Standard Chartered UAE: Mishandling the SME Issue or just Misunderstood?

The National is reporting on customer backlash to Standard Chartered’s decision to shut down their SME business in the UAE. The fact that the bank is, according to The National, “provoking fury among customers” brings into question Standard Chartered’s commitment to its clients. The article by The National reports on the bank’s excuses for its behaviour. It also reports that the bank’s clients do not accept these excuses. So what is going on?

The first indication of where the blame lies is the statement “[Standard Chartered] was exiting the sector because of snowballing compliance issues and a squeeze on profitability.” It is not clear if Standard Chartered are describing the UAE SME sector as having snowballing compliance issues or if it is Standard Chartered’s management that cannot manage their internal compliance issues. If it is the former then Standard Chartered is effectively accusing the UAE government of not properly regulating the SME sector. This is unacceptable and completely rejected. If the issue is the latter, i.e. that Standard Chartered cannot manage their own compliance issues, then it is a bank issue and the SME sector in the UAE should not pay the price for the bank’s incompetence.

Next is Standard Chartered’s hiding behind the deal with the US authorities. I am sure that the US authorities do not have a problem with the UAE banking system. Citibank is still here. What the US authorities seem to have a problem with was Standard Chartered’s lack of regulatory compliance. What is not clarified is whether Standard Chartered is painting the UAE’s SMEs as non-compliant so as to minimise the penalties levied against them.

The next excuse, that the bank “had long been considering an exit from the country’s SME sector amid increasing competition,” simply doesn’t make logical sense to me. When a bank exits a sector due to competition it doesn’t just shut it down. Basic business sense dictates that loans are priced correctly as per the bank’s policies and if the market offers a better price to the client then the client moves away. No business ever tells a client that it doesn’t want business, it always tells the client at what price it will do business. There is also never any rush in these situations.

The last excuse is that Standard Chartered tried to sell off its loans but that this fell through. That just means that Standard Chartered refused to sell at the market price. There are 49 other banks in the UAE and if a deal could not be found then logic dictates that the issue was not the buyers but the sole seller.

Standard Chartered’s rush to close its SME business does not make commercial sense. They have a portfolio of companies that need to move to new creditors and I wonder if they have thought through what will happen when a significant portion of those borrowers end up defaulting on the arbitrarily short transfer period that the bank gave them? This will harm Standard Chartered as much as the SME sector.

Is Standard Chartered a poor victim? The Central Bank of the UAE clearly does not think so as it publicly announced that the bank is legally liable to its customers. Not only that, it directed affected customers to the Central Bank’s Consumer Protection Unit for assistance in suing Standard Chartered.

Standard Chartered seems to forget the UAE Government’s deposit guarantee that protected it from a run on its deposits in the UAE in the aftermath of the global financial crisis in 2009. It also seems to think that it can remain in the UAE doing business in non-SME sectors. They might be shocked at the loyalty that their customers have to the UAE over and above any loyalty to Standard Chartered and the intelligence possessed by their other customers in realising that a bank that, according to the Central Bank, mistreated one set of clients will sooner or later mistreat all of its clients.

Standard Chartered is a bank that has built a global reputation for great customer service. If it wishes to keep that reputation intact it needs to remedy the mistakes made in handling its SME clients.

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