Top 100 Arab Banks: the Arab 100
Top 100 Arab Banks: Capital growth year-on-year
Top 100 Arab Banks: Asset growth year-on-year
Top 100 Arab Banks: Profit growth year-on-year
Top 100 Arab Banks: ROE growth
Top 100 Arab Banks: Methodology and Definitions
Banks in the Middle East and North Africa turned in yet another impressive performance in 1997. They benefited from propitious regional and international operating environments in the first half of last year. In the second half, though the Asian financial crisis overshadowed the business climate, the banks emerged generally unscathed. Overall, the top 100 Arab banks’ combined net profits increased by a healthy 15.5% to $5.5 billion in 1997, generating returns on assets and equity of 1.3% and 14.4% respectively.
The banks will now have to contend with the continuing low oil prices and the full effects of the turmoil in the Asian financial markets. In the past, during recessions, the banks increasingly relied on borrowing from governments as these attempted to contain pressures on their widening budgets. As the Gulf economies endure lower rates of growth, the governments and banks are again likely to complement each others’ financial requirements in order to soften the adverse effects of low oil prices.
The need for credit, particularly in the private sector, will also increase this year; but the banks, which have sensibly learnt from their past experience of name lending in the 1980s, are, by and large, implementing sounder credit policies that should enable them to restrain the rise in non-performing loans. Nevertheless, the growth in the banks’ earnings is expected to level off in 1998 and possibly fall back in 1999 as provisioning against bad debts mounts.
Against this background, efforts are being made to integrate the Arab economies into the global economy. A significant event was the decision in late 1997 by the six Gulf Cooperation Council (GCC) states to allow, in principle, banks from one member state to operate in another. This is inevitable given the region’s ambitions to join the World Trade Organization and should lead to widespread consolidation and greater efficiency. Initially, the new rule applies to GCC banks that have been operating for at least ten years and have shareholders’ funds exceeding $100 million. However, in view of diverging political interests in the GCC, it remains to be seen how and when the ministers’ new ruling will lead to the GCC banking sector becoming more integrated and competitive. To date, only the Bahrain-based Gulf International Bank, which is owned through Gulf Investment Corporation by the six GCC states, has been officially authorized to open branches in all the GCC countries.
A slow process
Most of the region’s countries have embraced the idea of privatization in recent years. Although some progress has been made, the pace of divestment of state assets has often been slow. So far, the most successful privatization programmes have been in Egypt and Morocco, where many state-owned companies were partly sold to domestic and, at times, strategic foreign investors. Kuwait has also executed an effective programme but nearly all the government assets ended up in the hands of local private interests. This has contributed to increasing foreign direct investment, boosting capitalization and activity on the stock exchanges, and deepening the scope of the domestic capital markets. However, in many of the other countries in the region, privatization has been a disappointment, mainly because of bureaucracy and political interference.
The Arab 100 table, as in previous years, is dominated by the strongly capitalized Saudi banks, with eight of the kingdom’s 11 banks among the region’s top 15 players. The Gulf-based banks are heavily represented in the survey, taking 64 slots. This is partly an indication of the more fragmented and overbanked nature of the banking sectors in a number of GCC countries and partly a reflection of the relatively more developed nature of their economies. The United Arab Emirates came out top among the GCC countries with 18 banks, followed by Bahrain with 13 and Saudi Arabia with 11. Kuwait took nine slots, and Oman and Qatar nine and four respectively. The Jordan-based Arab Bank and National Bank of Egypt are the only two non-GCC banks in the top 10.
Saudi Arabia’s National Commercial Bank continued to be the leading Arab bank in 1997, ranked first by total capital and second by total assets. Bahrain’s Arab Banking Corporation, conversely, occupied the second and first spots on the same measures. Significantly smaller by assets, Saudi Arabia’s Riyad Bank (3) nevertheless boasted a capital base similar to those of the two front runners. The top 100 Arab banks’ balance sheets advanced by 10.3% to $417.5 billion at end-1997, with their total capital expanding by 11.4% to $38.2 billion. The most profitable bank last year was Saudi Arabia’s Al-Rhaji Banking and Investment Corporation (5), raking in net profits of $356.6 million. This institution specializes in the delivery of Islamic-based services and is controlled by the influential Al-Rajhi family of Saudi Arabia.
