Foreign banks building overseas assets using domestic deposits?

 

Foreign assets soar 38 pc, domestic assets drop marginally in past 4 yrs

ABU DHABI/December 05-2020: The foreign banks that have long been enjoying a strong presence in the UAE with about 27 members seem to be viewing this market as a good ‘deposit hub’, whereas the asset accumulation is increasingly routed outside the country.

The reason could either be a growing shortage of proper dirham lending or investment avenues within the UAE or these banks may be holding themselves back from aggressive lending in a market, where bad loans have become a new pain point for the financial institutions here.

An analysis of the aggregate asset base of the foreign banks in the past close to four years reveals that the total assets have grown by over 9 per cent, from AED375.306 billion as of December end, 2016, to AED409.445 billion towards September end, 2020.

In the said period, the national banks saw their aggregate asset base grow by more than 27 per cent per cent, from AED2.238 trillion to AED2.843 trillion.

Foreign assets soar

The interesting observation during this period is that the foreign assets have staged a smart growth of more than 38 per cent – from AED107.83 billion to AED148.126 billion, for these foreign banks.

Domestic assets decline

On the other hand, the combined domestic assets of these foreign banks declined, albeit by only 2.54 per cent during the said period, from AED268.12 billion to AED261.32 billion.

On a granular analysis, foreign securities swelled from AED17.95 billion to AED44.50 billion, whereas credit to non-residents also grew modestly from AED22.94 billion to AED35.82 billion during the said period.

Domestic deposits up

During the same period, scenario in the domestic market was different for the liabilities (deposits). It has been found that the deposits (monetary and quasi-monetary deposits) raised by these foreign banks from the domestic market increased from AED166.48 billion as of 2016-end to AED188.24 billion as of September end, 2020 – up by more than 13 per cent.

Domestic credit down

On the contrary, when it comes to the domestic credit and investments, they have contracted from AED176.91 billion to AED162.81 billion with the domestic credit alone witnessing a contraction of 9.5 per cent, from AED173.23 billion to AED156.83 billion.

The foreign banks that have presence in the UAE include Arab Bank, HSBC Bank (ME), Habib Bank AG Zurich, Bank Saderat Iran, Bank of Baroda (with 8 branches each), Habib Bank Ltd, Bank Melli Iran, Union Bank Ltd (7 branches each)and, Standard Chartered Bank (6 branches).

It may be worth highlighting here that both HSBC Bank (ME) and Standard Chartered, the largest two foreign banks with decades-old standing in the market, have, of late, been facing quite challenging years in terms of profitability.

For Standard Chartered Bank, UAE has become the worst performing major market for the third quarter (Q3) ending September 30, 2020, having closed the period with a pre-tax loss of $39 million.

UK is the only other major market for the bank that has closed the third quarter with a loss (before taxation), which was at $15 million.

 

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