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28 May 2024

Amlak has ‘solid case’ for bank licence

By Eudore Chand



Only one thing could get Nasser Al Shaikh, Chairman of Amlak, away from the busy year-end closing and talk to Emirates Business – and that was to discuss his favourite subject: The rejuvenation of the company and its prospects for the future.

During a wide-ranging interview, Al Shaikh (pictured above) let slip some major revelations that are expected to have an impact on businesses related to the financial sector across the region.

How was Amlak’s performance during 2007 and what are the profit estimates?

In the first three quarters, our profits were in the region of Dh174 million. We did not have a great first quarter, but we rebounded in the second and had an outstanding third quarter. We will remain at the same pace in the fourth quarter and I believe we will deliver at the end of the financial year a growth of more than 70 per cent in profits.

We could have done more, but one has to keep in mind that from April we had to re-look at Amlak from an international perspective, reexamine our processes, reassess our team and reform our strategy – that took a lot of effort. But with all this activity, we still maintained a 70 per cent growth in profits. If you look at it in totality, I think it’s been a very remarkable achievement.

What are Amlak’s core strategies for future growth?
The re-strategising began in April. We are looking at our core business and how it has grown since we started in 2000 when we were the only player. There was a time when our company went into hibernation mode in late 2005 and 2006, which gave a chance to our competitors to start grabbing market share making it mandatory for us to refocus on our core business. Some products did not make sense such as auto finance, as our costs are higher than banks. We closed it and focused on our core business of real estate finance. This paid off in the second and third quarters and Inshallah in the fourth.

We also looked at our investments. Some were doing well in their own right, but didn’t make sense for us. We made the decision to only invest in industry that supports our core business. We focused on real estate sector and liquidated the others such as our 10 per cent stake in Emaar Industries, which we sold to Zabeel Investments. We completely liquidated our investment in listed companies portfolio of Dh350m and redeployed the funds into real estate investments. This proved to be right as we have access to deals before they hit the market and we picked up some attractive ones. We have refocused our business and investment strategy into an opportunity that supports our core business.

The sector is getting crowded. How is Amlak positioned to meet the competition?

The market is becoming more competitive. We were the only player in 2000 when we started the industry. In 2007 we had 23 providers of mortgage finance. It is good in a way. We did make mistakes and may have lost focus in 2005-06, but we still are the largest player. We have a financing portfolio of Dh5.22bn of active disbursements as per our third quarter disclosure and commitments of another Dh2bn to Dh3bn to finance.

I believe competition is good. If you are not in a position to compete with others then you should not be in the market in the first place. We will see huge growth. We have refocused and we will shift gears in 2008.

Amlak has been seeking a banking licence. What is the status of your application?

We applied one-and-half-years ago. So far there is no acceptance or rejection from the Central Bank. We have had a few meetings and the application is still there, but we have yet to hear from them. We are renewing our application to convert into a bank after this year’s closing. They have been auditing us since 2000 as a financial company and know our business. Whatever concerns they might have had in the past, have been resolved. We have a very solid case.

Does not having a banking licence limit your operations and business capabilities?

A banking licence will take our business to the next level, enabling us to be more competitive in the market as it reduces the cost of money. Presently we cannot accept deposits or open a current or savings account – only corporate deposits. We are forced to refer clients to other banks who do cross selling and benefit from our customers. Converting into a bank will allow us to be more competitive as it will bring down the cost of funding.

What options do you have to raise funds and how much would you raise in 2008?

We try to be innovative in sourcing our funding to sustain business. We have worked with a few local and international banks. We had a sukuk of $200m through HSBC and a real estate fund of $75m in 2005. We are looking at more innovative funding structures.
We are looking at international expansion and in each country we went in, we had a different structure. For example, in Egypt our company is 100 per cent owned and in Saudi Arabia we have 25 per cent stake. Jordan will be closer to the UAE model where we will float the company from day one. We will go to the market at the end of January or early February. The size of the IPO is $75m (Dh275m). The size can be increased. Our funding in 2008 will be country specific. For example, if we go for a sukuk in Egypt where it has never been issued, we’ll make sure the amounts are moderate as it is our duty to raise awareness in the market first. We plan to raise about Dh6bn in 2008.

