Abu Dhabi Islamic Bank and First Gulf Bank - Research Paper Example

? Abu Dhabi Islamic Bank and First Gulf Bank The abundance of oil can be regarded as a blessing for the United Arab Emirates (UAE) and which has alsoemancipated the banking sector of the country and led to the fast growth in the last few years. The prosperous time in UAE can be owed to the high credit and deposit growth backed by low interest rate environment along with high oil prices as well as a flourishing economy. The banks in UAE generally belong to two types and they are national and foreign. In the present situation there are around 46 operating banks in UAE among which 21 national banks. The banks are listed either on the Abu Dhabi Securities market or that of Dubai Financial market. Another important feature is rapid spread of Islamic banking with a range of sharia compliant product introduced in the market. The Islamic finance deals like Ijara transactions are highly common in property purchasing deals. Investment is huge with attractions of potential investors (UAE banking sector Report, 2007, p.1). The paper will deal with five common products of two banks operating in UAE. One is the First Gulf Bank (FGB) which is a conventional bank with its branches in some Asian countries and Abu Dhabi Islamic Bank (ADIB) which centers on with the strict principles of Sharia law and operates nationally. Finally after discussion a comparative analysis will be made. Abu Dhabi Islamic Bank (ADIB) Abu Dhabi Islamic Bank (ADIB) set its journey on 20th May 1997 in the form of a Public Joint Stock Company following the Emri decree 9 of 1997. The commercial operations of the bank started on November 11,1988 with the formal inauguration by His Highness Sheikh Abdullah Bin Zayed Al Nahyan, on 18th April 1999.The banks holds a vision to be one of the top tier global Islamic financial services group (5% Cashback with ADIB Covered Cards this summer, 2012). ADIB in the year 2010 introduced a new brand identity as its symbol of new promise. The bank has executed extensive research in the identification of ways which would be suiting the personal needs of customers. The bank delivers unique solution guided by the timeless rule and principles of Sharia. The bank also resides on the principle of banking as it should be. The employees of the bank are working 24*7 in order to implement the rules but also the execution of the powerful promises and offerings which the bank provides. The financing process of the bank is simplified and equipped with the latest e-ADIB Internet Banking which is highly safer and convenient in its use. The bank caters a large number of financial products and also launched some new products and services which lead to the ultimate satisfaction of the clients. Now the focus will be on the products of the ADIB bank with their detailed information and their mechanism (Corporate Banking, 2012). Deposits One of the primary goals of the customers within a banking interaction is that of deposits as keeping cash aside for the future is highly essential in hedging the uncertainties of the future. The deposits option in the ADIB bank helps the customers in making their money work and channelize in the way they want. The 24 hours ATM network service also provides instant access to the funds of the customers (Business Banking, 2012). The corporate banking offers a huge range of Sharia compliant Islamic banking solutions includes a large range of Sharia complaint Banking solutions including Murabaha, Istisnaa, Ijara, Islamic covered drawings and other Shari’a compliant products. The corporate banking highly caters on the expansion as well as innovation of tailor made pure Islamic banking solutions to the clients. The Corporate Banking client profile is segmented into government and public sector entities, financial institutions and a diversified private sector base of Trading, Contracting, Real Estate, Energy, Transportation, Manufacturing and other industries within the bank’s target market. Specific screening criteria have been developed to ensure origination of risk in these segments is in accordance with the prudent guidelines set by the Board (Corporate Banking, 2012). Five products of the banks will be discussed. Business Wakala Deposit This scheme is a good scheme providing attractive profits for investment starting from the amount of the United Arab Emirates Dirham (AED) 500,000. This investment policy is based on the Islamic principles of Wakala which is restricted to Mudaraba where the individual share profits as well as loses (Business Wakala Deposit, 2012). Business Time Deposits This scheme of the bank allows in investing the funds of the customer with a fixed period of time. At the time of maturity, the distributed profit may be credited to an account assigned by the customer. Generally a higher profit margin is expected for the ADIB Time Deposit account holders which can be compared advantageous in comparison with a regular savings account. The deposit also comes with flexible investment period where an individual can choose to invest with every one of the investors with one, three, six, nine or twelve months which would be solely depended on the type of account. Principles of Mudaraba is applied here where the profits are shared and loses are bore