April 6, 2014 Updated: April 6, 2014 16:36:00
Barclays Bank will sell its UAE retail banking operation to Abu Dhabi Islamic Bank(ADIB) for about Dh650 million amid fierce competition for new customers.
It will instead focus on other parts of the business it is better placed to thrive.
ADIB, the biggest Sharia-compliant lender in the emirate, will take on about 110,000 extra customers from the purchase. London-based Barclays, the UK’s second-largest bank, has been reducing assets and jobs to boost profits as it reels from the Libor interest rigging scandal. Barclays and other banks involved in the scandal have been forced to pay billions of dollars in fines.
“The decision to exit the UAE retail banking space, while not taken lightly, allows us to focus on our businesses in corporate and investment banking and wealth and investment management,” said John Vitalo, the chief executive of Mena Barclays. “These businesses are strong, performing well, and have significant future growth potential. The strong interest in Barclays’ UAE retail business is a testament to the high quality of our business, portfolio and talent.”
ADIB has been expanding its consumer banking business aggressively over the past couple of years, expanding its business into other emirates such as Dubai.
Banks in the UAE, of which there are more than 50, have been vying heatedly for retail customers since the financial crash of 2008 because the margins on that business are higher than loans to companies. And many of these corporates were struggling to recover from the crisis, making banks focus on individuals.
The subsequent economic boom in the UAE that began in earnest last year has increased demand for mortgages, car loans and personal financing and that has made it difficult for banks with smaller retail networks to compete with market leaders such as Emirates NBD and ADIB.
Meanwhile abroad, Basel bank industry regulations geared towards preventing the kind of financial crash that occurred in 2008 are making many lenders scale back from some retail and small and medium-sized lending operations. The Basel regulations, which will come into place in 2018, are aimed at ensuring financial institutions have enough cash at hand to deal with any losses by reining in how much they can borrow and lend.
“Foreign banks have been reducing their exposure in UAE retail business,” said Harshjit Oza, a Cairo-based assistant research director at the Egyptian investment bank Naeem Holding. “The competition has become stiff and it is impacting retail business margins. It is part of foreign banks’ strategy as they reduce their overall risk exposure and focus on more profitable business ahead of upcoming Basel III regulations.”
The sale to ADIB comes amid greater consolidation in the banking market, especially in the consumer divisions. Abu Dhabi Commercial Bank, which was reported to have expressed interest in Barclays, bought the retail arm of Royal Bank of Scotland in 2010 for about US$100 million, adding more than 250,000 customers to its business. HSBC bought Lloyds’ retail arm in 2012 for $769m and Emirates Islamic merged with Dubai Bank to create Emirates Islamic Bank in 2012.
“ADIB is one of the leading retail banking operations in the UAE and this transaction is a perfect fit for our strategy as we expand into the expatriate market segment without disrupting our loyal existing customer base,” said Tirad Al Mahmoud, the ADIB chief executive.
ADIB, which has the third largest retail network by number of branches and ATMs in the UAE, is not only trying to win a greater share of the thriving consumer banking market but is also striving to make Sharia-compliant banking, which prohibits interest and charges a profit rate instead, more attractive to non-Muslims. The bank recently hired Phil King, a veteran Citibank executive, to head the lender’s retail business and he is keen to make Islamic banking more accessible to western expatriates while keeping the bank’s existing local customers happy.
The number of active customers served by ADIB increased by 14 per cent in 2013 to 577,565.
Of the current monthly inflow of 8,000 to 9,000 new customers, Emiratis comprised about 60 per cent while expatriates made up 40 per cent. Previously, Emiratis comprised 80 per cent of the bank’s clientele, according to Mr King.