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UAE to benefit from Cyprus crisis, with increase in capital inflows into region

Small-time investors seek safer places amid financial turmoil on island

Image Credit: AP
Employees of the Bank of Cyprus hold banners reading in Greek ‘shame’ during a protest at the Cyprus central bank in Nicosia.
Gulf News

Dubai: The financial turmoil in Cyprus will further boost the capital inflows into the UAE or the rest of the Middle East region, as small-time investors look for safer places to park their money, analysts told Gulf News.

The small Mediterranean island nation is reportedly a haven for many wealthy Europeans, Russians and Arabs who have billions of cash stashed in Cypriot banks. The decision to impose a levy on bank accounts will likely drive similar investors away to other investment destinations, such as the Middle East.

Shailesh Dash, CEO of Al Masah Capital, said the UAE is still considered a safe destination for many investors and it has demonstrated its resilience despite the credit default.

The increase in funds entering the country during the Arab Spring is testament to this. Over the past two years, about Dh30 billion flowed into the UAE from countries hit by the Arab Spring uprisings, Reuters earlier reported.

“It is quite possible that UAE and specifically Dubai could see foreign capital inflow from the Cyprus situation especially since the Cyprus banking sector comprises depositor demographics that already have a presence in the local banking sector,” Shailesh Dash, CEO of Al Masah Capital told Gulf News yesterday.


“Given that the UAE and Dubai benefited immensely from the Arab Spring, its reputation as a safe haven has become even more credible, despite the Dubai debt default. This shows the local model is resilient and sustainable which is the complete opposite of what is happening in the Eurozone and Cyprus. We would not be surprised if smart investors may have already decided to shift their capital towards our shores,” he added.

However, a rush of money out of Cyprus is not likely to happen soon, given that the government has announced it would impose some tighter controls to stem capital flight.

“With the unfolding situation in Cyprus, it is reasonable to expect that Middle East-based customers who have funds in the Cyprus banking system would look at other markets, including UAE, to diversify their holdings. However, given the transaction limits and other controls that are being imposed, the [capital flight] would tend to happen in a more gradual fashion,” said Suvo Sarkar, general manager for retail banking at Emirates NBD.

Confidence in banking system

Confidence in the banking sector remains high, with the country’s banks reporting an increase in profits and customer deposits.

Emirates NBD’s retail banking has had an outstanding year in 2012, with excellent growth across all businesses, according to Suvo Sarkar, general manager, retail banking, at Emirates NBD.

“The liabilities book has grown by close to 20 per cent, with growths coming across customer segments and from low-cost funds,” he added.

At National Bank of Abu Dhabi, customer deposits increased by 25.4 per cent to Dh190 billion as of December. Net profits for the last quarter of 2012 also jumped from Dh724 million to Dh1.12 billion, while loans and advances to customers stood at Dh164.6 billion.