Specialised bank law to help local firms thrive
The Central Bank needs to expedite the ratification of the UAE Specialised Bank Law, which would create banking units providing funding for specific sectors, a veteran banker said.
Mawarid Finance CEO Mohamed Ali Musabbeh Al Neaimi said updating legislations on financial services would open opportunities for local banks and financial institutions to invest abroad, make more acquisitions and strengthen their business portfolios.
"We are aware that the Central Bank is studying a specialised bank law for the past three years and we hope to see the light very soon," Al Neaimi, also Chairman of Takaful House and Al Jazeera Financial Services, told Emirates Business. "This will determine the type of licence for operated banks in the UAE – there will be licence for investment bank, retail bank, a wholesale bank, real estate bank. So you get a specialised licence."
The progress of the study seems to be hampered by a number of other pending legislations that the UAE Government is pressed to act on due to the global economic crisis. "The speed depends on the priorities of the government," he said. "However, the financial sector is extremely important and I don't see why the law should be delayed further."
Despite receipt of a number of banking licence applications, the Central Bank has been maintaining its position for the past 25 years.
"The UAE have not issued any banking licence for the past 25 years and all the banks that you saw coming to light, like Dubai Bank, Noor Islamic Bank, Al Hilal Bank and Ajman Bank were only a reactivation of existing licences that ceased to operate in the past," he said.
There is also a lot of other legislations in the financial services sector that need to be updated. "Some laws were passed fast. I don't blame anybody but there is possibility for speed. It's high time."
Mawarid has Dh1 billion paid-up capitalisation. Do you plan to increase it, or will it remain the same?
Yes, it will still be the same. We're trying to grow our assets from reallocating some investments, liquidating some of our investments and grow the business through financing and investment.
Which businesses are under review for liquidation?
Some of the current investments may be reduced or liquidated and we may reallocate the money into something else. But there is nothing in particular.
With stock market activity still low, is liquidating Al Jazeera on the cards?
No, but before I expand let me comment on Emirates Securities and Commodities Authority [Esca]. You're right. The market is already down. Esca come out with some regulations during 2009 that give them more grip on the market and the brokers. However, I think it was wrong timing. t the same time, the media was scaring the market, [prompting it] not to trade and to hold on to the cash. This pushed the market trade volume tremendously. If they have been quiet since 2003, when they were established, then they could have stayed quiet for one more year and not forced some laws that have a negative impact on the market at a negative time, which just dropped the trade from Dh3bn a day to Dh150m a day.
We have more than 105 brokerage firms operating in the UAE, so it is very difficult to survive. But I think it is a very good opportunity to consolidate some of these companies, push out some of the small ones and come out with a few good companies that could survive the market with clean books.
Thank God, Al Jazeera could survive and pass the crisis. We are not planning to pull out from it immediately. In two to three years, we will look at taking it public or expanding it more.
Do you plan to consolidate it with other firm or firms?
No, but if there is any opportunity and anybody is willing to put something on the table we are always open for any investment. If anyone wants to consolidate with us, we are willing to look into it.
Did you have operating profit for Al Jazeera in 2009?
Al Jazeera has made very nominal operating profit. We also took a provision recommended by our auditors. Had we removed the provision, the company could have done better. Still, we are okay.
Out of the 105 firms, how many do you think would remain?
It should not be above 30. By the end of 2010, it will be less than 50. However, if the market starts picking up, maybe 60 will remain.
Overall, how did Mawarid perform in 2009?
Mawarid has performed fairly well compared to other companies that have been in the market for a long time. However, our consolidated financial is not yet ready. In terms of operating profit, all our companies are into operating profit. However, some of them could be under re-evaluation.
How much provision did you make for 2009?
There is a new regulation to take two per cent of the total portfolio of loans as a provision even if you don't have bad debts. Our books are fairly clean. We don't have NPLs compared to others. I don't know the percentage but we have two car loans out of our 70-80 clients. If you take it as a percentage it would not reflect as anything.
You have mortgages and we heard there has been a lot of defaults in home finance these days.
We were selective with clients. We remain on the conservative side during the boom. We were not trying to book as much as possible. We were trying to balance our books between home finance and other finance, which puts us in a good shape. We stopped entering real estate and home mortgage in February 2008, eight months prior to the official announcement of the crash.
Did you buy off-plan properties?
Yes, but on behalf of our customers.
Have all the off-plan properties you bought been delivered?
No, but very nominal amounts of finance are involved. One of them is less than Dh3m and the other one is not significant. When we entered this sector, we concentrated on projects which have a maximum of six months to be delivered. We were selective to balance our cash.
What's the status of these two projects?
These two projects are under construction and hopefully will not be delayed by more than a year from the target date.
Have you seen any NPLs arising from home finance?
So far no. We were very flexible in terms of negotiation with some clients who had difficulties to pay. We reschedule the loans; we're not harsh because at the end of the day it benefits us and them. Only these two projects have difficulties.
Can you tell us Mawarid's loan and deposit portfolio?
