Steady As She Goes


Though the drop in oil prices has affected liquidity, Sharjah's financial institutions are sound overall thanks to conservative planning that has minimized risk and allowed for steady growth even in unstable circumstances.

Though Dubai and Abu Dhabi might get all the attention as commercial centers, Sharjah’s financial sector is slowly growing in prominence. Supported by its robust industrial sector, financial services are becoming an ever more significant part of the Sharjah economy, with foreign investment rising due to investors’ confidence in the stability of the Sharjah market. Though the economy has slowed in recent years with the fall in oil revenues that have affected the region as a whole, Sharjah’s downtown has been lessened by its well-diversified economy and foreign ties. As the Emirate continues to move forward, industry leaders expect well-structured Islamic banking and foreign investment to become even larger parts of Sharjah’s economic profile.


Sharjah’s financial sector must be considered in the context of the larger UAE and Arab financial environment. The UAE, like most other oil-exporting countries, has experienced financial difficulties over the past few years as the price of oil has fallen significantly. According to the UAE Ministry of Economy 2016 Annual Report, public revenues fell 30.3% from 2014 to 2015, leading to a 53% increase in the public deficit. While the most direct impact of this was the decrease in public spending, the private commercial sector was affected as well. Liquidity fell, and demand for credit decreased as major projects were sidelined due to uncertainty about the economic health of the UAE. Larger global trends contributed to this as well; the slower-than-expected growth of the Chinese market (a major source of FDI in the UAE), the rise in the US interest rate, and the economic uncertainty generated by the UK’s decision to leave the EU all combined to create a wave of circumstances that affected investor confidence and slowed the UAE’s growth.

Yet, even in the midst of all of this, there were a number of promising signs regarding the financial sector, Sharjah’s in particular. The underlying structural health indications of the sector remained strong thanks to good planning during boom years. While profitability has been affected by reduced liquidity, capital adequacy and credit ratios have remained steady, indicating that institutions are cautious about lending but face relatively little risk. International observers have taken notice of the strength of the sector; in a November 2016 report, credit rating firm Moody’s kept Sharjah’s rating at A3 Stable, citing a debt burden on par with its peers and lower volatility than the UAE because of the Emirates’ robust foreign capital controls.


One of the fundamental challenges facing the banking system of the UAE as a whole is that government deposits make up a significant portion of total bank deposits, exposing banks to liquidity shortages when oil revenues fall. Sharjah, as one of the most economically diversified Emirates, is less vulnerable to this phenomenon than others thanks to its strong industrial base and conservative, risk-minimizing approach. The Bank of Sharjah, for example, announced a net profit of AED58 million in 1Q2017. While this was down 28% over the same period in 2016, a number of indicators point to improved performance in the second half of the year. Loans have been increasing, and are up 8% YoY over the first quarter of 2016, and total assets rose 4% over the same time frame while underlying metrics such as capital rations and net liquidity continued to remain high. Data on the bank’s performance in 2Q2017 indicated that it was on the right track, with profit rising 6.2% YoY and total assets rising by 10%.

In an interview with TBY, Sharjah Islamic Bank (SIB) Vice President Saeed M. Al Amiri explained that the bank’s strong performance is due to a deliberate strategy that seeks to minimize risk and emphasize steady growth. “SIB has always been a conservative banking services provider,” Al Amiri told TBY. “We believe in steady growth instead of huge peaks followed by dropping valleys.” The largest private financial institution in the Emirate, SIB has begun to enter global bond markets in a move that shows the growing global reach of Sharjah’s financial markets. SIB issued its first sukuk in 2006 and has since released four more. The most recent was a USD500-million, five-year sukuk that saw orders equal to 3.2 times the size of the issue, generating USD1.6 billion in orders. Only 59% of orders came from Middle East, with Asia accounting for 22% of orders and Europe 22%, a testament to international confidence in SIB and the Sharjah banking sector. The success of the sukuk is even more noteworthy considering the regional context; while Islamic bond issues have become an increasingly popular way for Middle Eastern governments and financial institutions to raise cash, the volume of sukuks dropped in 2016 due to issues with the complexity of the loans. SIB, however, has been praised for its ability to run hassle-free sukuks. Both SIB and the Sharjah government have plans for sukuks to increase capital in 2017, a process that should continue to relieve pressure on the lending markets.


Though small, Sharjah’s insurance industry shares many of the same qualities as its commercial banking sector. The Emirate has just two insurance firms, Sharjah Insurance Company (SIC) and Al Buhaira National Insurance Company (ABNIC). Both draw a significant share of their business from government-linked properties, which have given them a steady line of low-risk business. As a fairly well-developed market, there is strong demand for a full spectrum of insurance services, and the two firms combine to offer a number of insurance products. Recent financial disclosures have shown that both firms are in a fairly stable position: ABNIC, the larger of the two, announced a net profit of AED35 million in 2017, up from AED32 million over the previous year, with most of the increase from an uptick in auto premium earnings. Ratings firm CPI financial gave ABNIC a BB+ rating in July 2017, noting that while liquidity remained below desired levels—ABNIC’s total liquid assets of AED220.1 million represented 73% of net technical reserves—the firm’s debt-to-capital rating was within an acceptable range, capital adequacy was strong, and the firm was overall a moderate risk. SIC, which was the first firm in the industry when it was established in 1970, reported a net profit of AED19.3 million in 2016 and AED9.6 million in 1Q2017. Its assets as of 1Q2017 stood at AED205.9 million, an increase of AED5.2 million over 4Q2016.

Looking to the future, the guiding principles of stable growth will remain at the core of the Sharjah financial sector. Regional indicators suggest that the price of oil should make a slight recovery through the end of the year, bringing some support to the larger sector by providing for more liquidity through revenues. Foreign activity is expected to increase with improved investor confidence, and the possibility of mandatory health insurance could bring a new wave of activity to the insurance markets. Still, even if the current economic situation persists, Sharjah’s financial sector has shown that it has the ability to withstand the storm.