banking & business review jan '11

BANKING & BUSINESS REVIEW January 2011 1

PUBlIShER & MANAGING DIREctoR

Sankaranarayanan [email protected]

MANAGING EDItoR

K Raveendran [email protected]

EDItoR

c l Jose [email protected]

coNSUltING EDItoR

Matein Khalid [email protected]

DIREctoR FINANcE

Anandi Ramachandran [email protected]

GENERAl MANAGER

Radhika Natu [email protected]

EDItoRIAl

contributing EditorsAnand VardhanVanit Sethi [email protected] Ramanan [email protected]

DESIGN DIREctoRUjwala Ranade [email protected]

AccoUNtS Sujay Raj [email protected] Supervisor Ibrahim A. hameed PRINtING

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Vol. VII. No. 50 January 2011

cL Jose

editor’s note

Share buyback rules need clarityEconomies are still struggling, the world over. It’s true we get to hear inconsistent statements, at times about the green shoots as well as the grim statistics of growth from different parts. No one is a reliable forecaster on the economy’s future; such is the complexity involved in taking a view on the future at this point in time. But what the authorities can do at this juncture is to start cleaning up the system and establish proper guidelines and directions for the participants in the economy to follow. The Central Bank has last month come out with its new set of loan classification and provisioning norms for banks. Though the new rules look a bit tough on banks, the banking community at large welcomes the initiative. More than introducing new regulations and rules, we need to bring in clarity to the existing regulations also – and one in focus is that on the share buyback. Many companies listed on DFM as well as ADX have gone in for share buyback, and the exercise has been on for some time now. A big debate was triggered by the decision of First Gulf Bank (FGB) to distribute the shares bought back under the scheme, to its own shareholders. The question being hotly discussed is whether the companies can issue these shares as bonus shares. This is a practice that is unheard of. It is the regulator who needs to clear the confusion on this – the options available for companies on the shares bought under share buyback.

CONTENTS

COVER STORY

14 Bonus is Issue FGB’s recent bonus issue announcement raises eyebrows

NEW TRENDS IN LENDING

20 Banking on diverse strategies

FUTURES

24 Rupee ‘future’ hinges on India’s tax28 Indian rupee is DGCX superstar

BANKING

32 Time deposits going longer term

BANKING & BUSINESS REVIEW January 20114

The Arab Petroleum Investments Corporation (Apicorp), the multilateral development bank of the Organisation

of Arab Petroleum Exporting Countries (OAPEC), has signed an agreement to sell its 12 per cent stake in the Egypt-based Alexandria Carbon Black Company (ACBC) to India’s Aditya Birla Group, the majority shareholder of the company.

The move is said to be part of a divestment plan aimed at mobilising funds for a new phase of investments. The divestment, Apicorp’s first ever, was approved by Apicorp’s board of directors at its fourth and final board of directors meeting for 2010 held in Cairo on December 26. The Government of UAE owns a 17 per cent stake in Apicorp.

Ahmad bin Hamad Al-Nuaimi, Chief Executive and General Manager of Apicorp said, “The agreement is further evidence of the rapid divestment potential of our investments. Hence, this sale is part of an investment strategy to re-deploy funds for diversification into new midstream sectors, particularly oil

Apicorp sells ACBC stake to Aditya Birla

The sale is part of an investment strategy to re-deploy funds for diversification into new midstream sectors, particularly oil refining, storage, transport and shipping

refining, storage, transport and shipping.” Al-Nuaimi also said the goal of each of Apicorp investments

is to support the investee company in reaching a level of business stability and operational maturity from which it can sustainably accelerate its development. “Since we invested

in ACBC 17 years ago, we have seen the company evolve into the world’s largest production line in the carbon black industry and we now feel it is the right time to monetise the investment. We wish ACBC every success in continuing its exceptional growth story,” he added.

Alexandria Carbon Black Company (ACBC)

was established in January 1993 in Egypt with a paid-up capital of LE 99.5 million. Apicorp has been a 12 per cent equity stakeholder with a board representation in ACBC since its establishment. The company produces various grades of carbon black (CB); the basic material used in the manufacture of tyres and other rubber-based products like hoses and inks.

ROUND-UP

The new dedicated accounting standards (IFRS) re-leased for small and medium Enterprises (SMEs) will

go a long way in addressing many of the key issues fac-ing SMEs, especially the preparation of their annual fi-nancials.

With the liquidity drying up and the banks tightening their purse strings, getting finance for SMEs has become a tough thing. Banks are very particular that the com-panies seeking funding should present their financials, which used to be impractical for SMEs as it had involved spending a lot in paying big amounts to the audit firms.

“But with the new set of accounting standards, which are far smaller than the full set of IFRS, having been re-leased, SMEs find it easier to meet the demand from the banks,” said sources in the sector.

Banks in the country are expected to ease their lend-ing criteria to small & medium enterprises (SMEs) in 2011, according to a study by Jitendra Chartered Accountants.

New accounting standards boon to SMEsThe findings are based on a study that evaluated

1,000 companies across key sectors – industry & manu-facturing, garments, IT, consumer products, chemicals, food & dairy, retail, hotels – and studied the impact of new accounting standard ‘IFRS for SMEs’.

The lending of capital by banks will come as a major boost to SMEs who form the backbone of UAE econo-my. It is estimated that 98.5 per cent of the companies in the UAE are defined as SME using the Dubai SME defini-tion.

“Banks in the UAE will be at ease to lend to SMEs in 2011 and going forward considering that these compa-nies will have to shift to the latest ‘IFRS for SMEs’ ac-counting principles. Banks are comfortable to lend to private companies that present their financial numbers in IFRS for SME format as against Full IFRS, which is mainly for public listed companies.,” said Jitendra Gian-chandani, Chairman, Jitendra Chartered Accountants.


ROUND-UP

Dana Gas, the Middle East’s first and the largest regional

private sector natural gas com-pany, has achieved an estimated 42,000 barrels of oil equivalent per day (boepd), from its Nile Delta Concessions in Egypt. Ac-cording to a company statement, this represents an increase of 20 per cent over that of 2009. The company has commenced pro-duction from seven new fields in order to achieve this target.

In addition, the company has continued its exploration suc-cess during 2010, with seven new field discoveries in the Nile Delta from eleven exploration wells drilled and this has led to a 20 per cent increase in reserves, after allowing for 2010 production.

Considering these continued operational successes, particularly the discovery of the South Abu El Naga and Salma Delta North fields in September, the board of Dana Gas has decided to retain its 100 per cent inter-est in its Nile Delta Concessions and continue operat-ing them to maximise benefit for its shareholders rather than proceeding with the proposed farm-out.

Dana Gas has now embarked on a new phase of production growth, upgrading its existing plants and building new capacity to bring these new fields online as quickly as possible.

The planned new gas processing plant to the East of the Nile River will be designed to process 120 million standard cubic feet per day (mmscfpd), a considerable increase compared with the original planned design of 50 mmscfpd, which will contribute significant value to the current output as the South Abu El Naga and Salma North discoveries have high liquid content.

This, along with an ongoing increase in capacity at its El Wastani Plant, will bring Dana Gas’ total production to some 400 mmscfpd (67,000 boepd excluding liquids) by mid-2012.

The company is also continuing its aggressive explo-ration campaign with a 14-well programme for 2011; the drilling of the first well, Sanabel-1, having com-

Dana Gas achieves 20 pc growth in Nile Delta

menced targeting the deeper high potential Sidi Salim formation.

On the Komombo Concession in Upper Egypt, Dana Gas along with 50 per cent joint operator Sea Dragon Energy Inc, has produced oil at an average gross pro-duction rate of 620 barrels of oil per day (bopd) and is currently producing at approximately 800 bopd. Work is on to increase productivity of the Abu Ballas forma-tion by fracturing, with two fractured wells due to be placed on production from January 2011 onwards. Dur-ing 2010, 480 kilometres of 2D seismic was acquired and processed, and the first exploration well, Mem-phis-1, commenced drilling in December.

Ahmed Al Arbeed, Dana Gas CEO, said, “Our ongo-ing excellent exploration performance, with 16 discov-eries in the Nile Delta over the past three years, com-bined with our year-on-year production increase of 20 per cent, reinforces our view of the remaining potential of this first-class acreage and thus confirms to us that retention of our 100 per cent interest will deliver the maximum value to our shareholders.

He said the company’s team in Upper Egypt contin-ues to work hard to enhance production from the Al Baraka Field with further development drilling planned in 2011, alongside the exploration programme to test the vast potential of the Komombo Concession.

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Scarcity of data and under-investment in analytical tools have rendered Islamic banks’ focus limited to

a handful of asset classes while their operating costs are, in many cases, higher than their conventional peers, according to an Islamic finance expert with Ernst & Young.

Ashar Nazim, Executive Director and MENA Head of Islamic Financial Services Group at E&Y, noted in a statement that future opportunities in Islamic finance might no longer come from traditional captive clientele. “Instead, Islamic financial institutions urgently need to upgrade their business models to tap mainstream segments,” he added.

According to Asher, decision makers at Islamic financial institutions need research and tools to as-sist in making informed decisions on the future growth trajectory of their businesses. He also said implications of Shariah rul-ings on governance, product structures and markets need to be appropriately incorporated at the plan-ning phase itself.

Ernst & Young joined hands with AAOIFI, the standard-setting body for Islamic finance industry, to provide product and contract certification that would strengthen universal acceptability of Shariah-compli-ant products offered by Islamic financial in-stitutions.

Ernst & Young’s World Takaful Report highlighted the fluid nature of the Takaful industry, as well as its tremendous growth potential. The industry is expected to grow three-fold from an estimated $9 billion in 2009 to $25 billion by 2015.

“The biggest chal-lenge for the Takaful

Islamic banks’ focus limited to very few asset classes: E&Yoperators is to bring out the differentiation, its unique Islamic proposition, for its stakeholders. This was the key message for the industry during 2010,” said Ashar.

