Interview: Bernd van Linder
To what extent is further consolidation of the banking system expected in the coming years?
BERND VAN LINDER: Financial institutions need to have a certain size and scale to invest in the required technology and regulatory compliance, and as such we have seen a wave of mergers across the Middle East. This makes sense from a shareholder perspective as the remaining banks continue to profitably serve their customers. In my opinion there is no need for further consolidation in the UAE because a country of 10m can easily accommodate 15 commercial banks. While there may be 50 banks operating in the UAE, many are branch operations and subsidiaries of foreign banks that have a local commercial licence to only serve a specific, small community here.
How have recent government initiatives helped bridge the financing gap for small and medium-sized enterprises (SMEs) in the UAE?
VAN LINDER: The first point to stress is that there has traditionally been too much focus on SME financing and not enough focus on SME banking. SMEs need to get operating accounts, cash management solutions and foreign exchange solutions. Their needs go beyond financing. A joint effort between the government, the legal system, large companies and banks is needed to develop SME banking.
The government’s credit guarantee scheme was designed to boost SMEs’ contribution to the economy and is a necessary step in strengthening SME banking. Similar programmes have been established in countries such as Saudi Arabia, Lebanon and Turkey, and these examples show that this approach works. Credit guarantee schemes should not be 100% though, since this creates a moral hazard. Instead, a ratio of 70-80% works well to encourage banks to perform proper credit assessments. The UAE’s plan follows this formula, with the Emirates Development Bank guaranteeing 70-85% of the loan.
Moving forward, large companies should tap local SMEs to act as suppliers and service providers to build a well-functioning ecosystem. SMEs would benefit from this not only in terms of revenue, but certification as a supplier or provider for a well-regarded corporate player allows SMEs to gain further access to SME banking services.
Banks themselves should facilitate this by setting up products in a way that is more accessible for SMEs. This means accepting the increased cost of risk for financing, but offsetting this uncertainty by providing the SME products in-house so that cash management, treasury and trade can all be overseen by the financier.
What are your expectations in terms of the performance of Dubai’s wealth management segment in the coming years?
VAN LINDER: Dubai’s location is incredibly central to many significant markets. There are approximately 2bn people within a three-hour flight and 3bn people within a five-hour flight. This gives the emirate an edge as a centre for professional, well-regulated and well-governed wealth management in the region. While countries such as China have Singapore, the whole subcontinent is in need of a destination for offshore wealth management and the most attractive option for this is Dubai.
Our wealth management segment is expected to grow in the coming years, buoyed by the established oversight of the Dubai International Finance Centre, a large professional workforce, a convenient time zone and strong infrastructure. We expect that this growth will be spread across banks, funds and family offices. As a result, we are likely to see an expansion in the number of family and multi-family offices in the region, as well as the proliferation of the international banks of Switzerland, Luxembourg and Singapore that specialise in wealth management.
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