Societe Generale has focused its expansion efforts on the Gulf, where it opened a Dubai office in 1997. The Dubai operation has grown quickly to a staff of 17, offering private banking, capital market products and project finance. The office has recently secured its first Islamic finance mandate for a private client. Societe Generale also has ambitions in Jordan, where it is negotiating to buy a stake in Middle East Investment Bank, and Algeria. Houtekier expects the new operation in Algiers - in which Societe Generale will have a 59 per cent stake with the rest held by the African Development Bank, the International Finance Corporation and Algerian private investors - to be ready for launch early next year. Another French group - the recently constituted Natexis, which includes the former Banque Francaise du Commerce Exterieure - has also secured a licence to open an Algerian subsidiary.

Societe Generale will be pitching for the next project financings coming out of Abu Dhabi, for Thuraya Satellite Telecommunications Company and the Taweelah A-2 power station scheme. But, even here, Houtekier expects prices to be markedly higher than those secured recently by Dubai Aluminium Company (Dubal), which signed a $120 million term loan in July at 25 basis points over Libor. 'Abu Dhabi is a risk that everybody likes but even if the management of the economy is impeccable, you cannot isolate Abu Dhabi from its environment,' he says. In Egypt, Societe Generale has been invited to apply for a role in the financing for the 650-MW Sidi Krier power station - Egypt's first independent power project (IPP) - which will be seeking to raise about $380 million in debt.

One Paris-based institution - Union de Banques Arabes & Francaises (UBAF) - is in a privileged position to monitor the impact of Asia's difficulties on trade with the Middle East. Majority owned by Arab banks - the other 44 per cent of share capital is held by Credit Lyonnais - UBAF specialises in trade finance, with the majority of this business generated in Asia through branches in Japan, South Korea and Singapore. 'The first half has been good - ahead of budget - but trade finance is flat,' says chairman of the management board Guy de Jacquelot. The bank only lends short-term and there is a silver lining to the problems in Asia as fees and commissions have risen sharply. 'We will benefit in 1998 from larger commissions and volumes in Japan and Korea,' says De Jacquelot. 'The margins are much higher in Asia than in 1997 because of the Asian crisis.'

Efforts by beleaguered Japanese banks to meet Bank of International Settlements' ratios are constraining their lending as they shrink their balance sheets and provision for bad loans, enabling foreign banks to boost margins - officially rates have gone from

30 basis points (bp) over Libor to 75 bp but reports say some foreign bankers have pushed it to 400 points, even for supposedly blue-chip clients.

UBAF participates in project financing but is very selective in its involvement. Deals such as the recent borrowing by Dubal do not attract. 'We are not interested in deals at prices like this but we are still interested in participating,' says De Jacquelot.

UBAF has made a speciality of Arab debt trading, acting as an agent for debt rescheduled through the London Club, mostly by Algeria and Morocco, which are two of France's main trading partners in the region. The bank makes commissions as an intermediary but business has fallen away this year. 'Prices have dropped because of the difficulties in emerging markets. There have not been many transactions,' says De Jacquelot.

In common with other French bankers who have experienced previous downturns in the Middle East, most notably the 1986 oil price crash, De Jacquelot believes the region is much better equipped to cope with the sudden loss of revenue. Only if low oil prices persist will conditions become more difficult. 'I'm realistic - not optimistic - that 1998 will be a good year but I'm not so sure for 1999,' he says.