Ernst & Young’s Islamic Funds and Investment Re-port 2010 confirmed that more than half the Islamic fund managers may be operating with less than the minimum assets under management needed to remain viable. The opportunity is for global fund managers

as well as for consolidation within the industry. Islamic endowment, or Waqf, with an estimated $105 billion wealth pool, was highlighted as a key emerging sector that could potentially stimulate strong liability generation for Islamic banks, as well as help revive the Islamic fund man-agement industry.

Stating that the Islamic financial institutions are at crossroads entering 2011, Ashar said the industry is ex-pected to continue to show

resilience in the face of a challenging economic sce-nario. “This is despite the fact that growth levels of the Islamic finance industry, at more than 20 per cent per annum for the past several years, came under tremen-dous pressure in 2010,” he added.

Having achieved the critical volume estimated at $1 trillion in Islamic assets, the question reverberating

across boardrooms and among users of Islamic financial serv-ices, is about differ-entiation, or the lack thereof, that Islamic financial institutions have on offer. “Ef-fectiveness of the existing Shariah gov-ernance framework as well as synthetic product structures commonly in use are especially under discussion,” Ashar noted.

ROUND-UP

“More than half the Islamic fund managers may be operating with less than the minimum assets under management needed to remain viable”


The small and medium enterprises (SME) sector em-ploys more than 50 per cent of the UAE workforce,

according to an international management and market-ing expert, who added that SMEs are important in creat-ing new jobs and enhancing growth of any economy.

SMEs, which fall in the category of companies em-ploying less than 250 employees, however, lack proper marketing and business clout to make their presence felt.

Zed Ayesh, Managing Director of Flagship Consul-tancy, said marketing has not been exploited well by SMEs because most of them believe marketing is only important to large enterprises. “This is not true, all busi-nesses needs marketing, regardless of its size or age”, Ayesh added.

Flagship is a leading management and marketing con-sultancy based in Dubai and has supported the Tecom SME Builder initiative as its marketing expert since its early editions. .

Ayesh said Flagship has been able to guide owners of small and medium enterprises to enhance their market-ing skills by highlighting latest international techniques as well as tailoring global practices for the local market that

SMEs employ more than 50 pc workforce in UAE,but lack business clout in the market

is becoming very competitive and results-driven.

“There is no room for trial and error anymore. SMEs should start thinking outside the box for solutions and techniques that would enable them to grab a larger market share and develop intimate re-lationship with their clients through ef-ficient marketing techniques,” he added.

Engaging with representatives from small and medium enterprises, Ayesh explained how marketing is related to all business activities and how such activities should support sales and maximise performance.

ROUND-UP

Doha Bank, Qatar’s third largest bank, is set to be-come the next candidate to tap the international

market to raise $500 million through senior debt bonds during the first quarter of 2011.

The bank intends to do this through its fully-owned Bermuda-based subsidiary. In a statement, following an ordinary general meeting (OGM) held recently, the bank said despite the uncertain economic climate following the global financial crisis, it has made headway in profits and increased returns on assets and equity in the first nine months of 2010.

The OGM was held to discuss the issue of the senior debt bonds, among others. The Bermuda-based Special Purpose Vehicle (SPV), which will issue the senior debt bonds, has been incorporated to support the bank’s market interventions to raise capital. The bonds and

Doha Bank plans $500m senior debt issue other market instruments will be guaranteed by Doha Bank.

The bank’s chairman, Fahad bin Mohammed bin Jab-er Al Thani, said Doha Bank has endured and achieved high growth rates in most of the financial indicators. The net profit during the period ending November 30, 2010, grew by 5.4 per cent. Return on average assets (RoA) grew by 2.6 per cent, while return on average eq-uity (RoE) was up by 22.4 per cent during the period.

“As you are all well aware, the implications of the global financial crisis was considerable and have affect-ed various economies of the world, including the devel-oped economies such as Britain, France, Spain and other economic giants who are spearheading reforms to get out from this crisis and restore the situation to normal-ity,” he added.


Emirates NBD, the leading banking group in the re-gion, launched its Singapore branch last month.

The group international operations now include branches in Singapore, the Kingdom of Saudi Arabia, Qatar, the United Kingdom and Jersey (Channel Is-lands), and representative offices in India and Iran.

Ahmed Humaid Al Tayer, chairman of Emirates NBD, said the bank’s objective in opening a branch in the Asia-Pacific area is to position itself in a conven-ient hub to cover the world’s most dynamic economic region that includes the strong emerging markets of China, India, South East Asia and other East Asian countries.

“Singapore’s established reputation as one of the world’s leading financial centres and its strategic location within the Asian region makes it a logical choice for Emirates NBD to establish its first Asia Pa-cific branch in the country,” Al Tayer said.

Abdul Wahed Al Fahim, the Deputy CEO of the bank said the Singapore Branch will seek to lever-age the extensive infrastructure the bank has in UAE, and to exploit the overseas offices of Emirates NBD to maximise the business opportunities available to the branch.

The UAE is Singapore’s second largest trading partner in the Gulf with total bilateral trade of 11.6 billion Singapore dollars. “Emirates NBD will seek to facilitate trade and investment flows between the Gulf and the Asia-Pacific region,” Al Fahim added.

Emirates NBD establishes Singapore branch

‘Green’ ideas for building construction

ROUND-UP

Hawk Freight Services, part of the UK-based Hawk Group, has pioneered a new concept by open-

ing an environment-friendly state-of-the-art Logistics Centre at Dubai Airport Free Zone. Talking on the new venture, Bob Puri, founder and Managing Director of Hawk Group said the new centre would set a trend in building construction using energy-efficient technolo-gies.

“The corporate sector is moving towards green-er building practices worldwide, and the new Hawk Freight Services building is the first of its kind in the UAE as it is built on Eco-block, a concept that uses recycled materials whenever possible,” Puri said.

Eco-block reduces the pressure on precious natural resources by replacing lumber used in frame construc-tion with an environmentally friendly clean product. The Hawk Freight Services Logistics Centre is designed to save energy, improve indoor air quality and support the use of energy-efficient appliances. Eco-block also does not use or emit harmful fumes or gases.

The eco-friendly Logistics Centre is equipped with 2,500 air conditioned pallet positions, Customised Supply Chain Solutions, security system including ac-cess control, CCTY coverage and motion detectors, web-based inventory management system which can be accessed by clients for real time information on their stocks and a high rise racking system. The spe-cial equipment and features are aimed at providing Hawk’s customers high levels of service and complete solutions.

“Our aim is not only to set standards in opera-tional excellence but also effectively address sustain-ability and adhere to best practices that contribute to a safer and health-ier environment in line with our CSR programme, Puri added.

Terms and Conditions apply and are subject to change without prior notice. They are available upon request and on our website www.citibank.ae

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BUSINESSNEVER SLEEPS.


STOCKS

Traded value on DFM drops 60 pc in 2010Real estate accounted for more than two-thirds transactionsBy BBR Staff

The total value of trading on Dubai Financial Market (DFM) witnessed a sharp drop of about 60 per cent in 2010 as

the value plummeted from Dh173.5 billion in 2009 to Dh69.7 billion, statistics released by the market re-vealed.

Real estate and construction sector accounted for more than two-thirds of the trading on DFM last year. The number of shares traded was down by a whopping 65.3 per cent to 38.4 billion shares during 2010, compared with 110.7 billion shares in the previ-ous year.

Likewise, the number of transac-

tions executed during 2010 decreased by 60 per cent to 794,700 compared with 1.984 million deals carried out during the previous year

The market index also fell by 9.6 per cent from 1,803.6 points to 1,630.5 points in 2010, a year which saw several rock bottoms. The mar-ket capitalisation, as of 2010-end, was down by 6.6 per cent to Dh199.1 billion, compared with that at the end of the previous year.

In terms of the sectoral contribu-tion to trading volumes, the real es-tate and construction sector ranked first in terms of the value of traded shares, to reach Dh46.9 billion, or

67.3 per cent of the total value of shares traded in the market. Invest-ment and financial services ranked second at Dh10.5 billion, or 15.1 per cent, followed by the transportation sector to Dh4.19 billion, or six per cent, and the banking sector amount-ed to Dh4.17 billion, or 5.99 per cent of the total traded value on DFM. The communications sector accounted for Dh2.5 billion, or 3.6 per cent of the value, and insurance sector amounted Dh55.9 million. Utilities sector trade was to the tune of Dh665.5 million, or one per cent, and the consumer sta-ples and material sectors ranked last posting Dh5.2 million and Dh3.1 mil-

lion respectively. The value of shares bought by

foreign investors during this year touched Dh30.8 billion, compris-ing 44.2 per cent of the total value of stocks traded during the period. The value of stocks sold by foreign investors during the same period was Dh30.6 billion, accounting for 44 per cent of the total value of stocks traded during the period. Net foreign investment on the mar-ket reached Dh180.3 million during the same period, as aggregate buy.

The value of stocks bought by in-stitutional investors during the year under discussion reached Dh16 bil-lion, which works out to about 23 per cent of the total value of stocks traded during the period. The value of stocks sold by institutional inves-tors during the same period was Dh15.2 billion, which is 21.8 per cent of the total value of stocks traded during the period. Net insti-tutional investment on the market reached Dh864.7 million during the period, as aggregate buy.

