The United Arab Emirates (UAE) has one of the world’s highest concentration of millionaires, with 6 percent of households

holding inGetting Private Banking basics right vestible funds of more than a million dollars. Only Switzerland, Kuwait and Qatar have a comparable concentration of High Net Worth Roland Topic, Dubai office (HNW) households. Abu Dhabi has the second highest percentage of millionaires in the world, just after New York, and leads UAE in terms of HNWs, closely followed by Dubai. GDP per capita rose to a record high US$ 53,300 in 2008, a 16 percent rise over 2007 and more than double its level in 2003. The country also provides easy access to a fast growing and large base of millionaires in South Asia and Africa, who have very limited access to investments. With these positive numbers, the largest banking sector amongst the Gulf Cooperation Council (GCC) countries, a large and influential expat population in the country, an open regime, access to GCC, Asia and Africa and clients with high propensity to invest, UAE is a very attractive private banking market. The financial crisis has dented trust in the system and also reduced wealth considerably. However, the main drivers of the private banking market remain intact and seem to emerge stronger as the economy slowly recovers. The golden goose has resulted in over 50 banks operating in the country, in fierce competition, in commoditisation, and in the lowest net interest margins amongst GCC countries (an average of 2.9 percent in 2008). This margin pressure has led to banks aggressively competing to raise cheaper deposits, especially from HNW clients. The private banking proposition in UAE is not comparable to Switzerland or other advanced European countries, as very few banks offer true private banking services such as lifestyle services, equity financing, estate planning, family offices, private equity, discretionary portfolio management, etc. The focus is mostly on commoditised financial and international investments. However, the industry is rapidly evolving. While foreign banks offer a broader and well differentiated private banking practice, local banks are trying to catch up and are making very aggressive moves to gain a larger share of this market. Interestingly, client needs are changing dramatically with a new generation of private banking clients emerging. These clients have a different attitude to money and risk, possessing greater knowledge and demanding advise not only on financial matters but also on their core businesses. This new generation has developed wealth in a shorter period with significant exposure to non-oil assets and has a much larger international investment footprint. The deposit base in UAE is dominated by domestic banks with approximately 75 percent of all deposits shared by local banks. Foreign banks, despite being quite limited in number, hold a significant share of the market. UAE enjoys the presence of 28 foreign banking institutions, but a 20 percent corporate tax rate and other branch license restrictions have resulted in international players competing with domestic players on a weaker ground. However, in 2004 the government allowed foreign banks to open branches in the Dubai International Financial Centre (DIFC) to all services with restriction-free repatriation of profits, zero taxes on income and 100 percent foreign ownership. This move resulted in a significant increase in the number of boutique and private banking players opening their onshore centres in Dubai. The large local banks, such as Emirates NBD, National Bank of Abu Dhabi, ADCB and First Gulf Bank, are all rapidly expanding their private banking services, wanting to leverage their large brick and mortar presence, their strong local reputation and Islamic banking capabilities to consolidate their market share amongst UAE HNWs, even though their private banking offerings are not comparable to those of full service private banks, like Credit Suisse, UBS, Sarasin, Mirabaud and Dresdner, or large retail banks, such as ABN, RBS, Citibank and HSBC. Deposit base in UAE, 2008

