Vol. VII. No. 51 May 2011
Editor’s note
Time to think differently
Publisher & Managing Director Sankaranarayanan
sankar@sterlingp.ae
MANAGING Editor K Raveendran
ravi@sterlingp.ae
Editor C L Jose
cljose@sterlingp.ae
consulting Editor Matein Khalid
matein@sterlingp.ae
Director Finance Anandi Ramachandran
anandi@sterlingp.ae
Editorial Contributing Editors Anand Vardhan MARKETING Account Group Manager Rizvin Ali
rizvin@sterlingp.ae
DESIGN DIRECTOR Ujwala Ranade
ujwala.art@gmail.com
ACCOUNTS Sujay Raj Circulation Supervisor Printing
sujay@sterlingp.ae Ibrahim A. Hameed
Asiatic Printing Press L.L.C., PB 3522, Ajman, UAE. Tel. 06 743 4221, Fax: 06 743 4223www.asiaticpress.com, email: asiatic@eim.ae Distribution UAE: Tawseel PB No 500666 Dubai, UAE. Tel: (+971 4) 342 1512 Sultanate of Oman: Al-Atta’a Distribution Est., Kuwait: The Kuwaiti Group for Publishing & Distribution Co.Bahrain: Al Hilal Corporation, Qatar: Dar Al-Thaqafah, Saudi Arabia: Saudi Distribution Company
The dust has finally settled on the brouhaha made on the Dubai World debt, which caused Dubai to pay a big price in the form of drain on international reputation. The after-effect of the different debt issues, involving government entities and some corporates, is a collective lethargy on the part of the banks to lend. Banks have their own reasons to justify their stand, the main being the precarious advance-deposit ratio in the banking system, which, of late, has improved considerably. Many leading banks have already hinted at the need for corporates to explore alternative financing means for their future funding requirements. Many international banks, such as RBS and Standard Chartered Bank, have increased their focus on capital market operations rather than on sheer lending. The era of cheap money is over. Moreover, banks now have become increasingly shy about lending than ever before. The ratio of lending to total assets by banks in the UAE is dropping by the year. The Basel III, in the making, will require banks to hold more capital and this would again mean higher cost of funds for banks. In the context, the big corporates will be forced to tap the capital market for their long-term funding requirements like what most big entities are doing in the West. But how many corporates in the UAE are now equipped to go to the market? They need to do a lot of homework, especially on establishing transparency and corporate governance, before they decide to reach out to the debt market.
CL Jose
SterlingPublications FZ LLC Loft Office 2, G 01, Dubai Media City
P.O. Box 500595, Dubai, UAE. Tel. + 971 4 367 2245, Fax +971 4 367 8613 Website: www.sterlingp.ae Email: info@sterlingp.ae Overseas offices: India: Anand Vardhan, DII/89, Pandara Road, New Delhi, 110003. Tel: 0091 1 26517981 BANKING & BUSINESS REVIEW Bahrain: Sunliz Publications W.L.L, PO BOX 2114, Manama, Kingdom of Bahrain. Tel: 00973 17276682 May
2011 1
CONTENTS
BBR EXCLUSIVE
20 INTERVIEW Changing Role of Banks
Era of cheap money is over
2 BANKING & BUSINESS REVIEW
May 2011
9
ME accounts for 7pc
HSBC pre-tax profit
11
FGB pulling out from
Libyan joint venture
12
Emaar to convert Dh2b loan
into 12-year project
finance in Turkey
13
Deyaar networth falls below
paid-up capital
17
Eibor eases by a quarter in
2011
18
Du finalising partial
refinancing of Dh3b loan
NEWS 25 Qatar Exchange, Qtel, NYSE Euronext in tie-up
BONDS & SUKUKS 26 GCC bond/Sukuk issues in 2010 valued at $57b
MARKETS 28 DGCX April volumes more than double
BANKS 29 Gateway for Indian Banks
TOURISM 42 Passionate Promoter
BANKING & BUSINESS REVIEW
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ROUND-UP
Norms for financial promos tightened in DIFC H
is Highness Sheikh Mohammed Bin Rashid Al Maktoum, in his capacity as Ruler of Dubai, has enacted amendments to the Regulatory Law 2004 which further enhance the requirements and prohibitions relating to financial services marketing (financial promotions) within Dubai International Financial Centre (DIFC). These amendments and the rules made under the law provide greater clarity as to who can make a financial promotion in DIFC and under what circumstances. The new provisions build upon the current financial promotion restrictions and prohibitions contained in the Collective Investment Law 2010 and the Markets Law 2004, which will continue to apply. The new legislation provides the DFSA with a greater degree of regulatory oversight and control over who may conduct financial promotions in or from the DIFC, and in particular oversight of the standards which such promotions must meet with respect to retail investors. The DFSA will also have greater scope to bring enforcement action in a financial promotion case when it deems it necessary in light of its statutory objectives. Paul M Koster, Chief Executive of DFSA said, “Our new and enhanced legislation provides greater protection for investors and potential investors against misleading promotions, especially those coming into the DIFC from outside.”
Al Tayer hosts Blankfein I
n the presence of Sheikh Ahmed Bin Saeed Al Maktoum, President of Dubai Civil Aviation and Chairman of Emirates Airline Group, Ahmed Humaid Al Tayer, Chairman Emirates NBD, hosted Lloyd Blankfein, Chairman & CEO of Goldman Sachs Group. The meeting was also attended by Juma Al Majid, Chairman of Dubai Economic Council, Abdul Rahman Saif Al Ghurair, Chairman Dubai Chamber of Commerce & Industry, Jay Warrington, the British Consul General in Dubai and Justin Siberell, the US Consul General in Dubai and a high financial and economic delegation, in addition to members of the board of directors of Emirates NBD Group and its top management.
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Tamweel deal a big boost to DIB profit T
he Tamweel deal was a double win for Dubai Islamic Bank (DIB), which on the one hand has become the biggest shareholder in the former with 58.25 per cent ownership, and on the other, could book a neat gain of Dh637.038 million through the deal, analysis of the bank’s financials shows. The gain has been shown as ‘gain on acquiring controlling interest’. DIB’s net profit for the year [2010] was a handsome Dh812.633 million. In November 2010, DIB acquired additional 37.48 per cent shares from certain key shareholders to raise its shareholding in the leading Islamic mortgage financier to 58.25 per cent. Dubai government’s media office had said in a statement that the deal effectively rendered Tamweel a subsidiary of Dubai Islamic Bank (DIB), which is now its biggest shareholder. With total assets at Dh10.575 billion and total liabilities at Dh7.875 billion, Tamweel’s fair value of net assets has been arrived at Dh2.700 billion. The consideration for acquisition was Dh935.600 million. As the fair value of identifiable net assets acquired was estimated at Dh1.572 billion, the gain worked out on acquiring the controlling interest for DIB was at Dh637.038 million. The ‘consideration of acquisition’ is arrived at adding up Dh318.609 million as cash, transfer of treasury shares (Dh56.121 million) and fair value of available for sale (AFS) shares at Dh560.870 million.
The ‘consideration of acquisition’ is arrived at adding up Dh318.609m as cash, transfer of treasury shares (Dh56.121m) and fair value of available for sale (AFS) shares at Dh560.870m
NBAD nets Dh927m profit for Q1 Total assets reach Dh233.5b
T
he National Bank of Abu Dhabi (NBAD), which set a new record by becoming the first bank from the country to cross the $1 billion-mark in net profit in 2010, seems to be heading for a repeat in the current year also. And this is the message it has sent to the market through its 2011 first quarter profit. The bank reported 27 per cent increase in net profit to Dh927 million for the quarter compared with Dh732 million earned in the last quarter of 2010. However, net profits were lower by 10 per cent over the first quarter of the previous year on higher provisions. The annualised return on shareholders’ funds for the quarter is 17.2 per cent in line with the targets for 2011. Nasser Alsowaidi, Chairman of NBAD said the economic recovery in UAE and in Abu Dhabi continues, amidst global recovery, driven by the various initiatives undertaken by the government and government-related institutions in UAE. “Despite NBAD’s good performance, we remain cautious to the challenges posed by the regional and global environment. Longer term prospects for the bank remain clear and bright as we continue to implement our strategies aligned with the growth of Abu Dhabi and UAE,” he added. Michael Tomalin, Group Chief Executive, said although net profit for the current quarter is below the first quarter of 2010 as a result of higher provisions, top line revenues, operating profits, assets, loans and deposits are all at record levels. Operating income for the quarter reached Dh1.881 billion, up 6.2 per cent compared with Dh1.772 billion for the corresponding period of 2010 and higher by 3.5 per cent over the fourth quarter of 2010. Net interest income (NII) and net income from Islamic financing contracts for the quarter rose 11.2 per cent to Dh1.378 billion compared with first quarter of 2010 while non-interest income was lower by 5.6 per cent to Dh503 million. Net interest margin (NIM) was 2.48 per cent for the first quarter, 2011, almost matching the levels recorded in the same period in 2010 albeit lower as compared with 2.57 per cent for the full year 2010. The cost to income ratio (cost efficiency) was 30.1 per cent for the first quarter of 2011. The bank said the ratio remains below the Group’s medium-term cap of 35 per cent. During the quarter, NBAD expanded its domestic presence to 113 branches and cash offices and 421 ATMs. NBAD launched three Business Banking Centers in UAE in
Michael Tomalin
“The economic recovery in UAE and in Abu Dhabi continues, amidst global recovery, driven by the various initiatives undertaken by the government” its ongoing effort to expand its services to small- and medium-sized enterprises (SMEs).
Impairment charges
The gross impairment charge of the bank for the quarter was Dh446 million, which after Dh81 million of recoveries reduced to a net charge of Dh365 million, comprising collective provisions of Dh84 million, net specific charges of Dh261 million and other provisions for impaired assets of Dh20 million. NBAD’s collective provision of Dh1.976 billion is 1.39 per cent of the credit risk-weighted assets, in line with Central Bank’s requirement for banks to have a collective provision of 1.5 per cent of credit risk-weighted assets by the end of 2014. Non-performing loans increased to Dh3.775 billion representing 2.56 per cent of the loan book. Total Assets reached Dh233.5 billion as at March 31, 2011, 10.4 per cent up on December 31, 2010 and 16.3 per cent up on March 31, 2010 mainly driven by the growth in deposits.
BANKING & BUSINESS REVIEW
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5
ROUND-UP
Doha Bank reports QAR363m net for Q1 D
oha Bank, Qatar’s third largest bank, reported net profit increase of 15.2 per cent to QAR363 million (Dh366.158 million) for the first quarter of 2011, compared with QAR 315 million (Dh317.740 million) for the corresponding period in the previous year. The bank’s net interest income rose by 33.4 per cent to QAR393 million. Loans and advances reached QAR26.1 billion and total assets grew by QAR2 billion, a growth of more than 4.5 per cent, from QAR 44.4 billion in 2010 first quarter to QAR 46.4 billion in the same period, 2011. Sheikh Abdul Rehman Bin Mohammad Bin Jabor Al-Thani, Managing Director of Doha Bank noted that the bank has become extremely strong over the years with shareR.Seetharaman holders’ funds reaching QAR6.2 billion as of March 31, 2011 registering an increase of 17 per cent during the last twelve months. He said the paid-up share capital of our bank has organically increased over the years and as now stands at QAR2.07 billion reflecting the strong confidence the bank enjoys from its shareholders and the region. “Through the strategic utilisation of the shareholder’s funds by way of increasing our performance levels, the return on average equity is 25.6 per cent, one of the best in the industry,” he added R. Seetharaman, Group Chief Executive Officer, while highlighting the performance of Doha bank in the first quarter of 2011 said, “Continuing with our significant achievements in 2010, the first quarter of 2011 was successful in meeting and exceeding customer expectations, and maintaining our leadership in terms of performance, innovation, security and quality”
Ajman Bank operating income doubles to Dh49.5m A
jman Bank, reported strong growth in operating income for the quarter, with income in the first quarter of 2011 reaching Dh49.5 million compared with Dh24.7 million in the corresponding period of 2010, an increase of 100 per cent. As of March 31, 2011, customer deposits stood at Dh2.83 billion compared with Dh2.02 billion at the end of 2010, representing an increase of 40 per cent. Ajman Bank’s total assets at the end of the first quarter of 2011 stood at Dh4.2 billion, an increase of 30 per cent compared with Dh 3.23 billion at the end of fourth quarter of 2010.
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May 2011
New IT initiative for data A
secure hosting environment for the main website and portal connecting 70 UAE embassies worldwide has been successfully delivered by eHosting DataFort (eHDF), the region’s leading managed IT and advisory services provider and a member of TECOM Investments. The portal project offers a unified structure and management of websites for the various UAE embassies located across the globe. It integrates the information available across these websites to ensure data consistency and security. As part of the ministry’s initiative for linking the UAE embassies’ websites a central base of information was developed by SPICA Computers - a company that specialises in B2B/B2C portals. The UAE Ministry of Foreign Affairs selected eHosting DataFort for its expertise in providing a highly secure environment, seamless connectivity and 24/7 access of its content. eHDF is providing an IT infrastructure solution supporting the ministry’s portals project by deploying a host of services including databases, security and OS management, backup and storage along with 24/7 monitoring and service desk support.
Emirates Money loan portfolio grows 26 pc
Jamal Bin Ghalaita
E
mirates Money, the wholly owned consumer finance subsidiary company of Emirates NBD, registered a 26 per cent growth in loan portfolio in 2010. The company reported that in a short span of three years, its customer base has increased to almost 16,000 customers, a growth of almost 36 per cent as compared to 2009. The company offers consumers comprehensive loan solutions to meet their everyday financial needs. It has also been leading the recent growth in self-employed lending in the UAE with a range of innovative products. “Despite the challenging conditions in the local banking sector, the continued success of Emirates Money is evidence of the vital need for innovative consumer finance products and services, especially in the middle income group,” said Jamal Bin Ghalaita, Group Deputy CEO, Emirates NBD, and
Chairman, Emirates Money. He said that recognising the changing patterns in consumer finance, Emirates Money tailors products to meet the needs of the customers, while at the same time encouraging the trend towards collateralised lending. “This strategy has already begun to show results as Emirates Money continued to outperform the competition in the area of business loans throughout 2010,” he added. In 2010, Emirates Money consolidated its growth in the areas of business loans and vehicle loans and insurance offerings to build a strong base for future expansion. Its enhanced IT infrastructure has a new interface with the Emirates NBD ATM network, providing Emirates Money customers with the option of directly depositing their Equated Monthly Instalments (EMIs) in the Emirates NBD ATM network. BANKING & BUSINESS REVIEW
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7
ROUND-UP
ADNL, NPCC sign $110m deal A
bu Dhabi National Leasing Company (ADNL) signed a deal with National Petroleum Construction Company (NPCC), to provide it $110 million (nearly Dh404 million) financing towards the construction and lease of a new vessel. ADNL is a fully owned asset finance subsidiary of the National Bank of Abu Dhabi (NBAD), the leading UAE bank. NPCC is a public joint stock company owned by the General Holding Corporation, which holds the remaining 30 per cent. Since 1973, NPCC’s dynamic growth, its past achievements and new facilities have transformed this national company into a major international EPC contractor, capable of providing the offshore and onshore oil & gas industry in UAE, the Gulf and India with complete engineering, procurement and construction. Waha Capital, the diversified holding company headquartered in Abu Dhabi, played a key role in the transaction by providing financial advice to NPCC.
