This publication looks at two international financial centres in the Middle East, and an example of high-tech at a private bank, to examine wealth management trends on the ground.
Competition is heating up in the Gulf as financial jurisdictions battle over wealth management market share. A spate of recent moves suggest there is plenty of momentum. And the digital changes upending banks’ business models worldwide also affect those in the region.
Several stories catch the eye. A few days ago, it was reported that Citigroup wants to boost the United Arab Emirates' role as an offshore booking centre, and is working to win a full banking licence in Saudi Arabia. Emirates NBD recently opened its first branch office in the Saudi Arabian city of Khobar in the country’s eastern province. Lombard Odier wants to partner with a Saudi bank and bolster its presence in the Gulf Co-operation Council group of countries. Bank of Singapore says it wants to do more business there. Societe Generale created four new positions in its Dubai hub, covering the sovereign client base, family offices, and global markets sales. Mashreq Bank said that it is the first private bank in the UAE to harness artificial intelligence tech for its offerings. State Street, the US-based financial services group, recently set up its first Abu Dhabi office, located in the Abu Dhabi Global Market.
These busy times suggest that while energy resources remain a big wealth driver, GCC countries know that carbon energy will, eventually, run out. That forces these jurisdictions to develop alternative ways of making a living in areas such as technology, legal services and real estate, among others.
Not all the news is positive – and that leaves aside geopolitical issues, such as the conflict in Yemen or the West's position versus Iran, for example. Some financial numbers are not totally reassuring: a recent report said that the non-performing loans ratios of GCC banks are expected to see a gradual increase in the next 12 to 24 months, although the overall size of problem assets is expected to remain stable (Standard & Poor’s).
Even so, with the time-zone of the Middle East being between those of Europe and Asia, the cross-border wealth management charms of the Gulf win attention – from non-resident Indian-serving bankers, for example. And the region has seen the ascent of the Dubai International Financial Centre – established in 2004 – and its younger neighbour, Abu Dhabi Global Market (2015). The older of the two IFCs lived through the tumult of the 2008 debt crisis, and the past decade has seen it ride up higher again as global markets rebounded.
Statistics cannot describe everything but the DIFC, for example, likes to point to a 10.4 per cent compound annual growth rate in the number of active registered companies in the jurisdiction, reaching 2,003 at the end of June, surging from 747 in the crisis year of 2008. Some 614 companies are regulated by the Dubai Financial Services Authority, the regulator in Dubai, of which 493 are financial services firms. DIFC-based organisations employ more than 22,768 people.
At ADGM, more than 1,000 companies are registered and over 80 firms have financial permissions. The older IFC has quite an edge – so far.
DIFC knows the race is intensifying. In 2015 it set out a strategy to triple in size by 2024. And it is looking across the whole spectrum from banking, through insurance and on to areas such as fintech. In certain areas, such as family offices, the region has not even fully started to realise the potential, Salmaan Jaffery, chief business development officer at DIFC, told this publication.
“The potential of this [family offices] sector is huge and is yet to be unlocked. Market estimates that approximately $1 trillion of assets will be transferred to the next generation of family-owned businesses in the Middle East in the decade from 2015 to 2025, which explains the rising need for specialised wealth management and succession planning solutions, especially as many of these businesses are yet to experience their first generational transfer,” he said.