National Bank of Abu Dhabi

02 February 2010

Although it is no longer the largest UAE bank, NBAD could become the first international Arab banking brand.

Company snapshot

  • Date established: 1968

  • Main business sectors: Banking

  • Main business regions: UAE

  • Asset size: $33.77bn (as at 30 June 2007)

  • CEO: Michael Tomalin

Until the merger of Emirates Banking Group and the National Bank of Dubai to form Emirates NBD, National Bank of Abu Dhabi (NBAD) was the largest bank in the UAE. Now relegated to second place, NBAD will have to work hard if it is to regain its top spot in the UAE banking sector. But the bank is well placed to lead the way in creating an international Arab banking brand.

Its former status as the emirate’s central bank gives it significant leverage throughout the country, although the fiercely competitive UAE banking sector means that its future position in the market could depend on its appetite to complete acquisitions of its rivals.


NBAD is restructuring the bank into 13 separate business lines in a bid to help it drive profit growth in the increasingly competitive UAE banking market.

Key to these changes is the separation of formerly unified parts of the bank, such as retail and private banking, and the corporate and small and medium enterprise (SME) banking business. This will create separate cost centres for the retail banking division, SME business, private banking and corporate banking divisions. Each has now been given its own profit targets.

The bank’s ownership is split, with 27 per cent of its shares floated on the Abu Dhabi Securities Market: 24 per cent held by domestic investors, 3 per cent by foreign institutions, and the remaining 73 per cent being held by The Investment Council, which acts as the domestic investment arm of the Abu Dhabi government.

The bank’s board largely comprises UAE government personnel. As a result, concerns have been raised by analysts that it cannot independently regulate its activities, particularly as the government is the bank’s largest debtor. About 67 per cent of the bank’s loans are to the government, quasi-government organisations or corporate partners. However, some of the key positions on the management board are held by experienced international bankers, who are highly regarded in the industry.


Until 1978, NBAD was the UAE central bank and it has maintained a strong relationship with the government, which gives it privileged access to government-related business. It holds an 11 per cent market share of the UAE banking system and, despite mounting competition, is expected to be able to maintain its position as one of the dominant banks in the country. A recently launched drive to expand the bank’s retail presence will boost its efforts.

NBAD is one of the UAE’s most geographically diverse banks, with its international division accounting for nearly 20 per cent of total assets and 16 per cent of total profits after tax.

The concentration of lending to the government and corporates means NBAD has a net interest margin of 2.5 per cent, which is lower than the UAE average of close to 3.5 per cent. The bank’s operations are primarily split between four business segments: domestic, international and investment banking, and head office support.


NBAD has ambitions to be the number one Arab bank. However, since the launch of Emirates NBD established a larger bank just a few miles away in Dubai, chief executive Michael Tomalin has since taken a slightly softer line, saying that ‘number one’ could be in terms of asset size, customer service, international network or profitability.

He admits that to achieve this the bank must grow, although the current strategy is to grow organically rather than through acquisitions. But competition within the UAE banking sector is intense. It has the highest number of banks per capita in the GCC, and is now the biggest banking sector in the region.

As part of the internal restructuring, the bank has appointed a new head of the retail banking division, John Malouf, who is charged with raising the contribution of NBAD’s retail banking activities from 20 per cent of total profits. The hope is that by building its presence in the relatively stable retail market, it can reduce some of the cyclical profit implications of relying heavily on government and corporate spending.

The bank is also keen to diversify its investor base through the issuance of debt to inter-national investors, although the current upswing in bond margins has temporarily halted this process. This should help the business to shift away from its reliance on a small number of big ticket depositors, the top two of which supply 20 per cent of the bank’s total deposits for funding.

MEED assessment

The key to NBAD’s growth will be how vigorously it pursues merger opportunities. If other banks are prepared to pay the high cost of buyouts, they may steal the advantage. Speculation remains over the likelihood of NBAD merging with Abu Dhabi Commercial Bank.

However, the more NBAD drives expansion of its newly restructured retail division, the fewer benefits will be gained from a merger. This is because one of the motivations of uniting the two would be to give NBAD access to Commercial Bank’s more developed retail arm.

If the Abu Dhabi government decides that NBAD should merge with ADCB, then it will undoubtedly go ahead. But at this stage, the two rival chief executives officers are in no rush to see this occur, favouring expanding their own institutions independently instead.

MEED expects the management team to focus their efforts on an aggressive expansion of the branch network in the UAE and geographic diversification to bolster already established operations regionally in Egypt, Oman, Sudan, Kuwait and Bahrain, and internationally in the UK, the US, France and Switzerland. The Far East will also be a target for expansion to allow the bank to tap into the significant interest the region has in the Middle East.

Q&A: Michael Tomalin, CEO

Is National Bank of Abu Dhabi going to merge with Abu Dhabi Commercial Bank?

That is an issue for the shareholders. I have said to them in the past that some sort of consolidation in the UAE banking sector would be a good thing, and not achieving the economies of scale that come from creating large institutions does pose risks for the UAE if its banks want to play on a global scale. The economy of the UAE is bigger than Singapore but banks there are significantly bigger than banks are here. The creation of Emirates NBD has certainly raised the profile of the issue in Abu Dhabi.

Is NBAD pursing mergers with other banks in the region?

It all depends on price. Most banks here are very expensive. Our current strategy is to grow organically, primarily because it is cheaper to do it that way. Making acquisitions would significantly reduce our return on equity (ROE), which we have targeted to be 25 per cent on average over the economic cycle. If we were to buy a bank, that return on equity for our shareholders would be diluted, which we are very mindful of.

Will organic expansion take much longer than growth through acquisitions?

The downside to building yourself up is that it does take a lot of time. However, it does allow you to build exactly the bank you want and not have to confront any legacy issues. We had the opportunity to buy a bank in Switzerland when we were establishing our private banking business there. But the prices were quite expensive, so we decided to just build our own.
Who sets the 25 per cent ROE target?

The board of directors [the Abu Dhabi government] sets the target and the general management team is consulted on it. Back in 1999, when we were writing the bank’s five-year plan, the board and general management decided that we would target 20 per cent ROE. When we hit that, it was moved up to 25 per cent.

What is the strategy to maintain that level?

You do not make 25 per cent ROE by lending money, or if you do you are lending to the wrong people. Our strategy is to use our balance sheet to build relationships that provide ancillary business, such as managing a client’s pension fund or providing corporate credit cards.

How has the credit crunch impacted the Middle East banking market?

Clearly, the main impact has been the way that credit spreads have been affected. Borrowers, particularly in this part of the world, have been enjoying margins that were probably too thin, or at least did not adequately reflect the risks involved. So borrowers are having to pay more than ever and that has filtered through to the Middle East, especially for those institutions that depend on the interbank market for their liquidity. I think it will take some time to see if that filters through to the retail market, although, generally, margins there are larger and can absorb some of these fluctuations. Competition should also help to stop prices moving upwards.

Does NBAD still have plans to borrow from the international bond markets?

We have received approval from shareholders earlier this year to raise money from a number of different markets, including Japan, Malaysia and the US. We will move when the pricing in the market is right. We are not a forced borrower.

What are the biggest challenges to the bank?

Obviously, the key challenges for any bank are maintaining adequate liquidity and assessing creditworthiness, which I think we do well. Outside of that, the main issue is people. The price of good people is rising all the time and finding the right people and developing them within NBAD is a big problem. Finding the right people is becoming more time-consuming.

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