Middle East

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National Bank of Kuwait advances through technology. Samba gets ready for regional expansion. Lebanon's banks continue to struggle. Chris Cockerill

Egypt
Best domestic bank: Commercial International Bank

Best foreign bank: Citibank

Best domestic securities house: EFG-Hermes

In terms of assets and total equity four banks dominate the Egyptian banking sector: National Bank of Egypt, Banque du Caire, Bank of Alexandria and Banque Misr, accounting for 60% of the market's assets and 40% of the sector's total capital base. Compared with the smaller private banks, the four banks underperform because of overstaffing, exposure to public sector loans and the need to modernize their systems. The average ROAA (return on average assets) of the four banks is 0.52%, compared with Commercial International Bank, which has an ROAA of over 2%. The smaller private banks are providing stiffer competition and increasing their market share in the retail and corporate markets.

Commercial International Bank, the first Egyptian bank to be privatized, is described by Capital Intelligence as flexible and progressive. It is the largest private bank, and fifth largest in terms of assets overall.

For the sixth year running, CIB is the most profitable bank in Egypt, reporting net profits of $103 million, up 13% on the previous year. The bank has a return on equity of 24% compared with the 10% posted by Bank Misr. CIB focuses primarily on the corporate sector but it recently moved aggressively into the retail market. It now has a market share of 16% in loans to the private sector. Its investment-banking arm has a strong reputation in privatization. At the end of 1999 it won the mandate with ABN Amro to advise Telecom Egypt on one of the largest privatization deals in Egypt.

Citibank continues to lead the foreign banks.

It has established itself in Cairo and offers strong trade finance and corporate services.

It is the primary custodian for foreign investors, with a market share of 75%. It is a leader in cash management and processes 12% of cheques issued in the country.

Last year Citibank launched a full consumer banking operation into the underdeveloped retail market. It offers a range of products and services including cards, loans deposits and investment services. Results have been promising. Revenues have increased by more than 86% over the past two years and net income has risen by 96% over the same period.

In February of this year the bank was awarded a joint mandate by Orascom Telecom to raise $200 million in debt.

EFG-Hermes is Egypt's leading investment bank.

After Citigroup acquired a 20% stake in the bank it entered a phase of restructuring and has emerged as an even more formidable entity.

The company is Egypt's most active securities firm by volume traded on the Egyptian stock exchange. Its market share is 13.5%. In an advisory capacity, EFG has been at the forefront of some of the largest deals within Egypt. It was the sole adviser to telecoms group Orascom during its successful $413 million buy-out of Telecell International Ltd, the pan-African telecommunications operator.

EFG was also the sole manager and bookrunner in the $500 million IPO of Orascom. The asset management side of the business continues to dominate the market and recently launched the new $42 million Telecom Fund.

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Israel
Best domestic bank: Bank Hapoalim

In the past year there have been positive signs that Israel is emerging from its recession. Exports have risen, imports of goods and services have surged and private consumption has increased. In this environment the banks have generally performed well in terms of growth in profits and returns on equity. Bank Hapoalim, however, stands ahead of its rivals. Since being privatized the bank has become more focused as its shareholders set more challenging targets.

With a large network of 250 branches and its strong franchise the bank continues to dominate the retail-banking sector. It commands a retail market share of between 30% and 35% of customer deposits. In the past year it has successfully increased its private banking base and introduced an IT system that helps in the processing and advising of the clients.

In addition to its retail side, the bank boasts a solid corporate side. It is involved in the largest build-operate-transfer project in the region, the Cross-Israel Highway Project worth $1.1 billion. Bank Hapoalim is providing $850 million of the Finance.

The bank is the most profitable in Israel and in 1999 posted an increase of 18.8% in net profits to $343 million. Its net return on equity stands at 13.6% compared with 12.1% in 1998.

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Jordan
Best domestic bank: Arab Bank

Best foreign bank: Citibank

The economic situation has been difficult, with GDP falling to 1.5% in 1999, down from 2.2% in 1998. All banks have suffered. Arab Bank is still strong, but has seen a decline in profits of $8 million. Led by the Shoman family, the bank is conservative and so to some extent protected from economic downturns.

Founded in 1930 with the vision of serving the Arab world, it has developed into a 300-branch business spanning 40 countries. Its geographical core, however, lies in the Middle East.

It is the dominant bank in Jordan, with a 20% share in total assets, and competes with other much smaller banks such as Jordan National Bank and Housing Bank. Arab Bank offers retail, private, and investment banking, with its core business being corporate banking and trade Finance. The bank is, however, looking to increase its market share in retail banking, an area that has been underdeveloped in the past.