Shares UAE Nationals & Foreigners Trade Summary For The Period From 01/01/2010-31/12/2010

Value of Stocks Bought Value of Stocks Sold Net Investmen AED AED AEDARAB 15,926,716,391 16,111,367,189 (184,650,798) GCC 4,352,410,733 4,307,288,426 45,122,307 OTHERS 10,538,605,159 10,218,763,059 319,842,100 Total Foreign Trading 30,817,732,282 30,637,418,673 180,313,609 UAE Nationals 38,847,036,104 39,027,349,713 (180,313,609)Total 69,664,768,386 69,664,768,386 0

Shares Institutional & Retail Investment For The Period From 01/01/2010-31/12/2010

Value of Stocks Bought Value of Stocks Sold Net Investment AED AED AEDBanks 2,118,766,154 1,822,725,793 296,040,361Companies 13,714,555,978 13,232,221,934 482,334,044 Institutions 201,696,184 115,395,237 86,300,947 Total institutional investment 16,035,018,315 15,170,342,964 864,675,351 Individuals 53,629,750,071 54,494,425,422 (864,675,351)Total 69,664,768,386 69,664,768,386 0

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COVER STORY


bonus is Issue

By CL Jose

It is not proper on the side of the companies to redistribute the shares it bought back under share buyback scheme to the shareholders as bonus shares


The First Gulf Bank (FGB) decision on January 6 [2011] to distribute 75 million shares it bought back over the past one year under the share buy-back scheme has not only raised eyebrows in the

UAE’s capital market and among analysts, but has sur-prised many from outside as well. Most analysts and stock market experts Banking & Business Review (BBR) talked to on the recent bonus issue pointed out that it is not proper on the part of the companies to redistribute the shares it bought back to the shareholders as bonus shares. They said many other key issues are also awaiting regulatory intervention.

It may not be the first time that key decisions have created confusion in market circles. Brokers and analysts strongly believe that the Securities and Commodities Au-thority (SCA) should have acted on the suspension of trad-

FGB has reduced the cash from current assets, and so it needs to reduce the share also from the equity side in order for them to balance out

Andre Sayegh, CEO, First Gulf Bank


ing in Amlak and Tamweel shares for the past more than two years. “How come the shareholders of Amlak and Tamweel, the two companies listed on the Dubai Financial Market (DFM), are still denied trading opportunity or more precisely, an exit route for this long?” was the response from a share broker who was contacted for a view on the FGB bonus issue.

It’s a fact that trading in the shares of Amlak and Tamweel re-mains suspended on DFM for more than 28 months now. The hapless shareholders, who keep calling me-dia offices, including BBR, are keep-ing their fingers crossed blandly on this question.

FGB buyback and bonusOn the recent bonus issue, First Gulf Bank said in a statement issued to the media that the move to distrib-ute bonus shares, which is subject to approval by the competent authori-ties and the annual general meet-ing, was to benefit its shareholders. FGB initiated the share buyback programme in early 2009 to support the weak share price due to the depressed market sentiment, and thus to improve liquidity. FGB bought 75 million shares or about five per cent of the issued capital for Dh1.056 billion, with the average share price working out to Dh14.08.

SCA RegulationThough many market experts chose to argue that SCA has not said any-thing concretely on what can be done with the shares bought back under the buyback scheme, BBR found that is not absolutely true.

SCA has stated in its website that - Subject to Federal Law No.18 of 2006 amending certain provisions of Federal Law No. 8 of 1984 con-

ily come from the recapitalisation of retained earnings and not by paying the company’s cash surplus and SCA

should come out with a clear-cut view on the is-sue.

It is true that the mar-ket being subdued, no company can expect to sell shares in the current market to fetch a decent value. Moreover, an of-floading of shares at this juncture will further de-press the share price, thus defeating the very pur-

pose of the share buyback launched by the companies.

“But this shouldn’t mean that companies can go out of the way and take the totally unheard-of routes to address the issue.”

There are several companies, which have been going through the exercise of share buyback and this is the right time SCA came out with its clear stance on the same. And if the recent move is in violation of SCA regulation on Share Buyback, the

Haissam Arabi

cerning Commercial Companies, a company may purchase a per-centage not exceeding 10 per cent of its own shares for the purpose of the sale thereof in accordance with the controls stated be-low……………….; such company shall be re-sponsible for preventing any adverse effect on the company’s financial position resulting from the purchase.

Talking to BBR, Hais-sam Arabi, chief execu-tive officer, Gulfmena Alternative Investments, said the FGB move is not only rare or even unique in the UAE’s capital market history, it could create account-ing distortions in the books. FGB has used the cash from the current as-sets to buy back treasury shares and

this has moved the cash away from the current assets as this has not been bought using retained earn-ings. Either the company should sell this back into the market or private-place with strategic investors. “You have reduced the cash from current assets, and so you need to reduce the share also from the equity side in order for them to balance out,” Arabi noted.

Analysts were of the view that the bonus shares have to necessar-

Shareholders of Amlak and Tamweel are still denied trading opportunity or more precisely, an exit route for the last 28 months for no fault of theirs


Prabhakar Kamath

message needs to go to the market without delay.

Statement from bankFGB, through an email to BBR con-firmed the media report by stating, “Concerning the shares bought by FGB under the buy-back pro-gramme, the board of directors is recommending to distribute those shares as ‘free’ bonus shares back to the shareholders.” It added that the primary objective is to protect the share-holders’ interests and give them an added value. “The board has thoroughly ana-lysed various options and decided to recommend the option of distributing those shares back to the shareholders in the form of bonus shares, which was considered to be a logical and beneficial option to all parties. Other alternatives, such as selling the shares back in the market or can-celling the shares by reduc-

same back as bonus shares need to be viewed as two different issues. “It is very clear: the shares bought back can be cancelled or sold and the bo-nus shares can be issued by capitalis-ing the reserve.”

He added that if the bought-back shares would have been cancelled, and bonus shares are issued in a sep-arate process (by capitalising the re-serve) the position would have been the same as giving the bought-back

shares free to sharehold-ers. The result is same in terms of EPS earned by the bank, a very impor-tant measure of earn-ings efficiency, post bo-nus issue. “I am not sure why FGB says that the bonus shares are issued out of the bought-back shares. Shareholders should not assume or get an impression that they have got some-thing for free because in net effect, they stand to gain nothing through this,” he noted.

ing the capital of the bank may not be the ideal options to serve the shareholders interest; neither will it be in the interest of the market in general,” the statement further clar-ified the bank’s stance on the issue.

Prabhakar Kamath, Partner & CEO, Morison Menon Ltd – an ex-pert on capital markets, based in Dubai, echoed Haissam’s view on the issue. He clarifies that the buy-back of the share and issue of the


BUSINESS SENTIMENTS

UAE business upbeat on growthBBR Staff

About 78 per cent of the UAE businesses are optimistic about the UAE economy in 2011, as opposed to a glo-

bal average of 23 per cent, accord-ing to a survey conducted by Grant Thornton UAE, a leading financial and business advisory firm.

Grant Thornton UAE announced its findings from its International Busi-ness Report, an annual survey of over 11,000 businesses in 39 countries

This figure places the UAE as the joint fourth most optimistic country among the 39 countries surveyed. Chile and India led the optimism scale with 95 and 93 per cent each.

The survey also reveals that 74 per cent of companies in the UAE expect revenue to increase in the next 12 months, while 56 per cent expect to see an increase in profit-ability and 55 per cent com-panies expect to see an in-crease in employment.

“The UAE has well es-tablished itself as a business hub of choice for companies aiming to capitalise upon the opportunities presented in the region,” said Hisham Farouk, International Prac-tice Partner, Grant Thorn-ton UAE. “A pioneer in in-frastructure development in the region, the world-class facilities offered by the UAE continue to encourage busi-nesses to set up regional base here.

“Compared with West-ern economies, the Middle East-based businesses re-main more optimistic due

to stable income from oil reserves, greater disposable income, growing youth population and increased in-vestment opportunities.”

The Grant Thornton International Business Report (IBR) is an annual survey of the views of senior execu-tives in privately held businesses and listed entities in 39 economies across the world, providing insights on eco-nomic and commercial issues.

The Grant Thornton International Business Report (IBR) provides in-sight into the views and expectations of over 11,000 businesses per year across 39 economies. This unique survey draws upon 19 years of trend data for most European participants and nine years for many non-Europe-an economies.

2011 RankingOptimism % balance ranking

Chile 95India 93Philippines 87Brazil 78Switzerland 78UAE 78Germany 76Sweden 76Georgia 72Argentina 70Canada 67Botswana 66South Africa 65Mexico 64Singapore 63Vietnam 61Hong Kong 61Finland 60Malaysia 52Armenia 50Turkey 50Taiwan 45Belgium 44Mainland China 41Denmark 40Thailand 40Australia 38Poland 36Russia 35New Zealand 33United States 21Netherlands 21Italy 17United Kingdom 10France 9Greece -44Ireland -45Spain -47Japan -72


NEW TRENDS IN LENDINGS

Banking on diverse strategiesSecurity first, business nextBy CL Jose


An interesting trend has emerged among UAE banks, especially in Du-bai, in the wake of the

economic slowdown and the tight liquidity conditions most banks are facing currently.

Most banks have slowed down on corporate lending and are focusing more on small businesses and retail segments. And here as well, different banks are taking diverse views – while some banks are keen to do non-salary-transfer personal loans and small business loans at rates as high as 25 per cent and upwards and thus tak-ing huge risks, banks like Emirates NBD seem to have taken a cautious stance with most of its activities being confined to secured retail space. Abu Dhabi Islamic Bank (ADIB) may have been the most ac-tive local bank in corporate financ-ing, at least among the Islamic banks, as it has entered into several large financing deals during the last few months. During December, ADIB acted as mandated lead arranger for $32 million structured Ijara facility to fund the acquisition of up to six offshore vessels (OSVs) for Waha Off-shore Marine Services, the marine chartering and operations arm of Waha Maritime.

Again, during the same month, ADIB ar-ranged a syndicated Dh1.14 billion Islamic financing deal for Dubai-based Majid Al Futtaim (MAF) Group. ADIB acted as the initial mandated lead arranger, sole book-

runner, investment bank and the se-curity agent for the deal. In October, the bank had provided the financing facilities to Hyundai Engineering & Construction Company Ltd for the newly awarded project Borouge 3 expansion project with a project val-ue of Dh3.41 billion.