UAE Switch transactions drop in Q1 T
he Central Bank of UAE statistics show that the value of financial transactions through the UAE Switch has witnessed a slight drop during the first quarter of 2011 compared with the previous quarter. The total number of financial transactions has dropped to 18.447 million in the said quarter, compared with 18.992 million transactions in the fourth quarter of 2010 thus reflecting a 2.87 per cent drop. Likewise, the total value of transactions carried out electronically through UAE Switch fell to Dh19.868 billion in the first quarter of the current year compared with Dh20.146 billion in the previous quarter representing a 1.38 per cent drop during this period. Interestingly, there has been a marked increase with regards to the total number and value of financial transactions carried out through the UAE Switch to the GCC Switches. The total number of these transactions improved to 707,000 in the first quarter of the current year compared with 582,000 transactions in the fourth quarter, indicating a 21.48 per cent growth. The total value of financial transactions also witnessed an increase to Dh941 million during the same quarter compared with Dh759 million in the fourth quarter of 2010 – an increase of 23.97 per cent.
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May 2011
UAB Q1 net profit falls to Dh61m T
he Sharjah-based United Arab Bank (UAB) posted a net profit of Dh61 million for the first quarter ending March 31, 2011 compared with Dh65 million the bank posted for the same period last year. The bank’s total operating income posted a growth of 10 per cent to Dh125 million for the three months ended March31, 2011, compared with Dh114 million during the same period last year. “In line with the bank’s conservative policy, additional provision amounting Dh20 million was made against Dh10 million the bank has allocated during the corresponding period last year. The bank achieved volume growth in the first three months of the year with loans and advances increasing 6 per cent to Dh5.8 billion from Dh5.5 billion at the end of December 2010, and total customer deposits during the period growing 8 per cent to Dh5.2 billion compared with Dh4.8 billion as of December 31, 2010.
Air Arabia Q1 profit down 12pc toDh44.2m A
ir Arabia, the Middle East and North Africa’s (Mena) first and largest low-cost carrier reported Dh44.2 million net profit for the three months ending March 31, 2011, a drop of 12 per cent compared with Dh50 million in the corresponding period in 2010. In the first quarter of this year, Air Arabia posted a turnover of Dh513 million, an increase of 6 per cent compared with Dh482 million in the same period of 2010. The airline served 1.2 million passengers in the first quarter of 2011, an increase of 11 per cent compared with 1.03 million passengers in the same period last year. In the three months ending March 31, 2011, Air Arabia’s average seat load factor – or passengers carried as a percentage of available seats – stood at an impressive 85 per cent, compared with 80 per cent in same period of 2010.
BBR EXCLUSIVE
ME accounts for 7 pc HSBC pre-tax profit
T
he Middle East first quarter profit before tax (PBT) of the HSBC Group has surged by 91.42 per cent to $335 million (Dh1.2229 billion) from $175 million, which was the bank’s PBT for the quarter ending March 31, 2010. Compared with the fourth quarter of the previous year when the bank posted $251 million, the growth in PBT for the period under discussion was 33.47 per cent. Interestingly, while the percentage of PBT contributed by the Middle East for the first quarter 2010 was only 3.06 per cent, the share of pre-tax profit from Middle East for the first quarter of the current year (2011) has more than doubled to 6.82 per cent, and in absolute terms, this exceeds that of North America which posted a PBT of $181 million this time around. “While the UAE and Saudi Arabian economies contin-
ued to recover, political unrest in parts of the region contributed to a general reduction in customer activity,” a bank statement noted. It said despite the uncertainty, pre-tax profits were 91 per cent higher, largely reflecting earlier actions to reposition certain portfolios, and improved credit conditions in Dubai. Revenues were marginally lower compared with first quarter in 2010 and modest lending growth and strong growth in deposits during the quarter reflected progress in consolidating its position as the market leader for crossborder trade finance in the region. “Costs were 19 per cent higher than in the first quarter 2010 as we invested in growing the business, but were broadly stable compared with the last quarter in 2010,” the bank statement said.
Tamweel comes; Can Amlak be far behind? Amlak liquidity gap may reach Dh10.18b by June end
T
amweel shares have come for trading to the market once again after a gap of about 30 long months since the trading was suspended in in November 2008 following a move to merge the company with Amlak, another Islamic home finance provider listed on Dubai Financial Market (DFM). The shares dropped 10 per cent on the first day of trading in an effort to discover a fair value through the market. The question being raised by the investors now is, “what are the prospects of Amlak shares coming to the market for trading?” Even the statements attached to the annual report of Amlak [2010] have failed to give any definite indication as to when the trading in Amlak shares could resume.
Huge gap in Amlak assetliability maturities The net liquidity gap in the contractual asset-liability maturities for Amlak Finance will be huge by June end, 2011.
The contractual maturity analysis of assets and liabilities indicates that the net liquidity gap will be to the tune of Dh10.180 billion as of June end, 2011 unless the company is able to attract fresh deposits or the present depositors agree to roll-forward their deposits for a few years from now. BBR has reported in its last issue that Tamweel had got consent from its depositors to roll-forward deposits worth Dh4.9 billion for five years, a couple of months ago.
Company reports Dh27m Q1 net profit For the first quarter of 2011, Tamweel reported a net profit of Dh27 million, compared with Dh5 million in the same period last year. In February, Tamweel reported an annual profit of Dh26 million for year 2010, bouncing back from an annual net loss of Dh54 million in 2009. “I am delighted to announce Tamweel’s good results for the first quarter of 2011,” said Abdulla Ali Al
Hamli, Chairman of Tamweel. He said the sustained improvement in profitability is a testament to the strength of the company’s underlying business model. Commenting on the company’s financial results, Varun Sood, acting Chief Executive Officer of Tamweel, said. “Since the turn of the year, we have witnessed clear signs of increased economic stability, and this is evidenced by our strong first quarter financial performance. We have set ourselves a number of ambitious goals and we aim to demonstrate this through our performance in the near future.” The resumption of trading in Tamweel shares follows Dubai Islamic Bank’s decision to increase its stake in Tamweel to 58.25 per cent, thereby becoming the majority shareholder and providing significant liquidity and support; Tamweel’s recent return to profitability in 2010 and a positive first quarter 2011 net profit of Dh27 million; as well as the initiatives implemented by Tamweel’s new board to ensure the company resumes originating new business.
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Apicorp partners with IFC Signs accession agreement with IFC
T
he Arab Petroleum Investments Corporation (Apicorp) has signed the Accession Agreement to the International Finance Corporation’s (IFC) Master Cooperation Agreement (MCA), which will widen the institution’s role as a multilateral development bank, according to a statement. Apicorp, where the Government of UAE owns 17 per cent, is the first Arab multilateral development bank to sign IFC’s MCA Accession Agreement. The agreement enables Apicorp to partner with IFC, a member of the World Bank Group, to co-finance developing country energy projects in which Arab countries have made investments. Apicorp is owned by the ten member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC). IFC’s Master Cooperation Agreement promotes increased collaboration with international financial institutions to help standardise steps that lenders take when co-financing projects with IFC in developing countries. Ahmed Hamad Al-Nuaimi, Chief Executive and General Manager of Apicorp said the partnership would enable the corporation to support economically vital energy projects in the developing world. “Such concerted support is critical to ensure crucial projects do not get delayed in the current economic environment, especially when such delays can have an impact on economic development. Many Arab states have oil and gas investments spanning the globe; the agreement with IFC will enable Apicorp to support these investments efficiently.” Al-Nuaimi further said that Apicorp’s robust balance sheet and financial stability as well as its strong industry expertise place the institution in an
10 BANKING & BUSINESS REVIEW
Ahmad bin Hamad Al Nuaimi
ideal position to finance oil and gas projects in developing economies. “Our partnership with IFC is consistent with our strategic drive to widen our investments across the energy and petrochemical sector. Over the last few months, we have participated in financing transactions in energy and petrochemical sector with a total value of $1.3 billion with our commitments approximating $130 million. We are now looking for new opportunities to further grow this,” he added. IFC created the MCA in response to calls by G20 nations for increased collaboration among international financial institutions to help meet financing shortfalls during the global financial crisis. Lars Thunell, IFC EVP and CEO, said, ”IFC and Apicorp share a desire to support economic development and regional cooperation in the Middle East and North Africa, and to collaborate on energy-related projects in emerging markets globally.” IFC has created a standardised framework for financial institutions
May 2011
to co-finance projects under its umbrella. Under the agreement signed with IFC, participating banks can use IFC’s existing syndication platform, deal-structuring expertise, and global presence to identify investments, perform due diligence, and negotiate loan documents. Current MCA signatories include the Belgian Investment Company for Developing Countries (BIO), France’s Société de Promotion et de Participation pour la Coopération Economique (Proparco); Germany’s Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG); the Developmental Bank of Japan (DBJ), the Netherland’s Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO) the OPEC Fund for International Development (OFID), the Black Sea Trade and Development Bank, Oesterreichische Entwicklungsbank AG (OeEB) and Eurasian Development Bank (EDB).
Partners
Apicorp is a multilateral development bank established in 1975 and wholly owned by 10 member states of the Organization of Arab Petroleum Exporting Countries (OAPEC), namely: the UAE (17 per cent), Bahrain (3 per cent), Algeria (5 per cent), Saudi Arabia (17 per cent), Syria (3 per cent), Iraq (10 per cent), Qatar (10 per cent), Kuwait (17 per cent), Libya (15 per cent), and Egypt (3 per cent). Apicorp’s mandate is to contribute to the development and the transformation of the Arab hydrocarbon and energy industries through equity and debt financing, advisory and research. Apicorp’s total assets by end of September 2010 amounted to $4.2 billion. The Corporation has its headquarters in Al-Khobar/Dammam area, Eastern Saudi Arabia, and operates a banking branch in Manama, Kingdom of Bahrain.
FGB pulling out from Libyan joint venture Dh396m investment classified as available for sale By CL Jose
F
irst Gulf Libyan Bank (FGLB), the equally owned joint venture between Libyan Government Economic and Social Development Fund (ESDF) and the Abu Dhabi-based First Gulf Bank (FGB), is breaking up. First Gulf Bank has stated in the latest document associated with the bank’s first quarter [2011] financials that effective March 2011, the bank [FGB] has disassociated itself from the ‘previous subsidiary by suspending its management agreement, and all the bank-nominated members in the previous subsidiary board have resigned. FGB said that up until February 2011, the First Gulf Libyan Bank had carried commercial banking activities. “However, as a result of these [new] changes, the bank [FGB] derecognised the assets, liabilities and non-controlling interest relating to the previous subsidiary. As of that date, the investment in the previous subsidiary with a net carrying amount of Dh396 million was classified as available for sale (AFS) investment,” the document has further stated.
FGLB has authorised capital of approximately $400 million (Dh1.468 billion), which was put forward by both FGB and the ESDF equally. The paid up capital for the FGLB is $200 million (Dh734 million), which makes it one of the largest banks operating in Libya. It was about two and a half years ago First Gulf Bank teamed up with Libya’s Economic and Social Development Fund (ESDF) to launch the First Gulf Libyan Bank (FGLB) operations in Tripoli, Libya. During the launch ceremony, Ahmad Al Sayegh, FGB board member had noted that there were many similarities between Libya and the UAE, as both countries have ongoing major development projects in various fields and sectors, and they both enjoyed strong economy. Equally owned by ESDF and FGB and fully managed by FGB, FGLB had said it would initially offer a range of corporate products to businesses in Libya and wouldl expand its range of services to address the emerging needs of the country.
The First Gulf Bank (FGB) posted a net profit of Dh877.74 million for the quarter ending March 31, 2011 compared with Dh920.541 million, being the net profit made by the bank for the same period last year. While the total interest income for the period was Dh1.713 billion up from Dh1.589 billion for the comparable period last year, the operating income was Dh1.602 billion for the quarter. Provisions for impairment of loans and advances for the quarter were to the tune of Dh459 million. Total assets grew marginally during the quarter from Dh140.758 billion to Dh142.805 billion, whereas the loans and advances were up by about Dh1.4 billion to Dh97.064 billion. However, the customer deposits dropped marginally duing the quarter ending March 31, 2011 from Dh98.741 billion to Dh98.455 billion.
DIB Q1 profit grows 11 pc to Dh222m D
ubai Islamic Bank (DIB) reported a net profit of Dh222 million for the first quarter ending March 31, 2011, an increase of 11 per cent compared with Dh200 million in the corresponding period of 2010. This increase in net profitability marks a return to stable growth for the bank, which continues to witness a strong income contribution from its core operations. The bank’s total assets as of March 31, 2011, stood at Dh100.4 billion, an increase of 11 per cent compared with Dh90.1 billion at the end
of the previous quarter in 2010. As of March 31, 2011, customer deposits stood at Dh.72.9 billion, up 15 per cent compared with Dh63.4 billion at the end of the previous quarter in 2010. The annual general meeting (AGM) of the shareholders of DIB approved distribution of a dividend of 10 per cent for the year 2010. At the AGM, the bank’s 2010 financial results were also approved. The assembly also approved the appointment of the new board of directors.