With the economy in its depressed state all banks have experienced asset-quality deterioration. Arab Bank has done well to keep its non-performing loans to around 4% of the total portfolio. By way of comparison, Arab Banking Corporation's non-performing loans are 10.1% of gross loans.

Arab Bank has a larger market share of deposits than it does of loans, standing at 22% and 16% respectively. The bank, however, is aware that its customer base and franchise is being challenged by the foreign banks and is investing in internet banking and other new retail products.

Citibank is the only US bank in the country and has become an important player in the market. Despite difficult times for some of the other foreign banks, Citibank performed strongly, with a return on equity of more than 50%.

In the past year it has been involved in a number of significant deals including its appointment as registrar, transfer and payment agent on the First bond issuance programme of $56 million for a local bank.

In addition it won the mandate from the government to Finance the $200 million US Export-Import Bank trade programme. It maintains its position as a leading provider of treasury products and was the First bank to arrange for non-deliverable forwards on the Jordanian dinar.

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Kuwait
Best domestic bank: National Bank of Kuwait

The fast recovery in oil prices has helped the Kuwaiti economy and in particular the banking sector. The government has a larger budget surplus, activity has increased in the construction industry, and lending and funding opportunities have increased.

The National Bank of Kuwait is the country's leading bank. However, despite its size and dominance it continues to maintain a very active strategy. It is recognized as leading the way in technology in the Middle East and has a focused approach to internet banking.

For example, it recently launched the Souk Al Watani on-line shopping mall and the NBK internet shopping card, operating under the Visa franchise.

Although Arab Banking Corporation gained control of the Egyptian African Arab Bank (AAB) ahead of NBK, NBK is still intent on developing its cross-border strategy and the need for regional expansion. At the end of May it successfully bid for Misr American International Bank paying four times book value. Morgan Stanley entered into partnership with the bank, buying a 40% share in NBK Investment Management Ltd.

The bank's investment arm centres on project Finance, capital raising and privatization activities in Kuwait and across the region.

For example, the bank arranged a $250 million standby facility for the EQUATE Petrochemical Company.

The bank has a long track record of profitability and in 1999 its net profits increased a further 18.6%.

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Lebanon
Best domestic bank: Banque du Liban et d'Outre Mer and Bank Audi

Best foreign bank: Citibank

Best domestic securities house: Audi Investment Bank

The initial euphoria following the Israeli withdrawal has done little to disguise the real difficulties in the Lebanese economy.

Economic growth is estimated to range between -2% and 0% and government borrowing stands at 130% of GDP. The country is overbanked and consolidation of Lebanon's 70 banks remains imperative.

In these circumstances, unsurprisingly, most banks have struggled and their attempts to develop lending opportunities have created asset quality problems. The sector's NPLs stand at 13%.

However, there are exceptions. While the banking industry's net income fell 12%, at Banque du Liban et d'Outre Mer (Blom) it rose 20%. Blom's loan book increased 12% but NPLs remain well below the market average at 6%. In an attempt to increase capital efficiency and reduce volatility in its earnings growth the bank has moved towards commission and fee-based income. This side of the business grew an impressive 23% last year.

Banque Audi has the largest network in Lebanon with 61 branches. It is innovative in IT, investing $15 million dollars over the last two years, and is the only bank to offer real-time on-line banking. It has continued to be aggressive in retail, launching new insurance products through the largest Lebanese insurance company, SNA, in which it has a strategic stake. Audi was also First to introduce a three-month bridging loan for individuals. It is a service offered to those starting new employment, helping them to overcome the financial shortfalls between the First day at work and the pay cheque at the end of the month. The bank processed 100,000 pay and receive transactions worth $2.5billion and issued a $100 million Euro-CD, the First 10-year debt issue in the region. Banque Audi has a strong capital adequacy ratio of 18%.

The stock market's turnover remains low at $250,000 per day. Of volumes traded Audi Investment Bank (AIB) leads with 28.5%. Fidus follows closely behind with a 27% market share. AIB is a market-maker in Lebanese T-bills and private and public Eurobonds. It was also the only bank to win the Eurobond mandate from a large Lebanese cement company, worth $65 million, which will be issued later in the year. In a $100 million syndicated loan for Solidere, Lebanon's largest listed company, AIB acted as sole arranger. In the future there are plans to launch new products such as mortgage-backed securities, a Lebanese fixed-income fund and reverse convertibles.

Citibank has enjoyed total revenue growth of 26% and market share growth of 12%.

