Top UAE banks step up lending as confidence rises
The 10 largest listed banks in the UAE maintained increasing levels of confidence in the second quarter by recording increased lending activity and a higher return on credit, according to data compiled by a leading global professional services firm.
Comparing the data of the 10 banks, Alvarez & Marsal said in its latest analysis that UAE banks’ profitability continued to increase, with operating income and net interest margins significantly higher than in the previous quarter.
In the second quarter, deposits grew faster (2.18 per cent) than loans and advances (1.75 per cent), resulting in a slightly reduced average loan-to-deposit (LDR) ratio. “Despite this, eight of the top 10 banks remained in the LDR ‘green zone’ of between 80 per cent and 100 per cent. Four of the top banks grew their L&A market share, and two banks increased market share overall [L&A and deposits],” the UAE Banking Pulse report for the second quarter of 2018 by A&M said.
Dr Saeeda Jaffar, the lead author of the report, said the second quarter saw good, steady performance by the UAE’s leading banks, “with no major surprises or causes for concern”.
“The most striking feature of the sector’s overall performance was the rise in operating income, the result of increased lending activity and a higher return on credit. This would point to increasing levels of confidence being displayed by the banks, which is also reflected by the reduced cost of risk, continuing the trend we have seen since the beginning of 2018. Overall, the sector continues to perform well. Profitability is maintaining its upward trend while growing returns on equity and liquidity remain at healthy levels. It has been a good first half for the sector and signs indicate these trends will continue in the second half,” said Jaffar, who along with Asad Ahmed and Neil Hayward authored the report.
The report uses independently-sourced published market data and 16 different metrics to assess the banks’ key performance areas including size, liquidity, income, operating efficiency, risk, profitability and capital.
The country’s 10 largest listed banks analysed are First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Union National Bank, Commercial Bank of Dubai, National Bank of Ras Al Khaimah, and National Bank of Fujairah.
In the quarter under review, operating income growth increased by 2.25 per cent, reversing the 1.37 per cent decline of the previous quarter. This was driven by an increase in interest income, which grew by 3.11 per cent, the result of the increase in L&A and – more importantly – an increase in yield on credit (YoC), said the report.
Net interest margin (NIM) increased by 2.61 per cent, at a higher rate than in first quarter. “The increase was driven by a rise in YoC, which more than offset a parallel increase in cost of funds. Only three of the top 10 banks reported a decrease in NIM,” said the report.
“However, the increase in operating income was not sufficient to reduce the cost-to-income ratio, which at 33 per cent was 70 basis points higher than in the first quarter of 2018 [32.3 per cent]. An increased level of sales and general and administrative expenses was the main reason for the increase.”
Higher output and recovering crude prices aid GCC’S growth
Higher crude production and recovering oil prices will aid growth in an otherwise sluggish oil sector and strengthen fiscal and external balances for the GCC economies, a global organisation of chartered accountants said in report.
However, despite the positive outlook downside risks remain as rising interest rates and tighter monetary conditions could slow down momentum in the non-oil private sector amid escalating trade war between US, China a wnd the EU that could weigh on the region’s economic outlook, ICAEW, the accountancy and finance body, said in a report.
After a relatively slow start to 2018, macroeconomic conditions seem more promising for regional economies with the overall, Middle East GDP expected to grow from 0.9 per cent in 2017 to 2.4 per cent in 2018.
In its latest Economic Insight report produced by Oxford Economics, ICAEW said the global crude oil price is forecast to average at $78 per barrel in second half 2018, and at $74.5 per barrel for the year.
“Although the rise in oil prices promises to support growth in the region, rising interest rates and tighter monetary conditions could slow down momentum in the non-oil private sector,” said Mohamed Bardastani, ICAEW Economic Advisor and senior economist for Middle East at Oxford Economics.
“Moreover, any escalation of the trade war between US, China and the EU could weigh on the region’s economic outlook through weaker external demand and lower oil prices. Sustained implementation of economic and structural reforms is needed to improve the business environment, eliminate impediments to job creation and to reduce the government’s footprint in the economy,” said Bardastani.
Citing recent IMF figures, the report said Bahrain and Saudi Arabia are under the greatest pressure with highest fiscal break-even oil prices this year at $113 and $87.9 per barrel, respectively. Followed by Oman and the UAE at $77.1 and $71.5 per barrel, respectively. Kuwait and Qatar enjoy the lowest fiscal break-even oil prices at $48.1 and $47.1 per barrel, respectively.
The report said the non-oil private sector is also starting to show some signs of recovery. The Purchasing Managers’ Index (PMI) for Saudi Arabia and UAE, the region’s biggest economies, reached their highest levels this year in June, reflecting growing momentum in the non-oil private sector. Michael Armstrong, ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA) said Saudi Arabia is on the right track to economic diversification and is implementing the necessary fiscal and social reforms to support these efforts.
UAE’s mid-market properties add value to growing hospitality sector
Mid-market properties will continue to add value to the UAE’s hospitality sector in the coming years, however, operators will need to align their strategies with international expectations.
Speaking in a panel session at the Hospitality Leadership Forum, experts also noted that many owners are taking a more realistic outlook, when dealing with the mid-market segment.
“The mid-market segment is really coming to the forefront right now,” said Mark Lee, general manager, Media One Hotel. “There are lots of incentives to focus more on the segment nowadays, and owners have become a lot more realistic when they look at market conditions. This is evident when they are looking at investment opportunities. Before they never really had the option, but now, looking at the success of the mid-market hotels, they are seeing that there is a guaranteed return on their investment.”
Lee also added that operators will need to be a lot more creative with their offerings moving forward. This viewpoint was shared by Guzman Muela, general manager of TIME Oak Hotel & Suites, who further shared his observations on strategy. “Align your offerings to the expectations that you see in the rest of the world, otherwise you won’t be able to sustain the business,” he said.
