Whether it is through organic growth, buying holdings in other banks or outright acquisitions, the region's financial institutions are looking to extend their geographical reach.
While the merger of two of Dubai's leading banks, and recent comments by a senior banker that the region is ready for cross-border mergers, drive speculation as to who will be next, the reality is that mergers on this scale do not happen overnight. There are many practical and political obstacles to overcome.
The next mega-merger could be next month or it could be next year. However, what is gathering pace is the less-dramatic, but nonetheless significant development: the expansion into new markets by GCC banks. This is taking various forms, from simply opening up a branch, to acquiring minority holdings to takeovers.
So what is the reason for this sudden interest in all things foreign?
In the past GCC banks have not had to look beyond their own borders to find growth opportunities, as their booming domestic economies, driven by the high oil price, have provided plenty of scope to grow their businesses both in the commercial and retail areas, while at the same time developing their Islamic portfolios and expansion into investment banking and the like.
But the wealth of opportunity, together with a relaxation of the regulatory environment has brought with it increased competition both from local and foreign banks setting up in the region. So, while there is no sign of a downturn, it is tougher to grow market share here.
Historically, the overseas activities of GCC banks have largely (with a few notable exceptions) been limited to a presence in the world's leading financial centres, for the sole purpose of serving the requirements of their own high-net-worth clients. Things are changing now.
So, what sort of business are banks looking to do in these new markets?
According to Paul-Henri Pruvost, a rating analyst at Standard & Poor's, GCC banks aim "to replicate what they have achieved in their own domestic markets, initially concentrating on the corporate market, with the aim of expanding into retail and eventually investment banking."
Analysts Robert Thursfield, Director and Philp Smith, Senior Director, of Fitch Ratings offer a similar view: "Most of the GCC banks looking at acquisitions say they will be cautious and stick to high-quality corporate and government business when entering new markets, but in the larger market there is also potential for the higher-end of the retail market, targeting affluent individuals.
"Business with major corporates and project finance does not necessarily need a local presence, and some of the larger regional banks already participate in such cross-border deals."
The new markets seem to fall into three categories. First, other GCC countries, which despite having the drawback of the same issue of undiversifed economies, do enable banks to broaden their geographical reach in relatively low-risk environments.
But it is the other two categories - the larger MENA region and the even broader perspective of the Islamic countries such as Turkey, Malaysia and Indonesia - which offer greater growth potential.
The work of identifying suitable markets can involve a range of considerations.
Raj Madha, Senior Research Analyst at EFG Hermes, identifies "demographics, cross-selling opportunities, political stability, cultural affinity, trade relationships, ease of branch opening and capital market controls" as important, but highlights "GDP growth, monetary penetration, structural change and competition" as being the key areas of deliberation.
One of the banks aiming to establish a pan-GCC presence is Ahli United Bank (AUB), a leading Bahraini bank. AUB boldly states its aim is to expand its "operating presence in each of the Gulf countries, with targeted 10-20 per cent market share through mergers, acquisitions and organic growth".
Already holding a 75 per cent stake in the Bank of Kuwait and the Middle East, and a 40 per cent stake in Ahli Bank in Qatar, AUB announced earlier this year that it was acquiring 35 per cent of Oman-based Alliance Housing Bank.
National Bank of Kuwait (NBK), the largest bank in its domestic market, is another with similar designs on neighbouring markets, having opened branches in Saudi Arabia and Bahrain, as well as increasing its stake in the International Bank of Qatar to 30 per cent from 20 per cent.
But expansion within the GCC has its limitations. Thursfield and Smith of Fitch point out that "the lack of willing sellers, and high prices, together with the fact that the GCC markets are very small and over-banked has driven banks to look at non-GCC markets."
In the wider MENA region there are not the same constraints. Indeed, in Egypt, which has attracted several Gulf banks, the Government has been encouraging takeovers in an attempt to accelerate the system's cleaning-up.
Again NBK features on the list of buyers, with its acquisition of 51 per cent of Al Watany Bank, a holding, which only recently was raised to 94 per cent as NBK's Chief Executive Officer, Ibrahim Dabdoub, described the Egyptian market as "one of the most promising in the region".
Pruvost of S&P comments that Egypt, with "its large-growing population and under-developed, under-banked system" is a prime target for GCC banks.
Another which has set international expansion as a key target is Qatar National Bank (QNB), the dominant bank in Qatar.
In July QNB announced that it had acquired 20.6 per cent (which it subsquently raised to 30 per cent) of Jordan-based Housing Bank for Trade and Finance, as well as announcing its decision to establish a Syrian-Qatari joint-venture bank.
