Gulf banks press on with modernization
The creation of financial centres and the opening of banking markets in the Gulf to foreign players are broad themes across the region, which is riding a wave of liquidity. Bank consolidation should be the next consideration. John Hamilton reports.
FINANCIAL SERVICES ARE a growth industry in the Gulf, with major financial centres being developed and previously closed economies modernizing investment laws and opening up to foreign banks.
The boom that the region has been enjoying thanks to high oil prices has blown a breath of fresh air through financial systems. Words like liberalization, modernization and competition are today being used to describe developments in markets that used to be determinedly hostile to direct foreign participation.
Changes to licensing regimes in Kuwait and Saudi Arabia are allowing foreign entrants to establish themselves for the first time since the nationalizations of the 1970s. Meanwhile, several smaller countries on the periphery of the Gulf are competing to be the Middle Eastern equivalent of Singapore.
Dubai and Bahrain are both racing to sign up impressive lists of tenants in their new financial centres. This is a natural route for these countries as neither can rely on oil. Bahrain is dependent on Saudi oil, while the UAE will reach the end of its reserves in 50 years. Even now oil counts for just 10% of Dubai's GDP. By contrast, the country already has a competitive advantage in financial services, at least regionally.