as per the norms stipulated in the Banking Service Agreement. The minimum investment for this policy is AED 10,000 (Business Time Deposit, 2012) Car Loans Car loans are also one of the important areas where ADIB excels and provides the customer with finances which are very easy to repay without much complexity. The car loans are provided on highly competitive rates with quick approval processes which makes it easier for the customers. The customer does not have to make any salary transfer. The repayment period of loans are extended to a period of around 60 months along with the provision of free ADIB Visa cash back card. Free contribution amount is considered on vehicle Takaful from the Abu Dhabi national Takaful. The car loans also come with free postponement option. The percentage of down payment is 20% along with imposition of terms and conditions. The bank also offers financing for high value cars at competitive rates. The car finance solution provided by the bank is recommended by all the leading car dealerships as well as showrooms in the United Arab Emirates (UAE) and it can be easily accessed from any branches of ADIB (ADIB Car Finance, 2012). The bank offers all the vehicle finance at the rate of 2.89% per annum (ADIB's Car loan special offer, 2012). The terms and conditions for the loan sanctions is that the minimum salary of the individual will have to be AED 5000. The age criteria will have to be minimum 21 years and the length of service should be confirmed or of 6 months (ADIB Car Finance, 2012). Al Hair-Tadawul Takaful This is a financial service from ADIB which protect its authentic customers from the unfortunate situations in life and provide an ultimate dynamic security so that the present life of the customers can be enjoyed to the utmost. In case of death or of permanent disability caused by accidents or that of sickness, the Takaful Protection for ADIB Personal Finance provides the coverage for the total outstanding balance of the finance with a maximum threshold of AED 2,000,000. This particular protection scheme is specially designed for the ADIB Personal Finance customers in order to help pay off in any of the outstanding amounts. The benefits of this service include coverage of total outstanding balance of the finance and that of the period of finance. The coverage is protected against the death which occurs due to the unnatural causes as well as permanent total disability caused by accidents or that of sickness up to a maximum threshold of AED 2,000,000. The coverage is voluntary and the customer can choose not to opt in when applying for finance. The customers who finances below the amount of AED 250,000 can make direct participation with filling of a simple form which is known as the Good Health Form. The customers who will be financing more than the amount of AED 250,000, a medical questionnaire process will be required. The bank also provides the customer with coverage is the confidence and knowledge that the certificate will be delivered as soon as the claim is made. The Abu Dhabi National Takaful Co. PSC is the preferred Takaful provider with a good track record and continues to deliver unparalleled service for the customers (Al Khair-Tadawul Takaful, 2012). ADIB Personal Loans The Bank provides personal loans with various features that can be accessed by the UAE nationals. The minimum salary requirement for ADIB personal loans is AED 5000 and the interest rate they are charging is around 5.50%. The total amount that the borrower can borrow is up to AED 3000000. The processing fee is 1%. The repayment period is up to 48 months. The age criteria are 21 years with 6 months or confirmed contract of service (Al Khair Settlement for UAE Nationals – Islamic, 2012). The personal loans are Sharia compliant repayment plan through which the customers are able to transfer all their conventional banking liabilities to the bank and can make a new start. During the period of Ramadan, the subscribers can defer the monthly installments by 90 to 120 days. The profit rates start at 5.75 and are directly proportional to the financing amount (ADIB "Al-Khair" Repayments, 2011). Educational Finance On March 2012, the bank announces that educational finance can be taken up to a limit of AED 2, 50,000. The students can benefit from a flexible period of up to 48 months with no processing fees, free postponement options as well as a free Visa Covered Card. The educational finance is highly recognized as a good finance as well as the best investment which a person can make as education will be fetching more money and contributing to the economy as well. The bank also promotes its commitment towards elevating the levels of knowledge as well as qualifications of the community. The banks community oriented initiative is the Smart Money. The bank promotes in order to encourage more and more students in pursuing university education as the bank goes beyond the tuition fees and provide services like that of expenses related to books, transportation, library fees and so on. The ADIB education finance is highly tailored with the dynamic execution of the Abu Dhabi 2030 plan of enriching the human capital to an optimal summit (ADIB Launches Education Finance Promotion Aligned to Customer Needs, 2012). First Gulf Bank (FGB) . The First Bank Gulf bank was established in the year 1979 and it is headquartered in the capital city of Abu Dhabi in UAE. The bank provides financial services in large number of business as well as industrial areas along with a wide network of branches in and around UAE with international branches in Singapore, Qatar and India. Today the bank is realized as a globally acclaimed organization which is committed in maximizing the values of the shareholders, customers as well as services which are tailored for satisfying the optimal needs of the clients. The bank also excels in the development of service standards with simultaneous investments in the HR, IT as well as communication systems (About FGB, 2012). Let us now consider the elaboration of the products and service that the bank caters. Fixed Deposit The Fixed Deposit Account of the bank comes with a wide range of choice as well as benefits with short period of times like that of one week, three months, six months as well as one year. The other privileges which the bank provides is that of overdraft facilities against fixed deposits as well as roll over facilities with various new options on the maturity as for example conversion of the deposits to any of the preferred currency or the renewal of the principal as well as the credit interest to account or en-cash interest. The minimum credit balance can be as low as AED 5000 or AED 3000 (Fixed Deposit, 2012). Remote Cheque Deposit service The First Value service of the bank is a remote cheque deposit service encountered by the bank which is in full compliance with the norms provided by the Central Bank of UAE. Through this process the corporate customers will be able to digitally scan all the collection cheques by ground breaking technology at their convenience from their office premises. The benefits include the reduction in the administrative costs, outsourcing of non core activities to the bank and thus increasing the productivity, full availability of online information. The issuing procedure is simple and the customers only have to only sign a master form which is very simple (FirstValue, 2012). Car Loans The First Gulf bank offers a quite flexible feature in the car loan dimension. The First Auto from FGB is the most convenient way in owning a dream car. With the First Auto scheme of the bank the customers can get the most competitive interest rates at most favorable terms. The First Auto loan offers around the 5 year loan repayment period with minimum documentation, instant approvals as well as competitive interest rates (First Auto Loan, 2012). The minimum salary requirement for the car loan is AED 10,000 per month and the customers should possess a valid copy of passport as well as UAE residence visa. The salary transfer is available in of the banks in UAE. The benefits include that of no salary transfer and an account with the bank required. There are provisions of attractive loan amounts as well as minimum documentation (Loans, 2012). FGB Personal Loan The personal loan by the First Gulf bank provides various facilities. The minimum salary requirement is AED 10,000 and the interest rates charged are 9.20%. The salary transfer facility is present in this service. The product is not Islamic. The arrangement fees is 1.00% and the maximum finance is AED 4, 500, 000 and the early settlement fees is 1.00% (First Gulf Bank Personal Loan, 2012). First Insure One of the important methods of operating investment procedures by the First Gulf Bank is systematic investment plans. The approach of the plan is to invest in a particular manner in the mutual funds (professionally operated investment mechanism used for purchasing securities from the money collected from the public) regularly. The idea is that a sum of money is set apart every month or every quarter which is used in buying some units of a particular mutual fund. The people often favor this type of system as it helps them to save on a regular interval. It also helps them in making investments (Mutual Fund, 2012). The First Insure product falls under the systematic investment plan of the First Gulf Bank. The approach of the plan is that customers are usually investing a certain amount of money on a regular basis on an existing investment. This particular approach gives the customers a platform where they can take advantage of the market fluctuations. The customers will have to spend a certain fixed amount at different intervals which will help them in buffering the fluctuations of the market. The plan is a unit linked plan which provide medium to long term savings. In this type of savings scheme provided by the bank, the customers has the flexibility of starting stopping, increasing as well as decreasing the premium amount at any time they want. No extra charges are imposed on the customers if they decide in making a break in the payments without any obligations attached for making up the missed premium. The minimum age limit for application is 18 years and the maximum age limit is 74 years. The minimum term limit is 5 years and the maximum term limit is 25 years. The plan also offers flexible payment frequency with minimum investment of USD 300 per month. The benefits of the plan are bonus allocation, intelligent investment choices, no bid or spread offer, structure