QNB has also opened a branch in Libya and plans to open three additional branches in Yemen, Kuwait and Oman.
One bank not new to international expansion is the Bahrain-based, Arab Banking Corporation (ABC).
ABC is one of the few GCC banks which has experienced the risks in operating in unfamiliar markets, having pursued a strategy of international growth in the 1980s, building a strong presence in the South-East Asia, Europe and Latin America.
By the mid-1990s, the difficulties in controlling risk in these disparate operations led it to sell its operations in Spain and Hong Kong. ABC's focus is now on the MENA region, in particular Jordan and Egypt, and to a lesser extent Algeria and Tunisia. ABC is reported to be actively seeking acquisitions again.
Outside MENA, Turkey has attracted much attention. As with Egypt, part of its attraction is a large population and the growing interest in Sharia-compliant finance or 'participation finance' as it is labelled in Turkey.
Here, Saudi Arabia's National Commercial Bank, the largest bank in the GCC, bought 60 per cent of Turkiye Finans, one of the four Turkish participation banks.
NBK appears again, with an announcement that it intends to acquire 40 per cent of Turkish Bank A.S., which is intended to provide a solid platform for future growth.
Turning to South-East Asia: GCC Islamic banks have been attracted to the expanding Islamic banking sector in Malaysia, as well as using this country as a springboard into other Asian markets.
Kuwait Finance House was the first foreign Islamic bank to set up operations in Malaysia, and was followed by Al-Rajhi Bank, which started its operations in October 2006 and is already planning to have 50 branches there by 2010. Dubai Islamic Bank has also picked Malaysia to become the centre of its expansion into Asia.
Overall, Standard & Poor's calculates that $3 billion has been spent (or is planned to be spent) on cross-border acquisitions in the first eight months of 2007. Of course, it helps that GCC banks are undertaking these ventures from a position of strength.
Madha of EFG Hermes says that "all banks are well-capitalised, so they can typically make acquisitions up to about 15 per cent of the (their own) market capitalisation without worrying about external funding, or having to offer paper. In any case, paper isn't very useful for cross-border acquisitions, so often these will be facilitated with rights issues".
However, acquisitions and particularly overseas acquisitions are not without their stresses.
Pruvost of S&P points out that in markets such as Egypt, the first challenges for the acquiring bank are "tackling inefficiencies, setting up effective information systems, and strengthening risk management, one of the main weaknesses of the acquired banks in this part of the world".
While there are, no doubt, any number of discussions going on at the highest levels about cross-border mergers and the creation of regional champions, many GCC banks are using their current financial strength to establish footholds in high-growth markets.
That will enable them to reduce their dependence on relatively undiversified domestic economies, on a scale that so far doesn't weaken their overall credit standing. Strange as it seems, the growth story for the region's own banks lies as much beyond their own buoyant backyard as within it.
The author is a freelance writer.
| Banks listed on ADSM and DFM |
| Three - Quarters Data |
Total Assets (Dh M) |
| 2006 |
End-07Q3 |
% |
| Abu Dhabi Commercial Bank |
81088 |
100421 |
23.8 |
