(MENAFN- Khaleej Times) Consumer lending, which expanded at a six per cent to seven per cent pace in the first half of 2012, should grow at a much faster pace in the second half, possibly within the 10 per cent to 12 per cent range in the post-Eid period, according to a senior banker.
"The whole banking industry is not in a stagnant position as things are stable and growing industry-wide. We are beginning to see the return of responsible borrowers," Mashreq group head of retail banking Farhad Irani told Khaleej Times in an interview.
"The organic market is only growing at two to three per cent. It means that our market is in a very slow growth mode and moving very quickly to a mature market state. Organic growth is no longer an option," Irani said.
Irani, who joined the bank July last year with over 30 years of global banking experience, recently launched Mashreq Majestic, a proposition with various banking solutions. "It has become very strong. We opened 6,000 bundles and almost 24,000 accounts as a consequence. Now we are offering Majestic bundle as a unique package for employees of selected and targeted corporate customers," he said.
In addition to Mashreq Majestic bundles, the bank also launched Mashreq Al Islami, re-launched its gold product and business banking service, the UAE's first 30-minute instant banking services, and a host of card offers in the last couple of months.
Irani mentioned that retail non-performing loans, or NPLs, are in a very stable position. "In my portfolio I have significant positive impact on bottom line because NPLs are coming in 30-40 per cent better than planned," he added. Excerpts from the interview:
Do you see any impact on the UAE banking industry because of the economic crisis in Europe and the US sanctions on Iran?
Issues that are facing Europe are not impacting us directly, yet. If the worst happens and some of the affected countries pull out of the euro, then of course the banking industry across the world will be in turmoil. But for now, my sense is that the impact of Arab Spring has had greater impact on the UAE banking industry. Positive impact that has helped pick up the local sector.
I think the credit pool will contract as large European banks will have to consolidate their balance sheets to preserve capital adequacy ratios in their home markets. As far as Mashreq goes, we believe that there is zero impact. Overall industry exposure is expected to be in the single digit range. So when European banks pull out, local banks will have to fill the space. So while it's a little rough in the short-term for the system, in the medium-term it's good for the UAE banking industry as it will witness increased growth. The recent embargo on Iran, especially in the banking sector, has affected the entire industry in terms of dealing with Iranian non-residents in Dubai.
NPLs kept growing during the last couple of years. What's the position of NPLs under your portfolio?
NPL ratios are very stable in our portfolio. In fact, we have significant positive impact on our bottom line because credit risk charges are coming in 30-40 per cent better than planned. The books have clearly stabilised. Repayments are coming in firmly. Property valuations have also increased by one or two per cent a month in selective categories and this has helped our customers.
On the credit card side, there is a significant shift in user behaviour as revolvers are now becoming transactors. Customers are repaying their debts early and beginning to transact as they want to avoid the higher interest rates that credit cards carry. I am bemused to see the excessive play in the market to where competitive banks are trying to buy revolving balances from each other. It is called balance buyout and increasingly banks are beginning to offer an interest free programme up to one year. This will lead to irrational competition and will lead to problems down the line. Personal loans are stable and consist of three categories - conventional, Islamic and Emirati. Islamic personal loans are growing faster than the conventional. The good news is that the cost per loan is coming down and NPLs are very stable leading to a more profitable time for PL's.
Do you see more challenges and difficult times for the banking industry in the wake of the global financial crisis?
Challenges always exist in the industry. The organic market is only growing at two to three per cent. It means that our market is in a very slow growth mode and moving very quickly to a mature market state. Organic growth is no longer an option, winning market share is the main game in town... This makes growth a very expensive proposition for all of the players and it could affect the whole industry.
What are the opportunities available to the banking industry in short- and long-term basis?
I think there are clearly opportunities in the UAE. I think customers are becoming very sensitive to good service. For banks that offer great service, customers are willing to pay a price premium. As you know, most innovations can be copied easily, but exceptional service is very difficult to emulate. In effect the balance of power has shifted from the banks to the customer thus market share will go to those who manage to delight their customers.
Online banking has been an untapped area that we are heavily focusing on. We believe that good service coupled with advanced technology is a solid combination - we have the most advanced online banking platform and are continuously working to challenge ourselves to provide the best and most user-friendly service available in the UAE market.
We look at the opportunities in many forms. I think our consumer lending should begin to grow at a much faster pace in the second half. In the first half, it grew six to seven per cent and post-Eid it could be in the 10-12 per cent range. There is a renewed interest in credit cards as Emiratis and local residents begin to go overseas more often. So, the usage of credit cards is increasing greatly. In fact, the average ticket size for the UAE card is almost 10 times higher than the average ticket size of any card in Asia. The overall cards business is a big opportunity; even the mortgage business and SME sector are showing signs of serious growth.
I also see cross border opportunities as a serious area that Mashreq needs to focus on. We have a very profitable retail presence in Qatar, Egypt, Bahrain, and Kuwait. Increasingly we will be launching products that allow GCC member residents to invest across the countries in properties using a cross border Mashreq mortgage service which will come bundled with free remittance and auto insurance. For example, a resident of Qatar who is an Indian national who wants to settle down or buy a second home in Dubai, can apply at Mashreq anywhere in the Middle East and we will offer him a mortgage to buy his desired Dubai property.
What's your opinion for the first half of the year?
There were no surprises in the last six months. Things are stable and actually growing in a single digit industry-wide. Advances are growing much slower than deposits, but clearly the whole industry is not in a stagnant position.
In the aftermath of the 2007-08, credit has grown up. We are beginning to see the return of responsible borrowers. So for example the residential mortgage business is growing quite well. We are almost booking Dh100 million every month. A more important point is people borrowing for mortgage are end-users now and they are value seekers. They are buying at the right price with the right amount of loan to value ratios and are looking for the best prices available. I would say the whole speculative game is behind us, which is good for all concerned.
How do you see the rest of 2012 in the UAE?
We are cautiously optimistic about rest of the year. Growth is returning. Visitors to the UAE have increased many folds. This leads to the growth of the mortgage business as they show an inclination to buy a second home here. They also use their credit cards while they are here. We are a big credit card acquirer and open accounts for non-resident tourists as well, so it's good business for us.
Effective January this year, all our portfolios were growing. Our loan portfolio, mortgage portfolio, card portfolio, SME portfolio, they all are growing in the range of three to five per cent every month which is a good sign and the more important thing is that there is some stability in the market in terms of pricing and risk policy. We are very cautious to make sure we don't build the book at the cost of major price discounts. If you do that then you erode profitability in the medium to long-term. Our hope as a mature bank is to sustain this growth over a medium to long term rather than just one or two quarters.
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