National Bank of Abu Dhabi sees opportunities to expand in western countries as the lender, along with many counterparts in the Arabian Gulf, has avoided the credit rating downgrades hammering many big rivals.
NBAD looks West for opportunities
Though the bank's long-standing strategy has focused on fast-growing emerging markets in Asia, NBAD now says the relative weakness of Western lenders presents additional opportunities for growth.
"Our strong credit ratings will certainly create opportunities in geographies where many local banks have been downgraded and where customers and investors are looking for a safe haven for their funds," said Abdulla AbdulRaheem, NBAD's group chief operating officer.
Downgrades of 15 global investment banks by Moody's Investors Service last week left half a dozen regional lenders among the world's most highly-rated. Six banks - NBAD, Qatar National Bank (QNB), National Bank of Kuwait, Sabb (Saudi British Bank), Banque Saudi Fransi and Samba Financial Group - are currently rated Aa3 and were left unscathed by the ratings agency's knife.
As a result of last week's downgrades, seven of the world's biggest banks - Barclays, JPMorgan, UBS, BNP Paribas, Deutsche Bank, Goldman Sachs and Crédit Agricole - have now been cut to credit ratings below those of the Gulf lenders.
The only global investment banks that now match the Gulf lenders in financial strength are Royal Bank of Canada and HSBC, with the British bank also rated as having a negative outlook.
The relative strength of NBAD's credit ratings could help it take market share from European and US rivals as its international expansion plans swing into action.
A higher credit rating typically lowers borrowing costs and increases the number of investors willing to use the bank as a counterparty for derivative trades.
Moody's ratings downgrades were brought about by a reassessment of the business models of global banks with capital markets operations, which include market making and proprietary trading, which have been deemed more vulnerable to market volatility following the financial crisis.
Banks in the Middle East had been wary of entering those business lines and focused on retail and corporate lending, giving them added stability, said Khalid Howladar, a senior credit officer at Moody's.
"On a standalone basis, banks here don't tend to practice the risky types of activities that the global investment banks do," he said.
"Standalone ratings are relatively weak and it's government support that now tends to bring them up above their European peers."
Whether the assumptions of government support in the Gulf were justified would be examined by analysts at Moody's in the second half of this year, Mr Howladar added.
"Globally, in the wake of recent events we've looked at systemic support with a much more discerning eye - here in the Middle East, this is a crucial factor in bank ratings that we're going to look at," he said.
The results of this review would come "well in advance of any potential ratings actions" on Gulf lenders, Mr Howladar added.
In contrast to business orthodoxy, a lack of diversification had worked in Gulf banks' favour amid a slowdown in the US and a sovereign debt crisis in Europe, said Naveed Ahmed, a financial analyst at Kuwait's Global Investment House.
"If they were more diversified, they would have had more exposure to these debts which have now become toxic for the western banks," he said.
The Gulf banks' relative strength gave them a strong foundation to expand globally, but their movements until now have been tentative, Mr Ahmed added.
"They're looking to diversify their footprint around the world but banks have been very choosy regarding this," he said.
NBAD has laid out plans to quadruple its annual earnings by 2021 with planned expansions in fast-growing economies such as Brazil, Indonesia and mainland China, while QNB had previously attempted to expand internationally through the acquisition of DenizBank, a Turkish lender, but the deal was not completed.
Standard & Poor's has nine of the 15 downgraded banks on negative watch, with five now rated below the strongest Gulf banks.
All three major ratings agencies have a stable outlook for the Gulf's strongest lenders.
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