Banks must lead in best practices

Business failure is an accepted reality – unfortunately in the UAE, this often results in promoters abandoning ship by leaving the country, to avoid facing criminal prosecution. This causes a chain reaction of loss/damage to the employees, suppliers and banks. In many cases, the banks have to resolve this issue on a ‘fire-fighting’ basis. It is easy to blame this situation on external conditions, but it is often seen that most internal factors within a business drive it to failure.

Key stakeholders are often blind-sighted towards potential failure. In the UAE, apart from banks and a few large organisations, most companies are in the private domain and it is difficult to obtain credible financial information about a business. Banks usually have access to a range of financial information from most companies, including audited financial reports and in-house financial statements. However, there is a question as to whether this information is reliable.

Benchmarking is a tool by which, companies are evaluated against their peer groups, based on certain Key Performance Indicators (KPI). It helps to identify potential risks surrounding a company, including whether it is over-leveraged, whether operating costs are high compared to their peer group, and so on.

Benchmarking exercises carried out on a regular basis would help identify any risks to the company much before it fails. It is often an eye-opener to clients, as they may not be aware that they are the worst performers in their peer group.

As the UAE economy and its businesses are gaining strength and reputation on the world stage, it is imperative that banks take the lead in setting up a sound system of benchmarking, and ensure that their clients grow from strength to strength and take their rightful place in the economy.

— The reader is a business consultant, based in Dubai