MENAFN - Khaleej Times
UAE leads region's banking sector
(MENAFN - Khaleej Times) he UAE banking industry is the biggest in the Arab world as assets, loans and liquidity ratio are increasing and non-performing loans, or NPLs, are decreasing, according to a top banker.
The UAE is the second-largest economy in Arab world after Saudi Arabia, but the country's financial centre is home to 21 of the world's top 25 banks.
"I think the UAE banking industry is the biggest in the Arab world. While we are not the biggest economy in the Arab world, but we have the biggest assets in banking," Abdul Aziz Al Ghurair, chairman of the UAE Banks Federation, told reporters in a recent annual briefing.
The reason is that the country has great policies, great central bank and great economy, explained Al Ghurair, who is also chief executive officer of Mashreq.
Total assets of UAE banks grew eight per cent to Dh1.9 trillion in the first six months of this year, while net profit during the period was Dh13.6 billion. Profit growth for banks in the country last year was 15 per cent, Al Ghurair said. Banks in the country are expected to report a 20 per cent net profit for the full year, he added.
He said the liquidity situation is getting better day by day from 103 per cent in 2009; the loan-to-deposit ratio went down to 100 per cent in 2010, 94 per cent in 2012 and now it is about 90 per cent.
"So it's improving, getting better as... more money coming and some customers are repaying their loan," he explained.
Talking about right level of liquidity, he said: "It all depends."
"Margins are getting lower but the risk is getting better. Because we charging different pricing for different risk. I am willing to reduce my spread if the risk is lower. And if risk is lower the customer should get better pricing," he said.
He said NPLs are coming down as consumers are getting better, corporates are getting better and the economy is getting better. "Banks are not lending blindly any more, so all these indicate that provision will come down and profit will go up for banks," he added.
He ruled out any merger activity in the country's banking industry. In response to a Khaleej Times question regarding a merger, he replied: "No, not yet, unless it's driven from the shareholders' point of view. But we haven't seen this is happening. There are no talks."
"We have enough foreign banks in the country to give pressure on local banks to give world-class services," he said, adding that it's the success of UAE banking sector as they are going around and buying in the region, expanding in the Arab world and internationally.
"I think banks are doing well and we want banks to do well. If banks do well the economy will also do well and consumer will enjoy great service in the banking industry," he said.
Talking about loans growth in the industry, he said: "I think we have grown in the last six months and it will be higher in the second half over the first half. More banks will do loans and maybe it will be six to eight per cent growth in the full year."
Talking about the political risk around the region, he said: "I think it's proven that the UAE is the safe haven on the political side. I believe the UAE is the only save haven in the region as more and more companies are relocating their headquarters to the UAE, specially from Arab world. Local companies are also moving their headquarters to Dubai."
Commenting on the Al Etihad Credit Bureau, he said: "It is great news for the economy to have this credit bureau come up; it's a missing link in the UAE infrastructure. There will be a lot of challenges."
"Once this bureau goes live there will be consequence for a short period," he said, explaining that banks will stop lending because they will discover that every single customer has over-borrowed.
"When banks discover this, there will be six to 12 months of almost zero lending to existing customers who have borrowed up to the limit. Everybody will now have to really save money to repay banks."
Talking about the impact, he said: "On the consumption side, people will not be able to borrow money to buy things and do all the stuff they used to enjoy in the past. There will be a cost of adjustment to the new system. On the existing consumer side, things will slow down. There will only be growth in fresh customers, from people who have never borrowed before."
He said that the bureau is set to be launched in four stages with a completion date of 2015. Currently, 12 banks, representing 80 per cent of total retail borrowing, are in the implementation stage. The rest of the lenders in the country will join the bureau from January 1, 2014, as it is mandatory for them.
"It will dramatically minimise default rates, improve pricing for the customer and improve the risk charge on personal loans," he said, adding that it's a really healthy scenario for the long term, but in the short term it will reduce bank business.
Al Ghurair predicted that Mashreq will post a 40 per cent increase in 2013 profits compared last year. The bank's first-half net profit increased by 39 per cent over same period last year.
He said: "Mashreq's performance for the first half of 2013 is as per plan. After repositioning our balance sheet in 2012, we had planned to grow our assets and operating income at a healthy pace. Our advances in the first six months increased by 15 per cent, our Casa balances went up by 19 per cent, and our advances to asset ratio went up from 54.9 to 58.4 per cent. All these measures helped us to improve our net interest margin from 2.6 per cent for 2012 full year to 2.91 per cent for the first half of 2013."
"We are happy that our focus on value-added customer services enabled us to improve our non-interest income by 23 per cent and, by managing costs and risk charge efficiently. The trend indicates a further improvement in the next six months of the year," he said.
Talking about overseas operations, he said Mashreq is present in many countries and doing very well. Regarding Egypt operations, he said that luckily, the bank's business prospers for both corporate and retail sides. Bottom line growth was at 30 per cent, he added.
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