Saudi Arabia had another good year in 1997 and the government was able to reduce its fiscal deficit, settle government arrears payments to the private sector, maintain low inflation and generate a surplus on its current account balance for the years 1996-97. Real GDP growth in 1997 is estimated to have been 3% (to $146 billion), compared with 2.3% in 1996. The drop in oil prices last year is believed to have been compensated by the surge in production of crude, natural gas and light petroleum products. Growth in non-oil activities also rose in 1997 with the private sector growing at a nominal 4.1% and the public sector at 14%. This sizeable expansion mainly sprang from higher actual budgetary expenditures, up by 5.7%, and to the expansionary policies of some of the autonomous government agencies which had been financing projects from their own internal sources. Saudi Arabia’s external position also improved last year with estimates showing a surplus in the current account of almost $240 million, following a surplus of $214 million in 1996. With the decline in oil prices as well as prices of imports and the appreciation of the Saudi riyal, real GDP growth for 1998 is forecast at 1.8%.
A new institution
The Saudi banking system experienced its first consolidation since the sector was taken into Saudi hands back in the early 1980s when Prince Al-Waleed bin Talal bin Abdulaziz Al Saud, a high-profile international investor, orchestrated the merger between United Saudi Commercial Bank, where he was majority shareholder and chairman, and Saudi Cairo Bank. The new institution created through the merger is called United Saudi Bank and officially began operations on 14 September 1997. The combined entity had total assets of over $7 billion and equity of $850 million, ranking it ninth among the top Arab 100 banks; it is now also the fifth-largest bank in the kingdom, measured by capital (eighth by assets). United Saudi shows adequate provisions, high capitalization and comfortable liquidity ratios. The main focus for 1998 is on strengthening the bank’s controls and integrating systems.
The ranking of the other Saudi banks remained largely unchanged in 1997, with their total capital increasing by only single-digit percentages, except for United Saudi and Saudi Hollandi Bank. National Commercial, in its first year of operation as a joint-stock company following the 20% sale of Sheikh Khalid bin Mahfouz’s shares to relatives and close friends, earned $278.6 million in profits last year, up by 14%, to become the most profitable (in real terms) Saudi bank, and, in fact, the most profitable commercial bank in the Arab world excluding Al-Rajhi Banking.
After a long absence from National Commercial, Sheikh Khalid is now firmly in control at the top of management, implementing strategies that were formulated before his return, mainly by his older brother, Sheikh Mohammed Salim bin Mahfouz. The bank has concentrated on developing its fee income, restructuring its management and upgrading operations with state-of-the-art technology. As a result, the bank’s status has been boosted in the local market thanks to its much improved financial performance.
Riyad Bank (3), 28.5% owned by the ministry of finance and the well-respected Saudi Arabian Monetary Agency, began reaping the benefits of its restructuring, which is emphasizing market-oriented retail strategies, by lifting its earnings by 20.3%. It appears that the bank has finally shaken off its long-standing sleeping-giant reputation and can look forward to years of profitable operations.
Saudi Arabia’s joint-venture banks, most of which have strong links with their foreign shareholders, also had a prosperous year. Leading the way is the 31% Citibank-owned Saudi American Bank (6) which historically has been the most profitable bank in the region and continues to set an example as a highly efficient bank. Close behind is Saudi British Bank (11), 40% owned by HSBC, which has built a strong franchise predicated on HSBC’s influence, management expertise and solid retail strategies. Then comes Al Bank Al Saudi Al Fransi (13), 40% owned by Crédit Agricole Indosuez) and Arab National Bank (14), 40% owned by the Arab Bank of Jordan), both well-established outfits in the kingdom. In September 1998, Arab National is welcoming a new managing director, Nemeh Sabbagh, previously of National Bank of Kuwait. Coming towards the lower tier of the sector are Saudi Investment Bank (32) and Saudi Hollandi (34), with the latter 40% owned by ABN Amro. These banks are well run and financially sound. However, because of the emergence of United Saudi, they have been left behind, with their total assets and capital significantly smaller than those of their competitors.
