Gulf banks flex new muscle

National Bank of Abu Dhabi is among several Arabian Gulf lenders plotting global expansion amid tough times for European peers. Jaime Puebla / The National

Banks in the Arabian Gulf are expected to compete harder for market share in booming emerging economies as their financial strength increases relative to that of humbled global banks, according to the ratings agency Standard & Poor's.

As European lenders find their ability to provide finance sapped by the effects of the euro-zone debt crisis, many Gulf banks will find opportunities to expand their international reach into new territories, said Fevzi Timucin Engin, a financial analyst at S&P.

"Developed market banks have been piling up quite a few assets in the emerging-market space," he said. "Now they're finding with their own capitalisation issues and negative operating environments at home, they have a need to find additional liquidity."

After downgrades of western banking giants by the ratings agency Moody's Investors Service last month, six banks including National Bank of Abu Dhabi (NBAD), Qatar National Bank and National Bank of Kuwait now have credit ratings equal to or greater than those of many giants of global banking.

Gulf banks have already attempted to expand their international reach this year through efforts to acquire the international franchises of western banks.

This year, Qatar National Bank made an unsuccessful bid to take control of Denizbank.

The Turkish arm of Dexia, the stricken Franco-Belgian lender, was eventually bought by Russia's Sberbank.

In April, Kuwait's Burgan Bank agreed to acquire Eurobank Tekfen from Eurobank EFG, a Greek lender.

NBAD announced the opening of its first branch in Malaysia yesterday, after the opening of offices in mainland China last month.

"We are strategically positioned to bridge Arab business interest with Malaysia and to promote bilateral trade and investments as we have a firm foothold in the UAE complemented by a strong presence in the GCC and Mena [Middle East and North Africa] regions," said Leong See Meng, the chief executive of NBAD Malaysia.

A move overseas would help Gulf banks to prevent slowing levels of growth in their home markets from affecting their income.

In its report card for the region's banking sector, S&P said that although most banks were showing signs of recovery, the picture was less rosy for the UAE's lenders, which S&P expected to show sluggish levels of lending this year.

New Central Bank regulations that seek to limit the amount banks can lend to individual companies are expected to come into effect by the end of September.

But the new limit was "not conducive to lending growth", Mr Engin said.

The UAE's banks have underwritten new loans at a snail's pace so far this year, with sector-wide loans growing at just 0.3 per cent to Dh1.07 trillion (US$291 billion) until May, according to the latest data from the Central Bank.

In addition, S&P warned that the scale of the bad debts that have afflicted Gulf banks since the financial crisis could worsen.

Bad debts stabilised in most Gulf countries last year but could re-emerge as companies that have already restructured credit facilities seek to exact more lenient terms from lending banks.

Kuwait's Global Investment House is in the midst of its second restructuring of the financial crisis, having laid off staff and shut down some of its research operations.

"If more restructured exposures don't perform … non-performing loans could rise significantly," Mr Engin said. The most likely cause of that would be if there is a "second downturn in real estate markets and collateral positions deteriorate", he said.