SME lending growth high on Emirates NBD's agenda

While many UAE banks are reducing their exposure to small and medium-sized business debt, Emirates NBD is looking to take their place because the risks are worth the ­return. “It’s part of our growth strategy to fund SMEs and it continues,” says Shayne Nelson, the bank’s chief executive. “We’ll be more prudent in our acquisitions […]

While many UAE banks are reducing their exposure to small and medium-sized business debt, Emirates NBD is looking to take their place because the risks are worth the ­return.

“It’s part of our growth strategy to fund SMEs and it continues,” says Shayne Nelson, the bank’s chief executive.

“We’ll be more prudent in our acquisitions but I don’t want to see my SMEs shrinking, I want to see them growing. Banks step out of the system, that allows us to grow further.”

Abdul Aziz Al Ghurair, the chairman of the UAE Banking Federation, warned in November that a number of small-business owners might have fled the country, leaving unsettled debts of about Dh5bn.

That has not only been bad for banks, which have had to increase the amount of money they set aside for bad debt, but it is also not great news for SMEs seeking new loans or refinancing as these businesses are often the first to have their credit lines halted, Mr Nelson says.

And things may get worse before they get better. Among high-profile SME lending departures was Standard Chartered’s complete exit from the sector last year, while anecdotally many banks have scaled back substantially from lending to small businesses.

“The one area that has been hit hard is SMEs and micro SMEs and I would see 2016 to continue to be a difficult year for those counterparties,” Mr Nelson says. “As liquidity is tightening in this market, they feel it more than anyone else.

“They are the businesses that have the least power to pull in cash. SMEs I think will continue to struggle in 2016.”

The executive says that his bank’s own portfolio of loans is minuscule as a proportion of overall lending and that while Emirates NBD has become more stringent about who it gives out loans to, there are more than enough businesses for it in the sector.

Banks in general have been shying away, not only because of the high risk of lending to fledgling businesses but because of the dwindling amount of money circulating in the system.

Gulf Finance, the Dubai speciality SME financier, shed a light on the increasing woes of small businesses in a report that showed that confidence among SMEs slipped to new lows in the fourth quarter of last year when the fall in the price of oil was most fierce.

SMEs polled reported in the survey they were finding it more difficult to secure financing and to get paid. They are also retrenching plans for expansion and have stopped hiring.

Seventy four per cent of respondents of Gulf Finance’s survey reported difficulties in their ability to raise money compared with 48 per cent in the third quarter. About 29 per cent of those polled reported problems in collecting payments in the fourth quarter compared with 15 per cent in the third quarter.

That is not music to the Government’s ears. UAE Government officials have been counting on small businesses to play a key role in the development of the economy. SMEs account for 86 per cent of the workforce in the private sector, according to the Ministry of Economy. And 300,000 companies can be classified as part of the SME sector, according to ministry data.

Mr Nelson says he is not oblivious to the importance of SMEs to the local economy and sees supporting them a duty.

“To me, one of the things that banks owe society, an economy, is to fund SMEs because they are the businesses that employ people that are the future large businesses down the line and it’s part of our obligation to fund them and it’s a good profitable business if you get it right.”

mkassem@thenational.ae

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Source: Business

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