Bahrain has the largest concentration of foreign banks of any country in the region and is the Middle East’s most diverse and dynamic financial centre. Although its relative importance as an international financial centre has waned in the global context, with the drying up of the flow of petrodollars and nearly instantaneous communications between major world markets, the financial services sector has demonstrated its versatility and resilience in redefining its core activities and focus. Major advantages of Bahrain include strong supervision by the internationally well-respected Bahrain Monetary Agency (BMA), its well-established credentials as a progressive offshore banking sector, its history as a liberal trading nation and its close connection with Saudi Arabia. Moreover, in recent years a number of Islamic banks have been created in the island-state. With GDP at around $5.7 billion, Bahrain achieved nominal GDP growth of 5.5% in 1997 (1996: 5.9%), with the economy growing by 3.1% in 1996 in real terms. Inflation is estimated to have been slightly negative in 1996 and flat last year. Following a budget deficit of $303 million in 1996, this was reduced to an estimated $200 million in 1997 as revenues outpaced the growth in expenditures. According to preliminary data released by the BMA, the country recorded a trade balance of $450 million last year but its current account was in deficit by about $200 million. The contribution of the oil sector (crude oil and natural gas) to GDP is believed to be around 20%.
In the top half of the table, the Bahraini banks are represented by five players, two of which are among the most prominent names in the Arab world. Arab Banking Corporation (2) and Gulf International Bank (16) both operate as offshore banking units (OBUs). The former, whose ranking remained unchanged, is owned by the Kuwait ministry of finance, the Abu Dhabi Investment Authority and the central bank of Libya, each of which have a one-third stake, and has a truly global outreach. It also operates such important subsidiaries as Banco Atlantico in Spain, and International Bank of Asia in Hong Kong. These banks accounted for about 53% of Arab Banking Corporation’s total consolidated assets. Gulf International, which also has a prominent position in the international markets relative to other Arab banks, recorded profits down 8.6% in 1997, mainly because of conservative provisioning in relation to its Asian exposure. For the six months to end-June 1998, Gulf International reported $44 million in profits against $52.7 million in the corresponding period of 1997. Investcorp Bank (20), improving its position by one notch, remains the region’s foremost investment bank in the region. Investcorp posted a 20.4% increase in net income last year and exhibited some of the highest returns among the top 100 Arab banks. It is 47.5% publicly owned and 37.5% of its shares are held by management, with 15% in the hands of a small group of prominent businessmen from the Gulf who were among the founding shareholders. Bank of Bahrain and Kuwait (45) and National Bank of Bahrain (49) are the top two domestic banks (out of seven) in the country that have full commercial bank status. Bank of Bahrain and Kuwait, owned equally by Kuwaiti and Bahraini shareholders, increased its profits more than threefold last year by realizing a large gain on the sale of its 49% stake in Bank of Oman, Bahrain and Kuwait. On the other hand, National Bank, the oldest indigenous bank in the sector and 49% owned by the government, posted a modest 7.3% rise in profits, although its asset portfolio continues to be highly liquid.
The other Bahraini banks represented in the lower half of the table are all OBUs, except for the third- and fifth-largest locally incorporated banks, Al-Ahli Commercial Bank (75) and Bahraini Saudi Bank (89). Most of these OBUs benefit from strong capitalization. Two of these, Faysal Islamic Bank of Bahrain (61), which also holds a local licence, and Albaraka Islamic Investment Bank (100), operate according to Shari’a law, with the former mainly involved in fund management and the latter, a member of the powerful Jeddah-based Dallah Albaraka Group, focusing mainly on Saudi-related trade-finance business. United Gulf Bank (53), Bahrain International Bank (54), Bahrain Middle East Bank (67) and TAIB Bank (77) have carved themselves lucrative niche markets over the past few years, concentrating mainly on the delivery of sophisticated investment, treasury, merchant and private banking services.
