HSBC Bank predicts a business boom for 2008

HSBC Bank predicts a business boom for 2008
By Mohamed Al Kady on Sunday, March 23 , 2008



The increase in wealth generated by oil and gas revenues in the GCC, especially in the UAE, is creating high growth rates in business opportunities and accordingly creating more potential for commercial banking in the region. Keith Bradley, regional head of commercial and transaction banking at HSBC Bank Middle East, told Emirates Business he expects between 15,000 and 18,000 new businesses to enter the UAE market this year due to the attractive business environment.


What is your outlook for the business environment in the GCC?

The oil and gas wealth, which the region is generating, is being largely reinvested in the GCC, which is fantastic for commercial banking because the wealth is flowing from government institutions and infrastructure programmes into the private sector, offering increasing opportunities for enterpreurers. For example, we have seen an increase in projects launched by nationals and young enterpreurers during the past four years. Young nationals and entrepreneurs are entering the market. We also see foreign investors and multinational businesses coming to the UAE.

What is the relative size of the small and medium enterprises (SMEs) sector in the UAE and the Middle East?

We carried out a study in early 2007 and we estimated there are around 120,000 businesses in the UAE. We estimated that this number has probably increased in 2007 by 15,000 to 18,000. We also expect the number of businesses in the UAE will grow at the same rate in 2008.

HSBC Commercial Banking also conducted surveys of the small business sector in key countries and territories around the globe. In Asia-Pacific, we found businesses are generally optimistic about local economic growth in the first half of 2008. In a similar survey of other markets around the world, UAE respondents indicated a very high level of confidence and 82 per cent, out of 339 respondents, said they expect local economic growth to accelerate in the first half.

Only nine per cent said they expect growth to slow. That confidence is translating into their business strategy as 78 per cent of SMEs in the UAE said they plan to grow their businesses in the first half and 76 per cent said they plan to recruit more staff. And they are also bullish on international trade as 84 per cent said they expect international trade to increase in the first half of 2008.

The confidence in this sector is exciting for HSBC because growth in trade and the diversification of the economy will lead to sustainable growth in the region.

What are the main drivers of growth for UAE businesses?

The business confidence in the UAE market is very high and it is growing. The government created an environment that allows a lot of freedom in terms of business. There are less restrictions and low taxes. Also, energy prices are lower than global rates. We see expansions in the Jebel Ali Free Trade Zone that other countries are copying now.

We also see the establishment of the Dubai International Financial Centre (DIFC), which is turning Dubai into the financial centre of the region. We have seen a lot of global financial institutions, asset management companies and large investment banks coming to the region after the creation of the DIFC. It is now becoming clearer that Dubai will be a major financial hub.

Other factors include the increasing domestic consumption as a percentage of the UAE’s gross domestic product. Look at the increasing number of shopping malls in the country and their high performance. And not only the increasing shopping malls, we have talked with owners of shops inside malls and they said that sales are increasing per square foot.

Despite these developments, the World Bank ranked the UAE 68th for “doing business”. What are your thoughts on that?

The report was surprising because businesses are happy with the environment in the country and global businesses are investing heavily in the UAE. Regarding small businesses, we have seen a significant portion of new businesses are start up entities. However, financial laws can always be improved in any country. One thing I am confident about in the UAE is that the government has taken this report and is reviewing it critically and it will take proper measures.

The government is very conscious about what it needs to do to continue economic progress. It has a fantastic record in taking steps to create infrastructure and a sound business environment. We support a large number of small businesses here and we have a big team to look after small business in the country.

We face some problems but the vast majority of small businesses in the country are doing very well. We are supporting about 15,000 businesses in the UAE and another 15,000 all over the Middle East. The number of small businesses that are being supported by HSBC increased by 40 per cent last year and we expect the same growth in 2008.

What is the impact of changes in global trade corridors from the West to the East?

These changes created new challenges for commercial banking. Historically, banks were not supportive of customers when they changed their operations from one country to another. An estimated 10 per cent to 11 per cent of GCC outward investment is going into Asia and this is expected to grow. HSBC has created centres to finance trade between China, India, Europe and Latin America.

Recognising there are important changes in international trade, we have put in place some new systems and a range of policies so that we can make sure we are much better placed to support customers who want to work in new countries. We have a very strong presence in Asia, the Middle East and Europe, and we are ideally located to support companies who are investing overseas in these areas.

Most regional banks are introducing Basel II regulations. What is the impact of these regulations on commercial banking?

The key challenge for bankers is to raise awareness among customers and businesses about the requirements of Basel II and its new regulations. There are significant changes that will have a very important impact on businesses including the way we look at our clients and how much we need to charge them according to risk prices for different customers.

There is a lot of complexity regarding financial adequacy rules and clients need to understand how these new regulations are going to work. In commercial banking under Basel I, all business had the same risk pricing rate and we provided the same rates for all business. But under Basel II, this changed and the risk pricing of capital required will change according to, among many other factors, the strength of the balance sheets of borrowers.

We will see reprising of risks among different segments of companies during the next two years. For large companies, there will be no changes because we will not need to provide more capital for the same services we offer them, but for companies with a weak balance sheet, banks will need to provide more capital for Central Banks and this will reflect in the risk pricing for them during the coming years.

What has been the impact of the sub-prime crisis on HSBC?

Despite the fact that we have substantial writing downs from our consumer lending business in the United States, we saw profits go up by 10 per cent in 2007 and this was a result of the growth we achieved in the Middle East and Asia. This is the benefit of being a global bank. In the Middle East, we are growing fast as HSBC has made a commitment to invest more in emerging markets and the Middle East is part of this expansion.

Keith Bradley
HSBC


Keith Bradley is the regional head of commercial and transaction banking for HSBC Bank Middle East. He joined the HSBC Group in January 1989 as an international manager. He took over his current position in July 2006. Prior to that his last assignment was senior executive for global commercial banking in Hong Kong. Bradley has worked in a variety of strategy, sales, product development and credit roles in Hong Kong, Vancouver, London and Jakarta. Educated in the United Kingdom, Bradley has a Master’s degree in business administration from Brunel University in the UK.


Last Update at 9:35 am on March 23, 2008