However, the leading Dubai-

based banks such as Emirates NBD and Mashreqbank saw their lending fall during the first nine months of the year as against that of most Abu Dhabi banks. While Emirates NBD’s loans and advances fell from Dh194.7 billion to Dh182 billion during the nine-month ending September 30, 2010 end, that of Mashreqbank dropped marginally from Dh42 bil-lion to about Dh37 billion during this

Emirates NBD looks like moving towards safer businesses, especially that capture the safety and strength of gold

period.“The trend is clear from the nine-

month financials released by the bank recently,” a bank analyst said. Though the total assets of Emirates NBD posted a marginal increase from Dh281.576 billion to Dh284.222 billion during the nine-month pe-riod ended September 30, 2010,

the ‘loans and receiva-bles’ shrank by more than Dh12 billion dur-ing the period. At the same time, a substantial amount has been moved to the Central Bank. The cash and deposits with Central Bank during the nine months swelled from Dh19.670 billion as

of 2009 end to Dh32.600 billion as of September 30, 2010 – an increase of more than 65 per cent.

Among the major segments of lending for Emirates NBD, only sov-ereign has witnessed a noticeable increase, by about Dh2.8 billion to Dh51.864 billion as of September end, 2010. The impairment losses were to the tune of close to Dh3 bil-lion for the 9-month period ending

September 30, 2010.Interestingly, Emir-

ates NBD was one of the biggest players in the wholesale bank-ing during 2008.

A report appeared in August 2008 stated Emirates NBD had been ranked the number one man-dated arranger for corporate deals in the UAE with 10.58 per cent share of the UAE market. Emirates NBD had arranged deals valued at more than $23 billion during the


Abu Dhabi Islamic Bank may have been the most active local bank in corporate financing in 2010

eight months since the beginning of 2008. It had also topped the book-runner, manager and lead under-writer charts during that period.

Focus on retail spaceCome 2010, most of the actions the bank launched are in the retail space. A close look at the announce-ments the bank made in the last few months would amply prove this. They include loan against gold, loan against end-of-service benefits (EOSB), gold sales, etc. There were very few deals in the wholesale banking announced by Emirates NBD during this period.

According to banking sources, syndicated deals have almost dried up and most of the bilateral and club deals that took place in the market made little noise during the last year.

Playing safe with goldEmirates NBD looks like moving to-wards safer businesses, especially that capture the safety and strength of gold. Though the bank’s top of-ficials such as Asif Lakhany, vouch that there is nothing new in the bank’s business model, the recent new announcements by the bank make one believe that Emirates NBD seeks to move away from the conventional risky lending to safer areas of business. On the occasion of the launch of the ‘Gold Business’ an innovative venture by the bank, Asif Lakhany, Head of International Retail Business & Strategic Projects Con-sumer Banking & Wealth Project, told the Banking& Business Review (BBR), “We are not moving away from lending. Banks go through dif-ferent cycles and it is quite natural that the banks will have different

business strategies for each time.”But one thing is for sure. The two

announcements by the bank in the recent past had something to do with gold. The gold having regis-tered a steady growth in price dur-ing the whole of 2010 – and set to continue the surge during 2011 also, Emirates NBD seems to have deter-mined to capture all the available av-enues the yellow metal could throw up in the future.

In November, Emirates Money, a wholly owned subsidiary of Emir-

ates NBD, launched an innovative loan initiative that enables custom-ers to borrow up to 80 per cent of the value of the gold they deposit. The product, which is named Loan-Against-Gold is considered to be the first product of its kind in the GCC.

Emirates Money claims that this product offers competitive interest rates that are among the lowest in the market for retail loans, while at the same time ensuring the safe and secure storage of the gold. Accord-ing to a source, the interest charged on this loan is about nine per cent, which is much lower than the rate charged on personal loans by UAE banks.

Setting new trend in fund raisingIn the meantime, Emirates NBD set a new trend on the liability side last year by raising a $410 million-equivalent 5-year multi currency loan structured around its portfolio of diverse syndi-cated loans to regional corporates, at an extremely competitive margin of 1.75 per cent per annum over appli-cable reference rates plus structuring fee. “This has indeed set a new pricing benchmark for UAE-based borrow-ers,” analysts pointed out. The loan, which is the first of its kind in the re-gion in terms of its unique structuring was fully subscribed by JP Morgan.


Rupee ‘future’ hinges on India’s taxIndian traders from the subcontinent set up UAE offices to trade on DGCXBy CL Jose

FUTURES


In India, futures trading in rupee would attract a capital gains tax charge of up to 30 per cent for individuals and companies

Sajith Kumar

The short-term capital gains tax and other tax bindings in India have prompted Indian traders from the subcon-

tinent to set up offices in the UAE to carry out rupee futures trading on Dubai Gold & Commodities Ex-change (DGCX), which is the only regulated exchange outside India for Indian currency futures.

Indian rupee (INR) currency fu-tures are traded domestically in In-dia on the National Stock Exchange, United Stock Exchange (BSE-CDX) and MCX Stock and Exchange (MCX-SX). At the same time, rupee futures are also traded in Singapore on a non-deliverable forwards (NDF) basis.

Explaining the impact of capital gains tax, Sajith Kumar, chief execu-tive and director of the Dubai-based JRG International, said the futures trading in rupee could attract a max-imum capital gains tax charge of up to 30 per cent in the case of individu-als as well as corporates.

India does not allow residents or resident companies to trade in rupee futures outside the country. Moreo-ver, non-Indians other than foreign institutional investors (FIIs) are not allowed to trade rupee futures on In-dian exchanges. What makes DGCX attractive is the fact that there is no

restriction on this front on DGCX, and thus the Dubai ex-change offers a plat-form to all for trad-ing in Indian rupee futures on a cash set-tled basis, and with-out requiring to pay any tax.

According to sources close to DGCX brokers, there are several Indian companies estab-lished in the UAE’s free zones with the sole purpose of trad-ing in rupee futures. “It is true that we get enquiries on rupee futures trading from free-zone based companies. Howev-er, we don’t ascertain why these companies are operating from free zones, as it is not up to us to go into such details,” said Pradeep Unni, Senior Analyst - Research and Trading at Richcomm Global Services, DMCC.

Kumar of JRG told Banking & Busi-ness Review (BBR) that many export-ers and importers from India prefer to do their hedging from DGCX

through their UAE offices. “Since the free zones offer 100

per cent ownership and a tax-free regime, it works out better than risk-ing the payment of capital gains tax and other transaction related tax in India,” Kumar pointed out.

Another key reason behind the rapid rise in volumes of Indian rupee


futures on DGCX is the huge arbi-trage opportunities between differ-ent INR currency futures traded on different exchanges.

Before these exchanges were es-tablished, over-the-counter (OTC) currency derivatives contracts were the only option available to hedge the currency, though it had its own inherent limitations.

Pradeep Unni explained that seldom were these OTC markets able to ad-dress the need of micro, small and medium-scale enterprises (MSME) for mitigating their currency risk. “There wasn’t enough price transparency and the lot size was quite big, es-pecially for retail investors. DGCX contracts are the sole comfort for traders across the world, especially those based in UAE to hedge their currency transactions through India, which is a large trade partner with UAE and other Gulf nations,” Unni added.

The increasing volatility of Indian

Cash-settled contract provides the opportunity to trade it till the last day of futures contract without getting into the tangles of delivery

Since the UAE free zones offer 100 per cent ownership and a tax-free regime, it works out better than risking payment of capital gains tax and other transaction related tax in India

rupee of late has also been a key reason for the high volumes in rupee future. “Earlier, ru-pee used to fluctu-ate in a 5-10 paise range (of course with few excep-tions), but cur-rently, 15-20 paise

seems to be the order. This volatility has forced many investors and trad-ers to hedge their currency risk on DGCX.

According to Sajith Kumar, In-dia’s rapidly growing trade flows, increased cross-border investments and the brisk fluctuations in ex-change rates have prompted the

traders to go for strict hedging of their positions.

Apart from this, the growing awareness about futures trading, availability of ideal trading platforms

that support rupee trading and the enhanced participation of exporters and importers play a big role in the fast growth of rupee futures trading volume on DGCX.

Kumar said DGCX has provided higher liquidity support in 2010 than in the past. “DGCX is the only ex-change that provides Client Segre-gated Bank Account facilities to their clients, through JRG and Emirates NBD,” Kumar pointed out.

DGCX has scored over the NDF exchange in Singapore as cash-settled contract addresses a key is-sue in futures trading. Cash-settled contract provides the opportunity to trade the contract till the last day of futures contract without getting into the tangles of delivery.

“Both the broker and the investor/trader are relieved as the contract settles automatically at the last trade price on the final day. The nor-mal procedures of rollo-ver to the next calendar month or adding addi-tional funds to meet the delivery period margin do not arise in this case. There is a strict penalty if investor defaults a deliv-ery and this is completely avoided by cash-settled

contracts. Futures markets are not the ideal platform for delivery, and globally less than one per cent of the final open interest results in deliv-ery,” Unni asserted.

Pradeep Unni


MANAGING RISKS

By V A Tommy

All of us are involved in man-aging risk one way or other without actually realising that we are doing so, be

it personal or in our professional life. This is because we operate in a con-tinually changing environment where new risks emerge by the day if not by the minute. Even the most powerful country in the world could not have over emphasized the significance of managing online data and information security until recently when Julian As-sange exposed ‘chinks’ in the other-wise unbreakable US Military Armour.

Business RisksExcept when you want to protect the life of your person (or that of your loved ones) against the risk of un-timely death due to illness or accident, most of the time you are concerned about protecting your wealth which is manifested in terms of assets that you own or in which you have substantial stake. You are also concerned about minimising your potential or actual li-abilities.

