Commercial Bank of Dubai (CBD) was established in 1969 as a joint venture of Commerzbank, Chase Manhattan Bank and Commercial Bank of Kuwait. A minority stake was held by a few UAE businessmen. In 1982, CBD transformed itself into a national public shareholding company. As one of the oldest local banks, CBD plays an important role in financing UAE's trade and development projects. The bank is involved in financing infrastructure projects, promoting the development of trade, business, industry and services throughout the UAE. The bank's consistent drive to consolidate its capital base over the years has increased its competitive edge and now allows it to maintain growth and expansion in the years to come. The strong growth of all balance sheet items of CBD over the last four decades, coupled with prudent lending policies, has resulted in a financial institution built on strong foundations. The bank's capital adequacy ratio as per Basel II continued to build up to 22.28 per cent from 22.08 per cent as at December 31, 2010 against regulatory requirement of 12 per cent. CBD's Tier 1 ratio also improved to 15.93 per cent from 15.58 per cent as at December 31, 2010, in excess of the UAE Central Bank and Basel II requirements. In a recent interview Peter Balthussen, chief executive of CBD, spoke to Gulf News about the bank's growth prospects in the context of sustained economic recovery of UAE following the global financial crisis. Gulf News: CBD has reported better first quarter results compared to many estimates put out by analysts ahead of the results. What is your take on your results? Peter Balthussen: Indeed in the first quarter of 2011 CBD has continued its solid performance, showing increased net profits of Dh263 million, which resulted in a return on average equity of 18,7 per cent, one of the highest in the UAE market. Moreover, the bank's cost to income ratio remains at a low 29 per cent, which reflects a high level of efficiency. We are getting conflicting reports on liquidity in the banking system and the overall cost of funds in the UAE. While a set of bankers argue that there is a shortage of liquidity and the cost very high, there are others who say liquidity is sufficient in the market. Where do you stand? Liquidity has not been a major issue for CBD and we have further improved our liquidity position in 2011, achieving a comfortable advance to stable resources ratio of 85 per cent as compared to the Central Bank regulation of 100 per cetn. As per March 2011, customer deposits in the UAE banking system have increased to Dh1.105 billion, while the system's loans and advances stood at Dh1.048 billion, resulting in a loan to deposit ratio of 95 per cent. As this ratio exceeded 120 per cent by the end of 2008, the levels of liquidity have showed a marked improvement and this has led to lower cost of funds for most banks. The loan growth across the banks is still in low to mid-single digits do you expect to see an improvement in the quarters ahead? In view of the improved liquidity situation, most banks are looking for good opportunities to grow their loan portfolios again and I anticipate that the system will increase loans and advances with 6-7 per cent in 2011 as compared with 1,5 per cent last year. This projected growth might seem low compared to the years 2005 to 2007, however, I believe it is reasonable when compared with the expected GDP growth for 2011 in the UAE. CBD's loan losses were down 28 per cent in the first quarter bringing down the annualised loan loss charges below 1 per cent of the gross loans. Is this achievable given the fact that we are still in the early stages of recovery? In the last few years CBD has increased the general provisioning levels to 1.3 per cent of risk weighted assets, while the total loan loss provisions amounts now to 5 per cent of loans and advances. The coverage ratio (total provisions over non-performing loans) stands at 88 per cent, which is one of the highest in the system. After rapid growth of non-performing loans (NPL) in the past 2 years, I anticipate that this growth will slow down and NPL's for the banking system could peak in the next 4 or 5 quarters. Do you have plans to seek external funds through Medium Term Notes/ bonds issues? In September 2008 CBD obtained a $400 million medium term loan from a number of its main relationship banks, which will mature in September 2011. We have already commenced discussions about the renewal of this loan and the response has been encouraging so far. In view of the bank's comfortable liquidity situation, we have decided not to issue under our EMTN program until spreads have come down to more reasonable levels. Do you have plans to expand your retail business in the future? As we believe that particularly the affluent individuals are an important client segment for CBD, we have continued to open state-of-the-art branches in the last few years, while in the first quarter of 2011 new branches in Muhaisnah and Al Ain were opened. In the last 2 years five Attijari Al Islami branches were opened, while presently we have 15 Al Dana Wealth Management Centres. Moreover, we have invested in an extensive network of 212 ATMs/CDM's (cash deposit machines), which is the 5th largest network in the UAE. There have been suggestions that banks should play more proactive role in supporting the real estate sector that went through an unprecedented slump during the last three years. What is your view on the revival in real estate valuations? Do you foresee banks becoming aggressive lenders to this sector sometime in the near future? We see that in a number of locations in the UAE residential real estate prices are stabilising, while transaction volumes are increasing. It is known that still quite a number of units will come to the market in the next year or so, however, the growing UAE economy will absorb a significant part of this supply. Moreover, the stable political and economical environment in the UAE combined with lower real estate prices are expected to attract more foreign investors to the UAE. The residential real estate market is now driven by end-users, which is a healthy practice. Some banks have resumed residential mortgage lending, which will facilitate these end-buyers to purchase villas and apartments, but loan to values and debt service ratios will no doubt remain conservative for the time being. A career of leadership Peter Baltussen joined Commercial Bank of Dubai in 2006 as CEO, after being a career banker with ABN Amro Bank for over 18 years in a number of senior managerial positions, the last one being managing director and CEO of Banque de Neuflize-Paris. Prior to that, Baltussen was the Managing Director and CEO of Saudi Hollandi Bank in Saudi Arabia. He holds a Master of Business Economics from Erasmus University - Rotterdam in Netherlands.