of charge is simple, portable with change in location, waiver of premium as well as on line access to portfolio statements. Other features of this scheme dollar cost averaging, the power of compounding with simple regular savings policy, need based savings, increase or decrease of the suspended premiums with the change in circumstances along with rewarding of special offers (First Insure - Regular Savings Plan / SIP, 2012). A related example can be made which shows the past performance of the products under the systematic investment plan of the bank. Al Saqer was such a product of FGB which for the very first time offered locally in the UAE. It was basically a macro hedge fund. The product covered the regional markets, international markets, derivatives, private equity, structured products and the dedicated capital allocation to various types of asset classes, sectors. Al Saqer has been found in the realizing the diversification of risks and consistent returns despite of market fluctuations. This particular feature of the product has made the bank recognized as a unique bank in the UAE. In the year 2009, the product Al Saqer has distributed a maiden dividend of around 10% (Al Saqer fund, 2012). Educational Finance The bank possesses a robust insight on the education dimension. The First Bank launched its Child First saving program which incorporates higher cost of education and provides a well coordinated platform for the parents in securing their child’s future. A Child First account can be opened with at least AED 3000 and there are no fees associated with neither account opening nor fall below cases in a situation in which the account declines below the minimum level. There are no restrictions imposed on the withdrawal in the Child First saving scheme. A Fee Free International Debit card as well as an online account access will be issued in the name of the primary account holder. There is also no presence of charge on the full or partial withdrawal from the account in all the FGB branches across UAE (FGB encourages parents to save for children's education through new rewarding scheme, 2012). Comparison between the two banks Deposits For ADIB, the minimum investment in the business wakala deposits is AED 500,000 and in the business time deposits the minimum investment is AED 10,000 and benefits of Islamic sharia law is in given here. The customer deposits also grew by a percentage of 28.4 to AED 49.9 billion after adjustments of AED 2.2 billion deposits which converted into two tier capital at the end of the year 2009. The customer financing to deposit ratio was around 84 per cent as compared to around 87.1 per cent at the end of the first quarter of the year 2009 (Pathak, 2010). In case of FGB, the deposits at AED 89.4 billion were 3.5 per cent higher than December 2009. The minimum investments for deposits in FGB are AED 3000 or AED 5000. Again from Table 3 (see appendix) it can be seen that bank provides a wide range of deposit schemes with starting from minimum 1 month tenure providing a variety of interest rates. Thus it can be seen that although ADIB provides benefits in compliance with the sharia law but FGB provides a more flexible deposit schemes giving scope to the customers with low deposit capacities. Thus if I choose for deposits I will opt for FGB. Car Loans In case of the car loan in ADIB, the minimum salary requirement is AED 5000 with an interest rate of 2.89%. The percentage of down payment for the car loan is 20%. In case of ADIB, the minimum salary requirement is AED 10,000 per month with interest rates of 3.99% with loan repayment up to 60 months. It can be stated that for the car loan option I would have opted for ADIB (see Appendix Table 1 and Table 4). Personal Loans By comparing the personal loans of the two banks it can be stated that ADIB is on an advantageous point. Although the maximum amount which FGB provides is AED 450000 and ADIB is AED 3000000 but the interest charged is much less than ADIB. Again, ADIB complies with the Sharia law and gives much flexibility to the customers whereas FGB do not provide such flexibilities. Financial services By studying the features of Al Hair-Takaful and First Insure of the FGB it can be stated that opting for First Insure will be a profitable decision. Educational Finance In ADIB the borrowing limit is AED 250000 with annual interest rate 7.00% and minimum salary requirement of AED 5000. The educational finance of FGB is much more flexible than the ADIB. So for the educational loan it will be profitable to opt for FGB (see Appendix Table 2 and Table 5). Conclusion The study leads to the conclusion that both the banks have established their significance in the United Arab Emirates in dealing with the customers and providing them extensive services perfectly correlated with their demand. But a keen contrast can be made with respect to the product and services these two banks cater. With respect to the deposits it can be said that ADIB possess a more rigorous alignment with the Sharia principles and conventional banking system. The FGB provides services with the application of the modern technology and based on an international platform where the FGB focuses mainly on the territorial periphery and nucleus. The car loan policy of ADIB is comparatively