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Why don't you shut down a few branches, Mr.UAE Banker!

In 1953, Stanley Miller, a graduate student of UCLA took two flasks, one containing a little water to represent the primeval ocean and the other holding a mix of methane, ammonia and hydrogen sulphide to represent the earth’s early atmosphere, connected them to rubber tubes and connected them with some electrical sparks to represent lightning. After a few days of passing electricity, the water turned a murky yellow and there was a healthy broth of amino acids, fatty acids and other organic compounds. Miller’s supervisor, Nobel Laurent Harold Urey was delighted and said ‘If God didn’t create life this way, he missed a good bet’. When this news went public, the press hailed this and made it sound as if, all that was now needed was to give the flasks a good shake and life would crawl out of it. Half a century has passed since then, and we are not yet anywhere close to creating life in a bottle.


So what is the intent of referring this story to all of you? I was reminded of this story and Stanley Miller’s experiment when I read two news paper articles yesterday on how the UAE Banking Industry is trying certain experiments to bring life into their balance sheets.


Without naming the financial Institutions (you could do your own research on that one, and I’ll save from getting sued), here they are:


- A certain financial institution in the capital of UAE opens its 100th branch in the region and had put out a full page ad proudly stating the same


- Another financial Institution again based out of the capital opens a 24 hour branch (no its not an ATM, its a full services branch) in an airport. How brilliantly convenient, the next time I go to the airport, I can apply for a home loan, a personal loan and cash a cheque.


The big million dollar question is that, do UAE Banks need another branch, and with another branch and its added operating expenses (salaries, electricity, real estate etc.), will it bring more life into their balance sheets.


I did a quick research and arrived at the following. The UAE has 24 full fledged commercial banks (locally incorporated banks), with 655 Branches across UAE (without including the two branches mentioned above as this data is as of 31-Mar-09). The UAE also has 28 foreign banks authorized to undertake commercial banking operations (these are not the DIFC licensed banks, these are CBUAE licensed ones) and they have 149 Branches in the country. This brings the total tally of branches in this country to 804 Branches.  


What’s happening here!

Out of the population of UAE at 6 Million, there’s 1.75 Mn Indians, 1.25 Mn Pakistanis, 0.5 Mn Bangladeshis (Source: Zawya) and out of this 3.5 Million IPBs, 60% don’t necessarily take a car loan for buying a Ferrari or take a credit card for their weekly grocery shopping convenience (Oh come on, I’m not being racist here, I’m just being practical, so don’t give me that look and roll your eyes here). I divided a Banking capable population of 4 Million (out of 6 Mn) by the total number of branches in this country (remember 804 branches is on 31-Mar-09) and arrived at a figure of 1 branch for 4900 people in this country. Now the question was that the branch figures have only gone up in the last nine months and the population stats I have taken is definitely questionable.


What’s happening there!

I then looked at the per branch per person penetration in some of the wealthiest neighbourhoods in New York and compared it with our UAE and this is what I got. Even Upper West Side, Manhattan (1 Branch for 7100 people) and West Village Manhattan (1 branch for 5400 people), typical higher income neighbourhoods in the ex-financial nerve centre of the world had lesser bank per person penetration than what we have in the UAE!!!! Now you’re not trying to tell me that some CXO just figured out that this country needs more branch banking services than Residential NY. Are you?


Questions here!

- What do you think would be the per branch operating cost in the UAE

- What is the per branch per account holder penetration in the UAE

- What is the desired level of per person per branch penetration and profitability required

- At what per branch operating profitability do UAE Banks currently run

- Can they not outsource non core branch processes and make the branches more like outposts than 24 hr club lounges in airports

- Can UAE Banks start strategizing about centralizing business processes in one location and make their branches leaner


Opening a new branch in a over crowded market like UAE looks more like Stanley Miller’s empty idea from the 50s (of creating life out of glass flasks). Do our UAE banks really need more branches in the country or do they just need to shut down some branches, come up with creative branch banking strategies and make their balance sheets more sensible.


Mr.UAE Banker CXO, are you reading this and please correct me if I am wrong?


Disclaimer : All comments are purely personal.



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