Erosion of returns on capital from price competition worries Adib chief

Abu Dhabi Islamic Bank  (Adib), which recently failed in its bid for Citigroup's  Egypt retail business, is targeting acquisitions in 2016 in Asia, the Middle East, and North Africa, its chief executive said.

Tirad Al Mahmoud said the bank was looking in Malaysia and Indonesia, as well as Algeria, Jordan and Morocco, although the remainder of 2015 was not the right time for deals in part due to slower economic growth in the UAE.

"This is a time to let things settle down and (instead) we will be looking to do deals in 2016," he told reporters at a media event.

Several UAE banks have been seeking to expand abroad against a backdrop of intense competition at home.

Adib was one of several bidders for Citigroup's Egyptian retail business. It lost out to local lender Commercial International Bank (CBI), whose bid was "very aggressive," according to Mahmoud.

He said Adib's overseas expansion could involve acquisitions in the retail space or growing its own corporate business.

The bank last year completed the purchase of the retail business of Barclays in the UAE, helping create one of the largest ATM networks in the country.

Banks in the UAE have enjoyed several quarters of bumper earnings as the economy has flourished.

But Mahmoud said "tailwinds were not as strong as they used to be" as economic growth had eased.

Return on equity across the local banking industry was expected in the region of 15-18 per cent, Mahmoud said, adding he hoped Adib would be at the top end of that range.

The bank's return on average shareholders' equity was 18.4 per cent in 2014, according to a recent financial presentation.

But Mahmoud said there was a "bit of irrational exuberance" among banks in pricing of products.

Years of low interest rates have led banks in the UAE to cut the price of loans and other products in an effort to compete.

"The risk we run is destroying shareholder value if we continue this senseless price competition but so be it, that's the market," he said.

"My biggest concern is erosion of margins and erosion of returns on capital for the industry as a whole." 

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