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25 June 2024

Cash-rich Gulf banks replacing European banks as major acquirers in Mena: S&P

By Staff

Banks in the oil-rich countries of the Gulf Cooperation Council (GCC) are becoming active buyers again of stakes in banks in the Middle East and North Africa (Mena) and even farther afield, ratings agency Standard & Poor’s said today.

As acquirers in Mena, Gulf banks are taking the place of European banks that are shoring up their balance sheets in the aftermath of the financial and sovereign crises.

“Banks in the Gulf have capital to spare, and are literally capitalising on their traditional strengths such as strong capital positions, healthy liquidity, and supportive shareholders to pursue acquisitions in Mena emerging-market countries, where opportunities for long-term growth exist,” said Standard & Poor’s credit analyst Timucin Engin.

Standard & Poor’s Ratings Services has noted a sharp rebound in acquisitions by Gulf banks in 2012, especially in Turkey and Egypt, in a report published today, ‘Exit European Banks, Enter Gulf Banks As Major Acquirers In The Region’s Emerging Markets.’

“Looking at the prices of the announced and realised deals, we observe that the price of a controlling stake in a financial institution is significantly lower than before the crisis, creating affordable access for long-term business operators,” the report states.

“We look at the potential impact on the ratings of issuers on a case by case basis. Potential rating movements depend on a conflux of factors, such as how well capitalised the acquirers will be post-acquisition, how well they will manage the credit exposures arising from these expansions, and whether they will be able to reap potential benefits of diversification,” said Engin.

Growth into higher economic risk countries could boost a bank’s risk-adjusted capital requirements, lowering S&P’s assessment of its capital adequacy. However, Gulf banks generally have supportive shareholders and strong internal capital generation which might serve as a cushion, the agency noted.

Furthermore, according to S&P, these transactions are opportunities for diversification into markets with large unbanked populations, which can provide for longer-term growth. A negative factor is that, excluding a few ones, banks in the Gulf usually lack lending and credit underwriting experience outside their region, which S&P views as a significant risk factor.