The UAE's third largest local bank is spreading its wings. Emirates Bank International (EBI) has built up a solid franchise among the country's traders and is now looking outwards at increasing its lending across the region. The Dubai-based bank is also preparing to get more involved in syndicated loans and share flotations History and Structure FBI, like Abu Dhabi Commercial Bank, was a product of the crisis that struck the UAE banking sector in the mid-1980s when a number of banks merged following troubles with bad loans. EBI was formed from three banks Union Bank of the Middle East, Emirates National Bank and Dubai Bank. It is 80 per cent owned by the Dubai government, with private investors holding the rest.

Ahmed bin Humaid al-Tayer, the UAF's current Finance and Industry Minister, has been chairman since 1983. The chief executive is local financier Anis al-Jallaf while the current general manager is Charles Neil. a UK national who joined the bank last year and was previously area manager for Lloyds Bank in Dubai.

In late 1991, FBI took over a smaller Dubai institution, Middle East Bank (MEB). In a division of labour between the two banks, FBI concentrates on corporate business and MEB focuses on retail lending. MEB recorded a healthy 26 per cent rise in net profits last year, but still carries accumulated losses on its balance sheet.

In 1995, FBI opened new branches in Abu Dhabi, Sharjah and the affluent Dubai suburb of Jumeirah. This takes the total number of its branches in the UAF to 13, most of which are in Dubai. It also has nine branches in Pakistan, one in Hong Kong and another in London. MEB has another nine branches around the UAE. The intention is that the two banks together will add two to four more domestic branches a year.

EBI shed its interest in Nepal Arab Bank during 1995. It retains a 45 per cent holding in housing company Union Properties, which was a subsidiary. until shares were sold to the public in 1994. It also bought 65 per cent of the local National General Insurance Company last year.

The bank is aiming to become a regional institution by an incremental process of doing more business in the Gulf and neighbouring states from its Dubai base and gradually adding branches abroad as opportunities arise.

'We're going to move more towards dealing with large corporates in the Gulf and with multinationals,' says Neil. 'Our longterm strategy is to portray ourselves as a regional bank.'

FBI is currently one of the more dynamic local banks in the UAF, where long reliance on government business and memories of the bad loan problems of 10 years ago have made much of the industry cautious and conservative. It has built up its syndicated loans business, led a public share offering for Dubai Investments last year. It has also dipped a toe into the waters of Islamic investment with a Sharia-compatible leasing fund, offering a first $10 million tranche last year, and a second tranche of $5 million in January.

The bank's new syndications department has a staff of just one, but it is expected to grow as more opportunities arise. 'The bank has done a few syndications before, but there was a need to find a home for it (the business),' says Neil. The department will be incorporated into a fully-blown corporate banking division which FBI plans to set up later this year.

FBI's biggest recent success was winning the mandate in April 1995 to arrange a $120 million syndicated loan for the Petromin Lubricating Oil Refining Company (Luberef) in Saudi Arabia. It is also bidding to provide part of the financing for Emirates' purchase of new Boeing 777 aircraft. The Dubai-based airline is buying seven of the aircraft at a cost of about $1,000 million, with options on seven more.

The bank is currently arranging another syndicated loan, this time of $55 million, to part-finance an oil tank terminal in the northern emirate of Fujairah. Neil sees FBI working together with foreign banks on major syndications, but small loans may turn out to be more appealing than big-ticket items. 'We're not going to go overboard on size. If we're going to take on anything big, it's to sell it down,' Neil says. 'We're quite cautious as a bank. We don't take huge risks.'

Like many banks in the UAF, FBI is limbering up for the arrival of the long-awaited stock exchange which is expected to be set up some time in 1997. The bank has done two flotations so far: a sale of shares in Union Properties in 1994 and in Dubai Investments in 1995. 'We've built up the capability and we're well-placed for future flotations,' says Neil.

On the retail banking side, FBI offers a range of credit card products, including cards linked to a local newspaper and a charity, and electronic purse-type cards which carry a fixed credit for use in shopping. However, Neil says the bank does not want to overreach itself on consumer lending. 'We take a cautious view. The record we have on credit card lending is very good.'

FBI has been a pioneer in introducing Switch-type linkups between cash machine networks. It already has a linkup with a bank in Bahrain and plans more. 'We're going to see a Gulf Cooperation Council (GCC) switch. That's probably about two years away The technology is there,' says Neil.

Performance

EBI's profits have been rising steadily for 10 years. In 1995 the bank reported a 7.5 per cent increase in consolidated net profit to AED 310 million ($84.3 million), with all the bank's activities doing well. Total assets grew 23 per cent to AED 15,517 million ($4,220 million), with loans and advances growing by a striking 55 per cent to AED 9,580 million ($2,606 million).

Like most of its competitors, the bank does not provide details of how its loan portfolio is broken down among government, corporate and retail borrowers. As with the other main local banks in the UAF, a large portion of its business is assumed to come from government in this case, the emirate of Dubai.

Its return on assets of 2.05 per cent is about average for a UAE bank while its return on equity of 17.17 per cent puts it among the better-performing institutions.

'We're undergeared,' says Neil. 'We retain a lot each year to capital.'

FBI was one of four banks in the UAF that were assessed earlier this year by Moody's Investors Service. The US agency rated the bank's deposits at Baal for long-term and Prime-2 for short-term, which was at Moody's sovereign ceiling for the UAE.

The bank got a D-plus rating for general financial strength. 'The rating.. reflects the strength of (FBI's) local franchise, its adequate capital ratio, satisfactory liquidity and consistent profitability,' Moody's said. 'However, it also reflects a history of a high level of non-performing loans, a heavy reliance on government-related business and the limited and competitive nature of the bank's domestic market.'

'We're generally disappointed with the ratings, but they were due to the low country rating,' Neil responds, echoing a criticism made by a number of UAE bankers that Moody's was too pessimistic in its view of the operating environment in the country.

Outlook

After 10 years of rising profits, FBI is established as one of the dominant banks in the UAF. In time, it may become a competitor with other leading GCC banks on a regional level, though this depends on how far the Gulf Arab states are prepared to go towards opening up their economies.

But as a bank with a good trackrecord and a base in the dynamic local economy of Dubai, FBI should be wellplaced to exploit the opportunities that come its way, whether in the Gulf or further away from home.

'The big advantage we have is that with so much trade done from the UAE, we have a natural flow to lock into. This is our competitive edge,' says Neil. 'For us the region is not just the GCC, but wherever our customers are doing business.'