Gulf News
Dubai: Incorporated in 1975 with its headquarters in Sharjah, United Arab Bank (UAB) offers a range of financial services in corporate and retail banking via 14 offices and branches throughout the UAE.
The bank has been a key player in the corporate banking sector across the country since its inception. With the launch of its wealth management and Islamic banking services in recent years, it has grown its retail customer base and is targeting further expansion.
With Qatar’s largest private sector bank concluding a similar deal with the National Bank of Oman two years previously, all three banks now have a strategic alliance across three key GCC economies.
In an interview with Gulf News, Paul Trowbridge, chief executive of UAB, said that while the bank intends to continue its cautious lending policies, it has plans to expand its retail business, particularly mortgages, Islamic financial services and wealth management.
GULF NEWS: UAB recently announced a very competitive mortgage rate. With so many banks still stuck with huge non-performing loans (NPLs) linked to real estate, isn’t this move a departure from your conservative lending policies?
Paul Trowbridge: UAB has a history of being very conservative. When we started mortgage two years ago, the world was a very different place.
Now what has happened is that the market has mostly bottomed out. Our view is that there isn’t much room for a further fall in real estate prices in the UAE.
So, firstly, we are starting the business when the market has hit the bottom. Secondly we are in a wonderful position of following the other lenders who started mortgage business at a time when there was lack of clarity in mortgage laws and clear guidelines on documentation. Now we are in a position to draw from the experience of others. Additionally we have some of the best lawyers in town who have more than five years of experience on what happened in the market during the last five years. They know exactly what worked and what didn’t.
To top it all we have the lowest mortgage rate, 4.99 per cent, with the option of both Islamic and conventional financing.
The product is available to salaried and self-employed UAE nationals as well as expatriates. We want customers with long term commitment to this place. Obviously people on a two-year contract are not the ones we are looking for as our mortgage customers. Two or three years ago, it was largely speculation that was driving the market. Now there are a number of genuine homebuyers.
Your new mortgage offer has a very high loan-to-value (LTV) ratio of up to 85 per cent, which was the source of a big surge in non-performing loans for the banking sector following the financial crisis. Isn’t the LTV too high for a market that is in the early stages of recovery from a major crisis?
Not really. Look, it works like this. At one end of the range it [LTV] is rather high. However, given the fact that we are lending only on fresh valuations and the fresh valuations are about 50 per cent of what it was at the peak of the market, the amount of risk is relatively low.
Again as I said earlier, we evaluate the customers on their commitment to this place and the LTV will depend on a number of factors.
Isn’t it ironic that when most banks in the country are trying to exit their mortgage assets or booking heavy provisions, UAB is going full steam ahead into mortgages?
Many banks lost money on financing properties at the height of their valuations.
Most of these deals were speculative in nature. On the contrary we are financing fully ready to occupy properties to genuine home buyers.
In reality there is nothing wrong with mortgages. It is pure lending. The risk emerges mostly from the underlying property if its valuation is exaggerated on speculation or its completion is delayed for some reason or other.
UAE Interbank Offered Rate (Eibor) has been falling gradually as liquidity is increasing, with three-month Eibor now at a seven-year low, do you expect the lending rates to come down and bank lending to pick up this year?
Lower lending rates and its sustainability in the UAE will depend a great deal on what happens in the global economy. At present the level of liquidity available within the UAE economy is good.
I think at the moment everyone is cautious about the global economy. There is still a lot of bad news coming out. I don’t believe it is going to have much of direct consequence for the UAE economy. But we should not forget that money is like any other commodity. In times of uncertainty it becomes scarce.
UAB’s bad loan provisions in the first quarter of this year were at Dh20 billion which was double the size of the corresponding quarter last year. What do you attribute this to?
There have been some significant changes in central bank regulation on NPL provisioning. We recognise the need for such regulations and comply fully with such regulatory changes.
Like all other banks in the country we too recognise that this will be a tough year. We need to understand that the central bank is seeking higher provisions to keep the banking sector prepared to withstand higher risks.
Making a provision is a way of preparing for a potential loss. But a provision need not necessarily always result in a loss. The bottom line is that we remain prepared for surprises.
The bank reported a 6 per cent growth in loans and advances to Dh5.8 billion. What is the share of retail portfolio in your assets? Do you think the recent central bank restrictions will impact your loan book growth?
We expect healthy growth we reported in the first quarter to continue for the rest of the year. We are well positioned to expand our books as we have cost effective funding. I am not going to reveal the numbers but I can tell you that today we are a major mortgage writer in the UAE. We are clearly seeing a recovery in corporate lending as people are cautiously looking at expanding their business.
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