Abu Dhabi Islamic Bank (ADIB) plans to expand in North Africa as the lender seeks to access more-populous markets.
The bank applied for licences in Algeria and Libya and is considering Tunisia and Morocco, chief executive officer Tirad Mahmoud, said in an August 4 interview.
We are seeking to expand in nations with “a critical mass in terms of population and economic activity,” Mahmoud said.
The bank wants to be better placed to serve companies, such as Dubai-based mall operator Majid Al Futtaim, which operate across the Middle East and North Africa and rely on global lenders such as HSBC Holdings and Citigroup, he said.
Peers including Doha-based Masraf Al Rayan said in February it plans to buy into a Libyan lender and convert it into an Islamic business. Abu Dhabi sukuk are in demand, with the yield on the lender’s November 2016 securities falling 54 basis points in the past year to 2.22% at 5.18pm yesterday in Dubai, compared with an increase in Gulf Co-operation Council financial services yields tracked by HSBC/Nasdaq Dubai indexes.
Lenders are pursuing new markets as populations of about 8.3mn in the UAE and 1.9mn in Qatar limit domestic growth opportunities. Since 2008, ADIB has moved into countries including Saudi Arabia, home to about 28mn people, Egypt, whose population exceeds 80mn, and Sudan, Mahmoud said.
“Regional companies, when they choose their banks, choose those that are present in all their key markets and they give them regional mandates in working capital management, trade, and foreign-exchange flows,” he said.
Banking services that comply with the Shariah ban on interest came into focus after autocratic rulers who long oppressed Islamists were toppled in countries including Tunisia and Libya. Islamic financial assets could double to as much as $3tn by 2015, Standard & Poor’s forecast last year.
Libya, where almost all of the 6.6mn people are Muslim, has no stand-alone Islamic lenders, while Tunisia passed a law in July to allow sukuk sales to boost Shariah-compliant banking. Morocco and Algeria plan to expand their Islamic banking businesses and are drawing up plans to sell sukuk.
“The population in these countries want Islamic banking and the Arab Spring has increased its acceptance,” Geert Bossuyt, chief executive officer of Dubai-based consulting company Khalij Islamic, said on August 6. “I’m not surprised either that the GCC banks are taking the lead in entering these countries because you need to have banks with experience and deep pockets.”
Immediate growth prospects for banks in North Africa may be subdued by social unrest in Egypt and Tunisia, as well as lower exports, tourism and remittances in Morocco and Tunisia stemming from the eurozone crisis, according to Melina Skouridou, an analyst at Moody’s Investors Service.
Emirates NBD, the UAE’s biggest bank, bought BNP Paribas’ Egyptian unit in December, the same month QNB agreed to buy Societe Generale’s Cairo-based subsidiary. Abu Dhabi Islamic-Egypt is the country’s fifth-biggest publicly traded bank.
Egypt’s military forced Islamist President Mohamed Mursi out of office last month, a year after he became the country’s first democratically elected president. Political instability in the most-populous Arab country has hindered the nation’s ability to recover from the worst economic slump in two decades.
“International expansion usually coincides with lower profitability because you are entering markets you don’t know,” Jaap Meijer, director of equity research at Dubai-based Arqaam Capital Ltd, said by phone August 6. “We are not always thrilled by banks expanding beyond their own borders, particularly if it’s a greenfield expansion, because the payout is quite slow.”
Longer term, economic growth in North Africa will benefit banks, especially in resource-rich countries such as Libya and Algeria, Skouridou said. Domestic business is picking up as the UAE recovers from a property-market crash. Bank lending in the second-largest Arab economy expanded 5.2% year on year in May, double the growth rate at the end of 2012, according to central bank data. ADIB’s second-quarter profit increased 15%, the fastest in more than a year.
Mahmoud said Mena (Middle East and North Africa) expansion is essential to capture market share from foreign lenders. “The trend now is for GCC banks to increasingly focus on playing a regional role,” he said.
Bloomberg/Dubai