BANKING & BUSINESS REVIEW
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Emaar to convert Dh2b loan into 12-year project finance in Turkey By CL Jose
E
maar Properties is working on a plan to replace the Dh2 billion worth short-term loan availed for the Turkey operations with a 12-year project finance facility, according to sources. It has also said the company is in discussions with banks for a five-year syndication facility for its Egypt operations. Though Banking & Business Review (BBR) sought clarity and additional details on these facilities from the company, the Emaar spokesperson said, “The detailed terms and conditions of the two loans for development projects in Turkey and Egypt are currently being finalised. Appropriate details will be made available in due course.” The base document released for the Emaar Properties’ sukuk programme
has stated that the current short-term facilities availed for acquiring land in Turkey are intended to be replaced by a 12-year project finance facility. “Discussions for this facility are at an advanced stage with the draft term sheet having been issued, which is expected to be signed by December 2010. Financial closure is expected in the first quarter of 2011,” the document has stated. It has also stated that the discussions are at an advanced term-sheet stage for the five-year syndication of the facilities for three projects in Egypt [Uptown Cairo, Marassi and New Cairo (Mivida)]. “The syndication is expected to be closed in the first quarter of 2011,” it added. The total interest-bearing loans and borrowings of Emaar Properties
Group as of September 30, 2010 were to the tune of Dh9.933 billion against Dh9.410 billion as of December end, 2010. Out of this, while Turkey accounts for Dh1.994 billion, Egypt’s share is Dh952 million. Out of the close to Dh10 billion loans as of September end, 2010, Dh4.116 billion worth loans are for international facilities. Further, while Dh4.776 billion worth loans are maturing within 12 months, meaning before September end, 2011, loans worth Dh5.156 billion will mature beyond that. The picture is slightly different when it comes to the financials as of December end, 2010, as loans worth Dh4.455 billion mature within 12 months and that worth Dh4.956 billion mature beyond one year from the year end.
Aldar refinances two loans worth Dh961m A
ldar Properties, which returned to profit for the first quarter with the backing of the gain from the disposal of ‘assets held for sale’ has refinanced Dh961 million worth of loans last month. “Subsequent to the reporting date (March 31, 2011), the Group has refinanced two of its borrowing facilities totalling Dh960.9 million,” the company has stated as part of its documents posted on ADX website. It was the gain from the sale of ‘assets held for sale’ that helped the company post a net profit of Dh189.1 million against a loss to the tune of Dh314.2 million for the comparable period last year. “In terms of the asset transfer agreement dated January 16, 2011, the Group disposed of the Ferrari World Abu Dhabi theme park and related assets to the Government of Abu Dhabi. Accordingly, a net gain
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of Dh 436.4 million was recognised in the income statement,” the company has stated. Aldar Properties’ external financing as of March 31, 2011 comprised borrowings of Dh19.4 billion, convertible bonds of Dh7.151 billion and non-convertible bonds of Dh8.323 billion. During the three-month period ending March 31, 2011, the company raised additional financing of Dh2.924 billion including the mandatorily convertible bonds amounting to Dh2.8 billion issued to Mubadala Development Company (MDC). “Until their conversion, these bonds will be presented as a financial liability in accordance with the relevant accounting standards,” the company explained in its statements related to the first quarter financials. As of March 31, 2011, Aldar held Dh6.156 billion as cash and bank balances.
Deyaar networth falls below paid-up capital Assets fall to Dh8.107 billion from Dh11.357 billion a year ago By CL Jose
D
eyaar Development’s equity has fallen below the company’s paid-up capital after the company has booked a huge loss to the tune of Dh2.337 billion for 2010 compared with a marginal net profit of Dh24.905 million for the previous year. The shareholders’ equity of the company as of 2010 end has fallen to Dh4.409 billion compared with Dh6.738 billion a year ago. More importantly, the shareholders’ equity of the company is now less than the paid-up share capital of the company at Dh5.778 billion. Though the company had a retained earnings of Dh812.620 million as of 2009 end, the massive loss reported for 2010 has drained the retained earnings fully
to an accumulated deficit of Dh1.513 which in turn pulled the equity to Dh4.409 billion when the financial year 2010 closed. The total assets have contracted to Dh8.107 billion as of 2010 end against Dh11.357 billion a year ago. With revenues at Dh2.643 billion and a cost of revenues to the tune of Dh2.689 billion, the company booked a gross loss of Dh45.836 million for 2010. On the top of this, the company had to allocate Dh370.544 million, Dh404.037 million and Dh413.972 million under different impairment provisions and write-offs. Moreover, the net loss on fair value of investment properties was to the tune of a substantial Dh806 million for 2010.
StanChart launches custody services Standard Chartered Bank launched regional custody services for investors and intermediaries in the Middle East
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Standard Chartered’s new offering will give customers a single entry point to access custody services in multiple markets. The key benefits include a single point of contact; single contract and consolidated reporting for multiple markets through one provider,” a statement from the bank said. Custody services play an integral role in the development of capital markets by providing securities market access to investors. This covers a range of services including equity and fixed income securities settlements, safekeeping, corporate actions, income and entitlements collection, cash management, reporting, and information services to clients. Commenting on the expansion of Standard Chartered Bank’s Regional Custody Service Offerings, Stewart Adams, Regional Head of Investors and Intermediaries, Standard
Chartered MENA, said, ”Our regional custody hub currently caters for 26 countries and we are continuously expanding our coverage to meet customer demand. The regional custody offering aims to facilitate client access to regional and global markets, leveraging our footprint across the world’s most dynamic markets. It is also a clear indication of our commitment to our brand promise: Here for Good – Here for Clients.” Standard Chartered has operated in the Middle East for more than 90 years, with a presence across the region. Out of its office in the Dubai International Financial Centre (DIFC), the bank runs the largest trading floor in the Middle East region and is an active player in developing an Arab talent pool capable of leading the bank and the industry in general.
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Central Bank assets at 40-month high HTM securities account for 72 pc of assets By Amit Chettupuzha
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he month of March 2011 saw the Central Bank of UAE’s assets reach the highest level in value since 2007 end, as the total assets have reached Dh260.06 billion as of March end, the Central Bank statistics show. Though the total assets had gone up to Dh285.95 billion towards 2007 end when hundreds of billions of dirhams worth funds flowed into UAE in search of a quick return from the much-rumoured dirham revaluation, within one year, the that had dropped to Dh193.75 billion – as of 2008 end, as the rumours faded off. However, since then, the Central Bank assets hovered around Dh200 billion until the third quarter of 2010 when the value of total assets moved up to Dh224.25 billion towards October end. When the Central Bank assets saw the record level towards 2007 end,
most of these funds had been kept as deposits. In fact, out of the total Dh285.95 billion worth assets, Dh184 billion or more than 64 per cent of that, were parked as deposits with financial institutions. However, a substantial amount was invested to buy held to maturity investments also – about Dh99 billion, up from Dh43.30 billion as of 2006 end. Interestingly since then, the held to maturity (HTM) investments have been growing and the deposits have been gradually falling on Central Bank asset book. As of January end, 2011, when the total assets were to the tune of Dh229.29 billion, 81.68 per cent of that, Dh187.29 billion, were investments in the form of held to maturity (HTM) whereas deposits were worth only Dh36.94 billion. In March 2011, when the total assets rose to
Dh260.06 billion, the held to maturity investments inched up to Dh187 billion and deposits grew to Dh64.21 billion. The held-to-maturity securities held by the Central Bank basically were of three types – the domestic securities, overseas securities and the securities issued by Dubai Government. While the Dubai securities worth Dh36.72 billion entered the Central Bank asset book towards the last quarter of 2009, there were virtually no held-to-maturity foreign securities in the book during January to April 2010. But the scene changed drastically since then, and the HTM foreign securities value has been steadily increasing starting with Dh18.48 billion as of May end, 2010 and Dh82.10 billion as of February end, 2011. In fact, since May 2010 until February end, 2011 – in 9 months, the value of HTM securities has grown by about 350 per cent.
Dubai Investments Q1 profit down to Dh101m D
ubai Investments, the largest investment company listed on the Dubai Financial Market (DFM), reported a profit of Dh101 million for the first quarter ending March 31, 2011 compared with Dh278 million for the comparable period last year. Consolidated total income for the period was Dh643 million as against Dh859 million for the comparable period last year. Total Assets as at March 31, 2011 stands at Dh14 billion, while net worth improved to Dh8.6 billion during this period. The annualised return on share capital was up by 11.3 per cent for the period. The decline in profit as compared with the previous
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period is mainly due to lower fair valuation gain on investment properties. For the period, the Group recorded a fair valuation gain of Dh33 million as compared with Dh177 million for the comparable period last year. According to a statement from the company, the Group continues to have strong capitalisation with asset base of Dh14 billion and equity of Dh8.5 billion. “The low leverage structure has provided tremendous operational flexibility, and has allowed the company to respond quickly to changing market conditions during difficult times,” the statement added.
Damas begins repayment under new deal BBR Report
Cascade agreement
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he repayment exercise by Damas International Ltd (DIL) to its lenders under the financial restructuring agreement got a boost with the company recently paying Dh200 million as part of the repayment deal under the tranche 1. Anan Fakhreddin, the CEO of DIL said the company has been given a period of six years to repay its tranche 1 debt, and the balance debt will remain with the company as working capital, subject to the banks’ approval. In an emailed response to Banking & Business Review (BBR), Fakhreddin stated that the total net debt of Damas is around Dh3 billion and the amount to be paid under tranche 1 is Dh1.1 billion. This means that the tranche 2, which will remain with the company at least for six years subject to the banks’ approval, will be to the tune of around Dh1.9 billion.
Anan Fakhreddin
“Our financial situation is secure. We are planning for a big year ahead as this year will be our most aggressive ever in the history of Damas marketing – with an approximate increase of 40 per cent in the marketing budget over last year’s figures,” added Fakhreddin.
Damas stated that it had entered into a cascade agreement on May 1, 2011 involving the Abdullah Brothers, Damas Real Estate, Damas Investments the and a number of bank creditors of the Abdullah Brothers Group. The Cascade Agreement provides the legal framework for an orderly liquidation of, and realisation of cash proceeds from the sale of, the assets of the Abdullah Brothers Group. “Based on financial and legal advice received, the company believes that entering into the Cascade Agreement is in the best interests of the company and its shareholders, since it should maximise recoveries from the Abdullah Brothers Group for the Company in comparison to other alternative actions considered by the company,” a company statement said last week.
Abraaj tops PE firms in emerging markets A
braaj Capital, the Dubai-headquartered private equity firm, has been named the top private equity group in emerging markets worldwide. Ranked 48th among all private equity firms in the world by London-based Private Equity International (PEI), the leading magazine for the private equity industry, Abraaj Capital has risen two places from the previous annual global ranking of private equity firms and six places from PEI’s 2009 rankings, which are based on the amount of direct invest-
ments private equity capital raised or formed during the last five years. Abraaj Capital, which has raised $6.2 billion over the last five years, is the only private equity group in the global top 50 from outside North America and Europe. During this period, the firm successfully raised nearly $1 billion more than its closest emerging markets competitor. This achievement places Abraaj Capital as number 1 in PEI’s ASIA rankings, which lists the top 30 firms operating in Asia.
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15
DHCOG again in black with Dh127m profit
Dubai Festival City loss up to Dh217m in 2010
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ubai Holding Commercial Operations Group (DHCOG), which has three core business subsidiaries - Jumeirah Group (Jumeirah), Dubai Properties Group (DPG), and TECOM Investments (TECOM) in its fold - has returned to profit, at Dh127 million, from the previous year’s huge loss of Dh23.5 billion. However, two associates of the group, Dubai Festival City with 30 per cent stake and Forthnet (Greece) with 41 per cent ownership, continued its loss in 2010 also. While Dubai Festival City posted a loss of 217 million compared with the 2009-loss of Dh201 million, Forthnet’s loss more than doubled in 2010 from Dh75 million to Dh166 million in 2010. An official statement from DHCOG said, in 2011 the Group will actively engage with the market, repay its upcoming bond maturity, and continue to focus on reducing exposure to non-core assets. DHCOG’s 43 per cent increase in revenues to Dh13.5 billion, up from Dh9.4 billion in 2009, was driven by the handover of completed projects in the Built to Sell portfolio of Dubai Properties Group in communities such as Business Bay, and Dubailand. In addition, the recurring and solid revenue streams achieved by DHCOG’s other subsidiaries were in line with the previous year’s performances. Jumeirah saw a sizeable improvement in both operating and net profit in 2010. Net profits increased by 58 per cent, while operating profits increased by 30 per cent.
DPG revenues increased by 175 per cent as a result of an increase in land and property handovers. The overall occupancy levels increased to an average of 72 per cent following the launch of new communities such as Shorooq, Ghoorob and Layan. These levels are almost double than those recorded in 2009. “TECOM’s 2010 revenues of Dh1.8billion, excluding the telecom portfolio revenues, were mainly driven by its recurring rental income from its business parks, where lease rates held up strongly in comparison with the wider commercial real estate market in Dubai. The largest contributors to revenues in 2010 were the business parks, providing 85 per cent of total revenues, thanks to resilient occupancy rates. In 2010, TECOM’s Emirates International Telecommunications (EIT) telecom subsidiary produced strong results. Both Tunisie Telecom and GO delivered substantial dividends to shareholders with GO achieving higher revenues due to a 36 per cent increase in its TV subscribers. du’s market share grew significantly to 40 per cent, translating to an increase in revenues of 32 per cent. Ahmed Bin Byat, Chief Executive Officer of Dubai Holding said that DHCOG’s strong performance in 2010 is a result of the turnaround strategy implemented in response to the changing business environment. “This strategy was based on the realignment of the businesses, focusing on sustainable revenues and core competencies of each subsidiary, and streamlining operations and cost base,” Bib Byat added.
Noor Bank closes $300m deal for Bank Asya N
oor Islamic Bank, ABC Islamic Bank, National Bank of Abu Dhabi and Standard Chartered Bank have successfully closed a $300 million dual currency Islamic structured Murabaha syndicated facility for Bank Asya, one of Turkey’s leading Islamic banks. Noor Islamic Bank and ABC Islamic Bank acted as initial mandated lead arranger and book runners for the facility, which was substantially oversubscribed. A statement from Noor Islamic Bank said the announcement marks the Noor’s second successful transaction for Bank Asya
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and the third for a Turkish bank in the last 12 months. The facility saw the participation of 26 international banks from across 19 different countries. Hussain Al Qemzi, CEO, Noor Islamic Bank and Group CEO, Noor Investment Group, said this is Noor Islamic Bank’s third successful joint syndication outside its local boundaries. “We will continue to seek strategic opportunities beyond the UAE and leverage our world class footprint and expertise in the Shari’a compliant finance sector,” he said.