When you set up a business, you will, in all probability be encountering two kinds of risks – Business Risks and Pure Risks. Business Risk is the uncer-tainty arising from possible failures to take-off or break-even. Business risks could be controlled by adequate project planning and forecasting. There are, however, external forces beyond the control of the business-men or entrepreneurs.Risk can be broken down into key areas, which will need analysis prior to the eventual strategising on risk mitigation, allocation and avoidance.

Broad Risk CategoriesAll operations face risks across the whole business spectrum and any suc-cessful development process, including

Continually Evolving Risks

the structuring of an optimal insurance and risk management programme, in-volve looking at these risks in terms of five broad categories – Economic Risks, Environmental Risks, Geopolitical Risks, Societal Risks and Technological Risks.

Shifting Global SpectrumGone are the days when it was Mul-

tinational Corporations (MNCs) based in the United States and continental Europe only were investing in busi-nesses outside their home countries. Today, we have enterprising business-men operating from the Middle East, Indian Subcontinent and China who increasingly look for setting up facto-ries and production houses away from their homelands and far away in Arab and African countries.

Any pure risks faced by the busi-nesses – which are fortuitous in na-ture, i.e., when there is an element of uncertainty as to its occurrence, and the business stands to lose financially if it occurs, can be transferred to pro-fessionals who are in the business of managing risks – they include insur-ance and reinsurance companies.

Once the business is clear as to its exposures and if they are able to quan-

tify – in monetary terms – the impact of such exposures on their balance sheet, then the management of the businesses can take an informed decision as to how to mitigate the financial impact arising from such exposures. The management will be better equipped to take such informed decisions if they have a Risk Management Philosophy within the or-ganisation.

World Economic Forum InitiativeIt is however satisfying to note that the continually evolving risks have been duly recognised by business and gov-ernment leaders at the highest level and has become a regular feature in the World Economic Forum’s annual meet-ings. Global Risks 2011, the Sixth Edition provides a high level overview of 37 se-lected global risks as seen by members of the World Economic Forum, sup-ported by a survey of 580 leaders and decision-makers around the world. It is also heartening to note that the lead-ers in the insurance fraternity - Marsh & McLennan Companies, Swiss Rein-surance Company and Zurich Financial Services, have partnered in this global initiative.

In the future editions to come, we shall jointly analyse the possible risks in business at various stages and dis-cuss ways and means to mitigate the same if not elimate them altogether. I would be keen to hear from the read-ers in case they have specific queries or thoughts on Managing Risks in general or in particular to their specific business or interests.

The views expressed by the Author, a Director for Sun Reinsurance Brokers LLC Dubai, are his own and not neces-sarily contributed to/by his employers. You may contact him via email: [email protected]


FUTURES

Indian rupee is DGCX superstarMore products are in the offing

By BBR Staff


Indian rupee futures staged a smart show in 2010 on DGCX, the only exchange outside India to trade deliverable contracts in the Indian

currency, by clocking in 480,725 con-tracts - an unprecedented growth of 625 per cent in the contracts volume compared with the previous year.

The Indian rupee enjoyed an out-standing run in 2010, setting five consecutive monthly records between June and October. In December, it re-corded its highest monthly volumes of 98,105 contracts. It also set its highest-ever daily volume of 8,275 contracts on November 12.

Annual volumes for 2010 on DGCX

registered a 28 per cent growth on 2009. The exchange ended 2010, its best year so far, with a total annual volume of 1.925 million contracts. The value of the annual volume was $104.18 billion (Dh382,34 billion), a 32 per cent increase on the previous year.

Total currency volumes recorded 1,287,409 contracts, a 109 per cent increase from last year. Annual vol-umes of euro, pound and yen futures rose 54 per cent, 12 per cent and 43 per cent respectively from 2009 to reach 473,771 for euro, 205,548

The year 2010 is the exchange’s best year in terms of annual volumes and value, with volumes increasing 28 per cent to record 1.925 million contracts

Eric Hasham, CEO of DGCX


for pound and 82,922 contracts for yen. The 2010 volumes for gold and WTI reached 490,175 and 115,777 contracts respectively. Australian dol-lar, Canadian dollar and Swiss franc, currency pairs launched by DGCX in 2010, achieved annual volumes of 14,064 for the Australian curren-cy, 15,735 for Canadian dollar and 14,644 contracts for the franc during 2010.

For December 2010, volumes on DGCX reached 164,893 contracts.

Currencies recorded 119,566 con-tracts, while gold registered 36,701, silver 3,598 and WTI futures 5,028 con-tracts. Currency volumes in December grew by 34 per cent year-on-year.

Last year saw DGCX hitting a number of all-time highs. On July 13, DGCX crossed one million contracts. In October, the exchange recorded its highest-ever monthly volumes of 209,994 contracts. DGCX also re-corded its highest-ever daily volume of 19,255 contracts on March 1.

Eric Hasham, CEO of DGCX said, “Over 2010, DGCX offered investors some of the best tools avail-able in the region to man-age risk effectively in an un-certain market. Our growth in 2010 was also driven by our ability to offer an ex-panded range of liquid, competitively priced and easily accessible products within a safe and secure trading environment. The success of 2010 sets the stage for greater progress in 2011.”

On the 2011 plans, Eric Hasham stated, “We are developing new innovative products and services to ca-

ter to the requirements of our mem-bers and market participants.”

In October 2010, DGCX entered into a licence agreement with Dow Jones Indices, one of the world’s leading index providers, as part of its plans to list futures contracts on Dow Jones-branded indices. Among the first product of these indices planned for DGCX is the Dow Jones Islamic Market Titans 100 Index Future, which represents the top 100 blue-chip Sha-riah-compliant stocks globally”.

0683-00004\SME Business Account Ad_27.5x20.5.ai 5/4/10 12:59:28 PM0683-00004\SME Business Account Ad_27.5x20.5.ai 5/4/10 12:59:28 PM


BANKING

Lending-deposits ratio improves considerablyBy CL Jose

Time deposits going longer term


Recession has not only en-couraged depositors to park their funds increasingly with banks than to make any risky

investments, but has also prevailed on them to increase the tenure of their deposits.

The new trend certainly helps the banks in a country like UAE, where the banking system has historically been struggling to match the asset-liability profile. The banks based in the GCC, especially the UAE, are typi-cally forced to play the game of living on short-term deposits and lending long term, and this has landed many banks in the ‘asset-liability mismatch’ trouble.But is the trend changing?While more than half of the ‘time de-posits’ with UAE banks - 52.37 per cent - used to be parked for less than three months during the year ending December 31, 2008, the share of this type of deposits has gradually been falling since then as these deposits are apparently going for longer term.

The share of less-than-three-month deposits has dropped to 43.63 per cent as of October-end, 2010, according to the latest Central Bank data. During 2009, the share of depos-its with maturity less than three months was just a little over 44 per cent.

At the same time, the share of time deposits with maturity of more than six months has con-siderably increased since 2008-end. While this type of depos-its was only 31.15 per cent of the to-tal time deposits as of 2008-end, it has increased to 38.41 per cent as of 2009-end and thereafter to 39.23 per cent towards October end, 2010.

“Surely, there has been a notice-able shift from deposits with very short maturity to tenures above six months and one year,” said a top of-ficial of a local bank based in Dubai.

GCC banks are typically forced to play the game of living on short-term deposits and lending long term, which has landed many banks in the ‘asset-liability mismatch’ trouble

One main reason for this, according to him, could be the attractive interest rate in the market. “There are banks that pay interest as high as four per

cent as many banks are still struggling for liquidity,” he said. It is a fact that not only the government and govern-ment related companies are going for refinancing or restructuring of their loans, but of late, the market has started seeing companies with high reputation also approaching banks for loan restructuring and refinancing.

According to the chief executive of a foreign bank, even family businesses

that never faced serious liquidity is-sues are stuck with assets that have witnessed severe drain on their valu-ations.

The month of October 2010 saw the deposits ex-ceeding lending, maybe a phenomenon taking place after more than two years, by about Dh16 billion. But within one month, as of November-end, the gap narrowed by about Dh7 billion to Dh9 billion. “Many banks, including Mashreqbank, the largest private sector bank, have been pruning their lending

portfolio to improve their lending-de-posits ratio that has been lying above 100 per cent for long.

“While most major Dubai-based banks are focused on cleaning up their books, Abu Dhabi-based banks are still growing their balance sheets. One main reason for this is that most large projects are taking place in the capi-tal currently,” a banking analyst told Banking & Business Review (BBR).


BANKING

BoB eyes ‘golden’ opportunitiesMay launch loan against yellow metalBBR Staff


Bank of Baroda (BoB), which has a strong presence in retail operations in the UAE, is exploring possibilities of launching a comprehensive range of

gold products, including loan against gold.Talking to Banking & Business Review (BBR)

recently, Ashok Gupta, the chief executive of Bank of Baroda, GCC operations, said gold is an area the bank is currently exploring.

Ashok Gupta


BoB eyes ‘golden’ opportunitiesIndians (NRIs) who form a vital part of the bank’s ambitions, right from its establishment in the emirates. “NRIs are our very privileged customers and we are continuously introducing new products and services keeping in view the requirements of NRIs. We have dedicated NRI desks at all our branch-es/customer service centres to cater to the requirements of NRIs. We take care of most of their Indian banking needs in UAE itself,” the bank chief executive said.

The bank is providing one-stop services for the NRIs’ local and Indian banking requirements and work with the philosophy that ‘NRIs need not go to India, as we bring India to them’.

The bank is providing some unique services like opening non-resident ex-

ternal (NRE) accounts in the UAE it-self, the spot renewal of rupee fixed deposit receipts (FDRs), instant loans in UAE against NRE or FCNR (foreign currency non-resident) deposits in In-dia, cheque-books for selected Indian branches, facilitating housing loans in India, wealth management services, wherein the bank provides services for investment in mutual funds, pro-viding services under the portfolio investment scheme, assistance in opening Dmat accounts, etc. BoB will shortly be providing online trad-ing services and remittance through Internet banking.

