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Dubai's DIFC tapping into Asian wealth

Dubai's DIFC tapping into Asian wealth

The Dubai International Financial Centre (DIFC) is set for growth and expects South Asia, the Middle East and Africa to contribute 50% to its overall future expansion. As the UAE breaks out of its shell and establishes strong financial links with Asia, the budding hub – where businesses get relief from taxes – sees itself as a robust platform seeking to access these markets and underbanked regions.

‘We see the MEASA [Middle East, Africa and South Asia] region as the next global centre for private wealth, offering a significant growth opportunity for the financial services sector,’ says Arif Amiri, CEO of DIFC Authority.

The UAE is one of the top three nations to benefit most from China’s One Belt One Road initiative and DIFC already houses large Chinese corporations, including the Big Four banks, with total assets of $33.4 billion in the Middle East.

Tapping Asia’s wealth

Aside from supporting the trade and investment activities of these Asian banks, DIFC also wants to tap into the growing class of wealthy individuals in Asia. It expects to create about 27,000 new ultra-high-net-worth individuals by 2025.

One of its strategies is to nestle more Asian private banks within its walls. ‘The private banking landscape is rapidly evolving  and, at DIFC, we are continuously innovating our international-standard laws and regulations, business offerings and physical infrastructure to cement our position as a leading financial hub in the region, addressing the evolving needs of our clients,’ Amiri says.

Singapore has already heeded the call. DBS Private Bank and Bank of Singapore, managing $109 billion and $99 billion in assets respectively, have both set up operations in DIFC to provide investment services, credit structuring, wealth planning and advisory services – and have ambitious targets for the region. Having established a presence in Dubai in 2013, DBS wants to double its relationship manager staff to 25 by the end of the 2018.

In addition, it is moving to a bigger premises in the DIFC in June. Net new money and revenues for the Dubai branch doubled in 2017.

‘Our pitch is a very simple one. If you look at Asia and China today, they are growing at 7% or thereabouts, compared with  between 2% and 2.5% in the US and positive, but obviously slower, growth in Europe,’ says Rob Ioannou, DBS’s head of international.

‘Give us 5% to 10% of your wealth and help us allocate it to faster-growing markets in Asia and that faster growth – what we are seeing in Asia-Pacific economies – could well grow to be a meaningful part of your overall asset allocation,’ he says.

Bank of Singapore has 110 staff in Dubai – a 55% increase on a year ago. ‘By 2020, we aim to have 70 private bankers in our Dubai branch serving this region,’ says Vikram Malhotra, global market head for South Asia and Middle East at the private bank.

‘We have seen phenomenal growth in the past year. As of September 2017, our assets under management [AUM] for the region is about 30% higher than a year ago. Compared with three years ago, our AUM is more than two times higher.’

Expat cash

One client segment that has contributed significantly to the leap in assets and revenues for both banks is non-resident Indians.

Dubai remains the second offshore destination for Indian wealth after Singapore, with Indians keen to diversify their investments and minimise taxes. As such, Amiri sees India as a key market for DIFC’s 2024 Strategy to triple the number of domiciled firms. There are currently nine Indian banks in the centre.

Malhotra says: ‘Many of our clients are non-resident Indians who have lived in the Middle East and Africa for decades, in some cases. We also have grown rapidly with NRPs [non- resident Pakistanis], Middle Eastern clients and family offices.’

DBS has developed an ‘India-Dubai business corridor strategy’ to better service its large Middle East client base, but it has been
focusing on other segments with its recent hires. ‘[This includes] the broader expat segment; for example, European businessmen running businesses from Dubai,’ Ioannou says. He is also reaching out to the expat population from the rest of the Middle East and Africa.

The family office segment holds promise for the private banks and DIFC, which estimates that $1 trillion of assets will be transferred to the next generation of family-owned companies in the Middle East by 2025.

For now, the biggest foreign share of wallet for Middle Eastern clients lies with incumbent US and European private banks.  Other Asian competitors, especially Chinese private banks, don’t seem to have made their mark just yet, but things are about to change.

DIFC has been introducing new laws and regulations to attract banks and family offices. In 2016, it set up the DIFC Wealth Management Working Group, which came up with 56 recommendations for shaping the industry. As a result, the hub introduced the Qualified Investor Fund programme, to facilitate fund registration, and designed new trust and foundation law regimes, to promote succession planning.

‘The story is only just beginning as we see this gradual shift, where clients in the region increasingly look towards Asia,’ Ioannou says.

This article appeared in the March issue of the Citywire Private Wealth magazine

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