Eibor eases by a quarter in 2011 UAE benchmark-Libor gap still huge By Amit Chettupuzha
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he Emirates inter-bank offered rates (Eibor), the benchmark used by the UAE banks for pricing their loans, especially corporates and mortgage, witnessed a drop in the range of 10 per cent to 23 per cent during the past one year, the analysis of the rates published by the Central Bank of UAE shows. However, despite the continuing peg between dirham and dollar, the respective interest rate benchmarks, Eibor and Libor still stay at huge variance indicating the big difference in the interest rate trends in the two currencies, and this is quite evident from the comparison of the respective numbers. While the one-month Eibor (as of May 05,2011) is 1.41 per cent, the similar Libor is only 0.21 per cent; three month Eibor is 1.981 per cent whereas the similar Libor is 0.27 per cent. Likewise, while the 6-month Eibor is 2.163 per cent, the similar Libor is 0.43 per cent. The comparable one-year Eibor and Libor are at 2.387 per cent and 0.76 per cent respectively. Though the Eibor trend kept changing in the last two years, most times falling, the current year witnessed a definite trend where
Eibor has been easing. Since the beginning of the current year, till date, the one-week Eibor fell by about one-fourth, being the biggest drop among all tenors. While the onemonth benchmark dropped 14 per cent, the two-month dropped by 12 per cent and the three-month and six month Eibor dropped by 7.45 per cent and 9 per cent respectively in a matter of just over four months. Eibor is arrived at by taking the average of the respective rates offered by 12 banks, national and foreign after excluding the two highest and the two lowest offered rates. Hence, Eibor is effectively the average of the rates offered by eight banks on a given day. But interestingly, the variance between rates offered by two banks for a particular tenor is sometimes unbelievingly huge, in some cases the highest offered rate being almost three times that of the lowest offered rate by another bank. “This shows that while some banks are liquid, some others are still struggling for liquidity. However, banks like ours with a strong parent back home, do not face any funding problem,” said Ashok Gupta, Chief Executive of Bank of Baroda (Gulf operations).
Eibor and Libor still stay at huge variance indicating the big difference in the interest rate trends
The variance between rates offered by two banks [UAE] for a particular tenor is sometimes unbelievingly disparate ADCB’s offered rate for one week as on May 5 was 0.62 per cent whereas that offered by RakBank was 148 per cent lower at 0.25 per cent. Again, while ADCB’ offered rate for one month was 2.07 per cent against 0.75 per cent offered by National Bank of Abu Dhabi (NBAD) [variance at 176 per cent]; for two months tenor, the rate offered by ADCB was 2.07 per cent whereas that offered by NBAD was just 1 per cent (variance at 107 per cent). There were reports that European antitrust regulators are examining whether lenders manipulated the daily London interbank offered rate (Libor). The report said the European Union sought information from banks last month on how rates are calculated.
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Du finalising partial refinancing of Dh3b loan Existing loan maturing on June 30 By CL Jose
E
mirates Integrated Telecommunications Company (Du) is finalising a new loan facility for the partial refinancing of a Dh3 billion loan, which is maturing on June 30, 2011, according to a company document. “The Dh3 billion facility is to be repaid in full, three years from the date of first draw-down – not to extend beyond June 30, 2011 and hence been classified as a current liability. A new facility for partial refinancing of the loan is in the process of being finalized,” said the notes to the first quarter financial statements (Du) released recently. However, the company did not reveal the size of the new facility, its terms or the names of the banks involved in the new deal. Du also has buyer credit arrangements to the tune of Dh1.145 billion as of March 31, 2011. The company has stated that it utilised Dh352.1 million of an available Dh624.4 million buyer credit arrangement and Dh768.1
million of an available Dh987.1 million facility with two suppliers. Though the company ended up paying as low as 15 per cent of the net profit as royalty for 2010 despite the fact that it had provided at the rate of 50 per cent, Du once again provided for royalty at the rate of 50 per cent for the first quarter of the current year also. Thus the allocation for royalty reached Dh205.834 million as the first quarter net profit was to the tune of Dh411.668 million. “The company received confirmation via a UAE Cabinet decision dated January 16, 2011 for the royalty payable for the year 2010 at a rate of 15 per cent. No determination of the structure of the royalty fee for 2011 has been advised to the company as of March 31, 2011 and the company has provided at an estimated charge of 50 per cent of the profit for the current period. This estimate is based on the current practice followed by the other UAE telecom operator. The roy-
alty charge for the three-month period ended March 31, 2010 was provided at 50 per cent of net profit,” the company explained its stand on the royalty payment for the first quarter. The company in a statement said 272,000 mobile customers have joined du during the first quarter, whereas the revenue during the period increased by 29 per cent compared with that of the corresponding period last year. It also noted that the year-on-year growth of net profit for the period was 112 per cent. Osman Sultan, du’s Chief Executive Officer, said, “We have delivered continued strong performance in first quarter of 2011. Year on year growth remains strong, and we entered the year in a robust position. Beyond our solid financial performance, we have continued to attract new customers; indeed, we added more customers than any of the quarters in 2010. There is no better gauge of the strength of our offering than strong uptake in market share.”
Dubai rivals London as world shopping capital D ubai now rivals London for the title of the world’s leading city for shopping, according to a new research. CB Richard Ellis (CBRE) conducted a study focusing on 323 leading global retailers across 73 countries and found that both London and Dubai boast 56 per cent of the brands surveyed. New York emerged as the world’s third most popular retail destination, with 44.3 per cent of the companies represented in the city, followed by Paris (43.6 per cent) and Hong Kong (40.6 per cent). In country terms, the UK still has the edge over the UAE with a 58 per cent share of the brands
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covered by CBRE’s research, compared with the Middle Eastern nation’s 54 per cent. Discussing the results, Peter Gold, CBRE’s head of cross-border retail for Europe and the Middle East, noted that the UK continues to attract international retailers on the strength of its consumer sector and the promise of high turnover. ‘London is a particular target and this proved to be the case again in 2010, in spite of a difficult economic environment,’ he added. ‘The weakness of the pound against other countries helped to attract new retailers and more shoppers to the capital last year, with some 200million shoppers visiting the West End.’
INTERVIEW
Era of cheap money is over By CL Jose Hassan Jarrar
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H
assan Jarrar’s innings with Standard Chartered has certainly been a tough one with the recession posing one of the biggest challenges the banking industry ever had to face. But the three years since the financial world first saw the signs of a slowdown – the third quarter of 2008, have indeed given the top bankers a few key lessons, and also redefined the mechanics of banking. The one question at hand is, will the banks continue to have the same urge to lend. In a recent exclusive interview, Hassan Jarrar, Managing Director, Country Head of Origination and Client Coverage UAE, said the newly evolving banking rules would render the borrowers more responsible and the genuineness of the business will be a key factor in getting bank finance. According to Jarrar, the capital is becoming costlier for the banks and lending will cease to ‘amuse’ the banks the way it did in the past. “One thing is sure; the era of cheap money is over,” Jarrar said. The following are the excerpts from the interview BBR had with Jarrar Do you think most of the debt restructurings are over in the UAE? It depends on many things, and importantly, on how you look at restructuring. We see this as a part of the normal developments in the market. Other than the government entities and very big corporate houses, there are many others who have investments outside this country; and many of these investments may not have turned out the way they expected them to do. So the answer to the question, will these investors (companies) also approach financial institutions for their debt restructuring, is yes – to me. We are now talking after a gap of around two years. How comfortable is Dubai now? The problems Dubai faced, sorted out and being sorted out [now] have once again proved to the world that the emirate has a real solid vision and
it knows very well what it does and talks about. I had said time and again that this was a temporary cloud, which would disappear after some time. For smart businesses, there is no place like Dubai. Dubai has set itself ten years ahead of any other places in the region and it is very unlikely that any other place can catch up with Dubai now. Do you believe that Dubai is gaining from the so-called ‘flight to quality and flight to safety’? It is happening. But I don’t know and I don’t want to quantify at what measure and pace this is taking place now. You will see more movements towards real estate as we now see more transactions taking place in Dubai compared with a few months ago. And this pace will further increase in the months to come.
shut down lending. I know many foreign banks that just ‘kept quiet’ during recession. How good or bad is Standard Chartered on the NPL front? We are very comfortable with our NPLs and the ratio is very reasonable. I believe we are one of the best [lowest] in the industry in terms of NPL ratio. Though UAE’s dirham is pegged to dollar, the Eibor-Libor gap is still substantial. How do you view this? Banks are not lending each other now as much as they did before the recession because in this country, banks cannot use the inter-bank deposits as part of their overall deposits while computing credit-deposit (CD) ratio. I think Central Bank is aware of this issue and I believe it is looking into this
“We have become one of the most profitable banks in the UAE, and the number one among the foreign banks” As a Banking & Business Review (BBR) analysis showed, four banks hold half of the total assets in the UAE’s banking system. Where do foreign banks like Standard Chartered position themselves in this crowded [with about 50 banks] market? After the crisis, we have gained market share considerably. We grew in double digit even during 2010. We have become one of the most profitable banks in the UAE, and the number one among the foreign banks. We have improved our goodwill during the crisis by proactively addressing our clients’ issues. I don’t think any other banks have stood by the clients like we did. We didn’t panic during the recession, rather focused more on our job. Not only we helped the clients restructure their loans but were active lending during the peak of recession and we did not
matter seriously. Many feel, currently, the stand on CD ratio could prove to be punitive to the banks. It is a fact that we cannot take cue from US on the interest rate. How important is for the UAE to establish a yield curve at a time when the country is embarking on longterm infrastructure projects? I believe the Federal Government is really serious about establishing a bonds program like what US is doing through treasury auction programme. And I think the size could be anywhere between $5 billion and $10 billion. This is the first step towards forming a fiscal policy for a small country like UAE. We need to have a local currency curve. We need to establish different indices, which people can use for different types of funding with different maturities. We need to have bench-
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marks to lend to different clients, different types of loans and at different tenures. The absence of proper benchmarks is a limiting factor both to borrowers and lenders. Dubai plans to raise Dh2.9 billion ($800 million) through the securitisation of Salik future cash flow. How does this scheme of things suit Dubai? This is a good model for Dubai. You capture the future receivables of Salik and monetise it and through this, the issuer company gets hold of the funding in advance, which in turn can be used for generation of fresh earnings. There are many other eligible candidates, whose future cash flows can be effectively monetised. You can securitise traffic fines, visa fees, licence and so on. What are the other financing models suitable for Dubai’s infrastructure funding? I think Dubai now needs to think seriously about project revenue bonds. If government wants to build roads or bridges or take on any other in-
How do you view 2011 for corporate/wholesale banking? Let me tell you, even 2010 had been very good for us. We have closed the first quarter of 2011, and we are very much on track to top 2010. If the momentum of the first quarter continues, we are confident that 2011 will top the previous year in business deal numbers and volume. We don’t get to hear anything about syndications [lending] for the last two years. Does this mean that the lending market has dried up? No, lending is taking place in the market, but the issue at hand is twofold. Not that all banks have the appetite to lend as before because they may be more risk averse now. More importantly, the borrowers themselves may not be keen to borrow in the given geo-political situation in the Mena region wondering what they could meaningfully do with the money thus borrowed. It is not the recession that is discouraging the companies or banks in the lending space, as most banks are now com-
For smart businesses, there is no place in the whole region like Dubai frastructure projects, it should look at issuing bonds strictly to fund these projects. In return, the fee, toll or salik collected from these completed projects can be paid back to the bondholders. This will help the government raise funds efficiently and the government exchequer will not be burdened from the funding of these projects. I think this is best suitable for Dubai or for that matter, UAE as a country. GCC has embarked on infrastructure projects worth hundreds of billions of dollars and project revenue bonds could prove to be a very good answer to their funding. Having said that, one has to realise that UAE is a young country and is in the learning process.
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fortably liquid. Many large corporates are waiting on the sidelines as to when they should resume the real action. So you are also waiting for an opportune time? We have seen all the bad patches Dubai and UAE went through, be it the real estate crisis or the dirham revaluation rumour that attracted hundreds of billions of dirhams worth hot money into the country. We see the current slowdown also as an opportunity to deepen relationship with our clients. Loans are taking place, syndications are coming back and we ourselves have got a strong pipeline mostly comprising large local corpo-
May 2011
rates including family businesses. Is the practice of underwriting [lending] taking a backseat now? Yes, banks are not that keen on underwriting though there is a good fee involved in it. We, at Standard Chartered, have never been a 100 per cent underwriter for any deals. As a policy, we always made sure that our balance sheet is available for the next client as well. So we would not take on any deals unless the distribution channel is properly set. What must be the key reason for this shift? Typically, most local banks are sitting on short-term deposits and very longterm assets and they are stuck with this, leaving them with the key challenge of mismatch. We won’t commit if we don’t have the proper funding resources available with us to do so. We have a limited balance sheet and so we need to make sure the paper is properly distributed in the market and enough takers are there for the loan. I cannot choke my balance sheet for one client, as I should make available my balance sheet to other clients also. Though there is a good fee assured for underwriting, most banks are hesitant to take that mandate in the current scenario. How far is the fact that Standard Chartered has a strong parent to help the UAE operations true? It’s not true in the sense that we are self-sufficient and we ourselves raise the funds we need in this market. We do not depend on Singapore or our parent in London for our funding needs. We have our own assets-deposits ratio, which we maintain religiously here for this market. Is the practice of selling loans to the other banks after originating still rampant in this market? This is an old-fashioned practice with the international banks, which do not hold 100 per cent of the assets they fund. They distribute most of them within six months to one year so as
to make sure not more than 10 or 20 per cent of the original assets remain on their books. Otherwise, not only you restrict your balance sheet to very few clients, but also the asset-deposit (AD) ratio will go beyond the limit set by the regulator. The buyers of these assets could be banks, investment funds, pension funds and so on. Normally it is easy for us to get international funds or institutions to buy our foreign currency assets. There is strong demand for our risks as the investors believe that, ‘our risks are as good as we are’. How is the liquidity position among the banks now? It has improved a lot. Most banks are now able to maintain less than 100 per cent AD ratios, which used to be much higher than 100 about two years ago. But the comfort has come from ‘not lending’. Right? A big chunk of the asset portfolios of local banks are confined to real estate funding and contractor financing. In the last two years, these facilities have been downsized, and they are not replaced with new facilities. But the size of the bad loans has steadily been dropping. Though the capital has never been a problem with the UAE banks, AD ratio has restrained the banks from lending in the last more than two years. From an average of about 115 per cent, the industry average of AD ratio has come down to mid-90s now. We ourselves are in mid-80s a far as AD ratio is concerned. Here the banks are capitalised more than they are required to. Don’t you think this affects the return on equity (RoE) of the banks here? In the current times, a good capital base is more important than anything else. You should realise that a solid capital base is one of the many regulatory requirements the banks the world over will be required to maintain in the coming months and
years. Of late, our Central Bank has also been more active in bringing in new regulatory measures. Post recession, what is the new trend in the private sector financing scenario? I don’t rule out new restructurings taking place in the private sector also, going forward. But more importantly, more private sector entities will approach their banks to get away from all their bank loans and overdrafts. They will more likely ask their banks to help them in reshaping their balance sheets with high yield bonds, sukuks and other capital market products. We will see more private equity and mezzanine financing deals taking place in the financing space. Since all banks do not have the capability to
banks will be more cautious about the Loan-to-Value (LTV) in the future deals meaning that the banks will require the borrower to put more of his equity into the project. Another aspect will be the documentation, and I understand that a lot of banks are currently busy revising their documentations with a focus on jurisdiction, tightening collateral requirements and market disruption clauses. Will there be a perceptible change in the role of big banks? Sheer lending is not a friendly product for banks; it is the riskiest and the least remunerative offering from the side of banks. So banks will start guiding borrowers through other alternative funding sources, especially debt and capital market products.