Kuwait’s nominal GDP growth was drastically reduced in 1997, to 6.5%, as a result of the softening of world oil prices, against the 16.8% recorded a year earlier. In 1998, growth in the economy will be even more subdued. In the first half of the current fiscal year (1997-98), the government ran a surplus in the budget amounting to $1.8 billion (1996-97: $2.4 billion). However, trends in the second half of the fiscal year suggest a rapidly deteriorating position, with the budget returning to deficit, possibly reaching $1.7 billion to $3.3 billion, depending on levels of expenditure. For fiscal 1998-99, Kuwait’s parliament has proposed a budget deficit of $5.8 billion; however, this is likely to be cut by $1.3 billion given current conditions on world oil markets.
The state’s 1995-2000 development plan projects a balanced budget by 2000. This will not be accomplished without major fiscal reforms. Kuwait recorded a trade surplus of $5.9 billion in 1997 (1996: $6.5 billion). However, as a result of softer oil prices, it is expected that the current account balance will be adversely affected. Partly making up for low oil prices, Kuwait’s foreign investment portfolio is estimated at $50 billion.
Ceilings introduced
Kuwaiti banks continued rapidly rebuilding their loan portfolios as the economy expanded briskly in 1996 and, to a certain extent, in 1997 and the implementation of the debt-settlement programme remained on course. However, early last year the central bank of Kuwait introduced ceilings for consumer-lending and margin-trading activities in an attempt to limit the banks’ exposures to these two sectors which were rising at disproportionately high growth rates.
The banks’ loans increased by a high of 35.3% last year, but growth rates varied widely from bank to bank. National Bank of Kuwait (7), which receives one of the highest ratings by Capital Intelligence in the region, had an earnings increase of a moderate 3.4% because of a lower provisioning charge and the absence of an extraordinary item that had boosted profits a year earlier. First-half results for 1998 suggest that the bank continues to perform in line with its excellent track record. Conservatively managed, National Bank remains by far the most dominant force in the domestic market, controlling a third of the sector’s total assets, and the country’s flagship bank for conducting international operations.
Gulf Bank (21) generated the highest return on assets last year (1.93%) among Kuwait’s commercial banks and is one of the most financially sound banks in the sector. Burgan Bank (24) has had its first year of operations under new ownership, with the Kuwait Investment Projects Company (Kipco) acquiring a controlling stake (43%). The bank recently hired a new, expatriate general manager, James T McNie, formerly chief executive officer at Oman International Bank, who will have the important task of rebuilding its senior management team. Commercial Bank of Kuwait (25) achieved spectacular rises in profits over the last two years under the helm of a dynamic and innovative management. It’s to be hoped the recent departure of David Berry, the bank’s CEO, will not adversely affect strategies or disrupt its fast-improving operations. Most recently, Commercial Bank has been reported to have entered into preliminary talks with Burgan Bank for a possible merger. It is understood that a feasibility study is taking place but it should be borne in mind that, in the past, merger talks between the Kuwaiti banks have proved futile.
Kuwait Finance House (27), the sole Islamic bank in the country, reported another year of increased profits and has consistently attained high levels of returns for its shareholders which include the ministries of finance, justice and Awkaf and Islamic affairs. However, its status as an Islamic bank may well change shortly as Kuwait’s parliament is contemplating approving a new law spelling out strict regulatory policies for institutions operating under Islamic law. Al-Ahli Bank of Kuwait (28) is the only bank in the sector to have recorded a sharp drop in its earnings, mainly on account of increased provisioning on a number of facilities that were excluded by the central bank from the debt settlement programme. Bank of Kuwait and the Middle East (31), the smallest commercial bank in the country, more than doubled its bottom line last year as it realized a large gain on part of the sale of its wholly-owned subsidiary Kuwait and Middle East Financial Investment. The other two Kuwaiti banks in the top 50 Arab banks are Industrial Bank of Kuwait (38) and Kuwait Real Estate Bank (48). In 1993, these were negotiating a merger; but the talks broke down apparently because of a conflict over the valuation procedure.
