United Arab Bank winds down SME unit after surge of UAE debtors

United Arab Bank's branch in Media City, Dubai. Jeffrey E Biteng / The National

United Arab Bank (UAB), hard hit by a surge in debt defaults among small business owners in the UAE, is winding down its SME unit to focus on larger companies in a bid to return to profit, it said on Thursday.

The bank’s earnings were hobbled last year as provisions more than doubled to Dh888 million, with roughly a third stemming from business owners and others fleeing the country with unpaid debt, the bank’s acting CEO, Samer Tamimi, told Reuters.

He said the bank has now split its business into core and non-core activities. Core activities include corporate banking, supported by treasury and retail, while SME banking has been bundled into non-core activities, which accounted for around 15 per cent of total bank loans at the end of last year. Its contribution will be cut further this year.

The bank, in which Commercial Bank of Qatar holds a 40 per cent stake, generally classifies corporate customers as those with an annual turnover of more than Dh250 million.

As part of the strategy shift, the lender has been recalling loans from some of its smaller business customers, winding down existing maturities, or transferring them to its corporate unit, Mr Tamimi said.

“We are going back to basics, reverting to UAB’s historic roots as a bank focused on the corporate sector,” he said. “When I joined UAB in May 2015 we were operating across various business lines including a full-fledged retail operation, standalone SME unit and treasury, as well as corporate. Being a small bank with finite resources, UAB has decided it cannot afford to stretch its resources and will focus on its core activities.”

UAE banks with a large exposure to SMEs have been hurt by a rise in the past year in the number of so-called skips, people leaving the country with unpaid debt, a trend blamed in part on a strengthening US dollar, making it less competitive for many traders to export goods. The UAE dirham is pegged to the dollar.

Many of those skipping were expatriate business people, with few assets such as property or machinery for banks to claim as collateral on their departure.

“We want to bank businesses that are secure and have skin in the game,” Mr Tamimi said. “Larger corporates that have been in the UAE for a while and have plant, buildings and human resources are more appealing to us.”

After two tricky quarters, in which the bank recorded combined losses totalling Dh510.6m and cut around 240 staff, it is aiming to rebound to profit in the first quarter of 2016, said Mr Tamimi.

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