“We will see more private equity and mezzanine financing deals taking place in the financing space” structure these deals, only sophisticated banks with these structuring skills will be seen doing it. The banks may be able to take these companies to bond market. But if companies are in urgent need for funds and are not equipped to go to the bond market, mezzanine and private equity could be the way out. It is a fact that Mezzanine may prove to be more expensive for a good corporate. We are in discussions with a few corporates on these new structures in the range of $25 million to $50 million. Mezzanine financing is basically debt capital that gives the lender the rights to convert it to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies. Going forward? Going forward, we still see curtailed asset growth in the banking sector. The industry has learnt precious lessons from the recession, and hence
What about equity deals? We have not seen many equity deals in the recent couple of years. I believe corporates should start looking closely at equity markets.. Will the syndicated deals remain the same in the future? I think, in the future, greater attention will be paid to distribution rather than underwriting. Documentation will have stricter norms. The era of cheap capital is over; it is going to be much dearer in the future. Sukuk will continue to grow in the market in the coming years also. With the healthy AD rates, the deposit rates will not have upward pressure. As the alternative funding sources set to gain precedence over loans, more corporates will be seen working towards getting ‘ratings’ from international agencies. But this is not going to happen that quickly, as the amount of disclosure the corporates from the region will have to make is substantial. But it is always advisable for the corporates to work towards that target.
BANKING & BUSINESS REVIEW
May 2011 23
Mashreq net profit up 6pc to Dh265m
M
ashreq reported a 6 cent increase in its net profit in the first quarter, 2011 to Dh265.3 million compared with Dh250.8 million for the same period in 2010, on operating income of Dh1.1 billion. In its first quarter financial statements, Mashreq also announced that its total assets remained flat at Dh84.8 billion compared with that at December 31, 2010. Percentage of liquid assets to total assets remained stable at 32 per cent with cash and ‘due from banks’ at Dh27 billion. Total customer deposits including Islamic deposits during the 1st quarter of 2011 stand at Dh50.2 billion reporting a decrease of 2 per cent as compared with Dh51.25 billion as of December 31, 2010. Net interest income (NII) and income from Islamic products, net of distribution to depositors, decreased by 5.9 per cent to Dh558 million compared with that of the same period in 2010. Net fee, commission and other income stood at Dh535 million, against Dh645 million for
the same period last year. However, fee and other income to gross income ratio at 49 per cent continues to be one of the best in its class. The provisions for loan losses declined by 33 per cent reporting Dh325.3 million, demonstrating the bank’s continuous efforts on improving the asset quality. As part of Mashreq’s prudent financial management, expenses are under control and well arranged, with general and administrative expenses remain reduced by 1.9 per cent compared with that in the same period in 2010. Abdul Aziz Al Ghurair, CEO of Mashreq said Mashreq’s outlook remains positive as the region’s economy continues to witness steady growth. “Our strategic plan for 2011 – 2013 is to continue to operate as a leading financial institution in the UAE and the region, keeping in mind the requirements of our customers and how we can evolve. We constantly look at adapting and changing our business model to meet various market conditions,” Al Ghurair added.
US praise for renewable energy initiative F
ormer US Energy Secretary and US Ambassador Bill Richardson praised the UAE for its long-term vision to diversify the global energy mix with the deployment of renewable energy and innovations in clean technology. In his visit to the UAE, Ambassador Richardson was an accredited observer of the historic, first session of the International Renewable Energy Agency (IRENA), where he was witness to the confirmation of the IRENA headquarters and selection of the director-general of the agency. “The UAE has made a bold commitment to accelerate the adoption of renewable energy, and with the confirmation of Abu Dhabi as the home to IRENA, the world is recognising the nation’s efforts,” said Bill Richardson, former US Energy Secretary, New Mexico Governor and US Ambassador to the United Nations. He said the world would remember the members of IRENA for taking a leadership role in redefining the future of energy, and in the process, address some of the most pressing issues the world faces. “From climate change to rural electrification – IRENA will be the beacon from which a cleaner, more cooperative world will emerge,”
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May 2011
he added. “With the current uncertainty in the Middle East, the UAE serves as an economic roadmap for how investments in future industries can provide long-term stability,” added Governor Richardson.
NEWS
Qatar Exchange, Qtel, NYSE Euronext in tie-up
Qatar being connected to the Global Trading Network
Q
atar Exchange (QE), Qtel and NYSE Euronext (NYX) have concluded a major partnership agreement to enable the extension of the Secure Financial Transaction Infrastructure (SFTI) network platform to Qatar, connecting financial participants in the US and Europe to the Qatar markets. The pioneering solution will see Qtel providing global connectivity, a complete disaster recovery solution, and premium network services to support the extension of SFTI to Qatar. By connecting QE and its market participants to SFTI, the important emerging marketplace of Qatar will join the global trading community and liquidity pools already connected to this high performance financial network. An unprecedented community of major US and European financial institutions including brokers, investment banks and investors are already connected to SFTI via access centres in Europe, Asia and the US, enabling them to quickly and easily access trading markets or offer their own value-added services. The addition of Doha as a new SFTI destination completes another step in the strategic plan to transform Qatar into a centre for international finance in the Middle East. The comprehensive solution provided by Qtel
ensures SFT extension is supported by the highest level of connectivity, reliability and security. Andre Went, Chief Executive Officer, Qatar Exchange said, “This is another important step towards our long-term goal of establishing Qatar Exchange as a tier-one equity market. The stability
and security provided by our worldclass network solution will enable the introduction of SFTI in 2011, demonstrating the benefits of the strategic partnership between Qatar Holding and NYSE Euronext.” Khalid Abdulla Al Mansouri, Executive Director, Business Solutions, Qtel, said that with the advanced technology solution provided by Qtel, Qatar Exchange will benefit from a robust world-class connectivity with NYSE Euronext’s global network, ensuring that Qatar increases its international profile by providing significant benefits for investors.
Advanced Global Connectivity Solution will enable connection to NYSE Secure Financial Transactions Infrastructure
BANKING & BUSINESS REVIEW
May 2011
25
BONDS & SUKUKS
GCC bond/sukuk issues in 2010 valued at $57b A 28 pc decline from 2009 total amount
T
he aggregate primary issuance of bonds and sukuk in the GCC totalled $57 billion in 2010, a 27.6 per cent decrease from its peak value in 2009, according to a recent survey. The month of October witnessed the highest issuance frequency and value with 23 issuances raising a total of $9.1 billion, representing 16 per cent and 11.9 per cent respectively of total 2010 issuances, the research conducted by Kuwait Financial Centre (Markaz)
Kuwait Central Bank leads the pack Coming to the GCC Central Banks Local Issuances (CBLI) – Central Bank of Kuwait raised $21.8 billion – 80 per cent of the total CBLI Issuance in the GCC. Central Bank Local Issuances are debt securities issued by GCC central banks to regulate the levels of domestic liquidity. A total of $27.2 billion was raised by the central banks of Kuwait, Bahrain and Oman during 2010, with the Central Bank of Kuwait raising the highest amount – 80.3 per cent of the total CBLI amount through 60 issuances. Conventional CBLI raised the greatest amount during 2010 with $26.5
26 BANKING & BUSINESS REVIEW
Kuwait Central Bank raised $21.8 billion – 80 per cent of the total Central Bank issuances in the GCC billion representing 97.5 per cent of the total value raised through 116 issuances, compared with $700 million for sukuk through 23 issuances.
GCC bonds and sukuk market The GCC bonds and sukuk market is composed of sovereignand corporate issuances. During 2010, a total of $29.9 billionwas raised by sovereign and corporate bond and sukuk issuances, compared with $64.9 billion in 2009.
Corporate issues dominate, sovereign drops Corporate issuances dominated the market during 2010 with $20.9 billion representing 70.2 per cent of the total amount raised. Sovereign issuances raised $8.9 billion representing 29.8 per cent of the total amount raised. The value of corporate issu-
May 2011
ances almost maintained its 2009 level with only a 0.21 per cent decrease. However the number of issuances increased from 37 issuances to 42 issuances, with Emirati corporate issuances dominating the market at $6.2 billion through 19 issuances. The number of sovereign issuances decreased in 2010 in comparison with 2009, from 22 to 12 issuances. This, in effect, decreased the value of total GCC sovereign issuances by 38.5 per cent.
UAE accounts for one-third value Issuances by UAE entities raised the largest amount in 2010, $9.5 billion, representing 32 per cent of the total amount borrowed; followed by Qatari issuances, raising a total of $9.3 billion, or 31.2 per cent of the total amount. Kuwaiti entities raised a total of $1 billion, representing 3.5 per cent of the total amount; Omani entities raised the least amount in the GCC, a total of $400 million, representing 1.2 per cent
of the total amount borrowed via bonds and sukuk.
More than two-thirds from conventional Conventional bonds issuances raised larger amount compared with sukuk during 2010 - $23.4 billion, representing 78.5 per cent of the total amount raised through 45 issuances, compared with $6.4 billion for sukuk issuances through nine issuances. GCC sukuk issuances during 2010 slumped to its lowest level since 2006, to $6.4 billion, which represents a 39.3 per cent decrease from the total amount raised by sukuk in 2009.
One-third issues from financial sector
In 2010, for the first time in five years, not a single UAE dirham-denominated issuance was reported
The financial sector accounted for the largest amount raised through the issuance of bonds and sukuk during 2010, with $10 billion representing 33.3 per cent of the total amount raised through 29 issuances. Government entities raised the second highest amount with $7.9 billion, representing 26.4 per cent of the total amount, through 10 issuances.
million and equal to or less than $1 billion” were the most active with 16 issuances, representing 29.6 per cent of the total number of issuances, amassing to $10 billion. Issuances with sizes of “less than $100 million” were the second most active during 2010, with a total of 14 issuances.
5-year papers take the half
Dollar issues favourite
Bonds with tenures of five-years raised the highest amount, $14.3 billion, through the largest number of issuances, 22 issuances, representing 47.9 per cent and 40.7 per cent of the total amounts respectively. Bonds with tenures of ten-years raised the second highest amount, $8.6 billion, representing 28.7 per cent of the total amount through eight issuances.
More takers for $500m-$1b issues GCC bonds and sukuk issuances during 2010 had issue sizes ranging from $4 million to $2.5 billion. Bonds/sukuk with issue sizes of “more than $500
Continuing with the trend witnessed in 2009, the bond and sukuk market was dominated by US dollar denominated issuances- a total of $20.7 billion was raised, representing 69.3 per cent of the total amount borrowed, and a total of 28 issuances, representing 51.9 per cent of the total number of issuances placed. Saudi Arabian riyal denominated issuances followed with $3.9 billion, representing 13 per cent of the total amount raised through five issuances (representing 9.3 per cent of the total number of issuances). It is interesting to note that, in 2010, for the first time in five years, not a single UAE dirham denominated issuance was issued.
Rating, listing gain ground During 2010, a total of 47 issuances, or 84.9 per cent of the total sovereign and corporate issuances, were rated by one of the following rating agencies- Moody’s, Standard & Poor’s or Fitch, RAM, and Capital Intelligence. During 2010, of the $57 billion raised in the GCC, 34 bonds and sukuk were listed on exchanges with a total value of $24.8 billion. A total of 30 bonds were listed on international exchanges with a total value of $37.4 billion versus nine bonds listed on regional exchanges with a total value of $4.9 billion.
Two-thirds to mature by 2015 As at December 31, 2010, the total amount outstanding of corporate and sovereign bonds issued by GCC entities was $157.4 billion. Corporate issuances make up the majority of the total amount outstanding with $99.6 billion, or 63.3 per cent of the total amount. Sovereign issuances amount to $57.8 billion or 36.7 per cent of the total amount. Of the amount outstanding, $102.2 billion, or 65 per cent, will mature by the end of 2015.
BANKING & BUSINESS REVIEW
May 2011 27
MARKETS
DGCX April volumes more than double
Silver futures trading witnesses 3-fold increase
T
he trading volumes on Dubai Gold and Commodities Exchange (DGCX) more than doubled in April. The futures trading on the exchange witnessed an increase of 111 per cent year-onyear to reach 227,421 contracts valued at $11.4 billion. Year-to-date volumes on the exchange climbed by 51 per cent to aggregate 910,913 contracts while year-to-date average daily volumes also rose 51 per cent to touch 10,975 contracts. DGCX gold futures continued last month’s robust performance rising 49 per cent year-on-year in April 2011 to reach 46,295 contracts. Silver futures increased 298 per cent year-on-year to touch 9,921 contracts. Eric Hasham, CEO of DGCX said the current volatility in gold and silver prices has spurred increased trading activity in DGCX gold and silver futures. “Derivatives such as DGCX gold futures enable commercial parties to manage their exposure to price change. Furthermore, futures traded on regulated and cleared financial markets like DGCX protect market participant against counter-party risk,” Hasham added. Currency contracts were the main driver of volume growth on the exchange increasing 65 per cent to reach 709,454 contracts year-todate (YTD). Currency volumes also increased 149 per cent year-on-year to reach 168,132 contracts. The Indian rupee/dollar witnessed a substantial year-on-year increase reaching 135,720 contracts compared with 10,285 contracts in the same month
28 BANKING & BUSINESS REVIEW
Eric Hasham
Currency volumes increased 149 per cent year-on-year to reach 168,132 contracts
May 2011
last year. Volumes for euro/dollar, sterling/ dollar and yen/dollar futures declined from the same month last year to reach 14,019, 10,765 and 1,245 contracts. Australian dollar, Canadian dollar and Swiss franc reached volumes of 3,667, 324 and 2,392 contracts respectively. WTI crude futures declined 53 per cent from the same month last year to reach 3,073 contracts.
