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UAE retail banking: has the corner been turned?

United Arab Emirates: Sunday, October 09 - 2011 @ 10:53

HE Abdulaziz Al-Ghurair, CEO of Dubai’s Mashreq Bank, is optimistic about 2012, very optimistic. “Next year will mark a major turnaround for the United Arab Emirates.

“The real estate market has already stabilized and for the banking sector we expect 15 to 20% profit growth next year.” According to Al Ghurair a growing number of Kuwaiti and Saudi investors are buying property in prime locations in Dubai. At the same time, trade and tourism is booming. “The banks have cleaned up their balance sheets, “The times when an individual could carry fifteen credit cards are definitely over.”

Nevertheless retail banks must watch out not to become victims of their own success. Mashreq, Emirates NBD and Dubai Islamic Bank, to mention a few of the local market participants have massively increased their presence by establishing new branches and customer service centres. If real estate price really go up in 2012, then rents will soon follow, increasing opportunity costs for the retail banks. At the same time, the UAE central bank has stepped up restrictions for granting consumer loans and mortgages. For example, people can only sign up for a car loan if they earn at least Dhs5,000 or $1,363 per month and if they are able to pay down 20% of the vehicle’s sale price.

The UAE property market might stabilize, with Abu Dhabi rentals in particular, as real estate service company Asteco confirmed in its latest report. But for the local stocks markets the outlook is still negative. Year-to-date, the Dubai Financial Market and the Abu Dhabi Securities Exchange have lost 14.42% and 8.29% respectively (as of the close of trading of October 6th). But even the market meltdown does not hinder Mashreq’s CEO from being more optimistic than others. “Valuations are cheap, most listed shares are trading below book value,” explains Al Ghurair. Mashreq is considering buying other institutions in the second half of 2012.

As trading volumes reached multiple year lows, massive flows of IPO are a thing from the past. Investors are also hesitating over entering the market as they await index provider MSCI’s decision at the end of the year whether the UAE will be upgraded to emerging market status from frontier market. The good news is that MSCI’s rival Russel Investments already has upgraded the UAE to emerging market status.

Regarding the developed markets, the Euro zone debt crisis still weighs on global sentiment, but Al Ghurair thinks even a worsening situation (such as a default in Greece) will have “very little impact” on the UAE’s economic rebound.

A few months ago bank Emirates NBD, the Middle East’s largest lender in relation to assets, increased its growth prospect for 2011 to 4.6% from 4.2%. Nevertheless, Gary Dugan, the CIO Private Banking CIO at, has mixed emotions about the world economy. “Undoubtedly there will be some impact on economic activity in the region (from the Eurozone debt crisis). However with the oil price holding up relatively well and most governments still committed to supporting their economies through spending the (Gulf Arab) region can probably look forward to growth in 2012 whilst other parts of the world are struggling with recession.”

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Sunday, October 9- 2011 @ 10:53 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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