| Abu Dhabi Islamic Bank * |
36290 |
40986 |
12.9 |
| Arab Emirates Investment Bank |
498 |
546 |
9.5 |
| Bank of Sharjah |
8353 |
8830 |
5.7 |
| Commercial Bank International |
7380 |
9565 |
29.6 |
| Commercial Bank of Dubai |
18705 |
24257 |
29.7 |
| Commercial Int Bk-Egypt # [EGP m] |
37422 |
43955 |
17.5 |
| Dubai Islamic Bank * |
64434 |
74071 |
15 |
| Emirates Bank International |
95878 |
133321 |
39.1 |
| Emirates Islamic Bank* |
10474 |
14011 |
33.8 |
| Finance House |
1315 |
1564 |
18.9 |
| First Gulf Bank |
47759 |
61799 |
29.4 |
| Gulf Finance House # [USD m] |
1501 |
2295 |
52.9 |
| Invest Bank |
6664 |
7573 |
13.6 |
| Mashreqbank |
56745 |
74225 |
30.8 |
| National Bank of Abu Dhabi |
100966 |
117468 |
16.3 |
| National Bank of Dubai |
69276 |
88047 |
27.1 |
| National Bank of Fujairah |
8627 |
10240 |
18.7 |
| National Bank of Ras Al-Khaimah |
8842 |
10311 |
16.6 |
| National Bank of Umm Al-Quwain |
5168 |
7240 |
40.1 |
| Sharjah Islamic Bank * |
7642 |
9995 |
30.8 |
| Union National Bank |
41571 |
46385 |
11.6 |
| United Arab Bank |
4790 |
4973 |
3.8 |
|
Notes:
Banks and figures are as recorded in English language to Emirates Securities and Commodities Authority (ESCA) and displayed on disclosure list
Two remaining listed banks (data not shown) are: Arab Bank, Jordan and TAIB Bank
Emirates NBD pro forma consolidated figures (30/9/07) : Total Assets Dh 228,269m, Total Equity Dh 23,550m, Revenue Dh 4,816m, Net Profit Dh 2,566m
* Islamic banks' revenue figures show distributions to depositors deducted for comparability with conventional banks
# Figures supplied in foreign denominations: Commercial Int'l Bank - Egypt in Egyptian pounds, Gulf Finance House in US dollars
|
| |
| Banks listed on ADSM and DFM |
| Three - Quarters Data |
Total Equity (Dh M) |
| 2006 |
End-07Q3 |
% |
| Abu Dhabi Commercial Bank |
10724 |
10896 |
1.6 |
| Abu Dhabi Islamic Bank * |
2770 |
5098 |
84.1 |
| Arab Emirates Investment Bank |
227 |
266 |
17.4 |
| Bank of Sharjah |
2097 |
2091 |
-0.3 |
| Commercial Bank International |
1115 |
1424 |
27.7 |
| Commercial Bank of Dubai |
3810 |
4326 |
13.5 |
| Commercial Int Bk-Egypt # [EGP m] |
3040 |
3966 |
30.5 |
| Dubai Islamic Bank * |
8824 |
9629 |
9.1 |
| Emirates Bank International |
8878 |
10032 |
13 |
| Emirates Islamic Bank* |
966 |
1230 |
27.4 |
| Finance House |
724 |
732 |
1 |
| First Gulf Bank |
8985 |
9545 |
6.2 |
| Gulf Finance House # [USD m] |
668 |
768 |
14.9 |
| Invest Bank |
1514 |
1561 |
3.1 |
| Mashreqbank |
7949 |
9465 |
19.1 |
| National Bank of Abu Dhabi |
9005 |
10373 |
15.2 |
| National Bank of Dubai |
6044 |
6617 |
9.5 |
| National Bank of Fujairah |
1576 |
1704 |
8.1 |
| National Bank of Ras Al-Khaimah |
1247 |
1460 |
17.1 |
| National Bank of Umm Al-Quwain |
1414 |
1610 |
13.8 |
| Sharjah Islamic Bank * |
2109 |
2110 |
0 |
| Union National Bank |
6028 |
6400 |
6.2 |
| United Arab Bank |
1093 |
1221 |
11.8 |
Notes:
Banks and figures are as recorded in English language to Emirates Securities and Commodities Authority (ESCA) and displayed on disclosure list
Two remaining listed banks (data not shown) are: Arab Bank, Jordan and TAIB Bank
Emirates NBD pro forma consolidated figures (30/9/07) : Total Assets Dh 228,269m, Total Equity Dh 23,550m, Revenue Dh 4,816m, Net Profit Dh 2,566m
* Islamic banks' revenue figures show distributions to depositors deducted for comparability with conventional banks
# Figures supplied in foreign denominations: Commercial Int'l Bank - Egypt in Egyptian pounds, Gulf Finance House in US dollars |
| |
| Banks listed on ADSM and DFM |