Gateway for Indian banks Security creation remains an issue By CL Jose
U
ntil a few years ago, to be specific, until 2007, Bank of Baroda (BOB) was the only Indian presence on the UAE’s banking map. But the opening of Dubai International Financial Centre (DIFC) changed the face of the region’s financial services industry. Hundreds of multinational institutions that have made it to the list of the world’s top companies opened shops in DIFC. From India, banks such as State Bank of India (SBI), Punjab National Bank (PNB), ICICI Bank, IDBI Bank, Axis Bank also established their offices in DIFC. Ineterstingly, these five banks together built a combined asset book that runs into a few billion dollars within a span of three to four years – that at a time when the UAE banks themselves chose to go slow in this market. When the UAE banks’ aggregate loan book witnessed a net growth of about Dh85 billion during 2010, the five Indian banks alone accounted for an aggregate loan size of about Dh20 billion to Dh25 billion during this period. The story doesn’t stop here: the rumours have it that at least five new banks from India are planning to enter the UAE through the DIFC gate. Sources told Banking & Business Review (BBR) that, representatives of Oriental Bank of Commerce (OBC), Federal Bank, Union Bank of India, Bank of India, etc were spotted in the premises of DIFC recently discussing the prospects of opening office at the Centre.
Access to credit bureau a major challenge Indian bank representatives at DIFC confided to BBR that
there are a couple of issues for which they need solutions badly. One is the difficulty in creating security against loans. The existing laws do not allow the DIFC institutions to create security outside DIFC and this forces the DIFC banks to seek the help of local banks to function as security agents for them. “This not only calls for additional hassles, but additional cost also as we are required to pay the banks a fee for acting as security agents for the DIFC banks,” one banker said. But it is learnt that the issue is getting sorted out with the blessings of DIFC authorities. “Creating security within Jebel Ali Free Zone is now possible in principle,” another source told BBR. The other issue is the access to the Federal credit bureau, which is being established in Abu Dhabi. An access to the credit bureau not only helps the DIFC banks, but any lender in the market for that matter. Though the audited annual reports of the corporates offer a good picture of the financial shape of the corporate borrowers, the period between two annual reports poses a question mark. “There could be defaults, large borrowings that go unregistered during the periods between two financial reports, and credit bureau is the only platform that can give a clear picture of a corporate on such developments,” experts point out. Here, while DIFC banks stand to get information on the exposure of other banks to their clients, the mainstream banks will also benefit, as they can access data on their clients’ transactions with the DIFC banks. “We are sure there will be proper solutions to these issues from the part of the authorities,” the DIFC bank representatives told BBR.
BANKING & BUSINESS REVIEW
May 2011 29
INDIAN BANKS
Dubai proves to be a
good opportunity
Debajyoti Ray Chaudhari
D
oubling business volume for a bank is viewed easier for the initial years, as the base remains relatively small during the first few years. But in the case of State Bank of India (SBI), the first year volume itself was big enough to render 100 per cent growth a tall challenge for any lender. But as Debajyoti Ray Chaudhuri, the chief executive of the SBI DIFC branch puts it, the name of the bank carries the real stamp of quality, which is more than
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May 2011
The most daunting challenge [for DIFC banks] is the lack of provision to create security against loans, which now needs the help of other banks operating from outside the DIFC
enough for the Indian corporates operating from the UAE. Having said this, Chaudhuri says, still there are issues that need to be addressed in order for the DIFC banks to operate smoothly. The most daunting among them is the lack of provision to create security against loans, which now needs the help of other banks operating from outside the DIFC. “It is not only the hassles involved in creating security, but more importantly, the cost involved in this too,” the SBI chief told Banking & Business Review (BBR) during an interview recently. However, he is hopeful that the DIFC authorities will do their level best to overcome this hurdle and soon the issue could be sorted out. Following are the excerpts from the interview with Chaudhuri. Since the inception in Dubai (as a branch) how has the growth been for State Bank of India (SBI)? We have got tremendous response since the commencement of our operations in Dubai International Financial Centre (DIFC). Until we set up the DIFC office, we did not have any presence in this country. We could have grown much faster but for the fact there were two major developments that negatively impacted the market. We have lived through and grown past one of them (Dubai World debt restructuring), and I am certain that the current ongoing political developments in some of the countries in the region will not have a long-term impact on our growth plans. Do you think Dubai (UAE) offers enough opportunities for growth? How do you view the risks here and what are the measures you adopt to mitigate
possible risks in this market? Dubai, or UAE for that matter, offers enormous opportunities because of its superior infrastructure, ease of doing business and tax efficiencies. UAE also enjoys the geographical advantages of being a bridge between the West and East. The present environment where there has been a rationalization of costs will also benefit the UAE in the long run. The risks here are two-fold. The legal system is not time-tested; there is not much of a case history, which
and the region. How do you view the prospects for 2011 and 2012? If the developments in some of the countries in the region do not affect the overall perception of the region, we should do well. The outlook for the UAE economy looks good and I am personally very positive on 2011 and 2012. However, growth in our balance sheet will be subject to availability of quality assets.
Dubai offers enormous opportunities because of its superior infrastructure, ease of doing business and tax efficiencies could display some kind of certainty about legal decisions. The absence of a credit bureau that can provide you with the database of credit histories is also an issue that could pose a challenge for the new banks setting up shops here. However, plans are now afoot for the credit bureau whose establishment will help the lenders in mitigating risks to a good extent. I think strengthening these two areas would increase availability of credit, especially to the SME sector much more smoothly. Which are the areas of lending SBI is focusing more on? Our primary focus is trade finance as the UAE is India’s largest trade partner. We are also financing local corporates in syndication deals along with the local banks. We also lend to t subsidiaries of Indian companies and Indian companies in the UAE
Security creation is an issue for DIFC banks. How do you address this? We have taken this up with DIFC and hopefully some solution will emerge. Our view is firstly that since we are allowed to lend, we should also be allowed to create security. This will facilitate our lending activities and this is good for everyone. Secondly it will give businesses the liquidity which they need as they can get loans against the security of their assets. Thirdly this could help in the recovery of the property market. Are there any bond issues planned for Dubai office’s funding? The bond issues are generally done for the bank as a whole and the proceeds are parked at various foreign offices depending upon their requirements.
BANKING & BUSINESS REVIEW
May 2011 31
Here with big ambitions
NS Venkatesh
I
DBI Bank is specialised in project finance and hence the region really suits the profile of the bank, as hundreds of billions of dollars worth of infrastructure projects are raring to go in this region. But it remains a fact that no Indian banks have yet got the right opportunity to participate in such large deals because the timing of their entry into this market went against their aspirations. But things have started looking up and before long, the IDBI Bank chief at DIFC office believes, his bank will be seen participating and leading large deals in this market. NS Venkatesh, chief executive officer of IDBI Bank [DIFC branch] is optimistic of the region’s growth prospects. During an interview recently, he told Banking & Business Review (BBR), “We firmly believe GCC, especially the UAE, is the place, which will witness tremendous growth in the coming years. Look at Dubai; it has got a world-class infrastructure and there are a lot of projects, which have already taken off or waiting in the wings. So when the economy makes the turnaround, it will be GCC, especially Dubai that will derive greater benefits than any other regions or cities.” Here are excerpts from the interview. It is more than a year since you [IDBI Bank] established presence in DIFC. Looking back, how do you evaluate yourself?
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May 2011
True, it is more than a year since IDBI Bank entered Dubai through its DIFC office. We came here in January 2010, when recession was at its peak. During this time, we have done business to the tune of more than $1 billion (Dh3.67 billion). Though you came during recession, how did you manage to scale up your business to this big size? We along with another nationalised bank from India opened our operations more or less at the same time, beginning of 2010, after we got our Category I Licence. Unlike other banks from India, we both started off with the Category I licence which allowed us to lend to corporates in dollars. Whey did IDBI choose to enter this market at a time when many wanted to leave? We always went everywhere with a long-term plan and hence the temporary phase of recession never upset us. Moreover, we have the expertise to fund long-term projects and we always believed we entered this market at the right time. We, at IDBI Bank, always take a long-term view on banking as a business. I genuinely believe that slow-down is the time when the non-serious players leave the market and the really serious players sit down and chalk out long-term strategies.
What is your view about this market compared with India? We are now closely looking at the region and its funding needs. We firmly believe GCC, especially UAE, is the place, which will witness tremendous growth in the coming years. Look at Dubai; it has got a world-class infrastructure and there are a lot of projects, which have already taken off or waiting in the wings. So when the economy makes the turnaround, it will be GCC, especially Dubai that will derive greater benefits than any other regions or cities. Are the big corporates here willing to open their balance sheet before the banks when they come for loans? I have found from my experience that if we ask the right questions, they are willing to answer and cooperate with the banks by providing any details. But as I said, banks were chasing good assets with big cash in their kitty. So it is quite natural that many banks did not want to take the risk of asking questions and losing clients. Which are the areas you will be keen to lend in this market? Our expertise is in infrastructure finance, project finance and corporate finance. IDBI, as an institution, is well respected in India. A few months back IDBI financed Meydan project in the UAE to the extent of $120 million. Are you keen to do big ticket financing? Certainly, we are open to do any size of financing and we have got the capability to do that. But we will apply our strict scrutiny and do due diligence before taking a lending decision. Don’t you think that things are moving very slow? As of now, not many deals are taking place here. One was the Meydan and you will get to know about more such deals in due course of time. We believe that this market has started turning and there will definitely be more deals coming up. The economy has started showing signs of reviving. Except for the construction sector, all others are growing at a very good
rate. A good amount of ‘positive’ is evolving in this market currently. How active are you in trade finance? We are here to finance any deals. Primarily we as a bank have three verticals. One is corporate & infrastructure finance; treasury and the third is trade finance. We are here to participate in the wholesome growth of the economy. What size of a business do you expect for the current year? Nothing less than $2 billion and it could very well be more.
You said you expertise is in long term project financing and infrastructure financing. How is your lending divided between short term and long term when it comes to the DIFC branch? If you analyse our lending book, only 30 per cent is short term and the remaining 70 per cent is medium to long term. Indian banks are used to broader margins and good pricing. How do you familiarise yourself with the market realities here? In India we are familiar with domestic net interest margins in the range of 2 to 3 per cent. In the current market conditions, this market also gives us somewhere around the same margins. It is true that in 2007 and 2008 the margins were hardly around one to 1.5 per cent. When economy improves and liquidity eases, the margins may go back to the lower levels again. But by that time the volumes will have increased. Where do you get your funding for the DIFC office from? My medium- to long-term funding requirements are met through medium term note (MTN) programme. We had already raised $350 million through MTN to meet our funding needs and this was done through Singapore about a year ago. Any new plans to raise funds through MTN?
We have a programme established for this and the size is $1.5 billion. After our annual results, we may update our MTN document and once again we may tap the MTN market sometime in May or June. Will you be doing it from Singapore again? This market has not yet become liquid. My bank believes it will be better to raise it from Singapore, as that market is better on liquidity now compared with the GCC. By theory, we can do this from any market other than the US. Are these MTNs listed? Yes, they are listed on the Singapore market. We will make sure that all these programmes are listed. Investors in these notes are broadly pension funds, hedge funs, sovereign wealth funds, mutual funds or banks. They keep trading in these notes, and let me tell you there is a good market fort this. While the MTNs take care of the medium to long-term needs, we also raise funds through syndicated deals and club deals. Moreover, we have established dedicated money market lines, and we also take corporate deposits from outside the UAE We hear that an additional five to six banks from India are eyeing DIFC to have a presence in the UAE. Do you believe there is space for all these institutions? I am a very optimistic about this region. Indian banks are actually funding the Indian corporates that have established outside India. As a trend, all the big and the medium sized corporate groups have started moving to overseas markets. This has resulted from the fact that India has been moving on liberalising its economy, which helped the Indian corporates to spread their wings all over the world. Why are the Indian banks not seen doing big deals in this market? YYou will soon hear about such deals happening here. We are open to do all big deals and we have already underwritten several big deals. IDBI Bank is the second largest syndicator [bank] in the whole of Asia-Pacific excluding Japan.
BANKING & BUSINESS REVIEW
May 2011 33
‘Recession
did not impact us’ BOB to open 5 more customer service centres this year
B
OB to open 5 more customer service centres this year Bank of Baroda (BoB), the third largest bank from India, is known as India’s international bank by virtue of its significant presence across the globe. With 85 international branches in 26 countries, BoB has a strong presence in the GCC also. The bank, which is the only Indian lender with full-fledged banking operations in the UAE, and presence in Oman and Bahrain, is now planning to enter other markets including Qatar. Talking to Banking & Business Review (BBR) recently on the bank’s ambitions in GCC, Ashok Gupta, the chief executive for the bank’s Gulf operations said BOB will explore possibilities of entering the other remaining markets in the GCC, viz, Kuwait and Saudi Arabia, in the future. The growth the bank has achieved in the last four years in the GCC, especially in the UAE, has been remarkable. Gupta said the bank’s operating profit in the UAE has grown by more than 54 per cent for the year ending March 31, 2011. Moreover, the asset growth has been in the range of 40 per cent for the past three years in the UAE. BOB has always been lending despite the recession that gripped the whole world. “We never stopped lending,” he said in a response. He said the market has started seeing signs of revival after going through a slow-down for more than
34 BANKING & BUSINESS REVIEW
Ashok Gupta
The market has started seeing signs of revival after going through a slowdown for more than three years now
May 2011
three years now. Bank of Baroda has always been a big player in the market like any other foreign bank. “The situation in the region is improving,” he said. Gupta said there has been noticeable growth in the sectors such as trade, tourism, hospitality, manufacturing, etc. “People always tend to harp on the fall in the real estate sector in the last three years. I would tell them that real estate cannot be viewed as the sole driver of any economy as this is a sector whose growth cannot be sustainable like the other key sectors in any economy,” Gupta told BBR while sharing his experience in the GCC, which has witnessed one of its toughest times in history. He said the real estate sector could only be seen as a supporter of the economy. Gupta said a lot of small to medium-sized projects are now achieving fruition in the country and the banks are now more focused on these types of projects. One such example, according to Gupta, is the Ashok Leyland project that took off in Ras Al Khaimah. Recently, a joint venture project with a South Korean company to make 150,000 tonnes steel pipe annually was established in Ras Al Khaimah. Bank of Baroda is very much involved in these types of projects. According to him, it may take a while more to see large projects and large financing take place in the country, other than in infrastructure, where mostly governments are involved. He said there are solid signs of the real economy picking up once again and the banks will certainly play their due role in this phase of the economic revival. Signs of liquidity easing are also evident from market news like Dewa prepaying its loan and Emirates airline repaying its $500 million bond within the stipulated time, etc.
