The Twin Zones


LOCAL BANKS Dubai’s local banking industry can be divided between standard commercial players and their oft-related sharia-compliant counterparts. Emirates NBD is the largest of the Dubai-based banks, and is the […]


Dubai’s local banking industry can be divided between standard commercial players and their oft-related sharia-compliant counterparts. Emirates NBD is the largest of the Dubai-based banks, and is the largest banking group by assets in the UAE as a whole, beating out the National Bank of Abu Dhabi (NBAD). Emirates NBD is a universal bank that also provides a sharia-compliant window through its subsidiary Emirates Islamic Bank. As of 2Q2012, the bank reported assets up 5% to AED298.4 billion on the same figure for YE2011. Operating profit was up a strong 52% to AED1.3 billion in year-on-year terms, while total income saw 7% growth over the same period to AED5.2 billion. The loan-to-deposit ratio improved from 105% at end-2011 to 100% by 1H2012, while the capital adequacy ratio (CAR) stood at a solid 19.5%. The impaired loan ratio, much an overhang from the past, stood at 14.3% for 1H2012, with a coverage ratio of 46%. The bank has been more conservative than its peers when judging the level of underperforming loans, and this should stand it in good stead for future operational performance.

Emirates NBD staged an approved takeover of Dubai Bank over 2011, consolidating its financials in October of that year, though keeping the bank for now as a subsidiary of its overall operations. Rick Pudner, Group CEO of Emirates NBD, described the acquisition as “signal[ling] a new phase rich in opportunities for both banks.” As part of the takeover, the Dubai government has signaled it will guarantee all of Dubai Bank’s delinquent loans for a period of 7 years, thus improving the long-term outlook for the Emirates NBD group. Dubai Bank’s ATM network was integrated into Emirates NBD’s operations over the first half of 2012, while further levels of operational rationalization will continue over the year. Following the takeover, Pudner reported the group branch network at 168, with more than 780 ATMs and CDMs across the UAE, though with a majority concentrated in the Emirate of Dubai. Despite the challenging conditions of the past, Pudner foresaw gross loan growth of some 4%-5% over 2012. Emirates Islamic Bank, a subsidiary of Emirates NDB, also reported a strong start to the year, with total income up 20% to AED454 million, while income grew in a parallel fashion to AED231 million. The bank expanded its branch network to 35, opening storefronts in Dubai Mall and Dubai Investment Park. Its ATM and CDM network grew by four terminals to 105 by the end of 2Q2012. It is looking to expand its reach in both the SME and high-income personal markets, while revamping its online offering and extending further into both housing and auto financing.

Dubai Islamic Bank (DIB) comes in as the second largest local in terms of assets, reporting some AED92.5 billion at the end of 1Q2012, up slightly on the AED90.59 billion recorded at YE2011. DIB styles itself as the world’s first Islamic bank, dating its operations back to 1975. In addition to the 74 branches DIB has across the UAE (up by four over 1Q2012), the bank has some 75 branches via its subsidiary in Pakistan, as well as having banking interests in both Jordan and Turkey. Its overall size makes DIB the third largest sharia-compliant bank in the world, and the largest by far in the UAE. It reported a solid financing-to-deposit ratio of 77% for 1Q2012, while customer deposits grew by 5% over the quarter to AED68.1 billion. The bank’s CAR stood at 18.2%. The impaired financing ratio was 14.5% at YE2012, with some AED8.1 billion on the books. Provision coverage came in at 49% for the full year. The bank has been increasing its provisions for impaired loans over 2008-2010, much in line with taking on former home financer Tamweel onto its books in 2010.

Mashreq Bank comes in third for asset size among the Dubai locals, reporting them at AED76.4 billion, down slightly by 3.5% on the FY2011 figure of AED79.2 billion. The bank has extensive international operations, with open windows in 10 other countries besides the UAE. Besides its standard commercial line, Mashreq Bank also operates a sharia-compliant subsidiary, in addition to other interests in investment banking, brokerage, and mutual funds. The bank reported full year net profits of AED820 million for FY2011, while the same figure stood at AED591 million in 2Q2012, some 7.2% up in year-on-year terms. The CAR was a firm 22.7% for the first half of 2012, while provisioning for bad loans declined by 45% to AED352 million, demonstrating a substantial repositioning of its balance sheet. The bank’s Executive VicePresident and Head of Retail Banking Head of Retail Banking, Farhad D. Irani, underlined to TBY that Mashreq was making firm steps to cement its position in the retail market, with the goal of making it “number one by 2013.” As part of its new strategic focus, local Emirati customers are being sought. “Our heritage is Emirati,” Irani said, “and we should be the primary bank for UAE Nationals.”