| Three - Quarters Data |
Revenue (Dh M) |
| 06Q1-Q3 |
07Q1-Q3 |
% |
| Abu Dhabi Commercial Bank |
2396 |
2478 |
3.4 |
| Abu Dhabi Islamic Bank * |
751 |
985 |
31.2 |
| Arab Emirates Investment Bank |
39 |
17 |
-55.1 |
| Bank of Sharjah |
318 |
306 |
-4.1 |
| Commercial Bank International |
196 |
380 |
93.9 |
| Commercial Bank of Dubai |
668 |
955 |
42.9 |
| Commercial Int Bk-Egypt # [EGP m] |
1287 |
1697 |
31.8 |
| Dubai Islamic Bank * |
1742 |
2423 |
39.1 |
| Emirates Bank International |
2105 |
2886 |
37.1 |
| Emirates Islamic Bank* |
211 |
386 |
82.9 |
| Finance House |
237 |
152 |
-35.7 |
| First Gulf Bank |
1523 |
1935 |
27 |
| Gulf Finance House # [USD m] |
270 |
388 |
43.9 |
| Invest Bank |
253 |
261 |
3.4 |
| Mashreqbank |
1947 |
2625 |
34.8 |
| National Bank of Abu Dhabi |
2216 |
2555 |
15.3 |
| National Bank of Dubai |
1304 |
1937 |
48.5 |
| National Bank of Fujairah |
244 |
342 |
39.8 |
| National Bank of Ras Al-Khaimah |
472 |
658 |
39.3 |
| National Bank of Umm Al-Quwain |
117 |
356 |
204.5 |
| Sharjah Islamic Bank * |
235 |
319 |
35.6 |
| Union National Bank |
1169 |
1205 |
3.1 |
| United Arab Bank |
200 |
249 |
24.4 |
Notes:
Banks and figures are as recorded in English language to Emirates Securities and Commodities Authority (ESCA) and displayed on disclosure list
Two remaining listed banks (data not shown) are: Arab Bank, Jordan and TAIB Bank
Emirates NBD pro forma consolidated figures (30/9/07) : Total Assets Dh 228,269m, Total Equity Dh 23,550m, Revenue Dh 4,816m, Net Profit Dh 2,566m
* Islamic banks' revenue figures show distributions to depositors deducted for comparability with conventional banks
# Figures supplied in foreign denominations: Commercial Int'l Bank - Egypt in Egyptian pounds, Gulf Finance House in US dollars |
| |
| Banks listed on ADSM and DFM |
| Three - Quarters Data |
Net Profit (Dh M) |
| 06Q1-Q3 |
07Q1-Q3 |
% |
| Abu Dhabi Commercial Bank |
1616 |
1583 |
-2 |
| Abu Dhabi Islamic Bank * |
406 |
483 |
18.9 |
| Arab Emirates Investment Bank |
35 |
13 |
-61.8 |
| Bank of Sharjah |
266 |
247 |
-7 |
| Commercial Bank International |
-14 |
174 |
-- |
| Commercial Bank of Dubai |
441 |
649 |
47.3 |
| Commercial Int Bk-Egypt # [EGP m] |
615 |
905 |
47.3 |
| Dubai Islamic Bank * |
1015 |
1887 |
85.8 |
| Emirates Bank International |
1366 |
1778 |
30.2 |
| Emirates Islamic Bank* |
77 |
144 |
87.6 |
| Finance House |
214 |
111 |
-48.2 |
| First Gulf Bank |
1141 |
1387 |
21.5 |
| Gulf Finance House # [USD m] |
176 |
234 |
33.3 |
| Invest Bank |
174 |
200 |
15 |
| Mashreqbank |
1133 |
1438 |
26.9 |
| National Bank of Abu Dhabi |
1637 |
1761 |
7.5 |
| National Bank of Dubai |
756 |
974 |
28.9 |
| National Bank of Fujairah |
169 |
229 |
35.5 |
| National Bank of Ras Al-Khaimah |
193 |
292 |
51.3 |
| National Bank of Umm Al-Quwain |
67 |
232 |
246.6 |
| Sharjah Islamic Bank * |
144 |
172 |
19.7 |
| Union National Bank |
835 |
841 |
0.8 |
| United Arab Bank |
111 |
151 |
35.6 |
Notes:
Banks and figures are as recorded in English language to Emirates Securities and Commodities Authority (ESCA) and displayed on disclosure list
Two remaining listed banks (data not shown) are: Arab Bank, Jordan and TAIB Bank
Emirates NBD pro forma consolidated figures (30/9/07) : Total Assets Dh 228,269m, Total Equity Dh 23,550m, Revenue Dh 4,816m, Net Profit Dh 2,566m
* Islamic banks' revenue figures show distributions to depositors deducted for comparability with conventional banks
# Figures supplied in foreign denominations: Commercial Int'l Bank - Egypt in Egyptian pounds, Gulf Finance House in US dollars |
| |