It remains a fact that the banks will still prefer to put money in lending rather than in corporate bonds that are largely non-rated According to Gupta, liquidity with the banks has improved, due to which, interest rates have started dropping slowly. The credit deposit ratio of the banks has also improved/ dropped below 100 per cent. Though there have been a lot of talks about the prospects of debt capital market in the region, Gupta believes that the corporate bond market may take a bit longer as the conditions for the same are not yet congenial. It remains a fact that the banks will still prefer to put money in lending rather than in corporate bonds that are largely non-rated. “Corporates here need to do a lot of home work before they could ap-
proach a rating agency. More importantly, the banks are not so liquid as to park funds in very long-term corporate bonds,” Gupta pointed out. Though BOB as a foreign bank has restrictions on branch expansion in the UAE, Gupta has set his eyes on expansion through the opening of more customer service centres (CSCs). The bank, with six branches in the UAE, has already opened seven such centres in Jebel Ali, Karama, Sheikh Zayed Road, Al Qusais in Dubai, RAKIA in Ras Al Khaimah, Mussafah in Abu Dhabi and National Paints in Sharjah. The BOB chief said the bank will look at opening five more such centres this year itself.
Bank of Baroda started its overseas expansion by opening its first branch way back in 1953 in Mombassa, Kenya. Since then the bank has come a long way, expanding its international network to serve NRls/PIOs, Indian Corporates around the world and to meet the banking requirements of the local population in the country of operation. BOB has significant international presence, with a network of 85 branches/ offices in 26 countries, including 53 branches/offices of the bank, 28 branches of its eight subsidiaries and three representative offices in Malaysia, Thailand and Australia. The bank also has a Joint Venture in Zambia with 12 branches.
BANKING & BUSINESS REVIEW
May 2011 35
Loan portfolio
all set for growth
Suresh Warrier
A
xis Bank enjoys the distinction of having been the first Indian bank to start operations from Dubai International Financial Centre (DIFC) under the Category 1 licence, which allows the bank to take on lending activities. Axis Bank was set up in 2007 as the first Category 1 licensed Indian bank whereas most of the other banks started off as Category IV banks - without a lending mandate. However, all those
36 BANKING & BUSINESS REVIEW
banks set up as Category 1V banks are now upgraded into Category 1. “We foresaw the opportunity in the region before anyone did,” Suresh Warrier, the chief executive officer, DIFC branch, Axis Bank, prides himself in his bank’s decision to set up the institution in DIFC with the lending mandate (with category 1 licence). In fact, there is a flip side to this. Many large banks, mostly international, with strong advisory skills,
May 2011
normally prefer to remain as a Category IV bank as their main activities do not include lending. However, Warrier says his bank’s core business is to lend, with a focus on Indian corporates, a sector with a big presence in this market. According to him, Axis has built a fairly large loan book over the last four years. The bank has been growing at a handsome rate and last year Axis grew at a three-digit rate, which is really exceptional for the initial years
of a banking institution. In fact, during the recession, DIFC banks did a major chunk of lending in this market. In total, more than $6 billion (Dh25 billion) worth of lending may have taken place on behalf of the Indian banks operating from DIFC alone. This is really substantial compared with net lending of Dh85 billion done by the close to 50 banks in the UAE, during the whole of 2010. DIFC has about 25 Category 1 banks hailing from different parts of the world. Axis Bank’s main clients, according to Suresh Warrier, are the Indian corporates that have set up their branches or subsidiaries in the country, or the UAE corporates set up by Indian promoters. Warrier said though there were very few syndications that took place in the UAE last year, Axis was able to take part in two or three such deals. “We had underwritten a few deals for Indian companies’ dollar requirement in the past. Now we are all set to lead a few new large deals for infrastructure developments taking place in India,” Warrier told Banking & Business Review (BBR) in an interview recently. Noting that there are a quite number of deals taking place for companies in India, Warrier noted that Indian companies are now very active in acquiring companies overseas and it is quite natural that they would need acquisition finance in dollars. Back in India, raising loans in dollar locally is a bit difficult and this is the space where the DIFC banks fit in well. Some Indian companies see good arbitrage potential in availing dollar loans from overseas, and DIFC remains to be the best choice for them due to its proximity to India. Despite the slowdown phase the UAE has been passing through, the Axis chief says, Indian companies are doing well, especially on the trade side. There are several Indian companies that have increased heir headcount in the last few months. Warrier notes that some Indian companies stand to benefit from
Axis Bank’s main clients are the Indian corporates that have set up their branches or subsidiaries in the country, or the UAE corporates set up by Indian promoters the slowdown as the recession help them in getting a ‘discount’ on their different costs – such as salaries, rentals, service charges, etc. “That apart, the infrastructure in the UAE is superb,” he says. Warrier also raised the issue of hurdles faced by the DIFC banks in creating security against loans, which the banks cannot afford to do away with, especially during a time like this. The DIFC banks are not currently under pressure on pricing, as the UAE banks have been lying low due to various compulsions, the main being their high credit-deposit ratio. However, with the recession slowly ebbing and with the local banks returning to normal lending mode, the competition is likely to escalate in the country’s loan market, inevitably putting pressure on the pricing matrix. Axis Bank has sufficient funds generated by the bank itself. The DIFC branch has raised $500 million through MTN last year. “We have a $2 billion programme already established for this, and the bank has already raised $850 million in two tranches leaving $1.15 billion untapped from this programme,” he added. This programme has exclusively been established to fund the overseas operations of the bank. Axis Bank has a branch in Singapore and
another one in Hong Kong. It has one representative office in Shanghai and two in the UAE – one each in Dubai and Abu Dhabi. Warrier told BBR that Axis is in the process of opening a branch in Colombo (maybe by June), and a subsidiary in London. To a question when the bank will go for the next tranche of MTN, Warrier said, “The future fund raising depends on the fund requirements of the overseas branches and also the interest scenario.” He said the outlook is bright and the bank will continue to look at expanding its lending portfolio. “But we will restrict a major chunk of our lending to Indian corporates mainly because of the hassles faced by the bank [being in DOFC] in creating security,” he added. The bank has presence in world’s major financial centers i.e. New York, London, Brussels, Dubai, Hong Kong and Singapore. Bank of Baroda is pursuing an ambitious overseas expansion plan and is in the process of identifying/opening more overseas centres for increasing its global presence to serve its 37 million global customers. Recently, Bank of Baroda has opened branch at IIford, UK, and Auckland, New Zealand of its wholly owned subsidiary-Bank of Baroda (new Zealand) Ltd.
Axis bank has a $2 billion MTN programme already established, and the bank has already raised $850 million in two tranches BANKING & BUSINESS REVIEW
May 2011 37
Entering Dubai at right time PNB business crosses $1bn in first year
W
ith more than 5,000 offices including 5 overseas branches, and over 5000 ATMs, Punjab National Bank (PNB) is the second largest public sector bank in India. The bank, which commenced its operations from Dubai International Financial Centre (DIFC) in January 2010, was able to book a profit in less than three months. It may seem like taking a big risk by entering a market whose banks had almost stopped lending, but G Raj Kumar, chief executive of PNB, could prove otherwise through the morethan-one-year operation of PNB from DIFC. “I strongly believe that the recession gave us a real opportunity. We could do good business from the DIFC branch, which has already completed more than 15 months operations by now,” Kumar stressed while talking to Banking & Business Review (BBR) in an interview recently. A very large number of businesses in the UAE, particularly in Dubai, are either promoted by Indians or have Indians at the helm. The Institute of Chartered Accountants of India (ICAI) Dubai chapter has estimate that around 4000 Indian chartered accountants are running the show or have been placed in top positions in many companies in the UAE. Though the PNB operations commenced in January 2010, Raj Kumar says, within two to three months, the bank could post a profit when the books closed for the quarter in March 2010. This is remarkable in a country
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G Raj Kumar
May 2011
“We are planning to issue bonds sized between $330 million to $500 million to fund the Dubai operations”
where there are banks that took more than three years to break even. With a Category I licence, PNB is the largest nationalized bank [excluding State Bank of India (SBI)] with more than 10,000 retail outlets. The bank has reported a net profit of Rs39.05 billion ($887 million) for the financial year 2009-10. Kumar said PNB enjoys the privilege of holding a long list of corporates with it back in India by virtue of being the largest nationalised bank. According to him, many of these corporates have long been actively looking at opening shop in overseas markets and when they come to this region, the first preference for them, naturally will be PNB. “This is one big advantage PNB enjoys in all overseas markets,” he added. Though the average ticket size of the loans currently disbursed or participated in is in the range of $25 million to $50 million, slowly the bank is upping this and Raj Kumar is confident that before long, the bank will sign up reasonably big loans. “At the same time, we are actively participating in syndications that are up for grabs, though it remains a fact that not many syndications are taking place of late. When I say we get huge support from Indian corporates established in the UAE, it doesn’t mean that we are not keen to finance local companies. There are several local companies, including those like Emaar, where we are involved in financing and where we will be keen to deal with in the future also,” Kumar added.
Lending crosses $1bn
PNB’s lending has already crossed $1 billion in the first year of its operations in DIFC. Kumar said there is enough potential for the banks to grow here. Other than the financing done here, PNB is very active in extending buyers credit to corporate houses in India in foreign currency, and this is a good business for the DIFC banks.
There are several local companies, including those like Emaar, where PNB is involved in financing and where the bank will be keen to deal with in the future also Kumar exuded confidence that in the current year, the bank’s business should cross $1.5 billion. Noting that the recession didn’t affect the volume expectations of the bank, the PNB chief said the slowdown offered the bank ample choice for selecting clients. “When local banks face liquidity problem and when they fail to lend to the market’s appetite, I think that is the right opportunity for any Indian bank to enter a market like UAE, particularly Dubai, where they get a chance to participate in the country’s economic growth,” he said. He went on to say that this is the time when the banks are able to have not only their choice of customers, but comfortable pricing and proper security. Running one branch operation has worked well in favour of the bank because as Kumar notes, the bank has been able to focus on the customers very well. Underscoring the fact that the lending rates are low in the UAE compared with that in India, he said, this has acted as an advantage for a bank like PNB because so many Indian corporates have come and set up their offices in the UAE in order to cash in on the non-tax regime benefits and low interest factor. “There are several Indian companies, basically trading businesses, which do the same business from the UAE by setting up their subsidiaries here, and this is a growing potential clientele for us,” said Raj Kumar. Trade finance involves short-term lending and this is cumbersome and
renders the balance sheet volatile. However, PNB preferred to build up volume through short-term assets and this is how the bank could achieve the critical mass in business volume. “In fact, the short-term asset class has offered us good profit, notwithstanding its low spread, unlike in the case of long-term assets with better spreads,” he said. He explained that the funding for these short-term financing is primarily done with the help of the lineof-credit from international banks on the strength of the parent bank. Kumar said though the bank cannot raise deposits from the UAE market, it could tap the medium to long-term funding from corporates as deposits from outside the UAE or through syndicated deals. The PNB chief said the bank is currently planning to raise funds through the issue of bonds in order to catch up with the pace of growth. PNB has recently raised funds through syndication in Singapore where three banks had participated. On the size of the forthcoming bond issue, Kumar said, “We are planning to issue bonds sized between $330 million to $500 million to fund the Dubai operations. The funds thus raised could also be used for the other overseas operations,” he added. Outside India, PNB has operations in nine countries and they include – Hong Kong, London, Bhutan, Nepal, Kabul, Kazakhstan and representative offices in Dubai, Oslo (Norway) and Shanghai.
BANKING & BUSINESS REVIEW
May 2011 39
Planning a capital boost South Indian Bank enters retail gold business
S
outh Indian Bank enters retail gold business For South Indian Bank (SIB), one of the largest private sector banks in India, growth has always been faster than the industry average. Even for the last financial year, the bank grew at the rate of 25 to 30 per cent on all its operational fronts. During an interview with Banking & Business Review (BBR), recently, Abraham Thariyan, SIB’s Executive Director said the bank was very close to the target numbers set for 2013. “We have set a target of $17 billion (Rs750 billion) for business volume, 750 branches and 7,500 employees to be achieved by 2013. We are very near these numbers and on the branch network, we are already close to 650, notwithstanding the fact that we have more than 30 months to go from now,” Thariyan added. Though the bank is very comfortable with its present equity (networth) at $340 million (Rs15 billion) and capital adequacy ratio (CAR) of 14.89 per cent (as per Basel II norms), an additional injection of capital to support the bank’s fast growth cannot be ruled out. “It is true that we are comfortable with the current capital. But if the growth necessitates additional capital, we will not turn our back to that idea,” Thariyan added. However, he did not commit on the route through which the capital may be raised. “There are different ways at our disposal to raise additional capital – it could be through fresh offering to the public; it could be a rights issue or even GDR issue.” Talking about the Indian banking industry, Thariyan said the well-regulated system has helped the banks in India tide over the crisis in a very efficient way. The Reserve Bank of
40 BANKING & BUSINESS REVIEW
Abraham Thariyan
India (RBI) has put in place strict norms to ensure the banks do not fail or fall during adverse times. Indian banks are well capitalised with minimal off-balance transactions and this has indeed helped the Indian banking industry to find its rhythm during the tough times that began towards the last quarter of 2008. While the SLR (statutory liquidity ratio) prescribed, which is the amount a commercial bank needs to maintain in the form of cash, or gold or government-approved securities (bonds), is at 24 per cent, the banks need to maintain a cash reserve ratio (CRR) of not less than 6 per cent. Thariyan said despite these tough ratios, the Indian banks have a very healthy credit-deposit ratio (CD). Recently, the RBI asked the banks to allocate 70 per cent provisions against non-performing assets (NPAs). SIB is perceived as a one of the most
May 2011
sought after stocks in India. One of the key reasons for this could be the ownership structure of the bank, which is 68 per cent owned between foreign and domestic financial institutions (Fis), and the remaining owned by about 100,000 retail investors. But Thariyan lamented about the lack of level-playing field when it comes to priority sector lending, where the nationalised banks stand to enjoy a better deal from the government. “We are required to assign 18 per cent for agricultural loans from the 40 per cent mandatory priority lending, and here nationalised banks get a three per cent subsidy from the government, rendering a non-level playing field between private sector and nationalised banks, ” Thariyan said. He noted that there has been a drop in the remittance to India since the recession gripped the world. “This is reflected in the business of Hadi Exchange which is managed by South Indian Bank. However, things have stabilised and I don’t think further deterioration could happen to this,” he added. SIB, which has signed a cooperation agreement with Hatton National Bank, the third largest bank in Sri Lanka, has ruled out any acquisition plans in India. Thariyan said there are enough opportunities in India for organic growth and RBI stand is very encouraging on this. The bank has plans to enter mobile banking during this year itself. The Internet banking capabilities of the bank have grown substantially and the bank is now well equipped to perform interbank transactions. As part of the business diversification, SIB has entered the retail gold business that will help its customers access pure gold at the right price.
