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10 June 2023

Arab banks urged to join hands to face current global financial turmoil

Acting as a bloc would make Arab banks stronger. (CRAIG SCARR)

By Nadim Kawach

Arab banks need to overcome their fear of the global financial crisis and concentrate on efforts to strengthen co-ordination in face of an expected new world financial order, the top Arab banker said yesterday.

Adnan Ahmed Yousuf, Chairman of the Beirut-based Union of Arab Banks (UAB), said the region's nearly 470 banks should also shift their investment activity to the local market after the crisis underscored risks in world markets.

In Gulf press remarks ahead of the Arab Economic Summit in Kuwait, Yousuf called on regional heads of state to take decisions that will support the private sector in the next stage of intensified reforms in the area.

"We would like to see Arab banks take the initiative to create stronger co-ordination mechanisms to face crises or new developments and send strong messages to investors and all concerned parties that these banks are functioning strongly and closely together to deal with any problems," he said.

"We also strongly urge these banks to surpass the state of fear and anxiety and start working on activating dealings among themselves, particularly in deposit markets, considering the fact that Arab banks have remained the safe haven for all banks and institutions to reinvest surplus funds."

Yousuf said Arab banks can influence regional economies by turning their attention to the local market given their massive financial resources, which have jumped by at least 40 per cent over the past four years.

He said banks in the Arab League's 22 member countries need to explore what he described as the vast investment opportunities in the region following massive losses inflicted on hundreds of institutions worldwide by the global crisis.

"The good thing in the Arab economies, although they are relatively small compared with global economies, is that they are not vulnerable to major crises or setbacks as is the case with the economies of industrial nations," he said.

"There are vast investment opportunities in many Arab countries. If Arab banks make full use of those opportunities, there is no doubt they strongly support development programmes in the region while at the same time this will enable them to largely improve the quality of their assets.

"Arab banks are today called upon to enter the local markets with full force, whether through direct investment, offering credits or entering as partners. But Arab leaders should also facilitate this process for the banks by taking decisions at the Kuwait summit to ensure the private sector will play a more active role in the domestic economy and in the implementation of economic decisions."

Yousuf said acting as a single bloc would make Arab banks stronger and allow them to face the current crisis given their massive resources of nearly $1.7 trillion. But he also stressed the banks must also get closer to their respective central banks.

"Acting as a single bloc has become imperative in the present conditions while the banks should also strengthen co-ordination with their respective central banks after the crisis showed that most banks could face serious problems and challenges in managing short term liquidity," he said.

According to UAB, Arab banks recorded strong performance in 2007, with their combined assets surging from $1,268 billion (Dh4.65trillion) at the end of 2006 to their highest level of nearly $1,691bn, an increase of around $422bn or 33.2 per cent.

Their shareholders equity leaped from around $115.7 billion to $161 billion.

According to national data, the UAE controlled the largest assets in the region at the end of 2007, standing at around $335bn, nearly 20 per cent of the total Arab assets. Saudi Arabia had the second largest Arab banking sector at the end of 2007, with assets of nearly $286bn.

The figures showed the combined assets of banks in the Gulf Co-operation Council (GCC) totalled around $878bn at the end of 2007, more than half the Arab assets. The rise in the GCC bank assets of around $195bn in 2007 accounted for nearly 46 per cent of the increase in the combined Arab assets.

Writing in the London-based Al Hayat Arabic-language newspaper last month, Yousuf said Arab banks performed well in 2008 but are expected to suffer from a decline of up to 40 per cent in their collective earnings this year.