x Abu Dhabi, UAEFriday 19 January 2018

Arab banks 'safe' despite financial crisis in Europe

The region's banks weathered the European financial crisis in 2012, mainly thanks to their over-exposure to US dollar-denominated assets, says the Union of Arab Banks.

The region's banks weathered the European financial crisis this year, mainly thanks to their over-exposure to US dollar-denominated assets, according to the Union of Arab Banks (UAB).

However, 2013 will be challenging as economic issues in the United States and euro zone overshadow the global rebound, said Adnan Yousuf, chairman of the Beirut-based UAB, whose membership includes the majority of Arab banks.

These challenges will ease by the second half of next year, he said.

"Amid this global economic outlook, the UAB database shows that Arab banks, despite what's happening regionally and internationally, are generally still safe from all these developments, and have not been significantly affected as other economic sectors," Mr Yousuf said in an article published in UAB's December magazine.

"Most of the Arab banking sectors have adapted to the evolving conditions, or even started to go beyond its implications, as they retain excellent capitalisation ratios, and a very good level of liquidity... despite the decline in profits from a number of Arab banks, these banks still achieve good profitability ratios."

The Arab banking sector recorded better growth rates during the first nine months of this year compared to the end of 2011, he said.

UAE banks' assets grew by 6.1 per cent while there was growth of 6.8 per cent in Saudi Arabian banks, 9.9 per cent in Oman, 13.1 per cent in Qatar and between three and seven per cent in other Arab banks.

"Expectations of higher assets and profitability of Arab banks in 2013 are based on the high volume of funding expected to be offered by banks to governments in order to implement major projects and those related to infrastructure, as well as trade finance, which is recovering as a result of the increasing volume of trade exchange between Arab countries on the one hand and between Asia and Latin America on the other," Mr Yousuf said.

He added that Arab banks have resorted to hedge funding over the past few years due to the aggravated implications of the sovereign debt and US crises, where many of them - especially the Gulf banks - sharply raised their capital.

"This is in addition to the fact that most Arab banks deal in dollars, where their exposure to the Euro is around 15 per cent compared to 85 per cent in the US dollar," he said.

"Another aspect is that Arab banks play an important economic and development role, which is regarded as the primary and main funding tool for Arab economies and economic, investment, development and corporate projects and even the consumption sector in the overall Arab countries."

According to Mr Yousuf, the Arab banking sector is considered the largest and most important Arab financial sector, compared to others such as stock exchanges, insurance, investment funds and pension funds, both in the size of its assets or financial resources and financing.

"Therefore, we called on Arab banks, and we renew this call for 2013, to play a greater role in the development of Arab economies, where the global economic crisis proved that Arab economies are the least affected by that crisis," he said.

"For our Arab banks to occupy a leading position on the map of world banking and continue to perform well during 2013, we must work to increase their funds. Small banks should seek to form strategic alliances with each other or even merge to become competitive in the local, regional and international markets."