Also chief executive of Mashreq, he has been immersed in the sector for decades.
UAE banks chairman AbdulAziz Al Ghurair a steady guiding hand
Forget the research analysts, management consultants and international financial studies; if you want an accurate and up-to-date “tour d’horizon” of the UAE banking industry, spend an hour in the company of AbdulAziz Al Ghurair.
He has been at the heart of the country’s financial industry for decades. He helped found one of its leading banks, Mashreq, in 1967, and remains its hands-on chief executive; he is also chairman of the UAE Banks Federation, the trade association that speaks on behalf of the industry, to governments and other federal bodies like the UAE Central Bank.
Via his family business, he is well plugged in to the broader economic sectors of real estate, construction and retail, and has played a significant role in public political life as speaker of the Federal National Council until 2011.
So when he speaks on business matters, you’d better listen.
“The banking industry is in the best shape it’s been for the past 10 years,” he says firmly. “Capital adequacy is good at around 20 per cent, twice the world requirement. The UAE banking business is the biggest in the Arab world, with growth higher than 20 per cent per year.”
This is a remarkable turnaround for an industry that was shaken to the core by the financial crisis of 2009. Then, swift action by the UAE Central Bank – by shoring up liquidity and guaranteeing deposits – helped the country’s banks avoid the wholesale collapse suffered elsewhere. But there were still tough times ahead, with big write-offs for corporate and retail non-performing loans (NPLs), and tight liquidity and credit markets.
“That is all behind us now. NPLs have been covered and provisioned, and I am optimistic about the state of the banking industry. But there are also some worries ahead.” he adds frankly.
The potential difficulties fall into two categories: corporate and retail. On the corporate side, Mr Al Ghurair says, the dramatic recovery in the overall UAE economy has been reflected in the booming real estate market and construction business, “but phenomenal growth comes at a price”.
As corporates, including big government-related companies, sorted out the issues of over-borrowing and indebtedness [often by refinancing or restructuring of existing debts], they encountered a banking industry that was in lending mode again.
“Now they [the banks] have all woken up again and are lending to everybody, but that’s when the competition begins. They can lend to corporates on more lenient terms and conditions, and for longer periods. This comes with a risk. Some corporate customers come to their banks and say: we’d like to repay you, but the banks then offer them a better deal to keep their business. They are much more competitive about extending credit, and if that continues, profitability for the banks will dwindle. We love competition but it has its downside too,” he says.
The other area of worry for Mr Al Ghurair lies in the explosive mix of the credit boom and retail customers.
There is some good news, he says: Al Etihad Credit Bureau is close to being fully operational, and will be open for business later this year. That initiative, to give the UAE a uniform system of credit analysis for the country’s growing millions of bank customers, is designed to rein in the personal spending excesses that proved so painful in the financial crisis. No more stories (however exaggerated) of cars abandoned at airports with maxed-out credit cards taped to the windscreen.
“But there will be some pain. Banks will discover how much they have overlent, and customers will discover how much they’ve overborrowed. There will be an increase in defaults, but this merry go round will stop,” he says.
He estimates defaults by customers will be in the range of 5-7 per cent, and the effects could be felt, by customers, the banks and the overall economy, for up to two years. But he puts it in the context of the current 6-7 per cent rate of default on credit cards, and says that it will be a “healthy correction, that will be good for industry, the economy and for the people themselves”.
He sees the creation of the credit bureau as an arm of macroeconomic policy and “another way of stopping the bubble inflating”, and does not foresee long-term damage for the UAE economy. “Growth in profits is now around 20 per cent, so if it falls to 18 per cent that is still phenomenal,” he says.
The other big feature of the UAE banking industry is the continuing battle to reduce costs in pursuit of healthy cost-income ratios, perhaps the key indicator in the banking industry. That stands at a healthy 35-40 per cent at the moment, and the trend is downwards.
But there is still work to be done on the biggest single component of the cost side: employees. “We have to take greater control of the headcount, and that requires more and more technology,” says Mr Al Ghurair.
These financial considerations, however, will not deter him from the pursuit of his other big campaign in the banking industry: the continued Emiratisation of the banking workforce, and the appointment of UAE nationals to senior jobs in the banking business. “If there are two candidates with equal qualifications for a senior position, it is a no-brainer to appoint the Emirati. He or she brings a wealth of knowledge and contacts,” he says.
His aim is to strengthen the UAE banking system on a permanent basis. “If you get one single industry wrong, the economy can overcome that and continue; if you get banking wrong, the whole economy will slow down and grow weak,” he says.
Follow us on Twitter @Ind_Insights