Although the energy sector continues to play a major role in the United Arab Emirates, its vibrant non-oil sector, which contributed a substantial 69% of GDP in 1997, is becoming increasingly important. Oil-sector GDP declined by 8.8%, but this was more than offset by the 7.8% expansion in the non-oil sectors, leading to an overall GDP growth of 2%. The sharp fall in oil prices during the first half of 1998 has, however, dimmed prospects for improved oil earnings this year and it may be difficult for the non-oil sector to deliver sufficiently high growth rates to offset this. Oil revenues are still a catalyst for growth in construction and real estate, particularly in Abu Dhabi, which has a lower mercantile base than Dubai. Although the UAE’s serious effort to diversify the industrial base will ensure economic stability in the long term, the immediate prospects are more problematic.
The UAE has the largest number of banks, a total of 18, in the table. The sector is clearly overbanked. However, little consolidation has been achieved, either through the central bank imposing higher minimum capital requirements or banks shareholders considering mergers. Government ownership of banks, through the seven emirates forming the UAE, is significant, a legacy of widespread support given by the governments of Abu Dhabi and Dubai and the central bank to the banking sector in the 1980s and early 1990s. Leading the contingent, National Bank of Dubai (8), where the ruling family of Dubai has the largest shareholding, acts as treasurer to Dubai’s government, with its core business money-market activities. However, in recent years, the bank has been more proactive in expanding lending. Ranked 17 and 19 respectively, Abu Dhabi Commercial Bank and National Bank of Abu Dhabi have sizeable government ownership, mainly through the Abu Dhabi Investment Authority.
Different focuses
National Bank of Abu Dhabi is the largest bank in the country and the main banker of the Abu Dhabi emirate, investing most of its resources in public-related infrastructure projects. Nevertheless, it is a leader in promoting the private sector and manages a fairly large international portfolio. Abu Dhabi Commercial has more retail focus than any of the other Abu Dhabi-incorporated banks. It has the largest branch network in the UAE. Dubai-based Emirates Bank International ranks 18 and has developed into a major financial institution and a flagship of the Dubai banking sector. It concentrates on corporate banking and its 99.8%-owned Middle East Bank (70) gives it a strong retail focus.
MashreqBank (23), majority-owned by the Al Ghurair family, is only one of two local banks wholly owned by private interests. It is a leader in retail and consumer services, with an extensive, highly automated, network. Last year, its profits were boosted by 42.7% to $136.3 million, making it by far the most profitable bank in the sector. Further down the table come Arab Bank for Investment and Foreign Trade (42) and Abu Dhabi Investment Company (50), the former a joint venture between the federal government of the UAE, the Libyan Arab Foreign Bank and Banque Extérieure d’Algérie and the latter mainly owned by the powerful ADIA. Commercial Bank of Dubai (52) has close historical ties with Dubai’s well-established merchant families and the military. Union National Bank (57), the successor of Bank of Credit and Commerce (Emirates) which was 40% owned by the now defunct Bank of Credit & Commerce International (BCCI), published its accounts in late 1996 and is being incorporated into the survey for the first time. Significantly restructured after the governments of Abu Dhabi and Dubai took over its operations, it has developed expertise in investment banking in recent years.
The remaining UAE banks are among the last 30 in the table and originate from the emirates of Fujairah, Sharjah, Ras Al Khainah, Umm Al Quwain and Ajman. These emirates are relatively less developed and their banks’ impact on the UAE economy, although rising, remains negligible. Dubai Islamic Bank, which appeared in last year’s top 100 Arab banks at 53, has been removed from the survey as the bank encountered financial difficulties due to fraud in early 1998. The bank has since been taken over by the central bank which has given it overt backing. In February, Dubai Islamic announced a 12% increase its net profit to $17.2 million at end-1997, and a 19% growth in total assets to $2.3 billion.