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Oman
Best domestic bank: Bank Muscat

The Omani banking sector faced many challenges caused by the high interest rates, a stagnant securities market and the introduction of new banking regulations. These were brought in following an aggressive move by the domestic banks into the consumer lending market. The government decided that consumer lending was to be restricted to 30% of the banks' total lending portfolio. The interest charged on loans was also capped at 13%, reduced from its original 18%.

Bank Muscat reported higher profits than its rivals despite operating on a smaller capital base. The bank's retail and corporate arms account for over 90% of the bank's revenue and it has increased its market share in corporate lending to 25%. Bank Muscat's lending as a whole increased 10% yet the bank still has the lowest non-performing loan rate in the country at 5.2% of total loans made.

It offers forex forwards as its main risk management product and provided a 12-year interest-rate swap to the United Power Company for a project Finance loan. Bank Muscat also stands alone in Oman in using subordinated debt as an instrument to manage capital adequacy and provide higher returns to its shareholders. The bank's capital adequacy ratio is lower than that of National Bank of Oman, the largest bank in Oman, but is still a healthy 13.4%

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Qatar
Best domestic bank: Commercial Bank of Qatar

The banking sector comprises 15 banks, seven of which are Qatari owned. The dominant force in terms of market share, government connections and balance sheet size is National Bank of Qatar. However in terms of performance, Commercial Bank of Qatar stands out. Moody's has consistently ranked it First among local banks since they began to rate Qatari banks. CIB's management, led by Tim Nunan is, according to several analysts, the best in the sector.

The bank is far smaller than NBQ, with NBQ accounting for 46% of the banking sectors total assets compared with CBQ's 10.5%.

Its retail banking is strong. After successfully acquiring the Diners Club franchise it developed a 51% market share in credit cards. It took the card quickly into Syria, Yemen, Bahrain and Egypt, and there is now a desire to expand the bank's card franchise into Iraq, Iran and Sudan once sanctions are lifted. The bank's customers account for 17% of all cheques issued in the country and 25% of all cars in Qatar are purchased using the bank's vehicle Finance department.

On the corporate wholesale banking side CBQ was involved in the high-profile $400 million NCL and $750 million Qchem syndicated loans.

CBQ was also successful in issuing its own five-year, $120 million syndicated bank-financing deal. It was issued in an attempt to resist pressures from excessive deposit rates demanded by the government and corporates. It reported a record year for profits with an increase of 12%, and increased its return on average equity to 19.8%. CBQ's non-performing loans to total loans ratio increased, but remains low at 4.02%

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Saudi Arabia
Best domestic bank: Saudi American Bank (Samba)

Saudi Arabia has the largest economy in the Middle East but, with only 10 banks, one of the smallest banking sectors. Since competition is stiff and opportunities limited the larger banks have to seek opportunities abroad and look at the possibilities of regional development.

Following Saudi American Bank's (Samba's) merger with United Saudi Bank last year, Samba is well positioned to expand into other Gulf States. Samba's managing director, Robert Eichfeld, already has plans to enter the Egyptian and UAE markets.

Samba is now the second-largest bank in Saudi Arabia in terms of net equity and total assets and leads the pack in net profits. Described as slick and aggressive in its marketing of new products - Citigroup has a 23% stake - the bank has expanded rapidly, especially into a retail market that offers the greatest lending opportunities. The merger has brought with it a larger market share and wider distribution network including 59 branches and 159 ATMs. At present it holds a commanding 20% share of the corporate banking market, where it focuses on fee-based products in the corporate Finance and corporate cash management areas.

It has a reputation for innovation. It developed the First two issues of commercial paper in the kingdom. The First was $46 million of guaranteed corporate obligations for a major Saudi corporate. At the end of 1999 it was also arranger for a $750 million discounting facility for a major western corporate.

Samba's financials report figures well above the market average; its operating income stands at $483 million, total revenues of $791 million and returns on average equity of 22%.

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Tunisia
Best domestic bank: Banque Internationale Arabe de Tunisie

Highly commended: Amen Bank

Best foreign bank: Citibank

Best domestic securities house: Tunisie Valeurs

The Tunisian banking sector needs restructuring. There are too many banks, but competition remains low since the banks prefer to stay in their specialized niches rather than expand into new areas. As long as the banks can maintain high margins the situation will remain unchanged.

The sector is also ridden with a high level of NPLs - on average 20% of total loans. The government is attempting to introduce legislation that will allow banks to write them off. But for now NPLs must remain on the balance sheet.

The retail market offers the greatest opportunities for Tunisian banks and Banque Internationale Arabe de Tunisie (Biat) is at the forefront. It is the largest private bank in terms of assets and the fourth largest overall. Biat has invested heavily in modernizing branches and introducing a new logo.

