Mashreq Bank UAE: Corporate Finance and Investment Strategy

Introduction to Mashreq Bank

Mashreq Bank is the oldest bank in the United Arab Emirates, having provided banking services and financial solutions to customers and enterprises since its inception in 1967. Formerly known as the Bank of Oman, it was established in Dubai under a decree issued by the Ruler of Dubai, Sheikh Rashid Bin Saeed Al Maktoum — this occurred before the UAE was formally constituted as a nation.

The bank renamed itself Mashreq Bank in 1993 and subsequently became one of the largest banks in the UAE. It is a household name in the corporate banking and retail segments of the Middle East, with branches in Bahrain, Kuwait, Qatar, and Egypt. Mashreq Bank is widely regarded as one of the most innovative banks in the region, built on robust, customer-centric business policies. Its network spans the entire UAE, with approximately 50% of households connected to the bank in some capacity. Branches are found in all prime retail locations, and the bank operates one of the largest ATM networks in the region. Beyond the UAE, Mashreq Bank maintains a presence in 11 countries, including locations across Africa, Asia, North America, and Europe.

From a historical standpoint, Mashreq Bank has funded economic projects across a wide variety of industries in the UAE. It remains cautious in its approach, however, employing risk management policies when evaluating funding decisions. The bank has experienced significant growth over the past several decades, and its success is closely intertwined with the broader economic development of the UAE (World Finance, 2013).

With the support of a capable corporate governance structure, Mashreq Bank aims to balance accountability, internal controls, transparency, and sustainable success. The bank holds authority over matters of credit and administrative approvals, assigning that authority on the basis of individual performance, experience, track record, and organizational position. Acts of negligence or misuse of authority are identified through consistent audits; credit reviews are escalated to the board of directors when issues become critical. Mashreq Bank maintains well-established policies and procedures, documented in manuals supported by both desktop guidelines and Standard Operating Procedures (Mashreq Bank Annual Report, 2013).

Mashreq Bank has been an active participant in regional and domestic equity offerings, including:

• Dividends
• Rights issues
• Initial public offerings (IPOs)

Corporate Finance and Investment Strategy

The bank leverages its long-standing experience in collections as a prominent investor database, supported by a state-of-the-art accumulation platform. Over the past two years, Mashreq Bank has handled approximately $22 billion in offerings, establishing itself as a first-choice institution for public offerings (Mashreq Bank Website, 2015).

The business philosophy of Mashreq Bank, across all areas of operation, is grounded in the principle of meeting each client's individual needs. The bank recognizes that each business client has distinct requirements and seeks to provide optimal services and products accordingly. To that end, Mashreq Bank aims to understand the specific requirements of its business clients thoroughly in order to serve them fully (World Finance, 2015).

When finalizing capital investment decisions, Mashreq Bank operates within the Basel III framework. Basel III is an extension of the existing Basel framework that banks use to define their capital requirements. Alongside Basel III, the Capital Standards and the International Convergence of Capital Measurement standards continue to apply. These amendments, introduced by the Basel Committee on Banking Supervision (BCBS), are intended to achieve three main objectives:

• To establish a financial reservoir within the banking system that acts as a stabilizing instrument during periods of monetary crisis, particularly credit crunch situations;
• To encourage the adoption of stronger risk management practices across the banking industry;
• To provide protection and risk mitigation against anomalies or imbalances that may arise within the banking sector (Mashreq Bank Annual Report, 2013).

To achieve these objectives, the Basel Framework is built upon three foundational pillars:

Capital Investment Decision-Making and Basel III

First Pillar — Minimum Capital Requirements: This pillar outlines the method by which banks calculate their regulatory capital requirements to protect against credit risk, operational risk, and market risk. The framework specifies three approaches for computing credit risk: Foundation Internal Rating Based (FIRB), Standardized, and Advanced Internal Rating Based (AIRB). For market risk, two approaches are available: the Internal Model Approach and the Standardized Approach. For operational risk, three approaches apply: the Advanced Measurement Approach, the Standardized Approach, and the Basic Indicator Approach (Mashreq Bank Annual Report, 2013).

Second Pillar — Supervisory Review Process: This pillar provides policymakers with a framework to evaluate a bank's capacity to manage credit risk, operational risk, and market risk, as well as other risk types not addressed in the first pillar, such as concentration risk and liquidity risk.

Third Pillar — Market Discipline: This pillar promotes market discipline by implementing quantitative and qualitative disclosure requirements. These requirements allow market participants to develop improved methods of risk assessment and capital management, ultimately enabling a clearer determination of a bank's capital adequacy (Mashreq Bank Annual Report, 2013).

Mashreq Bank employs a range of appraisal methods and approaches to evaluate risk and manage capital (Mashreq Bank Annual Report, 2013):

A. Credit Metrics Methodology: The bank utilizes the Credit Metrics methodology for its credit capital model. The capital requirement for all forms of material risk is determined and calculated in terms of an overall monetary capital platform.

B. Economic Capital Computation: The economic capital computation encompasses all banking operations for gauging risk-bearing assets — including investment portfolios, loans, real estate assets, and equity. A bottom-up methodology is applied to allocate capital at three levels: business unit, bank-wide, and obligor level.