Industrial developments
In recent years, Qatar has fostered large-scale industrial development projects aimed at exploiting its natural-gas reserves. Revised 1996 data indicate an overall GDP growth rate of 11.3%, following 10.4% in 1995. Oil production was unofficially placed at 619,000 barrels per day compared with 479,000 bpd in 1995. Additionally, all non-oil sectors grews in 1996. For 1997, the latest estimates of GDP growth are tentatively placed at 10.5%. The upturn in recent years was the result of continued expansion in oil production capacity, continued investments associated with the two LNG plants and other petrochemical-related industrial development projects. In 1998, growth is expected to be considerably reduced, largely because of lower oil demand and prices.
The Qatari banking market is dominated by Qatar National Bank (12), which is 50% state-owned and controls almost half of the total banking assets. Given its size and ownership the bank has a leading position in prime government business. Net profit was up 15% last year and up 27% in the first half of 1998 over the corresponding period in 1997. Commercial Bank of Qatar (72) has played an effective role in the development of retail banking services and is Qatar’s largest issuer of credit cards. It is also tightly run and has a strong financial profile. The lowest-ranked Qatari banks are Doha Bank (82) and Qatar Islamic Bank (98). Both were exposed to BCCI earlier this decade. However, they appear to have recovered from the debacle under the guidance of the central bank. Doha’s specializes in trade finance and Qatar Islamic provides tailor-made Shari’a-based services.
Oman has also embarked on large scale industrial development projects. These include Oman LNG ($6 billion), Oman-India Fertiliser ($1 billion), major oil exploration concession agreements with key global players in the oil industry, a polyethylene plant and an aluminium smelter plant. GDP at current market prices grew by 10.7% in 1996, compared with 6.5% the previous year. The positive developments in both years resulted from higher oil prices and raised production levels. GDP growth in 1997 is estimated at around 8%. In common with the other GCC countries, growth in 1998 will be more subdued. Oman’s stock market grew by 141% in 1997, the highest growth recorded in the world. However, market sentiment turned the other way, with the Muscat Securities Market (MSM) index falling by 32% by the end of July 1998. This is likely to create pressure on the asset quality of a number of banks involved in financing share traders.
Oman’s largest banks are Oman International Bank (55), National Bank of Oman (58) and Bank Muscat Al Ahli Al Omani (59), soon to be renamed Bank Muscat International. Altough basically sound overall, the three banks compete in a small sector where good lending opportunities are hard to find. Subsidized home-mortgage finance specialist Oman Housing Bank (66) is 60% owned by the government and Oman International Development and Investment Company (74) is principally engaged in investment-related services. Bank Dhofar Al-Omani Al-Fransi (84) appears in the survey for the first time as it more than doubled its paid-in capital last year through a rights issue. Early in 1998, it floated 40% of its shares on the MSM. Oman Arab Bank (91) is 49% owned by the Arab Bank of Jordan. Two other banks in the table, Commercial Bank of Oman (78) and Bank of Oman, Bahrain and Kuwait (97) merged with effect from 20 June 1998. The new merged bank is reported to have a capital of $144 million which makes it one of the highest-capitalized banks in the sultanate.
North Africa and the Levant
There are 27 banks from north Africa and 9 from the Levant in the table. Egypt has the largest representation in north Africa, with 12 banks, followed by Morocco and Tunisia with six each, Algeria with two and Libya with one. The largest bank in this region is the Libyan Arab Foreign Bank (15). In the Levant, Jordan has four banks, including Arab Bank Group (4) which is a leader in Arab banking, Lebanon also boasts four banks and Syria is represented by Commercial Bank of Syria (35).
Egypt’s economic performance has been impressive in recent years, with annual real GDP growth in the 1990s at around 4.2%. In 1996, the economy grew by 4.7% and in 1997 this was lifted to 5.3%. However, the Asian crisis and the impact on tourism of the Luxor massacre in November 1997 have reduced growth targets for this year (4.6%). In recent years, economic growth has been fostered through the expansion of private and government consumption and the strong rise in fixed investment. Monetary discipline brought inflation to 3.5% in March 1998 and produced a fiscal deficit of 0.9%. Renewed confidence has also been mirrored in levels of investment, particularly in manufacturing. Foreign investment in Egypt was over $2 billion in 1997, up from $660 million in 1996, and a further rise is likely in 1998. The external debt to GDP ratio has fallen sharply because of debt relief, and reserves have been boosted to more than $20 billion. Market liberalization and declining interest rates have also contributed to an improved investment climate.
