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Middle EastJuly 31 2005

First Gulf Bank

Five years ago, Abu Dhabi-based First Gulf Bank (FGB) was a parochial non-entity with Dh2.4bn ($653m) of assets and a Dh50m profit. Today, the bank’s management is celebrating the results of a turnaround programme that has propelled the institution far up the global rankings.
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If FGB’s shareholders were pleased with 2003’s results, when net profits increased by 50%, then they were doubtless delighted with the bank’s performance on its 25th anniversary. For 2004, net profit more than doubled to Dh244.9m, total assets increased 77%, deposits went up by 70%, net interest income increased 74% and loans rose 29%.

The story was even better last month, when the first half 2005 results were published. At Dh465m, net profits were up 357% year-on-year and 90% up on full year 2004. Loans, deposits and assets yet again were up in the high double digits.

Chief executive Abdulhamid Saeed attributes the bank’s “tremendous growth” in part to the UAE’s benign economic environment and consequent explosive demand for credit. The federation’s GDP grew by about 7% in real terms in 2004 and is forecast to do the same again this year. “Our emphasis on our core values and business focus on three profit centres (corporate, retail and treasury/investment banking) ensures we exceed the expectations of all our stakeholders,” he says.

After a rocky start, FGB was rescued by prominent Abu Dhabi-based investors in 1998 and then radically overhauled its management team in 2000 – many of today’s key staff defected from Citibank. Although several of the country’s large banks enjoy government shareholdings, in FGB’s case sizeable shareholdings are owned directly by members of the ruling al Nahyan family. Now that the new management team has established its credentials, this royal support is proving invaluable as the bank seeks to win market share.

Karti Inamdar, who rates FGB for Capital Intelligence, says: “Normally, such rapid growth would be viewed with great concern. But there are mitigating factors, such as the strong risk management systems in place, the good quality of the bank’s management and the fact that a large portion of new lending is to the public sector or joint sector.”

Shareholder support is also paying dividends as FGB seeks to increase its equity and capitalisation in preparation for further expansion. In June 2004, it issued Dh800m five-year convertible bonds to four strategic government partners in a bid to raise Tier 1 equity. Shareholder equity thus rose by 128% to Dh1.78bn and was raised dramatically again in June 2005 when a rights issue of 500 million shares raised a further Dh5bn. In May, Mr Saeed announced his intention to raise the bank’s capital from Dh389m at end 2004 to Dh1bn – a move designed both to boost capital adequacy and provide expansion finance.

Although he is still awaiting central bank authorisation, Mr Saeed has already announced his intention to boost his share brokerage business, launch mortgage and real estate companies, and to open an Islamic banking window. He also hopes to expand across the Gulf Co-operation Council member states and into Asia as suitable opportunities are identified. Naturally, these ambitions will be costly but so far his key shareholders seem more than happy to put their hands in their pockets in support of his goals.

WM

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