It is more than Dh700m today. We have grown our liquidity from Dh1bn to almost Dh1.4bn – shareholders equity and deposits. Our loan portfolio today is about Dh700m. We also have investments and have liquid cash, which we can use for emergency. We have a model that we build to avoid any mismatch in case depositors require their money. Our loans portfolio is not all long term, a very good stake of it is short-term or with less than a year in finance. We are concentrating on expanding the short-term lending more on the account of mid and long-term lending. We are in the process of finishing three to four more products in the next quarter, also concentrating in the short term. I think short- term loan is approaching Dh150m now.
Do you plan to increase the Dh1.4bn liquidity this year?
Definitely. We aim to increase our size by attracting more deposits and by rotating some of our investments. We are also looking at nine projects for the SMEs that we will invest in – almost two or three are in the finance stage. We are just waiting for some of the approvals from the board and authorities. They are mainly in manufacturing. This is about Dh50m to Dh100m.
A lot of banks are still chasing deposits. Are you doing the same?
It depends. We are not much of a competitor in the market because we don't have any free liquidity from current accounts as banks enjoy. Our prices are not that competitive, but we have lots of ways to benefit the customers. Everyone is looking for deposits, but customers are now smart and they don't chase high rates as much as the good service, and stability of their funds.
How does banking work in Mawarid?
For the Islamic financial institutions, you can lend to individuals and corporates but you can only take deposits from corporates. You cannot take deposits from individuals. I can finance your car but you cannot transfer your salary or have a fixed deposit with me and there is also restriction. In the first couple of years, you cannot take more than two times your capital in terms of deposits. There is the option of syndication and sukuk issuance and securitisation for growth. After two years, you can take multiples of your shareholders' equity.
These restrictions limit the growth of the financial institutions. But we're hoping that the Central Bank will review the regulations, especially that for the non-Islamic they can give them up to five times the capital.
However, we are aware that the Central Bank has a specialised bank law that has been under study for the past three years and that we hope is going to see the light very soon. This will determine the type of licence for operated banks in the UAE – specialised bank, investment bank, retail bank, a wholesale bank, real estate bank – so you get a specialised license. We don't know when we will see the light. We wish that comes very fast.
Once it is passed, which category will you be in?
We will be falling into the wholesale bank category, I think.
What benefits would it give you?
The limitation of client types is the same. However, being a part in the interbank, it will bring changes related to LCs [letters of credit] and some other services. In terms of entering the clearing system of the Central Bank for issuing checkbooks for your corporate clients, it will help.
When will it happen?
We have been following that up since the establishment of Mawarid and we know that this law is being reviewed but we don't know when it will see the light.
There are so many laws under review right now such as the Companies Law, Industry Law and Investments Law. Don't you think the Specialised Banking Law is not among the top priority?
The UAE is 38 years old. To have all legislations and to have all the infrastructures is a great achievement. I don't think the missing legislations are because of negligence but because of a longer process.
All our legislations need to be reviewed. For example, the regulation on DFM, ADSM or Esca, which says bank guarantees should be issued by an operating bank in the UAE. The word bank should be removed and be replaced with an operating body in the UAE.
But don't you think it will be delayed further because of the many concerns now that the government is facing?
It depends on the priorities of the government. However, the financial sector is extremely important and I don't see why the law should be delayed further.
Currently what is your licence?
Finance and investment.
When did you apply for the banking licence?
Since the incorporation of Mawarid.
Any update on that front?
The law has not come in yet. However, the UAE did not issue any banking licence in the past 25 years and all the banks that you saw coming to light such as Dubai Bank, Noor Islamic bank, Al Hilal Bank and Ajman Bank were only a reactivation of existing licences that ceased to operate in the past. Emirates Bank, prior to merging with NBD, used to be a result of a merger of three banks that used to operate in Dubai and one of those licences was used under EIB.
The two other licences were shelved and reclaimed and reoperated under Dubai Bank and Noor Islamic Bank. They also acquired Middle East bank and made it Dubai Islamic Bank [as part of the group].
ADCB is the result of a merger of two to three banks in Abu Dhabi and two licences were shelved and very recently they reactivated one for Al Hilal Bank and the other was given to Ajman for Ajman Bank. However, no new bank licence has been [issued] in the past 25 years.
Is that because the UAE is overbanked already?
Supposedly. But amazingly all of them are profitable. I don't think there is any harm [in issuing more licence].
We know that with globalisation, big banks have got a bigger chance to survive and smaller banks will not survive. However, if a successful model already exists and is already operative, I don't see a reason why we shouldn't be given a banking licence. And we are a 100 per cent UAE company with good and sound investors.
PROFILE: Mohamed Ali Musabbeh Al Neaimi CEO of Mawarid Finance
Al Neaimi, also Chairman of Takaful House and Al Jazeera Financial Services, has extensive experience in the banking industry.
Prior to joining Mawarid, he worked for about 10 years in various senior positions at National Bank of Dubai, National Financial Services and Aqarat.
He also played a key role in the creation of Dubai International Financial Centre. Besides, he has served as a committee member of the UAE Central Bank and several federal ministries.
He had started his career at RAKbank as a counter services officer. But within eight months, he was promoted to branch manager and became the youngest to ﬁll this position in the bank's whole network.
Al Neaimi is at present a Board Member of the UAE Ministry of Fund and a Board Member of the Emirates Institute for Financial Studies.
Education: MBA, Stratford University, US, 2004; BBA, Central New England College of Technology, US, 1989; Associate in Applied Science, Management, Newbury College, US, 1987
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