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AfricaNovember 4 2004

Arab banks’ profits soar

Political troubles have had little impact on the region’s banking sector, judging by this year’s Top 100 ranking.
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The Arab banking world, particularly in the oil-rich Gulf states, is in the midst of a boom. Despite political uncertainties, profits have ballooned. The Banker’s Top 100 Arab banks, based on 2003 results, showed 6.5% growth in aggregate Tier 1 capital to $53.9bn, 6.7% growth in aggregate assets to $654bn and 16.4% growth in aggregate pre-tax profit to $8.8bn.

Gulf banks continued to produce strong results. Saudi Arabia’s 10 banks, which account for 27.1% of the total Tier 1 capital and 22.1% of the total assets of the Top 100, produced a 16.3% increase in pre-tax profits to $3.3bn on the heels of a 6.1% uplift in the previous year. The seven Kuwaiti banks achieved a 21.1% growth in pre-tax profits to $1.2bn. The region has an aggregate return on capital (Tier 1) of 16.3% and 1.3% aggregate return on assets.

This growth in profits has continued in 2004 based on the nine-month results so far announced, partly due to the rises in oil prices and partly because of the continued development of retail banking.

However, with this increased activity comes increased risk – both of borrower default and of commercial fraud. Saudi Arabia’s banks have jointly established a credit agency to help combat these risks. Current estimates from the kingdom suggest that 140,000 individuals are in default for an aggregate sum of SR1.3bn ($347m). In Oman, non-performing loans in 2003 for locally-incorporated banks rose to 12.8% of total gross loans. A recent Standard & Poor’s report on the Omani banking sector concluded that lending concentrations and asset quality were major causes for concern.

The listing this year includes 52 banks from the Gulf countries. Of all the banks in our listing, only one, National Bank of Oman, posted a pre-tax loss for the year ($131m); 22 others had pre-tax profit figures down on the previous year – only four of which were Gulf banks.

In September 2004, BankMuscat, Oman’s largest bank, concluded a merger with National Bank of Oman, following the latter’s 2003 pre-tax loss and a number of senior personnel changes. BankMuscat will increase its market share to 52% on completion of the merger in January 2005.

Elsewhere in the region, M&A activity seems to be increasing. In August, Ahli United Bank in Bahrain announced its purchase of a 40% stake in al-Ahli Bank of Qatar. National Bank of Kuwait acquired a 20% stake in Qatar Grindlays Bank, renamed International Bank of Qatar, plus the contract to run the bank.

Other banks’ activity seems to be confined to opening new branches in adjacent states in the region or establishing joint venture banks in countries like Syria. In 2003/04, Syria granted such licences to Jordan’s Housing Bank for Trade & Finance and to three Lebanese banks: BLOM, in partnership with the IFC; Banque Europeénne pour le Moyen-Orient, in partnership with Banque Saudi Fransi; and Banque Audi.

However, there is no indication that banks in the region are seeking to expand outside, other than that of BankMuscat cited above. On the contrary, Arab Banking Corporation divested itself of its two major overseas holdings: it sold International Bank of Asia in Hong Kong to Taiwan’s Fubon Financial in late 2003, and sold Banco Atlántico in Spain to Banco Sabadell in March this year.

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