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Solid banking sector balances caution with opportunity

Publish Date : 5/16/2010 12:00:00 AM
With the bulk of their business firmly entrenched in retail banking, the Emirate's financial institutions are continuing to show signs of relatively high lending activity, dispelling concerns that they could become risk averse in the current economic climate, according to the Governor of the UAE Central Bank, Sultan bin Nasser Al Suwaidi.

Speaking exclusively to Oxford Business Group (OBG), the global publishing, research and consultancy firm, Al Suwaidi said that although the Central Bank had issued timely advice urging banks to weigh up the risk element when giving loans, he had no major concerns that this advice could lead to the sector becoming too cautious.

"Institutions must look at risks carefully with regard to lending, but I am not overly concerned on this front because banks in the UAE are mainly retail commercial banks," he said. "This means the system benefits from the inherent strength of business banking, while also having the advantages associated with retail. Against this backdrop, UAE banks are very solid with high liquidity and a Central Bank which is supportive." With global economic recovery still in its early stages, Al Suwaidi said the Central Bank would continue with its two-pronged approach of ensuring that the banking system had sufficient liquidity, while exercising indirect control on credit expansion. "I think these are the most important pillars," he told OBG.

Although the Central Bank would like to see the proportion of loans to deposits cut, Al Suwaidi was keen to stress that decisions on lending ultimately rested with individual banks, whose judgments would be based on their local knowledge of both customers and the economic climate. "Only banks know the nature and the business of banking - the requirements of the individual borrowers. Therefore they are in the best position to judge this," he said. "The UAE economy is open, dynamic and robust. Banks will decide what opportunities are right for them." Al Suwaidi also acknowledged that the conservative labelling of loan to deposit ratios adopted by the UAE banking system belied the real strength which characterised the sector. "Nobody else in the world would label deposits like we do," he said. "If you compare the UAE to other jurisdictions, you will find the definition is extremely conservative, very solid. It doesn't initially reveal the strength that is inherent in it." The full interview with Al Suwaidi appears in The Report: Abu Dhabi 2010, OBG's guide on the Emirate's economic activity and investment opportunities. OBG's report will include a detailed, sector-by-sector guide for foreign investors, together with a wide range of interviews with the most prominent political, economic and business leaders, including H.H. Sheikh Hamdan Bin Zayed Al Nahyan, the Ruler's Representative in the Western Region, Sheikha Lubna Al Qasimi, Minister for Foreign Trade and Mohammed Omran, Chairman of Etisalat.

The Report: Abu Dhabi 2010 marks the culmination of more than six months of on-the-ground research by a team of analysts from OBG, assessing trends and developments in all major sectors of the economy. Marking OBG's fifth year of operations in the Emirate, it provides information on opportunities for foreign direct investment into the economy and serves as a guide to the many facets of Abu Dhabi, including its macroeconomics, infrastructure, political landscape, banking and sectoral developments. The report is available in print form or online.

WAM

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