Dubai: Under the current economic and business environment, the UAE banking sector’s credit growth is expected to be flattish this year said Abdul Aziz Al Ghurair, CEO of Mashreq.

“I think credit growth in the UAE’s banking sector will be flattish this year. If it is 2 or 3 per cent growth, I consider it flat.

“Additionally, one needs to watch out who is really borrowing. Is it really filtering down to the real economy or large government entities are raising these funds?” he said.

Overall, he said, the banking sector profitability is expected to be under 10 per cent. “I think the net profit growth will be within 10 per cent this year for the banking system. We should also look at the sources of additional revenue of banks. Is it from top-line growth or reversal of provisions, or less provisions? We always look at profit growth from top-line growth, but there could be some growth coming from less provisioning and some from reversal of provisioning,” Al Ghurair said.

 

Iran opportunities

The opportunities from Iran’s nuclear deal for the UAE’s banking sector will become clear only when the details on the status of economic sanctions are made available and banks do not expect that to happen until the end of this year, he said.

Iran’s deal with world powers and the lifting the sanctions could open up enormous opportunities for UAE banks. It could however take 12 to 18 months for more clarity to emerge.

The UAE banking community is looking at the Iran deal very carefully. Banks are waiting for the detailed sanctions list to see what entities will be allowed and what will not be allowed.

“Once the list of businesses and customer segments on which sanctions are lifted are clear, I am sure — because of the historical relationships we have — our business community and our banking community will also be able to leverage that to develop business opportunities in Iran,” said Al Ghurair.

Specifically, it is trade and trade-related transactions that are expected to drive banking business with Iran in the initial phase. Traditionally the UAE used to be the leading trade partner of Iran and once sanctions are lifted the country is expected to bounce back as the leading trade gateway for Iran.

Mashreq also sees significant opportunities in trade finance as the country opens up for business.

“To start with we will start financing trade transactions of our customers, of course the goods and services that are in the permitted list. Branch openings or potential expansion of other banking services within Iran is too early to think about at this stage,” Al Ghurair said.

 

Acquisitions

The Mashreq CEO said there are only limited acquisition opportunities available in the region. Most of these opportunities have been identified and are done. He said Mashreq is not considering any expansion outside the region.

“The current trend in the world of banking is that a number of multinational banks are withdrawing from many geographic regions to focus on their core markets. In the past we have seen many international banks withdrawing from the UAE. There is increasing focus on home markets,” he said.