Special Report: Banking - Short-term loans plug finance gap
The project finance market received a systemic shock when the global credit crunch hit in 2008. This year, the number of banks pursuing project finance deals in the Middle East is still at an all-time low. Industry sources say that just eight to 12 banks are seeking deals in the current climate, down from more than 45 two years ago.
As a result, multi-billion-dollar infrastructure projects are being delayed as banks prove reluctant to lend on long-term projects and governments are forced to step in to plug the funding gap on crucial schemes.
At the same time, local banks are grouping together in an attempt to take the lead in financing deals, usurping international banks in the process.
Where previously local banks provided relatively small tranches of dollar-denominated loans, now Saudi banks in particular are showing a willingness to provide the majority of funding, but in local currency.
With speculation over the revaluation of the Gulf currencies now in the past, the region’s banks are more comfortable with the risk involved in lending in local currencies.
This retreat by international banks may be the effect of the credit crunch that is felt the longest. When they do try to lend again, they may find that local appetite for their money is not what it was before the slowdown.
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