Stacks on Stacks


The UAE banking sector's continued excellence in 2015 was largely driven by Abu Dhabi's banks, which posted impressive growth levels and strong key performance indicators.

The financial market development of the UAE was ranked number 20 in the world by the World Economic Forum’s 2015-2016 Global Competitiveness Report. According to the same report, the UAE was ranked number 21 and number three in terms of the soundness of its banks and the ease of access to loans. Building on years of solid economic performance and a well-regulated financial sector, the UAE’s capital city founded by law, in 2013, the Abu Dhabi Global Market (ADGM) free zone, which opened in 2015. Abu Dhabi is hoping to leverage its accumulated wealth from its years of hydrocarbon prosperity, its well-developed financial services industry, and its portfolio of multinationals and global capital that all have an existing foothold in the Emirate. The ADGM announced in 2015 that it would soon establish the final regulations and operating bylaws for financial services transactions. The new financial center in Abu Dhabi represents a concrete development in its long-term plan to diversify the Emirate away from its traditional hydrocarbon economy. The development of the ADGM epitomizes a unique aspect of Abu Dhabi’s diversification initiative, namely that the effort to move away from relying on its still vast hydrocarbon resources represents a strategy born of wise planning rather than ad hoc necessity.

According to The Banker, an online database resource of The Financial Times, the 13.32% YoY increase in Tier-1 Capital of the consolidated banking market of the Middle East was the second highest of any region in the world 2015, behind only the 31.38% YoY increase in Tier-1 Capital of Caribbean banks. A key driver of this regional excellence was the performance of banks in the UAE. The report listed 26 UAE banks in its database, nine of which were registered in Abu Dhabi, including the local subsidiary of UK financial behemoth HSBC Holdings. Through the end of the first quarter of 2016 the average return on assets of the consolidated UAE banking sector was 1.85%, while the average capital assets ratio for the Emirates was 12.66%. During 2015 banks in Abu Dhabi outperformed the UAE averages, recording a 1.86% average return on assets and a 14.09% capital adequacy ratio.

The largest bank in Abu Dhabi by almost every metric listed in The Banker report on the UAE is state-owned National Bank of Abu Dhabi (NBAD), a 69.17% stake of which is held by the Abu Dhabi Investment Authority. The total assets of NBAD at end-2015 were $110.690 billion, nearly twice the asset levels of Abu Dhabi Commercial Bank and First Gulf Bank (FGB), which at $62.147 billion and $61.937 were the second and third largest banks in terms of assets at end-2015, respectively. In June 2016, the boards of NBAD and FGB gave their final approval for an historic merger between the two banks that would give the new banking giant—still retaining the NBAD name—an estimated market cap of $29 billion and $175 billion in assets, surpassing Qatar National Bank as the largest in the region thanks to what will be the largest non-taxpayer supported banking merger since the 2008 global financial crisis. The next three largest banks at end-2015 in terms of assets were HSBC UAE, Abu Dhabi Islamic Bank (ADIB), and Union National Bank, at $33.133 billion, $32.339 billion, and $27.739 billion, respectively. Rounding out the list of Abu Dhabi’s banks were Al Hilal Bank, Al Masraf Arab Bank for Investment and Foreign Trade, and Abu Dhabi Investment Company, with end-2015 total assets of $11.732 billion, $4.098 billion, and $1.594 billion, respectively. NBAD was also the 2015 leader in terms of Tier 1 capital with $11.734 billion recorded at end-2015, followed by FGB and Abu Dhabi Commercial Bank, at $8.418 billion and $7.791 billion, respectively. These were followed by Union National Bank, ADIB, and HSBC UAE, with end-2015 Tier 1 capital levels of $4.820 billion, $3.873 billion, and $2.643 billion, respectively. Al Hilal Bank finished 2015 with $1.527 billion Tier 1 capital behind, while Al Masraf followed behind with $930.5 million, and Abu Dhabi Investment Company with $270.1 million. The $15.491 billion market cap of FGB shares listed on the Abu Dhabi Securities Exchange (ADX) actually beat out that of larger NBAD at $11.290 billion. The other banks listed on the ADX were Abu Dhabi Commercial Bank, Union National Bank, and ADIB, which registered end-2015 market caps of $9.257 billion, $3.512 billion, and $3.403 billion, respectively.

The leading deposit holder in Abu Dhabi is by far NBAD, with $71.901 billion total deposits on its balance sheet at end-2015. Additionally, FGB, Abu Dhabi Commercial Bank, and ADIB also posted sizable end-2015 deposit totals of $43.655 billion, $39.537 billion, and $26.679 billion, respectively. Union National Bank’s end-2015 deposit total stood at $20.704 billion, while Al Hilal Bank and Al Masraf trailed distantly behind with end-2015 total deposits of $9.131 billion and $3.045 billion, respectively. NBAD is also the leader in both gross and net loans, with end-2015 totals of $60.977 billion and $59.309 billion, respectively. Gross and net loans of FGB at end-2015 were $45.680 billion and $44.477, respectively, while Abu Dhabi Commercial Bank’s totals at the same time were $43.567 billion and $41.840 billion. Respective levels of gross loans recorded at the end of 2015 by ADIB, Union National Bank, Al Hilal Bank, Al Masraf were $22.655 billion, $20.111 billion, and $8.833 billion, and $3.410 billion, respectively, while their net loans stood at $21.786, $19.374, $8.269 billion, and $3.232 billion, respectively.

Al Masraf had the highest return on assets (ROA) among Abu Dhabi’s banks during 2015, at 2.69%. Al Masraf was followed by Abu Dhabi Commercial Bank, FGB, Union National Bank, and Abu Dhabi Investment Company, with a ROA of 2.65%, 2.16%, 2.1%, and 1.99%, respectively. The bottom-four banks were HSBC UAE, ADIB, NBAD, and Al Hilal Bank, which recorded ROAs of 1.88%, 1.64%, 1.36%, and 0.24%, respectively. Abu Dhabi’s banks were extremely well capitalized through 2015; all of them exceeded the 10.5% capital adequacy requirement (CAR), including the capital buffer set forth by the Basel III except for Union National Bank, which at an end-2015 CAR of 7.98% still only narrowly falls short of the Basel III minimum CAR. NBAD, ADIB, FGB, and Al Hilal Bank registered end-2015 CARs of 10.6%, 12.02%, 12.54%, and 13.01%, respectively. Abu Dhabi Commercial Bank, Abu Dhabi Investment Company, HSBC UAE, and Al Masraf posted end-2015 CARs of 12.59%, 16.95%, 17.37%, and 22.71%, respectively.

Driven in part by appreciating real estate prices—the largest component of the consumer basket—and general non-tradable items, YoY inflation reached 4.1% at end-2015, up from the 2.3% recorded at end-2014. Despite the drop in the local purchasing power of the dirham, the UAE’s legal tender appreciated in 2015 by 4.5% against the local currencies of the UAE’s top-nine import partners not using the US dollar, which account for around 48% of the Emirates’ total imports. The solid performance of the banking sector, thorough collaboration between financial services institutions and government regulating authorities, and relatively contained movement of the purchasing power of the dirham all give the UAE a solid basis against which the Emirates can exert its collective force as it pushes ahead ever closer to a new epoch of sustainable prosperity.