EDB seeks to bank beyond profits
LENDER WILL PLAY KEY FINANCING ROLE IN RECENTLY ANNOUNCED PROJECTS OF THE 50
Emirates Development Bank (EDB), the premier development financial institution in the UAE, has the mandate to be a key financial enabler of economic diversification and industrial transformation.
For Ahmad Mohammad Al Naqbi, the Chief Executive Officer of EDB, the banks’s agenda is also closely linked to a personal transformation from a career in commercial banking to a developmental banking role, where profit generation is not the primary motive.
Appointed in May 2021, Al Naqbi now drives EDB’s strategy to support the UAE’s economic diversification plan, industrial growth and adoption of advanced technologies.
“As a development bank and an enabler of entrepreneurship and innovation in the country, we will be going beyond where commercial banks go. Our criteria for financing a project or business will not be driven by profits alone. We are keen on taking on risks that commercial banks would avoid purely on business rationale,” said Al Naqbi.
Major SME funding source
EDB is fast emerging as a major source of funding for small and medium enterprises (SMEs) in the country. In recent months, the bank has signed a number of agreements with leading commercial banks in for providing financing to the SME sector through credit guarantees and co-lending schemes.
The SME segment accounts more than 90 per cent of companies in the UAE, employing about 86 per cent of the country’s private sector workforce, and accounts for more than 50 per cent of the non-oil GDP. Yet, when it comes to bank funding, the aggregate SME lending to the banks account for about 6 per cent of the total bank lending.
The SME sector in the UAE had been facing serious funding gap in recent years. Sharp decline in the oil prices between 2014 and 2017 that resulted in a rupture in payment cycles across the private sector saw many SMEs defaulting their loan obligations and many business failures contributing to banks’ loan losses.
Faced with the surge in non-performing loans, many commercial banks became risk averse towards SMEs. During the 2016-18 period, many banks restructured their balance sheets that focused on deleveraging from SMEs in favour of larger corporates and government related entities (GREs). Clearly, that switch in loan portfolios of banks saw the SMEs facing funding squeeze across the board.
EBD’s recent agreements with leading commercial banks in the country are expected to ease funding squeeze to this vital sector. These agreements work as credit guarantee and or co-lending schemes where 50 per cent of the risk of a loan is underwritten by EDB.
Additionally, the credit guarantee programme also aims to support UAE citizens in their start-up journey by offering financing of up to Dh1million, wherein 60 per cent is guaranteed or co-lent by EDB.
Working with banks
“As a development bank, our role in the banking sector is not to compete with commercial banks for customers. We want to collaborate with them in enabling entrepreneurship while taking substantial share of risks on to our books,” said Al Naqbi.
EDB will playing a key financing role in the recently announced Projects of the 50 schemes that targets industrial development, technology adoption and job creation for the UAE nationals.
The bank will be financing a total of Dh10 billion for two major schemes under the Projects of the 50 from its April 2021 allocation of Dh30 billion.
While Dh5 billion will be allocated to help accelerate industrial development, adopt advanced technology, and support entrepreneurship and innovation by 2025, these funding schemes will support EDB’s mission of increasing productivity, enhancing the industrial sector’s contribution to GDP and creating job opportunities for UAE’s citizens.