UAE most competitive banking market in GCC

Abu Dhabi Islamic Bank (ADIB) reports today that the UAE remains the most competitive banking market in the GCC, a key finding from its proprietary “GCC Banking Competitiveness Report.”

The recent issue of the report confirms that the UAE remains the most competitive banking market in the region. The country’s population of approximately 8 million is served by 51 banks with more than 840 branches and over 4,000 ATMs, delivering high levels of service, yet lower profitability than its GCC counterparts. ADIB further notes that UAE banks’ net interest margin, which is the spread between what banks pay for deposits and what they charge for financing and loans remains the lowest among the GCC, at an average of 2.9%. Saudi banking spreads are currently closer to 3.5%, Qatar at 3.4% those of Kuwait banks are at around 3.2%.

Nevertheless, ADIB urges banks across the region to improve their levels of competitive analysis while at the same time raising the level of industry debate. This is necessary, it believes, if they are to ensure their continued strength in the challenging global economic environment and better meet the needs of their customers and shareholders. ADIB’s decision to start releasing extracts from its proprietary competitive analysis, via quarterly briefings with selected audiences, is a demonstration of its own commitment to improve regional competitive insight.

Comparing the number one and two banking markets by size in the GCC, the UAE and Saudi Arabia, Andrew Moir, Global Head of Strategy and Finance at ADIB, says: “Despite the fact that the UAE is a bigger banking market in terms of assets, it remains less profitable than that of Saudi Arabia. In the UAE, the mix of deposits, low customer charges, the presence of high levels of non-performing assets and competitive dynamics have negatively impacted banking profitability and capital ratios. However, lower net interest margin spreads means that consumers in the UAE are getting better rates overall but shareholders are getting lower returns as compared to those in other GCC markets.”

The “GCC Banking Competitiveness Report” is one of the tools with which ADIB has built its award-winning strategy and consolidated its position as a top-tier Islamic financial services institution since the new management team joined the bank in early 2008. It is updated on a quarterly basis by the bank’s Strategic Planning Department and has until now been used only for internal purposes.

The report focuses on various metrics and ratios that reflect both Islamic and conventional GCC banks’ structures and performance, ranging from customer growth, staffing and service to product trends and performance, financial ratios and indicators, investor insights, capital trends, liquidity, cost of funds and overall pricing dynamics. Specifically, financial performance, including banking spread analysis; provisioning and profitability are key components of the report.

“This report is one of the mechanisms used by ADIB to ensure continued enhancement of its overall offering. While the full report will not be made public, certain key insights will in future form part of a quarterly briefing to the market since we believe that if banks across the region commit themselves to learning from each other, we will all benefit. Customers and shareholders will then get the best possible service, solutions and returns from the industry,” concludes Moir.