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Banking

MENA’s financial sector landscape: The shape of things to come

Despite Gulf coffers brimming with oil cash and aggressive expansion by some of the region’s banks, inherent barriers to regional consolidation are set to limit fundamental change in the Middle East and North Africa’s financial sector landscape over the next five years. Alex Warren reports.

By Alex Warren

THE PAST FEW YEARS have been a fine time to be a banker in the Arab world. Across the region, banks have benefited from the liquidity springing from white-hot oil prices in the Gulf, as well as a thriving retail market and enticing project finance opportunities.

The pace of growth is astounding – “frightening” in the words of one Emirates analyst. According to the latest World Bank report on the Middle East and North Africa (MENA) region, bank deposits rose at an average annual rate of 15% between 2002 and 2005, with resource-rich, labour-importing countries benefiting from more than $30 billion in new deposits every year.

Banks in Gulf Cooperation Council countries in particular have boomed. Almost all notched up record results in 2005; some doubled their profits, all enjoyed a return on equity well above 20% and in some cases in excess of 30%. A return on assets of 4% is not unusual.

Signs of a slowdown are now appearing, chiefly because of this year’s sharp corrections in Gulf stock markets, but growth elsewhere in the region – in North Africa, for instance – continues to run on, and few expect oil prices to do anything but remain high in the coming years.

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