Abu Dhabi Bank Taps Expats With Barclays Buyout: Islamic Finance

Apr 07, 2014 3:23 am ET

April 7 (Bloomberg) -- Abu Dhabi Islamic Bank PJSC is seeking to bring a boom in Shariah-compliant lending to an expatriate population that dominates the Arab-world’s second- biggest economy.

ADIB agreed to buy the conventional retail assets of Barclays Plc in the United Arab Emirates for 650 million dirhams ($177 million), the Abu Dhabi-based lender said in a statement yesterday. Islamic banking assets in the country surged about 15 percent in 2013 compared with less than 10 percent for non- Shariah compliant lenders, according to Adnan Yousif, a board member with the Union of Arab Banks.

The deal is the second of its kind for ADIB, which bought a stake in Egypt’s National Bank of Development in 2007. The second-biggest Shariah-compliant bank in the U.A.E. will add 110,000 new customers in a nation where about 80 percent of the more than 8 million population are expatriates. Islamic banking assets worldwide are forecast to more than double to $2.7 trillion by 2017, according to PricewaterhouseCoopers LLP.

“Local retail is far safer, but after the shakeout of the crisis the expat population is more stable,” Emad Mostaque, a London-based strategist at Noah Capital Markets, said by e-mail yesterday. ADIB has been a corporate-focused bank so “having a larger retail footprint will be positive for balancing it’s loan book,” he said.

‘Perfect Fit’

ADIB wants to expand into the expatriate market segment “without disrupting the existing customer base,” it said. The bank’s 2013 profit rose 21 percent to 1.45 billion dirhams, beating the median estimate of five analysts surveyed by Bloomberg, after total banking assets in the U.A.E. expanded 13 percent, according to central bank data. The data doesn’t distinguish Islamic from non-Shariah assets.

Shares in ADIB added 82 percent last year, the most since 2005, amid an equities rally in the U.A.E. Abu Dhabi’s benchmark index rose 63 percent. The deal to buy Barclays’s operations is “a perfect fit” as part of the bank’s strategy to expand into the expatriate market, it said. The acquisition is subject to central bank approval.

No Global Network

Barclays’s U.A.E. customers will notice a difference during the transition, according to Murad Ansari, a Riyadh-based analyst at EFG Hermes, even while they won’t experience any disruption. Shares in the lender fell 0.6 percent yesterday to 7.03 dirhams after the deal was announced.

“They’re moving from a bank that offered an international service to ADIB, which doesn’t have the same global network,” Ansari said by phone yesterday. Barclays has offices in more than 50 countries, while ADIB operates in five, according to the banks’ websites.

Barclays joins Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, and Lloyds Banking Group Plc in exiting consumer and commercial-banking business in the U.A.E. HSBC Holdings Plc bought Lloyds operations for $769 million in 2012, while Abu Dhabi Commercial Bank PJSC acquired RBS retail banking assets in 2010.

“So long as Islamic banks offer similar products to traditional ones, with good service, customers will come to you, even if they’re not Muslim,” the Union of Arab Banks’ Yousif, who is also chief executive officer of Albaraka Banking Group, said by phone yesterday. “There will be no complications when they make the assets Islamic. ADIB has done this before in Egypt and it went smoothly.”

--With assistance from Arif Sharif in Dubai.