You are a regional player, which other markets are coming on stream?

We are the only mortgage finance company in the UAE and the region. We are operational in the UAE, Egypt and Saudi Arabia. In the first half of 2008, we should be in three more – Jordan, Bahrain and Qatar. We plan to be in more countries in the second half and we are looking at our funding requirement, which will not be limited to the UAE.

Do you plan to get into banking in other markets, too?

As fresh start-up I don’t think so. However, we are looking at acquiring stakes in banks in markets we venture in, which support our business. We are assessing a few.

What percentage of your future income would come from overseas operations?

That depends on the outlook for UAE and how fast it will develop as well as the countries we go to. The mortgage market here is estimated at Dh26bn at the end of 2007.

EFG Hermes says by 2012, we are looking at delivery of 300,000 to 500,000 housing units worth Dh7bn. Some 30 per cent of that will be serviced by mortgage products, giving an idea of the growth. Looking at markets we are in to, we estimate to close 2007 in Egypt with a total mortgage industry worth E£2bn (Dh1.3bn), but by 2008-end, it would be E£5bn (Dh3.3bn) showing a 150 per cent growth. In three years time, we are looking at a 50:50 distribution of income from the UAE and the countries we are so far in.

Where do you see Amlak in five years from now?

As a leading regional mortgage provider in 10 to 15 countries. Western markets are not yet on our radar screen. There is huge opportunity in the region. This is based on the knowledge we have developed here. No one can take away the fact that Amlak started the industry. We know the growing pains. We know what channels are there. When we go into a country where the mortgage market is not developed, we know what to do. We even assisted in drafting the real estate ownership and mortgage law in a country, which I will not name. We promise the same in every market we go to. When we do that we position ourselves as a custodian of the industry. That is why we focus on the region. In the future, the time may be right [to look West]. Next year, our profits in Egypt will be equal to our capital. [Amlak entered Egypt at the beginning of this year]. Give me an economy that gives you that much.

Some 40 per cent of developers are not under escrow. Is it a higher risk indicator?

It is definitely a higher risk. But the legislation is recent and it takes time to adopt. I am not worried as all have to comply. From a risk perspective, it gives peace of mind, as we would not have to monitor the progress of projects ourselves as we currently do.

How do you view the growth of mortgage brokers? Do they add value?

When you look at mature markets like the US, you do have specialisation in the industry. You have companies who focus on securitisation and those who play the role of a conduit between customers and mortgage providers. It is a sign that as a market we are reaching a maturity level. It is very positive.

You recently launched Trust Account services for developers. How was the response?

Trust Account services needed a lot of groundwork. That took time from the announcement up till now. Currently we are busy with the year-end closing. But we have a few developers on board already and as of January we shall start announcing our affiliation with others.


- The company projects to close 2007 with 70 per cent increase in profits on Dh130 million made in 2006


- Will raise Dh6 billion in 2008 in various regional markets


- Will enter Bahrain, Jordan and Qatar in first half of 2008 and another three countries in the second half of 2008


- Will issue an IPO worth $75m by end-January or early February for Jordan operations. The size could be increased


- Will liquidate non-core investments including sale of its 10 per cent stake in Emaar Industries to Zabeel Investments and liquidation of its Dh350m portfolio of listed companies


- With a financing portfolio of Dh5.22 billion and commitments of up to Dh3bn, Amlak is still the largest player in the market it created in 2000


- Will renew its banking licence application early in 2008


- Assessing opportunities to pick up bank stakes in the region


- In three years, projects a 50:50 split in revenues from UAE and overseas operations