flexible than that of the policy of FGB differing in the per month salary requirements. With respect to personal loans ADIB provides better facility than FGB. In the dimension of Islamic product in ADIB and terms savings in First Gulf bank can be compared with respect to a common yardstick of measurement and they both secures the life of their customers properly and provides them proper hedging techniques so that they can be least affected by the fluctuations in the market. With respect to education both the banks are well aware but the study reveals that FGB promotes education more vigorously than ADIB. References ADIB Car Finance, (2012), Retrieved on 6 October 2012, from: http://www.adib.ae/car-finance-0 About FGB, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/about-fgb/index.aspx ADIB Launches Education Finance Promotion Aligned to Customer Needs, (2012), Retrieved on 6 October 2012, from: http://www.adib.ae/adib-launches-education-finance-promotion-aligned-customer-needs ADIB, (2012), Retrieved on 6 October 2012, from: http://www.moneyshop.ae/EN/islamic-personal.html Advantage Plus, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/retail-banking/advantage_plus.aspx Al Khair-Tadawul Takaful, (2012), Retrieved on 6 October 2012, from: http://www.adib.ae/al-khair-tadawul-takaful ADIB "Al-Khair" Repayments, (2011), Retrieved on 6 October 2012, from: http://www.adib.ae/adib-al-khair-repayments-postponed-until-2011 Al Saqer fund, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/investment/al-saqer-fund.aspx Business Banking, (2012), Retrieved on 6 October 2012, from: http://www.adib.ae/business-banking Business Wakala Deposit, (2012), Retrieved on 6 October 2012, from: http://www.adib.ae/business-wakala-deposit Business Time Deposit, (2012), Retrieved on 6 October 2012, from: http://www.adib.ae/business-time-deposit Corporate Banking, (2012), Retrieved on 5 October 2012, from: http://www.adib.ae/corporate-banking 5% Cashback with ADIB Covered Cards this summer, (2012), Retrieved on 6 October 2012, from: http://www.adib.ae/5-cashback-adib-covered-cards-summer Fixed Deposit, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/retail-banking/fixed-deposit.aspx First Insure - Regular Savings Plan / SIP, (2012), Retrieved on 18 October 2012, from: http://www.firstinsure.ae/regular_savings_plan.html First Gulf Bank Personal Loan, (2012), Retrieved on 18 October 2012, from: http://www.souqalmal.com/ae-en/personalfinance.php First Gulf Mortgage, (2012), Retrieved on 18 October 2012, from: http://www.moneyshop.ae/products/loans/39/first-gulf-bank-mortgage.html First Value, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/wholesale-banking/transaction-banking.aspx First Auto Loan, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/retail-banking/first-auto-loan.aspx First Gulf Bank First New Auto, (2012), Retrieved on 18 October 2012, from: http://www.souqalmal.com/ae-en/first-gulf-bank-first-new-auto FGB encourages parents to save for children's education through new rewarding scheme, (2012), Retrieved on 6 October 2012, from: http://www.ameinfo.com/fgb-encourages-parents-save-childrens-education-313261 Loans, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/retail-banking/loans.aspx Mortagages, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/retail-banking/mortgages.aspx Mutual Fund, (2012), Retrieved on 6 October 2012, from: http://www.moneycontrol.com/glossary/mutual-fund/what-is-systematic-investment-plan-or-sip_766.html Siraj- Islamic Banking, (2012), Retrieved on 6 October 2012, from: http://www.fgb.ae/en/retail-banking/islamic-banking.aspx Pathak, S, (2010), UAE banks improve loan-to-deposit ratio, Retrieved on 6 October 2012, from: http://www.emirates247.com/eb247/banking-finance/banking/uae-banks-improve-loan-to-deposit-ratio-2010-04-29-1.238357 Subsidiary Companies, (2012), Retrieved on 6 October 2012, from: http://www.adib.ae/subsidiary-companies UAE banking sector Report, (2007), Retrieved on 6 October 2012, from: http://www.globalinv.net/research/UAE-Banking-012007.pdf Appendix: Name of the loan Annual Interest rates Salary requirement Car Finance 2.89% AED 5000 Table 1. ADIB Car Finance, (2012) http://www.moneyshop.ae/EN/islamic-personal.html Name of the loan Borrowing limit Annual Interest rates Salary Requirement Education Finance AED 250000 7.00% AED 5000 Table 2. ADIB, (2012) http://www.moneyshop.ae/EN/islamic-personal.html Tenor AED 350K AED 500K AED 1mn 1 month 0.90% 0.95% 1.00% 2 months 1.00% 1.10% 1.20% 3 months 1.55% 1.60% 1.65% 4 months 1.70% 1.70% 1.75% 5 months 1.80% 1.80% 1.85% 6 months 1.95% 1.95% 2.00% 7 months 2.00% 2.00% 2.10% 12 months 2.25% 2.50% 2.75% 13 months 2.60% 2.60% 2.80% 36 months 2.75% 2.85% 3.25% Table 3. Advantage Plus, (2012) http://www.fgb.ae/en/retail-banking/advantage_plus.aspx Car loans Interest rates First Auto 3.99%. Along with that the loan repayment is up to 60 months. Table4.First Gulf Bank First New Auto, (2012) http://www.firstinsure.ae/regular_savings_plan.html Educational Finance Interest rates Greater than AED 2000/month 1% Less than AED 2000/month 0.5% Table 5: FGB encourages parents to save for children's education through new rewarding scheme, 2012) http://www.ameinfo.com/fgb-encourages-parents-save-childrens-education-313261 Read More