Foreign banks 25%

Emirates NBD 16% National Bank of Abu Dhabi 12%

Other domestic banks 16% UNB 6%

First Gulf Bank 9% Dubai Islamic Bank 7%

Source: Credit Suisse, Central Bank

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NEWSLETTER ADCB 9%

It recently deployed an end to end wealth management system from SAGE (Swiss IT firm). to strengthen its private banking proposition and provide much needed information and support to its relationship managers and clients. It offers a large portfolio of conventional products and has a large private banking practice in UAE.g. It is developing its private banking business aggressively. instead of 6-7 years without a fiduciary solution. Credit Suisse Dresdner Bank Mirabaud National Bank of Abu Dhabi ADCB Dubai Islamic Bank In a highly competitive market. offering the right combination of parent bank and partner products. African. It launched its private banking arm in 2004 and it now positions itself as the Islamic products market leader. private banks need to choose more consciously the type of clients they pursue and to whom they can offer a superior proposition (Asian. Winning banks will be able to carve a niche in the market and maintain their competitive position. building proposition for full balance sheet management and fiduciary planning are all critical to increase the customer investment wallet share as well as the relationship length. Systems that give a single window of access to this information with powerful reporting tools are in high demand. Promoting open architecture and Islamic products. In particular. It focuses on ultra High Net Worth (HNW) clients only. family advisory. HNW clients appreciate having an aggregate view of their assets (real estate. lasting for over 20 years. • Client segmentation In Middle East. and with female private banking managers. multiple residence. aircraft financing. but not least. It also cements the client’s relationship with the bank. Shariah compliant mandates. Adding estate planning. trust and fiduciary.MENA Region: Marhaba to the world Key offer points Citi Its private bank services include real estate. its asset management group develops local and international funds. Partnership with Credit Suisse. provides several benefits to the bank. provides better knowledge about client assets and needs. farm advisory and philanthropy. of the increasing commoditisation – thus reduced margins – and of the limited product/service portfolio. customised investment programmes and establishment of Islamic trusts. and increases cross-selling opportunities. extending services beyond financial investments to lifestyle services. financial investments. It offers a broad range of services and manages the entire balance sheet of the client. regardless where these are held.g. it offers exclusive accounts for women only. Structured products are designed by its investment banking division which also has capability to develop tailor made solutions for its ultra HNW clients through its Switzerland and US subsidiaries. It focuses on Ultra HNW clients only. it allows access to next generation in the family. It complemented its strategy by offering Shariah compliant mutual funds managed by Allianz Global Investors. It is active in structuring and distributing Shariah compliant products such as Sukuks (Islamic bonds). In addition. It is also an active player in structuring innovative Islamic products for its private banking clients. etc. for example. Fortis and parent bank Mirabaud & Cie. Client segmentation People quality Essentials in the UAE Premium branding private banking market Product innovation and depth Local market know-how • Product innovation and depth Private banks need to be aware of the diminishing product life cycles. from predominantly offshore to a combination of GCC and international investments) and level of expected service. art advisory. from oil and real estate to equity investments in different industries). Converted its 12 year old representative office to a subsidiary in the Dubai International Financial Centre (DIFC) to increase its private banking market share. It extensively uses open architecture to offer an optimum product mix to clients. five essential elements to build a strong private banking franchise need to be addressed. geographic requirements (e. Société Générale. On-shore. Last. local. They need to factor changes in sources of wealth (e. 8 . family wealth management and trust management. where both domestic and foreign players are moving towards improving their HNW proposition.). including a shift from short term to long term mindset for both the client and the bank. GCC. Through its Johara branded accounts. and even artwork they possess) and liabilities. it improves brand perception and trust.

HSBC Premier. a very large local base of millionaires and the early stage of private banking industry represent an opportunity to already established and new private banking players. In GCC the main challenge is to find a sufficient number of top quality people with previous experience in private banking. This resulted in many cases of mis-selling. ABN Amro projects an image of exclusive service by leveraging the Dutch painter’s name to associate banking with art and luxury. Easy access to overseas markets. Branding and positioning therefore are critical to ensure communication of exclusivity and reliability. China. In these days of crisis. In the high growth period. the UAE private banking market continues to be extremely attractive. it is essential to develop an onshore client servicing model rather than an offshore or a suitcase-based one. 9 NEWSLETTER . International banks are showing the way: with its Van Gogh Preferred Banking. most banks either hired junior private bankers or upgraded retail wealth managers to become private bankers and handle sensitive relationships. targeting travelling expats and affluent individuals. India. but they can lack local market knowledge and skills in creating Shariah compliant products.• Local market know-how Players with insufficient understanding of the GCC market will experience major growth challenges. incorrect risk profiling and lost trust. • People quality Private banks need to restore confidence and the trust not only of the banks as a brand but also of the relationship managers who were in charge of client relationships. Those who get the basics right will undoubtedly emerge as winners. like any of their other luxury needs. • Premium branding Customers are discerning and tend to relate only to premium brands. The model followed by most foreign banks is to use their Dubai office as a hub for relationship managers serving Pakistan. which increases profitability significantly. is leveraging its unified global brand. International banks may have greater expertise in complex financial products. instead. Also. African countries and GCC.