Business | Banking
Bankers reassess Gulf priorities
As oil prices surged and Gulf states laid out lofty strategies to diversify their economies, one international bank after another announced plans to beef up operations in the region.
- By Andrew England, Financial Times
- Published: 23:32 September 26, 2008
- Barclays Bank in Abu Dhabi. The global crisis is likely to put a damper on international banking activities in the Gulf.
- Image Credit: Ravindranath/Gulf News
Abu Dhabi: As oil prices surged and Gulf states laid out lofty strategies to diversify their economies, one international bank after another announced plans to beef up operations in the region.
The slowdown in the West seemed to give additional impetus to the trend and the Middle East was identified as a genuine growth area - a region that could help offset losses elsewhere and offer insulation from the turmoil in New York and London.
But the most recent downward cycle in the global crisis is expected to put a damper on international banks' activities in the Gulf, at least in the short term.
While the fundamentals that attracted the main players to the Gulf remain in place, bankers say, the collapse of Lehman Brothers and the shockwaves it caused will lead to greater caution and, in some cases, a reassessment of priorities.
"You have had a strategy conceived at a time of growth ... now constrained as a result of circumstances that have prevailed globally," said Mukhtar Hussain, chief executive of global banking and markets at HSBC for the Middle East and north Africa.
That would cause "some of our newer competitors" to reflect on "the pace and extent" of expected expansion, he said.
Refinement
"For different institutions, different parameters will apply. What it does mean is there will have to be a readjustment of strategy and a refinement of approach."
Bankers say it is too early to say how significant such a readjustment may be, given the unknowns still prevalent in global markets. But areas that are likely to be affected include project financing - which has already suffered as a result of the credit crunch - and risk underwriting, as international players become more averse and further tighten their belts. This in turn will lead to delays for some projects, particularly because local banks are grappling with their own liquidity squeeze.
"Like any other crisis there is risk and opportunity," said an executive at a leading international bank. "We can see the opportunity but now, immediately, it is the risk element that prevails. We tell everybody: 'Take care. Let's manage our risk more carefully.' "
The risks, he said, were associated with a continuous reduction in lending, which could lead to further speculation on a softening of real estate sectors. There was also a correlation between declines in the prices of exports such as oil, petrochemicals and steel and stock markets.
Although regional markets have picked up in recent days, many gains achieved in the first half of the year have been wiped out and notions of insulation from global turmoil have been well and truly dashed.
"Two things will drive people's reassessments," the banker said.
"The first is what happens to the level of activity here. If you are barely keeping yourself afloat in the region to start with and activity levels go down, the chances are you are not going to be able to keep up.
"The second depends on what happens globally. People are going to look at their priorities and decide where they continue to invest."
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