Dubai: Commercial Bank of Dubai’s (CBD) efforts to rebalance its balance sheet with a more diversified mix of assets are bearing fruits in terms of strong growth in both commercial and personal banking business, said Peter Baltussen, Chief Executive Officer of CBD, said in an interview.
CBD’s gross lending to commercial banking customers increased by 17 per cent in 2014 as the bank embarked on a growth strategy that was focused on companies involved in trade and manufacturing in addition to growth sectors such as health care services and education.
During the last few years, CBD has significantly redesigned its personal banking strategy with greater focus on sales and distribution, which resulted in personal lending growing 35 per cent from Dh3.3 billion in 2013 to Dh4.5 billion in 2014.
“As a newcomer to this segment, our entry into the business was fast tracked by our strong corporate client base. We typically go to their senior managers and ask if they would like to have responsible lending offered to their staff. Most of them have responded very positively. So it has been an easy sell for us. Secondly our digital agenda has helped us to reach out to the new generation clients faster,” said Baltussen.
In the recent past the bank has been working on a strategy to achieve a more diversified and sustainable asset mix. “We are trying to rebalance our balance sheet. In the past more than 90 per cent of our assets were concentrated with commercial clients. We want to move it to 80 per cent in the near future and eventually to 70 — 30 asset mix in commercial versus personal banking,” he said.
The bank’s management sees that from a sustainability perspective it is better to depend on different revenue sources. From a digital perspective too, a diversified approach is seen working better for the bank in the future.
“There are a lot of people living in international markets who are looking at Dubai as an opportunity and the digital component of our personal banking services opens doors to these segment of customers, an opportunity that to date remains largely unexplored,” said Baltussen.
The bank began to focus more attention on personal banking from 2012 when the banking sector in the country began a turnaround following the financial crisis. “We always had a presence in the affluent segment. We have been witnessing very strong growth in the personal banking business during the last 2 years. In 2014 we saw a 35 per cent growth in personal banking business,” he said.
The bank expects to see healthy asset growth this year despite a projected slowdown in GDP growth resulting from the sharp fall in oil prices.
Appetite for corporate credit in the UAE has been flat during 2014, but is expected to accelerate in the current year. Many large projects that are being rolled out in the country are expected to drive corporate credit demand.
“We expect to see credit demand growth from oil & gas sector, new projects related to Expo 2020 and various infrastructure projects under way in the country. According to various estimates, Expo related infrastructure requires about Dh30 billion in funding. With many projects expected to start next year, government related entities and private sector companies are expected to tap both capital markets and bank market for funding,” he said.
Challenges to loan growth are expected to come from likely rise in cost of funds rather than availability of funds. Corporate banking customers benefited from the decline in interest rates last year. But going forward companies are likely to find it more difficult to borrow at such low rates, as cost of funds expected to go up along with a rise in US interest rates.
On the personal banking front too, the bank is expecting double digit loan growth in 2015. With the kind of expansion in the economy, more high income households are coming into the country which gives banks like CBD more opportunities in the personal banking side of the business.
“In the SMEs segment, there are a number of government initiatives to support SMEs and we are closely linked to a number of these initiatives. The environment in the country is very conducive for developing entrepreneurship and we are associated with a number of such initiatives that gives us exposure to good quality assets in this segment,” he said.
