HSBC Cedes Top Spot to U.A.E. Bank After Lending Goes Local

By Matthew Martin

HSBC Holdings Plc (HSBA) is no longer the leading bank for syndicated loans in the United Arab Emirates, with local lenders bumping larger international rivals from the top ranks for the first time in at least 12 years.
First Gulf Bank (FGB) removed the London-based lender from the number one spot last year, extending $2.65 billion in credit, according to data compiled by Bloomberg. That’s 66 percent more than HSBC and more than five times the amount the Abu Dhabi- based institution offered in 2013, the data show.
U.A.E. banks are hiring from international lenders to bolster operations as they deploy surplus cash to offer cheap loans to local businesses. This allowed them to claim the top five positions in credit for the first time since at least 2002.
“The five biggest banks in the U.A.E. have been aggressively competing with the bigger international banks to win market share,” Sanyalaksna Manibhandu, manager of research at NBAD Securities (HCNBCRL), said by phone from Abu Dhabi on Jan. 5. “If you look at
the balance sheet of those five banks, they still have the capacity to carry on being aggressive.”
Emirates NBD (EMIRATES), National Bank of Abu Dhabi, Dubai Islamic Bank (DIB) and Abu Dhabi Commercial Bank rounded out the top five lenders, according to Bloomberg data, with only Citigroup, HSBC and Standard Chartered (STAN) featuring in the list of the top 10. Last year, StanChart as it’s known, held third position.
StanChart and HSBC declined to comment.

Liquidity Glut

U.A.E. banks are cutting loan prices to retain clients amid a glut of liquidity. The three-month Emirates interbank offered rate, a benchmark used by banks to price loans, fell to 0.68 percent last month, the lowest since at least 2006.
The combined loans-to-deposit ratio of the U.A.E.’s 51 banks, a measure of liquidity, was 97 percent at the end of October, compared with 101 percent at the end of 2012, central bank data show. Banks such as National Bank of Abu Dhabi (ADCB) are seeking to grow fee-generating businesses such as arranging bond deals and derivatives to compensate for narrower loan margins.
“Some of the local banks have been pursuing a strategy where they place market share above profitability,” Manibhandu said. “The question is how long can they sustain that?”
Slumping oil prices may curb some of the liquidity in the Gulf banking system. Brent for February settlement was at $51.24 as of 10:48 a.m. London time, after reaching $115.71 a barrel in June.
U.A.E. oil output averaged 2.77 million barrels a day last year, down from 2.92 million barrels a day in August 2013, according to data compiled by Bloomberg.
First Gulf Bank hired Simon Penney from Royal Bank of Scotland to head its wholesale banking unit in 2013 and Standard Chartered’s Steve Perry as head of debt markets. NBAD hired Jonathan Macdonald as head of syndicated finance from Barclays Plc (BARC) in June, and Emirates NBD hired Jonathan Morris to head its wholesale banking business from StanChart.
“Lending appetite from international banks is still limited, while many of the larger local banks have been making significant progress on their strategies to build wholesale banking franchises and increase market share,” Jaap Meijer, managing director of equity research at Arqaam Capital, said by phone from Dubai on Jan. 5. “That puts them in a good position to continue to be the dominant players.”