Change font size:   

 
Cash management poll 2008:

Cash management poll 2008:

Results now live

The US treasury market reaches breaking point

The US treasury market reaches breaking point

The structural issue that could cause the world's market of last resort to grind to a halt

weeklyFiXLiquid real estate
Skip Navigation LinksHome :: Back Issues :: Oil hike provides respite for most

September 2000

Oil hike provides respite for most


To date, most Arab countries have been insulated from outside pressure due to highly protected markets and huge oil reserves. But foreign competition is set to increase, especially for markets joining the World Trade Organization. The biggest banks in small countries will have to look outside their domestic markets for growth, either through acquisitions or alliances. Darren Stubing reports




The beneficial effects on regional domestic economies of a higher oil price from the middle of last year onwards meant that Arab banks generally enjoyed a steady 1999.
       
Bahrain: Gulf International Bank, like Arab Banking Corp, is expanding in the region
However, it is in the results for this year that the full effects of the oil price rise will be reflected and the many positive First-half 2000 bank Figures already are showing the trend.
Most Arab countries will have good rates of growth in GDP this year, particularly within the Gulf Co-operation Council (GCC) region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE). The GCC states provide 61 of the top 100 Arab banks. And the top 20 banks ranked on capital are largely from Saudi Arabia, the UAE and Bahrain. The largest 20 represent 52% of the combined asset base but 58% of consolidated net profit. Many of the Arab banking systems remain fragmented with a large number of smaller players. Even the biggest Arab banks are small by international standards.
Arab Banking Corporation (ABC), headquartered in Bahrain, is the largest of the Arab banks.
Bottom-line results were much improved in 1999, net income tripling due to a large reduction in loan-loss provisioning compared with a difficult 1998 caused by exposure to emerging markets, particularly in Asia.
However, ABC's retail operations continue to produce lacklustre results. From its incorporation in 1980, ABC until recently adhered to a central strategy of diversification but now that strategy centres on international Financial activities related to the Arab world. Management is focusing on return on assets rather than asset growth and redressing the low profitability performance of the past several years which resulted both from asset- quality problems and the difficulties of effectively managing its far-Flung and disparate group of businesses.
Gulf International Bank (GIB), also based in Bahrain, moved up nine notches in 1999 to rank eighth largest after its acquisition of Saudi International Bank (SIB), a small London-based investment bank. GIB is a wholesale commercial bank whose primary focus is on the GCC market and the associated trade and Financial Flows between the area and the rest of the world. It is owned 72.5% by Kuwait-based Gulf Investment Corporation (which is itself equally owned by the six GCC states), 22.2% by the Saudi Arabian Monetary Agency (Sama) and 5.3% by JP Morgan. GIB possesses a strong franchise in the Gulf, partly through its shareholders.
Profitability was down in 1999 but the acquisition brought benefits by way of improved liquidity and more diversified funding. The acquisition expanded GIB's product range and non-interest earnings - evident in First-half 2000 results - together with approval of a physical presence in Saudi Arabia. GIB was the First bank to receive such approval and follows the decision of the GCC to allow banks from one member state to operate in another. GIB expects to have three Saudi branches over the medium term and plans to open branches in other GCC countries. SIB's activities were focused on asset management, corporate Finance and capital markets and GIB is now marketing the capabilities in these areas in the GCC.
Saudi Arabia, the biggest and arguably the strongest banking sector in the region, contributes seven of the largest 20 banks.
Saudi American Bank (SAMBA) rose four places in ranking to become the second largest Arab bank and the largest in Saudi Arabia (at the time of writing National Commercial Bank had not released its 1999 accounts). SAMBA's capital increased by 69% and assets by 54% following the 1999 merger with United Saudi Bank (USB). SAMBA is owned 23% by Citibank (with whom it still operates under a management contract) while some 74% of shares are held by Saudis, the largest stake being controlled by Prince Alwaleed bin Talal, who previously controlled USB. SAMBA's profitability slumped in 1999 because of a deterioration in loan-asset quality after the merger with USB which also caused increased expenses. USB had a high volume of bad loans (inherited largely from its 1997 merger with Saudi-Cairo Bank) which required additional provisioning. As a result, SAMBA provided a special merger-related provision of SR605 million to cover the portfolio. Mid-year 2000 results reveal a slight fall in the NPL ratio to 9.8% and a small increase in earnings over the corresponding period in 1999. Despite the setback, the medium-term outlook remains encouraging, the bank planning to capitalize on merger benefits such as the establishment of a strong middle-market customer base and increased Financial resources to enable SAMBA to develop into a Middle East banking power.
       
The oil price hike has hugely boosted Saudi Arabia, which has seven of the top 20 banks
On this note, it has recently established a presence in Beirut; Cairo is likely to be next. Other objectives include expanding its corporate-Finance activities, developing middle-market business and maintaining its dominant position in the credit-card market.
Riyad Bank, Saudi's third largest bank and ranked fourth overall in the table, continues to strengthen its Financial profile. It has one of the highest capital ratios in the region. Predominantly a retail bank, Riyad's size and ownership (Sama and the ministry of Finance) make it a major force in the Financing of large government or quasi-government projects. The bank has made much progress over the last few years, new management adopting a more commercial approach.
Al Rajhi Banking and Investment Corporation (sixth-ranked) achieved once again the highest net profit Figure (US$412m) among all Arab banks, generating ROA of 3.6%. Al Rajhi is the only Saudi bank operating exclusively on Islamic principles, giving it a strong position in certain markets. Operations are notable for their simplicity and tend to concentrate on international trade, there being recent expansion into such areas as leasing, project Finance and instalment sales.
Al Rajhi has the largest branch network (362) in Saudi and has engendered strong customer loyalty. The bank's strategy is to gather non-interest-bearing deposits through its branch network and utilize the funds in Sharia-approved investments. It has a virtual monopoly on Islamic Financing business in Saudi, despite increasing competition as virtually all banks now oVer Islamic products.
  Page 1 of 2  Next | Single Page






The long-term prospects for emerging markets are still bright. Western financial institutions quite rightly continue to invest in them. But there is a reason why they are still termed emerging.

  1. US treasury market reaches breaking point

  2. Top 10 financial definitions that are funnier since the credit crunch

  3. Top 10 reasons to tell your boss you deserve a bonus this year

  4. Nomura’s great leap forward: Will Lehman takeover help fulfil its global ambitions?

  5. Eksportfinans turns to government for funding

Latest Issue

December 2008
Ruromoney Jobs Post a job

Home | Mobile site | Contact Us | Debt markets | Equities | Foreign exchange | Banking | Alternative Investments | Regions and Emerging markets | Polls & Awards | Structured credit | Back issues | Euromoney store | Useful links and Related events | Site Map

The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms and Conditions, Privacy Policy before using the site.

All material subject to strictly enforced copyright laws. © 2008 Euromoney Institutional Investor PLC.