Institutions bolster retail business to offset slack on corporate side

Dubai: The UAE's banks need some comfort, and increasingly are seeking to enhance their retail businesses to compensate for the decline on the corporate side.

They are expanding the liability side of their retail business to balance their loans-to-deposit ratios, the aggregate figure for those institutions operating in the UAE, according to Central Bank figures, being 105 per cent at the end of May 2010.

"For the past six months we have witnessed a strong revival in consumer banking business in the country. While financing activity has picked up, we have witnessed strong growth in both the assets and liability side of our retail business," says John Chang, Head of Consumer Banking of Noor Islamic Bank.

The focus in the UAE has been on finding ways to expand the retail distribution channels. For instance, Emirates NBD, the largest UAE bank by assets, has said it will continue to expand and build on its existing network of 102 branches and 500 ATMs.

"While our headline loan-to-deposit ratio has come down to 103 per cent at end of the second quarter from 118 per cent at end-2009, customer deposits increased to 79 per cent from 73 per cent in the same period," said Rick Pudner, the bank's CEO.

Emirates NBD recently launched FlexiDeposits, a product that allows customers to make partial withdrawals from their fixed deposit while still keeping the rest of the deposit intact.

"The focus is on getting innovation at the right price and in the most convenient manner," says Vikram Krishna, Head, Group Marketing, Emirates NBD.

Noor recently launched its Advantage package, a ‘holistic banking solution' that offers preferential terms on credit cards and personal finance and a pre-approved Shariah-compliant overdraft facility.

Abu Dhabi Commercial Bank (ADCB) has gone a step further in acquiring Royal Bank of Scotland's (RBS) retail business.

"Retail is definitely an identified strategic growth area for ADCB, and not necessarily for asset growth, but essentially [as] a strategic growth engine as a business segment," said Arup Mukhopadhyay, Head of Consumer Banking at ADCB.

Taking their cue from the local banks, some of the foreign banks operating in the country too are aggressively expanding their retail products and distribution channels in the UAE.

HSBC said it is pushing ahead with aggressive product innovation to enhance its market share in both retail loans and deposits. It has made a substantial investment in its Direct Banking channels, boosting their convenience and security.

Bank of Baroda, the only Indian bank offering a full range of banking services, plans to expand its customer reach through more Customer Service Centres and Electronic Banking Service Units. The bank is in the process of adding five more electronic banking units in the UAE.

"Most of our initiatives and new products and services are targeted at retail customers. Today the bank is granting all types of loans such as personal loans, car loans and home loans," says Ashok K. Gupta, chief executive (GCC Operations), Bank of Baroda.

Although banks have not started downsizing their operations, a high level of risk-aversion has inhibited their retail lending activities.

Athough the retail business is seen as a core element of balance-sheet growth for the UAE banks in the medium term, the turbulence of recent times is still having its effect.

The International Monetary Fund, however, said in a recent report that the decline in lending and profitability of the banking sector in the region is a temporary phenomenon.

The complete version of this article will appear in GN Quarterly Financial review, on August 23 and be available also on www.gulfnews.com after publication.