x Abu Dhabi, UAESunday 21 January 2018

Gulf banks ready for bigger role in region

Region Gulf banks are likely to expand their reach and gobble up market share in the region as international lenders retrench after the financial crisis.

Gulf banks are likely to expand their reach and gobble up market share in the region as international lenders retrench after the financial crisis, says the chief executive of Mashreqbank. Abdul Aziz al Ghurair, who is also the speaker of the Federal National Council, said Gulf banks were ready to fill the void left by retreating international banks, many of which had cut staff and reduced operations in the region during the crisis.

"All banks are focusing on their headquarters, and their success starts from there," said Mr al Ghurair, whose bank opened its first branch in Kuwait on Sunday. International banks have long had a foothold in the Gulf. While most countries in the region limit the number of foreign bank branches allowed in their territories - in the UAE, foreign lenders are limited to eight outside of designated free zones - those banks have for decades played a large role in financing projects and providing advisory services for mergers and stock listings.

But as central banks around the world raise capital requirements in the wake of the financial crisis, international lenders are finding themselves more constrained than before in doing business overseas. "Central banks abroad are requiring more capital," Youssef Nasr, the chairman of HSBC Middle East, said at the Kuwait Financial Forum yesterday. "The international banks are required to have higher capital and since it's very difficult to increase such capital, we will have some retrenchment."

Government takeovers of foreign banks during the crisis have also played a role in limiting international banks' scope, Mr Nasr said. Governments that spent their citizens' money on buying bank shares would be more likely to force them to use their financing muscle at home, he said. "A number of foreign banks got subsidies, and in some cases governments own more than 70 per cent of banks' shares," he said. "The governments might impose on them to go to the local market rather than doing business abroad."

Despite these trends, few observers see the complete exit of international banks from the region as likely or even possible. They point to the region's strong growth prospects, its massive oil wealth and the relatively small size of the local banking sector, which puts limits on regional banks as they aim to replace international firms in financing what are estimated to be more than US$2 trillion (Dh7.34tn)

of projects. "Banks have set limitations," said Sheikha Khalid al Bahar, the deputy chief executive of the National Bank of Kuwait. "The total equity of 150 Arab banks equals $170bn. Do you think these banks are capable of financing such huge projects?" Closing the financing gap may involve going to local capital markets to raise money, or raising money through investment companies and nourishing a local bond market, she said.