“Look at markets that are fast emerging in terms of volumes, such as China. Do your research on what type of prices they are looking at, and then adapt your offering to cater to that segment.” He added that as Dubai and the UAE’s hospitality industry continues to mature, there is a shift to compensate the upper segment properties. However, this means that the expectation of the service at the mid-market properties has not lowered; in fact, guests are looking for four-star experiences at three-star prices, he said.
“There is a lot of focus on value today,” agreed Nayla Chowdhury, general manager of Hampton by Hilton Dubai Airport. “People are looking for quality deals at affordable rates. There are several choices in Dubai for the mid-market segment, but it is still not at the point that we should be. Guests are looking for something that is going to fit their purpose. Price is the biggest decision factor, definitely, but there are other things that they look for. Dropping the room rates to tempt guests into booking is easy, but this will not be the obvious answer going forward.”
Dubai’s high-tech sector attracts $21.7b
Dubai attracted $21.66 billion worth of foreign direct investment in high-end technology transfers in three years to emerge as the top global destination for FDI in technology transfers like artificial intelligence and robotics, according to organisers of Hitec Dubai 2018.
Dubai’s Department of Tourism and Commerce Marketing (DTCM) will be the destination partner for Hitec Dubai 2018, which will be held on December 5 and 6.
Co-produced by Hospitality Financial and Technology Professionals and Naseba, the two-day business-to-business exhibition will give Middle East buyers, currently worth over $75 billion, access to the world’s leading technology solution providers and experts in the hospitality sector.
“Dubai has an image of doing things big, bigger and biggest. Dubai has emerged as one of the fastest-growing smart cities in the world. With such visionary leaders Dubai will soon become the smartest city of the world,” said Frank Wolfe CAE, CEO of HFTP.
“With Expo 2020 and such a huge influx of tourist, hospitality industry will take the center-stage in positioning Dubai as the smartest city. Hitec Dubai gives an opportunity for regional hospitality buyers to introduce latest technologies into their organisations,” said Wolfe.
Hitec Dubai will feature three key areas including exhibition, technology theatres and a high-power conference.
Naveen Bharadwaj, production director of Naseba and Hitec Dubai, noted that Middle East continued to make huge investments in the hospitality industry given mega events such as Dubai Expo 2020 and the increase in tourists.
“A large portion of this is being spent on technology products and services that optimise internal processes, enhance guest experience and increase profitability. Hitec Dubai will address the needs of the industry by introducing top level regional stakeholders with leading technology providers from across the world,” said Bharadwaj.
“Over the last decade technology has led to drastic transformation in the hospitality sector globally as well as regionally which has boosted competitiveness and efficiency while creating new opportunities. Hitec Dubai will the perfect platform to see what lies ahead how the latest innovations and technological advancements are changing our industry,” said Hitec Dubai’s Advisory Council Chairperson Laurent A. Voivenel.
Sustainable investments in UAE gaining more traction
Investors in the UAE are ahead of many of their peers in Europe and Asia when it comes to investing sustainably, a UBS Investor Watch study reveals.
Investors in the UAE have a clear focus on sustainability. Eight in 10 say a priority for them is to create a better planet, the study of High Net Worth Investors said.
The vast majority – 93 per cent – of investors in the UAE believe they are not giving up performance by choosing a sustainable investment, compared to the global average of 82 per cent. Furthermore, 66 per cent of UAE investors expect sustainable investments to outperform traditional investments, compared with 50 per cent of investors surveyed globally.
The study also reveals stark differences in the sustainable investing landscape.
Emerging economies, such as China, Brazil and the UAE, indicate they have the highest rates of adoption of sustainable investing (60 per cent, 53 per cent and 53 per cent, respectiely), while investors in the US and the UK lag far behind (12 per cent and 20 per cent, respectively). The global average stands at just 39 per cent.
The Swiss bank’s report said the UAE investors expect sustainable investing to grow from 53 per cent of investors to 66 per cent over the next five years, compared to 39 per cent to 48 per cent globally, respectively. Three-quarters of investors (75 per cent) expect it to become the norm in a decade, well above the global average of 58 per cent.
The study found that investors in the UAE are also very interested in acting sustainably in daily life, and 80 per cent feel strongly about using their time and resources to help protect the environment, against the global average of 65 per cent.
UAE investors are some of the most passionate when it comes to philanthropy, with over nine in 10 (92 per cent) believing it is their responsibility to give back and that doing good is more important than having more money.
Emirates, Etihad deny reports of merger
State-owned Emirates and Etihad, two of the Middle East’s top airlines, denied a Bloomberg report on Thursday which quoted unnamed sources as saying Emirates was seeking to take over Etihad to create the world’s largest carrier.
“There is no truth to this rumour,” an Emirates spokeswoman said. Etihad made a similar statement.
Emirates is owned by the Government of Dubai, the region’s tourism hub, while Etihad is controlled by the government of neighbouring Abu Dhabi.
Both airlines, which grew rapidly earlier this decade, have faced pressures in the past two years because of tough competition in the industry.
Earlier this year, the two carriers signed agreements to cooperate in some areas, such as a deal under which Etihad pilots can join Emirates on a temporary basis for two years.
However, Sheikh Ahmed bin Saeed al Maktoum, chairman of Dubai Airports, president of the Dubai Civil Aviation Authority and chairman and CEO of Emirates Group, ruled out a merger in May this year.
A senior banker monitoring business in the Gulf said the idea of an Emirates-Etihad merger had been circulating “on and off for at least five years”, but that he hadn’t heard of any new development. No bank has been mandated to arrange a deal, which would be very difficult operationally, he added.