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Saturday, 16 February 2008

NBAD to launch Islamic finance, realty units

ABU DHABI — National Bank of Abu Dhabi (NBAD) is set to expand aggressively during the year by adding two subsidiaries in the areas of Islamic finance and real estate, while new markets will be tapped for wholesale and retail banking business, said Michael H Tomalin Chief Executive of the Bank.
In an interview with Khaleej Times, Michael H.Tomalin spoke at length on the issues ranging from expansion of NBAD, locally and overseas, branching out to new businesses and on the health of economy. On controversial issues of banking mergers, revaluation of dirham, and de-pegging the currency, spiraling inflation he preferred not to answer keeping in view the sensitivities involved.
Two subsidiaries, Abu Dhabi National Islamic Finance (ADNIF) and Abu Dhabi National Property Company (ADNPC) with a paid up capital of Dh200 million each, will be launched shortly.
ADNIF has already been granted necessary permissions while for ADNPC, regulatory approvals would come soon, which would help commence business by March.
The property firm would not only take over the bank’s property business, but would provide property management and advisory services.
KT: What are your plans to capitalise on gains from the UAE and GCC equity markets. Is there any plan to launch a fund?
Tomalin: NBAD is planning to launch an open-ended GCC Equity Fund called Ajaj (hot waves) to take advantage of the equity markets.
KT: What plans does NBAD have for expanding the branch network during the year?
Tomalin: NBAD plans to open 28 new branches to increase its network to 104 branches throughout UAE and install 130 new ATMs to increase the ATM network to over 320 throughout UAE. We are constantly on the lookout for services and products that benefit our customers. In addition, our International banking business is expanding fast. NBAD has the largest overseas network of all the UAE banks with 21 branches and cash offices in Egypt, five branches in Oman, one branch and one cash office in Sudan and one branch in each of Kuwait, the United Kingdom and France. NBAD also has a wholly-owned subsidiary in Washington, Abu Dhabi International Bank Inc., and a wholly-owned private banking subsidiary in Switzerland, NBAD Private Bank (Suisse). At present, NBAD also has an offshore banking unit in Bahrain, and we are opening a commercial branch there in February. We also have plans to open in Libya, Jordan and Hong Kong to increase our international reach while our licence to open in Qatar is still pending.
KT: Banks and financial institutions are asking for more transparency by the Central Bank of the UAE, in its handling of certificate of deposits (CDs) auction. How do you see the situation?
Tomalin: It's fine to have auctions but there should be transparency in the results as to how many CDs were issued and at what rate. It will create transparency in dirham market.
KT:The dirham's peg to US dollar has its negative impact on economy. What is NBAD's position on it, is it good for the banking industry?
Tomalin: The dirham-dollar peg has served the country well for many years. Most of the UAE trade is denominated in dollars. However, inflation in the UAE is out of line with inflation in the US and it is difficult to have a monetary policy here to suit UAE circumstances and keep the dirham-dollar peg. Many argue that current inflation rates in the UAE relate principally to shortages in supply, particularly in the real estate sector. However, there is considerable wage inflation as well, given the strength of the economy, the competition for talent and the need for expatriate salaries to rise, as in many cases the dirham has devalued against the expatriates’ home currency.
KT: Rumours are doing rounds in the banking circles about NBAD's logical merger with another Abu Dhabi bank? Do you see the need for a merger at the moment, and when?
Tomalin: NBAD was and will remain crystal-clear on this sensitive and vital subject but some tend to follow rumours rather than solid facts.
So far, we are not a part of any negotiations or talks with any bank in the UAE for merger or acquisition. Yet, we think consolidation in the UAE banking sector is very important as we need to have bigger banks in order to meet the demands of our growing economy and the challenges posed by regional and international financial institutions. I do see further consolidation among the country’s banks in the face of increasing global competition. The process, however, may well take some time.
KT:What significant trends did you notice in the banking sector during the 2007?
Tomalin: More competition, especially from foreign players based in the DIFC, more diversification, away from deposit and loan business to fee generation and more sophistication, especially as clients become more demanding and risks more challenging.
KT:The subprime crisis has not only impacted the liquidity in the global banking sector, but also likely to push the US, economy towards mild recession. How do you see the situation, do you think it would have any impact on UAE banking sector as well as its economy?
Tomalin: The subprime crisis places downward pressure on economic growth, because significant losses from subprime loans have reduced the willingness of banks to loan funds to other financial institutions and to customers. Having said this, there are fundamental differences in the ways the markets in US or UK and the market in UAE operates. The market for the structured products in the UAE is relatively small. UAE’s financial institutions are strong and well capitalised. House prices in the UAE are increasing due to a fundamental shift in the economy. The UAE economy is transforming itself. Hence the increase in the real estate prices in UAE is more driven by supply constraints.
KT: What impact do you think the subprime crisis would cast on the ability of UAE banks to raise capital globally?
Tomalin: The subprime crisis and the massive write-downs were witnessed in the last quarter of 2007 and the report addition write-downs reported lately have contributed to a major re-pricing of credit risk. Notwithstanding the crisis, NBAD has successfully raised second convertible for Dh2 billion this week to strengthen our capital resources and improve dirham liquidity.
KT: What is the best use of the GCC liquidity, when globally banks are facing a credit crunch?
Tomalin: In the last few years, GCC countries have been investing heavily — yet logically — to diversify their economies away from the oil and gas sector. In addition, GCC states have a golden opportunity to invest globally due to the sizeable write downs reported by many international financial institutions and the ongoing impact of credit tightening, which offer attractive opportunities for liquid institutions.
KT: The real estate sector has topped in terms of expansion and investments, during the last couple of years, what trend do you see for 2008?
Tomalin: The demand for property in the UAE is real and sustainable. Many new people are coming to live here and many businesses are seeking to relocate themselves here. It is of course possible that there will be some correction in property values but if one compares values in the UAE with values elsewhere in the world, one often finds that capital values are still lower than those, for instance, in Europe and Asia, although higher than in some of the depressed regions of the US. On the other hand, rents have gone up here by international comparison, reflecting the demand and the shortage of supply. Some of the new supply will come through in the next two years or so, relieving pressure on rents. A modest correction in property values will not seriously impact bank profitability. --(Khaleej Times)

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