Sheikh Ahmed’s arrival may herald a consolidation of the Dubai banks « ArabianMoney

After a real estate crash it is usual for some kind of banking crisis to follow and then a consolidation of the banks. Emirates International, now merged with the National Bank of Dubai, was formed after a similar episode in the early 1980s.

It is therefore perhaps suprising that Dubai has not seen more consolidation in its banking sector in the wake of the worst real estate collapse in a generation almost three years ago this autumn and the subsequent credit crunch.

Sheikh Ahmed

Could the arrival of Sheikh Ahmed bin Saeed Al Maktoum as the chairman of Emirates NBD this week herald just such a change? Certainly the retirement of the chairman of 28 years probably means something, and Sheikh Ahmed is a man whose time is very precious.

Sheikh Ahmed has emerged from the Dubai financial crisis as the most important person in the emirate after the ruler himself. His cool guidance of the $24.9 billion Dubai World debt restructuring has left him the emirate’s key problem solver, as well as the chairman of Emirates Airline and many other top government posts.

So he would hardly be taking up such an important role for the fun of it. Indeed, the sudden nationalization of Dubai Bank last month, owned by Dubai Holding and Emaar (click here), demonstrated that the Dubai banking sector can still spring some nasty surprises.

Banking provisions

That said the central bank has been vigorous and comprehensive in its demands for write-offs by the UAE banks in the wake of the global financial crisis, and stands squarely behind them, with a full state guarantee of all deposits, for example.

However, it always makes good sense after a credit crunch for banks to be consolidated and recapitalized. It is a part of the healing process for bank balance sheets. Overheads can also be rationalized to cut costs.

In truth, this is an important part of the business cycle and recovery from a recession, even if it can involve some pain for the banks concerned and their staff. Shareholders too may have to take short term pain for long term gain.