Egypt’s four state-controlled banks National Bank of Egypt (10), Banque Misr (26), Banque du Caire (37) and Bank of Alexandria (39) account for the largest proportion of the country’s total assets, deposits and loans. These banks, which have large domestic branch networks, were originally set up to service a particular sector of the economy and although functional specialization has long been abolished, their loan portfolios continue to reflect it. National Bank improved its ranking significantly last year, up by nine notches, as its capital increased by 52.5%, mainly the result of gains realized on the sale of its equity participations, through the government’s privatization programme, in Commercial International Bank and Suez Cement Company. Bank of Alexandria, the smallest of the public-sector banks, has been earmarked for privatization this year, which, if successful, could pave the way for the sale of the other state banks. The four major joint-venture banks Commercial International (33), Misr International Bank (56), Egyptian American Bank (73), and Nationale Société Générale Bank (90) are the most profitable banks in the sector, attracting the cream of local business and multinational corporations.
The Maghreb is experiencing favourable economic conditions although the business climate in Algeria is overshadowed by violence whereas Libya remains largely isolated from the international financial community. Two Algerian banks appear in the table, Crédit Populaire d’Algérie (44) and Banque Nationale d’Algérie (64) but their ranking in the survey is based on 1996 figures because of delays in financial information publication.
Growth forecast for Morocco
Morocco’s GDP contracted by 2.5% in 1997 because of insufficient rainfall. This had unfavourable repercussions on macroeconomic indicators, including unemployment and government finances. However, inflation reached an all-time low of about 2% last year and the trade balance continued to improve thanks to the recovery of mining exports and the depreciation of the dirham against the dollar. Another growth area is the non-agriculture sector which grew faster than in the previous two years. For 1998, GDP growth is forecast at 6.7% on the back of an increase in average agricultural crop yield and continued momentum in other sectors. Foreign investments amounted to $466 million in 1996, lower than the $750 million forecast by the authorities. However, major agreements have since been signed with multinational corporations targeting tourism, automotive industries, electricity and telecommunications. Accordingly, investments surged to $1.2 billion in 1997. Privatization has been one of the government’s major successes.
Tunisia’s 1997 GDP growth almost halved to 3.5% because of drought conditions in the predominant agricultural sector. However, aided by favourable climatic conditions, real GDP growth is expected to reach 5.5% in 1998. The privatization programme is relatively undeveloped.
Three Moroccan banks and only one Tunisian bank appear in the top half of the table. Crédit Populaire du Maroc (22), organized as a cooperative but soon to be privatized, focuses strongly on deposit collection and is the main banker to Moroccans living abroad. Banque Marocaine du Commerce Extérieur (29), which successfully raised GDRs in 1996, is the prime bank for foreign trade whereas the financially strong Banque Commercial du Maroc (30) is a universal bank, majority-owned by powerful local and international interests. Tunisia’s Banque Nationale Agricole (43) is the largest bank domestically, specializing in financing agriculture. It has received significant financial support from its shareholders, including the state, in recent years but continues to suffer from poor asset quality because of structural weaknesses in the primary sector.
Three Moroccan banks follow in the survey, Wafabank (51), 10% owned by Crédit Agricole Indosuez, Crédit du Maroc (60) and Banque Marocaine pour le Commerce et l’Industrie (63), respectively part of the France’s Crédit Lyonnais and Banque Nationale de Paris groups. Except for Société Tunisienne de Banque (76), the remaining Tunisian banks in the table are in private hands, with Banque Internationale Arabe de Tunisie (88) ranking the largest in terms of total assets. This bank was also successful in raising a GDR issue in early 1998. The private banks are generally better run and more profitable than the public banks but their overall impact on the economy, although rising, still remains modest.