With the valuations of real estate and property dropping to attractive levels, BoB is keen to expand mort-gage loans in the UAE. Gupta points out that the market dynamics have changed during the past year. Prices

have significantly come down and a further downturn may be limited. Therefore, it may be a good time to buy completed property particularly in prime locations where further re-duction may not be there. However, Gupta said his bank would keep the loan-to-value at a conservative level – anywhere between 50 and 60 per cent. “But in really deserving and ex-ceptional cases, we may go up to 70 or 80 per cent,” Gupta said.

Welcoming the Government move to create a credit bureau in the country, the BoB chief said the move would provide complete transpar-ency on the status of clients and will help banks to have a clear vision. By providing a data backbone to finan-cial transactions, uncertainty at both

bank and client level would be reduced to a great extent. He pointed out that the credit rating would provide a platform for pricing products rationally, depending on the credit worthi-ness of the borrower, and hence this would

function as an effective tool to check multiple financing.

Bank of Baroda, which has been operating in the UAE for the last 36 years through six branches, says it has chalked out plans to further expand in the UAE by setting up two more CSCs – one in Sharjah and another in Karama. Two more are also planned for the near future itself.

“Our motto is to reach the door-step of the customer instead of the customer coming to the bank,” Gupta noted.

BoB is also present in Oman through its branches in Muscat (two) and Salalah, and another branch will be operational in Sohar soon. BoB has plans to start operations in Kuwait, Qatar and Saudi Arabia, thereby mak-ing it the only Indian bank offering services in all the GCC countries.

The credit bureau will provide complete transparency on the status of clients and will help banks to have a clear vision: Ashok Gupta

“The demand for gold has increased enormously, both at the regional and global level as a result of the econom-ic instability. Despite dramatic price increases, investor appetite continues to remain high. We are planning a comprehensive range of gold prod-ucts and services to individuals and also to business enterprises,” Gupta added.

The UAE has seen corporate lend-ing slowing down and this has en-couraged banks to focus more on retail products. Gupta acknowledges that there are signs of banks getting stronger in retail space, which may be attributed to the fact that the economy is picking up post reces-sion. “Although there is an element of caution in lending, retail products are being focused on,” he added.

BoB is keen on strengthening its dis-tribution channels. The bank, which has already introduced In-ternet banking, has es-tablished a number of Customer Service Cen-tres (CSCs) and ATMs, thereby taking the banking services closer to its customers. The bank has also introduced easy pickup facilities for bulk cash in the past few months.

The services the bank plans to introduce in the near future include insurance and investment products and services, credit and debit cards, bill-payment services and easy access to financial information at customer’s convenience.

Mobile banking is another product that is high on the bank’s priority list. “Our strategy is to develop alternative distribution channels and to provide clients with innovative solutions that make banking easy.

Simultaneously, we are strength-ening our marketing team for opti-mum distribution of products and services,” Gupta added.

BoB has big plans for non-resident


BANKING

Asset class: SBI eyeing a qualitative shiftBy Amit Chettupuzha

The State Bank of India (SBI) Dubai (DIFC) branch is seeking a qualitative shift for its portfolio by focusing more on long-term assets and bringing down the proportion of short-term trade finance

exposure in the books.Talking to Banking & Business Review (BBR), Debajyoti

Ray Chaudhuri, who took over as the new CEO of the SBI DIFC branch recently, said SBI doesn’t face any prob-lem on the liquidity front, and hence it prefers to go for

Dubai is today one of the four global hubs for SBI’s syndication road shows along with London, New York and Singapore

Debajyoti Ray Chaudhuri


long-term assets, which offer better pricing.

“Moreover, the issue with the short-term assets is they create vola-tility in balance sheet giving head aches to treasury. More than that, it is not always easy to get a quality asset to replace the ma-turing short-term assets at a time when identifying good assets has become a bigger challenge,” added Ray Chaudhuri.

The SBI move may sound a bit strange in the context of the fact that almost all Dubai banks have slowed down on their lending and the syndicated loan market has virtually dried down.

Importantly, currently, GCC banks are struggling to get long-term liabilities in order to avoid the mismatch in the management of as-sets and liabilities.

“I would prefer to have long-term assets with maturities in the range of three to five years in place of short-term trade finance assets. This doesn’t mean that SBI will not do trade finance business, but will try to build up more of long-term assets including long-term trade finance as-sets that have maturities of at least one year,” Ray Chaudhuri explained.

“For SBI, long-term liability is not a challenge,” said Debajyoti Ray. In the UAE, banks have become important-ly hesitant about booking long-term assets in the wake of the recession and also the current developments in the region’s corporate world.

He said SBI’s DIFC branch is extending loans to India-based companies also, primarily dol-lar lending, as Indian branches of SBI cannot meet the require-ment of dollar borrowings of Indian corporates especially at a time when Indian corporates are eyeing overseas acquisi-tions where dollar funding is key.

SBI is the number one man-dated lead arranger (MLA) in the Asia Pacific region excluding Japan and including Australia.

India’s largest bank, State Bank, is the number one mandated lead arranger (MLA) in the Asia-Pacific region excluding Japan and including Australia

DIFC banks’ lending activities are constrained, as they cannot create security on immoveable property

Dubai has gained greater signifi-cance on SBI’s global map and the emirate has become one of the four international hubs for SBI road shows held for syndication along with Lon-

don, New York and Singapore. Ray Chaudhuri told BBR that two road-shows have already been held in Du-bai.

Stating that SBI is keen to grow its lending portfolio in the GCC, in-cluding UAE, he said this doesn’t mean that the bank will dilute its due diligence and scrutiny standards on lending. “We will continue to see the external ratings, our own internal rat-ings after seeing through the clients’ financials to get to know the past track record, etc, before we draw a conclusion on the client,” SBI CEO noted.

He said the market is good and there is huge potential for lending. There is a situation where we have the resources and the willingness to

lend, but our lending activities are constrained by the fact that we can-not create security on immovable

property.However, the banks are currently

working with DIFC to get the help of local banks in taking charge of collat-erals as security against lending. “We

have convinced the authorities concerned that we will be able to play much more meaning-ful role in lending here if the collateral issue is resolved,” he added.

However, he acknowledged that being in DIFC helps the banks deal with other interna-tional banks better due to the high compliance standards fol-lowed by the Centre.

Though the high charges levied by DIFC had earlier invited criticism from some

quarters, the Centre has recently slashed rates to reasonable levels across the board. The move has also been welcomed by the DIFC-based companies.

Ray Chaudhuri said SBI is chalking out plans to strengthen the NRI busi-ness through its DIFC branch. The bank believes that it would be in a position to market a basket of prod-ucts to the wider NRI community within one or two months.

GCC expansionIn the GCC, SBI has an old set-up in Bahrain where the bank has a wholesale banking operation (off-shore) and a full commercial opera-tion. In Oman, SBI runs a full-fledged

branch licensed by the Central Bank of Oman (CBO). SBI has ambitious plans to further increase the retail footprint in Bahrain and Oman. In Saudi, the bank has got a licence and plans are afoot to launch op-erations soon. In Qatar, SBI’s branch will be operational soon from the Qatar Financial Centre (QFC). SBI, which is present in 32 countries, started its DIFC operations in 2006 with a Category IV licence from the

DFSA. However, the bank was able to get the Category I licence within three year from then, in 2009.


PROVISIONING

New measures to weigh on banksBy CL Jose

The recent steps announced by the Central Bank of the UAE to tighten the provisioning regime for banks with respect to their classified loans may be dubbed as a too-hurriedly initiated move, at least,

by some in the country’s banking sector.Already, the banks are burdened with the need to pro-

vision against loan losses coming from different sectors and different markets – either large private sector or gov-ernment and government-related firms.

To take on all these in one go at a time when the economy itself is passing through its worst phase in recent times, will see many banks ending up with a bad year.

Central Bank has also said the banks and finance com-panies are required to increase their specific provisions made against the exposures to the Saudi-based Algosaibi

Until last year, UAE had been one of the few markets that had the luxury to delay provisioning until the loan payments are in arrears for more than 180 days


UAE banking sector in coming years.” According to most banking experts in the UAE, the new regulation offers structuring of the capital within banks in line with the results of the portfolio risk assessment, thus enhancing and unifying the role of risk management with that of banks lending.

The new regulation emphasises the need for more active and more respon-sible attitude towards risk assessment and risk management within the bank-ing institutions. Banks will now also be required to disclose the classification of all its loans and advances to the Central bank upon its request and in addition, will be required to display the reasons and logic behind its loan clas-sification and provisioning decisions,” said Saad Maniar, Managing Partner,

Horwath Mak, Dubai.However, many

bankers, who would not want to be named, believe that these rules could have been implemented in phases over a period of time. It is true that the Central Bank has given four years’ time for achieving the 1.5 per cent general pro-visioning.

and Saad Groups to 80 per cent of their exposures during 2010 instead of the earlier 50 per cent.

“I still remember those years that stretched through 2003-2004 until 2006-2007 or even 2008, when the banks were improving their net profits year after year and growing their asset base by 20 and above percentage points every year. No one bothered to talk about introducing general provisions or tightening the provisioning norms further,” notes the chief executive of a foreign bank

The new norms have the stipulation of 25 per cent pro-visioning against substandard loans and a 1.5 per cent general provi-sioning against unclas-sified loans. Ironically, until last year, UAE had been one of the few markets that had the luxury to delay provisioning until the loan payments are in arrears for more than 180 days.

Now with the new set of rules being es-tablished, not only that the provisioning has to commence for a loan which is in arrears for more than 90 days, but more importantly, a steep 25 per cent provisioning has been stipulated straight away for this class which is called the substandard loans.

