Testing time as new needs develop

12 September 1997
SPECIAL REPORT BANKING

IF interim results are anything to go by, then 1997 looks like being a reasonable year for most Arab banks. In all the GCC states, half-year profits have grown at a much faster rate than the economies of the countries where the banks operate. In other Arab states, notably Lebanon and Jordan, the local industry seems to have finally entered a long-awaited period of consolidation.

Economic growth in most Gulf states is expected to slow this year, but bank lending continues to grow and any tightening of lending margins seems to have been compensated for by earnings from other sources, such as the banks' securities portfolios. The picture is more mixed in Saudi Arabia, the Arab world's biggest banking market. All the banks' interim profits were up on last year, ranging from an impressive 57 per cent increase for Saudi Investment Bank, a small corporate lender, to a fairly thin 6 per cent for Saudi American Bank. Some banks have managed to increase their lending, while others - including some of the bigger banks - have seen their loan portfolios contract. Bahrain's banks have also been having a rewarding year so far, particularly the offshore investment banks like Investcorp (see page 32).

There have been a growing number of share offerings and bond issues from Arab corporates in recent months. This may start to bring out a new division within the banking industry, between those banks with the size and expertise to find new sources of income in the growing capital markets - by managing new issues, providing custodial or portfolio management services - and those which lack these qualities. Issues in the international markets will remain the preserve of the global investment banks (see page 28).

The arrangement of big-ticket project financings is also an area where few Arab banks can compete with their bigger foreign competitors, though a handful of institutions are starting to make an impression on this market, like Gulf International Bank and Arab Petroleum Investments Corporation (Apicorp - see page 36).

A shakeout of the banking sector has begun in Lebanon and Jordan, with the help of tougher capital adequacy requirements from central banks. One of Lebanon's larger banks, Banque Audi, has already bought a smaller institution and several other Beirut banks are reported to be shopping for acquisitions, even as they continue to build up their capital and their medium-term funding through issues on the local and international debt and equity markets. In neighbouring Jordan the banking sector has not fared badly this year, though there are some bankers who expect full- year profits to come under pressure (see page 39).

Changing hands

It is not only in Lebanon that banks are buying into other banks. France's Credit Agricole-Indosuez is planning to buy a bank in Egypt and other non-Arab institutions are reported to have considered the idea. Germany's Commerzbank and Japan's Nomura have each bought 10 per cent of the shares in Morocco's BMCE-Bank, and France's Societe Generale has taken a stake in a new venture in Algeria.

Yet Lebanon was the scene of the biggest acquisition in Arab banking for some time, when the government sold Credit Libanais, one of the top 10 local banks, to a group of Gulf Arab investors led by the Saudi banker Khalid Bin Mahfouz. Mahfouz vaulted over the heads of several local bidders, including Banque Audi, to scoop up the bank for $163 million. If Mahfouz brings over management expertise from National Commercial Bank in Saudi Arabia then the other local banks could be facing a tough competitor, especially in the nascent retail banking market.

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