Investment banking: a challenging task
Private wealth in the UAE is projected to reach almost $1 trillion by 2020
2017 will be another challenging year for Gulf Cooperation Council (GCC) investors and investment banking. Investors’ views are most positive in the UAE as compared to other regional countries.
Movements in oil prices, regional structural reforms, currency fluctuations, interest rate changes, the performance of stock markets and Brexit have affected investment decisions of big investors. UAE has remained relatively resilient in the face of low oil prices. Economy is expected to gather strength this year, with preparations for the Dubai’s World Expo 2020.
Private wealth in the UAE is projected to record an annual growth rate (CAGR) of 14.1 per cent and reach almost $1 trillion in 2020. Private wealth held by ultrahigh-net-worth households is also expected to see a substantial rise of 20 per cent over the next five years.
Supported by this steady growth in wealth, the region’s private banking business is also witnessing a boom, particularly in the UAE.
INVESTORS’ CHANGING ATTITUDE
The financial crisis of 2008 and the impact of low oil prices highlighted the importance of asset allocation and diversification to regional clients. This is where wealth managers and advisors such as Credit Suisse have played a significant role.
However, as the region continues to develop, the needs of regional private banking clients are becoming increasingly varied. Even within the region, clients differ from one country to the next. This poses a key challenge for wealth advisors.
A COORDINATED APPROACH
The private banking industry in the UAE is also becoming increasingly competitive. The competition exists not only between international private banks but also among local private banks.
Clients in the UAE and the wider region prefer a partner who can offer a strong synergy by leveraging collaboration across the different divisions of the bank. Therefore, wealth advisors combining unique strengths and expertise in private banking and wealth management are in a strong position to take a long-term holistic view and provide sound advice to clients in relation to the entirety of their wealth and preservation requirements.
DEBT CAPITAL MARKETS
Industry specialists predict a surge in debt capital market activity in the GCC during the next two years. last year, Gulf governments raised $38.9 billion (AED142.7 billion) through international bond issues and despite the recovery in oil prices, they are expected to continue tapping into the bond markets in 2017.
Most of the regional oil exporters have adequate credit quality, enabling them to raise debt in the international market comfortably.
FUND MANAGERS POSITIVE ON EQUITIES
Middle East fund managers have become more positive on regional equities, according to a recent monthly Reuters poll, medium-term investors now had an opportunity to build positions in companies that had reported satisfactory results for the first half of 2017.
Arab Gulf banks should consider more mergers to overcome economic challenges prompted by the drop-in oil prices and cuts in government’s public spending. The UAE, Bahrain and Oman would benefit from consolidation.
For the three GCC countries, consolidation in the banking sector could enhance their small banks’ abilities to compete in a highly competitive environment, increase their product offerings and diversify risks. Bahrain led the Gulf Arab region’s banking consolidation activity over the past decade with 20 deals, followed closely by the UAE with 19 deals.
INVESTMENT BANKING FEES
Investment banking fees in the Middle East were estimated to have reached $462.1 million over the course of the first six months of 2017. This is 15 per cent less than the value of fees recorded during the same period in 2016.
Underwriting fees for debt capital markets totaled $136.9 million. Equity capital market fees increased 36 per cent to $39.7 million. Fees generated from completed M&A transactions accounted for $98 million, a 20 per cent decrease from last year and the lowest first six-month total since 2012. syndicated lending fees declined 41 per cent year-on-year to $187.6 million.
UAE BANKS’ ASSETS
The total assets of 13 UAE banks have surged 6.8 per cent to AED1.41 trillion by the end of the first half of 2017. The figure for the corresponding period in 2016 was AED1.31 trillion.
The aggregate loans provided by the thirteen banks surged to AED906.8 billion by the end of the first half of the year, a seven per cent growth from AED846.9 billion over the same period 2016.
There was an 8.2 per cent increase in customer deposits at the 13 listed banks until 20 July 2017, an increase to AED963 billion, up by 8.2 per cent from AED890 billion in the same period last year.