| Banks listed on ADSM and DFM |
| Three - Quarters Data |
Capital asset Ratio (%)- |
| 2006 |
End-07Q3 |
- |
| Abu Dhabi Commercial Bank |
13.2 |
10.9 |
- |
| Abu Dhabi Islamic Bank * |
7.6 |
12.4 |
- |
| Arab Emirates Investment Bank |
45.5 |
48.8 |
- |
| Bank of Sharjah |
25.1 |
23.7 |
- |
| Commercial Bank International |
15.1 |
14.9 |
- |
| Commercial Bank of Dubai |
20.4 |
17.8 |
- |
| Commercial Int Bk-Egypt # [EGP m] |
8.1 |
9 |
- |
| Dubai Islamic Bank * |
13.7 |
13 |
- |
| Emirates Bank International |
9.3 |
7.5 |
- |
| Emirates Islamic Bank* |
9.2 |
8.8 |
- |
| Finance House |
55.1 |
46.8 |
- |
| First Gulf Bank |
18.8 |
15.4 |
- |
| Gulf Finance House # [USD m] |
44.5 |
33.4 |
- |
| Invest Bank |
22.7 |
20.6 |
- |
| Mashreqbank |
14 |
12.8 |
- |
| National Bank of Abu Dhabi |
8.9 |
8.8 |
- |
| National Bank of Dubai |
8.7 |
7.5 |
- |
| National Bank of Fujairah |
18.3 |
16.6 |
- |
| National Bank of Ras Al-Khaimah |
14.1 |
14.2 |
- |
| National Bank of Umm Al-Quwain |
27.4 |
22.2 |
- |
| Sharjah Islamic Bank * |
27.6 |
21.1 |
- |
| Union National Bank |
14.5 |
13.8 |
- |
| United Arab Bank |
22.8 |
24.6 |
- |
Notes:
Banks and figures are as recorded in English language to Emirates Securities and Commodities Authority (ESCA) and displayed on disclosure list
Two remaining listed banks (data not shown) are: Arab Bank, Jordan and TAIB Bank
Emirates NBD pro forma consolidated figures (30/9/07) : Total Assets Dh 228,269m, Total Equity Dh 23,550m, Revenue Dh 4,816m, Net Profit Dh 2,566m
* Islamic banks' revenue figures show distributions to depositors deducted for comparability with conventional banks
# Figures supplied in foreign denominations: Commercial Int'l Bank - Egypt in Egyptian pounds, Gulf Finance House in US dollars |
| |
| Banks listed on ADSM and DFM |
| Three - Quarters Data |
Profit Margin (%)- |
| 06Q1-Q3 |
07Q1-Q3 |
- |
| Abu Dhabi Commercial Bank |
67.5 |
63.9 |
- |
| Abu Dhabi Islamic Bank * |
54.1 |
49.1 |
- |
| Arab Emirates Investment Bank |
89.8 |
76.4 |
- |
| Bank of Sharjah |
83.4 |
80.9 |
- |
| Commercial Bank International |
-7.2 |
45.9 |
- |
| Commercial Bank of Dubai |
66 |
68 |
- |
| Commercial Int Bk-Egypt # [EGP m] |
47.7 |
53.4 |
- |
| Dubai Islamic Bank * |
58.3 |
77.9 |
- |
| Emirates Bank International |
64.9 |
61.6 |
- |
| Emirates Islamic Bank* |
36.4 |
37.4 |
- |
| Finance House |
90.3 |
72.8 |
- |
| First Gulf Bank |
74.9 |
71.7 |
- |
| Gulf Finance House # [USD m] |
65.2 |
60.4 |
- |
| Invest Bank |
68.9 |
76.6 |
- |
| Mashreqbank |
58.2 |
54.8 |
- |
| National Bank of Abu Dhabi |
73.9 |
68.9 |
- |
| National Bank of Dubai |
58 |
50.3 |
- |
| National Bank of Fujairah |
69.1 |
67 |
- |
| National Bank of Ras Al-Khaimah |
40.9 |
44.4 |
- |
| National Bank of Umm Al-Quwain |
57.3 |
65.2 |
- |
| Sharjah Islamic Bank * |
61 |
53.8 |
- |
| Union National Bank |
71.4 |
69.8 |
- |
| United Arab Bank |
55.6 |
60.7 |
- |
Notes:
Banks and figures are as recorded in English language to Emirates Securities and Commodities Authority (ESCA) and displayed on disclosure list
Two remaining listed banks (data not shown) are: Arab Bank, Jordan and TAIB Bank
Emirates NBD pro forma consolidated figures (30/9/07) : Total Assets Dh 228,269m, Total Equity Dh 23,550m, Revenue Dh 4,816m, Net Profit Dh 2,566m
* Islamic banks' revenue figures show distributions to depositors deducted for comparability with conventional banks
# Figures supplied in foreign denominations: Commercial Int'l Bank - Egypt in Egyptian pounds, Gulf Finance House in US dollars |
