THE UAE banking sector has traditionally been dominated by banks with majority government shareholdings which handle almost every transaction by the various state-owned institutions. With their huge assets, extensive branch networks, and limited competition for retail business from international banks, this select group has been able to spread its retail reach far beyond the capabilities of their smaller local rivals.

Confronted by such market realities, some of the smaller banks have sought salvation by carving out particular niches as their own. One such institution is Abu Dhabi-based First Gulf Bank (FGB). Owned 100 per cent by private investors from the UAE and Kuwait, FGB is focusing on high net worth individuals, particularly in cash-rich Abu Dhabi.

'Abu Dhabi is a closed market with the government supporting most banks. As a privately owned bank, we are concentrating on large investors who need their banks to make quick decisions,' says Adel al-Hosani, deputy general manager of FGB. 'Such services are normally provided by foreign banks and we want to be the local bank which can compete with them.'

FGB is actually a recent arrival in Abu Dhabi. It was set up originally in 1979 in Ajman with the majority of its founders coming from Kuwait. When the bank experienced turbulent times, a majority stake was bought by Abu Dhabi investors in 1995. Today, the bank is 87 per cent owned by leading investors from Abu Dhabi, with the ruling Al-Nahyan family owning more than 50 per cent, and 13 per cent by Kuwaiti investors.

After the ownership restructuring, the head office was moved to Abu Dhabi in 1997; paid-in capital was increased in August 1998 to AED 360 million ($98.1 million) from AED 120 million ($32.7 million). The face value of FGB shares was also redenominated to AED 1 (0.27) from AED 10 ($2.72). The bank now has a total of five branches in the UAE - two in Abu Dhabi, and one each in Al-Ain, Ajman and Dubai.

Innovation and maximising profits for shareholders top the corporate agenda at the revived and expanded bank. 'At present we are restructuring our organisational chart, manuals, information technology systems and preparing new credit and personnel policies for the future,' Al-Hosani says, adding that the bank considers that the local market offers huge potential for developing FGB's services.

The bank's brokerage department undertakes substantial business on behalf of its clients, which prompted the board of directors last June to set up a dedicated fund, using 25 per cent of its paid-in capital, to invest in local stocks. A committee has now been set up to launch a AED 500 million ($136 million) venture capital fund which will invest 70 per cent of its capital in the UAE, with the remainder destined for investment in regional and international projects.

About 5-10 per cent of the subscription to the fund, which is due to be launched over the next six months, will come from the bank, with the rest to be put up by leading shareholders, including members of the Al- Nahyan family. The fund could be expanded after a few years through an initial public offering (IPO).

'There is a lot of scope for investments in small-to-medium sized ventures in the UAE. Such projects will be on the rise as the private sector expands,' says Al-Hosani. On a rather grander scale, FGB has been chosen as the lead manager for an ambitious IPO in the planned Saadiyat Development Company, which will develop the infrastructure at the Saadiyat free zone under a 25-year concession, renewable for another 25 years, for the Saadiyat Free Zone Authority. Al-Hosani says the size of the IPO and the date for its launch are still to be determined.

Like other Abu Dhabi banks, FGB also plans to channel funds from the Abu Dhabi Investment Authority, the Finance Department and Abu Dhabi National Oil Company and its subsidiaries into the financing of new business ventures by privately owned groups. 'A number of people have some very exciting project ideas and we want to participate in their development,' says Al- Hosani.

As the bank is a major player in the local share market, Al-Hosani has definite views on government plans to set up an official stock market. He says that it is important to have an impartial regulatory authority which has no connection with any existing body. 'The Central Bank of the UAE should have nothing to do with the stock market. It should do its business of printing local currency, supervising the banking sector and controlling the money supply.'

He contends that in the event of a stock market crash the management of listed companies should be allowed to buy up to 10 per cent of its own shares to support prices. At present, the market may also have an oversupply of shares - a situation which could be corrected by putting all new IPOs on hold for three years. Al-Hosani also believes that new projects should be set up with the participation of founders and, if necessary, the government. They should be allowed to go public once they have a track record of successful operations over three years, producing a minimum dividend of 10 per cent a year.

Al-Hosani also says that leading local financial institutions should invest a part of their funds in the stocks of local companies rather than parking all their money on the international market. 'Local funds have been making between 15-20 per cent a year on average for several years now. It is important that big institutions should invest at home. This will build investor confidence in the market and also benefit the country.'