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UAE banks likely to prosper in 2007, report predicts

An analysis report released by investment bank EFGHermes on the UAE’s banks predicts that the industry will likely produce strong growth in earnings and revenue during 2007.

Despite a dramatic decline in stock market-related earnings (such as IPOs and asset management fees) during 2006, the operating environment for “core banking services” looks very healthy moving forward, observes Raj Madha, a senior research analyst at EFG-Hermes.
“The environment for core banking operations is extremely strong, based on solid economic growth, increasing financial penetration and with debt levels sustainable,” he adds.

Madha notes that, as stock market-related earnings declined last year, most banks were quick to adapt and focus on growing core earnings such as their lending activities.

As such, lending was a strong driver of growth, he observes, and in order to ensure that slower deposit growth did not become a constraining factor, most banks launched multi-million dollar medium-term notes (MTN) programmes. “Many banks are beginning to focus on diversifying their revenue stream, and taking advantage of cross-selling opportunities,” Madha says. He cautions, however, “We do expect a slowing down of the loan market in the UAE and banks need to consider seriously how they will respond to this”.

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