Banks of UAE: Competition and loans rates

Published January 12th, 2012 - 10:19 GMT
Despite the fact that the UAE is a bigger banking market in terms of assets, it remains less profitable than that of Saudi Arabia
Despite the fact that the UAE is a bigger banking market in terms of assets, it remains less profitable than that of Saudi Arabia

Cut-throat competition in the UAE’s banking sector is delivering good news for customers, but bad returns for shareholders. That is the verdict of a new overview of the Gulf’s banking sector released yesterday by Abu Dhabi Islamic Bank (ADIB), which found that customers of UAE banks can take advantage of the lowest loan rates in the region.

However, the lower rates charged by UAE banks - and, ironically, the fact that even these are not low enough for some to avoid defaulting on their debt, leaving banks with a hefty batch of non-performing loans - means that the UAE sector makes less profit than that of Saudi Arabia. That’s despite Saudi banks having less assets. The ADIB report gives an insight into the rapid development of the UAE banking sector over the last decade.

It finds that the UAE’s population of eight million people is today served by 51 banks, with more than 840 branches and 4,000 ATM machines between them. But the Gulf’s most developed banking infrastructure delivers “high levels of service, yet lower profitability than its Gulf counterparts”.

The UAE’s banking sector made Dhs17.6 billion of profits in the first nine months of last year - but Saudi Arabia’s banks topped that with profits of Dhs19.2 billion. That’s despite the fact that Saudi Arabia has just 23 banks to the UAE’s 51. However, Saudi Arabia’s has a larger population, double the number of branches and triple the number of ATMs of the UAE.

“Despite the fact that the UAE is a bigger banking market in terms of assets, it remains less profitable than that of Saudi Arabia. In the UAE, the mix of deposits, low customer charges, the presence of high levels of non-performing assets and competitive dynamics have negatively impacted banking profitability,” said Andrew Moir, ADIB’s head of global strategy and finance. “Consumersa in the UAE are getting better rates overall but shareholders are getting lower returns as compared to those in other Gulf markets.”


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