Credit card business could pose asset quality risks - Al Mal Capital analyst.
Abu Dhabi Commercial Bank paid the right price for its purchase of Royal Bank of Scotland's retail operations in the UAE, but credit card business could pose asset quality risks, an analyst said.
On Wednesday, the Abu-Dhabi bank finalised a deal to buy RBS' UAE retail arm for around $100 million, expanding its domestic footprint.
As part of the deal, ADCB will acquire three branches of RBS along with its 250,000 customers. The deal will also double ADCB's market share in the UAE credit card market to 15 percent.
"Not a bad price for a significant market share gain in the high margin credit card business, if potential asset quality issues have been accounted for," said Deepak Tolani, analyst at Al Mal Capital in a note.
In addition, the fee income generation from the wealth management unit may help the bottom line, he said.
ADCB's credit card portfolio, which stands at 1.4 billion dirhams, makes up only 1.2 percent of gross loans and potentially doubling that is still a small piece of the pie, but at significantly higher margins.
"RBS has been fairly active in the local credit card market in the past few years, especially to expatriates and we would caution on the potential asset quality issues emerging from there," he said.
Currently, ADCB has 49 branches, 175 ATMs and over 340,000 retail customers in the UAE.
Majority owned by the Abu Dhabi government, ADCB is one of two regional banks that led the negotiations between Dubai World [DBWLD.UL], the state conglomerate restructuring billions of debt and its creditors.
The bank is one of the most exposed to Dubai World and posted a 36 percent drop in first quarter net profit in April.
Edinburgh-based RBS, now almost entirely owned by the UK government, had said it would sell several global activities as part of a strategic plan announced in 2009. (Reuters)