Banks in UAE seen chasing more deals as lending margins erode
Increased competition among banks in the United Arab Emirates is eroding margins and pushing lenders in the second-largest Arab economy to chase more deals, according to First Gulf Bank PJSC.
“You have to do more deals, more volume to even stand still,” Steve Perry, head of debt markets and syndications at the UAE’s third-biggest bank, said Wednesday in an interview. “There is a focus on asset growth within the banking market. Everyone starts challenging for individual deals, and that’s had the effect of driving margins downward.”
Companies in the UAE have made the most of competition among lenders to drive down their borrowing costs. That’s encouraging FGB, as the Abu Dhabi-based lender is known, to explore new opportunities for lending and expand deal-making.
“We’re now looking at potentially going down the credit curve, looking at mezzanine financing, reserve-based lending, areas where the margins are much stronger,” Perry said.
The bank is working on 20 deal mandates and has 35 transactions it is seeking to close by the end of the year, he said. These cover areas such as bond sales, project finance, aircraft financing and M&A, including a Saudi Arabian transaction exceeding $100 million (Dh367.30 million), he said.
The bank is financing two Airbus A380 superjumbo jets, one for Dubai-based Emirates and another for Etihad Airways PJSC, he said. In Egypt, the bank is involved in renewable energy financing for a project off the Suez Canal. Perry said the loan could be about $200 million with a tenure of 15 years.
A slump of more than 50 per cent in crude-oil prices in a year has prompted some Gulf companies to “lighten up their assets” and provide a business opportunity for the bank, Perry said. “They’ve been very aggressive and with the oil prices dropping they’re looking to divest. We’re looking at providing finance and helping companies on what those assets are.”
The bank is looking to expand in Asia and could open a branch in China along with plans to upgrade its Indian representative office. Asia-Pacific operations are run out of FGB’s Singapore branch, where additional hires in 2016 will follow recruitments this year, he said.
“International expansion, organic and inorganic, is a big part of the overall bank philosophy going forward,” he said.