The Lebanese and Jordanian economies continue to be influenced by domestic and regional politics. Economic growth in Lebanon, which in 1992 the government had hoped would stay at about 8% a year fuelled by its reconstruction programme, is estimated to have fallen to 3.5% in 1997 from 6.4% a year earlier. But no official GDP figures exist and estimates must be treated with caution. Price rises have remained steady, with full-year inflation forecast at around 6%. In addition to the deadlocked negotiations between Israelis and Palestinians and Syria’s continued policital influence in Lebanon, the other main causes of economic uncertainty are growing domestic debt and a growing budget deficit, which is running at an unsustainable level 20% of GDP. Among the largest components of current spending is domestic-debt servicing, which contributes to the persistence of a large budget deficit, which is financed by creating more domestic debt. Several Gulf states have recently poured funds into Lebanon, which has helped curb speculation against the pound. What the government requires most is a booming economy, legitimacy and the infrastructure to collect tax.
A wave of mergers
Four Lebanese banks are in the rankings, three in the the top half. These are Banque Audi (41), Banque du Liban et d’Outre-Mer (46) and Byblos Bank (47). Lebanon experienced a wave of mergers in 1997 in what is still a highly overbanked and fragmented sector. In July, Banque Audi acquired the local Crédit Commercial du Moyen-Orient SAL, a medium-size commercial bank with assets of about $220 million. Following a GDR offering in November 1997 (and previous ones in 1996 and 1995) and the issuance of subordinated debt amounting to $75 million, the bank’s equity rose by 2.8 times. The bank’s major shareholders are the Audi family, Bankers Trust Company (the GDR depository bank) and the prominent Kuwaiti families of Al Sabah and Al Homaizi.
Capital doubled at Banque du Liban et d’Outre-Mer through the issuance of new shares as well as the raising of subordinated notes, also for $75 million. The bank, unlike its mainly family-owned peers, has over 200 shareholders. In December, Byblos Bank, majority owned by the Bassil family, merged with Banque Beyrouth pour le Commerce. In the process, it increased its paid-in capital by more than five times through the issue of new shares and its funding base was enhanced through a five-year $100 million Euro-CD and a 10-year $10 million loan from the International Finance Corporation.
Jordan’s real GDP growth in 1997 was a modest 0.8% with little change expected in 1998. Estimates for 1997 indicate a narrowing of the current account deficit to 2.9% and a further improvement to 2.1% is expected by 1999. Inflation is being well contained, falling to 3% in 1997 (1996: 6.7%) and is expected to remain at similar levels in 1998. A fiscal deficit of around 3.2% (excluding foreign grants) has been projected over the medium term. Foreign exchange reserves reached $1.7 billion by the end of 1997, providing five months’ import cover.
Jordan’s Arab Bank (4) is one of the most respected banks in the region. Among the bank’s major shareholders are the members of the founding Shoman family, Lebanese prime minister Rafic Hariri and the governments of Saudi Arabia and Kuwait. The bank’s operations are global and its longer-term strategic plan includes the penetration of new markets, while increasing its presence in major international financial centres.
It recorded good profits in 1997, up by 11.6%, on total assets of $16.8 billion. Second in the ranking is Housing Bank, a fully-licensed commercial bank after a new law changing its status was decreed last year, which improved its standing to 40. In mid-1997 it raised its capital base to $70.5 million and in April 1998, the general assembly agreed to double paid-up capital to $141 million. Over the last few years, the banking sector has been consolidating as a result of the central bank introducing minimum capital requirements, with the mergers of Jordan National Bank with Business Bank and Philadelphia Investment Bank with Jordan Finance Investment Company. Amman Bank for Investments, which failed to meet the central bank minimum capital requirement, was subsequently taken over by Arab Bank, giving birth to the Arab International Islamic Bank (a wholly-owned subsidiary) which began operating in February 1998. Jordan National (80) and Jordan Islamic Bank for Finance and Investment (96), part of the Dallah Albaraka Group, round up the 1997 survey of the top 100 Arab banks.
Andrew Beikos and Anthony Christofides are analysts at Capital Intelligence, an international rating agency.
