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HomeWorldAbu Dhabi Bank sees retail demand after revolts: Islamic Finance

Abu Dhabi Bank sees retail demand after revolts: Islamic Finance

Abu Dhabi Islamic Bank PJSC (ADIB) plans to expand in North Africa as the lender controlled by the emirate’s ruling family seeks to access more-populous markets.

The bank applied for licenses in Algeria and Libya and is considering Tunisia and Morocco, Chief Executive Officer Tirad Mahmoud, said in an Aug. 4 interview. Interest in Shariah-compliant banking has increased since 2011, when revolts in North Africa catapulted Islamists to power.

Lenders are pursuing new markets as populations of about 8.3 million in the United Arab Emirates and 1.9 million in Qatar limit domestic growth opportunities. Photographer: Duncan Chard/Bloomberg

We are seeking to expand in nations with “a critical mass in terms of population and economic activity,” Mahmoud said. The bank wants to be better placed to serve companies, such as Dubai-based mall operator Majid Al Futtaim, which operate across the Middle East and North Africa and rely on global lenders such as HSBC Holdings Plc (HSBA) and Citigroup Inc., he said.

Peers including Doha-based Masraf Al Rayan said in February it plans to buy into a Libyan lender and convert it into an Islamic business. Abu Dhabi sukuk are in demand, with the yield on the lender’s November 2016 securities falling 53 basis points in the past year to 2.23 percent at 1:21 p.m. in Dubai, compared with an increase in Gulf Cooperation Council financial services yields tracked by HSBC/Nasdaq Dubai indexes.

Regional Mandates

Lenders are pursuing new markets as populations of about 8.3 million in the United Arab Emirates and 1.9 million in Qatar limit domestic growth opportunities. Since 2008, Abu Dhabi Islamic has moved into countries including Saudi Arabia, home to about 28 million people, Egypt, whose population exceeds 80 million, and Sudan, Mahmoud said.

“Regional companies, when they choose their banks, choose those that are present in all their key markets and they give them regional mandates in working capital management, trade, and foreign-exchange flows,” he said.

Banking services that comply with Islam’s ban on interest came into focus after autocratic rulers who long oppressed Islamists were toppled in countries including Tunisia and Libya. Islamic financial assets could double to as much as $3 trillion by 2015, Standard & Poor’s forecast last year.

Deep Pockets

Libya, where almost all of the 6.6 million people are Muslim, has no stand-alone Islamic lenders, while Tunisia passed a law in July to allow sukuk sales to boost Shariah-compliant banking. Morocco and Algeria plan to expand their Islamic banking businesses and are drawing up plans to sell sukuk.

“The population in these countries want Islamic banking and the Arab Spring has increased its acceptance,” Geert Bossuyt, chief executive officer of Dubai-based consulting company Khalij Islamic, said Aug. 6. “I’m not surprised either that the GCC banks are taking the lead in entering these countries because you need to have banks with experience and deep pockets.”

Immediate growth prospects for banks in North Africa may be subdued by social unrest in Egypt and Tunisia, as well as lower exports, tourism and remittances in Morocco and Tunisia stemming from the euro-zone crisis, according to Melina Skouridou, an analyst at Moody’s Investors Service.

‘Slow’ Payout

Emirates NBD PJSC (EMIRATES), the U.A.E.’s biggest bank, bought BNP Paribas SA’s Egyptian unit in December, the same month Qatar National Bank SAQ agreed to buy Societe Generale SA’s Cairo-based subsidiary. Abu Dhabi Islamic-Egypt is the country’s fifth-biggest publicly traded bank.

Egypt’s military forced Islamist President Mohamed Mursi out of office last month, a year after he became the country’s first democratically elected president. Political instability in the most-populous Arab country has hindered the nation’s ability to recover from the worst economic slump in two decades.

“International expansion usually coincides with lower profitability because you are entering markets you don’t know,” Jaap Meijer, director of equity research at Dubai-based Arqaam Capital Ltd., said by phone Aug. 6. “We are not always thrilled by banks expanding beyond their own borders, particularly if it’s a greenfield expansion, because the payout is quite slow.”

Longer term, economic growth in North Africa will benefit banks, especially in resource-rich countries such as Libya and Algeria, Skouridou said. Domestic business is picking up as the U.A.E. recovers from a property-market crash. Bank lending in the second-largest Arab economy expanded 5.2 percent year on year in May, double the growth rate at the end of 2012, according to central bank data. ADIB’s second-quarter profit increased 15 percent, the fastest in more than a year.

Mahmoud said MENA expansion is essential to capture market share from foreign lenders. “The trend now is for GCC banks to increasingly focus on playing a regional role,” he said.


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