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Abu Dhabi Banks to Emulate ‘National Leaders Model’ to Tap Global Markets

And the best example they site in this regard is that of the communication giant in the region Etisalat which has already launched widespread operations and investments in several countries.

“As the economy and banks grow it makes eminent sense to tap the avenues in other bigger countries with higher population. It is already happening in other sectors like communication. Even in the banking sector the banks like National Bank of Abu Dhabi have been spreading its operations in many countries like Oman, Sudan and Egypt,” said the head of the research wing and chief economist at the the National Bank of Abu Dhabi (NBAD) Dr Giyas Gokkent.

The decision to persuade the banks in Abu Dhabi to make forays into global market by creating new investment arms has been stated in the ‘Abu Dhabi economic vision 2030’ which was released here on Wednesday.

Pointing out that the proposed diversification of economy will generate new opportunities for the banking sector the document said the banks needed to look beyond Abu Dhabi and UAE, and begin to move into the regional and global markets.

“As Abu Dhabi and UAE upgrade the capacities of supervision and regulation, and encourage the banking sector to improve its reach, opportunities will arise in foreign markets, and the emirate’s banks should be in a position to take them,” the document said.

Welcoming the initiative, Simon Williams, chief economist at HSBC Dubai, said the banks in UAE had already been tapping the global capital and debt markets. They had to slow down those efforts in the recent periods because of the global recession and the credit squeeze. They would resume tapping the opportunities in the global market once the recession fears recede and the credit squeeze eases, he said.

The document sees the importance of encouraging foreign investments by Abu Dhabi banks as part of the strategy to contain inflation as well. “Banks will be encouraged to invest their capital through foreign channels to negate the excess liquidity in the local system and reduce domestic inflationary pressures,” it said.

However, according to Giyas Gokkent inflation is an “issue of the past.” Now most of the countries are experiencing ‘de-inflation’ and it might even lead to dangerous deflationary trends because of the recession and consequent crash in prices of commodities. Inflation will not be an issue for the next two years, he said.

The document portrays a rosy picture on the growth of the banking system in UAE over the past few years. The rate of growth has outclassed that of many other transforming economies, and at present is on par with the rate recorded by China. Simultaneously, the banks have maintained a good balance between assets and liabilities, as well as impressive capital adequacy ratios above the international norms.

However, adjustments would be made in the banking system to address the potential weaknesses.

More sophisticated levels of supervision will make it easier to anticipate potential challenges to the banking sector and ensure its adequate liquidity at all times. Deposit insurance could also be a possible lever to improve the stability of the system, the document said.

Dr Gokkent welcomed this initiative, “this is a relatively new market and it was natural to evolve new regulatory mechanisms.”

Personal loans constitute a high percentage of the loan mix of the banks in Abu Dhabi, and this fuels consumption. Steps will be taken to ensure that the banks channelise more credit into productive sectors such as utilities, infrastructure, and manufacturing sectors besides financial markets.

Several experts and entrepreneurs welcomed the proposals as well as the move to support the SME sector through the banks, as envisaged in the economic vision 2030 document.

· ramavarman@khaleejtimes.ae