Awards of Excellence: Best in the world
Awards for Excellence: Nordic region
Awards for Excellence: North America
Awards for Excellence: Latin America
Best regional bank: Citibank
Banks in the Middle East are having to confront the same forces of consolidation that have swept across the US and Europe. Individual countries in the region are too small a market for the largest and most dynamic Arab banks but these institutions lack the size and expertise to compete in the global market. The long-term future looks bleak for the many smaller banks that cannot find a niche for their services.
The result will be fewer, more regional Arab banks. Some bankers believe that in a generation there could be as few as four regional Gulf banks and a similar number of specialist financial institutions.
Competition for regional supremacy will be fierce. Saudi Arabia’s banking system will probably be opened up to foreign competition when the kingdom joins the World Trade Organization in 2003. The Gulf Cooperation Council states (Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar and Oman) will shortly implement their recent decision to allow banks to undertake cross-border operations. In addition, Gulf International Bank, which formerly was restricted to offshore banking in Bahrain, can now operate in all Gulf Cooperation Council states.
Further pressure for mergers will come from the regulatory authorities who are becoming more assertive by insisting on higher capital-adequacy ratios and more rigorous in examining the quality of loans.
The most forward-looking banks are starting to move into markets such as Egypt and Lebanon where their regional connections give them a potential advantage over western banks. They are also extending their capital-market operations. The Middle East is now a capital-hungry region and banks want to attract local-instrument funds that were previously invested in western markets. Retail customers are also demanding the most up-to-date technology for computer and telephone banking.
A new challenge to the traditional financial institutions is coming from the Islamic banks. These institutions are finding a growing market for their services and are increasingly attractive to borrowers and investors on commercial as well as religious grounds. The leading conventional banks are setting up Islamic divisions or full banks to compete for this market.
Cross-border alliances should soon create a number of genuine regional operations. But for the moment, there is no real competition to Citibank as best bank in the Middle East. It is the only financial institution to have a significant presence in every important banking market in the region, a position that it has enhanced in the past year by opening in Beirut.
Citibank has also been one of the most innovative banks in the region. It was among the first western banks to set up an Islamic banking operation and its latest product, known as Citi Trade Finance Mudarabah, enables investors to take part in short-term trade transactions worldwide. Its operations in syndicated loans, structured trade finance and fund management are also highly regarded across the Middle East.
A bank to watch as regional competition intensifies is Qatar National Bank. The unchallenged dominant force in its own market, it is building a reputation as one of the most rapidly improving banks in the region. In 1997 it produced profits of $104 million a record for the third consecutive year and has in that period shed its image of being a rather cumbersome institution. The bank has also modernized its corporate-finance department, becoming involved as a major lender for Qafac, Qatar’s natural fuel-additives company, and other major projects and is now well placed to take advantage of the opportunities as Qatar continues to develop as a modern industrial economy. Nigel Dudley
Bahrain
Best bank: Gulf International Bank
Best foreign bank: Citibank
The strict regulatory regime of the central bank, the Bahrain Monetary Agency, has enabled Bahrain to maintain its position as the Gulf’s regional banking centre and reverse the flow of banks moving their regional offices to Dubai. The country’s domestic institutions are showing renewed strength as the economy improves; the Islamic banks are developing rapidly; and most internationally oriented banks continue to find business opportunities, particularly in Saudi Arabia.
Gulf International Bank, which is owned by the Gulf Cooperation Council states, retains its position as the best bank in Bahrain. In the past year it has reinforced its position as one of the leading banks in the region for large project financings, it has further improved the quality of its assets and is preparing to take advantage of the decision by its shareholders to let the bank open branches throughout the Gulf.
Last year it completed 10 major project-finance transactions, including lead-managing a $500 million 10-year loan for the construction of the Ghazlan power station in Saudi Arabia. It was also involved in funding an aromatics plant for Saudi Chevron in Jubail. The first completely private petrochemical project in the region, this was also the first to be funded on a limited-recourse basis.
Citibank Bahrain has the largest and most diversified treasury operation in the Middle East. Its corporate-finance unit deals with leading Gulf and overseas companies and the government of Bahrain, for which Citibank arranged the first international syndicated loan to finance the al Hidd electricity and water project.
Egypt
Best bank: Commercial International Bank
Best foreign bank: Citibank
In Egypt, Commercial International Bank, the largest of the private-sector banks, has enhanced its reputation as the most competitive and efficient institution in the country. It has managed to combine rapid growth with strict credit controls while expanding its range of services to include local bonds and syndicated borrowing.
Citibank has had a leading role in attracting foreign investors to Egypt. It has a substantial share of custody business for international clients taking advantage of the comparative stability of the Egyptian pound and the higher interest rates in the country. The bank played a key role in maintaining confidence in Egypt after the international perception of the country was damaged by the terrorist attack in Luxor which came in the wake of the south-east Asian crisis. Citibank bought treasury bills from foreign investors enabling the market to maintain its credibility. In September it will open a retail branch in Cairo to complement the corporate-banking services it offers in the country.
