Q&A: UAB’s acting CEO talks restructuring, SME debt

For Sharjah-based United Arab Bank (UAB), 2016 has so far been a year of transition and recovery. The Abu Dhabi-listed lender, which endured a tough 2015 due to provisions taken for bad debt, swung to a net profit of AED 71 million in H1-2016, from a loss of AED 511 million in the second half of last year.

Under a major transformation strategy implemented in 2015, UAB began winding down its SME unit and increasing its focus on larger corporates. Speaking exclusively to Argaam, the bank’s acting chief executive Samer Tamimi explained how these restructuring efforts have impacted its performance and growth outlook.

Q: How would you describe the company's performance in the first half of 2016?  

A: A net profit of AED 71 million for the first half of 2016 provides tangible evidence that the UAB’s transformation strategy is on track. Following a net loss position of AED 511 million in H2-2015, the bank continues to proactively deleverage from its higher risk loan portfolios whilst segmenting its business into core and non-core activities. UAB’s return to profitability for H1-2016 was aided by a significant reduction in provisions for credit losses compared to H2-2015, uplift in non-interest income as the bank deepens customer relationships and material cost savings following the comprehensive review completed in Q4-2015.

Q: Can you please provide an update on progress achieved from the bank's transformation strategy?

A: Given the challenges of a slowing economy and increase in problem loan formations in H2-2015, UAB implemented a transformation strategy with the overarching objective to build a more efficient, lower risk and sustainable bank. In H1-2016, this transformation journey has progressed to plan and will ultimately see UAB returning to its traditional roots as a corporate focused bank, complimented by retail and treasury offerings.

The bank has continued to record significant progress in proactively deleveraging its non-core higher risk portfolios. Provisions for credit losses in H1-2016 were AED 232 million, representing a 69 percent reduction compared to H2-2015 position of AED 753 million, following on from a proactive approach to manage the deterioration in asset quality and address the “skip” phenomenon that occurred in second half of 2015.

Q: How big of a risk is bad debt from SMEs to UAB and the sector currently? 

A: In line with our transformation strategy, we have taken a prudent view on our SME exposures through proactive credit risk management, focused recovery efforts and effective restructurings.

Recently, SME businesses in the UAE have been facing financial difficulties due to a perceived contraction in the economy and tightening credit policy from implementation of UAE’s Credit Bureau. With the ultimate aim of resolving these issues, the UAE Banks Federation has commenced a joint initiative amongst the member banks to develop a framework to effectively manage the “SME” problem that is expected to find mutually agreeable solutions for SME’s and banks, thereby restoring confidence in this sector.

Q: What's your short-term and long-term outlook for the UAE’s banking sector?

A: The growth outlook for the banking industry in the short term is expected to be one of slow recovery combined with further business consolidations against the back drop of reduced liquidity, tightening monetary policy and roll out of regulatory initiatives such as Basel III, IFRS 9 and implementation of value-added tax (VAT).

However, the upcoming hosting of Expo 2020 and a complete lifting of sanctions on Iran is expected to translate into significant increase in commerce, trade and investment within the country, thereby benefitting the UAE banking industry in the long term.

Write to Joumana Saad at joumana.saad@argaamplus.com