The sentiments seem surprising, as the GCC's economic boom translates into both spiralling project activity and record bank profits. But the conditions are attracting international banks in growing numbers, while experienced sponsors feel able to demand increasingly favourable terms. Consequently, as tenors lengthen and margins shrink, Gulf banks are finding themselves priced out of the market.

And the situation is particularly acute for the supra-regional institutions, which lack the bedrock of a domestic market to fall back on.

Bankers' observations are borne out by the numbers. The share of arranging activity accounted for by GCC banks fell sharply in 2005 to about $6,600 million, from about $7,500 million in 2004.

Nevertheless, GIB retained its crown as the leading regional project finance provider for the fifth year running in the MEED league table, acting as arranger in 13 deals and extending a total of about $900 million. Both the other regional stalwarts regained their rightful position in the top five. Arab Petroleum Investments Corporation (Apicorp), which had a muted year in 2004, stormed back into the table to take the number seven spot. Arab Banking Corporation (ABC) also increased its project financing activity and jumped to fifth from ninth. Most spectacular was Arab Bank's entry to the table at number two, which is likely to presage a more permanent presence, as the bank continues to build its structured financing activities out of Manama.

Among the domestic banks, Qatar National Bank (QNB) and Commercial Bank of Qatar (CBQ) both moved up the rankings, reaping the rewards of the deluge of deals out of Doha last year. Saudi banks are expected to assume a far more dominant position in 2006, as the kingdom becomes the focus of financing activity.

Dubai Islamic Bank is the only sharia-compliant institution to make it into the top 10 and slips from its 2004 position, while Kuwait Finance House drops out of the rankings altogether, having come in at number four last year. The positions reflect Islamic institutions' waning appetite for long-tenor finance. The trend is set to continue in 2006, with the major sharia-compliant banks outside Saudi Arabia having essentially withdrawn from the market for the time being.

Many leading domestic banks are seeking to build their project finance capabilities to capitalise on the surge in project activity - in particular CBQ and QNB in Qatar, Bank Muscat in Oman and Abu Dhabi Commercial Bank (ADCB), National Bank of Abu Dhabi (NBAD) and Mashreqbank in the UAE. They are also extending their funding profiles through instruments such as euro medium-term note (EMTN) programmes to increase their capacity to participate in long-tenor deals. Bank Muscat and the three UAE banks all have such programmes in place, while Qatari banks are considering following suit after a facilitating change in Qatar Central Bank regulations in late 2005 (see page 61).

FocusedSaudi banks remain focused on the home market and this is unlikely to change, given the volume of deals in the pipeline. However, among other GCC institutions, there is growing evidence of an appetite for selective cross-border lending, typically to projects with an element of domestic involvement. QNB took part in the financing of the second GSM licence in Oman for Nawras Telecom, in which Qatar Telecom (Q-Tel) is the principal shareholder. And ADCB joined the expanded mandated lead arranger (