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Dunia to break even next year: CEO

DUBAI — Dunia Finance, an Abu Dhabi-based financial services company, will achieve a breakeven target next year after performing well above expectations in its first full year of operation in 2009 despite tough economic conditions in the wake of global financial crisis, its top official said.

The joint venture company, launched in 2008 with a paid-up capital of Dh586 million, aims to expand its operations across the UAE to offer its customers a unique business model that provide financial products and services in a manner that empowers people, enables success and enriches lives.

“Dunia recorded a net loss of Dh116 million in 2009 while revenues hit Dh46-million mark. This is better than our original investment plan and we will further cut down our losses this year,” Rajeev Kakar, Executive Director and Chief Executive Officer of Dunia Finance, told Khaleej Times in an interview.

The financial institution was established through a strategic investment and alliance comprises of leading players including Mubadala Development Company PJSC, Fullerton Financial Holdings Pte Limited, Waha Capital PJSC and A.A. Al Moosa Enterprises LLC.

“Dunia has an original paid-up capital of Dh586 million and is a well capitalised entity. Our start-up costs were funded out of our initial equity, which is also being used to fund our customer lending incrementally,”
 Kakar said.

The company, born in the midst of uncertainty and adversity in the wake of global financial crisis, but its management successfully executed the growth and investment plans. Today, it offers a wide range of financial products and services ranging from loans, to credit cards, deposits for non-individual customers, and working capital for small businesses through its 19 branches across the UAE. At present it has seven branches in Abu Dhabi, eight in Dubai, one in Al Ain and three in Sharjah.

“We are always ready to expand in the area where the customers need our services,” he said.

Below are the excerpts of the interview:

What’s the expansion plan for Dunia in 2010? Any new financial product being launched or branches will be opened this year?

At Dunia, we are open to innovation and creativity at all times, and also to delivering enhanced value through strategic tie-ups with complementary value adds to be able to enhance customer value and experience.

With our new branches and service center now ready for rollout, we also do hope to leverage off our expanded distribution more effectively in the year ahead. We have several initiatives planned for 2010, in light of our above priorities. We are also looking at a few strategic tie ups that will bring more convenience, benefits and a unique experience to our customers.

How do you rate the performance of Dunia since its launch in 2008?

While there is always more that one can do and so much more that could have been achieved, as we look back at Dunia’s performance we do feel satisfied that we have been able to be true to our commitment to serve the customer through a unique customer focused approach, despite the global and local stress conditions.

As we look ahead, we are even more motivated and challenged to continue to serve the customer better and uniquely so as to become the customer’s preferred choice always.

Any plan to list the Dunia on UAA stock exchanges in near future?

To fund our expansion plans and growth needs capital and funding is always a necessity as in any other financial services provider. Our capital and funding needs will be driven by our business growth trajectory and through a healthy assessment of all sources/options at any point of time, including the possibility of accessing of new capital from investors. At this point, we are unable to comment on what these sources could be but would be dynamic valued based on need and market conditions at any point of time.

Banking sector remained under tremendous pressure during 2009...What do you say about the sustainability of smaller banks in present day competitive environment?

In today’s competitive environment, survival or success is not driven by the size or smallness/bigness of banks, but more by the quality of governance and risk management, overall strategy, customer selection, products offered, value based pricing, strategic cost management practices, attracting and retaining superior talent, commitment to customer service and satisfaction, continued innovation, etc. Any institution, whether big or small will only survive if it imbibes and embeds these philosophies into its daily working and business approach.

The institutions that can do this successfully will survive and also thrive ahead. Being big or small will not determine that. If anything, being small with tested capabilities can be an advantage as it allows for nimble and focused approach and allows for greater growth and predictable success. Any sized institution can convert this to an opportunity and realise the potential that markets are expected to provide ahead as the macro stress stabilises and 
improves.

Do you see mergers and consolidation in banking sector?

Mergers and Acquisitions (M&As) and consolidation of businesses is a natural phenomenon and can always happen. As long as institutions can continue to provide value to shareholders they will survive and grow, else consolidation is inevitable. With increased expected regulation, such consolidation can be expected and this may result in some M&A opportunities, which remains to be seen ahead.

How do you see 2010 for banking sector?

2010 is likely to be another challenging year. The banking sector may still face may pressures. Liquidity for lending may remain low, even though interests rates will continue to be low albeit start trending up slowly. Pricing will change and banks will have to correct their pricing and gear up for profitability and not just for size.

There will be a lot of excess supply of human resources in the sector as banks shed staff, but good and proven talent which is scarce will be in high demand.

Risk management will remain a challenge and much of the focus will remain on remedial management and recoveries ahead. 2010 will be a year of repair of the sector and one that will hopefully prepare players for growth again in 2011. Several new players will enter especially non-traditional 
players, and several entrenched players may exit from certain business/customer segment allowing for consolidation.

How do you see the future of banking sector in the UAE? How long the impact of recession will remain?

I see a strongly positive future for UAE banking in the longer term, while the short term may be stressed still. The UAE’s strategic position geographically, its excellent infrastructure, and its proven choice for expatriates working in the region, make the UAE a strong beneficiary of all banking flows and 
revenues.

The impact of the recession will remain till the global stress stablises and starts the reverse trend, but the process of repair (albeit slow) has started. In the short run, the UAE banking sector will remain in a period of more measured and balanced growth.

The debt crisis had a strong impact on the banking sector, directly and indirectly; directly, through exposure to Dubai Government and GREs debts, and indirectly through exposure to companies or individuals in relation to those entities. Risks remain also in the form of future potential defaults. A combination of the above factors is likely to trigger increased provisions, lower business volumes, reduce recovery rates, increase lending rates despite low cost of funds, as this will help banks recapitalise themselves in the face of such increased provisions.

Do you think formation of the Federal Credit Bureau will ensure transparency in financial sector or it would help checking NPLs in future? What steps u will suggest improving the quality of credit?

Definitely. Information sharing is a win-win for everyone. Banks will be able to lend in a more prudent manner and will be taking calculated risks, hence reducing credit losses.The quality of credit can only improve with more information sharing amongst banks. This will act as a strong collective deterrent against errant borrowers, and will help reduce customer pricing in the longer run as banks are able to take increased client exposure in the face of increased and comprehensive customer data and behavior through such a bureau.

— muzaffarrizvi@khaleejtimes.com