Interview: No slowdown in UAE consumer loans

29 June 2015

Paul Trowbridge, CEO of Sharjah’s United Arab Bank, is bullish on continued growth in the UAE

The UAE’s economy, especially in Dubai and Sharjah, is diversified enough to continue growing through a lower oil-price period, according to Paul Trowbridge, CEO of Sharjah-based United Arab Bank (UAE).

“Dubai is, of course, very strong in terms of logistics of both people and cargo, and tourism is growing,” says Trowbridge. “And Sharjah, which is 26 per cent of our business, makes real things for real people – people who are living and working long term in the UAE.”

Economic hinterland

He expects Dubai’s growth to be boosted by preparations for the emirate’s hosting of the World Expo in 2020. The event will have a knock-on effect in Sharjah, which plays a supporting role.

“Sharjah is the economic hinterland for the UAE,” says Trowbridge. “What’s happening in the rest of the economy, of course, matters, but people still need basic goods and services. It will be the last 15 or 20 per cent that is ‘boom type’ profit when the economy is booming, but everyday living continues through tough times. Those financing needs are relatively stable.”

He sees the future of UAB in consumer and retail loans, as the UAE moves towards a diversified consumer driven economy.

“There is no slowdown in consumer loans, thanks to the net inflow of people into the UAE,” he says. “UAB typically succeeds in growing its market share, even if the market overall isn’t growing. You have to support customers when the market is tougher; service is more important.”

Diversification efforts

Thanks to the UAE’s diversification efforts, such as attracting tourists, growing a manufacturing base and investments in the health sector, Trowbridge does not expect lower oil prices to have a significant impact outside the oil services sector.

“There is no decline in long-term confidence,” he says. “People get used to volatility. The region has experienced both very high and very low prices, and they will adjust.”

Banking sector liquidity has yet to be affected, nor volumes of business, although governments are likely to rein in spending slightly.

“We are not seeing significant signs of its effect so far,” he says. “The banking sector simply tracks the real economy – people go to banks because of the underlying level of activity. Banks don’t create anything by themselves. We react to the level of demand.”

“If the whole economy flattens we would of course expect lower levels of activity, so working capital needs, especially related to oil and oil-related needs, will probably moderate.”

UAB has no plans to expand its limited project finance portfolio, but will continue to invest in a syndicate led by Commercial Bank of Qatar. Each bank knows its country market and can advise others on opportunities there.

Fifa scandal

Trowbridge is not put off exposure in Qatar infrastructure, real estate and hospitality, through the syndicate, by the corruption scandal rocking Fifa. The World Cup bids for 2018 and 2022 are under investigation by Swiss and US authorities.

“[Qatar] is a major global producer of LNG [liquid natural gas] and, of course, that will continue,” he says. “That successful LNG story won’t stop for a short-term blip, whether it’s just perceived or real.”

But one area where banking activity should be elevated is refinancing debt. A flurry of companies have announced they have lowered their costs of financing by renegotiating their facilities with five- or 10-year fixed rates.

“It’s a good time for businesses to take advantage of historically low global interest rates, as the common view is that they will probably rise, not fall, from where they are,” says Trowbridge. “There is much more action at the moment from customers who want to lock in low rates, rather than take a chance on a high rate later. Taking advantage is just being prudent.”

Window of opportunity

But this window of opportunity may soon close as quantitative easing ends and the US puts up its interest rates.

The same motivation drives high take up in sovereign bonds, both from international and local investors.

“Take up of sovereign bond issuances show the growing sophistication of the region,” says Trowbridge. “In a low-interest-rate environment globally, investors are looking for niche products and are keen to experiment with different regional stories.”

With the rise in dependence on tourism and logistics ever more active links with international capital, banking in the UAE is far more responsive to global trends in the financial industry than oil price volatility.

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