Thanks to a competitive domestic banking market, the UAE’s relatively small population of around 9.2m and plentiful capital reserves, Abu Dhabi’s Islamic lenders are well positioned for international expansion. And in this regard, the two Abu Dhabi-based Islamic banks have already established a track record of success.
The foreign expansion of Abu Dhabi Islamic Bank (ADIB) began in 2008 with the purchase of Egypt’s National Bank of Development, a commercial lender that brought ADIB 70 branches distributed across all of Egypt’s governorates. The following years saw the new acquisition transformed into a sharia-compliant operation and a profitable entity in its own right.
In July 2012, ADIB announced the opening of its first fully fledged international branch in Baghdad, which it established as a conduit for UAE and GCC investments into the country. The first phase of its local market strategy involves offering corporate finance, investment banking and treasury products, as well as traditional commercial banking services like international trade finance. Subsequent months saw further details emerge regarding the bank’s expansion strategy.
In May 2012, ADIB opened its first branch in the UK, a high-profile unit near Hyde Park, which it intends to use to attract Emirati clients who use London as a base for business. In December 2012, ADIB opened a branch in the Sudanese capital of Khartoum, from which it is offering wealth management and corporate banking services, and in February 2013 its branch in the Qatar Financial Centre opened for business, a move that enables it capitalise on a recent ban prohibiting conventional banks from offering Islamic financing.
Al Hilal entered the market in 2008, and has since concentrated on building its base within the UAE, including the creation of a sharia-compliant insurance arm and a motor vehicle financing operation. Nevertheless, in 2010 it moved into the frontier Islamic market of Kazakhstan, and by 2013 had established three branches in Almaty, as well as branches in Astana and Shymkent. In addition to facilitating UAE investment in the country, the bank offers locally focused corporate and retail services, including a range of sharia-compliant products for small and medium-sized businesses.
The onset of the Arab Spring in 2011 brought the question of regional expansion by Islamic banks to the fore, with changes in government across North African countries offering the promise of a more favourable regulatory atmosphere for Islamic finance. In July 2013, Tunisia introduced a law to allow locally licensed banks to sell sukuks ( Islamic bonds), mirroring a legislative change made in Egypt the previous May. Both markets hold significant potential for Abu Dhabi’s sharia-compliant lenders, while nearby Libya has no fully Islamic banks at present and therefore represents another significant opportunity.
It is of little surprise, therefore, that North Africa forms a central part of ADIB’s current expansion strategy. In August 2013, the bank’s CEO, Tirad M Mahmoud, told local press that it had applied for licences in Algeria and Libya, and was considering doing likewise in Tunisia and Morocco. Explaining the rationale of the various moves, he cited the bank’s desire to expand in nations with “a critical mass in terms of population and economic activity”, while putting the bank in a position to serve UAE companies operating in the region. Al Hilal, meanwhile, has been more reserved in its expansion plans, with CEO Mohamed Berro telling the local press in September 2013 that it will continue to grow organically and undertake foreign expansion according to an “opportunistic approach”.
Expanding into foreign markets, particularly in greenfield projects, frequently presents a challenge to profitability in the short term, with return on investment generally slow to emerge. However, the longer term benefits of moving into the large and rapidly developing markets of North Africa are clear, and Abu Dhabi’s sharia-compliant lenders are positioning themselves at the forefront of a wave of expansion that will likely see lenders from across the Gulf region seek a foothold in the sizeable markets of both Egypt and the Maghreb.
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