TOURISM
Vikas Rustagi
Passionate promoter Incredible India rolls out exciting fare as tourist arrivals record sharp increase
W
hen a professional turns bureaucrat, it shows in his approach. For, unlike his colleagues in the Establishment, who tend to see things from only one side of the fence, it is natural for the professional to have a wider perspective. Vikas Rustagi, the new Regional Director (West Asia & Africa) at India Tourism Dubai, had spent long years in the hospitality industry before he joined the Indian Ministry of Tourism and as such his professional career holds much sway over his approach as an administrator. No wonder, Rustagi gets very passionate when he talks about tourism. Vikas Rustagi, who moved to Dubai barely three months ago, says he is already excited about his experience and interactions here. “I am perhaps the only Regional Director who has got the opportunity to handle such a prestigious event as the Arabian Travel Market within three months of taking up the assignment,” he confides. “I am quite excited about the scope of things to do here as well as the high levels of interest India evokes among the local tour and travel industry as well as the media.”
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As West Asia and Africa is an important market for India Tourism, Rustagi says he is in the process of putting together his plan of action, which will have medical tourism as a key focus. “India is a perfect destination for medical tourism that combines health treatment with visits to some of the most alluring and awe-inspiring places of the world. A growing number of tourists are flocking in large numbers because of the superlative medical care, equipments and facilities that India offers,” he points out. “We would like to focus on these aspects that make India the must-go destination,” he said. In fact, medical tourism was a key theme at this year’s ATM as the event itself had a dedicated Medical Tourism pavilion. India’s vast potential as a health and wellness tourism destination, backed by its medical facilities and world-class doctors and hospitals, ancient healing systems such as Ayurveda and other rejuvenating programs coupled with modern medical amenities as also the diverse tourism products such as rural tourism and culture was on show at the India stall. India excels in providing quality and cost effective health
care services to overseas tourists. The field has such a huge potential that it can become a $2.4 billion business by 2012, Rustagi points out, quoting from a report by research firm RNCOS. According to the report, medical tourism in India is growing at a CAGR of over 27 per cent between 2009 and 2012. The number of medical tourists is anticipated to grow at a CAGR of over 19 per cent to reach 1.1 million by 2012. The report adds that India’s share in the global medical tourism industry will climb to around 2.4 per cent by the end of 2012. “Come to think of it: The cost of medical services in India is almost 30 per cent lower to that in Western countries and the most cost effective in the entire South East Asia. Indian hospitals excel in cardiology and cardiothoracic surgery, joint replacements, transplants, cosmetic treatments, dental care, orthopedic surgery and much more. All medical treatments and investigations are done using the latest, technologically advanced diagnostic equipments. The cost of infertility treatments in India is almost one-fourth of that in developed nations. You name it and we offer the best and the most cost effective option,” Rustagi said. “Moreover, India is just about three hours away making it easier for patients to visit even for follow-up - offering unmatched proximity and value-for-money,” he added. The show also provided a glimpse of the newer destinations as also the countless cultural, spiritual and travel experiences that India offers. Rapid improvements in accessibility and infrastructure, well trained human resources, falling prices and an aggressive multi-pronged marketing campaign under the banner Incred-
India is a perfect destination for medical tourism that combines health treatment with visits to some of the most alluring and awe-inspiring places of the world ible India have all given a huge boost to the tourism sector and have helped make the multi-faceted sub-continent into one of the most sought after holiday destinations in the world. Foreign tourist arrivals into India have witnessed a steady increase over the years, touching 5.58 million in 2010, an increase of more than 9 per cent over 5.1 million tourist arrivals in 2009. Rustagi explains how the greater involvement of the private sector is boosting India’s tourism industry, with the Ministry of Tourism performing the role of a facilitator. The government helps in building up the required infrastructure and the new approach has already made a big change in the fortunes of Indian tourism industry. Tourism is becoming a major employment provider in the Indian economy. Referring to the relatively high hotel room rates in India, Rustagi said it is a matter of demand and supply in the mar-
Sanjay Verma, Consul General of India, inaugurating the India Tourism stall at the ATM
BANKING & BUSINESS REVIEW
May 2011 43
Rapid improvements in accessibility and infrastructure, well-trained human resources, falling prices and an aggressive marketing campaign under the Incredible India banner have given a huge boost to India’s tourism sector ket. There is a shortage of rooms, particularly in the metros, which is pushing up the rates, he pointed out. But new hotel building programmes are expected to ease the situation considerably. There are currently about 125,000 rooms available, but another 48,000 new rooms are being added, 80 per cent of which are in the metros, he pointed out. Apart from this, large numbers are being added to the unorganized sector in smaller cities and towns, expanding the choice available to tourists. The unorganized sector largely addresses the needs of the domestic tourist population, which is
growing by leaps and bounds. Rustagi said the packaging of destinations is catching up as a trend in India’s tourism industry. “If you take the tour of Taj Mahal, for instance, there is no way you can spend more than a day there. But if the tour can be packaged with additional itineraries, it can be spread over a couple of days or more,” he pointed out. Indian destinations are now being packaged more efficiently. Amidst the countless ways that India can capture world attention as a tourist paradise, there also exists a dynamic business opportunity as a splendid venue
Indian tourism officials with the Ambassador of India at the ATM
(From left) Sudhir Kumar, Assistant Director, India Tourism, Dubai, Vikas Rustagi, Regional Director, India Tourism, Dubai, Altaf Hussain, Spl. Secretary (Tourism & Culture), J & K, Chandresh Yadav, MD, Uttarakhand Tourism, Mubarak Gul, Advisor to J & K Chief Minister, M.K. Lokesh, Ambassador of India to the UAE, A.K.Gupta, Addl. D.G., Ministry of Tourism, Govt. of India, and T.W. Sudhakar, Director, India Tourism, South Africa
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India Tourism Stall at ATM
for international conferences and conventions of no less than global standards. India Tourism also sees the economic recession as an opportunity because India’s location in the region makes it a feasible choice for business as well as leisure travel, with segments such as wildlife tourism, monsoon tourism and luxury trains. Rustagi said India today boasts of world-class MICE facilities, equipped with the most modern convention centers, airports that contest with the best in the world and efforts to team the famous Indian hospitality with customization as per a visitor’s requirement. This is billed as another potential area for growth.
Vikas Rustagi with Sanjay Verma
BANKING & BUSINESS REVIEW
May 2011 45
The Misery Index’s Shadow
T
Uday Gupta
he year’s first trimester has seen no dearth of news of the headline-hogging, exclamation-mark-inducing variety: a calamitous natural disaster (Japan), revolution or almost (Tunisia, Syria, Egypt, Yemen), fratricideturned-awaited-regicide (Libya) and theatrics at the lip of an economic abyss (Portugal). Buried in newspaper midsections, however, and often glossed over because of the rip-roaring stuff on the front pages, is the growing evidence of a much more internationally pervasive and sinister shadow. So economic will-leaching, so wretchedness-inducing is the full blown manifestation, that one of the most depressing economic yardsticks ever was resurrected in the 70’s to describe its ravages - the ‘Misery Index’. This Shadow behind the Flames – computer gamers will get the reference and connotations immediately - is Stagflation. In encyclo-
paedia -speak, this is ‘……a situation in which the inflation rate is high, ….the economic growth rate low,…. and unemployment high… sometimes growing’. This is also obviously a situation that is counterintuitive. Economic causality is often commonsensical: low economic growth = high unemployment (who’ll employ when there’s no growth?) = low inflation (who’ll buy when unemployed?) is how it usually goes. (And don’t we, survivers of the Great Recession all, know?). Two factors have caused the equation to go off track in the past, and morph into Stagflation. The first has been the Government policy - it is easy to imagine a situation where stifling economic regulation, for example, short-circuits the equation; unfortunately, truth has sometimes followed fiction. The second has been supply shocks to commodity markets; price rises or shortages simply choke off growth.
Two factors have caused the equation to go off track in the past, and morph into Stagflation. The first has been the Government policy and the second has been supply shocks to commodity markets 46 BANKING & BUSINESS REVIEW
May 2011
In 2011, it is not so much actual shortages as the inflation resulting from the expectation of shortages that is the problem. Despite the post –Bin Laden mini-crash, the long– term trend remains resolutely upward - pointed. The first recall commodity for everyone now, is, of course, the 100dollar-plus oil. True, the troubles in the Middle East and North Africa have cut back supplies, and spare oil production capacity is low. True, the voracious appetite of Chindia and the BRICS loom. Oil soared to $147 a barrel in 2008, bottomed at $37 in 2009 and has soared again to $100 plus today. The sizzle and fizzle has resulted purely from hugely magnified expectations of future demand and supply. Many fingers point to the recent explosive growth in commodity speculation as the culprit. Commodity trading is easier done now than ever before, aided by a never-heretofore fluidity of information flows. For example, to open an online account with a discount commodity broker takes about 15 minutes today, from Googling up ‘Online Commodity Broker’, to ‘Congratulations !!! You’ve Opened Your Account !!!’ (with a few other requirements). And this is at the retail level of a single, insignificant, non- Platinum Cardqualifying customer; think of how much the entire process is magnified when institutional behemoths tussle daily. Staples and other traded commodities have been similarly affected. Again, there is a steady increase in demand, but again, despite grain production being hit by drought in Russia and the CIS last year, and in parts of Canada and the EU by bad weather, there is no suggestion of a yawning demand–supply gap. The prices of many non-food durables and consumables, piggybacking onto the prices of staples and essentials, have also joined the party by veering upwards.
True, the troubles in the Middle East and North Africa have cut back supplies, and spare oil production capacity is low A clue to how wary Central Banks are of this growing inflationary cloud on the horizon is in the slew of rolling interest rate increases that have hit (amongst many others) economies as disparate as those of the EU, Brazil, China, India, Vietnam, Thailand and Korea. Virtually, the only economy that is still insouciant, it sometimes seems, is the United States, where the Fed is still warily tiptoeing around the inevitable eventual increase. Which would have been reasonable, had the Fed’s other main official target, that of maintaining as near to full employment as possible, scored in the A range. It does not, as unemployment retreats agonizingly slowly from near double-digit figures, and the wonder of a jobless recovery unfolds. Unfortunately, this is also the post-Great Recession experience elsewhere, as job growth in many countries, especially in those in the developed world, remains far stickier than during any recovery in memory. The hit from more expensive money usually lands squarest and hardest on growth expectations. Inevitably, cautiousness about post-recession recovery has spread around the world like a contagion. Virtually no one talks of a V-shaped recovery today, with the take-off as steep as the descent; instead, the consensus is now around a wide bottomed U with an uneven, unsteady upward stroke. Even the Chindia cheerleaders are muted: in the last few months, talk of China at over 12 per cent or India finally cracking double growth have tapered off.
So here’s the scorecard: inflation and inflationary expectations – a tick, definitely; stubborn and high unemployment – tick; growth expectations – still reasonable, but subdued – a tick, maybe. Is the dreaded S within handshaking distance, then? There is every indication that its encroachment is being resisted. Growth expectations while being moderated are still decent in many parts of the world - and these are expectations still of growth, not of recession. Unemployment is not actually increasing significantly in any major economy. There is little evidence of the miasmic inflationchoking-off growth loop that marks true Stagflation. Governments have been refreshingly ahead of the curve, in many cases, in raising interest rates to hold down inflation. The Shadow looms, but does not engulf. Yet. For, what the ticks and almost ticks in the Stagflation boxes serve to highlight is the underlying fragility of the international recovery. As the World Bank President said a couple of weeks ago, the world is probably just one shock away from a double dip recession. If that happens, the second dip will almost certainly be accompanied by Stagflation. Watch this space for developments. (The author is a senior executive with the National Bank of Abu Dhabi (NBAD). The views expressed are his own and not those of his bank.)
BANKING & BUSINESS REVIEW
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AUTO
New Sporty
Tiguan R-line drives into
Middle East 48 BANKING & BUSINESS REVIEW
May 2011
T
he Tiguan seems even more dynamic, refreshed with the typical features of the R-line such as 19 inch “Omanyt” wheels, newly designed and finished bumpers as well as sporty interior details. The new equipment packages for the Tiguan R-line are now available in the Middle East. The Tiguan with the R-line “Exterieur” equipment package is recognisable through a whole range of specific body modifications. These include the colour coded bumpers which have been newly designed on the lower section, a diffuser integrated into the rear bumper (black grained) and a front radiator grille with double ribs finished in ”matt chrome”. Viewed from the side, black wheel arch extensions and colour-coded sills provide for an even more striking design. In addition, chrome inlays in the door attachments highlight the sportiness and elegance of the Tiguan. A logo on each wing panel also points out the sporty R-line equipment. Furthermore, it is equipped with the so-called dynamic running gear with a sportier shock absorber tuning.