Dubai has improved its standing as one of the world’s top financial hubs and reinforced its position as a key regional centre for banking services, according to a recent survey on the global finance industry.
Released on September 12, the Global Financial Centres Index, prepared by the China Development Institute and the London-based think-tank Z/Yen Partners, ranked Dubai 15th out of 100 leading international business centres, an improvement of four places on last year.
The result saw the emirate retain its place as the leading financial centre in the Middle East, with the top-three spots taken by New York, London and Hong Kong, respectively.
Key factors fuelling Dubai’s rise in the rankings included its supporting infrastructure, which was ranked 7th out of the top-15 cities on the list, its human capital and financial sector development, both rated 9th, and its broader business environment (11th).
Further supporting the climb up the index was the emirate’s banking sector, which was assessed by industry analysts as being 8th out of the top 15, followed by the standard of its professional services (9th).
Dubai also benefitted from its stability – rated by the index as having a lower sensitivity to changes in its instrumental factors, such as business environment, human capital and infrastructure.
Reforms and economic expansion providing strong platform for banking growth
Dubai’s efforts to create a favourable business environment have led to growth in financial services activity in recent times, with the Dubai International Financial Centre (DIFC), the emirate’s main financial hub for offshore banking services, experiencing a 6% increase in the number of wealth and asset management companies registered with it in the 12 months to the end of June.
The DIFC now has more than 200 firms in the wealth and asset management segment, according to a statement issued by the centre in early September, with 13 of the industry’s leading 25 companies housing their regional headquarters at the site.
Looking forward, the broader economic outlook for the financial services sector is strong, according to Bernd van Linder, CEO of the Commercial Bank of Dubai.
“The main driver of the banking sector is GDP growth, and current forecasts for 2019 are positive, with trade and tourism performing well, and real estate showing signs of stabilisation,” he told OBG.
The IMF forecasts broader UAE expansion of 2% this year and 3% next, up from 0.5% in 2017.
Furthermore, van Linder said a number of reforms undertaken by federal authorities – including allowing 100% foreign ownership of onshore companies and the granting of 10-year visas to some professionals, both of which are expected to be ratified before the end of the year – would also have a positive impact in the sector.
Consolidation forecast for Gulf banking sector
The strong outlook comes as a number of financial institutions look towards consolidation as a possible means of improving their competitiveness on a regional scale.
On September 12 ratings agency Moody’s forecast there could be a new wave of mergers and acquisitions in the Gulf banking sector, in part prompted by competition for concentrated deposit sources, which, combined with the increase in US interest rates, is pushing up funding costs.
Such a view has been supported by news that three leading Abu Dhabi-based banks – Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank – are currently undertaking talks on a possible merger deal. Some industry figures believe this could lead to similar developments elsewhere within the UAE, such as in Dubai, where lenders will look to strengthen their regional position.
An example of this was seen in the 2007 tie up between Emirates Bank International and National Bank of Dubai, which created Emirates NBD, now Dubai’s largest bank in terms of assets.
John Iossifidis, CEO of Dubai-based, sharia-compliant Noor Bank, told OBG, “There are more than 50 banks operating locally and the market is very competitive. Many institutions do not have the scale to compete with the market leaders. Further, many do not possess the resources to invest in the new technologies required to keep up with the competition. Given these circumstances, it would be logical to see some consolidation.”
“Notwithstanding these incentives to merge, the overall strength of banks in Dubai, coupled with improving investor sentiment and differing shareholder expectations, may limit the push for further mergers." he added.