UAE banks may have been posting double-digit growth in net profits, but they are on the prowl for assets outside their home turf to diversify from the competitive home market.
In a market dominated by 51 local and foreign lenders, where the rate of economic expansion is set to slip this year because of lower oil prices, banks are scouting for foreign assets and seeking organic growth through the establishment of branches and representative offices.
“The UAE market is a mature market, a highly competitive banking market,” said Neeraj Makin, vice president and head of group strategy at Emirates NBD. “At a certain point of time we do need to look at markets that offer much higher growth because the UAE banking market is expected to grow in high single digits only.”
From Turkey to Hong Kong, UAE banks are eyeing expansion into Africa, Asia and the Middle East, targeting high-growth countries with strong demographics, having amassed enough cash to bankroll expansions thanks to the economic resurgence of the country from the financial crisis.
Dubai's Mashreq, for instance, is one of several lenders, including Abu Dhabi Islamic Bank, seeking to acquire Citigroup's consumer business in Egypt to expand its presence among the country's 88 million population, the Arab world's largest. Mashreq, which is present in 11 countries besides the UAE, already has 10 branches in Egypt.
“Mashreq’s international aspirations are driven by three main factors: first and foremost, to support its clients across the network; second, to capitalise on the UAE’s natural position at the centre of Asian-African trade and investment flows and third, to diversify its revenue streams,” said John Iossifidis, head of Mashreq’s international banking group.
“The biggest gaps in its Middle Eastern footprint are the kingdom of Saudi Arabia and the Republic of Turkey. Both markets remain of interest.”
In Qatar, Mashreq has four branches, which it plans to increase.
The bank is also considering the establishment of representative offices in Kenya and perhaps Nigeria and Sri Lanka, to support its business, capturing trade and investment flows across Asia, the Middle East and Africa.
Currently, 20 per cent of Mashreq’s revenues and profits are generated from business outside the UAE and it is targeting increasing that figure to 30 per cent over the next three years.
“Strategically the objective for Mashreq’s overseas business is to continue to support client needs as they expand across the region and international client needs in the region,” said Mr Iossifidis. “The primary focus being on payments, trade, investment and capital flows, whether inwards or outwards, between the GCC and Egypt with the rest of the world.”
Egypt has also been identified as one of four key markets of growth by Emirates NBD, Dubai’s biggest bank by assets. The bank in 2013 completed the acquisition of BNP Paribas’s Egyptian assets for US$500 million.
“I do believe that apart from [the] UAE, over time there are four big regional economies, which are going to drive the economic growth in the Mena region forward: Saudi Arabia, Turkey, Egypt and Iran,” said Mr Makin.
He declined to say whether Emirates NBD is also vying for Citigroup’s consumer business in Egypt.
Emirates NBD, which is the only UAE bank operating in Saudi Arabia, the Arab world's largest economy, is trying to expand there. It is also eyeing up the Turkish market for entry through acquisitions or opening a branch, and it is waiting for sanctions to be lifted from Iran to reopen an office that has been inactive owing to the trade curbs imposed b y western countries.
“Iran is another market which we believe once it opens up and the sanctions are lifted, it is going to be a key market for banks from the region,” said Mr Makin.
The bank, currently present in eight countries besides the UAE, now generates about 7 per cent of its income from international operations and is aiming to boost that figure to 20 per cent in the mid-term, he said, declining to give a specific timeline. “Countries in North Africa are markets of interest for the bank, Morocco being a key one,” said Mr Makin.
“In Asia, our logical expansion could be in Hong Kong to cover the trade links between Asia and GCC.”
The bank is keen to upgrade its representative office in India to a branch, but reciprocity issues are deterring the lender, according to the Emirates NBD chief executive Shayne Nelson. For a UAE bank to win a licence in India, an Indian bank will need to be granted a licence in the UAE, a policy that has impeded the opening of new branches by UAE lenders in the subcontinent.
Meanwhile, Abu Dhabi-based lender FGB last year set up a new representative office in Seoul, which is in addition to its branch in Singapore and its representative office in Hong Kong.
The “UAE happens to be at the centre of flows between East and West and there is a lot of trade happening here”, said Timucin Engin, a Dubai-based analyst at Standard & Poor’s.
“Banks are trying to capture more of that trade. Quite a few of them opened branches and representative offices in Hong Kong and Singapore – and these are the two key markets for trade finance, so they are trying to capitalise on that.”
For the five UAE banks rated by Standard & Poor's – a group that includes Mashreq and National Bank of Abu Dhabi (NBAD) – the agency predicts profit growth of 5 to 6 per cent this year, versus 21.3 per cent last year, with cheaper oil as a prime reason.
NBAD, the country’s biggest bank by assets, plans to open a branch in Mumbai in July as part of its plans to build eight hubs in a West-East geographical corridor of emerging markets to tap intercontinental trade flows.
“A significant focus is being exerted by the bank on its international operations in terms of growing our presence in certain markets where we exist, noting we are building hubs to service our wholesale banking clients in those markets,” said Qambar Al Mulla, senior managing director and chief executive of Gulf & International at NBAD. “ Given our investment in our overseas network, we are therefore looking to increase the revenue from our international presence significantly.”
The NBAD chief executive Alex Thursby has said the share of international income is currently about 18 per cent but he has not said what targets the banks has for growth of this revenue stream.
NBAD, which is present in 18 countries besides the UAE, has a plan to create eight global hubs and build five international bank franchises as part of a five-year plan. The lender will establish 8 hubs in Abu Dhabi, Mumbai, Lagos, Singapore, Hong Kong, London, Paris and Washington and the first international franchise will be in Egypt, said Mr Thursby.
Dubai Islamic Bank (DIB), the country's oldest lender that is Sharia-compliant, plans to open a branch in Kenya and increase its holding in Indonesia's Bank Panin Syariah to 40 per cent from today's 25 per cent, pending regulatory approval.
DIB generates about 95 per cent of its business locally and it does not expect this figure to change much despite its international expansion.
"An established operation in Kenya will form the base and open doors to further expansion across the East African belt," said the chief executive Adnan Chilwan. "Africa appears to be an emerging market for the industry where it is increasingly gaining in demand and receiving regulatory support." He noted opportunity in Tunisia and Morocco, as well as in Kenya, which he said planned to issue a debut sukuk this year.
dalsaadi@thenational.ae
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