Commercial Bank of Dubai (CBD) has bought a Dh3 billion corporate loan portfolio from RBS as the UK lender retreats from the region.
The deal will help the Dubai lender grow its business in Abu Dhabi and pave the way for expansion.
RBS is selling its business in central and eastern Europe, the Middle East and Africa, and reducing its operations in Asia Pacific and the US. The lender, which is 80 per cent owned by the British government, is selling its corporate debt and debt capital markets business in the Middle East and Africa as it struggles with losses.
The acquisition represents CBD’s first major purchase. One of the smaller banks in the UAE, CBD had assets of Dh47bn at the end of 2014. It wants to expand its business into Abu Dhabi, grow its corporate client base and boost fee income.
“It gives us increased exposure to Abu Dhabi, which we want, and an increase in large corporates, a larger size of clients compared to what we used to have in the past,” said Alain Renaud, the CBD general manager of corporate, commercial and investment banking. “These clients give us the opportunity to use the new products we have been developing, which is around investment banking, M&A advisory, corporate finance, commodity finance, equity capital markets, IPOs … in addition to our traditional flow products.”
With more than 50 banks competing for business in the UAE, the withdrawal of international lenders such as RBS from the market is creating an opportunity for smaller local rivals to grow their business and add new customers.
CBD, in which the Dubai government has a 20 per cent stake, has traditionally focused on Dubai and the Northern Emirates and small and medium sized businesses (SMEs) such as family owned firms.
The RBS deal represents a new focus for the lender as it seeks to move up the divisions of the banking sector and spread its risk.
“In terms of business mix, we are growing very fast in personal banking and business banking. Business banking is SMEs and it is a very good segment but a bit more risky,” said Mr Renaud. “And therefore the addition of the RBS portfolio, although it has lower margins, brings us a strong balance in terms of risk profile,”
As much as 80 per cent of the bank’s revenues come from its corporate and commercial business, with the rest from business and personal banking lines and trading revenues. This figure is expected to fall to 70 per cent within two years as the bank grows its other divisions.
CBD is not the only UAE lender to benefit from the retrenchment from international banks from the local market. Abu Dhabi Islamic Bank, the UAE’s second largest Sharia-compliant lender, last year bought the UAE retail banking business of Barclays, the UK’s second largest bank, for £119m (Dh645.4m).
“We are seeing a contraction in international banks and we see that as a huge opportunity for us to increase our market share,” said Mr Renaud.
The Dubai-listed bank posted a 20.7 per cent increase in fourth quarter net profit to Dh312m last year.
“Lending is the No 1 activity of the bank, however we are trying to develop another form of income which is fee income, which is growing very fast at the moment,” said Mr Renaud.
“The share of fee income from total income is increasing because we consider it a better quality of income and less dependent on evolution of interest rates and typically it’s a sticky income. It typically will create more loyalty from the clients and this will become recurring year after year.”
To diversify its revenue sources, CBD last year established an investment banking division which has led to mandates in mergers and acquisitions (M&A) and initial pubic offerings.
Currently the bank has mandates for two IPOs – one in property and the other in the consumer sector – but is advising its clients to wait for the IPO markets to recover.
IPO deal flow has slowed to a trickle because of the drop in the UAE markets.
The Abu Dhabi-based private equity firm Gulf Capital and Abu Dhabi-based fleet manager Massar Solutions have postponed their IPO plans as they await better market conditions.
The bank has 5 M&A mandates – three for disposals and two for acquisitions – in the hospitality, consumer and industrial sectors, among others. The deals include a US$1bn acquisition.
dalsaadi@thenational.ae
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