Big UAE banks losing market domination

The domination of large national banks over the UAE market has been eroding drastically over the last couple of years. Foreign banks as well as smaller national banks are eating into the market of big five national banks.

While the five large national banks held 65 per cent of the total assets of the banking system as of 1998 end, it came down to 46 per cent by 2001 end. In the case of loans, the fall has been from 74 per cent to 47 per cent during this period.

According to leading rating agency, Standard & Poor's, competition among the banks in the UAE is increasing as the big national banks' institutional domination is being slowly contested.

The assets held by the top five banks as of December end, 2001, were - National Bank of Dubai (Dh32.66 million), National Bank of Abu Dhabi (Dh32.252 billion), Abu Dhabi Commercial Bank (26.592 billion), Emirates Bank International (Dh23.525 billion) and Mashreqbank (Dh22.700 billion).

The total loans and advances as per the financial statement of these banks were Dh7.187 billion, Dh20.339 billion, Dh16.555 billion, Dh14.534 billion and Dh10.462 billion respectively, as of 2001 end. On the asset side, the frontrunning foreign banks also boast of sizeable volumes.

While HSBC had an asset base of Dh16.364 billion as of 2001 end, that of Standard Chartered Bank was Dh15.615 billion and Citibank's assets reached Dh8.370 billion during this period.

The fact that the UAE banks enjoy an average net interest margin of 2.5 per cent to 3 per cent during the last couple of years points to the fact that there is enough potential for competition.

The competition is bound to see much tougher levels as the financial sector is meant to be fully liberalised by 2003 as part of the move to comply with WTO.

The fact that almost half of the market is controlled by about five banks, while the other half is being divided among almost 40 banks brings forth a clearer picture of the UAE banking sector.

Moreover, it's matter of weeks, before another bank with potential reach - Dubai Bank will be operational. This will inevitably aggravate the competition in the sector. Though it is argued that enough space is there in the UAE banking market, much tougher competition is anticipated in the future.

While UAE with a population of 3.2 million has 46 banks, Saudi with a much larger economy and a population of more than 22 million has only 10 banks.

This is why experts in the banking sector keep advocating for meaningful mergers among the UAE banks.