Interview: Ala’a Eraiqat
Why do you believe Abu Dhabi’s banking sector was so resilient during the financial crisis, and how have lenders adjusted their activities since then?
ALA’A ERAIQAT: The financial world has changed dramatically over the past three years, and this has caused banks to reassess their business. We are part of the global economy, but knowing the strength of Abu Dhabi’s market and recognising how much attention is being paid to economic planning, we were very optimistic. Additionally, as a result of the transparency of the government, it is easy to see the future direction of the emirate. The Economic Vision 2030 is real and being implemented. All projects that are happening today fit as building blocks into the vision, and banks are playing a key role in this facilitation. The government has done its part by articulating the vision and putting money and energy behind the plan, so it is imperative that local banks also support these efforts.
In response to the crisis, we made a decision to focus on what was in our realm of control. We have also had a clear strategy to concentrate on the core businesses of commercial and personal banking within the UAE. For example, our acquisition of the Royal Bank of Scotland’s local retail banking portfolio and the divestment of our stake in Malaysia’s RHB Capital.
Abu Dhabi is in a unique situation; the government has a stated vision for the next 17 years. It is important to adequately emphasise how important this is in terms of the business community’s planning for the future.
Bank deposits in the UAE are usually short-term, while there is growing demand for long-term project financing. What challenges are posed by this mismatch in maturity lengths?
ERAIQAT: The tenor mismatch is one of the biggest challenges that UAE banks face, but this is something that the financial community has become accustomed to. There are certain tools being developed, such as bonds being issued by government-related entities, where we see huge demand from retail and institutional investors. This indicates that there is a need for more of these investment instruments. These products can also be used to raise funds from the local market to help fill the gap caused by the tenor mismatch. Local deposits will continue to be short term, but in the future we will employ a wider range of tools rather than simply encouraging longer-term deposits.
How would you characterise the credit rating environment, and how does it affect lending practices?
ERAIQAT: Local banks have benefitted from large exposures and a large number of clients, helping them to observe portfolio trends and develop their own credit risk management tools. However, this is no substitute for a credit bureau; an independent credit bureau would help improve on these existing tools and reports. That being said, this has not stopped banks from lending on account of this gap in information, but they have been more selective, focused and qualitative.
Additionally, there are more mechanisms being developed to help borrowers collateralise against loans. Currently the only pledge that can be made is on vehicles and properties. In some developed markets, other assets can be collateralised and this is being discussed. Implementing such liquidity management tools will be a positive development for the cost of credit.
How are local banks balancing their offerings between lending and savings products? How can savings be encouraged?
ERAIQAT: All banks aspire to foster greater demand for savings products. Local demand is improving and this shift is taking place faster than in many other countries; the level of financial education in the younger generation is very high. I believe that this mindset can be partially attributed to the financial crisis. The biggest contributor to the financial crisis was overleveraging in households, so this will live in the minds and memories of future generations. Hopefully, this will act as a solid foundation for responsible financial behaviour.
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