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: UAE FreeZone Newsletter - Issue 39 - July 2007 |
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Banking sector poised for vibrant growth
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| The proposed merger between Emirates Bank International
(EBI) and National Bank of Dubai (NBD), aimed at creating a banking group that is better placed to compete both domestically and within the GCC region, is expected to give an added momentum to the country's buoyant banking sector which recorded 35 per cent |
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growth in total assets to $234 billion in 2006, industry analysts said.
Fitch Ratings said the EBI-NBD merger would have positive impact on the banking sector and would enable the new entity to cater to the increasing number of infrastructure projects.
"Emirates NBD will benefit from a larger capital base and improved access to the international capital markets, while economies of scale should support its profitability."
Ahmed Humaid Al Tayer, who has been nominated as chairman of the proposed Emirates NBD company, said the banking sector would continue to march ahead and remain the backbone of UAE's GDP growth, which in 2006 posted 23 per cent surge to $163 billion.
He said while UAE banks' deposits grew by 33 per cent to $128 billion, total value of loans and advances increased by 39 per cent to $137 billion in 2006. "The UAE banking sector continues to grow in 2007, with total assets reaching $ 242 billion, as on 31st March 2007," he said.
"Despite the industry's robust growth, there still exists a huge growth potential in the commercial segment. Various structural changes are occurring in the UAE's banking arena, including the sector's declining exposure to the government, rapidly growing Islamic banking, opening up certain markets to competition, and expanding private sector lending," he said.
Philip Smith, Senior Director with Fitch's Financial Institutions group, said the merger would also inspire other banks in the UAE and elsewhere in the region to seek mergers or acquisitions to consolidate their positions in an increasingly competitive environment. Fitch believes that the merger is at present credit rating neutral, based on the information currently available. EBI's Long-term Issuer Default Rating of 'AA-' (AA minus) with Stable Outlook reflects the extremely high probability of support from the UAE authorities. EBI's other ratings are Short-term IDR 'F1+', Individual 'B/C' and Support '1'. It has a Support Rating Floor of 'AA-' (AA minus). NBD has a Support rating of '1'.
According to an analyst, as a result of WTO commitment, the UAE has begun opening up its market to more foreign banks, which have shown increasing interest in the region.
An analyst at RNCOS said key demands that the UAE has to face in Free Trade Agreement
(FTA) negotiations is the removal of bank licensing restrictions, curbs on establishing foreign bank branches, on ownership of foreign banks and on employment of board members and senior management of any country.
"With foreign competition, the UAE banking sector will become more liberalised and competitive. This will lead to consolidation that will be good for country's banking sector as it will result in increase in efficiency and profits and will also help banks to withstand competition," the analyst said.
The current restrictions on overseas banks, looking to set up offices in the
UAE, include the need to have a local agent for the company unless the bank has established the office in agreement with government. The sponsor or agent can be a UAE national or institution (like a free-zone authority). Sponsor may be included in bank's business or can simply act like service provider and provide administrative functions that are legally required, the analyst pointed out.
According to a research report from leading investment bank
EFG-Hermes, despite an end to stock market related earnings in 2006, the environment for core banking operations remains strong and 2007 looks set to be a year of growth for the sector.
The report noted that the operating environment for UAE banks would suggest a far more positive outlook for 2007. "The environment for core banking operations is extremely strong, based on solid economic growth, increasing financial penetration and with debt levels sustainable." |
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Courtesy Khaleej Times
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