Israel
Best bank: First International Bank
First International Bank is the fastest growing and most profitable bank in Israel. Unencumbered by the debts to kibbutzim and municipalities that have held back many of the country’s other banks, it has one of the cleanest credit portfolios and the lowest bad-debt provisions of its peer group. Significant growth in assets has allowed the bank to broaden its client base, in particular moving into larger corporate business. It has been innovative, launching a new credit-card company and making the first mortgage loans in shekels.
Jordan
Best bank: Arab Bank
Best foreign bank: Citibank
In Jordan there is no significant threat to Arab Bank’s domination of the local market, where it has 55% of the country’s total banking assets.
Citibank Jordan has also maintained its reputation as a market leader. It was the only foreign bank invited by the government to tender for the privatization of Royal Jordanian Airlines. The bank has played a leading role in public-sector and private-sector financing and was the first to introduce all-day banking for retail customers.
Kuwait
Best bank: National Bank of Kuwait
National Bank of Kuwait is strategic partner to Saudi Arabia’s National Commercial Bank. Headed by the respected veteran Ibrahim Dabdoub it has become by far the largest bank in the country. It has maintained a conservative approach to risk management in a market prone to bouts of property and equity price volatility, yet has produced an unbroken run of rising profits, reaching $242 million last year. This is reflected in the bank’s credit rating, which is the highest of any local bank in the region.
Its management is highly respected; it dominates the corporate and retail markets; it has been active in lead-managing privatizations and has invested in new technology, including computer banking. National Bank of Kuwait is the only Kuwaiti bank with a truly international presence through its branches, subsidiaries and representative offices in Europe, the US and Asia.
National Bank’s strategy is to expand its regional business through strategic alliances. It has also moved quickly to meet the challenge from Islamic banks, having begun to offer treasury and wholesale products that accord with the sharia. National Bank managed the first project financing to combine conventional and Islamic financing techniques and earlier this year launched its first Islamic fund for retail customers.
Lebanon
Best bank: Byblos Bank
Byblos Bank’s merger with Banque Beyruth pour le Commerce, the first between large Christian and Muslim banks, puts the bank in a strong position and extends its reach into southern Lebanon and west Beirut. The potentially complicated integration of the two banks was fully implemented in only four months and underlines management quality.
The new merged bank is now the third-largest in terms of assets and profitability and second largest in terms of capital and is well placed to develop both locally and regionally through Arab contacts from Banque Beyruth. Later this year the bank will issue a global depositary receipt which will enable shareholders to take advantage of a more liquid market in the shares.
Saudi Arabia
Best bank: National Commercial Bank
Saudi Arabia is the largest and potentially most dynamic market in the region despite the slow speed at which an open capital market is being created. Its banks are healthy and their capitalization levels and deposit bases leave them well placed to take advantage of the expected opening-up of the Gulf banking market to competition. Most Saudi banks are preparing to expand outside the domestic market.
National Commercial Bank is the largest bank in the kingdom; it produced a 14% increase in profits to Sr1 billion ($267 million) last year and offers the most innovative range of services.
The most significant long-term development is likely to be its strategic alliance with National Bank of Kuwait, the first link-up with another regional bank. The two banks are expected to announce joint ventures in countries outside their home bases soon. They have already worked together as lead underwriters in their respective home markets for the first pan-Arab public share issue and the first offering of global depositary receipts for a Gulf-based institution, the Arab Insurance Group.
This deal is also evidence of the innovative and aggressive role played by the company’s corporate-finance department, which this year is planning major initiatives in cash-management services. National Commercial Bank has been at the forefront of developing telephone and computer banking and it is ready to introduce an electronic branch, which will include automated teller machines, a utility-bill payment terminal, a deposit facility and an interactive information terminal.
United Arab Emirates
Best bank: Emirates Bank International
Best foreign bank: Citibank
Competition is intense in the United Arab Emirates’ banking sector. Emirates Bank International plans to create a regional banking group offering a full range of commercial, retail and investment banking services as well as insurance and credit card services. The bank produced record profits of Dh442 million ($120 million) in 1997, up 15% on the previous year.
The bank has also established Emirates Merchant Bank, conceived as a regional investment-banking business which will develop expertise in debt and equity raising. An Emirates Equity Fund was launched to enable non-nationals to invest for the first time in the local stock market and increased rapidly in size to reach $95 million.
The bank’s corporate-banking division, which was introduced in 1996, expanded its syndicated loan business and the retail banking group extended the use of automated teller machines and telephone and computer banking.
Citibank is a leader in the growing corporate-finance market and its cross-border structured finance capabilities give it access to business that local banks cannot execute. For example, the bank has arranged German tax leases to finance airline purchases for the national airline, Emirates. Citibank is also upgrading banking technology including the electronic processing of payments and the provision of comprehensive retail services. Nigel Dudley