Biat, as with many Tunisian banks, has a problem with asset quality, but its NPLs are below the market's average at 17.6% of total loans. Analysts are concerned that its coverage is low at 50%, but this will increase to 70% over the next Five years. In its favour, it has virtually no exposure to big state-sponsored projects with a history of credit problems.

Amen Bank deserves recognition. The bank has reported a 35% increase in net profits and 20% growth in assets. It is very active in trade Finance and has a 50% share of the foreign exchange market. After a difficult year in 1998, the bank has now made up a Td15 million ($11.2 million) shortfall in provisions and non-performing loans are better managed, although still high at 18%.

There are few foreign banks in the Tunisian market. Although Arab Banking Corporation entered last year Citibank has had a presence since 1978 and in the last three years has moved into consumer banking. In 1999 it obtained 90% of the foreign exchange flows following the $390 million privatizations of Ciments de Gabes and Ciment Artificiel de Tunisie, The reported Financials are impressive. The bank doubled revenues in 1999, and its return on equity was 45%.

The capital market is rebounding after four years of inactivity. When the government removed capital gains and dropped money market rates, volumes in the equity market dramatically improved.

Total market capitalization rose from Td2.8 billion in 1998 to Td4.2 billion in 1999.

Tunisie Valeurs is seen as the most active broker with an 11.4% share of turnover.

It has $300 million of assets under management and is the largest broker in the bond market.

It also manages a $120 million bond fund. This year it became a market-maker in the new government treasury bond market. Foreign investors find it the most reliable of the Tunisian securities houses.

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United Arab Emirates
Best domestic bank: National Bank of Abu Dhabi

Best foreign bank: Citibank

Mention the name Patel and the UAE banking sector breaks out into a cold sweat. In May last year Madhav Patel, a respected businessman and head of metal trading company Solo Industries, became less respectable when he absconded from the UAE leaving behind outstanding debts approaching $245 million.

Throughout 1999 the banks and the regulators argued about which part of the system had failed to prevent such an occurrence. "As a result, many of the banks lost their appetite," says one analyst National Bank of Abu Dhabi is a government-owned institution.

During the past year it has continued to strengthen its private and corporate business and increased market share in terms of consumer lending as it attempts to build a strong retail lending arm. It now has the largest branch network and has a 14% market share of customer deposits.

It has invested heavily in IT and has introduced new electronic delivery channels including internet and GSM banking. Its non-performing loans are 4.1% of its total loan book, and coverage is 117%.

Citibank now has Five branches. The bank operated as Dubai's clearing bank until the central bank was established, but remains a fully licensed member of the UAE Clearing House.

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Best domestic bank: National Bank of Kuwait

Best foreign bank: Citibank

National Bank of Kuwait wins the award for best local bank. It is dominant in its local market but is not complacent. It has developed a reputation for being one of the most highly advanced in terms of technology, offering a variety of electronic banking platforms. In conjunction with Visa it offers the e-card, the First internet-only shopping card.

The bank has a very strong domestic franchise and is now expanding cautiously throughout the region by developing its retail and private banking arms. In May this year it successfully bought into the Egyptian market, acquiring the Misr American International Bank. Further expansion of its 18 branches outside of Kuwait is expected.

NBK also participated in some international issues, such as the privatization of Telecom Eireann and the flotation of Goldman Sachs shares.

Citibank is present throughout the Middle East and the Levant including Algeria, Bahrain, Egypt, Israel, Jordan, Lebanon, Morocco, Oman, Tunisia and the United Arab Emirates.

Where it is not allowed to establish a branch or majority-owned subsidiary it still has a presence, notably in Saudi Arabia with its 23% stake in Saudi American Bank.

Wanting to further expand its interests throughout the region Citigroup recently took a strategic stake of 20% in EFG-Hermes, Egypt's leading investment bank. The attempt to capture the large-ticket deals is paying off. In February of this year it was awarded the joint mandate with Chase Manhattan to arrange Orascom's $200 million debt Financing of its acquisition of Telecell.

Citibank offers a wide range of products and services, concentrating in particular on cash management, treasury and trade Financing. It also offers consumer banking services in some countries. After developing its corporate and consumer banking arms in Tunisia, the bank's revenues doubled and its return on equity is 45%.

As well as offering onshore and offshore banking in Bahrain, Citibank is the only foreign bank to offer Islamic banking services and products. In 1999 CitiIslamic Bank was involved in several transactions for local and multinational corporates including a $160 million Financing for a large petrochemical corporate in Brazil and a $40 million Financing for a Korean corporate. Citibank wins the awards for best foreign bank in Bahrain, Egypt, Jordan, Tunisia, and the United Arab Emirates.

Christopher Cockerill