190317 hsbc
A branch of HSBC at the Dubai Mall. HSBC’s optimism is supported by its improved numbers in terms of sales, portfolio quality and attrition. Image Credit: Gulf News archives

Dubai: HSBC expects its retail business in the UAE to continue to grow stronger and faster this year, Marwan Hadi, head of Retail Banking and Wealth Management in the UAE, told Gulf News in an interview.

Overall 2018 was a good year for HSBC’s retail business in the UAE and with the economy projected to grow better than last year, the bank expects growth in customer numbers to improve. While the last quarter of 2018 witnessed some major corrections in global markets driven by lower oil prices and geopolitical uncertainties that impacted the region and the UAE to some extent, Hadi believes the economy and the banking sector has proved to be very resilient.

“We as an organisation believe that markets will go through such corrections from time to time, but these are all temporary in nature. We don’t foresee any major economic troubles on the horizon, that will require us to shift away from our overall strategy,” he said.

HSBC’s optimism is supported by its improved numbers in terms of sales, portfolio quality and attrition. Last year, most banks focused on building business on the liability side offering deposits products at higher interest rates. HSBC was one of the early entrants in the market and the bank continues to increase its deposit base with healthy risk-free margins.

From the second half of last year banks have been competing to attract deposits, especially CASA [current and savings accounts] to attract stable and cheap funding. Competition among banks saw deposit rates picking up. For savers, the rates have become attractive from 1 to 1.5 per cent previously to 2 to 4 per cent, depending on the term of the deposits and size.

Growing economy

Economic growth across the GCC have picked up momentum from last year, especially in the UAE and Saudi Arabia. In these two economies, GDP is projected to grow about 3.5 per cent this year.

Going by the year on year growth in customer numbers, Hadi is confident of a better year ahead. He said some of the concerns relating to real estate sector will not have any significant impact on asset quality as the banking sector in the UAE is well protected by the tighter lending norms.

“In the short term some banks’ asset quality could face limited stress, but since 2013-14, central bank issued new mortgage regulations and Dubai Land Department tightened the regulations regarding transfer fees and sale fees, making flipping very expensive and unattractive. With loans to value ratios (LTVs) remaining very conservative, despite the fall in property prices, the LTVs on mortgage portfolios still remain very healthy,” said Hadi.

While some property companies are likely to face liquidity issues, at portfolio levels, banks’ exposure to property still remains at very healthy levels. “At an overall level, our LTVs in portfolios are quite healthy and are much better compared to many developed real estate markets,” he said.

For banks LTV ratios come down over the tenure of loans. So, there is a mix of LTVs in the mortgage loan portfolios in the range of below 50 per cent to up to 70 per cent. “We haven’t seen any big impairment because of real estate. I do not foresee it because customers continue to pay their installments. In the short-term banks are likely to remain cautious and that is natural because of the ongoing correction in valuations,” he said.

Growing customer numbers

HSBC experienced steady growth in customer numbers last year, below 5 per cent mark. The bank expects the growth this year to exceed 5 per cent.

“Balance sheet growth in the portfolio has been flat. Usually customer numbers growth precedes balance sheet growth. HSBC’s biggest growth has been in the premium customer segment that constitutes higher salaried customers, followed by the mass affluent and the mass segment.

Hadi said the pause in US interest rates are good for the UAE economy because the UAE was not growing at the same pace as the US economy that warranted a rate hike. Although the economy didn’t need the rate hike, it has been resilient to absorb the rate increase and continued to grow, he said