Gulf states to let GIB open local branches

19 December 1997
FINANCE

Gulf International Bank (GIB), the offshore bank owned by the GCC states, may be allowed to open branches in all six countries in the near future. Senior GCC officials have recently approved a proposal to let the Bahrain-based bank into their domestic markets, and are also studying another proposal which would give the same opportunity to all other GCC- based banks.

The proposal for GIB was passed by the finance ministers, foreign ministers and central bank governors of the GCC states and now has to be approved by the regional grouping's supreme council, whose members are the heads of state of each country. This is good news for GIB. 'This has been an objective of the bank for the last 10 years, and now we are moving towards it,' says a bank spokesman, noting that the proposal still has to be ratified (see Special Report, page 8).

The biggest benefit to GIB would be the opportunity for it to open branches in Saudi Arabia, analysts say, which would allow it to market itself more effectively and to keep closer contacts with its clients. About a quarter of the bank's loans are made to Saudi borrowers, including most of the large local companies, and GIB has also been active in arranging finance for Saudi industrial projects. 'They do a lot of business in Saudi Arabia but they've never had a physical presence there. It's been a chink in their armour,' says Tony Wynne, a bank analyst at Cyprus-based ratings agency Capital Intelligence.

The second proposal, to allow banks from one GCC state to open in another, comes in the context of the GCC's long-stated desire for closer economic integration between its member states. Access is restricted at the moment: Saudi Arabia has issued no new banking licences since 1987 and no foreign banks are allowed in Kuwait, while other Gulf Arab states also limit the number of foreign bank branches they allow. Any opening up within the region is likely to benefit the GCC's biggest banks, although it would also put competitive pressure on small domestic banks.

However, a more integrated industry with fewer banks would be better placed to deal with foreign competition if and when the GCC countries join the World Trade Organisation, which will require them to open their domestic banking sectors.

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