The banking sector in the UAE is growing at a phenomenal pace and multinational and regional banks are fighting for a share of the Middle East and North Africa (Mena) market.
However the sector is having to deal with a lack of trained professionals, intense competition and highly leveraged consumers, not to mention the sub-prime crisis and the downturn in the global economy.
Emirates Business spoke to Shayne Nelson, Standard Chartered Bank's Regional CEO, to find out how it is dealing with these issues and learn about its growth strategy, changes in the mortgage business and Islamic banking.
Is your bank planning any mergers and acquisitions in the near future, such as we have seen with HSBC and AME Info? Also, are there any major expansion or investment plans?
Standard Chartered's principal strategy is organic growth. We look at numerous opportunities across the world and pursue just a few. We believe that focusing on organic growth is the best way for us to build long-term and sustainable value for our shareholders. All our major investment decisions incorporate this successful approach.
The banking sector has been growing rapidly in the UAE and, as a result, the marketplace is facing a shortage of experienced bankers. How has this talent gap affected your bank?
There is certainly a shortage of experienced professionals in the market but we are seeing more and more quality American and European CVs. Increasingly these candidates appear to be turning their attention to career opportunities in the Middle East and Asia as their home markets continue to be impacted by the credit crunch. This flow of talent from the developed markets of New York and London is definitely helping to fill the gap.
Locally we are competing very hard for talent within a small resource pool originating in the Middle East and this is leading, in some instances, to very aggressive wage inflation. It is aggravated by a number of new entrants joining the industry, looking for talent and adding pressure to the wage war. I think we need to be careful with this escalation working its way through the system. It can hinder growth and is certainly not sustainable long term.
How has the market responded to your mortgage business in view of the fact you have restricted yourself to just four major builders?
We are competitively priced and as a result we're experiencing strong volumes. The mortgage sector is a relatively new business for us in this region and we are very happy with the volumes we are achieving, considering we are conservative underwriters.
Why is Standard Chartered Bank not aggressive about capturing the mortgage market like other banks?
Our volumes at the moment would certainly suggest we are aggressive in capturing the market and this sector is one of our focuses for future growth. We are doing a pretty good job of building up volumes very quickly, from a low base 12 months ago to what is now a very healthy business for us with continual growth coming through every month.
Is the property bubble about to burst, is that why Standard Chartered Bank is cautious?
Our view on the property market is strong for the short and long term, but we are more concerned about the medium term. We would like to see it become more sustainable and certainly less speculative.
The speculation in the property market at the moment has led to a lot of asset inflation which stems from both the significant growth in the money supply, of over 50 per cent, and the negative real interest rate environment. The cost of borrowing versus the cost of inflation provides a strong incentive for consumers to buy property rather than put savings in the bank at the prevailing low interest rates.
The local monetary policy is constrained by the peg to the US dollar and our interest rates reflect economic conditions in the US, which is in a downturn. As a result we have seen low interest rates in a strong economy and a resulting focus on property assets and mortgages rather than on bank deposits.
A major issue is that banks find it difficult to self-regulate because there is no credit bureau. We are a strong supporter of such an initiative. It would capture data from all the banks and financiers in the UAE and in turn help banks analyse the credit-worthiness of borrowers. This would help reduce the speculative buying of multiple properties without the right level of equity.
Do you plan to bring more builders on board?
We continue to review and assess our panel to see if we should expand the developers we use.
How is your venture into Islamic banking doing?
I am the Chairman of our Islamic Banking Board which overseas Standard Chartered Saadiq. It is something I am quite proud of as we have made significant progress in this important and growing market. This year, for example, we won an award for Best Islamic Project Finance House and we have received a number of other high -profile awards for Saadiq Islamic Banking.
Just about every conventional banking product we have is offered in a Shariah-compliant form, including quite complex derivatives. Standard Chartered doesn't just provide Islamic banking in the UAE, we operate around the world and that fits well within our overall growth strategy of leading the way in Asia, Africa and the Middle East. We cover about 60 per cent of the Muslim world in the 70 countries we operate in so naturally this is a strong growth area for us and a market we believe will continue to grow at a rate that outpaces conventional banking.
How do you see the sukuk market developing?
The capital markets are developing strongly in the UAE. One of the things we have seen lately is an increase in bonds issued in local currency, either in the form of sukuk or conventional bonds. Seeing this depth in the bond market is a very positive step for the industry and an important piece of economic development. Some of our recent deals, such as the sukuk issuance for the Dubai Government and Ras Al Khaimah Government, highlight our strength as a leading debt capital markets provider.
Do you think multinational banks will be able to break the local banks' hold on the market?
From a commercial and investment banking perspective, foreign banks have achieved solid market share but they face much more difficult prospects with consumer banking largely because of restrictions on the number of branches allowed. We feel fortunate to have 11 branches, which is three more than all the other foreign banks are permitted.
The reality is that the UAE has grown substantially and to adequately service customers branches are critical. We have the largest ATM network of any foreign bank within the country and that's also important to us.
But at the end of the day you are at a competitive disadvantage if you don't have the bricks-and-mortar branch network in place. We would certainly like a lot more branches than we have now and look forward to further deregulation of the banking sector so we can increase our branch presence. Until then it's difficult to see foreign banks taking meaningful market share away from local banks, since they possess the capacity currently to expand a lot more aggressively than we do.
Has the US sub-prime crisis affected your business?
We have been relatively unscathed as our business is focused on Asia, Africa and the Middle East. We are very well capitalised and have a high level of liquidity, not only in the UAE but globally as well.
On a macro level, however, the sub-prime crisis has affected businesses in the UAE and across the region. A number of international banks that do business in the UAE have been hit by the credit crisis through their own loans and from lending to companies and individuals back in their home markets. This has led to some local price increases. It is harder to do bond issues and syndicated loans but we have been doing a very good job in these areas and that is a reflection of our liquidity, our distribution capability and our ability to tap offshore markets.
If in the future the dirham-dollar peg is removed how do you think the market will react?
If the peg stays exactly where it is with the economy booming then we expect money supply growth to remain an issue along with continued asset, wage and imported goods inflation as the US dollar continues to weaken and commodities cost more in dollar terms. We hope that GCC currency union in 2010 will see either a float or a basket float of the unified currency which will enable the Gulf economies to better manage themselves from a currency, fiscal and interest rate perspective.
PROFILE: Shayne Nelson, Regional CEO, Standard Chartered Bank
Shayne Nelson was appointed Chairman of the Islamic Banking Board of Standard Chartered Bank and Chairman for Standard Chartered Bank, Pakistan, in 2007.
Before that he was CEO and Managing Director of Standard Chartered Bank Malaysia Berhad, a wholly-owned subsidiary of Standard Chartered Plc.
Nelson sat on the board of directors of Cagamas Berhad – the National Mortgage Corporation – the Malaysian Institute of Banks and the British Malaysian Chamber of Commerce and was a council member of the Association of Banks in Malaysia.
He has worked for two of Australia's major banks, Westpac Banking Corporation and the National Australia Bank, where his roles included periods in corporate finance, debt restructuring and senior positions in retail and wholesale banking. Nelson is a graduate member of the Australian Institute of Company Directors and an Associate Fellow of the Australian Institute of Managers.