Finance
The Gulf region’s financial-services sector is in a boom phase, with local institutions expanding regionally and buying overseas assets at record rates. The local banking market is one of the most profitable in the world, thanks to a relatively low-cost funding base and high interest earned on assets, along with relatively low operating expenses, strong regional economic performance, large government spending programs, and rising demand for consumer finance.
Banks’ balance sheets rising fast in current boom phase
Sultan Bin Nasser Al Suwaidi Governor of the Central Bank
Dubai Balance sheets of Gulf banks rose by 25 percent in 2006 to reach a total of USD 629 billion, and net profits rose by 24.7 percent in the same period, with total equity growing by 22 percent. These positive trends have continued in 2007, with the region’s investment banks and Islamic financial institutions recording the highest returns. According to the United Arab Emirates Central Bank, in September 2007, asset totals of banks in the Emirates reached AED 1.06 trillion, with deposits of AED 651 billion.
Continuing strong economic growth and diversification have made the region a top investment target among international financial-services groups, particularly as more Gulf markets are opened up to foreign investment and ownership. In Dubai, 100 percent foreign ownership is already allowed for financial-services operations based in Dubai International Financial Center (DIFC).
Financial-services firms upgrading standards, broadening reach
Dubai’s financial-services institutions, both local and foreign, are leading the way in providing new services and in broadening their reach; Dubai’s project-finance market, for example, is now one of the largest in the world. Retail banking and Islamic banking are also key growth markets, as is the mortgage sector, once hampered by restrictive laws on property ownership and now booming.
Financial-sector firms are also upgrading their standards, for example to meet Basel II requirements. Sultan Bin Nasser Al Suwaidi, Governor of the Central Bank, was named Central Bank Governor of the Year in 2006 for his work in combating money-laundering and in promoting higher standards of corporate governance for the financial sector. He recently announced, “To enhance principal-based corporate governance guidelines, the Central Bank has signed an advisory-service agreement with the International Finance Corporation of the World Bank to conduct a high-level workshop for banks in the region and to issue a handbook for bank directors.”
Emirates NBD: biggest bank in the Gulf
The recent high-profile merger between the National Bank of Dubai and Emirates Bank International to form Emirates NBD, 56 percent owned by Dubai’s government, created the largest bank in the Gulf in terms of assets (around USD 50 billion), and reinforces Dubai’s position as a world-class financial center.
While the merger of the two Dubai banks to form one mega banking operation is believed by some analysts to signal a strategic shift for banks in the Gulf region, others feel that local banks, both small and large, are growing so rapidly anyway that they do not need mergers to remain competitive.
For international financial-services firms, strategic alliances can provide a cost-effective route into the market, and there is growing demand throughout the Gulf region for partners with strong brands, systems, investments and risk management.
Global hub for Shariah-compliant financial products
Islamic finance continues to grow in customer numbers, assets and sophistication. Global Islamic banking assets have now reached more than USD 280 billion and are increasing by around 15 percent per year, and analysts believe that Islamic capital markets will be managing at least half the savings of Muslims worldwide in the next eight to ten years.
Dubai has positioned itself as an international hub for Islamic finance, and local Islamic financial institutions are performing extremely well. For example, in the first half of 2007, Dubai Islamic Bank’s net profits rose to around USD 408 million, an increase of 113 percent over 2006. Dubai Islamic Bank recently changed its name from Dubai Bank to signal its focus on Islamic banking, and it is ranked one of the fastest-growing banks worldwide.
A popular trend among Islamic financial institutions in Dubai and elsewhere is the issuance of Sukuks (Shariah-compliant bonds) to finance development projects. The value of Islamic bonds issued in the Gulf region in the first 3 quarters of 2007 alone reached USD 22.4 billion, or double the amount in the first half of 2006. Around three-quarters of these issuances were from within the United Arab Emirates, and most of these were in Dubai.
The Islamic investment equity-funds market is another fast-growing niche within the Islamic financial system. There are now approximately 100 Islamic equity funds worldwide that are managing more than USD 5 billion, and the total has been growing by around 15 percent per year.
Amlak Finance
“Expansion is a top priority for Amlak.”
Nasser Bin Hassan Al-Shaikh Chairman
Amlak Finance, established in November 2000, was the UAE’s first provider of Shariah-compliant home-financing services and is now ranked Dubai’s biggest publicly listed home-finance company. It has been listed on the Dubai Financial Market since 2004, with its estimated shareholders as of May 2007 reaching 35,755.
Amlak has been growing strongly under the dynamic leadership of Chairman Nasser Bin Hassan Al-Shaikh. A well known local business leader, Al-Shaikh has held a number of high-level posts in the public and private sectors and is known for his innovative, hands-on leadership and for his creative approach to Islamic finance. He makes sure that his staff provides the highest level of customer service and that Amlak lives up to its motto, “Amlak, always by your side.”
The company posted outstanding results for the first half of 2007, with revenues of AED 280 million, a 54 percent increase over the first half of 2006, and net profits of AED 106 million, a 31 percent increase over the first half of 2006. This strong performance is linked to Amlak’s recent restructuring of its funding sources and to its dynamic new management team, combined with a renewed focus on its core business.
Commenting on his company’s plans for the future, Al-Shaikh explains, “As the first provider of Islamic home financing services in the market, Amlak has a very strong reputation. We are pioneers. Our vision is to make Amlak one of the world’s leading Islamic Shariah compliant financial institutions, and we aim to expand the company internationally and to ensure that Islamic Shariah complaint financing options are available to potential investors in the emerging markets of the region.”
International expansion
In January this year, Amlak became the first UAE home-finance specialist to establish a presence abroad when it established a subsidiary in Cairo, which also makes Amlak the first provider of Islamic home-finance products in Egypt. The company also launched its operations in Saudi Arabia in October and plans to open offices in Bahrain, Jordan, Qatar, and Morocco in the first half of 2008. Al-Shaikh comments, “Our expansion plans are underway and will continue to be realized in the near future, as we initiate further strategic growth that will solidify our lead as the largest Islamic finance company in region. We did establish the home finance industry in the UAE since 2000, paving the way for more than 20 mortgage providers in the country to follow and no one but Amlak, alongside its distinguished group of regional partners, can replicate the same success on a regional front.”
Amlak plans to offer a USD 250 million sukuk late 2007, and presents an outstanding opportunity for foreign investors and partners. Amlak is very open to working with leading international financial institutions. As the company’s CEO, Arif Alharmi, says, “Seeking an international credit rating and developing strategic partnerships with key financial institutions are two of the initial strategies that we will be undertaking in the coming months.”
For international investors seeking opportunities in the fast-growing Islamic finance sector, Amlak is an excellent choice as a partner. Very confident about the company’s future, Al-Shaikh concludes, “Broadening our investor base offers us diversified sources of funding, which will energize our growth, while at the same time offering foreign investors excellent earnings potential as the market continues to boom. Islamic finance is growing and offering a wide range of sophisticated products and services, and as the leader to this industry, Amlak takes its role of increasing international awareness of Islamic finance very seriously.”
