Regional banks safe despite global financial crises

Most of their assets are in US dollars

Arab banks have remained immune to financial crises that have swept Europe and other countries as most of their assets are in US dollars and are expected to perform even better in 2013, according to a top Arab banker.

Although most major economies have recovered from the crises, the year 2013 will be challenging economically and financially, where the difficult economic situations in the United States and the eurozone overshadow the global economy, said Adnan Yousuf, chairman of the Beirut-based Union of Arab Banks (UAB), which groups most banks in the Arab countries.

However, all indications point to the fact that this economy will enter a new stage, especially during the second half of next year, he said.

Citing international projections, he said global economic growth was expected to have recorded 3.1 per cent in 2012 and could be around 3.4 per cent in 2013.

The IMF expects the non-oil Arab countries to achieve a growth by two per cent in 2102, to rise between 3.6 and 4 per cent on average in 2013. As for Arab Gulf oil states, they are expected to register an average growth rate of 6 per cent in 2013.

"Amid this global economic outlook, the UAB database shows that Arab banks, despite what's happening regionally and internationally, are generally still safe from all these developments, and have not been significantly affected as other economic sectors," Yousuf said in an article published in the December edition of UAB's magazine.

"Most of the Arab banking sectors have adapted to the evolving conditions, or even started to go beyond its implications, as they retain excellent capitalisation ratios, and a very good level of liquidity where the majority of the Arab banks have adjusted its lending growth rates. Despite the decline in profits from a number of Arab banks, these banks still achieve good profitability ratios," he said.

He noted that Arab banks achieved good growth rates during the first nine months of 2012 compared to the end of the year 2011. UAE banks' assets grew by 6.1 per cent while there was growth of 6.8 per cent in Saudi banks, 9.9 per cent in Oman, 13.1 per cent in Qatar and between three and seven per cent in other Arab banks.

"In addition to these reassuring indicators, expectations of higher assets and profitability of Arab banks in 2013 are based on the high volume of funding expected to be offered by banks to governments in order to implement major projects and those related to infrastructure, as well as trade finance, which is recovering as a result of the increasing volume of trade between Arab countries on the one hand and between Asia and Latin America on the other," he said.

Yousuf said Arab banks have resorted to hedge funding over the past years due to the aggravated implications of sovereign debt and US crises, where many of them, especially Gulf banks, sharply raised their capital.

This is in addition to the fact that most Arab banks deal in dollars. Their exposure to the euro is around 15 per cent compared to 85 per cent in the US dollar," he said.

"Another aspect is that Arab banks play an important economic and development role, which is regarded as the primary and main funding tool for Arab economies and economic, investment, development and corporate projects and even the consumption sector in the Arab countries," he said.

According to Yousuf, the Arab banking sector is considered the largest and most important Arab financial sector, compared to other financial sectors such as stock exchanges, insurance, investment funds, pension funds and others, both in the size of its assets or financial resources and financing.

"Therefore, we called on Arab banks, and we renew this call for 2013, to play a greater role in the development of Arab economies, where the global economic crisis proved that Arab economies are the least affected by that crisis," he said.

"For our Arab banks to occupy a leading position on the map of world banking and continue to perform well during 2013, we must work to increase their funds. Small banks should seek to form strategic alliances with each other or even merge to become competitive in the local, regional and international markets,"  Yousuf added.


 

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