Arab banks' key challenge - liquidity

Arab banks have proved their ability to face financial crises but liquidity remains a key challenge to them through 2011, the region’s top banker has said.

Despite a general decline in their profits over the past two years, Arab banks are still performing well compared with the West, where many banks are still reeling under massive losses, said Adnan Yousuf, chairman of the Beirut-based Union of Arab Banks (UAB).

Yousuf, a Bahraini, said he believed the Arab banks would again perform well this year but stressed the need for merger among smaller banks and for cross-border expansion of bank operations.

“Arab banks, in general, have proven their ability to stand in face of internal and external shocks after they proceeded in adjusting their lending growth rates and preserving good capital and liquidity rates,” he wrote in the UAB’s February magazine, Arab Banker.

He said balance sheets showed most Arab banks currently have excellent capital levels, with growth of more than 10 per cent a year.

In addition to the role that Arab banks perform in development of the Arab countries, “cross border liberalization” will enable them to take their proper role on the international front, taking into consideration the huge financial capabilities and savings they possess that pave the way for a bigger role in this world, he said.

He noted that Arab banks have achieved marked progress on the international front, where 84 Arab banks were listed among the world’s top 1,000 banks in terms of assets.

“The biggest challenge facing the Arab banking sector in 2011 is the availability of liquidly, and thus choosing where to invest it. Banks search for good clients and good borrowers and that is not an easy job for all Arab banks,” he said.
“A significant challenge is that small banks formulate strategic alliances with each other or even mergers so as it can compete in local and regional markets…. another challenge is the Arab banks readiness to implement Basel III standards related to governance, stress testing, and bonuses and pensions systems even though Gulf banks surpass the Basel III criteria with respect to capital.”

Yousuf said that in order for Arab banks to further bolster their position on the global banking map, they should work on increasing their funds to achieve that goal.

“Arab banks are still facing many responsibilities for the years to come, perhaps most importantly utilizing efforts to exit permanently from the repercussions of the global financial crisis, in cooperation with Arab central banks and governments,” he said.

“This in addition to formulating Arab banking blocs, creating stronger cooperative mechanism to face any future crises or developments, interacting more effectively with international legislative and regulatory organizations and bodies, contributing to formulating international banking regulations and systems, and seeking to direct the global investments into the Arab countries.”

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