The Commercial Bank of Dubai (CBD) is the next largest in terms of assets, reporting unaudited figures of AED39.65 billion in 2Q2012, up on the AED38.24 billion from YE2011. The bank has a strong presence in the corporate segment. CBD reported a net profit of AED662 million in 2Q2012, while its CAR improved from 23.1% to 23.6% over the first half of the year.

Another bank of note in Dubai is Noor Islamic Bank, which reported assets of AED16.87 billion for FY2012. Fairly new to the scene—established in only 2008­—the bank has sought to be innovative despite the trying global economic conditions. “We are the first bank to introduce internet and phone banking in Arabic that can be used on any mobile unit,” Hussain Al Qemzi, Group CEO of Noor Islamic Bank told TBY. It has a concentration on corporate and wholesale activities, though is looking for additional opportunities in trade financing. Commercial Bank International comes next in terms of assets, at AED11.40 billion at FY2011. The bank’s roots are in Ras al-Khaimah, and it reported a net profit of AED64.77 million for 2011, well up on the AED16.59 million declared for 2010. It reported a CAR of 15.25% at YE2011.

Emirates Investment Bank is another contender worthy of mention, as it seeks to carve a unique path in the private banking industry. The bank is unusual in that it is targeting much the same customer base of high-net-worth individuals and institutions as many of the foreign representative banks in the DIFC, though it operates under UAE jurisdiction. As its CEO Khaled Sifri told TBY, “We like keeping things simple and focused, which allows us to be quite flexible and client responsive.”


In terms of the representation of foreign banks, there is a distinct split between those who operate within the UAE economy proper, and those that have representation and activities in the free zones. Of the 28 foreign banks with operations in the UAE, 20 of them are headquartered in Dubai, leaving the remaining eight based out of the capital, Abu Dhabi. Some of the larger banks in terms of penetration and branch size included Standard Chartered, HSBC, Habib Bank AG Zurich, RBS, and United Bank.

Standard Chartered has the largest branch presence across the UAE (11), as well as having over 130 ATMs and CDMs scattered across the country in strategic locations. Although the bank has a regional headquarters presence in the DIFC, it will be moving its UAE-focused staff to a new $140 million facility by the end of 2012, as Jonathon Morris, CEO of Standard Chartered UAE told TBY. The universal bank still maintains its strong focus on trade and wholesale finance, offering both conventional and sharia-compliant products.

HSBC Middle East, as well as its Islamic banking wing Amanah, has a strong presence in the UAE market, with eight branches, three of which are in Dubai. The bank is looking to improve its penetration of the local SME market in the UAE, announcing an AED1 billion fund for trade investment in May 2012. HSBC has reserved 30% of this SME fund for UAE nationals, hoping to increase its market share of this lucrative customer segment. In addition, the bank acted as lead financier for Mannai Corporation’s buy out of leading jewelry chain Damas International.


In Dubai, the core free zone for financial activity is the Dubai International Financial Centre (DIFC). The DIFC was conceived as a way to bridge the time gap between Singapore and London for finance-related activities, allowing for a greater focus on the MENA, South Asia, Central Asia, and East African markets. As of the end of 2010, according to the CBUAE, there were 67 foreign banks with representation in the DIFC. In 1Q2012, the DIFC reported 861 active financed-related companies working from its network of 18 buildings, while some 21 of the world’s top 30 banks had representation offices in the zone.

The DIFC is far more than just banking, with insurance firms, asset managers, and corporate law firms all finding their niche within the zones growing infrastructure. Banks within the DIFC do not provide retail facilities, as this would overlap with the banking services provided in the regular UAE economy, but they tend to be focused on wholesale and investment banking, with regional private banking services also beginning to see growth. The Dubai Financial Services Authority (DFSA) acts as regulator for the financial community in the zone, while the DIFC also boasts its own judicial and arbitration center that is based on common law principles, in order to improve transparency and encourage market confidence. Just a few metrics are telling about the growth seen in the DIFC’s operations. In 2011 assets under management by firms in the zone came in at $7 billion, and then rose to $8.1 billion over 1Q2012. Deposits in 1Q2012 were at $12.8 billion, while loans amounted to $14.7 billion, according to the DIFC’s 1Q2012 report.

While the DIFC is still looking to carve out a larger niche in the international financial services market, its recent growth trend looks encouraging. As further clustering occurs, the hope to make Dubai one of the world’s finance centers is well within grasp.