“Even in India, which is considered to be much more conservative than most major markets, Reserve Bank stipulates only 10 per cent provisioning for secured and 20 per cent for unsecured loans in the Substandard class. Moreover, the general provisions are required at about 0.4 per cent except for real estate exposures, which at-tract one per cent,” a top Indian bank official told Bank-ing & Business Review (BBR).

Talking from Singapore, Sanjay Uppal, banking expert & former Group CFO of Emirates NBD, said the require-ment for UAE banks to achieve General Provisions of 1.50 per cent of the risk weighted assets on unclassified loans and advances is on the conservative end of the range when compared with other emerging markets.

“But, he added, this would greatly strengthen the

Sanjay Uppal

Saad Maniar

The requirement for UAE banks to achieve General Provisions of 1.50 per cent is on the conservative end of the range when compared with other emerging markets


Classification of loans

Provisions for consumer loans, car loans and credit cards

Areas that need tighteningThough there have been some very forward-looking moves like the in-troduction of Islamic certificates of deposits (CDs) and additional liquid-ity windows that helped the banking system during the past more than a year, experts argue that some areas still need special atten-tion.

Though it remains a fact that the minimum capital [share] requirement at Dh40 million doesn’t pose any danger to the banking system as all the banks are capitalised well above this benchmark, they pointed out that banks should be made to strictly follow the seven per cent [of bank’s networth] single-party expo-sure limit without fail as many banks now manage to get waiver on this. More importantly, this limit does not include off-balance sheet exposure

Banks should be made to strictly follow the seven per cent single-party exposure limit without fail

which could prove to be equally dan-gerous,” said the financial controller of a bank.

Role of Boards & ManagementWhile the regulations on provision-ing are quite specific in guidance, UAE Central Bank acknowledges

the role of boards & management of the banks when it states “there is no substitute for mature judgement, based on the experience and knowl-edge”. Uppal said he hopes there will be enhanced oversight from UAE

Source: Central bank data

Classification of loans Details Provision

Normal loans Loans which bear the normal banking risk, where the information available assures repayment as agreedWatch-list loans Loans which show some weakness in borrower’s financial condition and credit-worthinessSub-standard loans Loans which may lead to incurring of loss due to adverse factors. 25% of total loan balance Normally, this category includes loans. Payment of principal is in arrears beyond 90 daysDoubtful loans Loans whose full recovery seems doubtful on the basis of 50% of total loan balance information available.Loss loans Loans where all courses of action are taken, but failed to recover anything, or where there is a possibility that nothing shall be recovered

Instalment in arrears Provision

90 days 25% of loan balance120 days 50% of loan balance180 days 100% of loan balance

Central Bank on any deviation from the stated guidelines.

However, Uppal added, the imple-mentation of these new regulations would be deficient without commen-surate disclosures relating to loans and provisions in a bank’s financial statements.

“Disclosures (largely reflected in IFRS 7 & Pillar 3 of the Basel II capital

framework) provide readers of financial statements with infor-mation about an entity’s risk profile and risk management process. In the context of loan provisioning, disclosures neces-sitate banks to adopt and im-plement policies that result in reserves being maintained at adequate levels and timely rec-ognition of losses. The boards

and management of banks should view this aspect as critical to the over-all provisioning framework and a key element in achieving Central Bank’s objective and meeting stakeholder expectations,” he added.


TECHNOLOGY

By Siddhartha Khare

Success in the banking industry can be tough without a Busi-ness Process Management (BPM) strategy which effec-

tively aligns systems and processes with business objectives.

BPM offers a bird’s eyeview of the organisation, bringing together busi-ness activities or processes, with peo-ple and information. This is not only limited to the organisation’s internal mechanics but also includes custom-ers, suppliers, partners and other stakeholders in the bank-ing ecosystem.

The past few years have seen a significant rise in the number of banks that have realised the value in investing in BPM solutions to execute and monitor their business processes. It’s never too late for banks to adopt BPM, but the de-cision to do so can some-times be met with hesita-tion stemming from a lack of clarity in its uses and benefits.

Essentially, BPM solutions help provide a holistic view of a bank’s op-erations and help to cut cost in the long run by boosting efficiency and enhancing customer service. And how does it do this? By recognising areas that can be automated and re-ducing the time needed to complete a business process, as well as bringing down the number of errors involved in completing an activity.

Perhaps the most important bene-fit BPM is seen to offer, given the na-ture of today’s economy and increas-

Business Process Management: Banking on success

ing regulations, is that it provides a stable flexibility to adapt to change.

How does a bank go about imple-menting a BPM strategy? Initially, it starts with identifying its needs. This might seem easy enough but in re-ality involves in-depth research on specific processes that currently ex-ist and the related owners of those processes. A process includes both system and human interactions - any activity taken in order to realise a business function, such as credit card

issuance, payroll, loans, online bank-ing, sales and marketing, etc.

Next, a bank will decide on appli-cation requirements, which simulta-neously help in realising business pri-orities of the organisation. By doing this, banks understand the core de-mands a BPM system should deliver on and decide whether to choose a ready-to-deploy BPM solution that best fits their needs or opt for a custom solution, tailored exactly to specification. There’s no shortage of solutions available through the best players in the BPM field, such as

IBM’s BPM Suite, and successful au-tomation can be seen in banks that choose either a ‘packaged’ or a cus-tomised solution. The key is finding a solution that is the best fit.

Business Process Management can get fairly complex depending on the banking institution, and a good solu-tion is often the difference between greater effectiveness and chaos while deciding what to automate.

Through it all, there needs to be a focus on return on investment be-

cause, while BPM is a necessary investment considering today’s economy, cost, time and effort are key factors that influence the ever-important bottom line.

Often, there is a fear that us-ing BPM will result in employees being made redundant but it’s rather a case of finding out where there is an abundance of skills and then streamlining process orches-tration. For example, there might be other departments that need more attention and support, like call centres. Significantly, BPM of-

ten helps expose the need for further training in order to make best use of human resources.

At Gulf Business Machines, we have already helped a number of the region’s leading banks and financial institutions turn to BPM solutions. This has allowed them to make the most of their resources in order to in-crease efficiency and gain a competi-tive edge. BPM is truly enabling their success.

The writer is WebSphere Sales Manager – Gulf Region, Gulf Business Machines

BPM solutions help provide a holistic view of a bank’s operations and help to cut cost in the long run by boosting efficiency and enhancing customer service


NEW POWER CENTRES

We are in an economic Super CycleBy Gerard Lyons

The world economy is in a super-cycle. This is a period of historically high global growth, lasting a generation

or more. There are many factors driv-ing this, including rising trade, high rates of investment, rapid urbanisa-tion and technological innovation. Super cycles are also characterised by the emergence of economies enjoy-ing rapid growth, such as China, India and Indonesia now.

The world economy has twice en-joyed super-cycles before. The first, from 1870 to 1913, saw a significant pick-up in global growth, with the world growing on average each year by 2.7 per cent, a full one percentage higher than previously seen. That cy-cle was led by the emergence of the United States and saw increased trade and greater use of technologies from the Industrial Revolution. The second super-cycle, from 1945 to the early 1970s, saw growth averaging 5 per cent and was characterised by the post-War reconstruction and catch-up across large parts of the globe. It saw the emergence, both of a large mid-dle-class in the West and of exporting na-tions across Asia, led by Japan.

We may now be in another super-cycle, with aspects similar to those seen in the first two super-cycles.

For people in Asia and across the

emerging world, the idea of strong growth may not sound unusual. But for many in the West, the thought of a super-cycle may sound strange, given the present problems confront-ing the world economy.

Yet the reality is the world econ-omy now is over $62 trillion, about twice the size it was a decade ago,

and it has already ex-ceeded its pre-recession peak. Over the last two years, its rebound has been driven by policy stimulus in the West and by stronger growth in the East. Indeed, emerg-ing economies, which are one-third of the world economy, currently ac-count for two-thirds of its growth. This trend looks set to continue.

By 2030, the world economy could grow to $308 trillion. Exclud-ing inflation that would equate to $129 trillion in real terms, or in today’s prices, and to $143trn, keeping prices constant

but allowing for some emerging-mar-ket currency appreciation.

The projections would imply a real growth rate of 3.5 per cent for the period between 2000, when the super-cycle started, and 2030, or 3.9

per cent from now to 2030. That would be a significant step-up compared with 2.8 per cent between 1973 and 2000.

What is remarkable is not only the likely scale of this expansion, but the fact that these forecasts are based

on projections for growth that some might even think are too cautious! For instance, China is expected to

During the super-cycle, China can displace the US as the world’s largest economy by 2020


grow on an average of 6.9 per cent per annum over the period to 2030, and India by 9.3 per cent. By 2030, India may have become the world’s third largest economy. Moreover, In-donesia, currently the 28th largest economy may have moved to fifthth largest in 20 years, having enjoyed nearly seven per cent average growth over that period.

There are always risks that could impact global growth. The first super-cycle ended with the outbreak of the First World War, the second with the oil shocks of the early seventies. Hopefully, the world today is better placed to address such risks, thanks to the emergence of international de-cision making bodies and policy fora such as the G20.

It is important to stress that a super-cycle does not mean that growth will be continuously strong over the whole period. For the last three or four years, we have been amongst the most pes-simistic about US growth. I am still cautious. Despite the benefits of quantitative easing, the US economy will still struggle in the year-ahead, growing below trend. Likewise, Europe and Japan face a sluggish near-term outlook where growth will be modest.

All this makes it even more remark-able if Asia can drive more of its own growth. That is, after all, what the world needs. Next year, China sees the first year of its twelfth five-year plan. That should help growth. But, even allow-ing for this, the Chinese and other central banks across Asia will be tightening pol-icy to cap inflation. In turn, this should allow growth to be more sustainable, but at rates either close to, or even below, those seen this year. So, even in a super-cycle, there can be challenges for policy-makers.

Just as it is important to focus on

near-term chal-lenges, it is also vital to keep sight of longer-term opportu-nities. During the super-cycle, we believe that

China can displace the United States as the world’s largest economy by 2020, far sooner than many expect.

