Abu Dhabi Islamic Bank eyes UAE expats as industry growth slows

Abu Dhabi Islamic Bank will focus on winning more business in the United Arab Emirates’ expatriate community this year as growth in the national banking sector slows, chief executive Tirad Mahmoud said.

Total UAE banking sector revenues rose an estimated 14 per cent to $18.1 billion last year but expansion shows signs of decelerating because of factors including the drop in oil prices and a moderate cooling of real estate markets.

“We believe that overall growth in consolidated revenues of all UAE banks has been significantly reduced,” Mahmoud told Reuters on the sidelines of a business conference in Jordan.

ADIB, the largest sharia-compliant bank in Abu Dhabi, posted a 10.1 per cent year-on-year rise in first-quarter net profit to Dhs450.8 million ($122.8 million), helped by a 14.1 per cent leap in group net revenues to Dhs1.22 billion.

Nevertheless, this marked a slight slowdown from revenue growth of 16.6 per cent in 2014, and Mahmoud said he expected ADIB’s revenue growth this year to decelerate from last year.

A sign of the changing industry outlook is that some UAE banks are resorting to cross-border lending to keep growing, but this strategy has limits, Mahmoud noted.

ADIB’s net customer financing grew 13.3 per cent year-on-year in the first quarter but decreased 0.9 per cent from the previous quarter. Mahmoud attributed the fall to the timing of some facilities and ADIB’s decision to step away from some potential business that it did not think provided enough return on equity.

He predicted Islamic banking assets in the UAE would continue growing faster than conventional ones, however – the gap in growth rates would eventually narrow but only when Islamic assets neared 50 per cent, versus about a quarter now.

BARCLAYS ASSETS

ADIB created a base for its expansion among the UAE expatriate population with its acquisition last year of Barclays’ retail operations in the country. The Abu Dhabi bank agreed a Dhs650 million deal with the British lender and began migrating Barclays’ 110,000 customers in the country last Sept. 1.

Key to the deal’s success was the ratio of Barclays accounts which ADIB could retain. Mahmoud said ADIB had budgeted to lose about 20 per cent but ultimately only lost two per cent, completing the onboarding process in three months, less than half the time it had expected.

This was achieved partly by minimising customers’ engagement in the onboarding – for example, they could keep their old card numbers – and by retaining the Barclays management team, he said.

ADIB’s international operations – it has presences in Britain, Saudi Arabia, Qatar, Iraq, Sudan and Egypt – are still too small to have a big impact on the bottom line but they are growing rapidly.

International revenues in 2014 were double those in 2013, and 2015 is expected to be double 2014, Mahmoud said.

ADIB, Dubai’s Emirates NBD and Egypt’s Commercial International Bank are in the running to buy Citigroup’s Egyptian consumer business and the bidding process is in its final stages, banking sources told Reuters. Mahmoud did not comment on this.

One challenge for Islamic banks in coming years will be liquidity management; Basel III regulations being phased in around the world require banks to have enough high-quality liquid assets, but there are not as many sharia-compliant assets available as conventional ones.

As a step towards adressing the liquidity issue, ADIB and National Bank of Abu Dhabi pioneered what they said was the Gulf’s first sharia-compliant repo transaction in 2011.

ADIB is now working with governments in the Middle East to help them plan issuance of sukuk and other Islamic instruments that could be used as liquidity management tools. One country is likely to begin issuance this year and another next year, Mahmoud said without naming them.