Mashreq's CFO on how a regional war changed the bank’s capital playbook, not its growth ambitions

The UAE’s banking sector is facing a very different environment from one year ago when it was thriving off the back of higher interest rates, strong lending conditions, and an economic boom.

The US-Iran war has rattled sentiment, disrupted trade and travel flows, and raised fresh concerns about how quickly the fallout could feed through to consumption, credit, and liquidity conditions in the UAE. Rating agencies are expecting banks to pay out fewer dividends this year to maintain the capital strength to weather further headwinds or a prolonged war.

And that’s precisely what banks are doing. Mashreq Group CFO Norman Tambach tells us the bank’s priority is to maintain its growth trajectory as long as it’s healthy and profitable, and the way to do that is by building capital buffers, optimizing risk-weighted assets, and ensuring it’s not too exposed to any specific sector or segment. One step they’ve already taken is reducing shareholder dividends; another is boosting its capital reserves, raising not one, but two AT1 issuances this year.

The good news: Proactive moves from regulators, including the Central Bank of the UAE’s (CBUAE) support package, have helped give investors a jolt of confidence and sent a message that banks have a solid backbone to lean on if and when needed. In Mashreq’s case, the bank did not need the CBUAE’s measures, but the early move itself was a strong signal to the market that helped boost credibility and confidence.

The bigger question now is what happens if geopolitical pressures persist, and how banks should position themselves if today’s uncertainty drags on.

We sat down with Tambach to chat about how the bank is reading the current environment and preparing for what comes next, where he sees risks possibly emerging, and which areas of the economy he views to be the most resilient. Edited excerpts from our conversation:

EnterpriseAM: Let’s get to the obvious question first. The events of this year and their impact on the Gulf were unprecedented and created a lot of headwinds that nobody could have foreseen earlier in the year. As CFO, how do you manage that amount of uncertainty?

Norman Tambach (NT): Preparation starts with making sure the bank is always in a solid place of strength. For a bank, this means, for instance, that the key ratios — capital and liquidity — are strong. We regularly do stress tests for various scenarios, and they allow us to get a feel for how we would be affected if something happens and whether we would still be above regulatory thresholds.

Another thing is making sure your business model is sustainable and resilient. You do not want a bank to be a one-trick pony and overly lean on just one geography, client base, or product type. In the case of Mashreq, we have UAE, non-UAE, GCC, and non-GCC businesses. We have retail, wholesale banking, and treasury. We have interest-related products and fee products.

The other thing is making sure your operations are resilient, which means having strong governance, a solid risk framework, tight cyber prevention, and data center redundancies, to name a few. That is how you generally make sure you are prepared for, in principle, any situation.

E: How has the central bank’s support package, which includes delaying loan reclassification, landed for you? How helpful has it been?

NT: We still see a lot of potential for further growth. Lending generally continues as usual. Mashreq is not the type of bank that quickly exits relationships when times are difficult. We want to be there for our clients when it really matters, seeing it as a chance to deepen existing relationships and open doors to build new ones.

I see it as a very good move by the central bank to roll out a relief package for banks so quickly. You want to avoid a situation where stakeholders, investors, and clients start asking whether UAE banks could be in trouble. As far as I am aware, there is no UAE bank that has needed this package so far. It sends a strong message to the markets that whatever happens, the government and the central bank are there to support the banks and the economy. We also got positive feedback on the package from investors.

The release of the countercyclical buffer, for example, was not necessary for us — or for D-SIB banks generally — but it gives a bit of air to ensure banks can continue their path of growth and keep supporting the UAE economy. With a lot of growth — and Mashreq grew a lot last year — banks need capital. The move helps all banks by giving them a bit more room to continue growing while remaining resilient from a liquidity and capital perspective.

The good thing here is that we have regulators that are not only forward-looking but are also backed by a government that has deep pockets, so it is not just that they say they will stand by the banks — they actually can stand by them. That is extremely important. It gives real credibility that if any bank, in any situation, requires liquidity or something else, it will be there without a shadow of a doubt. That is an underlying strength of this region, especially the UAE.

There are still many tools in the regulator’s toolbox. If disruptive conditions persist, they could help banks by providing more liquidity, for example. In more severe scenarios, they could even facilitate mergers, especially among smaller banks, as they have done in the past.

E: Higher interest rates have generally been supportive for banks, and we’re now looking at that reality staying for longer as inflation rises globally. Is that still a positive thing for banks? Does it weigh on borrowing appetite, especially among SMEs already under pressure from the disruption?

NT: Generally, for banks that rely heavily on interest income, higher interest rates are better. What we saw before the conflict was that a lot of companies, especially the larger ones, were very cash-rich. Many of them were even paying back loans early. The starting position for the country, for banks, and for companies in the UAE was a very strong one.

Of course, certain sectors are more vulnerable to recent events — such as tourism, hospitality, and some retail segments — so there will be an impact. However, those are not areas where Mashreq is heavily exposed.

Traditionally, SMEs are more vulnerable to economic volatility, but it really depends on the sector. Tourist-related businesses and certain retailers have more difficulty when there are fewer tourists. But we also know that certain online retailers were even busier than usual during recent events. You always have winners and losers.

E: There is also a bigger policy emphasis now on sectors like defense, infrastructure, export hubs, and industrial capacity. Do you see those as areas where banks will provide more financing?

NT: Given that energy is relatively cheap and abundant here — whether you are talking about hydrocarbons or renewables — this is an excellent place for energy-intensive industries, including metallurgy, metals, aluminium, chemicals, and data centers.

Are we lending to them? Yes, if the company is good and we believe in the business. But again, it is all about diversity. When I go on investor roadshows, I always have a pie chart showing what industries we are lending to and how much. I have one for geographies and one for industries. You can see we are really not highly concentrated in just one sector. That is key to a balanced business. We are growing, but we want to do it responsibly.

E: On a final note, from a bird’s-eye view, with all of these moving parts — from geopolitics to regulation and digitization — how has that changed your thinking around capital allocation this year?

NT: Our biggest source of capital has been our profitable growth. Even with recent events, growth is continuing, and we remain very profitable. The recent events have not had a big impact on that or on our capital. We want to have a healthy buffer, making sure we have enough capital for future growth, which is why we issued hybrid capital earlier before the war, and we will do more of that in the future as well. We’ve also agreed with shareholders to pay out fewer dividends for 2025 than in the last two or three years.

Capital remains a key factor in how we sustainably support future growth. Profitability of the bank — and the sector as a whole — is good, so that can fuel a big part of our client growth. We do not really see our clients unable to service their debts due to recent events. Only if we start seeing that provisions could eat into the bottom line and impact our capital for further growth would we take action. Luckily, we have a lot of levers to pull to ensure we can sustain further growth — such as issuing hybrids, reducing dividends, and optimizing risk-weighted assets (RWA).

We are also looking at possibilities where we can get credit ins. on some of our high-quality lending exposure to reduce our RWA, enabling us to redeploy that unlocked capital to other clients while ensuring we invest our capital optimally for our shareholders.

You do not want to stall your growth engines, because growth is not a switch you can easily flip on and off. You can turn it off easily, but switching it back on takes time, and then you have a delay in growth. We want to maintain our momentum as long as we see healthy and profitable growth while using other measures where needed to sustain that trajectory.