The Arab banking sector is suffering from a surfeit of small banks and mergers and capital increases are needed to help the industry face growing competition from abroad, says the secretary-general of the Union of Arab Banks, Adnan al-Hindi.

Al-Hindi told the London Arabic-language daily Asharq al-Awsat on 15 January that the combined assets of Arab banks were expected to have reached $595,000 million in 1996. This is up from $496,000 million the year before, but still not much more than one large Japanese bank. Moreover, he said that half of this total is accounted for by just 20 per cent of the biggest institutions among the Arab world’s 300 banks. Two hundred banks compete for just 10 per cent of the total.

Al-Hindi’s comments echo a lament common among Arab bankers – that too many weakly-capitalised banks are competing in the domestic markets, which are bound to become more open to foreign competition in the wake of Arab countries signing up to global free trade agreements. Mergers remain rare between Arab banks, though some institutions are taking the less politically fraught route of raising their

capital.

The secretary-general notes some good news. Arab commercial banks are increasingly looking for investment banking opportunities and economic liberalisation in many countries is starting to provide capital markets-related business as well as enabling the banks to increase their assets.