TIMES are changing fast for Belgium's banks and insurance companies as they gear up to meet new competition in Europe and to win new international business. Brussels is not often at the cutting edge of anything but Belgium is well ahead in the race to explore the potential of new technology in a unified European market. This is apparent in the Proton scheme, an experiment in virtual cash operated by the Banksys consortium of 60 banks, which gives Belgium a sophisticated electronic payments network. Proton is now one of the world's biggest smart-card schemes with the participants issuing over 900,000 cards in Belgium alone, and 14 million worldwide. Belgium's central and local governments have even gone so far as adapting parking meters and other equipment to accept the Proton cards.

Apart from promoting technology in Europe the banks are looking to expand their business outside the EU, building on an established network of relations in the Gulf, North Africa and the Levant. Many banks are involved in the structuring of privately financed deals, but much business remains linked to export credits and letters of credit (LCs).

The Gulf is an important market for major institutions like Banque Bruxelles Lambert (BBL) and Generale Bank. BBL has increased its penetration in GCC markets by developing relations with a growing number of local banks, which has allowed for a gradual increase in market share. The Lebanese- owned, Brussels-based Byblos Bank is seen as very aggressive in key markets, particularly Lebanon and Syria, where it would like to do more. Byblos is also strong in Libyan and Egyptian business.

Prospects in the Gulf are particularly promising. 'Liquidity levels seem rather good for the time being, so our limits are not under pressure compared to 1994 and early 1995,' says BBL's area manager for the Middle East and Africa Michel Sterckmans. He says that transactions in the Gulf focus on short-term money markets up to 12 months. Exports to Saudi Arabia, the UAE and Kuwait provide considerable LC business, with fewer documentary credits required for Bahrain and Qatar.

Bankers are bullish about Saudi Arabia, after a period when they were concerned by the kingdom's cash squeeze. 'The banks are very liquid,' says one Brussels banker. Business is also good in Kuwait, he says, with deals tending to go through on an open account basis. He adds that, following market reforms, new opportunities are being created by private projects based on non-recourse financing structures, and investment-related business.

But Belgium's bankers argue that protection against political risk must be maximised if the longer term deals are to go ahead. 'The region's countries are generally of a higher risk type - there is a limited appetite for lending and taking risks there,' says one. 'One would expect to see a substantial proportion of export credit agency cover for any deal, possibly backed by international funding agencies.'

Reflecting the continued interest in North Africa's most troubled market, the greatest demand for facilities from Belgium's export credit agency Office National du Ducroix (OND) is for Algeria. However, Rebecca Decuiper, an underwriter, says that OND's ceiling has been reached 'and we had to say stop.' To overcome this problem, OND has explored innovative solutions. This has led to a new agreement with Lloyds of London covering reinsurance on Algeria. OND also has 'lots of business' in Morocco and is open for some cover in Iran, whereas other agencies are closed or operating on a case-by-case basis.

Iran is attracting considerable attention, thanks to the availability of some OND cover and the potential to open LCs. 'In Iran we are more pushy because the situation is getting better and better,' says BBL's Sterckmans. BBL may even be prepared to extend the limit for the re-financing of trade to 360 days.

Generale Bank is also in action in Tehran, where it has a representative office. Brussels bankers are reassured by a steady level of repayments, but add that recent reports that Italian banks have suffered some late payments are a cause for concern.

According to Sterckmans, Egypt is a growth market following a period when BBL has made a concerted effort to win new business there. 'We expect to do more next year in Egypt,' he says. BBL also reports steady business in the Levant, where it deals with Commercial Bank of Syria on a provisioning basis, which provides small but regular business.

Belgian banks reacted quickly to political change in Lebanon, where Kredietbank opened an office. But lack of business has disappointed some. 'We used to think that there would be a good market in Lebanon,' Sterckmans says. 'We would like to do more but the market is not big enough.' Jordan's debt problems also limit the scope for business, bankers say, especially given the provisioning requirements facing most banks.

Looking further ahead, Brussels bankers are watching events in Iraq closely. 'In the next one or two years, Iraq could be huge, although we do no business now,' says one. North Africa remains a core market, even though in Algeria, Morocco and Tunisia bankers report that margins are down and the competition is rising, especially from UK and US-based banks.

The consensus is that Tunisia remains a good market although the small size of the economy is a constraint. Morocco has become highly competitive, not least as a result of local banks becoming more aggressive. 'Our market share has decreased as there is strong competition from Moroccan banks based in Paris and Brussels, and they deal in conditions so thin that it is not worth doing,' Sterckmans says. Blue chip clients, such as refiner Samir, are still sought, however.

Sterckmans says that new competition has also cut into business in Algeria. During the most difficult period, at the end of 1994 and the start of 1995, Belgian banks were among the few to remain open for business and there was heavy demand from all over Europe.

After a period of difficulty, Libyan business is back in vogue. 'Risks are not big for Libyan deals and business is good, although we would like it to be larger,' one banker says. Most business is with the Central Bank of Libya and Libyan Arab Foreign Bank, providing LC confirmation for exports, all for non-embargoed goods.

While Belgian banks seek to build on their strengths, bankers and others in the financial sector are bracing themselves for further change as Europe gears up for EMU. The experience of Belgian insurance companies in the merry-go-round of take-overs in the European insurance industry gives some taste of what is to come. Switzerland's Winterthur bought a 97.85 per cent stake in Belgian company Josi and a 33 per cent stake in Cobepa last November, at which time French insurer Gan announced the sale of its Belgian subsidiary, Gan Belgium, to Swiss Life Belgium. The merger of two French companies, Axa and UAP, implied the merger of their Belgian subsidiaries Axa Belgium and Royale Belge. Bankers in Brussels wonder whether European merger mania will soon be coming their way too.