Amlak Finance is not expected to receive a banking licence until “deep into 2008”, while UAE property prices will only experience a “slight drop” in prices in 2010 and not next year as widely predicted, according to a revealing report by HC Brokerage.
Ahmed Badr, analyst at HC Brokerage, told Arabian Business magazine that Amlak Finance would not obtain a banking licence in 2007 due to the firm’s belief that the banking sector is “overcrowded and seeking consolidation”.
“The sector is severely overbanked with 21 local and 25 foreign banks and it is time to consolidate. It is very hard for the Central bank to hand out new licences and Amlak will not receive one for this reason.”
Badr also told Arabian Business that he expects more consolidation to take place between now and the end of the year, following closely in the footsteps of the Emirates Bank and National Bank of Dubai merger. He refused to say which banks would look to merge, but added that it was “not a question of money, but other valuables that I can’t talk about”.
Amlak has been seeking a banking licence to expose them to retail deposits and to access cheaper ways of funding since 2006. However, the UAE Central Bank has so far not formally responded to its application.
“The reason they [Amlak] wants to get a licence is to gain access to retail deposits,” said Badr. “Amlak’s current means of funding relies on sukuks [Islamic bonds] and corporate deposits which are, on average, 1.5% more expensive than retail deposits.
“What Amlak has done successfully, however, is diversify its interests away from the UAE and tapping into and gaining the relevant licences in Saudi Arabia and Egypt.”
Badr said that Amlak “might” get a banking licence in 2008, but added that it was still unclear.
In the same report HC Brokerage said that the UAE mortgage market was on the verge of a boom backed by a huge flow of deliveries in the local property market, however it added that it also expects a “soft landing” in the UAE property market by 2010 given the huge flow of properties starting in 2007.
“This means that property prices will not come down at all between now and 2010, but that in three years prices will drop off slightly due to the delays in delivery.”
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