After incurring huge losses due to the financial crisis and its knock-on effects on several regional firms, Abu Dhabi Commercial Bank (ADCB) is showing strong signs of recovery. Since the 2011 MEED 100 ranking, ADCB has risen by 31 places to become the 19th largest bank in the region, and is ranked the 44th largest company by market capitalisation.

It is testament that some lenders in the region are showing signs of recovery after the global recession. However, not all firms are enjoying such a renaissance. The UAE’s Emirates NBD has remained in roughly the same position, as investors worry about non-performing loans and an over-exposure to Dubai.

Middle East unrest

Political turmoil caused by the Arab uprisings has also had a noticeable effect on several financial services companies in the region. Banks in Morocco, Jordan, Lebanon, Bahrain and Egypt all fell in value as a result of the unrest or its knock-on effects. Egypt’s Commercial International Bank fell 37 places to 91 on the list, despite a rally on the Egyptian bourse since the start of 2012.

In contrast, stability and strong economic growth have had a positive effect on banks in Qatar. Its largest lender, Qatar National Bank (QNB), rose four places to become the third-largest firm in the region and the second-largest bank. It has grown over the past year to emerge as the largest bank in the region by assets. In 2011, QNB’s profit rose by 31 per cent and as a result, its market capitalisation climbed by 44 per cent. Since 2010, the bank has moved up nine places.

More widely, Qatari bank profits rose by 22 per cent in 2011, helping most of the lenders report a rise in market capitalisation.

The region’s Top 100 list remains dominated by the financial sector. In total, 44 of the top 100 companies are financial services firms. The market capitalisation of the banking sector also rose from $258bn in 2011 to $273bn in 2012 as a stock market rally in early 2012 led to a sharp increase in equity valuations. This is despite most of the financial services firms on the list, 25 out of 44, falling to lower rankings.

Saudi domination of the finance sector

Saudi banks continue to dominate the region’s finance sector led by Al-Rajhi Bank & Investment Company, the biggest bank in the region, along with Samba, Riyad Bank, SABB and Banque Saudi Fransi. All the kingdom’s banks feature on the top 100 list, except for privately held National Commercial Bank. In total, their market capitalisation is nearly $97bn, or more than a third of all financial services firms.

Unless sanctions are lifted Iranian banks will continue to suffer … and some risk falling to the bottom of the list

With about $133bn in total market capitalisation, the rest of the GCC financial firms put together do not significantly exceed Saudi Arabia. With the potential for foreign investors to be finally allowed to invest directly in the Saudi Stock Exchange (Tadawul), and the development of other financial services firms in areas such as insurance, the kingdom’s dominance of the financial services sector should continue.

In Iran, new international sanctions limiting the ability of foreign firms to deal with local banks has led to all four lenders listed on Tehran’s bourse to fall in value. Unless these sanctions are lifted, which seems unlikely at this stage, Iranian banks will continue to suffer over the next 12 months as their opportunities to work outside the country shrink further and the economy weakens. If this trend persists, some of them, particularly Saderat Bank, risk falling off the bottom of the list.

Elsewhere in the table, QNB will probably close the gap on Al-Rajhi as it continues with its plan to develop internationally and diversify its income streams. If successful, that plan will help boost interest in QNB’s shares and lift its valuation. Challenging Al-Rajhi’s position at the top of the table will be difficult, however. The Saudi bank has the strongest network of retail branches in the kingdom and is one of the most profitable banks in the most liquid market.

Banks: Attracting investors

As the economic recovery continues to gain momentum in the region and non-performing loans pass their peak, banks will also start to look much more attractive for investors. This should help the overall financial services sector increase in value.

Generally, regional banks are becoming more active in international bond markets, helping to develop a wider and more diverse investor base. This should have a positive spillover effect to equity valuations as greater transparency, a wider volume of research, and more international recognition make those banks more likely to receive attention from equity investors.

If it does, they will stand a good chance of boosting their positions ahead of next year’s MEED 100 list.