Are banks in the UAE, GCC building better appetite for expanding regionally?

Dubai: Gulf Cooperation Council (GCC) banks are showing a stronger appetite to grow their presence in major regional markets, particularly Turkiye, Egypt and India, attracted by improving economic conditions and better growth opportunities than in their domestic markets, Fitch Ratings says.

Several GCC banks are reportedly looking to acquire banks in Turkiye, Egypt and India.

“We believe external growth is part of some GCC banks’ strategy to diversify business models and improve profitability. By deploying capital into high-growth markets, they may be able to compensate for weaker growth in their home markets,” the rating agency said.

“Turkiye, Egypt and India each have much larger populations than the GCC, and greater potential for bank sector growth given their strong real GDP growth prospects and smaller banking systems relative to their economies.”

Their banking system assets are below 100 per cent, compared to over 200 per cent in the largest GCC markets, with only 27 per cent in Egypt, 43 per cent in Turkiye and 60 per cent in India in 2023.

GCC banks’ main exposure outside the GCC region is through subsidiaries in Turkiye and Egypt, where they had about $150 billion of assets at end of the first quarter this year.

“While these markets are the main focus for growth, there is increasing interest in India, particularly from banks from the UAE, which has strong and growing financial and trade links with India,” it added.

Why Turkiye?

GCC banks’ appetite to expand in Turkiye has increased since the country’s macroeconomic policy shift following last year’s presidential election, the rating agency said, which has reduced external financing pressures and macro and financial stability risks and recently led Fitch to revise its Turkish banking sector outlook to ‘improving’.

Fitch forecasts Turkish inflation to decrease to an average of 23 per cent in 2025 from 65 per cent in 2023, and GCC banks will probably stop using hyperinflation reporting for their Turkish subsidiaries from 2027. Together with greater Turkish lira stability, this could improve GCC banks’ returns on their Turkish operations, it added.

Interest in Egypt

Interest from GCC banks in Egypt is also gaining momentum. “We believe this is driven by Egypt’s improved macroeconomic environment, opportunities offered by the authorities’ privatisation programme, and the expansion of some GCC corporates in the country,” The agency Saif.

Fitch recently revised the outlook on its operating environment score for Egyptian banks to positive, reflecting its expectations of improved macro stability due to Egypt’s large FDI deal with the UAE, an enhanced IMF deal, increased foreign-exchange (FX) rate flexibility and greater commitment to structural reforms.

“We expect the significant improvement in the Egyptian banking sector’s net foreign assets position this year to be sustained by strong portfolio inflows, remittances and tourism receipts,” added Fitch, which forecasts inflation to fall to 12.3 per cent in June 2025 from 27.5 per cent in June 2024, which could lead to policy interest rate cuts from the fourth quarter of this year.

“The Egyptian banking market has high barriers to entry, but GCC banks may have opportunities to acquire stakes in three banks through the authorities’ privatisation programme. The expansion of GCC corporates in Egypt, particularly of UAE firms, could also support increased GCC bank presence,” it added.

“The increasing cost of acquiring banks in Turkiye, Egypt and India could weigh on GCC banks’ acquisition plans. Price-to-book multiples have increased since last year, particularly in Turkiye and India, reflecting improved macroeconomic prospects and decreased operating environment risks.”