Tag Archives: Bank

A Random Walk through UAE Economic Data

August 30, 2016 By in Economy Tags: ,

The news on the economy continues to be grim. I went searching for data to help us understand what is going on. I was surprised at what I found. You’ll have to read the article to find out if the surprise was pleasant or not.

In the absence of a team of research analysts to mine the data that I need (free marketing anyone?) I need to use what is available. One of the best sources of aggregate economic information is provided by the Central Bank of the UAE, available for free on their website.

As a start I took a look at their monthly statistical bulletin for June 2016, which they note is preliminary. I decided to look at some of the more oft repeated mantras and see if the data matched. Looking at what is happening with the banks should give us a good idea at what is happening generally.

One of the scariest pontifications is that the government is withdrawing its deposits, thus squeezing the economy by limiting the ability of banks to lend. Government deposits increased to 184 billion dirhams up 14% from 161 billion one year ago in June 2015. So, no, the government is not withdrawing deposits, it has added to them substantially. Pleasant surprise.

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NBAD and FGB's Merger Challenge: Work Culture

July 12, 2016 By in Leadership Tags: , , , 1 Comment

In my last article I talked about the two main paths that the merger of FGB and National Bank of Abu Dhabi could take. The first is simply extending the current business of each by using the path of acquisition rather than organic growth. The second is to trigger a radical redesign of the business model. I concluded that it made strategic sense for FGB and NBAD to take the second path. In this article I touch on how that can happen.

FGB and NBAD are banks and banks, in the end, are predominantly about service. The product part is simple. Money: you can deposit it with them and you can borrow it from them.

The price part, interest rates, is also simple. It has nothing to do with the cost of manufacture as banks don’t manufacture money and besides it is mostly electronic. No, price is driven by the human resources running the banks as well as market supply and demand of money. Since this is driven by people, we can conclude that banks are in the services business.

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Activist investing would be a boon to the UAE

May 17, 2016 By in Asset Management Tags: ,

In my previous article I suggested, using scenes from the film A Beautiful Mind, that game the­ory could explain why more than 50 banks exist in an economy too small to commercially need such business. The idea is bas­ically that banks choose to be mediocre because competition would harm them to the benefit of customers.

The feedback was tremendous, and I would like to expand on some of the points made. The first is the concern that I might antagonise people in the banking system. I believe that transparency and open dialogue fosters a healthy commercial environment and that most people will listen if your intent is positive. The few people who have a closed mind might react negatively to new or open ideas. One just needs to accept that this exists and hope that the greater good outweighs any personal backlash.

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The Rise of the Alternative Lender

January 20, 2015 By in Credit Tags: , ,

Standard Chartered, HSBC, Lloyds and RBS have all withdrawn from the SME sector in the UAE. Is this an indication of problems in the UAE SME sector? Absolutely not. It is an indication of troubled global banks and a flawed banking strategy.

Understanding the issue, and the opportunities that it presents, requires an understanding of the common attributes of these four banks and their failures. The starting point is that all of these banks are known as strong commercial banks catering exclusively to retail and corporate clients for most of their 150 to 270 year history.

Then along came Wall Street, its investment banks and fat deal fees. Mortgage backed securities, collateralised loan obligations, foreign exchange futures, interest rate derivatives. Fast talking MBAs backed by deep thinking PhDs. Black Scholes equations, Ito’s lemma, Gaussian copula functions and stochastic calculus. Easy as taking candy from a baby. What could go wrong?

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Lack of SME Lending Harms Large Corporates, Creates Shadow Banking

November 20, 2014 By in SME Tags: , , ,

The existence of an SME credit gap, the difference between demand for loans by SMEs and provision of those loans by commercial banks, and its effects on SMEs has been discussed in detail in a separate article on this blog. The effects on large corporates is no less serious. Using some simple statistics from the earlier article, if SMEs are the source of greater than 50% of GDP and their share of bank lending is only 4% then either SMEs are super efficient, big corporates are super inefficient, or somebody else is financing these SMEs. I think that we can safely agree that it is highly unlikely for the SME sector to be super efficient or big corporates to be super inefficient. That leaves some, or all, of the USD 260 billion SME credit gap funded by a segment of the economy other than banks. Let’s unravel this mystery.

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Adventures in the Money Markets: Godzilla's Return

November 3, 2014 By in Trading Tags: , , 1 Comment

In my post the Rise of Godzilla I explained how the UAE money markets work and the presence of a money center bank that I will call Godzilla. In my introduction I outlined a short squeeze that Godzilla had run against the whole UAE banking system, all fifty banks. In this article I will outline how a (then) midsize bank successfully fought off a bullying short squeeze by Godzilla.

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Adventures in the Money Markets: The Rise of Godzilla

November 1, 2014 By in Trading Tags: , ,

Money markets are the inter-bank market for short term borrowing and lending. Banks manage their strategic asset–liability mismatches as part of their overall long term plans for raising deposits and making loans. Short term reality however rarely tracks long term execution and tactical money market operations are necessary to mange the short term fluctuations of the balance sheet. Normally the money market desk of a treasury is considered boring, with excitement belonging to the currency desk. But once in a while a situation can develop that would challenge the most aggressive of currency dealers. This is the story of such a deal. Comfort with arithmetic is required.

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