Cash is a safe bet, cautious ADCB tells wealthy clients

Rich clients increasingly prefer to sit on cash as the turmoil in global financial markets continues unabated, says Abu Dhabi Commercial Bank.

High net worth individuals are also making sure that their investments are not correlated with oil, the region’s main growth driver, said Mark Peters, the head of private clients and wealth management at ADCB.

“Our strategy has been very cautious since we’ve launched, we’ve told people that cash is a wonderful safe place to be. We are overweight cash and underweight equities,” said Mr Peters, who took the helm of ­ADCB’s beefed-up and rebranded wealth management service this month.

“Unless directed, we would tell people who have exposure to energy that they should probably avoid investments related to oil.”

It has been a rough start to the year for global equities. Tumb­ling oil prices, concerns about the growth prospects of China as it makes its transition from an investment-based economy to a services one, and the effect of the ever-strengthening US dollar on the health of US corporations, have taken their toll. As a result of those worries, investors have pushed the MSCI All World Index, a measure that tracks global benchmarks, down 7 per cent this year.

ADCB may have picked an unlucky time to get clients’ money working for them as the crash in oil prices erodes regional wealth. But it is in line with the bank’s efforts to diversify its business away from only lending and keeping deposits.

Amid the record low interest rates of the past couple of years, banks in the UAE have intensified efforts to build or enhance businesses such as asset management, trade finance and brokerage services to generate more fee income.

And that has largely been paying off. In the fourth quarter of last year, ADCB’s non-interest income, which includes fees from services like asset management, rose at a higher pace than growth in income from interest. Its net interest income and Islamic fin­ancing income increased by 6 per cent year-on-year in the fourth quarter to Dh1.47 billion, while non-interest income rose by 9 per cent in the same period to Dh539 million.

Still, the growth of its private banking business is unlikely to be plain sailing. Its push also comes at a time when that industry is becoming overcrowded in the UAE. There are more than 60 private banks operating in the Arabian Gulf, with the maj­ority of them based in Dubai.

Swiss private banks especially are making a sprint for the region because recent fines on a number of banks in the European country, including UBS, the largest by assets under management, have increased the costs they incur to ensure they are compliant with rules and regulations.

And not only is the number of competitors growing, but the pool of funds is decreasing. Credit Suisse, the world’s second-biggest private bank, said in October that household wealth in the Middle East and North Africa fell by 2.2 per cent between mid-2014 and the middle of last year.

Household wealth in the Middle East and North Africa region slipped to US$4.4 trillion in the middle of last year amid the biggest drop in oil since the 2008, which has cut 70 per cent off the value of crude oil since mid-2014.

Follow The National’s Business section on Twitter

Share This Post