Finance
Abu Dhabi’s financial sector, which has received AA ratings from Standard & Poors and Fitch Ratings, continues to make headlines. Abu Dhabi Investment Authority’s recent acquisition of USD 7.5 billion in Citi bonds from Citigroup and Mubadala Investment Company’s acquisition of a 7.5 percent stake in the private-equity specialist Carlyle Group signal a trend in investment by Abu Dhabi enterprises in international financial institutions.
Carving out a niche as financial services hub
H.H. Sheikh Hamdan Bin Rashid Al Maktoum, Deputy Ruler of Dubai and Minister of Finance and Industry for the UAE
These deals also reflect the continued economic prosperity of the United Arab Emirates and the increasing sophistication and international reach of Abu Dhabi’s financial sector.
Abu Dhabi’s plan to issue benchmark bonds of more than USD 500 million is another sign of the emirate’s aim to upgrade locally while expanding globally. Dubai has held the edge over Abu Dhabi as the financial hub of the United Arab Emirates, but now Abu Dhabi is catching up. Foreign banks have increased their presence in the emirate, the National Bank of Abu Dhabi (NBAD) has opened offices outside the emirates, and Abu Dhabi Holding is developing a range of new financial instruments, all signs of continued financial-sector expansion.
Abu Dhabi’s local banks, fueled by core earnings of around 20 percent in 2007, are steadily diversifying their products and upgrading the quality of their operations, particularly to meet Basel II criteria. Islamic financial services continue to garner a larger share of the market and now account for 13.1 percent of total banking assets in the United Arab Emirates, according to the NBAD. Abu Dhabi Islamic Bank, the emirate’s main Islamic financial house, had achieved assets of over USD 8 billion by the end of 2006.
The Abu Dhabi Securities Market (ADSM), which experienced a strong correction in 2006, has recovered in 2007, and the local insurance sector, which now includes a number of foreign players, is set to double by 2010.
Foreign banks and financial-services players have become increasingly interested in the Abu Dhabi market, especially as the United Arab Emirates’ financial sector overall becomes more liberalized, transparent and better regulated. High-potential activities include expanded retail services, services for small and medium-sized enterprises, mortgages, and Islamic banking, among many others.
As H.H. Sheikh Hamdan Bin Rashid Al Maktoum, Deputy Ruler of Dubai and Minister of Finance and Industry for the United Arab Emirates, points out, “The United Arab Emirates serves as an excellent example of what a country can accomplish if it pursues economic liberalization, creates an environment conducive to private-sector activity, and preserves political and social stability.”
Maintaining well-capitalized and sound financial institutions
Sultan Bin Nasser Al Suwaidi, Governor of the Central Bank
The Central Bank of the United Arab Emirates ensures price stability and promotes world-class standards in the local banking sector, and has placed particular focus in recent years on improving corporate governance in local banks.
As Sultan Bin Nasser Al Suwaidi, Governor of the Central Bank, explains, “It is our contention that we can contribute enormously to achieve the United Arab Emirates’ goals by promoting modern, competitive, well-capitalized and sound banking and finance institutions. The Central Bank’s aspiration is to be able to continually stand up to the challenges presented by new developments in the world of financial markets.”
The United Arab Emirates’ banking sector continued to grow substantially in 2007. According to Al Suwaidi, total assets of national and foreign banks had reached USD 300 billion by November 2007 while deposits had grown by 16 percent. The banking sector now includes 22 national banks and 22 foreign banks, with a total of 690 branches.
The Central Bank is making sure that Basel II criteria are instituted in all local banks. As Al Suwaidi commented recently, “The United Arab Emirates initiated a Basel II awareness campaign three years ago, and some local banks will implement the Basel II accord in full by January 2008, while other banks will be implementing a simple or standard version of the accord.”
The Central Bank continues to work toward an eventual monetary union for the Gulf region, even though unlike its neighbor, Kuwait, it will maintain the current policy of pegging the dirham to the dollar. The dirham surged to a 17-year high in November 2007, but in early December, Al Suwaidi commented, “No change is going to take place in the foreseeable future. We are committed to the dollar peg.”
Al Suwaidi believes that the United Arab Emirates offers significant opportunities for foreign financial institutions. “The licensing of new branches for foreign banks requires a decision from the Board of Directors of the Central Bank, but foreign banks can always start with a representative office,” he says. He adds that international banks can also get involved in the local financial-services sector through participating in project financing and offering advisory services.
Abu Dhabi Islamic Bank
“We aim to create a win-win situation for the bank and for our customers.”
Abu Dhabi Islamic Bank (ADIB), owned 39 percent by the Abu Dhabi Investment Authority, launched operations in 1998 with paid-up capital of AED one billion and has grown rapidly to become the world’s largest Islamic bank in capitalization. ADIB provides a wide range of retail and corporate banking services, all in strict conformity with Islamic Shariah principles.
Today, the bank has AED 12 billion in assets and has established an extensive branch network, opening eleven new branches throughout the UAE over the past two years alone. With “A” and “A2” ratings by Fitch and Moody’s respectively in 2006, ADIB is recognized as being one of the world’s top-performing banks.
ADIB’s mission, according to its management, is “to become the premier universal Islamic financial institution, operating in accordance with Shariah principles, by sharply focusing on customer needs, offering innovative products and services, motivating and rewarding our employees, and using state-of-the-art service delivery systems, while maximizing investors and shareholders’ returns.”
Record performance
ADIB has clearly been meeting these objectives. The bank reported a 63 percent growth in total assets in 2006, to reach AED 36.3 billion, while net profits, after distribution to depositors, grew to AED 166 million as of the end of first-quarter 2007, a 6 percent growth compared to the same period in 2006. The bank’s operational net income grew by a remarkable 95 percent (excluding IPO financing in first-quarter 2006), while shareholders’ equity grew by 138 percent to reach AED 4.94 billon as of March 31 this year, compared to AED 2.07 billion at the end of March in 2006. Customer deposits have also been growing rapidly, from AED 19.3 billion in March 2006 to AED 26 billion in March 2007.
ADIB is also expanding its corporate services to satisfy fast-growing demand for Islamic corporate banking products. “We find that Shariah-compliant solutions in corporate banking have not been readily available, so we are now exploring new structures that can benefit our corporate customers. We are also looking to create standardized Islamic solutions to fulfil different needs in different sectors,” Ahmed Darweesh Bin Dagher Al Marar, ADIB’s Managing Director from 2004 till 2007, points out.
Focus on customer service
In all its operations, ADIB focuses on customer service, and it is this focus that differentiates the bank from its competitors. “We do not just depend on our reputation as a provider of Islamic financial services. We depend on providing better services, and this is why our clients have identified us as the leader in Islamic financial services in the Middle East,” Al Marar says. He notes that ADIB also has “the cleanest portfolio and best-quality financial directive” of any Islamic bank in the region and that unlike many other banks, ADIB has not let the quality of its services deteriorate while it focuses on growth. “We aim to create a win-win situation for the bank and for our customers,” he adds.
Among ADIB’s recent successful initiatives was a USD 800 million Euro-Medium Term Notes (EMTN) program launched in late 2006 that attracted investors from all over the world. The bank is committed to enhancing its services for foreign investors and is creating a special department dedicated solely to catering to foreign investors’ needs. Another of ADIB’s specialties is financing major projects, and the bank has handled a number of projects budgeted at USD 50 million and more.
ADIB welcomes the opportunity to serve American customers. “We are working to increase awareness of Islamic financial services, showing customers in the United States that Islamic banking services are often better than those of other banking systems and that our customers have a better position concerning risk,” Al Marar says.
