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Tuesday 11, July 2017 by Nabilah Annuar

UAE remains a bright spot for private banking

Bruno Daher, CEO of Credit Suisse Middle East and North Africa, conveys his optimism on the private banking sector in the UAE.

The year 2016 was marked with a series of unexpected events—from Britain’s vote for Brexit, the results of the US elections and the growth of populist movements across Europe. While all of these events projected dissatisfaction with the status quo, they had a seismic impact on global markets. And further into 2017, the global markets are again embroiled in a state of ambiguity and complexity—with the ongoing Brexit negotiations and several elections in Europe this year. In addition, uncertainty on Donald Trump’s agenda and his ability to fully enact his policies are leading investors to tune into a ‘wait and see’ mode. It is only fair to say that volatility and uncertainty are the main characteristics that define today’s global economies.

Taking a closer look at regional economies, the challenges have been mainly centred on the impact of low oil prices and structural reforms—which is now viewed as the ‘new normal’. On a more positive note, the GCC countries continue to exhibit a robust growth trajectory in non-oil sectors—especially with these countries pursuing strategies to rebalance growth towards more productive public spending and strengthening non-oil fiscal balances to preserve wealth for future generations.

Among GCC nations, the UAE has remained relatively resilient in the face of low oil prices as it has navigated this challenge better than its neighbours, aided by economic diversity and high competitiveness. The country’s economy is expected to gather strength this year, with preparations for the Dubai 2020 World Expo giving domestic demand a much needed boost. The recovery in oil prices should also give a corresponding impetus to the UAE economy.  According to IMF’s latest forecast, UAE’s economic growth will accelerate to 4.4 per cent in 2018, with the global recovery seen gathering momentum in 2017.

Wealth accumulation in the region

The Middle East is a growth region for wealth creation with wealth increasing by 162 per cent since 2000, well above the global average of 119 per cent, as per the Credit Suisse Global Wealth report. Wealth per adult has also increased by 67 per cent, in line with the global average. One other example that highlights the region’s wealth potential is the number of millionaires, which is expected to reach 460,000 by 2021, with Saudi Arabia and the UAE expected to lead this growth.

According to a recent study by Boston Consulting Group—private wealth in the UAE is projected to record an annual growth rate (CAGR) of 14.1 per cent and reach almost $1 trillion in 2020. Private wealth held by ultra-high-net-worth households in the UAE is also expected to see a substantial rise of 20 per cent over the next five years. In addition, the UAE has attracted 2,000 more ultra-rich individuals through millionaire migration, clearly outpacing other GCC countries in this space.

These examples clearly show that, despite a modest economic growth forecast, there is an impressive and rapid upward trajectory when it comes to wealth creation in the region. Supported by this steady growth in wealth, the private banking business is also witnessing a boom in the region, particularly in the UAE.

One of the key reasons for the strong growth in wealth is that the UAE has a highly developed infrastructure, a world-class regulatory framework, as well as a stable pool of banking talent. The fact that the UAE is the commercial and business centre in the Middle East naturally solidifies its position as the regional hub for private banking activities as well. Furthermore, the UAE’s strategic location combined with its political and economic stability makes it a very attractive market for High Net Worth Individuals not only based in the region but also across the globe. Another emerging trend working in UAE’s favour is that post-Brexit UK businesses are eyeing Dubai for overseas expansion—which indicates there would be an increasing influx of entrepreneurs looking to set-up shop here over the next few years—this again bodes well for wealth managers in the UAE.

Catering to the changing attitudes of HNWIs

The financial crisis of 2008 and the impact of low oil prices highlighted the importance of asset allocation and diversification to regional clients. This is where wealth managers and advisors like Credit Suisse have played a significant role; advising and guiding clients to diversify and effectively manage their risks. However, as the region continues to develop, the needs of regional private banking clients are becoming increasingly varied.  Even within the region, clients differ from one country to the next. This poses as a key challenge for wealth advisors.

In recent times, there has been a significant rise in private wealth management advisory or bespoke services in the UAE due to several factors. One reason is the growing private wealth and increasing number of millionaires and entrepreneurs in the UAE.
 
Secondly, given the challenging economic situation, there has been a shift in wealth allocation and the risk appetite of HNWIs who are now adopting a more cautious/low-risk approach. As a result these individuals look to diversify their portfolios and make mature investment choices to optimise risk and return. This shift corresponds to another important factor—the fact that clients in the region display characteristics that are relatively similar to those of emerging markets clients. Regional clients have an entrepreneurial spirit when it comes to doing business, they live in an environment that has strong growth potential and they understand the meaning of risk and return. Therefore, in a period of uncertainty, they seek diversified investment choices and would also like to capitalise on a wide range of opportunities that volatility brings.

For instance, we are seeing that the wealth allocation patterns of clients have changed in the last few years. Most clients now have a greater share of their wealth invested into their own business and in cash and deposits rather than a heavy concentration in equities or real estate which was the predominant scenario a few years ago. Also, clients now prefer to keep their assets closer to home, which means that more capital is homebound.

Thirdly, in the current economic environment, HNWIs in the region are more interested in growing their wealth so their needs are not always traditional or capital preservation related. And this is a fundamental trait that differentiates them from clients in more mature markets. With clients in the Middle East being more sophisticated and knowledgeable than before, they are capable of identifying higher growth opportunities in emerging markets.

We believe that while the changing needs and attitudes of regional clients create opportunities for wealth managers; it also has its challenges. Financial advisors who have the relevant experience, strong local presence and most importantly, the right specialists to cover both assets and liabilities requirements are in a unique position to meet the sophisticated needs of these clients.

An integrated approach

The Middle East is experiencing an economic trough in the shortterm. However, it is clear that strong wealth creation opportunities in the future still exist for the region.

The private banking industry in the UAE is also becoming increasingly competitive. The competition exists not only between international private banks but also among local private banks. Both offer different products. However, in today’s dynamic world, wealthy clients have complex financial requirements that are beyond traditional private banking services. They require more support and advice on complex situations and are looking for wealth advisors that can help them navigate through and take advantage of less favourable economic conditions, whilst offering a strong value proposition that is unique when compared with local players. For instance, a global bank that is able to offer the best of both worlds, including global products as well as customised local solutions.

Also, clients in the UAE and the wider region prefer a partner who is able to offer a strong synergy by leveraging collaboration across the different divisions of the bank. Therefore, wealth advisors combining unique strengths and expertise in private banking and wealth management, including asset management services and investment banking, are in a strong position to take a long-term holistic view and provide sound advice to clients in relation to the entirety of their wealth, and in the context of their wealth creation and preservation requirements.

Looking ahead, the enhanced value proposition of the integrated banking model and the capability of delivering local tailored products will increase competitiveness in capturing the share of wallet of clients’ local wealth.