When the purchase of a stake in Zain Saudi Arabia collapsed on 29 September, it sounded like more bad news for the banking industry, as another merger and acquisition (M&A) deal disappeared. There has been recent reason to cheer in the project finance sector, however, with the Barzan gas project in Qatar on track to raise more than the $4bn it needs.

On the surface, it looks like a simple tale of failure and success, but both deals highlight worrying trends for the region’s banking sector – trends not likely to disappear any time soon.

The collapse of the $950m Zain Saudi Arabia deal is perhaps the more straightforward. Kingdom Holding, the Saudi investment group owned by Prince Al-Waleed bin Talal, had joined forces with Bahrain’s Batelco to buy a 25 per cent stake in the mobile operator from its Kuwaiti parent company Zain. But how to deal with the $3.8bn of debt the target company had accumulated ultimately proved impossible to resolve for the negotiating parties.

Across the region, the number of M&A deals has slumped over the past few years. There are few buyers and all are wary of taking on more debt. For investment banks, the loss of M&A fees has been matched by a downturn in stock market activity, leading to a hard fall in income.

It is not just the local banks that are feeling the pinch. International banks, particularly European ones, have been badly affected by the downturn in their home economies and are scaling back regional activities as a result.

This explains the limited involvement of European banks in the Barzan project finance deal. The project sponsors, Qatar Petroleum and the US’ ExxonMobil, seem to have coped without them, with pricing expected to come in below 200 basis points above the London interbank offered rate, when the deal is finalised in late October. But such a low price is unprofitable for many institutions and is ultimately unsustainable. It seems that in the current environment, banks are being hurt just as much by deals that do go ahead as deals that do not.