Abu Dhabi Commercial Bank, Emirates Bank, MashreqBank, National Bank of Dubai and National Bank of Abu Dhabi were the top performers among local banks. MashreqBank performed impressively throughout most of the 1990s, but rising competition is gnawing at interest margins. Though its profitability remains good overall, competitive pressures and modest growth in the credit portfolio took their toll last year. Suresh Kumar argues that banks will need to look elsewhere to increase business. In the last five years banks in the UAE focused on infrastructure build up, supporting contract financing such as new airport and sea port projects.
Local banks continue to resist consolidation.
However, in such an over-banked situation, increased competition, reduced margins and limited lending opportunities would necessitate that local banks merge. Oil prices rebounded in the last six months of 1999, but normally there is a timelag. We foresee that positive effects may start by the fourth quarter. Inamdar points out that the trade sector will benefit in the short to medium term from a revival in international trade and improved economic prospects for the Far East countries, while there will be long-term benefits from the establishment of the stockmarkets in Abu Dhabi and Dubai and buoyant oil prices. However, competition is going to get tougher, particularly with the entry of new foreign banks in the country.