While such forecasts give a scale of the outlook, it is the story behind what is happening that is as impor-tant.

There is the scale of the econo-mies that are growing. As emerg-ing economies grow, they will exert greater influence on the world econ-

omy. Then there is the impact from the growth of new trade corridors. Close to 85 per cent of the world’s

By 2030, the world economy could grow to $308 trillion

The first super-cycle ended with the outbreak of the 1st World War, the second with the oil shocks of the early 70s

population is becoming increasingly inter-connected through trade, al-lowing an unprecedented number of people to contribute to the global economy.

Cash and financial resources will be critical drivers of growth, given the need for investment, particularly in infrastructure. Then there is what I call perspiration, with more people working and spending, and inspira-tion, with greater use of innovation and technology.

The countries that will succeed will be those with the cash, the commodi-ties and the creativity. In recent years, I have described what was happening as the New World Order, reflected a shift in the balance of economic and

financial power from the West to the East. While still valid, a super-cycle better reflects what is happening. It is still pos-sible for the West to do well in this environment, particularly if economies there are creative. Yet it is Asia that appears to be the clear winner.

(Dr Gerard Lyons is Group Head of Global Research and Chief Economist at Standard Chartered Bank)


By BBR Staff

Louis Fourteen to launch “Louis Fourteen for Mojeh”

Shahab Izadpanah

LIFEST YLE


Louis Fourteen, the providers of lifestyle management & luxury services and part of the Al Khaleej Continental Group, is

embarking on an innovative partner-ship with HS Media Group.

The new initiative will ensure that the readers of the high-end woman fashion magazine from the HS Media Group – Mojeh get tailor-made exclusive services from Louis Fourteen. Talking to Banking & Business Review (BBR), Shahab Izadpanah, the Group CEO, Al Khaleej Continental Group, said the details of the new partnership and the exact services to be offered to the Mojeh readers will be announced in March. “Mojeh, meaning eyelash, is more than a magazine, It is sophisticated, self-indulgent and loves shopping and embraces fashion, beauty and lifestyle,” Izadpanah explained further.

‘She’ is friend and a confidant. She stays honest, consistent and is a fundamental voice for her readers. She will quickly play an important role in her readers’ lives – where Mojeh goes, they all will follow.

Mojeh sets itself apart from the rest of the fashion magazines in the Middle East, challenging the trend to make the difference in the life of a woman. Created as an elite and glossy coffee table magazine and published every two months, Mojeh will be enjoyed, discussed by the top-notch people in the city’s fashion cir-cuits.

Launched only in 2010, Louis

Fourteen already has an impressive number of VIP members registered with it, Izadpanah said, and the com-pany is opening its Geneva and Beirut offices in February 2011. It targets to set up new offices in all the big met-ros across the globe, and to enrol 1,000 prestigious clients - both Privy and corporate, within two years from now.

‘As providers of lifestyle manage-ment and luxury services, we take pride in offering our members supe-rior personal and business services, so

that they can enjoy what matters and simplify their lives,’ Izadpanah said.

He adds, “It is my wish that my cli-ents should live like a king when we are at their service – he/she will have all the luxury that King Louis Fourteen enjoyed.” Elaborating on the concept of Louis Fourteen, Izadpanah said the services are offered to chief execu-tives or top officials of SME compa-nies to multinational companies.

What is lifestyle management? We offer services to celebrities, pro-

fessional sportsmen, busy executives or CEOs of corporates who find it difficult to manage their day-to-day and corporate needs effectively and meaningfully.

And the list of services includes right from booking flights, hotel stays or even making purchases from their favourite malls and shopping centres within the country and overseas. Iza-dpanah said once registered for cor-porate service, the CEO or the compa-ny’s top officials will have dedicated personal assistants to take care of

their corporate and official needs.

The company has ambitious expansion plans that include new offices in various cities the world over. Being part of Al Khaleej Con-tinental Group, Louis Fourteen has access to differ-ent business seg-ments, including financial services, property manage-ment, corporate affairs, etc.

Izadpanah ar-gues that the membership fee is easily compen-

sated through the bargains the clients get entitled on tickets, hotel stay, pur-chases, etc. Louis Fourteen provides a world-class service not only locally but also globally. It helps busy individuals to not just schedule ‘important’ tasks, but to get them completed as well. Different from concierge firms that focus on many tactical items, Louis Fourteen goes further by offering a variety of assessment and planning services to help members prioritise and focus on attaining their goals.


GOLD RETAIL

Aiming big in B2B spaceJoyalukkas offers unique B2B solutions to corporates


Joyalukkas, the renowned jew-ellery retail chain has strongly established its presence within the business-t-business (B2B)

segment, providing unique solutions to the corporate segment. The B2B division of Joyalukkas currently oper-ates across the GCC and its clientele includes the who’s who of corpo-rates, as well as various government departments and institutions in the region. Banking & Business Review (BBR) discussed with Joy Alukkas, Chairman of the Joyalukkas Group about the group, the B2B division’s suc-cessful initiatives in the recent past, as well as its plans for the future.

How big is the Joyalukkas Group today?Since its inception 24 years ago, the Joyalukkas Group has rapidly expanded its power zone across the globe. In addition to being recognised as the world’s favourite jeweller, the group has also diversified into other profitable businesses. Today, we have grown to have 10 million customers and employ a team of over 3,000 people in seven countries, namely In-dia, UK, UAE, Kuwait, Oman, Bahrain and Qatar.

The success of the group has been driven by our unstinting commitment to quality. Joyalukkas jewellery was the first jewellery retailer to be awarded the prestig-ious ISO 9001:2008 and 14001:2004 certification, and a series of achievements still add on to the list. Other than this, Joyalukkas has also received recognition from the Dubai Quality Apprecia-tions programme.

How big is the branded jewellery market in the UAE?Corporatisation of the jewellery business has given birth to another business trend – branded jewellery. The market for branded jewellery is surprisingly fast and the Joyaluk-kas Group itself has witnessed good

growth in its branded segment over the years.

What are the group’s plans for the future?Having established a strong presence in seven countries i.e. in India, UK and most GCC countries, Joyalukkas to-day is one of the most renowned and respected jewellery retailers in the re-gion, and we are all set to spread our wings into new markets. At present,

we are on a consolidation mode in the GCC, and although expansion in the Gulf is not a high priority at this point in time, we have recently final-ised plans to enter Saudi Arabia, the largest market in the region. Towards this end, we have already identified three locations in the kingdom - Al Khobar, Jeddah and Riyadh - where our outlets will soon be established

Has the high price of gold helped boost the diamond business?Though diamond jewellery has made

its entry into the market in the mid-nineties, the economic slowdown and the recent rally in gold prices have forced many new customers to look closely at diamond jewellery. A significant segment of the customers find diamond jewellery more afford-

able and we have noticed a marked shift of customers from the yellow metal to diamonds.

Many businesses have been af-fected by the slowdown in lend-ing. What about the gold jewel-lery business?Though it is widely said that slow-down in bank lending has affected gold jewellery like any other busi-nesses, I would like to say, “this is not

true!” During the initial stages of the slowdown, the banks were a bit hesitant about lend-ing, and this had affected the jewellery trade in the UAE to a large extent. However, the banks are more proactive to-day, and are not shy to offer facilities, provided you have a concrete business model, strong financials, and a growth

proposal. How have the customer prefer-ences been evolving during the recession?The high prices prevailing in the mar-ket have given rise to a change in customer preferences. Today, the cus-tomers prefer lightweight jewellery as opposed to conventional heavy jewel-lery. They have also become more fo-cused on designs and variety and are willing to purchase exotic and good designs at a premium.

How does the rising gold price affect the business?The yellow metal has been witnessing a rally during the last few years. The high bul-lion prices along with the general slowdown in the economic activity had indeed impacted the business dur-ing the first half of the cur-rent financial year (April to

September 2011). However, economic recovery is round the corner, and gold will once again become the people’s favoured choice of investment. In fact, the customers have already reconciled with the current high price levels and we anticipate this year a growth of

Corporatisation of the jewellery business has given birth to another business trend – branded jewellery

Though the rising price has been a deterrent to the gifting trend, the corporates still prefer gold for gifting


5 to 10 per cent in terms of volume business in gold jewellery.

How do you view gold in corpo-rate gifting?This is a relatively new trend, namely the concept of gold as a corporate/social gift that has emerged in the past decade. We as jewellers have a very important role to play in the gifting industry by introducing in-novative concepts and ideas into the gifting arena.

Though the rising price has been a deterrent to the gifting trend, the corporates still prefer gold for gift-ing, because gold is viewed as a solid investment that keeps appreciating by the day, and also has ornamental value. At Joyalukkas, we have a dedi-cated team that manages the unique requirements of the corporate seg-ment and ensure they come up with innovative and customised solutions to every corporate’s needs.

Joyalukkas expects this year a growth of 5 to 10 per cent in terms of volume business in gold jewellery

Which are the corporates that Joyalukkas caters to currently?Over the years, we have provided a number of corporates gifting solu-tions that help them stand apart. Our wide and varied client list encom-passes a number of sectors, ranging from banking to retail to hospitality.

Which are some of the innova-tive solutions you have created for the B2B segment?Over the years, we have created unique mementoes and gifts for various clients, and this has made an impression in the minds of the

people. For instance, as part of the FIFA 2006 promotion, we were commissioned to create a 750gm golden football in 24 karat gold. We followed up our success during the 2010 FIFA World Cup, when we cre-ated a 450gm golden boot. In addi-tion, we have also immortalised the tallest building in the world, the Burj Khalifa in 18 karat gold, as a unique memento.

We also specialise in creating smaller items for the corporates, like customised jacket pins, tie-pins, gold USBs, cufflinks, corporate ac-cessories, and many more.

banking & business review jan '11

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