Abdul Aziz Al Ghurair, CEO of Mashreq bank and new chairman of the DIFCA, told Gulf Business that banks learned an extraordinarily hard lesson in the financial crisis.
“There was so much pressure on banks to grow, grow and grow. They compromised on their basic lending philosophy, we lost sight of some things,” he admits.
“At the time we said it was right, now with hindsight we say it’s wrong. Banks have learned that giving more cards to customers is bad and it will only end up in trouble for the banks, customers and the economy.”
As chairman of the Emirates Banks Association and the UAE’s richest man according to Forbes with a family fortune of $2.9 billion, Al Ghurair said that he is working with the country’s central bank to formulate banking guidelines that will support both banks and customers.
“Five or six years ago banks were growing at 25 per cent per annum, that’s huge. And when banks looked at their peers increasing their income ten fold, they would also feel like they should increase ten fold,” he says of a pre-crisis banking version of keeping up with the Joneses.
“One thing [we have learned] is that the cashflow should come from the projects being financed; we eased on this and took refinancing options – plenty of that happened,” he says.
“Before, we used to say ‘if you take a loan, please make regular payments’ but we started accepting bullet payments – which means the whole loan would be paid in one day at the end of the loan period. This is not acceptable but we justified it because we wanted to grow.”
The CEO readily admits that growth no longer trickles in, bolstered by unsustainable credit: “Customers are no longer queuing outside my branches in the sun for an IPO application. I know, it happened.”
Al Ghurair says banking regulations are a necessary move: “Some regulation is good, zero regulation is a disaster – but regulation will also put the brakes on bank profitability.”
Specifically he talks of restrictions in lending to UAE nationals and reduced charges for retail customers, which will hamper growth in the near-term.
“Because of the new guidelines on retail services I see very little growth on the retail side unless the population increases. But the bulk of the growth will come in from the corporate side; there is more to come from the government and more to come from the infrastructure side. With the Arab Spring, the UAE has redefined itself as the hub, the place where business can be done.”
The full exclusive interview with Abdul Aziz Al Ghurair will be out on June 2 in Gulf Business magazine.