ABU DHABI: UAE biggest Banks showed slow economy growth due to collapse in the price of oil. The engine of economic growth in the Arabian Gulf, will slow the deposits that the UAE’s banks get from government companies and sovereign wealth funds.
The biggest banks’ chief executives argue, however, that they will be compensated by international expansion and their focus on high-returning loans to individuals as they deal less with the kind of big government corporations and sovereign wealth funds that may be affected by the drop in oil.
The UAE is one of the world’s largest producers of crude, a commodity that has lost more than half of its value since last year, and the government relies on revenue from it to fund about 60 per cent of its federal budget.
“Let’s all be grown up. There will be some effect in the way businesses transact within the Gulf while oil prices remain at the theses levels,” said Alex Thursby, the chief executive of National Bank of Abu Dhabi, the biggest bank by assets in the UAE.
“We are moving our balance sheet increasingly towards retail, commercial and the wealth side of the business, and that is simply because we get better returns and better margins,” he said last week. “But our loan growth on the wholesale side, particularly relationship loans, has actually decreased.
Banks in the UAE, of which there are more than 50, have been spreading their wings internationally over the past couple of years as the local scene gets crowded and margins compress amid record-low interest rates. NBAD said in 2013 that it was planning to build eight hubs in a West-East geographical corridor of emerging markets to tap intercontinental trade flows valued at US$137 billion. Meanwhile, Emirates NBD, Dubai’s biggest bank by assets, has expanded into Egypt, a country where one in 10 of the nation’s population does not have bank accounts. And FGB, NBAD’s main Abu Dhabi rival, has opened offices in Singapore and South Korea in recent years to expand its reach.
To hedge against the potential economic slowdown that may arise from lower oil prices, the big banks have been trying to add more customers not directly linked to the government and focus on activities other than loans such as asset management, trade finance and brokerage services to lessen reliance on government deposits.
In that regard, NBAD’s non-interest income, the money it gets from activities apart from loans, jumped 17.6 per cent last year to Dh3.39bn from Dh2.88bn as the bank increased its efforts in growing businesses such as trade finance, wealth management and brokerage services. Its loan-to-deposit ratio for its international business in the past year has decreased to 80 per cent from 110 per cent.
That is in part because while the UAE relies heavily on oil, countries such as Egypt are net energy importers, and NBAD’s business in emerging markets that will get a boost from cheaper oil is filling the bank’s coffers. About 10 of the bank’s top depositors come from outside of the UAE.
