Rick Pudner was at the sharp end of the UAE banking business during the most tumultuous times in its history, so when he says decisively that “the banking system is fine”, you have to sit up and take notice.
He became chief executive of Emirates Bank in 2006, just as Dubai was riding the crest of a wave, with real estate prices soaring and the stock market booming.
His first task at the bank was to oversee a merger with National Bank of Dubai, to create Emirates NBD, Dubai’s biggest bank and one of the most important financial institutions in the region.
Then, of course, came the crash in 2008, when the property bubble burst, prompting the debt crisis of the following year that posed a severe threat to the emirate’s financial well-being.
Emirates NBD was at the centre of that turmoil. It had big debts itself, with the Dubai government a major borrower, and was also caught up in the global liquidity squeeze that made 2009 a year of real crisis in the UAE but also throughout the world.
“It was a difficult time, but the important point is that we got through it. Emirates NBD was right there with all the others, but was it really under threat? I don’t think it was ever in doubt. So we just got on with it and we got through,” he says.
Now, with tougher economic conditions in the oil-exporting world and renewed worries about global levels of debt, some of the wilder commentators believe the banking system is on the brink of another crisis.
Mr Pudner, who left Emirates NBD in 2013 under a metaphorical “mission accomplished” banner, does not share that view. “The banks in the region have healthy capital adequacy ratios, better than most in the world, and the non-performing loans are still relatively low. There has been an increase in problem debts and a rise in the number of ‘skips’, but the authorities have taken action that I believe will be successful. I don’t see this as 2009 all over again at all,” he says, with conviction.
Mr Pudner is really a product of the big banking system. He spent 25 years in senior positions with HSBC, most of it running the bank’s operations in South Korea, before being lured to the UAE.
By 2013, he had seen the Emirates NBD merger through and steered the bank through the crisis. He had also overseen the acquisition of Dubai Bank in 2011 and masterminded a major expansion programme that included the acquisition of BNP’s Egyptian business the following year.
It was time to move on.
“I’d seen the problems and challenges of the small-to-medium enterprise sector at first hand. Finance for SMEs from the big banks was slow, expensive and bureaucratic. I thought there had to be another way for SMEs to get efficient finance, and along came Beehive,” he says.
Beehive was the brainchild of Craig Moore, an expert in financial data and systems, which provides a platform for SMEs to raise money via internet-based crowdfunding. It was a concept that had already taken off big-time in America and Europe, but was as yet untried in the Middle East.
“When Craig first contacted me, crowdfunding was an idea about 10 years old in the rest of the world and was actually becoming more mainstream, providing a realistic alternative to the traditional banking system for SMEs that need to raise funds. But it was untried in the UAE. I thought straight away that is was a great opportunity to get involved in something that is very important for the region. It was very exciting,” he says. Mr Pudner became chairman of the new business.
The SME sector is regarded as a vital engine of growth, especially in the Arabian Gulf region, where it accounts for a large share of economic activity and is a major provider of jobs. But the region’s big banks have been slow to recognise the importance of funding for SMEs.
Would-be entrepreneurs complain that arranging finance is their most significant challenge; loans are difficult to negotiate, are slow in materialising and are expensive.
The banks, in their defence, point to the high level of delinquencies among small businesses and the inclination – in the UAE – of debtors to “skip” the country, leaving the lenders with debts they are unlikely ever to get repaid.
Mr Pudner, as a former “big banker”, sympathises to some degree with the lenders. “Banks are reducing SME credit and attaching quite stringent conditions because of their past experience, that’s natural. But non-performing loans are running at about 3 to 5 per cent, which is pretty small and perfectly normal,” he says.
But that still leaves a gap that has to be filled, and this is where Beehive comes in. “The aim is to diversify the risk and get as many lenders as possible on to the platform. We can provide finance that is 25 per cent cheaper than the official bank rate and we can turn it round in as short a time as five days, compared with three or four months for the banks,” he says.
He wants to emphasise, however, that Beehive is not a marketplace for risky borrowers that the big banks won’t touch. “I’d like to think we are the first quote, rather than the last resort. So far, we’ve only had one case of delinquency. You just have to accept that things like that will happen from time to time. It’s hard to get it foolproof,” he says.
Beehive also does its homework on potential borrowers and investors. It is structured along the guidelines of the UK’s Financial Conduct Authority, and adheres to the full “know your client” procedures the financial regulators demand. In the UAE, it is licensed by the Dubai Multi Commodities Centre.
Sharia-compliant lending is also a growing part of the business. Mr Pudner expects expansion this year in the Sharia financial sector in Malaysia and also growing the business in Thailand.
So far, he seems to be getting it right. Since its launch, in late 2014, Beehive has attracted more than 2,000 investors and provided Dh30 million in loans to about 60 SMEs. Most of the borrowers and investors are UAE based, but increasingly there is interest from Britain too.
“I am utterly convinced this business model is here to stay, and will only become more mainstream. It offers a win-win proposition to investors and to SME borrowers, and can be a model for economic development and employment,” he says.
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