%. In 3Q2013, loans rose 5.2% to $49.7 billion, while customer deposits appreciated 18.5% to $62.5 billion in YoY terms.


First Gulf Bank (FGB) is 67% owned by Abu Dhabi’s ruling family and has established a stable pedigree that has benefited from significant deposit flows and state infrastructure project financing. In 2013, FGB increased its stake in its sharia arm Aseel Islamic Finance (paid-up capital of $217.1 million) from 40% to 100%. It also garnered the “Company of the Year” accolade at the Gulf Business Industry Awards 2013. For 9M2013, wholesale banking including international operations delivered 41% of group revenue, while consumer banking and treasury and investments brought 42% and 13%, respectively. The 9M2013 financials yielded net profit of $925.7 million, up 13.2% YoY. Customer deposits at $36.1 billion and net loans and advances at $34.5 billion are up by 11.1% and 10.7%, respectively from year-end 2012. The loan-to-deposit ratio was at 95.7%, the cost-to-income ratio at 20.7%, and CAR at 19.3%.


The burgeoning Islamic finance world is estimated to be worth $2.1 trillion in 2014, and, incorporated in 1997, Abu Dhabi Islamic Bank became the first to exclusively serve this market in the Emirate of Abu Dhabi. It has a branch network of 77 in the UAE and three overseas branches in Iraq, Qatar, and Sudan, as well as subsidiaries in the UAE, Saudi Arabia, and the UK. Net profit for 3Q2013 stood at $299.5 million, up 15% on sustained growth in its core operations. Total assets were at $26.2 billion, while total liabilities registered at $22.7 billion.


Almost 60% owned by the Abu Dhabi government, Abu Dhabi Commercial Bank has a network of 280 ATMs and more than 50 branches across the UAE, plus two in India. In November 2013, the bank launched a major rebranding program to launch more intuitive services, the first stage starting at its prestigious branch at Abu Dhabi Mall. Numerous awards in 2013 include “Best Bank in Payments and Collections” in the Middle East region and the “Best Bank in Trade Finance” in the UAE by Global Finance. Net profit for 9M2013 rose 26% YoY to $735.1 million. Deposits modestly rose 3% to $30.5 billion in September 2013. Its cost to income ratio improved to 30.1% compared to 30.9% a year before. The CAR was at 21.14% as at September 30, 2013.


The bank—established in 1982—is the sole banking entity jointly owned by the governments of Abu Dhabi and Dubai. It has expanded operations to Egypt via the successful acquisition of former ACMB, and serves that market as UNB Egypt. Meanwhile, it also has a sharia-compliant window called Al Wifaq Finance Company. Operating profit for 9M2013 rose 1.5% YoY to $490 million. Customer deposits of $17.5 billion were up 16.3% YoY for the period. Loans and advances of $16.5 billion were up by 7.1% YoY. Its liquidity position was robust with a loan-to-deposit ratio of 94.2% at 9M2013, while the NPLs to gross loans and advances ratio was at 4.3%, the loan loss coverage ratio at 85.7% and the cost-to-income ratio at 25.4%.


With 55% of local banking assets under its control, Abu Dhabi is poised to launch a financial hub in its own right, namely Abu Dhabi Global Market. Located on Al Maryah Island, and offering the familiar selection of investment incentives. Its function is to strategically bridge financial markets in the Far East and Europe, and act as a center of wealth and asset management for Abu Dhabi. As the Emirate is home to large sovereign wealth funds such as the Abu Dhabi Investment Authority (ADIA) and its sister the Abu Dhabi Investment Council (ADIC), the success of the Abu Dhabi Global Market and its ability to attract foreign interest seem assured.